ANNUAL REPORT
2016
Committed to Excellence
IN ALL SUCCESSFUL BUSINESSES THE KEY TO
SUCCESS RELIES ON MANAGEMENT’S ABILITY TO
MASTER THREE FUNDAMENTALS:
> COMMITMENT TO CUSTOMER
> CLEAR VISION OF GOALS
> CORRECT TIMING OF ACTIONS
OUR SENIOR MANAGEMENT
TEAM KNOWS,
UNDERSTANDS AND LIVES BY THESE PILLARS OF
BUSINESS FUNDAMENTALS.
MANAGEMENT DISCUSSION AND ANALYSIS
PREFACE
This Management Discussion and Analysis (MD&A) comments on Imaflex Inc.’s (the “Parent Company”)
operations, financial performance, financial condition, future outlook and other matters for the three-month
periods and years ended December 31, 2016 and December 31, 2015. Unless otherwise indicated, the terms
“Imaflex”, “Company”, “we”, “our”, and “us” all refer to Imaflex Inc., together with its divisions Canguard
Packaging and Canslit, along with its wholly owned subsidiary, Imaflex USA Inc. All intercompany balances
and transactions have been eliminated on consolidation.
This MD&A also provides information to improve the reader’s understanding of the accompanying
consolidated financial statements and related notes. It should be read together with our audited consolidated
financial statements for the years ended December 31, 2016 and 2015.
Unless otherwise indicated, all financial data in this document was prepared in accordance with International
Financial Reporting Standards (“IFRS”), as issued by the International Accounting Standards Board (“IASB”)
and all amounts are expressed in thousands of Canadian dollars. Differences may occur due to rounding of
amounts. We also use financial measures that are not defined by IFRS. Please refer to the section entitled
“Non-IFRS Financial Measures” for a complete description of these measures. This MD&A was reviewed by
Imaflex’s Audit Committee and approved by the Board of Directors on April 18, 2017. Disclosure contained
within it is current to that date, unless otherwise indicated.
Additional information on Imaflex is available on our website at www.imaflex.com and on SEDAR at
www.sedar.com.
FORWARD LOOKING STATEMENTS
From time to time, we make forward-looking statements within the meaning of Canadian Securities laws,
including the “safe harbor” provisions of the Securities Act (Ontario). We may make such statements in this
document, in other filings with Canadian regulators, in reports to shareholders or in other communications.
These forward-looking statements include, among others, statements regarding the business and anticipated
financial performance of the Company. The words “may”, “could”, “should”, “would”, “outlook”, “believe”,
“plan”, “anticipate”, “expect”, “intend”, “objective”, the use of the conditional tense and words and expressions
of similar nature are intended to identify forward-looking statements.
By their very nature, forward-looking statements involve inherent risks and uncertainties, both general and
specific, which give rise to the possibility that predictions, forecasts, projections and other forward-looking
statements will not be achieved. We caution readers not to place undue reliance on these statements, as a
number of important factors could cause our actual results to differ materially from the beliefs, plans,
objectives, expectations, anticipations, estimates and intentions expressed in such forward-looking statements.
These factors include, but are not limited to, the length and severity of an economic downturn, management of
credit, market dynamics, liquidity, funding and operational risks; the strength of the Canadian and U.S.
economies in which we conduct business; the impact of the movement of the Canadian dollar relative to other
currencies, particularly the U.S. dollar; the effects of changes in interest rates; the effects of competition in the
markets in which we operate; our ability to successfully align our organization, resources, and processes; the
availability and price of raw materials; failure to achieve planned growth associated with the U.S. operations
and future sales; changes in accounting policies and methods we use to report our financial condition, including
uncertainties associated with critical accounting assumptions and estimates; operational and infrastructure risks;
and other factors that may affect future results including, but not limited to, timely development and
introduction of new products and services; changes in tax laws, technological changes, new regulations; the
possible impact on our businesses from public-health emergencies, international conflicts and other
developments; and our success in anticipating and managing the foregoing risks.
Fourth Quarter 2016
1
MANAGEMENT DISCUSSION AND ANALYSIS
FORWARD LOOKING STATEMENTS (continued)
We caution our readers that the foregoing list of important factors that may affect future results is not
exhaustive. When relying on our forward-looking statements to make decisions with respect to the Company,
investors and others should carefully consider the foregoing factors and other uncertainties and potential events.
Unless otherwise required by the securities authorities, we do not undertake to update any forward-looking
statement that may be made from time to time by us or on our behalf. The forward-looking statements contained
herein are based on information available as of April 18, 2017.
COMPANY OVERVIEW
Imaflex is focused on the development and manufacturing of innovative solutions for the flexible packaging and
agriculture markets. The Company’s flexible packaging products, largely used to protect and preserve, consist
primarily of polyethylene (plastic) film and bags, including garbage bags, as well as metalized film. Our
polyethylene film is mainly sold to printers, known as “converters”, who process the film into a finished
product to meet their end-customer needs. Our agriculture products are comprised of both non-metalized and
metalized mulch films, including standard, compostable and barrier (fumigant) films, along with next
generation crop protection and yield enhancement films, including Shine N’ Ripe XL and ADVASEAL® (under
development). The Company expects agriculture sales to become a much larger revenue contributor in the
coming years.
Imaflex operates three manufacturing facilities. Two are located in the province of Québec, including Montréal
(Imaflex Inc.) and Victoriaville (Canguard and Canslit), and one is located in Thomasville, North Carolina,
USA (Imaflex USA). The Company also has a warehouse in Thomasville. The four facilities cover a total area
of approximately 21,182 square meters or 228,000 square feet. Imaflex and Imaflex USA specialize in the
manufacture and sale of custom-made polyethylene films and bags. Canguard specializes in the manufacture
and sale of polyethylene garbage bags, while Canslit specializes in the metallization of plastic film. We believe
that our manufacturing presence in both Canada and the United States provides a competitive advantage in
terms of logistics, currency, and manufacturing flexibility.
The common shares of the Parent Company, Imaflex Inc., are listed on the TSX Venture Exchange under the
symbol “IFX”. The Company’s head office is located in Montréal (Québec).
Shine N’ Ripe XL
Shine N’ Ripe XL is a long-lasting, heavy-duty, metalized agricultural mulch film specifically designed to fight
citrus greening, a bacterial disease spread by the Asian Citrus Psyllid (ACP), an insect that is threatening the
citrus industry. It causes deformed off-flavoured fruits, low yields and eventually tree death. Common
insecticides alone have proven ineffective in managing ACP.
Shine N’ Ripe XL helps repel insect infestation through solar reflection. Its unique ability to reflect ultraviolet
(UV) light disorients insects, creating confusion between up and down. Not only does the film provide a
highly-effective insect repellent, it also enhances tree growth and yield, while also controlling weeds and
bringing water preservation benefits. Shine N’ Ripe XL has a unique ability to maintain high long-term UV
reflectivity for 3 or more years, making it an environmentally-friendly, economically-viable agricultural film for
the management of citrus greening.
Shine N’ Ripe XL is currently being commercialized. During the fourth quarter ended December 31, 2016, the
Company received its first significant mulch film order for approximately $1.0 million dollars from one of the
world’s largest citrus growers.
Fourth Quarter 2016
2
MANAGEMENT DISCUSSION AND ANALYSIS
COMPANY OVERVIEW (continued)
ADVASEAL® Commercialization
ADVASEAL® is a next generation, crop protection product currently under development and an important
growth platform for Imaflex. The underlying technology is patent protected until 2032 and the Company has
obtained or is in the process of filing for patent protection in the top 20 major vegetable and fruit producing
countries in the world, including Central-America, the USA and the European Union.
Most of the plastic mulch used annually worldwide is applied in conjunction with the spraying of herbicides and
pesticides or the application of fumigants. ADVASEAL® simplifies this process in a safe, environmentally-
friendly and cost effective way, by allowing for the controlled release of crop protection products (pesticides,
fungicides and herbicides) using a patent protected mulch film that has been coated with the active ingredients.
It is safe to handle, transport and apply, and unlike the traditional practice of chemical spraying, there is no need
for protective gear. It also permits exact dosing of expensive chemicals, which improves crop quality and
increases yields.
When the film is used, the ingredients are released in a timely manner only to the soil, eliminating the need for
costly work steps in the preparation and application of common spray mixtures. There is also reduced risk of
toxicity to the crop, no wind drift of agrochemicals into the environment and no respiration hazards for
operators or bystanders.
In addition to being an environmentally-friendly product, management estimates that ADVASEAL® will save
growers between $200 and $800 per acre, depending on the crop grown. Collectively, this puts Imaflex in a
good position to capture market share as ADVASEAL® is commercialized.
During fiscal 2016, the Company made progress in the process of customizing the coating equipment needed to
produce ADVASEAL®. The Company is now in the last stages of equipment testing and, once completed, will
proceed with a field trial of approximately 25 acres, most of which will be given to selected growers and the
remainder will be used for lab and US Environmental Protection Agency (EPA) testing. If the results of this
testing is positive, the Company will be able to proceed to the process of ordering the equipment.
MARKET OVERVIEW
The North American flexible packaging market is valued at approximately US$28 billion. Although this market
is highly fragmented and commoditized in terms of pricing, there are niches within the larger space that offer
the opportunity for increased profitability. In 2016, Imaflex was ranked in the top 100 North American film and
sheet manufacturers by sales.
The total addressable global agriculture mulch film market is valued at approximately US$9 billion, for which
the Company has and continues to develop innovative and proprietary solutions. In the US alone, the Company
estimates that approximately 130 million pounds of mulch film is being used, resulting in an estimated total
addressable market of approximately US$750 million.
Going forward, the Company hopes to capture a much larger share of the agriculture film market due to its next
generation crop protection and yield enhancement products, Shine N’ Ripe XL and ADVASEAL®. With
growing concerns over the scarcity of resources, the environment, lower crop yields due to disease, and a rising
global population, the Company believes that the macro-environment is working in its favour. Sustainability
and intelligent farming are becoming increasingly important.
Fourth Quarter 2016
3
MANAGEMENT DISCUSSION AND ANALYSIS
COMPETITIVE ENVIRONMENT
Although competition is high in all our markets, Imaflex operates in a multi-billion dollar industry with a
multitude of product opportunities. Flexible packaging alone is used in almost every consumer product market
to protect and preserve. Additionally, many of the Company’s customers deal in food related products, which is
somewhat recession resistant.
Imaflex believes it has a competitive edge due to its recognition of being an industry leader in the development
of innovative solutions. The Company focuses on offering customers unique high quality products on a timely
basis and at competitive prices. A key strength of ours is the ability to take on smaller orders with short lead
times. Collectively, this helps create customer loyalty.
Some competitors, experiencing idle operations or producing at below average capacity levels, may attempt to
gain market share through reduced pricing, particularly during difficult economic times. Imaflex still believes
that maintaining its focus on the quality of its products and the excellence of its customer service remains its
best long-term strategy, as these two characteristics define our position and reputation in the market, and this
regardless of the fluctuations in the economic cycle. This strategy has been the backbone of our growth and it
has served us well.
We employ a staff of chemical engineers and a chemist, which allows us to develop unique solutions. In our
markets, we believe it is essential to sell value-added products and avoid producing highly commoditized
offerings generating lower margins. The key to this strategy is identifying and building relationships with
customers having specific needs and eventually developing products that address them. Our sales force is
mandated to seek out such clients and the Company works to ensure its sales team is technically accomplished
and equipped to properly communicate the advantages of all products.
GROWTH STRATEGY
Management believes the following initiatives will contribute to Imaflex’s long term growth.
Strengthen the Core
We will continue to strengthen the core flexible packaging business. This includes revenue growth and margin
expansion through higher production volumes geared towards the most profitable markets and products, along
with a focus on lean operations (minimizing scrap, reducing production set-up times, etc.). In addition to
enhancing our organic growth, we will also consider strategic acquisitions that make sense in terms of
complementary fit, cost and ease of integration.
Grow the Agriculture Business
We will continue to build-out our agriculture business, driving awareness and exposure for our advanced
agriculture films, particularly Shine N’ Ripe XL and ADVASEAL®. In conjunction with this, we will continue
to work on the timely commercialization of ADVASEAL®. Management believes the underlying technology
platform behind both products brings substantial upside potential for the Company.
Maintain focus on Research and Development
We will maintain our focus on enhancing the customer value proposition, developing new capabilities and
leading edge products for highly profitable niche markets. In addition to building out our core flexible
packaging product portfolio, we will also concentrate on introducing new proprietary technologies, in order to
offer solutions that are more cost effective and environmentally-friendly than traditional methods. The
Company’s research teams use the fields in which they have core-competencies in order to identify innovative
improvements and solutions where chemicals and polymers can offer added-value.
Fourth Quarter 2016
4
MANAGEMENT DISCUSSION AND ANALYSIS
GROWTH STRATEGY (continued)
Maintain Efficiency of Equipment
Finally, we will focus on the efficiency of our equipment, making the required capital investments to maintain,
upgrade and expand into new areas. Our commitment to make the required capital investments, and our ability
to deliver customized solutions, on-time and at competitive prices should help to drive revenue and margin
expansion, while allowing us to remain competitive in the marketplace.
EMPLOYEES AND CORPORATE OFFICE
Imaflex currently employs 220 people worldwide and our corporate head office is located in Montreal, Canada.
The Company currently has no unionized employees.
OUTSOURCING
Our industry is capital intensive. Labour is only a minor component in the total cost of production. As a result,
outsourcing production to countries with lower wages would not have a material impact on costs, especially
when factoring in expenses related to freight and duty.
Furthermore, the risks associated with quality and on-time delivery would far outweigh any minimal benefit to
our customers that would be generated by lower labour costs. Accordingly, management does not currently
have an outsourcing strategy in place.
NON-IFRS FINANCIAL MEASURES
The Company’s management uses a non-IFRS financial measure in this MD&A, namely EBITDA, to assess its
performance. EBITDA is determined as “Earnings before interest, taxes, depreciation and amortization”. The
reader may refer to the table below for the reconciliation of the EBITDA used by the Company to its reported
net income.
Reconciliation of EBITDA to net income:
($ thousands, except per share data)
Net income
Plus:
Income taxes
Finance costs
Depreciation and amortization
EBITDA
Three months ended
Years ended
December 31,
2016
December 31,
2015
December 31,
2016
December 31,
2015
$ 161
$ 317
$ 408
$ 813
213
136
561
$ 1,071
291
147
403
$ 1,158
589
549
2,001
$ 3,547
709
601
1,682
$ 3,805
Basic and diluted EBITDA per share *
$ 0.022
$ 0.023
$ 0.071
$ 0.077
*Basic weighted average number of shares outstanding of 49,738,637 for the quarter ended December 31, 2016
(49,638,637 in 2015) and 49,697,653 for the year ended December 31, 2016 (49,517,502 in 2015). Diluted
weighted average number of shares outstanding of 49,784,681 for the quarter ended December 31, 2016
(49,705,847 in 2015) and 49,724,435 for the year ended December 31, 2016 (49,593,417 in 2015).
While EBITDA is not a standard IFRS measure, management, analysts, investors and others use it as an
indicator of the Company’s financial and operating management and performance. EBITDA should not be
construed as an alternative to net income determined in accordance with IFRS as an indicator of the Company’s
performance. The Company’s method of calculating EBITDA may be different from those used by other
companies and accordingly it should not be considered in isolation.
Fourth Quarter 2016
5
MANAGEMENT DISCUSSION AND ANALYSIS
RISK FACTORS
The Company is involved in a competitive industry and marketplace in which there are a number of
participants. To accommodate and effectively manage future growth, the Company continues to improve its
operational, financial and management information systems, as well as its production procedures and controls.
The Company’s success is largely the result of the continued contributions of its employees and the Company’s
ability to attract and retain qualified management, sales and operational personnel.
The market the Company competes in has historically shown resiliency and growth even at the worst economic
times. The Company’s customers operate predominantly in the food packaging and agriculture markets. This
fact, coupled with the expanding product lines and reliance on newer and faster equipment, should help it
weather the potential volatility caused by uncertainty in the North American economic climate.
Factors which can impact the Company include, but are not limited to: management of credit, market dynamics,
liquidity, funding and operational risks; the strength of the Canadian and U.S. economies in which we conduct
business; the impact of the movement of the Canadian dollar relative to other currencies, particularly the U.S.
dollar; the effects of changes in interest rates; the effects of competition in the markets in which we operate; our
ability to successfully align our organization, resources, and processes; the availability and price of raw
materials; failure to achieve planned growth associated with the U.S. operations; changes in accounting policies
and methods we use to report our financial condition, including uncertainties associated with critical accounting
assumptions and estimates; operational and infrastructure risks; other factors may affect future results including,
but not limited to, timely development and introduction of new products and services; changes in tax laws,
technological changes and new regulations; the possible impact on our businesses from public-health
emergencies, international conflicts and other developments; and our success in anticipating and managing the
foregoing risks.
GENERAL SITUATION OF THE POLYETHYLENE BLOWN FILM MARKET
Although polyethylene prices experienced an increase in the fourth quarter of 2016, overall the market is still
expecting supply to be greater than demand and therefore there is no upwards pressure expected on pricing in
2017, much as was the case in 2016. Although resin suppliers will most definitely implement price adjustments
in the year, the additional capacity that is expected to come on board should keep resin prices relatively flat in
the long run.
LOSS OF BUSINESS FROM A SIGNIFICANT CUSTOMER
One of our business practices has been to limit the purchases by any particular customer to less than 15% of our
revenues. This strategy ensures us that our profitability and financial well-being are not dependent on any one
client.
COMPETITION FROM OTHER COMPANIES
Competition in our market is at the moment quite intense. Nevertheless, we are in a US$28 billion market and
we believe we have a competitive edge over our competition because we have highly skilled teams that are
quick to respond to customer needs, we have a diversified manufacturing base and the bulk of our customers
deal in food related products. It may not always translate into a greater net profit, but should result in customer
loyalty if we decide to match our competitors’ prices.
SEASONALITY OF OPERATIONS
Some products produced in our Victoriaville and Thomasville facilities are subject to seasonality as a result of
their partial manufacturing focus in the production of agricultural film products sold to fruit and vegetable
growers. Customer demand in this end-market peaks twice yearly. Inventory is managed in a way to optimize
cash flow while remaining able to react to any market opportunities that present themselves. However, because
these locations also manufacture products that are destined for other markets which are not affected by seasonal
downturns, these two plants are still able to operate all year, albeit at lower capacity levels.
Fourth Quarter 2016
6
MANAGEMENT DISCUSSION AND ANALYSIS
EXPOSURE TO PRODUCT LIABILITY
Due to the nature of our operations, which consist primarily of manufacturing polyethylene film for converters,
who process the film into a finished product for their end-customers, Imaflex’s exposure to product liability is
low. Imaflex is not exposed to liability for personal injury or death arising from negligence in the
manufacturing of the films either.
The only market segment that exposes the Company to potential product liability claims is the agricultural
market. In this market, proof of negligence in our manufacturing process could entail some form of
compensation in the event that the expected crop yields do not materialize.
Although the likelihood of a claim in this market is low, we are nonetheless covered by a product liability
insurance policy in the amount of $ 25,000,000.
FLUCTUATIONS IN OPERATING RESULTS
It is important to note that profitability may vary from quarter to quarter, irrespective of quarterly sales. This is
due to many factors, including and not limited to: competitive conditions in the businesses in which the
Company participates; general economic conditions and normal business uncertainty; product mix; fluctuations
in foreign currency exchange rates; the availability and costs of raw materials; changes in the Company’s
relationship with its suppliers; and interest rate fluctuations and other changes in borrowing costs.
EXPOSURE TO INTEREST RATE FLUCTUATIONS
The Company’s borrowings which bear interest at a variable rate do present interest rate risk. Management
assesses its exposure to interest rate fluctuations and decides whether it may be favourable to enter into
contracts to hedge this risk based on expectation of future movements and the available economic data. For the
moment, management is not hedging any of its interest rate exposure and expects this exposure to decrease as
the outstanding balance of its long term borrowings decreases.
ABILITY TO ATTRACT AND RETAIN QUALIFIED PERSONNEL
Imaflex’s core operational management team has been stable over the past years and was able to keep key
competencies within the Company. This is because the three founders, who have more than 100 years of
combined experience in management and research and development, were and remain at the core of its
management team. As the Company has grown, it has strengthened its team with the addition of individuals
having a variety of competencies, be it accounting, operations, or engineering.
This has resulted in a work environment that allows for the free exchange of ideas in an effort to ensure that the
Company remains at the forefront of our industry. We are confident that we can retain and, if need be, attract
qualified individuals that will contribute to our quest of building shareholder value.
MANAGEMENT OF GROWTH
Imaflex’s history attests to its management’s ability to create and manage growth and to successfully adapt to
prevailing and continuously changing market conditions. Management believes that future success will also lie
in the ability to properly manage growth whether it comes from new markets and products, acquisitions,
mergers, or a combination of any or all three. This success will depend on the Company’s ability to seek out
new opportunities and to position itself such that it will be able to take advantage of them when they present
themselves. Past decisions have been made bearing this in mind and the Company is now in a better position to
make this happen.
Fourth Quarter 2016
7
MANAGEMENT DISCUSSION AND ANALYSIS
FOREIGN EXCHANGE FLUCTUATIONS
A portion of the Company’s sales and expenses as well as accounts receivable and payable are denominated in
USD. A portion of the revenue stream in USD acts as a natural hedge to cover expenses denominated in USD.
The Company also has the possibility of borrowing amounts on its line of credit in USD. The Company has
increased its debt in USD to obtain additional revenue streams in USD. When this additional business fully
materializes, the Company’s exposure to foreign currency should be managed naturally. Management
continuously assesses its exposure to such risk and the Company does not currently use any financial
instruments to hedge its foreign currency position.
ENVIRONMENTAL HAZARDS
The Company’s raw materials, processes and finished goods do not have any hazardous implications. However
we do buy a few items which are used in our production equipment such as cooling products which may be
hazardous, but their use and manipulation are controlled. Though these products actually pose little risk, they
are handled in a manner that fully complies with existing safety regulations.
RESULTS OF OPERATIONS
Sales continued to grow in the fourth quarter of 2016 compared to the corresponding quarter of 2015, leading to
higher sales and gross profits for the full year 2016. Going forward, as the Company continues to introduce new
products to the market, it will build on its solid foundation to further improve sales volumes and profitability.
($ thousands)
Sales
Three months ended
Years ended
December 31,
2016
December 31,
2015
December 31,
2016
December 31,
2015
$18,943
$17,084
$73,513
$69,151
Sales increased by $1.9 million, or 10.9%, in the fourth quarter of 2016 compared to the same period in 2015,
mainly due to higher sales prices following a favorable change in the product mix during the quarter. Sales in
the US subsidiary also increased due to management’s efforts to stimulate growth in our operations and the
fourth quarter demonstrated positive results on that front. To a lesser extent, foreign exchange also had a
positive impact on sales in the fourth quarter of 2016 due to a stronger USD throughout the period, despite the
fact that the USD closed stronger in 2015 than in 2016.
For the year ended December 31, 2016, sales increased by $4.4 million, or 6.3%, compared to fiscal 2015. The
increase in the sales price, which was also stimulated by a stronger USD throughout the year, was an important
factor in the increase in sales. The Company’s sales volume also increased, most notably in the core packaging
business, further contributing to the growth in sales.
Fourth Quarter 2016
8
MANAGEMENT DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS (continued)
($ thousands)
Gross Profit ($) before
amortization of production
equipment
Gross margin (%)
Amortization of production
equipment
Gross profit ($)
Gross margin (%)
Three months ended
Years ended
December 31,
2016
December 31,
2015
December 31,
2016
December 31,
2015
$2,538
$2,704
$10,186
$8,520
13.4%
552
$1,986
10.5%
15.8%
332
$2,372
13.9%
13.9%
1,772
$8,414
11.4%
12.3%
1,412
$7,108
10.3%
The Company’s gross profit before the amortization of production equipment decreased by $0.2 million or 6.1%
during the quarter ended December 31, 2016 compared to the same period in 2015 and the associated gross
margin decreased from 15.8% in 2015 to 13.4% in 2016. The amortization of production equipment increased
in the fourth quarter of 2016 due to the assets purchased throughout the year. The Canadian operations
maintained a strong gross profit in the fourth quarter of 2016 whereas the US experienced a decrease due to an
unfavourable change in product mix. Moreover, higher resin prices from suppliers negatively impacted the
gross profit as the Company was only able to reflect the increase in its pricing after a month’s delay.
For the year ended December 31, 2016, the gross profit before the amortization of production equipment
increased by $1.7 million compared to the year ended December 31, 2015 and the gross margin increased from
12.3% in 2015 to 13.9% in 2016. Although the amortization of production equipment increased in fiscal 2016
due to equipment purchases, the gross profit increased by $1.3 million in fiscal 2016 over fiscal 2015. The
Company generated more operational profitability in fiscal 2016 compared to 2015 following the increase in
sales and improved operational efficiencies achieved during the year. These improvements reflect
management’s ongoing efforts to drive operational efficiencies throughout the business and support growth in
an efficient manner.
($ thousands)
Selling and administrative
As a % of sales
Three months ended
Years ended
December 31,
2016
December 31,
2015
December 31,
2016
December 31,
2015
$1,623
8.6%
$1,475
8.6%
$6,497
8.8%
$6,211
9.0%
Selling and administrative expenses increased by $0.1 million in the fourth quarter of 2016 compared to the
same period in 2015, mainly as a result of the increase in sales and administrative salaries. The stronger USD
also had an impact on selling and administrative expenses. As a percentage of sales however, selling and
administrative expenses remained constant at 8.6% in both fiscal 2015 and 2016 due to the higher revenue base.
Despite the increase in sales and production volumes, growth in fiscal 2016 selling and administrative expenses
was limited to $0.3 million due to controlled spending during the year. As a percentage of sales, selling and
administrative expenses decreased from 9.0% in 2015 to 8.8% in 2016 due to the higher revenue base and
ongoing cost control efforts. Management remains focused on managing selling and administrative expenses as
the Company continues to grow.
Fourth Quarter 2016
9
MANAGEMENT DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS (continued)
($ thousands)
Finance costs
Three months ended
Years ended
December 31,
2016
December 31,
2015
December 31,
2016
December 31,
2015
$136
$147
$549
$601
Due to the lower amount outstanding under the Company’s line of credit and USD loan in the fourth quarter of
2016, finance expenses decreased slightly compared to the same period in 2015. The Company refinanced a
loan during the fourth quarter of 2016, obtaining additional capital and increasing the balance outstanding on
that loan, which partly offset the decrease in finance costs on the line of credit and the USD loan.
Finance costs decreased during the year ended December 31, 2016 compared to the year ended December 31,
2015 mainly due to the decreasing balances on long term loans, despite the additional capital that was obtained
at the end of fiscal 2016 after a loan was refinanced.
($ thousands)
Three months ended
Years ended
Foreign exchange (gains)/losses
December 31,
2016
$ (162)
December 31,
2015
December 31,
2016
December 31,
2015
$ 124
$ 291
$ (1,296)
The depreciation of the CAD against the USD over the fourth quarter of 2016 led to a gain on foreign exchange
of $0.2 million, whereas the depreciation of the CAD against the USD over the fourth quarter of 2015 led to a
loss of $0.1 million. Variations in the Company’s exposure and movements of accounts in foreign currency,
including transactions with the Company’s US subsidiary, led to a positive swing in results of $0.3 million
quarter over quarter.
The slight appreciation of the CAD against the USD throughout fiscal 2016 led to a foreign exchange loss of
$0.3 million, whereas the important depreciation of the CAD against the USD throughout fiscal 2015 led to an
important foreign exchange gain of $1.3 million. Movements in foreign exchange therefore had a negative
impact of $1.6 million on year over year results, largely offsetting the improvements achieved in the Company’s
operations.
($ thousands)
Income taxes
As a % of profit before taxes
Three months ended
Years ended
December 31,
2016
December 31,
2015
December 31,
2016
December 31,
2015
$ 213
57.0%
$ 291
47.9%
$ 589
59.1%
$ 709
46.6%
The income tax expense amounted to $0.2 million in the fourth quarter of 2016 compared to an expense of
$0.3 million for the same period in 2015. The income tax expense represented 57.0% of profit before tax, which
is higher than the statutory income tax rate and the 47.9% in fiscal 2015.
For fiscal 2016, the income tax expense amounted to $0.6 million compared to $0.7 million for the
corresponding period in 2015 and increased as a percentage of profit before tax, increasing from 46.6% in 2015
to 59.1% in 2016. This is higher than the statutory income tax rate because for both years no benefit was
recorded for the losses of the US subsidiary.
Fourth Quarter 2016
10
MANAGEMENT DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS (continued)
($ thousands, except per share data)
Three months ended
Years ended
Net income
December 31,
2016
$ 161
December 31,
2015
$ 317
Basic and diluted earnings per share
$ 0.003
$ 0.006
December 31,
2016
December 31,
2015
$ 408
$ 0.008
$ 813
$ 0.016
The Company’s net income decreased slightly in the fourth quarter, going from $0.3 million in 2015 to
$0.2 million in 2016. The decrease reflects the lower gross profit and the higher selling and administrative
expenses, partially offset by favorable foreign exchange movements and a lower income tax expense. The basic
and diluted EPS decreased, from $0.006 in 2015 to $0.003 in 2016.
For fiscal 2016, net income was $0.4 million, decreasing from $0.8 million in fiscal 2015, mainly due to the
large swing in foreign exchange. In 2015, the US dollar appreciated significantly from the beginning to the end
of the year, whereas in 2016 the Company saw more stability in the currencies with which it operates.
Operationally, the Company’s profitability improved significantly and increases in other expenses were limited,
which positions the Company for further improvements to net income if sales volumes continue to grow as seen
in recent years.
Financial Position
December 31, 2016 vs. December 31, 2015
The Company’s short term assets and liabilities decreased from December 31, 2015 to December 31, 2016. A
greater decrease in current liabilities improved the Company’s financial position as the increase in long term
borrowings, combined with the increased profitability over the period, provided the liquidities needed to
decrease the short-term bank indebtedness. The Company’s working capital increased from $4.9 million in 2015
to $6.0 million in 2016. Trade and other receivables and prepaid expenses also decreased, each by
approximately $0.1 million, and trade payables and the current tax liabilities decreased, by $0.1 million and
$0.2 million respectively. Overall, the Company maintains a solid financial position placing it in a good
position to support future growth.
SUMMARY OF QUARTERLY RESULTS
Summary financial data derived from the Company’s unaudited quarterly financial statements for each of the
eight most recently completed quarters are as follows:
For the quarters ending March, June, September and December ($ thousands, except per share data):
Q4/16 Q3/16 Q2/16 Q1/16 Q4/15 Q3/15 Q2/15 Q1/15
15,910
18,943
(293)
161
16,997 18,195
523
18,716
345
17,441
444
17,084
317
19,378
(172)
(104)
Revenues
Net income
(loss)
Earnings (loss) per share:
Basic and
diluted
0.003
(0.002)
0.010
(0.003)
0.006
0.009
0.007
(0.006)
It is important to note that profitability may vary from quarter to quarter, irrespective of quarterly sales due to
many factors. These factors include and are not limited to: competitive conditions in the businesses in which
the Company participates; general economic conditions and normal business uncertainty; product mix;
fluctuations in foreign currency rates; the availability and costs of raw materials; changes in the Company’s
relationship with its suppliers; and interest rate fluctuations and other changes in borrowing costs.
Fourth Quarter 2016
11
MANAGEMENT DISCUSSION AND ANALYSIS
LIQUIDITY
The Company’s working capital increased from $ 4.9 million as at December 31, 2015 to $ 6.0 million as at
December 31, 2016. Short term assets decreased by $ 1.1 million, mainly due to the $0.7 million decrease in
inventories. Accounts receivable and prepaid expenses also decreased, each by approximately $0.1 million, and
over the period the Company’s cash position also decreased by $0.1 million. Current liabilities decreased more
significantly than current assets, driven by the $1.9 million decrease in bank indebtedness. The Company repaid
an important amount on its short term bank debt following increased profitability and the inflow obtained after a
loan was refinanced late in the year. Trade payables decreased by $0.1 million and current tax payable also
decreased, by $0.2 million. The current portion of long term debt remained fairly stable and the current portion
of finance leases increased by $17 thousand over the period.
Cash Flows from Operating Activities
The strong profitability over the quarter fueled improvements in the Company’s operating cash flow, with
operating cash flow before movements in working capital totaling $0.9 million for the fourth quarter of 2016.
These inflows were only partially offset by a $0.2 million outflow due to movements in working capital and a
$0.2 million outflow for payments of income taxes. Total operating cash flow amounted to $0.5 million. During
the fourth quarter of 2015, before movements in working capital, operating activities generated inflows of
$ 0.7 million, coming in lower than in 2016, which were entirely offset by important outflows due to
movements in working capital and the payment of income taxes, for a net operational cash outflow of
$1.6 million.
The operating cash flow for fiscal 2016 improved significantly, generating an inflow of $4.2 million before
movements in working capital due to the increased profitability for the year. Movements in working capital
generated inflows of $0.7 million, mainly due to the $0.6 million decrease in inventories and, net of the
$0.8 million payment of income taxes, operating activities generated inflows of $4.1 million. During fiscal
2015, operating cash flow before movements in working capital generated inflows of $2.1 million, as the large
unrealized foreign exchange gain offset a portion of the cash inflows generated by operations. These inflows
were also offset by the $1.5 million outflow due to movements in working capital and the $0.5 million payment
of income taxes, generating net cash inflows of only $0.1 million.
Cash Flows from Investing Activities
During the fourth quarter of 2016, the Company invested an additional $ 0.3 million in capital assets and non-
current assets, mainly for small pieces of auxiliary equipment and to improve existing equipment. During the
same quarter in 2015, the Company invested $ 0.3 million for small equipment and leasehold improvements.
During fiscal 2016, the Company invested $1.5 million in long term assets, mainly for the improvement to
existing equipment in order to operate more efficiently. This amount is slightly lower than the $1.6 million
invested in fiscal 2015 for the refurbishing of its machinery, for analytical equipment and for leasehold
improvements.
Cash Flows from Financing Activities
During the fourth quarter of 2016, the Company reimbursed $1.0 million on its short term bank debt,
$0.2 million on long term debt, $42 thousand on finance leases and made interest payments amounting to
$0.1 million. During the quarter, the Company received an additional $1.0 million by refinancing an existing
long term loan following the purchase of long term assets. In the fourth quarter of 2015, the Company used
$2.3 million of its line of credit for operations, reimbursed $0.3 million on long term debt and $37 thousand on
obligations under finance leases. The Company also paid $0.1 million in interest.
Fourth Quarter 2016
12
MANAGEMENT DISCUSSION AND ANALYSIS
LIQUIDITY (continued)
Cash Flows from Financing Activities (continued)
During fiscal 2016, the Company reimbursed $ 1.9 million on its short term bank indebtedness, $ 1.0 million on
its long term debt, $0.2 million on finance leases and paid $0.5 million in interest. The Company obtained
$1.0 million by refinancing a long term loan and issued shares for proceeds of $12 thousand. In fiscal 2015, the
Company borrowed $1.8 million on its line of credit and $0.6 million in term debt. A share issuance generated
proceeds of $0.3 million during the year. Moreover, the Company reimbursed $1.1 million on long term
borrowings, $0.2 million to a shareholder, $0.1 million under its obligations under finance leases and paid
$0.6 million in interest.
CONTRACTUAL OBLIGATIONS
The contractual obligations as at December 31, 2016 were as follows:
($ thousands)
Long-term debt
Finance leases
Operating leases
Bank Indebtedness
Total contractual obligations
Total
$ 6,100
415
6,011
5,052
$ 17,578
Payments due by period
1 – 5 years
Less than 1
year
After 5 years
$ 1,566
185
931
5,052
$ 7,734
$ 4,079
230
3,206
-
$ 7,515
$ 455
-
1,874
-
$ 2,329
These contractual obligations are sensitive to the fluctuation of interest rates. These obligations are based on
interest rates and foreign exchange rates effective as at December 31, 2016.
CAPITAL RESOURCES
The Company has an operating line of credit with its bankers to a maximum of $ 10 million bearing interest at a
rate of prime plus 0.90%. The line of credit is secured by trade receivables and inventories. As at December 31,
2016, the Company was using $ 5.1 million on its line of credit ($ 6.9 million as at December 31, 2015). The
Company’s working capital improved, reaching $6.0 million as at December 31, 2016 compared to $4.9 million
as at December 31, 2015. The Company has a solid financial position and its profitability and the refinancing of
a long term loan provided additional capital, permitting the Company to decrease short term borrowings. The
Company currently has sufficient liquidity to finance its current operations and the short term growth that is
expected in the year to come.
PROPOSED TRANSACTION
The Company is not currently contemplating any business acquisition or merger.
RELATED PARTY TRANSACTIONS
In the normal course of operations, the Company had routine transactions with related parties. These
transactions are measured at fair value, which is the amount of consideration established and agreed to by the
related parties.
The following table reflects the related party transactions recorded for the periods ended December 31, 2016
and 2015. For additional information, please refer to note 24, Related party transactions of the “Notes to the
consolidated financial statements” for the years ended December 31, 2016 and 2015.
Fourth Quarter 2016
13
MANAGEMENT DISCUSSION AND ANALYSIS
RELATED PARTY TRANSACTIONS (continued)
($ thousands)
(unaudited)
Professional fees and key
management personnel services
Rent
Remuneration
(a)
(b)
(c)
Three months ended
December 31,
2016
$ 108
December 31,
2015
$ (4)
$ 233
$ 398
$ 234
$ 182
Years ended
December 31,
2016
$ 284
$ 878
$ 975
December 31,
2015
$ 221
$ 825
$ 744
(a) Professional fees include transactions with Polytechnomics Inc., of which Gerald R. Phelps, Imaflex’s Vice-
President – Operations, is the controlling shareholder and with Philip Nolan, a director of Imaflex, who is also a
partner at Lavery de Billy L.L.P.
(b) Joseph Abbandonato, Imaflex’s President, Chief Executive Officer and Chairman of the Board, is the
controlling shareholder of Roncon Consultants Inc. (“Roncon”). The Company’s production facilities at
Imaflex, Canslit, and Imaflex USA are leased from Roncon and parties related to Roncon under long-term
operating lease agreements (see “Contractual Obligations”).
(c) Includes salaries, benefits and fees paid to key management personnel and directors.
CRITICAL ACCOUNTING POLICIES
The Company’s significant accounting policies are disclosed in note 2, Significant accounting policies of the
consolidated financial statements for the years ended December 31, 2016 and 2015. This note explains the
Company’s accounting policies under IFRS which have not changed since the Company’s last annual financial
statements.
FINANCIAL INSTRUMENTS
Please refer to note 21, Financial instruments of the consolidated financial statements for the years ended
December 31, 2016 and 2015 for disclosure on the Company’s financial instruments as well as note 23, Risk
management for a discussion on the risks the Company is exposed to and how they are managed.
As at December 31, 2016, the Company is not using any swap, forward or hedge accounting and there were no
warrants outstanding.
As at December 31, 2016, 2,450,000 options to purchase shares of the Company were outstanding at a weighted
average strike price of $0.436 of which 937,500 were exercisable. During the year ended December 31, 2016,
the Company issued 500,000 options to purchase shares of the Company at an exercise price of $ 0.42 and
1,300,000 options to purchase shares of the Company at $0.40 for a period of five years. During the year ended
December 31, 2016, the Company issued 100,000 shares following the exercise of options for a cash
consideration of $ 12,500.
As at December 31, 2015, 750,000 options to purchase shares of the Company were outstanding at a weighted
average strike price of $ 0.467 and 262,500 were exercisable. As at December 31, 2015, there were no warrants
outstanding, but during the year 2,824,363 warrants entitling the holder to purchase shares of the Company
expired and 1,381,695 warrants to purchase a common share for $ 0.45 were exercised for total proceeds of
$ 621,762, a portion of which was received during fiscal 2014.
Fourth Quarter 2016
14
MANAGEMENT DISCUSSION AND ANALYSIS
MANAGEMENT OUTLOOK
All indications are that citrus film sales have now taken root. This new revenue stream should bolster sales and
profitability as market adoption increases. Furthermore, our ability to offer unique products, combined with our
commitment to make the required investments in order to monetize them, should allow us to drive further
revenue and margin expansion. With a much improved balance sheet, an unwavering focus on operational and
financial excellence and an innovative team, we believe we are well placed to capitalize on market opportunities
and drive sustained profitable growth.
Imaflex expects 2017 revenues to grow by approximately 10% over 2016.
OUTSTANDING SHARE DATA
As at December 31, 2016, the Company had 49,738,637 common shares outstanding (49,638,637 as at
December 31, 2015).
RISK FACTORS
The Company is involved in a competitive industry and marketplace in which there are a number of
participants. To effectively manage future growth, the Company continues to improve its operational, financial
and management information systems, procedures and controls. The Company’s success is largely the result of
the continued contributions of its employees and the Company’s ability to attract and retain qualified
management, sales and operational personnel.
The US$28 billion market the Company competes in has historically shown resiliency and growth even at the
worst economic times. The Company’s customers operate predominantly in the food packaging and agricultural
markets. This fact, coupled with the expanding product lines and reliance on newer and faster equipment should
help it weather the potential volatility caused by uncertainty in the North American economic climate.
Factors which can impact the Company include, but are not limited to: management of credit, market dynamics,
liquidity, funding and operational risks; the strength of the Canadian and U.S. economies in which we conduct
business; the impact of the movement of the Canadian dollar relative to other currencies, particularly the U.S.
dollar; the effects of changes in interest rates; the effects of competition in the markets in which we operate; our
ability to successfully align our organization, resources, and processes; the availability and price of raw
materials; failure to achieve planned growth associated with the U.S. operations; changes in accounting policies
and methods we use to report our financial condition, including uncertainties associated with critical accounting
assumptions and estimates; operational and infrastructure risks; other factors may affect future results including,
but not limited to, timely development and introduction of new products and services, changes in tax laws,
technological changes, new regulations; the possible impact on our businesses from public-health emergencies,
international conflicts and other developments; and our success in anticipating and managing the foregoing
risks.
Additional information relating to our Company, including our Annual Report, can be found on SEDAR at
www.sedar.com.
(s) Joe Abbandonato
Joe Abbandonato
President and Chief Executive Officer
(s) Giancarlo Santella
Giancarlo Santella, CPA, CA
Corporate Controller
April 18, 2016
Fourth Quarter 2016
15
Consolidated Financial Statements of
IMAFLEX INC.
Years ended December 31, 2016 and 2015
1
Independent Auditor’s Report
To the Shareholders of
Imaflex Inc.
We have audited the accompanying consolidated financial statements of Imaflex
Inc., which comprise the consolidated statements of financial position as at
December 31, 2016 and 2015 and the consolidated statements of comprehensive
income, changes in equity and cash flows for the years then ended, and a
summary of significant accounting policies and other explanatory information.
Management’s responsibility for the consolidated financial statements
Management is responsible for the preparation and fair presentation of these
consolidated financial statements in accordance with International Financial
Reporting Standards (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.
Auditor’s responsibility
Our responsibility is to express an opinion on these consolidated financial
statements based on our audits. We conducted our audits in accordance with
Canadian generally accepted auditing standards. Those standards require that we
comply with ethical requirements and plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are free
from material misstatement.
An audit involves performing procedures to obtain audit evidence about the
amounts and disclosures in the consolidated financial statements. The procedures
selected depend on the auditor’s judgment, including the assessment of the risks of
material misstatement of the consolidated financial statements, whether due to
fraud or error. In making those risk assessments, the auditor considers internal
control relevant to the entity’s preparation and fair presentation of the consolidated
financial statements in order to design audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the entity’s internal control. An audit also includes evaluating the
appropriateness of accounting policies used and the reasonableness of accounting
estimates made by management, as well as evaluating the overall presentation of
the consolidated financial statements.
Raymond Chabot Grant Thornton LLP Suite 2000 National Bank Tower 600 De La Gauchetière Street West Montréal, Quebec H3B 4L8 Telephone: 514-878-2691 Fax: 514-878-2127 www.rcgt.com Member of Grant Thornton International Ltd 2
We believe that the audit evidence we have obtained in our audits is sufficient and
appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the consolidated financial statements present fairly, in all material
respects, the financial position of Imaflex Inc. as at December 31, 2016 and 2015
and its financial performance and its cash flows for the years then ended in
accordance with International Financial Reporting Standards (IFRS).
Montréal
April 18, 2017
1 CPA auditor, CA public accountancy permit no. A119564
Consolidated statements of comprehensive income
for the years ended
(in Canadian dollars)
December 31,
2016
2015
Revenues
Cost of sales
Gross profit
Expenses:
Selling
Administrative
Finance costs
Foreign exchange losses (gains)
Other
Income before income taxes
Income taxes
NET INCOME
(Note 5.1)
$ 73,513,424
65,099,412
8,414,012
$ 69,150,630
62,042,460
7,108,170
(Note 8)
1,541,833
4,955,639
548,940
290,977
79,549
7,416,938
1,735,052
4,475,482
601,298
(1,296,335)
71,000
5,586,497
997,074
1,521,673
(Note 9)
589,007
708,455
408,067
813,218
Other comprehensive (loss)/income
Item that will be reclassified subsequently to net income
Exchange differences on translating foreign operations
(136,297)
801,108
COMPREHENSIVE INCOME
$
271,770
$ 1,614,326
Earnings per share
Basic and diluted
(Note 10)
$
0.008
$
0.016
The accompanying notes are an integral part of these consolidated financial statements and note 6 presents
additional information on consolidated comprehensive income.
4
Consolidated statements of financial position
As at
(in Canadian dollars)
Assets
Current assets
Cash
Trade and other receivables
Inventories
Prepaid expenses
Total current assets
Non-current assets
Property, plant and equipment
Intangible assets
Total non-current assets
Total assets
Liabilities and equity
Current liabilities
December 31,
2016
December 31,
2015
(Note 11)
(Note 12)
$
68,100
11,358,652
10,074,571
145,011
21,646,334
$
160,975
11,501,462
10,822,438
265,002
22,749,877
(Note 13)
(Note 14)
18,785,708
1,485,177
20,270,885
19,601,217
1,484,370
21,085,587
$ 41,917,219
$ 43,835,464
Bank indebtedness
Trade and other payables
Current tax liabilities
Long-term debt, current portion
Finance lease obligations, current portion
Total current liabilities
Non-current liabilities
Long-term debt
Deferred tax liabilities
Finance lease obligations
Total non-current liabilities
Total liabilities
Equity
Share capital
Reserves
Retained earnings
Total equity
(Note 16)
(Note 15)
(Note 16)
(Notes 16, 17)
(Note 16)
(Note 9)
(Notes 16, 17)
5,052,270
8,749,001
311,211
1,355,760
170,740
15,638,982
4,128,041
1,291,493
221,974
5,641,508
6,925,713
8,865,082
541,399
1,358,488
153,959
17,844,641
4,300,420
1,285,593
333,647
5,919,660
21,280,490
23,764,301
(Note 18)
(Note 19)
11,765,023
1,903,823
6,967,883
20,636,729
11,752,523
1,758,824
6,559,816
20,071,163
Total liabilities and equity
$ 41,917,219
$ 43,835,464
Non-cancellable operating lease commitments (Note 22.3)
The accompanying notes are an integral part of these consolidated financial statements.
(s) Joseph Abbandonato
Joseph Abbandonato
Director
(s) Gilles Émond
Gilles Émond
Director
5
Consolidated statements of changes in equity
For the years ended December 31, 2016 and 2015
(in Canadian dollars)
Share
capital (a)
$ 10,945,614
-
Share-based
compensation
$ 371,892
-
Reserves
Accumulated
foreign
currency
translation Warrants
Other
Total
reserves
$ 18,009
-
$ 650,321 $ 296,053 $ 1,336,275
-
-
-
Retained
earnings
$ 5,746,598 $ 18,028,487
813,218
813,218
Total
-
-
-
-
801,108
801,108
-
-
-
-
801,108
801,108
-
813,218
801,108
1,614,326
806,909
-
-
102,641
-
-
(185,147)
-
(296,053)
-
(481,200)
102,641
-
-
325,709
102,641
$11,752,523
$ 474,533
$ 819,117
$ 465,174 $
- $ 1,758,824
$ 6,559,816 $ 20,071,163
-
-
-
-
-
-
-
(136,297)
(136,297)
12,500
-
$11,765,023
-
281,296
$ 755,829
-
-
$ 682,820
-
-
-
-
-
$ 465,174 $
-
-
-
-
408,067
408,067
(136,297)
(136,297)
-
408,067
(136,297)
271,770
-
-
-
281,296
- $ 1,903,823
12,500
281,296
$ 6,967,883 $ 20,636,729
-
-
Balance at January 1, 2015
Net income for the year
Exchange differences on translating
foreign operations
Comprehensive income for the year
Transactions with owners:
Issuance of share capital (Note 18)
Share-based compensation (Note 19)
Balance at December 31, 2015 and
January 1, 2016
Net income for the year
Exchange differences on translating
foreign operations
Comprehensive income for the year
Transactions with owners:
Issuance of share capital (Note 18)
Share-based compensation (Note 19)
Balance at December 31, 2016
(a) Additional detail of share capital is provided in Note 18
The accompanying notes are an integral part of these consolidated financial statements.
6
Consolidated statements of cash flows
for the years ended
(in Canadian dollars)
Operating activities:
Net income for the year
Income tax expense
Depreciation and amortisation of non-current assets
Finance costs
Share-based compensation
Unrealized foreign exchange loss (gain)
Net changes in working capital
Decrease (increase) in trade and other receivables
Decrease (increase) in inventories
Decrease (increase) in prepaid expenses
(Decrease) increase in trade and other payables
Cash generated by operations
Net income taxes paid
Net cash generated by operating activities
Investing activities:
Payments for property, plant and equipment
Payments for intangible assets
Net cash used in investing activities
Financing activities:
Net change in bank indebtedness
Interest paid
Increase in long term debt
Repayment of long-term debt
Net proceeds from issuance of share capital and warrants
Due to a shareholder and director
Repayment of finance leases
Net cash (used in) generated by financing activities
Net decrease in cash
Cash, beginning of the year
Effects of foreign exchange differences on cash
Cash, end of the year
Non-cash transactions (Note 20)
December 31,
2016
2015
$ 408,067
589,007
2,000,905
548,940
281,296
343,279
4,171,494
75,411
618,492
115,013
(81,931)
726,985
4,898,479
(813,295)
4,085,184
$ 813,218
708,455
1,681,891
601,298
102,641
(1,759,890)
2,147,613
(1,358,589)
(243,767)
(33,433)
161,057
(1,474,732)
672,881
(543,213)
129,668
(1,447,246)
(93,345)
(1,540,591)
(1,598,779)
(29,767)
(1,628,546)
(1,873,443)
(548,445)
961,510
(1,029,168)
12,500
-
(158,395)
(2,635,441)
1,770,843
(586,716)
587,023
(1,059,012)
325,709
(203,947)
(138,672)
695,228
(90,848)
(803,650)
160,975
(2,027)
945,744
18,881
$ 68,100
$ 160,975
The accompanying notes are an integral part of these consolidated financial statements.
7
Notes to the consolidated financial statements
for the years ended December 31, 2016 and 2015
1. General information
Imaflex Inc. (“the Parent Company”) is incorporated under the Canada Business Corporations Act. Its
registered office and headquarters are located at 5710 Notre-Dame Street West, Montreal, Quebec, Canada.
The principal activities of the Parent Company and its subsidiary (together referred to as the “Company”)
consist in the manufacture and sale of products for the flexible packaging industry, including polyethylene
film and bags, as well as the metallization of plastic film for the agriculture and packaging industries. The
common shares of the Parent Company are listed for trading on the TSX Venture Exchange under the
symbol “IFX”.
2. Significant accounting policies
The accounting policies set out below have been applied consistently to all periods presented in these
consolidated financial statements.
2.1 Basis of presentation and statement of compliance
The consolidated financial statements have been prepared in accordance with International Financial
Reporting Standards (“IFRS”) in effect on December 31, 2016. The consolidated financial statements were
approved by the board of directors and authorized for issue on April 18, 2017.
2.2 Basis of measurement
The consolidated financial statements have been prepared using the historical cost basis.
2.3 Basis of consolidation
The consolidated financial statements include the accounts of the Parent Company and its subsidiary,
Imaflex USA Inc. (“Imaflex USA”), a wholly owned entity, which both have a reporting period of December
31. Imaflex Inc. is the Company’s ultimate parent. The Parent Company controls a subsidiary if it is
exposed, or has rights, to variable returns from its involvement with the subsidiary and has the ability to
affect those returns through its power over the subsidiary. All intercompany transactions and balances are
eliminated on consolidation.
As at December 31, 2016 and 2015, Imaflex USA, the Company’s wholly owned subsidiary, manufactured
flexible packaging and plastic film out of its two North Carolina, USA, plants.
2.4 Foreign currencies
The functional currency is the currency of the primary economic environment in which an entity operates.
The financial statements of the Parent Company and its subsidiary that are consolidated into the Company’s
financial statements are prepared in their respective functional currencies. The consolidated financial
statements are expressed in Canadian dollars (“CAD”), which is also the functional currency of the Parent
Company as well as the Company’s presentation currency.
The assets and liabilities of the Company’s foreign subsidiary, Imaflex USA, whose functional currency is
the US dollar (“USD”), are translated at the exchange rate in effect at the date of the consolidated statement
of financial position. Revenues and expenses are translated at monthly average exchange rates over the
reporting period. Exchange gains or losses arising from the translation of Imaflex USA’s financial
statements are recognised as Accumulated foreign currency translation within Reserves.
8
Notes to the consolidated financial statements
for the years ended December 31, 2016 and 2015
2. Significant accounting policies (continued)
2.4 Foreign currencies (continued)
In preparing the financial statements of the individual entities, transactions in currencies other than the
entity’s functional currency are recorded at the exchange rates in effect on the date of the transactions.
Monetary items denominated in foreign currencies are translated at the exchange rate prevailing at the end of
the reporting period. Resulting gains and losses on foreign exchange are recorded in the consolidated
statement of comprehensive income.
Effective January 1, 2015, in light of a change in circumstances, the Company re-assessed its designation of
US$4,000,000 of inter-company monetary non-trade advances for foreign currency accounting. As such,
since that date, this portion of monetary non-trade advances from the Parent Company to its foreign
operation for which settlement is determined to be neither planned nor likely in the foreseeable future is
accounted for as forming part of the Company’s net investment in its foreign subsidiary. The foreign
exchange gains and losses arising on these advances are therefore recognized as Accumulated foreign
currency translation within reserves. This change in estimate was treated prospectively from that date and
resulted in an amount of approximately $ 895,000 being recorded in shareholder’s equity instead of foreign
exchange gains in the consolidated statement of comprehensive income for the year ended December 31,
2015. The foreign exchange gains or losses on trade receivables and other monetary advances continue to be
included in Foreign exchange gains in the consolidated statement of comprehensive income.
2.5 Revenue recognition
Revenues are generated almost exclusively from the sale of goods. Revenue is measured at the fair value of
the consideration received or receivable, net of estimated returns, rebates and discounts, and is recognised
when all the following conditions are satisfied:
The Company has transferred to the buyer the significant risks and rewards of ownership of the goods;
The Company retains neither continuing managerial involvement to the degree usually associated with
ownership nor effective control over the goods sold;
the amount of revenue can be measured reliably;
it is probable that the economic benefits associated with the transaction will flow to the Company; and
the costs incurred or to be incurred in respect of the transaction can be measured reliably.
Revenue is recognised in accordance with the terms of sale, generally when goods are received by external
customers.
2.6 Income Tax
Income tax expense comprises both current and deferred tax. Current tax is based on taxable income for the
year. Taxable income differs from net income as reported in the consolidated statement of comprehensive
income because of items of revenue or expense that are taxable or deductible in other years and items that
are never taxable or deductible. The Company’s liability for current tax is calculated using tax rates that
have been enacted or substantively enacted at the reporting period.
Deferred tax is recognised on temporary differences between the carrying amounts of assets and liabilities in
the consolidated statements of financial position and the corresponding tax basis used in the computation of
taxable income. Deferred tax liabilities are generally recognised for all taxable temporary differences.
Deferred tax assets are generally recognised for all deductible temporary differences to the extent that it is
probable that future taxable income will be available against which the underlying tax loss or deductible
temporary difference can be utilized.
9
Notes to the consolidated financial statements
for the years ended December 31, 2016 and 2015
2. Significant accounting policies (continued)
2.6 Income Tax (continued)
Deferred tax assets and liabilities are calculated using the tax rates and laws enacted or substantively enacted
at the reporting date and which are expected to apply in the period in which the liability is settled or the asset
realized.
Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax
assets against current tax liabilities, when they relate to income taxes levied by the same taxation authority
and when the Company intends to settle its current tax assets and liabilities on a net basis.
Current and deferred taxes are recognised as an expense or income in net income, except when they relate to
items that are recognised outside net income (whether in other comprehensive income or directly in equity),
in which case the tax is also recognised outside net income.
2.7 Earnings per share
Earnings per share are calculated by dividing net income available for common shareholders by the weighted
average number of common shares outstanding during the period. Diluted earnings per share is calculated by
taking into consideration potentially issuable shares that would have a dilutive effect on earnings per share.
2.8 Financial assets and financial liabilities
Financial assets and financial liabilities are recognised when the Company becomes a party to the
contractual provisions of the instrument. On initial recognition, financial instruments are measured at fair
value adjusted for transaction costs except if directly attributable to the acquisition of financial assets.
Financial assets
For the purposes of subsequent measurement, financial assets are classified, upon initial recognition, in the
different categories depending on their nature and purpose.
The Company’s cash as well as trade and other receivables (excluding sales taxes) are classified as loans and
receivables. Loans and receivables are non-derivative financial assets with fixed or determinable payments
that are not quoted in an active market. After initial recognition, these are measured at amortised cost using
the effective interest method, less any impairment. Discounting is omitted where the effect of discounting is
immaterial.
Impairment of financial assets
Financial assets are assessed for indications of impairment at least at each reporting period. Financial assets
are considered to be impaired when there is objective evidence that, as a result of one or more events that
occurred after the initial recognition of the financial asset, the estimated future cash flows of the asset have
been affected.
Trade and other receivables that are assessed not to be impaired individually are, in addition, assessed for
impairment on a collective basis. Objective evidence of impairment for a portfolio of receivables could
include past experience of collecting payments, an increase in the number of delayed payments in the
portfolio past the average credit period, as well as observable changes in economic conditions that correlate
with default on receivables.
10
Notes to the consolidated financial statements
for the years ended December 31, 2016 and 2015
2. Significant accounting policies (continued)
2.8 Financial assets and financial liabilities (continued)
The carrying amount for most financial assets is reduced by the impairment loss directly. For trade
receivables, the carrying amount is reduced through the use of an allowance account. When a trade
receivable is considered uncollectible, it is written off against the allowance account. Subsequent recoveries
of amounts previously written off are credited against the allowance account. Changes in the carrying
amount of the allowance account are recognised in net income. The expense relating to the allowance for
doubtful accounts is recognised in Administrative expenses in the statement of comprehensive income.
Financial liabilities
Financial liabilities are measured subsequently at amortised cost using the effective interest rate method.
Discounting is omitted where the effect of discounting is immaterial.
The Company’s bank indebtedness, trade and other payables (excluding employee benefits) and long-term
debt are classified as financial liabilities measured at amortised cost. All interest-related charges are
recognised in the consolidated statement of comprehensive income under Finance costs.
The Company derecognises financial liabilities when, and only when, the Company’s obligations are
extinguished, discharged, cancelled or expired.
2.9 Inventories
Inventories are stated at the lower of cost and net realizable value. Costs, including raw materials and an
appropriate portion of fixed and variable overhead expenses, are assigned to inventories by the method most
appropriate to the particular class of inventory, being valued on a first-in, first-out basis. Net realizable value
represents the estimated selling price for inventories less all estimated costs of completion necessary to make
the sale and estimated selling expenses.
2.10 Property, plant and equipment
The Company’s building, land, production equipment, office equipment and computer equipment are stated
at cost, including any costs directly attributable to bringing the assets to the location and condition necessary
for it to be capable of operating in the manner intended by the Company’s management, less accumulated
depreciation and accumulated impairment losses.
Depreciation is recognised so as to write-down the cost of assets less their residual values over their useful
lives, as outlined below, using the straight-line method. The estimated useful lives, residual values and
depreciation method are reviewed and adjusted, if necessary, at each reporting date, with the effect of any
changes in estimate accounted for on a prospective basis.
Asset
Land
Building
Production equipment
Office equipment
Computer equipment
Period
Indefinite
20 years
20 years
5 years
3 years
11
Notes to the consolidated financial statements
for the years ended December 31, 2016 and 2015
2. Significant accounting policies (continued)
2.10 Property, plant and equipment (continued)
Leasehold improvements are amortised on a straight-line basis over the lesser of the terms of the leases or
their useful lives (5 years).
An item of property, plant and equipment is derecognised upon disposal or when no future economic
benefits are expected to arise from the continued use of the asset. The gain or loss arising from the disposal
or retirement of an item of property, plant and equipment is determined as the difference between the sales
proceeds and the carrying amount of the asset and is recognised in net income, in Other in the consolidated
statement of comprehensive income.
2.11 Leased assets
Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and
rewards of ownership to the lessee. All other leases are classified as operating leases.
Assets held under finance leases are initially recognised as assets of the Company at their fair value at the
inception of the lease or, if lower, at the present value of the minimum lease payments. The corresponding
liability to the lessor is included in the consolidated statement of financial position as a finance lease
obligation. Leases are initially recognised on the date from which the Company is entitled to exercise its
right to use the leased asset, referred to as the commencement of the lease term, which corresponds to the
date on which the equipment is received. Assets held under finance leases are depreciated over their
expected useful lives on the same basis as owned assets or, where shorter, the term of the relevant lease.
Lease payments are apportioned between finance expenses and reduction of the lease obligation so as to
achieve a constant rate of interest on the remaining balance of the liability. Finance expenses are recognised
immediately in net income. Contingent rental payments are recognised as expenses in the periods in which
they are incurred.
Operating lease payments are recognised as an expense on a straight-line basis over the lease term, except
where another systematic basis is more representative of the time pattern in which economic benefits from
the leased asset are consumed. Contingent rental payments arising under operating leases are recognised as
an expense in the period in which they are incurred.
2.12 Intangible assets other than goodwill
Customer relationships acquired in a business combination and recognised separately from goodwill are
initially recognised at their fair value at the acquisition date, which is regarded as their cost. Subsequent to
initial recognition, intangible assets acquired in a business combination are reported at cost less accumulated
amortisation and accumulated impairment losses. When intangible assets are purchased separately, as it was
the case for patents, the cost comprises the purchase price and any directly attributable cost of preparing the
asset for its intended use. When intangible assets are internally developed, as is the case with the Company’s
internally developed patents, the cost comprises the directly attributable costs in the development phase
necessary to create, produce and prepare the patent for the Company to be able to operate it for its intended
use.
An intangible asset is derecognised on disposal, or when no future economic benefits are expected from its
use or disposal. Gains or losses arising from the derecognition of an intangible asset, measured as the
difference between the net disposal proceeds and the carrying amount of the asset, are recognised in net
income when the asset is derecognised. The amortisation of intangible assets, if any, is recognised in
Administrative expenses in the consolidated statement of comprehensive income over the useful life of the
intangible asset. Customer relationships are amortised on a straight-line basis over 8 years and patents are
amortised as of the moment they can be used over the life of the patent (14 years).
12
Notes to the consolidated financial statements
for the years ended December 31, 2016 and 2015
2. Significant accounting policies (continued)
2.13 Impairment of property, plant and equipment and intangible assets other than goodwill
At each reporting date, or sooner if there is an indication that an asset may be impaired, the Company
reviews the carrying amounts of its property, plant and equipment and intangible assets, to determine
whether there is any indication that they have suffered an impairment loss. If any such indication exists, the
recoverable amount of the asset is estimated in order to determine the extent of the impairment loss, if any.
When it is not possible to estimate the recoverable amount of an individual asset, the Company estimates the
recoverable amount of the cash-generating unit to which the asset belongs.
The recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in
use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that
reflects current market assessments of the time value of money and the risks specific to the asset for which
the estimates of future cash flows have not been adjusted.
If the recoverable amount of the assets is estimated to be less than their carrying amount, the carrying
amount is reduced to the recoverable amount. An impairment loss is recognised immediately in net income.
When an impairment loss subsequently reverses, the carrying amount of the assets is increased to the revised
estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying
amount that would have been determined had no impairment loss been recognised for the assets in prior
years. A reversal of an impairment loss is recognised immediately in net income.
2.14 Goodwill
Goodwill arising on an acquisition of a business is carried at cost as established at the date of acquisition of
the business less accumulated impairment losses, if any.
For the purposes of impairment testing, goodwill is allocated to each of the Company's cash-generating units
or group of cash-generating units that are expected to benefit from the synergies of the combination.
A cash-generating unit to which goodwill has been allocated is tested for impairment annually, or more
frequently when there is indication that the unit may be impaired. If the recoverable amount of the cash-
generating unit is less than its carrying amount, the impairment loss is allocated first to reduce the carrying
amount of any goodwill allocated to the unit and then to the other assets of the unit pro rata based on the
carrying amount of each asset in the unit. Any impairment loss for goodwill is recognised directly in net
income in the consolidated statement of comprehensive income. An impairment loss recognised for goodwill
is not reversed in subsequent periods.
2.15 Provisions
Provisions are recognised when the Company has a present obligation, legal or constructive, as a result of a
past event, it is probable that the Company will be required to settle the obligation, and a reliable estimate
can be made of the amount of the obligation. The amount recognised as a provision is the best estimate of
the consideration required to settle the present obligation based on the most reliable evidence available at the
reporting date, taking into account the risks and uncertainties surrounding the obligation.
13
Notes to the consolidated financial statements
for the years ended December 31, 2016 and 2015
2. Significant accounting policies (continued)
2.16 Share-based compensation
The Company uses equity-settled share-based compensation plans for its employees and consultants. None
of the Company’s plans are cash-settled. Equity-settled share-based compensation is measured at the fair
value of the services received at the grant date indirectly by reference to the fair value of the equity
instruments granted, estimated using the Black-Scholes option pricing model.
The fair value determined at the grant date of the equity-settled share-based compensation is expensed over
the vesting period with a corresponding increase in Reserves.
2.17 Share capital and reserves
Share capital represents the amount received upon issuance of shares, net of transaction costs. Proceeds from
the issuance of units consisting of shares and purchase warrants are allocated based on the relative fair
values of each instrument. The fair value of the shares is based on the TSX share price at the time of the
issuance and the fair value of the warrants is determined using a Black-Scholes valuation model.
Reserves include the following:
Share-based compensation (see 2.16);
Accumulated foreign currency translation (see 2.4);
Warrants – comprises the value of outstanding and expired warrants;
Other (see Note 18).
Upon the exercise of options and warrants, the proceeds received less the transaction costs are credited to
share capital.
3. Future accounting changes
Certain new standards as well as amendments and improvements to existing standards have been published
by the International Accounting Standards Board (“IASB”) but are not yet effective and have not been
adopted early by the Company. Management anticipates that all of the relevant pronouncements will be
adopted in the first reporting date following the date of application. The information on new standards as
well as amendments and improvements to existing standards that may impact the Company’s consolidated
financial statements are as follows:
Revenue Recognition
IFRS 15 – Revenue from Contracts with Customers was issued in May 2014 to replace IAS 18 – Revenue
and IAS 11 – Construction Contracts as well as other revenue-related interpretations. The Company will
adopt this new standard in the first quarter of 2018. IFRS 15 establishes a new control-based revenue
recognition model based on the transfer of promised goods and services to customers at a point in time or
over time, provides new and more detailed guidance on specific topics and provides additional requirements
on the disclosures about revenue in the consolidated financial statements. Management is continuing to
assess the impact of this new standard on its consolidated financial statements.
14
Notes to the consolidated financial statements
for the years ended December 31, 2016 and 2015
3. Future accounting changes (continued)
Financial Instruments
In July 2014, the IASB released IFRS 9 – Financial instruments, which will replace IAS 39 – Financial
Instruments: Recognition and Measurement. This IFRS includes a revised model for the classification and
measurement of financial assets and liabilities, a forward-looking ‘expected loss’ impairment model and a
reformed approach to hedge-accounting. The Company will adopt this standard in the first quarter of 2018.
Management is continuing to assess the impact of this new standard on the Company’s consolidated
financial statements.
Leases
In January 2016, the IASB published IFRS 16 – Leases, which will replace the existing standard IAS 17 –
Leases and related interpretations. This IFRS eliminates the classification as an operating lease and requires
lessees to recognise a right-of-use asset and a lease liability in the statement of financial position for all
leases with exemptions permitted for short-term leases and leases of low value assets. In addition, IFRS 16
changes the definition of a lease, sets requirements on how to account for the asset and liability, including
complexities such as non-lease elements, variable lease payments and options periods, changes the
accounting for sale and leaseback arrangements, largely retains IAS 17’s approach to lessor accounting and
introduces new disclosure requirements. IFRS 16 is effective for annual reporting periods beginning on or
after January 1, 2019 with early application permitted in certain circumstances. The adoption of this new
standard will require the Company to change the method used for accounting for operating leases, but
management is continuing to assess the impact of this new standard on its consolidated financial statements.
4. Critical accounting judgments and key sources of estimation uncertainty
The preparation of these consolidated financial statements in conformity with IFRS and the application of
the Company’s accounting policies described in note 2, required management to make judgments, estimates
and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other
sources. The estimates and associated assumptions are based on historical experience and other factors that
are considered to be relevant. Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting
estimates are recognised in the period in which the estimate is revised if the revision affects only that period,
or in the period of the revision and future periods if the revision affects both current and future periods.
4.1 Critical judgments in applying accounting policies
The following are the critical judgments, apart from those involving estimations, that management has made
in the process of applying the Company's accounting policies and that have the most significant effect on the
amounts recognised in the consolidated financial statements.
Cash-generating units
Management has identified only one cash-generating unit (“CGU”) for the Company. Revenue generated by
the Company’s various product lines and facilities are generated through a single sales force whose ability to
cross sell products influences the level of sale for each product line. Management has determined that the
cash flows of the Company’s production facilities are closely interrelated and not independent.
4.2 Key sources of estimation uncertainty
The following are the key sources of estimation uncertainty at the end of the reporting period that have a
significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the
next financial year:
15
Notes to the consolidated financial statements
for the years ended December 31, 2016 and 2015
4. Critical accounting judgments and key sources of estimation uncertainty (continued)
Allowance for doubtful accounts
The Company analyzes its trade receivables on an account by account basis and on a portfolio basis. Any
impairment recognised on these assets is based on historical experience and management’s best estimate of
the recoverability of the account receivable.
Useful lives of depreciable assets
The Company reviews the estimated useful lives of property, plant and equipment and intangible assets other
than goodwill at the end of each annual reporting period in order to ensure that the amortisation method used
is appropriate.
Impairment of long-lived assets
If required, the Company performs impairment tests on its long-lived assets by comparing the carrying
amount of the assets to their recoverable amount, which is calculated as the higher of the asset’s fair value
less costs to sell and its value in use. Value in use is calculated based on a discounted cash flow analysis,
which requires the use of estimates of future cash flow and discount rates. The Company uses judgment to
determine whether it identifies any triggering event that may indicate that the long-lived assets have been
impaired.
Income taxes
Management uses estimates in determining the appropriate rates and amounts in recording deferred income
taxes, giving consideration to timing and probability of realization. Actual taxes could significantly vary
from these estimates as a result of a variety of factors including future events, changes in income tax laws or
the outcome of reviews by tax authorities and related appeals. The resolution of these uncertainties and the
associated final taxes payable may result in adjustments to the Company’s deferred and current tax assets
and liabilities.
Warrants and share-based compensation
The Company issues equity instruments from time to time, which are comprised of options to purchase
common shares as well as common shares and warrants (units). The Company uses the Black-Scholes
pricing model in order to determine the value of these instruments or how proceeds are allocated between the
instruments. These methods require estimates based on market inputs.
5. Segment information
The Company operates in one reportable segment, comprising the development, manufacture and sale of
flexible packaging material in the form of film or bags, for various uses.
5.1 Revenues by geographical end market
The Company’s revenues by geographical end market are as follows:
Canada
United States
Other
Total
Year ended
December 31,
2016
December 31,
2015
$ 27,387,025
45,954,583
171,816
$ 73,513,424
$ 25,724,900
43,312,195
113,535
$ 69,150,630
16
Notes to the consolidated financial statements
for the years ended December 31, 2016 and 2015
5. Segment information (continued)
5.2 Property, plant and equipment and intangible assets per geographic location
Canada
United States
Total
December 31,
2016
December 31,
2015
$ 6,889,509
13,381,376
$ 20,270,885
$ 6,707,965
14,377,622
$ 21,085,587
6. Additional information on the consolidated statements of comprehensive income
The Company’s consolidated statement of comprehensive income includes depreciation of production
equipment of $1,771,631 for the year ended December 31, 2016 ($1,412,442 in 2015) classified in Cost of
sales. Depreciation of other property, plant and equipment and amortisation of intangible assets amounting
to $229,274 for the year ended December 31, 2016 ($269,449 in 2015) is included in Administrative
expenses.
The Company’s consolidated statement of comprehensive income includes salaries paid to its employees of
$8,952,979 for the year ended December 31, 2016 ($8,060,688 in 2015) classified in Cost of sales.
Administrative expenses include salaries paid to employees of $1,569,759 for the year ended December 31,
2016 ($1,460,906 in 2015) and Selling expenses include salaries paid to employees of $418,638 for the year
ended December 31, 2015 ($629,437 in 2015).
7. Employee benefits
The Company contributes to state-run pension plans, employment insurance, group insurance and social
security for its employees. The costs incurred for the employee benefits noted above amounted to
$2,535,708 during the year ended December 31, 2016 ($2,302,252 in 2015). These payments are expensed
as incurred and the Company does not recognise any gains or losses subsequent to the payment of these
benefits.
The Company also offers a defined contribution employee benefit plan to its employees located in North
Carolina, USA. For the year ended December 31, 2016, the Company contributed $33,112 to this plan
($28,151 in 2015).
8. Finance costs
Interest on bank indebtedness and long term debt
Interest on obligations under finance leases
Other interest
Year ended
December 31,
2016
December 31,
2015
$ 526,994
21,946
-
$ 541,209
24,966
35,123
$ 548,940
$ 601,298
17
Notes to the consolidated financial statements
for the years ended December 31, 2016 and 2015
9. Income taxes
9.1 Income tax recognised in net income
Year ended
December 31,
2016
December 31,
2015
Income tax expense comprises:
Current tax expense
Deferred tax expense relating to the origination and
reversal of temporary differences
Total income tax expense
$ 583,107
$ 741,721
5,900
$ 589,007
(33,266)
$ 708,455
9.2 Reconciliation between the income tax expense and the statutory income tax rate
Income before income taxes
Year ended
December 31,
2016
December 31,
2015
$ 997,074
$ 1,521,673
Income tax expense calculated at 26.9%
Permanent differences
Effect of unrecognised benefit of Imaflex USA’s
losses
Effect of different tax rates of subsidiaries operating in
other jurisdictions
Other
268,213
129,370
409,330
(24,390)
499,205
348,430
(154,882)
(152,899)
(108,103)
83,188
Income tax expense recognised in net income
$ 589,007
$ 708,455
The tax rate used for the 2015 and 2016 reconciliation above is the corporate tax rate of 26.9% payable by
corporate entities in Quebec, Canada on taxable income under tax law in those jurisdictions.
9.3 Deferred tax balances
Opening
balance
Recognised
in income
Adjustment
to prior year
balance
Closing
balance
2016
Assets
Non-capital losses
Advance
Inventory
Other assets
Liabilities
$ 3,325,043
-
234,899
261,192
3,821,134
$ (903,040)
36,489
(27,253)
12,029
(881,775)
$ -
-
-
-
-
$ 2,422,003
36,489
207,646
273,221
2,939,359
Advance
Property, plant and equipment
Investment tax credits
(87,926)
(5,016,111)
(2,690)
(5,106,727)
87,926
798,718
(10,769)
875,875
Deferred tax liabilities
$(1,285,593) $ (5,900)
$
-
-
-
-
-
-
(4,217,393)
(13,459)
(4,230,852)
$(1,291,493)
18
Notes to the consolidated financial statements
for the years ended December 31, 2016 and 2015
9. Income taxes (continued)
9.3 Deferred tax balances (continued)
Opening
balance
Recognised
in income
Adjustment
to prior year
balance
Closing
balance
$ 2,592,811
245,222
176,967
3,015,000
$ 732,232
(10,323)
84,225
806,134
$ -
-
-
-
$ 3,325,043
234,899
261,192
3,821,134
2015
Assets
Non-capital losses
Inventory
Other assets
Liabilities
Advance
Property, plant and equipment
Investment tax credits
(131,792)
(4,196,687)
(5,380)
(4,333,859)
43,866
(802,919)
2,690
(756,363)
-
(16,505)
-
(16,505)
(87,926)
(5,016,111)
(2,690)
(5,106,727)
Deferred tax liabilities
$(1,318,859)
$ 49,771
$ (16,505)
$(1,285,593)
9.4 Unrecognised deferred tax assets
The Company's subsidiary, Imaflex USA, has non-capital losses available to carry forward to reduce future
taxable income of $25,975,542 in 2016 and $25,409,793 in 2015, for part of which a deferred tax asset has
not been recognised ($7,708,458 in 2016 and $6,584,776 in 2015), that expire as follows:
Expiring in
December 31,
2016
December 31,
2015
2025
2026
2027
2028
2029
2030
2031
2032
2033
2034
2035
2036
$ 99,098
1,837,014
997,963
2,324,783
2,727,994
4,531,532
2,244,084
3,108,650
3,098,425
2,738,496
1,503,086
764,417
$25,975,542
$ 102,146
1,893,518
1,028,659
2,396,291
2,811,905
4,670,917
2,313,110
3,204,269
3,193,729
2,822,729
972,520
-
$25,409,793
19
Notes to the consolidated financial statements
for the years ended December 31, 2016 and 2015
10. Earnings per share
Year ended
December 31,
2016
December 31,
2015
Income for basic and diluted earnings per share
$ 408,067
$ 813,218
Weighted average number of common shares
outstanding
Dilutive effect of share purchase options
Diluted weighted average common shares outstanding
49,697,653
26,782
49,724,435
49,517,502
75,915
49,593,417
Basic and diluted earnings per common share
$ 0.008
$ 0.016
An amount of 2,450,000 stock options outstanding as at December 31, 2016 were not included in the
calculation of earnings per share because they were antidilutive (650,000 in 2015).
11. Trade and other receivables
Trade receivables
Allowance for doubtful accounts
Other receivables
Total trade and other receivables
Movement in the allowance for doubtful accounts
December 31,
2016
December 31,
2015
$ 11,619,093
(757,497)
10,861,596
497,056
$ 11,358,652
$ 11,842,670
(872,548)
10,970,122
531,340
11,501,462
Year ended
December 31,
2016
December 31,
2015
Balance, beginning of year
Release of allowance for doubtful accounts
Account write-offs during the year
Impairment losses recognised on trade receivables
Foreign exchange
Balance, end of year
$ (872,548)
43,291
325,535
(264,502)
10,727
$ (757,497)
$ (834,392)
174,015
-
(154,015)
(58,156)
$ (872,548)
Credit risk
Credit risk is the risk that a counterparty fails to discharge an obligation to the Company. The Company’s
maximum exposure to credit risk is limited to the carrying amount of the financial assets, net of any
provisions for losses recorded on the Company’s consolidated statements of financial position.
Credit risk management
Credit risk associated with cash is mitigated by ensuring that these financial assets are primarily placed with
major American and Canadian financial institutions that have been accorded grade ratings by a primary
rating agency and qualify as creditworthy counterparties. The Company performs an ongoing review and
evaluation of the possible risks associated with cash.
20
Notes to the consolidated financial statements
for the years ended December 31, 2016 and 2015
11. Trade and other receivables (continued)
For trade receivables, the Company uses an external credit service to assess the potential customer’s credit
quality and uses this information to define the allowed credit limits by customer. Moreover, the Company
uses credit insurance to mitigate credit risk. As at December 31, 2016, $5,448,146 ($4,099,851 as at
December 31, 2015) of the total trade receivables are insured. The Company’s management considers that
all receivables that are not impaired or past due for each reporting date are of good credit quality.
Trade receivables past due but not impaired
Trade receivables disclosed above include amounts that are past due at the end of the reporting period but
not impaired, because the amounts are still considered recoverable based on the Company’s analysis of
reimbursements. In situations where the Company believes there may be increased credit risk, netting
agreements are signed in order to be able to settle any payables to the same customer on a net basis. At the
end of the reporting period, there were $2,125,111 of past due trade receivables that were not impaired
($2,220,105 in 2015). Of that amount, $564,318 was aged over 90 days ($796,676 as at December 31, 2015).
Aging of total trade and other receivables
Current
31 days to 60 days
61 days to 90 days
Over 90 days
Total
12. Inventories
Raw materials and supplies
Finished goods
Work in process
Total
Year ended
December 31,
2016
December 31,
2015
$ 5,515,051
3,706,785
1,560,793
576,023
$ 11,358,652
$ 5,147,361
3,750,836
1,628,465
974,800
$ 11,501,462
December 31,
2016
December 31,
2015
$ 5,983,381
2,770,444
1,320,746
$ 10,074,571
$ 6,370,895
3,559,696
891,847
$ 10,822,438
The cost of inventories recognised as an expense during the year was $62,053,092 ($59,220,158 in 2015).
There were no write-downs of inventory recognised in the fiscal year ended on December 31, 2016 or 2015.
21
Notes to the consolidated financial statements
for the years ended December 31, 2016 and 2015
13. Property, plant and equipment
Land
Building
Production
equipment
Leasehold
improvements
Office
equipment
Computer
equipment
Equipment
under
finance lease
Total
Cost
January 1, 2015
Additions
Foreign exchange
December 31, 2015
Additions
Foreign exchange
$
$
-
-
-
-
-
-
$ 42,217,660
1,448,077
3,191,245
$ 1,929,506
66,736
134,006
$ 43,298
-
3,124
$ 420,296
83,966
2,599
-
22,649
371
-
112,975
1,852
46,856,982
1,193,306
(594,068)
2,130,248
113,286
(26,513)
46,422
-
(576)
506,861
5,030
(1,163)
$ 884,857
-
142,796
1,027,653
75,064
(22,771)
$ 45,495,617
1,598,779
3,473,770
50,568,166
1,522,310
(642,868)
December 31, 2016
$ 23,020
$ 114,827
$ 47,456,220
$2,217,021
$ 45,846
$510,728
$ 1,079,946
$ 51,447,608
Accumulated depreciation
January 1, 2015
Depreciation expense
Foreign exchange
December 31, 2015
Depreciation expense
Foreign exchange
December 31, 2016
Net book value, as at
December 31, 2015
-
-
-
-
-
-
-
-
-
-
-
-
(2,950)
(73)
(25,998,881)
(1,348,419)
(1,173,045)
(28,520,345)
(1,607,450)
219,062
(1,498,058)
(179,365)
(87,280)
(1,764,703)
(219,594)
13,845
(43,298)
-
(3,124)
(46,422)
-
576
(396,429)
(21,856)
(2,599)
(420,884)
(37,893)
593
(139,143)
(64,023)
(11,429)
(214,595)
(63,089)
2,022
(28,075,809)
(1,613,663)
(1,277,477)
(30,966,949)
(1,930,976)
236,025
$ (3,023) $(29,908,733)
$ (1,970,452)
$ (45,846)
$(458,184)
$ (275,662)
$(32,661,900)
December 31, 2016
$ 23,020
$ 111,804
$ 17,547,487
$ 246,569
-
$ 18,336,637
$ 365,545
$
$
-
-
$ 85,977
$ 813,058
$ 19,601,217
$ 52,544
$ 804,284
$ 18,785,708
A portion of the Company’s production equipment with a carrying amount of approximately $17,700,000
(approximately $16,000,000 as at December 31, 2015) is pledged as collateral for the Company’s long-term
debt.
14. Intangible assets
Goodwill
Customer
relationships
Patents
Total
January 1, 2015
Additions
Amortisation
Foreign exchange
December 31, 2015
Additions
Amortisation
Foreign exchange
$ 435,566
-
-
84,065
$ 224,770
-
(48,006)
39,486
$ 738,944
29,767
(20,222)
-
$ 1,399,280
29,767
(68,228)
123,551
519,631
-
-
(15,507)
216,250
-
(49,703)
(7,102)
748,489
93,345
(20,226)
-
1,484,370
93,345
(69,929)
(22,609)
December 31, 2016
$ 504,124
$ 159,445
$ 821,608
$ 1,485,177
22
Notes to the consolidated financial statements
for the years ended December 31, 2016 and 2015
14. Intangible assets (continued)
During the year ended December 31, 2014, the Company purchased the patents to ADVASEAL, a plastic
film formulation for controlled release of plant protection products, including all the rights and intellectual
property surrounding the co-extruded active ingredient-releasing agricultural film, which was co-developed
by Imaflex. It also further invested in its existing patents in order to be able to obtain all required
registrations. The patents for which EPA approval has not been obtained have not started being amortized in
the years ended December 31, 2016 and 2015.
December 31,
2016
December 31,
2015
$ 7,086,001
1,663,000
$ 8,749,001
$ 7,617,334
1,247,748
$ 8,865,082
15. Trade and other payables
Trade payables
Other payables and accrued liabilities
16. Credit facilities
Bank indebtedness (a)
Long term debt
Loan, bearing interest at the lender’s base rate (4.70% as at
December 31, 2016 and 2015) minus 0.5% (plus 0.375% in 2015),
refinanced during the year, secured by production equipment. (b)
Loan (US$1,909,437, US$2,493,133 as at December 31, 2015),
bearing interest at the US prime rate, reset monthly, plus 3.00%
(effective rate of 6.75% as at December 31, 2016, 6.50% in 2015)
secured by the production equipment of the subsidiary and a
corporate guarantee from the Parent Company. (c)
Total long term debt
Finance leases (Note 17)
Total borrowings
Current
Bank indebtedness
Long-term debt, current portion
Finance leases
Non-current
Long-term debt
Finance leases
Total borrowings
December 31,
2016
December 31,
2015
$ 5,052,270
$ 6,925,713
2,920,000
2,208,751
2,563,801
5,483,801
3,450,157
5,658,908
392,714
487,606
10,928,785
13,072,227
5,052,270
1,355,760
170,740
6,578,770
4,128,041
221,974
4,350,015
6,925,713
1,358,488
153,959
8,438,160
4,300,420
333,647
4,634,067
$ 10,928,785
$ 13,072,227
23
Notes to the consolidated financial statements
for the years ended December 31, 2016 and 2015
16. Credit facilities (continued)
Interest on long-term debt amounted to $297,356 for the year ended December 31, 2016 ($347,379 in 2015).
(a) The Company has an operating line of credit with its bankers to a maximum of $10,000,000, bearing
interest at prime plus 0.90% (3.60% effective interest rate at December 31, 2016, 3.85% as at
December 31, 2015). The line of credit is secured by trade receivables and inventories. The line of
credit may be reviewed periodically by the bank and is repayable on demand. The operating line of
credit is subject to working capital, debt to equity and minimum EBITDA covenants (as defined in the
lending agreement). As at December 31, 2016, the Company had drawn $5,052,270 ($6,925,713 as at
December 31, 2015) on the line of credit.
(b) During the year ended December 31, 2016, the Company refinanced a loan obtaining $961,510 of
additional funds in order to replenish working capital. The loan is repayable in one instalment of
$40,950 followed by monthly instalments of $40,550 until November 2022. Following the refinancing,
the interest applicable to the loan decreased from 0.375% over the lender’s base rate to 0.50% under the
lender’s base rate (effective rate of 4.20% as of December 31, 2016 and 5.075% as at December 31,
2015).
(c) This loan is repayable in 20 equal quarterly instalments through January 2020 and bears interest at a rate
of 3.00% over the US prime rate for an effective rate of 6.75% as at December 31, 2016 (6.50% as at
December 31, 2015). This loan was recorded at the effective interest rate method, net of all incremental
transaction costs directly attributable to the transaction. During the year ended December 31 2015, the
Company drew an additional amount of $587,023 (USD $463,580) on this facility. This loan is subject
to certain covenants. As at December 31, 2015, the Company was not in compliance with its Interest-
bearing-debt-to-EBITDA and fixed-charge-coverage ratio covenants. However, the Company obtained
waivers as at December 31, 2015 confirming tolerance for these breaches for a period of more than one
year. As at December 31, 2016, the Company was in compliance with all covenants related to this loan.
The aggregate scheduled repayment of long term debt is as follows :
Not later than one year
Later than one year and not later than five years
Later than 5 years
$ 1,345,162
3,711,516
446,050
$ 5,502,728
17. Obligations under finance leases
The Company has entered into certain finance lease agreements. Finance lease payments are due as follows :
Not later than one year
Later than one year and not later than five years
Later than five years
Total minimum lease payments
Less amount representing interest at approximately 6.1%
Present value of minimum lease payments
Less the long term portion
Current portion of obligations under finance leases
$ 185,452
230,942
-
416,394
(23,680)
392,714
(221,974)
170,740
During the year ended December 31, 2016, the Company financed the acquisition of production equipment
of a value totalling $75,064 by entering into a finance lease for the entire amount of the purchase.
24
Notes to the consolidated financial statements
for the years ended December 31, 2016 and 2015
18. Share capital
The Company’s authorized share capital consists of an unlimited number of common shares, voting,
participating, without par value. At December 31, 2016, there were 49,738,637 common shares outstanding
(49,638,637 common shares at December 31, 2015).
During the year ended December 31, 2015, the Company issued 1,381,695 shares following the exercise of
warrants that entitled the holders to purchase shares of the Company at $0.45 per share for total proceeds of
$621,762, of which $296,053 had been received during the year ended December 31, 2014 in anticipation
for the exercise of these warrants. These warrants were issued as part of a private placement that closed on
February 1, 2012. The amount of $296,053 that was received during the year ended December 31, 2014 was
reclassed from Other items within Reserves to Share Capital and an amount of $185,147 was reclassed from
Warrants within Reserves to Share Capital. The impact of this transaction on shareholder’s equity is as
follows :
Proceeds received in 2014
Proceeds received in 2015
Value of warrants reclassed from
Warrants to Share capital
Share
capital
296,053 $
325,709
185,147
Warrants
- $
-
(185,147)
Total
296,053 $
325,709
-
806,909 $
(185,147) $
621,762 $
During the year ended December 31, 2015, 2,824,363 warrants entitling the owners to acquire one additional
common share of the Company expired. As at December 31, 2015, there were no warrants outstanding.
19. Share-based compensation
Pursuant to the Stock Option Plan (the “Plan”) of the Company, 3,735,000 of the common shares are
reserved for options. The Plan provides that the term of the options shall be fixed by directors. Officers and
employees of the Company are eligible to receive options. Options are granted at an exercise price of not
less than the fair value of the Company’s shares on the date the options are granted. Options may be
exercisable for a period no longer than five (5) years and the exercise price must be paid in full upon
exercise of the option.
During the year ended December 31, 2016, the Company granted 1,300,000 options to an employee and two
consultants to acquire common shares at $0.40 for a period of five years. These options vest in 4 tranches
over 2 years, the first vesting six months after issuance and the other tranches vesting at six-month intervals.
Reserves were increased by $142,080 representing the share-based compensation related to this issuance for
the year ended December 31, 2016.
During the year ended December 31, 2016, the Company granted 500,000 options to an employee to acquire
common shares at $0.42 for a period of five years. These options vest in 4 tranches over 18 months, the first
vesting immediately at issuance and the remaining tranches vesting at six-month intervals. Reserves were
increased by $56,691 representing the share-based compensation related to this issuance for the year ended
December 31, 2016.
During the year ended December 31, 2015, the Company issued 650,000 options to employees and one
consultant to acquire shares at $0.52 for a period of 5 years. These options vest in 4 tranches over 2 years,
the first vesting six months after issuance and the other tranches vest at 6-month intervals. Reserves were
increased by an amount of $82,525 during the year ended December 31, 2016 ($102,641 in 2015),
representing the share-based compensation for the periods.
25
Notes to the consolidated financial statements
for the years ended December 31, 2016 and 2015
19. Share-based compensation (continued)
The following are the assumptions used in order to value the options as well as general information on each
outstanding option grant:
Fair value assumptions
06/09/2016 21/06/2016 16/06/2015 15/07/2013 15/01/2013 27/05/2011
Total
Outstanding as at 01/01/2015
Issued
Expired
Outstanding as at 31/12/2015
Exercised
Issued
Outstanding as at 31/12/2016
Exercisable as at 31/12/2015
Exercisable as at 31/12/2016
Remaining life of options (yrs)
Expected life of options (yrs)
Expiry
Expected share price volatility
Dividend yield
Risk free rate
-
650,000
-
650,000
-
-
650,000
162,500
487,500
3.46
-
-
-
-
-
500,000
500,000
-
125,000
4.69
100,000
-
(100,000)
-
-
-
-
-
-
-
100,000
-
(100,000)
-
-
-
-
-
-
-
2.75 to 3.5 0.99 to 1.37 0.99 to 1.37
-
-
-
-
-
1,300,000
1,300,000
-
325,000
4.48
2.5 to 3.25 2.75 to 3.5
06/09/2021 21/06/2021 15/06/2020 15/07/2015
106.54% -
125.9%
0%
1.27%
100,000
-
-
100,000
(100,000)
-
-
100,000
-
-
2.5
15/01/2015 27/05/2016
134.8% -
191.1 %
0%
1.18%
172.86%
0%
1.67%
76.59% -
79.60%
0%
0.51%
75.95% -
82.15%
0%
0.50%
300,000
650,000
(200,000)
750,000
(100,000)
1,800,000
2,450,000
262,500
937,500
Exercise price
Share price on grant date
Fair value of option at grant
$ 0.42
$ 0.42
$ 0.21
$ 0.40
$ 0.40
$ 0.21
$ 0.40
$ 0.40
$ 0.19
$ 0.36
$ 0.32
$ 0.20
$0.125
$0.125
$0.100
83.19% -
98.85%
0%
0.55% to
0.65%
$ 0.52
$ 0.52
$ 0.30
The expected volatility was calculated using the average closing price change of the Company’s shares on
the TSX over the expected life of the options.
20. Non-cash transactions
During the year ended December 31, 2016, the Company financed the acquisition of production equipment
of a value totalling $75,064 by entering into a finance lease for the entire amount of the purchase. Additional
information on finance leases is provided in note 17.
26
Notes to the consolidated financial statements
for the years ended December 31, 2016 and 2015
21. Financial instruments
21.1 Fair value and classification of financial instruments
Carrying amount and fair value
December 31,
December 31,
2015
2016
$ 68,100
10,873,302
10,941,402
$ 160,975
11,148,246
11,309,221
5,052,270
7,804,787
5,483,801
18,340,858
6,925,713
8,272,779
5,658,908
20,857,400
392,714
487,606
Financial assets
Loans and receivables
Cash
Trade and other receivables (1)
Financial liabilities
Financial liabilities, at amortised cost
Bank indebtedness
Trade and other payables (2)
Long term debt
Other liabilities
Finance lease obligations
(1) Excludes sales taxes
(2) Excludes employee benefits
Fair value estimates are made as of the date of the consolidated statement of financial position, using
available information about the financial instrument. These estimates are subjective in nature and often
cannot be determined with precision.
The following methods and assumptions were used to determine the estimated fair value of each class of
financial instruments:
The fair value of cash, trade and other receivables, bank indebtedness and trade and other payables
approximates their respective carrying amounts as at the date of the consolidated statement of
financial position because of the short-term maturity of those instruments.
The fair value of long-term debts and finance lease obligations, which mainly bear interest at
floating rates, is estimated using a discounted cash flows approach, which discounts the contractual
cash flows using discount rates derived from observable market interest rates of similar loans with
similar risks.
The Company ensures, to the extent possible, that its valuation techniques and assumptions incorporate all
factors that market participants would consider in setting a price and that it is consistent with accepted
economic methods for pricing financial instruments.
27
Notes to the consolidated financial statements
for the years ended December 31, 2016 and 2015
21. Financial instruments (continued)
21.2 Fair value hierarchy
The Company categorizes its financial instruments into a three-level fair value measurement hierarchy as
follows:
Level–1 - valuation based on quoted prices (unadjusted) in active markets for identical assets or liabilities;
Level–2 - valuation techniques based on inputs other than quoted prices included in Level 1 that are
observable for the asset or liability, either directly (as prices) or indirectly (derived from prices);
Level–3 - valuation techniques using inputs for the asset or liability that are not based on observable market
data (unobservable inputs).
As at December 31, 2016 and 2015, the fair values of long-term debt and finance lease obligations are
categorised as Level 2.
22. Operating lease arrangements
22.1 Leasing arrangements
The Company leases its premises for manufacturing locations from related parties under operating leases.
Rent is paid monthly and there are no restrictions imposed on the Company under these leasing
arrangements. There is no contingent rent under those leasing agreements and no sublease payments
received by the Company. The leases expire at various dates to August 2020, and include renewal
provisions.
22.2 Payments recognised as an expense
Lease payments for premises
Vehicles
Office equipment
22.3 Non-cancellable operating lease commitments
Not later than 1 year
Later than 1 year and not later than 5 years
Later than 5 years
Year ended
December 31,
2016
December 31,
2015
$ 934,845
35,004
17,032
$ 944,277
34,248
8,406
Year ended
December 31,
2016
December 31,
2015
$
931,274
3,206,060
1,873,205
$ 6,010,539
$ 797,161
2,610,569
1,154,879
$ 4,562,609
28
Notes to the consolidated financial statements
for the years ended December 31, 2016 and 2015
23. Risk management
23.1 Capital management
The Company’s objective in managing capital is to ensure sufficient liquidity to pursue its growth while at
the same time taking a conservative approach towards financial leverage and financial risk.
The Company’s capital is composed of net debt and shareholders’ equity. Net debt consists of interest-
bearing debt less cash. The Company’s primary uses of capital are to finance increases in non-cash working
capital and capital expenditures for capacity expansion and integration.
The Company’s primary measure to monitor financial leverage is Debt to Earnings before Interest, Taxes,
Depreciation and Amortization (“EBITDA”).
Credit facility arrangements require that the Company meet certain financial ratios at fixed points in time.
The financial covenants are, as at December 31, 2016:
- Working capital ratio, defined as current assets divided by current liabilities greater than or equal to
1.10:1.00;
- Debt to equity ratio, defined as total debt excluding taxes divided by equity and deferred taxes less
intangible assets of less than or equal to 2.50:1.00;
- Interest bearing debt divided by EBITDA ratio (as defined) less than or equal to 4.00:1.00;
- Fixed charge coverage ratio calculated on a yearly basis equal to or greater than 1.10:1.00;
- To maintain a minimum EBITDA (as defined) of $1,900,000 for the fiscal year ended December 31, 2016.
23.2 Foreign currency risk management
The Company’s Canadian operations face foreign currency risk as a result of a significant portion of the
costs of raw material for these sales being in USD. The Company’s sales in USD act as a hedge against this
risk, mitigating the risk.
The Company also faces foreign currency risk through its foreign subsidiary, Imaflex USA, whose
functional currency is the USD. Imaflex does not specifically hedge this foreign currency risk.
The Company also has a portion of its long term debt in USD. The majority of the cash flows generated by
the assets financed by these borrowings in USD are in USD.
The following is the Company’s financial assets and liabilities denominated in USD, which is in a currency
other than the Company’s functional currency:
Cash
Trade receivables
Trade payables
Bank indebtedness
Gross financial position exposure
$
December 31,
2016
369
2,279,387
(3,903,091)
(1,173,716)
$ (2,797,051)
$
December 31,
2015
5,964
3,671,530
(4,170,709)
(2,244,011)
$ (2,737,226)
29
Notes to the consolidated financial statements
for the years ended December 31, 2016 and 2015
23. Risk management (continued)
23.2 Foreign currency risk management (continued)
A 5% appreciation of the Canadian dollar against the USD would impact its financial position by $244,616
as at December 31, 2016 (December 31, 2015 - $354,784 ). Conversely a 5% depreciation of the Canadian
dollar against the USD would have the opposite effect. Management estimates that every $0.01 appreciation
of the USD against the Canadian dollar would have a negative impact on the Company’s result of
approximately $30,000. Every $0.01 depreciation of the USD against the Canadian dollar would have the
opposite effect.
23.3 Interest rate risk management
The Company’s exposure to interest rate fluctuations is with respect to its short-term and long-term
financing, which bear interest at floating rates.
At the reporting date, the carrying value of the Company’s interest-bearing financial liabilities was as
follows:
Variable rate instruments
Financial liabilities
Gross financial position exposure
Sensitivity analysis
December 31,
2016
December 31,
2015
$ 10,536,071
$ 10,536,071
$ 12,584,621
$ 12,584,621
A 100 basis point increase in interest rates at the reporting date would result in a decrease in income for the
year ended December 31, 2017 of approximately $92,739 ($118,952 for 2016 as at December 31, 2015).
Conversely a decrease would have the opposite effect.
23.4 Liquidity risk management
Liquidity risk, the risk that the Company will not be able to meet its financial obligations as they fall due, is
managed through the Company’s capital structure and financial leverage. The Company obtains financing
through a mix of share issuance on the capital markets and borrowings from financial institutions. An
analysis of financial leverage is used to determine the required mix between the different sources of liquidity
offered to the Company while keeping an acceptable risk level in the Company’s leverage.
The Company ensures that it maintains sufficient cash flow to pay its obligations within the next 12 months.
Cash flows generated from operations are matched to the liquidity required to meet its financial obligations
for the sources of financing used to generate that cash flow.
The Company has an operating line of credit of up to $10,000,000, of which an amount of $5,052,270 was
utilized as at December 31, 2016. Borrowings under the Company’s operating line of credit bear interest at
the bank’s prime rate plus 0.90%. In order to ensure that this line of credit is sufficient to fund the
Company’s cash requirements, management follows the movements in the collateral against which the line
of credit is given.
30
Notes to the consolidated financial statements
for the years ended December 31, 2016 and 2015
23. Risk management (continued)
23.4 Liquidity risk management (continued)
As at December 31, 2016, the carrying amount and undiscounted contractual cash flows for the Company's
liabilities are as follows:
Carrying
amount
Contractual
cash flow
1 year or less
2-5 years More than 5
Bank indebtedness
Long term debt
Interest on borrowings (1)
Finance leases (2)
Trade and other payables
$ 5,052,270
5,450,684
33,117
392,714
7,804,787
$ 5,052,270 $ 5,052,270
1,312,046
253,463
185,452
7,804,787
5,469,611
630,652
416,394
7,804,787
$ -
3,711,515
367,792
230,942
-
years
$ -
446,050
9,397
-
-
$18,733,572
$19,373,714
$14,608,018
$ 4,310,249
$ 455,447
(1) The interest on the long term debt is based on prevailing interest rates at the date of the consolidated
statement of financial position.
(2) The contractual cash flow for finance leases includes the interest on the borrowings.
24. Related party transactions
Entities in which key management personnel has an interest
During the year, in the normal course of business, the Company had routine transactions with entities owned
by shareholders and key management personnel of the Company. These transactions are measured at fair
value, which is the amount of consideration established and agreed to by the related parties. Details of these
transactions not disclosed elsewhere in these consolidated financial statements are as follows:
Entities owned by key
management personnel or their
family members
Rent
Key management personnel services
Entities over which key
management personnel have
significant influence
Professional services
Transactions for the year
ended
Amounts owing as at
Non-secured commitments
as at
December 31,
2016
December 31,
2015
December 31,
2016
December 31,
2015
December 31,
2016
December 31,
2015
$ 877,693
145,909
$ 825,461 $
138,017
-
12,257
$ - $ 5,947,770
-
12,273
$ 4,480,279
-
138,269
82,914
138,269
82,914
-
-
$ 1,161,871
$ 1,046,392 $ 150,526
$ 95,187
$ 5,947,770
$ 4,480,279
31
Notes to the consolidated financial statements
for the years ended December 31, 2016 and 2015
24. Related party transactions (continued)
Key management personnel
The table below details the compensation paid to the key members of management, which include the
Company’s chief executive officer, the vice president of marketing and innovation, the production director,
the vice president of corporate affairs, the corporate controller and members of the board of directors.
Salaries
Director’s fees
Short-term employee benefits
Post-employment benefits – State-run plans
Share-based compensation
Other benefits
Year ended
December 31,
2016
$ 685,485
44,750
8,883
18,267
178,679
38,682
$ 974,746
December 31,
2015
$ 653,053
40,250
3,830
13,104
15,791
33,273
$ 759,301
32