0
FINANCIAL HIGHLIGHTS
OPERATING ANNUAL RESULTS
(in thousands of dollars, except per share amounts)
2020
2019
2018
2017
2016
Sales
Earnings (loss) before income taxes
Net earnings (loss)
- per share
Cash flow
(excluding non-cash working capital,
income tax paid and interest paid)
- per share (1)
Shareholders’ equity
- per share (1)
Share price at year-end
Dividend paid per share
$454,103
$19,022
$13,811
$1.61
$449,587
$4,269
$3,054
$0.36
$475,207
$3,277
$2,571
$0.30
$523,659
$(3,275)
$(2,094)
$(0.25)
$565,173
$(16,294)
$(12,105)
$(1.42)
$28,645
$3.35
$121,229
$14.16
$6.71
$0.20
$9,775
$1.14
$113,408
$13.24
$4.82
$0.10
$9,705
$1.14
$112,863
$13.27
$6.00
-
$2,630
$0.31
$109,434
$12.86
$8.33
-
$(10,802)
$(1.27)
$110,693
$13.01
$9.05
$0.30
(1) Non-IFRS financial measures – refer to “Non-IFRS Financial Measures” section of this MD&A
NET EARNINGS (LOSS) (in million $)
SHARE PRICE
20
10
0
(10)
(20)
$(12)
$14
$3
$3
$(2)
2016
2017
2018
2019
2020
2016
2017
2018
2019
2020
9.05 $
8.33 $
6.00 $
4.82 $
6.71 $
TABLE OF CONTENTS
Chairman’s Report to the Shareholders ................. 2
President’s Report to the Shareholders .................. 3
Management’s Discussion and Analysis ............... 4
Consolidated Financial Statements and Notes ..... 17
Directors and Officers .......................................... 45
Sales Offices and Distribution Centres ................ 46
HEAD OFFICE
225 Goodfellow Street
Delson, Quebec
J5B 1V5
Canada
1
Toll-Free Canada: 1-800-361-6503
Tel.: 450-635-6511
Fax: 450-635-3729
info@goodfellowinc.com
www.goodfellowinc.com
CHAIRMAN’S REPORT TO THE SHAREHOLDERS
The year ended November 30, 2020 resulted in near record earnings of $1.61 per share.
These earnings, which we achieved in the face of a global pandemic, speak well to our strong
management team and leadership. Unprecedented market demand in the second half of the
fiscal year drove prices and margins up accordingly.
Inventories were carefully managed and ended the year at less than $85 million. With no
long-term debt and a bank indebtedness of less than $29 million, we are well positioned to
take advantage of strategic opportunities which may occur in the near future.
Goodfellow is well prepared both as to human capital and financial muscle for the future, and
our balance sheet is the strongest in our history. With distribution yards across Canada, our
marketing strength is formidable.
The demand for our products has carried forward into the 2021 year and we anticipate a
strong first half. We will be on the lookout for opportunities to bolster our value-added
capabilities, and will continue to invest in our facilities.
Finally, on behalf of the Board of Directors we would like to thank our shareholders for their
continued trust and loyalty. It was well earned once again by the work of all our people
throughout the organization. Thank you to our suppliers and customers for their support and
to our management team for their hard work in achieving these results.
G. Douglas Goodfellow
Chairman of the Board
February 19, 2021
2
PRESIDENT’S REPORT TO THE SHAREHOLDERS
The fourth-quarter results of fiscal 2020 were characterized by continued pandemic realities
and their drastic effects on supply and demand. The Company performed very well and was
able to capitalize on surging demand in commodities and seasonal products. This trend
extended well into late November which is uncharacteristic and unprecedented in the previous
fourth quarters.
The manufacturing sector showed some positive signs of growth despite the challenges it is
facing with pandemic restrictions. The LBM side of the business continued its positive
momentum due to the cocooning effect on home renovations and new constructions.
Goodfellow used its diverse value-added capabilities to meet the strong demand for custom
orders and specialty products. The Company positioned itself to succeed across the country
with a firm commitment to maintaining needed inventory levels and ensuring superior
customer service from coast to coast.
In late September 2020, the Company fell victim to a cyber-attack. Initiatives were quickly
executed to protect the Company’s interests and restore ongoing service. The financial results
of the Company were dampened by this incident. The resourcefulness and understanding of
Goodfellow’s sales processes by the employee base mitigated the potential catastrophic or
pursuant consequences. The Company would like to thank its suppliers and customers for
supporting us during this period. Service is now fully restored and moving forward in 2021.
Sincerely,
Patrick Goodfellow
President and Chief Executive Officer
February 19, 2021
3
MANAGEMENT’S DISCUSSION AND ANALYSIS
The following Management’s Discussion and Analysis (“MD&A”) and Goodfellow Inc. (hereafter the “Company”) consolidated financial
statements were approved by the Audit Committee and the Board of Directors on February 19, 2021.
The MD&A should be read in conjunction with the consolidated financial statements and the corresponding notes for the years ended November
30, 2020 and November 30, 2019.
The MD&A provides a review of the significant developments and results of operations of the Company during the years ended November 30,
2020 and November 30, 2019.
The consolidated financial statements for the years ended November 30, 2020 and November 30, 2019 are prepared in accordance with
International Financial Reporting Standards (“IFRS”).
All amounts in this MD&A are in Canadian dollars unless otherwise indicated.
As outlined in the “Significant accounting policies” section of this MD&A, the Company adopted IFRS 16, Leases, using the modified retrospective
approach, effective for the annual reporting period beginning on December 1, 2019. Accordingly, comparative figures as at and for the year ended
November 30, 2019 have not been restated and continue to be reported under IAS 17, Leases.
Additional information relating to Goodfellow Inc., including the Annual Information Form and the Annual Report can be found on SEDAR at
www.sedar.com.
FORWARD-LOOKING STATEMENTS
This MD&A contains implicit and/or explicit forecasts, as well as forward-looking statements on the objectives, strategies, financial position,
operating results and activities of Goodfellow Inc. Forward-looking statements can be identified by words such as: "believe," "estimate," "expect,"
"strategy," "future," "likely," "may," "should," "will" and similar references to future periods. Examples of forward-looking statements include,
among others, statements we make regarding liquidity and risk management in the current economic conditions. Forward-looking statements are
neither historical facts nor assurances of future performance. Instead, these statements are forward-looking to the extent that they are based on
expectations relative to markets in which the Company exercises its activities and on various assessments and assumptions. Although we believe
that the expectations reflected in the forward-looking statements contained in this document, and the assumptions on which such forward-looking
statements are made, are reasonable, there can be no assurance that such expectations and assumptions will prove to be correct. Readers are
cautioned not to place undue reliance on forward-looking statements included in this document, as there can be no assurance that the plans,
intentions or expectations upon which the forward-looking statements are based will occur. Our actual results could differ significantly from
management’s expectations if recognized or unrecognized risks and uncertainties affect our results or if our assessments or assumptions are
inaccurate. These risks and uncertainties include, among other things; the effects of general economic and business conditions including the
cyclical nature of our business; industry competition; inflation, credit, currency and interest rate risks; environmental risk; level of demand and
financial performance of the manufacturing industry; competition from vendors; changes in customer demand; extent to which we are successful
in gaining new long-term relationships with customers or retaining existing ones and the level of service failures that could lead customers to use
competitors' services; increased customer bankruptcies; dependence on key personnel; impact of the COVID-19 pandemic and the related climate
of uncertainty; laws and regulation; information systems, cost structure and working capital requirements; occurrence of hostilities, political
instability or catastrophic events and other factors described in our public filings available at www.sedar.com. For these reasons, we cannot
guarantee the results of these forward-looking statements. The MD&A gives an insight into our past performance as well as the future strategies
and key performance indicators as viewed by our management team at Goodfellow Inc. The Company disclaims any obligation to update or revise
these forward-looking statements, except as required by applicable law.
COVID-19
The Company’s expectation of operating and financial performance in 2021 is based on certain assumptions including assumptions about the
COVID-19 pandemic, such as the duration and impact of the COVID-19 pandemic on the business, operations and financial condition of the
Company. These include in particular the assumption that the Company’s manufacturing and distribution facilities will remain opened and in
operation, the assumption that its workforce will remain healthy, the assumption that hardware and lumber stores and other industrial and
manufacturing clients will remain opened and will continue ordering and selling the Company’s products, the assumption that construction activity
will not be halted by mandatory closures and the assumption that the Company’s supply chain will not be interrupted. The Company’s estimates,
beliefs and assumptions are inherently subject to significant business, economic, competitive and other uncertainties and contingencies regarding
future events, including the COVID-19 pandemic and as such, are subject to change. The Company can give no assurance that such estimates,
beliefs and assumptions will prove to be correct.
NON-IFRS FINANCIAL MEASURES
In addition to discussing earnings in accordance with IFRS, this MD&A provides cash flow per share and earnings before interest, taxes,
depreciation and amortization [“EBITDA”] as a non-IFRS financial measure. These financial measures are not prescribed by IFRS and are not
likely to be comparable to similar measures presented by other issuers. Management considers it to be useful information to assist knowledgeable
investors in evaluating the cash generating capabilities of the Company. Cash flow per share is defined as cash flow from operations (excluding
non-cash working capital, income tax paid and interest paid) of $28.6 million for the fiscal period ended November 30, 2020 divided by the total
number of outstanding shares of 8,562,554.
4
Reconciliation of net earnings to EBITDA
(thousands of dollars)
Net earnings
Income taxes
Net financial costs
Operating income
Depreciation and amortization of property, plant and equipment and intangible assets
Amortization of right-of-use assets
EBITDA
BUSINESS OVERVIEW
For the years ended
November 30
2020
$
13,811
5,211
2,719
21,741
3,433
4,324
29,498
November 30
2019
$
3,054
1,215
3,137
7,406
3,479
-
10,885
Goodfellow Inc. is a distributor of lumber products, building materials, and hardwood flooring products. The Company carries on the business of
wholesale distribution of wood and associated products and remanufacturing, distribution and brokerage of lumber. The Company sells to over
7000 customers who represent three main sectors - retail trade, industrial, and manufacturing. The Company operates 13 distribution centres and
9 processing plants in Canada, and 1 distribution centre in the USA.
OVERALL PERFORMANCE
The fiscal year 2020 was a good year for the Company. Despite the pandemic, the Company was able to perform well mainly due to its diversified
specialty and value-added products as well as its capability to meet the strong demand for custom orders. The Company also capitalized on the
shortage of commodity supply to increase its margins on many products. The cocooning effect from the pandemic was very beneficial overall for
the lumber section. Travel restrictions for Canadians created a strong desire to renovate and improve their homes. Strong growth in the construction
of multi-storey residential units also contributed to a strong, unprecedented fourth quarter 2020 result. Strong demand in commodities and seasonal
products continued through November and well into December, starting 2021 on a positive note.
SELECTED ANNUAL INFORMATION (in thousands of dollars, except per share amounts)
Sales
Earnings before income taxes
Net earnings
Total Assets
Total Lease Liabilities
Cash Dividends paid
PER COMMON SHARE
Net earnings per share, Basic
Net earnings per share, Diluted
Cash Flow from Operations (excluding non-cash
working capital items, income tax paid and interest paid)
Shareholders' Equity
Share Price
Cash Dividends paid
COMPARISON FOR THE YEARS ENDED NOVEMBER 30, 2020 AND 2019
(In thousands of dollars, except per share amounts)
HIGHLIGHTS FOR THE YEARS ENDED
NOVEMBER 30, 2020 AND 2019
Sales
Earnings before income taxes
Net earnings
Net earnings per share – Basic
Net earnings per share – Diluted
Cash Flow from Operations (excluding non-cash
working capital items, income tax paid and interest paid)
EBITDA
Average bank indebtedness
Inventory average
5
2020
$
454,103
19,022
13,811
218,323
17,658
1,712
1.61
1.61
3.35
14.16
6.71
0.20
2020
$
454,103
19,022
13,811
1.61
1.61
28,645
29,498
34,481
92,977
2019
$
449,587
4,269
3,054
180,581
28
851
0.36
0.35
1.14
13.24
4.82
0.10
2018
$
475,207
3,277
2,571
190,718
43
-
0.30
0.30
1.14
13.27
6.00
-
2019
Variance
$
449,587
4,269
3,054
0.36
0.35
9,775
10,885
58,074
103,698
%
+1.0
+345.6
+352.2
+347.2
+360.0
+193.0
+171.0
-40.6
-10.3
During the second quarter, in the face of the COVID-19 pandemic, the Company implemented rigorous sanitary practices and physical distancing
measures in the workplace to mitigate health risks to its employees and the threat to its ongoing operations. The Company was able to keep most
of its facilities opened in the early days of the COVID-19 pandemic, relying on exemptions from mandatory closures for essential products and
services. The severe economic downturn caused by the COVID-19 pandemic and related government-imposed closures adversely impacted demand
for the Company’s products. In addition, construction activity in most of Canada was halted for several weeks in the second quarter as part of
provincial government-imposed closures. In the third quarter, some restrictions were lifted except for the one related to travelling. In Canada, the
federal border restrictions and provincial imposed restrictions combined with government salary protection programs had a positive impact in our
industry and for the Company. Many consumers decided to invest in their property, since they were restricted from travelling in the summer of
2020. This trend continued in the fourth quarter.
Sales in Canada during fiscal 2020 increased 4% compared to last year despite the pandemic, mainly due to strong sales in the second half of fiscal
2020. Quebec sales increased 2% due to an increase in sales of engineered wood and softwood lumber. Sales in Ontario increased 2% mainly due
to an increase in sales of softwood lumber and specialty and commodity panels. Sales in Western Canada decreased 1% due to a decline in sales
of flooring and specialty and commodity panels. Atlantic region sales increased 14% due to an increase in sales of all the categories of products.
Geographical Distribution of Sales for Fiscal 2020
Quebec
Ontario
Western Canada
Atlantic
US and Exports
11% (2019: 11%)
16% (2019: 14%)
13% (2019: 15%)
32%(2019: 32%)
28% (2019: 28%)
Sales in the United States during fiscal 2020 decreased 10% on a Canadian dollar basis compared to last year mostly due to the impact of the
COVID-19 pandemic and decline in hardwood sales. On a US dollar basis, US denominated sales decreased 11% compared to last year. Finally,
export sales decreased 22% compared to last year mostly due to the impact of the COVID-19 pandemic, and a strike at the Port of Montreal.
Product Distribution of Sales for Fiscal 2020
Flooring
21% (2019: 21%)
Specialty & Com modity Panel
16% (2019:17%)
Building Material
11% (2019: 10%)
Lumber
52% (2019: 52%)
In terms of the distribution of sales by product, all product categories with the exception of building materials maintained their sales volume mostly
due to consumers’ investment in their property. Flooring sales during fiscal 2020 decreased 1% compared to last year. Specialty and commodity
panel sales decreased 2% compared to last year. Building material sales increased 6% compared to last year. Finally, lumber sales increased 1%
compared to last year.
Cost of Goods Sold
Cost of goods sold during fiscal 2020 was $362.4 million compared to $364.5 million last year. Cost of goods sold decreased 0.6% compared to
last year. Total freight outbound cost decreased 3.3% compared to last year. Gross profits were $91.7 million compared to $85.0 million last year.
Gross profits increased 7.9% compared to last year. Gross margins were 20.2% in fiscal 2020 (18.9% last year). The market allowed us to increase
our margins due to shortages of lumber.
Selling, Administrative and General Expenses
Selling, Administrative and General Expenses during fiscal 2020 was $70.1 million compared to $77.6 million last year. Selling, Administrative
and General Expenses decreased 9.7% compared to last year. In response to the COVID-19 pandemic, the Company implemented in the second
quarter a number of cost-reduction measures such as reduced expenses related to non-essential travel and has furloughed up to 29% of its workforce.
Furthermore, the Company benefited from the Canada Emergency Wage Subsidy that contributed in particular to maintaining jobs relating to the
production and distribution of essential services.
Total selling, distribution and administrative expenses during fiscal 2020, excluding the impact of IFRS 16, would have been $71.0 million. The
IFRS 16 impact on selling, distribution and administrative expenses is due to operating lease expenses under IAS 17 being replaced with a smaller
amount of depreciation expense related to the right-of-use assets.
Net Financial Costs
Net financial costs during fiscal 2020 were $2.7 million compared to $3.1 million last year. The average Canadian prime rate decreased to 2.87%
compared to 3.95% last year. The average US prime rate decreased to 3.63% compared to 5.33% last year. Average bank indebtedness was $34.5
million compared to $58.1 million last year.
6
Total net financial costs during fiscal 2020, excluding the impact of IFRS 16, would have been $2.0 million. The adoption of IFRS 16 increased
the interest expense by $0.7 million related to lease liabilities.
COMPARISON FOR THE THREE MONTHS ENDED NOVEMBER 30, 2020 AND 2019
(In thousands of dollars, except per share amounts)
HIGHLIGHTS FOR THE THREE MONTHS
ENDED NOVEMBER 30, 2020 AND 2019
Sales
Earnings before income taxes
Net earnings
Net earnings per share – Basic and Diluted
Cash Flow from Operations (excluding non-cash
working capital items, income tax paid and interest paid)
EBITDA
Average bank indebtedness
Inventory average
Q4-2020
Q4-2019
Variance
$
122,641
7,862
5,776
0.67
10,108
10,373
16,049
85,135
$
107,127
406
277
0.03
1,450
1,981
42,124
93,900
%
+14.5
+1,836.5
+1,985.2
+2,133.3
+597.1
+423.6
-61.9
-9.3
Sales in Canada during the fourth quarter of fiscal 2020 increased 19% compared to the same period a year ago mostly due to the fact that the
construction sector was very strong mainly due to the good weather, and that many consumer continued investing in their property since they were
restricted from travelling. Quebec sales increased by 17% mainly due to an increase in almost all categories except for hardwood lumber. Sales in
Ontario increased by 16% mainly due to an increase in sales of lumber and specialty and commodity products. Western Canada sales increased
10% due to an increase in sales of flooring, siding and building material. Atlantic region sales increased 38% due to an increase in sales of flooring,
pressure treated wood, and fir products.
Quebec
Ontario
Western Canada
Atlantic
US and Exports
Geographical Distribution of Sales for the Fourth Quarter ended November 30, 2020
33% (Q4-2019 : 33%)
30% (Q4-2019 : 30%)
10% (Q4-2019 : 10%)
16% (Q4-2019 : 13%)
11% (Q4-2019 : 14%)
Sales in the United States for the fourth quarter of fiscal 2020 decreased 14% on a Canadian dollar basis and US dollar basis compared to the same
period last year mostly due to decrease in sales of lumber products and specialty and commodity panels. Finally, export sales decreased 12% during
the fourth quarter of fiscal 2020 compared to last year mostly due to decrease of sales in lumber and flooring products.
Product Distribution of Sales for the Fourth Quarter ended November 30, 2020
Flooring
22% (Q4-2019: 23%)
Specialty & Commodity Panel
17% (Q4-2019: 17%)
Building Material
9% (Q4-2019: 9%)
Lumber
52% (Q4-2019: 51%)
In terms of the distribution of sales by product, flooring sales for the fourth quarter ended November 30, 2020 increased 10% compared to last
year. Specialty and commodity panel sales increased 16% compared to last year. Building material sales increased 7% compared to last year.
Finally, lumber sales increased 17% compared to the same period a year ago.
Cost of Goods Sold
Cost of goods sold for the fourth quarter of fiscal 2020 was $95.7 million compared to $86.5 million for the corresponding period a year ago. Cost
of goods sold increased 10.6% compared to last year. Total freight outbound cost increased 9.4% compared to last year. Gross profits were $27.0
million compared to $20.7 million last year. Gross profits increased 30.4% compared to last year. Gross margins were 22.0% for the three months
ended November 30, 2020 (19.3% last year). The market allowed us to increase our margins due to shortages of lumber.
Selling, Administrative and General Expenses
Selling, Administrative and General Expenses for the fourth quarter ended November 30, 2020 were $18.7 million compared to $19.6 million for
the corresponding period last year. Selling, Administrative and General Expenses decreased 4.6% compared to last year. This decline results from
the measures taken by the Company to reduce costs and improve its operational efficiency during the second quarter of 2020 in response to the
COVID-19 pandemic. The Company implemented a number of cost-reduction measures such as reduced expenses related to non-essential travel.
7
Total selling, distribution and administrative expenses for the fourth quarter of 2020, excluding the impact of IFRS 16, would have been $18.9
million. The IFRS 16 impact on selling, distribution and administrative expenses is due to operating lease expenses under IAS 17 being replaced
with a smaller amount of depreciation expense related to the right-of-use assets.
Net Financial Costs
Net financial costs for the three months ended November 30, 2020 were $0.5 million ($0.7 million last year). The average Canadian prime rate
was at 2.45% during the fourth quarter of fiscal 2020 compared to 3.95% last year. The average US prime rate decreased to 3.25% compared to
4.96% last year. Average bank indebtedness was $16.0 million compared to $42.1 million a year ago.
Total net financial costs for the fourth quarter of 2020, excluding the impact of IFRS 16, would have been $0.4 million. The adoption of IFRS 16
increased the interest expense by $0.1 million related to lease liabilities.
SUMMARY OF THE LAST EIGHT MOST RECENTLY COMPLETED QUARTERS
(In thousands of dollars, except per share amounts)
Sales
Net (loss) earnings
Feb-2020(1)
$
88,856
(2,060)
May-2020(1)
$
103,763
3,399
Aug-2020(1)
$
138,843
6,696
Nov-2020(1)
$
122,641
5,776
Net (loss) earnings per share
(0.24)
0.40
0.78
0.67
Sales
Net (loss) earning
Feb-2019
$
88,153
(1,550)
May-2019
$
123,713
1,855
Aug-2019
$
130,594
2,472
Nov-2019
$
107,127
277
Net (loss) earnings per share
(0.18)
0.22
0.29
0.03
As indicated above, our results over the past eight quarters follow a seasonal pattern with sales activities traditionally higher in the second and
third quarters. In the second quarter of 2020, revenue is unusually low compared to the second quarter of 2019 due to COVID-19.
1 Includes the impact of the adoption of IFRS 16
STATEMENT OF FINANCIAL POSITION AT NOVEMBER 30, 2020 AND 2019
Total Assets
Total assets at November 30, 2020 was $218.3 million compared to $180.6 million last year. Cash at November 30, 2020 closed at $3.5 million
compared to $2.4 million last year. Trade and other receivables at November 30, 2020 was $76.1 million ($48.5 million last year). Inventories at
November 30, 2020 was $84.7 million compared to $87.3 million last year. Prepaid expenses at November 30, 2020 was $2.6 million (same last
year). Defined benefit plan asset was $1.9 million at November 30, 2020 compared to $2.2 million last year. Other assets were $0.8 million at
November 30, 2020 (same last year).
Property, plant, equipment, intangible and right-of-use assets
Property, plant and equipment at November 30, 2020 was $31.1 million compared to $32.8 million last year. Capital expenditures during fiscal
2020 amounted to $1.4 million compared to $1.0 million last year. Property, plant and equipment capitalized during fiscal 2020 mainly included
buildings, yard equipment, computers and rolling stock. Intangible assets at November 30, 2020 was $3.2 million compared to $3.9 million last
year, largely decreased due to annual amortization expense of $728 thousand. Right-of-use assets at November 30, 2020 was $14.3 million (nil
last year). Depreciation of property, plant, equipment, intangible, and right-of-use assets during fiscal 2020 amounted to $7.8 million compared to
$3.5 million last year.
Total Liabilities
Total liabilities at November 30, 2020 was $97.1 million compared to $67.2 million last year. Bank indebtedness was $28.6 million compared to
$31.2 million last year. Trade and other payables at November 30, 2020 was $39.6 million compared to $29.0 million last year. Income taxes
payable was $4.9 million compared to $0.7 million last year. Provision at November 30, 2020 was $1.5 million (same last year). Dividend payable
at November 30, 2020 was $2.1 million ($0.9 million last year). Lease liabilities at November 30, 2020 were $17.7 million compared to $43
thousand last year. Deferred income taxes at November 30, 2020 was $1.6 million compared to $3.2 million last year. Defined benefit plan
obligation was $1.2 million at November 30, 2020 compared to $0.6 million last year.
Shareholders’ Equity
Total Shareholders’ Equity at November 30, 2020 was $121.2 million compared to $113.4 million last year. The Company generated a return on
equity of 11.4% during fiscal 2020 compared to 2.7% last year. The share price closed at $6.71 per share on November 30, 2020 ($4.82 on
November 30, 2019). The book value at November 30, 2020 was $14.16 per share compared to $13.24 last year. Share capital was $9.4 million at
November 30, 2020 (same last year). Dividends of $0.20 and $0.10 per share were paid for fiscal years ended November 30, 2020 and November
30, 2019. Another dividend of $0.25 per share, totaling $2.1 million was declared in fiscal 2020, but payable in fiscal 2021.
8
LIQUIDITY AND CAPITAL RESOURCES
Financing
In May 2019, the Company renewed its credit agreement with its present lenders, two chartered Canadian banks. The credit agreement has a
maximum revolving operating facility of $90 million maturing in May 2021. In addition, an accordion of $10 million is available once per fiscal
year for a maximum of 150 days only. Funds advanced under these credit facilities bear interest at the prime rate plus a premium and are secured
by first ranking security on the universality of the movable and immovable property of the Company. As at November 30, 2020, the Company was
compliant with its financial covenants. As at November 30, 2020, under the credit agreement, the Company was using $24.0 million of its facility
compared to $30.0 million last year.
The Company’s business follows a seasonal pattern with sales activities traditionally higher in the second and third quarter. As a result, cash flow
requirements are generally higher during these periods. The current facility is considered by management to be adequate to support its current
forecasted cash flow requirements. Source of funding and access to capital is disclosed in detail under LIQUIDITY AND RISK MANAGEMENT
IN THE CURRENT ECONOMIC CONDITIONS.
Cash Flow
Net cash flow from operating activities for fiscal 2020 was $11.4 million compared to $13.4 million last year. Financing activities during fiscal
2020 was $(12.3) million compared to $(11.9) million last year. Investing activities during fiscal 2020 was $(1.4) million compared to $(1.1)
million last year (See Property, plant, equipment, intangible and right-of use assets for more details).
LIQUIDITY AND RISK MANAGEMENT IN THE CURRENT ECONOMIC CONDITIONS
The Company’s objectives are as follows:
1. Maintain financial flexibility in order to preserve its ability to meet financial obligations;
2. Maintain a low debt-to-capitalization ratio to preserve its capacity to pursue its organic growth strategy;
3. Maintain financial ratios within covenants requirements;
4. Provide an adequate return to its shareholders.
The Company defines its capitalization as shareholders’ equity and debt. Shareholders’ equity includes the amount of paid-up capital in respect of
all issued and fully paid common shares together with the retained earnings, calculated on a consolidated basis in accordance with IFRS. Debt
includes bank indebtedness reduced by the amounts of cash and cash equivalents. Capitalization represents the sum of debt and shareholders’
equity.
The Company manages its capital and makes adjustments to it in the light of changes in economic conditions and the risk characteristics of the
underlying assets. In order to maintain or adjust its capital, the Company may adjust the amount of dividends paid to shareholders, issue new shares
or repurchase shares under the normal course issuer bid, acquire or sell assets to improve its financial performance and flexibility or return capital
to shareholders. The Company’s primary uses of capital are to finance increases in non-cash working capital and capital expenditures for capacity
expansion. The Company currently funds these requirements out of its internally generated cash flows and credit facilities. The Company’s financial
objectives and strategy remain substantially unchanged.
The Company is subject to certain covenants on its credit facilities. The covenants include a Debt-to-capitalization ratio and an Interest coverage
ratio. The Company monitors the ratios on a monthly basis. The Company currently complies with all externally imposed capital requirements.
Other than the covenants required for the credit facilities, the Company is not subject to any externally imposed capital requirements. The Company
believes that all its ratios are within reasonable limits, in light of the relative size of the Company and its capital management objectives.
As at November 30, 2020 and 2019, the Company achieved the following results regarding its capital management objectives:
Capital management
Debt-to-capitalization ratio
Interest coverage ratio
Return on shareholders’ equity
Current ratio
EBITDA (in thousands of dollars)
As at
November 30
2020
As at
November 30
2019
17.3%
11.9
11.4%
2.1
$29,498
20.6%
3.5
2.7%
2.2
$10,885
These measures are not prescribed by IFRS and are defined by the Company as follows:
Debt-to-capitalization ratio represents debt over total shareholders’ equity. Debt is defined as bank indebtedness less cash and cash
equivalents. Capitalization is debt plus shareholders’ equity. This ratio is presented without the impact of IFRS 16 to conform to the
bank’s covenant requirement.
Interest coverage ratio represents the EBITDA during the period for which the calculation is made over interest expenses for the same
period on a consolidated basis, calculated on a rolling four-quarter basis. This ratio is presented without the impact of IFRS 16 to
conform to the bank’s covenant requirement.
Return on shareholders’ equity is the net earnings (loss) divided by shareholders’ equity.
Current ratio is total current assets divided by total current liabilities.
EBITDA is earnings before interest, taxes, depreciation and amortization.
9
General
Management makes every effort to ensure that the Company benefits from effective risk management, which has been strengthened according to
even stricter criteria with economic fluctuations. Management is responsible for identifying and assessing the potential risks that could have a
material impact on the Company’s operations and financial position, as well as the risk management strategies implemented within the Company.
It is also responsible for setting up risk management oversight provisions, notably by developing and recommending to the Board of Directors or
its Audit Committee various policies and procedures to support effective strategies in regard to internal and external control in order to improve
and reduce the impact of business and operational risk factors.
Credit Risk
The Company strictly manages the credit granted to its customers. The accounts receivable collection period has been historically longer in the
second and third quarters of its fiscal year. A rapid weakening of the economic conditions could result in further bad debts expenses.
Supplier-Related Risk
The Company’s business model is largely built on long-term relationships with a network of international, national and local manufacturers, which
enables it to reduce the risks associated with inventory valuation and to adjust to fluctuations in demand. In addition, the Company’s practice is to
take discounts and pay its suppliers on a timely basis which results in strong relationships with our key vendors and partners.
Cost Structure, Working Capital Requirements
At November 30, 2020, the Company’s total debt-to-capitalization ratio stood at 17.3% compared to 20.6% on November 30, 2019.
For further information, the principal risk factors to which the Company is exposed are described in the Management’s Report contained in its
Annual Report for the twelve months ended November 30, 2020 as well as in the 2020 Annual Information Form available on SEDAR
(www.sedar.com).
FINANCIAL COMMITMENTS AND CONTINGENCIES
Obligations
Payments due by period (in thousands of dollars) - undiscounted
Lease obligations
Purchase obligations
Total obligations
Total
19,912
418
20,330
Less than
1 year
5,128
418
5,546
2 – 3
Years
8,011
-
8,011
4 – 5
Years
4,092
-
4,092
After
5 years
2,681
-
2,681
Contingent liabilities
During the normal course of business, certain product liability and other claims have been brought against the Company and, where applicable, its
suppliers. While there is inherent difficulty in predicting the outcome of such matters, management has vigorously contested the validity of these
claims, where applicable, and based on current knowledge, believes that they are without merit and does not expect that the outcome of any of
these matters, in consideration of insurance coverage maintained, or the nature of the claims, individually or in the aggregate, would have a material
adverse effect on the consolidated financial position, results of operations or future earnings of the Company.
RISKS AND UNCERTAINTIES
Currency Risk
Certain valuation risks exist depending on the performance of the Canadian dollar compared to the U.S. dollar, Euro and the Pound sterling. From
time-to-time, the Company enters into forward exchange contracts to hedge certain accounts payable and certain future purchase commitments
denominated in U.S. dollars and Euros. During the twelve months ended November 30, 2020, the Company did not use foreign exchange contracts
to mitigate its effect on sales and purchases. Consequently, as at November 30, 2020 there were no outstanding foreign exchange contracts.
Interest Risk
The Company uses a credit facility to finance working capital requirements. The interest cost of this facility is dependent upon Canadian and US
bank prime rates. The profitability of the Company could be adversely affected by increases in the bank prime rate.
Credit Risk
The Company is exposed to credit risks from customers. As a result of having a diversified customer mix, this risk is alleviated by minimizing the
amount of exposure the Company has to any one customer. Additionally, the Company has a system of credit management to mitigate the risk of
losses due to insolvency or bankruptcy of its customers. It also utilizes credit insurance to reduce the potential for credit losses. The loss of any
major customer could have a material effect on the Company’s results, operations and financial conditions.
Environmental Risk
The Company’s St-André (QC) site shows continued traces of surface contamination from previous treating activities exceeding existing regulatory
requirements. The Company received approval for the environmental rehabilitation plan in fiscal 2016. The Company started to implement its plan
during fiscal 2016 and treatment of soil on-site was to be performed over an estimated period of 5 years. The remaining rehabilitation was expected
to occur in fiscal 2020. Unfortunately, because of the duration and impact of the COVID-19 pandemic no work was performed in fiscal 2020. The
remaining rehabilitation is now expected to occur in fiscal 2021 unless other delays occur due to the COVID-19 pandemic. If additional delays
occur the Company might have to modify its rehabilitation plan in fiscal 2021 and submit for approval to the Minister of the environment a revised
timetable to complete the rehabilitation, taking into account any possible impact from the prevailing sanitary conditions. Based on current available
information, the provision as at November 30, 2020 is considered by management to be adequate to cover any projected costs that could be incurred
in the future.
10
Because of the nature of the liability, the biggest uncertainty in estimating the provision is the amount of soil to be treated and the costs that will
be incurred. In particular, the Company has assumed that the site will be restored using technology and materials that are currently available. The
Company has been provided with a reasonable estimate, reflecting different assumptions about pricing of the individual components of the cost.
The provision has been calculated using a discount rate of 3.6% and an inflation rate of 0.7%.
Competition from Vendors
The Company is exposed to competition from some of its vendors in certain markets. From time to time, vendors might decide to distribute directly
to some of our customers and therefore, become competitors. This would adversely affect the Company’s ability to compete effectively and thereby
potentially impact its sales.
Dependence on Key Personnel
The Company is dependent on the continued services of its senior management team. Although the Company believes that it could replace such
key employees in a timely fashion should the need arise, the loss of such key personnel could have a material adverse effect on the Company.
Dependence on Major Customers
The Company does not have long-term contracts with any of its customers. Distribution agreements are usually awarded annually and can be
revoked. Only one major customer exceeds 10% of total Company sales in the twelve months ended November 30, 2020 (same last year). The
following represents the total sales consisting primarily of various wood products of the major customer:
Years ended
(in thousands of dollars)
Sales to major customer(s) that exceeded 10% of total Company’s sales
November 30, 2020 November 30, 2019
%
12.9
$
58,019
$
67,716
%
14.9
The loss of any major customer could have a material effect on the Company’s results, operations and financial position. The carrying amounts of
financial assets represent the maximum credit exposure.
Dependence on Market Economic Conditions
The Company demand for products depends significantly upon the home improvement, new residential and commercial construction markets. The
level of activity in the home improvement and new residential construction markets depends on many factors, including the general demand for
housing, interest rates, availability of financing, housing affordability, levels of unemployment, shifting demographic trends, gross domestic
product growth, consumer confidence and other general economic conditions. Since such markets are sensitive to cyclical changes in the economy,
future downturns in the economy or lack of further improvement in the economy could have a material adverse effect on the Company.
Customer Agreements
The majority of the Company’s supply and customer arrangements vary significantly in length. Most arrangements are for individual purchase
orders and are satisfied upon delivery of the goods to the customer. Some arrangements involve customers purchasing goods several months in
advance of delivery. These arrangements, known as bookings, vary in length but are generally less than six months long. There can be no assurance
that these customers will renew their bookings or continue to place purchase orders with the Company.
Cyclical Nature
The business of the Company is, to a significant degree, seasonal and cyclical, and fluctuates in advance of the normal building season. Inventory
is built up during the second quarter in anticipation of the building seasons, and the busy selling season begins in the last half of that second quarter
and extends to the end of the third quarter. Additionally, the Company is subject to the normal economic cycle, the housing cycle and to
macroeconomic factors, such as interest rates. Although the Company anticipates that these seasonal and cyclical fluctuations will continue in the
foreseeable future, it is seeking to reduce their impact on its operations and sales.
Supply Chain
The Company is exposed to supply chain risks relating mainly to the Asian imports from time to time. Management does not expect to incur any
major losses related to supply due to the fact that it has built solid long-term relationships with numerous reputable suppliers.
Laws and regulations
The Company faces multiple laws and regulations. These are laws that regulate credit practice, transporting products, importing and exporting
products and employment. New laws governing the Company’s business could be enacted or changes to existing laws could be implemented, each
of which might have a significant impact on the Company’s business. Many foreign laws and regulations constrain our ability to compete efficiently
on those foreign markets.
Information systems
The Company enterprise resource planning (“ERP”) information management system provides information to management which is used to
evaluate financial controls, reporting and sales analysis and strategies. The failure of information systems or a component of information systems
could, depending on the nature of any such failure, adversely impact the Company’s results of operations. Furthermore, the Company relies on
vendors to support, maintain and periodically upgrade ERP or other systems which are essential in providing management with the appropriate
information for decision making. The inability of these vendors to continue to support, maintain and/or upgrade these software programs could
disrupt operations if the Company were unable to convert to alternate systems in an efficient and timely manner. Information technology system
disruptions, if not anticipated and appropriately mitigated, or the failure to successfully implement new or upgraded systems, could have a material
adverse effect on our Business or results of operations.
11
Cybersecurity
The Company is exposed to risks associated with data breaches, malicious software, unauthorized access, hacking, phishing, identity theft,
intellectual property theft, asset theft, industrial espionage, and other cybersecurity threats. Cyberattacks could cause in particular loss of data,
disruption of business operations, costs relating to restoration and investigation, cost hikes to maintain and upgrade technological infrastructures
and systems, increased costs for cybersecurity insurance, financial loss, non-compliance with privacy legislation, legal claims and disputes, fines
and reputational damage, all of which could affect the Company’s operating results or financial position. Notwithstanding the measures
implemented to protect itself against cyberattacks, the Company may be unsuccessful in preventing or implementing effective preventive measures
against every potential cyberthreat, as the tactics used are multiplying, change frequently, come from a wide range of sources and are increasingly
sophisticated. Moreover, cybersecurity insurance coverage may not be sufficient to insulate the Company from the losses or costs stemming from
any or all cybersecurity breaches.
In the late September 2020, the Company detected a ransomware cyberattack on its information technology systems. The malware used to perform
the attack encrypted certain electronic data stored on the Company’s network so it cannot be read or used. The attack took place after the close of
business and was immediately detected at the opening of business on the following day, with steps immediately taken to contain and mitigate any
potential impact to the Company’s data and operations and start the recovery process.
In collaboration with its cybersecurity insurance carriers, independent cybersecurity experts were brought in to assist the Company in dealing with
the matter in accordance with industry best practices. The Company also reported the attack to law enforcement agencies.
Customers’ personal information was not compromised as a result of this attack. However, some employee personal information has been
compromised and the Company is taking measures to minimize the impact for affected employees, including retaining the services of TransUnion
to proactively monitor and manage their credit record.
The Company was able to re-establish its data and systems and was successful in doing it.
FINANCIAL INSTRUMENTS AND OTHER INSTRUMENTS
Risk Management
The Company is exposed to financial risks that arise from fluctuations in interest rates and foreign exchange rates and the degree of volatility of
these rates.
Financing and Liquidity Risk
The Company makes use of short-term financing with two chartered Canadian banks.
The following are the contractual maturities of financial liabilities as at November 30, 2020:
(in thousands of dollars)
Financial Liabilities
Bank indebtedness
Trade and other payables
Dividend payable
Carrying
Amount
28,570
39,614
2,141
Contractual
cash flows
28,570
39,614
2,141
0 to 12
Months
28,570
39,614
2,141
12 to 36
Months
-
-
-
36 months
and more
-
-
-
Total financial liabilities
70,325
70,325
70,325
-
-
The following are the contractual maturities of financial liabilities as at November 30, 2019:
Financial Liabilities
Bank indebtedness
Trade and other payables
Dividend payable
Lease liabilities
Carrying
Amount
31,204
29,048
856
43
Contractual
cash flows
31,204
29,048
856
43
Total financial liabilities
61,151
61,151
0 to 12
Months
31,204
29,048
856
15
61,123
12 to 36
Months
-
-
-
28
28
36 months
and more
-
-
-
-
-
Interest Rate Risk
The Company uses a credit facility to finance working capital requirements. The interest cost of this facility is dependent upon Canadian and US
bank prime rates. The profitability of the Company could be adversely affected with increases in the bank prime rate. Management does not believe
that the impact of interest rate fluctuations will be significant on its operating results. A 1% fluctuation of interest rate on the $28.6 million in bank
indebtedness would impact interest expense annually by $0.3 million.
12
Currency Risk
The Company could enter into forward exchange contracts to economically hedge certain trade payables and from time to time future purchase
commitments denominated in U.S. dollars, Euros and Pounds sterling. A fluctuation in the Canadian dollar of 5% in relation to foreign currencies
would not have a significant effect on the Company’s net earnings.
As at November 30, 2020, the Company had the following currency exposure:
Financial assets and liabilities measured at amortized costs
(in thousands of dollars)
Cash
Bank indebtedness
Trade and other receivables
Trade and other payables
Lease liabilities
Net exposure
USD
1,416
(1,462)
7,051
(3,775)
(515)
2,715
GBP
212
-
145
(77)
-
280
Euro
10
-
-
(275)
-
(265)
CAD exchange rate as at November 30, 2020
1.3001
1.7318
1.5508
Impact on net earnings based on a fluctuation of 5% on CAD
127
17
(15)
Credit Risk
The Company is exposed to credit risks from customers. As a result of having a diversified customer mix, this risk is alleviated by minimizing the
amount of exposure the Company has to any one customer. Additionally, the Company has a system of credit management to mitigate the risk of
losses due to insolvency or bankruptcy of its customers. It also utilizes credit insurance to reduce the potential for credit losses. Finally, the
Company has adopted a credit policy that defines the credit conditions to be met by its customers, and specific credit limit for each customer is
established and regularly revised. Based on historical payment behaviour and current credit information and experience available, the Company
believes that, apart from provision for doubtful accounts recorded, no impairment allowance is necessary in respect of trade receivables that are
current or past due. The Company does not have long-term contracts with any of its customers. Distribution agreements are usually awarded
annually and can be revoked. In its assessment of the loss allowance for credit losses as at November 30, 2020, the Company considered the
economic impact of the COVID-19 pandemic on its assessment. This was not considered to be significant.
The following table presents information on credit risk exposure and expected credit losses related to trade accounts receivable:
(in thousands of dollars)
Current
31 - 60 days past due
61 - 90 days past due
91 - 120 days past due
Over 120 days past due
Loss allowance
Balance, end of period
November 30
2020
$
70,326
2,752
1,620
712
653
76,063
(122)
75,941
November 30
2019
$
42,898
3,238
735
397
564
47,832
(144)
47,688
As at November 30, 2020, expected credit losses are limited to $122 thousand and therefore, the expected credit losses from the aging of trade
accounts receivable have not been presented separately in the table above.
Fair Value
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at
the measurement date. Fair value is based on available public market information or, when such information is not available, is estimated using
present value techniques and assumptions concerning the amount and timing of future cash flows and discount rates which factor in the appropriate
level of risk for the instrument.
The estimated fair values may differ in amount from that which could be realized in an immediate settlement of the instruments. The carrying
amounts of cash, trade and other receivables, bank indebtedness, trade and other payables and lease liabilities approximate their fair values.
RELATED PARTY TRANSACTIONS
Related parties include key management and other related parties as described below. Unless otherwise noted, no related party transactions contain
special features, conditions and guarantees that have been given or received. Balances are generally settled in cash. Transactions between the parent
company and its subsidiaries and between subsidiaries themselves, which are related parties, have been eliminated upon consolidation. These
transactions and balances are not presented in this section. The details of these transactions occurred in the normal course of business between the
Company and other related parties and are presented below.
13
Commercial Transactions
During the year ended November 30, 2020, the entities of the Company have not entered into business transactions with related parties that are not
members of the Company.
Loans to related parties
No executive officers, senior officers, directors or any person related to them is indebted to the Company.
Key management personnel compensation
Key management includes members of the board of directors, senior management and key executives. The following table shows the remuneration
of key management personnel during the years ended:
(in thousands of dollars)
Salaries and other short-term benefits
Post-employment benefits
CRITICAL ACCOUNTING ESTIMATES
November 30
2020
$
1,943
103
2,046
November 30
2019
$
1,756
105
1,861
The preparation of financial statements in compliance with IFRS requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosures at the date of the financial statements and the reported amounts of revenues and expenses during
the reporting period. These estimates are based on management's best knowledge of current events and actions that the Company may undertake
in the future. Estimates are volatile by their nature and are continuously monitored by management. Actual results may differ from these estimates.
A discussion of the significant estimates that could have a material effect on the financial statements is provided below:
i. Allowance for sales returns
The Company provides for the possibility that merchandise already sold may be returned by customers. To this end, the Company has
made certain assumptions based on the quantity of merchandise expected to be returned in the future.
ii. Measurement of defined benefit plan assets and liabilities
The Company’s measurement of defined benefit plan assets and liabilities involves making assumptions about discount rates, the
expected rate of compensation increase, the retirement age of employees, and mortality rates. If the actuarial assumptions are found to
be significantly different from the actual data subsequently observed, it could lead to changes to the pension expense recognized in net
earnings, and the net assets or net liabilities related to these obligations presented in the consolidated statement of financial position.
iii. Valuation of inventory
Estimating the impact of certain factors on the net realizable value of inventory, such as obsolescence and losses of inventory, as well as
estimating the cost of inventory, freight accrual and inventory provisions, requires a certain level of judgment. Inventory quantities, age
and condition, and average costs are measured and assessed regularly throughout the year.
iv. Environmental provisions
Environmental provisions relate to the discounted present value of estimated future expenditures associated with the obligations of
restoring the environmental integrity of certain properties.
Environmental expenditures are estimated taking into consideration the anticipated method and extent of the remediation consistent with
regulatory requirements, industry practices, current technology and possible uses of the site. The estimated amount of future remediation
expenditures is reviewed periodically based on available information. The provision requires the use of estimates and assumptions such
as the estimated amount of future remediation expenditures, the anticipated method of remediation, the discount rate and the estimated
time frame for remediation. These estimates and assumptions might require additional revisions in the future depending on changes in
the industry or the economic environment including any potential developments from the COVID-19 pandemic. Any changes in
management’s estimate may have a material impact on the Company’s statement of financial position and consolidated statement of
comprehensive income. See Note 13 for further details.
v. Leases
In determining the carrying amount of right-of-use assets and lease liabilities, the Company is required to estimate the incremental
borrowing rate specific to each leased asset if the interest rate implicit in the lease is not readily determinable. Management determines
the incremental borrowing rate of each leased asset by incorporating the Company's creditworthiness, the security, term and value of the
underlying leased asset, and the economic environment in which the leased asset operates in. The incremental borrowing rates are subject
to change mainly due to macroeconomic changes in the environment.
vi. Critical judgments in applying accounting policies
Management exercises judgment in determining the appropriate lease term on a lease by lease basis. Management considers all facts and
circumstances that create an economic incentive to exercise a renewal option or to not exercise a termination option. The periods covered
by renewal options are only included in the lease term if management is reasonably certain to renew.
14
Management considers reasonably certain to be a high threshold. Changes in the economic environment or changes in the industry may
impact management’s assessment of lease term, and any changes in management’s estimate of lease terms may have a material impact
on the Company’s statement of financial position and consolidated statement of comprehensive income.
vii. Impact of COVID-19 pandemic
The Company reflected, where appropriate, on the impact of the COVID-19 pandemic and the related climate of uncertainty on some of
its estimates and assumptions, including significant judgment areas, used in preparing the consolidated financial statements. The main
areas impacted were the determination of whether there is an indication that assets are impaired and where appropriate, the estimates and
assumptions used in the establishment of their recoverable amount. Additional revisions might be required in the future depending on
the development of the COVID-19 pandemic and its impact on the Company’s results of operations and financial position, and this could
have a material impact on the final measurement of the carrying amount of the Company’s assets.
SIGNIFICANT ACCOUNTING POLICIES
The new accounting policies set out below have been adopted in the audited consolidated financial statements for the year ended November 30,
2020:
-
-
IFRS 16 – Leases
IFRIC 23 – Uncertainty Over Income Tax Treatments
Further information on these modifications can be found in Note 3 of the audited consolidated financial statements for the year ended November
30, 2020.
DISCLOSURE OF OUTSTANDING SHARE DATA
At November 30, 2020, there were 8,562,554 common shares issued (same last year). The Company has authorized an unlimited number of
common shares to be issued, without par value. At February 19, 2021, there were 8,562,554 common shares outstanding.
SUBSEQUENT EVENT
On November 16, 2020, the Company declared a dividend of $0.25 per share, totaling $2.1 million to shareholders of record on November 27,
2020, which was paid on December 4, 2020.
OUTLOOK
The evolution of COVID-19 is still currently unpredictable and due to the rise of new cases of infection worldwide it makes estimating the end of
the pandemic impossible to determine at this date. The presence of a vaccine is reassuring nonetheless and Canadians cannot be overconfident that
vaccination levels will be as anticipated by the end of 2021. In consequence, risk management requires caution. It is imperative to maintain a strong
balance sheet throughout the period ahead in 2021.
COVID-19
The duration and impact of the COVID-19 pandemic on the Company are unknown at this time. As such, it is not possible to reliably estimate the
length and severity of the COVID-19’s related impacts on the financial results and operations of the Company. The Company continues to closely
monitor the situation as it evolves day-to-day and may take further actions in response to the directives of the government and public health
authorities or that are in the best interests of its colleagues, customers, suppliers or other stakeholders, as necessary. The Company has already
taken and will continue to take swift actions to mitigate the effects of COVID-19 on its day-to-day business operations, with the best interests of
its employees, customers, suppliers and other stakeholders at the crux of every action taken.
These changes and any additional changes in operations in response to COVID-19 could materially impact financial results and may include
temporary closures of facilities, temporary or long-term labour shortages or disruptions, temporary or long-term impacts on supply chains and
distribution channels, temporary or long-term restrictions on cross-border commerce and travel, greater currency volatility, and increased risks to
IT systems, networks and digital services. Uncertain economic conditions resulting from the COVID-19 outbreak may, in the short or long term,
adversely impact operations and the financial performance of the Company. The spread of COVID-19 has caused an economic slowdown and
increased volatility in financial markets. Governments and central banks have responded with monetary and fiscal interventions intended to stabilize
economic conditions. However, it is not currently known how these interventions will impact debt and equity markets or the economy generally.
Although the ultimate impact of COVID-19 on the global economy and its duration remain uncertain, disruptions caused by COVID-19 may
adversely affect the performance of the Company. Uncertain economic conditions resulting from the COVID-19 outbreak may, in the short or long
term, adversely impact demand for the Company’s products and/or the debt and equity markets, both of which could adversely affect the Company's
financial performance. Governmental interventions aimed at containing COVID-19 could also impact the Company’s available workforce, its
supply chain and distribution channels and/or its ability to engage in cross-border commerce, which could in turn adversely affect the operations
or financial performance of the Company.
15
CERTIFICATION
Disclosure Controls
Management is responsible for establishing and maintaining a system of disclosure controls and procedures to provide reasonable assurance that
all material information relating to the Company and its subsidiaries is gathered and reported to senior management on a timely basis so that
appropriate decisions can be made regarding public disclosure.
As required by National Instrument 52-109 Certification of Disclosure in Issuers’ Annual and Interim Filings (“NI 52-109”), the Chief Executive
Officer (“CEO”) and the Chief Financial Officer (“CFO”) have caused the effectiveness of the disclosure controls and procedures to be evaluated.
Based on that evaluation, they have concluded that the design and operation of the system of disclosure controls and procedures were effective as
at November 30, 2020.
Procedures and 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 reports for external purposes in accordance with IFRS.
As required by NI 52-109, the CEO and the CFO have caused the effectiveness of the internal controls over financial reporting to be evaluated
using the framework established in ‘Internal Control – Integrated Framework (COSO Framework)’ published by The Committee of Sponsoring
Organizations of the Treadway Commission (COSO), 2013. Based on that evaluation, they have concluded that the design and operation of the
Company’s internal controls over financial reporting were effective as at November 30, 2020.
In designing such controls, it should be recognized that due to inherent limitations, any controls, no matter how well designed and operated, can
provide only reasonable assurance of achieving the desired control objectives and may not prevent or detect misstatements. Projections of any
evaluations of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that
the degree of compliance with the policies or procedures may deteriorate. Additionally, management is required to use judgment in evaluating
controls and procedures.
There has been no change in the Company’s internal control over financial reporting that occurred during the three and twelve months ended
November 30, 2020 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
Delson, February 19, 2021
Patrick Goodfellow
President and Chief Executive Officer
Charles Brisebois, CPA, CMA
Chief Financial Officer
16
MANAGEMENT’S RESPONSIBILITY FOR FINANCIAL STATEMENTS AND OTHER FINANCIAL
INFORMATION
The accompanying consolidated financial statements, which have been prepared in accordance with International Financial Reporting
Standards, and the other financial information provided in the Annual Report, which is consistent with the financial statements, are the
responsibility of management and have been approved by the Board of Directors.
The consolidated financial statements include some amounts that are based on management’s best estimates and judgment and, in their
opinion, present fairly the Company’s financial position, results of operations and cash flows. The Company’s procedures and internal
control systems are designed to provide reasonable assurance that accounting records are reliable and safeguard the Company’s assets.
The Audit Committee is responsible for reviewing the consolidated financial statements and Annual Report and recommending their
approval to the Board of Directors. In order to fulfill its responsibilities, the Audit Committee meets with management and independent
auditors to discuss internal control over financial reporting process, significant accounting policies, other financial matters and the results
of the examination by the independent auditors.
These consolidated financial statements have been audited by the independent auditors KPMG LLP, Chartered Professional Accountants,
and their report is included herein.
Patrick Goodfellow
President and Chief Executive Officer
Charles Brisebois, CPA, CMA
Chief Financial Officer
17
KPMG LLP
600 de Maisonneuve Blvd. West
Suite 1500, Tour KPMG
Montréal (Québec) H3A 0A3
Canada
Telephone
Fax
Internet
(514) 840-2100
(514) 840-2187
www.kpmg.ca
INDEPENDENT AUDITORS’ REPORT
To the Shareholders of Goodfellow Inc.;
Opinion
We have audited the consolidated financial statements of Goodfellow Inc. (the Entity), which comprise:
•
the consolidated statements of financial position as at November 30, 2020 and November 30, 2019;
•
the consolidated statements of comprehensive income for the years then ended;
•
the consolidated statements of changes in Shareholders’ equity for the years then ended;
•
the consolidated statements of cash flows for the years then ended;
•
and notes to the consolidated financial statements, including a summary of significant accounting policies
(Hereinafter referred to as the “financial statements”).
In our opinion, the accompanying financial statements present fairly, in all material respects, the consolidated financial position of
the Entity as at November 30, 2020 and November 30, 2019, and its consolidated financial performance and its consolidated cash
flows for the years then ended in accordance with International Financial Reporting Standards (IFRS).
Basis for Opinion
We conducted our audit in accordance with Canadian generally accepted auditing standards. Our responsibilities under those
standards are further described in the “Auditors’ Responsibilities for the Audit of the Financial Statements” section of our auditors’
report.
We are independent of the Entity in accordance with the ethical requirements that are relevant to our audit of the financial statements
in Canada and we have fulfilled our other ethical responsibilities in accordance with these requirements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Emphasis of Matter – Prospective Change in Accounting Policy
We draw attention to Note 3 to the financial statements, which indicates that the Entity has changed its accounting policy for leases
as of December 1, 2019, due to the adoption of IFRS 16 - Leases using a modified retrospective approach.
Our opinion is not modified in respect of this matter.
Other Information
Management is responsible for the other information. Other information comprises:
‒
‒
the information included in Management’s Discussion and Analysis filed with the relevant Canadian Securities Commissions.
the information, other than the financial statements and the auditors’ report thereon, included in a document likely to be entitled
“Annual Report 2020”.
Our opinion on the financial statements does not cover the other information and we do not and will not express any form of
assurance conclusion thereon.
In connection with our audit of the financial statements, our responsibility is to read the other information identified above and, in
doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained
in the audit and remain alert for indications that the other information appears to be materially misstated.
We obtained the information included in Management’s Discussion and Analysis filed with the relevant Canadian Securities
Commissions and the information, other than the financial statements and the auditors’ report thereon, included in a document likely
to be entitled “Annual Report 2020” as at the date of this auditors’ report. If, based on the work we have performed on this other
information, we conclude that there is a material misstatement of this other information, we are required to report that fact in the
auditors’ report.
We have nothing to report in this regard.
Responsibilities of Management and Those Charged with Governance for the Financial Statements
Management is responsible for the preparation and fair presentation of the financial statements in accordance with International
Financial Reporting Standards (IFRS), and for such internal control as management determines is necessary to enable the preparation
of financial statements that are free from material misstatement, whether due to fraud or error.
© 2020 KPMG LLP, an Ontario limited liability partnership and a member firm of the KPMG global organization of independent member firms affiliated with KPMG
International Limited, a private English company limited by guarantee. All rights reserved.
18
In preparing the financial statements, management is responsible for assessing the Entity’s ability to continue as a going concern,
disclosing as applicable, matters related to going concern and using the going concern basis of accounting unless management either
intends to liquidate the Entity or to cease operations, or has no realistic alternative but to do so.
Those charged with governance are responsible for overseeing the Entity’s financial reporting process.
Auditors’ Responsibilities for the Audit of the Financial Statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue an auditors’ report that includes our opinion.
Reasonable assurance is a high level of assurance but is not a guarantee that an audit conducted in accordance with Canadian
generally accepted auditing standards will always detect a material misstatement when it exists.
Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably
be expected to influence the economic decisions of users taken on the basis of the financial statements.
As part of an audit in accordance with Canadian generally accepted auditing standards, we exercise professional judgment and
maintain professional skepticism throughout the audit.
We also:
‒
Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and
perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis
for our opinion.
The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may
involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.
‒ Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Entity's internal control.
‒ Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures
made by management.
‒ Conclude on the appropriateness of management's use of the going concern basis of accounting and, based on the audit evidence
obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Entity's
ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our
auditors’ report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion.
Our conclusions are based on the audit evidence obtained up to the date of our auditors’ report. However, future events or
conditions may cause the Entity to cease to continue as a going concern.
‒ Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the
financial statements represent the underlying transactions and events in a manner that achieves fair presentation.
‒ Communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit
and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.
‒ Provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding
independence and communicate with them all relationships and other matters that may reasonably be thought to bear on our
independence, and where applicable, related safeguards.
‒ Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the
group Entity to express an opinion on the financial statements. We are responsible for the direction, supervision and performance
of the group audit. We remain solely responsible for our audit opinion.
The engagement partner on the audit resulting in this auditors’ report is Giuseppe Funiciello.
Montréal, Canada
February 19, 2021
*CPA auditor, CA, public accountancy permit No. A122264
19
GOODFELLOW INC.
Consolidated Statements of Comprehensive Income
For the years ended November 30, 2020 and 2019
(in thousands of dollars, except per share amounts)
Sales (Note 22)
Expenses (Income)
Cost of goods sold (Note 4)
Selling, administrative and general expenses (Note 4)
Gain on disposal of property, plant and equipment
Net financial costs (Note 5)
Earnings before income taxes
Income taxes (Note 15)
Net earnings
Items that will not subsequently be reclassified to net earnings
Remeasurement of defined benefit plan obligation,
net of taxes of $165 ($265 in 2019) (Note 16)
Total comprehensive income
Net earnings per share – Basic (Note 14 c))
Net earnings per share – Diluted (Note 14 c))
Years ended
November 30
2020
$
November 30
2019
$
454,103
449,587
362,354
70,053
(45)
2,719
435,081
364,545
77,639
(3)
3,137
445,318
19,022
4,269
5,211
1,215
13,811
3,054
(426)
(723)
13,385
2,331
1.61
1.61
0.36
0.35
The notes 1 to 22 are an integral part of these consolidated financial statements.
20
GOODFELLOW INC.
Consolidated Statements of Financial Position
(in thousands of dollars)
Assets
Current Assets
Cash
Trade and other receivables (Note 6)
Inventories (Note 7)
Prepaid expenses
Total Current Assets
Non-Current Assets
Property, plant and equipment (Note 8)
Intangible assets (Note 9)
Right-of-use assets (Note 3 & 10)
Defined benefit plan asset (Note 16)
Other assets
Total Non-Current Assets
Total Assets
Liabilities
Current liabilities
Bank indebtedness (Note 11)
Trade and other payables (Note 12)
Income taxes payable
Provision (Note 13)
Dividend payable (Note 14 c))
Current portion of lease liabilities (Note 3 & 10)
Total Current Liabilities
Non-Current Liabilities
Lease liabilities (Note 3 & 10)
Deferred income taxes (Note 15)
Defined benefit plan obligation (Note 16)
Total Non-Current Liabilities
Total Liabilities
Shareholders’ Equity
Share capital (Note 14)
Retained earnings
Total Liabilities and Shareholders’ Equity
Contingent liabilities and commitments (Note 20)
Approved by the Board
As at
November 30
2020
$
As at
November 30
2019
$
3,466
76,093
84,740
2,584
166,883
31,148
3,238
14,324
1,945
785
51,440
218,323
28,570
39,614
4,859
1,473
2,141
4,315
80,972
13,343
1,597
1,182
16,122
97,094
2,364
48,498
87,339
2,563
140,764
32,838
3,927
-
2,222
830
39,817
180,581
31,204
29,048
734
1,470
856
15
63,327
28
3,209
609
3,846
67,173
9,424
111,805
121,229
218,323
9,424
103,984
113,408
180,581
G. Douglas Goodfellow, Director
Normand Morin, Director
21
GOODFELLOW INC.
Consolidated Statements of Cash Flows
For the years ended November 30, 2020 and 2019
(in thousands of dollars)
Operating Activities
Net earnings
Adjustments for:
Depreciation and amortization of:
Property, plant and equipment (Note 8)
Right-of-use assets (Note 10)
Intangible assets (Note 9)
Accretion expense on provision (Note 5)
Decrease in provision (Note 13)
Income taxes
Gain on disposal of property, plant and equipment
Interest expense (Note 5)
Interest on lease liabilities (Note 5)
Funding in deficit of pension plan expense
Other assets
Share-based compensation
Other
Changes in non-cash working capital items (Note 17)
Interest paid
Income taxes paid
Net Cash Flows from Operating Activities
Financing Activities
Proceeds from borrowings under bank loans
Repayment of borrowings under bank loans
Proceeds from borrowings under banker’s acceptances
Repayment of borrowings under banker’s acceptances
Payment of lease liabilities (Note 10)
Dividend paid
Investing Activities
Acquisition of property, plant and equipment
Increase in intangible assets
Proceeds on disposal of property, plant and equipment
Net cash (outflow) inflow
Cash position, beginning of year
Cash position, end of year
Cash position is comprised of:
Cash
Bank overdraft (Note 11)
22
Years ended
November 30
2020
$
November 30
2019
$
13,811
3,054
2,705
4,324
728
72
(69)
5,211
(45)
950
681
259
(7)
-
25
28,645
(14,117)
(1,495)
(1,592)
(17,204)
11,441
104,000
(97,000)
33,000
(46,000)
(4,572)
(1,712)
(12,284)
(1,431)
(39)
49
(1,421)
(2,264)
1,160
(1,104)
3,466
(4,570)
(1,104)
2,786
-
693
14
(197)
1,215
(3)
2,134
-
47
111
(79)
-
9,775
6,856
(2,154)
(1,069)
3,633
13,408
115,000
(113,000)
40,000
(53,000)
(14)
(851)
(11,865)
(968)
(176)
18
(1,126)
417
743
1,160
2,364
(1,204)
1,160
GOODFELLOW INC.
Consolidated Statements of Changes in Shareholders’ Equity
For the years ended November 30, 2020 and 2019
(in thousands of dollars)
Share
Capital
Retained
Earnings
Total
$
$
$
Balance as at November 30, 2018
9,152
103,711
112,863
Net earnings
Other comprehensive income
Total comprehensive income
Transactions with owners of the Company
Dividend (Note 14 c))
Share-based payment (Note 14 b))
-
-
-
3,054
(723)
3,054
(723)
2,331
2,331
-
272
(1,707)
(351)
(1,707)
(79)
Balance as at November 30, 2019
9,424
103,984
113,408
IFRS 16 adoption adjustment, net of taxes of $940 (Note 3)
-
(2,567)
(2,567)
Balance as at December 1, 2019
9,424
101,417
110,841
Net earnings
Other comprehensive income
Total comprehensive income
Transactions with owners of the Company
Dividend (Note 14 c))
-
-
-
-
13,811
(426)
13,811
(426)
13,385
13,385
(2,997)
(2,997)
Balance as at November 30, 2020
9,424
111,805
121,229
23
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended November 30, 2020 and 2019
(tabular amounts are in thousands of dollars, except per share amounts)
1.
Status and nature of activities
Goodfellow Inc. (hereafter the “Company”), incorporated under the Canada Business Corporations Act, carries on various business
activities related to remanufacturing and distribution of lumber and wood products. The Company’s head office and primary place of
business is located at 225 Goodfellow Street in Delson (Quebec), Canada, J5B 1V5.
The consolidated financial statements of the Company as at and for the years ended November 30, 2020 and 2019 include the accounts of
the Company and its wholly-owned subsidiaries.
2.
Basis of preparation
a) Statement of compliance
The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as
issued by the International Accounting Standards Boards (“IASB”). Certain comparative figures have been reclassified to conform to
the current year’s presentation.
The financial statements were authorized for issue by the Board of Directors on February 19, 2021.
b) Basis of measurement
These consolidated financial statements have been prepared on the historical cost basis except for the following material items:
Environmental provision is recorded at present value of the expected expenditure to be paid.
Defined benefit plan assets and liabilities are measured at the present value of the defined benefit obligation less the fair
value of the plan assets, and
Liabilities for cash-settled share-based payment arrangements are measured in accordance with IFRS 2, Share-Based
Payment.
c) Functional and presentation currency
These consolidated financial statements are presented in Canadian dollars, which is the Company’s functional currency. All financial
information presented in Canadian dollars has been rounded to the nearest thousand unless otherwise noted.
d) Use of estimates, judgments and assumptions
Key sources of estimation uncertainty:
The preparation of financial statements in compliance with IFRS requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosures at the date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. These estimates are based on management's best knowledge of current events and actions
that the Company may undertake in the future. Estimates are volatile by their nature and are continuously monitored by management.
Actual results may differ from these estimates. A discussion of the significant estimates that could have a material effect on the financial
statements is provided below:
i. Allowance for sales returns
The Company provides for the possibility that merchandise already sold may be returned by customers. To this end, the
Company has made certain assumptions based on the quantity of merchandise expected to be returned in the future.
ii. Measurement of defined benefit plan assets and liabilities
The Company’s measurement of defined benefit plan assets and liabilities involves making assumptions about discount rates,
the expected rate of compensation increase, the retirement age of employees, and mortality rates. If the actuarial assumptions
are found to be significantly different from the actual data subsequently observed, it could lead to changes to the pension
expense recognized in net earnings, and the net assets or net liabilities related to these obligations presented in the consolidated
statement of financial position.
iii. Valuation of inventory
Estimating the impact of certain factors on the net realizable value of inventory, such as obsolescence and losses of inventory,
as well as estimating the cost of inventory, freight accrual and inventory provisions, requires a certain level of judgment.
Inventory quantities, age and condition, and average costs are measured and assessed regularly throughout the year.
iv. Environmental provisions
Environmental provisions relate to the discounted present value of estimated future expenditures associated with the obligations
of restoring the environmental integrity of certain properties.
Environmental expenditures are estimated taking into consideration the anticipated method and extent of the remediation
consistent with regulatory requirements, industry practices, current technology and possible uses of the site. The estimated
amount of future remediation expenditures is reviewed periodically based on available information. The provision requires the
use of estimates and assumptions such as the estimated amount of future remediation expenditures, the anticipated method of
remediation, the discount rate and the estimated time frame for remediation. These estimates and assumptions might require
additional revisions in the future depending on changes in the industry or the economic environment including any potential
developments from the COVID-19 pandemic. Any changes in management’s estimate may have a material impact on the
Company’s statement of financial position and consolidated statement of comprehensive income. See Note 13 for further
details.
24
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended November 30, 2020 and 2019
(tabular amounts are in thousands of dollars, except per share amounts)
v. Leases
In determining the carrying amount of right-of-use assets and lease liabilities, the Company is required to estimate the
incremental borrowing rate specific to each leased asset if the interest rate implicit in the lease is not readily determinable.
Management determines the incremental borrowing rate of each leased asset by incorporating the Company's creditworthiness,
the security, term and value of the underlying leased asset, and the economic environment in which the leased asset operates
in. The incremental borrowing rates are subject to change mainly due to macroeconomic changes in the environment.
vi. Critical judgments in applying new accounting policies
Management exercises judgment in determining the appropriate lease term on a lease by lease basis. Management considers all
facts and circumstances that create an economic incentive to exercise a renewal option or to not exercise a termination option.
The periods covered by renewal options are only included in the lease term if management is reasonably certain to renew.
Management considers reasonably certain to be a high threshold. Changes in the economic environment or changes in the
industry may impact management’s assessment of lease term, and any changes in management’s estimate of lease terms may
have a material impact on the Company’s statement of financial position and consolidated statement of comprehensive income.
vii. Impact of COVID-19 pandemic
The Company reflected, where appropriate, on the impact of the COVID-19 pandemic and the related climate of uncertainty
on some of its estimates and assumptions, including significant judgment areas, used in preparing the consolidated financial
statements. The main areas impacted were the determination of whether there is an indication that assets are impaired and
where appropriate, the estimates and assumptions used in the establishment of their recoverable amount. Additional revisions
might be required in the future depending on the development of the COVID-19 pandemic and its impact on the Company’s
results of operations and financial position, and this could have a material impact on the final measurement of the carrying
amount of the Company’s assets.
3.
Significant Accounting Policies
a) Adoption of New Accounting Policies
IFRS 16 – Leases
In January 2016, the IASB issued IFRS 16, Leases (“IFRS 16”), replacing IAS 17, Leases and related interpretations. The standard
introduces a single lessee accounting model and requires a lessee to recognize assets and liabilities for all leases with a term of
more than 12 months, unless the underlying asset is of low value. A lessee is required to recognize a right-of-use asset representing
its right to use the underlying asset and a lease liability representing its obligation to make lease payments.
Lessors continue to classify leases as finance and operating leases. Other areas of the lease accounting model have been impacted,
including the definition of a lease. Transitional provisions have been provided. IFRS 16 became effective for annual periods
beginning on or after January 1, 2019.
The Company adopted the standard for the annual period beginning December 1, 2019 and applied the requirements of the standard
using the modified retrospective approach with the cumulative effects of initial application recorded in opening retained earnings
as at December 1, 2019 with no restatements of the comparative period. Under the modified retrospective approach, the Company
has elected to use the following practical expedients permitted on adoption of IFRS 16:
-
-
-
-
the Company did not reassess whether a contract is, or contains, a lease at the date of initial application and instead applied
IFRS 16 to contracts that were previously identified as leases applying IAS 17, Leases;
the Company relied on the assessment of the onerous lease provisions under IAS 37, Provisions, contingent liabilities and
contingent assets, instead of performing an impairment review;
the Company excluded initial direct costs in the measurement of the right-of-use assets at the date of initial application;
and
the Company used hindsight in determining the lease term at the date of initial application.
When applying the modified retrospective transition approach, for leases previously classified as operating leases under IAS 17
and IFRIC 4, on initial application, a lessee is permitted to measure the ROU (right-of-use) asset, on a lease-by-lease basis, using
one of two methods: (1) as if IFRS 16 had always been applied, using the incremental borrowing rate at the date of initial
application; or (2) at an amount equal to the lease liability (subject to certain adjustments). The Company applied the first option
to certain leases, which resulted in a lower carrying amount of the ROU asset at the date of initial application as compared to the
lease liability, for those leases. For the remainder of the leases, the Company recognized the ROU assets based on the corresponding
lease liability.
In addition, deferred lease credits (relating to lease inducements) that were recorded in accounts payable and accrued liabilities
were derecognized with a corresponding transition adjustment to retained earnings on transition date, as a result of the adoption of
IFRS 16, and prepaid rent that was recorded in trade and other receivables and in other assets, on the consolidated statement of
financial position as at December 1, 2019 was transferred to the recognized ROU asset.
25
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended November 30, 2020 and 2019
(tabular amounts are in thousands of dollars, except per share amounts)
The following table summarizes the impact of adopting IFRS 16 on certain items on the Company’s consolidated balance sheet as
at December 1, 2019:
As at November 30
2019
$
Transition
adjustments
$
As at December 1
2019
$
Current assets
Trade and other receivables
Non-current assets
Property, plant and equipment (1)
Right-of-use assets
Other assets
Current Liabilities
Trade and other payables
Current portion of lease liabilities
Current portion of obligations under
finance leases (1) (2)
Non-current liabilities
Deferred income tax
Lease liabilities
Obligations under finance leases (1) (2)
Shareholders’ equity
Retained earnings
48,498
32,838
-
805
29,048
-
15
3,209
-
28
(37)
48,461
(30)
17,152
(52)
(127)
4,686
(15)
(940)
16,024
(28)
32,808
17,152
753
28,921
4,686
-
2,269
16,024
-
103,984
(2,567)
101,417
(1)
(2)
Leases previously classified as finance lease arrangements under IAS 17 were presented within property plant and
equipment, and obligations under finance leases. Effective December 1, 2019, these balances are included in right-
of-use assets, and lease liabilities.
Presented under Lease liabilities in the statement of financial position at November 30, 2019 for comparative
purposes.
The Company used its incremental borrowing rates as at December 1, 2019 to measure its lease liabilities. The weighted average
incremental borrowing rate was 3.60% at date of adoption.
The following table reconciles the operating lease commitments disclosed under IAS 17 as at November 30, 2019 and the lease
liabilities recognized on December 1, 2019:
Total operating lease commitments disclosed as at November 30, 2019
Other service contracts
Obligation under finance leases
Operating lease commitments of leases commencing on or after December 1, 2019
Extension options reasonably certain to be exercised
Lease liabilities recognized as at December 1, 2019 – undiscounted
Discounted using the incremental borrowing rate as at December 1, 2019
Current portion of lease liabilities
Non-current portion of lease liabilities
Total lease liabilities
$
19,115
(103)
43
(418)
4,171
22,808
20,710
4,686
16,024
20,710
As a result of the adoption of IFRS 16 as described above, the Company has updated its significant accounting policies for leases
in Note 3 g) below.
Uncertain Income Tax Treatments
In June 2017, the IASB issued IFRIC 23, Uncertainty Over Income Tax Treatments, which clarifies how to apply the recognition
and measurement requirements in IAS 12, Income Taxes, when there is uncertainty regarding income tax treatments. The
Interpretation addresses whether an entity needs to consider uncertain tax treatments separately, the assumptions an entity should
make about the examination of tax treatments by taxation authorities, how an entity should determine taxable profit and loss, tax
bases, unused tax losses, unused tax credits, and tax rates, and how an entity considers changes in facts and circumstances in such
determinations. IFRIC 23 was applied to the annual reporting period beginning December 1, 2019. There were no significant
impacts from the adoption of IFRIC 23 on its consolidated financial statements.
26
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended November 30, 2020 and 2019
(tabular amounts are in thousands of dollars, except per share amounts)
b) Principles of Consolidation
The consolidated financial statements incorporate the Company’s accounts and the accounts of the subsidiaries, all wholly-owned, that
it controls. Control exists when the Company has the existing rights that give it the current ability to direct the activities that significantly
affect the entities’ returns. The financial statements of subsidiaries are prepared with the same reporting period of the Company. The
accounting policies of subsidiaries are aligned with the policies of the Company. All intercompany transactions, balances, revenues
and expenses were fully eliminated upon consolidation.
c) Cash
Cash consists of cash on hand and highly liquid investments with an initial term of three months or less.
d) Inventories
Inventories, which consist of raw materials, work in process and finished goods are recorded at the lower of cost and net realizable
value. Cost is determined using the weighted average cost method. The cost of inventories comprises all costs of purchase and other
costs incurred in bringing the inventory to its present location and condition. The costs of conversion of inventories also include the
costs directly related to the conversion of materials to finished goods, such as direct labour and a systematic allocation of fixed and
variable production overhead. Net realizable value is the estimated selling price in the ordinary course of business less any applicable
estimated selling expenses. The cost of inventory is recognized as an expense when the inventory is sold. Previous write-downs to net
realizable value are reversed if there is a subsequent increase in the value of the related inventories.
e) Property, Plant, Equipment and intangible assets
Items of property, plant, equipment and intangible assets are measured at cost less accumulated depreciation and accumulated
impairment losses. Government grants received in respect of property, plant and equipment are recognized as a reduction to the cost.
Cost includes expenditures that are directly attributable to the acquisition of the asset, including any costs directly attributable to
bringing the asset to a working condition for its intended use, and borrowing costs.
When an item of property, plant, equipment and intangible assets is made up of components that have differing useful lives, cost is
allocated among the different components that are depreciated separately.
A gain or loss on the disposal or retirement of an item of property, plant, equipment and intangible assets, which is the difference
between the proceeds from the disposal and the carrying amount of the asset, is recognized in net earnings. Leasehold improvements
are amortized using the straight-line method over the terms of the leases. Other capital assets are amortized using the declining balance
method with the following rates:
Buildings
Yard improvements
Furniture and fixtures
Equipment
Computer equipment
Rolling stock
4% to 20%
8% to 10%
4% to 20%
4% to 20%
20%
30%
Estimated useful lives, depreciation methods, rates and residual values are reviewed at each annual reporting date, with the effect of
any changes accounted for on a prospective basis.
f)
Intangible assets
Costs associated with maintaining computer software programmes are recognized as an expense as incurred. Development costs that
are directly attributable to the design and testing of identifiable and unique software products controlled by the Company are
recognised as intangible assets when the following criteria are met:
it is technically feasible to complete the software product so that it will be available for use;
management intends to complete the software product and use it;
there is an ability to use the software product;
it can be demonstrated how the software product will generate probable future economic benefits;
adequate technical, financial and other resources to complete the development and to use the software product are available;
and
the expenditure attributable to the software product during its development can be reliably measured.
Directly attributable costs that are capitalised as part of the software product include the software development employee costs and an
appropriate portion of relevant overheads.
Other development expenditures that do not meet these criteria are recognised as an expense as incurred. Development costs previously
recognised as an expense are not recognised as an asset in a subsequent period.
Computer software is subject to the declining balance method at a rate of 20%. Our Enterprise resource planning system is subject to
a linear amortization of 10 years and the customer relationship is subject to a linear amortization of 5 years.
27
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended November 30, 2020 and 2019
(tabular amounts are in thousands of dollars, except per share amounts)
g) Leases
The Company recognizes a right-of-use asset and a lease liability based on the present value of future lease payments when the leased
asset is available for use by the Company. The lease payments include fixed and in-substance fixed payments and variable lease
payments that depend on an index or rate, less any lease incentives receivable. The lease payments are discounted using the interest
rate implicit in the lease or the lessee’s incremental borrowing rate. Generally, the Company uses the lessee’s incremental borrowing
rate for its present value calculations. Lease payments are discounted over the lease term, which includes the fixed term and renewal
options that the Company is reasonably certain to exercise. Lease payments are allocated between the lease liability and a finance cost,
which is recognized in finance costs over the lease term in the consolidated statement of earnings.
When a contract contains both lease and non-lease components, the Company will allocate the consideration in the contract to each of
the components on the basis of the relative stand-alone price of the lease component and the aggregate stand-alone price of the non-
lease components. Relative stand-alone prices are determined by maximizing the most observable prices for a similar asset and/or
service.
Lease payments for assets that are exempt through the short-term exemption and variable payments not based on an index or rate are
recognized in selling, distribution and administrative expenses as incurred.
Right-of-use assets are measured at cost, less any accumulated depreciation and accumulated impairment losses, and adjusted for any
re-measurement of lease liabilities. Cost is calculated as the initial measurement of the lease liability plus any initial direct costs and
any lease payments made at or before the commencement date. Right-of-use assets are depreciated on a straight-line basis over the
shorter of the lease term or the useful life.
h) Impairment of Non-Financial Assets
On each reporting date, the Company reviews the carrying amounts of property, plant and equipment, intangible assets and right-of-
use assets for any indication of impairment. If there is such an indication, the recoverable amount of the asset is estimated in order to
determine the amount of any impairment loss. If the recoverable amount of the individual asset cannot be estimated, the Company
estimates the recoverable amount of the cash generating unit (CGU) to which the asset belongs. Where a reasonable and consistent
basis of allocation can be identified, corporate assets are also allocated to individual CGUs; otherwise, they are allocated to the smallest
group of CGUs for which a reasonable and consistent basis of allocation can be identified.
Recoverable amount is the higher of fair value less costs to sell and the value in use. To measure value in use, the estimated future cash
flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of
money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted. If the estimated recoverable
amount of an asset or of a CGU is less than its carrying amount, the carrying amount of the asset or of the CGU is reduced to its
recoverable amount. An impairment loss is immediately recognized in net earnings.
When an impairment loss subsequently reverses, the carrying amount of the asset or of the CGU is increased to the revised estimate of
its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined
had no impairment loss been recognized for the asset or the CGU in the prior periods. Reversals of impairment losses are immediately
recognized in net earnings.
i) Foreign Currency Translation
Monetary assets and liabilities denominated in foreign currencies at the reporting date are translated into the functional currency at the
exchange rate at that date. Non-monetary assets and liabilities denominated in foreign currencies are translated into the functional
currency at the exchange rates prevailing at the respective transaction dates. Revenues and expenses denominated in foreign currencies
are translated into the functional currency at average rates of exchange prevailing during the period. The resulting gains or losses on
translation are included in cost of goods sold in the determination of net earnings.
j) Revenue Recognition
Revenue from the sale of goods from activities relating to remanufacturing, distribution of lumber and wood products is recognized,
net of discounts and customer rebates, at the point in time when the transfer of control of the related products has taken place (based
on shipping or delivery terms as specified in the sales contract), and collectability is reasonably assured. Revenue is only recognized
to the extent that it is highly probable that a significant reversal will not occur.
k) Post-Employment Benefits
a) Defined Contribution Plans
Defined contribution plans include pension plans offered by the Company that are regulated by the Régie des rentes du Québec
and by the Canada Revenue Agency and 408 Simple IRA plans (for its US employees). The Company recognizes the contributions
paid under defined contribution plans in net earnings in the period in which the employees rendered service entitling them to the
contributions. The Company has no legal or constructive obligation to pay additional amounts other than those set out in the plans.
28
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended November 30, 2020 and 2019
(tabular amounts are in thousands of dollars, except per share amounts)
b) Defined Benefit Plans
The Company accrues its obligations under employee benefit plans and the related costs, net of plan assets, as the services are
rendered. The Company’s net liability in respect of defined benefits is calculated separately for each plan by estimating the amount
of future benefits that plan members have earned in the current and prior periods, discounting that amount and deducting the fair
value of any plan assets.
The Company has a number of defined benefit pension plans and has adopted the following policies:
i. The cost of pensions earned by employees is actuarially determined using the projected unit credit method based on
management’s best estimate of salary escalation, retirement ages of employees, discount rates and mortality rates. Actuarial
valuations are performed by independent actuaries on each reporting date of the annual financial statements.
ii. For the purpose of calculating the costs of the plans, assets are recorded at fair value and interest on the service cost is
allowed for in the interest cost.
iii. Actuarial gains or losses are recognized, for each reporting period, through other comprehensive income. Past service costs
arising from plan amendments are recognized in net earnings in the period that they arise.
iv. The defined benefit plans are subject to minimum funding requirements which under certain circumstances could generate
an additional liability under IFRIC 14. Any variation in that liability would be recognized immediately in net earnings.
Pension expense consists of the following:
i. the cost of pension benefits provided in exchange for plan members' services rendered in the period;
ii. net interest expense (income) on the net defined benefit liability (asset) for the period by applying the discount rate used to
measure the net defined benefit obligation at the beginning of the annual period to the net defined benefit liability (asset),
taking into account any changes in the net defined benefit liability (asset) during the period as a result of contributions and
benefit payments;
iii. past service costs; and
iv. gains or losses on settlements or curtailments.
l)
Income taxes
Income taxes consist of current tax and deferred tax. Current tax and deferred tax are recognized in net earnings except when they are
related to items recognized directly in shareholders’ equity or in other comprehensive income, in which case the current tax and deferred
tax are recognized directly in shareholders’ equity or in other comprehensive income, in accordance with the accounting treatment of
the item to which it relates.
The Company’s income tax expense is based on tax rules and regulations that are subject to interpretation and require estimates and
assumptions that may be challenged by taxation authorities. Current income tax is the expected tax payable or receivable on the taxable
income or loss for the period, using tax rates enacted or substantively enacted at the reporting date, and any adjustment to taxes payable
in respect of previous years. The Company’s estimates of current income tax assets and liabilities are periodically reviewed and adjusted
as circumstances warrant, such as changes to tax laws and administrative guidance, and the resolution of uncertainties through either
the conclusion of tax audits or expiration of prescribed time limits within the relevant statutes.
The final results of government tax audits and other events may vary materially compared to estimates and assumptions used by
management in determining the income tax expense and in measuring current income tax assets and liabilities.
Deferred tax is recognized on the temporary differences between the carrying amounts of the assets and liabilities presented in the
consolidated statement of financial position and the corresponding tax bases used for tax purposes. Deferred income tax assets and
liabilities are measured using enacted or substantively enacted income tax rates expected to apply to taxable income in the years in
which temporary differences are expected to be recovered or settled. The effect on deferred income tax assets and liabilities of a change
in tax rates is included in net earnings in the period that includes the enactment or substantively enacted date except to the extent that
it relates to an item recognized either in other comprehensive income or directly in equity in the current or in a previous period.
The Company only offsets income tax assets and liabilities if it has a legally enforceable right to set off the recognized amounts and
intends either to settle on a net basis, or to realize the asset and settle the liability simultaneously.
A deferred income tax asset is recognized to the extent that it is probable that future taxable profits will be available against which they
can be utilized. Deferred income tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable
that the related tax benefit will be realized.
Deferred income tax assets and liabilities are recognized under non-current assets or liabilities, irrespective of the expected date of
realization or settlement.
m) Earnings per Share
Basic earnings per share (EPS) are calculated by dividing the net earnings of the Company by the weighted average number of common
shares outstanding during the period. Diluted EPS is determined by adjusting the weighted average number of shares outstanding to
include additional shares issued from the assumed exercise of share options, if dilutive. The number of additional shares is calculated
by assuming that the proceeds from such exercises, as well as the amount of unrecognized share-based payment, if any, are used to
purchase common shares at the average market share price during the reporting period.
29
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended November 30, 2020 and 2019
(tabular amounts are in thousands of dollars, except per share amounts)
n) Share-based payments
Equity-settled
The grant date fair value of equity-settled share-based payment awards granted to employees is recognized as an employee expense,
with a corresponding increase in equity, over the period that the employees becomes entitled to the awards. The amount recognized as
an expense is adjusted to reflect the number of awards for which the related service and non-market vesting conditions are expected to
be met, such that the amount ultimately recognized as an expense is based on the number of awards that do meet the related service
and non-market performance conditions at the vesting date. For share-based payment awards with non-vesting conditions, the grant
date fair value of the share-based payment is measured to reflect such conditions and there is no true-up for differences between
expected and actual outcomes.
Cash-settled
A liability is recognized for the services acquired and is recorded at fair value based on the share price of the Company’s shares in
other non-current payables, except for the current portion recorded in trade and other payables, with a corresponding expense
recognized in employee benefits expense in selling, general and administrative expenses. The amount recognized as an expense is
adjusted to reflect the number of awards for which the related service and performance conditions are expected to be met, such that the
amount ultimately recognized as an expense is based on the awards that meet the related service and non-market performance conditions
at the vesting date. At the end of each reporting period until the liability is settled, the fair value of the liability is remeasured, with any
changes in fair value recognized in the consolidated statements of comprehensive income for the period.
o) Financial Instruments
The Company initially recognizes financial assets on the trade date at which the Company becomes a party to the contractual provisions
of the instrument.
Financial assets are initially measured at fair value. If the financial asset is not subsequently accounted for at fair value through profit
or loss, then the initial measurement includes transaction costs that are directly attributable to the asset’s acquisition or origination. On
initial recognition, the Company classifies its financial assets as subsequently measured at either amortized cost or fair value, depending
on its business model for managing the financial assets and the contractual cash flow characteristics of the financial assets.
i. Financial assets measured at amortized cost
A financial asset is subsequently measured at amortized cost, using the effective interest method and net of any impairment loss,
if:
The asset is held within a business model whose objective is to hold assets in order to collect contractual cash flows; and
The contractual terms of the financial asset give rise, on specified dates, to cash flows that are solely payments of principal
and/or interest.
The Company currently classifies its cash and cash equivalents and trade and other receivables as assets measured at amortized
cost.
Impairment of financial assets
The Company uses the “expected credit loss” model for calculating impairment and recognizes expected credit losses as a loss
allowance if they relate to a financial asset measured at amortized cost. The carrying amount of these assets in the consolidated
statement of financial position is stated net of any loss allowance.
ii. Financial assets measured at fair value
These assets are measured at fair value and changes therein, including any interest or dividend income, are recognized in profit
or loss. There are currently no financial assets measured at fair value with changes in fair value recognized in profit or loss.
However, for investments in equity instruments that are not held for trading, the Company may elect at initial recognition to
present gains and losses in other comprehensive income. For such investments measured at fair value through other
comprehensive income, gains and losses are never reclassified to profit or loss, and no impairment is recognized in profit or loss.
Dividends earned from such investments are recognized in profit or loss, unless the dividend clearly represents a repayment of
part of the cost of the investment. The Company currently has no equity instruments that are not held for trading.
iii. Financial liabilities are classified into the following categories:
Financial liabilities measured at amortized cost
The Company classifies non-derivative financial liabilities as measured at amortized cost. Non-derivative financial liabilities are
initially recognized at fair value less any directly attributable transaction costs. Subsequent to initial recognition, these liabilities
are measured at amortized cost using the effective interest method. The Company currently classifies trade and other payables,
bank indebtedness and long-term debt as financial liabilities measured at amortized cost.
Financial liabilities measured at fair value
Financial liabilities measured at fair value are initially recognized at fair value and are re-measured at each reporting date with
any changes therein recognized in profit or loss. The Company currently has no financial liabilities measured at fair value.
30
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended November 30, 2020 and 2019
(tabular amounts are in thousands of dollars, except per share amounts)
iv. Non-hedge derivative financial instruments measured at fair value
Non-hedge derivative financial instruments, if any, are recorded as either assets or liabilities measured initially at their fair value.
Attributable transaction costs are recognized in profit or loss as incurred. All derivative financial instruments not designated in a
hedge relationship are classified as financial instruments at fair value through profit and loss. Any subsequent change in the fair
value of non-hedge foreign exchange contracts are accounted for in cost of goods sold for the period in which it arises.
p) Borrowing Costs
Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, which are assets that necessarily
take a substantial period of time to get ready for their intended use, are added to the cost of these assets until the assets are in the
condition necessary for them to be capable of operating in the manner intended by management. In instances where the Company does
not have borrowings directly attributable to the acquisition of qualifying assets, the Company uses the weighted average of the
borrowing costs. The borrowing costs thus added to the qualifying assets will not exceed the borrowing costs incurred during the
corresponding period.
Investment revenues earned on the temporary investment of specific borrowings pending their expenditure on qualifying assets is
deducted from the borrowing costs eligible for capitalization. All other borrowing costs are recognized in net earnings in the period in
which they are incurred.
q) Provisions
Provisions are recognized if, as a result of past events, the Company has a present legal or constructive obligation that can be estimated
reliably, and it is probable that an outflow of economic benefits will be required to settle the obligation. The amount recognized as a
provision is the best estimate of the consideration required to settle the present obligation at the reporting date, taking into account the
risks and uncertainties related to the obligation. If the effect of the time value of money is material, the provisions are measured at their
present value.
i) Onerous contracts
A provision for onerous contracts is measured and recognized when the Company has concluded a contract for which the
unavoidable costs of meeting the obligations under the contract exceed the economic benefits expected to be received from the
contract.
ii) Environmental provisions
Environmental provisions relate to the discounted present value of estimated future expenditures associated with the obligations
of restoring the environmental integrity of certain properties. Environmental expenditures are estimated taking into consideration
the anticipated method and extent of the remediation consistent with regulatory requirements, industry practices, current
technology and possible uses of the site. The estimated amount of future remediation expenditures is reviewed periodically based
on available information. The amount of the provision is the present value of the estimated future remediation expenditures
discounted using a pre-tax rate that reflects current market assessments of time value of money and the risks specific to the
obligation. The increase in the provision due to the passage of time is recognized as financial costs, while the revision of estimates
of environmental expenditures and discount rates are recorded in selling, administrative and general expenses in the consolidated
statement of comprehensive income.
r) Government Grants
Government grants related to depreciable assets, including investment tax credits, are recognized in the consolidated statement of
financial position as a reduction of the carrying amount of the related asset. They are then recognized in net earnings, as a deduction
from the depreciation expense, over the estimated useful life of the depreciable asset. Other government grants are recognized in net
earnings as a deduction from the related expense.
s) Presentation of Dividends and Interest Paid in Cash Flow Statements
IFRS permits dividends and interest paid to be shown as operating or financing activities, as deemed relevant for the entity. The
Company has elected to classify dividends paid as cash flows used in financing activities and interest paid as cash flows used in
operating activities.
t) Financial costs
Financial costs comprise interest expense on borrowings (including on lease liabilities), unwinding of the discount on provisions and
other financial charges. Borrowing costs that are not directly attributable to the acquisition, construction or production of a qualifying
asset are recognized in net earnings using the effective interest method.
u)
Interests in equity-accounted investees
The Company’s interests in equity-accounted investees comprise interests in a joint venture. A joint venture is an arrangement in which
the Company has joint control, whereby the Company has rights to the net assets of the arrangement, rather than the rights to its assets
and obligations for its liabilities. Interests in the joint venture are accounted for using the equity method. They are recognized initially
at cost, which includes transactions cost. Subsequent to initial recognition, the consolidated financial statements include the Company’s
share of the profit and loss and Other Comprehensive Income of equity-accounted investees, until the date on which significant
influence or joint control ceases.
31
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended November 30, 2020 and 2019
(tabular amounts are in thousands of dollars, except per share amounts)
4.
Additional information on cost of goods sold and selling, administrative and general expenses
Employee benefit expense (1)
Obsolescence adjustment included in cost of goods sold
Depreciation included in cost of goods sold
Depreciation included in selling, administrative and general expenses
Foreign exchange gains (losses)
November 30
2020
$
45,424
1,359
864
6,893
307
November 30
2019
$
50,608
712
974
2,505
(82)
(1) In the year ended November 30, 2020, the Company was qualified to receive the Canada Emergency Wage Subsidy (CEWS). The
Company recognized $3.0 million related to CEWS for the year ended November 30, 2020 against the related remunerations. As at
November 30, 2020, $30 thousand was not yet received from the government.
5.
Net financial costs
Interest expense
Interest expense on lease liabilities
Accretion expense on provision (Note 13)
Other financial costs
Financial cost
Financial income
Net financial costs
6.
Trade and other receivables
Trade receivables
Allowance for doubtful accounts
Other receivables
7.
Inventories
Raw materials
Work in process
Finished goods
Provision for obsolescence
November 30 November 30
2019
$
2,134
-
14
1,000
3,148
(11)
3,137
2020
$
950
681
72
1,017
2,720
(1)
2,719
November 30 November 30
2019
$
47,832
(144)
47,688
810
48,498
2020
$
76,063
(122)
75,941
152
76,093
November 30 November 30
2019
$
6,393
7,309
75,410
89,112
(1,773)
87,339
2020
$
7,154
5,476
74,200
86,830
(2,090)
84,740
For the year ended November 30, 2020, $347.0 million (2019 - $348.9 million) of inventories were expensed as cost of goods sold. Included
in inventories is a return asset for the right to recover returned goods in the amount of $1.0 million as at November 30, 2020 (November 30,
2019 - $1.4 million).
32
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended November 30, 2020 and 2019
(tabular amounts are in thousands of dollars, except per share amounts)
8.
Property, plant and equipment
Cost
Cost at December 1, 2018
Additions
Disposals
Cost at November 30, 2019
Reclassification of right-of-use assets
Additions
Disposals
Cost at November 30, 2020
Accumulated depreciation
Accumulated depreciation at December 1, 2018
Depreciation
Disposals
Accumulated depreciation at November 30, 2019
Reclassification of right-of-use assets
Depreciation
Disposals
Accumulated depreciation at November 30, 2020
Net book value at November 30, 2019
Net book value at November 30, 2020
9.
Intangible assets
Cost
Cost at December 1, 2018
Additions
Cost at November 30, 2019
Additions
Cost at November 30, 2020
Accumulated depreciation
Accumulated depreciation at December 1, 2018
Amortization
Accumulated depreciation at November 30, 2019
Amortization
Accumulated depreciation at November 30, 2020
Net book value at November 30, 2019
Net book value at November 30, 2020
Buildings,
Yard and
Leasehold
improvements
$
Equipment,
Furniture
and Fixtures
Rolling
Stock
Computer
Equipment
Total
$
$
$
$
49,935
350
-
50,285
-
100
-
50,385
27,607
1,546
-
29,153
-
1,496
-
30,649
21,132
19,736
27,787
538
(24)
28,301
-
379
-
28,680
23,652
843
(10)
24,485
-
767
-
25,252
3,816
3,428
6,283
292
(2)
6,573
(69)
517
(11)
7,010
5,763
171
(1)
5,933
(39)
238
(7)
6,125
640
885
4,636
103
-
4,739
-
53
-
4,792
3,526
226
-
3,752
-
204
-
3,956
94,904
1,283
(26)
96,161
(69)
1,049
(11)
97,130
60,548
2,786
(11)
63,323
(39)
2,705
(7)
65,982
987
32,838
836
31,148
Land
$
6,263
-
-
6,263
-
-
-
6,263
-
-
-
-
-
-
-
-
6,263
6,263
Software and
technologies
$
Customer
relationship
$
6,333
176
6,509
39
6,548
2,110
587
2,697
622
3,319
3,812
3,229
530
-
530
-
530
309
106
415
106
521
115
9
Total
$
6,863
176
7,039
39
7,078
2,419
693
3,112
728
3,840
3,927
3,238
33
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended November 30, 2020 and 2019
(tabular amounts are in thousands of dollars, except per share amounts)
10.
Right-of-use assets and lease liabilities
The Company leases offices, warehouses, vehicles, yards, and equipment.
Right-of-use assets
As at December 1, 2019 (Note 3)
Additions
Amortization
Disposals
Balance at November 30, 2020
Lease liabilities
As at December 1, 2019 (Note 3)
Additions
Early repayment of lease liabilities
Interest expense on lease liabilities (Note 5)
Payment of lease liabilities
Foreign exchange movements
Balance at November 30, 2020
Less: current portion
Balance at November 30, 2020
Buildings
$
11,479
298
(2,052)
-
9,725
Furniture
$
422
25
(150)
-
297
Rolling stock
$
5,251
1,214
(2,122)
(41)
4,302
Total
$
17,152
1,537
(4,324)
(41)
14,324
Buildings
$
15,026
298
-
360
(2,780)
30
12,934
(2,538)
10,396
Furniture
$
422
25
-
9
(163)
-
293
(132)
161
Rolling stock
$
5,262
1,214
(41)
312
(2,310)
(6)
4,431
(1,645)
2,786
Total
$
20,710
1,537
(41)
681
(5,253)
24
17,658
(4,315)
13,343
The following table presents the amount recognized in the statement of comprehensive income for the year ended November 30, 2020
related to leases:
Depreciation of right-of-use asset
Interest expense on lease liabilities
Expense related to low value and short-term leases
Variable lease payments (not included in the measurement of lease liabilities)
Total amount recognized for the year ended November 30, 2020 – Statement of
comprehensive income
The following table presents a maturity analysis of future undiscounted cash flows from lease liabilities by fiscal year:
2021
2022
2023
2024
2025
Thereafter
Total undiscounted lease liabilities
34
November
30, 2020
$
4,324
681
274
1,094
6,373
$
5,128
4,270
3,741
2,688
1,404
2,681
19,912
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended November 30, 2020 and 2019
(tabular amounts are in thousands of dollars, except per share amounts)
11.
Bank indebtedness
Bank loans
Banker’s acceptances
Bank overdraft
November 30
2020
$
12,000
12,000
4,570
28,570
November 30
2019
$
5,000
25,000
1,204
31,204
In May 2019, the Company renewed its credit agreement with its present lenders, two chartered Canadian banks. The credit agreement has
a maximum revolving operating facility of $90 million maturing in May 2021. In addition, an accordion of $10 million is available once
per fiscal year for a maximum of 150 days only.
Funds advanced under these credit facilities bear interest at the prime rate plus a premium and are secured by first ranking security on the
universality of the immovable and movable property of the Company. As at November 30, 2020, the Company was compliant with its
financial covenants. As at November 30, 2020, under the credit agreement, the Company used $24.0 million of its facility compared to
$30.0 million last year.
12.
Trade and other payables
Trade payables and accruals
Payroll related liabilities
Sales taxes payable
13.
Provision
November 30 November 30
2019
$
20,438
5,569
3,041
29,048
2020
$
31,056
5,965
2,593
39,614
The Company’s St-André (QC) site shows continued traces of surface contamination from previous treating activities exceeding existing
regulatory requirements. The Company received approval for the environmental rehabilitation plan in fiscal 2016. The Company started
to implement its plan during fiscal 2016 and treatment of soil on-site was to be performed over an estimated period of 5 years. The
remaining rehabilitation was expected to occur in fiscal 2020. Unfortunately, because of the duration and impact of the COVID-19
pandemic no work was performed in fiscal 2020. The remaining rehabilitation is now expected to occur in fiscal 2021 unless other delays
occur due to the COVID-19 pandemic. If additional delays occur the Company might have to modify its rehabilitation plan in fiscal 2021
and submit for approval to the Minister of the environment a revised timetable to complete the rehabilitation, taking into account any
possible impact from the prevailing sanitary conditions. Based on current available information, the provision as at November 30, 2020 is
considered by management to be adequate to cover any projected costs that could be incurred in the future.
Because of the nature of the liability, the biggest uncertainty in estimating the provision is the amount of soil to be treated and the costs
that will be incurred. In particular, the Company has assumed that the site will be restored using technology and materials that are currently
available. The Company has been provided with a reasonable estimate, reflecting different assumptions about pricing of the individual
components of the cost. The provision has been calculated using a discount rate of 3.6% and an inflation rate of 0.7%.
The change in environmental provision is as follows:
Balance, beginning of year
Changes due to:
Revision of future expected expenditures
Accretion expense
Expenditures incurred
Balance, end of year
Current portion
November 30 November 30
2019
$
1,653
2020
$
1,470
(59)
72
(10)
1,473
1,473
187
14
(384)
1,470
1,470
Changes in estimates of future expenditures are the result of periodic reviews of the underlying assumptions supporting the provision,
including remediation costs and regulatory requirements.
35
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended November 30, 2020 and 2019
(tabular amounts are in thousands of dollars, except per share amounts)
14.
Share Capital
a)
Authorized
An unlimited number of common shares, without par value
Shares outstanding at the beginning of the year
Issuance of deferred shares (Note 14 b))
Shares outstanding at the end of the year
b)
Share-based payments
November 30
2020
Number of
shares
8,562,554
-
8,562,554
November 30 November 30 November 30
2019
$
2020
$
9,424
-
9,424
9,152
272
9,424
2019
Number of
shares
8,506,554
56,000
8,562,554
On January 15, 2017, the Company granted deferred shares to a key executive. Under this program, the executive was eligible to
receive shares of the Company if specific non-market performance targets were met. The shares were vested at November 30, 2017
as the Company met the non-market performance targets. On April 12, 2019, the Company modified these deferred shares to allow
for a cash alternative at the key executive’s discretion. The cash alternative allows the key executive to a cash payment equal to
the number of deferred shares exercised multiplied by the fair value of the shares calculated using the average closing trading price
during the preceding twenty trading days of the exercise. On April 12, 2019 (the date of the modification), based on an average
closing share price of $6.27 for the twenty trading days preceding April 12, 2019, an amount of $351 thousand was transferred
from retained earnings to Payroll related liabilities.
At the end of each reporting period until the liability is settled, the fair value of the liability is remeasured, with any changes in fair
value recognized in profit and loss for the period. On November 14, 2019, based on a closing share price of $4.85, the key executive
exercised his right and received 56,000 shares of the Company. The Company recognized a share-based compensation recovery of
$79 thousand in Employee benefit expense for the twelve months ended November 30, 2019 with a corresponding change in Payroll
related liabilities. All shares under this grant have been issued in 2019 and therefore, the payroll related liabilities are nil at
November 30, 2020 and 2019.
c)
Net earnings and dividend per share
The calculation of basic and diluted net earnings per share was based on the following:
Net earnings
- basic
- diluted (see Note 14b))
Weighted average number of common shares
- basic
- diluted
November 30
2020
$
November 30
2019
$
13,811
13,811
3,054
2,997
8,562,554
8,562,554
8,508,888
8,562,554
Dividends per share of $0.35 and $0.20 were declared for the fiscal year ended November 30, 2020 and 2019, respectively.
Dividends of $0.20 and $0.10 per share were paid in the fiscal year ended November 30, 2020 and 2019, respectively. As at
November 30, 2020 and 2019, the Company had a dividend payable of $2.1 million and $0.9 million, respectively.
15.
Income Taxes
The income tax expense is as follows:
Current tax expense
Deferred tax expense
November 30 November 30
2019
$
1,394
(179)
1,215
2020
$
5,717
(506)
5,211
36
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended November 30, 2020 and 2019
(tabular amounts are in thousands of dollars, except per share amounts)
The provision for income taxes is at an effective tax rate, which differs from the basic corporate statutory tax rate as follows:
Earnings before income taxes
Statutory income tax rate (%)
Income taxes based on above rates
Adjusted for:
Permanent differences
Difference in expected rate of reversal versus current rate
Other
Temporary differences that give rise to deferred income tax assets and liabilities are as follows:
Deferred income tax (liabilities) assets:
Deferred pension asset
Provisions and other
Property, plant and equipment
Intangible assets
Net deferred tax liability
November 30 November 30
2019
$
4,269
27.7
1,183
2020
$
19,022
27.4
5,212
17
(29)
11
5,211
34
(3)
1
1,215
November 30 November 30
2019
$
2020
$
(204)
969
(2,360)
(2)
(1,597)
(432)
883
(3,631)
(29)
(3,209)
16.
Post-employment benefits
The Company has a number of pension plans providing pension benefits to most of its employees.
The Pension Plan for the Hourly Employees of Goodfellow Inc. (“Hourly Plan”) is a hybrid pension plan funded by employer and member
contributions. Defined benefits are based on career average earnings for service up to April 30, 2008. The Hourly Plan was a pure defined
benefit plan until April 30, 2008 but was amended effective May 1, 2008 to introduce a defined contribution (DC) component.
The Pension Plan for the Salaried Employees of Goodfellow Inc. (“Salaried Plan”) is also a hybrid pension plan funded by employer and
member contributions. Defined benefits are based on length of service up to May 31, 2007 and final average earnings calculated at the
earliest of retirement, termination or death. The Salaried Plan was a pure defined benefit plan until May 31, 2007 but has been amended
effective June 1, 2007 to introduce a defined contribution (DC) component. As for the DC components, the Company matches employee
contributions.
All employees have ceased to accrue service under the defined benefit portions of the plans.
A. Defined Contribution Plans
The Company contributes to several defined contribution plans and 408 Simple IRA plans (for its US employees). The pension expense
under these plans is equal to the Company’s contributions. The pension expense for the year ended November 30, 2020 was $1.3 million
(same last year).
B. Defined Benefit Plans
The measurement date for the plan assets and obligations is November 30. The most recent actuarial valuations for funding purposes were
filed with the pension regulators on December 31, 2018 for both plans. The next actuarial valuation for both plans for funding will be no
later than as of December 31, 2021.
37
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended November 30, 2020 and 2019
(tabular amounts are in thousands of dollars, except per share amounts)
Information about the Company’s defined benefit plans is as follows:
Defined benefit obligation
Balance, beginning of year
Interest cost
Benefits paid
Actuarial (gain) loss
Changes in financial assumptions
Effect of experience adjustments
Balance, end of year
Plan assets
Fair value, beginning of year
Interest income
Employer contributions
Benefits paid
Administrative expenses paid from plan assets
Return on plan assets in excess of interest income
Fair value, end of year
Net asset
The actual return on plan assets was $3.5 million in 2020 and $5.6 million in 2019.
The funded status of the defined benefit plans are as follows:
Defined benefit obligation
- funded
- partly funded
Fair value of plan assets
- funded
- partly funded
Funded status – surplus (deficit)
- funded
- partly funded
The significant actuarial weighted average assumptions used are as follows:
Defined benefit obligation:
Discount rate
Rate of compensation increase
Net benefit plan expense:
Discount rate
Rate of compensation increase
38
November 30
2020
$
November 30
2019
$
53,642
1,542
(2,711)
2,516
-
54,989
49,369
1,881
(2,259)
6,373
(1,722)
53,642
November 30
2020
$
November 30
2019
$
55,255
1,585
41
(2,711)
(343)
1,925
55,752
763
52,016
1,982
4
(2,259)
(151)
3,663
55,255
1,613
November 30
2020
$
November 30
2019
$
15,615
39,374
17,560
38,192
1,945
(1,182)
15,325
38,317
17,547
37,708
2,222
(609)
November 30
2020
%
November 30
2019
%
2.60
3.00
2.95
3.00
2.95
3.00
3.90
3.00
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended November 30, 2020 and 2019
(tabular amounts are in thousands of dollars, except per share amounts)
Net benefit plan expense:
Interest cost
Interest income
Administrative expenses
Net benefit plan expense
November 30
2020
$
1,542
(1,585)
343
300
November 30
2019
$
1,881
(1,982)
151
50
The net benefit plan expense is included in Cost of goods sold, and Selling, Administrative, and General Expenses in the consolidated
statement of comprehensive income.
The plan assets by asset category are as follows:
Equity security:
Canadian stocks
US stocks
International stocks
Debt securities:
Universal type
All investments are quoted on an active market
History of deficit and of experience gains and losses:
Benefit obligation
Fair value of plan assets
Surplus
Experience (gain) loss on plan liabilities*
- Amount
- Percentage of beginning of year liabilities
* Excluding impact of change in assumptions
November 30
2020
%
November 30
2019
%
20
18
18
44
21
19
18
42
November 30
2020
$
54,989
55,752
763
November 30
2019
$
53,642
55,255
1,613
-
0%
(1,722)
3.49%
A one percent change in discount rate would not have a significant impact on pension expense.
Amount, timetable and uncertainty of future cash flows:
Sensitivity analysis
Sensitivity to the discount rate:
Defined benefit obligation
Discount rate
Sensitivity to the life expectancy:
Defined benefit obligation
Mortality rates (CPM2014Priv – MI2017)
Life expectancy of man of 65 years
Life expectancy of woman of 65 years
Funding policy
Down by 0.25%
$56,910
2.35%
Assumption used
$54,989
2.60%
Up by 0.25%
$53,172
2.85%
Up to one year Assumption used
$54,989
$56,713
23.0 years
25.5 years
22.0 years
24.5 years
Goodfellow Inc. contributes amounts required to comply with provincial and federal legislation.
39
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended November 30, 2020 and 2019
(tabular amounts are in thousands of dollars, except per share amounts)
Expected contributions
The total cash payment for post-employment benefits for 2020, consisting of cash contributed by the Company to its funded
pension plans, was $41 thousand ($4 thousand in 2019). Based on the latest filed actuarial valuation for funding purposes as at
December 31, 2018, the Company expects to contribute nil in 2021.
Duration
The weighted average duration of the defined benefit obligation is 14 years.
17.
Additional Cash Flow Information
Changes in Non-Cash Working Capital Items
Trade and other receivables
Inventories
Prepaid expenses
Trade and other payables
November 30
2020
$
(27,632)
2,599
(126)
11,042
(14,117)
November 30
2019
$
1,510
5,205
590
(449)
6,856
Non-cash transactions
The Company purchased property, plant, equipment and intangible assets for which an amount of $4 thousand was unpaid as at November
30, 2020 ($386 thousand as at November 30, 2019).
The reconciliation of movements of liabilities to cash flows arising from financing activities is as follows:
Liability related changes
Year ended November 30, 2019
Interest expense
Interest paid
Year ended November 30, 2020
Interest expense
Interest paid
Bank loans
$
Banker’s
acceptances
$
Lease
liabilities
$
433
443
283
252
1,701
1,711
667
562
-
-
681
681
Total
$
2,134
2,154
1,631
1,495
18.
Financial Instruments and other instruments
Risk Management
The Company is exposed to financial risks that arise from fluctuations in interest rates and foreign exchange rates and the degree of
volatility of these rates.
Financing and Liquidity Risk
The Company makes use of short-term financing with two chartered Canadian banks.
The following are the contractual maturities of financial liabilities as at November 30, 2020:
Financial Liabilities
Bank indebtedness
Trade and other payables
Dividend payable
Carrying
Amount
28,570
39,614
2,141
Contractual
cash flows
28,570
39,614
2,141
0 to 12
Months
28,570
39,614
2,141
12 to 36
Months
-
-
-
36 months
and more
-
-
-
Total financial liabilities
70,325
70,325
70,325
-
-
40
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended November 30, 2020 and 2019
(tabular amounts are in thousands of dollars, except per share amounts)
The following are the contractual maturities of financial liabilities as at November 30, 2019:
Financial Liabilities
Bank indebtedness
Trade and other payables
Dividend payable
Lease liabilities
Carrying
Amount
31,204
29,048
856
43
Contractual
cash flows
31,204
29,048
856
43
Total financial liabilities
61,151
61,151
0 to 12
Months
31,204
29,048
856
15
61,123
12 to 36
Months
-
-
-
28
28
36 months
and more
-
-
-
-
-
Interest Rate Risk
The Company uses a credit facility to finance working capital requirements. The interest cost of this facility is dependent upon Canadian
and US bank prime rates as well as the Company’s funded debt to capitalization ratio. The profitability of the Company could be adversely
affected with increases in the bank prime rate. Management does not believe that the impact of interest rate fluctuations will be significant
on its operating results. A 1% fluctuation of interest rate on the $28.6 million in bank indebtedness would impact interest expense annually
by $0.3 million.
Currency Risk
The Company could enter into forward exchange contracts to economically hedge certain trade payables and from time to time future
purchase commitments denominated in U.S. dollars, Euros and Pounds sterling. A fluctuation in the Canadian dollar of 5% in relation to
foreign currencies would not have a significant effect on the Company’s net earnings.
As at November 30, 2020, the Company had the following currency exposure on:
Financial assets and liabilities measured at amortized costs
Cash
Bank indebtedness
Trade and other receivables
Trade and other payables
Lease liabilities
Net exposure
USD
1,416
(1,462)
7,051
(3,775)
(515)
2,715
GBP
212
-
145
(77)
-
280
Euro
10
-
-
(275)
-
(265)
CAD exchange rate as at November 30, 2020
1.3001
1.7318
1.5508
Impact on net earnings based on a fluctuation of 5% on CAD
127
17
(15)
Credit Risk
The Company is exposed to credit risks from customers. As a result of having a diversified customer mix, this risk is alleviated by
minimizing the amount of exposure the Company has to any one customer. Additionally, the Company has a system of credit management
to mitigate the risk of losses due to insolvency or bankruptcy of its customers. It also utilizes credit insurance to reduce the potential for
credit losses. Finally, the Company has adopted a credit policy that defines the credit conditions to be met by its customers, and specific
credit limit for each customer is established and regularly revised. Based on historical payment behaviour and current credit information
and experience available, the Company believes that, apart from provision for doubtful accounts recorded, no impairment allowance is
necessary in respect of trade receivables that are current or past due. The Company does not have long-term contracts with any of its
customers. Distribution agreements are usually awarded annually and can be revoked. In its assessment of the loss allowance for credit
losses as at November 30, 2020, the Company considered the economic impact of the COVID-19 pandemic on its assessment. This was
not considered to be significant.
The following table presents information on credit risk exposure and expected credit losses related to trade accounts receivable:
Current
31 - 60 days past due
61 - 90 days past due
91 - 120 days past due
Over 120 days past due
Loss allowance
Balance, end of period
41
November 30
2020
$
70,326
2,752
1,620
712
653
76,063
(122)
75,941
November 30
2019
$
42,898
3,238
735
397
564
47,832
(144)
47,688
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended November 30, 2020 and 2019
(tabular amounts are in thousands of dollars, except per share amounts)
As at November 30, 2020, expected credit losses are limited to $122 thousand and therefore, the expected credit losses from the aging of
trade accounts receivable have not been presented separately in the table above.
Economic Dependence
Only one major customer exceeds 10% of total Company sales during fiscal 2020 (same last year). The following represents the total sales
consisting primarily of various wood products of the major customer:
Years ended
November 30, 2020 November 30, 2019
%
%
$
$
Sales to major customer that exceeded 10% of total
Company’s sales
67,716
14.9
58,019
12.9
The loss of any major customer could have a material effect on the Company’s results, operations and financial position. The carrying
amounts of financial assets represent the maximum credit exposure.
Fair Value
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market
participants at the measurement date. Fair value is based on available public market information or, when such information is not available,
is estimated using present value techniques and assumptions concerning the amount and timing of future cash flows and discount rates
which factor in the appropriate level of risk for the instrument.
The estimated fair values may differ in amount from that which could be realized in an immediate settlement of the instruments. The
carrying amounts of cash, trade and other receivables, bank indebtedness, trade and other payables and lease liabilities approximate their
fair values.
19.
Capital management
The Company’s objectives are as follows:
1. Maintain financial flexibility in order to preserve its ability to meet financial obligations;
2. Maintain a low debt-to-capitalization ratio to preserve its capacity to pursue its organic growth strategy;
3. Maintain financial ratios within covenants requirements; and
4. Provide an adequate return to its shareholders.
The Company defines its capitalization as shareholders’ equity and debt. Shareholders’ equity includes the amount of paid-up capital in
respect of all issued and fully paid common shares together with the retained earnings, calculated on a consolidated basis in accordance
with IFRS. Debt includes bank indebtedness reduced by the amounts of cash and cash equivalents. Capitalization represents the sum of
debt and shareholders’ equity.
The Company manages its capital and makes adjustments to it in the light of changes in economic conditions and the risk characteristics
of the underlying assets. In order to maintain or adjust its capital, the Company may adjust the amount of dividends paid to shareholders,
issue new shares or repurchase shares under the normal course issuer bid, acquire or sell assets to improve its financial performance and
flexibility or return capital to shareholders. The Company’s primary uses of capital are to finance increases in non-cash working capital
and capital expenditures for capacity expansion. The Company currently funds these requirements out of its internally generated cash flows
and credit facilities. The Company’s financial objectives and strategy remain substantially unchanged.
The Company is subject to certain covenants on its credit facilities. The covenants include a Debt-to-capitalization ratio and an Interest
coverage ratio. The Company monitors the ratios on a monthly basis. The Company currently complies with all externally imposed capital
requirements. Other than the covenants required for the credit facilities, the Company is not subject to any externally imposed capital
requirements. The Company believes that all its ratios are within reasonable limits, in light of the relative size of the Company and its
capital management objectives.
As at November 30, 2020 and 2019, the Company achieved the following results regarding its capital management objectives:
Capital management
Debt-to-capitalization ratio
Interest coverage ratio
Return on shareholders’ equity
Current ratio
EBITDA
42
As at
November 30
2020
As at
November 30
2019
17.3%
11.9
11.4%
2.1
$29,498
20.6%
3.5
2.7%
2.2
$10,885
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended November 30, 2020 and 2019
(tabular amounts are in thousands of dollars, except per share amounts)
These measures are not prescribed by IFRS and are defined by the Company as follows:
Debt-to-capitalization ratio represents debt over total shareholders’ equity. Debt is defined as bank indebtedness less cash and
cash equivalents. Capitalization is debt plus shareholders’ equity. This ratio is presented without the impact of IFRS 16 to conform
to the bank’s covenant requirement.
Interest coverage ratio represents the EBITDA during the period for which the calculation is made over interest expenses for the
same period on a consolidated basis, calculated on a rolling four-quarter basis. This ratio is presented without the impact of IFRS
16 to conform to the bank’s covenant requirement.
Return on shareholders’ equity is the net earnings (loss) divided by shareholders’ equity.
Current ratio is total current assets divided by total current liabilities.
EBITDA is earnings before interest, taxes, depreciation and amortization.
20.
Contingent liabilities and commitments
Contingent liabilities
During the normal course of business, certain product liability and other claims have been brought against the Company and, where
applicable, its suppliers. While there is inherent difficulty in predicting the outcome of such matters, management has vigorously contested
the validity of these claims, where applicable, and based on current knowledge, believes that they are without merit and does not expect
that the outcome of any of these matters, in consideration of insurance coverage maintained, or the nature of the claims, individually or in
the aggregate, would have a material adverse effect on the consolidated financial position, results of operations or future earnings of the
Company.
Commitments
As at November 30, 2020, the minimum future purchase obligation for the next year was $418 thousand.
21.
Related party transactions
Key management personnel compensation
Key management includes members of the board of directors, senior management and key executives. The following table shows the
remuneration of key management personnel during the years ended:
Salaries and other short-term benefits
Post-employment benefits
22.
Segmented Information and Sales
November 30
2020
November 30
2019
1,943
103
2,046
1,756
105
1,861
The Company manages its operations under one operating segment. Revenues are generated from the sale of various wood products and
operating expenses are managed at the aggregate Company level. All significant property, plant and equipment, and right-of-use assets are
located in Canada.
The following table presents sales disaggregated by geographic markets and by categories, as this best depicts how the nature, amount,
timing and uncertainty of sales and cash flows are affected by economic factors.
Primary geographic markets
The Company’s sales to clients located in Canada represent approximately 87% (85% in 2019) of total sales, the sales to clients located in
the United States represent approximately 8% (9% in 2019) of total sales, and the sales to clients located in other markets represent
approximately 5% (6% in 2019) of total sales
Canada
US
Export
43
November 30
2020
$
396,636
37,054
20,413
454,103
November 30
2019
$
381,965
41,352
26,270
449,587
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended November 30, 2020 and 2019
(tabular amounts are in thousands of dollars, except per share amounts)
Sales categories
Flooring
Specialty and commodity panels
Building material
Lumber
November 30
2020
$
95,104
72,858
50,278
235,863
454,103
November 30
2019
$
95,808
74,305
47,313
232,161
449,587
44
CORPORATE INFORMATION
BOARD OF DIRECTORS
G. Douglas Goodfellow **
Chairman of the Board
Goodfellow Inc.
Claude Garcia */**
Chairman of the Compensation Committee Director
Stephen A. Jarislowsky */**
Founder of Jarislowsky Fraser Ltd
Normand Morin */**
Chairman of the Audit Committee
David A. Goodfellow
Director
Alain Côté */**
Lead Director
* Member of the Audit Committee
** Member of the Executive Compensation Committee
OFFICERS
Patrick Goodfellow
President & Chief Executive Officer
Mary Lohmus
Executive Vice President,
Ontario & Western Canada
Charles Brisebois
Chief Financial Officer &
Secretary of the Board
David Warren
Senior Vice President,
Atlantic
Jeff Morrison
Vice President,
National accounts
Luc Pothier
Vice President,
Operations
G. Douglas Goodfellow
Chairman of the Board
Luc Dignard
Vice President,
Sales, Quebec
Eric Bisson
Vice President,
Quebec
Harry Haslett
Vice President,
Sales & Marketing, Atlantic
OTHER INFORMATION
Head Office
225 Goodfellow Street
Delson, Quebec J5B 1V5
Tel.: 450-635-6511
Fax: 450-635-3730
Solicitors
Bernier Beaudry
Quebec, Quebec
Fasken Martineau
Montreal, Quebec
Auditors
KPMG LLP
Montreal, Quebec
Transfer Agent
Computershare Investor Services Inc.
Montreal, Quebec
Stock Exchange
Toronto
Trading Symbol: GDL
Wholly-owned Subsidiaries
Goodfellow Distribution Inc.
Quality Hardwoods Ltd.
45
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended November 30, 2020 and 2019
(tabular amounts are in thousands of dollars, except per share amounts)
46