Buhler Industries Inc.
Annual Report 2020

Plain-text annual report

BUHLER INDUSTRIES INC. ANNUAL REPORT 2020 INTRODUCTION VERSATILE Like many in manufacturing, the Company adapted Before travel restrictions were implemented in early to industry challenges and the COVID-19 pandemic. 2020, three regional dealer meetings were held in Fortunately, most areas in Canada and the United States Canada and the US to update the dealer network on had above average yields and higher quality crops than changes to Company policies. These meetings offered the previous three years. This, combined with increasing the dealers an opportunity for candid discussions on the commodity prices, resulted in optimism and higher future of the Company. Eight new Versatile dealers were demand. The order writing program for 2021 was a success added in 2020, including new representation in regions and more production is forecast as a result. Necessary of Pennsylvania and northern Alberta. With the increase steps were taken during the pandemic to ensure the in optimism in the agriculture industry, the Company safety of our employees, dealers, and customers. In- expects to add 10 to 12 new dealers in the coming year. person calls to dealers were reduced and the Company made use of virtual tools such as video conference calls Further investment in product development continued to maintain relationships and provide assistance. Despite in 2020. The Versatile Fury high speed disc was a some supply chain challenges, a significant effort was highlight of the year and continued to attract new made to deliver parts and support to our customers and customers across North America. The product exceeded dealers through these unprecedented times. sales forecasts and is expected to be a cornerstone of the tillage product line moving forward. Future product We have continued our commitment to improving development includes expanded models and options the dealer-manufacturer relationship through open on the Fury and Viking vertical tillage machine, and the communication, consistent programs and a predictable introduction of the Versatile Nemesis tractors in 235 pricing strategy. The 2020 Equipment Dealers and 255 horsepower. Looking forward towards 2021 Association’s annual satisfaction survey which ranks and beyond, Versatile is well positioned to capitalize on dealer feedback on several aspects of the relationship increasing market demand and will continue to build with manufacturers showed a significant improvement on the momentum of this past year, expanding its reach for Versatile, with improvements in nearly all categories with new and legacy products and renewed dealership and the highest overall satisfaction rating since 2014. confidence. 2 Adam Reid Vice President of Sales & Marketing, Versatile INTRODUCTION FARM KING The Farm King Division experienced both successes and included a reduction in staff and structure of the challenges in 2020. Company. During the year, Maxim Loktionov was appointed Vice President of Farm King. Maxim has re- This year Farm King celebrated 50 years of auger evaluated our priorities and focused on improving manufacturing. During the year, the Company introduced relationships with our dealership network and reducing 38 new dealerships and opened up 11 new hub locations internal costs. across Canada and the United States. The hub locations offer set up services for our dealers. Offsetting the growth During the year and subsequent to year end, Farm King in the dealer network during the year was the uncertainty made the decision to optimize production at the facility driven by the Covid-19 pandemic which resulted in in Morden, Manitoba. Product lines manufactured at the relatively flat sales compared to 2019. Additional factors facilities in Fargo, North Dakota and Willmar, Minnesota included decreased tillage sales due to dealer carry over will be relocated to Morden in 2021. in Western Canada and the severe droughts and fires in Australia leading to reduced export sales. We believe we are in a strong position moving forward and look forward to future as we reduce cost and improve In order to manage the external challenges, significant our relationships with our dealers. Company changes were necessary and the actions Maxim Loktionov Vice President, Buhler Industries Inc. 3 REPORT TO SHAREHOLDERS This year we’ve begun to see the impact of the strategy States. Despite the growth in dealers’ the division rolled out in early 2019, focusing on improving our dealer experienced relatively flat sales compared to 2019. and customer relationships and further aligning our Similar to Versatile we found our dealer’s carrying excess goals and listening to the market. This improved focus inventory in the prior year, resulting in slower sales this has allowed us to rationalize our inventory levels with year as they sold off older product. dealers, better stock our warehouses to ensure quick responses to orders and increase our dealer network. These improvements had clear impacts with increased sales over the prior year. While making these changes we also took the opportunity to look inside and optimize our costs to improve our financial position. Action and flexibility were necessary to meet the challenges before us. New key appointments included Maxim Loktionov as Vice President of Farm King, reevaluating the priorities of the brand. Internal reviews have helped optimize staffing levels throughout the organization, and difficult reviews of production Despite the improvements made, our sales remained capacity and requirements have resulted in further below our forecasts and below the volumes necessary announcements. to achieve the efficiencies to cover all overhead costs. Both external and internal factors contributed to this. A key focus of the Versatile division was to assist dealers in retailing aged and aging inventory prior to delivering new tractors. This effort, while necessary, resulted in delays in orders being received, stretching and slow- ing our production schedules. Once the orders did start rolling in we were hit with the uncertainty of continuing production in the midst of a world wide pandemic. While we saw sustained demand for our products, the During, and subsequent to the year, announcements have been made to optimize production. Production lines previously located at the facilities in Fargo, ND, and Willmar, MN are currently being relocated to Morden, MB. Further changes are planned for the fall of 2021 with tillage production moving from Vegreville, AB to our Winnipeg, MB facility. These moves will allow more flexibility in meeting production demands for both our tractor and tillage production and help reduce the pandemic wasn’t without any impact. Despite these overall overhead costs. external factors, Versatile was proud to see the first batch of our new Nemesis tractors roll off the line and hit the fields. Additional models will be added to that product line in the coming year. Farm King proudly celebrated its fiftieth anniversary of manufacturing augers while adding 38 new dealers and 11 new hub locations across Canada and the United In 2021 we will continue the course set in 2019, we’ve seen the improvements and see a bright future ahead. We’ll continue to adapt to the challenges presented in this ever changing world while bringing a quality product to our customers with great after-market support. We continue to invest heavily in research and development for new products and continuously improve our existing products. For all of these reasons we are targeting 4 strong growth in 2021. We would like to thank all of the stakeholders for their trust and dedication to the Company. Yury Ryazanov Marat Nogerov Chief Executive Officer and Director President 5 MANAGEMENT DISCUSSION & FINANCIAL ANALYSIS Certain statements made in the following Management’s more. In addition, the Company maintains several well- Discussion and Analysis contain forward-looking stocked parts warehouses. statements including, but not limited to, statements concerning possible or assumed future results of operations of Buhler Industries Inc. (the Company). Forward-looking statements represent the Company’s intentions, plans, expectations and beliefs, and are not guarantees of future performance. Such forward-looking statements represent the Company’s current views based on information as at the date of this report. They involve risks, uncertainties and assumptions and the Company’s actual results could differ, which in some cases may be In 2007, Combine Factory Rostselmash Ltd, a major combine manufacturer located in Rostov-on-Don, Russia, acquired 80% of the common shares of the Company. The Company continues to grow with additional investment in engineering, research and development and production. The dealer/distribution network in North America remains steady, however the Rostselmash network adds more than 200 dealers in Russia, Ukraine and Kazakhstan that provides for additional sales growth material, from those anticipated in these forward-looking into the future. Buhler Industries remains committed to continuous product improvement and incorporating new value- added features. That tradition of excellence will continue well into the future. statements. Unless otherwise required by applicable securities law, the Company disclaims any intention or obligation to publicly update or revise this information, whether as a result of new information, future events or otherwise. The Company cautions investors not to place undue reliance upon forward-looking statements. Company Overview The Company is headquartered in Winnipeg, Manitoba, Canada. Established in 1932 as an agricultural equipment manufacturer, the original company was purchased by John Buhler in 1969. Through expansion, new products and acquisitions, the Company has added many brands: Farm King, Ezee-On, Allied, Inland and Versatile. Today the Company operates several modern manufacturing plants and distribution centers. Factories in Morden and Winnipeg (Manitoba), Vegreville (Alberta) and Willmar (Minnesota) build tractors, augers, snow blowers, mowers, tillage equipment, compact implements and 6 TEN YEAR HIGHLIGHTS In thousands of Canadian dollars (except per share amounts) Year ended Sept. 30 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 IFRS IFRS IFRS IFRS IFRS IFRS IFRS IFRS IFRS IFRS Revenue 279.495 357.749 340.349 325.521 245,676 274,067 311,974 287,984 229,119 249,550 Gross profit 42,297 54,858 57,318 47,730 22,266 21,226 36,153 3,474 10,343 14,325 GP% 15.1% 15.3% 16.8% 14.7% 9.1% 7.7% 11.6% 1.2% 4.5% 5.7% Income from operations 21,588 31,750 34,789 22,491 (4,012) (4,668) 9,387 (22,505) (13,631) (10,466) As percentage of revenue 8% 9% 10% 7% (2%) (2%) 3% (8%) (6%) (4%) Net earnings 11,917 16,363 19,891 12,458 (5,316) (2,677) Earnings per share (EPS) 0.48 0.65 0.80 0.50 (0.21) (0.11) 520 0.02 (49,532) (29,489) (25,809) (1.98) (1.18) (1.03) EBITDA 22,131 27,247 34,927 24,081 (6,489) 561 7,249 (28,792) 2,075 (14,341) Total assets 241,355 250,569 283,403 362,844 339,029 278.415 319,739 290,378 262,604 227,759 Working capital 120,827 130,863 141,365 148,223 130,989 122,974 120,987 81,826 77,592 53,900 Shareholders’ equity 144,562 160,925 180,816 193,274 187,958 185,281 185,801 136,269 106,780 80,971 Book value per share 5.78 6.44 7.23 7.73 7.52 7.41 7.43 5.45 4.27 3.24 Return on average capital Return on average equity 8% 9% 10% 11% 11% 12% 6% 7% (3%) (1%) (3%) (1%) 0% 0% (31%) (24%) (11%) (31%) (24%) (27%) In this table, IFRS refers to the International Financial Reporting Standards. GAAP refers to the Canadian Generally Accepted Accounting Principles that were the standard until 2011. General Information The following discussion and analysis dated December 24, 2020 was prepared by management and should be read in conjunction with the consolidated financial statements prepared in accordance with International Financial Reporting Standards (IFRS). The following discussion and analysis is presented in millions of Canadian dollars except where otherwise noted. The consolidated financial statements include the accounts of all subsidiaries. All subsidiaries in the United States operate with the U.S. dollar as the functional currency, while the Company and all its Canadian subsidiaries operate with the Canadian dollar as the functional currency. 7 MANAGEMENT DISCUSSION & FINANCIAL ANALYSIS Highlights Revenue Revenue for the year was $249.6, up 20.5 from sales of $229.1 in 2019. The Company’s increased sales levels are as a result of dealers reducing field inventory in the previous year, strong harvest conditions and crop yields. Sales to North America have increased but were somewhat offset by sales in Eastern Europe and other international sales. Gross Profit Gross profit rose to $14.3, an increase of $4.0 from the prior year’s $10.3. As a percentage of sales, gross profits were 5.7%, an increase of 1.2% from the prior year’s 4.5%. The Company has continued to focus efforts on margin improvements in 2020 which has resulted in the two consecutive years of margin improvements. Sales (millions C$) 2016 2017 2018 2019 2020 Gross Profit (millions C$) 2016 2017 2018 2019 2020 350 300 250 200 150 100 50 0 40 35 30 25 20 15 10 5 0 Loss from Operations Loss from Operations (millions C$) Loss from operations came in at $10.5 compared with a loss of $13.6 in 2019. Selling and administration expenses were $24.8, up from the prior year’s $24.0. As a percentage of sales, selling and administration was 9.9%, down from the prior year percentage of 10.5% primarily due to efficiencies as a result of the increase in revenues. 10 5 0 -5 -10 -15 -20 -25 8 2016 2017 2018 2019 2020 Net Loss Net Loss (millions C$) The net loss for the year was $25.8, an improvement of $3.7 from the loss in the prior year. In the current year the Company continued cost saving measures from the previous year that has resulted in continued improvements to gross margin and reductions in the loss from operations. The Company was able to reduce interest expense by managing to reduce its inventory and accounts receivable. In addition the Company reduced its R&D expenses during the period. The Company recorded a small gain on sale of capital assets of $0.5 as compared with the prior year gain of $19.4. EBITDA EBITDA is the earnings before interest, income taxes, depreciation and amortization, and is considered to be a useful measure of the cash flow from operations of the Company. EBITDA for 2020 was $(14.3), a decrease from the prior year of $16.4. The decline from the prior year was due primarily to gains on the sale of surplus assets in the prior year. 10 0 -10 -20 -30 -40 -50 10 5 0 -5 -10 -15 -20 -25 -30 2016 2017 2018 2019 2020 EBITDA (millions C$) 2016 2017 2018 2019 2020 9 MANAGEMENT DISCUSSION & FINANCIAL ANALYSIS Working Capital Working Capital (millions C$) Working capital is a measure of the Company's ability to discharge its current obligations by using its current assets. The Company continues to be in a strong position as the working capital at year end was $53.9, down from the prior year’s $77.6. Accounting for much of the change were decreases in inventories of $18.7 and accounts receivable of $12.8 and increased advances from related parties of $12.3 and accounts payable of $9.5, these were offset by improvements in bank indebtedness of $30.9. Research and Development 150 120 90 60 30 0 2016 2017 2018 2019 2020 Consistent with the Company’s strategy over the past several years, the Company continues to invest in the development of new products for the future so expenditures for research and development continued to be high. The Company reduced spending to $6.9, compared to $7.8 in 2019. Management believes this strategy will maintain the Company’s competitive position in the marketplace. (thousands C$) QUARTERLY NET EARNINGS RESULTS 2016 2017 2018 2019 2020 1st Quarter (8,694) (2,440) (5,798) (4,444) (5,453) 2nd Quarter 1,534 (251) (6,554) 7,041 (8,460) 3rd Quarter 3,062 2,581 (2,876) (1,170) 462 4th Quarter 1,421 Total (2,677) 630 520 (34,304) (30,916) (12,358) (49,532) (29,489) (25,809) Summary of Quarterly Results (millions C$) NET QUARTERLY INCOME 5 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter 4th Quarter 10 0 -5 -10 -15 -20 -25 -30 -35 16 17 18 19 20 16 17 18 19 20 16 17 18 19 20 16 17 18 19 20 Sales for the fourth quarter was $63.9 as compared to $49.5 in the fourth quarter of 2019. The Company experienced increased sales levels and efficiencies in manufacturing coupled with reduced discounts that led to improvements 10 over the prior year. The current year fourth quarter saw decreased interest expense, and favourable exchange rates, which were offset somewhat by increased research and development spending. Cash Flow and Capital Resources Operating Activities Net Cash Flow (millions C$) Cash for the year was up $30.9 from 2019, coming in at an indebtedness of $6.8, compared to the prior year indebtedness of $37.7. The net loss of $25.8 were offset by decreases in accounts receivable of $12.8, inventories of $18.7 and increases in accounts payable and accrued liabilities of $9.5 and advances from related parties of $12.3. Management has diligently worked to control the investment in inventory in order to keep a strong cash position. The increase in sales has resulted in an increase in the Company’s inventory turns, improving to 1.5 in 2020 from 1.3 in 2019. 35 30 25 20 15 10 5 0 -5 -10 -15 -20 -25 2.0 1.5 1.0 0.5 0.0 2016 2017 2018 2019 2020 Inventory Turns 2016 2017 2018 2019 2020 11 MANAGEMENT DISCUSSION & FINANCIAL ANALYSIS Investing Activities Asset Purchases (millions C$) Cash utilized during the year for investing activities was $0.3, compared to cash received of $18.6 in 2019. Purchases of property, plant and equipment amounted to $1.1, which were offset by the proceeds on the sale of surplus assets of $0.8. In the prior year, purchases of property, plant and equipment was $0.9, offset by proceeds on sale of surplus assets of $19.5 Financing Activities 5 4 3 2 1 0 2016 2017 2018 2019 2020 The Company’s financing activities resulted in an inflow of $12.9 for the year, compared to $10.5 in the prior year. During the year the Company received advances from a related party of $12.3 and $0.6 from recovery of tax credits, compared with $9.1 and $1.2 respectively in the prior year. Resources In order for the Company to operate and grow, continued funding resources are required. The Company has several options for funding available to it such as cash in the bank, cash provided by operations and acquiring new debt. Under the current agreements in place, the Company has access to $75.0 in credit facilities. Risks and Financial Instruments The Company recognizes that net earnings are exposed to changes in market interest rates, foreign exchange rates, prices of raw materials and risks regarding the financial condition of customers. These market conditions are regularly monitored and actions are taken when appropriate. Despite the methods employed to manage these risks, future fluctuations in interest rates, exchange rates, raw material costs and customers condition can be expected to impact net earnings. The Company may enter into fixed-rate debt to minimize the risk associated with interest rate fluctuations. In addition, the Company may employ hedging programs to minimize foreign exchange risks associated with the changes in the value of the Canadian dollar relative to the U.S. dollar. To the extent possible, the Company maximizes natural currency hedging by matching inflows from sales in either currency with outflows of costs and expenses denominated in the same currency. A 12 portion of the remaining exposure to fluctuations in exchange rates may be mitigated with forward and option contracts. The Company currently has a variable interest bank credit facility. Should future cash requirements result in additional debt be taken on, management would evaluate the financing options available at that time and take a course of action that is in the best interests of the Company in the long term. Currently, all of the financing needs of the Company are being met by the bank credit facility, which carries a low rate of variable interest. With respect to foreign exchange, the Company manages risk by use of the natural hedge that exists between the U.S. dollar denominated accounts receivables and accounts payable. Where a large difference in this hedge is anticipated, forward foreign exchange contracts may be entered into to mitigate the risk. Purchases of foreign exchange products for the purpose of speculation are not permitted. Transactions are only conducted with certain approved financial institutions. Fluctuations in foreign exchange rates represent a material exposure for the Company’s financial results. Hedging programs employed may mitigate a portion of exposures to short-term fluctuations in foreign currency exchange rates. The Company’s financial results over the long term will be affected by sizeable changes in the value of the Canadian dollar relative to the U.S. dollar. Credit risk arises from cash held with banks and credit exposure to customers, including outstanding accounts receivable. The Company assesses the credit quality of customers, taking into account their financial position, past experience and other factors. Management regularly monitors customer credit limits, performs credit reviews and, in certain cases, insures accounts receivable balances against credit losses. Nonetheless, unexpected deterioration in the financial condition of a customer can have a negative impact on net earnings in the case of default. Looking Forward Sales increased nine percent from 2019 to 2020 and projections for 2021 are favorable as sales are expected to continue to grow in 2021. The backlog has increased as we have seen increased order activity for our products. Increased sales will require additional inventories and receviables to support the sales growth. In the past year the Company revised the manufacturing capacity and made changes to reduce the overall footprint and cost of operations. The results of these changes will begin to be seen in 2021 will the full impact of these cost reductions showing up in 2022. Critical Accounting Estimates The Company believes the following accounting estimates are critical to determining and understanding the operating results and the financial position of the Company. 13 MANAGEMENT DISCUSSION & FINANCIAL ANALYSIS Critical Accounting Estimates Allowance for doubtful accounts. The Company estimates allowances for potential losses resulting from the inability of customers to make required payments of accounts receivable. Additional allowances may be required if the financial condition of any customer deteriorates. Expected Credit Losses. The Company recognizes expected credit losses on financial assets and changes in such losses, at each reporting date to reflect changes in credit risk since the initial recognition of the financial assets. For accounts receivable, the Company applied the simplified approach permitted by IFRS 9, under which the lifetime expected credit losses must be recognized upon initial recognition. For loans classified under receivables, the Company measures credit risk based on the 12-month expected credit risk if there has not been a significant increase in credit risk since initial recognition. Allowance for inventory obsolescence and net realizable value. The Company estimates allowances for potential losses resulting from inventory becoming obsolete or net realizable value declining below the carrying values. Additional allowances may be required if the physical condition of inventory deteriorates or customer requirements change. Impairment of property, plant and equipment. An integral component of impairment testing is determining the asset’s recoverable amount. The determination of the recoverable amount involves significant management judgment, including projections of future cash flows and the appropriate discount rates. The cash flows are derived from financial forecasts and do not include restructuring activities that the Company is not yet committed to or significant future investments that will enhance the asset’s performance. Qualitative factors, including market presence and trends, strength of customer relationships, strength of local management, strength of debt and capital markets, and degree of variability in cash flows, as well as other factors, are considered when making assumptions with regard to future cash flows and the appropriate discount rate. The recoverable amount is most sensitive to the discount rate used for the discounted cash flow model as well as the expected future cash inflows and the growth rate used for extrapolation purposes. A change in any of the significant assumptions or estimates could result in a material change in the recoverable amount. Contingencies and litigation. Should a lawsuit or claim be brought against the Company, management assesses the potential financial exposure of the Company. In assessing any probable losses, the amount of possible insurance recoveries will be projected. The Company accrues such liabilities when a loss becomes probable and the net amount of the loss can reasonably be estimated. Due to the inherent uncertainties relating to the eventual outcome of litigation and potential insurance recovery, certain matters could ultimately be resolved for amounts materially different to provisions or disclosures previously made by the Company. 14 Critical Accounting Estimates Continued Warranty obligation. The Company offers warranties for its sale of equipment. Management estimates the related provision for future warranty claims based on historical warranty claim information, as well as recent trends that might suggest that past cost information may differ from future claims. Factors that could impact the estimated claim information include the success of the Company’s productivity and quality initiatives, as well as parts and labor costs. Economic Conditions. In the context of the COVID-19 pandemic and the related climate of uncertainty, the Company revised some of its most complex estimated and assumptions , including significant judgement areas, used in preparing the consolidated financial statements for the year ended September 30, 2020. The main estimates revised to reflect the impact of COVID-19 pandemic on financial reporting were the determination of whether there was an indication that assets, CGU’s or groups of CGU’s may be impaired, the assumption used in the establishment of their recoverable amount when an impairment test was deemed necessary, and the assessment of the credit risk on receivables. Additional revisions might be required in the future depending on the development of the pandemic and its impact on the final measurement of the carrying amount of the Company’s assets. Income taxes. Estimation of income taxes includes evaluating the recoverability of deferred tax assets based on an assessment of the Company’s ability to utilize the underlying future tax deductions against future taxable income before they expire. The Company’s assessment is based upon existing tax laws and estimates of future taxable income. If the assessment of the Company’s ability to utilize the underlying future tax deductions changes, the Company would be required to recognize more or fewer of the tax deductions as assets, which would decrease or increase the income tax expense in the period in which this is determined. The Company makes claims for Scientific Research and Experimental Development (SRED) expenditures which are included in deferred taxes. The amounts recorded are based on the Company's interpretation of the Income Tax Act of Canada provisions which govern the eligibility of SRED costs. The claims may be subject to review by the Canada Revenue Agency (CRA) before refunds are received. Actual collection may be materially different than what is recorded in the financial statements. The Company is currently challenging CRA in court in regards to certain of its SRED credits and believes that it will be successful in defending its SRED claim. The Company's SRED credits are recorded on the balance sheet after review of the relevant accounting pronouncements and collectability or recovery is reasonably assured. The Company is subject to taxation in multiple jurisdictions. Significant judgment is required in determining the worldwide provision for taxation. There are many transactions and calculations for which the ultimate tax determination 15 MANAGEMENT DISCUSSION & FINANCIAL ANALYSIS Disclosure Controls and Internal Controls is uncertain during the ordinary course of business. The Company maintains provisions for uncertain tax positions that it believes appropriately reflect its risk with respect to tax matters under active discussion, audit, dispute or appeal with tax authorities, or which are otherwise considered to involve uncertainty. These provisions for uncertain tax positions are made using management’s best estimate of the amount expected to be paid based on a qualitative assessment of all relevant factors. Management reviews the adequacy of these provisions at each consolidated balance sheet date. However, it is possible that at some future date an additional liability could result from audits by taxing authorities. Where the final tax outcome of these matters is different from the amounts that were initially recorded, such differences will affect the tax provisions in the period in which such determination is made. The operations and organizational structure of the Company are complex, and related tax interpretations, regulations and legislation are continually changing. As a result, there are usually some tax matters in question that result in uncertain tax positions. The Company approaches uncertain tax positions from a liability or exposure perspective. The Company provides for future liabilities in respect of uncertain tax positions where additional tax may become payable in future periods and such provisions are based on management’s assessment of exposures. Disclosure Controls Management is responsible for establishing and maintaining disclosure controls and procedures in order to provide reasonable assurance that material information relating to the Company is made known to them in a timely manner and that information required to be disclosed is reported within time periods prescribed by applicable securities legislation. There are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of the controls and procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives. Based on management’s evaluation of the design and effectiveness of the Company’s disclosure controls and procedures, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that these controls and procedures are designed and operating effectively as of September 30, 2020 to provide reasonable assurance that the information being disclosed is recorded, summarized and reported as required. Internal Controls Over Financial Reporting Management is responsible for establishing and maintaining adequate internal controls over financial reporting to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with IFRS. Internal control systems, no matter how well designed, have 16 inherent limitations and therefore can only provide reasonable assurance as to the effectiveness of internal controls over financial reporting, including the possibility of human error and the circumvention or overriding of the controls and procedures. Based on management’s design and testing of the effectiveness of the Company’s internal controls over financial reporting, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that these controls and procedures are designed and operating effectively as of September 30, 2020 to provide reasonable assurance that the financial information being reported is materially accurate. During the year ended September 30, 2020, there have been no changes in the design of the Company’s internal controls over financial reporting that have materially affected, or are reasonably likely to materially affect, its internal controls over financial reporting. MANAGEMENT’S RESPONSIBILITY FOR THE FINANCIAL STATEMENTS The accompanying consolidated financial statements The Board of Directors is responsible for ensuring and all the information in this annual report are the management fulfills its responsibilities for financial responsibility of management and have been approved reporting and is ultimately responsible for reviewing and by the Board of Directors. The financial statements approving the financial statements. The Board carries have been prepared by management in accordance out this responsibility through its Audit Committee. with International Financial Reporting Standards. When The Audit Committee is appointed by the Board and alternative accounting methods exist, management its directors are unrelated and independent. The has chosen those it deems most appropriate in the Committee meets periodically with management, as well circumstances. Financial statements are not precise since as the external auditors, to discuss internal controls over they include certain amounts based on estimates and the financial reporting process, auditing matters and judgments. Management has determined such amounts financial reporting issues; to satisfy itself that each party on a reasonable basis in order to ensure that the financial is properly discharging its responsibilities; and, to review statements are presented fairly, in all material respects. the annual report, the financial statements and the Management has prepared the financial information external auditors’ report. The Audit Committee reports its presented elsewhere in the annual report and has findings to the Board for consideration when approving ensured that it is consistent with the financial statements. the financial statements for issuance to the shareholders. Management has a system of internal controls designed The Committee also considers, for review by the Board to provide reasonable assurance that the financial and approval by the shareholders, the engagement or statements are accurate and complete in all material re-appointment of the external auditors. respects. The internal control system includes an internal audit function and an established business conduct The financial statements have been audited by MNP policy that applies to all employees. Management LLP, the external auditors, in accordance with Canadian believes that the systems provide reasonable assurance generally accepted auditing standards on behalf of the that transactions are properly authorized and recorded, shareholders. financial information is relevant, reliable and accurate Willy Janzen, CPA, CGA, B.Comm. Yury Ryazanov and that the Company’s assets are appropriately accounted for and adequately safeguarded. Chief Financial Officer December 24, 2020 Chief Executive Officer December 24, 2020 17 INDEPENDENT AUDITOR’S REPORT To the Shareholders of Buhler Industries Inc.: requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a Opinion basis for our opinion. We have audited the consolidated financial statements of Other Information Buhler Industries Inc. and its subsidiaries (the "Company"), which comprise the consolidated statement of financial position as at September 30, 2020 and September 30, 2019, and the consolidated statements of loss and comprehensive loss, change in shareholders’ equity and cash flows for the years then ended, and notes to the Management is responsible for the other information. The other information comprises Management’s Discussion and Analysis. The other information also comprises the information included in the Annual Report, but does not include the consolidated financial statements and our consolidated financial statements, including a summary auditor's report thereon. Our opinion on the consolidated financial statements does not cover the other information and we do not express any form of assurance conclusion thereon. In connection with our audits of the consolidated financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the consolidated financial statements or our knowledge obtained in the audits or otherwise appears to be materially misstated. We obtained Management’s Discussion and Analysis and the Annual Report prior to the date of this auditor’s report. If, based on the work we have performed on this other information, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. of significant accounting policies. In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Company as at September 30, 2020 and September 30, 2019, and its consolidated financial performance and its consolidated cash flows for the years then ended in accordance with International Financial Reporting Standards. Basis for Opinion We conducted our audits in accordance with Canadian generally accepted auditing standards. Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements section of our report. We are independent of the Company in accordance with the ethical requirements that are relevant to our audits of the consolidated financial statements in Canada, and we have fulfilled our other ethical responsibilities in accordance with these 18 Responsibilities of Management and Those Charged accepted auditing standards will always detect a with Governance for the Consolidated Financial material misstatement when it exists. Misstatements can Statements Management is responsible for the preparation and fair presentation of the consolidated financial statements arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial in accordance with International Financial Reporting statements. Standards, and for such internal control as management determines is necessary to enable the preparation of As part of an audit in accordance with Canadian generally consolidated financial statements that are free from accepted auditing standards, we exercise professional material misstatement, whether due to fraud or error. judgment and maintain professional skepticism In preparing the consolidated financial statements, management is responsible for assessing the Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Company or to cease operations, or has no realistic alternative but to do so. Those charged with governance are responsible for overseeing the Company’s financial reporting process. Auditor's Responsibilities for the Audit of the Consolidated Financial Statements Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with Canadian generally throughout the audit. We also: • Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. • Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control. 19 INDEPENDENT AUDITOR’S REPORT • Evaluate the appropriateness of accounting We communicate with those charged with governance policies used and the reasonableness of accounting regarding, among other matters, the planned scope estimates and related disclosures made by and timing of the audits and significant audit findings, management. including any significant deficiencies in internal control • Conclude on the appropriateness of management's that we identify during our audits. use of the going concern basis of accounting and, based on the audit evidence obtained, whether We also provide those charged with governance with a material uncertainty exists related to events or a statement that we have complied with relevant conditions that may cast significant doubt on the ethical requirements regarding independence, and to Company’s ability to continue as a going concern. communicate with them all relationships and other If we conclude that a material uncertainty exists, matters that may reasonably be thought to bear on we are required to draw attention in our auditor's our independence, and where applicable, related report to the related disclosures in the consolidated safeguards. financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions The engagement partner on the audit resulting in this are based on the audit evidence obtained up to the independent auditor's report is Jeffrey Eckstein. Winnipeg, Manitoba December 24, 2020 Chartered Professional Accountants date of our auditor's report. However, future events or conditions may cause the Company to cease to continue as a going concern. • Evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and whether the consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation. Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Company to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion. 20 CONSOLIDATED BALANCE SHEET As at September 30 (000's C$) Assets Current Assets Accounts receivable, net (note 22) Income taxes receivable Inventories, net (note 7) Prepaid expenses Total Current Assets Property, plant and equipment (note 8) Deferred income tax assets (note 10) Interests in joint ventures and other entities (note 11 2020 2019 $ 46,607 $ 59,373 242 146,931 6,446 200,226 15,770 5,624 6,139 4,414 165,631 3,544 232,962 18,040 5,557 6,045 Total Assets $ 227,759 $ 262,604 Liabilities and Shareholders’ Equity Current Liabilities Bank indebtedness (note 6) Accounts payable and accrued liabilities (note 12) Income taxes payable Advances from related party (note 9) Total Current Liabilities Deferred income tax liabilities (note 10) Long term debt (note 13) Total Liabilities Shareholders’ Equity Share capital (note 14) Retained earnings Total Shareholders' Equity Total Liabilities and Equity Subsequent events (note 23) $ 6,807 $ 37,722 104,933 414 34,172 146,326 48 414 95,422 368 21,858 155,370 43 411 146,788 155,824 30,000 50,971 80,971 30,000 76,780 106,780 $ 227,759 $ 262,604 The accompanying notes are an integral part of the consolidated financial statements. Approved on behalf of the board: Yury Ryazanov Dmitry Udras Chief Executive Officer December 24, 2020 Chairman of the Board December 24, 2020 21 CONSOLIDATED STATEMENT OF COMPREHENSIVE LOSS For the years ended September 30 (000's C$) Revenue net (note 9) Cost of goods sold (note 9) Gross Profit Selling & administration expenses Loss from Operations Gain on disposal of assets (notes 8 and 9) Interest income Interest expense Loss on foreign exchange Share of income from interests in joint ventures and other entities (note 11) Research and development costs Net Loss Before Taxes Current income taxes (note 10) Deferred income taxes (note 10) Total income taxes $ 2020 249,550 235,225 $ 2019 229,119 218,776 14,325 5.7% 24,791 9.9% 10,343 4.5% 23,974 10.5% (10,466) (4.2%) (13,631) (5.9%) (526) (309) 7,074 1,022 (94) 6,909 (19,437) (568) 9,050 494 (540) 7,802 (24,542) (9.8%) (10,432) (4.6%) 1,384 (117) 1,267 (415) 19,472 19,057 Net Loss and Comprehensive Loss $ (25,809) (10.3%) $ (29,489) (12.9%) CONSOLIDATED STATEMENT OF CHANGE IN SHAREHOLDERS’ EQUITY For the years ended September 30 (000's C$ except per share amounts) Capital Stock, beginning and end of year Retained Earnings, beginning of year Net loss and comprehensive loss for the year Retained Earnings, end of year Shareholders’ Equity, end of year Loss per share Basic and fully diluted 2020 30,000 76,780 (25,809) 50,971 80,971 (1.03) $ $ $ 2019 30,000 106,269 (29,489) 76,780 106,780 (1.18) $ $ $ The accompanying notes are an integral part of the consolidated financial statements. 22 CONSOLIDATED STATEMENT OF CASH FLOWS For the years ended September 30 (000's C$) Cash provided by (used in) operating activities Net loss and comprehensive income loss $ (25,809) $ (29,489) 2020 2019 Add (deduct) non-cash items Depreciation of property, plant and equipment Gain on disposal of assets Loss on foreign exchange Deferred income taxes Share of income from interests in joint ventures and other entities Net change in non-cash working capital balances (note 18) Investing activities Purchase of property, plant and equipment Proceeds on sale of assets Financing activities (note 19) Recovery of tax credits Advances from related party Foreign exchange (loss) gain on the above items, net Foreign exchange (loss) gain on bank indebtedness Net cash provided in the year Bank indebtedness, beginning of year 3,127 (526) 1,011 (117) (94) (22,408) 41,478 19,070 (1,096) 765 (331) 566 12,314 (3) 12,877 (701) 30,915 3,457 (19,437) 494 19,472 (540) (26,043) (4,259) (30,302) (943) 19,530 18,587 1,217 9,056 208 10,481 766 (468) (37,722) (37,254) Bank indebtedness, end of year $ (6,807) $ (37,722) The accompanying notes are an integral part of the consolidated financial statements. 23 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. Basis of Operations (b) Business combinations Buhler Industries Inc. (the Company) was incorporated under the laws of accounting. The consideration transferred for the acquisition of of Canada on February 1, 1994. On March 24, 1994 the Company was a subsidiary is the fair values of the assets transferred, the liabilities listed and posted for trading on the TSX under the stock exchange incurred by the former owners of the acquiree and the equity interests symbol “BUI”. The address of the registered office is 1260 Clarence issued by the Company. The consideration transferred includes the fair Business combinations are accounted for using the acquisition method Avenue, Winnipeg, Manitoba. The Company, through its subsidiaries and a joint venture, has manufacturing and warehousing facilities in Canada and the United States of America (U.S.). The Company produces farm equipment for sale in Canada, U.S. and overseas. 2. Basis of Presentation value of any asset or liability resulting from a contingent consideration arrangement. Acquisition costs incurred are expensed and included in general and administrative expenses. Any contingent consideration to be transferred by the acquirer will be recognized at fair value at the acquisition date. Subsequent changes to the fair value of the contingent consideration which is deemed to be an asset or liability will be recognized in accordance with IAS 39 either in the statement of income or as a change to other comprehensive income. Contingent consideration that is classified as equity is not re-measured, and its The Company prepares its consolidated financial statements in subsequent settlement is accounted for within equity. accordance with International Financial Reporting Standards. The Company’s functional currency is the Canadian dollar. The Canadian dollar is the reporting currency as much of the Company’s business, as well as the majority of the Company’s financing, is conducted in Canadian dollars. The consolidated financial statements have been prepared under the historical-cost convention, except that certain financial instruments are stated at their fair value. The consolidated financial statements were approved by the Board of Directors on December 24, 2020. 3. Significant Accounting Policies (a) Basis of consolidation The consolidated financial statements include the accounts of the Company and its active wholly-owned subsidiaries, Buhler Versatile Inc., Buhler Trading Inc., B.I.I. Fargo, Inc., Buhler Versatile USA Inc., Implement Sales Co. Inc., Haskett Properties Inc., ISCO Inc., Progressive Manufacturing Ltd., John Buhler Inc., and Amarillo Service and Supply Inc. Control exists when the Company has the power to govern the financial and operating policies so as to obtain benefits from its activities. The Company holds 100% of the voting rights of the subsidiaries, and therefore controls these entities. The financial statements of all subsidiaries are prepared as of the same reporting date using consistent accounting policies. All inter-company balances and transactions, including any unrealized profits arising from inter- company transactions have been eliminated. 24 Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date, irrespective of the extent of any non- controlling interest. Goodwill is initially measured as the excess of the aggregate of the consideration transferred over the net identifiable assets acquired and liabilities assumed. If this consideration is less than the fair value of the net assets of the subsidiary acquired, the difference is recognized directly in the statement of income. (c) Foreign currency translation The functional currency for each of the Company’s subsidiaries is the currency of the primary economic environment in which the entity operates. For all subsidiaries the functional currency has been determined to be the Canadian dollar. Transactions in foreign currencies are translated to the respective functional currencies of each entity within the consolidated group using the exchange rates in effect at the date of the transactions. Monetary assets and liabilities denominated in foreign currencies at the reporting date are translated to the functional currency at the exchange rates prevailing at the end of the reporting period. Nonmonetary items measured at historical cost in a foreign currency are translated to the functional currency using the exchange rate prevalent at the date of acquisition. Non- monetary items denominated in foreign currencies that are measured at fair value are translated to the functional currency at the exchange rate prevalent at the date that the fair value was determined. Foreign currency differences arising from translation are recognized in net income, except for exchange differences arising on the translation of financial instruments qualifying as a cash flow hedge, which are recognized directly in other comprehensive income (“OCI”). (d) Inventories Inventories are stated at the lower of cost and net realizable value. The cost of inventories is based on the first-in first-out principle and NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 3. Significant Accounting Policies - continued includes expenditures incurred in acquiring the inventories and sale or the time an incentive is announced to dealers, the Company bringing them to their existing location and condition. In the case records the estimated impact of sales allowances in the form of dealer of manufactured inventories, cost includes an appropriate share of and customer incentives as a reduction of revenue. Subsequent variable and fixed overheads based on normal operating capacity. Any adjustments to sales incentive programs related to products previously excess, unallocated, fixed overhead costs are expensed as incurred. Net sold are recognized as an adjustment to revenues in the period the realizable value is the estimated selling price in the ordinary course of adjustment is determinable. The determination of sales allowances business, less the estimated costs of completion and selling expenses. requires management to make estimates based upon historical data, Inventories are written down to net realizable value if net realizable estimated future market demand for products, field inventory levels, value declines below carrying amount. When circumstances that announced incentive programs, competitive pricing and interest rates, previously caused inventories to be written down below cost no longer among other things. exist or when there is clear evidence of an increase in selling price, the amount of the write-down previously recorded is reversed. (f) Sales allowances (e) Revenue recognition The Company grants certain sales incentives to support sales of its products to retail customers. At the later of the time of sale or the Revenue is recognized when control of the equipment or parts has time an incentive is announced to dealers, the Company records the been transferred and the Company’s performance obligations to the estimated impact of sales allowances in the form of dealer and customer customers have been satisfied. Revenue is measured as the amount incentives as a reduction of revenue. The expense for new programs is of consideration the Company expects to receive in exchange for accrued at the inception of the program. The amounts of incentives to transferring the goods. The timing of when the Company transfers the goods to the customer may differ from the timing of the customer’s payment. Revenues are stated net of discounts, allowances, settlement discounts and rebates, as well as costs for sales incentive programs, which are determined on the basis of historical costs and charged against profit for the period in which the corresponding sales are recognized. The Company has determined that the customers from the sale of equipment and parts are generally dealers. Transfer of control, and thus related revenue recognition, generally corresponds to when the equipment and parts are made available to the customer, based on the shipping terms negotiated with customers. Most product is sold FOB Origin, while sales to related parties are shipped FOB Destination. Therefore, the Company recognizes revenue at a point in time, when control is transferred to the customer at a sale price that the Company expects to receive. be paid are estimated. The determination of sales allowances requires management to make estimates based upon historical data, estimated future market demand for products, field inventory levels, announced incentive programs, competitive pricing and interest rates, among other things. (g) Property, plant and equipment Property, plant and equipment are stated at cost less accumulated depreciation and any impairment losses. Cost includes any directly attributable costs, borrowing costs on qualifying construction projects, and the costs of dismantling and removing the items and restoring the site on which they are located. When major components of an item of property and equipment have different useful lives, they are accounted for as separate items. Depreciation is calculated using the following methods to allocate the cost of assets less their residual values over their estimated useful lives as follows: Buildings Equipment Computer equipment 4 - 5% 20 - 100% 30 - 100% Straight line Declining balance Declining balance For all sales, no significant uncertainty exists surrounding the purchaser’s obligation to pay for equipment and parts. The Company Depreciation methods, useful lives and residual values are reviewed records appropriate allowance for credit losses. at each reporting date. Assets under construction and land are not depreciated. The cost of incentives, if any, are estimated at the inception of a contract at the amount that is expected to be paid and is recognized Leases of property, plant and equipment on terms that provide a as a reduction to revenue at the time of the sale. If the estimate of the contractual right of use are measured at cost, comprised of the initial incentive changes following the sale to the customer, the change in measurement of the corresponding finance lease payable, lease estimate is recognized as an adjustment to revenue in the period of payments made at or before the commencement date and any initial the change. The Company grants certain sales incentives to support direct costs. They are subsequently depreciated on a straight-line basis sales of its products to retail customers. At the later of the time of 25 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 3. Significant Accounting Policies - continued and reduced by impairment losses. At year end, the Company had no liability is settled, based on the income tax laws that have been enacted right of use assets. or substantively enacted at the reporting date. (h) Research and development expenses The Company expenses all research and development costs as they are incurred unless they meet the criteria for deferral in accordance with IAS 38 Intangible Assets. No such development costs have been deferred to date. Deferred tax assets are recognized only to the extent that it is probable that future taxable income will be available against which the assets 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 income tax benefit will be realized. (i) Interest in joint ventures and other entities The Company accounts for its interest in joint ventures using the equity method. Interests in other entities where there is no significant influence are recorded at fair value. (j) Cash/bank indebtedness Cash/bank indebtedness includes cash on hand, bank overdrafts and bankers acceptances. Bank overdrafts are repayable on demand. Bank overdrafts and bankers acceptances form an integral part of the Company’s cash management and are included as a component of cash/bank indebtedness for the purpose of the statement of cash flows. (k) Income taxes Income tax expense comprises current and deferred tax. Income tax expense is recognized in the statement of comprehensive income except to the extent that it relates to items recorded directly to equity, in which case it is recognized directly in equity. Current income tax expense is the expected income tax payable on the taxable income for the period, using income tax rates enacted or substantively enacted in the jurisdictions the Company is required to pay income tax at the reporting date, and any income adjustments to income taxes payable in respect of previous periods. Current income tax expense is adjusted by changes in deferred tax assets and liabilities attributable to temporary differences between the tax bases of assets and liabilities and their carrying amounts in the financial statements, and by the availability of unused income tax losses. Deferred tax expense is recognized using the balance sheet method in which temporary differences are calculated based on the carrying amounts of assets and liabilities for financial reporting purposes and the tax bases of assets and liabilities for income taxation purposes. Deferred tax is not recognized for the following temporary timing differences: the initial recognition for both goodwill and assets and liabilities in a transaction that is not a business combination and that affects neither accounting nor taxable income; and differences relating to investments in subsidiaries to the extent that it is probable that they will not reverse in the foreseeable future. Deferred tax is measured at the income tax rates that are expected to be applied when the temporary difference reverses, that is, when the asset is realized or the 26 Current tax assets and liabilities are offset when the Company and its subsidiaries have a legally enforceable right to offset the amounts and intend to either settle on a net basis, or to realize the asset and settle the liability simultaneously. Deferred tax assets and liabilities are offset when there is a legally enforceable right to offset and when the deferred tax balances relate to the same income tax authority. (l) Financial instruments In accordance with IFRS 9 - Financial Instruments, financial assets are classified as measured at either amortized cost, fair value through other comprehensive income or fair value through profit or loss, depending on the business model for managing such financial assets and the asset’s contractual cash flow characteristics. Financial liabilities are classified as measured at amortized cost using the effective interest method. The Company’s financial instruments are classified as follows: a) cash and cash equivalents (bank indebtedness) - fair value through profit and loss, b) accounts receivable - amortized cost, c) advances to related parties - amortized cost, d) accounts payable and accrued liabilities - amortized cost, d) interests in other entities - fair value through profit and loss, e) advances from related parties - amortized cost and f ) long term debt - amortized cost. All financial instruments are included in the consolidated balance sheet and are measured at fair value except loans and receivables and other financial liabilities, which are measured at amortized cost. All changes in fair value are recorded to the statement of comprehensive income unless cash flow hedge accounting is used, in which case changes in fair value are recorded in other comprehensive income. The Company’s policy is not to utilize derivative financial instruments for trading or speculative purposes. The Company may utilize derivative instruments in the management of its foreign currency and interest rate exposures. FVTPL financial instruments are subsequently measured at fair value and all gains and losses are included in net income in the period in which they arise. Available-for-sale financial instruments are subsequently measured at fair value with revaluation gains and losses included in NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 3. Significant Accounting Policies - continued other comprehensive income until the instrument is derecognized or intangible assets excluding goodwill, the CGU is the smallest group of impaired. (m) Derivative financial instruments The Company operates principally in Canada and the United States, which gives rise to risks that its income and cash flows may be adversely impacted by fluctuations in foreign exchange rates. The Company may enter into foreign currency forward contracts to manage foreign exchange exposures on accounts receivable expected to be recovered in US dollars. The fair value of each contract is included on the consolidated balance sheet within derivative financial instrument assets or liabilities, depending on whether the fair value was in an asset or liability position. Changes in fair value are recognized in the consolidated statement of comprehensive income through gains/losses on foreign exchange. assets that generates cash inflows from continuing use that are largely independent of the cash inflows of other assets or groups of assets. Impairment of financial assets Financial assets are assessed at each reporting date to determine whether there is any objective evidence that they are impaired. A financial asset is considered to be impaired if objective evidence indicates that one or more events have had a negative effect on the estimated future cash flows of that asset. An impairment loss is calculated as the difference between its carrying amount, and the present value of the estimated future cash flows discounted at their original effective interest rate. All impairment losses are recognized in the consolidated statement of comprehensive income. An impairment loss is reversed if the reversal can be related objectively to an event occurring after the impairment loss was recognized. 4. Critical Accounting Estimates and Judgments (n) Comprehensive income Comprehensive income includes all changes in equity of the Company, except those resulting from investments by shareholders and dividends paid. Comprehensive income is the total of net income and other comprehensive income. Other comprehensive income comprises The Company makes estimates and assumptions concerning the future. The resulting accounting estimates may, by definition, not equal the actual results. The estimates and assumptions that are critical to the determination of carrying value of assets and liabilities are addressed revenues, expenses, gains and losses that require recognition, but are below. excluded from net income. The Company does not have any items giving rise to other comprehensive income, nor is there any accumulated balance of other comprehensive income. All gains and losses, including those arising from measurement of all financial instruments have been recognized in net income for the year. (a) Sales incentives The Company provides certain sales incentives on some sales that may be settled after year end. An estimate of these amounts that may be payable is accrued, but may vary based on the programs in place at the time of settlement. These have been accrued for in accounts payable (o) Product warranties and accrued liabilities. The Company makes provisions for estimated expenses related to product warranties at the time products are sold. Management establishes these estimates based on historical information on the nature, frequency and average cost of warranty claims. The Company seeks to improve product quality and minimize warranty expenses arising from claims. Warranty costs may differ from those estimated if actual claim rates are higher or lower than historical rates. (p) Impairment Impairment of non-financial assets Tangible assets and definite life intangible assets are reviewed at each balance sheet date to determine whether events or conditions indicate that their carrying amount may not be recoverable. If any such indication exists, the recoverable amount of the asset, which is the higher of its fair value less costs to sell and its value in use, is estimated in order to determine the extent of the impairment loss. Where the asset does not generate cash flows that are independent from other assets, the Company estimates the recoverable amount of the cash- generating unit (CGU) to which the asset belongs. For tangible and (b) Expected Credit Losses The Company recognizes expected credit losses on financial assets and changes in such losses, at each reporting date to reflect changes in credit risk since the initial recognition of the financial assets. For accounts receivable, the Company applied the simplified approach permitted by IFRS 9, under which the lifetime expected credit losses must be recognized upon initial recognition. For loans classified under receivables, the Company measures credit risk based on the 12-month expected credit risk if there has not been a significant increase in credit risk since initial recognition. (c) Allowance for inventory obsolescence The Company estimates allowances for potential losses resulting from inventory becoming obsolete and that cannot be processed and/ or sold to customers. Additional allowances may be required if the physical condition of inventory deteriorates or customer requirements change and cost exceeds net realizable value. 27 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 4. Critical Accounting Estimates and Judgments - continued (d) Impairment of property, plant and equipment SRED costs. The claims may be subject to review by the Canada Revenue An integral component of impairment testing is determining the asset’s Agency (CRA) before refunds are received. Actual collection may be recoverable amount. The determination of the recoverable amount materially different than what is recorded in the financial statements. The involves significant management judgment, including projections of Company is currently challenging CRA in court in regards to certain of its future cash flows and the appropriate discount rates. The cash flows SRED credits and believes that it will be successful in defending its SRED are derived from financial forecasts and do not include restructuring claim. The Company's SRED credits are recorded on the balance sheet after activities that the Company is not yet committed to or significant review of the relevant accounting pronouncements (note 10). future investments that will enhance the asset’s performance. The Company is subject to taxation in multiple jurisdictions. Significant Qualitative factors, including market presence and trends, strength judgment is required in determining the worldwide provision for taxation. of customer relationships, strength of local management, strength of There are many transactions and calculations for which the ultimate debt and capital markets, and degree of variability in cash flows, as well tax determination is uncertain during the ordinary course of business. as other factors, are considered when making assumptions with regard The Company maintains provisions for uncertain tax positions that it to future cash flows and the appropriate discount rate. The recoverable believes appropriately reflect its risk with respect to tax matters under amount is most sensitive to the discount rate used for the discounted active discussion, audit, dispute or appeal with tax authorities, or which cash flow model as well as the expected future cash inflows and the are otherwise considered to involve uncertainty. These provisions for growth rate used for extrapolation purposes. A change in any of the uncertain tax positions are made using management’s best estimate of significant assumptions or estimates could result in a material change the amount expected to be paid based on a qualitative assessment of all in the recoverable amount. No impairment losses were recognized in 2020 nor 2019. (e) Provision for warranty costs The Company offers warranties for its sale of equipment. Management estimates the related provision for future warranty claims based on historical warranty claim information, as well as recent trends that might suggest that past cost information may differ from future claims. Factors that could impact the estimated claim information include the success of the Company’s productivity and quality initiatives, as well as parts and labor costs. (f) Income taxes Estimation of income taxes includes evaluating the recoverability of deferred tax assets based on an assessment of the Company’s ability to utilize the underlying future tax deductions against future taxable income before they expire. Management plans to take all necessary steps to utilize deferred tax attributes before they expire and believe they have a plan that ensures they will ultimately fully utilize these attributes. The Company’s assessment is based upon existing tax laws and estimates of future taxable income. If the assessment of the Company’s ability to utilize the underlying future tax deductions changes, the Company would be required to recognize more or fewer of the tax deductions as assets, which would decrease or increase the income tax expense in the period in which this is determined. The Company makes claims for Scientific Research and Experimental Development (SRED) expenditures which are included in deferred taxes. The amounts recorded are based on the Company's interpretation of the Income Tax Act of Canada provisions which govern the eligibility of 28 relevant factors. Management reviews the adequacy of these provisions at each consolidated balance sheet date. However, it is possible that at some future date an additional liability could result from audits by taxing authorities. Where the final tax outcome of these matters is different from the amounts that were initially recorded, such differences will affect the tax provisions in the period in which such determination is made. The operations and organizational structure of the Company are complex, and related tax interpretations, regulations and legislation are continually changing. As a result, there are usually some tax matters in question that result in uncertain tax positions. The Company approaches uncertain tax positions from a liability or exposure perspective. The Company provides for future liabilities in respect of uncertain tax positions where additional tax may become payable in future periods and such provisions are based on management’s assessment of exposures. (g) Economic Conditions In the context of the COVID-19 pandemic and the related climate of uncertainty, the Company revised some of its most complex estimated and assumptions , including significant judgement areas, used in preparing the consolidated financial statements for the year ended September 30, 2020. The main estimates revised to reflect the impact of COVID-19 pandemic on financial reporting were the determination of whether there was an indication that assets, CGU’s or groups of CGU’s may be impaired, the assumption used in the establishment of their recoverable amount when an impairment test was deemed necessary, and the assessment of the credit risk on receivables. Additional revisions might be required in the future depending on the development of the pandemic and its impact on the final measurement of the carrying amount of the Company’s assets. (h) Government Grants Government assistance that requires payment and that is non-interest bearing is accounted for at its fair value, based on management’s best NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 4. Critical Accounting Estimates and Judgments - continued estimates. The difference between the assistance amount and its 7. Inventories (000's C$) fair value is accounted for as a government grant and recognized in income over the period in which the related cost they are intended to compensate for are recognized. 5. Accounting Standards Implemented in 2020 (000’s C$) The following accounting standards came into effect commencing in Raw materials Work in process Finished goods 2020 2019 $ 50,786 5,896 90,249 $ 146,931 $ 55,200 3,866 106,565 $ 165,631 the 2020 fiscal year: (a) Leases The Company has adopted IFRS 16 “Leases” with a date of initial application of October 1, 2019. IFRS introduced new standards for During the year, inventories in the amount of $170,674 (2019 - $157,399) were expensed to cost of goods sold, which included net inventory reversals of write-downs of $1,551 (2019 - $4,442). The carrying value of inventories is pledged as security against the Company’s credit the recognition and measurement of leases under a single model., facilities. eliminating the distinction between operating and finance leases. As a result, most leases will be recognized on the statement of financial Included in inventories are units sold on consignment being held at position. Certain exemptions continue to apply for short-term leases dealers locations in the amount of $3,861 (2019 - $10,570). and leases for low-value assets. The revised standards had no significant impact on the recognition and measurement of leases. 8. Property, Plant and Equipment (000’s C$ (b) Uncertainty over Income Tax Treatments The Company has adopted IFRIC 23 with a date of initial application of October 1, 2019. IFRIC 23 “Uncertainty over Income Tax Treatments” is aimed to reduce the diversity of recognition and measurement of tax liabilities and assets. The adoption of these interpretations have not impacted the Company’s consolidated financial statements . 6. Credit Facilities (000’s C$) The Company has available a financing facility in the amount of $60,000 (2019 - $60,000). This facility is an asset-based credit agreement with the Canadian Imperial Bank of Commerce. The credit facility is secured by a general security agreement and assignment of specific receivables and inventory in Canada and the US. The financing facility is at Bankers Acceptance and/or LIBOR rates plus stamping fees. At September 30, 2020, the amount drawn on this facility is $6,673 (2019 - $39,769). During the year the company also accessed loans in the amount of $1,534 ($1,146 USD) with Alerus Financial. These loans bore interest at 1% per annum. These loans were scheduled to have repayments commence on December 15, 2020, however prior to scheduled repayments commencing, but subsequent to year end, the loans were repaid in full through receipt of government grants from the United States Small Business Administration’s Paycheck Protection Program. Cash balances of $1,400 (2019 - $2,047) have been netted with the above facilities. Land Buildings Equipment Computer Equip Total 2018 net book value 3,673 10,046 5,978 1,036 20,733 Additions - Disposals (116) (37) - 965 (63) 15 - 943 (179) Depreciation - (913) (2,235) (309) (3,457) 3,557 9,096 4,645 742 18,040 - - - - (110) (908) 1,064 (127) (1,988) $3,557 $8,078 $3,594 32 (2) (231) $541 1,096 (239) (3,127) $15,770 2019 net book value Additions Disposals Depreciation 2020 net book value Recorded as: Cost $3,557 $28,519 $61,652 $8,452 $102,180 Accumulated depreciation 2019 net book value - (19,423) (57,007) (7,710) (84,140) $3,557 $9,096 $4,645 $742 $18,040 Cost $ 3,557 $28,361 $58,412 $6,847 $97,177 Accumulated depreciation 2020 net book value - (20,283) (54,818) (6,306) (81,407) $3,557 $8,078 $3,594 $541 $15,770 The Company reviewed its property, plant and equipment for indicators of impairment. No assets were identified as impaired. 29 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Included in property, plant and equipment is $19 of equipment not 10. Income Taxes (000's C$) being depreciated as the assets are not yet in use (2019 - $748). sold certain intellectual properties to the controlling shareholder. Adjustments for prior years These relate to an older tractor model that no longer has a market in SR&ED credits earned 9. Related Party Transactions (000's C$) Accounts receivable from controlling shareholder Accounts payable to controlling shareholder Advances from controlling shareholder Net sales to controlling sharehold Net purchases from controlling shareholder 2020 2019 $3,076 $6,342 2,086 2,313 34,172 21,858 $6,052 $19,282 378 321 All transactions with related parties are recorded at the exchange amount agreed to by the related parties. In the prior year, the Company North America for $10,000 USD and a sprayer under development that the Company has decided not to produce for $3,000 USD. There was no cost basis for these intellectual properties, which resulted in a gain on sale of $17,471. The amounts agreed upon are based on external valuations. The advances from the controlling shareholder of $25,618 USD (2019 - $16,505 USD) bears interest at 5.0% and are due on demand. Compensation of Key Management 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 Executive Committee are key management personnel. The following table details the compensation paid to these key management personnel (note - no amounts were paid for. Salaries, fees and short term employee benefits 2020 $1,822 2019 $1,872 30 Current year Adjustment for prior years 2020 $602 782 2019 $(445) 30 Current income tax expense (recovery) $1,384 $(415) Origination and reversal of timing differences Derecognition of tax credits SR&ED credits earned $(117) $(2,022) - - 21,494 - Deferred taxes (recovery) expense $(117) $19,472 Combined Canadian federal and provincial income tax rate Foreign tax rate differences applied to profits (losses) 27.0% 27.0% (0.4) (24.2) Derecognition of tax credits (26.8) (215.7) Losses carried back at a higher tax rate - (3.2) - - (1.8) (0.2) (0.3) 10.1 17.3 3.3 Non-taxable portion of capital gains Permanent differences and other Effective income tax rate (5.2%) (182.7%) Income taxes paid during the year were $317 (2019 - $214). Deferred income taxes are recorded to reflect the timing differences arising from deduction of warranty costs for income tax purposes, the amounts of depreciation and amortization provided in the year compared to the allowances deducted for income tax purposes, taxable losses carried forward to future periods, expected Scientific Research and Experimental Development (SRED) tax credit claims and other temporary timing differences. The following are the components of the deferred tax assets and liabilities recognized by the Company: Deferred income tax assets Property, plant and equipment SRED credits Deferred income tax liabilities Property, plant and equipment 2020 $931 4,693 $5,624 2020 $48 20189 $864 4,693 $5,557 2019 $43 Deferred tax assets are recognized for tax loss carry-forwards to the extent that the realization of the related tax benefit through future taxable profits is probable. The ability to realize the tax benefits of these losses is dependent upon a number of factors, including the NOTES TO CONSOLIDATED FINANCIAL STATEMENTS future profitability of operations in the jurisdictions in which the tax Balance sheet information 2020 2019 losses arose. The Company has a deferred tax asset of $34,058 in Canada (2019 - $19,469). In the current year, only $5,576 has been recorded. Assets Current Non-current The remaining $28,482 will be recognized in future periods when Total Assets profitability returns in Canada. These losses begin to expire in 2033. Deferred tax assets of $19,296 in the US (2019 - $17,044) in excess of the deferred tax losses are available to be carried forward to future periods. Management believes that these assets will be realized in future periods. As a result of losses over the past few years, management has Liabilities Current Non-current Total Liabilities Equity decided to not recognize these assets as at September 30, 2020. These Total Liabilities and Equity assets will be recognized in future periods when profitability returns in the US. These losses begin to expire in 2034. The current value of all SRED claims net of estimated taxes and allowances is $4,693 (September 30, 2019 - $4,693). The Company's claims for SRED credits for the tax years 2005 - 2011 ($5,506) are currently being challenged by Canada Revenue Agency (CRA). The claim for 2005 will be reviewed by tax court, while claims for 2006 and 2007 are being held in abeyance by CRA pending the outcome of the 2005 claim. Tax years 2008 through to 2011 have received refunds in Income statement information Revenues Profit from continuing operations Net income and comprehensive income Other information Dividends received from joint ventures and other entities the amount of $813 during the prior year and the assessments for Depreciation these years will be appealed. Final settlement for these claims may take Income tax expense several years to resolve. $6,123 249 $6,372 $233 - 233 6,139 $6,372 $6,331 166 $6,497 $452 - 452 6,045 $6,497 $4,140 $5,555 $131 $94 $26 $2 $36 $653 $540 $231 $9 $113 The 2012, 2013 and 2014 claims ($2,206) have been approved and were paid out by CRA in prior years. The 2015, 2016 and 2017 claims have been approved and partially paid out by CRA ($1,633), with the The Company generally provides its customers with a warranty on the goods sold. The movement in the provision for warrant costs during 12. Warranty provision (000’S C$) remaining payment expected in a future period when there is taxable the year is as follows income. The 2018 claim for $482 is current under review. The 2019 and 2020 SRED claims will be filed with CRA prior to any filing deadlines. 11. Interests in Joint Ventures and Other Entities (000’s C$) Opening balance Warranty accrual (recovery) (net) The Company has a joint venture operating as Bradley Steel Processors Effect of exchange rate 2020 $5,810 3,490 15 2019 $6,748 (958) 20 Inc. and minority interests in other various entities. Closing balance $9,315 $ 5,810 The summarized financial information of the Company’s share of the investments in joint ventures and other entities is as follows: The Company’s warranty costs for the year, net of recoveries from suppliers, was $10,635 (2019 - $6,525). 13. Long term debt (000’S C$) The Company’s long term debt consists of an amount of $414, 2019 -$411 ($310 USD, 2019 -$310 USD) due to The City of Willmar. This amount bears interest at the annual rate of the implicit price deflator for Minnesota and is due June 2025. 31 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 14. Capital Stock and Options (000’s C$) 17. Segmented Information (000’s C$) Authorized, an unlimited number of Class A & B common shares. 2020 2020 2019 Shares Shares Issued Class A common 25,000 $30,000 25,000 $30,000 Canada U.S. CIS Other Revenue $104,692 $118,975 $12,558 $13,325 Property, plant, and equipment 10,460 5,143 167 - 2019 There are no options outstanding as of September 30, 2020 nor Canada U.S. CIS Other September 30, 2019. 15. Interest Paid (000’s C$) Bank indebtedness Wholesale financing Revenue $94,789 $91,372 $21,197 $21,761 Property, plant, and equipment 12,194 5,679 167 - 2020 $2,957 4,117 $7,074 2019 $3,070 6,194 $9,264 CIS is the Commonwealth of Independent States, including Russia and Kazakhstan. 18. Changes in non-cash working capital (000’s C$) Details of changes in financing activities for the year ended September 30, 2020 are as follows: 2020 $12,766 18,700 (2,902) 9,511 4,218 (815) 2019 $(1,101) 5,981 (734) (5,627) (1,836) (942) $41,478 $(4,259) Interest expense includes interest on long term, bank indebtedness and wholesale financing. Through an agreement with DLL, the initial wholesale financing interest expense for the dealer is paid by Buhler Industries Inc. to DLL to support a segment of Buhler’s North American dealer network. Under the agreement, dealers have dedicated credit Accounts receivable lines with DLL, customized service, and competitive terms that allow them to manage and grow their businesses effectively. The floorplan financing terms and interest costs are variable and may change from time to time. 16. Expenses by nature (000’s C$) Raw materials and consumables used Depreciation and amortization Personnel expenses Freight 2020 2019 $200,395 $176,335 3,127 57,095 6,308 3,457 64,361 6,399 $266,925 $250,552 Inventories Prepaid expenses Accounts payable and accrued liabilities Income taxes receivable/ payable Foreign exchange loss on the above items 32 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 19. Cash Flow Changes from Financing Activities (000’s C$) The Company’s financial objectives and strategy are reviewed on an annual basis. The Company believes that its ratios are within Details of changes in financing activities for the year ended September reasonable limits, in light of the relative size of the Company and its 30, 2020 are as follows: capital management objectives. Advances to related party Long term debt Advances from related party Total There are no externally imposed capital restrictions on the Company. There were no changes in the Company’s approach to capital management during the year. September 30, 2018 Cash flows Foreign exchange September 30, 2019 Cash flows Foreign exchange loss September 30, 2020 $2,173 $(401) $(14,775) $(13,003) 21. Financial Instruments (000’s C$) (2,214) - (6,842) (9,056) 41 (10) (241) (210) Company’s financial instruments: The following presents the carrying value and fair value of the - - - (411) (21,858) (22,269) - (3) (12,314) (12,314) - (3) $- $(414) $(34,172) $(34,586) Financial Asset/ Liability Bank indebtedness Accounts receivable 2020 Classification Carried at cost/ Amortized cost Fair value Amortized cost $(6,807) Amortized cost 46,607 In addition to the above, during the year the Company also received Interest in other entities FVTPL 157 $566 (2019 - $1,217) of tax credits. 20. Capital Management The Company’s fundamental objectives in managing capital are to maintain financial flexibility in order to preserve its ability to meet financial obligations, ensure adequate liquidity and financial flexibility at all times, and deploy capital to provide an appropriate investment return to its shareholders while maintaining prudent levels of financial risk. The Company believes that the aforementioned objectives are appropriate in the context of the Company’s business. The Company defines its capital as cash, bank indebtedness, shareholders’ equity, long- term debt, net of any cash and cash equivalents. The Company’s financial strategy is designed to maintain a flexible capital structure consistent with the objectives stated above and to respond to changes in economic conditions and the risk characteristics of underlying assets. In order to maintain or adjust its capital structure, the Company may purchase shares for cancellation pursuant to normal course issuer bids, issue new shares, raise debt (secured, unsecured, convertible and/or other types of available debt instruments), enter into hedging arrangements and refinance existing debt with different characteristics, amongst others. The Company constantly monitors and assesses its financial performance and economic conditions in order to ensure that its net debt levels are prudent. Accounts payable and accured liabilities Advances from related parties Amortized cost (104,933) Amortized cost (34,172) Long term debt Amortized cost (414) Classification Amortized cost 2019 Carried at cost/ amortized cost $(37,722) Fair value Amortized cost 59,373 Financial asset/ Liability Bank indebtedness Accounts receivable Interest in other entities FVTPL 157 Accounts payable and accrued liabilities Advances from related parties Amortized cost (95,422) Amortized cost (21,858) Long term debt Amortized cost (411) Financial instruments includes bank indebtedness, accounts receivable, advances to related parties, financial instruments, long term receivables, interests in other entities not subject to significant influence, accounts payable and accrued liabilities, advances from related parties and long term debt. Except for the long term receivables, interests in other 33 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 21. Financial Instruments - continued entities and long term debt, the carrying values of these financial corporate finance function. Significant risks are regularly monitored instruments approximate fair value due to the short term nature of the and actions are taken, when appropriate, according to the Company’s financial instruments or they are carried at fair value. approved policies, established for that purpose. In addition, as required, these risks are reviewed with the Company’s Board of Directors. The Company has classified its interest in other entities as FVTPL. These shares are not actively traded in a quoted market and accordingly fair Interest Rate Risk value has been estimated to be cost. The Company’s interest rate risk arises from its variable rate bank indebtedness, wholesale financing and long term debt. The long-term The Company has classified its interest in other entities as FVTPL. These debt at a very low rate, and therefore carries minimal interest rate risk. shares are not actively traded in a quoted market and accordingly fair As the bank indebtedness is all variable rate, the Company is exposed value has been estimated to be cost. to a certain level of interest rate risk. Management feels that these risks are manageable as the interest rate on this debt is less than prime and The Company categorizes its fair value measurements of financial therefore has not entered into any instruments to mitigate this risk. instruments according to a three-level hierarchy. The hierarchy Based on the level of bank indebtedness outstanding at September 30, prioritizes the inputs used by the Company’s valuation techniques. A 2020, a 1% increase/decrease in the rate being charged to the Company level is assigned to each fair value measurement based on the lowest would result in a $82 (2019 - $467) decrease/ increase in net earnings. level input significant to the fair value measurement in its entirety. The three levels of the fair value hierarchy are defined as follows: Commodity Price Risk Level 1 – fair value measurements that reflect unadjusted, quoted materials, namely steel. In order to manage its risk, the Company prices in active markets for identical assets and liabilities that the applies a steel surcharge to its product when the cost of steel increases Company has the ability to access at the measurement date. significantly. The Company’s preferred practice is to match raw The Company’s manufacturing costs are affected by the price of raw materials cost changes with selling price adjustments, although there Level 2 – fair value measurements using inputs other than quoted is a time lag. This matching is not always possible, as customers react prices included within Level 1 that are observable for the asset or to selling price pressures related to raw material price fluctuations liability, either directly or indirectly. These include quoted prices according to conditions pertaining to their markets. for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in inactive markets, inputs that Foreign Exchange Risk are observable that are not prices (such as interest rates and credit The Canadian dollar is the Company’s functional currency. The risks) and inputs that are derived from or corroborated by observable Company operates primarily in Canada and the United States. The market data. The fair values of interest in other entities are disclosed at reporting currency of the Company is Canadian dollars, whereas the fair value based on a level 2 classification. functional currency for operations in the United States and sales to the CIS region are the U.S. dollar. Fluctuations in the exchange rate Level 3 – fair value measurements using significant non-market between the U.S. dollar and Canadian dollar will affect the Company’s observable inputs. These include valuations for assets and liabilities reported results. However, the impact of changes in foreign exchange that are derived using data, some or all of which is not market rates on the Company’s reported results differs over time depending observable data, including assumptions about risk. The Company does on whether the Company is generating a net cash inflow or outflow of not have any financial instruments measured at fair values based on Canadian dollars. This is largely dependent on the Company’s revenue level 3 inputs. mix by currency as operating costs denominated in Canadian dollars have been relatively stable. 22. Financial Risk Management (000’s C$) In addition, translation differences arise when foreign currency The Company’s risk management program focuses on the monetary assets and liabilities are translated at foreign exchange unpredictability of financial markets and seeks to minimize potential rates that change over time. These foreign exchange gains and losses adverse effects on the Company’s financial performance. The Company are recorded in revenues. As a result of the Company’s U.S. dollar net manages its risks and risk exposures through a combination of monetary position within the Canadian dollar reporting currency insurance, a system of internal and disclosure controls and sound operations through to September 30, 2020, a one-cent strengthening/ business practices. weakening in the year-end foreign exchange rate from Canadian Risk management is primarily the responsibility of the Company’s dollars to U.S. dollars would have decreased/ increased net earnings by $243 (2019 - $263). 34 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 22. Financial Risk Management - continued The Company’s exposure to foreign currency risk reported in U.S. dollars was as follows: 2020 2019 Accounts receivable $18,849 $36,332 Accounts payable and other accrued liabilities (11,157) (5,955) Advances from related party (25,618) (16,505) Long term debt (310) (310) $(18,236) $13,562 The Company is partially insulated from large foreign exchange gains and losses by virtue of its mix of cash inflows and outflows in U.S. dollars. Gains and losses generated by fluctuations in the exchange 2021 2022 2023 2024 2025 2026 Total $6,807 $ - $ - $ - $ - $ - $6,807 Post 104,933 34,172 - - - - - - - - - - - - 414 $145,912 $ - $ - $ - $414 - - - - 104,933 34,172 414 $146,326 Bank indebt- edness Accounts payable and accrued liabilities Due to related party Long term debt Total rates used to translate U.S. dollar assets are offset by similar gains and Credit Risk losses on U.S. dollar liabilities. The Company also uses forward contracts Financial instruments which potentially subject the Company to credit to further mitigate these fluctuations when the natural hedges are risk and concentrations of credit risk consist principally of accounts forecasted to be insufficient. receivable. Management has assessed that the credit risk associated with accounts receivable is mitigated by the credit agreements As at September 30, 2020 the Company had US to CAD foreign currency the Company has in place including personal guarantees from the contracts with a notional value of $2,500 in place (2019—$nil) Fair counterparties. value adjustments are recognized with (gain) loss on foreign exchange in the consolidated statement of comprehensive income. A one-cent The maximum exposure to the risk of credit for accounts receivable strengthening/weakening in the period end foreign exchange rate corresponds to their book value. Historically, the Company has from CAD to USD would have increased/decreased the value of these experienced nominal bad debts as a result of the security agreements contracts by $25 (2019—$nil) before taxes. Liquidity Risk Investments to drive growth can require significant financial resources. in place that allow the Company to recovery goods from dealers that has not been paid for as well as personal guarantees. During 2020 , the Company recorded a bad debt expense of $161 (2019 - $253). A range of funding alternatives is available to the Company including The carrying amount of accounts receivable is reduced through the cash on hand, cash flow provided by operations, additional debt, the use of an allowance account and the amount of the loss is recognized issuance of equity or a combination thereof. The Company has current in the consolidated statements of net loss and loss within selling & credit facilities of $60,000 in place. Actual bank funding may differ as administration expenses. When a receivable balance is considered the result of margin availability. As at September 30, 2020 the Company uncollectible, it is written off against the allowance for doubtful had access to $58,000 (2019 - $54,000) The Company manages its accounts. Subsequent recoveries of amounts previously written off are liquidity risk by forecasting cash flows and determining if the credit credited against selling & administration expenses. facilities in place are adequate or if additional financing would be required. 35 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 23. Subsequent Events - continued The following table sets out the aging details of the Company’s shareholder the right to manufacture an older tractor model for sale accounts receivable balances outstanding based on the status of the outside of North America. This license was granted for a thirty- seven receivable in relation to when the receivable was due and payable and month period ending October 31, 2023 in exchange for $2,000 USD. related allowance for doubtful accounts: There is no cost basis for this intellectual property. Current - neither impaired nor past due Not impaired but past the due date; Within 30 days 31-60 days Over 60 days Less: Allowance for doubtful accounts 2020 2019 $34,234 $47,572 1,657 828 11,028 47,747 2,558 1,541 8,973 60,644 (1,140) (1,271) Total receivables, net $46,607 $59,373 The following table details the continuity of the allowance for doubtful accounts: 2020 2019 Balance, beginning of year $(1,271) $(1,013) Provisions for the year, net of recoveries Uncollectible amounts written off Foreign exchange impact Balance, end of year (161) 289 3 (253) - (5) $(1,140) $(1,271) 23. Subsequent Events During the year the Company announced the closure of the Fargo. ND facilitiy. At year end the company was in the process of transferring production lines and inventory out of the facility. Subsequent to year end the Company also announced that the company would cease production at its Willmar, MN facility and Vegreville, AB facility. The production lines from both Fargo and Willmar will be transferred to Morden, MB during the 2021 fiscal year. The production line at Vegreville is expected to be transferred to Winnipeg, MB following the 2021 fiscal year. Subsequent to year end the Company amended its financing facility with the Canadian Imperial Bank of Commerce, extending a further $15,000 secured by a mortgage on the Company’s Winnipeg properties. The existing $60,000 facility remains in place under similar terms to those at year end. On October 1, 2020 the Company licensed intellectual property rights to it’s controlling shareholder. These rights provide the controlling 36 37 COMPANY INFORMATION Audit Committee Allan L.V. Stewart Konstantin Babkin Oleg Gorbunov Legal Counsel Thompson Dorfman Sweatman LLP Winnipeg, Manitoba Exchange Listing The shares of Buhler Industries Inc. are listed on the Toronto Stock Exchange and trading under the symbol “BUI”. Corporate Banker Canadian Imperial Bank of Commerce Winnipeg, Manitoba Cusip Number 119 918 100 Transfer Agent Computershare Trust Company of Canada Calgary, Alberta Corporate Office 1260 Clarence Avenue Winnipeg, Manitoba, R3T 1T2 Ph: (204) 661-8711 Fax: (204) 654-2503 Web site: www.buhlerindustries.com Auditors MNP LLP Winnipeg, Manitoba Annual Meeting The annual meeting of shareholders will be held on March 25, 2021 11:00 AM at the Head Office, 1260 Clarence Avenue, Winnipeg Manitoba. DIRECTORS, OFFICERS AND SENIOR MANAGEMENT Name Dmitry Udras Yury Ryazanov Konstantin Babkin Oleg Gorbunov Allan Stewart, B.A., LL.B. John Buhler Office Principal Occupation Chairman/Officer Member and Co-owner of Novoe Sodrugestvo Ltd. Director/Chief Executive Officer Vice President and Co-owner of Novoe Sodrugestvo Ltd. Director Director Director Director President and Co-owner of Novoe Sodrugestvo Ltd. Adviser to the CEO of “Novoe Sodrugestvo”, CJSC" Lawyer, Thompson Dorfman Sweatman LLP President, Highland Park Financial Inc. Grant Adolph, P.Mgr Officer/Director Chief Operating Officer, Buhler Industries Inc. Marat Nogerov Maxim Loktionov Officer Officer President, Buhler Industries Inc. Vice President, Buhler Industries Inc. Willy Janzen, CPA, CGA., B.Comm. Officer Chief Financial Officer, Buhler Industries Inc. Adam Reid Neil Frechette Min Lee, I.S.M. Management Management Management Vice President of Sales & Marketing, Versatile Director of Information Technology Chief Information Officer, Buhler Industries Inc. Todd Trueman, C.I.M., P.Mgr., C.Mgr. Management Director of Human Resources, Buhler Industries Inc. 38 STOCK DATA 10 YEAR SUMMARY SUMMARY OF OPERATIONS Reported standards utilized 2011 GAAP 2012 IFRS 2013 IFRS 2014 IFRS 2015 IFRS 2016 IFRS 2017 IFRS 2018 IFRS 2019 IFRS 2020 IFRS In thousands of Canadian dollars (except per share amounts) Cash, receivables and prepaid expenses 71,919 78,054 85,491 102,473 80,555 73,680 73,983 63,884 67,331 53,295 Revenue Cost of goods sold Gross profit Selling & admin. expense (Loss) Income from operations Gain on sale of capital assets Interest income Interest expense Foreign exchange (gain) loss Share of income of joint venture Research & development exp. Net earnings before taxes Income tax expense (recovery) Net earnings CASH FLOW SUMMARY Capital asset purchases Long term debt incurred Reduction of long term debt Dividends paid Net cash flow Net cash (bank indebtedness) BALANCE SHEET SUMMARY Inventory Total current assets Total assets Total current liabilities Total short and long term debt Total liabilities Total shareholders equity Shares o/s (avg. in millions) Working capital DATA PER COMMON SHARE Revenue EBITDA Price to EBITDA EBIT Net earnings Price to earnings Cash flow Dividends paid Closing share price Shareholders’ equity STATISTICAL DATA Current ratio Interest bearing debt/ equity ratio Inventory turnover 279,495 357,749 340,349 325,521 245,676 274,067 311,974 287,984 229,119 249,550 237,198 302,891 283,031 277,791 223,410 252,841 275,821 284,510 218,776 235,225 42,297 20,709 21,588 (1,184) (557) 3,004 (1,940) (529) 7,480 15,314 3,397 11,917 9,662 17,068 1,550 - 16,287 (10,515) 54,858 23,108 31,750 (1,212) (553) 3,507 2,701 (521) 8,375 19,453 3,090 16,363 57,318 22,529 34,789 (74) (300) 4,459 47,730 25,239 22,491 (401) (314) 3,741 (3,586) (3,497) (605) 8,533 26,362 6,471 19,891 (628) 8,663 14,927 (14,517) 2,469 12,458 (9,201) (5,316) 22,266 26,278 (4,012) (114) (376) 3,345 (200) (473) 8,323 21,226 25,894 (4,668) (8,160) (332) 4,315 (789) (780) 8,739 (7,661) (4,984) (2,677) 36,153 26,766 3,474 25,979 9,387 (22,505) (4,066) (2,381) (511) 7,894 622 (481) 12,345 (332) 5,926 1,152 (521) 9,604 (2,376) (2,896) 10,343 23,974 (13,631) (19,437) (568) 9,050 494 (540) 7,802 14,325 24,791 (10,466) (526) (309) 7,074 1,022 (131) 6,909 (39,993) (10,432) (24,505) 9,539 19,057 1,304 520 (49,532) (29,489) (25,809) 2,440 5,857 4,639 3,216 2,785 2,963 - - - - - 5,949 2,139 3,191 4,968 2,642 - - - 4,799 385 - - 943 1,096 - - - - - - - - - 17,871 (633) 1,230 4,219 (46,225) (49,841) (52,830) (20,452) (12,553) (37,254) (26,032) (37,722) 30,915 (6,807) - 21,203 19,293 - 24,297 24,160 126,604 131,248 153,325 213,089 201,463 142,372 180,911 171,612 165,631 146,931 198,523 209,302 238,816 315,562 282,018 216,052 254,894 235,496 232,962 200,226 241,355 250,569 283,403 362,844 339,029 278,415 319,739 290,378 262,604 227,759 77,696 17,695 96,793 78,439 11,746 89,644 97,451 167,339 151,029 93,078 133,907 153,670 155,370 146,326 9,607 6,857 2,669 - - 401 411 414 102,587 169,570 151,071 93,134 133,938 154,109 155,824 146,788 144,562 160,925 180,816 193,274 187,958 185,281 185,801 136,269 106,780 80,971 25.0 25.0 25.0 25.0 25.0 25.0 25.0 25.0 25.0 25.0 120,827 130,863 141,365 148,223 130,989 122,974 120,987 81,826 77,592 53,900 11.18 14.31 13.61 13.02 0.89 6.3 0.71 0.48 11.75 0.65 - 5.60 5.78 2.6 0.2 2.1 1.09 4.9 0.90 0.65 8.17 0.85 - 5.35 6.44 2.7 0.1 2.3 1.40 4.6 1.22 0.80 8.04 0.97 - 6.40 7.23 2.5 0.1 2.0 0.96 5.7 0.73 0.50 11.06 0.71 - 5.51 7.73 1.9 0.3 1.5 9.83 (0.26) (22.0) (0.46) (0.21) (26.81) (0.03) - 5.70 7.52 1.9 0.3 1.1 9.1% 11% (3%) (2%) (3%) (3%) 10.96 0.02 196.1 (0.15) (0.11) 12.48 0.29 15.3 0.13 0.02 (41.09) 213.94 0.05 - 4.40 7.41 2.3 0.1 1.5 7.7% 9% 0% (1%) (1%) (1%) 0.17 - 4.45 7.43 1.9 0.1 1.7 11.6% 9% 2% 0% 0% 0% 11.52 (1.15) (3.1) (1.30) (1.98) (1.82) (1.85) - 3.60 5.45 1.5 0.3 1.6 1.2% 9% (10.0%) (17%) (31%) (31%) 9.16 0.08 44.9 (0.08) (1.18) (3.16) (1.04) - 3.73 4.27 1.5 0.4 1.3 4.5% 10% 0.9% (13%) (24%) (24%) 9.98 (0.57) (4.4) (0.69) (1.03) (2.42) 1.23 - 2.51 3.24 1.4 0.4 1.5 5.7% 10% (6)% (10%) (11%) (27%) Gross margin (% of revenue) 15.1% 15.3% 16.8% 14.7% Selling & Admin. (% of revenue) EBITDA (% of revenue) Net earnings (% of revenue) Return on average capital Return on average equity 7% 8% 4% 8% 9% 6% 8% 5% 10% 11% 7% 10% 6% 11% 12% 8% 7% 4% 6% 7% NOTES 41 NOTES 42 NOTES 43 Buhler Industries Inc. 1260 Clarence Avenue Winnipeg Manitoba Canada R3T 1T2 Ph: 204.661.8711 Fax: 204.654.2503 buhlerindustries.com info@buhler.com 

Continue reading text version or see original annual report in PDF format above