OUR PEOPLE,
OUR STRENGTH
2021 Annual Report
LOOKING BACK AT FISCAL 2021
Early roll-out of effective health
and safety measurres
Took actions swiftly to maintain
profitability
Inventory levels have now returned
to pre-pandemic turn rates
Delivered on-time high quality products
throughout the pandemic
Awarded entry to Boeing’s Premier
Bidder Program
New long-term contract
for CESA with Boeing
Selected by Dassault for
the Falcon 10X program
Record $67.3 million free cash flow
compared to $30.3 million a year before
HÉROUX-DEVTEK
AT A GLANCE
— Héroux-Devtek Inc. (traded on the Toronto Stock Exchange
under the symbol “HRX”) is an international aerospace
provider specializing in the design, development,
manufacture, repair and overhaul of aircraft landing gears,
hydraulic and electromechanical flight control actuators,
custom ball screws and fracture-critical components for the
global market.
— Headquartered in Québec, Canada, Héroux-Devtek is the
third-largest landing gear manufacturer in the world,
supplying leading aerospace customers operating in both
the civil and defence sectors.
— In addition to its ability to design and manufacture
complete landing gear and actuation systems to
specification, Héroux-Devtek has built a strong reputation
for its ability to support and service landing gear and
actuation systems for a wide range of defence and civil
aircraft, including several out-of-production aircraft.
— Service offerings include complete maintenance, repair
and overhaul, spares provisioning and supply, warranty
administration and support, technical publications, as well
as on-site technical support and training.
— Founded in 1942, Héroux-Devtek now employs some 1 800
dedicated people at its 15 Centers of Excellence located in
Canada, the United States, the United Kingdom and Spain.
— Héroux-Devtek is recognized for its forward thinking,
its system integration accomplishments, its engineering
prowess, its world-class service and above all, its excellence
in execution.
Héroux-Devtek
- Annual Report 2021 3
DIVERSIFIED AND
BALANCED REVENUE MIX
(based on Fiscal 2021 sales)
DEFENCE / CIVIL
PROPRIETARY / BUILD-TO-PRINT
66.1% Defence
33.9% Civil
Other
Proprietary and
Life of Program
Built-to-print
Other
Helicopters
8.3%
9.5%
Large Jets
17.9%
Fighters
20.1%
4.4%
4.3%
2.6%
4.7%
Business Jets
Regional Jets
46.8%
Helicopters
Other
9.4%
Built-to-print
Tier 1
18.0%
Transport
28.2%
25.8%
Built-to-print
OEM
OEM/AFTERMARKET
Aftermarket
32.1%
FISCAL 2021 SALES MIX BY END
CUSTOMER LOCATION
Rest of Europe
Spain
12.9%
8.4%
Other
7.7%
United Kindom
8.4%
Canada
9.9%
67.9%
OEM
52.7%
United States
INVESTMENT
HIGHLIGHTS
IMPROVED FINANCIAL POSITION SETS THE STAGE FOR OUR LONG-TERM DEVELOPMENT.
NET DEBT TO ADJUSTED EBITDA RATIO DOWN FROM 2.6X TO 1.8X. $89.3 M REDUCTION IN 2021.
RECORD YEAR FOR CASH FLOWS
(in millions of dollars)
Cash Flows Related to Operating Activities
Free Cash Flow (1)
Net debt to adjusted EBITDA ratio
3.1
2.6
1.5
$56
$33
0.7
$56
$51
$70
$59
$53
$30
1.8
$89
$67
2017
2018
2019
2020
2021
STOCK PERFORMANCE 24 MONTHS
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2019
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2020
02
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01
2021
Throughout the pandemic, we have remained
vigilant, proactive, and resilient. This rational
approach has enabled us to protect our liquidity
and finish the year with an improved financial
position.
$278 MILLION OF AVAILABLE LIQUIDITY AS
AT MARCH 31, 2021
Cash and Cash
Equivalents
$95.5 million
MARTIN BRASSARD, PRESIDENT & CEO
Revolving facility
$182.5 million
[1] These are non-IFRS measures. Please refer to the “Non-IFRS financial measures” section of the MD&A under Operating Results for definitions and reconciliations to the most
MAINTAINING STRONG CASH FLOW AND
CONSISTENTLY REIMBURSING DEBT (in millions of dollars)
comparable IFRS measures.
Héroux-Devtek
- Annual Report 2021 5
FINANCIAL
HIGHLIGHTS
FISCAL YEARS ENDED MARCH 31
2021
2020
2019
2018
2017
OPERATING RESULTS
(in millions of dollars except per share data and ratios)
Sales
570.7
613.0
483.9
386.6
406.5
Operating income (loss)
Adjusted operating income (1)
Adjusted EBITDA (1)
34.1
45.2
88.3
(30.1)
52.5
96.2
37.2
41.6
74.2
23.4
30.3
56.9
35.6
35.9
61.4
Adjusted EBITDA (1) margin
15.5%
15.7%
15.3%
14.7%
15.1%
Net income (loss)
Adjusted net income (1)
Cash flows related to operating activities
Free cash flow (1)
Funded backlog
19.8
29.0
89.2
67.3
(50.7)
35.7
52.6
30.3
26.2
30.4
70.0
58.6
13.7
24.2
56.1
50.8
31.8
26.4
56.1
33.0
717.0
810.0
624.0
466.0
405.0
PER SHARE DATA
EPS – basic and diluted (loss)
Adjusted EPS (1)
0.55
0.80
(1.38)
1.00
0.73
0.84
0.38
0.67
0.88
0.73
Average number of shares outstanding (diluted, in 000’s)
36,523
36,363
36,437
36,332
36,284
FINANCIAL POSITION
Cash and cash equivalents
Working capital
Total assets
Long-term debt (2)
Net debt to adjusted EBITDA ratio
95.5
241.4
853.3
253.0
1.8
45.8
205.4
898.8
292.7
2.6
35.1
173.1
872.8
263.3
3.1
93.2
201.9
632.2
132.0
0.7
42.5
165.1
607.3
134.8
1.5
Shareholders’ equity
391.7
349.4
404.1
379.0
355.9
[1] These are non-IFRS measures. Please refer to the “Non-IFRS financial measures” section of the MD&A under Operating Results for definitions and reconciliations to the
most comparable IFRS measures.
[2] Including the current portion but excluding net deferred financing costs.
SUPPLY
CONTRACTS
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DEFENCE
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Lockheed Martin F-35 Lightning II
Production of the F-35 door uplock system designed and qualified
by Héroux-Devtek’s engineering team.
Boeing F-18 Super Hornet
Supply and assemble the main landing gear and side brace production
and spares for the F/A-18E/F Super Hornet and EA-18G Growler.
Sikorsky CH-53K
Design, develop and supply the landing gear system and tail bumpers for
production and spares for the CH-53K King Stallion heavy lift helicopter.
Boeing CH-47 Chinook
Supply and assemble the landing gear for the Boeing CH-47 Chinook for
production and spares requirements.
Lockheed Martin C-130J Super Hercules
Supply and assemble the landing gear for the C-130J Super Hercules for
production and spares requirements.
Boeing F-15EX / Advanced F-15
Supply and assemble the nose and main landing gear for the F-15EX /
Advanced F-15 programs for production and spares requirements.
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8
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Saab Gripen E
Design, develop and supply the complete landing gear system for
the Gripen E fighter aircraft for production and spares requirements.
Boeing MQ-25
Design, develop and supply the complete landing gear system for
the MQ-25 Unmanned Aerial Refueler.
Airbus C295
Supply and assemble the landing gear system for the C-295 production
and spares requirements.
10 Airbus A400M
Supply landing gear components and actuation systems for the A400M
production and spares requirements.
11 Eurofighter Typhoon
Supply actuation systems and components for the Eurofighter
production and spares requirements.
12 KAI KF-21 Boramae
Design, develop and supply the complete landing gear system for
the Korean Fighter KF-21 Boramae.
Héroux-Devtek
- Annual Report 2021 7
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CIVIL
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Boeing 777 and 777X
Supply complete landing gear system and spare components for
the 777 and 777X commercial large jet.
Dassault Falcon 6X
Design, develop and supply the complete landing gear system for
the Falcon 6X.
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Dassault Falcon 10X
Design, develop and supply the complete landing gear system for
the Falcon 10X.
Embraer Praetor 500/600
Design, develop and supply the complete landing gear system for
the Embraer Praetor.
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COMBINING RESILIENCE
AND PERFORMANCE
Dear Shareholders,
As you surely know, the aerospace industry has been significantly affected
by the COVID-19 pandemic. Health measures imposed by local authorities
have led to a dramatic reduction in passenger traffic and, in turn, affected
aircraft demand. Nevertheless, Héroux-Devtek has been able to weather
most of the storm and the future looks promising.
STRENGTH THROUGH DIVERSIFICATION
Last year, I highlighted how certain developments in Héroux-Devtek’s recent
evolution gave me confidence in the Corporation’s position entering the
pandemic. We now sell complete landing gear systems and actuators, which
are harder to resource than components. We now sell in large part directly to
OEMs and end users and own a growing percentage of intellectual property.
Lastly, our product portfolio is diversified across all segments of the aerospace
industry, both defence and civil.
These elements made it possible for us to deliver strong results this past fiscal
year, both operationally for our clients and financially for our stakeholders,
despite the current context. We generated a record $89.2 million of cash flows
related to operating activities, which in large part drove the improvement in
our net debt to adjusted EBITDA ratio from 2.6x last year down to 1.8x now.
Our strong financial position, along with our positive outlook, allow us to
move forward with a normal course issuer bid (NCIB) to buy back up to 10%
of our public float of 24,122,794 shares. This represents a more accretive
way to deploy our capital over the coming year rather than continuing to
deleverage, given our debt profile and its low cost. On the other hand, we
do not believe that the market value of our stock properly reflects Héroux-
Devtek’s true value and expect the NCIB to provide immediate return for our
shareholders.
This mechanism is a flexible means to optimize our capital structure, and
we expect it to improve our position to seize opportunities that may arise
in the global market, be they through acquisitions or contract wins.
EXECUTIVE
CHAIRMAN
OF THE BOARD
OF DIRECTORS
MESSAGE TO
SHAREHOLDERS
OUR CORPORATE FOOTPRINT,
A PRIORITY FOR HÉROUX-DEVTEK
In recent years, our industry has gradually adopted ambitious
objectives when it comes to environmental, societal and
governance factors. While we are proud of our leadership
position in the landing gear market, it comes with important
responsibilities and the duty to have a positive impact around
us. Whether it is fostering a strong entrepreneurial spirit
and culture for our 1 800 employees or our commitment
to environmental sustainability, we are driven to achieve a
prosperous future for all.
More specifically, all our employees adhere to a Code of
Business Conduct that establishes the highest standards of
ethical behaviour at all levels of the organization. We also
rigorously apply our environmental policy by scrupulously
complying with or exceeding all applicable standards, and
actively contribute on academic and community levels in the
countries in which we operate.
As Héroux-Devtek’s stakeholders have expressed increasing
interest in our policies and initiatives regarding Environmental,
Social and Governance concerns, we’re now providing more
details about them in this annual report at page 14.
Héroux-Devtek
- Annual Report 2021 9
A MANAGEMENT TEAM THAT EMBODIES
LEADERSHIP
I would like to sincerely thank our strong management
team, lead by our CEO Martin Brassard, for their outstanding
leadership, commitment, and dedication – without whom
this exceptional year would hardly have been possible. The
strategies deployed at crisis’ onset, propelled by such leadership
and dedication, clearly paid off and allowed us to steer this ship
through a tumultuous period. The agility and ability to mobilize
all the company’s stakeholders will have left a lasting impression
on this fiscal year.
I would also like to thank the members of the Board of
Directors for their ongoing contribution, as well as our valued
shareholders for their confidence. In this regard, I would like
to acknowledge the departure of Paule Doré who did an
exceptional job as a member of our Board of Directors and chair
of the Human Resources and Corporate Governance Committee.
We wish her good luck in her future endeavours. At the same
time, we would like to highlight the arrival of Didier Evrard and
Annie Thabet. We look forward to working with them. Of course,
it is impossible to determine with certainty when civil aviation
activities and the resulting passenger traffic will fully resume.
That being said, with the strength of its expertise, its offering, its
governance criteria, but above all its dedicated people, Héroux-
Devtek has never been better equipped and positioned to face
the challenges ahead.
GILLES LABBÉ
EXECUTIVE CHAIRMAN OF THE BOARD OF DIRECTORS
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A BRIGHT FUTURE FOR HÉROUX-DEVTEK
Dear Shareholders,
The fiscal year we just finished was full of challenges that we could never have
imagined. The COVID-19 pandemic brought the whole world to a stop; all
businesses and organisations struggled to forecast the short- and long-term
effects the virus would have. As we entered January 2021, there was great
hope on the horizon: pharmaceutical companies around the world developed
vaccines in record time. Now, in early May 2021, we can start thinking of
recovery with prudent optimism.
At Héroux-Devtek, everyone worked together to provide a safe working
environment to ensure the health of all our employees as a priority. Right at
the beginning of the crisis, we implemented rigorous security measures in
all our plants and offices, and I am very proud to say that because of these
measures and adherence to them, there was no transmission of the virus
within our facilities, even though some of our employees were infected
outside.
Since the severe reduction in commercial air travel was reflected in aircraft
demand, we had to reduce deliveries to our key civil customers. As a result, we
made rapid changes in order to adapt our business model to this new market
environment. We closed some plants and relocated equipment to be more
efficient and better utilize our manufacturing capacity. Unfortunately, we also
had to part with some of our employees.
With a leaner but more efficient cost structure, we continued to deliver high-
quality products to our civil and defence customers. Our results speak for
themselves; we finished the year with $570.7 million in sales, down 6.9% from
the year before. Our disciplined and focused approach to managing costs,
working capital and capital expenditures enabled us, to achieve a record year
in terms of free cash flow at $67.3 million compared to $30.3 million the year
before.
PRESIDENT
& CEO
MESSAGE TO
SHAREHOLDERS
Héroux-Devtek
- Annual Report 2021 11
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We continued to put our customers first. Our dedication at
doing our best for them, which is almost an obsession for us,
has paid off; Boeing included us in its Premier Bidder Program,
testifying to our sustained level of high performance in
delivering quality products on time. This will provide us with
more opportunities to expand our relationship with them. As
well, our Spanish division CESA has signed an agreement for
production and spare actuator requirements for the 787, 777,
777X, 767 and 747 programs. This illustrates the cross-selling
potential that was one of the key objectives of this acquisition.
For business jets, we announced a major contract with Dassault
to design, develop and manufacture the complete landing
gear system for the new Falcon 10X. Dassault has a reputation
for producing cutting-edge technology aircraft and, with the
launch of this new Falcon, it will enter the Ultra-Large Business
Jet market segment. Pundits are forecasting strong demand in
the large business jet segment and this contract will expand our
market share in an area where we had less presence.
Our defence revenues remained strong, increasing 14.6%
compared to last year, which helped mitigate the impact of
the pandemic on the civil sector. This growth mainly stemmed
from the introduction of new programs to our product portfolio
under long-term contract, such as the Saab Gripen E, the
Lockheed Martin CH-53K, the Boeing F-18 and F-15. We expect
further sales growth from these programs as the CH-53K and the
Gripen E aircraft are entering their initial production phase and
the aftermarket opportunities for the F-18 look promising.
MOVING FORWARD
Today, as we start on fiscal 2022, I am optimistic. Our company
is well diversified; 66.1% defense and 33.9% civil; our revenues
are derived 62.6% from North America, 29.7% from Europe and
7.7% from other countries. Our employees are engaged, and we
see depth and breadth at all levels of the organisation. Travel
will resume, and our clients will need our products. We are in a
strong financial position, capable of investing both internally
for new projects, and also for the right acquisition that will
complement our product offering and strengthen our position
as a world leader in the markets we serve.
THANK YOU
We will always remember the COVID-19 pandemic. It has
brought out the best in our employees; their dedication,
resilience and swift adaptation throughout have been
remarkable. I want to thank them from the bottom of my heart.
As well, I want to thank the members of our Board of Directors
who have been very supportive in these dire times.
And finally, I want to express my appreciation to you, our
shareholders for your unyielding and rightful confidence in our
ability to overcome this crisis. The management team and I take
great pride in managing our business to make it better and we
are grateful for your support. We value your loyalty and belief
in our Company, as it has inspired us to generate strong results
during a difficult year.
MARTIN BRASSARD
PRESIDENT AND CHIEF EXECUTIVE OFFICER
BOARD OF DIRECTORS
Héroux-Devtek’s Board of Directors is composed of 10 members from various
sectors, including the aerospace industry and the business world, providing
the management team with a comprehensive and experience-rich perspective.
1
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4
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Gilles Labbé
Executive Chairman of the board
Non-independent Director since 1985
Nathalie Bourque
Corporate Director and Consultant
Independent Director since 2015
Member of the Audit Committee
Martin Brassard
President and Chief Executive Officer
Non-independent Director since 2019
Paule Doré
Corporate Director
Independent Director since 2010
Chair of the Human Resources and
Corporate Governance Committee
Didier Evrard
Corporate Director and Consultant
Independent Director since 2021
Member of the Audit Committee
Louis Morin
President, Busrel Inc.
Independent Director since 2008
Chair of the Audit Committee
7
8
9
James J. Morris
Corporate Director and Consultant
Independent Director since 2013
Member of the Human Resources
and Corporate Governance Committee
Brian A. Robbins
Executive Chairman Exco Technologies
Limited and Independent board
member since 2000
Member of the Human Resources and
Corporate Governance Committee
Annie Thabet
Partner, Celtis Capital Inc.
Independent Director since 2021
Member of the Human Resources and
Corporate Governance Committee
10 Beverly Wyse
Corporate Director and Consultant
Independent Director since 2019
Lead Director and Member of the
Audit Committee
CORPORATE TEAM
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OPERATIONS
MANAGEMENT TEAM
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Héroux-Devtek
Héroux-Devtek
- Annual Report 2021 13
- Annual Report 2021 13
Gilles Labbé
Executive Chairman
of the Board
Martin Brassard
President and Chief
Executive Officer
Stéphane Arsenault
Vice-President and Chief
Financial Officer
Jean Gravel
Vice-President, Sales
& Programs
Stéphane Rainville
Vice-President, Human
Resources
Alexandre Verdon
Vice-President, Business
Development, Mergers
and Acquisitions
7
8
9
Patrick Gagnon
Vice-President,
Corporate Controller
Julie Lapointe
Director, Financial
Reporting
Olivier Perron
Director, Tax
10 Steve Plourde
Director, Internal Audit &
Corporate Governance
11 Jean-Philippe Sanche
Director, Legal Affairs
12 Sylvie Hébert
Director, Human
Resources
Jack Curley
Vice-President,
Central Region
Dominique Dallaire
Vice-President,
Eastern Region
Marc-Olivier Gagnon
Vice-President
Product Support
José Leal
Vice-President, Spain
5
6
Mike Meshay
Vice-President, Beaver,
Magtron and Wichita
Daniel Normandin
Vice-President
Engineering, QA
& Environment
7
Duncan Whalley
Vice-President, UK
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Dung Ho - Kitchener
Sylvain Fournier - Laval
Miguel Bernedo -
Montréal
Tony Edwards - UK
Martin Olivier Beaulieu -
St Hubert
Ernest Thaxton - USA
Eldho Kuriakose -
Cambridge
Ancuta Maria Miereanu
- UK
Ean Dogonski - USA
Filbert Lazarre -
Longueuil
Kelvin Yan - Corporate
Mathieu Collins -
St Hubert
Girard Beal - USA
Iulian Dancu - St Hubert
Ovidiu Riglea - Montréal
Mariama Balde - Laval
Mohamed Tezkratt -
Montréal
Ashley Pishdar - UK
HÉROUX-DEVTEK
IN THE COMMUNITY
TOWARDS A PROSPEROUS FUTURE
FOR ALL
In recent years, stakeholders in the aerospace and defence
industry have gradually shifted towards more ambitious
environmental, social, and governance (ESG) objectives, directly
benefitting the entire spectrum of activities and supply chain
stages – from sourcing, aircraft manufacturing, and airport
operations, to airline activities and cargo handling.
Héroux-Devtek is proud to be the world’s third-largest landing
gear manufacturer. We know that an industry leadership
position comes both with a responsibility and the ability to
stimulate positive impacts at scale.
As such, we have been pursuing more specific ESG
commitments for over a decade, articulated through a set
of diligently enforced corporate policies and the hiring of
experts with responsibilities in the key areas of environmental
compliance and sustainability, social impact, and community
development, as well as in health and safety prevention and
promotion.
A VALUES-DRIVEN APPROACH
Our ESG commitments and track record start with our
organizational culture and team values. Héroux-Devtek fosters
a strong entrepreneurial spirit and culture of innovation
where continuous improvement, new practices, and change
management are part of the daily reality of our 1,800 employees
at each of our centers of excellence and at our corporate head
office in Longueuil.
Our culture is defined by four fundamental values, internally
referred to as the 4Rs: Respect, Responsibility, Recognition,
and Resilience. Together, they imply a strong company-
wide recognition that the sustainability of our success as an
organization is defined by the well-being of our employees, the
communities in which we operate, and the planet that we will
leave to future generations.
Héroux-Devtek
- Annual Report 2021 15
ENVIRONMENTAL SUSTAINABILITY
Héroux-Devtek also has an environmental policy underscoring
its respect for the environment and the communities where we
operate as an integral part of the way we conduct our business
activities.
The policy, under responsibility of the Company’s President
and CEO and adopted by the Board of Directors, confirms our
commitment to maintaining compliance with all applicable
standards, while continuously improving our control over
the environmental aspects of managing and operating each
manufacturing site with the objective of minimizing our
environmental footprint.
Quarterly, the Corporation issues a CEO Environmental report.
The report is submitted to the Human Resources and Corporate
Governance Committee, which reports to the Board of Directors,
and includes Héroux-Devtek’s performance against its three
primary environmental targets:
1 Zero regulatory non-compliance in its audits
2 Zero incidents, spills, or transgression of standards
3 Zero notice of violations
If these targets are not met, a set of immediate corrective
actions are immediately implemented and action plans to
address the root cause are being followed till completion.
As part of its environmental management system, the
Corporation also carries out Environmental Compliance Audits
either internally or with external environmental auditors. We
value a risk based approach in regards to the frequency of those
audits, all manufacturing sites shall at least be audited every
three years. In particular, five of our manufacturing plants are
considered to be of higher potential environmental risk, due
to the nature of their operations, which include various plating
and chemical processes, therefore those five plants are audited
every year.
Finally, beyond our environmental compliance commitments,
monitoring, and audit mechanisms, we continue to find
additional ways to reduce our environmental footprint across
all our operations. For instance, developing strong expertise
in the maintenance, repair, and overhaul of landing gear and
actuation system components allows us to enable our clients to
extend the life of their equipment. We also work to encourage
our suppliers to adopt more sustainable practices across their
manufacturing and transportation undertakings.
Amélie Gouin-Proulx -
Corporate
Gary Hughes - UK
Ed Baur - Kitchener
Diego Herce - St Hubert
Joe Bandy - USA
Arthur Albert - Montréal
Dave Smith - UK
Mohammed El Fah -
Longueuil
Katia Fernández Sanz -
Spain
Sebastien Dufour -
St Hubert
Paulina Jauregui -
Corporate
Maria Caluag - USA
SOCIAL IMPACT
FOSTERING A CULTURE OF COMMUNITY
ENGAGEMENT
As an active corporate citizen in communities across Canada, the
United States, Spain, and the United Kingdom, Héroux-Devtek is
committed to making a positive difference through its support of
community organizations, academic institutions, as well as the arts
and cultural sectors.
This past year, Héroux-Devtek made financial donations in support
of food banks, to promote a world free of sexual violence, as well
as to accelerate heart disease research, to name a few – in addition
to the long-time support of the annual Centraide of Greater
Montreal campaign provided by our employees, unions and
executives.
The professional development of future aerospace engineers
and technicians as well as the advancement of intelligent
manufacturing practices are also very important to us. We have
a long-standing agreement to financially support the École
nationale d’aérotechnique (ENA) at Cégep Édouard-Montpetit
– North America’s largest aero technical training institution. A
partnership we value and cherish. We have also pledged a multi-
year donation to support the construction of the new National
Integrated Center of Intelligent Manufacturers Pavilion at the
Université du Québec à Trois-Rivières.
Todd Blohm - UK
Frédéric Côté - Longueuil
Nicole Roy - St Hubert
Patrice Normandin -
St Hubert
Miranda Quinnan - USA
John Machen - UK
Jeff Lee - USA
Cristina Del Vasto -
St Hubert
Shagan Dhaliwal -
Montréal
Additionally, we supported entrepreneurship programs
in Canada, women in leadership initiatives, and
provided funding to Aviation Connection, a charitable
organization that promotes science, technology,
engineering, and mathematics (STEM) career
opportunities across high schools in Québec – namely
through a unique Aeronautical Training Program.
Moreover, we devoted a lot of attention and resources
to keep our employees and their families safe and
healthy throughout the COVID-19 pandemic. Given
that health and safety is an obsession for our teams
globally, we entered the pandemic somewhat prepared
and only required some adjustments, such as physical
distancing and other specific sanitary protocols.
Héroux-Devtek
- Annual Report 2021 17
GOVERNANCE
Héroux-Devtek is committed to staying at the forefront
of corporate governance standards and all employees
adhere to a Code of Business Conduct that establishes
the highest standards of ethical behavior at all levels of
the organization. It provides mandatory guidance and
frameworks concerning all our business activities, and is
divided into 12 sections:
1 Employees and human rights
2 Environment, health & safety
3 Government business
4 Supplier relationships
5 Bribery and corruption
6 Conflicts of interest
7 Exports, imports, and trade compliance
8 Fair dealings with other people and organizations
9 Confidential information and other assets
10 Data privacy and digital ethics
11 Insider trading and dealing and stock tipping
12 Financial stewardship/controllership
In addition, a Whistleblower Policy is in place to encourage
and enable employees to raise any serious concerns
within the Corporation without fear of any reprisals or
discrimination. Disclosure mechanisms are regularly
reminded to employees, who may confidentially contact
the Chairperson of the Audit Committee of the Board of
Directors, if warranted.
We have also adopted formal mandates for each committee
of our Board of Directors and roles, including a Board
of Directors charter, an Audit committee mandate,
and a charter for the Human Resources and Corporate
Governance committee. As well, we have a description of
the role of executive chairman of the board and of the lead
director.
Today, four women are members of our Board out of a
total of ten directors. Women hold the key functions of
Chair of the Human Resources and Corporate Governance
Committee and Lead Independent Director. We look
forward to attracting and promoting more women and
people from diverse cultural backgrounds to various roles
across our organization in the years ahead.
Héroux-Devtek continues to closely monitor the changing
business and regulatory environment and will adjust its
governance and disclosure practices accordingly.
TAKING CARE OF OUR OWN TO BETTER
TAKE CARE OF OTHERS
At Héroux-Devtek, protecting our employees is our
single most important priority. While compliance with
applicable legal requirements represents a minimum,
we prefer to establish standards which may impose
even more stringent obligations. We also believe that
senior management plays a vital role in establishing a
culture that supports occupational health and safety
programs and initiatives.
Accordingly, we are committed to eliminating all
work-related injuries and illnesses by providing a safe
and healthy workspace and proactively identifying
and addressing all inherent risks. Our health and safety
programs combine clear leadership by management,
the participation of all employees and functions,
and the use of appropriate safety equipment and
technology in all stages of our operations. We also
encourage employees to play an active role in
identifying hazards and to offer suggestions or ideas to
improve the safety program.
This philosophy implies continuous improvement
toward an accident-free workplace through effective
supervision, hiring skilled employees, education, and
training. We expect all supervisors and employees to
be dedicated to the continuing objectives of workplace
safety and eliminating “near misses”, which will greatly
reduce the risk of injuries. We have also implemented
procedures and processes to record, report, and
manage work-related injuries and illnesses.
Senior management and Board of Directors meetings
include reports and discussions of notable workplace
incidents and several key performance indicators and
metrics. In addition to a dedicated health and safety
team at each of our facilities, a team of safety and
operations personnel from all our sites also meets
monthly to share information related to health & safety
such as best practices and reviews incidents to apply
insights learned.
Finally, we leverage data and analytics to support our
health and safety vision by maximizing the use of our
global work safety management system, implemented
enterprise wide.
Matt Douglas - USA
Pierre Luc Camire -
St Hubert
Shane Sennett - USA
Brian Gillaugh - USA
Karen Tam - Longueuil
Fernando Martinez - USA
Suzie Gagnon - Montréal
Kris Smith - USA
Annie Lapointe -
St Hubert
Carlos Espadas Vázquez
- Spain
Andrea Dammons - USA
Philippe Blum - St Hubert
Samuel Dion - St Hubert
Sunil Nagi - UK
Dwayne Emmons - USA
Laurence Harvey - UK
Edgar Gómez López -
Spain
Francisco Javier Pinto
Rodríguez - Spain
Inesa Avramenko -
Longueuil
Antoine Krone - USA
Loyal and dedicated
employees are the
foundation to any
successful company.
Thank you for your
contribution to our success!
Lucie Morel - Laval
Patrice Pasqualini -
St Hubert
Jean Baptiste Retif -
Spain
Marc Ephrem Benie -
Laval
Randy Parmar - Kitchener
Tammy Williams - USA
David Bergeron Larouche
- St Hubert
Stéphanie Constantin -
Corporate
Matt Matura - Kitchener
Fang Gang - Montréal
Liam Kenyon - UK
James Palmer - USA
Mark Rowbottom - UK
Abdelhadi Mouayyad -
St Hubert
Jon Bishop - USA
Rodolfo Wurzba -
St Hubert
Junko Miyajima - Spain
Jocelyn Duplessis - Laval
Mathew Hamati - USA
Nadia Renaud - Montréal
Katie Welsh - UK
Erwann Lemonnier -
Montréal
Patrick Dubreuil-
Duchaine - Laval
Noelia Encinas Lorenzo
- Spain
GLOBAL CENTERS OF EXCELLENCE
CANADA
St-Hubert, Québec
Design, engineering, and product support.
Longueuil, Québec
Repair and overhaul activities, finishing and
Cambridge, Ontario
Manufacturing of ultra-large-scale complex
Technical expertise and state-of-the-art testing
assembly of landing gear
landing gear components
facility
Laval, Québec
Manufacturing and assembly of actuators.
Manufacturing of high precision, small and
medium landing gear components
Montréal, Québec
Surface treatment services
Kitchener, Ontario
Manufacturing of medium to large complex
landing gear components
Scarborough, Ontario
Electronic enclosures, heat exchangers and
cabinets
We take pride in our 1 800 highly dedicated employees across our North American and European
facilities who work hard to showcase our world-class expertise in the design, development,
manufacture and support of landing gear and actuation systems.
USA
UNITED KINGDOM
SPAIN
Strongsville, Ohio
Finishing and assembly of landing gear
Nottingham, Nottinghamshire
Manufacturing of small to medium landing
Getafe
Design, engineering, assembly and support for
gear components
landing gear and actuation systems
Runcorn, Cheshire
Repair and overhaul activities, finishing and
Seville
Assembly and installation of aircraft
assembly of landing gear, product support,
components at customer assembly lines
testing and design engineering
Springfield, Ohio
Manufacturing of medium to large complex
landing gear and titanium components
Everett, Washington
Final assembly of Boeing 777/777X landing
gear systems
Livonia, Michigan
Design and manufacturing of ball screws and
electro-mechanical linear actuation systems
SHAREHOLDER
INFORMATION
ANNUAL MEETING OF
SHAREHOLDERS
REGISTRAR
AND TRANSFER AGENT
August 10, 2021 at 10:00 A.M. Held virtually via
webcast. The webcast can be accessed through
the Events section of our website
www.herouxdevtek.com/en/news-events/
events or directly at
https://web.lumiagm.com/414790610.
Computershare Trust
1500 Robert-Bourassa Street, 7th Floor
Montréal (Québec) Canada H3A 3S8
514 982-7555 /1 800 564-6253
AUDITORS
Ernst & Young LLP
900 de Maisonneuve Boulevard West, Suite 2300
Montréal (Québec) H3A 0A8
514 875-6060
SHARE LISTING
Shares are traded on the Toronto Stock
Exchange
Ticker Symbol: HRX
INVESTOR RELATIONS
Héroux-Devtek Inc.
450 679-3330
ir@herouxdevtek.com
Hugo Delorme
514 700-5550, extension 555
hdelorme@mercureconseil.ca
CONSOLIDATED FINANCIAL
STATEMENTS / MANAGEMENT’S
DISCUSSION AND ANALYSIS
For the fiscal year ended March 31, 2021
CONSOLIDATED FINANCIAL STATEMENTS
For the fiscal year ended March 31, 2021
TABLE OF CONTENTS
Management’s report.....................................................................................................................................................................................
Independent Auditor’s report..........................................................................................................................................................................
Consolidated financial statements..................................................................................................................................................................
4
5
8
Notes to the consolidated financial statements............................................................................................................................................... 13
Note 1
Note 2
Note 3
Note 4
Note 5
Note 6
Note 7
Note 8
Note 9
Nature of activities and corporate information.......................................................................................................................... 13
Basis of preparation................................................................................................................................................................. 13
Significant accounting policies................................................................................................................................................. 14
Significant accounting estimates and assumptions.................................................................................................................. 22
Business acquisitions............................................................................................................................................................... 23
Sales and backlog.................................................................................................................................................................... 23
Government assistance........................................................................................................................................................... 24
Cost of sales, selling and administrative expenses.................................................................................................................. 24
Non-recurring items.................................................................................................................................................................. 24
Note 10 Net financial expenses............................................................................................................................................................. 25
Note 11 Earnings per share................................................................................................................................................................... 25
Note 12
Inventories................................................................................................................................................................................ 25
Note 13 Derivative financial instruments............................................................................................................................................... 26
Note 14 Other assets............................................................................................................................................................................. 26
Note 15 Property, plant and equipment................................................................................................................................................. 27
Note 16
Finite-life intangible assets....................................................................................................................................................... 29
Note 17 Goodwill................................................................................................................................................................................... 30
Note 18 Accounts payable and accrued liabilities................................................................................................................................. 31
Note 19 Provisions................................................................................................................................................................................. 31
Note 20
Long-term debt......................................................................................................................................................................... 31
Note 21 Other liabilities.......................................................................................................................................................................... 33
Note 22
Issued capital........................................................................................................................................................................... 33
Note 23 Accumulated other comprehensive income............................................................................................................................. 35
Note 24
Income taxes............................................................................................................................................................................ 36
Note 25 Pension and other retirement benefit plans............................................................................................................................. 37
Note 26 Commitments........................................................................................................................................................................... 40
Note 27 Contingencies.......................................................................................................................................................................... 41
Note 28 Net change in non-cash items.................................................................................................................................................. 41
Note 29 Geographic information............................................................................................................................................................ 41
Note 30 Executive compensation.......................................................................................................................................................... 42
Note 31
Financial instruments............................................................................................................................................................... 42
Note 32
Financial risk management...................................................................................................................................................... 43
Note 33 Capital risk management......................................................................................................................................................... 45
HÉROUX-DEVTEK INC. – Fiscal 2021 Consolidated Financial Statements – 3
MANAGEMENT’S REPORT
The accompanying consolidated financial statements and Management Discussion and Analysis (“MD&A”) of Héroux-Devtek Inc. (the
“Corporation”) are the responsibility of management and have been reviewed and approved by its Board of Directors. The accompanying
consolidated financial statements have been prepared by management in accordance with International Financial Reporting Standards
(“IFRS”). The MD&A has been prepared in accordance with the requirements of Canadian securities regulators. The consolidated financial
statements and MD&A include items that are based on best estimates and judgments of the expected effects of current events and
transactions. Management has determined such items on a reasonable basis in order to ensure that the consolidated financial statements
and MD&A are presented fairly in all material respects. All figures presented in these consolidated financial statements are expressed in
thousands of Canadian dollars unless otherwise indicated.
Héroux-Devtek Inc.’s Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”) have designed internal controls over financial
reporting (“ICFR”) and disclosure controls and procedures (“DC&P”), or have caused them to be designed under their supervision, to provide
reasonable assurance regarding the reliability of financial reporting, the preparation of consolidated financial statements for external purposes
in accordance with IFRS and that material information related to the Corporation has been made known to them and has been properly
disclosed in the accompanying consolidated financial statements and MD&A. Héroux-Devtek Inc.’s CEO and CFO have also evaluated the
effectiveness of such ICFR and DC&P as of the end of fiscal year 2021. As of March 31, 2021, management has concluded that the ICFR
and DC&P effectively provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated
financial statements for external purposes in accordance with IFRS and that material information related to the Corporation has been
disclosed in the consolidated financial statements and MD&A. Also, based on this assessment, the CEO and the CFO determined that there
were no material weaknesses in the ICFR and DC&P. However, due to their inherent limitation, certain misstatements may not be prevented
or detected by ICFR.
Héroux-Devtek Inc.’s CEO and CFO have provided a certification related to Héroux-Devtek Inc.’s annual disclosure documents to the
Canadian Securities Administrators in accordance with Regulation 52-109, including the consolidated financial statements and MD&A.
The Board of Directors is responsible for ensuring that management fulfills its responsibilities for financial reporting and is ultimately
responsible for reviewing and approving the consolidated financial statements and MD&A. The Board of Directors carries out this
responsibility principally through its Audit Committee. The Audit Committee is appointed by the Board of Directors and consists entirely of
independent and financially literate directors.
The Audit Committee meets periodically with management, as well as with the external auditors, to review the consolidated financial
statements, the external auditors’ report, MD&A, auditing matters and financial reporting issues, to discuss ICFR and DC&P, and to satisfy
itself that each party is properly discharging its responsibilities. In addition, the Audit Committee has the duty to review the appropriateness of
the accounting policies and significant estimates and judgments underlying the consolidated financial statements as presented by
management, and to review and make recommendations to the Board of Directors with respect to the fees of the external auditors. The Audit
Committee reports its findings to the Board of Directors for its consideration when it approves the consolidated financial statements and
MD&A for issuance to Shareholders.
The consolidated financial statements have been audited by Ernst & Young LLP, the external auditors, in accordance with Canadian
generally accepted auditing standards on behalf of the Shareholders. The external auditors have full and free access to the Audit Committee
to discuss their audit and related matters.
Martin Brassard
President and Chief Executive Officer
May 19, 2021
Stéphane Arsenault, CPA, CA
Vice-President and Chief Financial Officer
4 – HÉROUX-DEVTEK INC. – Fiscal 2021 Consolidated Financial Statements
INDEPENDENT AUDITOR’S REPORT
TO THE SHAREHOLDERS OF HÉROUX-DEVTEK INC.
Opinion
We have audited the consolidated financial statements of Héroux-Devtek Inc. and its subsidiaries (the Group), which comprise the
consolidated balance sheets as at March 31, 2021 and 2020, and the consolidated statements of income (loss), consolidated statements of
comprehensive income (loss), consolidated statements of changes in shareholders’ equity and consolidated statements of cash flows for the
years then ended, and notes to the consolidated financial statements, including a summary of significant accounting policies.
In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the consolidated financial position
of the Group as at March 31, 2021 and 2020, and its consolidated financial performance and its consolidated cash flows for the years then
ended in accordance with International Financial Reporting Standards (IFRS).
Basis for opinion
We conducted our audit in accordance with Canadian generally accepted auditing standards. Our responsibilities under those standards are
further described in the Auditor’s responsibilities for the audit of the consolidated financial statements section of our report. We are
independent of the Group in accordance with the ethical requirements that are relevant to our audit of the consolidated financial statements in
Canada, and we have fulfilled our ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have
obtained is sufficient and appropriate to provide a basis for our opinion.
Key audit matters
Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the consolidated financial
statements of the current period. These matters were addressed in the context of our audit of the consolidated financial statements as a
whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. For each matter below, our
description of how our audit addresses the matter is provided in that context.
We have fulfilled the responsibilities described in the Auditor’s responsibilities for the audit of the consolidated financial statements section of
our report, including in relation to these matters. Accordingly, our audit included the performance of procedures designed to respond to our
assessment of the risks of material misstatement of the consolidated financial statements. The results of our audit procedures, including the
procedures performed to address the matters below, provide the basis for our audit opinion on the accompanying consolidated financial
statements.
Impairment of goodwill and other non-financial assets
How our audit addressed the key audit matter
Goodwill and other non-financial assets comprised of property, plant
and equipment and, finite-life intangible assets amounted to $396
million on the consolidated balance sheet. As disclosed in Note 3,
Significant Accounting Policies and Note 17, Goodwill, for each cash
generating unit (“CGU”), management assesses at least annually, or
at any time if an indicator of impairment exists, whether there has
been an impairment loss in the carrying value of these assets.
Management determined the recoverable amount under a value in
use approach using a discounted cash flow calculation, which
requires significant estimation on the part of management.
Recoverable amounts are based on management’s estimates of key
variables including sales projections, expected future growth rates in
sales, and the discount rates. The existence of COVID-19 pandemic
has added complexity and subjectivity to the sales projections
prepared by management for the next 5 years and thereafter. The
presence of commercial and defence programs impacted differently
by the COVID-19 pandemic, affect the sales projections. This
combined with the significance and sensitivity of other assumptions
such as the discount rates and annual/perpetual growth rates led us
the goodwill and other non-financial assets
to conclude
impairment test for the Group’s CGUs is a key audit matter.
that
Our audit procedures included reviewing management’s assumptions
relating to the cash flow projections including overall sales projections
and sales related to certain significant programs in comparison to
publicly available data including analysts’ reports covering aerospace
and airlines and existing customers’ contracts.
With the assistance of our internal valuation specialists, we evaluated
the Group’s discounted cash flow model, valuation methodology, and
certain significant assumptions. We assessed the selection and
application of the discount rates by evaluating the inputs and
mathematical accuracy of the calculation. We assessed the historical
accuracy of management’s estimates on cash flow projections,
revenue growth
rate and earnings margins by comparing
management’s past projections to actual and historical performance.
We compared management’s revenue projections for each of the
next 5 years to market data and analysts’ expectation of the industry
recovery timeframe from COVID, when available. We performed a
sensitivity analysis on the key assumptions such as revenue
projections, perpetual growth rate and discount rate to assess their
effects on the determination of the recoverable amount.
We also assessed the adequacy of the Group’s disclosures included
in Note 17 of the accompanying consolidated financial statements in
relation to this matter.
HÉROUX-DEVTEK INC. – Fiscal 2021 Consolidated Financial Statements – 5
Other information
Management is responsible for the other information. The other information comprises:
• Management’s Discussion and Analysis
• The information, other than the consolidated financial statements and our auditor’s report thereon, in the Annual Report
Our opinion on the consolidated financial statements does not cover the other information and we do not express any form of assurance
conclusion thereon.
In connection with our audit of the consolidated financial statements, our responsibility is to read the other information, and in doing so,
consider whether the other information is materially inconsistent with the consolidated financial statements or our knowledge obtained in the
audit or otherwise appears to be materially misstated.
We obtained Management’s Discussion & Analysis prior to the date of this auditor’s report. If, based on the work we have performed, we
conclude that there is a material misstatement of this other information; we are required to report that fact in this auditor’s report. We have
nothing to report in this regard.
The Annual Report is expected to be made available to us after the date of the auditor’s report. If based on the work we will perform on this
other information, we conclude there is a material misstatement of other information, we are required to report that fact to those charged with
governance.
Responsibilities of management and those charged with governance for the consolidated financial statements
Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with IFRS, and
for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free
from material misstatement, whether due to fraud or error.
In preparing the consolidated financial statements, management is responsible for assessing the Group’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 Group or to cease operations, or has no realistic alternative but to do so.
Those charged with governance are responsible for overseeing the Group’s financial reporting process.
Auditor’s responsibilities for the audit of the consolidated financial statements
Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level
of assurance, but is not a guarantee that an audit conducted in accordance with Canadian generally 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 these consolidated 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 consolidated financial statements, whether due to fraud or error,
design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to
provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting
from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.
Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group’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 Group’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 consolidated 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 Group to cease to continue as a going concern.
Evaluate the overall presentation, structure, and content of the consolidated financial statements, including the disclosures, and
whether the consolidated financial statements represent the underlying transactions and events in a manner that achieves fair
presentation.
Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group
to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance
of the group audit. We remain solely responsible for our audit opinion.
6 – HÉROUX-DEVTEK INC. – Fiscal 2021 Consolidated Financial Statements
We 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.
We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding
independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our
independence, and where applicable, related safeguards.
From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit
of the consolidated 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 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 independent auditor’s report is Wajih Chemali.
Ernst & Young LLP
Montréal, Québec
May 19, 2021
_____________________________________________
1 CPA Auditor, CA, public accountancy permit no. A121006
HÉROUX-DEVTEK INC. – Fiscal 2021 Consolidated Financial Statements – 7
CONSOLIDATED BALANCE SHEETS
(In thousands of Canadian dollars)
As at
Assets
Current assets
Cash and cash equivalents
Accounts receivable
Income tax receivable
Inventories
Derivative financial instruments
Other current assets
Property, plant and equipment, net
Finite-life intangible assets, net
Derivative financial instruments
Deferred income tax assets
Goodwill
Other long-term assets
Total assets
Liabilities and shareholders’ equity
Current liabilities
Accounts payable and accrued liabilities
Provisions
Customers advances and progress billings
Income tax payable
Derivative financial instruments
Current portion of long-term debt
Long-term debt
Provisions
Derivative financial instruments
Deferred income tax liabilities
Other liabilities
Shareholders’ equity
Issued capital
Contributed surplus
Accumulated other comprehensive income
Retained earnings
Total equity attributable to the equity holders of the parent
Non-controlling interests
Total liability and shareholder’s equity
Commitments and Contingencies (notes 26 and 27)
The accompanying notes are an integral part of these consolidated financial statements.
On behalf of the Board of Directors
Louis Morin
Director
8 – HÉROUX-DEVTEK INC. – Fiscal 2021 Consolidated Financial Statements
March 31,
2021
March 31,
2020
Notes
20
12
13
14
15
16
13
24
17
14
18
19
13
20
20
19
13
24
21
22
23
$
95,470
99,724
1,708
216,441
4,903
16,523
434,769
227,621
51,996
9,374
8,485
115,970
5,069
$ 853,284
$ 109,809
25,271
40,867
2,107
—
15,315
193,369
235,384
17,548
544
9,383
5,324
461,552
86,222
5,126
16,279
282,831
390,458
1,274
391,732
$ 853,284
$
45,841
112,558
1,291
241,119
28
21,213
422,050
259,641
64,047
3,498
19,698
120,773
9,141
$ 898,848
$ 126,488
27,679
34,885
1,403
9,321
16,857
216,633
272,760
19,527
14,667
8,812
17,001
549,400
79,757
5,792
7,160
255,221
347,930
1,518
349,448
$ 898,848
Gilles Labbé
Director
CONSOLIDATED STATEMENTS OF INCOME (LOSS)
(In thousands of Canadian dollars, except per share data)
For the fiscal years ended March 31,
Notes
2021
2020
Sales
Cost of sales
Gross profit
Selling and administrative expenses
Non-recurring items
Operating (loss) income
Net financial expenses
Income (loss) before income tax expense
Income tax expense
Net income (loss)
Attributable to:
Equity holders of the parent
Non-controlling interests
6, 29
7, 8, 12
7, 8
9
10
9, 24
$ 570,685
$ 612,996
475,768
94,917
49,706
11,115
34,096
7,909
26,187
6,374
509,876
103,120
50,572
82,618
(30,070)
7,846
(37,916)
12,742
$ 19,813
$ (50,658)
20,057
(50,113)
(244)
(545)
$ 19,813
$ (50,658)
Earnings (loss) per share – basic and diluted
11
$
0.55
$
(1.38)
The accompanying notes are an integral part of these consolidated financial statements.
HÉROUX-DEVTEK INC. – Fiscal 2021 Consolidated Financial Statements – 9
CONSOLIDATED STATEMENTS OF COMPREHENSIVE
INCOME (LOSS)
(In thousands of Canadian dollars)
For the fiscal years ended March 31,
Notes
2021
2020
Other comprehensive income (loss):
Items that may be reclassified to net income (loss)
Gains (losses) arising from conversion of the financial statements of foreign operations
Cash flow hedges:
Net gains (losses) on valuation of derivative financial instruments
Net losses on derivative financial instruments transferred to net income
Deferred income taxes
Gains (losses) on hedges of net investments in foreign operations
Deferred income taxes
Items that are never reclassified to net income (loss)
Defined benefit pension plans:
Gains (losses) from remeasurement
Deferred income taxes
23
23
23
25
$ (20,781)
$ 15,579
29,197
1,425
(8,189)
22,433
8,547
(1,080)
7,467
10,262
(2,709)
7,553
(17,990)
1,376
4,484
(12,130)
(7,168)
377
(6,791)
(2,398)
631
(1,767)
Other comprehensive income (loss)
$ 16,672
$
(5,109)
Comprehensive income (loss)
Net income (loss)
Other comprehensive income (loss)
Comprehensive income (loss)
Attributable to:
Equity holders of the parent
Non-controlling interests
The accompanying notes are an integral part of these consolidated financial statements.
$ 19,813
$ (50,658)
16,672
(5,109)
$ 36,485
$ (55,767)
36,729
(244)
(55,222)
(545)
$ 36,485
$ (55,767)
10 – HÉROUX-DEVTEK INC. – Fiscal 2021 Consolidated Financial Statements
CONSOLIDATED STATEMENTS OF CHANGES IN
SHAREHOLDERS’ EQUITY
(In thousands of Canadian dollars)
Balance as at March 31, 2020
Common shares issued under the
stock option plan
Stock-based compensation
expense
Net income (loss)
Other comprehensive income
Balance as at March 31, 2021
Notes
Issued
capital
$ 79,757
Contributed
surplus
$ 5,792
Accumulated
other
comprehensive
income
Retained
earnings
$ 7,160 $ 255,221
Total equity
attributable to the
equity holders of
the parent
$ 347,930
Non-
Controlling
interests
$ 1,518
Total
Shareholders’
equity
$ 349,448
22
22
23
6,465
(1,811)
—
—
—
$ 86,222
1,145
—
—
$ 5,126
—
—
—
—
—
20,057
9,119
7,553
$ 16,279 $ 282,831
4,654
1,145
—
—
4,654
1,145
20,057
16,672
$ 390,458
(244)
19,813
—
$ 1,274
16,672
$ 391,732
Notes
Issued
capital
Contributed
surplus
Accumulated
other
comprehensive
income
Retained
earnings
$ 79,676
$ 4,707
$ 10,502 $ 307,101
Total equity
attributable to the
equity holders of
the parent
$ 401,986
Non-
Controlling
interests
$ 2,112
Total
Shareholders’
equity
$ 404,098
Balance as at March 31, 2019
Common shares issued under the
stock option plan
Stock-based compensation
expense
Purchase of minority interests in
Tekalia
Capital contribution from a non-
controlling interest in a
subsidiary
Net loss
22
22
5
Other comprehensive loss
23
Balance as at March 31, 2020
$ 79,757
81
—
—
—
—
—
(23)
1,108
—
—
—
—
$ 5,792
—
—
—
—
—
—
—
—
58
1,108
—
—
—
—
58
1,108
(544)
(544)
495
495
—
(50,113)
(50,113)
(545)
(50,658)
(3,342)
(1,767)
(5,109)
—
(5,109)
$ 7,160 $ 255,221
$ 347,930
$ 1,518
$ 349,448
The accompanying notes are an integral part of these consolidated financial statements.
HÉROUX-DEVTEK INC. – Fiscal 2021 Consolidated Financial Statements – 11
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands of Canadian dollars)
For the fiscal years ended March 31,
Notes
2021
2020
Cash and cash equivalents provided by (used for):
Operating activities
Net income (loss)
Items not requiring an outlay of cash:
Amortization expense
Deferred income taxes
Loss (gain) on sale of property, plant and equipment and software
Impairment of goodwill, deferred income tax assets and other long-term assets
Non-cash net financial expenses
Stock-based compensation expense
Cash flows from operations
Net change in non-cash items
Cash flows related to operating activities
Investing activities
Cash payment for business acquisitions
Additions to property, plant and equipment
Net increase in finite-life intangible assets
Capital contribution from a non-controlling interest in a subsidiary
Proceeds on disposal of property, plant and equipment
Cash flows related to investing activities
Financing activities
Increase of long-term debt
Repayment of long-term debt
Issuance of common shares
Increase in deferred financing costs
Cash flows related to financing activities
Effect of changes in exchange rates on cash and cash equivalents
Change in cash and cash equivalents during the year
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
Interest and income taxes reflected in operating activities:
Interest paid
Interest received
Income taxes paid
The accompanying notes are an integral part of these consolidated financial statements.
12 – HÉROUX-DEVTEK INC. – Fiscal 2021 Consolidated Financial Statements
15, 16
24
9, 14, 17, 24
10
22
28
5
15
16
22
$ 19,813
$ (50,658)
43,086
43,643
225
492
—
1,573
1,145
66,334
22,854
89,188
1,300
(141)
85,808
1,041
1,108
82,101
(29,528)
52,573
—
(21,259)
(17,149)
(20,645)
(643)
—
379
(1,598)
495
4,053
(21,523)
(34,844)
68,113
(89,616)
4,654
—
(16,849)
(1,187)
30,927
(38,024)
58
(897)
(7,936)
920
49,629
45,841
10,713
35,128
$ 95,470
$ 45,841
$
$
$
2,374
761
5,861
$
$
$
6,905
100
6,775
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS
For the fiscal years ended March 31, 2021 and 2020
(In thousands of Canadian dollars, except per share data)
NOTE 1. NATURE OF ACTIVITIES AND CORPORATE INFORMATION
Héroux-Devtek Inc. is incorporated under the laws of Québec. Its head office is domiciled at Complexe St-Charles, 1111 St-Charles Street
West, suite 600, West Tower, Longueuil (Québec), Canada. Héroux-Devtek Inc. and its subsidiaries (“Héroux-Devtek” or the “Corporation”)
specialize in the design, development, manufacture, repair and overhaul of aircraft landing gear, hydraulic and electromechanical flight
control actuators, custom ball screws and fracture-critical components.
The Corporation operates as one reporting segment, which is the Aerospace segment.
The Corporation's common shares are traded on the Toronto Stock Exchange under the symbol "HRX".
NOTE 2. BASIS OF PREPARATION
The consolidated financial statements have been prepared on the historical cost basis, except for derivative financial instruments, which are
measured at fair value, provisions, which are measured based on the best estimates of the expenditures required to settle the obligation and
the pension benefit obligations, which are measured at the present value of the defined benefit obligations and reduced by the fair value of
plan assets.
Statement of compliance
These consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as
issued by the International Accounting Standards Board (“IASB”) and were approved for issue by the Board of Directors of the Corporation on
May 19, 2021.
Basis of consolidation
The consolidated financial statements include the accounts of Héroux-Devtek Inc. and its subsidiaries, all of which are wholly-owned, except
for Tekalia Inc. where the Corporation holds a 67% controlling interest. The principal wholly-owned subsidiaries included in these
consolidated financial statements are the following:
Name
Devtek Aerospace Inc.
HDI Landing Gear USA Inc.
APPH Limited
Beaver Aerospace & Defense Inc.
Compañia Española de Sistemas Aeronauticos S.A.
Location
Canada
United States
United Kingdom
United States
Spain
Subsidiaries are consolidated from the date of acquisition, being the date on which the Corporation obtains control, and continue to be
consolidated until the date that such control ceases. Control is achieved when the Corporation has power over the investee; is exposed, or
has rights, to variable returns from its involvement with the investee; and ability to use its power to affect its returns. The Corporation
reassesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more of these three
elements of control. Changes in the Corporation’s ownership interest in subsidiaries that do not result in a loss of control are accounted for as
equity transactions.
The cost of an acquisition is measured as the aggregate of the consideration paid, measured at acquisition date fair value and the amount of
any non-controlling interest in the acquiree. For each business combination, the Corporation measures the non-controlling interests in the
acquiree either at fair value or at the proportionate share of the acquiree’s net identifiable assets.
The financial statements of the subsidiaries are prepared for the same reporting period as Héroux-Devtek Inc., using consistent accounting
policies. All inter-company transactions and account balances are eliminated in full.
HÉROUX-DEVTEK INC. – Fiscal 2021 Consolidated Financial Statements – 13
NOTE 3. SIGNIFICANT ACCOUNTING POLICIES
A. Foreign currency
The consolidated financial statements are presented in Canadian dollars. Each entity in the Corporation accounts for transactions in its own
functional currency and items included in the consolidated financial statements of each entity are measured using that functional currency.
The functional currency of Héroux-Devtek and of the Canadian operations is the Canadian dollar. The functional currency of the U.S.
operations is the U.S. dollar, the functional currency of the U.K operations is the British pound and the functional currency of the Spain
operations is the Euro. The functional currency is the currency that is representative of an operation’s primary economic environment.
Conversion of transactions and account balances
Transactions denominated in foreign currencies are initially recorded at the functional currency rate of exchange at the date of the
transactions. Monetary assets and liabilities denominated in foreign currencies are translated at the functional currency rate of exchange at
the reporting date. All differences are included in the consolidated statements of income.
Non-monetary items denominated in foreign currencies are translated at the exchange rate at the date of the transactions.
Translation of financial statements of foreign operations
Assets and liabilities of foreign operations are translated into Canadian dollars at the rate of exchange at the reporting date and the
statements of income are translated at the average exchange rate for the fiscal year. Exchange differences arising from the translation are
recognized in other comprehensive income and remain in accumulated other comprehensive income until the disposal of the related net
investment, at which time they are recognized in the consolidated statements of income.
B. Cash and cash equivalents
Cash and cash equivalents comprise cash.
C.
Inventories
Inventories include raw materials, direct labour and related manufacturing overhead costs.
Inventories consist of raw materials (including purchased parts), work-in-progress and finished goods which are valued at the lower of cost
(unit cost method except for certain raw materials that are valued at the weighted average cost method) and net realizable value.
The unit cost method is the cost method under which the actual production costs are charged to each unit produced and recognized in the
consolidated statements of income as the unit is delivered. Estimates of net realizable value are based on the most reliable evidence
available of the amount for which the inventories are expected to be realized. These estimates take into consideration fluctuations of price or
cost directly relating to events occurring after the end of the reporting period to the extent that such events confirm conditions existing at the
end of the reporting period.
D. Property, plant and equipment
Assets acquired
Property, plant and equipment are stated at cost less accumulated amortization and accumulated impairment losses, if any (see H). Such
cost may include the cost of replacing a major part of the property, plant and equipment and, in this situation, the carrying amount of the
replaced part is derecognized. Cost also includes borrowing costs directly attributable to the acquisition, construction or production of a
qualifying asset (see F).
Amortization is calculated on a straight-line basis over the useful life of the asset as follows:
•
•
•
Buildings and leasehold improvements - 5 to 50 years,
Machinery and equipment - 3 to 25 years,
Tooling related to specific contracts - based on pre-determined contract quantities, not exceeding the lower of ten years or the useful life.
Contract quantities are assessed at the beginning of the production stage considering, among other factors, existing firm orders and
options. The Corporation’s management conducts quarterly and annual reviews of the contract quantities,
Standard and general tooling - 3 to 5 years,
Automotive equipment - 3 to 10 years,
Computer and office equipment - 3 to 5 years.
•
•
•
14 – HÉROUX-DEVTEK INC. – Fiscal 2021 Consolidated Financial Statements
An item of property, plant and equipment is derecognized upon disposal or when no future economic benefits are expected from its use or
disposal. The gain or loss on derecognition of the asset (calculated as the difference between the net disposal proceeds and the net carrying
amount of the asset) is included in the consolidated statements of income in the fiscal year the asset is derecognized. The asset’s residual
value, useful life and method of amortization are reviewed and adjusted annually at year-end, or when warranted by specific circumstances.
The present value of the expected cost for the decommissioning of the asset after its use is included in the cost of the respective asset if the
recognition criteria for a provision are met. Refer to section L of this note and note 4 - Significant accounting estimates and assumptions for
further information about provisions for asset retirement obligations.
E. Finite-life intangible assets
Finite-life intangible assets include capitalized development costs, customer relationships and contracts and software. They are measured at
cost upon initial recognition. The cost of intangible assets acquired in a business combination is the fair value at the date of acquisition.
Following initial recognition, they are carried at cost less accumulated amortization and impairment losses, if any.
Finite-life intangible assets are amortized over the useful life and assessed for impairment whenever there is an indication that the intangible
asset may be impaired. The amortization period and method for finite-life intangible assets are reviewed at each fiscal year-end or when
warranted by specific circumstances. Changes in the expected useful life or the expected pattern of consumption of future economic benefits
associated with finite-life intangible assets are accounted for as changes in accounting estimates.
The gain or loss arising from derecognition of an intangible asset is measured as the difference between the net disposal proceeds and the
net carrying amount of the asset and is recognized in the consolidated statements of income.
Development costs
Development costs of an individual sales contract are capitalized as an intangible asset when the Corporation can demonstrate:
•
•
•
•
•
•
the feasibility of completing the intangible asset so that it will be available for use or sale;
its intention to complete the intangible asset and use or sell it;
its ability to use or sell the asset;
how the asset will generate future economic benefits;
the availability of resources to complete the development and to use or sell the intangible asset; and,
the ability to measure reliably the expenditure attributable to the intangible asset during its development phase.
Capitalized development costs (design engineering, manufacturing engineering costs and other related costs) related to sales contracts are
amortized based on predetermined expected quantities to be sold. They are presented net of related government assistance and amounts
contributed by customers.
The expected quantities to be sold are established based on management’s assessment at the beginning of the production stage for each
contract, taking into consideration, among other factors, existing firm orders and options. The Corporation’s management conducts quarterly
reviews as well as a detailed annual review in the fourth quarter of the contract quantities, its capitalized development costs and their
recoverability.
Following initial recognition of capitalized development costs as an asset, the asset is carried at cost less accumulated amortization and
accumulated impairment losses, if any. Amortization begins when development is complete and the asset is available for use. Usually, the
development phase represents a period of 4 to 7 years. During the period of development, the asset is tested for impairment annually.
Customer relationships and contracts
Customer relationships and contracts are amortized on a straight-line basis over the estimated useful life of the related customer relationship
and contracts, which represents a period of up to 15 years.
Software
Software is amortized over 3 to 7 years.
F. Borrowing costs
Borrowing costs are recognized as an expense when incurred, except when they are capitalized as part of the cost of a qualifying asset.
Borrowing costs are capitalized when the Corporation:
•
•
•
incurs expenditures for the asset;
incurs borrowing costs; and
undertakes activities that are necessary to prepare the asset for its intended use or sale, to the extent that these activities are performed
over a period exceeding the normal operating cycle of the Corporation (12 months).
Conversely, the Corporation ceases capitalizing borrowing costs when substantially all the activities necessary to prepare the qualifying asset
for its intended use or sale are completed.
HÉROUX-DEVTEK INC. – Fiscal 2021 Consolidated Financial Statements – 15
G. Business combinations and goodwill
Business combinations are accounted for using the acquisition method.
The cost of a business combination is measured as the fair value of assets given, equity instruments issued and liabilities assumed at the
date of acquisition. Identifiable assets acquired, liabilities and contingent liabilities assumed are measured initially at fair value at the date of
acquisition. Acquisition-related costs associated with the business combinations are expensed as incurred.
After initial recognition, goodwill is measured at cost less any accumulated impairment losses, if any. For the purpose of impairment testing,
goodwill acquired in a business combination is, from the acquisition date, allocated to each of the Corporation’s cash generating units
(“CGU”) or group of CGUs that are expected to benefit from the synergies of the combination, irrespective of whether other assets or
liabilities of the acquiree are assigned to those units. A CGU is the smallest identifiable group of assets that generates cash inflows that are
largely independent of the cash inflows from other assets or groups of assets.
Where goodwill forms part of a CGU and part of the operation within that unit is disposed of, the goodwill associated with the operation
disposed of is included in the carrying amount of the operation when determining the gain or loss on disposal of the operation. Goodwill
disposed of in this circumstance is measured based on the relative values of the operation disposed of and the portion of the CGU retained.
H.
Impairment of goodwill and other non-financial assets
Goodwill is tested for impairment annually on March 31 or when warranted by specific circumstances. A prior year’s impairment test may be
used in the annual impairment test when specific criteria are met. Impairment is determined by assessing the recoverable amount of the CGU
to which the goodwill relates. A CGU’s recoverable amount is the higher of a CGU’s fair value less costs of disposal and its value in use. The
Corporation uses the discounted cash flow method to estimate value in use, consisting of future cash flows derived from the most recent
budget and strategic plan, which cover five years, approved by the Corporation’s management and Board of Directors. These future cash
flows consider each CGU’s past performance, market share, economic trends, specific and market industry trends and corporate strategies.
A perpetual growth rate is used for cash flows beyond this five-year period. The perpetual growth rate is determined with regard to the
specific markets in which the CGU participates. The discount rate used by the Corporation for cash flows is a pre-tax rate based on the
weighted-average cost of capital pertaining to each CGU, which reflects the current market assessment of (i) the time value of money, and (ii)
the risks specific to the assets. Where the recoverable amount of the CGU is less than its carrying amount, an impairment loss is recognized.
Impairment losses relating to goodwill cannot be reversed in future periods.
For non-financial assets other than goodwill, the Corporation assesses at each reporting date whether there is an indication that the carrying
amount may be impaired. If any such indication exists, the Corporation estimates the asset’s recoverable amount. An asset’s recoverable
amount is the higher of an asset’s fair value less costs of disposal and its value in use and is determined for an individual asset, unless the
asset does not generate cash inflows that are largely independent of those from other assets or groups of assets. If the asset does not
generate cash inflows that are largely independent of those from other assets or group of assets, the recoverable amount is determined by
reference to the CGU’s value in use. Where the carrying amount of an asset exceeds its recoverable amount, the asset is considered
impaired and is written-down to its recoverable amount. In assessing value in use, the estimated future cash flows are discounted to their
present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the
asset. In determining fair value less costs to sell, an appropriate valuation model is used. These calculations are corroborated by valuation
multiples or other available fair value indicators. For non-financial assets other than goodwill, a previously recognized impairment loss is
reversed if there has been a change in the estimated recoverable amount since the last impairment loss was recognized. That increased
amount cannot exceed the carrying amount that would have been determined, net of accumulated amortization, had no impairment loss been
recognized for the asset in prior years. Such a reversal is recognized in the consolidated statements of income.
I.
Financial assets
Initial recognition
At initial recognition, financial assets are classified either as financial assets at fair value through profit or loss (“FVTPL”), measured at
amortized cost (“AC”) or fair value through other comprehensive income (“FVTOCI”). The classification is based on two criteria: the
Corporation’s business model for managing the assets; and whether the instruments’ contractual cash flows represent ‘solely payments of
principal and interest’ on the principal amount outstanding (the “SPPI criterion”). The Corporation’s financial assets are held within a business
model with the objective to hold the financial assets in order to collect contractual cash flows that meet the SPPI criterion are classified and
subsequently measured at amortized cost. They consist of cash and cash equivalents, accounts receivable and certain other current and
long-term assets.
When financial assets are recognized initially, they are measured at fair value, plus in the case of a financial asset other than FVTPL, the
directly attributable transaction costs. Purchases and sales of financial assets are recognized on the transaction date, which is the date that
the Corporation commits to purchase or sell the assets.
16 – HÉROUX-DEVTEK INC. – Fiscal 2021 Consolidated Financial Statements
FVTPL
FVTPL include certain derivative financial instruments, except those that are designated as Hedges. FVTPL are carried at fair value with
gains and losses recognized in the consolidated statements of income. The Corporation assesses whether embedded derivative financial
instruments are required to be separated from host contracts when the Corporation first becomes party to the contract.
AC
AC are non-derivative financial assets with fixed or determinable payments not quoted in an active market. AC are mainly comprised of
accounts receivable and certain other current and long-term assets. AC are carried at amortized cost using the effective interest rate method.
An allowance for doubtful accounts is recorded when an account receivable become impaired. Also, under the forward-looking expected
credit loss (“ECL”) approach, all financial assets, except for those measured at FVTPL, are subject to review for impairment at least at each
reporting date. ECLs are based on the difference between the contractual cash flows due in accordance with the contract and all the cash
flows that the Corporation expects to receive. The shortfall is then discounted at an approximation to the asset’s original effective interest
rate.
The Company considers a financial asset in default when collection of an account receivable is 30 days past due its contractual terms.
However, in certain cases, the Company may also consider a financial asset to be in default when internal or external information indicates
that the Company is unlikely to receive the outstanding contractual amounts in full before taking into account any credit enhancements held
by the Company. A financial asset is considered at a higher credit risk as soon as it is 30 days past due and the Company regularly monitors
these accounts receivable to ensure its credit risk is not significant with such customers. In some cases, the fact that certain accounts
receivable are past due does not necessarily indicate a higher credit risk and subsequent collection is successful. A financial asset is written
off when there is no reasonable expectation of recovering the contractual cash flows which generally occurs if the account receivable is 90
days past due unless the Company has reasonable and supportable information to demonstrate that a more lagging criterion is more
appropriate.
For accounts receivables, the Corporation has applied the simplified approach and has calculated ECLs based on lifetime expected
credit losses taking into consideration historical credit loss experience, adjusted for forward-looking factors specific to the debtors and the
economic environment. If in a subsequent year, the amount of the estimated impairment loss increases or decreases due to an event
occurring after the impairment was recognized, the previously recognized impairment loss is increased or decreased by adjusting the carrying
value of the financial assets. If a past write-off is later recovered, the recovery is recognized in the consolidated statements of income.
FVTOCI
These include cross-currency interest rate swap agreements that are used to hedge the net investments in certain foreign subsidiaries and
forward foreign exchange contracts. They are carried at fair value. The change in the fair value of the effective portion of hedges is
recognized in other comprehensive income, while the ineffective portion is recognized in the consolidated statements of income, if any.
The Corporation assesses at each reporting date whether any financial asset is impaired.
J. Financial liabilities
Liabilities at fair value
Financial liabilities classified at FVTPL are comprised of derivative financial instruments, except those that are designated as FVTOCI. They
are carried at fair value with gains and losses recognized in the consolidated statements of income. Gains and losses on FVTOCI are
recognized in other comprehensive income.
Amortized costs
All debts, accounts payable, accrued liabilities, provisions and certain other liabilities are initially recognized at fair value less directly
attributable transaction costs when they have not been designated as FVTPL.
After initial recognition, they are subsequently measured at amortized cost using the effective interest method.
Derecognition of financial liabilities
A financial liability is derecognized when the obligation underlying the liability is discharged, cancelled or has expired.
K. Derivative financial instruments and hedges
Derivative financial instruments
The Corporation uses derivative financial instruments such as forward foreign exchange contracts, cross-currency interest rate swap
agreements and equity swap agreements to hedge its risks associated with foreign currency, interest rate and other price fluctuations. Such
derivative financial instruments are initially recognized at fair value on the date on which a derivative contract is entered into. They are
subsequently measured at fair value. Derivative financial instruments are carried as financial assets when the fair value is positive and as
financial liabilities when the fair value is negative.
HÉROUX-DEVTEK INC. – Fiscal 2021 Consolidated Financial Statements – 17
Cash flow hedges
For the purpose of hedge accounting, all hedges are classified as cash flow hedges except for hedges of net investments in foreign
operations (see below). Hedging exposure to variability in cash flows is attributable to a risk associated with a recognized liability or a highly
probable forecast transaction in foreign currency.
At the inception of a hedge relationship, the Corporation formally designates and documents the hedge relationship to which the Corporation
wishes to apply hedge accounting and the risk management objective and strategy for undertaking the hedge. The documentation includes
identification of the hedging instrument, the hedged item or transaction, the nature of the risk being hedged and how the entity will assess the
hedging instrument’s effectiveness. Such hedges are expected to be highly effective in achieving offsetting changes in cash flows and are
assessed quarterly to determine that they actually have been highly effective throughout the designated periods.
The change in the fair value of the effective portion of hedges is recognized in other comprehensive income, while the ineffective portion is
recognized in the consolidated statements of income. Amounts recognized in other comprehensive income are transferred to the
consolidated statements of income when the hedged transaction affects income, such as when the hedged financial income or financial
expense is recognized or when a forecast sale occurs. In the event that the forecast transaction or firm commitment is no longer expected to
occur, amounts previously recognized in accumulated other comprehensive income are transferred to the consolidated statements of income.
Hedges of net investments in foreign operations
The Corporation designates certain long-term debt as a hedge of its net investments in foreign operations. The portion of gains or losses from
the hedging item that is determined to be an effective hedge is recognized in other comprehensive income, while the ineffective portion is
recorded in the consolidated statements of income. The amounts recognized in other comprehensive income are reclassified in the
consolidated statements of income upon disposal of the related net investments.
L. Provisions
Provisions are recognized when the Corporation has a present obligation (legal or constructive) 1) as a result of a past event; 2) when it is
more probable than not that an outflow of resources embodying economic benefits will be required to settle the obligation; and, 3) when a
reliable estimate can be made of the amount of the obligation. The expense relating to any provision is accounted for in the consolidated
statements of income, net of any reimbursement.
If the known expected settlement date exceeds twelve months from the date of recognition, provisions are discounted using a current pre-tax
interest rate that reflects the risks specific to the liability. Where discounting is used, the increase in the provision due to the passage of time
is recognized as a financial expense. Provisions are reviewed periodically and adjusted as appropriate.
Onerous contracts
These represent anticipated negative margins on sales contracts in progress or in the funded backlog (firm customer purchase orders).
Asset retirement obligations
The Corporation’s asset retirement obligations mainly consist of environmental rehabilitation costs related to one of the Corporation’s
manufacturing sites in Canada. The present value of these obligations is measured in the year in which they are identified and when a
reasonable estimate of their present value can be made. The present value of the obligations is determined as the sum of the estimated
discounted future cash flows of the costs associated with the legal obligations for future rehabilitation. These asset retirement costs are
capitalized as part of the property, plant and equipment and amortized over the relevant assets’ useful lives. The discount fluctuation is
expensed as incurred and recognized in the consolidated statements of income as financial expenses. The estimated future costs of
decommissioning are reviewed annually and adjusted as appropriate. Changes in the estimated future costs are recognized in the
consolidated statements of income as changes occur.
Product warranty
This provision covers the cost of known or anticipated defects on products under terms of warranties.
Litigations and other
Due to the nature of its business activities including the purchase or sale of businesses, the Corporation is exposed to the risks of technical
and business litigations. On the basis of information at its disposal at the reporting date, the Corporation carried out a review of the financial
risks to which the Corporation could be exposed. The recorded provision covers the estimated risks associated with these litigations.
Restructuring provisions are recognized when the Corporation has put in place a detailed restructuring plan which has been communicated in
sufficient detail to create a constructive obligation. Restructuring provisions include only costs directly related to the restructuring plan, and
are measured at the best estimate of the amount required to settle the Corporation’s obligations.
18 – HÉROUX-DEVTEK INC. – Fiscal 2021 Consolidated Financial Statements
M. Progress billings
Progress billings represent amounts received from customers for costs incurred on specific contracts. These amounts are reversed to sales
at such time as the related units are delivered and billed to customers.
N. Deferred financing costs
Deferred financing costs related to long-term debt are amortized using the effective interest rate method over the period that represents the
duration of the related long-term debt.
O. Pensions and other retirement benefits
The Corporation has defined contribution pension plans as well as funded and unfunded defined benefit pension plans that provide pension
benefits to its employees. The current and past service costs of these pension plans are recorded within the cost of sales and selling and
administrative expenses under “Employee costs” in the consolidated statements of income while the administrative costs related to these
pension plans are included in selling and administrative expenses. The net interest income or expense on the net surplus or deficit is
recorded in financial expenses.
The actuarial determination of the defined benefit obligations for pensions uses the projected unit credit method which incorporates
management’s best estimate of future salary levels, when applicable, other cost escalations, retirement ages of employees, discount rates
and other actuarial factors.
The Pension and other retirement benefit plans liabilities included in Other liabilities in the consolidated balance sheets represent the present
value of the defined benefit obligations reduced by the fair value of plan assets.
Remeasurements on defined benefit plans include actuarial gains and losses, changes in the effect of the asset ceiling and the return on plan
assets, excluding the amount included in net interest on the net defined liability or assets. Remeasurements are charged or credited to other
comprehensive income in the period in which they arise.
Past service costs arising from the plan amendments are recognized in full immediately in the consolidated statements of income.
P. Share-based payments
Stock option plan
The Corporation has a stock option plan in which options to purchase common shares are issued to officers and key employees. The
Corporation uses a binomial valuation model to determine the fair value of stock options when granted. The resulting fair value is amortized
to income over their earned period using the graded amortization method. The related compensation expense is included in selling and
administrative expenses and its counterpart is accounted for in contributed surplus.
Deferred share unit (“DSU”) plan
The Corporation has a DSU plan under which rights are issued to its non-employee directors. The DSU enables the participants to receive
compensation at the end of their mandate as a member of the Board of Directors, representing a cash amount equal to one time the quoted
price of the Corporation’s common share for each DSU.
These DSUs are expensed on an earned basis, their value is equal to that of the underlying shares and is remeasured at each reporting
period. Each director can also elect, each fiscal year, to have up to 100% of his director’s annual retainer fees converted into DSUs. These
DSUs vest over a one-year period. The related compensation expense is included in selling and administrative expenses and its counterpart
is accounted for in accounts payable and accrued liabilities until the DSUs are exercised and paid at the end of each director’s mandate.
Performance share unit (“PSU”) plan
The Corporation has a PSU plan as part of the incentive plan for management and key employees. PSUs vest over a period of three years.
The PSU enables the participants to receive compensation at the expiry or termination date representing a cash amount equal to the quoted
price of the Corporation’s common share for each PSU vested, conditional on the achievement of certain financial targets.
PSUs are expensed on an earned basis, their value is equal to that of the underlying shares and is remeasured at each reporting period. The
related compensation expense is included in selling and administrative expenses and its counterpart is accounted for in accounts payable
and accrued liabilities until the PSUs are paid or cancelled at the expiry or termination date.
HÉROUX-DEVTEK INC. – Fiscal 2021 Consolidated Financial Statements – 19
Q. Revenue recognition
Revenue is measured at the fair value of the consideration received or receivable, net of estimated discounts, and after eliminating
intercompany sales. Revenue from the sale of goods is recognized in a manner that depicts the transfer of promised goods to a customer
and at an amount that reflects the consideration expected to be received in exchange for transferring those goods. This is achieved by
applying the following five steps:
1. Identify the contract with a customer;
2. Identify the performance obligations in the contract;
3. Determine the transaction price;
4. Allocate the transaction price to the performance obligations in the contract; and
5. Recognize revenue when (or as) the entity satisfies a performance obligation, which is generally achieved upon the delivery of
the products.
Revenues from the sale of new or overhauled aerospace components are considered a single performance obligation and are recognized at
the point in time when the customer has obtained control of the component and the Corporation has satisfied its performance obligation.
Generally, these conditions are met upon delivery of the goods.
R. Government assistance
Government assistance, which mainly includes investment and other tax credits, grants and the discount portion of the governmental
authorities loans, is recognized when there is reasonable assurance that it will be received and all related conditions will be complied with.
When the government assistance relates to an expense item, it is recognized as a reduction of expense over the period necessary to match
the government assistance on a systematic basis to the costs that it is intended to subsidize. Where government assistance relates to an
asset, it is deducted from the cost of the related asset.
Forgivable loans from governmental authorities are accounted for as government assistance when there is reasonable assurance that the
entity will meet the terms for forgiveness of the loan.
Benefits derived from government authority loans with below-market interest rates are measured at the inception of the loans as the
difference between the cash received and the amount at which the loans are initially recognized in the consolidated balance sheet. At initial
recognition, the fair value of a loan with a below-market rate of interest is estimated at the present value of all future cash disbursements,
discounted using a prevailing market rate of interest for a similar instrument with a similar credit rating.
After initial recognition, the loan is accounted for as a financial liability measured at amortized cost using the effective interest method.
Repayments are mainly based on the Corporations sales growth, or sales of specific programs. Assumptions underlying expected sales are
reviewed at least annually, and are used to derive expected repayment schedules. When expected repayment schedule changes, the
Corporation recalculates the carrying value of the loan using the original effective interest rate, with the corresponding gain or loss accounted
for in financial expenses.
S. Taxes
Current income tax
Current income tax assets and liabilities are measured at the amount expected to be recovered from or paid to the taxation authorities. The
tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted by the reporting date. Current income
tax relating to items recognized directly in shareholders’ equity is recognized in shareholders’ equity and not in the consolidated statements of
income or in the consolidated statements of comprehensive income.
Deferred income tax
Deferred income tax is provided for using the liability method on temporary differences at the reporting date between the tax basis of assets
and liabilities and their carrying amounts for financial reporting purposes. Deferred income tax assets and liabilities are recognized for all
deductible and taxable temporary differences, except:
•
where the deferred income tax asset or liability arises from the initial recognition of goodwill or of an asset or liability in a transaction that
is not a business combination and, at the time of the transaction, affects neither the accounting income or loss nor taxable income or
loss;
in respect of taxable temporary differences associated with investments in subsidiaries, where the timing of the reversal of the temporary
differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future.
•
Deferred income tax assets are recognized for all other deductible temporary differences, carry forward or unused tax credits and unused tax
losses to the extent that it is probable that taxable income will be available against which the deductible temporary differences and the carry
20 – HÉROUX-DEVTEK INC. – Fiscal 2021 Consolidated Financial Statements
forward of unused tax credits and unused tax losses can be utilized. The carrying amount of deferred income tax assets is reviewed at each
reporting date and reduced to the extent that it is no longer probable that sufficient taxable income will be available to allow all or part of the
deferred income tax assets to be utilized. Unrecognized deferred income tax assets are reassessed at each reporting date. Deferred income
tax assets and liabilities are measured at the income tax rates that are expected to apply to the fiscal year when the asset is realized or the
liability is settled, based on income tax rates and tax laws that have been enacted or substantively enacted at the reporting date. Deferred
income tax relating to items recognized directly in shareholders’ equity is recognized directly in shareholders’ equity and not in the
consolidated statements of income or in the consolidated statements of comprehensive income. Deferred income tax assets and liabilities are
offset if a legally enforceable right exists to set off current income tax assets against current income tax liabilities and the deferred income
taxes relate to the same taxable entity and the same taxation authority. All deferred income tax assets and liabilities are classified as non-
current.
Sales tax
Sales, expenses and assets are recognized net of the amount of sales tax, except where the sales tax incurred on a purchase of assets or
services is not recoverable from the taxation authorities, in which case the sales tax is recognized as part of the cost of acquisition of the
asset or as part of the expense item as applicable.
Receivables and payables are stated with the amount of sales tax included, if applicable.
The net amount of sales tax recoverable from, or payable to, the taxation authority is included as part of other current assets or accounts
payable and accrued liabilities in the consolidated balance sheet.
T. Earnings per share
Basic and diluted earnings per share is computed based on net income attributable to equity holders of the Corporation. It is also determined
using the weighted-average number of common shares outstanding during the year. The calculation of diluted earnings per share takes into
consideration the exercise of all dilutive elements. This method assumes that the proceeds of the Corporation’s in-the-money stock options
would be used to purchase common shares at the average market price during the year.
U. Leases
The right-of-use asset and lease liability are recognized at the lease commencement date. Certain exemptions apply for short-term leases
and leases of low-value assets.
Right-of-use of assets
Right-of-use assets are measured at cost. The cost is based on the initial amount of the lease liability plus initial direct costs incurred and
estimate of costs to dismantle and remove the underlying asset or to restore the underlying asset or the site on which it is located adjusted for
any lease payments made at or before the commencement date, less any lease incentives received, if any.
The cost of right-of-use assets are periodically reduced by depreciation expenses and impairment losses, if any, and adjusted for certain
remeasurement of the lease liability. Right-of-use assets are amortized to the lesser of the useful life or the lease term using the straight-line
method as this reflects the expected pattern of consumption of the future economic benefits. The lease term includes the renewal option only
if it is reasonably certain to exercise that option. Lease terms range from 1 to 20 years for buildings and 1 to 7 years for machinery,
equipment and tooling.
Lease liabilities
At the commencement date of the lease, the Corporation recognizes lease liabilities measured at the present value of lease payments to be
made over the lease term. Lease payments mainly include fixed payments less any lease incentives receivable and the exercise price of a
purchase option reasonably certain to be exercised. Variable lease payments that do not depend on an index or a rate are recognized as an
expense in the period during which the event or condition that triggers the payment occurs. In calculating the present value of lease
payments, the Corporation uses the incremental borrowing rate at the lease commencement date if the interest rate implicit in the lease is not
readily determinable. After the commencement date, the amount of lease liabilities is increased to reflect accretion of interest and reduced for
lease payments made. In addition, the carrying amount of lease liabilities is remeasured if there is a modification, a change in the lease term,
a change in the in-substance fixed lease payments or a change in the assessment of whether the underlying asset will be purchased.
The Corporation determines the lease term as the non-cancellable term of the lease, together with any periods covered by an option to
extend the lease if it is reasonably certain to be exercised, or any periods covered by an option to terminate the lease, if it is reasonably
certain not to be exercised. After the commencement date, the Corporation reassesses the lease term if there is a significant event or change
in circumstances that is within its control and affects its ability to exercise (or not to exercise) the option to renew (e.g., a change in business
strategy).
HÉROUX-DEVTEK INC. – Fiscal 2021 Consolidated Financial Statements – 21
NOTE 4. SIGNIFICANT ACCOUNTING ESTIMATES AND ASSUMPTIONS
The preparation of the Corporation’s consolidated financial statements requires management to make estimates and assumptions that affect
the reported amounts of revenues, expenses, assets and liabilities, and the disclosure of contingent liabilities at the reporting date.
Uncertainty about these assumptions and estimates could result in outcomes that require material adjustments to the Corporation’s financial
results or the carrying amount of assets or liabilities.
Key estimates and assumptions are as follows:
Impact of COVID-19
A.
The uncertainties around the outbreak of the COVID-19 pandemic required the use of significant judgments and estimates. As at March 31,
2021, the Corporation performed an assessment of the asset impairment risk including a detailed review of the credit risk over its accounts
receivable, its inventory levels for risks over obsolescence or excess inventory, goodwill and other non-financial assets. This assessment
indicated no impairment charges were warranted at this time. Impairment charges totaling $85,808 affecting mainly goodwill were recorded at
the end of fiscal 2020 at the onset of the pandemic. The uncertain future impact of COVID-19 could generate, in future reporting periods, a
significant risk of material adjustment to the carrying amounts of the following: accounts receivable, inventories, property, plant & equipment,
finite-life intangible assets, deferred income tax assets, goodwill, provision for onerous contracts, government authorities loans and net
defined benefit obligations. The duration and full financial effect of the COVID-19 pandemic is unknown at this time, and accordingly
estimates of the extent to which the COVID-19 may materially and adversely affect the Corporation’s consolidated financial condition,
operations and consolidated financial results are subject to significant uncertainty.
Impairment of non-financial assets
B.
Impairment exists when the carrying amount of an asset or cash generating unit (“CGU”) exceeds its recoverable amount, which is the higher
of its fair value less costs to sell and its value in use. The fair value less costs to sell calculation is based on available data from binding sales
transactions in an arm’s length transaction of similar assets and observable market prices less incremental costs for disposing of the asset.
The value in use calculation is based on a discounted cash flow model. The cash flows are derived from the Corporation’s five-year budget
and strategic plan and do not include restructuring activities that the Corporation is not yet committed to or significant future investments that
may enhance the performance of the CGU being tested. The recoverable amount is most sensitive to the discount rate used in the
discounted cash flow model, the expected future cash flows and the perpetual growth rate used for extrapolation. The key assumptions used
to determine the recoverable amount of the CGUs, including sensitivity analysis, are further explained in note 17.
C. Deferred income tax assets
Uncertainties exist with respect to the interpretation of complex tax regulations and the amount and timing of future taxable income. The
Corporation establishes provisions based on reasonable estimates for possible consequences of audits by the tax authorities. The amount of
such provisions is based on various factors, such as experience of previous tax audits and differing interpretations of tax regulations by the
taxable entity and the responsible tax authority.
Deferred income tax assets are recognized for unused tax losses and deductible temporary differences to the extent it is probable that
taxable income will be available against which the losses and deductible temporary differences can be utilized. Management’s judgment is
required to determine the amount of deferred income tax assets that can be recognized, based upon the likely timing and the level of future
taxable income together with future tax planning strategies.
D. Pensions and other retirement benefits
The cost of defined benefit pension plans is determined using actuarial valuations. The actuarial valuation involves making assumptions
about discount rates, future salary increases and mortality rates. In determining appropriate discount rates, management considers the
interest rates of high-quality corporate bonds. Due to the long-term nature of these plans, such estimates are subject to significant
uncertainty. The significant assumptions used to determine the defined benefit obligations and the pension expense, including a sensitivity
analysis, are further explained in note 25.
E. Capitalized development costs
Development costs are capitalized in accordance with the accounting policy described in note 3. In determining the amounts to be
capitalized, management makes assumptions regarding the expected future cash generation of the assets, discount rates to be applied, the
expected period of benefits and contract quantities. For purpose of impairment testing, the Corporation exercises judgment to identify the
cash inflows and outflows. The recoverable amount is based on fair value less costs of disposal, generally determined using a discounted
cash flow model. Other assumptions used to determine the recoverable amount include the applicable discount rate and the expected future
cash flows which include costs to complete the development activities.
22 – HÉROUX-DEVTEK INC. – Fiscal 2021 Consolidated Financial Statements
F. Provisions
The Corporation has recorded provisions to cover cost exposures that could materialize in future periods. In determining the amount of the
provisions, assumptions and estimates are made in relation to discount rates and the expected cost to settle such liabilities.
G. Government authorities loans
The Corporation has outstanding loans with government authorities with variable repayment schedules. Annual repayments of these loans
generally vary based on the sales of certain of the Corporation’s programs or segments. In order to account for the present value of these
loans under the effective interest method, or for government assistance upon initial recognition, management must estimate the future sales
growth of these programs or segments over the expected duration of the loan. These forecasts are used to determine effective interest rates
and expected repayment schedules. In determining these amounts, management must rely on market rates of interest and assumptions such
as, but not limited to, current and future order intake, industry order backlogs, Original Equipment Manufacturer (“OEM”) production rates,
expected economic conditions, the stability of foreign exchange rates and the Corporation’s ability to deliver on key contract initiatives.
H. Customer relationships
Customer relationships acquired in business acquisitions are considered intangible assets with finite lives. Their value was estimated upon
acquisition using valuation methodologies which rely on many underlying assumptions, including:
•
•
•
•
•
Expected future order intake;
Operational execution and cost management;
Stability of economic conditions, including foreign exchange rates;
Production rates;
Government spending.
They are recorded at cost less accumulated impairment and amortization and are amortized on a straight-line basis over their useful lives
without exceeding 15 years.
NOTE 5. BUSINESS ACQUISITIONS
Acquisition of Alta Précision (Fiscal 2020)
On June 7, 2019, the Corporation completed the acquisition of all of the shares of Alta Précision Inc. (“Alta”), for $18,552. Located in
Montreal, Canada, Alta is a manufacturer of high-precision landing gear components. The acquisition was financed with the Corporation's
available credit facilities and was treated as a business combination.
Alta was a minority shareholder of Tekalia. As a result of the acquisition, the Corporation increased its participation in Tekalia to 67% from
60% as at March 31, 2019. In connection with this acquisition, the Corporation incurred acquisition-related costs that are presented in note 9.
On May 5, 2020, the Corporation announced the closing of Alta facilities as a result of the effect of the ongoing COVID-19 pandemic on the
commercial aerospace market (see note 9). Activities related to Alta were transferred to other business units where certain contracts were
continued, along with the related assets acquired and liabilities.
Divestiture of APPH Bolton
On May 4th, 2021, Héroux-Devtek concluded an agreement for the sale of its Bolton, UK operations to Ontic Engineering & Manufacturing
UK Limited for a sale price of £2,700 ($4,614) excluding £900 ($1,538) which is subject to the achievement of certain commercial objectives.
The transaction will be accounted for in the first quarter of Fiscal 2022 and is not expected to result in a material gain or loss on disposal of
the business unit.
NOTE 6. SALES AND BACKLOG
The amount of sales recognized in the following sectors was as follow for fiscal year:
Civil
Defence
Total sales
Funded backlog as at March 31,
2021
2020
$ 193,220
$ 283,737
377,465
$ 570,685
329,259
$ 612,996
717,000
810,000
The amounts in funded backlog include only the value of firm orders. Such orders may be subject to future modifications that might impact
the amount and/or timing of revenue recognition.
HÉROUX-DEVTEK INC. – Fiscal 2021 Consolidated Financial Statements – 23
NOTE 7. GOVERNMENT ASSISTANCE
Government assistance deducted from the cost of the related assets or recognized as a reduction of expenses, was as follows, for fiscal
year:
Finite-life intangible assets (note 16)
Property, plant and equipment (note 15)
Cost of sales and, selling and administrative expenses
2021
2020
$ 1,016
$
833
682
30
17,728
4,065
Government assistance includes research and development tax credits, other credits and grants.
During Fiscal 2021, government assistance accounted for in cost of sales and selling and administrative expenses was largely comprised of
the Canadian Emergency Wage Subsidy.
NOTE 8. COST OF SALES, SELLING AND ADMINISTRATIVE EXPENSES
The main components of these expenses were as follows, for fiscal year:
Raw materials and purchased parts
Employee costs
Amortization of property, plant and equipment and finite-life intangible assets (notes 15, 16)
Others
Included in cost of sales, selling and administrative expenses:
Foreign exchange (losses) gains upon conversion of net monetary items
NOTE 9. NON-RECURRING ITEMS
Non-recurring items comprise the following, for fiscal year:
Non-recurring items in operating income
Restructuring charges
Goodwill impairment (note 17)
Write-down of investment tax credits receivable (note 14)
Acquisition-related costs (note 5)
Non-recurring items in income tax expense
Write-down of deferred income tax assets (note 24)
Restructuring charges
2021
2020
$ 223,626
$ 221,456
174,206
201,675
43,086
84,556
43,643
93,674
$ 525,474
$ 560,448
(1,456)
1,196
2021
2020
$ 11,115
$
—
—
—
—
79,736
2,267
615
$ 11,115
$ 82,618
$
$
—
—
$ 3,805
$ 3,805
In Fiscal 2021, Héroux-Devtek announced restructuring initiatives in light of the ongoing COVID-19 pandemic. These initiatives affect 15% of
the workforce, or approximately 315 employees, and include the closure of Alta Précision and APPH Wichita.
To date, $11,115 of related costs have been recorded compared to $12,000 initially announced, mainly comprised of employee-related
charges and costs to dismantle and relocate machinery. 85% of staff reductions have been completed, with the remainder to occur
essentially after the closure of APPH Wichita, which is expected by the end of the present calendar year. The closure of Alta Précision is
substantially complete. As at March 31, 2021, restructuring provisions of $3,607 remained on the consolidated balance sheet.
24 – HÉROUX-DEVTEK INC. – Fiscal 2021 Consolidated Financial Statements
Goodwill impairment and write-down of investment tax credits receivable and deferred income tax assets
Management evaluates the recoverability of assets using the budget and strategic plan which covers a five-year period. The budget and
strategic plan are prepared based on the published production rates of aircraft manufacturers, aerospace industry forecasts, general
economic forecasts, and past experience.
The significant decrease in expected demand for commercial aerospace products caused by the ongoing COVID-19 pandemic was quantified
in these estimates, including production rate cuts such as the 40% reduction in large commercial aircraft volume already announced by
Airbus and Boeing.
The downward revision of these forecasts resulted in non-cash impairment charges of goodwill, investment tax credits receivable and
deferred income tax assets during fiscal 2020.
Acquisition-related costs
These costs mainly pertain to professional fees and expenses related to the acquisition of Alta Precision last fiscal year.
NOTE 10. NET FINANCIAL EXPENSES
Net financial expenses comprise the following, for fiscal year:
Interest accretion on governmental authorities loans
Revision of governmental authorities loans repayment estimates (note 20)
Amortization of deferred financing costs
Interest on net defined benefit obligations (note 25)
Other non-cash financial (income) expenses
Non-cash net financial expenses
Interest expense
Interest income on cash and cash equivalents
NOTE 11. EARNINGS PER SHARE
2021
$ 3,018
2020
$ 2,380
(1,649)
(3,153)
794
394
(984)
756
238
820
1,573
7,097
1,041
6,905
(761)
(100)
$ 7,909
$ 7,846
The following table sets forth the elements used to compute basic and diluted earnings per share, for fiscal year:
Weighted-average number of common shares outstanding
Effect of dilutive stock options of the Corporation
Weighted-average number of common diluted shares outstanding
Options excluded from diluted earnings per share calculation(1)
(1) Excluded from diluted earnings per share calculation due to anti-dilutive impact.
NOTE 12. INVENTORIES
As at
Raw materials and purchased parts
Work in progress
Finished goods
2021
2020
36,429,244
36,362,702
93,587
—
36,522,831
36,362,702
862,000
1,497,595
March 31, 2021 March 31, 2020
$ 106,528
107,075
2,838
$ 216,441 $
$ 121,528
116,627
2,964
241,119
The amount of inventories recognized as cost of sales for the fiscal year ended March 31, 2021 is $366,432 ($397,614 in 2020).
HÉROUX-DEVTEK INC. – Fiscal 2021 Consolidated Financial Statements – 25
Reserves related to inventories are as follows, for fiscal year:
Reserves recognized as cost of sales
Reversal of prior-period reserves
2021
2020
$ 11,469
$ 9,113
4,002
4,205
For fiscal year 2021, the reversal of prior-period reserves includes charges of $3,147 ($3,951 in 2020) for products delivered or written-off
during the year for which a net realizable value reserve was recorded in prior years with no effect on income. It also includes the results from
the revaluation, at each reporting date, of the net realizable value of inventories based on related sales contracts, future demand and
production costs. The revaluation takes into consideration the variations in selling price and number of units to deliver for contracts signed
and also the reduction in production costs resulting from improvements in manufacturing processes.
NOTE 13. DERIVATIVE FINANCIAL INSTRUMENTS
As at
Current Assets
Forward foreign exchange contracts
Long-term Assets
Forward foreign exchange contracts
Cross-currency interest rate swap agreements
Equity swap agreement
Current Liabilities
Forward foreign exchange contracts
Long-term Liabilities
Forward foreign exchange contracts
Cross-currency interest-rate swap agreements
Equity swap agreement
NOTE 14. OTHER ASSETS
As at
Investment and other tax credits receivable
Prepaid expenses
Sales tax receivable
Working capital adjustment receivable
Others
Other current assets
Tax credits receivable (note 9)
Long-term receivable
Net Pension plan asset (note 25)
Other long-term assets
March 31, 2021 March 31, 2020
$ 4,903
$ 4,903
$
$
28
28
$ 6,423
$
—
1,863
1,088
3,498
—
$ 9,374
$ 3,498
$
$
$
—
—
—
544
—
$ 9,321
$ 9,321
$ 12,540
1,211
916
$
544
$ 14,667
March 31, 2021 March 31, 2020
$ 7,247
5,055
3,010
—
1,211
$ 16,523
1,445
3,568
56
$
7,371
5,904
2,629
3,595
1,714
$ 21,213
5,737
3,404
—
$ 5,069
$ 9,141
The working capital adjustment receivable pertains to the fiscal 2019 acquisition of Compañia Española de Sistemas Aeronauticos S.A.
which was received during fiscal 2021.
26 – HÉROUX-DEVTEK INC. – Fiscal 2021 Consolidated Financial Statements
NOTE 15. PROPERTY, PLANT AND EQUIPMENT
Cost:
As at March 31, 2020
Additions
Government assistance (note 7)
Retirements and disposals
Effect of changes in exchange rates
As at March 31, 2021
Accumulated amortization:
As at March 31, 2020
Amortization expense
Retirements and disposals
Effect of changes in exchange rates
As at March 31, 2021
Buildings and
leasehold
improvements
Machinery,
equipment
and tooling
Land
Other
Construction
in progress
Total
$ 17,572
$ 144,801
$ 305,453 $ 22,800
$ 3,040 $ 493,666
—
—
—
(789)
7,354
14,686
2,608
(62)
(9,537)
(8,102)
(554)
(3,741)
(14,053)
(66)
(205)
(954)
(1,166)
—
—
(211)
23,482
(682)
(13,483)
(24,109)
$ 16,783
$ 134,454
$ 301,791 $ 24,183
$ 1,663 $ 478,874
$
$
—
—
—
—
—
$ 43,278
$ 176,571 $ 14,176
7,728
(925)
(2,912)
22,794
(4,841)
(6,988)
3,136
(72)
(692)
$ — $ 234,025
33,658
(5,838)
—
—
—
(10,592)
$ 47,169
$ 187,536 $ 16,548
$ — $ 251,253
Net book value as at March 31, 2021
$ 16,783
$ 87,285
$ 114,255 $
7,635
$ 1,663 $ 227,621
Cost:
As at March 31, 2019
Additions
Business acquisitions
Government assistance (note 7)
Retirements and disposals
Effect of changes in exchange rates
As at March 31, 2020
Accumulated amortization:
As at March 31, 2019
Amortization expense
Retirements and disposals
Effect of changes in exchange rates
As at March 31, 2020
Buildings and
leasehold
improvements
Machinery,
equipment
and tooling
Land
Other
Construction
in progress
Total
19,029
30
—
—
(1,975)
488
128,725
9,302
7,036
—
(2,620)
2,358
269,337
16,245
12,316
(30)
(642)
8,227
19,492
2,699
194
—
(28)
443
2,133
772
—
—
—
135
438,716
29,048
19,546
(30)
(5,265)
11,651
$ 17,572
$ 144,801
$ 305,453 $ 22,800
$ 3,040 $ 493,666
$
$
—
—
—
—
—
$ 34,349
$ 150,511 $ 11,010
7,975
21,889
3,269
(352)
(631)
1,306
4,802
(370)
267
$ — $ 195,870
33,133
—
—
—
(1,353)
6,375
$ 43,278
$ 176,571 $ 14,176
$ — $ 234,025
Net book value as at March 31, 2020
$ 17,572
$ 101,523
$ 128,882 $
8,624
$ 3,040 $ 259,641
HÉROUX-DEVTEK INC. – Fiscal 2021 Consolidated Financial Statements – 27
Right of use assets:
The following tables reconciles the right-of-use assets for the Company as at March 31, 2021 and 2020 that is included in Property, Plant and
Equipment:
Cost:
As at March 31, 2020
Additions
Retirements and disposals
Effect of changes in exchange rates
As at March 31, 2021
Accumulated amortization:
As at March 31, 2020
Amortization expense
Retirements and disposals
Effect of changes in exchange rates
As at March 31, 2021
Net book value as at March 31, 2021
Cost:
As at April 1, 2019
Additions
Business acquisition
Effect of changes in exchange rates
As at March 31, 2020
Accumulated amortization:
As at April 1, 2019
Amortization expense
Effect of changes in exchange rates
As at March 31, 2020
Net book value as at March 31, 2020
Building and
leasehold
improvements
Machinery,
equipment and
tooling
Other
Total
$ 26,729
$ 44,827
$ 1,526
$ 73,082
—
1,121
(7,711)
(717)
—
(6)
556
—
(100)
1,677
(7,711)
(823)
$ 18,301
$ 45,942
$ 1,982
$ 66,225
$ 2,250
$ 15,748
$
2,572
5,851
(206)
(166)
—
(1)
532
439
—
(53)
$ 18,530
8,862
(206)
(220)
$ 4,450
$ 21,598
$
918
$ 26,966
$ 13,851
$ 24,344
$ 1,064
$ 39,259
Building and
leasehold
improvements
Machinery,
equipment and
tooling
Other
Total
$ 12,969
$ 41,368
$ 1,271
$ 55,608
6,498
6,844
418
3,454
—
5
206
—
49
10,158
6,844
472
$ 26,729
$ 44,827
$ 1,526
$ 73,082
$
—
$ 10,006
$
2,201
5,741
49
1
—
513
19
$ 10,006
8,455
69
$ 2,250
$ 15,748
$
532
$ 18,530
$ 24,479
$ 29,079
$
994
$ 54,552
Additions to property, plant and equipment shown above can be reconciled as follows, for fiscal year:
Gross additions
Government assistance (note 7)
Additions to property, plant and equipment
Non-cash additions to right-of-use assets
Variation in unpaid additions included in Accounts payable and accrued liabilities at year-end
Additions, as per statements of cash flows
2021
2020
$ 23,482
$ 29,048
(682)
22,800
(1,677)
136
(30)
29,018
(10,158)
1,785
$ 21,259
$ 20,645
As at March 31, 2021, the cost of property, plant and equipment still in use and fully depreciated is $120,314 ($110,782 as at March 31,
2020).
28 – HÉROUX-DEVTEK INC. – Fiscal 2021 Consolidated Financial Statements
NOTE 16. FINITE-LIFE INTANGIBLE ASSETS
Cost:
As at March 31, 2020
Additions
Customers funding
Government assistance (note 7)
Retirements and disposals
Effect of changes in exchange rates
As at March 31, 2021
Accumulated amortization:
As at March 31, 2020
Amortization expense
Retirements and disposals
Effect of changes in exchange rates
As at March 31, 2021
Net book value as at March 31, 2021
Cost:
As at March 31, 2019
Additions
Business acquisitions
Customers funding
Government assistance (note 7)
Retirements and disposals
Effect of changes in exchange rates
As at March 31, 2020
Accumulated amortization:
As at March 31, 2019
Amortization expense
Retirements and disposals
Effect of changes in exchange rates
As at March 31, 2020
Net book value as at March 31, 2020
Capitalized
development
costs
$ 25,955
9,391
(9,514)
(953)
(76)
(145)
Customer
relationships
and contracts
Total
$ 72,103
$ 122,402
—
—
—
(484)
(3,560)
11,173
(9,514)
(1,016)
(929)
(4,719)
Software
$ 24,344
1,782
—
(63)
(369)
(1,014)
$ 24,658
$ 24,680
$ 68,059
$ 117,397
$ 13,409
$ 18,554
$ 26,392
$ 58,355
600
(76)
(44)
$ 13,889
$ 10,769
Capitalized
development
costs
$ 26,356
5,740
—
(5,399)
(833)
—
91
2,574
(3)
(840)
$ 20,285
$ 4,395
Software
$ 21,912
2,090
431
—
—
(321)
232
$ 25,955
$ 24,344
6,254
(119)
(1,300)
$ 31,227
$ 36,832
Customer
relationships
and contracts
9,428
(198)
(2,184)
$ 65,401
$ 51,996
Total
$ 68,086
$ 116,354
—
2,366
—
—
—
7,830
2,797
(5,399)
(833)
(321)
1,651
$ 72,103
1,974
$ 122,402
$ 12,466
808
—
135
$ 15,778
2,513
$ 18,733
7,189
(321)
584
—
470
$ 13,409
$ 12,546
$ 18,554
$ 5,790
$ 26,392
$ 45,711
$ 46,977
10,510
(321)
1,189
$ 58,355
$ 64,047
HÉROUX-DEVTEK INC. – Fiscal 2021 Consolidated Financial Statements – 29
NOTE 17. GOODWILL
Goodwill varied as follows, during fiscal year:
Balance at beginning of the year
Business acquisitions (note 5)
Impairment
Effect of changes in exchange rates
Balance, end of year
The net carrying amount of goodwill was allocated to the following CGUs, as at:
North America
U.K.
Spain
Goodwill
2021
$ 120,773
—
—
(4,803)
$ 115,970
2020
$ 189,012
3,408
(79,736)
8,089
$ 120,773
March 31, 2021 March 31, 2020
$ 24,799
65,735
30,239
$ 120,773
$ 22,594
64,738
28,638
$ 115,970
The following assumptions were used to measure recoverable amounts (value in use), as at:
North America
U.K.
Spain
March 31, 2021
March 31, 2020
Pre-tax discount rate
Perpetual growth rate
Pre-tax discount rate
Perpetual growth rate
14.8 %
14.6 %
15.0 %
2.5 %
2.5 %
2.5 %
13.8 %
13.8 %
14.9 %
2.3 %
2.3 %
2.3 %
The recoverable amount is determined using management’s budget and strategic plan which covers a five-year period. Management
prepares the budget and strategic plan based on the published production rates of aircraft manufacturers, aerospace industry forecasts,
general economic forecasts, and past experience.
The significant decrease in expected demand for commercial aerospace products caused by the ongoing COVID-19 pandemic was quantified
in these estimates, including production rate cuts such as the 40% reduction in large commercial aircraft volume announced by Airbus and
Boeing early in the fiscal year. The downward revision of these forecasts is the main contributing factor to the impairment charges of $53,035
and $26,701 recorded during fiscal 2020, respectively, for the North America and Spain CGUs.
The impairment tests performed as at March 31, 2021 did not indicate any further impairment charges were warranted.
Sensitivity of recoverable amounts
The following table presents, for each CGU, the change in the discount rate or in the perpetual growth rate used in the most recently
performed tests that would have been required to recover the carrying amount of the CGU as at March 31, 2021:
North America
U.K.
Spain
Incremental increase
in pre-tax discount rate
3.8 %
1.0 %
Incremental decrease in
perpetual growth rate
6.7 %
1.5 %
3.2 %
5.4 %
30 – HÉROUX-DEVTEK INC. – Fiscal 2021 Consolidated Financial Statements
NOTE 18. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
As at
Trade payables (1)
Accrued liabilities (2)
Other
Accounts payable and accrued liabilities
(1) Trade payables are normally settled on 30 to 60 day terms.
(2) Accrued liabilities mainly include employees-related liabilities.
NOTE 19. PROVISIONS
$
March 31, 2021
57,508
47,424
4,877
$ 109,809
$
March 31, 2020
80,616
41,007
4,865
$ 126,488
Onerous
contracts
$ 14,889
202
—
(2,980)
(1,772)
—
(991)
$ 9,348
2,436
$ 6,912
Asset retirement
obligations
Product
warranty
Restructuring
(note 9)
Other
(note 26)
Total
$ 6,443
$ 15,778
$
—
$ 10,096
$ 47,206
51
119
(19)
—
(289)
—
$ 6,305
—
$ 6,305
3,208
—
(1,325)
(4,731)
(194)
(549)
$ 12,187
9,233
$ 2,954
8,239
—
(4,632)
—
—
—
$ 3,607
3,607
—
$
2,554
—
(174)
(844)
—
(260)
$ 11,372
9,995
$ 1,377
14,254
119
(9,130)
(7,347)
(483)
(1,800)
$ 42,819
25,271
$ 17,548
As at March 31, 2020
Arising during the year
Interest accretion expense
Utilized
Reversed
Discount rate adjustment
Effect of changes in exchange rates
As at March 31, 2021
Less: current portion
Long-term portion
NOTE 20. LONG-TERM DEBT
As at
Senior Secured Syndicated Revolving Credit Facility (“Revolving Facility“)
Governmental authorities loans
Unsecured Subordinated Term Loan Facility ("Term Loan")
Lease liabilities
Balance of sale - Business acquisitions
Deferred financing costs, net
Less: current portion
Long-term debt
Senior Secured Syndicated Revolving Credit Facility
March 31, 2021 March 31, 2020
$ 96,472
88,590
60,000
44,665
2,983
(3,093)
289,617
16,857
$ 272,760
$ 59,342
90,382
75,000
28,274
—
(2,299)
250,699
15,315
$ 235,384
The Revolving Facility matures in December 2024, has a limit of $250,000, of which $59,342 or US$47,000 is drawn, and bears interest at
Libor + 1.2% representing an effective rate of 1.3% ($96,472 or US$68,000 Libor + 1.5% representing 2.5% at March 31, 2020). It also
includes an accordion feature to increase the limit by an additional $100 million, subject to lenders’ approval. The revolving facility is secured
by essentially all assets of the corporation and its subsidiaries.
Governmental authorities loans
Governmental authorities loans represent government assistance for the purchase of certain equipment or tooling, for the modernization or
additions to the Corporation’s facilities or for development costs capitalized or expensed for aerospace programs. They were granted as
incentives under Canadian federal and provincial or Spanish industrial programs to promote industry development.
HÉROUX-DEVTEK INC. – Fiscal 2021 Consolidated Financial Statements – 31
These loans have varying terms governing the timing and amount to be refund. Repayments, when not on a fixed schedule, are either based
on sales of specific programs or the growth in sales of all or certain of Héroux-Devtek’s product lines and bear no or below-market interest
rate.
They are measured at a discounted value using a corresponding market rate of interest each time they are received, and the related discount
is accreted to income using the effective interest rate method and included in the consolidated statements of income as financial expense.
Assumptions underlying loan repayments are reviewed at least annually. As at March 31, 2021, the Corporation updated the estimated
repayment schedule of its government authorities loans, taking into account revised assumptions mainly related to the reduced sales
forecasts. This resulted in a non-cash gain of $1,649 ($3,153 in fiscal 2020), which was included in Net financial expenses (see note 10).
The effective interest rates for these loans were in the range of 0.0% to 6.8% as at March 31, 2021 (0.0% to 6.8% as at March 31, 2020).
Unsecured Subordinated Term Loan Facility
The Corporation has a Term Loan Facility provided by the Fonds de solidarité FTQ for an amount of up to $75,000. As at March 31, 2021, the
Corporation had $75,000 drawn against this facility, compared to $60,000 as at March 31, 2020, following a $15,000 tranche drawn as a
precaution for potential liquidity requirements related to the COVID-19 pandemic.
The Term Loan Facility is fully drawn and bears interest at a weighted average interest rate of 5.2% (5.5% as at March 31, 2020). All the
tranches are repayable at maturity on September 30, 2025, and starting on September 30, 2021, the Corporation will have the option to make
early repayments subject to certain fees.
Lease liabilities
The incremental borrowing rate applied to lease liabilities recognized at March 31, 2021 ranged between 2.1% and 7.0% for leases (2.8%
and 7.0% as at March 31, 2020), maturing from April 2021 to May 2039.
The following table presents the reconciliation between the opening and the closing balances of the lease liabilities:
As at
Balance at the beginning of the year
Additions
Settlement
Lease payments
Interest expense on lease liabilities
Effect of changes in exchange rates
March 31, 2021 March 31, 2020
$ 44,665
$ 35,303
1,677
(9,130)
(9,359)
1,587
(1,166)
10,158
—
(9,566)
1,819
107
$ 28,274
$ 44,665
The expense related to short-term leases and low-value assets leases during the years ended March 31, 2021 and 2020 was immaterial.
Covenants
Long-term debt is subject to certain general and financial covenants related, among others, indebtedness, cash flows and equity of the
Corporation and/or certain of its subsidiaries. The Corporation complied with all covenants as at March 31, 2021.
32 – HÉROUX-DEVTEK INC. – Fiscal 2021 Consolidated Financial Statements
Minimum repayments
Minimum repayments of long-term debt during the next five years are as follows:
Fiscal years
2022
2023
2024
2025
2026
Beyond 5 years
Sub-Total
Less: Interest
Debt balance (1)
(1) Before net deferred financing costs.
Revolving
Facility
1,151
783
783
59,690
—
—
62,407
3,065
59,342
$
$
Governmental
authorities loans
Term Loan
Lease
liabilities
$ 7,597 $
7,846
10,410
11,060
10,836
65,318
113,067
22,685
3,907 $
3,907
3,907
3,907
76,951
—
92,579
17,579
8,811 $
6,376
3,825
2,417
2,285
10,591
34,305
6,031
Total
21,466
18,912
18,925
77,074
90,072
75,909
302,358
49,360
$ 90,382 $
75,000 $
28,274 $
252,998
The following table presents reconciliation between the opening and closing balances for the Long-term debt.
Long-term debt, at beginning of the fiscal year
Adoption of IFRS 16
Increase in long-term debt
Repayment of long-term debt
Settlement of lease liabilities
Debt acquired through business acquisitions (note 5)
Amortization of deferred financing costs (note 10)
Fees incurred to amend or renew the Credit Facility
Interest accretion and adjustments on governmental authorities loans (note 10)
Effects of fluctuations in exchange rates
Long-term debt, at end of the fiscal year
NOTE 21. OTHER LIABILITIES
As at
Customer advances and progress billings
Deferred revenue
Net defined benefit obligations (note 25)
Other
Other Liabilities
NOTE 22. ISSUED CAPITAL
Authorized
Voting common shares, without par value
First preferred shares, issuable in series, without par value
Second preferred shares, issuable in series, without par value
No preferred shares are outstanding.
March 31, 2021
March 31, 2020
$ 289,617
$ 260,306
—
69,790
(89,616)
(9,130)
—
794
—
1,369
(12,125)
$ 250,699
14,892
41,085
(38,024)
—
8,247
756
(897)
(773)
4,025
$ 289,617
March 31, 2021 March 31, 2020
$ 3,890
1,019
10,079
2,013
$ 17,001
$ 2,763
942
—
1,619
$ 5,324
Unlimited
Unlimited
Unlimited
HÉROUX-DEVTEK INC. – Fiscal 2021 Consolidated Financial Statements – 33
Variations in common shares issued and fully paid were as follows, for fiscal year:
Balance at the beginning of the year
Issued for cash on exercise of stock options
Balance at the end of the year
2021
Issued
capital
Number
2020
Issued
capital
Number
36,367,210 $
79,757
36,362,210 $
79,676
397,500
6,465
5,000
81
36,764,710 $
86,222
36,367,210 $
79,757
In May 2021, the Company filed a notice with the Toronto Stock Exchange of its intention to initiate a normal course issuer bid (‘’NCIB’’) for
purchase and cancellation of up to 2,412,279 of its issued and outstanding common shares.
Stock-based compensation
A. Stock option plan
The Corporation grants stock options at a subscription price representing the average closing price of the Corporation’s common shares on
the Toronto Stock Exchange for the five trading days preceding the grant date. Options granted under the plan mainly vest over a period of
four years. The options are exercisable over a period not exceeding seven years after the grant date.
Variations in stock options outstanding and related compensation expense were as follows, for fiscal year:
Balance at the beginning of the year
Granted
Exercised
Cancelled / forfeited
Balance at the end of the year
Stock-based compensation expense
2021
Weighted-
average
exercise price
Number of
stock options
2020
Weighted-
average
exercise price
Number of
stock options
1,497,595
$ 13.86
1,167,095
$ 13.23
349,000
(397,500)
—
1,449,095
9.83
11.71
—
$ 13.48
$ 1,145
341,500
(5,000)
(6,000)
1,497,595
16.03
11.71
16.03
$ 13.86
$ 1,108
The weighted-average share price at the date of exercise of stock options in fiscal 2021 was $15.13 ($18.10 in 2020).
Details of stock options granted were as follows, for fiscal year:
Number of stock options granted
Weighted average fair value per stock option
Total fair value
Expected life
Expected volatility
Expected forfeiture
Expected dividend distribution
Compounded risk-free interest rate
2021
2020
349,000
341,500
$3.05
$1,064
$4.33
$1,479
5.7 years
5.4 years
31%
1.1%
None
0.4%
25%
3.5%
None
1.6%
As at March 31, 2021, 1,449,095 stock options were issued and outstanding and can be detailed as follows:
Exercisable price
$9.83
$10.71 to $11.45
$14.93 to $16.22
Outstanding options
Weighted-average
years to maturity
Weighted-average
exercise price
6.16
0.90
4.28
4.18
$9.83
10.97
15.66
$13.48
Number
349,000
238,095
862,000
1,449,095
Vested options
Number
—
238,095
513,125
751,220
Weighted-average
exercise price
—
10.97
15.37
13.98
34 – HÉROUX-DEVTEK INC. – Fiscal 2021 Consolidated Financial Statements
As at March 31, 2021, 2,808,257 common shares are reserved for issuance upon exercise of stock options, of which 2,360,007 remained to
be issued, compared to 2,757,507 as at March 31, 2020
B. Deferred Share Unit (“DSU”) and Performance Share Unit (“PSU”) plans
Movements in outstanding DSUs and related expense were as follows, for fiscal year:
In number of DSUs
Balance, beginning of year
Issued
Settled
Closing balance of DSUs outstanding
DSU (income) expense
Fair value of outstanding DSUs, end of year
Movements in outstanding PSUs and related expense were as follows, for fiscal year:
In number of PSUs
Balance, beginning of year
Issued
Settled
Cancelled/forfeited
Closing balance of PSUs outstanding
PSU expense
Fair value of vested outstanding PSUs, end of year
2021
2020
154,950
166,334
37,158
21,671
—
(33,055)
192,108
154,950
$
$
1,644 $
(325)
3,243 $
1,599
2021
2020
278,450
212,450
119,100
119,300
(93,200)
(16,100)
(4,200)
(37,200)
300,150
278,450
$
$
3,004 $
764
4,089 $
2,316
Liabilities related to PSUs and DSUs plans are presented under the Accounts payable and accrued liabilities caption on the Consolidated
Balance Sheets.
NOTE 23. ACCUMULATED OTHER COMPREHENSIVE INCOME
Changes in accumulated other comprehensive income were as follows:
Balance as at March 31, 2020
Other comprehensive (loss) income
Balance as at March 31, 2021
Balance as at March 31, 2019
Other comprehensive income (loss)
Balance as at March 31, 2020
Exchange
differences on
conversion of
foreign operations
Hedge of net
investments in
foreign
operations
Cash flow
hedges
Total
$ 34,845
$ (13,902)
$ (13,783)
$
7,160
(20,781)
22,433
7,467
9,119
$ 14,064
$
8,531
$
(6,316)
$ 16,279
Exchange
differences on
conversion of
foreign operations
$ 19,266
15,579
$ 34,845
Hedge of net
investments in
foreign
operations
Total
$
(6,992)
$ 10,502
(6,791)
$ (13,783)
(3,342)
7,160
$
Cash flow
hedges
$
(1,772)
(12,130)
$ (13,902)
The exchange differences on conversion of foreign operation is net of income tax recovery of $1,080 for 2021 (income tax expense of $377 in
2020).
HÉROUX-DEVTEK INC. – Fiscal 2021 Consolidated Financial Statements – 35
NOTE 24. INCOME TAXES
Income tax expense is as follows, for fiscal year:
Consolidated statements of income (loss)
Current income tax expense
Deferred income tax expense
Income tax expense reported in the consolidated statements of income
Consolidated statements of changes in shareholders’ equity
Expense (recovery) related to items charged or credited directly to retained earnings
Expense (recovery) related to items charged or credited directly to other comprehensive income
Income tax expense (recovery) reported directly in shareholders’ equity
The computation of income tax expense is as follows, for fiscal year:
Income taxes at combined Federal and Provincial statutory rates of 26.4% (26.5% last year)
Income tax rate differential – foreign subsidiaries
Permanent differences
Non deductible goodwill impairment
Write-down of deferred tax asset
Other items
Income tax expense
Significant deferred income tax assets and liabilities arising from the effect of temporary differences are as follows:
2021
2020
$
$
6,149 $
225
7,637
5,105
6,374 $ 12,742
$
2,709 $
(631)
8,189
(4,484)
$ 10,898 $
(5,115)
2021
2020
6,933 $ (10,030)
(3,733)
(1,263)
1,227
1,399
21,130
—
3,805
544
(1,239)
343
6,374 $ 12,742
$
$
As at
Deferred income tax assets
Non-deductible reserves
Inventories
Receivables
Derivative financial instruments
Lease liabilities
Governmental authorities loans
Deferred tax benefits from tax losses and deductible expenses carried forward
Total deferred income tax assets
Deferred income tax liabilities
Investment and other tax credits
Property, plant and equipment
Customer relationships and contracts
Derivative financial instruments
Total deferred income tax liabilities
Net deferred income tax (liabilities) assets
March 31, 2021 March 31, 2020
$ 9,403
5,011
53
—
1,225
477
18,918
$ 35,087
(533)
(22,365)
(9,946)
(3,141)
$ (35,985)
$ 10,785
5,625
14
4,707
3,837
15
23,538
$ 48,521
(59)
(25,793)
(11,783)
—
$ (37,635)
(898)
$
10,886
$
36 – HÉROUX-DEVTEK INC. – Fiscal 2021 Consolidated Financial Statements
The net deferred income tax assets are included under the following captions on the consolidated balance sheets:
As at
Deferred income tax assets
Deferred income tax liabilities
Net deferred income tax (liabilities) assets
March 31, 2021 March 31, 2020
$ 8,485
$ 19,698
(9,383)
(8,812)
$
(898)
$ 10,886
As at March 31, 2021, net deferred income tax assets of $11,111 were recognized ($12,162 as at March 31, 2020) in jurisdictions that
incurred losses in current and prior fiscal years. Based upon the level of historical taxable income and projections for future taxable income,
the Corporation’s management believes it is probable that the Corporation will realize the full benefits of these deductible temporary
differences and non-capital losses carried forward.
As at March 31, 2021, operating losses carried forward or other temporary differences for which related deferred income tax assets have not
been recognized in the consolidated financial statements amounted to $34,095 ($28,354 as at March 31, 2020).
The Corporation had the following non-capital losses and undeducted interest expenses available for carry-forward:
As at
Canada
United States
United Kingdom
Spain
March 31, 2021
March 31, 2020
$ 18,822
66,938
5,785
20,852
$ 26,094
73,198
1,802
24,357
$ 112,397
$ 125,451
As at March 31, 2021, deferred income tax assets of $11,137 and deferred income tax liabilities of $1,311 are expected to be recovered or
settled in less than one year.
Deferred income tax is not recognized on the unremitted earnings of subsidiaries where the Corporation is able to control the timing of the
remittance and it is probable that there will be no remittance in the foreseeable future. As at March 31, 2021, the temporary differences
associated with investments in subsidiaries for which a deferred income tax liability has not been recognized aggregate to $21,347 ($28,850
in 2020).
NOTE 25. PENSION AND OTHER RETIREMENT BENEFIT PLANS
Description of benefit plans
The Corporation has funded and unfunded defined benefit pension plans as well as defined contribution pension plans that provide pension
benefits to its employees. Retirement benefits provided by the defined benefit pension plans are based on either years of service and flat
amount, years of service and final average salary, or set out by individual agreements.
Benefits provided by the post-retirement benefit plans are set out by individual agreements, which mostly provide for life insurance coverage
and health care benefits. Since their amount is not significant, they are not included in the figures below.
Total cash payments
For fiscal year 2021, total cash payments for employee future benefits, consisting of cash contributed by the Corporation to its funded defined
benefit pension plans and cash payments directly to beneficiaries for its unfunded defined benefit pension plans amounted to $1,627 ($1,417
in 2020) while the cash contributed to its defined contribution plans amounted to $3,252 ($3,425 in 2020).
Defined benefit plans
The Corporation measures the fair value of plan assets for accounting purposes as at March 31 of each year while its defined benefit
obligations are valued as at December 31 of each year and projected to March 31 for all plans, except one plan for which the valuation is
made as at March 31.
HÉROUX-DEVTEK INC. – Fiscal 2021 Consolidated Financial Statements – 37
The defined benefit plans expose the Corporation to actuarial risks such as:
•
•
•
•
Life expectancy risk
◦
The present value of defined benefit obligations is calculated in part by reference to the estimated life expectancy of plan
members. An increase in life expectancy increases the Corporation’s obligations.
Currency risk
◦
As a significant portion of plan assets are invested in foreign equities, an increase in the value of the Canadian dollar in
comparison to the denomination of these foreign equities would result in an increase in the Corporation’s obligations.
Interest rate risk
◦
A decrease in market rates of interest would decrease the discount rate used to calculate the present value of defined
benefit obligations, thus increasing it. This would be partially offset by the resulting increase in the value of the plans’
bond holdings.
Investment risk
◦
Investment risk is the risk that the return on plan assets is lower than the corporate bond interest rate used to determine
the discount rate. Currently, the plans have an investment mix of 70% in equity funds, 30% in debt securities and 0% in
other funds. Due to the long-term nature of the plans’ defined benefit obligations, the Corporation considers it appropriate
that a reasonable portion of the plans’ assets is invested in equity securities and other funds in order to generate
additional long-term return on plan assets.
The reconciliation of the present value of the defined benefit obligations and the fair value of plan assets to the amounts recognized in the
consolidated balance sheets is as follows:
As at
Present value of defined benefit obligations of funded plans
Fair value of plan assets
Funded status of the plans – surplus (deficit)
Present value of defined benefit obligations of unfunded plan
Amount recognized in other long-term assets (other long-term liabilities) (notes 14, 21)
March 31, 2021 March 31, 2020
$ 64,234
55,117
(9,117)
(962)
$ (10,079)
$ 69,289
69,988
699
(643)
56
$
Defined benefit pension expense recognized in the consolidated statements of income is as follows, for fiscal year:
Current service cost
Interest on net defined benefit obligations (note 10)
Past service cost
Administrative cost
Defined benefit pension expense recognized in the consolidated statements of income
The total amount recognized in other comprehensive income (loss) is as follows, for fiscal year:
Remeasurements
Losses from changes in demographic assumptions
(Losses) gains from changes in financial assumptions
Experience gains (losses)
Return on plan assets, excluding interest income on plan assets
Other comprehensive income (loss)
The actual return on the fair value of plan assets is as follows, for fiscal year:
Actual return on the fair value of plan assets
38 – HÉROUX-DEVTEK INC. – Fiscal 2021 Consolidated Financial Statements
2021
1,053 $
394
—
307
1,754 $
2020
1,408
238
543
259
2,448
$
$
2021
2020
$
— $
(59)
(4,519)
1,801
12,980
$ 10,262 $
4,494
(486)
(6,347)
(2,398)
2021
$ 15,070 $
2020
(4,364)
The variation in present value of the defined benefit obligations were as follows, for fiscal year:
As at
Defined benefit obligations at the beginning of the year
Current service cost
Interest expense
Contributions by plans’ participants
Losses from changes in demographic assumptions
Losses (gains) from changes in financial assumptions
Experience losses (gains)
Benefits paid
Past service benefits
Defined benefit obligations at the end of the year
The fair value of plan assets is as follows:
As at
Fair value of plans’ assets at the beginning of the year
Interest income on plans’ assets
Return on plans’ assets, excluding interest income on plans’ assets
Contributions by the employer
Contributions by plans’ participants
Benefits paid
Administrative costs
Fair value of plans’ assets at the end of the year
The plans’ assets consist of:
As at
Equity securities
Debt securities
Other
Total
Significant assumptions
The significant weighted-average assumptions used at the reporting date are as follows, for fiscal year:
Defined benefit obligations as at March 31:
Discount rate
Rate of compensation increase
Average life expectancies based on a pension at 65 years of age:
Male, 45 years of age at reporting date
Female, 45 years of age at reporting date
Male, 65 years of age at reporting date
Female, 65 years of age at reporting date
March 31, 2021 March 31, 2020
$ 67,360
1,408
2,221
694
59
(4,494)
486
(3,081)
543
$ 65,196
$ 65,196
1,053
2,484
943
—
4,519
(1,801)
(2,462)
—
$ 69,932
March 31, 2021 March 31, 2020
$ 60,710
1,983
$ 55,117
2,090
12,980
1,627
943
(2,462)
(307)
$ 69,988
(6,347)
1,417
694
(3,081)
(259)
$ 55,117
March 31, 2021 March 31, 2020
58 %
41 %
1 %
100 %
70 %
30 %
— %
100 %
2021
2020
3.28 %
3.50 %
3.80 %
3.50 %
86
89
87
90
87
89
88
90
HÉROUX-DEVTEK INC. – Fiscal 2021 Consolidated Financial Statements – 39
The following table summarizes the effects of the changes in these actuarial assumptions on the defined benefit obligations for the fiscal year
ended and as at March 31, 2021:
Increase (Decrease)
Discount rate
Increase of 0.5%
Decrease of 0.5%
Rate of compensation
Increase of 0.5%
Decrease of 0.5%
Average life expectancies
Increase of 1 year
Decrease of 1 year
Defined
benefit
obligations
%
(6.2)
7.0
—
—
2.2
(2.1)
Corporation’s pension benefits future cash flows
The cash contributions expected to be made to these plans in fiscal year 2022 amount to $928.
The duration of the defined benefit obligations at March 31, 2021 is 14.6 years (14.7 years in 2020). The expected maturity of undiscounted
pension benefits for the Unionized Pension Plan is presented as follows:
As at
Less than a year
Between 1-2 years
Between 2-5 years
Over 5 years
Total
Defined contribution pension plans
The defined contribution pension plans’ costs are as follows, for fiscal year:
Defined contribution pension plan costs
NOTE 26. COMMITMENTS
March 31, 2021 March 31, 2020
$ 1,860
2,096
7,071
150,545
$ 161,572
$ 2,095
2,174
7,643
147,799
$ 159,711
2021
3,252 $
2020
3,425
$
Commitments
The Corporation has commitments for outstanding purchases orders relating to machinery and equipment which have not been delivered yet
to the Corporation’s facilities. The minimum payments over the next five years are as follows:
Building, machinery and equipment acquisition commitments
$ 1,572
—
—
—
—
— $ 1,572 $ 7,441
2022
2023
2024
2025
2026 Thereafter
Total
2021
Total
2020
Guarantees
The Corporation executes agreements that provide for indemnification and guarantees to counterparties in transactions such as business
disposition and the sale of assets.
These indemnification undertakings and guarantees may require the Corporation to compensate the counterparties for costs or losses
incurred as a result of various events including breaches of representations and warranties, intellectual property right infringement, loss of or
damage to property, environmental liabilities, changes in or in the interpretation of laws and regulations (including tax legislations), valuation
differences or as a result of litigations that may be suffered by the counterparties.
40 – HÉROUX-DEVTEK INC. – Fiscal 2021 Consolidated Financial Statements
In the sale of all or a part of a business or assets, in addition to possible indemnification relating to failure to perform covenants and breach of
representations and warranties, the Corporation may have to indemnify against claims related to past conduct of the business. The nature of
these indemnification agreements prevents the Corporation from estimating the maximum potential liability that could be required under
guarantees, since these events have not occurred yet. As at March 31, 2021, the duration of these indemnification agreements could extend
up to fiscal year 2024. As at March 31, 2021, an amount of $4,588 ($4,804 in 2020) was provided for in the Corporation’s provisions in
respect to these items and is classified as short-term provision (note 19) given the undetermined date of settlement.
Letters of credit
As at March 31, 2021, the Corporation has outstanding letters of credit amounting to $22,772 ($22,590 in 2020).
NOTE 27. CONTINGENCIES
The Corporation is involved in litigations and claims in the normal course of business. Management is of the opinion that any resulting
settlements would not materially affect the Corporation’s consolidated financial position and operating results.
NOTE 28. NET CHANGE IN NON-CASH ITEMS
The net change in non-cash items is detailed as follows, for fiscal year:
Accounts receivable
Income tax receivable
Inventories
Other current and long-term assets
Accounts payable and accrued liabilities and other liabilities
Provisions
Customers advances and progress billings
Income tax payable
Effect of changes in exchange rates(1)
2021
$ 11,324 $
(453)
21,812
8,423
2020
4,328
1,102
(45,517)
116
(19,727)
(3,661)
5,301
739
(904)
3,320
(8,822)
11,072
(508)
5,381
$ 22,854 $ (29,528)
(1) Reflects the total impact of changes in exchange rates during the period on non-cash items listed above for the Corporation’s foreign subsidiaries.
NOTE 29. GEOGRAPHIC INFORMATION
The geographic segmentation of the Corporation’s assets is as follows:
As at
Property, plant and equipment, net
Finite-life intangible assets, net
Goodwill
As at
Property, plant and equipment, net
Finite-life intangible assets, net
Goodwill
March 31, 2021
Canada
U.S.
U.K.
Spain
Total
$ 99,161 $ 69,998 $ 19,528 $ 38,934 $ 227,621
11,943
5,404
3,823
17,191
2,823
64,737
33,407
51,996
28,638
115,970
March 31, 2020
Canada
U.S.
U.K.
Spain
Total
$ 115,058 $ 80,245 $ 20,873 $ 43,465 $ 259,641
15,802
5,404
4,225
19,395
6,119
65,735
37,901
64,047
30,239
120,773
HÉROUX-DEVTEK INC. – Fiscal 2021 Consolidated Financial Statements – 41
Geographic sales based on the customers’ location are detailed as follows, for fiscal year:
United States
Canada
United Kingdom
Spain
Rest of Europe
Other countries
2021
2020
$ 300,691 $ 326,860
57,472
62,734
48,049
67,647
50,234
$ 570,685 $ 612,996
56,343
47,877
47,730
73,532
44,512
NOTE 30. EXECUTIVE COMPENSATION
Key management includes directors (executive and non‑executive) and members of the Executive Committee. The executive compensation
expense to key management is as follows, for fiscal year:
Short-term employee benefits and other benefits
Pension and other post-retirement benefits
Share-based payments
NOTE 31. FINANCIAL INSTRUMENTS
Fair value hierarchy
2021
3,820 $
196
1,333
5,349 $
2020
4,019
173
1,301
5,493
$
$
Financial assets and financial liabilities measured at fair value in the consolidated balance sheets are grouped into three levels of a fair value
hierarchy. The three levels are defined based on the observability of significant inputs to the measurement, as follows:
Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities
Level 2: inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly, and
Level 3: unobservable inputs for the asset or liability.
The classifications of financial instruments as well as their carrying amounts and fair values are summarized as follows:
As at
March 31, 2021
March 31, 2020
Financial assets
Cash and cash equivalents
Derivative financial instruments
Financial liabilities
Derivative financial instruments
Long-term debt, including current portion
Fair value
hierarchy
Carrying
amount
Fair Value
Fair value
hierarchy
Carrying
amount
Fair Value
Level 1
$
95,470 $
95,470
Level 1
$
45,841 $
45,841
Level 2
14,277
14,277
Level 2
3,526
3,526
$
109,747 $
109,747
$
49,367 $
49,367
Level 2
$
544 $
544
Level 2
$
23,988 $
23,988
Level 2
252,998
270,790
Level 2
292,710
318,456
$
253,542 $
271,334
$
316,698 $
342,444
Derivative financial instruments - The fair value of derivative financial instruments recognized in the consolidated balance sheets has been
determined using the Corporation’s valuation models and compared to the fair value information provided by the financial institutions using
exchange rates or interest rates quoted in the active market and adjusted for the credit risk added by the financial institution. These models
project future cash flows and discount the future amounts to a present value using the contractual terms of the derivative financial
instruments and factors observable in external markets data, such as period-end interest‑rate swap and foreign exchange rates.
Long-term debt – The fair value of long-term debt has been determined by calculating the present value of long-term debt using the rate that
would be negotiated under the economic conditions at year-end.
42 – HÉROUX-DEVTEK INC. – Fiscal 2021 Consolidated Financial Statements
NOTE 32. FINANCIAL RISK MANAGEMENT
The Corporation is exposed primarily to market risk, credit and credit concentration risks, and liquidity risk as a result of holding financial
instruments.
Market Risk
Market risk is the risk of fluctuations in the fair value or future cash flows of financial instruments following changes in market prices, whether
those changes are caused by factors specific to the individual financial instruments or its issuer, or factors affecting all similar financial
instruments traded in the market. The Corporation is primarily exposed to the following market risks:
Foreign exchange risk
The Corporation is exposed to risks resulting from foreign currency fluctuations arising either from carrying on business in Canada in foreign
currencies or through operations in the United States of America, Spain and the United Kingdom.
In an effort to mitigate the foreign currency fluctuation exposures, the Corporation makes use of derivative contracts to hedge this exposure,
essentially to the U.S. currency and arising from its Canadian, Spanish and United Kingdom operations.
The Corporation’s foreign exchange policy requires the hedging of 50% to 100% of the identified foreign currency exposure, mainly over the
next two fiscal years, of the forecasted cash inflows generated by sales in U.S. currency made by its Canadian, Spanish and United Kingdom
operations and related to sales contracts, net of the forecasted cash outflows in U.S. currency made by its Canadian, Spanish and United
Kingdom operations and related essentially to raw materials and certain other material costs.
As at March 31, 2021, the Corporation had forward foreign exchange contracts outstanding for a notional amount of $268,737 denominated
in USD, EUR and GBP. This amount includes mainly contracts with nominal value of US$197,500 convertible into Canadian dollars at an
average rate of 1.3161. These contracts mature at various dates between April 2021 and March 2025, with the majority maturing fiscal years
2022 and 2023.
As at March 31, 2021, a 1% strengthening of the Canadian dollar over foreign currencies, while all other variables would remain fixed, would
have impacted the consolidated net income and the other comprehensive income as follows:
Decrease in net income
Increase (decrease) in other comprehensive income (loss)
U.S. dollar
impact
(468)
1,220
$
British pound
impact
(41)
(1,713)
$
Euro
impact
(28)
(691)
$
The foreign exchange rate sensitivity analysis shown above is calculated by aggregation of the net foreign exchange rate exposure of the
Corporation’s financial instruments including the forward foreign exchange contracts as at the consolidated balance sheet date.
Interest-rate risk
The Corporation is exposed to interest rate fluctuations primarily due to its variable interest rate on its long-term debt’s Credit Facility (see
note 20). In addition, interest rate fluctuations could also have an impact on the Corporation’s interest income which is derived from its cash
and cash equivalents.
The Corporation’s interest rate policy requires maintaining an appropriate mix of fixed and variable interest rates debt to mitigate the net
impact of fluctuating interest rates. Management as such may use derivatives to maintain a fixed debt ratio of between 40% and 100% of
long-term debt, excluding lease liabilities and government loans.
Cross-currency interest rate swaps
The acquisition of CESA exposed the Corporation to foreign currency and interest rate risks related to the investment in Euros. A decrease in
value of the Euro compared to the Canadian dollar would decrease the value of the foreign investment, and an increase in interest rates
underlying debt would increase related net financial expenses.
As at March 31, 2021, the Corporation had cross-currency interest rate swap agreements exchanging CAD and USD-denominated debt to
EUR for a total notional amount of € 90.5 million in order to mitigate foreign exchange and interest rate risks. These agreements mature
between May 2022 and September 2025, and mainly bear interest at a weighted average fixed rate of 2.7%.
HÉROUX-DEVTEK INC. – Fiscal 2021 Consolidated Financial Statements – 43
In order to mitigate these risks, as at March 31, 2021, the Corporation had entered into the following cross-currency interest rate swap
agreements in order to manage foreign exchange and interest rate risks:
Notional
US$ 29,370
C$ 50,000
US$ 17,523
C$ 10,000
C$ 15,000
Fixed EUR equivalent
Interest rate
Inception
Maturity
€
€
€
€
€
25,000
34,110
15,000
6,658
9,700
1.75 %
3.40 %
October 2017
December 2024
October 2017
September 2025
Euribor 1 month + 1.74%
September 2018
May 2022
2.68 %
2.65 %
June 2019
September 2025
January 2021
September 2025
A 100 basis point variation in interest rates would have affected the Corporation’s financial results for fiscal 2021 as follows:
Impact on net income related to floating rate long-term debt
Impact on comprehensive income related to cross-currency interest-rate swap agreements
100 bps increase
$
(91)
100 bps decrease
$
91
510
(529)
The interest rate sensitivity analysis shown above is calculated on the floating-rate liability at the end of the fiscal year and assumes all other
variables remain fixed.
Other price risk
The Corporation’s net income is exposed to fluctuations of its share price through its DSUs and PSUs (see note 22). In order to mitigate this
exposure, the Corporation has entered into an equity swap agreement with a financial institution.
Pursuant to this agreement, upon settlement, the Corporation receives payment for any share price appreciation while providing payment to
the financial institution for any share price depreciation. The net effect of the equity swap partly offsets movements in the Corporation’s share
price which impacts the expense of the DSUs and PSUs included in the Corporation’s selling and administrative expenses.
As at March 31, 2021, the equity swap agreement covered 300,000 common shares of the Corporation at a price of $13.52. This agreement
is a derivative instrument that is not part of a designated hedging relationship and matures in June 2022.
Credit and credit concentration risks
The credit and credit concentration risks represent counterparty risks where the parties with which the Corporation enters into agreements or
contracts could be unable to fulfill their commitments.
Credit risks are primarily related to the potential inability of customers to discharge their obligations with regards to the Corporation’s
accounts receivable and of financial institutions with regards to the Corporation’s cash and cash equivalents and derivative financial
instruments.
Credit concentration risks are related to the fact that approximately 65% of the Corporation’s fiscal 2021 sales are made to the top ten
customers (63% in 2020). More specifically, in fiscal 2021, the Corporation had one customer representing 17% of its consolidated sales (one
customer representing 22% in 2020).
Accounts receivable
The credit and credit concentration risks related to these financial instruments are limited due to the fact that the Corporation deals generally
with large corporations and Government agencies, with the exception of sales made to private small businesses which represent together
approximately 3.0% in fiscal 2021 (3.7% in 2020) of the Corporation’s consolidated sales.
As at March 31, 2021, the Corporation has historically not made any significant write-off of accounts receivable and the number of days in
accounts receivable was at acceptable levels in the industry in which the Corporation operates.
In response to the COVID-19 pandemic, the Corporation has increased the frequency of its close monitoring of the credit quality of the
accounts receivable. In certain circumstances, cash-on-delivery arrangements is made with certain customers. There were no material
increases in allowance for doubtful accounts following the COVID-19 pandemic as the quality of the accounts receivable based on the
Corporation’s assessment until this date has not materially decreased. The effects of COVID-19 pandemic are still evolving and certain
customers’ credit situations are difficult to assess given the immaterial bad debt experience with these customers.
44 – HÉROUX-DEVTEK INC. – Fiscal 2021 Consolidated Financial Statements
Changes in the allowance for doubtful accounts were as follows for the fiscal year ended March 31, 2021:
Balance, beginning of year
Arising during the year
Balance at the end of the year
The details of the Corporation’s trade receivables are the following:
As at
Not past due
Past due less than 90 days
Past due more than 90 days
Impaired
Allowance for doubtful accounts
Balance at the end of the year
2021
1,188
506
1,694
$
$
March 31, 2021 March 31, 2020
$ 95,609
5,243
566
—
101,418
(1,694)
$ 103,099
7,820
2,264
563
113,746
(1,188)
$ 99,724
$ 112,558
Cash and cash equivalents and derivative financial instruments
The credit and credit concentration risks related to these financial instruments are limited due to the fact that the Corporation deals mainly
with high-grade financial institutions such as Canadian chartered banks and their U.S. subsidiaries or branches or with a Canadian branch of
a U.S. bank, based on the Corporation’s investment policy. On that basis, the Corporation does not anticipate any breach of agreements by
counterparties.
As at March 31, 2021, the maximum exposure to credit and credit concentration risks for financial instruments represented the following (see
note 31):
Cash and cash equivalents
Accounts receivable
Derivative financial instruments
(1) Represents the fair value of derivative financial instruments designated in a hedging relationship.
Liquidity risk
$
FVTPL
FVTOCI (1)
— $
—
1,088
— $
—
13,189
A.C.
95,470
99,724
—
The Corporation is exposed to the risk of being unable to honour its financial commitments by the deadlines set, under the terms of such
commitments and at a reasonable price. The Corporation manages its liquidity risk by forecasting cash flows from operations and anticipated
investing and financing activities. Senior management is also actively involved in the review and approval of long-term sales contracts and
planned capital expenditures.
As at March 31, 2021, the maturity analysis of financial liabilities represented the following:
Accounts payable and accrued liabilities
$
Customer advances
Long-term debt, including current portion (note 20)
Derivative financial instruments
11,818
21,466
—
NOTE 33. CAPITAL RISK MANAGEMENT
< 1 year
109,809 $
1 to 3 years
4 to 5 years
> 5 years
— $
—
— $
—
— $
—
37,837
167,146
59
485
75,909
—
Total
109,809
11,818
302,358
544
The general objectives of the Corporation’s management, in terms of capital management, reside in the preservation of the Corporation’s
capacity to continue operating, providing benefits to its stakeholders and in providing an adequate return on investment to its shareholders by
selling its products and services at a price commensurate with the level of operating risk assumed by the Corporation.
HÉROUX-DEVTEK INC. – Fiscal 2021 Consolidated Financial Statements – 45
The Corporation thus determines the total amount of capital required consistent with risk levels. This capital structure is adjusted on a timely
basis depending on changes in the economic environment and risks of the underlying assets.
In order to maintain or adjust its capital structure, the Corporation can, for example:
•
•
•
•
Issue new common shares;
Repurchase common shares;
Sell certain assets to reduce indebtedness;
Return capital to shareholders.
The net debt-to-equity ratio, represented by net debt divided by shareholders’ equity, is the overriding factor in the Corporation’s capital
management and monitoring practices.
During fiscal year ended March 31, 2021, the Corporation pursued the same capital management strategy as last year, which consists in
generally maintaining a sufficient net debt-to-equity ratio to allow access to financing at a reasonable or acceptable cost.
The Corporation’s net debt-to-equity ratio was as follows:
As at
Current portion of long-term debt
Long-term debt
Deferred financing costs, net
Less: Cash and cash equivalents
Net debt
Shareholders’ equity
Net debt-to-equity ratio
The Corporation is not subject to any regulatory capital requirements.
March 31, 2021
March 31, 2020
$ 15,315
235,384
2,299
95,470
$ 157,528
391,732
0.40:1
$ 16,857
272,760
3,093
45,841
$ 246,869
349,448
0.71:1
46 – HÉROUX-DEVTEK INC. – Fiscal 2021 Consolidated Financial Statements
MANAGEMENT’S DISCUSSION AND ANALYSIS
For the fiscal year ended March 31, 2021
TABLE OF CONTENTS
OVERVIEW..................................................................................................................................................................................................
Forward-looking Statements.....................................................................................................................................................................
Highlights of the Year................................................................................................................................................................................
Overview of the Business..........................................................................................................................................................................
Impact of COVID-19..................................................................................................................................................................................
Economic Outlook.....................................................................................................................................................................................
OPERATING RESULTS..............................................................................................................................................................................
Non-IFRS Financial Measures..................................................................................................................................................................
LIQUIDITY AND CAPITAL RESOURCES..................................................................................................................................................
Credit Facility and Cash and Cash Equivalents........................................................................................................................................
Government Authorities Loans..................................................................................................................................................................
Variations in Cash and Cash Equivalents.................................................................................................................................................
Free Cash Flow.........................................................................................................................................................................................
Liquidity Requirements..............................................................................................................................................................................
FINANCIAL POSITION................................................................................................................................................................................
Capital Structure........................................................................................................................................................................................
Issued Capital............................................................................................................................................................................................
Consolidated Balance Sheets...................................................................................................................................................................
Pension Plans...........................................................................................................................................................................................
ADDITIONAL INFORMATION.....................................................................................................................................................................
Business Acquisition.................................................................................................................................................................................
Foreign Exchange.....................................................................................................................................................................................
Risk Management.....................................................................................................................................................................................
Key Performance Indicators......................................................................................................................................................................
Derivative Financial Instruments...............................................................................................................................................................
Internal Controls and Procedures..............................................................................................................................................................
Critical Accounting Estimates....................................................................................................................................................................
Selected Financial Information..................................................................................................................................................................
Shareholder Information............................................................................................................................................................................
Additional Information and Continuous Disclosure....................................................................................................................................
49
49
50
51
52
53
55
59
61
61
62
63
65
66
67
67
68
68
69
70
70
70
71
77
77
78
78
81
82
82
48 – HÉROUX-DEVTEK INC. – Fiscal 2021 MD&A
OVERVIEW
The purpose of this management discussion and analysis (‘’MD&A’’) is to provide the reader with an overview of how the financial position of
Héroux-Devtek Inc. and its subsidiaries (‘’Héroux-Devtek’’, the ‘’Corporation’’ or “Management”) evolved between March 31, 2020 and
March 31, 2021. It also compares the operating results and cash flows for the quarter and fiscal year ended March 31, 2021 to those of the
same periods of the prior fiscal year.
This MD&A is based on the audited consolidated financial statements for fiscal year ended March 31, 2021, which are prepared in
accordance with International Financial Reporting Standards (“IFRS”), and should be read in conjunction with them. All amounts in this MD&A
are in thousands of Canadian dollars, the Corporation’s functional and presentation currency for all periods referred to herein, unless
otherwise indicated. Financial data for the quarters ended March 31, 2021 and 2020 has not been audited.
IFRS and non-IFRS financial measures
This MD&A contains both IFRS and non-IFRS financial measures. Non-IFRS financial measures are defined and reconciled to the most
comparable IFRS measures in the Non-IFRS Financial Measures section under Operating Results.
Materiality for disclosures
Management determines whether information is material based on whether they believe a reasonable investor’s decision to buy, sell or hold
securities of the Corporation would likely be influenced or changed should the information be omitted or misstated, and discloses material
information accordingly.
FORWARD-LOOKING STATEMENTS
This MD&A contains forward-looking statements which are mainly about, but may not be limited to, Héroux-Devtek’s future financial
performance, expectations, objectives or possible events. These statements are mainly, but may not be exclusively, contained in the
Economic Outlook section and are usually identifiable by the use of such terms as: “aim”, “anticipate, “assumption”, “believe”, “continue”,
“expect”, “foresee”, “forecast”, “guidance”, “intend”, “may”, “plan”, “predict”, “should” or “will”. The predictive nature of such statements makes
them subject to risks, uncertainties and other important factors that could cause the actual performance or events to differ materially from
those expressed in or implied by such statements.
Such factors include, but are not limited to: the effect of the ongoing COVID-19 pandemic on Héroux-Devtek’s operations, customers, supply
chain, the aerospace industry and the economy in general; the impact of other worldwide general economic conditions; industry conditions
including changes in laws and regulations; increased competition; the lack of availability of qualified personnel or management; availability of
commodities and fluctuations in commodity prices; financial and operational performance of suppliers and customers; foreign exchange or
interest rate fluctuations; and the impact of accounting policies issued by international standard setters. For more details, please see the
Impact of COVID-19 section under Overview and the Risk Management section under Additional Information. Readers are cautioned that the
foregoing list of factors that may affect future growth, results and performance is not exhaustive and undue reliance should not be placed on
forward-looking statements.
Héroux-Devtek provides such forward-looking statements for the purpose of assisting the reader in understanding the Corporation’s financial
performance and prospects and to present management’s assessment of future plans and operations. The reader is cautioned that such
statements may not be appropriate for other purposes.
Although management believes in the expectations conveyed by the forward-looking statements and while they are based on information
available on the date such statements were made, there can be no assurance that such expectations will prove to be correct and readers are
advised that actual results may differ from expected results. All subsequent forward-looking statements, whether written or orally attributable
to the Corporation or persons acting on its behalf, are expressly qualified in their entirety by these cautionary statements. Unless otherwise
required by applicable securities laws, the Corporation expressly disclaims any intention, and assumes no obligation to update or revise any
forward-looking statements whether as a result of new information, future events or otherwise.
HÉROUX-DEVTEK INC. – Fiscal 2021 MD&A – 49
HIGHLIGHTS OF THE YEAR
Fiscal year
Sales
Operating income (loss)
Adjusted operating income (1)
Adjusted EBITDA (1)
Net income (loss)
Adjusted net income (1)
Cash flows related to operating activities
Free cash flow (1)
In dollars per share
Earnings (Loss) per share - basic and diluted
Adjusted EPS (1)
As at
Funded backlog (2)
2021
2020
$ 570,685 $ 612,996
(30,070)
52,548
96,191
(50,658)
35,666
52,573
30,330
34,096
45,211
88,297
19,813
29,034
89,188
67,286
$
0.55 $
0.80
March 31,
2021
(1.38)
1.00
March 31,
2020
$ 717,000 $ 810,000
(1) Non-IFRS financial measure. Refer to the Non-IFRS financial measures section under Operating Results for definitions and reconciliations to the most
comparable IFRS measures.
(2) Represents firm orders.
Key Events
▪
▪
▪
All of our facilities remained open throughout the year and, despite the global pandemic, the Corporation has improved its financial
position, with net debt reducing by $89.3 million, bringing the net debt to adjusted EBITDA ratio down from 2.6x to 1.8x.
The Corporation generated sales of $570.7 million resulting in an operating income of $34.1 million, and Adjusted EBITDA of $88.3
million in fiscal 2021. These results compared to sales of $613.0 million, an operating loss of $30.1 million and Adjusted EBITDA of
$96.2 million in fiscal 2020. Fiscal 2020 results included impairment charges of $85.8 million as a result of a reduction in expected
demand for commercial aerospace products caused by the COVID-19 pandemic.
During Fiscal 2021, the Corporation announced restructuring initiatives in light of the ongoing COVID-19 pandemic. These initiatives
affect 15% of the workforce and include the closure of the Alta Precision and APPH Wichita facilities. The initiatives are progressing as
planned and are generating the anticipated savings for the Corporation’s cost structure. To date, approximately 85% of the overall
planned workforce reduction have been completed and $11.1 million of restructuring charges have been incurred, compared to the
$12.0 million initially announced. Refer to the Non-Recurring Items section under Operating Results for further details.
▪
Other operational highlights:
▪
▪
▪
▪
▪
In September 2020, Héroux-Devtek delivered the first main landing gears for Boeing’s F/A-18E/F Super Hornet.
In October 2020, Héroux-Devtek announced that its CESA subsidiary in Spain has been awarded a major multi-year contract
by Boeing to manufacture new actuation components for the 787, 777, 777X, 767 and 747 aircraft.
In January 2021, the Corporation was awarded entry to Boeing’s Premier Bidder program as a result of Héroux-Devtek’s
consistent excellence in quality, delivery and business performance.
On March 10th, 2021, the first flight of the Dassault Falcon 6X took place. The flight lasted nearly 2.5 hours and proceeded
according to the test plan. The latter included the extension and retraction of the Corporation’s landing gear.
In May 2021, the Corporation announced that it has been awarded a life-cycle contract to design, develop and manufacture
the landing gear system for the large-cabin Dassault Falcon 10X business jet.
▪
▪
Héroux-Devtek generated cash flows related to operating activities of $89.2 million and free cash flow of $67.3 million during fiscal 2021,
compared to $52.6 million and $30.3 million in fiscal 2020.
In May 2021, the Corporation filed a notice with the Toronto Stock Exchange of its intention to initiate a normal course issuer bid (NCIB).
Under the terms of the NCIB, the Corporation may acquire up to 2,412,279 of the issued and outstanding common shares of the
Company, 10% of the public float. Refer to the Capital Structure section under Financial Position for further details.
50 – HÉROUX-DEVTEK INC. – Fiscal 2021 MD&A
OVERVIEW OF THE BUSINESS
Profile
Héroux-Devtek Inc. (TSX: HRX) is an international company specializing in the design, development, manufacture and repair and overhaul
(R&O) of landing gear, hydraulic and electromechanical flight control actuators, custom ball screws and fracture-critical components. The
Corporation has also built a strong, well-recognized design engineering team. Héroux-Devtek is the third largest landing gear company in the
world based on sales, supplying both the commercial and defence sectors.
In the defence sector, the Corporation supplies landing gear systems, parts and repair and overhaul services for a diversified portfolio of
transport aircraft, fighter jets and helicopters in the United States and Europe. For the civil sector, the Corporation is active in the large
commercial, business jet, regional aircraft and helicopter markets. As a result, a significant portion of the Corporation’s sales are made to a
limited number of customers located in Canada, the United States and Europe.
The Corporation's head office is located in Longueuil, Québec, Canada while operating facilities are located in Canada, the United States,
Spain and the United Kingdom.
Héroux-Devtek sells to Original Equipment Manufacturers (“OEMs”) such as Boeing, Airbus, Lockheed Martin, Leonardo, Embraer, Saab and
Dassault Aviation; to Tier 1 suppliers such as Safran Landing Systems and Collins Aerospace; and to end users in the aftermarket where its
largest customer is the U.S. Air Force. In fiscal 2021, the Corporation’s the Top 10 largest customers represented approximately 65% of total
consolidated sales, with one customer accounting for 17%.
The following charts describe Héroux-Devtek’s revenue segmentation in terms of intellectual property and destination:
* BTP: Build to Print
HÉROUX-DEVTEK INC. – Fiscal 2021 MD&A – 51
Fiscal 2021 sales, BTP* vs proprietary46.8%53.2%Proprietary productsBuild-to-printFiscal 2021 sales mix by end customerlocationCanada:9.9%United States: 52.7%UnitedKingdom:8.4%Rest of Europe: 12.9%Spain: 8.4%Other:7.7% IMPACT OF COVID-19
The COVID-19 pandemic is having an unprecedented impact on the aviation and aerospace industry, particularly for commercial air travel.
Global flights fell as low as 94% year-over-year in April 2020, and the calendar year closed out with a 66% decrease compared to 2019,
returning essentially to the same level as 1998(1). The fallout of global lockdowns and health impacts have resulted by many measures in the
worst global economic downturn since the Great Depression.
Airlines facing travel bans, grounded fleets and negative demand outlooks have delayed deliveries and cancelled orders of new commercial
aircraft, which in turn has pushed OEMs to reduce production rates. Worldwide, supply chains have also been disrupted by varying degrees
of government-imposed lockdowns as well as the direct impact on manufacturing facilities of virus outbreaks.
These conditions combine for a rarely-before-seen degree of uncertainty in any financial projections as it is almost impossible to estimate the
length or severity of either the pandemic or the economic disruption caused by the efforts to contain it. For a detailed review of potential risks
and mitigation strategies implemented, refer to the Risk Management section under Additional Information.
The Impact on Héroux-Devtek
The Corporation’s operations in Spain were the first to be affected by the pandemic given its East-to-West progression. As the virus began to
spread at the end of February 2020, our Spanish operations developed protocols to prevent the spread of the disease within Héroux-Devtek’s
facilities. These measures, all of which are aligned with or surpassed local jurisdiction COVID-19 protocols, were implemented across all our
business units (U.K., U.S.A. and Canada) to create a safe working environment and have proven to be very effective.
Héroux-Devtek’s operations were deemed essential in whole or in part in all jurisdictions where we operate since we are an aerospace
manufacturer supplying both the defence and commercial sectors. The protocols that we put in place have largely allowed our team to work
normally during this extraordinary period. All of our facilities have remained open and, including people working from home, we have
maintained a physical attendance rate of more than 91% throughout the crisis. Under the exceptional circumstances, this allowed us to
remain relatively efficient.
In response to the significant downward revision of market perspectives over the medium-term, we needed to adjust our cost structure and
manufacturing capacity rapidly. As a result, in order to reduce our fixed and variable cost base, we announced restructuring plans including a
reduction of our workforce of approximately 15% or 315 employees, including the closure of our Alta Precision and Wichita business units.
We also revised our budgeted capital expenditures downwards and realigned our manufacturing resources towards the defence sector. The
objective of these measures was to help us remain competitive and profitable during this challenging period.
We began to see the uplift in our profitability from these measures in the later half of the fiscal year. Combined with pandemic relief
measures, most notably the Canadian Emergency Wage Subsidy, our leaner cost structure and organic growth in the defence sector helped
to compensate for the drop in volume and pandemic-related inefficiencies, allowing us to deliver strong financial results under the
circumstances.
More importantly, strong working capital management allowed us to deliver record cash flows related to operating activities and free cash
flow totaling $89.2 million and $67.3 million, respectively. This cash flow generation drove a significant decrease in our net debt position,
which decreased from $246.9 million to $157.5 million over the course of the fiscal year, or from 2.6 times adjusted EBITDA to 1.8 times. A
year into the pandemic, therefore, we are in a better financial position to sustain future growth.
Looking Ahead
While we had success in weathering the pandemic in fiscal 2021, we can’t say yet that the crisis facing our industry is past. Different
countries are facing third or fourth waves and variants of concern, passenger air travel remains severely depressed, and OEM production
rates for commercial aircraft have not shown any sign of recovery yet.
That being said, the same factors which lent resilience to Héroux-Devtek last fiscal year remain in place for fiscal 2022:
•
•
•
A diversified product portfolio and strong backlog totaling $717.0 million, three quarters of which is for defence programs;
A strong financial position with $278 million of available liquidity and a net debt to EBITDA ratio of 1.8x; and,
Our newly streamlined cost structure which will allow us to remain competitive in the new aerospace landscape.
These factors not only give us confidence that we can continue to weather the storm, but also provide us with the opportunity to thrive in its
aftermath.
(1) Source: COVID-19 Has Been an Unprecedented Shock, IATA, report issued March 17, 2021
52 – HÉROUX-DEVTEK INC. – Fiscal 2021 MD&A
Looking ahead, as we continue to stabilize our production system, we will prepare to absorb growth stemming from the recovery of the
industry by optimizing and automating our processes. This way, we can grow within our existing manufacturing capacity with limited
investment.
ECONOMIC OUTLOOK
After having recorded continued growth over an 18-year super cycle, the aerospace industry has been severely impacted by the ongoing
COVID-19 global pandemic(1, 2). Specifically, while defence spending has remained relatively immune to the pandemic, the negative impact
on the civil market - particularly on passenger travel - should continue to be felt at all levels of the industry throughout Fiscal 2022.
In accordance with the forecasts presented in this section, drawn from recent reports published by key industry associations and analysts, the
Company anticipates a slow but gradual recovery in passenger transportation demand over the next few years. Global aerospace and
defence industry revenues are expected to begin recovering in 2021. The gradual withdrawal of health restrictions in several countries, the
gradual opening of borders and the recovery of tourism could indeed revitalize the sector.
While the civil aviation sector is expected to recover slowly, as travel demand is not expected to return to pre-COVID-19 levels until 2024, the
defence sector is expected to remain relatively stable in calendar 2021, as most countries have not significantly reduced their defence
budgets and remain committed to maintaining their military capabilities.
Civil Market
Ultimately, the impact of the pandemic resulted in a 66% overall decline in passenger numbers in calendar 2020(3). Though some early signs
of recovery began to surface later in the year and in early 2021, the deterioration of virus control ahead of wide vaccination resulted in a new
tightening of restrictions(4). With airlines continuing to burn cash and 30% of the world jet fleet remaining parked, demand for both new aircraft
and aftermarket services remains dramatically lower than pre-pandemic levels(5).
In addition, the pandemic has led to some changes in passenger behaviour, with a shift to short-haul and domestic flights. As evidence, in
2020, the average flight duration has decreased by almost 10% worldwide. In this regard, the International Air Transport Association (IATA)
does not foresee a return to a pre-pandemic average flight duration before 2025. However, these changes in traveler habits could lead to an
increase in demand for narrow-body aircraft, which is likely to lead the way to recovery in the medium term.
Globally, the commercial aircraft backlog stood at 13,421 at the end of December 2020. This is an 8.7 percent decline from the all-time high
seen at the end of 2018 (approximately 14,700 aircraft). Deliveries are estimated at 950 aircraft for 2021, which would represent a 41%
decrease compared to the record year in 2018. The moderate level of new orders, combined with possible order cancellations, could lead to
a slight erosion of the global backlog. Over the long term, however, Boeing maintained a forecasted demand for over 43,000 commercial
aircraft over the next twenty years, a figure only slightly below the pre-pandemic forecast of 44,000. This growth stems both from increased
demand for air travel in East Asia and from an accelerated replacement cycle for older aircraft fleets being replaced with more versatile and
efficient models(6).
On the cargo side, while cargo traffic measured in cargo tonne kilometers (CTKs) decreased due to the pandemic as well, they did so to a
lesser degree, declining only 10.6% in calendar 2020 compared to 2019(3). They have also recovered faster, up 9% in February 2021 as
compared to February 2019(4). This recovery presents a positive outline for the segment that is mirrored by expectations of a 62% growth in
the freighter fleet over the next twenty years, including both cargo conversions and new aircraft.(6)
While the business jet market has been less impacted than the large commercial jet by the pandemic to date, travel restrictions, virtual
meetings and economic factors all negatively impact the industry outlook. While leading market indicators like corporate profits, equities
markets and oil prices are mixed, utilization is growing and recovering faster than airline travel.(5) This is particularly true for the large cabin
business aircraft segment.
HÉROUX-DEVTEK INC. – Fiscal 2021 MD&A – 53
Defence Market
As forecast by many, the COVID-19 impact has been proven not to impact world defence spending. Total global military expenditures rose to
nearly $2.0 trillion in 2020, representing a 4.4% increase compared to the previous year. As a percentage of GDP, many countries saw an
increase in spending as their GDP decreased due to the pandemic, but their defence spending remained stable in real dollars(7). The sector is
expected to remain relatively stable in 2021, growing 2.8%(8).
Most major nations have remained committed to strengthening their military presence, despite recent budget shortfalls. In the United States,
defence spending is expected to remain flat in 2021, having spent US$778 billion in 2020. However, fiscal impacts from reduced revenues
(due to COVID-19) could affect defence budgets starting in 2022, primarily due to debt associated with all stimulus spending.(7)
Along with the United States, the next four spenders make up a total of 62% of the world’s defence spending budget. Most major players
have remained committed to strengthening their military under global tensions, in spite of the pandemic. Among other commitments, Japan
announced an increase in spending for a ninth straight year, France is maintaining spending, and the United Kingdom announced the largest
increase in its defence budget since the cold war. This funding is earmarked for modernization, including funding among other programs for
the Tempest fighter jet program (7, 8, 9).
Fighter jets represent the second-largest segment portion of the world aircraft production market over the next decade, representing over
US$325 billion per year over the next decade. The forecasted production of over 4,200 aircraft over this period is driven by the replacement
of aging and neglected fleets and high aircraft utilization rates. Lockheed’s F-35 is expected to seize up to 47% of this market, while other 4.5
generation fighters like the F-18, F-16, F-15, Gripen and Rafale will make up over 20% of the balance(10). Along with the Tempest (U.K.,
Sweden and Italy) program listed above, other sixth generation fighters in varying stages of development include the FCAS (France,
Germany and Spain), and the NGAD (United States).
Refer to Forward-Looking Statements for further information regarding forward-looking statements and related risks.
(1) Source: Commercial Aerospace Faces Turbulence, Boston Consulting Group, November 18, 2019.
(2) Source: COVID-19 Updated Impact Assessment, IATA, report issued April 14, 2020.
(3) Source: COVID-19 Has Been an Unprecedented Shock, IATA, report issued March 17, 2021
(4) Source: COVID-19 Passenger Market Remains Weak While Air Cargo Strengthens, report issued April 7, 2021
(5) Source: World Aero Market: Looking Up, From the Bottom of a Pit, Teal Group, April 2021
(6) Source: Boeing Commercial Market Outlook 2020–2039
(7) Source: Stockholm International Peace Institute, World Military Expenditures, press release issued April 26, 2021.
(8) Source: 2021 Aerospace and Defence Industry Outlook, Deloitte, January 2021.
(9) Source: PM to announce largest military investment in 30 years, UK Government, press release issues November 19, 2020
(10) Source: World Civil and Military Aircraft Briefing, Teal Group, March 2020
54 – HÉROUX-DEVTEK INC. – Fiscal 2021 MD&A
OPERATING RESULTS
Quarters ended March 31,
Fiscal years ended March 31,
Sales
Gross profit
Selling and administrative expenses
Adjusted operating income(1)
Non-recurring items
Operating income (loss)
Net financial (gains) expenses
Income tax expense
Net income (loss)
Adjusted net income(1)
Adjusted EBITDA(1)
As a percentage of sales
Gross profit
Selling and administrative expenses
Operating income (loss)
Adjusted operating income(1)
In dollars per share
2021
2020
$ 154,989 $ 166,800 $
Variance
2021
(11,811) $ 570,685 $ 612,996 $
(4,682)
103,120
94,917
2020
25,170
11,322
13,848
1,619
12,229
(158)
3,585
$
$
$
8,802 $
10,169 $
24,975 $
29,852
12,275
17,577
82,003
(64,426)
(533)
(953)
(3,729)
(80,384)
76,655
375
8,220
(72,113) $
13,695 $
28,609 $
(4,635)
80,915 $
(3,526) $
(3,634) $
49,706
45,211
11,115
34,096
7,909
6,374
19,813 $
29,034 $
88,297 $
50,572
52,548
82,618
(30,070)
7,846
12,742
(50,658) $
35,666 $
96,191 $
Variance
(42,311)
(8,203)
(866)
(7,337)
(71,503)
64,166
63
(6,368)
70,471
(6,632)
(7,894)
16.2%
7.3%
7.9%
8.9%
17.9%
7.4%
(38.6)%
10.5%
-170 bps
-10 bps
nmf
-160 bps
16.6%
8.7%
6.0%
7.9%
16.8%
8.2%
(4.9)%
8.6%
-20 bps
50 bps
nmf
-70 bps
Earnings (loss) per share(2)
Adjusted EPS(1)
(0.20)
(1) Non-IFRS financial measure. Refer to the Non-IFRS financial measures section for definitions and reconciliations to the most comparable IFRS measures.
(2) Basic and diluted
0.28 $
0.80 $
$
$
0.24 $
(1.98) $
0.38 $
2.22 $
(0.10) $
0.55 $
1.93
(1.38) $
1.00 $
Sales
HÉROUX-DEVTEK INC. – Fiscal 2021 MD&A – 55
Historical Sales (millions), by fiscal year$406.5$406.5$386.6$386.6$483.9$483.9$613.0$613.0$570.7$570.7201720182019202020212021 Sales by SectorCommercial34%Defence66%
Sales can be broken down by sector as follows:
Defence
Civil
Total
Defence
Civil
Total
Quarters ended March 31,
2021
2020
FX Impact
Net variance
$ 107,312 $ 94,845 $
(2,276) $ 14,743
47,677
71,955
$ 154,989 $ 166,800 $
(1,280)
(3,556) $
(22,998)
(8,255)
15.5 %
(32.0) %
(4.9) %
Fiscal years ended March 31,
2021
2020
FX Impact
Net variance
$ 377,465 $ 329,259 $
1,968 $ 46,238
193,220
$ 570,685 $ 612,996 $
283,737
1,007
(91,524)
2,975 $ (45,286)
14.0 %
(32.3) %
(7.4) %
The following analysis excludes the impact of foreign exchange fluctuations which are itemized in the table above.
Over the fiscal year, the corporation has shifted gears from the commercial to defence sector following the COVID-19 pandemic impact on
the aerospace market demand.
Defence
The $46.2 million and $14.7 million net increases in defence sales for the fiscal year and the fourth quarter was mainly driven by:
▪
▪
▪
The ramp-up of deliveries under the Boeing F-18, Sikorsky CH-53K and Saab Gripen E contracts;
Strong deliveries for existing OEM platforms such as the Eurofighter and Lockheed F-35 programs; and,
Higher spares demand for the Northrop Grumman Global Hawk program and from the US Government for the C-130 and KC-135
aircraft.
These positive factors were partly offset by the end of a retrofit campaign for the Sikorsky H-60.
Civil
The effect of COVID-19 on the aerospace market drove 32.3% and 32.0% reductions in civil sales for the fiscal year and fourth quarter,
respectively. These decreases were mainly the result of lower deliveries for large commercial programs, where twin-aisle deliveries
decreased 45% reflecting lower OEM demand.
Gross Profit
During the fiscal year, as described above, the COVID-19 pandemic caused a reduction in civil sales, and therefore gross profit, which was
partly offset by growth in the defence sector. The virus outbreak also caused excess direct costs including production inefficiencies and
commercial risks such as surplus inventory, which were mostly offset by government relief measures such as the Canadian Emergency
Wage Subsidy (“CEWS”).
Gross profit for the fiscal year decreased from $103.1 million, or 16.8% of sales last year to $94.9 million or 16.6%, due mainly to lower sales
volume without a corresponding decrease in fixed costs such as depreciation, which represented a negative year over year impact of 0.4% of
sales. This decrease was partially offset by a better sales mix than last year.
Gross profit for the quarter decreased from $29.9 million, or 17.9% of sales last year to 25.2 million or 16.2%. This decrease was mainly the
result of a less favourable sales mix than last year and lower volume without a corresponding decrease in fixed costs such as depreciation,
which represented a negative impact of 0.6% of sales.
Foreign exchange fluctuations had a negative net impact of 0.5% of sales on the quarter ended March 31, 2021 and a negligible impact (less
than 0.1% of sales) over the fiscal year.
56 – HÉROUX-DEVTEK INC. – Fiscal 2021 MD&A
Selling and Administrative Expenses
Selling and Administrative Expenses
Less: Net gains (losses) on conversion of net monetary items
2021
Quarters ended
March 31,
2020
Fiscal years ended
March 31,
2020
$ 11,322 $ 12,275 $ 49,706 $ 50,572
1,196
$ 12,135 $ 14,144 $ 48,250 $ 51,768
(1,456)
1,869
2021
813
As a percentage of sales
7.8 %
8.5 %
8.5 %
8.4 %
Selling and administrative expenses excluding the net effect of foreign exchange on monetary items remained stable as a percentage of
sales for the fiscal year as the effect of restructuring initiatives on the cost structure compensated for lower sales volume but was slightly
offset by higher stock-based compensation expense. As the effect of the restructuring initiatives was greater later in the fiscal year, selling
and administrative expenses further decreased in the fourth quarter compared to the same period last year.
Non-Recurring Items
Non-recurring items comprise the following:
Non-recurring items in operating income
Restructuring charges
Goodwill impairment
Write-down of investment tax credits receivable
Acquisition-related costs
Non-recurring items in income tax expense
Write-down of deferred income tax assets
$
$
$
$
Quarters ended
March 31,
Fiscal years ended
March 31,
2021
2020
2021
2020
— $ 11,115 $
1,619 $
—
—
—
79,736
2,267
—
1,619 $ 82,003 $ 11,115 $
—
—
—
—
79,736
2,267
615
82,618
— $
— $
3,805 $
3,805 $
— $
— $
3,805
3,805
Total
$
1,619 $ 85,808 $ 11,115 $
86,423
Restructuring charges
In Fiscal 2021, Héroux-Devtek announced restructuring initiatives in light of the ongoing COVID-19 pandemic. These initiatives affect 15% of
the workforce, or approximately 315 employees, and include the closure of Alta Précision and APPH Wichita.
To date, $11.1 million of related costs have been recorded compared to $12.0 million initially announced, mainly comprised of employee-
related charges and costs to dismantle and relocate machinery. 85% of staff reductions have been completed, with the remainder to occur
essentially after the closure of APPH Wichita, which is expected by the end of the present calendar year. The closure of Alta Précision is
substantially complete. As at March 31, 2021, restructuring provisions of $3.6 million remained on the consolidated balance sheet.
Goodwill impairment, write-down of investment tax credits receivable and deferred income tax assets
Management evaluates the recoverability of assets using the budget and strategic plan which covers a five-year period. The budget and
strategic plan are prepared based on the published production rates of aircraft manufacturers, aerospace industry forecasts, general
economic forecasts, and past experience.
The significant decrease in expected demand for commercial aerospace products caused by the ongoing COVID-19 pandemic was quantified
in these estimates, including production rate cuts such as the 40% reduction in large commercial aircraft volume already announced by
Airbus and Boeing.
HÉROUX-DEVTEK INC. – Fiscal 2021 MD&A – 57
The downward revision of these forecasts resulted in non-cash impairment charges of goodwill, investment tax credits receivable and
deferred income tax assets during fiscal 2020.
Acquisition-related costs
These costs mainly pertain to professional fees and expenses related to the acquisition of Alta Precision last fiscal year.
Operating Income
Operating income (loss)
Non-recurring items
Adjusted operating income
As a percentage of sales
Quarters ended
March 31,
Fiscal years ended
March 31,
2021
$ 12,229
1,619
$ 13,848
2020
$ (64,426)
82,003
$ 17,577
2021
$ 34,096
11,115
$ 45,211
2020
$ (30,070)
82,618
$ 52,548
Operating income (loss)
Adjusted operating income(1)
(4.9) %
8.6 %
(1) Non-IFRS financial measure. Refer to the Non-IFRS financial measures section for definitions and reconciliations to the most comparable IFRS measures.
(38.6) %
10.5 %
7.9 %
8.9 %
6.0 %
7.9 %
This fiscal year, operating income stood at 6.0% of sales compared to an operating loss of 4.9% which was driven by $82.0 million of non-
cash impairment charges recorded last year, which represented 13.4% of sales. Excluding non-recurring items, operating income decreased
from 8.6% to 7.9% of sales, mainly reflecting a $3.2 million year-over-year negative foreign exchange impact (0.6% of sales).
For the quarter, operating income stood at 7.9% of sales compared to an operating loss of 38.6% which also resulted from the non-cash
impairment charges described above (49.2% of sales for the fourth quarter last year). Excluding non-recurring items, operating income
decreased from 10.5% to 8.9% of sales mainly due to a $1.7 million year-over-year negative foreign exchange impact (or 1.1% of sales) as
well as lower volume.
Net financial Expenses
Quarters ended March 31,
2021
2020
Variance
Fiscal years ended March 31,
2020 Variance
2021
Interest on long-term debt
$ 1,471 $ 1,909 $
Net interest expense (income) related to government loans
(1,000)
(2,999)
Interest income
Other interest expense
(169)
(460)
$
(158) $
(26)
583
(533) $
(438) $ 7,097 $ 6,905 $
1,999
1,369
(773)
(143)
(1,043)
(761)
204
(100)
1,814
192
2,142
(661)
(1,610)
375 $ 7,909 $ 7,846 $
63
This fiscal year, interest expense on long-term debt remained relatively stable compared to last year as a higher balance outstanding at the
beginning of the fiscal year was offset by a decrease in interest rates and debt repayment during the fourth quarter. A lower gain on
adjustment of government loan repayment schedule estimates (see Government Authorities Loans under Liquidity and Capital Resources)
compared to last year was offset by favourable discount rate adjustments, mainly related to provisions, resulting in overall stable net financial
expense.
During the fourth quarter, interest on long-term debt was lower than the same quarter last year due to lower interest rates and lower debt
outstanding. This positive impact, along with gains related to changes in discount rates included in other interest expense, were more than
offset by a lower gain on adjustment of government loan repayment schedules estimates (see Government Authorities Loans under Liquidity
and Capital Resources).
58 – HÉROUX-DEVTEK INC. – Fiscal 2021 MD&A
Net Income
Earnings increased from a loss of $50.7 million to a profit of $19.8 million (or decreased from $35.7 million to $29.0 million excluding non-
recurring items net of taxes) this fiscal year compared to last and increased from a loss of $72.1 million to earnings of $8.8 million (or
decreased from $13.7 million to $10.2 million excluding non-recurring items net of taxes) during the quarter compared to the same quarter
last fiscal year mainly as a result of the factors described above.
During the fiscal year, earnings per share increased from a loss of $1.38 to earnings of $0.55 per share (or decreased from $1.00 to $0.80
per share excluding non‑recurring items net of taxes), while they increased from a loss of $1.98 to earnings of $0.24 per share (or decreased
from $0.38 to $0.28 excluding non‑recurring items net of taxes) during the quarter compared to the same quarter last fiscal year.
NON-IFRS FINANCIAL MEASURES
This MD&A is based on earnings in accordance with IFRS and the following non-IFRS financial measures:
Adjusted operating income:
Adjusted EBITDA:
Adjusted net income:
Adjusted earnings per share:
Free cash flow:
Operating income excluding non-recurring items.
Operating income excluding amortization expense and non-recurring items
Net income excluding non-recurring items net of taxes.
Diluted earnings per share calculated on the basis of adjusted net income.
Cash flows related to operating activities less additions to property, plant and equipment and net
increase or decrease in finite-life intangible assets.
These Non-IFRS financial measures do not have any standardized meaning prescribed by IFRS and may therefore not be comparable to
similar measures presented by other issuers. Management considers these metrics to be information which may assist investors in evaluating
the Corporation’s profitability and enable better comparability of the results from one period to another and with peers who may employ
similar measures.
These measures are not considered by management to be a substitute for IFRS measures, nor to be superior as they often do not fully reflect
periodic costs, the long-term costs of investing or financing decisions or the impact of events which are not a result of operations.
The following are reconciliations of these items to their most comparable IFRS measures as well as additional information about what they
represent, excluding free cash flow. For the reconciliation of free cash flow to cash flows related to operating activities, refer to Liquidity and
Capital Resources.
The Corporation’s adjusted operating income is calculated as follows:
Operating income (loss)
Non-recurring items
Adjusted operating income
Quarters ended
March 31,
Fiscal years ended
March 31,
2021
$ 12,229
1,619
$ 13,848
2020
$ (64,426)
82,003
$ 17,577
2021
$ 34,096
11,115
$ 45,211
2020
$ (30,070)
82,618
$ 52,548
Management believes adjusted operating income provides investors with a figure that provides an alternative assessment of the
Corporation’s future profitability by excluding from operating income the impact of events which are not in the expected course of future
operations, or which are not a result of operations.
HÉROUX-DEVTEK INC. – Fiscal 2021 MD&A – 59
The Corporation’s Adjusted EBITDA is calculated as follows:
Operating income (loss)
Amortization expense
Non-recurring items in operating income
Adjusted EBITDA
Quarters ended
March 31,
Fiscal years ended
March 31,
2021
$ 12,229
11,127
1,619
2020
$ (64,426)
11,032
82,003
2021
$ 34,096
43,086
11,115
2020
$ (30,070)
43,643
82,618
$ 24,975
$ 28,609
$ 88,297
$ 96,191
Management believes adjusted EBITDA provide valuable insight into the Corporation’s day-to-day operations as they exclude from earnings
factors that are more reflective of long-term financing or investing decisions than of current performance.
Adjusted EBITDA, in addition, provides an alternative assessment of future operating results as it excludes the impact of events which are not
in the expected course of future operations, or which are not a result of operations. Adjusted EBITDA is also used by management to assess
operational performance and is a component of certain performance-based employee remuneration.
The Corporation’s adjusted net income and adjusted earnings per share are calculated as follows:
Quarters ended
March 31,
Fiscal years ended
March 31,
Net income (loss)
Non-recurring items net of taxes
Adjusted net income
Non-controlling interests
Adjusted net income attributable to the equity holders of the parent
In dollars per share
Earnings (loss) per share - basic and diluted
Non-recurring items net of taxes
Adjusted earnings per share
2021
$ 8,802
1,367
$ 10,169
(145)
$ 10,314
2020
2021
$ (72,113) $ 19,813
9,221
$ 29,034
(244)
$ 29,278
85,808
$ 13,695
(88)
$ 13,783
2020
$ (50,658)
86,324
$ 35,666
(545)
$ 36,211
$
$
0.24
0.04
0.28
$
(1.98) $
2.36
$
0.38
$
0.55
0.25
0.80
$
(1.38)
2.38
$
1.00
Management believes adjusted net income and adjusted earnings per share provide investors with an alternative assessment of the
Corporation’s current period results and future earnings prospects as they exclude from earnings the impact of events which are of a non-
recurring nature or do not reflect current operations. They are also a component of certain performance-based employee remuneration.
60 – HÉROUX-DEVTEK INC. – Fiscal 2021 MD&A
LIQUIDITY AND CAPITAL RESOURCES
CREDIT FACILITIES AND CASH AND CASH EQUIVALENTS
Senior Secured Syndicated Revolving Credit Facility (“Revolving Facility”)
The Corporation has a Revolving Facility with a syndicate of five Canadian banks and their U.S. affiliates or branches and a Canadian branch
of a U.S. bank. This facility allows the Corporation and its subsidiaries to borrow up to $250.0 million, either in Canadian dollars, US dollars,
British Pounds, Euro or equivalent currencies. It also includes an accordion feature to increase available credit by $100.0 million during the
term of this agreement, subject to the approval of the lenders.
As at March 31, 2021, the Corporation had $59.3 million (US$ 47.0 million) drawn against this facility, compared to $96.5 million
(US$ 68.0 million) as at March 31, 2020, following a US$ 21.0 million ($27.0 million) repayment during the fourth quarter.
Unsecured Subordinated Term Loan Facility (“Term Loan Facility”)
The Corporation has a Term Loan Facility provided by the Fonds de solidarité FTQ for an amount of up to $75.0 million. As at March 31,
2021, the facility is fully drawn, compared to a balance of $60.0 million as at March 31, 2020. A $15.0 million tranche was drawn during the
first quarter as a precaution for potential liquidity requirements related to the COVID-19 pandemic.
The Term Loan Facility is repayable at maturity on September 30, 2025 and, starting on September 30, 2021, the Corporation will have the
option to make early repayments subject to certain fees.
Net Debt Position
The Corporation’s net debt position is calculated as follows, as at:
Long-term debt, including current portion(1)
Less: Cash and cash equivalents
Net debt position
Adjusted EBITDA(2)
Net debt to adjusted EBITDA ratio
March 31, 2021 March 31, 2020
$ 252,998
$ 292,710
95,470
45,841
$ 157,528
$ 246,869
$
88,297
$
96,191
1.8:1
2.6:1
(1) Excluding net deferred financing costs of $2.3 million and $3.1 million as at March 31, 2021 and March 31, 2020, respectively.
(2) Non-IFRS financial measure. Refer to the Non-IFRS financial measures section for definitions and reconciliations to the most comparable IFRS measures.
The substantial $89.3 million decrease during the fiscal year is mainly the result of $67.3 million free cash flow generated this year (See Free
Cash Flow below), as well as the early termination of a facility lease related to the closure of Alta.
HÉROUX-DEVTEK INC. – Fiscal 2021 MD&A – 61
(1) Excluding net deferred financing costs of $2.3 million as at March 31, 2021 and $3.1 million as at March 31, 2020.
Long-term debt is subject to certain general and financial
covenants related to, among others, indebtedness, cash flows
and equity of the Corporation and/or certain subsidiaries. The
Corporation complied with all covenants during the fiscal year
ended March 31, 2021 and expects to continue to comply with
these restrictive financial covenants through the current fiscal
year. In general terms, the Corporation has a healthy financial
situation and is well positioned to face its financial needs.
As shown in this graphic, the Corporation has no capital
repayments required on its credit facilities until December of
2024.
GOVERNMENT AUTHORITIES LOANS
Governmental authorities’ loans represent government assistance for the purchase of certain equipment or tooling, for the modernization or
additions to the Corporation’s facilities or for development costs capitalized or expensed for aerospace programs. They were granted as
incentives under Canadian federal and provincial or Spanish industrial programs to promote industry development.
These loans have varying terms governing the timing and amount to be refund. Repayments, when not on a fixed schedule, are either based
on sales of specific programs or the growth in sales of all or certain of Héroux-Devtek’s product lines and bear no or below-market interest
rates.
They are measured at a discounted value using a corresponding market rate of interest each time they are received, and the related discount
is accreted to income using the effective interest rate method and included in the consolidated statements of income as financial expense.
Assumptions underlying loan repayments are reviewed at least annually. As at March 31, 2021, the Corporation updated the estimated
repayment schedule of its government authorities’ loans, taking into account revised assumptions mainly related to the reduced sales
forecasts. As sales forecasts were negatively impacted by the ongoing pandemic, this resulted in a non-cash gains of $1,649 and $3,153 in
fiscal 2021 and 2020, respectively, which were included in net financial expenses.
62 – HÉROUX-DEVTEK INC. – Fiscal 2021 MD&A
Fiscal YearNet Debt Position (millions)$92.3$38.8$243.0$246.9$157.51.50.73.12.61.8Net debt positionNet debt to Adjusted EBITDA20172018201920202021Long-term debt composition$253 million as at March 31, 2021Revolving Facility: $59.3Term Loan Facility: $75.0GovernmentLoans:$90.4Leases: $28.3Fiscal YearCapitalRepayments($M)Debt Maturity Profile$59.3$75.0Credit FacilityTerm Loan Facility20222023202420252026 As at March 31, 2021, the Corporation had a present value of $90.4 million outstanding under these agreements ($88.6 million as at
March 31, 2020), bearing effective interest rates of 0.0% to 6.8% as at March 31, 2021 (0.0% to 6.8% as at March 31, 2020). These loans
have repayment terms extending to fiscal 2035 at the latest.
VARIATIONS IN CASH AND CASH EQUIVALENTS
Cash and cash equivalents at beginning of periods
Cash flows related to operating activities
Cash flows related to investing activities
Cash flows related to financing activities
Effect of changes in exchange rates on cash and cash equivalents
Quarters ended
March 31,
Fiscal years ended
March 31,
2021
$ 95,500
31,565
(7,874)
(23,016)
(705)
2020
$ 25,346
26,710
(9,951)
2,128
1,608
2021
$ 45,841
89,188
(21,523)
(16,849)
(1,187)
2020
$ 35,128
52,573
(34,844)
(7,936)
920
Cash and cash equivalents at end of periods
$ 95,470
$ 45,841
$ 95,470
$ 45,841
Operating Activities
The Corporation generated cash flows from operations and used cash and cash equivalents for its operating activities as follows:
Cash flows from operations
Net change in non-cash items
Cash flows related to operating activities
Quarters ended
March 31,
Fiscal years ended
March 31,
2021
2020
2021
2020
$ 19,935
$ 25,497
$ 66,334
$ 82,101
11,630
1,213
22,854
(29,528)
$ 31,565
$ 26,710
$ 89,188
$ 52,573
Lower adjusted EBITDA and cash charges related to restructuring mainly drove the respective $15.8 million and $5.6 million decrease in
cash flows from operations for the fiscal year and fourth quarter ended March 31, 2021 when compared to the same periods last fiscal year.
The net change in non-cash items can be summarized as follows:
Accounts receivable
Income tax receivable
Inventories
Other assets
Accounts payable and accrued liabilities and other liabilities
Provisions
Customer advance and progress billings
Income tax payable
Effect of changes in exchange rates
Net change in non-cash items
Quarters ended
March 31,
Fiscal years ended
March 31,
2021
2020
2021
$ (18,325)
335
$ (9,616)
2,040
$ 11,324
(453)
21,988
4,444
6,505
(5,492)
1,110
(834)
(10,153)
(225)
9,692
(6,644)
6,934
94
1,899
9,091
21,812
8,423
(19,727)
(3,661)
5,301
739
(904)
2020
$ 4,328
1,102
(45,517)
116
3,320
(8,822)
11,072
(508)
5,381
$ 11,630
$ 1,213
$ 22,854
$ (29,528)
For the fiscal year ended March 31, 2021, the positive net change in non-cash items mainly reflected:
▪
▪
▪
A decrease in inventory due to lower civil sales and the ramp-down of Alta Précision’s operation; and
A decrease in accounts receivable due to a lower sales volume and optimization of our collection initiatives; partially offset by,
A decrease of accounts payable as a result of the reduction in inventory.
HÉROUX-DEVTEK INC. – Fiscal 2021 MD&A – 63
For the fiscal year ended March 31, 2020, the negative net change in non-cash items mainly reflected:
•
•
An increase in inventory due to expected organic growth of defence programs, including the Boeing F-18 and MQ-25, as well as the
effect of foreign exchange rate fluctuations; and
A decrease in provisions following the utilization of provisions, including onerous contracts.
These negative elements were partially offset by an increase in customer advances and progress billings associated to defence contracts.
For the quarter ended March 31, 2021, the positive net change in non-cash items mainly reflected a decrease in civil inventory for the same
reasons as described above, slightly offset by an increase in accounts receivable due to a less linear sale profile compared to the third
quarter.
For the quarter ended March 31, 2020, the positive net change in non-cash items mainly reflected a higher volume of activity in the fourth
quarter resulting in increases in accounts payable and accounts receivable, as well as the increase in inventory driven by foreign exchange
rate fluctuations.
Investing Activities
The Corporation’s investing activities were as follows:
Additions to property, plant and equipment
Net increase in finite-life intangible assets
Proceeds on disposal of property, plant and equipment
Cash payments for business acquisitions
Capital contribution from a non-controlling interest in a subsidiary
Quarters ended
March 31,
Fiscal years ended
March 31,
2021
2020
2021
2020
$ (6,764)
$ (7,338)
$ (21,259)
$ (20,645)
(1,489)
379
—
—
(2,641)
28
—
—
(643)
379
—
—
(1,598)
4,053
(17,149)
495
Cash flows related to investing activities
$ (7,874)
$ (9,951)
$ (21,523)
$ (34,844)
Cash payments for business acquisitions in fiscal 2020 related to the acquisition of Alta Precision.
Additions to property, plant and equipment shown above can be reconciled as follows:
Gross additions to property, plant and equipment(1)
Government assistance
Additions to property, plant and equipment
Quarters ended
March 31,
Fiscal years ended
March 31,
2021
2020
2021
2020
$ 7,806
$ 5,553
$ 21,805
$ 18,890
(682)
—
(682)
(30)
$ 7,124
$ 5,553
$ 21,123
$ 18,860
Variation in unpaid additions included in Accounts payable
(360)
1,785
136
1,785
Additions, as per statements of cash flows
(1) Net of non-cash additions to right-of-use assets
$ 6,764
$ 7,338
$ 21,259
$ 20,645
64 – HÉROUX-DEVTEK INC. – Fiscal 2021 MD&A
Financing Activities
The Corporation’s financing activities were as follows:
Increase in long-term debt
Repayment of long-term debt
Issuance of common shares
Increase in deferred financing cost
Cash flows related to financing activities
Quarters ended
March 31,
Fiscal years ended
March 31,
2021
2020
2021
2020
$ 3,524
$ 4,977
$ 68,113
$ 30,927
(31,019)
4,479
—
(2,827)
58
(80)
(89,616)
4,654
—
(38,024)
58
(897)
$ (23,016)
$ 2,128
$ (16,849)
$
(7,936)
The increase in long-term debt during the fiscal year ended March 31, 2021 is mainly related to a $45.0 million drawing on the Revolving
Facility and a $15.0 million drawing on the Term Loan Facility, both made as a precaution for potential liquidity requirements related to the
COVID-19 pandemic. The balance is related to government authorities loans received.
In Fiscal 2020, the increase in long term debt was mainly related to $22.1 million of drawings on credit facilities made to finance the
acquisition of Alta Precision.
Long-term debt repayments during the fiscal year ended March 31, 2021 are mainly related to the repayment of the $45.0 million drawing on
the Revolving Facility described above and a US$21 million ($27.0 million) repayment of the Revolving Facility made during the fourth
quarter. The remainder relates to lease payments and repayment of governmental authorities loans.
The issuance of common shares relates to the exercise of stock options that were expiring during the fiscal year.
FREE CASH FLOW(1)
Cash flows related to operating activities
Additions to property, plant and equipment
Quarters ended
March 31,
Fiscal years ended
March 31,
2021
2020
2021
2020
$ 31,565 $ 26,710 $ 89,188 $ 52,573
(6,764)
(7,338)
(21,259)
(20,645)
Net increase in finite-life intangible assets
Free cash flow(1)
(1) Non-IFRS financial measure. Refer to the Non-IFRS financial measures section under Operating Results for the definition of this metric.
(1,489)
(2,641)
$ 23,312 $ 16,731 $ 67,286 $ 30,330
(643)
(1,598)
Management considers free cash flow to be a good indicator of
financial strength and profitability because it shows how much cash
generated by operations is available for distribution, to repay debt
and fund investments.
The increase in free cash flow over the fourth quarter and fiscal year
compared to the same periods last fiscal year are mainly explained
by strong non-cash working capital management, in an effort to
align it with reduced sales volume resulting from the effect of the
COVID-19 pandemic on the commercial aerospace market.
HÉROUX-DEVTEK INC. – Fiscal 2021 MD&A – 65
Fiscal YearFree Cash Flow (millions)$23.2$23.2$5.3$5.3$11.3$11.3$22.2$22.2$21.9$21.9$33.0$50.8$58.1$30.3$67.3Net additions to PP&E and intangiblesFree cash flow20172018201920202021
LIQUIDITY REQUIREMENTS
The summary of the following contractual obligations of the Corporation includes payments due over the next five years and thereafter, as at
March 31, 2021:
Contractual obligations
Governmental authorities’ loans
Lease liabilities
Revolving Facility
Term Loan Facility
Payments due by period
Total
1 year
2-3 years
4-5 years
> 5 years
$ 113,067 $
7,597 $ 18,256 $ 21,896 $ 65,318
34,305
8,811
10,201
4,702
10,591
62,407
1,151
1,566
59,690
92,579
3,907
7,814
80,858
—
—
Repayments of long term debt, including interest
302,358
21,466
37,837 167,146
75,909
Purchase obligations
Accounts payable
Building, machinery and equipment acquisition commitments
Total contractual obligations(1)
(1) Excluding defined benefit pension plan obligations presented in the Pension Plans section.
200,572 140,504
56,662
3,388
57,508
57,508
1,572
1,572
—
—
—
—
18
—
—
$ 562,010 $ 221,050 $ 94,499 $ 170,534 $ 75,927
66 – HÉROUX-DEVTEK INC. – Fiscal 2021 MD&A
FINANCIAL POSITION
CAPITAL STRUCTURE
The general objectives of the Corporation’s management, in terms of capital management, reside in the preservation of the Corporation’s
capacity to continue operating, providing benefits to its stakeholders and in providing an adequate return on investment to its shareholders by
selling its products and services at a price commensurate with the level of operating risk assumed by the Corporation.
The Corporation thus determines the total amount of capital required consistent with risk levels. This capital structure is adjusted on a timely
basis depending on changes in the economic environment and risks of the underlying assets.
In order to maintain or adjust its capital structure, the Corporation can, for example:
•
•
•
•
Contract or repay long-term debt facilities;
Issue new common shares;
Repurchase common shares; and/or,
Return capital to shareholders.
The net debt-to-equity ratio, calculated as net debt divided by shareholders’ equity, is a key metric that is considered in the Corporation’s
capital management and monitoring practices.
During fiscal year ended March 31, 2021, the Corporation pursued the same capital management strategy as last year, which consists in
generally maintaining a sufficient net debt-to-equity ratio to allow access to financing at a reasonable or acceptable cost.
The Corporation's net debt-to-equity ratio was as follows, as at:
Long-term debt
Deferred financing costs, net
Less: Cash and cash equivalents
Net debt
Shareholders’ equity
Net debt-to-equity ratio
March 31, 2021
March 31, 2020
$ 250,699
$ 289,617
2,299
95,470
$ 157,528
391,732
0.40:1
3,093
45,841
$ 246,869
349,448
0.71:1
When evaluating the Corporation’s capital structure following the fiscal year end, management determined that further reducing net debt was
no longer the optimal means of capital deployment to generate shareholder return given the low cost of debt and share price performance.
Therefore, in May 2021, the Company filed a notice with the Toronto Stock Exchange of its intention to initiate a NCIB for cancellation of up to
2,412,279 of its issued and outstanding common shares.
Management views the NCIB as a flexible means to allocate capital to drive shareholder value without compromising the Corporation’s
position for future growth initiatives, whether they are new contract opportunities or acquisitions.
HÉROUX-DEVTEK INC. – Fiscal 2021 MD&A – 67
ISSUED CAPITAL
Capital stock varied as follows:
Opening balance
Issued for cash on exercise of stock options
Ending balance
Quarter ended
Fiscal year ended
March 31, 2021
Issued
capital
Number of
shares
March 31, 2021
Issued
capital
Number of
shares
36,382,210 $
80,001
36,367,210 $
79,757
382,500
6,221
397,500
6,465
36,764,710 $
86,222
36,764,710 $
86,222
As at May 19, 2021, the number of common shares outstanding stood at 36,796,469.
Stock options varied as follows:
Opening balance
Granted
Exercised
Ending balance
Quarter ended
Fiscal year ended
March 31, 2021
March 31, 2021
Number of
stock
options
1,831,595
Weighted-
average
exercise price
Number of
stock
options
Weighted-
average
exercise price
$ 13.11
1,497,595
$ 13.86
—
—
349,000
11.71
(397,500)
9.83
11.71
$ 13.48
1,449,095
$ 13.48
(382,500)
1,449,095
During the last quarter of the fiscal year, the Corporation issued 382,500 common shares for a cash proceed of $6.2 million following the
exercise of stock options that were expiring during the fiscal year.
As at March 31, 2021, 2,360,007 common shares remained reserved for issuance upon exercise of stock options compared to 2,757,507 at
March 31, 2020. As a result, the Corporation may issue a further 910,912 stock options within the current reserve.
As at May 19, 2021, the number of stock options outstanding stood at 1,417,336.
For further information regarding the Corporation’s outstanding issued capital and related compensation plans, refer to Note 22, Issued
Capital, to the consolidated financial statements.
CONSOLIDATED BALANCE SHEETS
Working Capital
The Corporation’s working capital was as follows, as at:
Current assets
Current liabilities
Net working capital
Working capital ratio
68 – HÉROUX-DEVTEK INC. – Fiscal 2021 MD&A
March 31, 2021 March 31, 2020
Variance
$ 434,769
193,369
$ 241,400
$ 422,050 $ 12,719
(23,264)
$ 205,417 $ 35,983
216,633
3.0 %
(10.7) %
17.5 %
2.25
1.95
The $12.7 million increase in current assets is mainly due to:
▪
▪
▪
a $49.6 million increase in cash and cash equivalents ; partly offset by,
a $24.6 million decrease in inventory due to lower civil sales volume and the ramp-down of Alta Précision’s operations; and,
a $12.8 million decrease in accounts receivable due to lower sales volume and optimization of our collection initiatives.
The $23.3 million decrease in current liabilities is mainly due to a $16.7 million decrease of accounts payable as a result of the reduction in
inventory and a $9.3 million reduction in derivative liabilities related to forward foreign exchange contracts.
Long-term assets, Long-term liabilities and Shareholders’ equity
The Corporation’s long-term assets and liabilities and shareholders’ equity were as follows, as at:
Long-term assets
Long-term liabilities
Shareholder’s equity
March 31, 2021
March 31, 2020
Variance
$ 418,515
268,183
$ 391,732
$ 476,798
$ (58,283)
(12.2) %
332,767
(64,584)
(19.4) %
$ 349,448
42,284
12.1 %
The $58.3 million decrease in long-term assets over the fiscal year is mainly related to amortization expense and the negative impact of
foreign exchange on the Corporation’s assets denominated in foreign currencies.
The $64.6 million decrease in long-term liabilities mainly results from a $37.4 million decrease in long term debt due to net repayments and
lease terminations, an $11.7 million decrease in other long-term liabilities largely attributable to the net defined benefit obligation and a
favorable foreign exchange impact on revaluation of long term liabilities denominated in foreign currencies.
PENSION PLANS
The Corporation has funded and unfunded defined benefit pension plans as well as defined contribution pension plans that provide pension
benefits to its employees. Retirement benefits provided by the defined benefit pension plans are based on either years of service and flat
amount, years of service and final average salary, or set out by individual agreements.
The net defined benefit obligations varied as follows, during fiscal year:
Net pension plan assets (defined benefit obligations), beginning of year
Net gains (losses) from remeasurement
Employer contributions
Current service cost
Interest on net defined benefit obligations
Other
Net pension plan assets (defined benefit obligations), end of year
The funding status of the Corporation’s pension plans was as follows, as at:
Present value of defined benefit obligations of funded plans
Fair value of plan assets
Funding ratio
2021
2020
$ (10,079) $
(6,650)
10,262
1,627
(1,053)
(394)
(307)
(2,398)
1,417
(1,408)
(238)
(802)
$
56 $ (10,079)
March 31, 2021
$ 69,289
69,988
March 31, 2020
$ 64,234
55,117
101.0 %
85.8 %
The Corporation made contributions of $1.6 million and $3.3 million to its defined benefit and defined contribution benefit plans, respectively,
during fiscal 2021, and expects to make respective contributions of $0.9 million and $2.8 million during fiscal 2022. The increase in fair value
of plan assets mainly resulted from strong returns this year in financial markets after last fiscal year volatility caused by the COVID-19
pandemic.
HÉROUX-DEVTEK INC. – Fiscal 2021 MD&A – 69
ADDITIONAL INFORMATION
BUSINESS ACQUISITIONS
Acquisition of Alta Precision (Fiscal 2020)
On June 7, 2019, the Corporation completed the acquisition of all of the shares of Alta Précision Inc. (“Alta”), for $18.6 million. Located in
Montreal, Canada, Alta is a manufacturer of high-precision landing gear components. The acquisition was financed with the Corporation's
available credit facilities and was treated as a business combination.
On May 5, 2020, the Corporation announced the closing of Alta facilities as a result of the effect of the ongoing COVID-19 pandemic on the
commercial aerospace market. Activities related to Alta were transferred to other business units where certain contracts were continued,
along with the related assets acquired and liabilities.
Divestiture of APPH Bolton
On May 4th, 2021, Héroux-Devtek concluded an agreement for the sale of its Bolton, UK operations to Ontic Engineering & Manufacturing
UK Limited for a sale price of £2.7 million ($4.6 million) excluding £0.9 million ($1.5 million) which is subject to the achievement of certain
commercial objectives. The transaction will be accounted for in the first quarter of Fiscal 2022 and is not expected to result in a material gain
or loss on disposal of the business unit.
FOREIGN EXCHANGE
As a Corporation with operations in various countries which deals with customers from across the world, Héroux-Devtek’s financial position
and results of operations are partly influenced by movements in foreign exchange (“FX”) rates. More specifically, the Corporation has
operations in Canada, the United States, Spain and the United Kingdom, and thus incurs costs denominated in the respective currencies of
these four countries, the Canadian dollar (“CAD”), United States dollar (“USD”) Euros (“EUR”) and British pound (“GBP”). In addition to costs
denominated in their local currencies, a large portion of materials costs of the Canadian, Spanish and British operations are denominated in
USD, as is a large portion of their sales.
The Corporation must convert foreign-denominated revenues, expenses, assets and liabilities into CAD for financial reporting purposes.
Gains and losses occur as a result of the fluctuations of these foreign currencies against the CAD between balance sheet periods, or
between the date of a transaction and the reporting date.
Transactions denominated in foreign currencies are initially recorded at the functional currency rate of exchange at the date of the
transactions, excluding the impact of forward foreign exchange contracts (“FFEC”), while the statement of income of foreign operations is
translated at the average exchange rate for the period. Balance sheet items are translated at the spot rate on the reporting date.
The foreign exchange rates used to translate assets and liabilities into Canadian dollars were as follows, as at:
USD (Canadian equivalent of US$1.0)
EUR (Canadian equivalent of €1.0)
GBP (Canadian equivalent of £1.0)
March 31, 2021 March 31, 2020
1.2575
1.4759
1.7337
1.4187
1.5584
1.7604
The foreign exchange rates used to translate revenues and expenses into Canadian dollars were as follows:
USD (Canadian equivalent of US$1.0)
EUR (Canadian equivalent of €1.0)
GBP (Canadian equivalent of £1.0)
70 – HÉROUX-DEVTEK INC. – Fiscal 2021 MD&A
Quarters ended March 31,
2020
2021
Fiscal years ended March 31,
2020
2021
1.2666
1.5267
1.7461
1.3442
1.4811
1.7185
1.3292
1.5405
1.7269
1.3306
1.4784
1.6915
Héroux-Devtek is most exposed to the performance of the USD versus CAD, GBP and EUR due to the prevalence of USD in Aerospace
market transactions and the geographical location of operations. Fiscal 2021 featured a decrease in the value of the USD compared to CAD,
EUR and GBP, due to market volatility observed in financial markets during the last twelve months. Approximately 70% of the Corporation’s
sales are denominated in USD, compared to slightly less than half of the related costs, which creates significant net inflows of USD.
In order to manage this risk, the Corporation has put in place a foreign currency hedging policy whereby Héroux-Devtek contracts FFEC to
sell USD in amounts equivalent to expected net inflows. This policy requires that the Corporation hedge between 50% and 100% of the
identified net exposure, mainly over the next two fiscal years. See the Derivative Financial Instruments section for further details.
As at March 31, 2021, the Corporation had forward foreign exchange contracts outstanding for a notional amount of $268.7 million
denominated in USD, EUR and GBP. This amount includes contracts with nominal value of US$197.5 million convertible into Canadian
dollars at an average rate of 1.3161. These contracts mature at various dates between April 2021 and March 2025, with the majority maturing
in fiscal years 2022 and 2023.
Consistent with hedge accounting under IFRS, gains and losses on these FFEC are accounted for in other comprehensive income until
settlement, at which point they are realized in the consolidated statement of income along with the opposing gain or loss on translation of the
related financial instruments. As at March 31, 2021, a 1% strengthening of the CAD versus the USD would result in a $0.5 million decrease in
the Corporation’s fiscal 2021 net income.
RISK MANAGEMENT
Héroux-Devtek operates in an industry which exposes it to a variety of risk factors and uncertainties that may have a material adverse effect
on the business, financial condition and results. The Corporation is also subject to more general economic or natural risks which could have
widespread, cross-industry impacts.
Héroux-Devtek’s general philosophy is to avoid unnecessary risk and to limit, to the extent practicable, any risk associated with business
activities. Taking any risk unrelated to normal business activities is considered inappropriate.
It is ultimately the responsibility of the Board of Directors and its committees to identify material risks to the business and ensure
management performs adequate risk management duties. Their role in this regard is largely one of high-level decisions, oversight and review.
In order to succeed, the Board of Directors entrusts the bulk of risk prevention, detection and mitigation to management.
It is corporate management’s responsibility to ensure that systems and procedures are in place to identify and assess risk exposures and
manage them within tolerable limits. In order to do so, management has set out the following objectives:
•
•
•
identify and evaluate risk exposures and, when practicable, reduce exposures to a tolerable level;
use the most effective and efficient methods to eliminate, reduce or transfer risk exposures; and,
consider risks associated with operating decisions and structure transactions in such a fashion as to avoid risks whenever possible.
A key component of the Corporation’s risk management practices is the Enterprise Risk Management (“ERM”) process. The ERM process is
a multi-level risk and control assessment procedure under which appraisals, insights and practices are solicited from management teams
across all divisions, the senior management team, the Board of Directors, and internal leaders in specific fields of expertise.The information
gathered is consolidated, assessed and synthesized to arrive at a comprehensive list of key risks, controls, responses and residual risks. The
resulting information is incorporated into the internal audit program and communicated to the Audit Committee and Board of Directors, who
also review key risks on a periodic basis.
The most significant risk management methods used by management have entity-wide impacts. Such entity-wide efforts include, but are not
limited to:
•
the establishment of a corporate culture which fosters responsible management and integrity by adhering to strict hiring policies
and emitting strong tone from the top;
the application of a code of ethical conduct and a whistleblower policy in order to assure the quality of the Corporation's corporate
governance, and the integrity of the Corporation's functioning;
the establishment and ongoing alignment of company-wide quality organizations and systems, including supply chain, quality
assurance and continuous improvement; and,
the company-wide establishment of a strong internal control environment in order to manage risks associated with financial
reporting, fraud, treasury and operations.
•
•
•
HÉROUX-DEVTEK INC. – Fiscal 2021 MD&A – 71
The paragraphs and tables below include a selection of key risks identified by management as well as the related risk management
approach. This list is not, nor is it intended to be, exhaustive. Other risks which may not yet have been identified by management could have
an adverse effect on the Corporation’s business, financial condition or results.
COVID-19 Pandemic Risks
On March 11, 2020, the World Health Organization declared the outbreak of the novel coronavirus identified COVID-19 as a global pandemic.
During the Corporation’s annual ERM review, certain key risks were assessed as having been accentuated by the effect of the pandemic,
including:
•
•
•
•
•
Virus Outbreak at a facility - business interruption;
Liquidity - increased customer credit risk;
Information Technology - heighten cybersecurity risks;
Supply chain performance - disruption resulting in late deliveries; and,
General economic conditions - important downturn of the commercial aerospace market.
Management consequently adjusted its response to these key risks by taking immediate and specific action to diminish the impact and bring
those risks down to an acceptable level. For more information on management’s response to these and other key business risks, refer to the
tables below.
In spite of these actions, the pandemic could still significantly impact an organization in unforeseen ways, potentially causing, among other
possibilities:
•
•
An outbreak at a facility, disrupting operations, delaying deliveries, and causing financial losses;
Operational inefficiencies and additional costs brought on by the effect of the pandemic and related mitigation methods on the
workforce;
Closure or reduction of production of key suppliers, disrupting the supply chain;
Closure or reduction of production of customers, delaying deliveries;
Financial duress for suppliers or customers, rendering key inputs unavailable or more costly or receivables uncollectible or subject
to longer payment cycles;
Global reduction in the demand for commercial aerospace products, resulting in production rate cuts by Airbus, Boeing and other
OEMs;
Significant volatility and weakness in global financial markets, resulting in a negative impact on our share price, our ability to access
capital markets, our ability to complete business acquisitions as part of our growth strategy, and the value of our pension plan
assets;
Deferral of bid activities;
Diversion of management attention.
•
•
•
•
•
•
•
Héroux-Devtek continues to closely monitor rising global COVID-19 infection rates, including the emergence and spread of new, more highly
transmissible variants of the virus. Although vaccines have started being administered to the public, the duration and potential outcomes of
the COVID-19 pandemic remain uncertain. The government has enforced measures throughout 2020 and into 2021 to slow the spread of the
virus that may have broader impacts on the Canadian and global economies and financial markets. Despite all the measures taken by the
Company to mitigate these risks and provide a safe work-environment, the Company is unable to predict the overall impact on its operations,
liquidity or results. Any future epidemic, pandemic, or other public health crisis that occurs in the future may pose similar risks to the
Corporation.
The impact on the aerospace sector in particular is detailed in the Economic Outlook section under Overview, and the specific impacts on
Héroux-Devtek are detailed in the Impact of COVID-19 section under Overview.
72 – HÉROUX-DEVTEK INC. – Fiscal 2021 MD&A
Strategic Risks
Strategic risks have company-wide impacts and are typically related to the Corporation’s overall direction.
RISK
Reliance on large
customers
DESCRIPTION
The top 10 of Héroux-Devtek’s customers represent
approximately 65% of consolidated sales, including one
customer representing 17% of its consolidated sales.
The loss of one of these customers would have a
material adverse impact on current and forecasted
financial results.
As a growth strategy, the Corporation at times engages
in business acquisitions. Such acquisitions increase the
size and scale of the Corporation, and may expose it to
new geographical, political, operational and financial
risks.
Acquisitions furthermore may place significant demand
on management or cause subsequent difficulties related
to the integration of new operations. The integration of
new operations poses risks, which are difficult to
forecast, that may adversely affect the Corporation's
growth and profitability, and may include the inability to
successfully integrate acquired operations.
Acquisitions and
integrations
RISK MANAGEMENT APPROACH
This risk is partly mitigated by entering into long-term
sales agreements with customers as well as by actively
seeking out new and diverse customers in order to
diversify the sales portfolio.
In addition, further diversification is achieved by
diversifying sales by subsegment and product or service
within sales to individual customers.
Héroux-Devtek carefully selects acquisition targets within
restrictive criteria and only goes forward when
satisfactory fit is identified.
Acquisition agreements, further, are thoroughly
negotiated with the goal in mind to mitigate key
acquisition risks via mutually agreeable conditions,
warranties and contingent pricing agreements.
The Corporation further manages risks associated with
acquisitions and integrations via thorough due diligence
work, internal experience and external assistance, as
needed.
Héroux-Devtek plans integration of acquisitions from the
top down and dedicates resources over the long term in
order to optimize integration and achieve strategic goals.
HÉROUX-DEVTEK INC. – Fiscal 2021 MD&A – 73
Financial Risks
Financial risks are related to the financial condition, results and liquidity of the corporation and/or relate to market conditions directly related to
the Corporation.
RISK
Foreign currency
fluctuations
Liquidity, capital
resources and
related covenants
RISK MANAGEMENT APPROACH
DESCRIPTION
Refer to the Foreign exchange section under Overview for details of Héroux-Devtek’s exposure to foreign exchange
rate fluctuations and related risk management practices.
The Corporation requires continued access to capital
markets to finance its activities. The long-term nature
and up-front cost structure of certain programs can
require significant amounts of start-up costs. Inability to
access such capital could impede the Corporation’s
ability to bid on significant contracts, or negatively impact
ongoing operations.
In order to maintain proper liquidity, Héroux-Devtek
makes cash management a daily priority. Liquidity
balances, receivables, cash projections and market rates
of foreign exchange and interest are monitored
constantly.
Héroux-Devtek has access to such financing from its
banking syndicate, unsecured subordinated term loan
facility as well as from loans from government authorities
and capital lease facilities. These agreements subject
the Corporation to the financial covenants as described
in the Liquidity and capital resources section. They
furthermore restrict the Corporation's ability to sell all or
substantially all of its assets, incur secured or certain
other indebtedness, engage in mergers or consolidations
or engage in transactions with affiliates.
These restrictions and covenants could impede access
to capital or prevent the Corporation from engaging in
business activities that may be in its interest.
In order to ensure stability and long-term financial
viability, the Corporation also:
-Ensures proper bid approval in order to ensure proper
forecasting and risk assessment of revenue and costs;
-Structures contracts in order to obtain customer
advances and progress billings;
-Develops long-term agreements with customers and
suppliers which go through bid processes for key costs;
-Performs long-term cash projections as part of the
annual budget and strategic plan process;
-Maintains positive relationships with all major creditors.
Management also monitors covenants on an ongoing
basis in order to ensure they are met and identifies
trends which could indicate future risks.
The Corporation is exposed to fluctuations in interest
rates through the floating rate of its credit facility as well
as the impact on the cost of future capital requirements.
Héroux-Devtek’s risk management policies specifically
address the management of interest rate risk by allowing
the use of derivatives such as interest rate swaps.
Changing interest
rates
Fluctuations in interest rates may also negatively impact
profitability by their impact on rates used by Héroux-
Devtek to discount provisions and pension obligations,
among other balances. Lower interest rates would result
in higher present obligations, with resulting adjustments
impacting financial results.
Outstanding derivatives are detailed in the Derivative
Financial Instruments section under Additional
Information.
Risks associated with pensions are managed through
investment policies put in place by the Corporation and
pension committees.
74 – HÉROUX-DEVTEK INC. – Fiscal 2021 MD&A
Operational Risks
Operational risks are more specific to or result from Héroux-Devtek’s operations than strategic risks.
RISK
DESCRIPTION
The Corporation is exposed to having a viral outbreak in
a facility which could not only impact employees’ health
but also disrupt operations putting at risk customer
deliveries and causing financial losses.
Virus outbreak at a
facility
RISK MANAGEMENT APPROACH
Héroux-Devtek has put in place several measures in
order to minimize the impact on its workforce and its
operations:
- The creation of a steering committee to coordinate
response;
- Travel limitations;
- Deployment of information technology tools;
- Protocols at each location in order to mitigate
transmission, including but not limited to:
- Physical distancing measures;
- Issuance of personal protective equipment;
- Staggering of shifts;
- Quarantine policies;
- Hygiene reinforcement; and,
- Work-from-home program.
Litigation
Collective
bargaining
agreements
Availability of
skilled labour
Information
technology
Héroux-Devtek is subject to possible litigation in the
ordinary course of its business by, among others,
customers, suppliers, competitors, shareholders or
government agencies including specific import/export
laws and regulations. Such litigation can vary both in
terms of financial magnitude and in duration, either of
which could remain unknown for substantial periods of
time.
The Corporation employs legal professionals who advise
senior management on the subject of ongoing legal and
regulatory compliance and related risk management.
The Corporation also subscribes to several forms of
insurance coverage which may, in the event of liability of
certain types, partially or entirely compensate for
potential losses.
Regardless of outcome, litigation could result in
substantial costs to the Corporation in addition to
potentially material losses, both of which would
negatively impact financial results. Litigation, in addition,
could divert management’s attention and resources away
from day-to-day operations and strategic objectives.
The Corporation is party to certain collective bargaining
agreements which govern the working relationship with
certain employees. Failure to renew such agreements
upon mutually agreeable terms could result in work
stoppages or other labour disturbances which could have
adverse effects on financial results, operational
execution and customer satisfaction.
The market for skilled labour in the aerospace industry is
highly competitive and is expected to remain so in the
future. Execution of key programs and customer
satisfaction are heavily reliant on employing top talent.
The Corporation relies on such labour, particularly
engineers, machinists and programmers, for all levels of
operations.
Information technology systems are essential to most of
Héroux-Devtek’s operations. These systems could be
vulnerable to cyber-attacks or spying, viruses and any
other form of hardware or software failures, intentional or
not.
The non-availability of these systems would directly and
negatively affect the Corporation’s operations.
Unauthorized access to first or third-party confidential
data in Héroux-Devtek’s possession would also
negatively affect the Corporation’s reputation and,
consequently, its business and results.
In order to minimize this risk, Héroux-Devtek endeavours
to maintain cooperative and professional relationships
with union leadership and plans the negotiation of
renewals to allow reasonable time to achieve positive
results.
Héroux-Devtek targets top candidates for key roles and
carefully evaluates hires for long-term fit and growth.
Retention of employees is addressed through solid
human resources practices, competitive remuneration
and, in the case of key management, incentive-based
pay such as bonuses, stock options, performance share
units and stock purchase and ownership incentive plans.
In order to reduce technology-related risks,
Héroux‑Devtek has implemented a variety of measures,
including:
- A security program based on the NIST framework,
including frequent maturity assessments, audits and
penetration tests;
- 24/7 monitoring via a security operations center;
- Intrusion detection and prevention solutions;
- A global security committee, strict governances process
and policies regarding information technology;
- A cybersecurity awareness program and phishing
campaigns; and,
- Disaster recovery planning.
HÉROUX-DEVTEK INC. – Fiscal 2021 MD&A – 75
The complex and sophisticated nature of the
Corporation’s products creates a risk that defects may be
found after they have been delivered to customers. Such
defects may result in warranty claims or customer losses
for which Héroux-Devtek may be liable. Furthermore, the
primary use of these products being for air travel may
compound the magnitude of such warranty claims or
losses. Liability for such losses, or the inability to correct
such errors, may have material adverse effect on the
Corporation’s business and results.
The increasing growth, integration and automation of the
Corporation’s business result in increased reliance on,
and exposure to, the performance of its supply chain.
Reductions in quality, reliability, availability of supply
chain performance could result in material adverse
effects on the Corporation’s business and results.
Héroux-Devtek’s rigorous dedication to quality
standards, systems and certifications in all stages of
design, production or repair and overhaul partially
mitigate the risk of product-related failure which could
lead to warranty claims or litigation.
The Corporation has in place a product support
organization which monitors performance and reliability
of products and also subscribes to product liability
insurance which may mitigate potential losses.
Héroux-Devtek manages supplier-related risks through
frequent supplier audits and maintaining high standards,
such as requiring AS9100 and Nadcap certification.
The Corporation also tracks and monitors supplier
performance and mitigates potential losses by ensuring
poor quality, if any, is detected through internal quality
management.
Warranty casualty
claim losses
Supply chain
performance
External Risks
External risks are generally outside of management’s control and mostly result from external factors.
RISK
Competition and
innovation
DESCRIPTION
Héroux-Devtek operates in an industry that has faced
ongoing consolidation, resulting in a smaller overall
number of larger competitors, as well as constant
innovation in technology and products.
RISK MANAGEMENT APPROACH
Héroux-Devtek manages risk from competition by
maximizing customer satisfaction, on-time delivery,
bidding competitively and maintaining high quality
products.
Larger competitors may have increased capabilities to
compete for significant contracts, as would competitors
who bring new technological innovation to market. Either
could result in lost customers or opportunities for the
Corporation, hindering growth and future profitability.
The Corporation also manages risk associated with
innovation by monitoring technological developments
and performing in-house research and development in
order to remain at the forefront of technology in the
industry.
While the aerospace and defence industries have proven
over the long-term to be relatively resilient in the face of
economic turmoil, they are not immune to short-term
downturns when market conditions take their toll on
customers. Such market conditions may be caused by
any number of factors, including but not limited to global
pandemics, political instability, terrorist activity, or natural
disasters. Such unfavourable conditions could negatively
impact Héroux‑Devtek through decreased sales in
particular, which could lead the Corporation to incur
significant costs associated with temporary layoffs and
termination.
Defence spending is approved by governments on a
yearly basis and is subject to political climates and
changing priorities. Austerity measures or shifts away
from defence spending on the part of a government,
particularly that of the United States, could lead to a
significant downward trend in demand for the
Corporation’s defence products.
The Corporation’s activities are subject to environmental
laws and regulations associated with risks to human
health and the environment. These laws and regulations
and potential related charges could have a significant
adverse effect on the Corporation’s operations and
financial condition.
General economic
conditions
Defence spending
Environmental
matters
While such economic conditions are outside of the direct
sphere of control of management, Héroux-Devtek
indirectly manages this risk through maintaining a
portfolio of customers and programs which is diversified
both geographically and by market segment. This could
decrease the overall impact of a downturn in any one of
these segments on the Corporation as a whole.
This risk is further mitigated by continuous effort on the
part of Héroux-Devtek to manage costs, capital and
profitability in such a fashion as to maintain a healthy
financial position, allowing for more resiliency in the
event of unexpected downturns.
The Corporation’s diversified sales portfolio, including a
growing commercial product portfolio, defence programs
outside of the United States and balance between
manufacturing and aftermarket products and services
reduces the impact that a downward trend in defence
spending on the part of certain governments could have.
Héroux-Devtek manages this risk by putting in place
management systems and policies in order to manage
and monitor the environmental impact its operations may
have.
In the event of an environmental incident which could
lead to a larger loss, the Corporation also subscribes to
insurance policies which may partially mitigate such
losses.
76 – HÉROUX-DEVTEK INC. – Fiscal 2021 MD&A
KEY PERFORMANCE INDICATORS
Héroux-Devtek measures its performance on a corporate-wide basis through the following elements:
•
•
•
•
Profitability
Liquidity
Growth and competitive positioning
Financial position
To do so, the Corporation developed key performance indicators (“KPI”). The following is a list of these indicators as well as the elements
which they help measure:
PERFORMANCE ELEMENT
KPI
Profitability
Liquidity
Growth and competitive
positioning
Gross profit
Adjusted operating income(1)
Adjusted net income(1)
Adjusted EPS(1)
Return on net assets (“RONA”)
Adjusted EBITDA(1)
Cash flow from operations
Free cash flow(1)
Sales
Funded backlog
Working capital
Financial position
Net debt to Adjusted EBITDA ratio
Net debt to equity ratio
MEASURES
Manufacturing performance
Operating performance
Global profitability
Global profitability and shareholder return
Return on investment
Overall liquidity generation
Operating liquidity generation
Net liquidity generation
Growth
Outstanding firm orders
Available liquidity
Indebtedness
Overall capital structure
(1) Non-IFRS financial measure. Refer to the Non-IFRS financial measures section under Operating Results for definitions and reconciliations to the most
comparable IFRS measures.
In addition to the above measures, on an internal basis, the Corporation uses such measures as manufacturing capacity utilization, as well as
on-time deliveries and non-quality costs to measure customer satisfaction.
Héroux-Devtek’s incentive-based pay for management varies partially based on reaching established global or divisional targets of certain of
the metrics listed above, including operating income, RONA, adjusted EBITDA and adjusted net income. Incentive pay also relies on
individual objectives and, in the case of stock-based compensation, share price performance.
DERIVATIVE FINANCIAL INSTRUMENTS
Héroux-Devtek makes use of certain derivative financial instruments as tools for risk management purposes in order to mitigate certain
foreign exchange, interest rate or other price risks to which it is exposed. Management uses these derivatives within the guidelines laid out by
the Corporation’s risk management policy. See the Risk Management section under Overview for further details of Héroux-Devtek’s risk
management practices.
As at March 31, 2021, these derivative financial instruments are as follows:
Forward foreign exchange contracts
See Foreign Exchange under Overview for information about the Corporation’s exposure to foreign exchange risks as well as the derivative
financial instruments used to mitigate it. See also note 32 to the Consolidated financial statements.
HÉROUX-DEVTEK INC. – Fiscal 2021 MD&A – 77
Cross-currency interest rate swaps
As at March 31, 2021, the Corporation had cross-currency interest rate swap agreements exchanging CAD and USD-denominated debt to
EUR for a total notional amount of € 90.5 million in order to mitigate foreign exchange and interest rate risks. These agreements mature
between May 2022 and September 2025, and mainly bear interest at a weighted average fixed rate of 2.7%.
Equity swap agreement
The Corporation’s net income is exposed to fluctuations of its share price through its DSUs and PSUs (see note 22 to the consolidated
financial statements). In order to mitigate this exposure, the Corporation has entered into an equity swap agreement with a financial
institution.
Pursuant to this agreement, upon settlement, the Corporation receives payment for any share price appreciation while providing payment to
the financial institution for any share price depreciation. The net effect of the equity swap partly offsets movements in the Corporation’s share
price which impacts the expense resulting from the DSUs and PSUs included in the Corporation’s selling and administrative expenses.
As at March 31, 2021, the equity swap agreement covered 300,000 common shares of the Corporation at a price of $13.52, unchanged
compared to March 31, 2020. This agreement is a derivative that is not part of a designated hedging relationship and matures in June 2022.
INTERNAL CONTROLS AND PROCEDURES
In compliance with Regulation 52-109 respecting Certification of Disclosure in Issuer’s Annual and Interim Filings (“Regulation 52-109”), the
Corporation has filed certifications signed by the Chief Executive Officer (“CEO”) and the Chief Financial Officer (“CFO”) that, among other things,
report on disclosure controls and procedures and the design of internal controls over financial reporting.
Disclosure controls and procedures
The CEO and the CFO have designed disclosure controls and procedures, or have caused them to be designed under their supervision, to
provide reasonable assurance that material information relating to the Corporation has been made known to them and has been properly
disclosed in the interim and annual filings.
As at March 31, 2021, an evaluation of the design and effectiveness of the Corporation’s disclosure controls and procedures was also carried out
under the supervision of the CEO and CFO, as defined in Regulation 52-109. Based on this evaluation, the CEO and CFO concluded that the
design and operation of these disclosure controls and procedures were effective. This evaluation took into account the Corporation’s disclosure
policy and its disclosure committee.
Internal controls over financial reporting
The CEO and CFO have also designed internal controls over financial reporting, or have caused them to be designed under their supervision, to
provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with IFRS.
As at March 31, 2021, an evaluation of the design and effectiveness of the Corporation’s internal controls over financial reporting was carried out
under the supervision of the CEO and CFO, as defined in Regulation 52-109. Based on this evaluation, the CEO and CFO concluded that the
design and effectiveness of these internal controls over financial reporting were effective to provide reasonable assurance that the Corporation’s
financial reporting is reliable and that the Corporation’s consolidated financial statements were prepared in accordance with IFRS. However, a
control system, no matter how well conceived or operated, can provide only reasonable, not absolute, assurance that the objectives of the control
system are met.
Changes in internal controls over financial reporting
No changes were made to the Corporation’s internal controls over financial reporting during the fiscal year ended March 31, 2021 that have
materially affected, or are reasonably likely to materially affect, its internal controls over financial reporting.
78 – HÉROUX-DEVTEK INC. – Fiscal 2021 MD&A
CRITICAL ACCOUNTING ESTIMATES
The preparation of the Corporation’s consolidated financial statements requires management to make estimates and assumptions that affect
the reported amounts of revenues, expenses, assets and liabilities, and the disclosure of contingent liabilities at the reporting date.
Uncertainty about these assumptions and estimates could result in outcomes that require material adjustments to the Corporation’s financial
results or the carrying amount of assets or liabilities.
Key estimates and assumptions are as follows:
Impact of COVID-19
The uncertainties around the outbreak of the COVID-19 pandemic required the use of significant judgments and estimates. As at March 31,
2021, the Corporation performed an assessment of the asset impairment risk including a detailed review of the credit risk over its accounts
receivable, its inventory levels for risks over obsolescence or excess inventory, goodwill and other non-financial assets. This assessment
indicated no impairment charges were warranted at this time. Impairment charges totaling $85.8 million of impairment charges affecting
mainly goodwill were recorded at the end of fiscal 2020 at the onset of the pandemic. The uncertain future impact of COVID-19 could
generate, in future reporting periods, a significant risk of material adjustment to the carrying amounts of the following: accounts receivable,
inventories, property, plant & equipment, finite-life intangible assets, deferred income tax assets, goodwill, provision for onerous contracts,
government authorities loans and net defined benefit obligations. The duration and full financial effect of the COVID-19 pandemic is unknown
at this time, and accordingly estimates of the extent to which the COVID-19 may materially and adversely affect the Corporation’s
consolidated financial condition, operations and consolidated financial results are subject to significant uncertainty.
Impairment of non-financial assets
Impairment exists when the carrying amount of an asset or cash generating unit (“CGU”) exceeds its recoverable amount, which is the higher
of its fair value less costs to sell and its value in use. The fair value less costs to sell calculation is based on available data from binding sales
transactions in an arm’s length transaction of similar assets and observable market prices less incremental costs for disposing of the asset.
The value in use calculation is based on a discounted cash flow model. The cash flows are derived from the Corporation’s five-year budget
and strategic plan and do not include restructuring activities that the Corporation is not yet committed to or significant future investments that
may enhance the performance of the CGU being tested. The recoverable amount is most sensitive to the discount rate used in the
discounted cash flow model, the expected future cash flows and the perpetual growth rate used for extrapolation. The key assumptions used
to determine the recoverable amount of the CGUs, including sensitivity analysis, are further explained in note 17 to the Consolidated financial
statements.
Deferred income tax assets
Uncertainties exist with respect to the interpretation of complex tax regulations and the amount and timing of future taxable income. The
Corporation establishes provisions based on reasonable estimates for possible consequences of audits by the tax authorities. The amount of
such provisions is based on various factors, such as experience of previous tax audits and differing interpretations of tax regulations by the
taxable entity and the responsible tax authority.
Deferred income tax assets are recognized for unused tax losses and deductible temporary differences to the extent it is probable that
taxable income will be available against which the losses and deductible temporary differences can be utilized. Management’s judgment is
required to determine the amount of deferred income tax assets that can be recognized, based upon the likely timing and the level of future
taxable income together with future tax planning strategies.
Pensions and other retirement benefits
The cost of defined benefit pension plans is determined using actuarial valuations. The actuarial valuation involves making assumptions
about discount rates, future salary increases and mortality rates. In determining appropriate discount rates, management considers the
interest rates of high-quality corporate bonds. Due to the long-term nature of these plans, such estimates are subject to significant
uncertainty. The significant assumptions used to determine the defined benefit obligations and the pension expense, including a sensitivity
analysis, are further explained in note 25 to the Consolidated financial statements.
HÉROUX-DEVTEK INC. – Fiscal 2021 MD&A – 79
Capitalized development costs
Development costs are capitalized in accordance with the accounting policy described in note 3 to the Consolidated financial statements. In
determining the amounts to be capitalized, management makes assumptions regarding the expected future cash generation of the assets,
discount rates to be applied, the expected period of benefits and contract quantities. For purpose of impairment testing, the Corporation exercises
judgment to identify the cash inflows and outflows. The recoverable amount is based on fair value less costs of disposal, generally determined
using a discounted cash flow model. Other assumptions used to determine the recoverable amount include the applicable discount rate and the
expected future cash flows which include costs to complete the development activities.
Provisions
The Corporation has recorded provisions to cover cost exposures that could materialize in future periods. In determining the amount of the
provisions, assumptions and estimates are made in relation to discount rates and the expected cost to settle such liabilities.
Government Authorities Loans
The Corporation has outstanding loans with government authorities with variable repayment schedules. Annual repayments of these loans
generally vary based on the sales of certain of the Corporation’s programs or segments. In order to account for the present value of these loans
under the effective interest method, or for government assistance upon initial recognition, management must estimate the future sales growth of
these programs or segments over the expected duration of the loan. These forecasts are used to determine effective interest rates and expected
repayment schedules. In determining these amounts, management must rely on market rates of interest and assumptions such as, but not limited
to, current and future order intake, industry order backlogs, Original Equipment Manufacturer (“OEM”) production rates, expected economic
conditions, the stability of foreign exchange rates and the Corporation’s ability to deliver on key contract initiatives.
Customer Relationships
Customer relationships acquired in business acquisitions are considered intangible assets with finite lives. Their value was estimated upon
acquisition using valuation methodologies which rely on many underlying assumptions, including:
•
•
•
•
•
Expected future order intake;
Operational execution and cost management;
Stability of economic conditions, including foreign exchange rates;
Production rates;
Government spending.
They are recorded at cost less accumulated impairment and amortization and are amortized on a straight-line basis over their useful lives
without exceeding 15 years.
80 – HÉROUX-DEVTEK INC. – Fiscal 2021 MD&A
SELECTED FINANCIAL INFORMATION
Selected financial information is as follows, for the quarters ended:
Fiscal year
Sales
Operating income (loss)
Adjusted operating income (1)
Adjusted EBITDA (1)
Net (loss) Income
Adjusted Net Income (1)
In dollars per share
Fourth
quarter
Fourth
quarter
Third
quarter
Second
quarter
2021
First
quarter
2020
First
quarter
$ 154,989 $ 150,298 $ 137,063 $ 128,335 $ 166,800 $ 157,253 $ 145,516 $ 143,427
1,385 (64,426) 13,466 10,519 10,371
12,229 13,362
13,848 14,145
7,430 17,577 13,466 10,519 10,986
24,975 23,731 21,233 18,358 28,609 24,563 21,510 21,509
6,443
6,959
(1,313) (72,113)
3,382 13,695
8,802
10,169
8,486
9,365
3,838
6,118
8,705
8,705
7,120
9,788
6,307
6,307
Second
quarter
Third
quarter
Earnings (loss) per share - basic and diluted
Adjusted Earnings per share (1)
$
0.24 $
0.28
0.24 $
0.26
0.11 $
0.17
(0.04) $
0.09
(1.98) $
0.38
0.24 $
0.24
0.18 $
0.18
0.18
0.19
In millions of shares
Weighted average number of common diluted
shares outstanding
In millions, as at period end
Funded backlog
36.5
36.5
36.4
36.4
36.4
36.7
36.7
36.6
$
717 $
739 $
764 $
772 $
810 $
839 $
769 $
747
(1) Non-IFRS financial measure. Refer to the Non-IFRS financial measures section under Operating Results for definitions and reconciliations to the most
comparable IFRS measures.
Seasonal trends
Héroux-Devtek’s first semester is usually slower than the last one due to seasonality such as plant shutdowns and summer vacations.
Selected financial information is as follows, for fiscal years:
Sales
Operating income (loss)
Adjusted operating income(1)
Adjusted EBITDA(1)
Net income (loss)
Adjusted net income(1)
Earnings (loss) per share ($) - basic and diluted
Adjusted earnings per share(1) ($)
Cash and cash equivalents
Total assets
Long-term financial liabilities(2)
2021
2020
2019
$ 570,685 $ 612,996 $ 483,877
34,096
45,211
88,297
19,813
29,034
0.55
0.80
95,470
853,284
251,243
(30,070)
52,548
96,191
(50,658)
35,666
(1.38)
1.00
45,841
898,848
314,363
37,240
41,563
74,213
26,194
30,352
0.73
0.84
35,128
872,767
268,273
(1) Non-IFRS financial measure. Refer to the Non-IFRS financial measures section under Operating Results for definitions and reconciliations to the most
comparable IFRS measures.
(2) Represents long-term debt including the current portion, long-term derivative financial instruments, and the pension and other retirement benefit liabilities
included in other liabilities.
HÉROUX-DEVTEK INC. – Fiscal 2021 MD&A – 81
SHAREHOLDER INFORMATION
Expected issuance date of financial results
Fiscal 2022
First quarter
Second quarter
Third quarter
Fourth quarter
August 10, 2021
November 12, 2021
February 9, 2022
May 19, 2022
ADDITIONAL INFORMATION AND CONTINUOUS DISCLOSURE
This MD&A was approved by the Audit Committee and by the Board of Directors on May 19, 2021. Additional information about the
Corporation, including the Annual Information Form, can be found on SEDAR at www.sedar.com or on the Corporation’s website at
www.herouxdevtek.com.
82 – HÉROUX-DEVTEK INC. – Fiscal 2021 MD&A
Value of $100 invested in April 2016HRX return on investment - 5 years$114$136Value of $100 - HRXValue of $100 - TSXMar-16Mar-21406080100120140
HEROUXDEVTEK.COM
CONTACT INFORMATION
1111 Saint-Charles street West, suite 600
West Tower, Saint-Charles Complex
Longueuil (Québec) Canada J4K 5G4
450 679-3330