people,
our foundation.
highlights
YEAR ENDED AUGUST 31
(thousands of dollars except share amounts)
Revenue
Operating income before corporate costs
Adjusted EBITDA
Total assets
Total debt
Other liabilities
Shareholders’ equity
Total liabilities and shareholders’ equity
Cash, end of year
Repayment of long-term debt
2018
130,518
32,377
27,542
262,555
38,274
96,165
128,116
262,555
21,119
63,367
2017
2016
2015
105,840
79,802
49,293
25,192
20,109
169,953
36,527
65,055
68,371
169,953
17,934
20,681
18,586
14,095
147,978
40,477
62,816
44,685
147,978
14,370
3,270
13,319
9,161
114,597
25,410
45,108
44,079
114,597
6,515
8,400
2014
42,576
11,256
7,542
56,109
9,660
20,427
26,022
56,109
2,750
11,258
Common shares outstanding at year end
60,640,511
51,001,140
45,225,050
44,958,383
39,551,486
REVENUE
(in $ millions)
OPERATING INCOME
BEFORE CORPORATE COSTS
(in $ millions)
ADJUSTED EBITDA
(in $ millions)
150
120
90
60
30
35
30
25
20
15
10
5
30
25
20
15
10
5
2014 2015
2016
2017
2018
2014 2015
2016
2017
2018
2014 2015
2016
2017
2018
Building a bright
future on a strong
foundation.
People Corporation is a national provider of group benefits, group retirement and
human resource solutions. Our fundamental focus has not changed in the 11 years’
since People Corporation was founded. In that time, we have built a business of over
$130 million in revenue. Today, we are operating from a position of strength as we
prepare for the future.
As the leading TPA and group benefits consulting firm in Canada, we have:
• proven operating and integration capabilities;
• a demonstrated track record of organic growth; and
• deep corporate development expertise and experience.
Our team consistently provides our clients with a superior experience and these
fundamental strengths position us to further expand and drive shareholder returns by
leveraging the foundation we have assembled.
1
4key areas of focus in 2018
Sales & Service
Products
During 2018, we further enhanced our sales &
service functions, segmenting customers into
small, medium and enterprise groups with
dedicated leadership. We also launched an
enterprise Business Development Solutions
Group to address large market opportunities.
Our focus during 2018 was on leveraging
the Company’s scale and product suite on a
more integrated basis. Our team successfully
introduced two key products across internal
and external distribution networks. We also
built and piloted disability management and
HR solutions.
Strategic Acquisitions
Integration
In 2018, we welcomed four organizations to
our group. On the consulting side,
we welcomed members from Lane Quinn
Benefit Consultants and Silverberg &
Associates Inc. We also added one third
party administrator, Assurances Dalbec Ltée
(“Dalbec”), and one group retirement firm,
Rockwater Benefits Company.
In 2018, we successfully continued to
integrate the operations of acquired
companies including Sirius Benefit Plans and
Dalbec. We also consolidated our office into
a 43,000 square foot state of the art facility
in Winnipeg. We are committed to generating
returns by looking for opportunities for the
measured integration of our platform.
2
PEOPLE CORPORATION
2018 ANNUAL REPORT
PEOPLE CORPORATION2018 ANNUAL REPORT TO THE SHAREHOLDERS OF PEOPLE CORPORATION
tomorrow, we position
‘‘By planning for
long-standing solutions
with impactful and
ourselves and the
organizations we support
that anticipate our
changing ecosystems, to
better attract and retain
what drives us all – people.
For centuries, people have been the foundation of any organizational structure – that
has not changed regardless of the organization’s purpose. Instead, what is changing
at an accelerated rate is the social and business ecosystem that surrounds people
with increasingly diverse needs. So what does this mean?
Today, an organization must adapt to the hyper-connected world we live in. Lives
that used to be delineated into the professional and personal, have now merged.
Communication and information, once limited, is boundless and instant. And so are
the expectations of the people that make up any organization. These social and
business ecosystems, previously separated, have now converged, facilitated by shifts
and advancements in such areas as technology, connectivity, work place culture, and
organizational design. For many organizations, this convergence remains difficult to
navigate. Organizations that adapt and transform to meet the expectations of their
diverse people in a world of convergence will be rewarded with a strong foundation of
people to drive the organization’s purpose.
This is how People Corporation helps. We provide employee benefits, group
retirement and talent management solutions that concentrically surround an
organization’s HR strategy, in turn underpinning its holistic strategy. Our solutions
consider and reflect the employee and organization’s evolving needs in this new
world. We don’t simply consider the requirements of today, but we anticipate and
plan for the convergent needs of tomorrow. By planning for tomorrow, we position
ourselves and the organizations that we support with impactful and long-standing
solutions that anticipate our changing ecosystems, to better attract and retain what
drives us all — people.
2018 marked another successful year that reflects such planning and positioning.
Our achievements exemplify our commitment to our existing and future clients, the
development of our people, and reflect our own transformational initiatives:
• PEOPLE FORWARD: Developed in consultation with a broad array of internal
and external stakeholders, our strategic plan, branded People Forward is our
critical five-year blueprint that will govern our ongoing transformation to meet the
diversified needs of solution-minded clients.
• ECONOMIC SCALE: We continued to strengthen our geographic position in
all provinces across Canada through targeted acquisitions and organic growth
initiatives, yielding economic scale to facilitate differentiated product and
partnership development.
• PRODUCT EXPANSION: Continued to expand and service all business market
segments and industries with a breadth and depth of product solutions to support
our clients’ organizations’ risk mitigation, talent acquisition and retention strategies.
• PROCESS TRANSFORMATION: The hiring of a Chief Information Officer and
the establishment of a Transformation Office will provide governance over our
technology integration road map and provide structure to ensure our strategic plan
priorities are implemented and measured against our established timelines.
• CLIENT COMMITMENT: Above all, our focus remained, and will remain, our clients.
Our collective transformational initiatives help us enhance our product and solution
portfolio to meet the clients’ needs today, and more importantly their needs for
tomorrow. We play a role in the full life cycle of the employee – from recruitment to
retirement, and our evolution reflects the clients we service.
CEO AND CHAIRMAN’S MESSAGE TO SHAREHOLDERS
FOR THE YEAR ENDED AUGUST 31, 2018
3
CEO AND CHAIRMAN’S MESSAGE TO SHAREHOLDERS FOR THE YEAR ENDED AUGUST 31, 2017 Our collective achievements have once again yielded record fiscal results in 2018:
• Revenue: Grew 23% from prior year to $130.5 million.
• Adjusted EBITDA: Grew 37% from prior year to $27.5 million.
• Organic Revenue Growth: Grew 10.1% from prior year.
• Clients: Serviced over 1.4 million Canadians across Canada.
• Our People: Over 800 professionals across more than 47 locations
throughout Canada.
• Balance Sheet: Remains strong with ongoing capacity to support
transformative acquisitions and strategic growth investments.
As one of the fastest growing publically-traded Canadian company in our
industry, our mantra remains unwavering – Clients Come First. Our operational
and financial performance is the strongest testament of our success as it reflects
that clients coast-to-coast continue to choose People Corporation as their
strategic business partner, regardless of their size or sector.
As we navigate new territory, our commitment is to maintain our trajectory,
to leverage the benefits of being a national organization and to develop our
people with the centralized focus of providing our clients with tomorrow’s
solutions, today. Thank you to our clients, our employees, our partners, our
Board and our shareholders for continuing to support us. We embrace your
commitment in us and in doing so, we will continue to deepen and broaden
our capabilities so that with each passing day, more and more individuals can
Experience the Benefits of People.
Sincerely,
Laurie Goldberg
Chairman and CEO
4
PEOPLE CORPORATION2018 ANNUAL REPORT AUX ACTIONNAIRES DE PEOPLE CORPORATION :
En planifiant pour
demain, nous nous
positionnons nous-mêmes et
les organisations que nous
soutenons avec des solutions
‘‘
qui ont un impact, qui sont
durables et qui s’appuient
sur l’anticipation de nos
écosystèmes changeants,
pour mieux attirer et
retenir ce qui nous
motive tous : les gens.
Depuis des siècles, les gens sont la base de toute structure organisationnelle; cela n’a pas
changé, quel que soit le but de l’organisation. Au lieu de cela, ce qui change à un rythme
accéléré, c’est l’écosystème social et commercial qui entoure des personnes aux besoins de
plus en plus diversifiés. Alors, qu’est-ce que cela signifie?
Aujourd’hui, les organisations doivent s’adapter au monde hyperconnecté dans lequel nous
vivons. Les vies qui étaient auparavant délimitées entre le professionnel et le personnel
ont maintenant fusionné. La communication et l’information, qui étaient autrefois limitées,
ne connaissent dorénavant plus de limites et sont instantanées. Il en va de même pour les
attentes des personnes qui composent toute organisation. Ces écosystèmes sociaux et
commerciaux, auparavant séparés, ont maintenant convergé, facilités par des changements
et des progrès dans des domaines tels que la technologie, la connectivité, la culture du
milieu de travail et la conception organisationnelle. Pour de nombreuses organisations,
cette convergence demeure difficile à gérer. Celles qui s’adaptent et se transforment pour
répondre aux attentes de leur personnel diversifié dans un monde de convergence seront
récompensées par une base solide de personnes qui soutiennent l’objectif de l’organisation.
C’est comme ça que People Corporation aide. Nous offrons des avantages sociaux aux
employés, des régimes de retraite collectifs et de gestion des talents qui entourent la
stratégie des ressources humaines de l’organisation, ce qui sous-tend sa stratégie holistique.
Nos solutions prennent en considération et reflètent l’évolution des besoins des employés et
des organisations dans ce nouveau monde. Nous ne nous contentons pas de tenir compte
des exigences d’aujourd’hui, mais nous anticipons les besoins convergents de demain et
planifions en conséquence. En planifiant pour demain, nous nous positionnons nous-mêmes
et les organisations que nous soutenons avec des solutions qui ont un impact, qui sont
durables et qui s’appuient sur l’anticipation de nos écosystèmes changeants, pour mieux
attirer et retenir ce qui nous motive tous : les gens.
2018 a marqué une autre année réussie qui reflète cette planification et ce positionnement.
Nos réalisations illustrent notre engagement envers nos clients actuels et futurs et le
perfectionnement de nos employés et ils reflètent nos propres initiatives de transformation :
• LES GENS EN AVANT : Élaboré en consultation avec un large éventail d’intervenants
internes et externes, notre plan stratégique, intitulé Les Gens en avant, est notre plan
quinquennal essentiel qui régira notre transformation continue afin de répondre aux
besoins diversifiés de nos clients axés sur les solutions.
• ÉCHELLE ÉCONOMIQUE : Nous avons continué à renforcer notre position géographique
dans toutes les provinces du Canada au moyen d’acquisitions ciblées et d’initiatives de
croissance interne, ce qui nous permettra de réaliser des économies d’échelle pour faciliter
le développement de produits et de partenariats différenciés.
• EXPANSION DE PRODUIT : Poursuite de l’expansion et de la prestation de services à tous
les segments du marché et à tous les secteurs d’activité grâce à une gamme complète de
solutions de produits à l’appui de nos clients en matière de stratégies d’atténuation des
risques, d’acquisition et de rétention en poste des talents.
• TRANSFORMATION DU PROCESSUS : L’embauche d’un directeur de l’information et
l’établissement d’un bureau de transformation assureront la gouvernance de notre feuille de
route en matière d’intégration de la technologie et fourniront la structure nécessaire pour
assurer la mise en œuvre et la mesure des priorités de notre plan stratégique en fonction
des échéanciers établis.
MESSAGE DU CHAIRMAN ET PDG AUX ACTIONNAIRES POUR L’ANNÉE
FISCALE SE TERMINANT AU 31 AOÛT 2018
5
• ENGAGEMENT ENVERS LE CLIENT : Par-dessus tout, nous avons continué
à nous concentrer sur nos clients et nous continuerons à le faire. Nos initiatives
collectives de transformation nous aident à améliorer notre portefeuille de
produits et de solutions afin de répondre aux besoins actuels et surtout
futurs de nos clients. Nous jouons un rôle dans le cycle de vie complet de
l’employé : du recrutement à la retraite, et notre évolution reflète les clients
que nous servons.
Nos réalisations collectives ont encore une fois produit des résultats financiers
records en 2018 :
• Bénéfices : Augmentation de 23 % par rapport à l’exercice précédent pour
atteindre 130,5 millions de dollars.
• BAIIA ajusté : Augmentation de 37 % par rapport à l’exercice précédent pour
atteindre 27,5 millions de dollars.
• Croissance organique des bénéfices : Croissance de 10,1 % par rapport à
l’exercice précédent.
• Clients : Nous avons servi plus de 1,4 million de Canadiens partout au Canada.
• Nos gens : Plus de 800 professionnels répartis dans 47 établissements
au Canada.
• Bilan : Un bilan toujours solide et une capacité continue à soutenir les
acquisitions transformatrices et les investissements stratégiques de croissance.
En tant que l’une des sociétés canadiennes cotées en bourse dont la croissance est
la plus rapide de notre industrie, notre mantra demeure inébranlable : Les clients
passent avant tout. Notre rendement opérationnel et financier est le meilleur
témoignage de notre succès, car il reflète le fait que nos clients, d’un océan à
l’autre, continuent de choisir People Corporation comme partenaire d’affaires
stratégique, peu importe leur taille ou leur secteur.
Au fur et à mesure que nous naviguons sur de nouveaux territoires, notre
engagement est de maintenir notre trajectoire, de tirer parti des avantages d’être
une organisation nationale et de développer notre personnel en mettant l’accent
sur l’offre centralisée des solutions de demain à nos clients, aujourd’hui. Merci à
nos clients, à nos employés, à nos partenaires, à notre conseil d’administration et à
nos actionnaires de continuer à nous appuyer. Nous apprécions votre engagement
envers nous et, ce faisant, nous continuerons d’approfondir et d’élargir nos
capacités afin que chaque jour qui passe, de plus en plus de personnes puissent
Expérimenter les avantages des gens.
Cordialement,
Laurie Goldberg
Présidente et directrice générale
6
PEOPLE CORPORATION2018 ANNUAL REPORT PEOPLE CORPORATION
Management’s Discussion & Analysis
(Expressed in Canadian Dollars)
For the Quarter and Year ended August 31, 2018
This Management’s Discussion and Analysis (“MD&A”) has been prepared with an effective date
of November 29, 2018 and provides an update on matters discussed in, and should be read in
conjunction with the audited annual consolidated financial statements of People Corporation (the
“Company”), including the notes thereto, as at and for the year ended August 31, 2018, which were
prepared in accordance with International Financial Reporting Standards (“IFRS”), unless otherwise
specified. All amounts contained within this MD&A are in Canadian dollars unless otherwise
specified. Amounts set forth in this MD&A are stated in thousands of dollars except for per share,
issued and outstanding share data, and unless otherwise noted.
ADDITIONAL INFORMATION
Additional information regarding the Company is available on SEDAR at www.sedar.com and on the
Company’s website at www.peoplecorporation.com.
FORWARD‑LOOKING STATEMENTS
This MD&A contains “forward-looking statements” within the meaning of applicable securities laws,
such as statements concerning anticipated future events, results, circumstances, performance or
expectations that are not historical facts. Use of words such as “may”, “will”, “expect”, “believe”,
“intends”, “likely”, or other words of similar effect may indicate a “forward-looking” statement.
These statements are not guarantees of future performance and are subject to numerous risk
factors, including those described in the Company’s publicly filed documents (available on
SEDAR at www.sedar.com) and in this MD&A under the heading “Risk Factors”. Those risk
factors include the ability to maintain profitability and manage growth, reliance on information
systems and technology, reputation risk, dependence on key clients, reliance on key professionals
and general economic conditions. Many of these risk factors can affect the Company’s actual
results and could cause actual results to differ materially from those expressed or implied in
any forward-looking statement made by the Company or on its behalf. Given these risk factors,
investors should not place undue reliance on forward-looking statements as a prediction of actual
results. All forward-looking statements in this MD&A are qualified by these cautionary statements.
These statements are made as of the date of this MD&A and, except as required by applicable
law, the Company undertakes no obligation to publicly update or revise any forward-looking
statement, whether as a result of new information, future events or otherwise. Additionally, the
Company undertakes no obligation to comment on analyses, expectations or statements made
by third parties in respect of the Company, its financial or operating results or its securities.
Readers are cautioned that the following terms used herein and other similar terms do not have
standardized meanings as prescribed by IFRS and may not be comparable to similar measures
presented by other companies. In this MD&A: “Standardized EBITDA” means net income before
finance expense, income tax expense, depreciation and amortization; “REI” means retained
economic interest, which represents the earnings attributable to vendors and/or principals
of acquired companies based on prescribed formulas; “Adjusted EBITDA before REI” means
Standardized EBITDA before acquisition, integration and reorganization costs, share-based
compensation expense, compensation-based REI and equity-based REI; “Adjusted EBITDA” means
Standardized EBITDA net of REI before acquisition, integration and reorganization costs and share
based compensation expense; “Operating Income before Corporate Costs” means Adjusted
EBITDA before corporate costs; and “Corporate Costs” and “Operating Working Capital”,
7
MANAGEMENT’S DISCUSSION & ANALYSIS FOR THE QUARTER AND YEAR ENDED AUGUST 31, 2018 have the meanings hereinafter set out. Further, readers are cautioned that Standardized EBITDA,
Adjusted EBITDA before REI, Adjusted EBITDA and Operating Income before Corporate Costs
should not replace net income or loss or cash flows from operating, investing and financing activities
(as determined in accordance with IFRS), as an indicator of the Company’s performance. See the
“Non-IFRS Financial Measures” section for further commentary.
8
PEOPLE CORPORATION2018 ANNUAL REPORT
TABLE OF CONTENTS
FINANCIAL HIGHLIGHTS ................................................................................................................................11
BUSINESS OVERVIEW .................................................................................................................................... 12
Consulting Solutions ...................................................................................................................................14
Benefit Solutions ..........................................................................................................................................16
Human Resource Solutions ...................................................................................................................... 17
Shared Services ............................................................................................................................................ 17
BUSINESS ENVIRONMENT AND STRATEGY.........................................................................................18
OVERVIEW OF OPERATING PERFORMANCE ......................................................................................19
Notable Milestones ......................................................................................................................................19
Growth Through Acquisitions ............................................................................................................... 20
OUTLOOK .............................................................................................................................................................21
NON-IFRS FINANCIAL MEASURES ...........................................................................................................21
OVERVIEW OF FINANCIAL PERFORMANCE ....................................................................................... 22
Adjusted EBITDA ......................................................................................................................................... 22
Operating Income Before Corporate Costs .....................................................................................24
SELECTED ANNUAL INFORMATION .......................................................................................................25
Revenue ..........................................................................................................................................................25
Personnel and Compensation Expenses ...........................................................................................26
General and Administrative Expenses................................................................................................. 27
Depreciation and Amortization Expense ........................................................................................... 27
Occupancy Costs ........................................................................................................................................28
Administration Fees ....................................................................................................................................28
Finance Expenses .......................................................................................................................................28
Public Company Costs ..............................................................................................................................29
SELECTED QUARTERLY INFORMATION .................................................................................................29
LIQUIDITY AND CAPITAL RESOURCES ................................................................................................. 30
Contractual Obligations ........................................................................................................................... 30
Cash Flows ......................................................................................................................................................31
Capital Management .................................................................................................................................. 32
Working Capital ........................................................................................................................................... 32
Credit Facilities .............................................................................................................................................33
Share Capital .................................................................................................................................................34
Contingencies ...............................................................................................................................................34
RISK FACTORS ................................................................................................................................................... 35
CRITICAL ACCOUNTING POLICIES AND ESTIMATES........................................................................39
SEASONALITY ....................................................................................................................................................41
OFF-BALANCE SHEET ARRANGEMENTS ...............................................................................................41
FINANCIAL INSTRUMENTS...........................................................................................................................42
9
MANAGEMENT’S DISCUSSION & ANALYSIS FOR THE QUARTER AND YEAR ENDED AUGUST 31, 2018 10
PEOPLE CORPORATION2018 ANNUAL REPORT The Company is primarily involved in the delivery of employee group benefit consulting, third-party
benefits administration services, group retirement consulting and human resource consulting to help
companies recruit, retain, and reward employees. With a growing national footprint, the Company
is bringing together leading consultants in the industry to offer innovative and customized product
solutions to clients. The Company is listed on the TSX Venture Exchange (“TSX‑V”) under the
symbol “PEO”.
FINANCIAL HIGHLIGHTS
The Company’s financial results for the three and twelve months ended August 31, 2018 fully reflect
the effect of last year’s acquisition of Sirius Benefit Plans Inc. (“Sirius”) and Skipwith & Associates
Insurance Agency Inc. (“Skipwith”) and organic growth initiatives. The effect of the previously
announced acquisition of the business operations of Assurance Dalbec Ltée (“Dalbec”), Rockwater
Benefits Company Ltd. (“Rockwater”), Lane Quinn Benefit Consultants Ltd. (“Lane Quinn”) and
Silverberg & Associates Inc. (“Silverberg”) are reflected in the current period.
Revenue
Adjusted EBITDA
Adjusted EBITDA per share (Basic)
Net income
Net income (loss) per share (Basic)
Net income (loss) per share (Diluted)
FOR THE
THREE MONTHS ENDED
FOR THE
YEAR ENDED
AUG 31, 2018
AUG 31, 2017
AUG 31, 2018
AUG 31, 2017
$
$
$
$
$
$
36,279.5
7,744.9
0.138
$
$
$
(9,478.6) $
(0.169) $
(0.169) $
28,927.0 $
130,518.1
$
105,840.0
5,718.4 $
27,542.0 $
20,109.0
0.112
242.1
0.005
0.005
$
$
$
$
0.507 $
0.400
(6,920.6) $
3,478.8
(0.127) $
(0.127) $
0.069
0.068
For the three months ended August 31, 2018, the Company experienced revenue growth of $7,352.5
(25.4%). Organic growth of $3,057.2 (10.6%) was recognized primarily from gaining new clients,
increasing product and service penetration with existing clients and natural inflationary factors. The
Company recognized acquired growth of $4,295.3 (14.8%) resulting from the acquired operations of
Dalbec, Rockwater, Lane Quinn and Silverberg.
Quarterly organic growth rates can vary due to timing of certain revenue streams and the effect of
acquisitions and as such, the Company believes annual organic growth is a better reflection of the
Company’s organic growth rate.
Adjusted EBITDA for the three months ended August 31, 2018 was $7,744.9, representing an increase
of $2,026.5 (35.4%), as compared to the same period in fiscal 2017. Growth in Adjusted EBITDA
for the three month period was primarily driven by contribution from acquired operations and the
increase in fourth quarter revenue, partially offset by increases in variable compensation expenses
tied directly to the higher revenue, expanded leadership to accommodate integration and future
growth, and the continued investment in recently-hired benefit consultants and related support
costs incurred to drive organic growth.
11
MANAGEMENT’S DISCUSSION & ANALYSIS FOR THE QUARTER AND YEAR ENDED AUGUST 31, 2018 For the three months ended August 31, 2018, the Company reported a Net income (loss) of
$(9,478.6), a decrease of $9,720.7 mainly resulting from a revaluation of non-controlling interest
put options and contingent acquisition consideration obligations, an increase in amortization of
acquired intangible assets and depreciation of leasehold improvements, an increase in acquisition,
integration and reorganization expenses; partly offset by increases related to acquired operations
and organic growth.
For the year ended August 31, 2018, the Company experienced revenue growth of $24,678.1 (23.3%).
The Company recognized acquired growth of $13,941.6 (13.2%) resulting from acquired operations
primarily attributable to revenues from Sirius, Dalbec, Lane Quinn, and to a lesser extent, Skipwith
and Rockwater. The acquisition of Silverberg occurred late in the fourth quarter resulting in a less
significant impact in the twelve month period. Organic growth of $10,736.5 (10.1%) was primarily
due to factors similar to those affecting the three month period.
Adjusted EBITDA for the year ended August 31, 2018 was $27,542.0, representing an increase of
$7,433.0 (37.0%), as compared to the same period in fiscal 2017 resulting from organic growth
and acquired operations, including, Sirius, Dalbec, Lane Quinn and to a lesser extent, Skipwith,
Rockwater, and Silverberg.
For the year ended August 31, 2018, the Company reported a Net income (loss) of $(6,920.6), a
decrease of $10,399.4 from fiscal 2017. Net income (loss) and comprehensive income has decreased
as compared to the prior year as a result of an increase in finance expenses of $10,946.9 related to
changes in estimates of non-controlling interest put options and contingent consideration obligation,
as well as an increase in depreciation and amortization of $2,207.7, acquisition, integration and
reorganization costs of $3,721.6 and income tax expense of $1,503.7; offset partially by an increase
in adjusted EBITDA of $7,433.0 as discussed above.
BUSINESS OVERVIEW
The Company delivers employee group benefit consulting, third-party benefits administration
services (including claims processing, disability management and administration services), group
retirement services (including consulting and advisory services), and human resource consulting
services to help companies recruit, retain and reward employees. The Company achieves this
through approximately 800 professionals and support staff with 47 offices (includes 19 satellite
offices) located across Canada where the Company is registered to do business in all 10 provinces
and 3 territories. The Company earns revenues from a diverse base of clients in various industries.
The Company maintains a corporate strategic plan, a financial plan and an ongoing annual planning
process that enables the continued growth and execution of the strategy aligned with its vision. The
Company’s priority is the continued profitable expansion of existing operations through a focus on
organic growth and the acquisition of synergistic companies with a view to maximize value for its
stakeholders: i) shareholders, ii) clients, iii) acquisition partners, and iv) employees. The Company
has financial and management resources in place to execute these priorities.
12
PEOPLE CORPORATION2018 ANNUAL REPORT The Company is organized in order to emphasize integration of all of its practice areas, which are
as follows:
The Company has offices across Canada; each led by experts and backed by strong executive
management and capital resources. The Company’s diverse team of experienced consultants have
industry-specific expertise and can provide businesses with insight to customize an innovative suite
of services specific to their business requirements.
While the Company continues to go to market with the various brands attained through acquisition,
the Company is organized in such a way so as to leverage the capabilities of the entire organization.
People Corporation can help businesses attract the right talent for the job and provide the right
incentives to motivate employees to excel, enabling client businesses to prosper.
People Corporation helps businesses:
Attract
Reward
Retain
The Company’s employee benefit, group retirement and human resource
practices are led by experts who understand a client’s business and can help
a client attract the best people for their industry, helping position them as
top employers.
Proprietary solutions offered by the Company’s employee group benefit
consulting, third party benefits administration, group retirement consulting,
group retirement advisory services, claims processing, disability management
and administration services ensures that a client’s staff has access to health,
wellness, dental, and retirement plans that make financial sense for their
families, as well as for the client’s business.
The Company can help make a client’s organization a place where the best
people will want to build their careers while also ensuring cost containment for
the client’s benefit, HR and group retirement plans.
13
MANAGEMENT’S DISCUSSION & ANALYSIS FOR THE QUARTER AND YEAR ENDED AUGUST 31, 2018 Whether a client needs a simple benefits package or a comprehensive solution, the Company’s
experts can customize a program for its clients’ unique needs.
Expertise
The Company’s consultants are recognized industry leaders who can create
value for a client’s organization. Through the experience of working with
hundreds of clients, the Company’s consultants have developed broad, as well
as specialized, product, insurance and industry expertise.
Custom Solutions
The Company’s broad range of innovative and proprietary group benefit
solutions, group retirement and disability solutions can be tailored to suit
organizations of any size, in any sector. This is achieved through the Company’s
partner relationships, its ability to leverage its various systems and platforms
and through the expertise of its consultants and staff.
Industry-Leading
Pricing
As a national provider, the Company’s buying power allows it to offer clients
the best products on the best terms.
Independent
Guidance
The Company’s expert advice is unbiased and independent. The Company
works with all major insurers to provide clients with the best customized
solution for its clients’ businesses and people.
National Servicing With offices across the country, the Company can provide national clients with
service at a local level.
Below is a summary of the Company’s various operating areas:
Consulting Solutions
Within the Consulting Solutions division, the Company focuses on providing a unique employee
benefit, group retirement and human resource solution that is customized to individual client
needs. The consulting advice primarily includes plan review and plan design, plan recommendations,
alternative funding methods, plan set up, employee communications, wellness programs and
plan marketing.
The Company’s consultants are divided into teams that focus independently of each other on
corporate benefits, public sector benefits, association benefits, student benefits and alternative
funding methods including self-insurance. While each team goes to market independently, the
Company has an advisor group that brings the skills of the different teams together and therefore,
the Company is able to proactively approach client assignments in a manner that brings the
expertise from various consultants together where necessary.
The Company assumes no underwriting risk as the insurance policies are underwritten by the
insurance carrier.
Bencom Financial Group Services Inc.
Bencom Financial Services Group Inc. (“Bencom”), established in 1982, provides group benefit,
group retirement and individual benefit advisory services to mid-market corporate clients
primarily located in Ontario. Bencom’s office is located in Kitchener.
Buffett Taylor & Associates
Buffett Taylor & Associates (“Buffett Taylor”), established in 1981, provides group benefit
advisory services specializing in the public sector and not-for-profit marketplace, with specific
expertise with municipal, healthcare and education group plans. Buffett Taylor’s office is located
in Whitby.
14
PEOPLE CORPORATION2018 ANNUAL REPORT Gallivan Student Health & Wellness
Gallivan Student Health & Wellness (“Gallivan”), established in 1993, provides professional
advice and service infrastructure to post-secondary student organizations in order to offer
group benefit programs to students. Gallivan operates on a national basis with offices and
satellite offices across the country.
Hamilton + Partners Inc.
Hamilton + Partners Inc., established in 1984, consists of three operating companies, Employee
Benefits Inc. (“EBI”), Disability Concepts Inc. (“DCI”) and 6814409 Canada Incorporated
(“681”), (collectively “H+P”). EBI is a group benefits consulting firm that provides service
predominantly to Alberta-based small to large corporate clients with group benefit plans and
group retirement solutions. DCI provides unique disability and critical illness solutions designed
to balance employer interests of cost savings and product enhancements with employee
concerns and adequate coverage. 681 provides specialized medical insurance products which
expedites access to medical imaging and rapid second opinion as well as coverage for private
medical treatments. H+P’s office is located in Calgary.
JSL
JSL (“JSL”), established in 1976, provides group benefit solutions to clients based in southern
Ontario and specializes in mid-market corporate clients. JSL’s office is located in Toronto.
The Investment Guild
The Investment Guild (“TIG”), established in 1981, specializes in mid-market corporate benefits,
association plan benefits, group retirement solutions and individual insurance products. TIG’s
office is located in Toronto.
White Willow Benefit Consultants
White Willow Benefit Consultants (“White Willow”), established in 1988, provides group
benefit and group retirement advisory services, with specific expertise servicing legal firms and
organizations within the financial services sector. White Willow’s office is located in Toronto.
Lane Quinn Benefit Consultants
Lane Quinn Benefit Consultants (“Lane Quinn”), established in 2001, one of the leading
group benefits consulting firms in the Alberta market, servicing mid-market companies and
municipalities. Lane Quinn provides group benefit and group retirement advisory services, with
a strong focus on value-added consulting advice. Lane Quinn has offices located in Calgary,
Edmonton and Vancouver.
Silverberg & Associates Inc.
Silverberg & Associates (“Silverberg”), established in 1996, provides specialized employee
benefits consulting and group retirement solutions to companies of all sizes from a variety of
industries through its broad product portfolio and sophisticated plan design. Silverberg has
offices located in Calgary, Edmonton and Lethbridge.
15
MANAGEMENT’S DISCUSSION & ANALYSIS FOR THE QUARTER AND YEAR ENDED AUGUST 31, 2018 Benefit Solutions
The Company’s Benefit Solutions division has several third-party administration (“TPA”) and
third-party payor (“TPP”) service and administration platforms allowing it to provide group benefit,
group retirement and consulting advice that is highly customized towards the client’s needs. TPA
and TPP administer group benefit and group retirement plans on behalf of clients and insurance
carrier partners. These administration platforms allow the Company to develop specialized, unique
and customized benefit solutions for its clients through a plug-and-play approach of using multiple
insurance carrier partners on a single benefits plan design. TPA services include employee
data management, billing services, consolidated billing services where a client has multiple
insurance carriers associated with its plan, customized reporting, customized plan design
services, underwriting services, communication services and technology solutions. In addition,
through its various partners, the TPA platforms also provide claims adjudication services and
claims management.
The Company serves as an independent data administrator on behalf of the Company’s clients, who
are generally an employer and/or plan sponsor – this allows the benefit consultant to work with
the client to select from various insurance carriers and funding options that are best suited to the
benefit categories within the employee benefits program. The client benefits from the availability of
multiple carriers and funding alternatives on one consolidated billing and reporting platform.
BPA Financial Group Ltd.
BPA Financial Group Limited (“BPA”), established in 1958, provides group benefit and group
retirement consulting, advice, trust management, group benefit and pension administration,
consulting and claims management services to large multi-employer trust organizations and
numerous other organizations across Canada. BPA has offices located throughout Ontario and
Eastern Canada.
Coughlin & Associates Ltd.
Coughlin & Associates Ltd. (“Coughlin”). Coughlin, established in 1958, provides group benefit
and group retirement consulting, advice, trust management, group benefit and pension
administration, and claims management services to multi-employer unions and public service
organizations, and single-employer corporations. Coughlin has offices in Ottawa and Winnipeg.
HealthSource Plus
HealthSource Plus / SourceSanté Plus (“HSP”), established in 1992, provides group
benefit consulting, advice, group benefit administration, billing services, reporting services,
client communication, employee data management and claims management for small to
medium-sized companies across Canada. HSP has offices in Toronto, Montreal, Niagara Falls
and Winnipeg.
Prosure Group
Prosure, established in 1987, provides group benefit advisory and administration services
specializing in Health Spending Accounts and Cost-Plus Accounts. Prosure’s office is located in
Toronto.
Skipwith & Associates Insurance Agency Inc.
Skipwith & Associates Insurance Agency Inc. (“Skipwith”), established in 1988, provides group
benefit and group retirement consulting, advice, group benefit and pension administration, and
claims management services to corporations, unions and public service organizations in the
Ontario region. Skipwith’s office is located in Barrie.
16
PEOPLE CORPORATION2018 ANNUAL REPORT Sirius Benefit Plans Inc.
Sirius Benefit Plans Inc. (“Sirius”), established in 1996, administers and provides proprietary
employee benefit programs for small to medium-sized employers through a network of
independent associate brokers located across Canada. Sirius’ office is located in Winnipeg.
Assurances Dalbec
Assurances Dalbec (“Dalbec”), established in 1975, administers and provides employee benefit
plans for small to medium-sized companies in the Quebec market. Dalbec’s office is located in
Montreal.
Human Resource Solutions
The Company’s Human Resource Solutions division works with clients to diagnose, design and
deliver customized human resource solutions. The human resources consulting team delivers a
broad range of services, including: human resource consulting, compensation services, assessment
services, recruiting, career transition services and talent management.
People First HR Services Ltd.
People First HR Services Ltd. (“PFHR”), established in 2000, is Manitoba’s largest full service
human resource provider. PFHR, through its various brands delivers high quality leadership and
organizational solutions and contributes to the success of its clients by working with them to:
recruit top talent; discover the full potential of each of their employees; realize the collective
strength of a highly engaged workforce; and support employees and employers during times
of change. PFHR leverages its experience and the efficiency of its processes to create workable
and timely solutions that deliver value for clients.
Shared Services
Through its Shared Services division, the Company works with its subsidiaries and divisions by
providing subject matter experts and proprietary products, services and solutions to attract and
retain clients and provide additional revenue opportunities. The Shared Services departments have
been created to ensure that the Company’s subsidiaries and divisions have access to an internal
shared service not normally available to mid-size employee benefit firms, thereby ensuring clients
are receiving the best possible consulting advice. This results in the Company’s subsidiaries and
divisions having a unique value proposition and thereby providing them with a competitive edge.
Integrated Solutions
Integrated Solutions (“IS”) provides group benefit and group retirement advisory services to
mid-and large-market corporate clients through a network of independent associate brokers
across the country. IS’s office is located in Cambridge.
Group Retirement Solutions
Group Retirement Solutions (“GRS”) provides group retirement advisory services in
collaboration with the Company’s other operating divisions to mid- and large-market corporate
clients across the country.
Business Development Representatives
The Business Development Representatives (“BDR”) division is an inside sales department
responsible for generating qualified leads for the Company’s benefit consultants. BDR identifies
companies and their decision makers in order to qualify, create, and develop sales opportunities.
The purpose of the department is to create and heighten People Corporation awareness to
potential prospects as well as to generate leads for the consultants to ultimately increase the
number of clients.
17
MANAGEMENT’S DISCUSSION & ANALYSIS FOR THE QUARTER AND YEAR ENDED AUGUST 31, 2018 Talent Acquisition
Talent Acquisition focuses on internally sourcing, attracting, and hiring top talent into the
Company. Its mandate is to fill vacant positions in the Company in a timely and cost-effective
manner.
Health & Wellness Solutions
Wellness Solutions focuses on providing the Company’s corporate clients with a suite of
proprietary products and service offerings that will help manage the increasing costs of
absenteeism, presenteeism, and loss of productivity. In addition, the Company’s Wellness
Solutions department serves to help the Company’s clients attract, reward, and retain their
employees.
Marketing & Communications
The Marketing & Communications division is responsible for both brand awareness and
transition across the organization to facilitate the acquisition of new clients, businesses
and recruitment prospects. It is further responsible for the Company’s online presence, the
production of field marketing materials that support our benefit consultants, as well as both
internal and external communications.
BUSINESS ENVIRONMENT AND STRATEGY
Industry
Many companies are increasingly utilizing employer-sponsored benefits programs as one of the
tools to help them attract and retain employees in today’s competitive market for talent. However,
they are challenged in doing so because of the increasing cost of providing such programs to
employees, which is driven by rising insurance premiums as a result of factors such as increasing
healthcare costs, the entry of costly new drugs and treatments, the advent of new medical services,
higher utilization rates, and the overall aging demographics of the workforce. Given these factors,
companies are looking for value-added advice with respect to plan design, and strategies to
minimize the cost of plans while continuing to provide competitive benefit programs that appeal
to employees.
Concurrent with the evolution in client demands as described above, the supplier base for group
benefits and group retirement products and services, which is primarily the insurance carriers,
continues to consolidate, leading to fewer alternatives for benefits consultants to work with when
devising and pricing benefit plans. At the same time, competition has increased not only from
traditional market players, but also from new players focused on technology-based solutions, as
well as from market participants who have traditionally focused on other segments of the market
or adjacent sectors. Finally, the regulatory environments that can impact benefit and group
retirement programs continue to evolve, not only as it relates to the products and services
themselves (e.g. pension plan regulations), but also as it relates to the provision of products and
services, including matters such as fee disclosure. Given these market dynamics, scale is becoming
increasingly important.
The Canadian market for group benefits, group retirement and HR consulting products and services
is dominated by many small players and a few large multinational firms. Historically, the market
has been segregated by size: small and medium-sized enterprises have traditionally been serviced
by a large number of small regional and local market players, providing a relatively narrow range
of products and services, generally priced on a commission-based structure. The balance of the
industry, which is focused on large employers and government accounts, has traditionally been
serviced by a small number of multinational consulting firms, with a broader scope of services,
primarily offered on fee-based structures. While a significant amount of consolidation has occurred
among players servicing large enterprises (i.e. consolidation among the multinational consulting
18
PEOPLE CORPORATION2018 ANNUAL REPORT firms), the segment of the market servicing small- and medium-sized enterprises continues to
be highly fragmented, with a significant number of small firms, many of which are encountering
succession planning issues given the demographic characteristics of their consultant owners,
servicing this market. Management believes that this, along with the increasing need for scale as
described above, suggests that consolidation in this segment of the market is likely to continue.
Management believes that the current dynamics in the group benefits, group retirement and HR
consulting sectors will continue to drive change within the industry, likely at an accelerating pace.
In order to provide a compelling value proposition to employers, benefits, group retirement and
HR consultants must provide innovative products, specialized services and customized solutions.
Furthermore, in a highly competitive environment, consultants need to find ways to be more
efficient and cost effective. As a result of these environmental factors, scale is increasingly important
in these sectors.
OVERVIEW OF OPERATING PERFORMANCE
As a result of a focus on executing its strategic plan, the Company continues to be successful in
building upon and growing operational capabilities by investing in employee skills and expertise and
the tools that they need to provide responsive solutions to address the Company’s clients’ business
challenges. The Company continued its positive momentum and strong performance during the year.
Notable Milestones
Completed the following strategic acquisitions:
Silverberg, a group benefits, group retirement and insurance advisory practice based in
Alberta;
Lane Quinn, a group benefits, group retirement and insurance advisory practice based in
Alberta;
Dalbec, a leading Québec-based TPA and TPP service provider which complements the
Company’s existing operations in Québec and expands its small group product offering;
Rockwater Benefits, an established group retirement advisory practice based in Ontario;
Subsequent to the year end, Benefit Partners Inc., a group benefits, group retirement and
insurance advisory practice based in Ontario;
Continued to invest in talent, including:
Key leadership appointments: Senior Vice President, Enterprise - Benefit Solutions,
Vice President Sales and Client Management - Consulting Solutions, Vice President, Finance -
Benefit Solutions; Vice President, Health & Wellness - Shared Services;
Expansion of underwriting and product development talent; and
Investments in recruiting talent and Benefit Consultants in order to expand organic revenue
generating capabilities and prospective client interaction;
Continued to invest in client-focused products and solutions and go to market strategies, including:
Launched a new multi-employer administration platform, a new member portal for clients
and a new flexible enrolment tool;
Continued to expand our third-party consulting network with wholesalers now covering all
major markets in Canada;
19
MANAGEMENT’S DISCUSSION & ANALYSIS FOR THE QUARTER AND YEAR ENDED AUGUST 31, 2018
Expanded the distribution of the Sirius and HealthSource Plus products and solutions
to reach more clients, piloted an HR Solution to enhance our small group offering and a
disability management solution;
Segmented our business into small, medium and enterprise, adding additional leadership
talent in our small group and enterprise channels and invested in further developing the
enterprise market by launching our Business Development Solutions Group;
Expanded the wellness offering for post-secondary student organizations with the launch of
on-line and video counselling; and
Established strategic partnerships with leading national pharmacies and retailer brands to
provide exclusive benefits to our clients and their employees;
Enhanced the Company’s capital position through completion of two bought deal private placement
of common shares offerings for combined gross proceeds of $65.6 million and expanded the
Company’s credit facility with its senior lender to $97.8 million, by exercising the accordion feature
option in the fourth quarter; and
Completed the new corporate head office in Winnipeg to accommodate the integration and future
growth of three previously separate Winnipeg-based locations into one state of the art facility for
staff and clients.
Growth Through Acquisitions
The Company continues to pursue growth opportunities both organically, increasing its existing
business by gaining new clients, increasing product and service penetration with existing clients, as
well as through transactions in which the Company acquires new operating entities or subsidiaries.
Over the past few years, the Company has enhanced its corporate development capabilities to
execute transactions, through significant investments in people, technology and other organizational
resources, and has developed techniques, processes and other intellectual capital, all with the
objective of creating a compelling value proposition for new entities to join People Corporation.
Given the Company’s strong financial position, Management believes it is well positioned to continue
to make investments for growth.
The Company will consider acquisitions ranging in size and structure, but all share the characteristic
of having a strong underlying strategic rationale, which may include enhancing the Company’s
position in existing markets or providing entry into adjacent markets, expanding the Company’s
administrative and technological capabilities, providing new supplier relationships, enhancing
the breadth and depth of the Company’s product and service offering and enhancing the plan
member experience. At the same time, the Company also takes into consideration the financial
characteristics of the underlying business of the acquisition target and the structural components
and financial terms of the transactions so that the transaction will result in attractive financial returns
to the Company.
With a flexible transaction model to address the objectives of vendors, and an operating model
to support the ongoing success and growth of the underlying businesses, the Company continues
to attract partners who want to join the People Corporation group of companies. In the past
three fiscal years, seven transactions have been completed, and there continues to be significant
momentum in this component of the Company’s overall growth strategy. The following acquisitions
were completed during the year ended August 31, 2018:
On August 1, 2018, the Company acquired all of the issued and outstanding shares of Silverberg &
Associates Inc., one of the leading group benefits consulting firms in the Alberta market.
On May 23, 2018, the Company acquired all of the issued and outstanding shares of Lane Quinn
Benefit Consultants Ltd., one of the leading group benefits consulting firms in the Alberta market.
20
PEOPLE CORPORATION2018 ANNUAL REPORT On February 1, 2018, the Company acquired specific assets, liabilities and business operations of
Rockwater, an established group retirement and group benefits insurance advisory practice based
in Ontario.
On December 1, 2017, the Company acquired the assets and business operations of Dalbec, an
established TPA and TPP which provides group benefit consulting, administrative solutions and
claims management services to small-to mid-size corporations and unions in the Québec region.
On November 27, 2018, the Company acquired Benefits Partners Inc. (“BPI”), a leading independent
privately-owned employee group benefits and group retirement consulting firm in the Ontario
market. The addition of BPI to the People Corporation group of companies enhances the Company’s
position in the Ontario market, including establishing a presence in regions in which the Company
did not formerly have a physical location. The payment of $6,937.5 in cash on closing, subject
to post-closing adjustment for working capital, represents the purchase price for an initial 75%
economic interest in BPI. The Company has also entered into an agreement with the principals
of BPI whereby they will retain a 25% economic interest in the business through the ownership of
special shares of BPI. The Company holds a 100% voting interest and holds a 75% economic interest
in BPI through ownership of all of the issued dividend-bearing common shares of BPI. The cash
payment at closing of $6,937.5 was funded by the Company by drawing on the Acquisition Revolver
component of the Company’s credit facilities with its senior lenders.
OUTLOOK
In order to position itself for growth in this environment, the Company invests significantly in people,
technology and other organizational resources, and has developed techniques, processes and
other intellectual capital to provide a compelling value proposition to its clients. Driven by these
investments, the Company continues to pursue growth opportunities both organically, increasing its
existing business by gaining new clients and increased penetration of products and services within
its existing client base, hiring of new benefit consultants, as well as through acquisitions in which
new operating entities or subsidiaries become part of the Company. Given the positive underlying
industry trends and characteristics, the ongoing development of the Company’s operating and
transaction models, and the overall value proposition the Company provides to stakeholder groups
that include its clients, consultants, suppliers and employees, Management currently expects to
continue to generate growth in the foreseeable future.
NON‑IFRS FINANCIAL MEASURES
The Company reports non-IFRS financial measures, including Standardized EBITDA, REI, Adjusted
EBITDA, Adjusted EBITDA before REI, Operating Income before Corporate Costs, and Operating
Working Capital as key measures used by Management to evaluate performance of the business,
to compensate employees and to facilitate a comparison of quarterly and annual results of
ongoing operations. Adjusted EBITDA is also a concept utilized in measuring compliance with debt
covenants. The Adjusted EBITDA measure is commonly reported and widely used by investors and
lending institutions as an indicator of a company’s operating performance, ability to incur
and service debt, and as a valuation metric. While used to assist in evaluating the operating
performance and debt servicing ability of the Company, readers are cautioned that Adjusted
EBITDA as reported by the Company may not be comparable in all instances to Adjusted EBITDA
as reported by other companies.
The CPA’s Canadian Performance Reporting Board defined EBITDA to foster comparability
of the measure between entities Standardized EBITDA. Standardized EBITDA represents an
indication of an entity’s capacity to generate income from operations before taking into account
Management’s financing decisions and costs of consuming tangible and intangible capital assets,
which vary according to their vintage, technological age and Management’s estimate of their useful
life. Accordingly, Standardized EBITDA comprises revenue less operating costs before interest
21
MANAGEMENT’S DISCUSSION & ANALYSIS FOR THE QUARTER AND YEAR ENDED AUGUST 31, 2018 expense, capital asset depreciation, intangible asset amortization and impairment charges, and
income taxes. Adjusted EBITDA is calculated to exclude items of an unusual or one-time nature
that do not reflect normal or ongoing operations of the Company and should not be included in
assessment of the Company’s ability to service or incur debt. Adjusted EBITDA excludes acquisition,
integration and reorganization costs, REI, and share-based compensation. Acquisition, integration
and reorganization costs, which do not relate to the current operating performance of the business
but are typically costs incurred to expand operations or improve productivity and efficiency, are
comprised of professional fees and other non-recurring incremental costs incurred to secure
and complete specific acquisitions; non-operating expenses associated with integrating acquired
operations into the Company’s business model subsequent to completion of an acquisition; and
non-recurring expenses including severance costs, recruiting fees and direct costs associated with
reorganization operations to position the Company for building additional scale and to enhance
operating performance.
OVERVIEW OF FINANCIAL PERFORMANCE
Adjusted EBITDA
The following is a reconciliation of the Company’s Net Income to Standardized EBITDA and Adjusted
EBITDA:
FOR THE
THREE MONTHS ENDED
FOR THE
YEAR ENDED
AUG 31, 2018
AUG 31, 2017
AUG 31, 2018
AUG 31, 2017
Net income (Loss)
$
(9,478.6)
$
242.1
$
(6,920.6) $
3,478.8
Add:
Depreciation and amortization
3,606.3
2,625.9
10,659.0
Finance expenses, net
Income taxes, net
10,464.2
967.6
1,791.5
875.0
15,925.9
4,298.3
8,451.3
4,979.0
2,794.6
Standardized EBITDA
5,559.5
5,534.5
23,962.6
19,703.7
Add:
Acquisition, integration and reorganization costs
2,634.2
Compensation-based REI
Share-based compensation
950.6
563.6
817.7
521.6
174.5
6,326.6
2,853.6
1,313.2
2,605.0
2,254.6
788.4
Adjusted EBITDA before REI
9,707.9
7,048.3
34,456.0
25,351.7
Deduct:
Compensation-based REI
(950.6)
(521.6)
(2,853.6)
(2,254.6)
Equity-based REI
Adjusted EBITDA
(1,012.4)
(808.3)
(4,060.4)
(2,988.1)
$
7,744.9
$
5,718.4
$
27,542.0 $
20,109.0
Adjusted EBITDA before REI as a % of Revenue
Adjusted EBITDA as a % of Revenue
26.8%
21.3%
24.4%
19.8%
26.4%
21.1%
24.0%
19.0%
22
PEOPLE CORPORATION2018 ANNUAL REPORT Adjusted EBITDA before REI for the three months ended August 31, 2018 was $9,707.9, an
increase of $2,659.6, (37.7%) from $7,048.3 reported for the same period in the prior year. Factors
influencing the increase in Adjusted EBITDA before REI include:
Revenue growth of $7,352.5 representing increased contribution to run-rates from
acquisitions as well as organic growth resulting from the addition of new clients and natural
inflationary factors;
Increased personnel and compensation expenses, excluding compensation-based REI, of
$3,626.5, primarily attributable to the increased employee count resulting from acquired
operations, increases in variable compensation expenses tied directly to the higher revenue
and expanded staff complement to accommodate future growth; and
A net increase in all other operating costs of $1,066.4, inclusive of general and administrative
expenses, occupancy, and administration fees.
For the three months ended August 31, 2018, Adjusted EBITDA before REI as a % of Revenue was
26.8%, which has increased from 24.4% reported for the same period in the prior year. The increase
in the Adjusted EBITDA before REI as a % of Revenue is due to Adjusted EBITDA contributions of
acquired operations, increased revenue growth, natural inflationary factors and the increased ability
to leverage the Company’s value proposition to existing customers.
Adjusted EBITDA for the three months ended August 31, 2018 was $7,744.9, an increase of $2,026.5
(35.4%) from $5,718.4 reported for the same period in the prior year. The increase in Adjusted
EBITDA is due to the factors affecting Adjusted EBITDA before REI, net of the vendors’ interest
in Coughlin, BPA, Silverberg, H+P and Bencom of $1,963.0, which increased by $633.1 (47.6%) as
compared to the same period in the prior year.
Adjusted EBITDA before REI for the year ended August 31, 2018 was $34,456.0, an increase of
$9,104.3 or 35.9% from $25,351.7 reported for the fiscal year ended 2017. Factors influencing the
increase in Adjusted EBITDA before REI include:
Revenue growth of $24,678.1 representing the increase in revenue resulting from the
increased contribution to run rates from the 2017 and 2018 acquisitions as well as organic
growth resulting from the addition of new clients and natural inflationary factors;
Increased personnel and compensation expenses of $13,053.5, primarily attributable to
the increased employee count resulting from acquired operations in fiscal 2017 and 2018,
increases in variable compensation expenses tied directly to the higher revenue, expanded
leadership to accommodate integration and future growth, and the continued investment in
new benefit consultants; and
Increased other operating costs of $2,520.3, inclusive of general and administrative expenses,
occupancy, administration fees, and public company costs, which is primarily attributable to
the incremental costs from acquired operations.
For the year ended August 31, 2018, Adjusted EBITDA before REI as a percentage of Revenue was
26.4%, which has increased from the 24.0% reported for the same period in the prior year was
primarily due to factors similar to those affecting the three month period.
The increase in the Adjusted EBITDA before REI as a percentage of Revenue is due to Adjusted
EBITDA contributions through current period acquisitions, increased organic revenue growth,
natural inflationary factors and the increased ability to leverage the Company’s value proposition to
existing customers.
23
MANAGEMENT’S DISCUSSION & ANALYSIS FOR THE QUARTER AND YEAR ENDED AUGUST 31, 2018 For the year ended August 31, 2018, Adjusted EBITDA as a percentage of Revenue was 21.1%, which
has increased from the 19.0% reported for the same period in the prior year. Adjusted EBITDA was
$27,542.0, an increase of $7,433.0, or 37.0% from $20,109.0. The increase in Adjusted EBITDA is due
to the factors affecting Adjusted EBITDA before REI, net of the vendors interest in Coughlin, BPA,
Silverberg, H+P and Bencom of $6,914.0 which increased by $1,671.3 (31.9%) as compared to the
same period in the prior year.
Equity-based REI represents the share of BPA, Coughlin and Silverberg Adjusted EBITDA
attributable to the principals based on a prescribed formula tied to their respective non-voting,
dividend-bearing special share holdings. The share of BPA Adjusted EBITDA attributable to
equity-based REI will change as BPA options are exercised. BPA, Coughlin and Silverberg principals
are eligible to receive dividends based on a calculation derived from earnings which includes
Equity-based REI. The payment of dividends to the Coughlin, BPA and Silverberg principals reduces
the non-controlling put liability and is not included in the calculation of net income.
Compensation-based REI represents the share of Bencom and H+P Adjusted EBITDA attributable to
the principals based on a prescribed calculation derived from earnings. Compensation-based REI is
included in the calculation of net income.
Acquisition, integration and reorganization costs are comprised of professional fees and
other non-recurring incremental costs incurred to secure and complete specific acquisitions,
non-operating outlays associated with integrating acquired operations into the Company’s business
model subsequent to completion of an acquisition, incremental costs incurred to develop the
Company’s administration platform, and non-recurring outlays including consulting and recruiting
fees and severance costs associated with reorganization of operations.
See ‘Selected Quarterly Financial Information’ for Management’s discussion of quarterly results.
Operating Income Before Corporate Costs
The following is a reconciliation of the Company’s Adjusted EBITDA to Operating Income before
Corporate Costs:
FOR THE
THREE MONTHS ENDED
FOR THE
YEAR ENDED
AUG 31, 2018
AUG 31, 2017
AUG 31, 2018
AUG 31, 2017
Adjusted EBITDA
$
7,744.9
$
5,718.4 $
27,542.0 $
20,109.0
Add:
Corporate costs
1,182.9
1,469.1
4,834.8
5,082.7
Operating income before corporate costs
$
8,927.8
$
7,187.5
$
32,376.8
$
25,191.7
Corporate costs, which represent expenses incurred to support executive management of the
Company, such as remuneration, public company compliance costs, certain insurance premiums and
corporate development activities, were $1,182.9 for the three months ended August 31, 2018 versus
$1,469.1 for the same period in the prior year. The decrease of $286.2 (19.5%) is primarily related to
a decrease in professional fees incurred during the period as compared to the same period in the
prior year, partially offset by an increase in personnel & compensation, occupancy costs, and other
expenses related to the expanding operations.
Operating income before corporate costs for the three months ended August 31, 2018 was $8,927.8
versus $7,187.5 for the same period in the prior year. The increase of $1,740.3 (24.2%) is due to
primarily organic growth in Adjusted EBITDA and contributions from acquired operations.
24
PEOPLE CORPORATION2018 ANNUAL REPORT Corporate Costs for the year ended August 31, 2018 of $4,834.8 were comparable to those incurred
in the prior comparative period of $5,082.7.
Operating income before corporate costs for the year ended August 31, 2018 was $32,376.8 versus
$25,191.7 for the same period in the prior year. The increase of $7,185.1 (28.5%) is due to organic
growth in Adjusted EBITDA and contributions from acquired operations.
SELECTED ANNUAL INFORMATION
Revenue
Net income (loss) and comprehensive income (loss)
Income (loss) per share (basic)
Income (loss) per share (diluted)
Total assets
Total non-current financial liabilities
AUG 31, 2018
AUG 31, 2017
AUG 31, 2016
$
$
$
$
$
$
130,518.1
(6,920.6)
(0.127)
(0.127)
262,555.1
102,425.9
$
$
$
$
$
$
105,840.0 $
79,802.3
3,478.8
0.069
0.068
169,952.6
79,036.8
$
$
$
$
$
(174.8)
(0.004)
(0.004)
147,978.1
84,375.9
Net income (loss) for the year ended August 31, 2018 was $(6,920.6), a decrease of $10,399.4
from August 31, 2017 and a decrease of $6,745.8 from August 31, 2016. Net income (loss) and
comprehensive income has decreased as compared to the prior year as a result of an increase
in finance expenses of $10,946.9 related to changes in estimates of non-controlling interest
put options and contingent consideration obligation, as well as an increase in depreciation and
amortization of $2,207.7, acquisition, integration and reorganization costs of $3,721.6 and income
tax expense of $1,503.7; offset partially by an increase in adjusted EBITDA of $7,433.0 as discussed
above. Basic earnings per share is primarily affected by the change in net income, as well as by an
increase in the number of outstanding shares from private placements to fund acquisition growth,
the exercise of stock options, and the issuance of shares as consideration of an acquisition.
Total assets at August 31, 2018 were $262,555.1, an increase of $92,602.5 and $114,577.0 from
August 31, 2017 and 2016, respectively. The increase can primarily be attributed to additions to
intangible assets, goodwill and working capital related to acquisition activity in 2018 and leasehold
improvements related to the Company’s new head office.
Total non-current financial liabilities at August 31, 2018 were $102,425.9, an increase of $23,389.1
and an increase of $18,050.0 from August 31, 2017 and 2016, respectively. Changes in non-current
financial liabilities are due to changes in estimates of non-controlling interest put options and
deferred taxes related to acquisition activity in 2018.
Revenue
Revenue from the Consulting Solutions division is primarily comprised of commissions from
insurance carriers. In addition, the Company provides group retirement plan advisory services from
which it earns commissions paid by the carrier who administers and invests the funds. The Company
is a reseller of benefit products and services and therefore assumes no underwriting risk as the
insurance policy is underwritten by the insurance carrier.
Revenue from the Benefit Solutions division is primarily from fees earned for third party
administration services. In addition, the Company earns fees from group retirement consulting and
administration, and individual financial services including insurance and wealth management.
25
MANAGEMENT’S DISCUSSION & ANALYSIS FOR THE QUARTER AND YEAR ENDED AUGUST 31, 2018 Revenue from the Shared Services division is primarily earned through commissions which are paid
by the insurance carriers and fees earned from group retirement assets under administration which
are paid by the carrier who administers and invests the funds.
Revenue from the Human Resource Solutions division is primarily earned from hourly or fixed fees
for consulting services and as a percentage of compensation for recruiting services.
The calculation of ‘organic growth’ includes: i) year-over-year increases or decreases in revenue
from operating units the Company has owned longer than one year; and ii) increases or decreases
in revenue recognized from operating units the Company has owned for less than one year above
or below baseline acquired revenue. The calculation of ‘acquired revenue’ includes a baseline
representing estimated revenue of the acquired operations at the time of acquisition.
Revenue is as follows:
FOR THE YEAR ENDED
AUG 31, 2018
AUG 31, 2017
$ VARIANCE
% VARIANCE
$
130,518.1 $
105,840.0 $
24,678.1 $
23.3%
For the year ended August 31, 2018, the Company experienced revenue growth of $24,678.1 (23.3%).
The Company recognized growth of $13,941.6 (13.2%) resulting mainly from the acquired operations
of Sirius, Dalbec, Lane Quinn and, to a lesser extent, Skipwith, Rockwater and Silverberg. Organic
growth of $10,736.5 (10.1%) is primarily from the addition of new clients, increasing product and
service penetration with existing clients and natural inflationary factors.
Personnel and Compensation Expenses
The largest operating expense of the Company is compensation and related costs which includes
salaries, bonuses and commissions, compensation-based REI, stock-based compensation, group
benefits, and payroll taxes.
Personnel and compensation expenses are as follows:
FOR THE YEAR ENDED
AUG 31, 2018
AUG 31, 2017
$ VARIANCE
% VARIANCE
$
79,739.2 $
62,977.5
$
16,761.7 $
26.6%
The Company believes that investment in its employees and associate consultant networks are key
to ensuring successful execution of its strategic plans.
For the year ended August 31, 2018, personnel and compensation costs represent 61.1% of revenues
(August 31, 2017 - 59.5%), driven by increases in acquisition, integration and reorganization
resources and increases to compensation-based REI and share-based compensation expense.
The increase in personnel and compensation costs for the year ended August 31, 2018 of $16,761.7
is primarily attributable to the increased employee count resulting from the acquisitions of Sirius,
Dalbec, Lane Quinn and, to a lesser extent, Silverberg. In addition, the increase in personnel
and compensation costs reflects an expanded non-revenue-generating staff complement to
accommodate integration and future growth, representing $2,584.4 of the increase. Other changes
in personnel and compensation not affecting EBITDA include compensation-based REI, which
increased by $599.0 (26.6%) due to increases in profitability of the underlying businesses and
share-based compensation expense, which increased by $524.8 (66.6%).
26
PEOPLE CORPORATION2018 ANNUAL REPORT General and Administrative Expenses
General and administrative expenses include expenses relating to acquisition, integration and
reorganization, travel, office supplies, telephone and internet, computer costs, professional fees,
advertising, business development and other costs supporting operations.
General and administrative expenses are as follows:
FOR THE YEAR ENDED
AUG 31, 2018
AUG 31, 2017
$ VARIANCE
% VARIANCE
$
16,296.5 $
13,638.4 $
2,658.1 $
19.5%
For the year ended August 31, 2018, general and administrative expenses have increased by $2,658.1
(19.5%) primarily due to the following:
A net increase of $751.7 resulting from a higher general and administrative run-rates from the
acquisition of Sirius, Skipwith, Dalbec, Rockwater, Lane Quinn and Silverberg during the year;
An increase in general and administrative expenses related to acquisition, integration and
reorganization activities of $319.6.
A net increase of $1,586.8 in all other general and administrative expenses, including office
supplies, professional fees, business development, and travel.
Depreciation and Amortization Expense
Depreciation is recognized over the estimated useful lives of each part of an item of property and
equipment in a manner which most closely reflects the expected pattern of consumption of the
future economic benefits embodied in the asset. Definite life intangible assets are amortized from
the date of acquisition or, for internally developed assets, from the time the asset is available for
use. Amortization is recognized either on a declining balance or on a straight-line basis over the
estimated useful life of the asset.
Depreciation and amortization expense is as follows:
FOR THE YEAR ENDED
AUG 31, 2018
AUG 31, 2017
$ VARIANCE
% VARIANCE
$
10,659.0 $
8,451.3
$
2,207.7 $
26.1%
For the year ended August 31, 2018, depreciation and amortization expense increased by $2,207.7
(26.1%) primarily due to significant customer relationship additions to intangible assets as a result of
acquisitions and to a lesser extent higher depreciation due to the increased leasehold improvements
and furniture and fixtures related to the Company’s new head office.
27
MANAGEMENT’S DISCUSSION & ANALYSIS FOR THE QUARTER AND YEAR ENDED AUGUST 31, 2018 Occupancy Costs
Occupancy costs are as follows:
FOR THE YEAR ENDED
AUG 31, 2018
AUG 31, 2017
$ VARIANCE
% VARIANCE
$
6,125.3 $
5,803.6
$
321.7 $
5.5%
For the year ended August 31, 2018, occupancy costs represent 4.7% of revenues (August 31, 2017 -
5.5%), decreasing in proportion to revenue due to an increase in organic revenue.
The increase in occupancy costs of $321.7 (5.5%) for the year ended August 31, 2018 is due to
incremental lease costs associated with the acquisition of Sirius during the third quarter of fiscal
2017 and current year acquisitions of Dalbec, Lane Quinn and Silverberg.
Administration Fees
Administration fees represent amounts paid by the company to third party claims adjudicators for
services provided on behalf of the Company to certain of its clients on its TPA platform.
Administration fees are as follows:
FOR THE YEAR ENDED
AUG 31, 2018
AUG 31, 2017
$ VARIANCE
% VARIANCE
$
4,025.8 $
3,398.1
$
627.7 $
18.5%
The increase in administration fees of $627.7 (18.5%) for the year ended August 31, 2018 is primarily
due to an increase in the volume of claims processed as a result of the acquisition of Sirius during
the third quarter of the prior fiscal year. For the year ended August 31, 2018, administration fees
represent 3.1% of revenues (August 31, 2017 - 3.2%).
Finance Expenses
Finance expenses, net of interest income, are as follows:
FOR THE YEAR ENDED
AUG 31, 2018
AUG 31, 2017
$ VARIANCE
% VARIANCE
Interest and other finance costs
$
1,907.8
$
1,276.0
Non-cash accretion expenses
268.0
85.7
631.8
182.3
Change in estimate of contingent
consideration
Change in estimate of NCI put options
2,013.2
11,736.9
$
15,925.9
-
2,013.2
$
$
3,617.3
$
8,119.6
4,979.0 $
10,946.9
$
$
49.5%
212.7%
DIV/0%
224.5%
219.9%
Finance expenses increase by $10,946.9 (219.9%) for the year ended August 31, 2018. The change
is primarily due to an increase in the fair value estimate of non-controlling interest options and
contingent consideration obligations. In 2018, both BPA and Coughlin had strong operating
performance resulting in an increase in their respective earnings; this impact increased the value
28
PEOPLE CORPORATION2018 ANNUAL REPORT of their estimated non-controlling interest put options. The increase in contingent consideration is
due to a subsidiary’s earnings exceeding a threshold triggering an additional earnout payment. In
addition, accretion on vendor take-back loans has increased as a result of current year acquisitions.
Public Company Costs
Public Company costs are as follows:
FOR THE YEAR ENDED
AUG 31, 2018
AUG 31, 2017
$ VARIANCE
% VARIANCE
$
368.8
$
318.7 $
50.1
$
15.7%
Public company costs have increased by $50.1 (15.7%) for the year ended August 31, 2018. The
increase can be attributed mainly to corporate filing and venture exchange fees.
SELECTED QUARTERLY INFORMATION
The selected financial information provided below is derived from the Company’s unaudited
quarterly financial statements for each of the last eight quarters:
Q4
Q3
Q2
Q1
Q4
Q3
Q2
2018
2017
Q1
Revenue
$36,279.5 $33,254.0 $32,514.5
$28,470.1
$28,927.0 $27,965.8 $25,602.5 $23,344.7
Operating & corporate expenses
(27,522.2)
(24,910.2)
(26,637.8)
(24,001.4)
(24,016.9)
(21,763.4)
(19,591.2)
(18,987.8)
Adjusted EBITDA
7,744.9
7,373.9
7,029.4
5,393.8
5,718.4
5,430.0
5,225.2
3,735.7
Finance expenses
(10,464.2)
(1,619.3)
(2,213.6)
(1,628.4)
(1,792.5)
(730.7)
(607.2)
(1,848.6)
Depreciation and amortization
(3,606.3)
(2,515.7)
(2,330.5)
(2,206.7)
(2,625.8)
(1,943.7)
(1,959.2)
(1,922.6)
Share-based compensation
(563.6)
(236.1)
(283.9)
(229.6)
(174.5)
(183.8)
(183.5)
(246.7)
Equity-based REI
(1,012.4)
(969.9)
(1,152.7)
(925.1)
(808.3)
(772.4)
(786.1)
(621.2)
Income tax expense, net
(967.6)
(1,069.8)
(1,359.1)
(901.8)
(875.0)
(446.0)
(1,120.4)
(354.2)
Acquisition, integration and
reorganization costs
(2,634.2)
(1,418.9)
(1,384.8)
(888.6)
(817.7)
(1,024.8)
(502.2)
(260.3)
Net income (Loss)
(9,478.6)
1,484.0
610.2
463.8
241.2
1,873.4
1,638.8
(275.5)
Total assets
262,555.1
221,021.6
194,755.6
189,690.8
169,952.6
171,180.5
144,533.3
143,990.0
Total loans and borrowings
38,273.5
54,943.9
38,998.7
35,892.6
36,526.7
37,376.9
21,922.3
21,934.0
Total other liabilities
96,165.6
67,897.4
61,208.9
60,221.5
65,055.0
66,161.8
57,094.8
58,426.0
Shareholders’ equity
128,116.0
98,180.3
94,548.1
93,576.8
68,371.0
67,641.7
65,516.2
63,630.1
Adjusted EBITDA per share
0.138
0.134
0.128
0.105
0.112
0.107
0.103
0.083
Income (loss) per share (basic)
(0.169)
0.027
Income (loss) per share (diluted)
(0.169)
0.026
0.011
0.011
0.009
0.005
0.037
0.032
(0.006)
0.009
0.005
0.036
0.032
(0.006)
29
MANAGEMENT’S DISCUSSION & ANALYSIS FOR THE QUARTER AND YEAR ENDED AUGUST 31, 2018 Adjusted EBITDA for the three months ended August 31, 2018 was $7,744.9, representing an increase
of $2,026.5 or 35.4% from $5,718.4 reported for the same period in the prior year.
The Company can experience fluctuations in timing of revenue between quarters and, as a result,
Adjusted EBITDA as a percentage of revenue is less meaningful on a quarterly basis.
Finance expenses for the fourth quarter of fiscal 2018 were $10,464.2, representing an increase of
$8,671.7 or 483.8%, as compared to the same period in fiscal 2017. The increase is primarily due to
a revaluation of the estimated fair value of non-controlling interest put obligations and contingent
consideration obligations during the quarter.
Depreciation and amortization for the fourth quarter of fiscal 2018 was $3,606.3, representing
an increase of $980.5 or 37.3%, as compared to the same period in fiscal 2017, primarily due to
additions to customer relationships resulting from acquired operations and leasehold improvements
related to the Company’s new head office.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity ensures the Company has sufficient financial resources available at all times to meet its
obligations. This involves effectively managing assets and liabilities while maintaining an optimal
capital structure. The Company manages this risk by ensuring it has adequate cash and access to
credit to meet its obligations in the most cost-effective manner possible. Cash flow from operations,
together with cash on hand and unutilized credit available on existing credit facilities are expected
to be sufficient to meet operating and capital expenditure requirements.
The Company also continues to actively investigate acquisition and other growth opportunities. The
Company expects to finance future acquisitions from a combination of available cash, unutilized
credit available on existing credit facilities, vendor financing, expanded credit facilities, issuance of
equity as part of the consideration and equity proceeds from treasury issuance.
Contractual Obligations
The following table summarizes, as at August 31, 2018, the Company’s contractual obligations for the
periods specified.
TOTAL
LESS THAN
1 YEAR
1 - 3 YEARS
4 - 5 YEARS
THEREAFTER
PAYMENTS DUE BY PERIOD
Accounts payable and
accrued liabilities
$
24,334.7 $
21,456.6 $
2,318.3
$
194.8 $
365.0
Contractual obligations
24,999.0
4,992.5
8,597.6
6,393.9
5,015.0
Obligations under finance
leases
16.2
14.1
2.1
Vendor-take-back loans
12,180.2
3,985.2
8,195.0
Term credit facilities
26,784.4
3,329.1
23,455.3
-
-
-
-
-
-
$
88,314.5
$
33,777.5
$
42,568.3
$
6,588.7
$
5,380.0
Management believes that operations will generate sufficient cash flows to fund ongoing operations
and finance its seasonal working capital needs.
30
PEOPLE CORPORATION2018 ANNUAL REPORT Cash Flows
The following table summarizes the Company’s cash flows for the year ended August 31, 2018 and
August 31, 2017:
FOR THE YEAR ENDED
AUG 31, 2018
AUG 31, 2017
$ VARIANCE
% VARIANCE
Net income (loss) for the period
$
(6,920.6) $
3,478.8
$
(10,399.4)
(298.9)%
Add non-cash items, net
24,607.1
10,272.9
14,334.2
Changes in non-cash working capital
(449.7)
(2,795.8)
Net cash from operating activities
17,236.8
10,955.9
2,346.1
6,280.9
Net cash from (used by) investing activities
(65,265.3)
(17,143.8)
(48,121.5)
Net cash from (used by) financing activities
51,213.9
9,751.8
41,462.1
139.5%
(83.9)%
57.3%
280.7%
425.2%
Net increase in cash
$
3,185.4
$
3,563.9
$
(378.5)
(10.6)%
Cash from operating activities for the year ended August 31, 2018 increased $6,280.9 as compared
to the prior year. Changes in working capital accounts reflect the inclusion of Dalbec, Rockwater,
Lane Quinn, and Silverberg operations. Significant influences of cash inflows and outflows related to
operating activities for the year-to-date period versus the same period in the prior year end include:
Cash generated from increased Adjusted EBITDA, before REI, was $9,104.3 higher than was
generated in the prior year. Management believes Adjusted EBITDA is a valuable indicator of
the Company’s ability to generate liquidity by producing operating cash flow to fund working
capital needs, service debt obligations, and fund capital expenditures.
Cash used to fund acquisitions, integration and reorganization costs increased $3,721.6.
Finance costs and income taxes used $1,049.2 more cash than as compared to the prior year.
Cash from changes in non-cash working capital accounts decreased $2,346.1.
Cash used in other working capital, including the net effect of changes in accounts receivable
and accounts payable, increased $398.7 as compared to the prior year.
Cash used by investing activities for the year ended August 31, 2018 increased by $48,121.5 as
compared to the same period in the prior year. The change is primarily due to $41,055.0 more cash
used to fund current year acquisitions. In the earlier part of the year the Company invested in a
new corporate head office which increased the use of cash to acquire property and equipment by
$7,982.1 as compared to prior year. Cash used to acquire intangible assets decreased by $915.6.
Cash generated by financing activities for the year ended August 31, 2018 increased by $41,462.1
as compared to the same period in the prior year. The change is primarily due to the Company
generating an additional $43,004.5 of cash from the completion of two private placements of
shares in the current year as compared to the completion of one private placement of shares in the
prior year.
31
MANAGEMENT’S DISCUSSION & ANALYSIS FOR THE QUARTER AND YEAR ENDED AUGUST 31, 2018 Capital Management
The Company’s objectives when managing capital are to safeguard the Company’s ability to
continue as a going concern in order to provide opportunities for growth to shareholders and
benefits for other stakeholders and to maintain financial flexibility in, or to take advantage of,
organic growth and new acquisition opportunities as they arise.
The Company includes cash, bank financing, vendor-take-back debt and shareholders’ equity in the
definition of capital. The Company manages its capital structure and adjusts it in light of changes
in economic conditions and the risk characteristics of the underlying assets. In order to maintain
or adjust capital structure, the Company may issue new shares, issue new debt, renegotiate
vendor-take-back debt or issue new debt to replace existing debt with different terms & conditions.
The Company has the opportunity to use its Operating Revolver during the year to finance cash
flows related to seasonal changes in non-cash working capital items. The Company did not make use
of its operating line of credit during the year.
Working Capital
The Company’s working capital (defined as current assets less current liabilities) as at August 31,
2018 is set forth in the table below. The Company defines “Operating Working Capital” as current
assets less current liabilities excluding deferred revenue.
Deferred revenue represents payments received in advance for services which have not yet
been performed. Deferred revenues are recognized into income as services are rendered, in
accordance with the revenue recognition policies described in the Company’s financial statements.
Deferred revenue is a non-cash liability and therefore Management believes that adding back the
deferred revenue provides a more accurate reflection of the liquidity and working capital position
of the Company.
The table below reconciles the differences in the calculation of working capital and Operating
Working Capital.
Current assets
Less:
Current liabilities
Working capital
Add back:
Deferred revenue
Operating Working Capital
AUG 31, 2018
AUG 31, 2017
$
36,798.4
$
31,387.8
32,013.3
22,544.8
4,785.1
8,843.0
3,288.7
3,997.9
$
8,073.8 $
12,840.9
Operating Working Capital has decreased by $4,767.1 to a surplus of $8,073.8 compared to the
surplus of $12,840.9 at August 31, 2017. The change in Operating Working Capital is due to an
increase in current liabilities excluding deferred revenue of $10,177.7, offset only partially by an
increase in current assets of $5,410.6 from cash balances generated from increased Adjusted
EBITDA. The increase in current liabilities is primarily due to acquired liabilities, higher compensation
payable and contingent consideration obligations along with an increase to the current portion of
long-term debt.
The Company maintains a revolving operating line of credit of $5,000.0 to facilitate management
of short-term working capital requirements. As at August 31, 2018, the Company had not utilized
this facility.
32
PEOPLE CORPORATION2018 ANNUAL REPORT Credit Facilities
The Company amended its existing credit agreement with a syndicate of Canadian banks effective
December 4, 2017, which resulted in the following authorized limits:
1.
2.
the $5,000 revolving credit facility to fund operating cash flow needs remained the same
(“Operating Revolver”);
the term acquisition credit facility to fund future acquisitions increased to $48,800
(“Acquisition Revolver”);
3.
the term credit facility installment loan was increased to $19,500 (“Term Loan”);
4.
the delayed draw term credit facility to fund leasehold improvements at the Company’s head
office of $9,500.0 (“Real Estate Loan”).
The credit agreement continues to provide for an option (the “Accordion Feature”), subject to
the satisfaction of certain terms and conditions, to increase the acquisition credit facility by up to
$15,000.0 of additional capacity. The exercise of the option would result in the size of the term
acquisition credit facility being increased to a maximum of $82,800.0 and overall credit capacity
being increased to a maximum of $97,800.0.
During the fourth quarter of fiscal 2018, in conjunction with the acquisition of Silverberg, the
Company exercised the Accordion feature of Acquisition revolver facility thereby increasing the
facility limit from $48,800.0 to $63,800.0.
The facility matures on October 31, 2019. The Term Loan requires quarterly principal repayments of
$486.1 until February 28, 2019 and $583.3 per quarter thereafter, with the balance due at maturity.
The Operating Revolver and Acquisition Revolver do not have scheduled principal repayments prior
to maturity.
The loans bear interest at a floating rate based on banker’s acceptances plus a credit margin tied
to the Company’s quarterly leverage ratio. The facility is secured by a general security agreement
over the assets of the Company and its subsidiaries and is subject to both financial and non-financial
covenants, including maximum total leverage and senior leverage ratios and minimum fixed charge
coverage ratios.
At August 31, 2018, the Company had a balance of $17,998.4 outstanding on the Term Loan,
$8,786.0 outstanding on the Real Estate Loan, $nil outstanding on the Acquisition Revolver and
was compliant with all financial covenants. At August 31, 2018, the Company had unutilized and
available credit of $68,800.0, including $5,000.0 on the Operating Revolver and $63,800.0 to fund
acquisitions on the Acquisition Revolver.
On October 31, 2018, the Company negotiated a six month extension to its credit facility with a
syndicate of Canadian banks, on similar terms and conditions, which matures on April 30, 2020.
33
MANAGEMENT’S DISCUSSION & ANALYSIS FOR THE QUARTER AND YEAR ENDED AUGUST 31, 2018 Share Capital
The Company has authorized share capital of an unlimited number of common voting shares. The
Company’s outstanding securities are comprised of:
Common shares issued and outstanding
Stock options outstanding
Restricted Stock Units outstanding
Deferred Stock Units outstanding
AUG 31, 2018
AUG 31, 2017
60,640,511
51,001,140
3,681,861
1,298,480
442,279
325,156
69,278
41,478
During the year, the Company raised gross proceeds of $65,558.0 through two bought deal equity
offerings, which closed on August 21, 2018 and November 22, 2017 respectively, resulting in the
issuance of 9,004,500 common shares. The net proceeds of these offerings were primarily used to
fund the current year acquisitions and to repay the outstanding balance on the acquisition revolver.
In connection with the acquisition of Lane Quinn, the Company issued 235,001 common shares to
the vendors for an aggregate value of $1,914,315 net of issuance costs.
On August 28, 2018, the Company granted 2,600,000 options to certain senior executives. The
options were granted as part of the Company’s overall compensation strategy to reward the
senior executives for individual and corporate performance, to align their interests with that of the
Company and to provide for long-term incentives. Of the 2.6 million options granted, 60% or 1.56
million are performance conditioned options, with a requirement for the Company’s share price to
reach a threshold of $12 in order for these options to vest. The remaining 40% or 1.04 million are
regular options.
The remainder of the change in share capital can be attributed to grants during the year ended
August 31, 2018, under the Company’s LTIP program.
Contingencies
In the ordinary course of operating the Company’s business it may from time to time be subject to
various claims or possible claims. Although Management currently believes there are no claims or
possible claims that if resolved would either individually or collectively result in a material adverse
impact on the Company’s financial position, results of operations, or cash flows, these matters are
inherently uncertain and Management’s view of these matters may change in the future.
34
PEOPLE CORPORATION2018 ANNUAL REPORT RISK FACTORS
The Company operates in a well-established and highly competitive industry and its results
of operations, business prospects and financial condition are subject to a number of risks and
uncertainties and are affected by a number of factors outside the control of Management of the
Company. These factors include, but are not limited to, the following:
Key Personnel
The Company is highly dependent upon the expertise and experience of its personnel, particularly
those engaged in generating revenue, including, but not limited to, those involved in benefits plan
design and administration, benefits legislative and regulatory issues, group retirement plan design
and specialized human resource consulting, recruitment and career management. The Company’s
operations depend, in part, on the relationships and reputations these individuals have established
with clients, often over many years. In the event the Company were to lose a number of key
personnel, client relationships could be negatively impacted, which could lead to material adverse
effects on the Company’s operating and financial results.
The Company currently has many experienced employees who hold senior positions in the Company,
who have various professional designations and who have developed deep and trusted relationships
with clients. While the Company provides a competitive compensation structure for its employees,
including an employee share purchase plan and a security-based compensation plan and has
comprehensive employment agreements in place with its employees to protect the Company,
the loss of a number of key personnel may have a material adverse effect on the business of the
Company. The Company’s ability to attract, retain and develop new employees into senior positions
could affect the business of the Company.
Client Relationships
Group insurance contracts are generally renegotiated on an annual basis with clients, often resulting
in insurance premium pricing increases or decreases. Accordingly, there can be no guarantee that
insurance contracts sold through the Company in the past will be renewed on a go forward basis
or at the same pricing level. While the Company has several benefit and insurance clients with
contracts that extend for one to seven years, the majority of the Company’s benefit and pension
revenue is derived from contracts that can be cancelled upon thirty days’ notice. The Company’s
experience is that most clients terminate during the renewal process rather than during the policy
year. While the Company’s clients are diversified both in size and industry, if a number of the
Company’s largest clients were to terminate their contracts with the Company at the same time, this
could result in a significant reduction in revenue, which could have a material adverse effect on the
Company’s revenues, financial condition and operating results.
Insurance Company Relationships
In certain cases, the Company acts as the advisor to end-user employers to broker group insurance
products with insurance companies. There can be no assurance that the Company will be able to
maintain its existing relationships with these insurance companies and the failure to do so could
have a material adverse effect on the Company’s business, financial condition and operating results.
In addition, during the renewal process, the Company’s benefits consulting teams will provide
benefits planning and consulting services based on the availability of insurance products and pricing
of such products. Changes in available products could result in decreased benefits coverage and/or
decreased premiums which generally would result in decreased revenue for the Company.
35
MANAGEMENT’S DISCUSSION & ANALYSIS FOR THE QUARTER AND YEAR ENDED AUGUST 31, 2018 Regulation, Policies and Certification
The Company’s employee benefits and group retirement consulting and administration services are
subject to laws and regulations that are constantly evolving. Changes in such laws or regulations
could impact the Company’s service delivery processes and/or its client relationships. In addition,
the laws and regulations differ from province to province and the Company is required to keep
up-to-date with the laws and regulations of each province.
The Canadian Life and Health Insurance Association has recently introduced a guideline to establish
industry standards for the disclosure to clients of intermediary compensation for group benefit and
group retirement services. These requirements could result in increased competition in the insurance
brokerage industry.
The rules and regulations governing income and commodity taxes are complex and wide-ranging,
and the calculation of income taxes and applicability of commodity taxes requires judgment
in interpreting tax rules and regulations. The Company’s tax filings are subject to government
audits that could result in material changes to the amount of current and future income taxes and
related costs.
Any changes to laws, rules, regulations or policies could have a material adverse effect on the
Company’s business, financial condition and operating results.
Technology and Information Security
The Company is reliant on computerized operational and reporting systems. The Company makes
reasonable efforts to ensure that back-up systems and redundancies are in place and functioning
appropriately and maintains a disaster recovery plan to protect against significant system failures.
While a computer system failure would not be expected to critically damage the Company in the
long term, there can be no assurance that a computer system crash or like event would not have a
material impact on its financial results in the short term.
Information security risks have increased in recent years due, in part, to the proliferation,
sophistication and constant evolution of new technologies used by hackers and external parties.
The Company’s technologies, systems and networks and third parties providing services to the
Company, may be subject to attacks, breaches or other compromises. In the event of such an
occurrence, the Company may experience, among other things, financial loss, a loss of customer
or business opportunities, disruption to operations, misappropriation or unauthorized release
of confidential, financial or personal information, litigation, regulatory penalties or intervention,
remediation, investigation or restoration cost and reputational damage.
Access to Capital
The Company relies principally on bank debt, vendor-take-back debt financing and issuance of
common shares to fund its acquisitions. The Company may require additional funds to make future
acquisitions of group benefit, group retirement and human resource consulting businesses and
may require additional funds to market and sell its products into the marketplace. The ability of
the Company to arrange such financing in the future, and to repay its existing debt, will depend in
part upon the prevailing capital market conditions, as well as on the business performance of the
Company. While the Company has been successful in the past, there is no assurance that capital will
be available under terms that are satisfactory to the Company.
36
PEOPLE CORPORATION2018 ANNUAL REPORT Pursuant to its articles of incorporation, the Company is authorized to issue an unlimited number of
common shares for consideration and on such terms as are established by the Board of Directors
without the approval of any shareholders. Further issuance of common shares may dilute the
interests of existing shareholders. If additional capital financing is not available on terms favourable
to the Company, the Company may be unable to grow or may be required to limit or halt its
strategic growth plans. In addition, if the Company experiences financial difficulty, the Company’s
creditors who have security interests in the Company’s assets, may decide to exercise their rights to
acquire or dispose of the Company’s assets.
Future Growth via Acquisitions
The Company’s growth and expansion plans contain a dual approach of generating organic growth
by increasing its existing business by gaining new clients and increasing product and service
penetration with existing clients, as well as through transactions in which the Company acquires new
operating entities or subsidiaries. There can be no assurance that an adequate number of suitable
acquisition candidates will be available to the Company to meet this area of focus of its expansion
plans, or in the event that such businesses are available for acquisition that they will be available at a
price which would allow the Company to operate on a profitable basis. The Company competes for
acquisition and expansion opportunities with entities that have substantially greater resources than
the Company and these entities may be able to outbid the Company for acquisition targets.
Integration of Future Acquisitions
There can be no assurance that businesses acquired by the Company in the future will achieve
acceptable levels of revenue and profitability or otherwise perform as expected. The Company may
be unable to successfully integrate businesses that it may acquire in the future, due to diversion of
Management attention, strains on the Company’s infrastructure, difficulties in integrating operations
and personnel, entry into unfamiliar markets, or unanticipated legal liabilities or tax, accounting
or other issues. A failure to integrate acquired businesses may be disruptive to the Company’s
operations and negatively impact the Company’s revenue or increase the Company’s expenses.
Risks related to the integration of acquisitions are mitigated through the Company’s due diligence
procedures and legal structure of its acquisitions.
Potential Undisclosed Liabilities Associated with Acquisition / Limited Indemnification
In connection with acquisitions completed by the Company, there may be liabilities and
contingencies related to the acquired entity that the Company failed to discover or was unable to
quantify in its due diligence conducted prior to the execution of the acquisition, and the Company
may not be indemnified for some or all of these liabilities and contingencies. The existence of any
material liabilities or contingencies could have a material adverse effect on the Company’s business,
financial condition, liquidity and results of operations.
Interest Rate
Advances under the Company’s credit facilities bear interest at variable rates. The Company may
incur further indebtedness in the future that also bears interest at variable rates or it may be
required to refinance its debt at higher rates. While the Company attempts to manage its interest
rate risk, there can be no assurance that it will hedge such exposure effectively or at all in the future.
Accordingly, increases in interest rates could adversely affect the Company’s cash flows.
37
MANAGEMENT’S DISCUSSION & ANALYSIS FOR THE QUARTER AND YEAR ENDED AUGUST 31, 2018 Insurance
The Company believes that its professional errors and omissions insurance, director and officer
liability insurance, and commercial general liability insurance coverage address all material insurable
risks, provides coverage that is similar to that which would be maintained by a prudent operator
of a similar business and is subject to deductibles, limits and exclusions which are customary or
reasonable given the cost of procuring insurance and current operating conditions. However, there
can be no assurance that such insurance will continue to be offered on economically feasible terms,
that all events that could give rise to a loss or liability are insurable, or that the amounts of insurance
will at all times be sufficient to cover each and every loss or claim that may occur involving the
Company’s assets or operations.
Canadian Economy and Competitive Conditions
The Company’s future success is dependent upon the direction and state of the Canadian
economy. The business, operating results and financial condition of the Company could be
materially affected by a prolonged and deep recession or downturn in the Canadian economy.
There is no assurance that the Company will have sufficient financial resources to withstand a
prolonged and deep recession.
The insurance brokerage market is highly competitive and is composed of a large number of
companies of varying size and scope of services. Insurance companies themselves also offer their
products through other methods, including insurance agents and direct distribution channels, which
are competitive with the insurance brokerage industry and the Company.
Brand and Reputation
The Company is dependent, to a large extent, on its client relationships and its reputation with
clients. Damage to the Company’s brand or reputation could result in the loss of client relationships,
which could result in a material adverse effect on the Company’s business, financial condition and
operating results. There can be no assurance that future incidents will not negatively affect the
Company’s brand or reputation.
Internal Control
As a venture issuer, the Company is not required to certify the design and evaluation of the
Company’s disclosure controls and procedures (DC&P) and internal controls over financial reporting
(ICFR), as defined by National Instrument 52-109 and as such, has not completed such an evaluation.
Investors should be aware that inherent limitations on the ability of a certifying officers of a venture
issuer to design and implement, on a cost effective basis, DC&P and ICFR may result in additional
risks to the quality, reliability, transparency and timeliness of interim and annual filings and other
reports provided under securities legislation.
38
PEOPLE CORPORATION2018 ANNUAL REPORT CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Critical accounting policies are defined as those that are both very important to the portrayal of
the Company’s financial condition and results, and require Management’s most difficult, subjective
or complex judgments. In preparing the Company’s financial statements in accordance with IFRS,
Management is required to make certain estimates, judgments and assumptions that it believes
are reasonable based upon available information, historical information and/or forecasts. These
estimates, judgments and assumptions affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported revenues and expenses during the reporting
periods. Actual results could differ from these estimates. The accounting policies which Management
believes are the most critical to aid in fully understanding and evaluating the Company’s
reported financial results include those relating to revenue recognition, business acquisitions and
accounting for the resulting customer relationships and contracts, goodwill, contingent acquisition
consideration and non-controlling interest put obligations, as well as income taxes.
Revenue recognition
Revenue includes fees and commissions generated from administrative, advisory and consulting
services provided to clients.
Generally, revenue from the rendering of services is recognized when the following criteria are met:
The amount of revenue can be reliably measured;
The stage of completion can be reliably measured;
The receipt of economic benefits is probable; and
Costs incurred and to be incurred can be reliably measured.
Concurrent with the above general principles, the Company applies the following specific revenue
recognition policies:
Group benefit commission revenue from clients where advisory services and plan
administration services are provided by the Company is generally received in advance and
recorded as deferred revenue. Commission advances are recognized in income on a monthly
basis based on the number of months for which the commission revenue was advanced,
net of a provision for return commissions due to policy cancellation and adjustments. The
provision is determined based on historical data.
Group benefit commission revenue from clients where the Company provides only advisory
services are recognized in income at the effective or renewal date of the policy, net of a
provision for return commissions due to policy cancellation and adjustments. The provision is
determined based on historical data.
Fee revenue from administrative and consulting services are recognized on the percentage of
completion basis.
For fee revenue that is contingent on certain criteria being met, the revenue is not recognized
until the work is completed.
All other revenues are recognized upon the completion of services rendered by the Company.
Other revenue includes investment income recorded on the accrual basis of accounting.
39
MANAGEMENT’S DISCUSSION & ANALYSIS FOR THE QUARTER AND YEAR ENDED AUGUST 31, 2018 Business combinations
For acquisitions, the Company measures goodwill as the fair value of the consideration transferred
including the recognized amount of any non-controlling interest in the acquiree, less the net
recognized amount (generally fair value) of the identifiable assets acquired and liabilities assumed,
all measured as of the acquisition date. When the excess is negative, a bargain purchase gain is
recognized immediately in profit or loss.
Transaction costs that the Company incurs in connection with a business combination, other than
those associated with the issue of debt or equity securities, are expensed as incurred.
Intangible assets
(i) Goodwill
Goodwill represents the excess of the purchase price paid for the acquisition of subsidiaries over
the fair value of the net tangible and intangible assets acquired. Following the initial recognition,
goodwill is measured at cost less any accumulated impairment losses.
(ii) Other intangible assets
Other intangible assets consist of acquired customer relationships and contracts. Other
intangible assets acquired separately are measured on initial recognition at cost. The cost of
identifiable intangible assets acquired in a business combination is equal to fair value as at the
date of acquisition. Following initial recognition, identifiable intangible assets are carried at cost
less any accumulated amortization and any accumulated impairment losses.
Definite life intangible assets are amortized from the date of acquisition or, for internally
developed assets, from the time the asset is available for use. Amortization is recognized either
on a declining balance or on a straight-line basis over the estimated useful life of the asset, and
the residual values and useful lives of the assets are reviewed at each financial year-end and
adjusted if appropriate.
Intangible assets are considered to have indefinite lives where Management believes that there
is no foreseeable limit to the period over which the intangible assets are expected to generate
net cash flows.
Contingent Acquisition Consideration
The Company recognizes liabilities, if any, resulting from a contingent consideration arrangement at
their acquisition date fair value and such amounts form part of the cost of the business combination.
Subsequent changes in the fair value of contingent consideration arrangements are recognized in
net income (loss) for the period.
Changes in the fair value of the contingent consideration that qualify as measurement period
adjustments are adjusted retrospectively, with corresponding adjustments to goodwill. Measurement
period adjustments are adjustments that arise from additional information obtained during the
‘measurement period’ (which cannot exceed one year from the acquisition date) about facts and
circumstances that existed at the acquisition date.
The subsequent accounting for changes in the fair value of the contingent consideration that do
not qualify as measurement period adjustments depends on how the contingent consideration is
classified. Contingent consideration that is classified as equity is not re-measured at subsequent
reporting dates and its subsequent settlement is accounted for within equity. Contingent
consideration that is classified as an asset or a liability is re-measured at subsequent reporting dates
in accordance with IAS 39 Financial Instruments: Recognition and Measurement, or IAS 37 Provisions,
Contingent Liabilities and Contingent Assets, as appropriate, with the corresponding gain or loss
being recognized in net income (loss).
40
PEOPLE CORPORATION2018 ANNUAL REPORT Non‑controlling Put Liabilities
The Company recognizes non-controlling put liabilities as non-derivative financial liabilities, which
are classified as fair value through profit and loss are measured at fair value, with gains and losses
recognized in net income (loss). Non-controlling interest put option is classified as fair value through
profit and loss.
The Company initially recognizes debt securities issued and subordinated liabilities on the date that
they are originated. All other financial liabilities (including liabilities designated at fair value through
profit or loss) are recognized initially on the trade date at which the Company becomes a party to
the contractual provisions of the instrument.
The Company derecognizes a financial liability when its contractual obligations are discharged or
cancelled or expire.
Deferred Tax
Deferred tax is recognized in respect of temporary differences between the carrying amounts of
assets and liabilities for financial reporting purposes and the amounts used for taxation purposes.
Deferred tax is not recognized for the following temporary differences: the initial recognition
of assets or liabilities in a transaction that is not a business combination and that affects neither
accounting nor taxable profit or loss and differences relating to investments in subsidiaries and
jointly controlled entities to the extent that it is probable that they will not reverse in the foreseeable
future. In addition, deferred tax is not recognized for taxable temporary differences arising on the
initial recognition of goodwill. Deferred tax is measured at the tax rates that are expected to be
applied to temporary differences when they reverse, based on the laws that have been enacted or
substantively enacted by the reporting date. Deferred tax assets and liabilities are offset if there is a
legally enforceable right to offset current tax liabilities and assets, and they relate to income taxes
levied by the same tax authority on the same taxable entity, or on different tax entities, but they
intend to settle current tax liabilities and assets on a net basis or their tax assets and liabilities will be
realized simultaneously.
A deferred tax asset is recognized for unused tax losses, tax credits and deductible temporary
differences, to the extent that it is probable that future taxable profits will be available against which
they can be utilized. 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.
SEASONALITY
As the Company continues to grow through acquisitions, the revenue trends from quarter to quarter
may change depending on the relative significance of acquisitions in a fiscal year and the seasonal
variances of the client renewals of those particular acquisitions. As a result of such acquired growth
and organic growth, the revenue and Adjusted EBITDA trends from quarter to quarter within a
fiscal year may continue to vary, however the annual revenue trends will increasingly be more
representative of the Company’s annual revenue run rate as the Company achieves increasing scale.
OFF‑BALANCE SHEET ARRANGEMENTS
Other than as outlined below, the Company does not have any off-balance sheet arrangements.
The Company sponsors certain individual pension plans (“IPP”) which were assumed as a result of
and established prior to the date of certain acquisitions. While the IPPs are ongoing, the Company’s
obligation to make contributions towards any funding deficiency required by pension legislation
is indemnified by the beneficiaries of the respective IPPs. Conversely, any funding surpluses are
payable to the beneficiaries of the respective IPPs. As a result, the Company has no net exposure to
unfunded or overfunded IPPs.
41
MANAGEMENT’S DISCUSSION & ANALYSIS FOR THE QUARTER AND YEAR ENDED AUGUST 31, 2018 FINANCIAL INSTRUMENTS
The Company’s financial instruments consist of basic financial instruments which are typically used
in operations, including cash, restricted cash, trade and other receivables, trade payables, accrued
and other liabilities. Additional financial instruments include long-term debt, contingent acquisition
consideration, non-controlling interest put options and other non-current assets.
42
PEOPLE CORPORATION2018 ANNUAL REPORT CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in Canadian Dollars)
Years ended August 31, 2018 and August 31, 2017
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED AUGUST 31, 2018 AND AUGUST 31, 2017
43
Independent Auditors’ Report
To the Shareholders of People Corporation and its subsidiaries:
We have audited the accompanying consolidated financial statements of People Corporation and its subsidiaries, which
comprise the consolidated statements of financial position as at August 31, 2018 and August 31, 2017, and the consolidated
statements of comprehensive income (loss), changes in equity and cash flows for the years then ended, and a summary of
significant accounting policies and other explanatory information.
Management’s Responsibility for the Consolidated Financial Statements
Management is responsible for the preparation and fair presentation of these consolidated financial statements in
accordance with International Financial Reporting Standards, and for such internal control as management determines is
necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether
due to fraud or error.
Auditors' Responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted
our audits in accordance with Canadian generally accepted auditing standards. Those standards require that we comply with
ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated
financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated
financial statements. The procedures selected depend on the auditors’ judgment, including the assessment of the risks of
material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk
assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the
consolidated financial statements 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. An audit also includes evaluating
the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as
well as evaluating the overall presentation of the consolidated financial statements.
We believe that the audit evidence we have obtained in our audits is sufficient and appropriate to provide a basis for our
audit opinion.
Opinion
In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of People
Corporation and its subsidiaries as at August 31, 2018 and August 31, 2017 and their financial performance and their cash
flows for the years then ended in accordance with International Financial Reporting Standards.
Winnipeg, Manitoba
November 29, 2018
Chartered Professional Accountants
44
PEOPLE CORPORATION2018 ANNUAL REPORT PEOPLE CORPORATION
Consolidated Statements of Financial Position
For the years ended August 31, 2018 and 2017
Assets
Current assets:
Cash
Trade and other receivables
Income taxes receivable
Prepaid and other current assets
Total current assets
Non-current assets:
Property and equipment
Goodwill and intangible assets
Loans receivable
Total non-current assets
Total assets
Liabilities and shareholders’ equity
Current liabilities:
NOTE
AUG 31, 2018
AUG 31, 2017
$
21,119,220 $
17,933,832
5
13,735,697
11,233,804
112,745
843,724
1,830,716
1,376,436
36,798,378
31,387,796
6
7
8
10,667,472
2,666,248
213,428,886
134,943,617
1,660,384
954,974
225,756,742
138,564,839
$ 262,555,120 $ 169,952,635
Trade payables, accrued and other liabilities
9
$
21,649,670 $
14,919,459
Deferred revenue
Current portion of loans and borrowings
Total current liabilities
Accrued and other liabilities
Non-controlling interest put options
Loans and borrowings
Deferred tax liability
Total liabilities
Shareholders’ equity:
Share capital
Contributed surplus
Retained earnings
Total shareholders’ equity
12
9
11
12
13
3,288,650
3,997,864
7,074,946
3,627,518
32,013,266
22,544,841
2,165,489
1,199,871
52,613,161
34,059,108
31,198,602
32,899,207
16,448,628
10,878,605
134,439,146
101,581,632
14
124,672,253
58,861,256
2,747,472
1,892,859
696,249
7,616,888
128,115,974
68,371,003
Total liabilities and shareholders’ equity
$ 262,555,120 $ 169,952,635
Commitments and contingencies (Note 19)
The accompanying notes are an integral part of these Consolidated Financial Statements.
ON BEHALF OF THE BOARD OF DIRECTORS
/s/ “Eric Stefanson”
/s/ “Laurie Goldberg”
Director, Chair of the Audit & Risk Committee
Director, Chief Executive Officer
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED AUGUST 31, 2018 AND AUGUST 31, 2017
45
PEOPLE CORPORATION
Consolidated Statements of Comprehensive Income (Loss)
For the years ended in August 31, 2018 and 2017
Revenue
Operating expenses
NOTE
YEAR ENDED
AUG 31, 2018
YEAR ENDED
AUG 31, 2017
$
130,518,057 $ 105,839,973
100,228,915
83,531,240
Depreciation and amortization
6,7
10,659,028
8,451,346
Finance expenses
Change in estimated fair value of non-controlling interest put option
Other finance expenses
Acquisition, integration and reorganization costs
Income (loss) before income taxes
Income tax expense (recovery):
Current
Deferred
16
16
11,736,962
3,617,211
4,188,947
1,361,747
6,326,566
2,605,022
24
133,140,418
99,566,566
(2,622,361)
6,273,407
13
13
5,882,030
5,464,400
(1,583,752)
(2,669,752)
4,298,278
2,794,648
Net income (loss) and comprehensive income (loss)
$
(6,920,639) $
3,478,759
(Loss) earnings per share
14(c)
Basic
Diluted
$
$
(0.127) $
(0.127) $
0.069
0.068
The accompanying notes are an integral part of these Consolidated Financial Statements.
46
PEOPLE CORPORATION2018 ANNUAL REPORT PEOPLE CORPORATION
Consolidated Statements of Changes in Equity
For the years ended August 31, 2018 and 2017
NOTE
SHARE
CAPITAL
CONTRIBUTED
SURPLUS
RETAINED
EARNINGS
TOTAL
Balance, August 31, 2016
$ 39,333,725
$
1,213,006
$
4,138,129
$ 44,684,860
Net income and comprehensive
income for the year
Issuance of common shares
Exercise of stock options
14(b)
14(b)
-
19,259,036
-
-
268,495
(108,569)
Share-based payments
15(b)(c)(d)
-
788,422
3,478,759
3,478,759
-
-
-
19,259,036
159,926
788,422
19,527,531
679,853
3,478,759
23,686,143
Balance, August 31, 2017
$ 58,861,256
$
1,892,859
$ 7,616,888
$
68,371,003
Net loss and comprehensive
loss for the year
-
Issuance of common shares
14(b)
62,906,800
Acquisition-related issuance
of shares
Settlement of restricted
stock units
Exercise of stock options
14(b)
1,914,315
14(b)
14(b)
63,031
(167,594)
926,851
(291,003)
Share-based payments
15(b)(c)(d)
-
1,313,210
-
-
-
(6,920,639)
(6,920,639)
-
-
-
-
-
62,906,800
1,914,315
(104,563)
635,848
1,313,210
Balance, August 31, 2018
$ 124,672,253
$
2,747,472
$
696,249
$
128,115,974
65,810,997
854,613
(6,920,639)
59,744,971
The accompanying notes are an integral part of these Consolidated Financial Statements.
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED AUGUST 31, 2018 AND AUGUST 31, 2017
47
PEOPLE CORPORATION
Consolidated Statements of Cash Flows
For the years ended August 31, 2018 and 2017
Operating activities
Net (loss) income for the year
Adjustments for:
Depreciation
Amortization of intangible assets
Share-based compensation
Impairment losses on property, equipment and intangible assets
Change in estimated fair value of non-controlling interest put option
Change in estimated fair value of contingent
consideration obligations
Accretive interest expense
Deferred tax recovery
Net cash from operations
Change in the following:
Trade and other receivables
Prepaid and other current assets
Trade payables, accrued and other liabilities
Deferred revenue
Loans receivable
Income taxes receivable
Net cash used for working capital items
Net cash from operating activities
Investing activities
Acquisition of subsidiary, net of cash acquired
Acquisition of property and equipment
Acquisition of intangible assets
Net cash used in investing activities
Financing activities
Proceeds from exercise of stock options
Settlement of restricted stock units
Outflows relating to loan receivables
Proceeds from loans and borrowings
Repayment of loans and borrowings
Proceeds from private placement of shares, net
Payment of dividends on non-controlling interest
Payment of put options on non-controlling interest
Net cash from financing activities
Net increase in cash
Cash at beginning of the year
Cash at the end of the year
NOTE
YEAR ENDED
AUG 31, 2018
YEAR ENDED
AUG 31, 2017
$
(6,920,639) $
3,478,759
6
7
15(b)(c)(d)
6,7
11
16
16
13
1,485,045
9,173,983
1,313,210
200,524
936,333
7,515,013
788,422
-
11,736,962
3,617,211
2,013,182
267,955
-
85,710
(1,583,752)
(2,669,752)
17,686,470
13,751,696
(2,343,697)
(289,869)
2,488,342
350,117
(117,326)
(479,166)
(709,214)
(1,697,721)
294,590
110,135
-
(851,687)
(449,713)
(2,795,783)
17,236,757
10,955,913
4
6
7
(53,936,879)
(12,881,805)
(9,467,295)
(1,485,314)
(1,861,089)
(2,776,702)
(65,265,263)
(17,143,821)
15(b)
635,848
(104,563)
159,926
-
8
12
11
11
(1,000,000)
(1,044,110)
55,662,250
14,500,000
(63,366,897)
(20,680,526)
61,950,909
18,946,403
(2,563,653)
(1,679,008)
-
(450,904)
51,213,894
9,751,781
3,185,388
3,563,873
17,933,832
14,369,959
$
21,119,220 $
17,933,832
The accompanying notes are an integral part of these Consolidated Financial Statements.
48
PEOPLE CORPORATION2018 ANNUAL REPORT PEOPLE CORPORATION
Notes to the Consolidated Financial Statements
For the years ended August 31, 2018 and 2017
1. REPORTING ENTITY:
People Corporation (the “Company”) was incorporated under the Ontario Business Corporations
Act on July 5, 2006. The Company is a public company listed on the TSX Venture Exchange (the
“TSX-V”), trading under the “PEO” symbol and is domiciled in Canada. The address of the Company’s
corporate office is 1403 Kenaston Boulevard, Winnipeg, Manitoba, Canada and the Company’s
registered office is 180 Bay Street, Suite 4400, Toronto, Ontario, Canada. These consolidated
financial statements of the Company comprise accounts of the Company and its subsidiaries. The
Company is primarily involved in the delivery of employee group benefit consulting, third-party
benefits administration services, pension consulting and human resources consulting to help
companies recruit, retain and reward employees.
2. BASIS OF PRESENTATION:
These consolidated financial statements were approved by the Board of Directors and authorized for
issue on November 29, 2018.
(a) Statement of compliance
These consolidated financial statements have been prepared in accordance with International
Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards
Board (“IASB”).
(b) Basis of measurement
These consolidated financial statements have been prepared on the historical cost basis except
for the following material items in the consolidated statements of financial position:
financial instruments at fair value through profit or loss are measured at fair value
share-based compensation awards are measured at fair value at grant date
(c) Functional and presentation currency
These consolidated financial statements are presented in Canadian dollars, which is the
functional currency of the Company and its subsidiaries.
(d) Use of estimates and judgments
Preparation of these consolidated financial statements in conformity with IFRS requires
management to make estimates, judgments, and assumptions that affect the application of
policies and the reported amounts of assets, liabilities at the date of these financial statements
and reported amounts of revenue and expenses during the reporting period. Actual results
may differ from those estimates. Areas of significant accounting estimates and judgments
include determination of fair value of financial instruments, impairment of financial instruments,
impairment of goodwill and intangible assets, business combinations, and deferred taxes. The
Company also uses judgment when determining operating segments, contingencies, acquisition,
integration and reorganization costs, non-current assets and the determination of fair value of
share-based payments. Details on the estimates and judgments are further described in the
relevant accounting policies in these Notes.
Provisions are recognized for present legal or constructive obligations as a result of a past event,
if it is probable that they will result in an outflow of economic resources and the amount can
be reliably estimated. The amounts recognized for these provisions are the best estimates of the
expenditures required to settle the present obligations or to transfer them to a third party at
the statement of financial position date, considering all the inherent risks and uncertainties,
as well as the time value of money. These provisions are reviewed as relevant facts and
circumstances change.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED AUGUST 31, 2018 AND 2017
49
PEOPLE CORPORATION
Notes to the Consolidated Financial Statements
For the years ended August 31, 2018 and 2017
Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to
accounting estimates are recognized in the period in which the estimates are revised and in any
future periods affected.
3. SIGNIFICANT ACCOUNTING POLICIES:
The accounting policies set out below have been applied consistently to all years presented in these
consolidated financial statements.
(a) Basis of consolidation
(i) Business combinations
For acquisitions, the Company measures goodwill as the fair value of the consideration
transferred, including the recognized amount of any non-controlling interest in the
acquiree, less the fair value of the identifiable assets acquired and liabilities assumed, all
measured as of the acquisition date. When the excess is negative, a bargain purchase
gain is recognized immediately in net income (loss).
The Company recognizes liabilities, if any, resulting from a contingent consideration
arrangement at their acquisition date fair value and such amounts form part of the
cost of the business combination. Subsequent changes in the fair value of contingent
consideration arrangements are recognized in net income (loss) for the period.
Changes in the fair value of the contingent consideration that qualify as measurement
period adjustments are adjusted retrospectively, with corresponding adjustments to
goodwill. Measurement period adjustments are adjustments that arise from additional
information obtained during the ‘measurement period’ (which cannot exceed one
year from the acquisition date) about facts and circumstances that existed at the
acquisition date.
The subsequent accounting for changes in the fair value of the contingent consideration
that do not qualify as measurement period adjustments depends on how the contingent
consideration is classified. Contingent consideration that is classified as equity is not
re-measured at subsequent reporting dates and its subsequent settlement is accounted
for within equity. Contingent consideration that is classified as a liability is re-measured
as subsequent report dates with subsequent changes in the fair value of the contingent
consideration recognized in net income (loss). The subsequent re-measurement of
contingent consideration is estimated based on pre-determined formulas as defined in
the purchase agreements which are generally a multiple of estimated future revenue or
earnings of the acquired companies exceeding target thresholds over a specified period.
Transaction costs, other than those associated with the issue of debt or equity securities,
that the Company incurs in connection with a business combination are expensed as
incurred.
(ii) Subsidiaries
Subsidiaries are entities controlled by the Company. The financial statements of
subsidiaries are included in these consolidated financial statements from the date that
control commences until the date that control ceases. Where necessary, adjustments are
made to the financial statements of acquired subsidiaries to conform their accounting
policies to the Company.
Inter-company balances and transactions, and any realized or unrealized revenue and
expenses arising from inter-company transactions, are eliminated in preparing these
consolidated financial statements.
50
PEOPLE CORPORATION2018 ANNUAL REPORT PEOPLE CORPORATION
Notes to the Consolidated Financial Statements
For the years ended August 31, 2018 and 2017
These consolidated financial statements include the accounts of the Company and its
subsidiaries:
Common Ownership %
People First HR Services Ltd.
Hamilton + Partners Inc., including its subsidiaries:
Employee Benefits Inc. (100%), Disability Concepts Inc. (100%) and
6814407 Canada Corporation (100%)
Bencom Financial Services Group Inc.
Coughlin & Associates Ltd.
BPA Financial Group Ltd., including its subsidiaries:
Benefit Plan Administrators Ltd. (100%), Benefit Plan Administrators
(Atlantic) Ltd. (100%), BPA Consulting Group Ltd. (100%), BPA Internet
Connections Ltd. (100%), TAL Insurance Brokers Ltd. (100%), 1739813
Ontario Ltd. (100%), and Alluvus Solutions Inc. (50%)
Sirius Benefit Plans Inc.
Skipwith & Associates Insurance Agencies Inc.
Lane Quinn Benefit Consultants Ltd.
Silverberg & Associates Inc.
100%
100%
100%
100%
100%
100%
100%
100%
100%
(b) Financial instruments
(i) Non‑derivative financial assets
Financial assets classified as fair value through profit and loss are measured at fair value,
with gains and losses recognized in net income (loss). Cash is classified as fair value
through profit and loss.
The Company initially recognizes loans and receivables on the date that they are
originated. All other financial assets (including assets designated at fair value through
profit or loss) are recognized initially on the trade date at which the Company becomes
a party to the contractual provisions of the instrument.
The Company derecognizes a financial asset when the contractual rights to the cash
flows from the asset expire, or it transfers the rights to receive the contractual cash flows
on the financial asset in a transaction in which substantially all the risks and rewards of
ownership of the financial asset are transferred. Any interest in transferred financial assets
that is created or retained by the Company is recognized as a separate asset or liability.
Financial assets are offset and the net amount presented in the consolidated statements
of financial position when, and only when, the Company has a currently enforceable
legal right to offset the recognized amounts and intends either to settle on a net basis or
to realize the asset and settle the liability simultaneously.
(ii) Loans and receivables
Loans and receivables are financial assets with fixed or determinable payments that are
not quoted in an active market. Such assets are recognized initially at fair value plus any
directly attributable transaction costs.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED AUGUST 31, 2018 AND 2017
51
PEOPLE CORPORATION
Notes to the Consolidated Financial Statements
For the years ended August 31, 2018 and 2017
Subsequent to initial recognition loans and receivables are measured at amortized cost
using the effective interest method, less any impairment losses. Loans and receivables
comprise trade and other receivables, and other current assets and loans receivable.
(iii) Non‑derivative financial liabilities
Financial liabilities classified as fair value through profit and loss are measured at fair
value, with gains and losses recognized in net income (loss). Non-controlling interest
put options and contingent consideration obligations are classified as fair value through
profit and loss.
The Company initially recognizes debt securities issued and subordinated liabilities
on the date that they are originated. All other financial liabilities (including liabilities
designated at fair value through profit or loss) are recognized initially on the trade date
at which the Company becomes a party to the contractual provisions of the instrument.
The Company derecognizes a financial liability when its contractual obligations are
discharged or cancelled or expire.
Financial liabilities are offset and the net amount presented in the consolidated
statements of financial position when, and only when, the Company has a currently
enforceable legal right to offset the recognized amounts and intends either to settle on a
net basis or to realize the asset and settle the liability simultaneously.
The Company has the following non-derivative financial liabilities: loans and borrowings,
trade payables, and accrued and other liabilities.
Such financial liabilities are recognized initially at fair value less any directly attributable
transaction costs. Subsequent to initial recognition these financial liabilities are
measured at amortized cost using the effective interest method.
(c) Share capital
Common voting shares are classified as equity. Incremental costs directly attributable to
the issue of common voting shares are recognized as a deduction from equity, net of any
tax effects.
(d) Cash & cash equivalents
Cash and cash equivalents may include cash on hand, deposits held with banks, and other
short-term highly liquid investments with original maturities of three months or less.
(e) Property and equipment
(i) Recognition and measurement
Items of property and equipment are measured at cost less accumulated depreciation
and accumulated impairment losses. When parts of an item of property and equipment
have different useful lives, they are accounted for as separate items (major components)
of property and equipment. The costs of the day-to-day servicing of property and
equipment are recognized in the consolidated statements of comprehensive income
(loss) in the period in which they are incurred.
(ii) Depreciation
Depreciation is recognized in the consolidated statements of comprehensive income
(loss) over the estimated useful lives of each part of an item of property and equipment
in a manner which most closely reflects the expected pattern of consumption of the
future economic benefits embodied in the asset. The estimated useful lives for the
current and comparative periods are as follows:
52
PEOPLE CORPORATION2018 ANNUAL REPORT PEOPLE CORPORATION
Notes to the Consolidated Financial Statements
For the years ended August 31, 2018 and 2017
Asset
Basis
Leasehold
improvements
Straight-line
Furniture & fixtures
Diminishing balance
Computer equipment
Diminishing balance
Automobiles
Diminishing balance
Rate
Shorter of useful life or term
of the lease
20%
30%
30%
Depreciation methods, useful lives and residual values are reviewed at each financial
year-end and adjusted if appropriate.
(f) Goodwill and intangible assets
(i) Goodwill
Goodwill represents the excess of the purchase price paid for the acquisition of
subsidiaries over the fair value of the net tangible and intangible assets acquired.
Following the initial recognition, goodwill is measured at cost less any accumulated
impairment losses.
(ii) Intangible assets
Intangible assets consist of internally-developed software, acquired customer
relationships and brands, customer contracts and acquired software. Intangible assets
acquired separately are measured on initial recognition at cost. The cost of identifiable
intangible assets acquired in a business combination is equal to the fair value as at the
date of acquisition. Following initial recognition, identifiable intangible assets are carried
at cost less any accumulated amortization and any accumulated impairment losses.
Internally-developed software is recognized at the aggregate cost of all eligible
development costs, when the following criteria are met: (i) technically feasible; (ii)
management intention to complete development; (iii) the Company is able to use the
software once implemented; (iv) future benefits associated with the software can
be demonstrated; (v) adequate technical, financial, and other resources to complete
development and to use the software are available; and (vi) expenditures attributable
to the software during its development can be reliably measured. Eligible expenditures
capitalized as part of internally-developed software include external direct costs of
materials and services consumed in development, and payroll and payroll-related costs
for employees who are directly associated with and who devote time to the development
of the software.
Definite life intangible assets are amortized from the date of acquisition or, for internally
developed assets, from the time the asset is available for use. Amortization is recognized
in the consolidated statements of comprehensive income (loss) on a straight-line basis
over the estimated useful life of the asset, and the residual values and useful lives of
the assets are reviewed at each financial year-end and adjusted if appropriate. The
estimated useful lives for the current and comparative periods are as follows:
Asset
Basis
Acquired customer relationships and brands Straight-line
Rate
8 - 10 years
Customer contracts
Straight-line
term of the contract
Computer software (including
internally developed)
Straight-line
4 - 10 years
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED AUGUST 31, 2018 AND 2017
53
PEOPLE CORPORATION
Notes to the Consolidated Financial Statements
For the years ended August 31, 2018 and 2017
(g) Impairment
(i) Financial assets
Financial assets not carried at fair value through profit or loss are assessed at each
reporting date to determine whether there is objective evidence that they are impaired.
A financial asset is impaired if objective evidence indicates that a loss event has occurred
after the initial recognition of the asset, and that the loss event had a negative effect on
the estimated future cash flows of that asset that can be estimated reliably.
At each reporting date, the Company assesses whether there is objective evidence
that a financial asset is impaired. An impairment loss in respect of a financial asset
measured at amortized cost is calculated as the difference between its carrying amount
and the present value of the estimated future cash flows discounted at the asset’s
original effective interest rate. Losses are recognized in net income (loss) and reflected
in an allowance account against assets. Interest on the impaired asset continues to be
recognized using the effective interest rate method. When a subsequent event causes
the amount of impairment loss to decrease, the decrease in impairment loss is reversed
up to the amount of original cost through net income (loss).
(ii) Non‑financial assets
The carrying amounts of the Company’s non-financial assets, other than deferred tax
assets, are reviewed at each reporting date to determine whether there is any indication
of impairment. If any such indication exists, then the asset’s recoverable amount is
estimated. For goodwill and intangible assets (that have indefinite useful lives or that are
not yet available for use) the recoverable amount is estimated each year at the same time.
The recoverable amount of an asset or cash generating unit is the greater of its value
in use and its fair value less costs to sell. In assessing value in use, the estimated future
cash flows are discounted to their present value using a pre-tax discount rate that
reflects current market assessments of the time value of money and the risks specific
to the asset. For the purpose of impairment testing, assets that cannot be tested
individually are grouped together into the smallest group of assets that generates cash
inflows from continuing use that are largely independent of the cash inflows of other
assets or groups of assets (the “cash generating unit”, or “CGU”). For the purposes of
goodwill impairment testing, goodwill acquired in a business combination is allocated
to the CGU, or the group of CGUs, that is expected to benefit from the synergies of the
combination. This allocation is subject to an operating segment ceiling test and reflects
the lowest level at which that goodwill is monitored for internal reporting purposes.
The Company’s corporate assets do not generate separate cash inflows. If there is an
indication that a corporate asset may be impaired, then the recoverable amount is
determined for the CGU to which the corporate asset belongs.
An impairment loss is recognized if the carrying amount of an asset or its CGU exceeds
its estimated recoverable amount. Impairment losses are recognized in net income
(loss). Impairment losses recognized in respect of CGUs are allocated first to reduce the
carrying amount of any goodwill allocated to the units, and then to reduce the carrying
amounts of the other assets in the unit (group of units) on a pro-rata basis.
An impairment loss in respect of goodwill is not reversed. In respect of other assets,
impairment losses recognized in prior periods are assessed at each reporting date for
any indications that the loss has decreased or no longer exists. An impairment loss is
reversed if there has been a change in the estimates used to determine the recoverable
amount. An impairment loss is reversed only to the extent that the asset’s carrying
amount does not exceed the carrying amount that would have been determined, net of
depreciation or amortization, if no impairment loss had been recognized.
54
PEOPLE CORPORATION2018 ANNUAL REPORT PEOPLE CORPORATION
Notes to the Consolidated Financial Statements
For the years ended August 31, 2018 and 2017
(h) Trade payables, accrued and other liabilities
Trade payables include obligations to pay for goods or services that have been acquired in the
ordinary course of business. Trade payables are classified as current liabilities if payment is due
within one year or less and are recognized initially at fair value and subsequently measured at
amortized cost.
Accrued liabilities include accruals for salaries and compensation, and other obligations
incidental to the Company’s normal business operations. They are classified as current when it is
expected to be settled within one year of the reporting period date, and are recognized initially
at fair value and subsequently measured at amortized cost.
(i) Deferred revenue
Deferred revenue represents payments received in advance for services which have not yet
been performed. Deferred revenues are recognized into income as services are rendered, in
accordance with the revenue recognition policies described below.
(j)
Insurance premium liabilities and related cash
In its capacity as third party administrators, the Company collects premiums from clients and
remits premiums and claim payments, net of agreed deductions, such as taxes, administrative
fees and commissions, to insurance carriers. As the Company is acting in its capacity as third
party administrators to collect and remit premiums to insurance underwriters and claim
payments to individuals, the Company is considered to have a legal right to offset premiums
collected and corresponding liabilities. As such, the cash and investment balances relating to
these liabilities have been offset against the related liability in the Company’s consolidated
statements of financial position.
(k) Employee benefits
(i) Short‑term employee benefits
Short-term employee benefit obligations are measured on an undiscounted basis and
are expensed as the related service is provided.
A liability is recognized for the amount expected to be paid under short-term cash bonus
or profit-sharing plans if the Company has a present legal or constructive obligation to
pay this amount as a result of past service provided by the employee, and the obligation
can be estimated reliably.
(ii) Share‑based payment transactions
Share-based payments are comprised of equity-settled Employee Share Purchase
Plan (“ESPP”), equity-settled stock options, equity-settled performance-conditioned
Restricted Stock Units and equity-settled Deferred Stock Units (collectively,
“Equity-Settled Awards”). Equity-Settled Awards granted to employees and directors
of the Company are measured at the fair value of the equity instruments at the grant
date. The grant date fair value of Equity-Settled Awards are recognized as compensation
expense, with a corresponding increase in equity, over the period that the awards
vest. The amount recognized as an expense is adjusted to reflect the number of
Equity-Settled Awards for which the related service and non-market vesting conditions
are expected to be met, such that the amount ultimately recognized as an expense is
based on the number of Equity-Settled Awards that do meet the related service and
non-market performance conditions at the vesting date. For Equity-Settled Awards
with non-vesting conditions, the grant date fair value of the share-based payment
is measured to reflect such conditions and there is no reconciliation for differences
between expected and actual outcomes.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED AUGUST 31, 2018 AND 2017
55
PEOPLE CORPORATION
Notes to the Consolidated Financial Statements
For the years ended August 31, 2018 and 2017
The Company’s contributions under its ESPP are expensed as incurred.
Equity-Settled Awards to non-employees are measured at the fair value of the goods
and services received unless that fair value cannot be estimated reliably, in which case
they are measured at the fair value of the equity instrument granted and measured at
the date the Company obtains the good or the counterparty renders the service.
(l) Revenue recognition
Revenue includes fees and commissions generated from administrative, advisory and consulting
services provided to clients.
Generally, revenue from the rendering of services is recognized when the following criteria
are met:
The amount of revenue can be reliably measured;
The stage of completion of services can be reliably measured;
The receipt of economic benefits is probable; and
Costs incurred and to be incurred can be reliably measured.
Concurrently with the above general principles, the Company applies the following specific
revenue recognition policies:
Group benefit commission revenue from clients where advisory services and plan administration
services are provided by the Company is generally received in advance and recorded as
deferred revenue. Commission advances are recognized in income on a monthly basis based
on the number of months for which the commission revenue was advanced, net of a provision
for return commissions due to policy cancellation and adjustments. The provision is determined
based on historical data.
Group benefit commission revenue from clients where the Company provides only advisory
services is recognized in income at the effective or renewal date of the policy, net of a provision
for return commissions due to policy cancellation and adjustments. The provision is determined
based on historical data.
Fee revenue from administrative and consulting services is recognized as services are provided.
For fee revenue that is contingent on certain criteria being met, the revenue is not recognized
until such criteria has been met.
All other revenues are recognized as services are rendered by the Company. Other revenue
includes investment income recorded on the accrual basis of accounting.
(m) Finance income and finance costs
Finance income comprises interest income on funds invested which is recognized as it accrues
in net income (loss), using the effective interest method. Finance costs comprise interest
expense on borrowings which are recognized in net income (loss) using the effective interest
method.
Foreign currency gains and losses are reported on a net basis.
(n) Income tax
Income tax expense comprises current and deferred tax. Current tax and deferred tax are
recognized in net income (loss) except to the extent that it relates to a business combination, or
items recognized directly in equity or in other comprehensive income.
56
PEOPLE CORPORATION2018 ANNUAL REPORT PEOPLE CORPORATION
Notes to the Consolidated Financial Statements
For the years ended August 31, 2018 and 2017
Current tax is the expected tax payable or receivable on the taxable income or loss for the year, using
tax rates enacted or substantively enacted at the reporting date, and any adjustment to tax payable in
respect of previous years.
Deferred tax is recognized in respect of temporary differences between the carrying amounts of
assets and liabilities for financial reporting purposes and the amounts used for taxation purposes.
Deferred tax is not recognized for the following temporary differences: the initial recognition of assets
or liabilities in a transaction that is not a business combination and that affects neither accounting
nor taxable profit or loss, and differences relating to investments in subsidiaries and jointly controlled
entities to the extent that it is probable that they will not reverse in the foreseeable future. In addition,
deferred tax is not recognized for taxable temporary differences arising on the initial recognition
of goodwill. Deferred tax is measured at the tax rates that are expected to be applied to temporary
differences when they reverse, based on the laws that have been enacted or substantively enacted by
the reporting date. Deferred tax assets and liabilities are offset if there is a legally enforceable right to
offset current tax liabilities and assets, and they relate to income taxes levied by the same tax authority
on the same taxable entity, or on different tax entities, but they intend to settle current tax liabilities
and assets on a net basis or their tax assets and liabilities will be realized simultaneously.
A deferred tax asset is recognized for unused tax losses, tax credits and deductible temporary
differences, to the extent that it is probable that future taxable profits will be available against which
they can be utilized. 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.
(o) Earnings per share
Basic earnings per share is calculated by dividing net income (loss) attributable to common
shareholders by the weighted average number of common shares outstanding during the period.
Diluted earnings per share is calculated by dividing net income (loss) attributable to common
shareholders by the weighted average number of common shares outstanding, adjusted for the effects
of all dilutive potential common shares, which comprise stock options, tandem stock appreciation
rights, restricted stock units and deferred stock units.
(p) New standards and interpretations adopted or not yet adopted
The Company has adopted the following new and revised Standards and Interpretations issued
by IASB:
IFRS 2, Share‑based Payment (“IFRS 2”)
The IASB amended IFRS 2 on June 20, 2016 effective for annual periods beginning on or after
January 1, 2018. The amendment allows for a share-based payment transaction with employees to be
accounted for as equity-settled when the transaction is settled on a net basis in order to meet statutory
withholding requirements and the transaction would otherwise be classified as equity-settled if there
were no net settlement feature. The Company adopted the amendments to IFRS 2 on September 1,
2016 on a retrospective basis. The early adoption of this amendment did not have an impact on the
recognized amounts or measurements in the consolidated financial statements.
The following new and revised Standards and Interpretations have been issued by IASB but are not yet
effective and have not been applied in preparing these financial statements:
IFRS 15, Revenue from Contracts with Customers (“IFRS 15”)
IFRS 15 establishes a comprehensive framework for determining whether, how much and when revenue
is recognized. It replaced IAS 18 Revenue, IAS 11 Construction Contracts and related interpretations.
The standard contains a single model that applies to contracts with customers and two approaches
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED AUGUST 31, 2018 AND 2017
57
PEOPLE CORPORATION
Notes to the Consolidated Financial Statements
For the years ended August 31, 2018 and 2017
to recognizing revenue: at a point in time or over time. The model features a contract-based
five-step analysis of transactions to determine whether, how much and when revenue is
recognized. New estimates and judgmental thresholds have been introduced, which may affect
the amount and/or timing of revenue recognized. It applies to contracts with customers. It does
not apply to insurance contracts, financial instruments or lease contracts, which fall in the scope
of other IFRSs.
The Company will adopt IFRS 15 and the related Clarifications to IFRS 15 in its financial
statements for the annual period beginning on September 1, 2018. The Company intends to
adopt IFRS 15 using the cumulative effect method (using the practical expedient of recognizing
the incremental costs of obtaining a contract as an expense when incurred if the amortization
period of the asset the Company otherwise would have recognized is one year or less), with the
effect of initially applying this standard recognized at the date of initial application.
The Company is in the process of determining the impact, if any, to its retained earnings as
at September 1, 2018, and to its revenue and net income for future periods. Although IFRS 15
introduces significant new guidance, particularly around identification of separate performance
obligations based on whether services are distinct, its application is not expected to have a
material impact on the timing or amount of revenue recognized by the Company.
Revenue includes fees and commissions generated from administrative, advisory and consulting
services provided to clients. Revenue and related costs from these services is recognized in
accordance with the five-step model in IFRS 15:
1. Identify the contract with a customer.
2. Identify the performance obligations in the contract.
3. Determine the transaction price, which is the total consideration provided by the customer.
4. Allocate the transaction price among the performance obligations in the contract based on
their relative fair values; and
5. Recognize revenue when the relevant criteria are met for each performance obligation.
IFRS 15 also contains additional presentation and disclosure requirements. Concurrently with
the above general principles, the Company expects to apply the following changes to its current
revenue recognition policies and disclosures under IFRS 15:
The incremental costs of obtaining contracts for new clients, the renewal of contracts
and the fulfillment of the contracts for these customers were previously expensed.
Under IFRS 15, incremental costs of obtaining and renewing customer contracts with
terms in excess of 12 months, and certain qualifying fulfillment costs will be recognized
as contract assets and amortized over the expected term of the related contract, if the
Company expects to recover those costs.
Group benefit commission advances previously recorded as deferred revenue in the
consolidated statement of financial position will be reclassified to contract liabilities.
Revenue recognized from contracts with customers will be disaggregated into
categories that depict how the nature, amount, timing and uncertainty of revenue and
cash flows are affected by economic factors.
The Company continues to evaluate the systems, internal controls, policies and procedures
necessary to collect and disclose the required information under IFRS 15.
IFRS 9, Financial Instruments (“IFRS 9”)
IFRS 9 introduces new requirements for the classification and measurement of financial assets.
Under IFRS 9, financial assets are classified and measured based on the business model in
which they are held and the characteristics of their contractual cash flows. The standard
58
PEOPLE CORPORATION2018 ANNUAL REPORT PEOPLE CORPORATION
Notes to the Consolidated Financial Statements
For the years ended August 31, 2018 and 2017
introduces additional changes relating to financial liabilities. It also amends the impairment
model by introducing a new ‘expected credit loss’ model for calculating impairment.
The mandatory effective date of IFRS 9 is for annual periods beginning on or after January
1, 2018 and must be applied retrospectively with some exemptions. The restatement of prior
periods is not required and is only permitted if information is available without the use of
hindsight.
The Company will adopt IFRS 9 on September 1, 2018, which replaces IAS 39, Financial
Instruments: Recognition and Measurement (“IAS 39”).
(i) Classification of financial assets and liabilities
IFRS 9 contains three principal classification categories for financial assets: measured
at amortized cost, fair value through other comprehensive income (“FVOCI”), and fair
value through profit or loss (“FVTPL”). The classification of financial assets under IFRS
9 is generally based on the business model in which a financial asset is managed and its
contractual cash flow characteristics. The standard replaces the previous classification
categories of held to maturity, loans and receivables, and available for sale under IAS
39. The two principal classification categories for financial liabilities under IFRS 9 are
amortized cost, and FVTPL. The adoption of the IFRS is not expected to have a material
impact on the Company’s classification and measurement of financial assets and
financial liabilities.
(ii) Impairment of financial assets
IFRS 9 replaces the ‘incurred loss’ model in IAS 39 with an expected credit loss (“ECL”)
model. The new impairment model applies to financial assets carried at amortized cost
and contract assets. The adoption of the new ECL impairment model is not expected
to have a material impact on the Company’s measurement of impairment losses on its
financial assets carried at amortized cost and contract assets.
IFRS 16, Leases (“IFRS 16”)
On January 13, 2016 the IASB issued IFRS 16 Leases. The new standard is effective for annual
periods beginning on or after January 1, 2019. IFRS 16 will replace IAS 17 Leases.
This standard introduces a single lessee accounting model and requires a lessee to recognize
assets and liabilities for all leases with a term of more than 12 months, unless the underlying
asset is of low value. A lessee is required to recognize a right-of-use asset representing its
right to use the underlying asset and a lease liability representing its obligation to make lease
payments.
The Company is currently in the process of implementing a transition plan and evaluating the
impact of adopting IFRS 16 on its financial statements, but expects this standard will have a
significant impact on its consolidated statement of financial position, along with a change to the
recognition, measurement and presentation of lease expenses in the consolidated statement of
comprehensive income.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED AUGUST 31, 2018 AND 2017
59
PEOPLE CORPORATION
Notes to the Consolidated Financial Statements
For the years ended August 31, 2018 and 2017
4. BUSINESS ACQUISITIONS:
During the period the company acquired the following businesses:
Effective August 1, 2018, the Company acquired Silverberg & Associates Inc. (“Silverberg”), an
independent privately-owned employee group benefits consulting firm in Western Canada. Total
consideration paid for the acquisition of Silverberg included cash, subject to final adjustments
for working capital and non-controlling interest put options. The Company holds a 100% voting
interest and holds a 75% economic interest in Silverberg through ownership of all of the issued
dividend-bearing common shares of Silverberg.
The Silverberg Principals collectively hold a 25% economic interest in Silverberg through ownership
of non-voting, non-cumulative, dividend-bearing special shares of Silverberg (“Silverberg Principal
Shares”). All classes of non-voting, non-cumulative, dividend-bearing shares of Silverberg have
an ongoing contractual right to receive quarterly dividends based on a calculation derived from
Silverberg’s earnings. The Company is entitled to a priority on the payment of dividends declared on
the Silverberg dividend-bearing shares to the extent of a specified earnings amount.
In addition, the Company has a future right to purchase the Silverberg Principal special shares
(“Silverberg Call Options”) and individual Silverberg Principals have a future right to require the
Company to purchase the Silverberg Principal special shares (collectively, the “Silverberg Put
Options”), subject to the satisfaction of certain terms and conditions and by giving notice to the
Company. On the effective date of exercise of the Silverberg Call Options or the Silverberg Put
Options, the Silverberg Principal’s pro-rata right to earn dividends will be terminated.
Effective May 23, 2018, the Company acquired all of the issued and outstanding shares of Lane
Quinn Benefit Consultants Ltd. (“Lane Quinn”), a group benefits consulting firm in the Alberta
market. Total consideration paid for the acquisition of Lane Quinn included cash, subject to final
adjustments for working capital, vendor take-back notes, common shares of the Company and
contingent consideration. Vendor take back notes payable are subject to claw back adjustments
tied to achievement of certain financial metrics. The contingent consideration recorded is based on
Lane Quinn exceeding predetermined EBITDA targets, over the three annual periods from August
1, 2018 to July 31, 2021, multiplied by the transaction multiple. The present value of the estimated
contingent consideration has been determined using a 15.8% discount rate.
Effective February 1, 2018, the Company acquired specific assets, liabilities and business operations
of Rockwater Benefits Company (“Rockwater”), an established group retirement and group
benefits insurance advisory practice based in Ontario. Total consideration paid for the acquisition of
Rockwater included cash and vendor take-back notes. Vendor take back notes payable are subject
to claw back adjustments tied to achievement of certain revenue metrics.
Effective December 1, 2017, the Company acquired specific assets, liabilities and business operations
of Assurances Dalbec Ltée (“Dalbec”), a Third Party Administrator (TPA) and Third Party Payor
(TPP) service provider for employee benefit plans of small and medium sized companies in the
Québec market. Total consideration paid for the acquisition of Dalbec included cash, subject to final
adjustments for working capital, vendor take-back notes and contingent consideration. Vendor take
back notes payable are subject to claw back adjustments tied to achievement of certain revenue
metrics. The contingent consideration recorded is based on Dalbec exceeding predetermined
revenue targets, over the three annual periods from December 4, 2017 to December 3, 2020,
multiplied by a multiple. The present value of the estimated contingent consideration has been
determined using a 5.0% discount rate.
These acquisitions enable the Company to continue execution of its growth strategy and expansion
of its national presence.
60
PEOPLE CORPORATION2018 ANNUAL REPORT PEOPLE CORPORATION
Notes to the Consolidated Financial Statements
For the years ended August 31, 2018 and 2017
The Company accounted for these transactions as a business combination and has applied the
acquisition method of accounting in accordance with IFRS 3. The recognized amounts of assets
acquired and liabilities assumed in the transactions and the acquisition date fair value of the total
consideration paid or payable are as follows:
DALBEC
ROCKWATER
LANE QUINN
SILVERBERG
TOTAL
Assets acquired and liabilities assumed
Goodwill (including
assembled workforce)
Customer relationships
and other intangible assets
Property and equipment
Deferred tax liabilities
Liabilities assumed
Net working capital
(152,180)
Cash
-
$
7,462,986
$
1,225,773
$
12,482,106
$
24,114,013
$ 45,284,878
8,692,126
1,726,966
11,083,900
19,164,600
40,667,592
-
-
-
-
-
-
-
-
39,441
25,750
65,191
(3,024,803)
(5,078,619)
(8,103,422)
(1,068,363)
-
(1,068,363)
(319,481)
(587,341)
(1,059,002)
300,443
945,978
1,246,421
16,002,932
2,952,739
19,493,243
38,584,381
77,033,295
Consideration paid or payable
Cash payment on closing
11,270,000
2,000,000
12,931,637
29,045,000
55,246,637
Cash received on closing
for negative working
capital
Working capital
adjustment
due to / (from) vendors
Vendor take-back notes
payable
Contingent consideration
obligation
Common shares issued by
the Company
Non-controlling interest
put options
-
-
33,239
-
-
(185,419)
(69,794)
158,637
122,082
4,332,131
952,739
3,919,551
552,981
-
-
-
-
-
789,541
1,922,308
-
-
-
9,204,421
1,342,522
1,922,308
-
9,380,744
9,380,744
16,002,932
2,952,739
19,493,243
38,584,381
77,033,295
A part of the goodwill recorded on the acquisitions can be attributed to the assembled workforce
and the operating know how of key personnel. However, no intangible assets qualified for separate
recognition in this respect.
The Company’s consolidated statements of comprehensive income (loss) include the results of
operations for Dalbec, Rockwater, Lane Quinn and Silverberg from their dates of acquisition to
August 31, 2018. The acquisitions contributed the following revenue and net income during the year
ended August 31, 2018.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED AUGUST 31, 2018 AND 2017
61
PEOPLE CORPORATION
Notes to the Consolidated Financial Statements
For the years ended August 31, 2018 and 2017
Operating revenues
Dalbec
Rockwater
Lane Quinn
Silverberg
Net income (loss) and comprehensive income (loss)
Dalbec
Rockwater
Lane Quinn
Silverberg
AUGUST 31, 2018
AS REPORTED
4,550,991
332,595
1,364,989
596,853
1,235,930
19,539
(45,223)
56,112
If the acquisitions had occurred on September 1, 2017, management estimates that consolidated
revenue would have been $145,835,127 and consolidated net income (loss) for the year would have
been $(5,319,578). In determining these amounts, management has assumed that the fair value
adjustments that arose on the date of acquisition would have been the same if the acquisition had
occurred on September 1, 2017. Acquisition-related costs amounting to $1,928,807 (2017 - $1,215,918)
are not included as part of the consideration transferred and have been recognized as acquisition,
integration and reorganization costs in the consolidated statements of comprehensive income (loss).
Effective April 12, 2017, the Company acquired all of the issued and outstanding shares of Sirius
Benefit Plans Inc. (“Sirius”), a Third Party Administrator (TPA) and Third Party Payer (TPP)
administering employee benefit programs for small to medium-sized companies across Canada.
Effective May 1, 2017, the Company acquired all of the issued and outstanding shares of Skipwith &
Associates Insurance Agency Inc. (“Skipwith”), an established TPA and TPP providing group benefit
consulting, administrative solutions and claims management services to corporations, unions and
public service organizations in the Ontario region.
These acquisitions enable the Company to continue execution of its growth strategy and expansion
of its national presence.
62
PEOPLE CORPORATION2018 ANNUAL REPORT PEOPLE CORPORATION
Notes to the Consolidated Financial Statements
For the years ended August 31, 2018 and 2017
The Company accounted for these transactions as a business combination and has applied the
acquisition method of accounting in accordance with IFRS 3. The recognized amounts of assets
acquired and liabilities assumed in the transactions and the acquisition date fair value of the total
consideration paid or payable are as follows:
Assets acquired and liabilities assumed
Goodwill
$
8,747,958
$
251,635
$
8,999,593
Customer relationships and other intangible assets
8,357,453
1,878,421
10,235,874
SIRIUS
SKIPWITH
TOTAL
Property and equipment
Deferred tax assets
Above-market lease agreement
Net working capital
Deferred tax liabilities
Consideration paid or payable
Cash payment on closing
155,809
93,664
(353,448)
7,477
-
-
163,286
93,664
(353,448)
(1,887,271)
116,021
(1,771,250)
(2,202,808)
(490,884)
(2,693,692)
12,911,357
1,762,670
14,674,027
13,500,000
1,000,000
14,500,000
Working capital adjustment due from vendors
(2,037,271)
46,424
(1,990,847)
Vendor take-back notes payable
1,448,628
716,246
2,164,874
$
12,911,357 $
1,762,670 $
14,674,027
Total consideration paid was subject to final adjustments for working capital which were settled
subsequent to the end of the year. Net working capital includes $1,618,195 of operating cash
acquired. Vendor take-back notes payable are subject to claw back adjustments tied to achievement
of certain financial metrics.
A significant part of the goodwill recorded on the acquisitions can be attributed to the assembled
workforce and the operating know-how of key personnel. However, no intangible assets qualified for
separate recognition in this respect.
The Company’s consolidated statements of comprehensive income (loss) include the results of
operations for Sirius and Skipwith from its date of acquisition to August 31, 2018.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED AUGUST 31, 2018 AND 2017
63
PEOPLE CORPORATION
Notes to the Consolidated Financial Statements
For the years ended August 31, 2018 and 2017
5. TRADE AND OTHER RECEIVABLES:
The Company had the following trade and other receivables:
Trade receivables
AUG 31, 2018
AUG 31, 2017
$
13,646,854
$
9,242,957
Working capital adjustment due from vendors
88,843
1,990,847
$
13,735,697
$
11,233,804
The Company’s exposure to credit risk and impairment losses related to trade and other receivables
is disclosed in note 20.
6. PROPERTY AND EQUIPMENT:
The Company had the following property and equipment:
LEASEHOLD
IMPROVEMENTS
FURNITURE
& FIXTURES
COMPUTER
EQUIPMENT AUTOMOBILES
TOTAL
Cost
Balance, August 31, 2016
$ 1,959,420
$ 2,450,310
$
2,712,087
$
119,181
$
7,240,998
Additions
1,054,946
86,309
344,059
Write down and disposal
Acquisition through
business combination
-
-
(2,668)
-
69,138
94,148
-
-
-
1,485,314
(2,668)
163,286
Balance, August 31, 2017
3,014,366
2,603,089
3,150,294
119,181
8,886,930
Additions
6,757,528
2,195,953
513,814
-
9,467,295
Write down and disposal
(1,153,021)
(433,710)
(608,630)
(96,836)
(2,292,197)
Acquisition through
business combination
5,585
57,624
1,982
-
65,191
Balance, August 31, 2018
$ 8,624,458
$ 4,422,956
$
3,057,460 $
22,345
$
16,127,219
Depreciation
Balance, August 31, 2016
$ (1,140,816)
$ (1,846,705)
$
(2,265,824) $
(33,667) $
(5,287,012)
Depreciation for the year
(398,234)
(176,958)
(335,487)
(25,654)
(936,333)
Write down and disposal
-
2,663
-
-
2,663
Balance, August 31, 2017
(1,539,050)
(2,021,000)
(2,601,311)
(59,321)
(6,220,682)
Depreciation for the year
(722,058)
(387,231)
(363,763)
(11,993)
(1,485,045)
Write down and disposal
1,153,013
425,732
608,630
58,605
2,245,980
Balance, August 31, 2018
$ (1,108,095)
$ (1,982,499)
$
(2,356,444) $
(12,709) $
(5,459,747)
Carrying amounts
Balance, August 31, 2017
$ 1,475,316
$ 582,089
Balance, August 31, 2018
$ 7,516,363
$ 2,440,457
$
$
548,983
701,016
$
$
59,860 $
2,666,248
9,636
$
10,667,472
64
PEOPLE CORPORATION2018 ANNUAL REPORT PEOPLE CORPORATION
Notes to the Consolidated Financial Statements
For the years ended August 31, 2018 and 2017
During the year ended August 31, 2018, the Company wrote off property and equipment with an
original cost of $2,292,197 and a net book value of $46,217 primarily in connection with the move to
the Company’s new head office building.
7. GOODWILL AND INTANGIBLE ASSETS:
The Company had the following goodwill and intangible assets:
ACQUIRED
CUSTOMER
RELATIONSHIPS
& BRANDS
GOODWILL
CUSTOMER
CONTRACTS
COMPUTER
SOFTWARE
TOTAL
Cost
Balance, August 31, 2016
$ 70,734,590
$ 60,993,722
$
3,837,994
$
3,665,216
$
139,231,522
Additions
Acquisition through
business combination
-
1,090,049
42,006
1,817,147
2,949,202
8,999,592
10,164,876
-
70,998
19,235,466
Balance, August 31, 2017
79,734,182
72,248,647
3,880,000
5,553,361
161,416,190
Additions
Write down and disposal
Acquisition through
business combination
-
-
(154,200)
45,284,878
40,667,592
228,696
97,849
1,534,544
1,861,089
-
-
(290,783)
(444,983)
-
85,952,470
Balance, August 31, 2018
$ 125,019,060
$ 112,990,735
$
3,977,849
$
6,797,122
$ 248,784,766
Amortization
Balance, August 31, 2016
$ -
$ (13,717,645)
$
(2,821,274) $
(2,418,641) $
(18,957,560)
Amortization for the year
-
(6,248,644)
(474,355)
(792,014)
(7,515,013)
Balance, August 31, 2017
-
(19,966,289)
(3,295,629)
(3,210,655)
(26,472,573)
Amortization for the year
-
(8,140,349)
(79,739)
(953,895)
(9,173,983)
Write down and disposal
-
-
-
290,676
290,676
Balance, August 31, 2018
$ -
$ (28,106,638)
$
(3,375,368) $
(3,873,874) $ (35,355,880)
Carrying amounts
Balance, August 31, 2017
$ 79,734,182
$ 52,282,358
Balance, August 31, 2018
$ 125,019,060
$ 84,884,097
$
$
584,371
602,481
$
$
2,342,706
$ 134,943,617
2,923,248
$ 213,428,886
During the year ended August 31, 2018, the Company wrote off computer software with an original
cost of $290,783 and a net book value of $107 in connection with the move to the Company’s new
head office building.
Included in computer software additions is $1,130,466 (2017 - $1,683,276) of internally developed
assets.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED AUGUST 31, 2018 AND 2017
65
PEOPLE CORPORATION
Notes to the Consolidated Financial Statements
For the years ended August 31, 2018 and 2017
The Company completed its annual impairment tests for goodwill and concluded that there was no
impairment. For impairment test purposes, the carrying value of goodwill has been allocated
as follows:
Coughlin & Associates Ltd.
BPA Financial Group Ltd.
Hamilton & Partners Ltd.
Sirius Benefit Plans Inc.
NOTE
AUG 31, 2018
AUG 31, 2017
$
25,930,637 $
25,930,637
14,665,972
14,665,972
11,600,184
11,600,184
(Note 4)
8,747,958
8,747,958
Bencom Financial Services Group Inc.
3,913,752
3,913,752
Assurances Dalbec Ltée
Lane Quinn Benefit Consultants Ltd.
Silverberg & Associates Inc.
Other
(Note 4)
(Note 4)
(Note 4)
7,462,986
12,482,106
24,114,013
-
-
-
16,101,452
14,875,679
$ 125,019,060 $
79,734,182
The key assumptions used to calculate the value in use are those regarding discount rates, growth
rates and expected changes in margins. The values of these assumptions reflect past experience.
The after tax weighted average cost of capital was determined to be 16.0% (August 31, 2017 - 16.0%)
and is based on a risk-free rate, an equity risk premium adjusted for betas of comparable publicly
traded companies, an unsystematic risk premium, an after-tax cost of debt based on the Company’s
financing arrangements and the capital structure of comparable publicly traded companies.
Cash flow projections have been discounted using rates of return derived from the Company’s
after-tax weighted average cost of capital considering specific risks relating to each CGU. At
August 31, 2018, the after-tax discount rate used in the recoverable amount calculations was 16.0%
(August 31, 2017 - 16.0%). The pre-tax discount rate was 21.9% (August 31, 2017 - 21.0%).
The Company included five years of cash flows in its discounted cash flow model. The cash flow
forecasts were extrapolated beyond the five year period using estimated average long term growth
rate of 5.0% (August 31, 2017 - 2.0%).
8. LOANS RECEIVABLE:
The Company had the following loans receivable:
Loans receivable
Less current portion of loans receivable
Total non-current loans receivable
AUG 31, 2018
AUG 31, 2017
$
1,892,110
$
1,044,110
(231,726)
(89,136)
$
1,660,384
$
954,974
66
PEOPLE CORPORATION2018 ANNUAL REPORT PEOPLE CORPORATION
Notes to the Consolidated Financial Statements
For the years ended August 31, 2018 and 2017
The Company made an interest-bearing loan to facilitate the transfer of certain economic interest
through the ongoing right to earn performance-based commissions and fees and ownership of
non-voting, non-dividend earning special shares in a subsidiary.
During the year, the Company entered into an agreement with an employee in which it provided a
$1,000,000 interest-bearing loan forgivable over ten years subject to certain conditions. In addition,
the agreement provides for future additional advances subject to certain conditions.
9. TRADE PAYABLES, ACCRUED AND OTHER LIABILITIES:
The Company had the following trade payables, accrued and other liabilities:
Trade payables and other liabilities
Provision for onerous contracts
AUG 31, 2018
AUG 31, 2017
$
18,763,502
$
14,487,049
1,315,821
1,277,904
Post-retirement benefits and contingent consideration obligations
3,735,836
354,377
23,815,159
16,119,330
Less current portion of trade payables, accrued and other liabilities
21,649,670
14,919,459
Total non-current accrued and other liabilities
$
2,165,489
$
1,199,871
The fair value of the contingent consideration liability is subsequently revalued by discounting
the estimated future payment obligations at each reporting date. The changes in fair value of the
estimated liability in future periods will be recorded in finance costs in subsequent consolidated
statements of net income. Significant unobservable assumptions include: 1) projected revenue and
EBITDA of the practices, 2) growth rates based on historical results, and 3) discount rates ranging
from 5% to 15.8%.
10. INSURANCE PREMIUM LIABILITIES AND RELATED CASH:
In its capacity as third-party benefits administrator, the Company collects premiums from insurers
and remits premiums, net of agreed deductions, such as taxes, administrative fees and commissions,
to insurance underwriters. These are considered flow-through items for the Company and, as such,
the cash and investment balances relating to these liabilities are deducted from the related liability
in the consolidated statement of financial position. The Company has the following amounts held in
accounts segregated from the Company’s operating funds for insurance premium liabilities.
Payable to carriers and insured individuals or groups
Less related cash balances
AUG 31, 2018
AUG 31, 2017
$ 90,448,848
$
79,161,415
90,448,848
79,161,415
$
‑
$
‑
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED AUGUST 31, 2018 AND 2017
67
PEOPLE CORPORATION
Notes to the Consolidated Financial Statements
For the years ended August 31, 2018 and 2017
11. NON‑CONTROLLING INTEREST PUT OPTIONS:
The Company is subject to the following non-controlling interest put options:
Balance, beginning of year
Acquisition through business combination
Change in estimated fair value
NOTE
AUG 31, 2018
AUG 31, 2017
4
16
$
34,059,108
$ 32,571,809
9,380,744
-
11,736,962
3,617,211
Less payment of dividends on non-controlling interest
(2,563,653)
(1,679,008)
Less non-controlling interest put options exercised
-
(450,904)
Balance, end of year
$
52,613,161
$
34,059,108
Changes in estimated fair value represents accretion of interest and changes in assumptions used to
estimate the liability related to future dividend payments and put features.
(i) Silverberg
In connection with the Silverberg acquisition, the Company entered into various
agreements whereby the Silverberg Principals, through their Silverberg Principal Shares,
hold an aggregate 25% economic interest in Silverberg (“Silverberg Retained Economic
Interest”).
All classes of non-voting, non-cumulative, dividend-bearing shares of Silverberg have
an ongoing contractual right to receive dividends based on a calculation derived from
Silverberg’s earnings. The Company is entitled to a priority on the payment of dividends
declared on the Silverberg dividend-bearing shares to the extent of a specified earnings
amount.
In addition, the Company has a future right to purchase the Silverberg Principal Shares
(“Silverberg Call Options”) and individual Silverberg Principals have a future right to
require the Company to purchase the Silverberg Principal Shares (collectively, the
“Silverberg Put Options”), subject to the satisfaction of certain terms and conditions and
by giving notice to the Company. On the effective date of exercise of the Silverberg Call
Options or the Silverberg Put Options, the Silverberg Principal’s pro rata right to earn
dividends will be terminated.
The liability recognized in connection with the Silverberg Retained Economic Interest,
which includes the fair value of future dividend entitlements of the Silverberg Principal
Shares and the Silverberg Put Options, has been determined based on a pre-determined
formula defined in an agreement which is based on a multiple of estimated future
earnings of Silverberg, the estimated future exercise dates of Silverberg Put Options
and other factors. Individual Silverberg Principals are restricted from exercising their
respective Silverberg Put Options until dates on or after August 1, 2021, subject to
certain terms and conditions including restrictions requiring a minimum time period
between individual exercise dates.
(ii) BPA
In connection with the BPA acquisition, the Company entered into various agreements
whereby the BPA Principals, through a class of non-voting, non-cumulative,
dividend-bearing shares of BPA (“BPA Principal Shares”) and options to acquire BPA
Principal Shares at a nominal price over a period of approximately four and one-half
years from April 13, 2016 (“BPA Share Options”), can collectively hold an aggregate 33%
68
PEOPLE CORPORATION2018 ANNUAL REPORT PEOPLE CORPORATION
Notes to the Consolidated Financial Statements
For the years ended August 31, 2018 and 2017
economic interest in BPA (“BPA Retained Economic Interest”). Effective September 1,
2017, the BPA Principals held a 16.2% (2016 - 10.2%) of aggregate BPA Retained
Economic Interest. The remaining 16.8% of BPA Share Options will vest evenly on an
annual basis over the next three years.
Commencing November 29, 2016, the issued Company Shares and BPA Principal Shares
have an ongoing contractual right to receive quarterly dividends based on a calculation
derived from BPA’s earnings. All classes of non-voting, non-cumulative, dividend-bearing
shares of BPA have an ongoing contractual right to receive dividends based on a
calculation derived from BPA’s earnings. The Company is entitled to a priority on the
payment of dividends declared on the Company Shares to the extent of a specified
earnings amount. BPA dividend entitlements are paid in arrears on a quarterly basis.
In addition, the Company has a future right to purchase the BPA Principal Shares (“BPA
Call Options”) and individual BPA Principals have a future right to require the Company
to purchase the BPA Principal Shares (collectively, the “BPA Put Options”), subject to
the satisfaction of certain terms and conditions and by giving notice to the Company. On
the effective date of exercise of the BPA Call Options or the BPA Put Options, the BPA
Principal’s pro-rata right to earn dividends will be terminated.
The liability recognized in connection with the BPA Retained Economic Interest, which
includes the fair value of future dividend entitlements of the BPA Principal Shares and
the BPA Put Options, has been determined based on a pre-determined formula defined
in an agreement which is based on a multiple of estimated future earnings of BPA, the
estimated future exercise dates of BPA Put Options and other factors. Individual BPA
Principals are restricted from exercising their respective BPA Put Options until dates on
or after August 31, 2019, subject to certain terms and conditions including restrictions
requiring a minimum time period between individual exercise dates.
(iii) Coughlin
In connection with the Coughlin acquisition, the Company entered into various
agreements whereby the former Coughlin shareholders (the “Coughlin Vendors”)
retained an initial 34% minority economic interest (“Coughlin Retained Economic
Interest”) through a class of non-voting, non-cumulative, dividend-bearing shares of
Coughlin (“Coughlin Vendor Shares”). In addition, certain of the Coughlin Vendors
were issued a class of non-voting, non-cumulative, dividend-bearing shares of Coughlin
(“Coughlin Spring Shares”) in which the aggregate Coughlin Retained Economic Interest
can increase to 40% in five years, subject to certain specified terms and conditions
having been met and subject to Coughlin achieving certain financial performance
targets over the next five years, and thereby reducing the Company’s economic interest
in Coughlin to 60%.
All classes of non-voting, non-cumulative, dividend-bearing shares of Coughlin have
an ongoing contractual right to receive dividends based on a calculation derived from
Coughlin’s earnings. The Company is entitled to a priority on the payment of dividends
declared on a distinct class of Coughlin dividend-bearing shares to the extent of a
specified earnings amount. Coughlin dividend entitlements are paid in arrears on a
quarterly basis.
In addition, the Company has the right to purchase the Coughlin Vendor Shares and
the Coughlin Spring Shares (“Coughlin Call Options”) and individual Coughlin Vendors
have the right to require the Company to purchase the Coughlin Vendor Shares and
the Coughlin Spring Shares (the “Coughlin Put Options”) by giving notice to the
Company. On the effective date of exercise of the Coughlin Call Options or the Coughlin
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED AUGUST 31, 2018 AND 2017
69
PEOPLE CORPORATION
Notes to the Consolidated Financial Statements
For the years ended August 31, 2018 and 2017
Put Options, the Coughlin Vendor’s right to earn earnings-based dividends will be
terminated.
The liability recognized in connection with the Coughlin Retained Economic Interest,
which includes the fair value of future dividend entitlements of the Coughlin Vendor
Shares and Coughlin Spring Shares and the Coughlin Put Options, has been determined
based on a pre-determined formula defined in an agreement which is based on a
multiple of estimated future earnings of Coughlin, the estimated future exercise dates of
Coughlin Put Options and other factors. Individual Coughlin Vendors are restricted from
exercising their respective Coughlin Put Options until dates on or after August 31, 2018,
subject to certain terms and conditions including restrictions requiring a minimum time
period between individual exercise dates.
On September 1, 2016, 1,000 Coughlin Vendor Shares were exercised under the terms
of the Coughlin Put Options with a total value of $450,904, resulting in the Company’s
economic interest in Coughlin increasing from 66.0% to 67.0%.
(iv) H+P
In connection with the acquisition of H+P on July 9, 2013, the Company entered into
various agreements whereby the H+P vendors hold an economic interest in H+P through
the ongoing right to earn performance-based commissions and fees. In addition, the
H+P vendors hold ongoing ownership through non-voting, non-dividend earning
special shares (“H+P Special Shares”). The Company has the right to purchase the
H+P Special Shares (“H+P Call Option”) and the vendors have the right to require the
Company to purchase the H+P Special Shares (“H+P Put Option”) at certain dates in
the future, subject to certain vesting and other conditions. On the effective date of
exercise of the H+P Call Option or the H+P Put Option, the H+P vendor’s right to earn
performance-based commissions and fees will be terminated.
The liability recognized in connection with the H+P Put Option has been determined
based on a pre-determined formula defined in an agreement which is based on a
multiple of estimated future earnings of H+P, the estimated future exercise dates and
other factors. The H+P Put Option was restricted until July 2016, which was three
years from the effective date of the agreement, and is exercisable at any time by the
non-controlling shareholder(s), subject to certain terms and conditions.
The agreement also includes a provision for contingent consideration payable to the
vendors if the growth of contractually-defined earnings exceed certain thresholds
during the first five years following the close of the transaction. Amounts relating to this
obligation are revalued in contingent consideration obligations.
70
PEOPLE CORPORATION2018 ANNUAL REPORT PEOPLE CORPORATION
Notes to the Consolidated Financial Statements
For the years ended August 31, 2018 and 2017
(v) Bencom
In connection with the acquisition of Bencom Financial Service Group Inc. (“Bencom”),
the Company entered into various agreements whereby the vendors hold an economic
interest in Bencom through the ongoing right to earn performance-based commissions
and fees. In addition, the vendors hold ongoing ownership through non-voting,
non-dividend earning special shares (“Bencom Special Shares”). The Company has
the right to purchase the Bencom Special Shares (“Bencom Call Option”) and the
vendors have the right to require the Company to purchase the Bencom Special Shares
(“Bencom Put Option”) at certain dates in the future, subject to certain vesting and other
conditions. On the effective date of exercise of the Bencom Call Option or the Bencom
Put Option, the Bencom vendor’s right to earn performance-based commissions and
fees will be terminated.
The liability recognized in connection with the Bencom Put Option has been determined
based on a pre-determined formula defined in an agreement which is based on a
multiple of estimated future earnings of Bencom, the estimated future exercise dates
and other factors. The Bencom Put Option was restricted until December 2015, which
was three years from the effective date of the agreement, and is exercisable at any time
by the non-controlling shareholder(s), subject to certain terms and conditions.
The fair value of the liability associated with the non-controlling put options is determined by
discounting the estimated future payment obligation at each reporting date, and changes in fair
value of the estimated liability in future periods will be recorded in finance costs in subsequent
consolidated statements of comprehensive income. As no non-controlling put options were
exercised and unsettled as at August 31, 2018, the Company had no specific contractual cash flows
payable.
Significant unobservable inputs assumptions include: (i) put option exercises over periods ranging
from 6 to 60 months; (ii) Contractually-defined earnings of BPA, Coughlin, Silverberg, H+P and
Bencom before considering the retained economic interest attributable the respective vendors
generated (“Put Earnings”) as at August 31, 2018 equal to $25.5 million; (iii) growth rates applied to
Put Earnings ranging from 0.7% to 10.0% annually based on historical results; and (iv) discount rate
of 16%. An increase in the Put Earnings would result in an increase to the liability associated with the
non-controlling put options. A 1% change in the discount rate would decrease or increase the liability
associated with the non-controlling put options by $1.4 million.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED AUGUST 31, 2018 AND 2017
71
PEOPLE CORPORATION
Notes to the Consolidated Financial Statements
For the years ended August 31, 2018 and 2017
12. LOANS AND BORROWINGS:
The Company had the following loans and borrowings, which are measured at amortized cost:
AUG 31, 2018
AUG 31, 2017
Term and revolving credit facility
(a) Term 1:
A bank loan bearing interest of bankers’ acceptance rates plus an amount
equal to 1.75% to 3.50% per annum subject to certain terms, secured by
the assets of the Company, repayable in quarterly installments equal to
2.00% to 3.00% of the opening principal balance throughout the term of the
agreement. The loan matures October 31, 2019 unless extended pursuant to
the agreement.
(b) Term 2:
A bank loan bearing interest of bankers’ acceptance rates plus an amount
equal to 1.75% to 3.50% per annum subject to certain terms, secured by
the assets of the Company, repayable in quarterly installments equal to
2.00% to 3.00% of the opening principal balance throughout the term of the
agreement. The loan matures October 31, 2019 unless extended pursuant to
the agreement.
(c) Revolver:
A bank loan bearing interest of bankers’ acceptance rates plus an amount
equal to 1.75% to 3.50% per annum subject to certain terms, secured by the
assets of the Company, to the extent not previously paid, the principal shall
be due and payable on the maturity date. The loan was repaid in the fourth
quarter of fiscal 2018.
$
17,998,430 $
18,882,750
$
8,786,000 $
-
$
-
$
14,500,000
Total term and revolving credit facility
26,784,430
33,382,750
Vendor take‑back loans
(d) A vendor take-back loan bearing no interest per annum, unsecured, payable
in three annual installments of $100,000. The amortized cost of the loan
has been discounted using a rate equal to 5.80%. The loan was repaid on
March 12, 2018.
(e)
(f)
A vendor take-back loan bearing no interest per annum, unsecured, payable
in two annual installments of $750,000. The amortized cost of the loan has
been discounted using a rate of 2.56%. The loan matures on April 12, 2019.
A vendor take-back loan bearing no interest per annum, unsecured, payable
in two payments: $325,000 in the first year and $425,180 in the second year.
The loan is subject to certain performance conditions set out in the share
purchase agreement. The amortized cost of the loan has been discounted
using a rate of 2.56%. The loan matures on July 31, 2019.
(g) A vendor take-back loan bearing no interest per annum, unsecured,
payable in five payments: $150,000 in the first year and $300,000 annually
thereafter. The amortized cost of the loan has been discounted using a rate
of 4.40%. The loan matures on June 12, 2020.
(h) A vendor take-back loan bearing no interest per annum, unsecured, payable
in two payments of $575,000 and $425,000 on the date that is 15 and
27 months following acquisition date, respectively. The loan is subject to
certain performance conditions set out in the asset purchase agreement. The
amortized cost of the loan has been discounted using a rate of 2.90%. The
loan matures on May 31, 2020.
(i)
A vendor take-back loan bearing no interest per annum, unsecured, payable
in two annual installments of $2,125,000. The loan is subject to certain
performance conditions set out in the share purchase agreement. The
amortized cost of the loan has been discounted using a rate of 4.75%. The
loan matures on September 1, 2020.
-
99,040
738,451
1,459,912
740,348
722,366
568,191
834,762
966,638
3,965,288
-
-
72
PEOPLE CORPORATION2018 ANNUAL REPORT
PEOPLE CORPORATION
Notes to the Consolidated Financial Statements
For the years ended August 31, 2018 and 2017
(j)
A vendor take-back loan bearing no interest per annum, secured by the
assets of the Company, payable in three annual installments of $1,610,000.
The loan is subject to certain performance conditions set out in the asset
purchase agreement. The amortized cost of the loan has been discounted
using a rate of 5.00%. The loan matures on February 28, 2021.
Total vendor take‑back loans
Finance lease liabilities
(k) A finance lease repayable in monthly installments of $1,082 and secured by
the assets to which the obligation relates. The lease expires December 13,
2019 and includes an implicit interest rate equal to 4.71%.
Total finance lease liabilities
Less current portion of:
Term loans
Vendor take-back loans
Finance lease liabilities
4,493,291
-
11,472,207
3,116,080
16,911
16,911
27,895
27,895
38,273,548
36,526,725
3,329,132
2,221,500
3,733,311
1,394,089
12,503
11,929
7,074,946
3,627,518
$
31,198,602
$
32,899,207
The Company is a party to an agreement with a syndicate of Canadian banks, which included the
following components:
1. $5,000,000 revolving credit facility to fund operating cash flow needs. As at August 31, 2018,
the Company had not utilized this facility (August 31, 2017 - nil).
2. $19,500,000 term credit facility installment loan which was used to refinance the acquisition
facility balance outstanding under the previous agreement and fund acquisitions. As at
August 31, 2018, the balance owing on this facility was equal to $17,998,430 (August 31, 2017 -
$18,882,750).
3. $63,800,000 term acquisition credit facility to fund future acquisitions. The accordion
feature was exercised on August 1, 2018, resulting in the term acquisition credit facility
increasing by $15,000,000 to $63,800,000 from $48,800,000. As at August 31, 2018, the
balance on this facility was nil (August 31, 2017 - $14,500,000).
4. $9,500,000 delayed draw term credit facility to fund leasehold improvements at the
Company’s head office. As at August 31, 2018, the balance owing on this facility was equal to
$8,786,000 (August 31, 2017 - nil).
The facility is secured by a general security agreement over the assets of the Company and its
subsidiaries and is subject to covenants (Note 21).
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED AUGUST 31, 2018 AND 2017
73
PEOPLE CORPORATION
Notes to the Consolidated Financial Statements
For the years ended August 31, 2018 and 2017
The following table provides details on the changes in the Company’s Loans and Borrowings during
the year.
TERM 1
TERM 2
REVOLVER
VTB
FINANCE
LEASES
TOTAL
Balance,
Aug 31, 2017
$
18,882,750 $
-
$
14,500,000 $
3,116,080
$
27,895
$ 36,526,725
Proceeds
1,117,250
9,500,000
45,045,000
9,204,421
-
64,866,671
Repayment
(2,001,570)
(714,000)
(59,545,000)
(1,094,398)
(11,929)
(63,366,897)
Amortization/
Other
Balance,
Aug 31, 2018
-
-
$
17,998,430 $
8,786,000 $
-
-
246,104
945
247,049
$
11,472,207
$
16,911
$ 38,273,548
13. INCOME TAXES:
Income taxes recognized in net income (loss) comprise the following:
Income (loss) before income taxes
Statutory tax rate
Income tax provision (recovery) at statutory tax rates
Adjustments to income taxes
Non-deductible items
Prior period current tax provision (recovery), net
Prior period deferred tax provision (recovery) and other
Current taxes
Deferred taxes
AUG 31, 2018
AUG 31, 2017
$
(2,622,361)
6,273,407
26.84%
26.81%
(703,842)
1,681,900
3,988,952
1,405,030
(448,687)
(143,765)
1,461,855
(148,517)
4,298,278
2,794,648
5,882,030
5,464,400
(1,583,752)
(2,669,752)
$
4,298,278
$
2,794,648
74
PEOPLE CORPORATION2018 ANNUAL REPORT PEOPLE CORPORATION
Notes to the Consolidated Financial Statements
For the years ended August 31, 2018 and 2017
Significant components of deferred tax assets and liabilities are as follows:
Deferred tax assets
Property and equipment
Onerous leases
Equity issue and financing costs
Non-capital losses carried forward
Other
Deferred tax liabilities
Intangible assets
Other
AUG 31, 2018
AUG 31, 2017
$
240,543 $
-
352,771
455,442
1,144,351
390,883
1,906,273
1,938,555
-
72,557
3,643,938
2,857,437
(19,978,205)
(13,736,042)
(114,361)
-
(20,092,566)
(13,736,042)
Net deferred tax liabilities
$
(16,448,628) $
(10,878,605)
Movement in net deferred tax liabilities:
Balance, August 31, 2017
Recognized in the statement of income and
comprehensive income
Recognized in business acquisitions
Recognized in equity
Other
Balance, August 31, 2018
AUG 31, 2018
AUG 31, 2017
$
(10,878,605) $
(11,667,033)
1,583,752
2,669,752
(8,103,422)
(2,693,692)
955,891
312,633
(6,244)
499,735
$
(16,448,628) $
(10,878,605)
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED AUGUST 31, 2018 AND AUGUST 31, 2017
75
PEOPLE CORPORATION
Notes to the Consolidated Financial Statements
For the years ended August 31, 2018 and 2017
14. SHARE CAPITAL:
(a) Authorized
The Company has authorized share capital of an unlimited number of common voting shares
with no par value.
(b) Shares issued and outstanding
Shares issued and outstanding are as follows:
Balance, August 31, 2016
Private placement of shares
Exercise of stock options
Balance, August 31, 2017
Private placement of shares
Acquisition-related issuance of shares
Exercise of stock options
Settlement of restricted stock units
Balance, August 31, 2018
NUMBER OF COMMON
VOTING SHARES
AMOUNT
$
45,225,050 $
39,333,725
5,439,500
19,259,036
336,590
268,495
51,001,140
58,861,256
9,004,500
62,906,800
235,001
1,914,315
384,534
926,851
15,336
63,031
$
60,640,511
$ 124,672,253
On August 21, 2018, the Company closed a private placement offering of 5,227,900 shares
at a price of $7.70 per share, for gross proceeds of $40,254,830. The offering resulted in net
proceeds of $38,654,611 after share issuance and commission costs, including a deferred tax
asset of $576,948 relating to share issuance and commission costs.
On November 22, 2017, the Company closed a private placement offering of 3,776,600 shares
at a price of $6.70 per share, for gross proceeds of $25,303,220. The offering resulted in net
proceeds of $24,252,189 after share issuance and commission costs, including a deferred tax
asset of $378,943 relating to share issuance and commission costs.
On October 6, 2016, the Company closed a private placement offering of 5,439,500 shares
at a price of $3.70 per share, for gross proceeds of $20,126,150. The offering resulted in net
proceeds of $19,259,036 after share issuance and commission costs, including a deferred tax
asset of $312,633 relating to share issuance and commission costs.
In connection with the acquisition of Lane Quinn, the Company issued 235,001 common shares
to the vendors for an aggregate value of $1,914,315 net of issuance costs.
(c) Earnings per share
Basic earnings per share is calculated by dividing net income (loss) attributable to common
shareholders by the weighted average number of common shares outstanding during the
period.
Diluted earnings per share is calculated by dividing net income (loss) attributable to common
shareholders by the weighted average number of common shares outstanding, adjusted for the
potentially dilutive effect of the total number of additional common shares related to grants
outstanding at August 31, 2018 that would have been issued by the Company under its Security
Based Compensation Plan.
76
PEOPLE CORPORATION2018 ANNUAL REPORT
PEOPLE CORPORATION
Notes to the Consolidated Financial Statements
For the years ended August 31, 2018 and 2017
The following details the earnings per share, basic and diluted, calculations for the years ended
August 31, 2018 and August 31, 2017.
Net (loss) income attributable to common
shares (basic and diluted)
Weighted average number of common
shares (basic)
Add: Dilutive effect of stock options
Add: Dilutive effect of deferred stock units
Add: Dilutive effect of restricted stock
units
Weighted average number of common
shares (diluted)
(Loss) earnings per share (basic)
(Loss) earnings per share (diluted)
AUG 31, 2018
AUG 31, 2017
$
(6,920,639) $
3,478,759
54,353,322
50,321,853
-
-
-
715,271
39,789
296,508
54,353,322
51,373,421
$
$
(0.127) $
(0.127) $
0.069
0.068
The average market value of the Company’s shares for the purposes of calculating the dilutive effect
of stock options was based on quoted market prices for the period during which the options were
outstanding.
15. SHARE‑BASED PAYMENTS:
The Company’s Security Based Compensation Plan allows for the issuance of stock options,
restricted stock units and deferred stock units.
Under the Security Based Compensation Plan, awards may be granted to any director, officer,
employee or consultant of the Company or of any of its affiliates by the Company’s Board of
Directors. Subject to the adjustment provisions provided for in the Security Based Compensation
Plan and the applicable rules and regulations of all regulatory authorities to which the Company is
subject (including the TSX Venture Exchange), the aggregate number of common shares reserved
for issuance pursuant to the Security Based Compensation Plan cannot exceed 5,986,222, which
number takes into account the common shares that are available for issuance under the Company’s
Security Based Compensation Plan.
(a) Employee share purchase plan
The Company has an ESPP whereby both employee and Company contributions are used to
purchase shares on the open market for employees. The Company’s contributions are expensed
as incurred as there is no vesting period. Under the plan, the Company matches $1 for every
$4 contributed by employee contributions of between 2% and 5% of annual base remuneration.
At August 31, 2018, there were 338 participants (August 31, 2017 – 274) in the plan. The total
number of shares purchased during the year ended August 31, 2018 on behalf of participants,
including the Company contribution, was 226,560 shares (August 31, 2017 – 245,720 shares).
During the year ended August 31, 2018, the Company’s matching contributions totaled 45,312
shares (August 31, 2017 – 49,144 shares).
For the year ended August 31, 2018 the Company recorded an expense to recognize the
matching contribution equal to $330,728 (August 31, 2017 – $242,258).
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED AUGUST 31, 2018 AND 2017
77
PEOPLE CORPORATION
Notes to the Consolidated Financial Statements
For the years ended August 31, 2018 and 2017
(b) Stock option plans
Stock options may be granted to directors, officers, employees and service providers of the
Company on terms that the directors of the Company may determine within the limitations
set forth in the Security Based Compensation Plan or former Stock Option Plan or by security
regulators. Options shall not be granted for a term exceeding eight years under the terms of the
Security Based Compensation Plan or five years under the terms of the former Stock Option Plan.
Changes in the number of options outstanding during the years ended August 31, 2018 and 2017,
were as follows:
Balance, beginning of year
1,298,480 $
Granted
Exercised
Forfeited and expired
Balance, end of year
AUG 31, 2018
WEIGHTED
AVERAGE
EXERCISE
PRICE
OPTIONS
2,774,847
(384,534)
(6,932)
2.73
7.78
1.65
2.94
AUG 31, 2017
WEIGHTED
AVERAGE
EXERCISE
PRICE
OPTIONS
1,504,897
$
2.08
130,173
(336,590)
-
4.37
0.48
-
3,681,861
$
6.64
1,298,480
$
2.73
Options exercisable, end of year
569,197
600,927
For the year ended August 31, 2018, the Company received proceeds equal to $635,848 (2017 -
$159,926) from the exercise of 384,534 (2017 - 336,590) options. Related to these transactions,
the Company transferred $291,003 (2017 - $108,569) from contributed surplus to share capital.
Options outstanding at August 31, 2018 consisted of the following:
RANGE OF
EXERCISE PRICES
$
$
$
$
$
$
1.00
- $ 2.00
2.01
- $ 3.00
3.01
- $ 4.00
4.01
- $ 5.00
7.01
- $ 7.93
1.00
- $ 7.93
NUMBER
OUTSTANDING
REMAINING
CONTRACTUAL
LIFE
84,000
0.46 years
$
434,270
4.65 years
274,712
5.35 years
214,032
5.65 years
2,674,847
5.06 years
3,681,861
4.96 years
$
WEIGHTED
AVERAGE
EXERCISE
PRICE
NUMBER
EXERCISABLE
1.70
2.88
3.59
4.28
7.91
6.64
84,000
182,245
168,920
134,032
-
569,197
For the year ended August 31, 2018, the Company recorded an expense to recognize stock
option compensation expense for options granted to employees and directors of the Company
equal to $441,940 (2017 - $359,397).
On August 28, 2018, the Company granted 2,600,000 options to certain senior executives. The
options were granted as part of the Company’s overall compensation strategy to reward the
senior executives for individual and corporate performance, to align their interests with that
of the Company and to provide for long-term incentives. Except in certain circumstances, all
of the options vest on the third anniversary of the issuance. Of the 2.6 million options granted,
78
PEOPLE CORPORATION2018 ANNUAL REPORT PEOPLE CORPORATION
Notes to the Consolidated Financial Statements
For the years ended August 31, 2018 and 2017
60% or 1.56 million are performance conditioned options, with a requirement for the Company’s
share price to reach a threshold of $12 in order for these options to vest. The remaining 40%
or 1.04 million are regular options. All of the options have an exercise price of $7.93 per share,
have a term of 5 years and otherwise are subject to the terms of the Plan. The stock option
compensation expense for options issued to certain senior executives was determined based on
the fair value of the options at the grant date using a Monte Carlo simulation approach using the
following assumptions:
Expected life time vesting options
Expected life performance vesting options
Risk-free interest rate
Dividend yield
Forfeiture rate
Volatility factor of expected market price of the Company’s shares
4.00 years
4.06 years
2.21%
nil
nil
40.10%
The stock option compensation expense for options issued in normal course to employees
was determined based on the fair value of the options at the date of measurement using the
Black-Scholes option pricing model (Note 18) with the following weighted average assumptions:
Expected option life
Risk-free interest rate
Dividend yield
Forfeiture rate
Volatility factor of expected market price of the Company’s shares
AUG 31, 2018
AUG 31, 2017
5.00 years
5.00 years
1.85%
nil
7.44%
27.20%
0.72%
nil
7.78%
31.74%
For awards that vest at the end of a vesting period, compensation cost is recognized on a
straight-line basis over the period of service. For awards subject to graded vesting, each
installment is treated as a separate award with separate fair value and a separate vesting period.
The estimated forfeiture rate is adjusted to actual forfeiture experience as information becomes
available.
For recently granted stock options, the expected life of the share options is based on historical
data and current expectations and is not necessarily indicative of exercise patterns that may
occur. Volatility is determined based on the five-year share price history of the Company. The
expected volatility reflects the assumption that the historical volatility over a period similar to
the life of the options is indicative of future trends, which may also not necessarily be the actual
outcome. The expected volatility of previously granted stock options was determined based on
the five-year share price history of the Company and comparable listed entities.
(c) Performance‑conditioned Restricted Stock Units (RSUs)
The Company conditionally grants RSUs (payable in cash or shares of the Company’s common
stock at the discretion of the Board of Directors) to designated management employees, that
may be earned at the end of a one-year performance period, based on each fiscal year (“the
performance period”), subject to certain financial metrics for the performance period. In order
to earn RSUs a minimum threshold must be achieved, with the maximum number of RSUs being
earned upon achievement of the target.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED AUGUST 31, 2018 AND 2017
79
PEOPLE CORPORATION
Notes to the Consolidated Financial Statements
For the years ended August 31, 2018 and 2017
For the year ended August 31, 2018, the Company conditionally granted 151,814 RSUs related to
the current fiscal year; the RSUs, if earned, are scheduled to vest on or after November 30, 2019,
conditional upon continued employment with the Company until such date.
Changes in the number of RSUs outstanding during the years ended August 31, 2018 and
August 31, 2017, were as follows:
AUG 31, 2018
AUG 31, 2017
NUMBER OF
RSUs
GRANT PRICE
$
NUMBER OF
RSUs
GRANT PRICE
$
Balance, beginning of year
325,156 $
Granted
Settled
Forfeited
151,814
(31,203)
(3,488)
Balance, end of year
442,279 $
3.87
6.60
4.11
6.59
4.77
128,680 $
199,942
-
(3,466)
325,156 $
3.73
3.96
-
4.11
3.87
The fair value of RSU’s awarded is determined at grant date calculated based on the closing
price of the Company’s common shares for the ten business days preceding grant date and the
related stock compensation expense is recognized over the vesting period which is the period
over which all of the specified vesting conditions are satisfied. The number of RSUs awarded is
determined based on the fair market value of those RSUs on the date credited.
For the year ended August 31, 2018, the Company recorded an expense to recognize vesting of
RSUs granted to employees and directors of the Company equal to $622,773 (2017 - $369,024).
On January 8, 2018, the Company settled 31,203 fully vested RSUs and recorded a fair value
adjustment of $39,350 (2017 - $nil) to recognize the incremental stock compensation expense
incurred to net settle the RSUs.
(d) Deferred Stock Units (“DSUs”)
Independent members of the Company’s Board of Directors are paid a portion of their annual
retainer in the form of DSUs, which vest on the date determined by the Board of Directors.
In addition, certain employees of the Company are granted DSUs that form part of their
compensation arrangement. The underlying security of DSUs are the Company’s common
shares, which are valued based on their volume weighted average closing price for the ten
trading days prior to the date on which the DSUs are granted. The DSUs will be settled by the
issuance of common shares by the Company unless, subject to the consent of the Company, the
Director elects to receive cash in lieu of common shares.
Changes in the number of DSUs outstanding during the years ended August 31, 2018 and
August 31, 2017, were as follows:
Balance, beginning of year
Granted
Balance, end of year
AUG 31, 2018
AUG 31, 2017
NUMBER OF
DSUs
GRANT PRICE
$
NUMBER OF
DSUs
GRANT PRICE
$
41,478 $
27,800
69,278
3.86
7.68
5.79
26,442 $
15,036
41,478
3.78
3.99
3.86
80
PEOPLE CORPORATION2018 ANNUAL REPORT PEOPLE CORPORATION
Notes to the Consolidated Financial Statements
For the years ended August 31, 2018 and 2017
The fair value of DSU’s awarded is determined at grant date calculated with reference to the
closing price of the Company’s common shares for the ten business days preceding grant date
and the related stock compensation expense is recognized over the vesting period which is
the period over which all of the specified vesting conditions are satisfied, if any. The number of
DSUs awarded is determined based on the fair market value of those DSUs on the date credited.
A portion of the DSUs were granted subsequent to year end.
For the year ended August 31, 2018, the Company recorded an expense relating to DSUs
totaling $209,147 (2017 - $60,000) for annual awards covering the 2018 fiscal year.
For the year ended August 31, 2018 the Company recorded non-cash expense to recognize Stock
Option, RSU and DSU grants to employees and directors of the Company equal to $1,313,210 (2017 –
$788,422).
16. FINANCE EXPENSES:
The Company’s finance expenses for the years ended August 31, 2018 and August 31, 2017 were
comprised of the following:
Interest and finance costs on long-term debt
12
$
1,756,432
$
1,212,266
NOTE
AUG 31, 2018
AUG 31, 2017
Other finance costs, net
Non-cash finance costs
151,378
63,771
Accretion expense on vendor take-back loans and long-term liabilities
267,955
85,710
Change in estimated fair value of contingent consideration obligations
Change in estimated fair value of non-controlling interest put option
9
11
2,013,182
-
11,736,962
3,617,211
14,018,099
3,702,921
$
15,925,909
$
4,978,958
17. FINANCIAL INSTRUMENTS:
Fair value measurement
The Company’s financial instruments measured at fair value through profit or loss include cash,
contingent consideration obligations, and non-controlling interest put options. The valuation
techniques used to measure level 2 and level 3 financial instruments are described in the
referenced notes.
The following presents the Company’s assets and liabilities measured at fair value on a recurring
basis and categorized by hierarchy level:
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED AUGUST 31, 2018 AND 2017
81
PEOPLE CORPORATION
Notes to the Consolidated Financial Statements
For the years ended August 31, 2018 and 2017
August 31, 2017:
Cash
Non-controlling interest put options
August 31, 2018
Cash
Contingent consideration obligations
Non-controlling interest put options
(QUOTED
PRICES IN AN
ACTIVE MARKET
FOR IDENTICAL
ASSETS)
LEVEL 1
NOTE
(SIGNIFICANT
OTHER
OBSERVABLE
INPUTS)
LEVEL 2
(SIGNIFICANT
OTHER
UNOBSERVABLE
INPUTS)
LEVEL 3
$ 17,933,832
$
-
$ 21,119,220 $
-
-
11
9
11
$
$
-
-
-
-
-
-
34,059,108
-
3,355,703
52,613,161
The carrying value of the Company’s trade and other receivables, trade payables, accrued and
other liabilities approximate their fair values due to the immediate or short term maturity of these
instruments. The carrying value of the long term debt approximates its fair value as the interest
rates are consistent with the current rates offered to the Company for debt with similar terms. The
carrying value of the other non-current assets approximates its fair value as the interest rates are
consistent with the current rates offered by the Company for loans with similar terms.
Level 1
Level 2
Unadjusted quoted prices in active markets for identical assets or liabilities. An active
market for the asset or liability is a market in which transactions for the asset or liability
occur with sufficient frequency and volume to provide pricing information on an ongoing
basis.
Observable inputs other than Level 1 prices, such as quoted prices for similar assets or
liabilities, quoted prices in markets that are not active, or other inputs that are observable
or can be corroborated by observable market data for substantially the full term of the
assets or liabilities.
Level 3
Unobservable inputs that are supported by little or no market activity and that are
significant to the fair value of the assets or liabilities.
Fair value through profit or loss financial instruments are measured at fair value using Level 1 inputs
for cash and Level 3 inputs for non-controlling interest put options and contingent consideration
obligations.
18. DETERMINATION OF FAIR VALUES:
A number of the Company’s accounting policies and disclosures require the determination of fair
value, for both financial instruments and non-financial assets and liabilities. Fair values have been
determined for measurement and/or disclosure purposes based on the following methods. When
applicable, further information about the assumptions made in determining fair values is disclosed in
the notes specific to that asset or liability.
82
PEOPLE CORPORATION2018 ANNUAL REPORT PEOPLE CORPORATION
Notes to the Consolidated Financial Statements
For the years ended August 31, 2018 and 2017
(a) Property and equipment
The fair value of property and equipment recognized as a result of a business combination is
based on market values. The market value of property is the estimated amount for which a
property could be exchanged on the date of valuation between a willing buyer and a willing
seller in an arm’s length transaction after proper marketing wherein the parties had each acted
knowledgeably and willingly.
(b) Intangible assets
The fair value of customer contracts and customer relationships is based on the discounted cash
flows expected to be derived from the use and eventual sale of the assets.
(c) Share‑based payment transactions
The fair value of the employee share options are measured using the Black-Scholes and Monte
Carlo valuation models. Measurement inputs include share price on measurement date, exercise
price of the instrument, expected volatility (based on weighted average historic volatility
adjusted for changes expected due to publicly available information), weighted average
expected life of the instruments (based on historical experience and general option holder
behaviour), expected dividends, and the risk-free interest rate (based on government bonds).
Service and non-market performance conditions attached to the transactions are not taken into
account in determining fair value.
Restricted Stock Units are conditionally granted and subject to achievement performance
goals. The fair value of each Restricted Stock Unit is estimated in accordance with IFRS 2 on
the grant date based on the volume-weighted average of the closing prices of common shares
on the stock exchange for the 10 immediately preceding trading sessions, and are amortized
over the vesting period, subject to the terms of the plan. Dependent on the expected nature of
settlement, the Company may periodically re-value RSUs.
The fair value of Deferred Stock Units are estimated in accordance with IFRS 2 on the grant
date based on the volume-weighted average of the closing prices of common shares on the
stock exchange for the 10 immediately preceding trading sessions. Deferred Stock Units vest
immediately and are expensed in the period granted.
(d) Non‑controlling interest put option
The fair value of the non-controlling interest put option has been determined by discounting
estimated future cash flows based on an appropriate discount rate. The estimated future cash
flows are calculated based on pre-determined formulas as defined in the purchase agreements
which are based on a multiple of estimated future earnings, estimated future exercise dates and
other factors.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED AUGUST 31, 2018 AND 2017
83
PEOPLE CORPORATION
Notes to the Consolidated Financial Statements
For the years ended August 31, 2018 and 2017
19. COMMITMENTS AND CONTINGENCIES:
(a) Lease obligations
The Company leases premises and various office equipment under agreements which expire on
various dates up to December 2027. Future minimum lease payments as at August 31, 2018 are
as follows:
Next 12 months
13 - 24 months
25 - 36 months
37 - 48 months
49 - 60 months
Thereafter
$
4,992,504
4,590,036
4,007,553
3,382,342
3,011, 516
5,014,987
$
24,998,938
Included in operating expenses for the year ended August 31, 2018 are operating lease expenses,
primarily in respect of leased premises and equipment of $4,329,449 (2017 - $3,469,801).
(b) Contingencies
In the ordinary course of operating the Company’s business it may from time to time be subject
to various claims or possible claims. Management’s view is that there are no claims or possible
claims that if resolved would either individually or collectively result in a material adverse impact
on the Company’s financial position, results of operations, or cash flows. These matters are
inherently uncertain and management’s view of these matters may change in the future.
20. FINANCIAL RISK MANAGEMENT:
The Company has exposure to the following risks from its use of financial instruments:
Interest risk
Credit risk
Liquidity risk
This note presents information about the Company’s exposure to each of the above risks, the
Company’s objectives, policies and processes for measuring and managing risk, and the Company’s
management of capital. Further quantitative disclosures are included throughout these consolidated
financial statements.
(a) Interest Rate Risk
Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will
fluctuate because of changes in market interest rates. Financial assets and financial liabilities with
variable interest rates expose the Company to cash flow interest rate risk. Financial assets and
financial liabilities that bear interest at fixed rates are subject to fair value interest rate risk. The
Company’s term loans bear interest at variable rates and vendor take-back loans are non-interest
bearing. The carrying value of the long term debt approximates its fair value as the interest rates
are consistent with the current rates offered to the Company for debt with similar terms.
The Company has identified an exposure to cash flows relating to variable interest rate loans.
The Company does not use financial derivatives to decrease its exposure to interest risk. For
the year ended August 31, 2018, a change in interest rate relating to loans and borrowings of
84
PEOPLE CORPORATION2018 ANNUAL REPORT PEOPLE CORPORATION
Notes to the Consolidated Financial Statements
For the years ended August 31, 2018 and 2017
1% would have increased or decreased finance expense by approximately $300,800 (2017 -
$385,000).
(b) Credit Risk
Credit risk arises from the potential that a counterparty will fail to perform its obligations.
The Company is exposed to credit risk from customers. In order to reduce its credit risk, the
Company reviews a new customer’s credit history before extending credit and conducts regular
reviews of its existing customers’ credit performance. An allowance for doubtful accounts is
established based upon factors surrounding the credit risk of specific accounts, historical trends
and other information. When a receivable balance is considered uncollectible, it is written off
against the allowance for doubtful accounts. Subsequent recoveries of amounts previously
written off are credited against “general and administrative operating expenses” in the
consolidated statement of comprehensive income. The Company recorded an expense for bad
debt during the year ended August 31, 2018 of $10,413 (2017 - $45,780).
Pursuant to their respective payment terms, consolidated trade receivables were aged as
follows as at August 31, 2018:
Current
31 - 60 days past due
61 - 90 days past due
Over 91 days past due
Allowance for doubtful accounts
$
12,268,682
543,084
520,490
622,824
13,955,080
(219,383)
$
13,735,697
(c) Liquidity Risk
Liquidity risk is the risk that the Company would not be able to meet its financial obligations as
they come to maturity or can only do so at excessive costs. Based on the Company’s ability to
generate cash flows through its ongoing operations, management believes that cash flows are
sufficient to cover its known operating and capital requirements, as well as its debt servicing
costs. The Company manages its cash resources through ongoing financial forecasts and
anticipated cash flows.
Contractual obligations
The maturity dates of the Company’s financial liabilities as at August 31, 2018 are as follows:
CARRYING
AMOUNT
CONTRACTUAL
CASH FLOWS
MATURING IN
THE NEXT
12 MONTHS
MATURING IN
13 TO 36
MONTHS
MATURING IN
37 TO 60
MONTHS
MATURING IN
MORE THAN
60 MONTHS
Trade payables
and accrued
liabilities
Loans and
borrowings
$ 23,815,159
$ 24,334,757
$ 21,456,603
$ 2,318,320
$ 194,833
$ 365,000
38,273,548
38,980,845
7,328,382
31,652,463
-
-
$ 62,088,707
$ 63,315,602
$ 28,784,985
$ 33,970,783
$ 194,833
$ 365,000
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED AUGUST 31, 2018 AND 2017
85
PEOPLE CORPORATION
Notes to the Consolidated Financial Statements
For the years ended August 31, 2018 and 2017
21. CAPITAL MANAGEMENT:
The Company views its capital as the combination of its cash, loans and borrowings, and
shareholders’ equity, which as at August 31, 2018 was equal to $145,270,302 (2017 - $86,963,896).
The Company’s primary objective when managing capital is to safeguard the entity’s ability to
continue as a going concern while supporting the growth of the Company’s business through
organic growth and new acquisitions.
The Company manages the capital structure and makes adjustments to it in accordance with the
aforementioned objective, as well as taking into consideration changes in economic conditions
and the risk characteristics of the underlying assets. To maintain or adjust the capital structure, the
Company may issue new or repurchase existing shares and assume new or repay existing debt.
The credit facilities require the Company to maintain certain financial covenants. Management also
uses these ratios as key indicators in managing the Company’s capital. The Company complied with
all the required financial covenants at August 31, 2018.
22. OPERATING SEGMENTS:
The Company offers human resource consulting, recruitment services, pension advisory services,
group benefits insurance, benefits and pension administration. As at August 31, 2018, the Company
applied the aggregation criteria on the basis of type of services provided across all the segments is
similar and in accordance with IFRS 8, Operating Segments, the Company was represented by and
had one reportable segment. The Company operates exclusively within Canada.
23. RELATED PARTIES:
(a) Key management personnel compensation
Key management personnel are those persons having authority and responsibility for planning,
directing and controlling the activities of the Company. The Board of Directors and Officers are
key management personnel. In addition to their compensation paid or payable, the Company
also provides non-cash benefits and participation in the Employee Share Purchase Plan
(Note 15(a)) and Security Based Compensation Plan (Note 15(b)(c),(d)).
The following table details the compensation paid to key management personnel during the
years ended August 31, 2018 and 2017:
Salaries, fees and short-term employee benefits
Share-based payments
AUG 31, 2018
AUG 31, 2017
$
$
2,245,121
$
2,217,330
594,551
481,198
2,839,672
$
2,698,528
(b) Key management personnel and director transactions
As at August 31, 2018, directors and key management personnel owned 14.58% (August 31,
2017 - 17.31%) of the voting shares of the Company.
86
PEOPLE CORPORATION2018 ANNUAL REPORT PEOPLE CORPORATION
Notes to the Consolidated Financial Statements
For the years ended August 31, 2018 and 2017
24. EXPENSES BY NATURE:
The Company’s expenses for the years ended August 31, 2018 and August 31, 2017 were comprised
of the following:
Personnel and compensation
General and administrative
Occupancy
Administration fees
Public company costs
Depreciation and amortization
Finance expenses
AUG 31, 2018
AUG 31, 2017
$
79,739,189
$
62,977,492
16,296,494
13,638,403
6,125,276
5,803,598
4,025,752
3,398,085
368,770
318,684
106,555,481
86,136,262
10,659,028
8,451,346
15,925,909
4,978,958
$
133,140,418
$
99,566,566
The Company’s operating expenses and acquisition, integration and reorganization costs, as
reported on the statements of comprehensive income, for the years ended August 31, 2018 and
August 31, 2017 were comprised of the following:
Operating expenses
AUG 31, 2018
AUG 31, 2017
$
100,228,915
$
83,531,240
Acquisition, integration and reorganization costs
6,326,566
2,605,022
$
106,555,481
$
86,136,262
Certain employees of the Company participate in a defined contribution pension plan. Contributions
to the plan by the Company totaled $1,040,701 for the year ended August 31, 2018 (2017 – $489,713).
For the year ended August 31, 2018 the Company incurred $6,326,566 (2017 – $2,605,022) of
acquisition, integration and reorganization costs. Acquisition, integration and reorganization costs
are comprised of professional fees and other non recurring incremental costs incurred to secure
and complete specific acquisitions, non operating outlays associated with integrating acquired
operations into the Company’s business model subsequent to completion of an acquisition,
incremental costs incurred to develop the Company’s administration platform, and non recurring
outlays including consulting and recruiting fees and severance costs associated with reorganization
of operations.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED AUGUST 31, 2018 AND 2017
87
PEOPLE CORPORATION
Notes to the Consolidated Financial Statements
For the years ended August 31, 2018 and 2017
25. SUBSEQUENT EVENTS:
(a) Extension of Credit Facility Agreement
On October 31, 2018, the Company negotiated a six month extension to its credit facility with a
syndicate of Canadian banks, on similar terms and conditions, which extends the facility from
October 31, 2019 to April 30, 2020.
(b) Acquisition of Benefit Partners Inc.
Effective November 27th, 2018, the Company acquired Benefits Partners Inc. (“BPI”), a
Company providing group benefit consulting and group retirement solutions to clients based
primarily in Ontario. The payment of $6,937,000 in cash on closing, subject to post-closing
adjustment for working capital, represents the purchase price for an initial 75% economic
interest in BPI. The Company has also entered into an agreement with the BPI Principals
whereby they will retain a 25% economic interest in the business through the ownership of
non-voting, non-cumulative, dividend-bearing special shares of BPI (“BPI Special Shares”).
The Company holds a 100% voting interest and holds a 75% economic interest in BPI through
ownership of all of the issued dividend-bearing common shares of BPI.
The BPI Principals collectively hold a 25% economic interest in BPI through ownership of BPI
Special Shares. Both the Company’s common shares and the BPI Special Shares have an
ongoing contractual right to receive quarterly dividends based on a calculation derived from
BPI’s earnings. The Company is entitled to a priority on the payment of dividends declared on
the BPI dividend-bearing shares to the extent of a specified earnings amount.
In addition, the Company has a future right to purchase the BPI Special Principal Shares and
individual BPI Principals have a future right to require the Company to purchase the BPI Special
Shares, subject to the satisfaction of certain terms and conditions and by giving notice to the
Company.
The cash payment at closing of $6,937,500 was funded by the Company from by drawing on
the Acquisition Revolver component of the Company’s credit facilities with its senior lenders.
As this transaction has recently closed, a complete determination of the purchase consideration
and the purchase price allocation to the net assets acquired will be fully disclosed in the Q1 2019
consolidated financial statements.
88
PEOPLE CORPORATION2018 ANNUAL REPORT CORPORATE INFORMATION
EXECUTIVE
MANAGEMENT TEAM:
Laurie Goldberg, Chief Executive Officer
Bonnie Chwartacki, President
Dennis Stewner, Chief Financial Officer & Chief Operating Officer
Brevan Canning, Executive Vice President, Benefit Solutions
Paul Asmundson, Executive Vice-President & Chief Corporate Development Officer
BOARD OF DIRECTORS:
Laurie Goldberg, Chairman
Scott Anderson, Lead Director
Richard Leipsic, Director
Eric Stefanson, Director
CORPORATE OFFICES:
Executive Head Office:
1403 Kenaston Boulevard
Winnipeg, Manitoba R3P 2T5 Canada
Registered Office:
c/o McMillan LLP, 181 Bay Street, Suite 4400
Toronto, Ontario M5J 2T3 Canada
LEGAL COUNSEL: McMillan LLP
Brookfield Place
181 Bay Street, Suite 4400
Toronto, Ontario M5J 2T3 Canada
AUDITORS: MNP LLP
2500 - 201 Portage Avenue
Winnipeg, Manitoba R3B 3K6 Canada
TRANSFER AGENT:
TMX Equity Transfer Services
100 Adelaide Street West, Suite 301
Toronto, Ontario M5H 4H1 Canada
LISTING:
Stock Exchange: TSX-V
Symbol: PEO
ANNUAL
GENERAL MEETING
February 26, 2019
3:00 PM Central Standard Time
1403 Kenaston Boulevard
Winnipeg, Manitoba R3P 2T5 Canada
89