Goodfellow Inc.
Annual Report 2023

Plain-text annual report

0 FINANCIAL HIGHLIGHTS OPERATING ANNUAL RESULTS (in thousands of dollars, except per share amounts) Sales Earnings before income taxes Net earnings - per share Net cash flow from operating activities excluding impact of changes in non- cash working capital, income tax paid and interest paid (1) - per share (1) Net cash flow from operating activities - per share (2) Shareholders’ Equity - per share (2) Share price at fiscal year-end Dividend paid per share (2) 2023 2022 2021 2020 2019 $512,821 $20,090 $14,688 $1.72 $631,185 $44,716 $32,679 $3.82 $615,946 $50,523 $37,836 $4.42 $454,103 $19,022 $13,811 $1.61 $449,587 $4,269 $3,054 $0.36 $29,674 $3.48 $42,968 $5.03 $195,003 $22.88 $14.07 $1.00 $55,051 $6.43 $26,013 $3.04 $186,779 $21.83 $12.17 $0.90 $60,003 $7.01 $33,278 $3.89 $160,948 $18.80 $9.56 $0.85 $28,645 $3.35 $11,441 $1.34 $121,229 $14.16 $6.71 $0.20 $9,775 $1.14 $13,408 $1.57 $113,408 $13.24 $4.82 $0.10 (1) Non-IFRS financial measure – refer to section “Non-IFRS Financial Measures” for more information and a reconciliation to the most directly comparable IFRS measure, where applicable. (2) Supplementary financial measure – refer to section “Non-IFRS Financial Measures” for more information. NET EARNINGS (in million $) SHARE PRICE as at November 30 40 30 20 10 0 $38 $33 $14 $15 $3 2019 2020 2021 2022 2023 TABLE OF CONTENTS Chair’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 ......................................... 47 Sales Offices and Distribution Centres ............... 48 HEAD OFFICE 225 Goodfellow Street Delson, Quebec J5B 1V5 Canada 2019 2020 2021 2022 2023 1 $4.82 $4.82 $6.71 $6.71 $9.56 $9.56 $12.17 $12.17 $14.07 $14.07 Toll-Free Canada: 800-361-6503 Tel: 450-635-6511 Fax: 450-635-3729 info@goodfellowinc.com www.goodfellowinc.com CHAIR’S REPORT TO THE SHAREHOLDERS The fiscal year 2023 was one of resilience for Goodfellow. Despite numerous external challenges, the Company successfully navigated difficult business conditions to achieve a solid performance. The management team was loyal to its strategy of controlling costs and reconciling inventory levels to deliver earnings of $1.72 per share. With a very sound balance sheet, sights are set on reinvesting in the business, improving the efficiency of its assets, paying a consistent dividend, as well as pursuing relevant and strategic acquisitions. The Board of Directors extends its gratitude to Patrick Goodfellow, President and CEO, for his leadership, and to all shareholders for their continued trust. (Signed) “Robert Hall” Chair of the Board February 19, 2024 2 PRESIDENT’S REPORT TO THE SHAREHOLDERS Goodfellow concluded its 125th anniversary year on a positive note, demonstrating resilience in the face of volatile and ever-changing market conditions to achieve revised sales objectives affected by reduced consumer demand. Sales for the year amounted to $513 M, with notable increases generated by commercial project activity driven by infrastructure-related spending. Unfortunately, the retail sector experienced a significant downturn in demand, leading to an oversupply in the market, with the flooring category suffering the most significant setback in the second quarter of 2023. In addition, demand and pricing for hardwoods softened considerably, with signs of recovery becoming evident only in the early months of fiscal 2024. Goodfellow’s ability to meet expectations in a context affected by economic uncertainty and high interest rates, can be attributed to the diversity of its product portfolio and the unwavering dedication of its talented team who have been instrumental in keeping the company's interests at the forefront. Looking ahead to 2024, there are reasons for cautious optimism. Should interest rates remain stable, market conditions could rebound as the country struggles to meet its housing needs. Goodfellow is well positioned to capitalize on growth opportunities thanks to its strong balance sheet and diversified approach. Recognition and appreciation go out to shareholders, customers, suppliers and employees who contributed to Goodfellow’s success in 2023. Delivering sustainable value and maintaining Goodfellow's reputation of customer service excellence remain a top priority for the future. (Signed) “Patrick Goodfellow” President and Chief Executive Officer February 19, 2024 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 Board of Directors on February 19, 2024. The MD&A should be read in conjunction with the consolidated financial statements and the corresponding notes for the years ended November 30, 2023 and November 30, 2022. The MD&A provides a review of the significant developments and results of operations of the Company during the years ended November 30, 2023 and November 30, 2022. The consolidated financial statements ended November 30, 2023 and November 30, 2022 are prepared in accordance with IFRS Accounting Standards (IFRS). All amounts in this MD&A are in Canadian dollars unless otherwise indicated. All tabular dollar amounts are in thousands of Canadian dollars, except amounts per share or unless otherwise indicated. Some amounts included in this MD&A have been rounded to make reading easier, which may affect some calculations. In addition, in this Management’s Discussion and Analysis, we also use non-IFRS financial measures for which a complete definition is presented below and for which a reconciliation to financial information in accordance with IFRS is presented in the section “Non-IFRS Financial Measures” and in Note 22 “Segmented Information and Sales” to the annual consolidated financial statements for the years ended November 30, 2023 and November 30, 2022. These measures should be considered as a complement to financial performance measures in accordance with IFRS. They do not substitute and are not superior to them. Additional information relating to Goodfellow Inc., including the Annual Information Form and the Annual Report can be found on SEDAR+ at www.sedarplus.ca and at www.goodfellowinc.com. FORWARD-LOOKING STATEMENTS This MD&A contains implicit and/or explicit forward-looking statements relating, inter alia, to objectives, strategies, priorities, goals, plans, financial position, operating results, trends and activities of Goodfellow Inc. and its markets and industries. 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. Some of these expectations and assumptions relate to the state of the global economy and the economies of the regions in which the Company operates; the level of demand for the Company’s products including from its recurring client base, including bookings from customers; prices and margins for its products; competitors; reliability of supply chains; inflation; interest rates; foreign currency fluctuations; the COVID-19 pandemic; overhead expenses; working capital requirements and access to capital or funding to finance same; the collection of accounts receivable; the availability and sufficiency insurance coverage; the sufficiency and reliability of the Company’s workforce; the successful management of environmental and health and safety risk; the sufficiency, reliability and effectiveness of information systems; the sufficiency, reliability and effectiveness of internal and disclosure controls; and the absence of adverse change in the Company’s regulatory environment and legal proceedings. In particular, expectations and assumptions relating to the COVID-19 pandemic are more fully described in the Company’s Annual MD&A for the year ended November 30, 2023. 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 or prove to be accurate. 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.sedarplus.ca. For these reasons, we cannot guarantee the results of these forward-looking statements. The foregoing risks and uncertainties are described in greater detail in this MD&A. 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. NON-IFRS FINANCIAL MEASURES (unaudited) We report our financial results in accordance with IFRS. However, in this document, the following non-IFRS measures, non-IFRS ratios and supplementary financial measures are used: EBITDA, Net Cash Flows from Operating Activities excluding impact of changes in non-cash working capital, income tax paid and interest paid, Gross profit, Gross margin, Shareholders’ Equity per share and dividends paid per share. These measures do not have a standardized meaning under IFRS and could be calculated differently by other companies and accordingly, may not be comparable. We believe that many of our readers analyze the financial performance of the Company’s activities based on these non-IFRS financial measures as such measures may allow for easier comparisons between periods. The Company also believes that these measures are useful indicators of the performance of its operations and its ability to meet its financial obligations. Furthermore, management also uses some of these non-IFRS financial measures to assess the performance of its activities and managers. These measures should be considered as a complement to financial performance measures in accordance with IFRS. They do not substitute and are not superior to them. For measures displayed per share, the 4 Company divided the measures by the total number of outstanding shares at November 30 of the period presented in the case of Shareholders Equity per share and by the weighted average number of outstanding shares for the relevant period ended November 30 presented for other measures per share. “EBITDA” represents earnings before income taxes, net financial costs, depreciation of property, plant and equipment and of right-of- use-assets and amortization of intangible assets. Management believes this metric is useful as it allows comparability of operating results from one period to another by excluding the effects of items that primarily reflect the impact of long-term investment and financing decisions, rather than the results of day-to-day operations. The table below contain a reconciliation of EBITDA to the most directly comparable IFRS measure, net earnings. Reconciliation of EBITDA Net earnings Income taxes Net financial costs Depreciation of property, plant and equipment Depreciation of right-of-use assets Amortization of intangible assets EBITDA For the three months ended November 30 2022 (unaudited) $ 4,440 1,054 717 763 1,186 153 8,313 November 30 2023 (unaudited) $ 2,133 520 432 915 1,088 150 5,238 November 30 2023 For the years ended November 30 2022 $ 14,688 5,402 2,429 3,311 4,697 602 31,129 $ 32,679 12,037 3,201 2,551 4,551 608 55,627 “Net Cash Flows from Operating Activities excluding impact of changes in non-cash working capital, income tax paid and interest paid” represents net cash flows from operating activities before changes in non-cash working capital, income tax paid and interest paid. Management believes this measure is useful as it provides an indication of the Company’s financial flexibility, i.e. cash available to the Company to service debt, meet other payment obligations, make investments and execute the Company’s strategy. The tables below contain a reconciliation of Net Cash Flows from Operating Activities excluding impact of changes in non-cash working capital, income tax paid and interest paid to the most directly comparable IFRS measure, Net Cash Flows from Operating Activities. Reconciliation of Net Cash Flows from Operating Activities excluding impact of changes in non-cash working capital, income tax paid and interest paid – Fourth quarter (unaudited) Net Cash Flows from Operating Activities Changes in non-cash working capital items Interest paid Income taxes paid Net Cash Flows from Operating Activities excluding impact of changes in non-cash working capital, income tax paid and interest paid Net Cash Flows from Operating Activities per share Net Cash Flows from Operating Activities excluding impact of changes in non-cash working capital, income tax paid and interest paid per share Weighted Average Number of Share Outstanding (thousands) For the three months ended November 30 November 30 2022 2023 $ $ 40,295 26,879 (35,728) (25,447) 305 191 3,535 3,163 4,786 8,407 3.15 4.71 0.56 0.98 8,537 8,561 5 from Reconciliation of Net Cash Flows Operating Activities excluding impact of changes in non-cash working capital, income tax paid and interest paid Net Cash Flows from Operating Activities Changes in non-cash working capital items Interest paid Income taxes paid Net Cash Flows from Operating Activities excluding in non-cash working impact of changes capital, income tax paid and interest paid Net Cash Flows from Operating Activities per share Net Cash Flows from Operating Activities excluding impact of changes in non-cash working capital, income tax paid and interest paid per share Weighted Average Number of Share Outstanding (thousands) For the years ended November 30 2023 November 30 2022 November 30 2021 November 30 2020 November 30 2019 $ 42,968 (24,213) 1,367 9,552 $ 26,013 3,734 1,731 23,573 $ 33,278 15,484 1,541 9,700 $ 11,441 14,117 1,495 1,592 $ 13,408 (6,856) 2,154 1,069 29,674 55,051 60,003 28,645 9,775 5.03 3.04 3.89 3.48 6.43 7.01 1.34 3.35 1.57 1.14 8,537 8,562 8,563 8,563 8,563 With respect to “Gross profit” and “Gross margin”, these measures are used under the sections “Cost of Goods Sold” in the discussion below for the results for the year ended November 30, 2023, and the fourth quarter ended November 30, 2023. Please refer to such sections for a description of how theses measures are calculated and a reconciliation to the most directly comparable IFRS measure. In addition, the following tables set out the information supporting the per share calculation Shareholders’ Equity and dividend paid: Reconciliation of Shareholders’ Equity per share November 30 2023 $ 195,003 22.88 8,521 November 30 2023 $ 8,539 1.00 November 30 2022 $ 186,779 21.83 8,558 For the years ended November 30 2021 $ 160,948 18.80 8,563 November 30 2020 $ 121,229 14.16 8,563 November 30 2022 $ 7,706 0.90 For the years ended November 30 2021 $ 7,279 0.85 November 30 2020 $ 1,712 0.20 November 30 2019 $ 113,408 13.24 8,563 November 30 2019 $ 851 0.10 8,537 8,563 8,563 8,563 8,563 Shareholders’ Equity Shareholders’ Equity per share Number of Share Outstanding (thousands) Reconciliation of Dividend paid per share Dividend paid Dividend paid per share Weighted average number of share at payment (thousands) BUSINESS OVERVIEW Goodfellow Inc. is a diversified manufacturer of value-added lumber products, as well as a wholesale distributor of building materials and floor coverings. Goodfellow Inc. has 9 processing plants and 13 distribution centres from coast-to-coast in Canada, as well as 1 distribution centre in the USA and 1 in the United Kingdom. The Company services customers in the commercial and residential sectors through lumber yard retailer networks, manufacturers, industrial and infrastructure project partners, and floor covering specialists. OVERALL PERFORMANCE Goodfellow concluded its 125th anniversary year on a positive note, demonstrating resilience in the face of volatile and ever- changing market conditions to achieve adjusted sales and income objectives. Sales for the year amounted to $513 M, with notable increases generated by commercial project activity driven by infrastructure-related spending. Unfortunately, the retail sector experienced a significant downturn in demand, leading to an oversupply in the market, with the flooring category suffering the most significant setback in the second quarter of 2023. In addition, demand and prices for hardwoods softened considerably, with signs of recovery becoming evident only in the early months of fiscal 2024. Goodfellow’s ability to meet expectations in such a dynamic environment can be attributed to its diversified offering and the unwavering dedication of its talented team. 6 COMPARISON FOR THE YEARS ENDED NOVEMBER 30, 2023 AND 2022 HIGHLIGHTS Sales Earnings before income taxes Net earnings Net earnings per share – Basic and Diluted Net cash flow from Operating Activities excluding impact of changes in non-cash working capital, income tax paid and interest paid (1) Net cash flow from Operating Activities EBITDA (1) 2023 $ 512,821 20,090 14,688 1.72 29,674 42,968 31,129 2022 $ 631,185 44,716 32,679 3.82 55,051 26,013 55,627 Variance % -19 -55 -55 -55 -46 +65 -44 (1) Non-IFRS financial measure – refer to section “Non-IFRS Financial Measures” for more information and a reconciliation to the most directly comparable IFRS measure. Sales in Canada during fiscal 2023 decreased 18% compared to last year due to a decrease in sales of all product categories. Quebec sales decreased 20% due to a decrease in sales of all product categories. Sales in Ontario decreased 21% due to a decrease in sales of all product categories. Sales in Western Canada decreased 20% due to a decrease in sales of all product categories except for building material. Atlantic region sales decreased 5% due to a decrease in sales of flooring products, and specialty and commodity panels. Sales in the United States for fiscal 2023 on a US dollar basis decreased 25% compared to last year, and on a Canadian dollar basis they decreased 22% compared to last year. Finally, export sales decreased 34% during fiscal 2023 compared to last year mostly due to a decrease in sales of lumber and flooring products. In terms of the distribution of sales by product, all product categories saw a decrease in sales. Flooring sales during fiscal 2023 decreased 33%, specialty and commodity panel sales decreased 20%, building material sales decreased 10%, and lumber sales decreased 16% compared to last year. Reconciliation of Gross profit Sales Cost of goods sold Gross profit Gross margins 7 November 30 2023 $ 512,821 400,461 112,360 21.9% For the years ended November 30 2022 $ 631,185 495,125 136,060 21.6% 55%(2022: 53%)12%(2022: 11%)18%(2022:18%)15%(2022: 18%)LumberBuilding MaterialSpecialty & Commodity…FlooringProduct Distribution of Sales for Fiscal 202310%(2022: 12%)19%(2022: 17%)9%(2022: 9%)27%(2022: 28%)35%(2022: 34%)US and ExportsAtlanticWestern CanadaOntarioQuebecGeographical Distribution of Sales for Fiscal 2023 Gross profit and Gross margins are non-IFRS financial measures. See section “Non-IFRS Financial Measures” for more information. Gross profit is calculated as sales less cost of goods sold. Gross margin is calculated Gross profit over sales. The table above contains a reconciliation of Gross profit to sales. Cost of Goods Sold Cost of goods sold during fiscal 2023 was $400.5 million compared to $495.1 million last year. Cost of goods sold decreased 19% compared to last year. Gross profits were $112.4 million compared to $136.1 million last year, a decrease of 17% compared to last year. Gross margins were 21.9% in fiscal 2023 (21.6% last year). Selling, Administrative and General Expenses Selling, Administrative and General Expenses during fiscal 2023 were $89.8 million compared to $88.1 million last year representing a 2% increase compared to last year. Net Financial Costs Net financial costs during fiscal 2023 were $2.4 million ($3.2 million last year). The average Canadian prime rate increased to 6.86% (3.78% last year). The average US prime rate increased to 8.09% (4.52% last year). COMPARISON FOR THE THREE MONTHS ENDED NOVEMBER 30, 2023 AND 2022 (unaudited) HIGHLIGHTS Sales Earnings before income taxes Net earnings Net earnings per share – Basic and Diluted Net cash flow from Operating Activities excluding impact of changes in non-cash working capital, income tax paid and interest paid (1) Net cash flow from Operating Activities EBITDA (1) Q4-2023 $ 125,415 2,653 2,133 0.25 4,786 26,879 5,238 Q4-2022 $ 149,299 5,494 4,440 0.52 8,407 40,295 8,313 Variance % -16 -52 -52 -52 -43 -33 -37 (1) Non-IFRS financial measure – refer to section “Non-IFRS Financial Measures” for more information and a reconciliation to the most directly comparable IFRS measure. Sales in Canada during the fourth quarter of 2023 decreased 16% compared to last year due to a decrease in sales of all product categories except for building material. Quebec sales decreased 21% due to a decrease in sales of all product categories except for building material. Sales in Ontario decreased 23% mainly due to a decrease in sales of all product categories except for building material. Sales in Western Canada increased 5% due to an increase in sales of specialty and commodity panels and building material. Atlantic region sales increased 1% due to an increase in sales of all product categories except for flooring products. Sales in the United States for the fourth quarter of 2023 on US dollar basis decreased 8% compared to last year and decreased 8% on a Canadian dollar basis mostly due to a decrease in sales of all product categories except building materials. Finally, export sales decreased 46% during the fourth quarter of 2023 compared to last year mostly due to a decrease in sales of all product categories. In terms of the distribution of sales by product, all product categories decreased their sales except for building materials. Flooring sales during the fourth quarter of fiscal 2023 decreased 25%, specialty and commodity panel sales decreased 12%, building materials sales increased 5%, and lumber sales decreased 18% compared to last year. 8 10%(Q4-2022 : 10%)18%(Q4-2022 : 15%)11%(Q4-2022 : 9%)27% (Q4-2022 : 30%)34% (Q4-2022 : 36%)US and ExportsAtlanticWestern CanadaOntarioQuebecGeographical Distribution of Sales for the Fourth Quarter ended November 30, 202354%(Q4-2022: 55%)11%(Q4-2022: 8%)19%(Q4-2022: 18%)16%(Q4-2022: 19%)LumberBuilding MaterialSpecialty & Commodity PanelFlooringProduct Distribution of Sales for the Fourth Quarter ended November 30, 2023 Reconciliation of Gross profit (unaudited) Sales Cost of goods sold Gross profit Gross margins For the three months ended November 30 November 30 2022 2023 $ $ 149,299 125,415 120,409 98,632 28,890 26,783 19.4% 21.4% Gross profit and Gross margins are non-IFRS financial measures. See section “Non-IFRS Financial Measures” for more information. Gross profit is calculated as sales less cost of goods sold. Gross margin is calculated Gross profit over sales. The table below contains a reconciliation of Gross profit to sales. Cost of Goods Sold Cost of goods sold during the fourth quarter of 2023 was $98.6 million compared to $120.4 million for the corresponding period a year ago, a decrease of 18% compared to last year. Gross profits were $26.8 million compared to $28.9 million last year. Gross profits decreased 7% compared to last year. Gross margins were 21.4% for the three months ended November 30, 2023 (19.4% last year). Selling, Administrative and General Expenses Selling, Administrative and General Expenses during the fourth quarter of 2023 were $23.7 million compared to $22.7 million last year representing an increase of 4.3% compared to last year. Net Financial Costs Net financial costs during the three months ended November 30, 2023 were $0.4 million ($0.7 million last year). The average Canadian prime rate increased to 7.20% (5.55% last year). The average US prime rate increased to 8.50% (6.31% last year). SUMMARY OF THE LAST EIGHT MOST RECENTLY COMPLETED QUARTERS (unaudited) Sales Net (losses) earnings Feb-2023 $ 105,925 (211) May-2023 $ 142,326 6,575 Aug-2023 $ 139,155 6,191 Nov-2023 $ 125,415 2,133 Net (losses) earnings per share (0.02) 0.77 0.72 0.25 Sales Net earnings Feb-2022 $ 129,365 5,117 May-2022 $ 184,947 12,542 Aug-2022 $ 167,574 10,580 Nov-2022 $ 149,299 4,440 Net earnings per share 0.60 1.46 1.24 0.52 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. STATEMENT OF FINANCIAL POSITION Total assets Total assets at November 30, 2023 were $252.8 million compared to $246.9 million as at November 30, 2022. Cash at November 30, 2023 was $28.4 million compared to $3.4 million as at November 30, 2022. Trade and other receivables at November 30, 2023 were $53.7 million ($64.4 million as at November 30, 2022). Income taxes receivable was $6.3 million compared ($2.4 million as at November 30, 2022). Inventories at November 30, 2023 were $98.5 million compared to $112.3 million as at November 30, 2022. Prepaid expenses at November 30, 2023 were $4.2 million ($2.6 million as at November 30, 2022). Defined benefit plan asset was $15.3 million at November 30, 2023 compared to $11.6 million as at November 30, 2022. Other assets were $0.8 million at November 30, 2023 (same as at November 30, 2022). 9 Property, plant, equipment, intangible and right-of-use assets Property, plant and equipment at November 30, 2023 was $32.8 million compared to $32.3 million as at November 30, 2022, and intangible assets at November 30, 2023 were $1.5 million compared to $2.1 million as at November 30, 2022. Capital expenditures on property, plant and equipment and intangibles during fiscal 2023 amounted to $3.8 million compared to $4.9 million for the same period last year. Property, plant and equipment capitalized during fiscal 2023 mainly included buildings and yard improvements, equipment, computers and rolling stock. Right-of-use assets at November 30, 2023 was $11.4 million ($15.0 million as at November 30, 2022). Depreciation / amortization of property, plant, equipment, intangible, and right-of-use assets during fiscal 2023 amounted to $8.6 million compared to $7.7 million last year. Total liabilities Total liabilities at November 30, 2023 were $57.8 million compared to $60.1 million as at November 30, 2022. Trade and other payables at November 30, 2023 were $37.6 million compared to $36.3 million as at November 30, 2022. Current provision at November 30, 2023 was $2.8 million ($2.3 million as at November 30, 2022) and the non-current provision was nil compared to $0.6 million as at November 30, 2022. Lease liabilities at November 30, 2023 were $13.2 million compared to $17.5 million as at November 30, 2022. Deferred income taxes at November 30, 2023 were $4.1 million ($3.4 million as at November 30, 2022). Shareholders’ Equity Total Shareholders’ Equity at November 30, 2023 was $195.0 million compared to $186.8 million as at November 30, 2022. The Company generated a return on Shareholders’ Equity of 7.5%. during fiscal 2023 compared to 17.5% last year (Return on shareholders’ equity is the net earnings (loss) divided by shareholders’ equity, expressed as a percentage). The share price closed at $14.07 per share on November 30, 2023 ($12.17 on November 30, 2022). The Shareholders’ Equity per share at November 30, 2023 was $22.88 per share compared to $21.83 per share as at November 30, 2022. Share capital was $9.4 million at November 30, 2023 (same as at November 30, 2022). On November 20, 2023, following approval of the Toronto Stock Exchange (the "TSX"), the Company renewed its existing normal course issuer bid (“NCIB”). This program allows the Company to repurchase up to an aggregate 426,157 common shares, representing approximately 5% of the common shares issued and outstanding as at November 9, 2023. All Shares purchased under the NCIB will be acquired on the open market and in accordance with the rules and policies of the TSX and applicable securities laws at the prevailing market prices, plus applicable brokerage fees, and cancelled. The share repurchase period will end no later than November 19, 2024. Moreover, the Company has entered into an automatic share purchase plan (“ASPP”) with a designated broker in connection with the NCIB. The ASPP will allow for the purchase for cancellation of shares, subject to certain trading parameters, by its designated broker during times when the Company would ordinarily not be active in the market due to applicable regulatory restrictions or self-imposed blackout periods. Outside these periods, shares may be repurchased by the Company at its discretion under the NCIB. During fiscal year 2023, the Company bought back 36,500 shares at a weighted-average price of $12.50 for a total aggregate purchase price of $456 thousand compared to 4,600 shares at a weighted-average price of $12.17 for a total aggregate purchase price of $56 thousand during fiscal year 2022. Additional information regarding the NCIB is contained in Note 14 of the Consolidated Financial Statements for the year ended November 30, 2023. The following dividends were declared and paid by the Company for the years ended: Record date Mar 2, 2023 Oct 19, 2023 Amount November 30, 2023 Declared Per share $ 0.50 0.50 1.00 $ Payment date Record date 4,274 Mar 16, 2023 4,265 Nov 2, 2023 8,539 Mar 4, 2022 Oct 27, 2022 November 30, 2022 Declared Per share $ 0.40 0.50 0.90 Amount $ Payment date 3,425 Mar 18, 2022 4,281 Nov 10, 2022 7,706 The Company is continually assessing its declaration of dividends in the context of overall profitability, cash flows, capital requirements, general economic conditions, and other business needs. LIQUIDITY AND CAPITAL RESOURCES Financing The Company has a credit agreement with two chartered Canadian banks. The credit agreement has a maximum revolving operating facility of $90 million maturing in May 2024 by way of bank loans and/or banker’s acceptances. In addition, an accordion of $10 million is available once per fiscal year for a maximum of 150 days. 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, 2023, the Company was compliant with its financial covenants. As at November 30, 2023, under the credit agreement, the Company was not using its facility (same last year). As at November 30, 2023, the Company has $1.2 million of issued letters of credit which reduces the availability of its facility ($1.0 million last year). 10 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 2023 was $43.0 million compared to $26.0 million last year. Financing activities during fiscal 2023 was $(14.3) million compared to $(14.7) million last year. Investing activities during fiscal 2023 was $(3.7) million compared to $(4.8) 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 net debt-to-capital 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 capital as net debt less shareholders’ equity as follows (the Company currently has no debt): Cash Net Cash Share Capital Retained Earnings Shareholders’ Equity Total Capital November 30 2023 $ 28,379 28,379 November 30 2022 $ 3,420 3,420 9,379 185,624 195,003 9,419 177,360 186,779 223,382 190,199 The Company manages its capital and makes adjustments to it in 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 a 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. 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. 11 Cost Structure, Working Capital Requirements At November 30, 2023, the Company’s debt-to-capitalization ratio stood at 0.6% (0.5% as at November 30, 2022). Debt-to- capitalization ratio represents debt over total shareholders’ equity. Debt is defined as bank indebtedness less cash and cash equivalents (i.e. debt excludes lease liabilities). Capitalization is debt plus shareholders’ equity. FINANCIAL COMMITMENTS AND CONTINGENCIES OBLIGATIONS Payments due by period– undiscounted Lease liability obligations Total obligations Total $ 15,321 15,321 Less than 1 year $ 5,008 5,008 2-3 Years $ 6,310 6,310 4-5 Years $ 2,875 2,875 After 5 years $ 1,128 1,128 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 Environmental Risk The Company’s St-André (QC) site shows continued traces of surface contamination from previous treating activities exceeding existing regulatory requirements. In 2022, the Company submitted a revised timetable for the site remediation which was approved by the “Ministère de l’Environnement, de la Lutte contre les changements climatiques, de la Faune et des Parcs” and is to be completed before December 31, 2024. Based on current available information, the provision 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 to remove it. 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. 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 during fiscal 2023 (same last year). The following represents the total sales consisting primarily of various wood products of the major customer: For the years ended Sales to the major customer that exceeded 10% of total Company’s sales November 30, 2023 November 30, 2022 % 14.1 $ 77,976 $ 88,782 % 15.2 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. 12 Dependence on Market Economic Conditions The demand for the Company’s 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 imports from Asia 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 is subject to 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. 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. FINANCIAL INSTRUMENTS AND OTHER INSTRUMENTS The Company is exposed to risks arising from financial instruments, including Financing and Liquidity Risk, interest rate risk, currency risk, and credit risk. Please refer to Note 18 of the audited annual consolidated financial statements for the year ended November 30, 2023 for additional details. 13 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. Commercial Transactions During the year ended November 30, 2023, the entities of the Company have not entered into business transactions with related parties that are members of the Board 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: Salaries and other short-term benefits Post-employment benefits (including remeasurement of defined benefit plan obligation) November 30 2023 $ 3,422 (114) 3,308 November 30 2022 $ 3,122 42 3,164 CRITICAL ACCOUNTING ESTIMATES 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. ii. iii. 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. 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. Valuation of inventory The cost of inventories may no longer be recoverable if inventories are discontinued, damaged, in excess quantities, or if their selling prices or estimated forecast of product demand decline. In determining the net realizable value of finished goods, the Company considers recent sales prices and current market conditions. The Company regularly reviews inventory quantities on hand, current production plans, and forecasted future sales, and inventories are written down to net realizable value when it is determined that they are no longer fully recoverable. There is estimation uncertainty in relation to the identification of excess inventories and in the expected selling prices used in establishing the net realizable value 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. 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 regulatory requirements, industry practices, current technology, possible uses of the site or the economic environment. See Note 13 to the consolidated financial statements for the year ended November 30, 2023 for further details. 14 v. Critical judgments in applying accounting policies The Company did not identify any critical judgements that management has made in the process of applying accounting policies that may have a significant effect on the amounts recognized in the consolidated financial statements. SIGNIFICANT ACCOUNTING POLICIES The Company’s significant accounting policies including IFRS Standard Issued, But Not Yet Effective are described in Note 3 to the consolidated financial statements for the year ended November 30, 2023. DISCLOSURE OF OUTSTANDING SHARE DATA As at November 30, 2023, there were 8,521,454 common shares issued (8,557,954 as at November 30, 2022). The Company has authorized an unlimited number of common shares to be issued, without par value. As at February 19, 2024, there were 8,512,954 common shares outstanding. SUBSEQUENT EVENT No subsequent events to report. OUTLOOK The Company expects differentiated growth rates across its customer segments in 2024. As demand for residential housing continues to outpace supply, the outlook for residential construction and renovation could be positive if interest rates continue to remain stable. The industrial segment continues to be strong, but rising costs of inputs and wages will challenge profitability. Mitigating such challenges and capitalizing on positive industry trends will be of keen importance for the Goodfellow management team. 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, 2023. 15 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, 2023. 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, 2023 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting. Delson, February 19, 2024 (Signed) “Patrick Goodfellow” President and Chief Executive Officer (Signed) “Charles Brisebois”, CPA Chief Financial Officer 16 MANAGEMENT’S RESPONSIBILITY FOR FINANCIAL REPORTING The accompanying consolidated financial statements, which have been prepared in accordance with IFRS Accounting 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, and their report is included herein. (Signed) “Patrick Goodfellow” President and Chief Executive Officer (Signed) “Charles Brisebois”, CPA Chief Financial Officer 17 KPMG LLP Tour KPMG 600 de Maisonneuve Blvd West, Suite 1500 Montréal, QC H3A 0A3 Canada Telephone 514 840 2100 Fax 514 840 2187 INDEPENDENT AUDITOR’S 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, 2023 and November 30, 2022 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, 2023 and November 30, 2022, and its consolidated financial performance and its consolidated cash flows for the years then ended in accordance with IFRS Accounting Standards as issued by the International Accounting Standards Board. 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 "Auditor’s Responsibilities for the Audit of the Financial Statements" section of our auditor’s 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. KPMG LLP, an Ontario limited liability partnership and member firm of the KPMG global organization of independent member firms affiliated with KPMG International Limited, a private English company limited by guarantee. KPMG Canada provides services to KPMG LLP. Page 2 We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Key Audit Matters Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial statements for the year ended November 30, 2023. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. We have determined the matters described below to be the key audit matters to be communicated in our auditor’s report. Description of the matter We draw attention to Note 3 and Note 7 to the financial statements. The Entity’s inventories balance is $98.5 million. 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. Why the matter is a key audit matter We identified the assessment of the existence and accuracy of inventories as a key audit matter given the magnitude of the inventories balance and the increased extent of audit effort needed to address the matter. How the matter was addressed in the audit The following are the primary procedures we performed to address this key audit matter: • We observed the Entity’s physical inventory counts for a selection of locations at or close to year-end and performed a sample of independent test counts which we compared to the Entity’s records. • We tested a sample of inventory movements to purchase invoices and shipping documents between the count date and the year-end date. • We tested a sample of inventory items to purchase invoices and we recalculated the weighted average cost basis of the sampled inventory items. Page 3 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 auditor’s report thereon, included in a document likely to be entitled "Annual Report 2023". 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 auditor’s report thereon, included in a document likely to be entitled "Annual Report 2023" as at the date of this auditor’s report. If, based on the work we have performed on this other information, we conclude that there is a material misstatement of this other information, we are required to report that fact in the auditor’s report. We have nothing to report in this regard. Responsibilities of Management and Those Charged with Governance for the Financial Statements Management is responsible for the preparation and fair presentation of the financial statements in accordance with IFRS Accounting Standards as issued by the International Accounting Standards Board, and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. In preparing the financial statements, management is responsible for assessing the Entity’s ability to continue as a going concern, disclosing as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Entity or to cease operations, or has no realistic alternative but to do so. Those charged with governance are responsible for overseeing the Entity’s financial reporting process. Page 4 Auditor’s Responsibilities for the Audit of the Financial Statements Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance but is not a guarantee that an audit conducted in accordance with Canadian 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 intentional omissions, misrepresentations, or the override of internal control. involve collusion, from error, as fraud may forgery, • 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 auditor’s report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the 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. Page 5 • 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. • Determine, from the matters communicated with those charged with governance, those matters that were of most significance in the audit of the financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our auditor’s report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication. The engagement partner on the audit resulting in this auditor’s report is Giuseppe Funiciello. Montréal, Canada February 19, 2024 *CPA auditor, public accountancy permit No. A122264 GOODFELLOW INC. Consolidated Statements of Comprehensive Income For the years ended November 30, 2023 and 2022 (in thousands of dollars, except per share amounts) Sales (Note 22) Expenses Cost of goods sold (Note 4) Selling, administrative and general expenses (Note 4) 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 $984 ($355 in 2022) (Note 16) Total comprehensive income Years ended November 30 2023 $ November 30 2022 $ 512,821 631,185 400,461 89,841 2,429 492,731 495,125 88,143 3,201 586,469 20,090 44,716 5,402 12,037 14,688 32,679 2,531 914 17,219 33,593 Net earnings per share – Basic and Diluted (Note 14b) 1.72 3.82 Notes 1 to 22 are an integral part of these consolidated financial statements. 23 GOODFELLOW INC. Consolidated Statements of Financial Position (in thousands of dollars) Assets Current Assets Cash Trade and other receivables (Note 6) Income taxes receivable 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 10) Defined benefit plan asset (Note 16) Other assets Total Non-Current Assets Total Assets Liabilities Current Liabilities Trade and other payables (Note 12) Provision (Note 13) Current portion of lease liabilities (Note 10) Total Current Liabilities Non-Current Liabilities Provision (Note 13) Lease liabilities (Note 10) Deferred income taxes (Note 15) Total Non-Current Liabilities Total Liabilities Shareholders’ Equity Share capital (Note 14) Retained earnings Total Liabilities and Shareholders’ Equity As at November 30 2023 $ As at November 30 2022 $ 28,379 53,674 6,286 98,473 4,215 191,027 32,761 1,487 11,354 15,347 777 61,726 252,753 37,620 2,789 4,732 45,141 - 8,497 4,112 12,609 57,750 3,420 64,423 2,439 112,294 2,555 185,131 32,269 2,096 14,999 11,620 802 61,786 246,917 36,286 2,281 4,969 43,536 634 12,537 3,431 16,602 60,138 9,379 185,624 195,003 252,753 9,419 177,360 186,779 246,917 Contingent liabilities and commitments (Note 20) Notes 1 to 22 are an integral part of these consolidated financial statements. Approved by the Board of Directors (Signed) “Robert Hall” Chair of the Board (Signed) “Alain Côté” Director & Chair of the Audit Committee 24 GOODFELLOW INC. Consolidated Statements of Cash Flows For the years ended November 30, 2023 and 2022 (in thousands of dollars) Years ended Operating Activities Net earnings Adjustments for: Depreciation and amortization of: Property, plant and equipment (Note 8) Intangible assets (Note 9) Right-of-use assets (Note 10) Gain on disposal of property, plant and equipment Accretion expense on provision (Note 13) Provision (Note 13) Income taxes (Note 15) Interest expense (Note 5) Interest on lease liabilities (Note 5) Funding in (deficit) excess of pension plan expense (Note 16) Other Changes in non-cash working capital items (Note 17) Interest paid (Note 17) Income taxes paid Net Cash Flows from Operating Activities Financing Activities Net decrease in bank indebtedness Payment of lease liabilities (Note 10) Redemption of shares (Note 14b) Dividends paid (Note 14d) Net Cash Flows from Financing Activities Investing Activities Acquisition of property, plant and equipment Decrease (increase) in intangible assets Proceeds on disposal of property, plant and equipment Other assets Net Cash Flows from Investing Activities Net cash inflow Cash (bank indebtedness), beginning of year Cash, end of year November 30 2023 $ November 30 2022 $ 14,688 32,679 3,311 602 4,697 (139) 271 (397) 5,402 996 431 (212) 24 29,674 24,213 (1,367) (9,552) 13,294 42,968 - (5,350) (456) (8,539) (14,345) (3,836) 7 147 18 (3,664) 24,959 3,420 28,379 2,551 608 4,551 (45) 102 666 12,037 1,230 603 46 23 55,051 (3,734) (1,731) (23,573) (29,038) 26,013 (2,000) (4,985) (56) (7,706) (14,747) (4,827) (54) 45 (17) (4,853) 6,413 (2,993) 3,420 Notes 1 to 22 are an integral part of these consolidated financial statements. 25 GOODFELLOW INC. Consolidated Statements of Changes in Shareholders’ Equity For years ended November 30, 2023 and 2022 (in thousands of dollars) Share Capital $ Retained Earnings $ Total $ Balance as at November 30, 2021 9,424 151,524 160,948 Net earnings (Note 14c) Other comprehensive income Total comprehensive income Dividend (Note 14d) Redemption of Shares (Note 14b) - - - 32,679 914 32,679 914 33,593 33,593 - (5) (7,706) (51) (7,706) (56) Balance as at November 30, 2022 9,419 177,360 186,779 Net earnings (Note 14c) Other comprehensive income Total comprehensive income Dividend (Note 14d) Redemption of Shares (Note 14b) - - - 14,688 2,531 14,688 2,531 17,219 17,219 - (40) (8,539) (416) (8,539) (456) Balance as at November 30, 2023 9,379 185,624 195,003 Notes 1 to 22 are an integral part of these consolidated financial statements. 26 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the years ended November 30, 2023 and 2022 (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, 2023 and 2022 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 IFRS Accounting Standards (“IFRS”) as issued by the International Accounting Standards Boards (“IASB”). These consolidated financial statements were authorized for issue by the Board of Directors on February 19, 2024. b) Basis of measurement The consolidated financial statements have been prepared on the historical cost basis except for the following material items: • Environmental provision is recorded at the present value of the expected expenditures 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. c) Functional and presentation currency The 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 The cost of inventories may no longer be recoverable if inventories are discontinued, damaged, in excess quantities, or if their selling prices or estimated forecast of product demand decline. In determining the net realizable value of finished goods, the Company considers recent sales prices and current market conditions. The Company regularly reviews inventory quantities on hand, current production plans, and forecasted future sales, and inventories are written down to net realizable value when it is determined that they are no longer fully recoverable. There is estimation uncertainty in relation to the identification of excess inventories and in the expected selling prices used in establishing the net realizable value. 27 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the years ended November 30, 2023 and 2022 (tabular amounts are in thousands of dollars, except per share amounts) 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. 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 regulatory requirements, industry practices, current technology, possible uses of the site or the economic environment. See Note 13 for further details. v. Critical judgments in applying new accounting policies The Company did not identify any critical judgements that management has made in the process of applying accounting policies that may have a significant effect on the amounts recognized in the consolidated financial statements. 3. Significant Accounting Policies a) 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. b) Cash Cash consists of cash on hand and highly liquid investments with an initial term of three months or less. c) 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. d) 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. 28 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the years ended November 30, 2023 and 2022 (tabular amounts are in thousands of dollars, except per share amounts) e) 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. f) 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. The Company leases buildings, furniture and equipment, and rolling stock. g) 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. 29 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the years ended November 30, 2023 and 2022 (tabular amounts are in thousands of dollars, except per share amounts) 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. h) 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. i) 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. j) 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. 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. k) 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 30 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the years ended November 30, 2023 and 2022 (tabular amounts are in thousands of dollars, except per share amounts) 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. l) 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. m) 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 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. 31 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the years ended November 30, 2023 and 2022 (tabular amounts are in thousands of dollars, except per share amounts) 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, and bank indebtedness 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. 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. The Company currently has no derivative financial instruments measured at fair value. n) 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. o) 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 32 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the years ended November 30, 2023 and 2022 (tabular amounts are in thousands of dollars, except per share amounts) expenditures and discount rates are recorded in selling, administrative and general expenses in the consolidated statement of comprehensive income. p) 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. q) 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. r) 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. s) IFRS Standard Issued, But Not Yet Effective Classification of Liabilities as Current or Non-current (Amendments to IAS 1) On January 23, 2020, the IASB issued amendments to IAS 1 Presentation of Financial Statements (the 2020 amendments), to clarify the classification of liabilities as current or non-current. On October 31, 2022, the IASB issued Non-current Liabilities with Covenants (Amendments to IAS 1) (the 2022 amendments), to improve the information a company provides about long-term debt with covenants. The 2020 amendments and the 2022 amendments (collectively “the Amendments”) are effective for annual periods beginning on or after January 1, 2024. Early adoption is permitted. A company that applies the 2020 amendments early is required to also apply the 2022 amendments. The Company is currently assessing the impact on disclosures of accounting policies. IFRS2 Practice Statement Making Materiality Judgments, and amendments to IAS 1 Presentation of Financial Statements In February 2021, the IASB issued amendments to IAS 1 Disclosure of Accounting Policies. The amendments are intended to help entities in disclosing useful accounting policy information. The main amendments: – require entities to disclose their material accounting policies rather than their significant accounting policies; – specify that accounting policies that relate to immaterial transactions, other events or conditions are immaterial and need not be disclosed; – specify that not all accounting policies that relate to material transactions, other events or conditions are material to the Company’s financial statements. The amendments will be effective for annual reporting periods beginning on or after January 1, 2023, but earlier application is permitted. The Company is currently assessing the impact on disclosures of accounting policies. Amendments to IAS 8 Accounting Policies, Changes in Accounting Estimate and Errors In February 2021, the IASB issued amendments to IAS 8 Definition of Accounting Estimates, to help entities make a distinction between accounting policies and accounting estimates. The amendments present a new definition of accounting estimates, which specifies that they are monetary amounts in financial statements that are subject to measurement uncertainty. The amendments also specify the relationship between accounting policies and accounting estimates by stating that an entity develops an accounting estimate to achieve the objective set out by the accounting policy. The amendments will be effective for annual reporting periods beginning on or after January 1, 2023. The Company is currently evaluating the impact of the amendment on its consolidated financial statements. Amendments to IAS 12 Income Taxes In May 2021, the IASB issued amendments to IAS 12 Deferred Tax related to Assets and Liabilities arising from a Single Transaction. The amendments limit the scope of the initial recognition exemption so that it does not apply to transactions that give rise to offsetting and equal temporary differences. As a result, entities will have to recognize deferred tax assets and liabilities for temporary differences arising from the initial recognition of a lease and a decommissioning provision. The amendments will be effective for annual reporting periods beginning on or after January 1, 2023. The Company is currently evaluating the impact of the amendment on its consolidated financial statements. 33 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the years ended November 30, 2023 and 2022 (tabular amounts are in thousands of dollars, except per share amounts) 4. Additional information on: Cost of goods sold Employee benefits expense Depreciation Foreign exchange losses Selling, administrative and general expenses Employee benefits expense Depreciation and amortization 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 2023 $ 1,291 1,148 234 November 30 2022 $ 1,339 898 532 November 30 2023 $ 54,247 7,462 November 30 2022 $ 54,317 6,812 November 30 2023 $ 996 431 271 970 2,668 (239) 2,429 November 30 2022 $ 1,230 603 102 1,271 3,206 (5) 3,201 November 30 November 30 2022 $ 64,454 (342) 64,112 311 64,423 2023 $ 54,131 (594) 53,537 137 53,674 November 30 November 30 2022 $ 9,296 6,356 99,844 115,496 (3,202) 112,294 2023 $ 11,450 7,433 82,801 101,684 (3,211) 98,473 For the year ended November 30, 2023, $383.7 million (2022 - $475.1 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 $1.2 million as at November 30, 2023 (November 30, 2022 - $1.1 million). For the year ended November 30, 2023, $0.4 million of write-down of inventories was recognized as an expense in the period as cost of goods sold (2022 - $1.2 million) 34 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the years ended November 30, 2023 and 2022 (tabular amounts are in thousands of dollars, except per share amounts) 8. Property, plant and equipment Land Buildings, Yard and Leasehold improvements Equipment, Furniture and Fixtures Rolling Stock Computer Equipment Total $ $ $ $ $ $ Cost Cost at November 30, 2021 6,262 50,598 29,627 7,181 4,881 98,549 Additions - 1,762 1,969 978 89 4,798 Cost at November 30, 2022 6,262 52,360 31,596 8,159 4,970 103,347 Additions Disposals - - 1,123 - (26) - 2,638 (67) 76 3,811 - (67) Cost at November 30, 2023 6,262 53,483 31,570 10,730 5,046 107,091 Accumulated depreciation Accumulated depreciation at November 30, 2021 Depreciation Accumulated depreciation at November 30, 2022 Depreciation Disposals Accumulated depreciation at November 30, 2023 Carrying Value At November 30, 2022 - - - - - - 32,079 25,910 6,407 4,131 68,527 1,352 735 306 158 2,551 33,431 1,358 - 26,645 983 6,713 826 4,289 144 71,078 3,311 - (59) - (59) 34,789 27,628 7,480 4,433 74,330 6,262 18,929 4,951 1,446 681 32,269 At November 30, 2023 6,262 18,694 3,942 3,250 613 32,761 9. Intangible assets Cost Cost at November 30, 2021 Additions Cost at November 30, 2022 Disposals Cost at November 30, 2023 Accumulated amortization Accumulated amortization at November 30, 2021 Amortization Accumulated amortization at November 30, 2022 Amortization Accumulated amortization at November 30, 2023 Carrying Value At November 30, 2022 At November 30, 2023 35 Computer Software and Enterprise resource planning system $ 6,581 54 6,635 (7) 6,628 3,931 608 4,539 602 5,141 2,096 1,487 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the years ended November 30, 2023 and 2022 (tabular amounts are in thousands of dollars, except per share amounts) 10. Right-of-use assets and lease liabilities Right-of-use assets Balance at November 30, 2021 Additions Depreciation Disposals Balance at November 30, 2022 Additions Depreciation Disposals Balance at November 30, 2023 Lease liabilities Balance beginning of year Additions Early repayment of lease liabilities Interest expense on lease liabilities (Note 5) Payment of lease liabilities Foreign exchange movements Balance end of year Less : current portion Balance end of year – long term portion Buildings Furniture and Equipment $ 384 $ 7,752 5,180 (2,330) - 10,602 993 (2,569) (772) 8,254 - (165) - 219 - (117) - 102 Rolling Stock $ 4,126 2,162 (2,056) (54) 4,178 845 (2,011) (14) 2,998 Total $ 12,262 7,342 (4,551) (54) 14,999 1,838 (4,697) (786) 11,354 November 30 2023 $ November 30 2022 $ 17,506 1,838 (950) 431 (5,781) 185 13,229 (4,732) 8,497 15,180 7,342 (52) 603 (5,588) 21 17,506 (4,969) 12,537 The following table presents additional amounts recognized in the statement of comprehensive income for the years ended November 30, 2023 and 2022 related to leases: Expense related to low value and short-term leases Variable lease payments (not included in the measurement of lease liabilities) November 30 2023 $ 355 1,463 1,818 November 30 2022 $ 254 1,354 1,608 The following table presents a maturity analysis of future undiscounted cash flows from lease liabilities: Less than one year One to two years Two to three years Three to four years Four to five years More than five years Total undiscounted lease liabilities November 30 2023 $ 5,008 3,510 2,800 1,851 1,024 1,128 November 30 2022 $ 5,646 4,617 3,171 2,474 1,658 2,021 15,321 19,587 36 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the years ended November 30, 2023 and 2022 (tabular amounts are in thousands of dollars, except per share amounts) 11. Bank indebtedness The Company has a credit agreement with two chartered Canadian banks. The credit agreement has a maximum revolving operating facility of $90 million maturing in May 2024 by way of bank loans and/or banker’s acceptances. In addition, an accordion of $10 million is available once per fiscal year for a maximum of 150 days. 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, 2023, the Company was compliant with its financial covenants. As at November 30, 2023, the Company has $1.2 million of issued letters of credit which reduces the availability of its facility ($1.0 million last year). 12. Trade and other payables Trade payables and accruals Payroll related liabilities Other payables 13. Provision November 30 2023 $ 26,975 6,492 4,153 37,620 November 30 2022 $ 25,172 6,201 4,913 36,286 The Company’s St-André (QC) site shows continued traces of surface contamination from previous treating activities exceeding existing regulatory requirements. In 2022, the Company submitted a revised timetable for the site remediation which was approved by the “Ministère de l’Environnement, de la Lutte contre les changements climatiques, de la Faune et des Parcs” and is to be completed before December 31, 2024. Based on current available information, the provision 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 to remove it. 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. Balance, beginning of the year Changes due to: Revision of future expected expenditures Accretion expense Expenditures incurred Balance, end of the year Current portion Long-term portion 14. Share Capital a) Authorized An unlimited number of common shares, without par value November 30 November 30 2022 $ 2,147 2023 $ 2,915 (37) 271 (360) 2,789 2,789 - 1,106 102 (440) 2,915 2,281 634 November 30 November 30 November 30 November 30 2022 Carrying value ($) 2023 Number of shares 2022 Number of shares 2023 Carrying value ($) Shares outstanding at the beginning of the year Repurchased and cancelled (b) Shares outstanding at the end of the year 8,557,954 (36,500) 8,521,454 8,562,554 (4,600) 8,557,954 9,419 (40) 9,379 9,424 (5) 9,419 37 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the years ended November 30, 2023 and 2022 (tabular amounts are in thousands of dollars, except per share amounts) b) Share repurchase program (NCIB) On November 20, 2023, following approval of the Toronto Stock Exchange (the "TSX"), the Company renewed its existing normal course issuer bid (NCIB). This program allows the Company to repurchase up to an aggregate 426,157 common shares, representing approximately 5% of the common shares issued and outstanding as at November 9, 2023. All Shares repurchased under the share repurchase program will be cancelled upon repurchase. The share repurchase period will end no later than November 19, 2024. The following table summarizes the Company’s share repurchase activities under both the renewed and the previous NCIB: Common shares repurchased for cancellation (number of shares) Average price per share Total repurchase cost Repurchase resulting in a reduction of: Share Capital Deficit (1) November 30 2023 36,500 $12.50 $456 November 30 2022 4,600 $12.17 $56 $40 $416 $5 $51 (1) The excess of repurchase cost over the average carrying value of the common shares. c) Net earnings The calculation of basic and diluted net earnings per share was based on the following: Net earnings, basic and diluted Weighted average number of common shares, basic and diluted d) Dividends November 30 2023 $ 14,688 8,536,512 November 30 2022 $ 32,679 8,562,171 The following dividends were declared and paid by the Company for the years ended: November 30, 2023 Declared November 30, 2022 Declared Record date Per share Amount Payment date Record date Per share Amount Payment date Mar 2, 2023 Oct 19, 2023 $ 0.50 0.50 1.00 $ 4,274 Mar 16, 2023 Nov 2, 2023 4,265 8,539 Mar 4, 2022 Oct 27, 2022 $ 0.40 0.50 0.90 $ 3,425 Mar 18, 2022 4,281 Nov 10, 2022 7,706 38 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the years ended November 30, 2023 and 2022 (tabular amounts are in thousands of dollars, except per share amounts) 15. Income Taxes The income tax expense is as follows: Current Deferred November 30 November 30 2022 $ 12,112 (75) 12,037 2023 $ 5,618 (216) 5,402 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 November 30 November 30 2022 $ 44,716 26.7 11,939 2023 $ 20,090 26.8 5,384 (1) (77) 96 5,402 33 (54) 119 12,037 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 Net deferred tax liability 16. Post-employment benefits November 30 2023 $ November 30 2022 $ (4,109) 2,327 (2,330) (4,112) (3,108) 2,186 (2,509) (3,431) 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. All employees have ceased to accrue service under the defined benefit portions of the plans. As for the DC components, the Company matches employee contributions. 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, 2023 was $1.5 million (same last year). 39 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the years ended November 30, 2023 and 2022 (tabular amounts are in thousands of dollars, except per share amounts) 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 effective December 31, 2021 for both plans. The next actuarial valuation for both plans for funding will be no later than as of December 31, 2024. 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 demographic assumptions Changes in financial assumptions Effect of experience adjustments Balance, end of year Plan assets Fair value, beginning of year Interest income 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 $5.8 million in 2023 and $(4.2) million in 2022. The significant actuarial weighted average assumptions used are as follows: Defined benefit obligation: Discount rate Rate of compensation increase Net benefit plan expense: Interest cost Interest income Administrative expenses Net benefit plan (income) expense November 30 November 30 2022 $ 2023 $ 40,324 1,954 (3,263) - (223) - 38,792 48,279 1,605 (2,134) 375 (7,820) 19 40,324 November 30 November 30 2022 $ 2023 $ 51,944 2,531 (3,263) (365) 3,292 54,139 15,347 58,676 1,952 (2,134) (393) (6,157) 51,944 11,620 November 30 November 30 2022 % 2023 % 5.10 3.00 5.05 3.00 November 30 November 30 2022 $ 1,605 (1,952) 393 46 2023 $ 1,954 (2,531) 365 (212) 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. 40 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the years ended November 30, 2023 and 2022 (tabular amounts are in thousands of dollars, except per share amounts) The plan assets by asset category are as follows: Equity security: Canadian stocks US stocks International stocks Fixed income: Short/Mid Term bonds Cash and equivalents All investments are quoted on an active market 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 November 30 2023 % November 30 2022 % 23 22 23 26 6 22 21 22 28 7 Down by 0.25% Assumption used $38,792 5.10% $39,740 4.85% Up by 0.25% $37,900 5.35% Increase of one year Assumption used $39,819 $38,792 Mortality rates (CPM2014Priv – MI2017) Life expectancy of man of 65 years (90% of CPM2014Priv – MI2017) Life expectancy of woman of 65 years (100% of CPM2014Priv – MI2017) 23.9 years 25.4 years 22.9 years 24.4 years Goodfellow Inc. contributes amounts required to comply with provincial and federal legislation. The total cash payment for post-employment benefits for 2023, consisting of cash contributed by the Company to its funded pension plans, was nil (same in 2022). Based on the latest filed actuarial valuation for funding purposes as at December 31, 2021, the Company expects to contribute nil in 2024. The weighted average duration of the defined benefit obligation is 11 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 2023 $ 10,749 13,821 (1,730) 1,373 24,213 November 30 2022 $ (1,177) (2,507) 1,566 (1,616) (3,734) Non-cash transactions The Company purchased property, plant, equipment and intangible assets for which an amount of $49 thousand was unpaid as at November 30, 2023 ($72 thousand as at November 30, 2022). 41 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the years ended November 30, 2023 and 2022 (tabular amounts are in thousands of dollars, except per share amounts) The reconciliation of movements of liabilities to cash flows arising from financing activities is as follows: Liability related changes Year ended November 30, 2022 Interest expense Interest paid Year ended November 30, 2023 Interest expense Interest paid 18. Financial Instruments and other instruments Bank loans $ Banker’s acceptances $ Lease liabilities $ 485 451 367 378 745 677 629 558 603 603 431 431 Total $ 1,833 1,731 1,427 1,367 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, 2023: FINANCIAL LIABILITIES Trade and other payables Total financial liabilities Carrying Amount $ 37,620 37,620 Contractual cash flows $ 37,620 37,620 0 to 12 Months $ 37,620 37,620 The following are the contractual maturities of financial liabilities as at November 30, 2022: FINANCIAL LIABILITIES Trade and other payables Total financial liabilities Carrying Amount $ 36,286 36,286 Contractual cash flows $ 36,286 36,286 0 to 12 Months $ 36,286 36,286 12 to 36 Months $ - - 12 to 36 Months $ - - 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 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 100 basis point fluctuation of interest rate on average bank indebtedness throughout 2023 would have impacted interest expense by $0.1 million (November 30, 2022 - $0.3 million). 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 could enter into forward exchange contracts to hedge certain accounts payable and certain future purchase commitments denominated in U.S. dollars, Euros and Pound sterling. During the twelve months ended November 30, 2023, the Company did not use foreign exchange contracts to mitigate its effect on sales and purchases. Consequently, as at November 30, 2023, there were no outstanding foreign exchange contracts. 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. 42 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the years ended November 30, 2023 and 2022 (tabular amounts are in thousands of dollars, except per share amounts) As at November 30, 2023, the Company had the following currency exposure on: Financial assets and liabilities measured at amortized costs Cash Trade and other receivables Trade and other payables Net exposure USD 5,701 3,751 (1,644) 7,808 GBP 651 16 (2) 665 Euro 14 - (141) (127) CAD exchange rate as at November 30, 2023 1.3560 1.7117 1.4765 Impact on net earnings based on a fluctuation of 5% on CAD 381 41 (7) As at November 30, 2022, the Company had the following currency exposure on: Financial assets and liabilities measured at amortized costs Cash Trade and other receivables Trade and other payables Net exposure USD 156 5,081 (1,952) 3,285 GBP 447 14 (10) 451 Euro 9 - - 9 CAD exchange rate as at November 30, 2022 1.3412 1.6176 1.3960 Impact on net earnings based on a fluctuation of 5% on CAD 159 26 - 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 the 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. 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 November 30 2023 $ 48,841 1,980 1,035 386 1,889 54,131 (594) 53,537 November 30 2022 $ 59,678 2,664 1,060 370 682 64,454 (342) 64,112 As at November 30, 2023, since expected credit losses are limited to $0.6 million and because movements during the year in the allowance for expected credit losses are minimal, the expected credit losses by trade accounts receivable aging and the movement in the allowance for expected credit losses in respect of trade receivables have not been presented separately. 43 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the years ended November 30, 2023 and 2022 (tabular amounts are in thousands of dollars, except per share amounts) Economic Dependence 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 during fiscal 2023 (same last year). The following represents the total sales consisting primarily of various wood products of the major customer: For years ended Sales to the major customer that exceeded 10% of total Company’s sales November 30, 2023 November 30, 2022 % 14.1 $ 77,976 $ 88,782 % 15.2 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 (if any) and trade and other payables 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 net debt-to-capital 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 capital as net debt less shareholders’ equity as follows (the Company currently has no debt): Cash Net Cash Share capital Retained earnings Shareholders’ Equity Total Capital November 30 2023 $ 28,379 28,379 9,379 185,624 195,003 223,382 November 30 2022 $ 3,420 3,420 9,419 177,360 186,779 190,199 The Company manages its capital and makes adjustments to it in 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 a 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. 44 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the years ended November 30, 2023 and 2022 (tabular amounts are in thousands of dollars, except per share amounts) 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, 2023, the minimum future purchase obligation for the next year was nil (November 30, 2022 - nil). 21. 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. Commercial Transactions During the year ended November 30, 2023, the entities of the Company have not entered into business transactions with related parties that are members of the Board 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: Salaries and other short-term benefits Post-employment benefits (including remeasurement of defined benefit plan obligation) November 30 November 30 2022 $ 3,122 42 3,164 2023 $ 3,422 (114) 3,308 22. Segmented Information and Sales 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 90% (88% in 2022) of total sales, the sales to clients located in the United States represent approximately 7% (8% in 2022) of total sales, and the sales to clients located in other markets represent approximately 3% (4% in 2022) of total sales. Canada US Export 45 November 30 2023 $ 459,328 37,162 16,331 512,821 November 30 2022 $ 558,660 47,851 24,674 631,185 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the years ended November 30, 2023 and 2022 (tabular amounts are in thousands of dollars, except per share amounts) Sales categories Lumber Specialty and commodity panels Flooring Building material November 30 2023 $ 282,910 91,700 75,446 62,765 512,821 November 30 2022 $ 335,444 114,470 111,837 69,434 631,185 46 CORPORATE INFORMATION BOARD OF DIRECTORS Robert Hall Chair of the Board Alain Côté * / ** Director and Chair of the Audit Committee David Goodfellow Director Douglas Goodfellow ** Director James Hewitt * Director Stephen Jarislowsky * Director Founder of Jarislowsky Fraser Ltd Sarah Prichard ** Director and Chair of the Executive Compensation Committee * Member of the Audit Committee ** Member of the Executive Compensation Committee OFFICERS Patrick Goodfellow President and Chief Executive Officer Charles Brisebois Chief Financial Officer and Secretary of the Board Mary Lohmus Executive Vice President, Ontario and Western Canada Éric Bisson Vice President, Quebec Luc Dignard Vice President, Sales, Quebec Harry Haslett Vice President, Sales and Marketing, Atlantic Eric McNeely Vice President, Business Development - Flooring Jeff Morrison Vice President, National Accounts Luc Pothier Vice President, Operations 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. 47 48 

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