ANNUAL
REPORT
2019
OUR BANNERS
TM
®
MTYGROUP.COM
Management’s Discussion and Analysis
For the fiscal year ended November 30, 2019
General
This Management's Discussion and Analysis of the financial position and financial performance ("MD&A") of MTY Food
Group Inc. ("MTY") is supplementary information and should be read in conjunction with the Company’s consolidated
financial statements and accompanying notes for the fiscal year ended November 30, 2019.
In the MD&A, MTY Food Group Inc., MTY, or the Company, designates, as the case may be, MTY Food Group Inc. and
its Subsidiaries, or MTY Food Group Inc., or one of its subsidiaries.
The disclosures and values in this MD&A were prepared in accordance with International Financial Reporting Standards
(IFRS) and with current issued and adopted interpretations applied to fiscal years beginning on or after December 1,
2018.
This MD&A was prepared as of February 23, 2020. Supplementary information about MTY, including its latest annual
and quarterly reports, and press releases, is available on SEDAR’s website at www.sedar.com.
Forward looking statements and use of estimates
This MD&A and, in particular, but without limitation, the sections of this MD&A entitled Outlook, Same-Store Sales,
Contingent Liabilities and Subsequent Event, contain forward-looking statements. These forward-looking statements
include, but are not limited to, statements relating to certain aspects of the business outlook of the Company during the
course of 2019. Forward-looking statements also include any other statements that do not refer to independently
verifiable historical facts. A statement made is forward-looking when it uses what is known and expected today to make
a statement about the future. Forward-looking statements may include words such as aim, anticipate, assumption,
believe, could, expect, goal, guidance, intend, may, objective, outlook, plan, project, seek, should, strategy, strive, target
and will. All such forward-looking statements are made pursuant to the ‘safe harbour’ provisions of applicable Canadian
securities laws.
Unless otherwise indicated, forward-looking statements in this MD&A describe the Company’s expectations as at
February 23, 2020 and, accordingly, are subject to change after such date. Except as may be required by Canadian
securities laws, the Company does not undertake any obligation to update or revise any forward-looking statements,
whether as a result of new information, future events or otherwise.
Forward-looking statements, by their very nature, are subject to inherent risks and uncertainties and are based on several
assumptions which give rise to the possibility that actual results or events could differ materially from the expectations
expressed in or implied by such forward-looking statements and that the business outlook, objectives, plans and strategic
priorities may not be achieved. As a result, the Company cannot guarantee that any forward-looking statement will
materialize and readers are cautioned not to place undue reliance on these forward-looking statements. Forward-looking
statements are provided in this MD&A for the purpose of giving information about management’s current strategic
priorities, expectations and plans and allowing investors and others to get a better understanding of the business outlook
and operating environment. Readers are cautioned, however, that such information may not be appropriate for other
purposes.
Forward-looking statements made in this MD&A are based on a number of assumptions that are believed to be
reasonable on February 23, 2020. Refer, in particular, to the section of this MD&A entitled Risks and Uncertainties for a
description of certain key economic, market and operational assumptions the Company has used in making forward-
Page 1
looking statements contained in this MD&A. If the assumptions turn out to be inaccurate, the actual results could be
materially different from what is expected.
In preparing the consolidated financial statements in accordance with IFRS and the MD&A, management must exercise
judgment when applying accounting policies and use assumptions and estimates that have an impact on the amounts of
assets, liabilities, sales and expenses reported and information on contingent liabilities and contingent assets provided.
Unless otherwise indicated in this MD&A, the strategic priorities, business outlooks and assumptions described in the
previous MD&A remain substantially unchanged.
Important risk factors that could cause actual results or events to differ materially from those expressed in or implied by
the above-mentioned forward-looking statements and other forward-looking statements included in this MD&A include,
but are not limited to: the intensity of competitive activity, and the resulting impact on the ability to attract customers’
disposable income; the Company’s ability to secure advantageous locations and renew existing leases at sustainable
rates; the arrival of foreign concepts, the ability to attract new franchisees; changes in customer tastes, demographic
trends and in the attractiveness of concepts, traffic patterns, occupancy cost and occupancy level of malls and office
towers; general economic and financial market conditions, the level of consumer confidence and spending, and the
demand for, and prices of, the products; the ability to implement strategies and plans in order to produce the expected
benefits; events affecting the ability of third-party suppliers to provide essential products and services; labour availability
and cost; stock market volatility; volatility in foreign exchange rates or borrowing rates; foodborne illness; operational
constraints and the event of the occurrence of epidemics, pandemics and other health risks.
These and other risk factors that could cause actual results or events to differ materially from the expectations expressed
in or implied by these forward-looking statements are discussed in this MD&A.
Readers are cautioned that the risks described above are not the only ones that could impact the Company. Additional
risks and uncertainties not currently known or that are currently deemed to be immaterial may also have a material
adverse effect on the business, financial condition or results of operations.
Except as otherwise indicated by the Company, forward-looking statements do not reflect the potential impact of any
non-recurring or other special items or of any dispositions, monetizations, mergers, acquisitions, other business
combinations or other transactions that may be announced or that may occur after February 23, 2020. The financial
impact of these transactions and non-recurring and other special items can be complex and depend on the facts particular
to each of them. The Company therefore cannot describe the expected impact in a meaningful way or in the same way
that present known risks affecting our business.
Compliance with International Financial Reporting Standards
Unless otherwise indicated, the financial information presented below, including tabular amounts, is prepared in
accordance with International Financial Reporting Standards (“IFRS”). MTY uses earnings before interest, taxes,
depreciation and amortization (“EBITDA”), because this measure enables management to assess the Company’s
operational performance.
The Company also discloses same-store sales growth, which are defined as comparative sales generated by stores that
have been open for at least thirteen months or that have been acquired more than thirteen months ago. Same store
sales growth provides information on the comparative performance of the restaurants in our network from one period to
the next.
Similarly, the Company uses system sales to evaluate the size and performance of MTY’s network, as well as to indicate
its income-generation potential. System sales include the sales of existing restaurants, of the ones that have closed or
have opened during the period, as well as the sales of new concepts acquired from the closing date of the transaction
and forward.
These measures are widely accepted financial indicators but are not a measurement determined in accordance with
IFRS and may not be comparable to those presented by other companies. These non-IFRS measures are intended to
provide additional information about the performance of MTY and should not be considered in isolation or as a substitute
for measure of performance prepared in accordance with IFRS.
The Company uses these measures to evaluate the performance of the business as they reflect its ongoing operations.
Management believes that certain investors and analysts use EBITDA to measure a company’s ability to meet payment
obligations or as a common measurement to value companies in the industry. Similarly, same-store sales growth and
Page 2
system sales provide additional information to investors about the performance of the network that is not available under
IFRS. Both measures are components in the determination of short-term incentive compensation for some employees.
Highlights of significant events during the fiscal year
Acquisition of Allô! Mon Coco
On July 19, 2019, the Company’s Canadian operations completed its acquisition of the assets of Allô! Mon Coco for a
total consideration of $30.7 million. A total of approximately $24.1 million was paid on closing, financed from MTY’s cash
on hand and existing credit facility, while $0.2 million in net liability was assumed and $7.1 million was held back in the
form of contingent consideration and holdbacks. At closing, there was 40 franchised restaurants in operation.
Acquisition of Yuzu Sushi
On July 15, 2019, the Company’s Canadian operations completed its acquisition of the assets of Yuzu Sushi for a total
consideration of $27.6 million. A total of approximately $25.4 million was paid on closing, financed from MTY’s cash on
hand and existing credit facility and $2.2 million was held back in the form of contingent consideration. At closing, there
was 129 franchised restaurants in operation.
Acquisition of Papa Murphy
On May 23, 2019, the Company, through the merger of a wholly-owned US subsidiary with Papa Murphy’s Holdings Inc.
(“PM”), acquired all the outstanding shares of PM. The total consideration for the transaction was $255.2 million. At
closing, PM operated 1,301 franchised and 103 corporate-owned stores in the U.S., Canada and United Arab Emirates.
Acquisition of South Street Burger
On March 21, 2019 the Company acquired the assets of South Street Burger for a total consideration of approximately
$4.9 million. A total of approximately $4.1 million was paid on closing, financed from MTY's cash on hand and existing
credit facilities, while $0.2 million in net liabilities was assumed and $0.7 million was held back. At closing, there were 24
franchised restaurants and 13 corporate restaurants in operation.
Acquisition of Casa Grecque
On December 10, 2018, the Company completed its acquisition of most of the assets of Casa Grecque for a total
consideration of $22.0 million, of which $20.9 million was financed from MTY’s cash on hand and existing credit facilities,
while $0.2 million in net liabilities was assumed and $1.3 million was held back.
Restatement of comparatives
Effective December 1, 2018, the Company implemented IFRS 15, Revenue from contracts with customers. Comparative
figures provided for each quarter of the year ended November 30, 2018 have been restated to reflect the adoption of this
accounting standard. The adjustments to the consolidated statements of financial position and income statement as a
result of the adoption of IFRS 15 are discussed further in the Changes in accounting policies section.
Core business
MTY franchises and operates quick service and casual dining restaurants under the following banners: Tiki-Ming,
Sukiyaki, La Crémière, Au Vieux Duluth Express, Panini Pizza Pasta, Villa Madina, Cultures, Thaï Express, Vanellis, Kim
Chi, “TCBY”, Sushi Shop, Koya Japan, Vie & Nam, Tandori, O’Burger, Tutti Frutti, Taco Time, Country Style, Buns
Master, Valentine, Jugo Juice, Mr. Sub, Koryo Korean Barbeque, Mr. Souvlaki, Sushi Go, Mucho Burrito, Extreme Pita,
PurBlendz, ThaïZone, Madisons New York Grill & Bar, Café Dépôt, Muffin Plus, Sushi-Man, Fabrika, Van Houtte, Manchu
Wok, Wasabi Grill & Noodle, Tosto, Big Smoke Burger, Cold Stone Creamery, Blimpie, Surf City Squeeze, The Great
Steak & Potato Company, NrGize Lifestyle Café, Samurai Sam’s Teriyaki Grill, Frullati Café & Bakery, Rollerz, Johnnie`s
New York Pizzeria, Ranch One, America’s Taco Shop, Cereality, Tasti D-Lite, Planet Smoothie, Maui Wowi, Pinkberry,
Baja Fresh Mexican Grill, La Salsa Fresh Mexican Grill, La Diperie, Steak Frites St-Paul, Giorgio Ristorante, The Works
Gourmet Burger Bistro, Houston Avenue Bar & Grill and Industria Pizzeria + Bar, Dagwoods Sandwiches and Salads,
The Counter Custom Burgers, Built Custom Burgers, Baton Rouge, Pizza Delight, Scores, Toujours Mikes, Ben &
Florentine, Grabbagreen, Timothy’s World Coffee, Mmmuffins and SweetFrog, Casa Grecque, South Street Burger,
Papa Murphy’s, Yuzu Sushi, Allô! Mon Coco, La Boite Verte and Eat Pure.
As at November 30, 2019, MTY had 7,373 locations in operation, of which 7,229 were franchised or under operator
agreements and the remaining 144 locations were operated by MTY.
Page 3
MTY’s locations can be found in: i) mall and office tower food courts and shopping malls; ii) street front; and, iii) non-
traditional format within airports, petroleum retailers, convenience stores, cinemas, amusement parks, in other venues
or retailers shared sites, hospitals, universities, grocery stores, and food-truck carts. The street front locations are mostly
made up of the Country Style, La Crémière, Sushi Shop, Taco Time, Tutti Frutti, Valentine, Mr. Sub, ThaïZone, Extreme
Pita, Mucho Burrito, Madisons, Houston Avenue Bar & Grill, Industria Pizzeria + Bar, Steak Frites St-Paul, Giorgio
Ristorante, The Works Gourmet Burger Bistro, Blimpie, Cold Stone Creamery, Baja Fresh Mexican Grill, The Counter
Custom Burgers, Built Custom Burgers, Baton Rouge, Scores, Pizza Delight, Toujours Mikes, Ben & Florentine,
Grabbagreen, Casa Grecque, South Street Burger, Papa Murphy’s and Allô! Mon Coco. La Crémière, “TCBY”, La Diperie
and SweetFrog operate primarily from April to September and the other banners generally operate year-round.
MTY has developed several quick service restaurant concepts: Tiki-Ming (Chinese cuisine), was its first banner, followed
by Sukiyaki (a Japanese delight), Panini Pizza Pasta, Chick’n’Chick, Caferama, Carrefour Oriental, Villa Madina, Kim
Chi, Vie & Nam, Tandori, O’Burger, Tosto, La Boite Verte and Eat Pure.
Other banners added through acquisitions include:
Brand
Fontaine Santé/Veggirama
La Crémière
Croissant Plus
Cultures
Thaï Express
Mrs. Vanelli’s
TCBY – Canadian master franchise right
Sushi Shop
Koya Japan
Sushi Shop – existing franchise locations
Tutti Frutti
Taco Time – Canadian master franchise
rights
Country Style Food Services Holdings Inc.
Groupe Valentine inc.
Jugo Juice
Mr. Submarine
Koryo Korean BBQ
Mr. Souvlaki
SushiGo
Extreme Pita, PurBlendz and Mucho
Burrito ("Extreme Brandz")
ThaïZone
Madisons
Café Dépôt, Muffin Plus, Sushi-Man and
Fabrika
Van Houtte Café Bistros – perpetual
franchising license
Manchu Wok, Wasabi Grill & Noodle and
SenseAsian
Big Smoke Burger
Acquisition
year
1999
2001
2002
2003
May 2004
June 2004
September 2005
September 2006
October 2006
September 2007
September 2008
October 2008
May 2009
September 2010
August 2011
November 2011
November 2011
September 2012
June 2013
September 2013
September 2013
March 2015
July 2014
September 2018
October 2014
%
ownership
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
80% +
20%
90% +
10%
100%
November 2014
100%
December 2014
100%
September 2015
September 2016
60% +
40%
# of franchised
locations
18
71
18
24
6
103
91
42
24
—
29
117
475
86
134
338
19
14
3
300 - 34 of which
in the United
States
25 and 3 mobile
restaurants
14
88
51
115
13
# of corporate
locations
—
3
2
—
—
—
—
5
—
15
—
—
5
9
2
—
1
—
2
5
—
—
13
1
17
4
Page 4
Brand
Kahala Brands Ltd
- Cold Stone
Creamery, Blimpie, Taco Time, Surf City
Squeeze, The Great Steak & Potato
Company, NrGize Lifestyle Café,
Samurai Sam’s Teriyaki Grill, Frullati
Café & Bakery, Rollerz, Johnnie`s New
York Pizzeria, Ranch One, America’s
Taco Shop, Cereality, Tasti D-Lite,
Planet Smoothie, Maui Wowi and
Pinkberry
BF Acquisition Holdings, LLC – Baja
Fresh Mexican Grill and La Salsa Fresh
Mexican Grill
La Diperie
Steak Frites St-Paul and Giorgio
Ristorante
The Works Gourmet Burger Bistro
Houston Avenue Bar & Grill and Industria
Pizzeria + Bar
Dagwoods Sandwiches and Salads
The Counter Custom Burgers
Built Custom Burgers
Imvescor Restaurant Group - Baton
Rouge, Pizza Delight, Scores, Toujours
Mikes, and Ben & Florentine
Grabbagreen
Timothy’s World Coffee and Mmmuffins -
perpetual franchising license
SweetFrog Premium Frozen Yogurt
Casa Grecque
South Street Burger
Papa Murphy’s
Yuzu Sushi
Allô! Mon Coco
Acquisition
year
July 2016
%
ownership
100%
# of franchised
locations
2,839
# of corporate
locations
40
October 2016
100%
December 2016
March 2019
May 2017
September 2018
June 2017
June 2017
September 2017
December 2017
December 2017
March 2018
March 2018
April 2018
September 2018
December 2018
March 2019
May 2019
July 2019
July 2019
60%+
5%
83.25% +
9.25%
100%
80%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
167
5
15
23
12
20
36
5
253
26
32
331
31
24
1,301
129
40
16
—
—
4
—
2
3
—
8
1
7
—
—
13
103
—
—
MTY also has an exclusive area development agreement with Restaurant Au Vieux Duluth to develop and sub-franchise Au
Vieux Duluth Express quick-service restaurants in the Provinces of Ontario and Quebec.
Revenues from franchise locations are generated from royalty fees, promotional funds revenue, franchise fees, sales of
turnkey projects, rent, sign rental, supplier contributions, gift card breakage and program fees and sales of other goods
and services. Operating expenses related to franchising include salaries, general and administrative costs associated
with existing and new franchisees, expenses in the development of new markets, costs of setting up turnkey projects,
rent, supplies, finished products and equipment sold.
Revenues from corporate-owned locations include sales generated from corporate-owned locations. Corporate owned
location expenses include the costs incurred to operate corporate owned locations.
MTY generates revenues from the food processing businesses discussed herein. The two plants produce various
products that range from ingredients and ready to eat food sold to restaurants or other food processing plants to prepared
food sold in retail stores. The plants generate most of their revenues selling their products to distributors, retailers and
franchisees. The Company also generates revenues from the sale of retail products under various brand names which
Page 5
are sold at various retailers. The Company also generates revenue from its distribution centers that serves primarily the
Valentine and Casa Grecque franchisees.
Description of recent acquisitions
On July 19, 2019, the Company’s Canadian operations completed its acquisition of the assets of Allô! Mon Coco for a
total consideration of $30.7 million. A total of approximately $24.1 million was paid on closing, financed from MTY’s cash
on hand and existing credit facility, while $0.2 million in net liability was assumed and $7.1 million was held back in the
form of contingent consideration and holdbacks. At closing, there was 40 franchised restaurants in operation.
On July 15, 2019, the Company’s Canadian operations completed its acquisition of the assets of Yuzu Sushi for a total
consideration of $27.6 million. A total of approximately $25.4 million was paid on closing, financed from MTY’s cash on
hand and existing credit facility and $2.2 million was held back in the form of contingent consideration. At closing, there
was 129 franchised restaurants in operation.
On May 23, 2019, the Company, through the merger of a wholly-owned US subsidiary with Papa Murphy’s Holdings Inc.
(“PM”), acquired all the outstanding shares of PM. The total consideration for the transaction was $255.2 million. At
closing, PM operated 1,301 franchised and 103 corporate-owned stores in the U.S., Canada and United Arab Emirates.
On March 21, 2019 the Company acquired the assets of South Street Burger for a total consideration of approximately
$4.9 million. A total of approximately $4.1 million was paid on closing, financed from MTY's cash on hand and existing
credit facilities, while $0.2 million in net liabilities was assumed and $0.7 million was held back. At closing, there were 24
franchised restaurants and 13 corporate restaurants in operation.
On December 10, 2018, the Company completed its acquisition of most of the assets of Casa Grecque for a total
consideration of $22.0 million, of which $20.9 million was financed from MTY’s cash on hand and existing credit facilities,
while $0.2 million in net liabilities was assumed and $1.3 million was held back.
On September 25, 2018, the Company announced that it had completed the acquisition of substantially all of the assets
of SweetFrog Premium Frozen Yogurt for $41.5 million (US$ 32.1 million). Of this total, $37.4 million (US$ 28.9 million)
was paid on closing. At closing, there were 323 franchised/licensed locations in the US and 8 located internationally.
On September 7, 2018, the Company acquired the remaining 10% non-controlling interest of 8825726 Canada Inc.
(Madison’s) for a cash consideration of $1.1 million.
On April 4, 2018, one of the Company’s wholly owned subsidiaries acquired the assets of Timothy’s World Coffee® and
Mmmuffins®. The total consideration amounted to $1.3 million, of which $1.2 million was paid on closing. At closing,
there were 39 locations in operation in Canada.
On March 15, 2018, one of the Company’s wholly owned subsidiaries acquired the assets of Grabbagreen®. The total
consideration amounted to $3.4 million (US$ 2.6 million), of which $3.1 million (US$2.4 million) was paid on closing. At
closing, there were 27 locations in operation in the United States.
On March 1, 2018, the Company, through the merger of a wholly owned subsidiary with Imvescor Restaurant Group Inc.
(“IRG”), acquired all the outstanding shares of IRG. The total consideration for the transaction was $250.8 million, of
which $53.1 million was settled in cash and the remaining in shares. At closing IRG operated 5 brands in Canada and
had 261 locations in operation.
On December 1, 2017, the Company announced that it had completed the acquisition of the limited liability company
interests in CB Franchise Systems LLC and Built Franchise Systems LLC. The purchase price was $30.0 million (US$
23.5 million) of which $28.3 million (US$ 22.2 million) was settled in cash. At closing 41 franchised and 3 corporately
owned restaurants were in operation. The network has locations in the United States of America, Canada, Ghana,
Ireland, Japan, Mexico, Saudi Arabia and the United Kingdom.
Page 6
Selected annual information
(in thousands $, except EPS, dividend per
common share and number of common
shares)
Year ended
November 30, 2019
Year ended
November 30, 2018
As adjusted (1)(2)
Year ended
November 30, 2017
As adjusted (1)(4)
Total assets
Total long-term financial liabilities
Operating revenue
EBITDA(3)
Income before income taxes
Income before taxes, excluding
impairment charges and reversals
Net income attributable to owners
Total comprehensive income
attributable to owners
EPS basic
EPS Diluted
Dividends paid on common stock
Dividends per common share
Weighted daily average number of
common shares
1,648,768
536,058
550,942
147,395
97,997
100,616
77,675
76,489
3.09
3.08
16,173
$0.66
1,239,520
268,200
412,346
124,851
80,008
85,539
95,776
109,327
3.95
3.95
14,530
$0.60
859,241
223,567
276,083
93,726
62,664
63,664
49,507
33,747
2.32
2.32
9,832
$0.46
25,145,210
24,228,206
21,374,497
Weighted average number of diluted
common shares
(1) Figures have been restated to reflect the adoption of IFRS 15. Refer to Changes in accounting policies for further details.
(2) Figures have been restated to reflect changes to the preliminary purchase price allocations of SweetFrog and Imvescor
Restaurant Group Inc. These purchase price allocations are now final. For more information, see note 7 to the November 30,
2019 consolidated financial statements.
25,186,483
24,272,650
21,374,497
(3) EBITDA (income before income taxes, interest, depreciation and amortization) is not an earnings measure recognized by
IFRS and therefore may not be comparable to similar measures presented by other companies. See reconciliation of EBITDA
to Income before taxes on page 14.
(4) Operating revenue, EBITDA, net income and comprehensive income attributable to owners and EPS amounts for the period
have not been restated to reflect the adoption of IFRS 15.
Page 7
Summary of quarterly financial information
(in thousands $,
except EPS)
February
2018(3)
May
2018(3)
August
2018(3)
November
2018(3)
February
2019
May
2019
August
2019
November
2019
Revenue
$75,489
$107,363
$113,006
$116,488
$107,297
$130,584
$163,057
$150,004
Quarters ended
EBITDA(1)
Normalized
EBITDA (2)
Net income
attributable to
owners
Total
comprehensive
income (loss)
attributable to
owners
Earnings per
share
Earnings per
diluted share
$19,368
$33,730
$38,759
$32,994
$28,376
$34,145
$41,847
$43,027
$20,283
$34,350
$38,876
$33,062
$28,376
$38,182
$42,077
$43,027
$44,276
$16,183
$22,077
$13,240
$14,748
$19,337
$22,902
$20,688
$42,630
$20,489
$25,407
$20,801
$10,657
$32,476
$10,469
$22,887
$2.07
$0.64
$0.88
$0.53
$0.59
$0.76
$0.91
$2.07
$0.64
$0.88
$0.53
$0.58
$0.76
$0.91
$0.83
$0.83
Free cash flows (1)
$13,524
$23,883
$27,733
$27,458
$24,914
$21,767
$26,680
$43,577
(1) EBITDA (income before income taxes, interest, depreciation and amortization) and free cash flow are non-GAAP financial
measures and do not have any standardized meaning under IFRS. Therefore, they may not be comparable to similar
measures presented by other companies. See reconciliation of EBITDA to Income before taxes on page 14. Free cash flow
is defined as operating cash flows less capital expenditure.
(2) Normalized EBITDA is EBITDA before transaction costs related to acquisitions.
(3) Figures have been restated to reflect the adoption of IFRS 15. Refer to Changes in accounting policies for further details.
Segment note disclosure
Management monitors and evaluates results of the Company based on geographical segments; these two segments
being Canada and US & International. The Company and its chief operating decision maker assess the performance of
each operating segment based on its segment profit and loss which is equal to revenue less operating expenses. Within
those geographical segments, the Company’s chief operating decision maker also assesses the performance of
subdivisions based on the type of product or service provided. These subdivisions include franchising, corporate store,
food processing, retail and distribution and promotional funds revenues and expenses.
Page 8
Results of operations for the fiscal year ended November 30, 2019
Revenue
During the 2019 fiscal year, the Company’s total revenue increased to $550.9 million, from $412.3 million a year earlier.
Revenues for the two segments of business are broken down as follows:
Segment
Canada
Subdivision
Franchise operation
Corporate stores
November 30, 2019
($ millions)
146.6
39.1
November 30, 2018 (1)
($ millions)
136.9
34.9
Variation
7%
12%
Total Canada
USA &
International
Food processing, distribution
and retail
Promotional funds
Intercompany transactions
Franchise operation
Corporate stores
Food processing, distribution
and retail
Promotional funds
Intercompany transactions
Total USA/International
91.5
42.5
(4.2)
315.5
138.8
51.2
4.2
43.0
(1.8)
235.4
46.7
35.4
(4.3)
249.6
106.0
24.9
3.5
28.6
(0.3)
162.7
96%
20%
N/A
26%
31%
106%
20%
50%
N/A
45%
Total operating revenues
34%
(1) Figures have been restated to reflect the adoption of IFRS 15. Refer to Changes in accounting policies for further details.
412.3
550.9
Canada revenue analysis:
Revenues from franchise locations in Canada increased by 7%. Several factors contributed to the variation, as listed
below:
Revenues, 2018 fiscal year
Increase in recurring revenue streams
Increase in initial franchise fees, renewal fees and transfer fees
Decrease in turnkey, sales of material to franchisees and rent revenues
Decrease due to gift card breakage income
Increase due to the acquisitions
Other non-material variations
Revenues, 2019 fiscal year
$ millions
136.9
2.5
0.9
(7.3)
(0.3)
14.4
(0.5)
146.6
Revenue from corporate-owned locations increased by 12% to $39.1 million during the period. The increase is mainly
attributable to the addition of 13 corporate owned restaurants through the acquisition of South Street Burger at the
beginning of the second quarter of this year.
Food processing, distribution and retail revenues have almost doubled during 2019. Of the total increase of $44.8 million,
$13.9 million stems from organic growth in the Company’s retail channel sales. Casa Grecque’s combined food
processing and distribution sales for the period represent $19.7 million of the increase and the remaining stems from
IRG’s first quarter of 2019 contribution.
Page 9
USA/International revenue analysis:
Revenues from franchise locations in the US increased by 31%. Several factors contributed to the variation, as listed
below:
Revenues, 2018 fiscal year
Decrease in recurring revenue streams
Increase in initial franchise fees, renewal fees and transfer fees
Decrease due to the sale of material and services to franchisees
Increase due to gift card breakage income
Increase due to acquisitions
Impact of variation in foreign exchange rates
Other non-material differences
Revenues, 2019 fiscal year
$ millions
106.0
(0.1)
0.6
(3.6)
0.3
31.7
2.9
1.0
138.8
Excluding the impact of Papa Murphy’s, corporate owned locations revenue decreased by $8.3 million during the year
as a result in a decrease in the number of corporate locations.
Cost of sales and other operating expenses
During the 2019 fiscal year operating expenses increased by 40% to $403.5 million, up from $287.5 million a year ago.
Operating expenses for the two business segments were incurred as follows:
Segment
Canada
Subdivision
Franchise operation
Corporate stores
Total Canada
USA &
International
Food processing, distribution
and retail
Promotional funds
Intercompany transactions
Franchise operation
Corporate stores
Promotional funds
Intercompany transactions
Total USA/International
Total cost of sales and other operating
expenses
November 30, 2019
($ millions)
68.4
40.7
81.2
42.5
(3.0)
229.8
76.6
57.1
43.0
(3.0)
173.7
403.5
November 30, 2018 (1)
($ millions)
61.6
35.3
Variation
11%
15%
40.0
35.4
(2.9)
169.4
62.1
29.1
28.6
(1.7)
118.1
287.5
103%
20%
N/A
36%
23%
96%
50%
N/A
47%
40%
(1) Figures have been restated to reflect the adoption of IFRS 15. Refer to Changes in accounting policies for further details.
Page 10
Canada cost of sales and other operating expenses analysis:
Cost of sales and other operating expenses from franchise locations in Canada increased by $6.8 million or 11%. Several
factors contributed to the variation, as listed below:
Cost of sales and other operating expenses, fiscal year 2018
Increase in recurring expenses
Decrease in cost of sale of material and services to franchisees
Increase due to professional and consulting fees
Increase due to acquisitions
Other non-material differences
Cost of sales and other operating expenses, fiscal year 2019
$ millions
61.6
5.4
(9.0)
3.6
5.8
1.0
68.4
Professional and consulting fees increased by $3.6 million mainly as a result of additional acquisition transaction costs which
represent $1.1 million as well as additional consulting fees with regards to the implementation of IFRS 9 – financial
instruments, IFRS 15 – revenue from contracts with customers and IFRS 16 – leases for a total of $0.7 million.
The variation of expenses from the corporate stores and food processing, distribution and retail as well as promotional funds
expenses activities were tightly correlated to the related revenues.
USA/International cost of sales and other operating expenses analysis:
Cost of sales and other operating expenses from franchise locations in the USA/International increased by $14.5 million
or 23%. Several factors contributed to the variation, as listed below:
Cost of sales and other operating expenses, fiscal year 2018
Decrease in recurring expenses
Decrease in cost of sale of material and services to franchisees
Increase due to professional and consulting fees
Increase due to acquisitions
Impact of variation in foreign exchange rates
Other non-material differences
Cost of sales and other operating expenses, fiscal year 2019
$ millions
62.1
(3.2)
(2.1)
2.5
16.0
2.1
(0.8)
76.6
The increase in professional fees results from the acquisition of Papa Murphy’s.
The variations from corporate stores costs and promotional funds fluctuated in correlation to the related revenues.
Earnings before interest, taxes, depreciation and amortization (EBITDA)
Revenues
Expenses
EBITDA(1)
EBITDA as a % of Revenue
Fiscal year ended November 30, 2019
Canada
USA & International
Total
(In millions $)
315.5
229.8
85.7
27%
235.4
173.7
61.7
26%
550.9
403.5
147.4
27%
Page 11
Revenues
Expenses
EBITDA(1)
EBITDA as a % of Revenue
Fiscal year ended November 30, 2018 (2)
(In millions $)
Canada
USA & International
Total
249.6
169.4
80.2
32%
162.7
118.1
44.6
27%
412.3
287.5
124.8
30%
(1) EBITDA (income before income taxes, interest, depreciation and amortization) is not an earnings measure recognized by IFRS
and therefore may not be comparable to similar measures presented by other companies. EBITDA is defined as operating revenues
less operating expenses. See reconciliation of EBITDA to Income before taxes on page 14.
(2) Figures have been restated to reflect the adoption of IFRS 15. Refer to Changes in accounting policies for further details.
Below is a summary of performance segmented by product/service:
Fiscal year ended November 30, 2019
(In millions $)
Franchise
Corporate
Revenues
Expenses
EBITDA(1)
EBITDA as a % of
Revenue
285.4
145.0
140.4
49%
90.3
97.8
(7.5)
N/A
Food
processing,
distribution and
retail
95.7
81.2
14.5
15%
Promotional
funds
Intercompany
transactions
Total
85.5
85.5
—
N/A
(6.0)
(6.0)
—
N/A
550.9
403.5
147.4
27%
Fiscal year ended November 30, 2018 (2)
(In millions $)
Franchise
Corporate
Revenues
Expenses
EBITDA(1)
EBITDA as a % of
242.9
123.7
119.2
59.8
64.4
(4.6)
Food
processing,
distribution and
retail
50.2
40.0
10.2
Promotional
funds
Intercompany
transactions
Total
64.0
64.0
—
(4.6)
(4.6)
—
412.3
287.5
124.8
Revenue
(1) EBITDA (income before income taxes, interest, depreciation and amortization) is not an earnings measure recognized by
IFRS and therefore may not be comparable to similar measures presented by other companies. EBITDA is defined as
operating revenues less operating expenses. See reconciliation of EBITDA to Income before taxes on page 14.
20%
49%
30%
N/A
N/A
N/A
(2) Figures have been restated to reflect the adoption of IFRS 15. Refer to Changes in accounting policies for further details.
Page 12
Several factors contributed to the variation, as listed below:
(In millions $)
EBITDA, fiscal year of 2018
Variance in recurring revenues and expenses
Decrease due to change in corporate store EBITDA
Increase in initial franchise fees, renewal fees and transfer fees
Variance due to the sale of material and services to franchisees
Variance due to professional and consulting fees
Variance due to gift card breakage income
Increase due to acquisitions
Decrease due to acquisition consulting fees
Impact of variation in foreign exchange rates
Other non-material differences
EBITDA, fiscal year of 2019
Canada
80.2
(2.9)
(0.1)
0.9
2.6
(2.6)
(0.3)
10.2
(1.1)
—
(1.2)
85.7
USA &
International
44.6
3.1
(0.5)
0.6
(0.9)
0.9
0.3
16.2
(3.4)
1.1
(0.3)
61.7
Total
124.8
0.2
(0.6)
1.5
1.7
(1.7)
—
26.4
(4.5)
1.1
(1.5)
147.4
Total EBITDA for the year ended November 30, 2019 was $147.4 million, an increase of 18% compared to the same
period last year. Canada contributed to 58% of total EBITDA and 24% of the total increase in EBITDA, mainly owing to
the acquisitions realized in 2018 and 2019 of which IRG was the largest contributor. During the first quarter of 2019, it
contributed to the growth in EBITDA by $4.9 million which is not comparable to 2018 since IRG was only acquired in the
second quarter of 2018.
The USA & International EBITDA grew by 38% mainly as a result of the 2018 and 2019 acquisitions as well as the sale
and closure of some unprofitable corporate stores. Papa Murphy’s contributed to 52% of the total EBITDA growth.
Foreign exchange fluctuations also had a $1.1 million favourable impact on EBITDA year-to-date.
The Company had relatively unchanged year-over-year adjusted organic EBITDA(1) growth. Several factors contributed
to the variation, as listed below:
Canada
Total
(In millions $)
Adjusted organic EBITDA(1), fiscal year 2018
Variance in recurring revenues and expenses
Decrease due to change in corporate store EBITDA
Increase in initial franchise fees, renewal fees and transfer fees
Variance due to the sale of material and services to franchisees
Variance due to professional and consulting fees
Variance due to gift card breakage income
Other non-material differences
124.8
0.2
(0.6)
1.5
1.7
(1.7)
—
(1.5)
Adjusted organic EBITDA(1), fiscal year 2019
124.4
(1) Adjusted organic EBITDA (income before income taxes, interest, depreciation and amortization) is not an earnings measure
recognized by IFRS and therefore may not be comparable to similar measures presented by other companies. Adjusted organic
EBITDA is defined as EBITDA before non-recurring costs, foreign exchange and acquisitions that have occurred within the last
24 months and is not comparable year-over-year.
80.2
(2.9)
(0.1)
0.9
2.6
(2.6)
(0.3)
(1.2)
76.6
USA &
International
44.6
3.1
(0.5)
0.6
(0.9)
0.9
0.3
(0.3)
47.8
Net income
For the year ended November 30, 2019, net income attributable to owners decreased to $77.7 million or $3.09 per share
($3.08 per diluted share) compared to $95.8 million or $3.95 per share ($3.95 per diluted share) last year.
Excluding the impact of a non-recurring acquisition costs in 2019 and 2018 as well as a favorable 2018 deferred income
tax recovery adjustment related to prospective income tax rates for the United States, net income attributable to owners
would have been $82.1 million in 2019 or $3.27 per share ($3.26 per diluted share) versus $61.5 million in 2018, or $2.54
per share ($2.54 per diluted share).
Page 13
Calculation of Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA)
Income before taxes
Depreciation – property, plant and equipment
Amortization – intangible assets
Interest on long-term debt
Impairment on property, plant and equipment and
intangible assets
Unrealized and realized foreign exchange gain
Interest income
Gain on disposal of property, plant and equipment
and intangible assets
Gain (loss) on revaluation of financial liabilities
recorded at fair value through profit and loss
Loss on settlement of promissory notes
EBITDA
Year ended
November 30, 2019
Year ended
November 30, 2018 (1)
98.0
4.0
29.2
17.6
2.6
(0.4)
(0.9)
(2.3)
(0.9)
0.5
147.4
80.0
2.8
24.7
11.7
5.5
—
(0.7)
(0.7)
1.5
—
124.8
(1) Figures have been restated to reflect the adoption of IFRS 15. Refer to Changes in accounting policies for further details.
Other income and charges
Amortization of intangible assets increased as a result of the 2019 acquisitions and the intangibles added as part of the
purchase price.
During the year, as the result of a decline in their financial performance, the Company carried out a review of the
recoverable amounts of the capital assets related to certain corporate stores and of intangible assets related to multiple
concepts. The review led to the recognition of a non-cash impairment loss of $2.6 million. This was composed of $1.0
million, $1.4 million and $0.2 million impairments in leasehold improvements and equipment, franchise rights and
trademarks respectively.
Results of operations for the three-month period ended November 30, 2019
Revenue
During the fourth quarter of the 2019 fiscal year, the Company’s total revenue increased by 29% to reach $150.0 million.
Revenues for the two segments of business are broken down as follows:
Segment
Canada
Subdivision
Franchise operation
Corporate stores
November 30, 2019
($ millions)
42.2
9.7
November 30, 2018 (1)
($ millions)
46.9
9.6
Total Canada
USA &
International
Food processing, distribution
and retail
Promotional funds
Intercompany transactions
Franchise operation
Corporate stores
Food processing, distribution
and retail
Promotional funds
Intercompany transactions
Total USA/International
19.1
10.9
(2.3)
79.6
39.4
19.3
1.1
12.2
(1.6)
70.4
14.9
9.8
(2.4)
78.8
26.0
4.2
1.0
6.5
(0.1)
37.6
Variation
(10%)
1%
28%
11%
N/A
1%
52%
360%
10%
88%
N/A
87%
Total operating revenues
29%
(1) Figures have been restated to reflect the adoption of IFRS 15. Refer to Changes in accounting policies for further details.
116.4
150.0
Page 14
Canada revenue analysis:
Revenue from franchise locations in Canada decreased by 10%. Several factors contributed to the variation, as listed
below:
Revenues, fourth quarter of 2018
Increase in recurring revenue streams
Increase in initial franchise fees, renewal fees and transfer fees
Decrease in turnkey, sales of material to franchisees and rent revenues
Increase due to the acquisitions
Other non-material differences
Revenues, fourth quarter of 2019
$ millions
46.9
1.1
0.1
(10.2)
3.8
0.5
42.2
Revenue from corporate-owned locations increased by 1%, to $9.7 million during the three-month period. The increase
is mainly due to sales from the 13 corporate owned locations acquired from the acquisition of South Street Burger. This
was partially offset by the sale and closure of some corporate-owned locations.
For the quarter, food processing, distribution and retail revenues increased by $4.2 million or 28% compared to prior year
mainly as a result of the acquisition of Casa Grecque.
USA/International revenue analysis:
Revenues from franchise locations in the US increased by 52%. Several factors contributed to the variation, as listed
below:
Revenues, fourth quarter of 2018
Increase in recurring revenue streams
Decrease in initial franchise fees, renewal fees and transfer fees
Decrease in sales of material and services to franchisees
Increase due to gift card breakage income
Increase due to acquisitions
Impact of variation in foreign exchange rates
Other non-material differences
Revenues, fourth quarter of 2019
$ millions
26.0
0.7
(0.1)
(1.6)
0.7
11.1
0.8
1.8
39.4
Excluding the impact of Papa Murphy’s corporate-owned locations, revenue from corporate-owned locations decreased
by $3.4 million during the quarter. This was due to a sharp decrease in the number of corporate owned locations when
compared to the same quarter last year.
Page 15
Cost of sales and other operating expenses
During the fourth quarter of 2019, operating expenses increased by 28%. Operating expenses for the two business
segments were incurred as follows:
Segment
Canada
Subdivision
Franchise operation
Corporate stores
Total Canada
USA &
International
Food processing, distribution
and retail
Promotional funds
Intercompany transactions
Franchise operation
Corporate stores
Promotional funds
Intercompany transactions
Total USA/International
Total cost of sales and other operating
November 30, 2019
($ millions)
18.9
10.0
16.3
10.9
(0.9)
55.2
17.9
24.7
12.2
(3.0)
51.8
November 30, 2018 (1)
($ millions)
23.9
9.8
Variation
(21%)
2%
13.1
9.8
(0.8)
55.8
17.6
5.2
6.5
(1.7)
27.6
24%
11%
N/A
(1%)
2%
375%
88%
N/A
88%
expenses
(1) Figures have been restated to reflect the adoption of IFRS 15. Refer to Changes in accounting policies for further details.
107.0
28%
83.4
Canada cost of sales and other operating expenses analysis:
Cost of sales and other operating expenses from franchise locations in Canada decreased by $5.0 million or 21%.
Several factors contributed to the variation, as listed below:
Cost of sales and other operating expenses, fourth quarter of 2018
Increase in recurring expenses
Decrease in cost of sale of material and services to franchisees
Increase due to professional and consulting fees
Increase due to acquisitions
Other non-material differences
Cost of sales and other operating expenses, fourth quarter of 2019
$ millions
23.9
2.5
(11.2)
1.8
1.8
0.1
18.9
Professional and consulting fees increased by $1.8 million mainly as a result of additional consulting fees with regards to the
implementation of IFRS 16.
The variation of expenses from the corporate stores and food processing, distribution and retail as well as promotional funds
expenses activities were tightly correlated to the related revenues.
Page 16
USA/International cost of sales and other operating expenses analysis:
Cost of sales and other operating expenses from franchise locations in the USA/International increased by $0.3 million
or 2%. Several factors contributed to the variation, as listed below:
Cost of sales and other operating expenses, fourth quarter of 2018
Decrease in recurring expenses
Decrease in cost of sale of material and services to franchisees
Decrease due to professional and consulting fees
Increase due to acquisitions
Impact of variation in foreign exchange rates
Other non-material differences
Cost of sales and other operating expenses, fourth quarter of 2019
Earnings before interest, taxes, depreciation and amortization (EBITDA)
Revenues
Expenses
EBITDA(1)
EBITDA as a % of Revenue
Revenues
Expenses
EBITDA(1)
EBITDA as a % of Revenue
Three months ended November 30, 2019
(In millions $)
Canada
USA & International
79.6
55.2
24.4
31%
70.4
51.8
18.6
26%
Three months ended November 30, 2018
(In millions $)
Canada
USA & International
78.8
55.8
23.0
29%
37.6
27.6
10.0
27%
$ millions
17.6
(1.1)
(1.8)
(0.9)
5.5
(0.1)
(1.3)
17.9
Total
150.0
107.0
43.0
29%
Total
116.4
83.4
33.0
28%
(1) EBITDA (income before income taxes, interest, depreciation and amortization) is not an earnings measure recognized by IFRS
and therefore may not be comparable to similar measures presented by other companies. EBITDA is defined as operating revenues
less operating expenses. See reconciliation of EBITDA to Income before taxes on page 19.
Below is a summary of performance segmented by product/service:
Three months ended November 30, 2019
Franchise
Corporate
(In millions $)
Revenues
Expenses
EBITDA1
EBITDA as a % of
Revenue
81.6
36.8
44.8
29.0
34.7
(5.7)
55%
N/A
Processing,
distribution
and retail
20.2
16.3
3.9
19%
Promotional
funds
Intercompany
transactions
Total
23.1
23.1
—
N/A
(3.9)
(3.9)
—
150.0
107.0
43.0
N/A
29%
Page 17
Three months ended November 30, 2018
Franchise Corporate
72.9
41.5
31.4
13.8
15.0
(1.2)
Processing,
distribution
and retail
15.9
13.1
2.8
Promotional
funds
Intercompany
transactions
Total
16.3
16.3
—
(2.5)
(2.5)
—
116.4
83.4
33.0
(In millions $)
Revenues
Expenses
EBITDA1
EBITDA as a % of
Revenue
(1) EBITDA (income before income taxes, interest, depreciation and amortization) is not an earnings measure recognized by
IFRS and therefore may not be comparable to similar measures presented by other companies. EBITDA is defined as
operating revenues less operating expenses. See reconciliation of EBITDA to Income before taxes on page 19.
18%
43%
28%
N/A
N/A
N/A
Several factors contributed to the variation, as listed below:
(In millions $)
EBITDA, fourth quarter of 2018
Variance in recurring revenues and expenses
Variance due to change in corporate store EBITDA
Variance in initial franchise fees, renewal fees and transfer fees
Increase due to the sale of material and services to franchisees
Variance due to professional and consulting fees
Increase due to gift card breakage income
Increase due to acquisitions
Impact of variation in foreign exchange rates
Other non-material differences
EBITDA, fourth quarter of 2019
Canada
23.0
(1.4)
0.1
0.1
1.9
(1.9)
—
2.1
—
0.5
24.4
USA &
International
10.0
1.8
(2.8)
(0.1)
0.2
1.0
0.7
6.3
0.7
0.8
18.6
Total
33.0
0.4
(2.7)
—
2.1
(0.9)
0.7
8.4
0.7
1.3
43.0
Total EBITDA for the three-month period ended November 30, 2019 was $43.0 million, an increase of $10.0 million
compared to the same period last year. USA operations contributed to 86% of the increase mainly owing to the acquisition
of Papa Murphy’s.
In Canada, EBITDA for the fourth quarter of 2019 increased by $1.4 million compared to the same period last year mostly
due to the acquisitions during 2019. The main contributors to the increase were from the acquisitions of Casa Grecque,
Allô! Mon Coco and Yuzu sushi.
The Company had a quarter to date adjusted organic EBITDA(1) increase of $0.9 million. Several factors contributed to
the variation, as listed below:
Total
Canada
(In millions $)
Adjusted organic EBITDA(1), fourth quarter of 2018
Variance in recurring revenues and expenses
Variance due to change in corporate store EBITDA
Variance in initial franchise fees, renewal fees and transfer fees
Increase due to the sale of material and services to franchisees
Increase due to gift card breakage income
Variance due to professional and consulting fees
Other non-material differences
33.0
0.4
(2.7)
—
2.1
0.7
(0.9)
1.3
Adjusted organic EBITDA(1), fourth quarter of 2019
33.9
(1) Adjusted organic EBITDA (income before income taxes, interest, depreciation and amortization) is not an earnings measure
recognized by IFRS and therefore may not be comparable to similar measures presented by other companies. Adjusted organic
EBITDA is defined as EBITDA before non-recurring costs, foreign exchange and acquisitions that have occurred within the last
24 months and is not comparable year-over-year.
23.0
(1.4)
0.1
0.1
1.9
—
(1.9)
0.5
22.3
USA &
International
10.0
1.8
(2.8)
(0.1)
0.2
0.7
1.0
0.8
11.6
Page 18
Net income
For the three-month period ended November 30, 2019, net income attributable to owners increased by $7.4 million, to
$20.7 million or $0.83 per share ($0.83 per diluted share) compared to $ 13.2 million or $0.53 per share ($0.53 per diluted
share) for the same period last year.
Calculation of Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA)
(In millions $)
3 months ended
November 30, 2019
3 months ended
November 30, 2018
Income before taxes
Depreciation – property, plant and equipment
Amortization – intangible assets
Interest on long-term debt
Impairment charge on property, plant and equipment and
intangible assets
Interest income
Gain on disposal of property, plant and equipment and
intangible assets
Loss on revaluation of financial liabilities recorded at fair value
through profit and loss
Loss on settlement of promissory notes
EBITDA
Other income and charges
25.5
1.5
7.9
5.7
1.6
(0.4)
(0.6)
1.4
0.5
43.1
18.8
0.7
6.6
2.9
4.0
(0.2)
(0.2)
0.3
—
32.9
Interest on long-term debt increased to $5.7 million from $2.9 million during the three-month period as a result of the
interest on the credit facilities, from which the company has drawn additional funds since the second quarter of 2019.
Depreciation and amortization both increased significantly due to recent acquisitions.
During the fourth quarter, as the result of a decline in their financial performance, the Company carried out a review of
the recoverable amounts of intangibles related to multiple concepts. The review led to the recognition of a non-cash
impairment loss of $1.6 million composed of franchise rights and trademarks.
Contractual obligations and long-term debt
The obligations pertaining to the long-term debt and the minimum rentals for the leases that are not subleased are as
follows:
For the period ending
(in millions $)
Long-term debt(1)
12 months ending November 2020
12 months ending November 2021
12 months ending November 2022
12 months ending November 2023
12 months ending November 2024
Balance of commitments due after 2024
5.1
11.2
526.3
—
—
—
542.6
Net lease
commitments
14.3
12.8
11.4
9.8
6.9
20.2
75.4
Total contractual
obligations
19.4
24.0
537.7
9.8
6.9
20.2
618.0
(1) Amounts shown represent the total amount payable at maturity and are therefore undiscounted. For total commitments, please
refer to the November 30, 2019 consolidated financial statements.
Long-term debt includes interest-bearing loans related to acquisitions, promissory notes, contingent consideration on
acquisitions, minority put options, non-interest-bearing holdbacks on acquisitions and non-interest-bearing contract
cancellation fees.
Page 19
Liquidity and capital resources
As of November 30, 2019, the amount held in cash totaled $50.7 million, an increase of $18.4 million since the end of
the 2018 fiscal period. The primary reason for the increase is due to cash held at year end to fund a portion of the
acquisition of Turtle Jack’s Muskoka Grill, COOP Wicked Chicken and Frat’s Cucina which took place shortly after the
period end.
During the 2019 fiscal year, the Company paid $16.7 million in dividends to its shareholders. The company also
repurchased and cancelled 98,543 shares for a total consideration of $5.2 million. This had no significant impact on the
cash position of the Company as a result of strong cash flows generated by operations.
During the year, cash flows generated by operating activities were $113.0 million, compared to $97.9 million in 2018.
Excluding the variation in non-cash working capital items, income taxes and interest paid, operations generated $149.2
million in cash flows, compared to $126.1 million in 2018, which represents an increase of 18% year over year. The
increase is mostly due to the increase in EBITDA detailed above.
The revolving credit facility has an authorized amount of $700.0 million (November 30, 2018 – $500.0 million), of which
$518.9 million was drawn at November 30, 2019 (November 30, 2018 – $256.1 million).
The facility has the following financial covenants:
•
•
The Debt to EBITDA ratio must be less than 4.00:1.00 after the consummation of an acquisition in excess of
$150.0 million for a period of twelve months after acquisition; 3.50:1.00 at any time thereafter.
The interest and rent coverage ratio must be at 2.00:1.00 at all times.
The credit agreement also contains various limitations on distributions and on the usage of the proceeds from the disposal
of assets which are not expected to impact the Company during the term of the credit agreement.
The revolving facility is repayable without penalty with the balance due on the date of maturity September 23, 2022.
At November 30, 2019, the Company was in compliance with the covenants of the credit agreement.
Financial position
Accounts receivable at the end of the year were $65.1 million, compared to $50.0 million at the end of the 2018 fiscal
period. The increase is primarily from all the newly acquired brands in 2019.
Assets held for sale, composed of corporate store which are in the process of being refranchised, were $11.1 million at
the end of the 2019 fiscal period (November 30, 2018 – nil). The increase is due to the acquisition of Papa Murphy’s.
Intangible assets and goodwill grew by $199.9 million and $152.4 million respectively. The increase stems from
acquisitions of Allô! Mon Coco, Yuzu Sushi, Papa Murphy’s, South Street Burger and Casa Grecque during the year.
This was offset by the amortization expense recorded during the year.
Accounts payable and accrued liabilities increased to $100.8 million as at November 30, 2019, from $67.8 million as at
November 30, 2018. The full amount of the $33.0 million increase is due to the acquisitions of Allô! Mon Coco, Yuzu
Sushi, Papa Murphy’s, South Street Burger and Casa Grecque during the year and as well timing of cash payments to
suppliers.
Provisions, which are composed of primarily litigation and dispute, closed store and gift card provisions, increased to
$106.0 million as at November 30, 2019 from $90.0 million as at November 30, 2018. The increase is mainly due to pre
acquisition litigation provisions and gift card liability acquired through the acquisition of Papa Murphy’s in 2019.
Long-term debt increased by $265.0 million. The increase is attributable to the additional funds required for the
acquisition of Allô! Mon Coco, Yuzu Sushi, Papa Murphy’s, South Street Burger and Casa Grecque as well as its
associated holdbacks and contingent considerations. This was partially offset by repayments of $73.9 million made
throughout the year.
Deferred income tax balances increased primarily due to the acquisition of Papa Murphy’s.
Further details on the above statement of financial position items can be found in the notes to the November 30, 2019
consolidated financial statements.
Page 20
Capital stock
During the 2019 fiscal year the Company repurchased and cancelled 98,543 shares. As at February 23, 2020, the
Company had 24,947,020 shares outstanding.
Location information
MTY’s locations can be found in: i) found courts and shopping malls; ii) street front; and iii) non-traditional format within
petroleum retailers, convenience stores, grocery stores, cinemas, amusement parks, in other venues or retailers shared
sites, hospitals, universities and airports. The non-traditional locations are typically smaller in size, require lower
investment and generate lower revenue than the shopping malls, food courts and street front locations.
Number of locations:
Franchises, beginning of the period
Corporate owned, beginning of period
Canada
United States
Total, beginning of the period
Opened during the period
Closed during the period
Acquired during the period
Total, end of the period
Franchises, end of the period
Corporate owned, end of period
Canada
United States
Total, end of the period
Three months ended
November 30
Twelve months ended
November 30
2019
7,278
50
113
7,441
84
(152)
—
7,373
2018
5,615
47
28
5,690
68
(105)
331
5,984
2019
5,919
42
23
5,984
303
(558)
1,644
7,373
7,229
50
94
7,373
2018
5,402
29
38
5,469
269
(456)
702
5,984
5,919
42
23
5,984
The Company’s network opened 303 locations (132 in Canada, 110 in the United States and 61 International) for the
twelve-month period of 2019. For the fourth quarter only, there were 84 locations opened (49 in Canada, 21 in the United
States and 14 International).
During 2019, the Company’s network closed 558 locations (176 in Canada, 299 in the United States and 83 International);
of those, 152 were closed during the fourth quarter of the year (49 in Canada, 82 in the United States and 21
International). Of the locations closed in 2019, 49% were located on street front, 26% in malls and office towers and 25%
in other non-traditional formats.
The chart below provides the breakdown of MTY’s locations and system sales by type:
Location Type
Shopping mall & office tower food courts
Street front
Non-traditional format
% of location count
November 30
2019
16%
63%
21%
2018
21%
56%
23%
% of system sales
12 months ended
November 30
2019
17%
72%
11%
2018
22%
63%
15%
Page 21
The geographical breakdown of MTY’s locations and system sales is as follows:
Geographical Location
% of location count
November 30
Canada
United States
International
2019
38%
55%
7%
2018
44%
47%
9%
% of system sales
12 months ended
November 30
2019
46%
49%
5%
2018
51%
43%
6%
In the United States, only the state of California exceeds 10% of the total system sales for the year. Washington and
Oregon are the second and third largest contributor to the network’s sales with 7% and 6% respectively. The West Coast
of the United States contributes 26% of the Company’s system sales (52% of the sales realized in the United States),
while the states bordering the Atlantic represents 12% of the company’s system sales (24% of the sales realized in the
United States)
The breakdown by the types of concepts for the system sales is as follows:
Location Type
Quick Service Restaurant (QSR)
Fast Casual
Casual Dining
% of location count
Twelve months ended
November 30
% system sales
Twelve months ended
November 30
2019
84%
10%
6%
2018
84%
9%
7%
2019
67%
12%
21%
2018
65%
14%
21%
Although the second half of 2018 and the first half of 2019 had a strong influx of casual dining sales due to acquisitions
in the casual dining segment, the second half of 2019 saw increasing sales in the QSR division with the acquisition of
Papa Murphy’s. Papa Murphy’s sales represent 14% of total system sales for the year and 25% for the fourth quarter.
System wide sales
During the 2019 fiscal year, MTY’s network generated $3,619.8 million in sales, an increase of 30.1% versus the 2018
fiscal year.
The increase is distributed as follows:
(millions of $)
Sales
Three months
Twelve months
Ended November 30
Reported sales – comparative period of 2018 fiscal year
Net increase in sales generated by concepts acquired during the last 24 months
Net change resulting from stores opened or closed in the last 24 months
Change in same store sales growth
Cumulative impact of foreign exchange variation
Other non-material variations
Reported sales – 2019 fiscal year
706.4
302.9
(3.9)
11.0
3.6
3.5
1,023.5
2,782.5
795.0
(8.8)
10.6
39.1
1.4
3,619.8
The acquisitions realized during 2018 and 2019 were the main drivers of the growth in system sales of 30.1%. The
weakening Canadian dollar also resulted in a favorable variation of $39.1 million in reported sales, while the net impact
of stores opened and closed in the past 24 months was a $8.8 million decrease in system sales.
Net organic change in system sales, described as the movement in system sales excluding recent acquisitions and
foreign exchange variations, for the three and twelve-month period ended November 30, 2019 increased by $10.6 million
and $3.2 million respectively. Most of the variance in organic system sales for the three and twelve-month period was
caused by favorable same store sales results of $11.0 million and $10.6 million respectively. This was partially offset by
the unfavorable impact of store closures.
Cold Stone Creamery and Papa Murphy’s are the only concepts that currently represents more than 10% of system
sales, generating approximately 17% and 14% respectively of the total sales of MTY’s network during the year. For the
quarter, however, Papa Murphy’s exceeded Cold Stone Creamery with system sales of 25% vs 13%. For the year, Thai
Page 22
Express, Taco Time and Baja Fresh Mexican Grill are the third, fourth and fifth largest concepts in terms of systems
sales, generating less than 10% each of the network’s sales.
System wide sales include sales for corporate and franchise locations and excludes sales realized by the distribution
centers, by the food processing plants and by the retail division. System sales are converted from the currency in which
they are generated into Canadian dollar for the presentation purposes; they are therefore subject to variations in foreign
exchange rates.
Same Store Sales
During the fiscal year ended November 30, 2019 same store sales grew by 0.4% over last year. Same store sales growth
was broken down as follows in MTY’s main regions:
Region
Canada
United States
International
Total
Quarter ended
November 30, 2019
+1.5%
+2.7%
-7.6%
+1.5%
Twelve months ended
November 30, 2019
+1.1%
+0.4%
-7.8%
+0.4%
During the fourth quarter of 2019, same store sales for Canadian locations increased by 1.5% and has now been positive
for the last nine quarters. Quebec, the Western provinces and the Maritimes continued their upward trend with positive
same store sales growths of 2.5%, 1.5% and 4.1% respectively for the quarter compared to prior year. Ontario had a
slight decline of 1.0% during the quarter mostly due to weakness in mall sales. This was partially offset by an increase in
street sales.
The United States had fourth quarter positive same store sales of 2.7%. The West Coast, which represents 52% of total
US system sales, had growth of 1.7% for the quarter. The East Coast continued to see growth with a 3.7% increase.
International same store sales decreased by 7.6% during the quarter mostly as a result of decreases in the middle east
and Asia.
During the quarter, the newly acquired Papa Murphy’s brand posted a negative 3.3% same store sales for franchised
locations and negative 4.6% for corporate stores. Those figures are excluded from the information presented above as
MTY has not owned this network for more than 12 months yet.
Management continues to expect competition in both the Canadian and US markets to intensify further from a price,
product, experience and delivery to end customer points of view. Restaurants are facing more and more competition for
food dollars coming from various sources including retail stores « grab and go » and « meal kit deliveries » types of
offering. MTY has increased its presence on food delivery platforms and has invested in its own delivery/pick up
application to align with consumer preferences.
Although consumer confidence and the current economic environment currently seems favorable, volatility in the price
of commodities and currencies has a very material impact on employment rates and disposable income for MTY’s
customers, resulting in uncertainty with respect to the future.
Stock options
During the period, 200,000 options were granted. As at November 30, 2019 there were 400,000 options outstanding and
22,222 that are exercisable.
Subsequent Events
Acquisition of Turtle Jack’s Muskoka Grill, COOP Wicked Chicken and Frat’s Cucina
On December 3, 2019, one of the Company’s wholly owned subsidiaries completed its acquisition of a 70% interest in
Turtle's Jack's Muskoka Grill, COOP Wicked Chicken and Frat’s Cucina (together “Tortoise Group”), three casual dining
concepts operating in the province of Ontario, for a consideration of $19.1 million. There are currently 19 franchised
Turtle Jack's restaurants in operation. The two COOP Wicked Chicken and the Frat's Cucina restaurants are company-
owned, both concepts being in their start-up period.
Page 23
Dividends
On January 13, 2020, the Company approved a quarterly dividend of $0.185 per common share to be paid out February
14, 2020.
Seasonality
Results of operations for any interim period are not necessarily indicative of the results of operations for the full year. The
Company expects that seasonality will continue to be a factor in the quarterly variation of its results. For example, the
Frozen treat category, which is a significant category in the US market, varies significantly during the winter season as a
result of weather conditions. This risk is offset by other brands which have better performance during winter seasons
such as the newly acquired Papa Murphy’s which does better during winter months. Although the Company is trying to
offset this risk, it still expects seasonality and weather conditions to be a factor in the quarterly variation of its results.
Sales have been historically above average during May to August due to its frozen treat category and its increasing
percentage in street front locations. The Company expects that this seasonality will be somewhat offset by the sale of
the take-and-bake pizza’s at Papa Murphy’s which usually sells better when the temperature is cooler. Sales for shopping
mall locations are also higher than average in December during the holiday shopping period.
Contingent Liabilities
The Company is involved in legal claims associated with its current business activities. The Company’s estimate of the
outcome of these claims is disclosed in note 17 of the consolidated financial statements as at November 30, 2019. The
timing of the outflows, if any, is out of the control of the Company and is as a result undetermined at the moment.
Guarantee
The Company has provided a guarantee on certain leases for which it is not the lessee, for a cumulative amount of $15.1
million (2018 – $9.3 million).
Risks and uncertainties
Despite the fact that the Company has various numbers of concepts, diversified in type of locations and geographies
across Canada and the United States, the performance of the Company is also influenced by changes in demographic
trends, traffic patterns, occupancy level of malls and office towers and the type, number, and location of competing
restaurants. In addition, factors such as innovation, increased food costs, labour and benefits costs, occupancy costs
and the availability of experienced management and hourly employees may adversely affect the Company. Changing
consumer preferences and discretionary spending patterns could oblige the Company to modify or discontinue concepts
and/or menus and could result in a reduction of revenue and operating income. Even if the Company was able to compete
successfully with other restaurant companies with similar concepts, it may be forced to make changes in one or more of
its concepts in order to respond to changes in consumer tastes or dining patterns. If the Company changes a concept, it
may lose additional customers who do not prefer the new concept and menu, and it may not be able to attract a sufficient
new customer base to produce the revenue needed to make the concept profitable. Similarly, the Company may have
different or additional competitors for its intended customers as a result of such a concept change and may not be able
to successfully compete against such competitors. The Company's success also depends on numerous factors affecting
discretionary consumer spending, including economic conditions, disposable consumer income and consumer
confidence. Adverse changes in these factors could reduce customer traffic or impose practical limits on pricing, either
of which could reduce revenue and operating income.
The growth of MTY is dependent on maintaining the current franchise system which is subject to many factors including
but not limited to the renewal of existing leases at sustainable rates, MTY’s ability to continue to expand by obtaining
acceptable store sites and lease terms, obtaining qualified franchisees, increasing comparable store sales and
completing acquisitions. The time, energy and resources involved in the integration of the acquired businesses into the
MTY system and culture could also have an impact on MTY’s results.
Off-balance sheet arrangement
MTY has no off-balance sheet arrangements.
Page 24
Related party transactions
Balances and transactions between the Company and its subsidiaries, which are related parties of the Company, have
been eliminated on consolidation. Details of transactions between the Company and other related parties are disclosed
below.
Compensation of key management personnel
The remuneration of key management personnel and directors during the periods was as follows:
Short-term benefits
Share based payment
Board member fees
Total remuneration of key management personnel
(In thousands $)
Year ended November 30
2018
2019
$
2,497
657
75
3,229
$
2,051
659
64
2,774
Key management personnel is composed of the Company’s CEO, COO’s, CFO. The remuneration of directors and key
executives is determined by the Board of Directors having regard to the performance of individuals and market trends.
Given its widely held share base, the Company does not have an ultimate controlling party; its most important shareholder
is its Chair of the Board of Directors, who controls 19.5% of the outstanding shares.
The Company also pays employment benefits to individuals related to members of the key management personnel
described above. Their total remuneration was as follows:
Year ended November 30
(In thousands $)
2019
$
494
22
38
554
2018
$
452
20
13
485
Short-term benefits
Share based payment
Consulting services
Total remuneration of individuals related to key
management personnel
Changes in accounting policies
Policies applicable beginning December 1, 2018
IFRS 9 – Financial Instruments
Beginning on December 1, 2018, the Company adopted IFRS 9, issued in July 2014 and the related consequential
amendments to IFRS 7. IFRS 9 introduces new requirements for the classification of financial assets based on the
business model used by an entity to manage financial assets and the characteristics of the contractual cash flows of
those financial assets. IFRS 9 provides three classification categories for financial assets: measured at amortized cost,
FVOCI and FVTPL, replacing previous IAS 39 categories of held to maturity, loans and receivables and available for
sale.
IFRS 9 also introduces a new ECL for calculating impairment on financial assets replacing the incurred loss model in IAS
39. The ECL model applies to financial assets measured at amortized cost. Under IFRS 9, ECLs are recognized on initial
recognition of financial assets which is earlier than under IAS 39. The adoption of IFRS 9 has not resulted in a material
change to the Company's allowance for trade receivables and loans receivable.
Page 25
The Company also adopted amendments to IFRS 9, issued in October 2017, effective in 2018. The component of the
amendments relevant to the Company relates to clarifying the accounting for the modification of financial liabilities and
requires the Company to recognize any adjustments to the amortized cost of the financial liability arising from a
modification or exchange in profit or loss at the date of the modification or exchange, regardless of whether the changes
are substantial and result in derecognition. The Company previously modified the terms for the revolving credit facility
debts, which did not result in the derecognition of those debts. However, there was no material impact on the carrying
amount of the debt as a result of applying the amendments to IFRS 9.
IFRS 9 Transitional Adjustments
As a result of the Company electing not to restate comparative figures, the information presented in the financial
statements for the prior year does not reflect the requirements of IFRS 9
The following table summarizes the change in classification
Original classification
under IAS 39
New classification under
IFRS 9
Financial assets:
Cash
Accounts receivable
Loans receivable
Financial liabilities:
Loans and receivable
Loans and receivable
Loans and receivable
Accounts payable and accrued liabilities
Revolving credit facilitiy
Non-interest-bearing contract cancellation fees
Other financial liabilities
Other financial liabilities
Other financial liabilities
Amortized cost
Amortized cost
Amortized cost
Amortized cost
Amortized cost
Amortized cost
and holdbacks
Promissory notes related to the acquisition of
Houston Avenue Bar & Grill and Industria
Pizzeria + Bar
Non-controlling interest buyback obligation
Non-controlling interest option
FVTPL
FVTPL
FVTPL
FVTPL
FVTPL
FVTPL
Following the adoption of IFRS 9, there were no further changes to the classification categories of financial assets and
financial liabilities.
IFRS 15 – Revenue from Contracts with Customers
IFRS 15 replaces the following standards: IAS 11 Construction Contracts, IAS 18 Revenue, IFRIC 13 Customer Loyalty
Programmes, IFRIC 15 Agreements for the Construction of Real Estate, IFRIC 18 Transfers of Assets from Customers
and Standing Interpretations Committee (“SIC”) 31 Revenue – Barter Transactions Involving Advertising Services. This
new standard sets out the requirements for recognizing and disclosing revenue that apply to all contracts with customers.
The core principle of IFRS 15 is that an entity recognizes revenue to depict the transfer of promised goods or services to
customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those
goods and services. IFRS 15 also includes a cohesive set of disclosure requirements that would result in an entity
providing comprehensive information about the nature, amount, timing and uncertainty of revenue and cash flows arising
from the entity’s contracts with customers. On December 1, 2018, the Company adopted IFRS 15 using the retrospective
transition method.
The adoption of the new standard had the following impacts:
Initial franchise fees, master franchise fees, transfer fees and renewal fees: under previous guidance, the Company
recognized these fees when all material obligations and services were performed. Under the new guidance, the Company
defers these fees and recognizes them over the term of the related franchise agreement. This has no impact on the
amount or timing of cash flows.
Promotional funds: under the previous guidance, the Company did not reflect promotional funds collected from
franchisees and the related promotional expenditures in the consolidated statements of income. Under the new standard,
the promotional funds collected, and the related expenditures are reported on a gross basis in the consolidated
statements of income. To the extent that promotional funds received exceed the related promotional expenditures, the
excess contributions will be recorded in accounts payable and accrued liabilities.
Page 26
Costs to obtain a contract: under the new guidance, incremental costs to obtain a contract have to be deferred if they are
expected to be recoverable, unless their amortization period would be less than one year, in which case a practical
expedient can be used to expense them as incurred. Accordingly, the Company now recognizes those costs as an asset
when incurred and amortizes this asset over the term of the related franchise agreement.
Gift cards: there is a change for some of the gift card programs which were being accounted for based on the remote
likelihood of a gift card being redeemed. Following the adoption of the new standard, all of the gift card programs now
record expected breakage income proportionately as gift cards are redeemed.
Restaurant construction and renovation: restaurant construction and renovation revenue were previously recognized by
reference to the stage of completion of the contract activity; under the new standard, the criteria for recognizing revenue
over time are not met, and therefore, the Company now recognizes the revenue for these services at a point in time,
when the construction and renovation are completed.
The following tables show the adjustments recognized for each line item impacted by the change.
Consolidated statements of income
($ in thousands)
Year ended
November 30, 2018
IFRS 15
adjustments
$
As previously
reported
$
Revenue
Operating expenses
Income before taxes
Income tax expense (recovery)
Deferred
Net income
Income per share – basic
Income per share – diluted
353,303
225,560
59,043
61,935
82,900
(2,892)
As restated
$
412,346
287,495
80,008
(34,812)
(88)
(34,900)
98,991
(2,804)
4.07
4.06
0.12
0.11
96,187
3.95
3.95
Consolidated statements of comprehensive income
($ in thousands)
Unrealized gain (loss) on translation of foreign
operations
Total comprehensive income
Year ended
November 30, 2018
As previously
reported
$
IFRS 15
adjustments
$
14,748
112,719
(177)
(2,981)
As restated
$
14,571
109,738
Page 27
Consolidated statements of financial position
As at November 30, 2018
(In thousands $)
As previously
reported
$
IFRS 15
adjustments
$
As restated
$
Assets
Current assets
Accounts receivable
Inventories
Prepaid expenses and deposits (1)
49,168
3,574
7,291
803
455
624
49,971
4,029
7,915
Contract cost assets
—
3,717
3,717
Liabilities and Shareholders’ equity
Liabilities
Current liabilities
Accounts payable and accrued liabilities
Deferred revenue and deposits
Deferred revenue and deposits
Deferred income taxes (2)
Reserves
Retained earnings
68,700
20,122
705
123,078
1,245
315,985
(888)
662
32,680
(7,078)
(133)
(19,644)
67,812
20,784
33,385
116,000
1,112
296,341
(1) Relates to the current portion of the contract costs assets.
(2) As the previously reported balance was restated in the consolidated financial statements for year ended
November 30, 2019. Refer to adjustment in Note 7 in the notes to the consolidated financial statements.
Page 28
Consolidated statements of financial position
As at December 1, 2017
($ in thousands)
As previously
reported
IFRS 15
adjustments
$
$
As restated
$
Assets
Current assets
Accounts receivable
Inventories
Prepaid expenses and deposits
Contract cost assets
Liabilities and Shareholders’ equity
Liabilities
Current liabilities
Accounts payable and accrued liabilities
Deferred revenue and deposits
Deferred revenue
Deferred income taxes
Reserves
Retained earnings
Future accounting changes
34,151
3,281
5,461
—
57,555
20,844
1,946
116,931
(13,113)
232,192
1,414
312
440
2,062
(608)
(1,356)
29,905
(6,917)
44
(16,840)
35,565
3,593
5,901
2,062
56,947
19,488
31,851
110,014
(13,069)
215,352
A number of new standards, interpretations and amendments to existing standards were issued by the International
Accounting Standard Board (“IASB”) that are not yet effective for the period ended November 30, 2019 and have not
been applied in preparing these consolidated financial statements.
The following standards may have a material impact on the consolidated financial statements of the Company:
Standard
Issue date
Effective date for
the Company
Impact
IFRS 3 Business Combinations
IFRS 16 Leases
IFRIC 23 Uncertainty over Income Tax Treatments June 2017
October 2018
January 2016
December 1, 2020
December 1, 2019
December 1, 2019
In assessment
In assessment
In assessment
IFRS 3-Business Combinations
In October 2018, the IASB issued amendments to the definition of a business in IFRS 3 Business Combinations. The
amendments are intended to assist entities to determine whether a transaction should be accounted for as a business
combination or as an asset acquisition. The amendments to IFRS 3 are effective for annual reporting periods beginning
on or after 1 January 2020 and apply prospectively. Earlier application is permitted. The Company will adopt December
1, 2020.
Page 29
IFRS 16-Leases
On January 13, 2016, the IASB issued IFRS 16 that provides a comprehensive model for the identification of lease
arrangements and their treatment in the financial statements of both lessees and lessors. It supersedes IAS 17 Leases
and its associated interpretive guidance. Significant changes were made to lessee accounting with the distinction
between operating and finance leases removed and assets and liabilities recognized in respect of all leases (subject to
limited exceptions for short-term leases and leases of low value assets). In contrast, IFRS 16 does not include significant
changes to the requirements for lessors. IFRS 16 is effective January 1, 2019 with earlier application permitted for
companies that have also adopted IFRS 15. The Company anticipates a material change in the presentation of both the
consolidated statement of financial position with a range of approximately $550 – $650 million of lease liabilities, $25 –
$75 million of right-of-use-assets and $475 – $575 million of finance lease receivable and the consolidated statement of
income. Lease-related expenses previously recorded in operating expenses, primarily as occupancy costs will be
recorded as depreciation on the right-of-use assets and a finance charge from unwinding the discount on the lease
liabilities. Lease-related revenues previously recorded in rent revenue will be recorded as finance income. IFRS 16 will
also change the presentation of cash flows relating to leases in the Company’s Consolidated Statements of cash flows,
but it does not cause a difference in the amount of cash transferred between the parties of a lease.
Although the standard did not change the accounting for most lessors significantly, it does change the manner in which
sublessors determine the classification of sublease arrangements between operating and finance leases. Under IFRS
16 this assessment is determined relative to whether the sublease transfers significant risks and rewards of the right of
use asset. Accordingly, we expect that many of our subleases will be classified as finance leases under IFRS 16 and
that we will begin to record interest income on such subleases within our financing income.
IFRS 16 will be applied for the fiscal year beginning on December 1, 2019 using the modified retrospective approach and
the Company will therefore not be restating comparative information. In determining the lease term, management
considers all factors that may create an economic incentive to exercise a renewal option or termination option when
determining the lease term under the new standard.
In addition, the Company has elected to use the following practical expedients on adoption of IFRS 16:
• The Company has not reassessed, under IFRS 16, contracts that were identified as leases under the
previous accounting standards (IAS 17 and IFRIC 4);
• The use of the provision for onerous leases as an alternative to performing an impairment review;
• The right to exclude initial direct costs from the measurement of the right-of-use asset at the date of initial
application;
•
•
the accounting for operating leases with a remaining lease term of less than 12 months as at December
1, 2019 as short-term leases and leases for which the underlying asset is of low value;
the use of hindsight in determining the lease term where the contract contains options to extend or
terminate the lease.
Economic environment risk
The business of the Company is dependent upon numerous aspects of a healthy general economic environment, from
strong consumer spending to provide sales revenue, to available credit to finance the franchisees and the Company. In
case of turmoil in economic, credit and capital markets, the Company’s performance and market price may be adversely
affected. The Company’s current planning assumptions forecast that the restaurant industry will be impacted by the
current economic uncertainty in the certain regions in which it operates. However, management is of the opinion that any
economic situation that occurs within a normal cycle will not have a major impact on the Company due to the following
reasons: 1) the Company generates strong cash flows and has a healthy balance sheet; 2) the Company has several
concepts offering affordable dining out options for consumers in an economic slowdown.
Financial instruments and financial risk exposure
In the normal course of business, the Company uses various financial instruments which by their nature involve risk,
including market risk and the credit risk of non-performance by counterparties. These financial instruments are subject
to normal credit standards, financial controls, risk management as well as monitoring procedures.
The Company has determined that the fair value of its financial assets and financial liabilities with short-term maturities
approximates their carrying value. These financial instruments include cash, accounts receivables, accounts payable and
Page 30
accrued liabilities and deposits. The table below shows the fair value and the carrying amount of other financial
instruments as at November 30, 2019 and November 30, 2018. Since estimates are used to determine fair value, they
must not be interpreted as being realizable in the event of a settlement of the instruments.
The classification, carrying value and fair value of financial instruments are as follows:
(in thousands $)
Financial assets
Loans receivable
Financial liabilities
Long-term debt(1)
Carrying
amount
$
7,145
2019
Fair
value
$
7,145
Carrying
amount
$
8,104
2018
Fair
value
$
8,104
531,196
542,147
266,087
268,954
(¹) Excludes promissory notes, contingent consideration on acquisition and obligations to repurchase non-controlling
interests
The fair value of a financial instrument is the price that would be received to sell an asset or paid to transfer a liability in
an orderly transaction between market participants at the measurement date. It is established based on market
information available at the date of the consolidated statement of financial position. In the absence of an active market
for a financial instrument, the Company uses the valuation methods described below to determine the fair value of the
instrument. To make the assumptions required by certain valuation models, the Company relies mainly on external,
readily observable market inputs. Assumptions or inputs that are not based on observable market data are used in the
absence of external data. These assumptions or factors represent management’s best estimates of the assumptions or
factors that would be used by market participants for these instruments. The credit risk of the counterparty and the
Company’s own credit risk have been taken into account in estimating the fair value of all financial assets and financial
liabilities, including derivatives.
The following methods and assumptions were used to estimate the fair values of each class of financial instruments:
Loans receivable – The loans receivable generally bear interest at market rates and therefore it is management’s
opinion that the carrying value approximates the fair value.
Long-term debt – The fair value of long-term debt is determined using the present value of future cash flows under
current financing agreements based on the Company’s current estimated borrowing rate for a similar debt.
Promissory notes issued as part of its consideration for the acquisition of Houston Avenue Bar & Grill and
Industria Pizzeria + Bar
The Company settled and cancelled four of the six promissory notes that were recorded as part of the acquisition of
Houston Avenue Bar & Grill and Industria Pizzeria + Bar. These four promissory notes were subject to earn out provisions
and the Company realized a loss on settlement of $0.5 million on the statement of consolidated income for the period
ending November 30, 2019. The Company issued as part of the settlement new promissory notes based on future
earnings amounting to $0.3 million. This note is payable in May 2021.
A discounted cash flow method was used to capture the present value of the expected future economic benefits that will
flow out of the Company, with respect to these promissory notes. These notes are subject to significant unobservable
inputs such as discount rates and projected revenues and EBITDA. An increase or decrease by 1% in the discount rates
used would have an impact of nil on the fair value, as at November 30, 2019 (November 30, 2018 – $0.1 million).
A fair value re-measurement gain of $1.9 million was recorded for these promissory notes for the period ended November
30, 2019 (November 30, 2018 – loss of $1.0 million).
Page 31
Contingent consideration on acquisitions
The Company issued as part of its consideration for the acquisition of Yuzu Sushi and Allô! Mon Coco contingent
considerations to the vendors. These contingent considerations are subject to earn-out provisions, which are based on
future earnings and are repayable in August 2021 for Yuzu Sushi and October 2020 and January 2022 for Allô! Mon
Coco. These contingent considerations have been recorded at fair value and are remeasured on a recurring basis.
A fair value re-measurement loss of $0.2 million was recorded for the contingent consideration for the period ended
November 30, 2019 (November 30, 2018 – nil).
Obligations to repurchase non-controlling interests
The Company has entered into an agreement to purchase the shares of a minority interest shareholder of 9974644
Canada Inc. at the option of the holder at any time after December 9, 2017. The consideration is based on a multiplier
of EBITDA, as prescribed by the terms of the shareholder agreement.
The Company, in conjunction with the acquisition of Houston Avenue Bar & Grill and Industria Pizzeria + Bar, entered
into an agreement to acquire the non-controlling interest in 10220396 Canada Inc., in June 2022. The consideration to
be paid for this acquisition will be based on future earnings. The Company recorded a liability at fair value (note 19 in
the consolidated financial statements) which is remeasured at each reporting period.
A discounted cash flow method was used to capture the present value of the expected future economic benefits that will
flow out of the Company with respect to this obligation. The non-controlling interest buyback obligation is subject to
significant unobservable inputs such as a discount rate and projected EBITDA. An increase or decrease by 1% in the
discount rates used would have an impact of nil on the carrying amount as at November 30, 2019 (November 30, 2018
– nil).
A fair value re-measurement loss of nil (2018 – $0.5 million) was recorded for this non-controlling interest obligation.
Interest rate swap
The Company holds an interest rate swap that is contracted to a fix rate on a notional amount of $100,000 and is maturing
in July 21, 2021. The fair value of this interest rate swap amounted to $725 and the company recorded a fair value
remeasurement loss of $725 for the year ended in November 30, 2019.
Fair value hierarchy
(In thousands $)
2019
2018
Level 3
Financial liabilities
Promissory notes for Houston Avenue Bar & Grill
Promissory notes related to the acquisition of Houston Avenue Bar & Grill and
Industria Pizzeria + Bar
Contingent consideration on acquisitions
Non-controlling interest options
Financial Liabilities
Risk Management Policies
329
2,738
3,874
2,513
9,454
—
7,034
—
2,495
9,529
The Company, through its financial assets and liabilities, is exposed to various risks. The following analysis provides a
measurement of risks as at November 30, 2019.
Credit risk
The Company’s credit risk is primarily attributable to its trade receivables. The amounts disclosed in the consolidated
statement of financial position represent the maximum exposure to credit risk for each respective financial asset as at
the relevant dates. The Company believes that the credit risk of accounts receivable is limited as other than receivables
Page 32
from international locations, the Company’s broad client base is spread mostly across Canada and the USA, which limits
the concentration of credit risk.
The credit risk on the Company’s loans receivable is similar to that of its accounts receivable.
Foreign exchange risk
Foreign exchange risk is the Company’s exposure to decreases or increases in financial instrument values caused by
fluctuations in exchange rates. The Company’s exposure to foreign exchange risk mainly comes from sales denominated
in foreign currencies. The Company’s USA and foreign operations use the U.S. dollar (USD) as functional currency. The
Company’s exposure to foreign exchange risk stems mainly from cash, accounts receivable, long-term debt denominated
in U.S. dollars, other working capital items and financial obligations from its USA operations.
Fluctuations in USD exchange rates are deemed to have minimal risk as they are mostly offset by the stand-alone
operations of the Company’s US entities.
As at November 30, 2019, the Company has the following financial instruments denominated in foreign currencies:
November 30, 2019
November 30, 2018
(in thousands $)
Financial assets
Cash
Accounts receivable
Financial liabilities
Accounts payable and deposits
Long-term debt
USD
$
5,194
253
(33)
—
CAD
$
6,902
337
(44)
—
USD
$
980
330
CAD
$
1,304
439
(32 )
(14,000 )
(43 )
(18,621 )
Net Financial Assets (liabilities)
5,414
7,195
(12,722 )
(16,921 )
All other factors being equal, a reasonable possible 5% rise in foreign currency exchange rates per Canadian dollar
would result in a profit of C$0.4 million (November 30, 2018 – loss of C$0.8 million) on the consolidated statements of
income and comprehensive income.
Interest rate risk
Interest rate risk is the Company’s exposure to increases and decreases in financial instrument values caused by the
fluctuation in interest rates. The Company is exposed to cash flow risk due to the interest rate fluctuation in its floating-
rate interest-bearing financial obligations.
Furthermore, upon refinancing of a borrowing, depending on the availability of funds in the market and lender perception
of the Company’s risk, the margin that is added to the reference rate, such as LIBOR or prime rates, could vary and
thereby directly influence the interest rate payable by the Company.
Long-term debt stems mainly from acquisitions of long-term assets and business combinations. The Company is
exposed to interest rate risk with its revolving credit facility which is used to finance the Company’s acquisitions. The
facility bears interest at a variable rate and as such the interest burden could change materially. $518.9 million (2018 –
$256.1 million) of the credit facility was used as at November 30, 2019. A 100 basis points increase in the bank’s prime
rate would result in additional interest of $5.2 million per annum (2018 – $2.6 million) on the outstanding credit facility.
Liquidity risk
Liquidity risk refers to the possibility of the Company not being able to meet its financial obligations when they become
due. The Company has contractual and fiscal obligations as well as financial liabilities and is therefore exposed to liquidity
risk. Such risk can result, for example, from a market disruption or a lack of liquidity. The Company actively maintains its
credit facility to ensure it has sufficient available funds to meet current and foreseeable financial requirements at a
reasonable cost.
Page 33
As at November 30, 2019, the Company had an authorized revolving credit facility for which the available amount may
not exceed $700.0 million to ensure that sufficient funds are available to meet its financial requirements. The terms and
conditions related to this revolving credit facility are described in note 16 of the consolidated financial statements as at
November 30, 2019.
The following are the contractual maturities of financial liabilities as at November 30, 2019
(in thousands $)
Carrying
amount
$
Contractual
cash flows
$
0 to 6
months
$
6 to 12
months
$
12 to 24
months
$
Thereafter
$
Accounts payable
and accrued
liabilities
Long-term debt
Interest on long-term
debt (1)
100,762
540,650
100,762
542,631
100,762
3,418
—
1,647
—
11,185
—
526,381
n/a
40,475
641,412
683,868
7,143
111,323
7,143
8,790
14,285
25,470
11,904
538,285
(1) When future interest cash flows are variable, they are calculated using the interest rates prevailing at the end of the
reporting period.
Outlook
In the very short term, management’s primary focus will be on continuing to produce positive same store sales while
alleviating some of the financial pressure on its franchise partners by optimizing processes and sourcing products at
prices that are stable and competitive. Innovation, quality of food and of customer service in each of our outlets and
maximizing the value offered to our customers are going to be main areas of focus for the coming year.
Management will also focus on the integration of the recently acquired brands. Following the closing of those acquisitions,
MTY is well-positioned to expand in Canada and in the United States, including growing its existing Canadian brands
into the United States.
The restaurant industry will remain challenging in the future, and management believes that the focus on the food offering,
innovation, consistency and store design will give MTY’s restaurants a stronger position to face challenges. Given this
difficult competitive context in which more restaurants compete for a finite amount of consumer dollars, each concept
needs to preserve and improve the relevance of its offer to consumers.
Management will maintain its focus on maximizing shareholder value by adding new locations of some of its existing
concepts and remains committed to seek potential acquisitions to increase the Company’s market share.
Controls and Procedures
Disclosure controls and procedures
Disclosure controls and procedures are designed to provide reasonable assurance that information required to be
disclosed in reports filed with the securities regulatory authorities are recorded, processed, summarized and reported in
a timely fashion. The disclosure controls and procedures are designed to ensure that information required to be disclosed
by the Company in such reports is then accumulated and communicated to the Company’s management to ensure timely
decisions regarding required disclosure. Management regularly reviews disclosure controls and procedures; however,
they cannot provide an absolute level of assurance because of the inherent limitations in control systems to prevent or
detect all misstatements due to error or fraud.
Subject to the preceding paragraph, the Company’s Chief Executive Officer and Chief Financial Officer have concluded
that the design of the disclosure controls and procedures (“DC&P”) as at November 30, 2019 provide reasonable
assurance that significant information relevant to the Company, including that of its subsidiaries, is reported to them
during the preparation of disclosure documents.
Page 34
Internal controls over financial reporting
The Chief Executive Officer and the Chief Financial Officer are responsible for establishing and maintaining internal
controls over financial reporting. The Company’s internal controls over financial reporting are designed to provide
reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with IFRS.
Over the course of 2019, the Chief Executive Officer and the Chief Financial Officer have remediated the previously
identified material weakness related to controls over the accounting for non routine and complex transactions, including
accounting for purchase price allocations in respect of business acquisitions. Management has tested the remediated
controls throughout 2019 and have concluded through testing that these controls were operating effectively.
The Chief Executive Officer and the Chief Financial Officer, together with Management have concluded the financial
statements included in this report present fairly in all material respects its financial position, results of operations, capital
position and cash flows for the periods presented in accordance with IFRS.
The Chief Executive Officer and the Chief Financial Officer, together with Management, have concluded after having
conducted an evaluation and to the best of their knowledge that, as at November 30, 2019, no change in the Company’s
internal controls over financial reporting occurred that could have materially affected or is reasonably likely to materially
affect the Company’s internal controls over financial reporting.
Limitations of Controls and Procedures
Management, including the President and Chief Executive Officer and Chief Financial Officer, believes that any disclosure
controls and procedures or internal controls over financial reporting, no matter how well conceived and operated, can
provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design
of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be
considered relative to their costs. Because of the inherent limitations in all control systems, they cannot provide absolute
assurance that all control issues and instances of fraud, if any, within the Company have been prevented or detected.
These inherent limitations include the reality judgments in decision-making can be faulty, and that breakdowns can occur
because of simple errors or mistakes. Additionally, controls can be circumvented by the individual acts of some persons,
by collusion of two or more people, or by unauthorized override of the control. The design of any control system of controls
is also based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that
any design will succeed in achieving its stated goals under all potential future conditions.
Accordingly, because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud
may occur and not be detected.
Limitation on scope of design
The Company’s management, with the participation of its President and Chief Executive Officer and Chief Financial
Officer, has limited the scope of the design of the Company’s disclosure controls and procedures and internal controls
over financial reporting to exclude controls, policies and procedures and internal controls over financial reporting of the
recently acquired operations:
Percentage of MTY
Food Group Inc.
Company’s
assets
Current
assets
Non-
current
assets
Current
Liabilities
Long-term
liabilities
Revenues
Net
earnings
Papa Murphy’s
Casa Grecque
South Street Burger
Allô! Mon Coco
Yuzu Sushi
19%
13%
20%
2%
0%
1%
2%
5%
1%
2%
2%
1%
0%
2%
2%
7%
1%
0%
0%
1%
6%
0%
0%
1%
0%
10%
4%
1%
0%
0%
6%
2%
0%
1%
1%
Page 35
The Company’s management, with the participation of its President and Chief Executive Officer and Chief Financial
Officer, has limited the scope of the design of the Company’s disclosure controls and procedures and internal controls
over financial reporting to exclude controls, policies and procedures and internal controls over financial reporting of
certain special purpose entities (“SPEs”) on which the Company has the ability to exercise de facto control and which
have as a result been consolidated in the Company’s consolidated financial statements. For the period ended
November 30, 2019, these SPEs represent 0% of the Company’s current assets, 0% of its non-current assets, 0% of
the Company’s current liabilities, 0% of long-term liabilities, 1% of the Company’s revenues and 0% of the Company’s
net earnings.
__________________________
Eric Lefebvre, CPA, CA, MBA Chief Executive Officer
__________________________
Renee St-Onge, CPA, CA Chief Financial Officer
Page 36
Consolidated financial statements of
MTY Food Group Inc.
November 30, 2019 and 2018
Independent auditor’s report
To the Shareholders of MTY Food Group Inc.
Our opinion
In our opinion, the accompanying consolidated financial statements present fairly, in all material
respects, the financial position of MTY Food Group Inc. and its subsidiaries (together, the
Company) as at November 30, 2019 and 2018, and its financial performance and its cash flows for
the years then ended in accordance with International Financial Reporting Standards (IFRS).
What we have audited
The Company’s consolidated financial statements comprise:
●
●
●
●
●
●
the consolidated statements of income for the years then ended;
the consolidated statements of comprehensive income for the years then ended;
the consolidated statements of changes in shareholders’ equity for the years then ended;
the consolidated statements of financial position as at November 30, 2019 and 2018;
the consolidated statements of cash flows for the years then ended; and
the notes to the consolidated financial statements, which include a summary of significant
accounting policies.
Basis for opinion
We conducted our audit in accordance with Canadian generally accepted auditing standards. Our
responsibilities under those standards are further described in the Auditor’s responsibilities for
the audit of the consolidated financial statements section of our report.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a
basis for our opinion.
Independence
We are independent of the Company in accordance with the ethical requirements that are relevant
to our audit of the consolidated financial statements in Canada. We have fulfilled our other ethical
responsibilities in accordance with these requirements.
PricewaterhouseCoopers LLP/s.r.l./s.e.n.c.r.l.
1250 René-Lévesque Boulevard West, Suite 2500, Montréal, Quebec, Canada H3B 4Y1
T: +1 514 205 5000, F: +1 514 876 1502
“PwC” refers to PricewaterhouseCoopers LLP/s.r.l./s.e.n.c.r.l., an Ontario limited liability partnership.
Other information
Management is responsible for the other information. The other information comprises the
Management’s Discussion and Analysis, which we obtained prior to the date of this auditor’s
report and the information, other than the consolidated financial statements and our auditor's
report thereon, included in the annual report, which is expected to be made available to us after
that date.
Our opinion on the consolidated financial statements does not cover the other information and
we do not and will not express an opinion or any form of assurance conclusion thereon.
In connection with our audit of the consolidated financial statements, our responsibility is to read
the other information identified above and, in doing so, consider whether the other information is
materially inconsistent with the consolidated financial statements or our knowledge obtained in
the audit, or otherwise appears to be materially misstated.
If, based on the work we have performed on the other information that we obtained prior to the
date of this auditor’s report, we conclude that there is a material misstatement of this other
information, we are required to report that fact. We have nothing to report in this regard. When
we read the information, other than the consolidated financial statements and our auditor's
report thereon, included in the annual report, if we conclude that there is a material misstatement
therein, we are required to communicate the matter to those charged with governance.
Responsibilities of management and those charged with governance for the
consolidated financial statements
Management is responsible for the preparation and fair presentation of the consolidated financial
statements in accordance with IFRS, and for such internal control as management determines is
necessary to enable the preparation of consolidated financial statements that are free from
material misstatement, whether due to fraud or error.
In preparing the consolidated financial statements, management is responsible for assessing the
Company’s ability to continue as a going concern, disclosing, as applicable, matters related to
going concern and using the going concern basis of accounting unless management either intends
to liquidate the Company or to cease operations, or has no realistic alternative but to do so.
Those charged with governance are responsible for overseeing the Company’s financial reporting
process.
Auditor’s responsibilities for the audit of the consolidated financial statements
Our objectives are to obtain reasonable assurance about whether the consolidated financial
statements as a whole are free from material misstatement, whether due to fraud or error, and to
issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of
assurance, but is not a guarantee that an audit conducted in accordance with Canadian generally
accepted auditing standards will always detect a material misstatement when it exists.
Misstatements can arise from fraud or error and are considered material if, individually or in the
aggregate, they could reasonably be expected to influence the economic decisions of users taken
on the basis of these consolidated financial statements.
As part of an audit in accordance with Canadian generally accepted auditing standards, we
exercise professional judgment and maintain professional skepticism throughout the audit. We
also:
●
●
●
●
●
Identify and assess the risks of material misstatement of the consolidated financial
statements, whether due to fraud or error, design and perform audit procedures responsive
to those risks, and obtain audit evidence that is sufficient and appropriate to provide a
basis for our opinion. The risk of not detecting a material misstatement resulting from
fraud is higher than for one resulting from error, as fraud may involve collusion, forgery,
intentional omissions, misrepresentations, or the override of internal control.
Obtain an understanding of internal control relevant to the audit in order to design audit
procedures that are appropriate in the circumstances, but not for the purpose of expressing
an opinion on the effectiveness of the Company’s internal control.
Evaluate the appropriateness of accounting policies used and the reasonableness of
accounting estimates and related disclosures made by management.
Conclude on the appropriateness of management’s use of the going concern basis of
accounting and, based on the audit evidence obtained, whether a material uncertainty
exists related to events or conditions that may cast significant doubt on the Company’s
ability to continue as a going concern. If we conclude that a material uncertainty exists, we
are required to draw attention in our auditor’s report to the related disclosures in the
consolidated financial statements or, if such disclosures are inadequate, to modify our
opinion. Our conclusions are based on the audit evidence obtained up to the date of our
auditor’s report. However, future events or conditions may cause the Company to cease to
continue as a going concern.
Evaluate the overall presentation, structure and content of the consolidated financial
statements, including the disclosures, and whether the consolidated financial statements
represent the underlying transactions and events in a manner that achieves fair
presentation.
•
Obtain sufficient appropriate audit evidence regarding the financial information of the
entities or business activities within the Company to express an opinion on the
consolidated financial statements. We are responsible for the direction, supervision and
performance of the group audit. We remain solely responsible for our audit opinion.
We communicate with those charged with governance regarding, among other matters, the
planned scope and timing of the audit and significant audit findings, including any significant
deficiencies in internal control that we identify during our audit.
We also provide those charged with governance with a statement that we have complied with
relevant ethical requirements regarding independence, and to communicate with them all
relationships and other matters that may reasonably be thought to bear on our independence, and
where applicable, related safeguards.
The engagement partner on the audit resulting in this independent auditor’s report is Sonia
Boisvert.
Other matter
The consolidated financial statements for the year ended November 30, 2017 (not presented
herein but from which the comparative information in the consolidated statement of financial
position as at December 1, 2017 has been derived), excluding the adjustments that were applied to
restate certain comparative information, were audited by another auditor who expressed an
unmodified opinion on those consolidated financial statements on February 15, 2018.
Montréal, Quebec
February 23, 2020
1 FCPA auditor, FCA, public accountancy permit No. A116853
MTY Food Group Inc.
Consolidated statements of income
Years ended November 30, 2019 and 2018
(In thousands of Canadian dollars, except per share amounts)
Revenue
Expenses
Operating expenses
Depreciation – property, plant and equipment
Amortization – intangible assets
Interest on long-term debt
Impairment charge on property, plant and equipment
and intangible assets
Other income (charges)
Unrealized and realized foreign exchange gain
Interest income
Gain on disposal of property, plant and equipment
and intangible assets
Gain (loss) on revaluation of financial liabilities recorded
at fair value through profit and loss
Loss on settlement of promissory notes
Income before taxes
Income tax expense (recovery)
Current
Deferred
Net income
Net income attributable to:
Owners
Non-controlling interest
Income per share
Basic
Diluted
Notes
2019
$
2018
$
Restated
(note 4)
25 & 31
550,942
412,346
26 & 31
13
14
13 & 14
23
23
30
22
403,547
4,023
29,185
17,649
2,619
457,023
402
856
2,341
931
(452)
4,078
287,495
2,755
24,749
11,717
5,531
332,247
11
649
710
(1,461)
—
(91)
97,997
80,008
17,492
2,769
20,261
77,736
77,675
61
77,736
3.09
3.08
18,721
(34,900)
(16,179)
96,187
95,776
411
96,187
3.95
3.95
The accompanying notes are an integral part of the consolidated financial statements.
Page 6
MTY Food Group Inc.
Consolidated statements of comprehensive income
Years ended November 30, 2019 and 2018
(In thousands of Canadian dollars, except per share amounts)
Net income
2019
$
2018
$
Restated
(note 4)
77,736
96,187
Items that may be reclassified subsequently to net income:
Unrealized (loss) gain on translation of foreign operations
(1,431)
14,571
Deferred income tax (expense) recovery on foreign currency
translation adjustments
Other comprehensive (loss) income
Total comprehensive income
Total comprehensive income attributable to:
Owners
Non-controlling interest
245
(1,186)
76,550
(1,020)
13,551
109,738
76,489
61
76,550
109,327
411
109,738
The accompanying notes are an integral part of the consolidated financial statements.
Page 7
MTY Food Group Inc.
Consolidated statements of changes in shareholders’ equity
Years ended November 30, 2019 and 2018
(In thousands of Canadian dollars, except per share amounts)
Balance as at November 30, 2017 (Restated, note 4)
Net income for the year ended November 30, 2018
Other comprehensive income
Total comprehensive income
Acquisition of non-controlling interest in 8825726 Canada
Inc.
Issuance of shares on acquisition of Imvescor Restaurant
Group Inc.
Dividends
Share-based compensation (note 21)
Balance as at November 30, 2018 (Restated, note 4)
Net income for the year ended November 30, 2019
Other comprehensive loss
Total comprehensive income
Acquisition of non-controlling interest in 9974644 Canada
Inc. (note 8)
Shares repurchased and cancelled (note 20)
Dividends
Share-based compensation (note 21)
Balance as at November 30, 2019
197,616
—
—
312,161
—
—
—
(1,222)
—
—
310,939
—
—
—
(850 )
—
—
—
—
—
—
(850 )
—
—
630
1,512
—
—
—
—
—
583
2,095
The accompanying notes are an integral part of the consolidated financial statements.
Reserves
Capital
stock
$
114,545
—
—
Contributed
Other
surplus
$
(850 )
—
—
$
882
—
—
Foreign
currency
translation
$
Total
reserves
$
Retained
earnings
$
Equity
attributable
to non-
controlling
interest
$
Total
$
Total
$
(13,101 )
—
13,551
(13,069) 215,352 316,828
95,776
95,776
13,551
—
109,327
—
13,551
1,702 318,530
96,187
13,551
109,738
411
—
—
—
—
—
—
(257 )
(257 )
(802 )
(1,059 )
—
—
—
450
—
(1,186 )
—
—
630
— 197,616
(14,530 )
(14,530 )
630
—
1,112 296,341 609,614
77,675
(1,186)
76,489
77,675
—
—
(1,186)
—
(30 )
—
1,281
61
—
197,616
(14,560 )
630
610,895
77,736
(1,186)
76,550
—
—
—
—
(736 )
—
—
—
583
509
2
(4,005 )
(16,713 )
—
2
(5,227 )
(16,713 )
583
353,300 664,748
(112 )
—
(498 )
—
(110 )
(5,227 )
(17,211 )
583
732 665,480
Page 8
MTY Food Group Inc.
Consolidated statements of financial position
As at November 30, 2019 and 2018 and December 1, 2017
(In thousands of Canadian dollars, except per share amounts)
Notes
November 30,
2019
November 30,
2018
December 1,
2017
$
$
Restated
(notes 4 & 7)
$
Restated
(note 4)
Assets
Current assets
Cash
Accounts receivable
Inventories
Assets held for sale
Loans receivable
Income taxes receivable
Other assets
Prepaid expenses and deposits
Loans receivable
Contract cost asset
Deferred income tax
Property, plant and equipment
Intangible assets
Goodwill
Liabilities and Shareholders’ equity
Liabilities
Current liabilities
Accounts payable and accrued liabilities
Provisions
Gift card and loyalty program liabilities
Income taxes payable
Deferred revenue and deposits
Current portion of long-term debt
Long-term debt
Deferred revenue and deposits
Deferred income taxes
9
10
11
12
12
30
13
14
15
17
18
19
19
18
30
50,737
65,129
7,531
11,080
4,082
563
2,008
9,284
150,414
3,063
6,074
238
21,363
958,099
509,517
1,648,768
100,762
13,163
92,800
20,506
18,761
4,592
250,584
536,058
38,216
158,430
983,288
32,304
49,971
4,029
—
2,134
—
692
7,915
97,045
5,970
3,717
114
17,333
758,239
357,102
1,239,520
67,812
3,640
86,399
24,989
20,784
7,416
211,040
268,200
33,385
116,000
628,625
The accompanying notes are an integral part of the consolidated financial statements.
56,453
35,565
3,593
—
2,817
1,408
1,163
5,901
106,900
3,109
2,062
351
13,081
506,970
226,768
859,241
56,947
4,581
70,750
19,273
19,488
4,240
175,279
223,567
31,851
110,014
540,711
Page 9
MTY Food Group Inc.
Consolidated statements of financial position (continued)
As at November 30, 2019 and 2018 and December 1, 2017
(In thousands of Canadian dollars, except per share amounts)
Shareholders’ equity
Equity attributable to owners
Capital stock
Reserves
Retained earnings
Equity attributable to non-controlling interest
November 30,
2019
November 30,
2018
December 1,
2017
$
$
Restated
(notes 4 & 7)
20
310,939
509
353,300
664,748
732
665,480
1,648,768
312,161
1,112
296,341
609,614
1,281
610,895
1,239,520
Restated
(note 4)
114,545
(13,069)
215,352
316,828
1,702
318,530
859,241
Approved by the Board on February 23, 2020
_________________________________________________ , Director
_________________________________________________ , Director
The accompanying notes are an integral part of the consolidated financial statements.
Page 10
MTY Food Group Inc.
Consolidated statements of cash flows
Years ended November 30, 2019 and 2018
(In thousands of Canadian dollars, except per share amounts)
Operating activities
Net income
Adjusting items:
Notes
2019
$
2018
$
Restated
(notes 4 & 7)
77,736
96,187
Interest on long-term debt
Depreciation – property, plant and equipment
Amortization – intangible assets
13
14
Gain on disposal of property, plant and equipment
and intangible assets
Impairment charge on property, plant and equipment
and intangible assets
(Gain) Loss on revaluation of financial liabilities
recorded at fair value through profit and loss
Loss on settlement of promissory notes
Income tax expense (recovery)
Share-based payments
Income tax refunds received
Income taxes paid
Interest paid
Changes in non-cash working capital items
Other
Cash flows provided by operating activities
Investing activities
Net cash outflow on acquisitions
Cash acquired through acquisition
Additions to property, plant and equipment
Additions to intangible assets
Proceeds on disposal of assets held for sale, property,
plant and equipment and intangible assets
Cash flows used in investing activities
17,649
4,023
29,185
(2,341)
13 & 14
2,619
23
23
21
32
7
7
13
14
(931)
452
20,261
583
149,236
—
(22,537)
(15,405)
(1,321)
2,978
112,951
(332,098)
2,459
(5,166)
(2,136)
11,289
(325,652)
11,717
2,755
24,749
(710)
5,531
1,461
—
(16,179)
630
126,141
1,189
(13,865)
(9,448)
(4,506)
(1,631)
97,880
(123,243)
4,652
(6,544)
(1,286)
2,548
(123,873)
Page 11
MTY Food Group Inc.
Consolidated statements of cash flows (continued)
Years ended November 30, 2019 and 2018
(In thousands of Canadian dollars, except per share amounts)
Financing activities
Issuance of long-term debt
Repayment of long-term debt
Capitalized financing costs
Acquisition of the non-controlling interest
Shares repurchased and cancelled
Dividends paid to non-controlling shareholders of
subsidiaries
Dividends paid
Cash flows provided by financing activities
Net increase (decrease) in cash
Effect of foreign exchange rate changes on cash
Cash, beginning of year
Cash, end of year
Notes
2019
$
2018
$
8
327,399
(73,852)
(1,079)
(110)
(5,227)
(498)
(16,713)
229,920
17,219
1,214
32,304
50,737
134,805
(117,180)
(455)
(1,059)
—
(30)
(14,530)
1,551
(24,442)
293
56,453
32,304
The accompanying notes are an integral part of the consolidated financial statements.
Page 12
MTY Food Group Inc.
Table of contents
Independent Auditor’s Report
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
16.
17.
18.
19.
20.
21.
22.
23.
24.
25.
26.
27.
28.
29.
30.
31.
32.
33.
34.
Description of the business
Basis of preparation
Accounting policies
Changes in accounting policies
Critical accounting judgments and key sources of estimation uncertainty
Future accounting changes
Business acquisitions
Acquisition of non-controlling interest
Accounts receivable
Inventories
Assets held for sale
Loans receivable
Property, plant and equipment
Intangible assets
Goodwill
Credit facility
Provisions
Deferred revenue and deposits
Long-term debt
Capital stock
Stock options
Income per share
Financial instruments
Capital disclosures
Revenue
Operating expenses
Operating lease arrangements
Guarantee
Contingent liabilities
Income taxes
Segmented information
Statement of cash flows
Related party transactions
Subsequent events
2
14
14
15
26
31
33
35
48
48
49
49
50
51
53
56
56
57
58
59
59
60
61
62
66
67
67
68
68
68
69
71
73
74
75
Page 13
MTY Food Group Inc.
Notes to the consolidated financial statements
For the years ended November 30, 2019 and 2018
(In thousands of Canadian dollars, except per share amounts and stock options)
1. Description of the business
MTY Food Group Inc. (the “Company”) is a franchisor in the quick service and casual dining food industry. Its activities
consist of franchising and operating corporate-owned locations as well as the sale of retail products under a multitude
of banners. The Company also operates a distribution center and a food processing plant, both of which are located
in the province of Quebec.
The Company is incorporated under the Canada Business Corporations Act and is listed on the Toronto Stock
Exchange. The Company’s head office is located at 8210, Trans-Canada Highway, Ville Saint-Laurent, Quebec.
2. Basis of preparation
The consolidated financial statements (“financial statements”) have been prepared on the historical cost basis except
for certain financial instruments that are measured at revalued amounts or fair values at the end of each reporting
period, as explained in the accounting policies below.
Historical cost is generally based on the fair value of the consideration given in exchange for goods and services.
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction
between market participants at the measurement date, regardless of whether that price is directly observable or
estimated using another valuation technique. In estimating the fair value of an asset or a liability, the Company takes
into account the characteristics of the asset or liability if market participants would take those characteristics into
account when pricing the asset or liability at the measurement date. Fair value for measurement and/or disclosure
purposes in these financial statements is determined on such a basis, except for share-based payment transactions
that are within the scope of International Financial Reporting Standards (“IFRS”) 2, Leasing Transactions, that are
within the scope of International Accounting Standards (“IAS”) 17, Leases, and measurements that have some
similarities to fair value but are not fair value, such as net realizable value in IAS 2, Inventories or value in use in IAS
36, Impairment of Assets.
In addition, for financial reporting purposes, fair value measurements are categorized into Level 1, 2 or 3 based on
the degree to which the inputs to the fair value measurements are observable and the significance of the inputs to the
fair value measurement in its entirety, which are described as follows:
• Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can
access at the measurement date;
• Level 2 inputs are inputs, other than quoted prices included within Level 1, that are observable for the asset or
liability, either directly or indirectly; and
• Level 3 inputs are unobservable inputs for the asset or liability.
The financial statements are presented in Canadian dollars, which is the functional currency of the Company, and
tabular amounts are rounded to the nearest thousand ($000) except when otherwise indicated.
Prior period comparative figures have been restated to reflect adoption of IFRS 15, Revenue from Contracts with
Customers as discussed in Note 4 and as well for retrospectively for purchase price allocations adjustments, pursuant
to IFRS 3 Business combinations in Note 7. The Company adopted IFRS 9 Financial Instruments; no adjustments
were made as a result.
Statement of compliance
The Company’s financial statements have been prepared in accordance with IFRS as issued by the International
Accounting Standard Board (“IASB”).
These financial statements were authorized for issue by the Board of Directors on February 23, 2020.
Page 14
MTY Food Group Inc.
Notes to the consolidated financial statements
For the years ended November 30, 2019 and 2018
(In thousands of Canadian dollars, except per share amounts and stock options)
3. Accounting policies
The accounting policies set out below have been applied consistently to all periods presented in the consolidated
financial statements.
Basis of consolidation
The consolidated financial statements incorporate the financial statements of the Company and entities (including
special purpose entities) controlled by the Company and its subsidiaries. Control is achieved when the Company:
• has power over the investee;
•
• has the ability to use its power to affect its returns.
is exposed, or has rights, to variable returns from its involvement with the investee; and
Principal subsidiaries are as follows:
Principal subsidiaries
Percentage of equity interest
MTY Franchising Inc.
MTY Franchising USA, Inc.
BF Acquisition Holdings, LLC
Built Franchise Systems, LLC
CB Franchise Systems, LLC
Papa Murphy’s Holdings Inc.
9974644 Canada Inc.
10220396 Canada Inc.
%
100
100
100
100
100
100
65
80
The Company reassesses whether or not it controls an investee if facts and circumstances indicate that there are
changes to one or more of the three elements of control listed above.
When the Company has less than a majority of the voting rights of an investee, it has power over the investee when
the voting rights are sufficient to give it the practical ability to direct the relevant activities of the investee unilaterally.
The Company considers all relevant facts and circumstances in assessing whether or not the Company's voting rights
in an investee are sufficient to give it power, including:
•
the size of the Company's holding of voting rights relative to the size and dispersion of holdings of the other vote-
holders;
• potential voting rights held by the Company, other vote-holders or other parties;
•
rights arising from other contractual arrangements; and
• any additional facts and circumstances that indicate that the Company has, or does not have, the current ability to
direct the relevant activities at the time that decisions need to be made, including voting patterns at previous
shareholders' meetings.
Consolidation of a subsidiary begins when the Company obtains control over the subsidiary and ceases when the
Company loses control of the subsidiary. Specifically, income and expenses of a subsidiary acquired or disposed of
during the year are included in the statements of income and other comprehensive income from the date the Company
gains control until the date when the Company ceases to control the subsidiary.
Profit or loss and each component of other comprehensive income are attributed to the owners of the Company and
to the non-controlling interests. Total comprehensive income of subsidiaries is attributed to the owners of the Company
and to the non-controlling interests even if this results in the non-controlling interests having a deficit balance.
When necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies
into line with the Company's accounting policies. For the purposes of consolidating Imvescor Restaurant Group Inc.,
a period end date of November 25, 2018 was used as per their original reporting setup prior to acquisition. It was
deemed not practical or material to change the year-end reporting date for this entity. For the purpose of consolidating
Papa Murphy’s Holdings Inc., a period end date of December 2, 2019 was used as per their original reporting setup
prior to acquisition. It was deemed not practical or material to change the year-end reporting date for this entity.
Page 15
MTY Food Group Inc.
Notes to the consolidated financial statements
For the years ended November 30, 2019 and 2018
(In thousands of Canadian dollars, except per share amounts and stock options)
3.
Accounting policies (continued)
Basis of consolidation (continued)
All intercompany transactions, balances, revenue and expenses are eliminated in full on consolidation.
Changes in the Company's ownership interests in existing subsidiaries
Changes in the Company's ownership interests in subsidiaries that do not result in the Company losing control over
the subsidiaries are accounted for as equity transactions. The carrying amounts of the Company's interests and the
non-controlling interests are adjusted to reflect the changes in their relative interests in the subsidiaries. Any difference
between the amount by which the non-controlling interests are adjusted and the fair value of the consideration paid or
received is recognized directly in equity and attributed to owners of the Company.
When the Company loses control of a subsidiary, a gain or loss is recognized in profit or loss and is calculated as the
difference between (i) the aggregate of the fair value of the consideration received and the fair value of any retained
interest and (ii) the previous carrying amount of the assets (including goodwill), and liabilities of the subsidiary and
any non-controlling interests. All amounts previously recognized in other comprehensive income (loss) in relation to
that subsidiary are accounted for as if the Company had directly disposed of the related assets or liabilities of the
subsidiary (i.e. reclassified to profit or loss or transferred to another category of equity as specified/permitted by
applicable IFRSs). The fair value of any investment retained in the former subsidiary at the date when control is lost
is regarded as the fair value on initial recognition for subsequent accounting under IFRS 9, Financial Instruments:
Recognition and Measurement when applicable, or the cost on initial recognition of an investment in an associate or
a joint venture.
Business combinations
Acquisitions of businesses are accounted for using the acquisition method (note 7). The consideration transferred in
a business combination is measured at fair value. This is calculated as the sum of the acquisition date fair values of
the assets transferred by the Company and liabilities incurred by the Company to the former owners of the acquiree
in exchange for control of the acquiree. Acquisition-related costs are recognized in profit or loss as incurred.
At the acquisition date, the identifiable assets acquired and the liabilities assumed are recognized at their fair value,
except for deferred tax assets or liabilities, which are recognized and measured in accordance with IAS 12 Income
Taxes.
Goodwill is measured as the excess of the sum of the consideration transferred, the amount of any non-controlling
interests in the acquiree, and the fair value of the acquirer’s previously held equity interest in the acquiree (if any) over
the net of the acquisition date amounts of the identifiable assets acquired and the liabilities assumed. If, after
reassessment, the net of the acquisition date amounts of the identifiable assets acquired and liabilities assumed
exceeds the sum of the consideration transferred, the amount of any non-controlling interests in the acquiree and the
fair value of the acquirer’s previously held interest in the acquiree (if any), the excess is recognized immediately in
profit or loss as a bargain purchase gain.
Goodwill reflects how the acquisition will impact the Company’s ability to generate future profits in excess of existing
profits. The consideration paid mostly relates to combined synergies, related mainly to revenue growth. These benefits
are not recognized separately from goodwill as they do not meet the recognition criteria for identifiable intangible
assets.
Non-controlling interest are present ownership interests and entitle their holders to a proportionate share of the
Company’s net assets in the event of liquidation. These may be initially measured either at fair value or at the non-
controlling interests’ proportionate share of the recognized amounts of the acquiree’s identifiable net assets. The
choice of measurement basis is made on a transaction-by-transaction basis.
When the consideration transferred by the Company in a business combination includes assets or liabilities resulting
from a contingent consideration arrangement, the contingent consideration is measured at its acquisition date fair
value and included as part of the consideration transferred in a business combination. Changes in the fair value of the
contingent consideration that qualify as “measurement period” adjustments are adjusted retrospectively, with
corresponding adjustments against goodwill. Measurement period adjustments are adjustments that arise from
additional information obtained during the ‘measurement period’ (which cannot exceed one year from the acquisition
date) about facts and circumstances that existed at the acquisition date.
Page 16
MTY Food Group Inc.
Notes to the consolidated financial statements
For the years ended November 30, 2019 and 2018
(In thousands of Canadian dollars, except per share amounts and stock options)
3.
Accounting policies (continued)
Business combinations (continued)
The subsequent accounting for changes in the fair value of the contingent consideration that do not qualify as
measurement period adjustments depends on how the contingent consideration is classified. Contingent consideration
that is classified as equity is not remeasured at subsequent reporting dates and its subsequent settlement is accounted
for within equity. Contingent consideration that is classified as an asset or a liability is remeasured at subsequent
reporting dates in accordance with IFRS 9 or IAS 37 Provisions, Contingent Liabilities and Contingent Assets, as
appropriate, with the corresponding gain or loss being recognized in profit or loss.
When a business combination is achieved in stages, the Company’s previously held equity interest in the acquiree is
remeasured at fair value at the acquisition date (i.e. the date when the Company obtains control) and the resulting
gain or loss, if any, is recognized in profit or loss. Amounts arising from interests in the acquiree prior to the acquisition
date that have previously been recognized in other comprehensive income (loss) are reclassified to profit or loss where
such treatment would be appropriate if that interest were disposed of.
If the initial accounting for a business combination is incomplete by the end of the reporting period in which the
combination occurs, the Company reports provisional amounts for the items for which the accounting is incomplete.
Those provisional amounts are adjusted retrospectively during the measurement period (see above), or additional
assets or liabilities are recognized, to reflect new information obtained about facts and circumstances that existed at
the acquisition date that, if known, would have affected the amounts recognized at that date.
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.
Where goodwill forms part of a cash-generating unit (“CGU”) and part of the operation within the unit is disposed of,
the goodwill associated with the operation disposed of is included in the carrying amount of the operation when
determining the gain or loss on disposal of the operation. Goodwill disposed of in this circumstance is measured based
on the relative values of the operation and the portion of the CGU retained.
Revenue recognition
The Company’s accounting policies are summarized below:
Revenue from franchise locations
i)
ii)
iii)
iv)
Royalties are based either on a percentage of gross sales as reported by the franchisees or on a fixed
monthly fee. They are recognized on an accrual basis in accordance with the substance of the relevant
agreement, as they are earned.
Initial franchise fees are recognized on a straight-line basis over the term of the franchise agreement as the
performance obligation relating to franchise rights is fulfilled. Amortization begins once the restaurant has
opened.
Upfront fees related to master license agreements are recognized over the term of the master license
agreements on a straight-line basis.
Renewal fees and transfer fees are recognized on a straight-line basis over the term of the related franchise
agreement.
Page 17
MTY Food Group Inc.
Notes to the consolidated financial statements
For the years ended November 30, 2019 and 2018
(In thousands of Canadian dollars, except per share amounts and stock options)
3.
Accounting policies (continued)
Revenue from franchise locations (continued)
v)
vi)
vii)
viii)
Restaurant construction and renovation revenue is recognized when the construction and renovation are
completed.
The Company earns rent revenue on certain leases it holds and sign rental revenue. Rental income is
recognized on a straight-line basis over the term of the relevant lease in accordance with IAS 17.
The Company recognizes breakage income proportionately as each gift card is redeemed, based on the
historical redemption pattern of the gift cards. The Company also charges various program fees to its
franchisees as gift cards are redeemed. Notably, this does not apply to gift card liabilities assumed in a
business acquisition, which are accounted for at fair value at the acquisition date.
The Company receives considerations from certain suppliers. Fees are generally earned based on the value
of purchases during the year. Agreements that contain an initial upfront fee, in addition to ongoing fees, are
recognized on a straight-line basis over the term of the respective agreement. Supplier contributions are
recognized as revenue as they are earned and are recorded in other franchising revenue.
Revenue from food processing, distribution and retail
Food processing, distribution and retail revenue is recognized when the customer takes control of the product, which
usually occurs upon shipment or receipt of the goods by the customer, depending on the specific terms of the
agreement.
Revenue from promotional fund contributions
Promotional fund contributions are based on a percentage of gross sales as reported by the franchisees.
Corresponding promotional fund transfers to the promotional funds are reported separately and included in accounts
payable and accrued liabilities. The Company is not entitled to retain these promotional fund payments received and
is obligated to transfer these funds to be used solely for use in promotional and marketing-related costs for specific
restaurant banners. The Company sometimes charges a fee for the administration of the promotional funds. The
combined amount payable resulting from the promotional fund reserves amounts to a surplus of $10,046 (2018 –
$11,652). These amounts are included in accounts payable and accrued liabilities.
Revenue from corporate-owned locations
Revenue from corporate-owned locations is recorded when goods are delivered to customers.
Contract cost asset
The Company recognizes incremental costs of obtaining a contract as an asset if they are expected to be recoverable,
unless their amortization period would be less than one year, in which case they are expensed them as incurred. The
costs are amortized to operating expenses over the term of the related franchise agreement.
Assets held for sale
Judgment is required in determining whether an asset meets the criteria for classification as “assets held for sale” in
the consolidated statements of financial position. Criteria considered by management include the existence of and
commitment to a plan to dispose of the assets, the expected selling price of the assets, the expected timeframe of the
completion of the anticipated sale and the period of time any amounts have been classified within assets held for sale.
The Company reviews the criteria for assets held for sale each quarter and reclassifies such assets to or from this
category as appropriate. In addition, there is a requirement to periodically evaluate and record assets held for sale at
the lower of their carrying value and fair value less costs to sell.
Page 18
MTY Food Group Inc.
Notes to the consolidated financial statements
For the years ended November 30, 2019 and 2018
(In thousands of Canadian dollars, except per share amounts and stock options)
3.
Accounting policies (continued)
Leasing
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.
The Company as lessor
Rental income from operating leases is recognized on a straight-line basis over the term of the relevant lease.
The Company as lessee
Operating lease payments are recognized 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 rentals arising under operating leases are recognized as an expense in the period
in which they are incurred.
In the event that lease incentives are received to enter into operating leases, such incentives are recognized as a
liability. The aggregate benefit of incentives is recognized as a reduction of rental expense on a straight-line basis,
except where another systematic basis is more representative of the time pattern in which economic benefits from
the leased asset are consumed.
Functional and presentation currency
These financial statements are presented using the Company’s functional currency, which is the Canadian dollar.
Each entity of the Company determines its own functional currency, and the financial statement items of each entity
are measured using that functional currency. Functional currency is the currency of the primary economic environment
in which the entity operates.
The assets and liabilities of a foreign operation with a functional currency different from that of the Company are
translated into the presentation currency using the exchange rate in effect on the reporting date. Revenue and
expenses are translated into the presentation currency using the average exchange rate for the period. Exchange
differences arising from the translation of a foreign operation are recognized in reserves. Upon complete or partial
disposal of the investment in the foreign operation, the foreign currency translation reserve or a portion of it will be
recognized in the statement of income in other income (charges).
Taxation
Income tax expense represents the sum of the tax currently payable and deferred tax.
Current tax
The tax currently payable is based on taxable profit for the year and adjustments to prior year provisions. Taxable
profit differs from profit as reported in the consolidated statement of income because of items of income 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 by the end of the
reporting period.
Page 19
MTY Food Group Inc.
Notes to the consolidated financial statements
For the years ended November 30, 2019 and 2018
(In thousands of Canadian dollars, except per share amounts and stock options)
3.
Accounting policies (continued)
Taxation (continued)
Deferred tax
Deferred tax is recognized on temporary differences between the carrying amounts of assets and liabilities in the
financial statements and the corresponding tax bases used in the computation of taxable profit. Deferred tax
liabilities are generally recognized for all taxable temporary differences. Deferred tax assets are generally
recognized for all deductible temporary differences to the extent that it is probable that taxable profits will be
available against which those deductible temporary differences can be utilized. Such deferred tax assets and
liabilities are not recognized if the temporary difference arises from goodwill or from the initial recognition (other
than in a business combination) of other assets and liabilities in a transaction that affects neither the taxable profit
nor the accounting profit. In addition, deferred tax liabilities are not recognised if the temporary difference arises
from the initial recognition of goodwill.
Deferred tax liabilities are recognized for taxable temporary differences associated with investments in
subsidiaries, except where the Company is able to control the reversal of the temporary difference and it is probable
that the temporary difference will not reverse in the foreseeable future. Deferred tax assets arising from deductible
temporary differences associated with such investments and interests are only recognized to the extent that it is
probable that there will be sufficient taxable profits against which to utilize the benefits of the temporary differences
and they are expected to reverse in the foreseeable future.
The carrying amount of deferred tax assets is reviewed at the end of each reporting period and reduced to the
extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to
be recovered.
Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the period in which
the liability is settled or the asset realized, based on tax rates (and tax laws) that have been enacted or
substantively enacted by the end of the reporting period. The measurement of deferred tax liabilities and assets
reflects the tax consequences that would follow from the manner in which the Company expects, at the end of the
reporting period, to recover or settle the carrying amount of its assets and liabilities.
Current and deferred tax for the year
Current and deferred tax are recognized in profit or loss, except when they relate to items that are recognized in
other comprehensive income (loss) or directly in equity, in which case, the current and deferred tax are also
recognized in other comprehensive income (loss) or directly in equity respectively. Where current tax or deferred
tax arises from the initial accounting for a business combination, the tax effect is included in the accounting for the
business combination.
Property, plant and equipment
Land and buildings held for use in the production or supply of goods or services, or for administrative purposes, are
stated in the consolidated statement of financial position at their historical costs less accumulated depreciation
(buildings) and accumulated impairment losses. Cost includes expenditures that are directly attributable to the
acquisition of the asset, including any costs directly attributable to bringing the asset to a working condition for its
intended use.
Equipment, leasehold improvements, rolling stock and computer hardware are stated at cost less accumulated
depreciation and accumulated impairment losses.
Depreciation is recognized so as to write off the cost or valuation of assets (other than land) less their residual values
over their useful lives, using the straight-line method. The estimated useful lives, residual values and depreciation
methods are reviewed at the end of each year, with the effect of any changes in estimate accounted for on a
prospective basis.
An item of property, plant and equipment is derecognized upon disposal or when no future economic benefits are
expected to arise from the continued use of the asset. Any gain or loss arising on 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 recognized in profit or loss.
Page 20
MTY Food Group Inc.
Notes to the consolidated financial statements
For the years ended November 30, 2019 and 2018
(In thousands of Canadian dollars, except per share amounts and stock options)
3.
Accounting policies (continued)
Property, plant and equipment (continued)
Depreciation is based on the following terms:
Buildings
Equipment
Leasehold improvements
Rolling stock
Computer hardware
Straight-line
Straight-line
Straight-line
Straight-line
Straight-line
25 to 50 years
3 to 10 years
Term of the lease
5 to 7 years
3 to 7 years
Intangible assets
Intangible assets acquired separately
Intangible assets with finite useful lives that are acquired separately are carried at cost less accumulated
amortization and accumulated impairment losses, if applicable. Amortization is recognized on a straight-line basis
over their estimated useful lives. The estimated useful lives and amortization methods are reviewed at the end of
each year, with the effect of any changes in estimate being accounted for on a prospective basis. Intangible assets
with indefinite useful lives that are acquired separately are carried at cost less accumulated impairment losses, if
applicable.
Intangible assets acquired in a business combination
Intangible assets acquired in a business combination and recognized separately from goodwill are initially
recognized at their fair value at the acquisition date.
Subsequent to initial recognition, intangible assets having a finite life acquired in a business combination are
reported at cost less accumulated amortization and accumulated impairment losses, if applicable, on the same
basis as intangible assets that are acquired separately. Intangible assets having an indefinite life are not amortized
and are therefore carried at cost less accumulated impairment losses, if applicable.
Derecognition of intangible assets
An intangible asset is derecognized on disposal, or when no future economic benefits are expected from use or
disposal. Gains or losses arising from derecognition of an intangible asset, measured as the difference between
the net disposal proceeds and the carrying amount of the asset, are recognized in profit or loss when the asset is
derecognized.
The Company currently carries the following intangible assets on its books:
Franchise rights and master franchise rights
The franchise rights and master franchise rights acquired through business combinations were recognized at the fair
value of the estimated future cash inflows related to the acquisition of franchises. The franchise rights and master
franchise rights are generally amortized on a straight-line basis over the terms of the agreements, which typically
range between 10 to 20 years.
Step-in rights
Step-in rights are the rights of the Company to take over the premises and associated lease of a franchised location
in the event the franchise is in default of payments. These are acquired through business combinations and are
recognized at their fair value at the time of the acquisition. They are amortized over the term of the franchise
agreement.
Trademarks
Trademarks acquired through business combinations were recognized at their fair value at the time of the acquisition
and are not amortized. Trademarks were determined to have an indefinite useful life based on their strong brand
recognition and their ability to generate revenue through changing economic conditions with no foreseeable time limit.
Page 21
MTY Food Group Inc.
Notes to the consolidated financial statements
For the years ended November 30, 2019 and 2018
(In thousands of Canadian dollars, except per share amounts and stock options)
3.
Accounting policies (continued)
Leases
Leases, which represent the value associated with preferential terms or locations, are amortized on a straight-line
basis over the term of the leases.
Other
Included in other intangible assets is primarily purchased software, which is being amortized over its expected useful
life on a straight-line basis.
Impairment of long-lived assets
At the end of each reporting period, the Company reviews the carrying amounts of its tangible and intangible assets
to determine whether there is any indication of impairment. 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). Where it is not possible to
estimate the recoverable amount of an individual asset, the Company estimates the recoverable amount of the CGU
to which the asset belongs. Where a reasonable and consistent basis of allocation can be identified, corporate assets
are also allocated to individual CGU, or otherwise they are allocated to the smallest group of cash-generating units
for which a reasonable and consistent allocation basis can be identified. A majority of the Company’s intangible assets
do not have cash inflows independent of those from other assets and as such are tested within their respective CGU.
Intangible assets with indefinite useful lives are tested for impairment at least annually, and whenever there is an
indication that the asset may be impaired.
Recoverable amount is the higher of fair value less costs of disposal 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 an asset (or CGU) is estimated to be less than its carrying amount, the carrying amount
of the asset (or CGU) is reduced to its recoverable amount. An impairment loss is recognized immediately in profit or
loss. The Company does not reduce the carrying value of an asset below the highest of its fair value less cost of
disposal and its value in use.
Where an impairment loss subsequently reverses, the carrying amount of the asset (or CGU) is increased to the
revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying
amount that would have been determined had no impairment loss been recognized for the asset (or CGU) in prior
years. A reversal of an impairment loss is recognized immediately in profit or loss.
Impairment of goodwill
For the purposes of impairment testing, goodwill is allocated to each of the Company’s CGU’s (or groups of CGU’s)
that is expected to benefit from the synergies of the combination.
A CGU unit to which goodwill has been allocated is tested for impairment annually as at August 31, or more frequently
when there is an indication that the unit may be impaired. If the recoverable amount of the CGU 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 recognized directly in profit or loss in the consolidated statement of income. An impairment loss
recognized for goodwill is not reversed in subsequent periods.
Recoverable amount is the higher of fair value less costs of disposal 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.
Page 22
MTY Food Group Inc.
Notes to the consolidated financial statements
For the years ended November 30, 2019 and 2018
(In thousands of Canadian dollars, except per share amounts and stock options)
3.
Accounting policies (continued)
Cash
Cash includes cash on hand and short-term investments, if any, with maturities upon acquisition of generally three
months or less or that are redeemable at any time at full value and for which the risk of a change in value is not
significant.
Inventories
Inventories are measured at the lower of cost and net realizable value. Costs of inventories are determined on a first-
in-first-out basis and include acquisition costs, conversion costs and other costs incurred to bring inventories to their
present location and condition. The cost of finished goods includes a pro-rata share of production overhead based on
normal production capacity.
In the normal course of business, the Company enters into contracts for the construction and sale of franchise
locations. The related work in progress inventory includes all direct costs relating to the construction of these locations
and is recorded at the lower of cost and net realizable value.
Net realizable value represents the estimated selling price for inventories less all estimated costs of completion and
costs necessary to make the sale.
Financial instruments
Classification of financial assets
Financial assets are recognized when the Company becomes a party to the contractual provisions of the instrument.
Financial assets are initially measured at fair value. Transaction costs that are directly attributable to the acquisition
or issue of financial assets (other than financial assets at fair value through profit or loss “FVTPL”) are added to or
deducted from the fair value of the financial assets, as appropriate, on initial recognition. Transaction costs directly
attributable to the acquisition of financial assets at FVTPL are recognized immediately in profit or loss.
On initial recognition, the Company classifies its financial assets as subsequently measured at either amortized cost,
Fair Value through Other Comprehensive Income “FVOCI” or FVTPL, depending on its business model for managing
the financial assets and the contractual cash flow characteristics of the financial assets.
A financial asset is subsequently measured at amortized cost if the asset is held within a business model whose
objective is to hold assets in order to collect contractual cash flows and the contractual terms of the financial asset
give rise, on specified dates, to cash flows that are solely payments of principal and interest. Unless a financial asset
is designated at FVTPL, a financial asset is subsequently measured at FVOCI if the asset is held within a business
model in order to collect contractual cash flows and sell financial assets and the contractual terms of the instrument
give rise, on specified dates, to cash flows that are solely payments of principal and interest. Financial assets that do
not meet either the contractual cash flow characteristics of solely payments of principal and interest or the business
model of held to collect or held to collect and sell are measured at FVTPL. Financial assets measured at FVTPL and
any subsequent changes therein are recognized in net income.
The Company currently classifies its cash, accounts receivable and loans receivable as assets measured at amortized
cost.
Effective interest method
The effective interest method is a method of calculating the amortized cost of a debt instrument and of allocating
interest income over the relevant period. The effective interest rate is the rate that exactly discounts estimated future
cash receipts (including all fees and points paid or received that form an integral part of the effective interest rate,
transaction costs and other premiums or discounts) through the expected life of the debt instrument, or, where
appropriate, a shorter period, to the net carrying amount on initial recognition.
Income is recognized on an effective interest basis for debt instruments other than those financial assets classified as
at FVTPL.
Page 23
MTY Food Group Inc.
Notes to the consolidated financial statements
For the years ended November 30, 2019 and 2018
(In thousands of Canadian dollars, except per share amounts and stock options)
3.
Accounting policies (continued)
Financial instruments (continued)
Impairment of financial assets
The Company uses the simplified expected credit-loss (“ECL”) model for its trade receivables, as permitted by IFRS
9, Financial Instruments. The simplified approach under IFRS 9 permits the use of the lifetime expected loss provision
for all trade receivables and also incorporates forward-looking information. Lifetime ECL represents the ECL that will
result from all probable default events over the expected life of a financial instrument.
For its loans receivable balance carried at amortized cost, the Company has applied the general ECL model. Unlike
the simplified approach, the general ECL model depends on whether there has been a significant increase in credit
risk. The Company considers the probability of default upon initial recognition of the financial asset and whether there
has been a significant increase in credit risk on an ongoing basis throughout each reporting period. To assess whether
there is a significant increase in credit risk, the Company compares the risk of a default occurring on the asset as at
the reporting date with the risk of default as at the date of initial recognition of the financial asset.
A significant increase in credit risk is assessed based on changes in the probability of default since initial recognition
along with borrower-specific qualitative information, or when loans are more than 30 days past due. Loans are
considered impaired and in default when they are 90 days past due or there is sufficient doubt regarding the ultimate
collectability of principal and/or interest. Loans that are 180 days past due are written down to the present value of the
expected future cash flows. Impairment under the IFRS 9 general ECL model is assessed on an individual basis. In
assessing the risk of default, the Company also incorporates available reasonable and supportive forward-looking
information.
When credit risk is assessed as being low or when there has not been a significant increase in credit risk since initial
recognition, the ECL is based on a 12-month ECL which represents the portion of lifetime ECL expected to occur from
default events that are possible within 12 months after the reporting date. If a significant increase in credit risk has
occurred throughout a reporting period, impairment is based on lifetime ECL.
Derecognition of financial assets
The Company derecognizes a financial asset only when the contractual rights to the cash flows from the asset expire,
or when it transfers the financial asset and substantially all the risks and rewards of ownership of the asset to another
entity. On derecognition of a financial asset in its entirety, the difference between the asset’s carrying amount and the
sum of the consideration received and receivable and the cumulative gain or loss that had been recognized in other
comprehensive income (loss) and accumulated in equity is recognized in profit or loss.
Derecognition of financial liabilities
The Company derecognizes financial liabilities when, and only when, the Company’s obligations are discharged,
cancelled or they expire. The difference between the carrying amount of the financial liability derecognized and the
consideration paid and payable is recognized in profit or loss.
Classification of financial liabilities
Financial liabilities are initially recorded at fair value and subsequently measured at amortized cost using the effective
interest rate method with gains and losses recognized in net income in the period that the liability is derecognized,
except for financial liabilities classified as FVTPL. These financial liabilities, including derivative liabilities and certain
obligations, are subsequently measured at fair value with changes in fair value recorded in net income in the period
in which they arise. Financial liabilities designated as FVTPL are recorded at fair value with changes in fair value
attributable to changes in the Company’s own credit risk recorded in net income.
Page 24
MTY Food Group Inc.
Notes to the consolidated financial statements
For the years ended November 30, 2019 and 2018
(In thousands of Canadian dollars, except per share amounts and stock options)
3.
Accounting policies (continued)
Financial instruments (continued)
Financial liabilities classification:
Accounts payable and accrued liabilities
Revolving credit facility
Non-interest-bearing contract cancellation fees
and holdbacks
Contingent consideration related to the acquisition
of Yuzu Sushi and Allô! Mon Coco
Promissory notes Houston Avenue Bar & Grill
Promissory notes related to the buyback obligation
of Houston Avenue Bar & Grill and Industria
Pizzeria + Bar
Non-controlling interest buyback obligation
Non-controlling interest option
Provisions
Amortized cost
Amortized cost
Amortized cost
FVTPL
FVTPL
FVTPL
FVTPL
FVTPL
Provisions are recognized 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 recognized as a provision is the best estimate of the consideration required to settle the present obligation
at the end of the reporting period, taking into account the risks and uncertainties surrounding the obligation. Provisions
are measured at the present value of the cash flows expected to be required to settle the obligation using a pre-tax
rate that reflects current market assessments of the time value of money and the risks specific to the obligation. This
is recorded in cost of goods sold and rent (note 26) on the consolidated statement of income.
When some or all of the economic benefits required to settle a provision are expected to be recovered from a third
party, a receivable is recognized as an asset if it is virtually certain that reimbursement will be received and the amount
of the receivable can be measured reliably.
Onerous contracts
Present obligations arising under onerous contracts are recognized and measured as provisions. An onerous
contract is considered to exist where the Company has a contract under which the unavoidable costs of meeting
the obligations under the contract exceed the economic benefits expected to be received from the contract.
Litigation, disputes and closed stores
Provisions for the expected cost of litigation, disputes and the cost of settling leases for closed stores are
recognized when it becomes probable the Company will be required to settle the obligation, at management’s best
estimate of the expenditure required to settle the Company’s obligation.
Contingent liabilities acquired in a business combination
Contingent liabilities acquired in a business combination are initially measured at fair value at the acquisition date.
At the end of subsequent reporting periods, such contingent liabilities are measured at the higher of the amount
that would be recognized in accordance with IAS 37 Provisions, Contingent Liabilities and Contingent Assets and
the amount initially recognized less cumulative amortization recognized, if any.
Gift card and loyalty program liabilities
Gift card liability represents liabilities related to unused balances on reloadable payment cards. Loyalty program
liabilities represent the dollar value of the loyalty points earned and unused by customers.
Page 25
MTY Food Group Inc.
Notes to the consolidated financial statements
For the years ended November 30, 2019 and 2018
(In thousands of Canadian dollars, except per share amounts and stock options)
3.
Accounting policies (continued)
Gift card and loyalty program liabilities (continued)
The Company’s various franchised and corporate-owned locations, in addition to third-party companies, sell gift cards
to be redeemed at the Company’s corporate and franchised locations for food and beverages only. Proceeds from the
sale of gift cards are included in gift card liability until redeemed by the gift cardholder as a method of payment for
food and beverage purchases.
Due to the inherent nature of gift cards, it is not possible for the Company to determine what portion of the gift card
liability will be redeemed in the next 12 months and, therefore, the entire unredeemed gift card liability is considered
to be a current liability.
Deferred revenue and deposits
The Company has deferred revenue and deposits for amounts received for which the service or sale of goods
associated with these revenues have not yet been rendered. These are comprised mainly of franchise fee deposits,
unearned rent, and supplier contributions. Revenues on these are recorded once the service or contract terms have
been met and the services or goods have been delivered.
Share-based payment arrangements
The Company measures stock options granted to employees that vest in specified installments over the service period
based on the fair value of each tranche on the grant date by using the Black-Scholes option-pricing model. Based on
the Company’s estimate of equity instruments that will eventually vest, a compensation expense is recognized over
the vesting period applicable to the tranche with a corresponding increase to contributed surplus. Details regarding
the determination of the fair value of equity-settled share-based transactions are set out in Note 21.
At the end of each reporting period, the Company revises its estimate of the number of equity instruments expected
to vest. The impact of the revision of the original estimates, if any, is recognized in profit or loss such that the cumulative
expense reflects the revised estimate, with a corresponding adjustment in contributed surplus. When the stock options
are exercised, share capital is credited by the sum of the consideration paid and the related portion previously recorded
in contributed surplus.
Operating segments
An operating segment is a distinguishable component of the Company that engages in business activities from which
it may earn revenue and incur expenses, including revenue and expenses that relate to transactions with any of the
Company’s other components, and for which separate financial information is available. Segment disclosures are
provided for the Company’s operating segments (note 31). The operating segments are determined based on the
Company’s management and internal reporting structure. All operating segments’ operating results are regularly
reviewed by the Chief Operating Officers (“COO’s”) to make decisions on resources to be allocated to the segment
and to assess its performance.
4. Changes in accounting policies
IFRS 9 – Financial Instruments
Beginning on December 1, 2018, the Company adopted IFRS 9, issued in July 2014 and the related consequential
amendments to IFRS 7. IFRS 9 introduces new requirements for the classification of financial assets based on the
business model used by an entity to manage financial assets and the characteristics of the contractual cash flows of
those financial assets. IFRS 9 provides three classification categories for financial assets: measured at amortized
cost, FVOCI and FVTPL, replacing previous IAS 39 categories of held to maturity, loans and receivables and available
for sale.
Page 26
MTY Food Group Inc.
Notes to the consolidated financial statements
For the years ended November 30, 2019 and 2018
(In thousands of Canadian dollars, except per share amounts and stock options)
4.
Changes in accounting policies (continued)
IFRS 9 – Financial Instruments (continued)
IFRS 9 also introduces a new ECL for calculating impairment on financial assets replacing the incurred loss model in
IAS 39. The ECL model applies to financial assets measured at amortized cost. Under IFRS 9, ECLs are recognized
on initial recognition of financial assets which is earlier than under IAS 39. The adoption of IFRS 9 has not resulted in
a material change to the Company's allowance for trade receivables and loans receivable.
The Company also adopted amendments to IFRS 9, issued in October 2017, effective in 2018. The component of the
amendments relevant to the Company relates to clarifying the accounting for the modification of financial liabilities and
requires the Company to recognize any adjustments to the amortized cost of the financial liability arising from a
modification or exchange in profit or loss at the date of the modification or exchange, regardless of whether the
changes are substantial and result in derecognition. The Company previously modified the terms for the revolving
credit facility debts, which did not result in the derecognition of those debts. However, there was no impact on the
carrying amount of the debt as a result of applying the amendments to IFRS 9.
IFRS 9 Transitional Adjustments
As a result of the Company electing not to restate comparative figures, the information presented in the financial
statements for the prior year does not reflect the requirements of IFRS 9.
The following table summarizes the change in classification
Original classification
under IAS 39
New classification under
IFRS 9
Financial assets:
Cash
Accounts receivable
Loans receivable
Financial liabilities:
Loans and receivable
Loans and receivable
Loans and receivable
Accounts payable and accrued liabilities
Revolving credit facility
Non-interest-bearing contract cancellation fees
Other financial liabilities
Other financial liabilities
Other financial liabilities
Amortized cost
Amortized cost
Amortized cost
Amortized cost
Amortized cost
Amortized cost
and holdbacks
Promissory notes related to the buyback obligation
of Houston Avenue Bar & Grill and Industria
Pizzeria + Bar
Non-controlling interest buyback obligation
Non-controlling interest option
FVTPL
FVTPL
FVTPL
FVTPL
FVTPL
FVTPL
Following the adoption of IFRS 9, there were no further changes to the classification categories of financial assets and
financial liabilities.
Page 27
MTY Food Group Inc.
Notes to the consolidated financial statements
For the years ended November 30, 2019 and 2018
(In thousands of Canadian dollars, except per share amounts and stock options)
4.
Changes in accounting policies (continued)
IFRS 15 – Revenue from Contracts with Customers
IFRS 15 replaces the following standards: IAS 11 Construction Contracts, IAS 18 Revenue, IFRIC 13 Customer
Loyalty Programmes, IFRIC 15 Agreements for the Construction of Real Estate, IFRIC 18 Transfers of Assets from
Customers and Standing Interpretations Committee (“SIC”) 31 Revenue – Barter Transactions Involving Advertising
Services. This new standard sets out the requirements for recognizing and disclosing revenue that apply to all
contracts with customers. The core principle of IFRS 15 is that an entity recognizes revenue to depict the transfer of
promised goods or services to customers in an amount that reflects the consideration to which the entity expects to
be entitled in exchange for those goods and services. IFRS 15 also includes a cohesive set of disclosure
requirements that would result in an entity providing comprehensive information about the nature, amount, timing
and uncertainty of revenue and cash flows arising from the entity’s contracts with customers. On December 1, 2018,
the Company adopted IFRS 15 using the retrospective transition method.
The adoption of the new standard had the following impacts:
Initial franchise fees, master franchise fees, transfer fees and renewal fees: under previous guidance, the Company
recognized these fees when all material obligations and services were performed. Under the new guidance, the
Company defers these fees and recognizes them over the term of the related franchise agreement. This has no impact
on the amount or timing of cash flows.
Promotional funds: under the previous guidance, the Company did not reflect promotional funds collected from
franchisees and the related promotional expenditures in the consolidated statements of income. Under the new
standard, the promotional funds collected, and the related expenditures are reported on a gross basis in the
consolidated statements of income. To the extent that promotional funds received exceed the related promotional
expenditures, the excess contributions will be recorded in accounts payable and accrued liabilities.
Costs to obtain a contract: under the new guidance, incremental costs to obtain a contract have to be deferred if they
are expected to be recoverable, unless their amortization period would be less than one year, in which case a practical
expedient can be used to expense them as incurred. Accordingly, the Company now recognizes those costs as an
asset when incurred and amortizes this asset over the term of the related franchise agreement.
Gift cards: there is a change for some of the gift card programs which were being accounted for based on the remote
likelihood of a gift card being redeemed. Following the adoption of the new standard, all of the gift card programs now
record expected breakage income proportionately as gift cards are redeemed.
Restaurant construction and renovation: restaurant construction and renovation revenue were previously recognized
by reference to the stage of completion of the contract activity; under the new standard, the criteria for recognizing
revenue over time are not met, and therefore, the Company now recognizes the revenue for these services at a point
in time, when the construction and renovation are completed.
Additional disclosures have been included in notes 25 and 31.
Page 28
MTY Food Group Inc.
Notes to the consolidated financial statements
For the years ended November 30, 2019 and 2018
(In thousands of Canadian dollars, except per share amounts and stock options)
4.
Changes in accounting policies (continued)
IFRS 15 – Revenue from Contracts with Customers (continued)
Impact on the financial statements
The following tables show the adjustments recognized for each line item impacted by the change.
Consolidated statements of income
Year ended
November 30, 2018
IFRS 15
adjustments
$
As previously
reported
$
353,303
225,560
59,043
61,935
82,900
(2,892)
As restated
$
412,346
287,495
80,008
(34,812)
(88)
(34,900)
98,991
(2,804)
4.07
4.06
0.12
0.11
96,187
3.95
3.95
Year ended
November 30, 2018
IFRS 15
adjustments
$
As previously
reported
$
14,748
112,719
(177)
(2,981)
As restated
$
14,571
109,738
Revenue
Operating expenses
Income before taxes
Income tax expense (recovery)
Deferred
Net income
Income per share – basic
Income per share – diluted
Consolidated statements of comprehensive income
Unrealized gain (loss) on translation of
foreign operations
Total comprehensive income
Page 29
MTY Food Group Inc.
Notes to the consolidated financial statements
For the years ended November 30, 2019 and 2018
(In thousands of Canadian dollars, except per share amounts and stock options)
4.
Changes in accounting policies (continued)
IFRS 15 – Revenue from Contracts with Customers (continued)
Impact on the financial statements (continued)
Consolidated statement of financial position
As at November 30, 2018
Assets
Current assets
Accounts receivable
Inventories
Prepaid expenses and deposits (1)
As previously
reported
$
IFRS 15
adjustments
$
As restated
$
49,168
3,574
7,291
803
455
624
49,971
4,029
7,915
Contract cost assets
—
3,717
3,717
Liabilities and Shareholders’ equity
Liabilities
Current liabilities
Accounts payable and accrued liabilities
Deferred revenue and deposits
Deferred revenue and deposits
Deferred income taxes (2)
Reserves
Retained earnings
68,700
20,122
705
123,078
1,245
315,985
(888)
662
32,680
(7,078)
(133)
(19,644)
67,812
20,784
33,385
116,000
1,112
296,341
(1) Relates to the current portion of the contract costs assets.
(2) As the previously reported balance was restated in the consolidated financial statements for year ended
November 30, 2019. Refer to adjustment in Note 7.
Page 30
MTY Food Group Inc.
Notes to the consolidated financial statements
For the years ended November 30, 2019 and 2018
(In thousands of Canadian dollars, except per share amounts and stock options)
4.
Changes in accounting policies (continued)
IFRS 15 – Revenue from Contracts with Customers (continued)
Impact on the financial statements (continued)
Consolidated statement of financial position
As at December 1, 2017
As previously
reported
IFRS 15
adjustments
$
$
As restated
$
Assets
Current assets
Accounts receivable
Inventories
Prepaid expenses and deposits
Contract cost assets
Liabilities and Shareholders’ equity
Liabilities
Current liabilities
Accounts payable and accrued liabilities
Deferred revenue and deposits
Deferred revenue
Deferred income taxes
Reserves
Retained earnings
34,151
3,281
5,461
—
57,555
20,844
1,946
116,931
(13,113)
232,192
1,414
312
440
2,062
(608)
(1,356)
29,905
(6,917)
44
(16,840)
35,565
3,593
5,901
2,062
56,947
19,488
31,851
110,014
(13,069)
215,352
5. Critical accounting judgments and key sources of estimation uncertainty
In the application of the Company’s accounting policies, which are described in note 3, management is required to
make judgements and to make 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
recognized 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.
The following are the critical judgements, 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
recognized in the financial statements.
Impairment of long-lived assets
The Company assesses whether there are any indicators of impairment for all long-lived assets at each reporting
period date. In addition, management is required to use judgement in determining the grouping of assets to identify
CGU; the determination is done based on management’s best estimation of what constitutes the lowest level at
which an asset or group of assets has the possibility of generating cash inflows.
Page 31
MTY Food Group Inc.
Notes to the consolidated financial statements
For the years ended November 30, 2019 and 2018
(In thousands of Canadian dollars, except per share amounts and stock options)
5. Critical accounting judgments and key sources of estimation uncertainty (continued)
Key sources of estimation uncertainty
The following are the key assumptions concerning the future, and other 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.
Business combinations
For business combinations, the Company must make assumptions and estimates to determine the purchase price
accounting of the business being acquired. To do so, the Company must determine the acquisition date fair value
of the identifiable assets acquired, including such intangible assets as franchise rights and master franchise rights,
trademarks, step-in rights and liabilities assumed. Among other things, the determination of these fair market
values involves the use of discounted cash flow analyses and future system sales growth. Goodwill is measured
as the excess of the fair value of the consideration transferred including the recognized amount of any non-
controlling interest in the acquiree over the net recognized amount of the identifiable assets acquired and liabilities
assumed, all measured at the acquisition date. These assumptions and estimates have an impact on the asset
and liability amounts recorded in the statement of financial position on the acquisition date. In addition, the
estimated useful lives of the acquired amortizable assets, the identification of intangible assets and the
determination of the indefinite or finite useful lives of intangible assets acquired will have an impact on the
Company’s future profit or loss.
Impairment of property, plant and equipment, franchise rights and trademarks
The Company performs at least annually an impairment test of its trademarks. The recoverable amounts of the
Company’s assets are generally estimated based on value-in-use calculations using a discounted cash flow
approach as this was determined to be higher than fair value less cost of disposal, except for certain corporate
store assets for which fair value less cost of disposal was higher than their value in use. The fair value less cost of
disposal of corporate stores is generally determined by estimating the liquidation value of the restaurant equipment.
In the current year, the value in use of CGUs tested was higher or equal to the carrying value of the assets.
Impairment assessments were established using discount rates of 8.2% in Canada and 8.3% in the United States
of America (US), on the corporate stores, the trademarks and franchise rights. Discount rates are based on pre-
tax rates that reflect the current market assessments, taking the time value of money and the risks specific to the
CGU into account. A change of 1% in discounts rates in the US would result in an additional impairment of one
brand representing 0.7% of the total carrying value of the franchise rights and trademarks in that CGU. A change
of 1% in discounts rates in the Canada would result in an impairment of two brands representing 1.6% of the total
carrying value of franchise rights and trademarks in that CGU.
During the year, the Company recognized an impairment on three of its trademarks and on the franchise rights of
three of its brands following a decline in the performance of the related brands. The total impairment of $1,661
(2018 – $5,827) represents a write-down of the carrying value to the fair value of the trademarks and franchise
rights. In 2018, impairment was offset by a reversal of impairment of $2,356. The fair value was determined using
significant unobservable inputs such as discount rates and projected revenues and EBITDA. The fair value is
classified as level 3 in the fair value hierarchy.
During the year, the Company also recognized an impairment on property, plant and equipment for two of its
brands. The cumulative impairment on property, plant and equipment of $958 (2018 – $2,060) represents a write-
down of the carrying value of the leasehold improvements and equipment to their fair value less cost of disposal,
which was higher than their value in use.
These calculations take into account our best estimate of future cash flows, using previous year’s cash flows for
each CGU to extrapolate a CGUs future performance to the earlier of the termination of the lease (if applicable) or
five years and a terminal value is calculated beyond this period, assuming no growth to the cash flows of previous
periods. A cash flow period of five years was used as predictability for periods beyond this cannot be estimated
with reasonable accuracy.
Page 32
MTY Food Group Inc.
Notes to the consolidated financial statements
For the years ended November 30, 2019 and 2018
(In thousands of Canadian dollars, except per share amounts and stock options)
5. Critical accounting judgments and key sources of estimation uncertainty (continued)
Key sources of estimation uncertainty (continued)
Impairment of goodwill
Determining whether goodwill is impaired requires an estimation of recoverable amount in use of the CGUs to
which goodwill has been allocated. The value-in-use calculation requires management to estimate the future cash
flows expected to arise from the CGU and a suitable discount rate in order to calculate present value. During the
year or in prior year, no impairment charge on goodwill was required.
The Company used discount rates of 8.2% in Canada, 8.3% in the US (excluding Papa Murphy’s) and 8.3% for
Papa Murphy’s, for its assessment of goodwill. In the US, the recoverable amount of goodwill for all of the brands
excluding Papa Murphy’s would be breakeven using a discount rate of 8.9%, while for Papa Murphy’s of 10.4%.
Moreover, in Canada the recoverable amount of goodwill for the CGU would be breakeven using a discount rate
of 14.9%.
Provisions
The Company makes assumptions and estimations based on its current knowledge of future disbursements it will
have to make in connection with various events that have occurred in the past and for which the amount to be
disbursed and the timing of such disbursement are uncertain at the date of producing its financial statements. This
includes provisions for onerous contracts, litigations and disputes and contingencies.
Gift card liabilities
Management is required to make certain assumptions in both the prorated recognition based on redemption pattern
and remoteness recognition of gift card breakage. The significant estimates are breakage rate and the redemption
patterns.
Supplier contributions
The Company recognizes certain revenues based on estimated considerations to be received from suppliers.
These estimates are based on historical patterns of purchase and earned revenues.
6.
Future accounting changes
A number of new standards, interpretations and amendments to existing standards were issued by the International
Accounting Standard Board (“IASB”) that are not yet effective for the period ended November 30, 2019 and have not
been applied in preparing these consolidated financial statements.
The following standards may have a material impact on the consolidated financial statements of the Company:
Standard
Issue date
Effective date for
the Company
Impact
IFRS 3 Business Combinations
IFRS 16 Leases
IFRIC 23 Uncertainty over Income Tax Treatments June 2017
October 2018
January 2016
December 1, 2020
December 1, 2019
December 1, 2019
In assessment
In assessment
In assessment
IFRS 3 – Business Combinations
In October 2018, the IASB issued amendments to the definition of a business in IFRS 3 Business Combinations. The
amendments are intended to assist entities to determine whether a transaction should be accounted for as a business
combination or as an asset acquisition. The amendments to IFRS 3 are effective for annual reporting periods beginning
on or after 1 January 2020 and apply prospectively. Earlier application is permitted. The Company will adopt
December 1, 2020.
Page 33
MTY Food Group Inc.
Notes to the consolidated financial statements
For the years ended November 30, 2019 and 2018
(In thousands of Canadian dollars, except per share amounts and stock options)
6.
Future accounting changes (continued)
IFRS 16 – Leases
On January 13, 2016, the IASB issued IFRS 16 that provides a comprehensive model for the identification of lease
arrangements and their treatment in the financial statements of both lessees and lessors. It supersedes IAS 17 Leases
and its associated interpretive guidance. Significant changes were made to lessee accounting with the distinction
between operating and finance leases removed and assets and liabilities recognized in respect of all leases (subject
to limited exceptions for short-term leases and leases of low value assets). In contrast, IFRS 16 does not include
significant changes to the requirements for lessors. IFRS 16 is effective January 1, 2019 with earlier application
permitted for companies that have also adopted IFRS 15. The Company anticipates a material change in the
presentation of both the consolidated statement of financial position with a range of approximately $550 – $650 million
of lease liabilities, $25 – $75 million of right-of-use-assets and $475 – $575 million of finance lease receivable and the
consolidated statement of income. Lease-related expenses previously recorded in operating expenses, primarily as
occupancy costs will be recorded as depreciation on the right-of-use assets and a finance charge from unwinding the
discount on the lease liabilities. Lease-related revenues previously recorded in rent revenue will be recorded as finance
income. IFRS 16 will also change the presentation of cash flows relating to leases in the Company’s Consolidated
Statements of cash flows, but it does not cause a difference in the amount of cash transferred between the parties of
a lease.
Although the standard did not change the accounting for most lessors significantly, it does change the manner in which
sublessors determine the classification of sublease arrangements between operating and finance leases. Under IFRS
16 this assessment is determined relative to whether the sublease transfers significant risks and rewards of the right
of use asset. Accordingly, the Company expects that many of the Company’s subleases will be classified as finance
leases under IFRS 16 and that it will begin to record interest income on such subleases within the Company’s financing
income.
IFRS 16 will be applied for the fiscal year beginning on December 1, 2019 using the modified retrospective approach
and the Company will therefore not be restating comparative information. In determining the lease term, management
considers all factors that may create an economic incentive to exercise a renewal option or termination option when
determining the lease term under the new standard.
In addition, the Company has elected to use the following practical expedients on adoption of IFRS 16:
• The Company has not reassessed, under IFRS 16, contracts that were identified as leases under the previous
accounting standards (IAS 17 and IFRIC 4);
• The use of the provision for onerous leases as an alternative to performing an impairment review;
• The right to exclude initial direct costs from the measurement of the right-of-use asset at the date of initial
application;
•
•
the accounting for operating leases with a remaining lease term of less than 12 months as at December 1,
2019 as short-term leases and leases for which the underlying asset is of low value;
the use of hindsight in determining the lease term where the contract contains options to extend or terminate
the lease.
Page 34
MTY Food Group Inc.
Notes to the consolidated financial statements
For the years ended November 30, 2019 and 2018
(In thousands of Canadian dollars, except per share amounts and stock options)
7. Business acquisitions
I) Allô! Mon Coco (2019)
On July 19, 2019, the Company’s Canadian operations completed its acquisition of the assets of Allô! Mon Coco for
a total consideration of $30,675. The purpose of the transaction was to diversify the Company’s range of offering as
well as to complement existing Company brands.
Consideration paid:
Purchase price
Contingent consideration (1)
Working capital
Discount on non-interest-bearing holdback
Net purchase price
Contingent consideration
Holdback
Net consideration paid/cash outflow
As previously
reported
Adjustment
Adjusted
consideration
2019
30,000
1,919
(242 )
(481 )
31,196
(1,919 )
(5,206 )
24,071
—
(492 )
—
(29 )
(521 )
492
29
—
$
30,000
1,427
(242 )
(510 )
30,675
(1,427 )
(5,177 )
24,071
(1) Adjusted in consequence of fair value assessment performed below.
The preliminary purchase price allocation is as follows:
Net assets acquired:
Current assets
Accounts receivable
Loans receivable
Deferred income taxes
Property, plant and equipment
Franchise rights
Trademark
Goodwill
Current liabilities
Accounts payable and accrued liabilities
Gift card liability
Deferred revenues
Net purchase price
As previously
reported
Adjustment
2019
Adjusted
consideration
$
47
—
47
(3)
(3)
—
—
—
—
31,426
31,473
(2)
(2)
(2)
(2)
(1 & 2)
(3 & 4)
185
92
277
(3 & 4)
—
277
31,196
$
(47 )
47
—
213
19
9,709
13,597
(24,163 )
(625 )
(185 )
—
(185 )
81
(104 )
(521 )
$
—
47
47
213
19
9,709
13,597
7,263
30,848
—
92
92
81
173
30,675
Page 35
MTY Food Group Inc.
Notes to the consolidated financial statements
For the years ended November 30, 2019 and 2018
(In thousands of Canadian dollars, except per share amounts and stock options)
7.
Business acquisitions (continued)
I) Allô! Mon Coco (2019) (continued)
(1) Goodwill is deductible for tax purposes.
(2) Given the timing of the acquisition, the Company had not completed its fair value assessment of the intangible
assets and goodwill acquired as at August 31, 2019. Consequently, most of the fair value adjustments related to
properly, plant and equipment, franchise rights, trademark and deferred income tax were included in goodwill in
the preliminary fair value assessment.
(3) Reclass of presentation.
(4) Adjustment for working capital items.
Total expenses incurred related to acquisition costs amounted to nil.
The purchase price allocation is still preliminary as post-closing adjustments have not been finalized, and as such,
further adjustments may still be made.
II) Yuzu Sushi (2019)
On July 15, 2019, the Company’s Canadian operations completed its acquisition of the assets of Yuzu Sushi for a
total consideration of $27,588. The purpose of the transaction was to diversify the Company’s range of offering as well
as to complement existing Company brands.
Consideration paid:
Purchase price
Settlement of obligations
Contingent consideration (1)
Working capital
Net purchase price
Contingent consideration
Net consideration paid/cash outflow
As previously
reported
Adjustments
2019
Adjusted
consideration
$
$
$
25,389
260
1,968
(285)
27,332
(1,968)
25,364
—
—
256
—
256
(256 )
—
25,389
260
2,224
(285)
27,588
(2,224)
25,364
(1) Adjusted in consequence of fair value assessment performed below.
Page 36
MTY Food Group Inc.
Notes to the consolidated financial statements
For the years ended November 30, 2019 and 2018
(In thousands of Canadian dollars, except per share amounts and stock options)
7.
Business acquisitions (continued)
II) Yuzu Sushi (2019) (continued)
The preliminary purchase price allocation is as follows:
Net assets acquired:
Current assets
Prepaid expenses
Deferred income taxes
Property, plant and equipment
Other intangible assets
Franchise rights
Trademark
Goodwill
Current liabilities
Accounts payable and accrued liabilities
Gift card liability and loyalty program liability
Deferred revenues
Net purchase price
As previously
reported
Adjustment
2019
Adjusted
Consideration
$
6
6
—
—
—
—
—
27,617
27,623
102
189
291
—
291
27,332
(2)
(2)
(2)
(2)
(2)
(1 & 2)
(3)
(3)
$
—
—
588
491
195
2,362
9,491
(12,881 )
246
(20 )
—
(20 )
10
(10 )
256
$
6
6
588
491
195
2,362
9,491
14,736
27,869
82
189
271
10
281
27,588
(1) Goodwill is deductible for tax purposes.
(2) Given the timing of the acquisition, the Company had not completed its fair value assessment of the intangible
assets and goodwill acquired as at August 31, 2019. Consequently, most of the fair value adjustments are related
to property plant and equipment, other intangible assets, franchise rights, trademark and deferred income tax
were included in goodwill in the preliminary fair value assessment.
(3) Adjustment for working capital items.
Total expenses incurred related to acquisition costs amounted to $139.
The purchase price allocation is still preliminary as post-closing adjustments have not been finalized, and as such,
further adjustments may still be made.
Page 37
MTY Food Group Inc.
Notes to the consolidated financial statements
For the years ended November 30, 2019 and 2018
(In thousands of Canadian dollars, except per share amounts and stock options)
7.
Business acquisitions (continued)
III) Papa Murphy’s (2019)
On May 23, 2019, the Company’s, through the merger of a wholly owned United States (US) subsidiary with Papa
Murphy’s Holdings Inc. (“PM”), acquired all the outstanding shares of PM.
The purpose of the transaction was to diversify the Company’s range of offering in the US with a new concept offering
take-and-bake freshly made pizza.
Consideration paid:
Cash and amount paid for early settlement of options
Less: cash acquired (2)
Net consideration paid/cash outflow
The preliminary purchase price allocation is as follows:
2019
$
257,596
(2,435 )
255,161
As previously
reported
Adjustments
2019
Adjusted
purchase price
allocation
Net assets acquired:
Current assets
Cash
Accounts receivable
Inventory
Prepaid expenses and deposits
Assets held for sale
Property, plant and equipment
Other intangible assets
Franchise rights
Trademark
Goodwill
Current liabilities
Accounts payable and accrued liabilities
Provisions
Gift card liability
Other long-term liabilities
Deferred income taxes
Net purchase price
$
2,435
3,873
1,195
1,992
20,724
30,219
(5)
(3)
(3)
930
1,277
51,216
(2)
137,561
(2)
115,012 (1 & 2)
336,215
26,131 (4 & 5)
— (2 & 6)
2,840
28,971
1,083
(4)
48,565 (1 & 2)
78,619
257,596
$
—
—
—
352
(358 )
(6 )
124
—
(5,957 )
(6,010 )
11,634
(215 )
(3,656 )
12,093
—
8,437
(1,083 )
(7,569 )
(215 )
—
$
2,435
3,873
1,195
2,344
20,366
30,213
1,054
1,277
45,259
131,551
126,646
336,000
22,475
12,093
2,840
37,408
—
40,996
78,404
257,596
Page 38
MTY Food Group Inc.
Notes to the consolidated financial statements
For the years ended November 30, 2019 and 2018
(In thousands of Canadian dollars, except per share amounts and stock options)
7.
Business acquisitions (continued)
III) Papa Murphy’s (2019) (continued)
(1) Goodwill is not deductible for tax purposes.
(2) The Company has recorded adjustments to its previously reported preliminary purchase price allocation reported
as at August 31, 2019. The adjustments relate to finalizing the fair value assessment relating to franchise rights,
and trademark and provisions.
(3) The Company has completed the fair value assessment of the property, plant and equipment, and assets held
for sale acquired. Based on this assessment the Company has adjusted the purchase price allocation.
(4) Reclass of presentation.
(5) Adjustment for working capital items.
(6) Provisions includes litigations amounting to $9,236.
The purchase price allocation is still preliminary as post-closing adjustments have not been finalized, and as such,
further adjustments may still be made.
Total expenses incurred related to acquisition costs amounted to $4,209.
IV) South Street Burger (2019)
On March 21, 2019, the Company’s Canadian operations completed its acquisition of the assets of South Street Burger
for a total consideration of $4,857. The purpose of the transaction was to solidify the Company’s position in the fast-
casual restaurants segment and to complement the Company's current offering in the gourmet burger space.
Consideration paid:
Purchase price
Working capital
Discount on non-interest-bearing holdback
Net purchase price
Holdback
Less: Cash acquired
Net consideration paid/cash outflow
2019
$
5,100
(204 )
(39 )
4,857
(696 )
(24 )
4,137
Page 39
MTY Food Group Inc.
Notes to the consolidated financial statements
For the years ended November 30, 2019 and 2018
(In thousands of Canadian dollars, except per share amounts and stock options)
7.
Business acquisitions (continued)
IV) South Street Burger (2019) (continued)
The preliminary purchase price allocation is as follows:
Net assets acquired:
Current assets
Cash
Inventory
Prepaid expenses and deposits
Property, plant and equipment
Franchise rights
Trademark
Goodwill
Current liabilities
Accounts payable and accrued liabilities
Gift card liability
Deferred income taxes
Net purchase price
(1) Goodwill is deductible for tax purposes.
As previously
reported
Adjustments
2019
Adjusted
purchase price
allocation
$
24
163
186
373
(2)
1,626
395
2,649
129 (1 & 2)
5,172
304
11
315
—
315
4,857
(2)
$
—
—
—
—
(498 )
—
—
506
8
—
—
—
8
8
—
$
24
163
186
373
1,128
395
2,649
635
5,180
304
11
315
8
323
4,857
(2) The Company has recorded adjustments to its previously reported preliminary purchase price allocation, as at
August 31, 2019. The Company has adjusted the fair value assessment of the corporate store equipment and
leasehold improvements acquired and based on this assessment has adjusted the purchase price allocation.
The purchase price allocation is still preliminary as post-closing adjustments have not been finalized, and as such,
further adjustments may still be made.
Total expenses incurred related to acquisition costs amounted to nil.
Page 40
MTY Food Group Inc.
Notes to the consolidated financial statements
For the years ended November 30, 2019 and 2018
(In thousands of Canadian dollars, except per share amounts and stock options)
7.
Business acquisitions (continued)
V) Casa Grecque (2019)
On December 10, 2018, the Company’s Canadian operations completed its acquisition of the assets of Casa Grecque.
The total consideration for the transaction was $22,023. The purpose of the transaction was to diversify the Company’s
range of offering as well as add to its current distribution portfolio.
Consideration paid:
Purchase price
Working capital
Discount on non-interest-bearing holdback
Net purchase price
Holdback
Net consideration paid/cash outflow
The final purchase price allocation is as follows:
Net assets acquired:
Current assets
Inventory
Prepaid expenses and deposits
Property, plant and equipment
Trademark
Customer List
Goodwill
Current liabilities
Accounts payable and accrued liabilities
Unredeemed gift card liability
Net purchase price
(1) Goodwill is deductible for tax purposes.
2019
$
22,350
(194 )
(133 )
22,023
(1,117 )
20,906
As previously
reported
Adjustments
2019
Final purchase
price allocation
3,229
2
3,231
150
4,859
11,623
(2)
(2)
2,333 (1 & 2)
22,196
3
170
173
22,023
—
—
—
—
(737 )
(1,305 )
2,042
—
—
—
—
—
$
3,229
2
3,231
150
4,122
10,318
4,375
22,196
3
170
173
22,023
(2) The Company has recorded adjustments to its previously reported preliminary purchase price allocation as at
August 31, 2019. The adjustments relate to finalizing the fair value assessment relating to goodwill, customer list
and trademark.
Total expenses incurred related to acquisition costs amounted to nil.
The purchase price allocation is final.
Page 41
MTY Food Group Inc.
Notes to the consolidated financial statements
For the years ended November 30, 2019 and 2018
(In thousands of Canadian dollars, except per share amounts and stock options)
7.
Business acquisitions (continued)
VI) SweetFrog (2018)
On September 25, 2018, the Company’s US operations completed its acquisition of the assets of SweetFrog Premium
Frozen Yogurt (“SweetFrog”). The total consideration for the transaction was $41,507 (US$32,064). The purpose of
the transaction was to diversify the Company’s range of offering as well as to complement existing MTY brands.
Consideration paid:
Purchase price
Net obligations assumed
Discount on non-interest-bearing holdback
Net purchase price
Holdback
Net consideration paid/cash outflow
The final purchase price allocation is as follows:
Net assets acquired:
Current assets
Inventory
Prepaid expenses
Franchise rights (2)
Trademark (2)
Goodwill (1 & 2)
Current liabilities
Accounts payable and accrued liabilities
Unredeemed gift card liability
Deferred revenue
Net purchase price
(1) Goodwill is deductible for tax purposes.
2018
$
45,307
(3,383 )
(417 )
41,507
(4,113 )
37,394
2018
$
254
30
284
9,587
14,335
20,233
44,439
146
2,757
29
2,932
41,507
(2) The Company has recorded adjustments to its previously reported preliminary purchase price allocation reported
in the prior year. The adjustments relate to the fair value relating to the franchise rights and trademark. This
purchase price allocation was finalized as at August 31, 2019.
Total expenses incurred related to acquisition costs amounted to nil.
The purchase price allocation is final.
Page 42
MTY Food Group Inc.
Notes to the consolidated financial statements
For the years ended November 30, 2019 and 2018
(In thousands of Canadian dollars, except per share amounts and stock options)
7.
Business acquisitions (continued)
VII) Timothy’s World Coffee and Mmmuffins (2018)
On April 4, 2018, the Company’s Canadian operations completed its acquisition of the assets of Timothy’s World
Coffee and Mmmuffins. The total consideration for the transaction was $1,321. The purpose of the transaction was
to diversify the Company’s range of offering as well as to complement existing MTY brands.
Consideration paid:
Purchase price
Net obligations assumed
Working capital
Discount on non-interest-bearing holdback
Net purchase price
Holdback
Less Cash acquired
Net consideration paid/cash outflow
The purchase price allocation is as follows:
Net assets acquired:
Current assets
Cash
Inventory
Prepaid expenses and deposits
Property, plant and equipment
Franchise rights
Perpetual license
Goodwill (1)
Current liabilities
Accounts payable and accrued liabilities
Unredeemed gift card liability
Net purchase price
(1) Goodwill is deductible for tax purposes
Total expenses incurred related to acquisition costs amounted to nil.
The purchase price allocation is final.
2018
$
1,675
(130 )
(208 )
(16 )
1,321
(93 )
(3 )
1,225
2018
$
3
64
43
110
100
417
232
966
1,825
101
403
504
1,321
Page 43
MTY Food Group Inc.
Notes to the consolidated financial statements
For the years ended November 30, 2019 and 2018
(In thousands of Canadian dollars, except per share amounts and stock options)
7.
Business acquisitions (continued)
VIII) Grabbagreen (2018)
On March 15, 2018, the Company’s US operations completed its acquisition of the assets of Grabbagreen franchise
system. The total consideration for the transaction was $3,409 (US$2,633). The purpose of the transaction was to
diversify the Company’s range of offering as well as to complement existing MTY brands.
Consideration paid:
Purchase price
Net obligations assumed
Discount on non-interest-bearing holdback
Net purchase price
Holdback
Net consideration paid/cash outflow
The preliminary purchase price allocation is as follows:
Net assets acquired:
Current assets
Prepaid expenses and deposits
Property, plant and equipment
Franchise rights
Trademarks
Goodwill (1)
Current liabilities
Unredeemed gift card liability
Net purchase price
(1) Goodwill is deductible for tax purposes
Total expenses incurred related to acquisition costs amounted to nil.
The purchase price allocation is final.
2018
$
3,463
(29 )
(25 )
3,409
(322 )
3,087
2018
$
17
15
377
1,940
1,106
3,455
46
3,409
Page 44
MTY Food Group Inc.
Notes to the consolidated financial statements
For the years ended November 30, 2019 and 2018
(In thousands of Canadian dollars, except per share amounts and stock options)
7.
Business acquisitions (continued)
IX) Imvescor Restaurant Group Inc. (2018)
On March 1, 2018, the Company’s Canadian operations, through the merger of a wholly owned subsidiary with
Imvescor Restaurant Group Inc. (“IRG”), acquired all the outstanding shares of IRG. The purpose of the transaction
was to diversify the Company’s range of offering with a highly scalable portfolio of recognized restaurant brands and
concepts.
Consideration paid:
Cash and amount paid for early settlement of options
Shares issued
Total consideration
Less Cash acquired
Total consideration
2018
$
53,198
197,616
250,814
(4,615 )
246,199
Page 45
MTY Food Group Inc.
Notes to the consolidated financial statements
For the years ended November 30, 2019 and 2018
(In thousands of Canadian dollars, except per share amounts and stock options)
7.
Business acquisitions (continued)
IX) Imvescor Restaurant Group Inc. (2018) (continued)
The purchase price allocation is as follows:
Net assets acquired:
Current assets
Cash
Accounts receivable
Notes receivable
Inventory
Prepaid expenses and deposits
Notes receivable
Projects under construction
Property, plant and equipment
Other intangible assets
Franchise rights
Trademarks
Goodwill (1)
Current liabilities
Accounts payable and accrued liabilities
Unredeemed gift card liability and loyalty points
Deferred revenues
Income tax payable
Credit facility
Deferred revenues
Deferred income tax
Net purchase price
2018
$
4,615
9,788
367
214
204
15,188
1,134
1,242
3,525
347
70,200
140,600
98,063
330,299
14,610
5,157
539
175
20,481
20,000
138
38,866
79,485
250,814
(1) Goodwill is not deductible for tax purposes.
Total expenses incurred related to acquisition costs amounted $1,720. The purchase price allocation is final.
Page 46
MTY Food Group Inc.
Notes to the consolidated financial statements
For the years ended November 30, 2019 and 2018
(In thousands of Canadian dollars, except per share amounts and stock options)
7.
Business acquisitions (continued)
X) Counter Custom Burgers and Built Custom Burgers (2018)
On December 1, 2017, the Company’s US operations completed the acquisition of all the limited liability company
interests in CB Franchise Systems, LLC and Built Franchise Systems, LLC. The total consideration for the transaction
was $29,971 (US$23,545). The purpose of the transaction was to diversify the Company’s range of offering as well
as to complement existing MTY brands.
Consideration paid:
Purchase price
Repayment of external debt
Working capital
Discount on non-interest-bearing holdback
Net purchase price
Holdback
Less: cash acquired
Net consideration paid/cash outflow
The purchase price allocation is as follows:
Net assets acquired:
Current assets
Cash
Accounts receivable
Inventory
Prepaid expenses and deposits
Property, plant and equipment
Franchise rights
Trademarks
Goodwill (1)
Current liabilities
Accounts payable and accrued liabilities
Unredeemed gift card liability
Deferred revenues
Deferred income tax
Net purchase price
(1) Goodwill is deductible for tax purposes.
Total expenses incurred related to acquisition costs amounted to $77.
The purchase price allocation is final.
2018
$
28,893
1,261
151
(334 )
29,971
(1,635 )
(34 )
28,302
2018
$
34
426
71
87
618
633
9,165
16,802
4,156
31,374
956
291
104
52
1,403
29,971
Page 47
MTY Food Group Inc.
Notes to the consolidated financial statements
For the years ended November 30, 2019 and 2018
(In thousands of Canadian dollars, except per share amounts and stock options)
8. Acquisition of non-controlling interest
In March 2019, the Company acquired a 5% non-controlling interest in 9974644 Canada Inc. (La Diperie) for a cash
consideration of $110. Following the transaction, the Company now owns 65% of the subsidiary.
In September 2018, the Company acquired the remaining 10% non-controlling interest of 8825726 Canada Inc.
(Madison’s) for a cash consideration of $1,059. Following the transaction, 8825726 Canada Inc. has become a wholly
owned subsidiary.
9. Accounts receivable
The following table provides details on trade accounts receivable not past due, past due and the related credit loss
allowance.
Total accounts receivable
Less: Allowance for credit losses
Total accounts receivable, net
Of which:
Not past due
Past due for more than 1 day but no more than 30 days
Past due for more than 31 day but no more than 60 days
Past due for more than 61 days
Total accounts receivable, net
Allowance for credit losses, beginning of year
Current period provision
Additions through acquisition
Reversals amounts previously written off
Write-off
Allowance for credit losses, end of year
2019
$
73,305
8,176
65,129
48,273
2,943
2,433
11,480
65,129
2019
$
9,320
30
98
221
(1,493 )
8,176
2018
$
Restated
(Note 4)
59,291
9,320
49,971
41,324
1,559
2,168
4,920
49,971
2018
$
9,611
315
379
208
(1,193 )
9,320
Page 48
MTY Food Group Inc.
Notes to the consolidated financial statements
For the years ended November 30, 2019 and 2018
(In thousands of Canadian dollars, except per share amounts and stock options)
10.
Inventories
Raw materials
Work in progress
Finished goods
Total inventories
2019
$
3,498
359
3,674
7,531
2018
$
Restated
(Note 4)
1,709
455
1,865
4,029
Inventories are presented net of a $14 allowance for obsolescence (2018 – $46). All of the inventories are expected
to be sold within the next 12 months.
Inventories expensed during the year ended November 30, 2019 were $119,084 (2018 – $65,289).
11. Assets held for sale
Assets held for sale as at November 30, 2019 are stated at fair value less costs to sell and are composed of leasehold
improvements and equipment of two portfolios comprised of 7 and 9 corporately owned locations in the US segment
that will be refranchised upon completion of the sale.
During the year the Company disposed of one portfolio of corporately owned locations acquired through the acquisition
of Papa Murphy’s Holding Inc.
Asset held for sale, beginning balance
Additions from acquisitions (note 7)
Disposal
Transfer to property, plant and equipment (1)
Impact of foreign exchange
Asset held for sale, ending balance
2019
$
—
20,366
(6,353)
(2,711)
(222)
11,080
(1) As part of the acquisition of Papa Murphy’s Holdings Inc., the Company identified several portfolios of corporate
stores that were deemed to be assets held for sale. During the year a change in facts and circumstance led one
portfolio to no longer meet the definition of assets held for sale and the carrying amount was transferred to
property, plant and equipment. The Company recorded depreciation expense to reflect as though the asset was
recorded initially to property, plant and equipment on acquisition.
Page 49
MTY Food Group Inc.
Notes to the consolidated financial statements
For the years ended November 30, 2019 and 2018
(In thousands of Canadian dollars, except per share amounts and stock options)
12.
Loans receivable
Loans receivable generally result from the sales of franchises and of various advances to certain franchisees and
consist of the following:
Loans receivable bearing interest between 0% and 9% per annum,
receivable in monthly installments of $196 in aggregate, including principal
and interest, ending in 2026
Current portion
The capital repayments in subsequent years will be:
2019
$
7,145
7,145
(4,082 )
3,063
2018
$
8,104
8,104
(2,134 )
5,970
2020
2021
2022
2023
2024
Thereafter
$
4,082
661
1,700
320
233
149
7,145
There is currently an allowance for credit losses offset against the loans receivable balance of $2,031 (2018 – $2,928).
Page 50
MTY Food Group Inc.
Notes to the consolidated financial statements
For the years ended November 30, 2019 and 2018
(In thousands of Canadian dollars, except per share amounts and stock options)
13. Property, plant and equipment
Cost
Land Buildings
ments Equipment
Leasehold
improve-
Computer
hardware
Rolling
stock
$
$
$
$
$
$
Balance at
November 30, 2017
Additions
Disposals
Impairment
Foreign exchange
Additions through
business combinations
(Restated – note 7) (2)
Balance at
November 30, 2018
(Restated) (2)
Additions
Transfer from assets held
for sale (note 11)
Disposals
Impairment (1)
Foreign exchange
Additions through
business combinations
(note 7)
Balance at
November 30, 2019
Total
$
20,208
6,544
(2,202 )
(2,060 )
(42 )
1,236
—
—
—
—
3,989
1,077
—
—
—
5,279
1,855
(1,053 )
(867 )
2
8,542
3,130
(1,149 )
(1,193 )
(53 )
1,024
419
—
—
6
138
63
—
—
3
—
—
2,297
1,248
461
267
4,273
1,236
—
5,066
157
—
—
—
—
—
—
—
—
7,513
2,197
2,169
(985 )
(695 )
11
10,525
2,237
1,910
560
542
(1,699 )
(365 )
7
—
(15 )
—
—
471
15
—
(63 )
—
—
26,721
5,166
2,711
(2,762 )
(1,060 )
18
—
—
1,273
1,425
—
144
2,842
1,236
5,223
11,483
12,672
2,455
567
33,636
Page 51
MTY Food Group Inc.
Notes to the consolidated financial statements
For the years ended November 30, 2019 and 2018
(In thousands of Canadian dollars, except per share amounts and stock options)
13.
Property, plant and equipment (continued)
Accumulated
depreciation
Balance at
November 30,
2017
Eliminated on
disposal of
assets
Foreign exchange
Depreciation
expense
Balance at
November 30, 2018
(Restated) (2)
Eliminated on
disposal of
assets
Impairment (1)
Foreign exchange
Depreciation
expense
Balance at
November 30, 2019
Land Buildings
ments Equipment
Leasehold
improve-
Computer
hardware
$
$
$
$
$
Rolling
stock
$
Total
$
—
972
1,834
3,730
548
43
7,127
—
—
—
—
—
(120 )
—
(393 )
15
—
3
—
1
(513 )
19
189
834
1,347
332
53
2,755
—
1,161
2,548
4,699
883
97
9,388
—
—
—
—
—
—
—
(399 )
(54 )
(3 )
(613 )
(47 )
(1 )
(11 )
—
—
(10 )
—
—
(1,033 )
(101 )
(4 )
232
1,580
1,676
462
73
4,023
—
1,393
3,672
5,714
1,334
160
12,273
Carrying amounts
Land Buildings
ments Equipment
Leasehold
improve-
Computer
hardware Rolling stock
$
$
$
$
$
$
Total
$
November 30, 2018
November 30, 2019
1,236
1,236
3,905
3,830
4,965
7,811
5,826
6,958
1,027
1,121
374
407
17,333
21,363
(1) During the year ended November 30, 2019, as the result of a decline in the financial performance, the Company
carried out a review of the recoverable amounts of property plant and equipment and leasehold improvements
related to certain corporate stores. The review led to the recognition of a non-cash impairment loss of $959
composed of leasehold improvements and equipment related to Canadian operations.
(2) During the year ended November 30, 2019, the Company completed the fair value assessment of the corporate
store equipment and leasehold improvements acquired through Imvescor Restaurant Group Inc. and the
purchase price allocation was adjusted by $1,420.
Page 52
MTY Food Group Inc.
Notes to the consolidated financial statements
For the years ended November 30, 2019 and 2018
(In thousands of Canadian dollars, except per share amounts and stock options)
14.
Intangible assets
Franchise
and master
franchise
Step-in
Cost
rights Trademarks
rights
Leases
Customer
list
$
$
$
$
$
Balance at
November 30,
2017
Additions
Disposals
Acquisition through
business
combinations
(Restated) (2)
Foreign exchange
Impairment net of
reversal
Balance at
November 30,
2018 (Restated) (2)
Additions
Disposals
Acquisition through
business
combinations
Foreign exchange
Impairment
Balance at
November 30,
2019
242,832
—
—
323,190
—
—
1,199
—
—
89,746
6,171
173,677
9,076
(1,248 )
(2,223 )
—
—
—
337,501
—
—
503,720
8
—
1,199
—
—
738
—
—
—
—
—
738
—
—
—
—
—
—
—
—
—
—
—
Other(1)
$
Total
$
1,645
1,286
(2 )
569,604
1,286
(2 )
579
16
264,002
15,263
—
(3,471 )
3,524
2,128
(500 )
846,682
2,136
(500 )
57,725
(616 )
(1,976 )
161,410
(1,460 )
(284 )
—
—
—
—
—
—
10,318
—
—
1,472
(12 )
—
230,925
(2,088 )
(2,260 )
392,634
663,394
1,199
738
10,318
6,612 1,074,895
Page 53
MTY Food Group Inc.
Notes to the consolidated financial statements
For the years ended November 30, 2019 and 2018
(In thousands of Canadian dollars, except per share amounts and stock options)
14.
Intangible assets (continued)
Accumulated
amortization
Balance at
November 30,
2017
Foreign exchange
Amortization
Balance at
November 30,
2018 (Restated) (2)
Disposals
Foreign exchange
Amortization
Impairment
Balance at
November 30,
2019
Franchise
and master
franchise
Step-in
rights Trademarks
rights Leases
Customer
list
$
$
$
$
$
Other(1)
$
Total
$
60,906
1,060
24,187
86,153
—
13
27,379
(600 )
—
—
—
—
—
—
—
—
500
—
120
620
—
—
120
—
738
—
—
738
—
—
—
—
—
—
—
—
—
—
819
—
490
—
442
62,634
1,060
24,749
932
(246 )
1
867
—
88,443
(246 )
14
29,185
(600 )
112,945
—
740
738
819
1,554
116,796
Franchise
and master
franchise
Step-in
Carrying amounts
rights Trademarks
rights Leases
$
$
$
$
Customer
list
$
—
Other(1)
$
Total
$
November 30, 2018
(Restated) (2)
November 30, 2019
251,348
279,689
503,720
663,394
579
459
—
—
9,499
2,592
5,058
758,239
958,099
(1) Other items include $459 (2018 – $579) of unamortizable licenses with an indefinite term.
(2) During 2019, the Company recorded adjustments to the SweetFrog purchase price allocation. The adjustments
related to the fair value of franchise rights and trademark.
Page 54
MTY Food Group Inc.
Notes to the consolidated financial statements
For the years ended November 30, 2019 and 2018
(In thousands of Canadian dollars, except per share amounts and stock options)
14.
Intangible assets (continued)
Indefinite life intangible assets, which consist of trademarks and perpetual licenses have been allocated for
impairment-testing purposes to the following CGUs:
Valentine
Jugo Juice
Mr. Sub
Extreme Pita
Mucho Burrito
ThaïZone
Madisons New York Grill & Bar
Manchu Wok (1)
Big Smoke Burger
Blimpie (1)
Cold Stone Creamery (1)
Great Steak (1)
Pinkberry (1)
Planet Smoothie (1)
Surf City Squeeze (1)
Taco Time (1)
Baja Fresh (1)
The Works Gourmet Burger Bistro
Houston Avenue Bar & Grill
The Counter Custom Burger (1)
Built Custom Burger (1)
Pizza Delight
Mikes
Scores
Baton Rouge
Ben & Florentine
Retail
SweetFrog (1)
Papa Murphy’s(2)
South Street Burger
Casa Grecque
Allô! Mon Coco
Yuzu
Other(1)
2019
$
3,338
5,425
11,320
3,179
9,816
7,417
3,410
5,830
3,305
6,106
155,534
3,771
8,920
9,513
3,038
35,037
20,143
3,481
3,963
12,492
5,050
16,000
33,300
29,400
32,000
15,000
14,900
14,689
130,374
2,649
4,121
13,597
9,491
28,244
663,853
(1) Variance from prior year due to foreign exchange conversion.
(2) Amount impacted by foreign exchange conversion since the acquisition date.
2018
$
Restated
(Note 7)
3,338
5,425
11,320
3,179
9,816
7,417
3,410
5,831
3,305
6,112
155,674
3,774
8,928
9,521
3,041
35,068
20,162
3,481
3,963
12,503
5,054
16,000
33,300
29,400
32,000
15,000
14,900
14,731
—
—
—
—
—
28,646
504,299
Page 55
MTY Food Group Inc.
Notes to the consolidated financial statements
For the years ended November 30, 2019 and 2018
(In thousands of Canadian dollars, except per share amounts and stock options)
14.
Intangible assets (continued)
During the year ended November 30,2019, as the result of a decline in the financial performance of certain brands,
the Company carried out a review of the recoverable amounts of the intangible assets. The review led to the
recognition of a non-cash impairment loss of $1,376 in franchise rights (2018 – $1,248) and $284 (2018 – $4,579) in
trademarks for the US segment, which have been recognized in the consolidated statement of income. In 2018,
impairments were offset by a $2,356 reversal of the Country Style impairment loss taken in 2014 in the Canadian
segment.
15. Goodwill
The changes in the carrying amount of goodwill are as follows:
Balance, beginning of year
Additional amounts recognized from business acquisitions
(note 7)
Foreign exchange
Balance, end of year
2019
$
2018
$
357,102
226,768
153,655
(1,240)
509,517
124,524
5,810
357,102
Goodwill was allocated to three CGU’s in 2019, these CGUs being Canada, the US & International excluding Papa
Murphy’s. For the purpose of impairment testing, goodwill is allocated to the group of CGUs that are considered to
represent the lowest level within the group at which the goodwill is monitored for internal management purposes. As
at November 30, 2019, goodwill for Canada, the US & International excluding Papa Murphy’s, and Papa Murphy’s
represent $195,325, $188,679 and $125,513 respectively (2018 – $168,361, $188,741 and nil, respectively).
16. Credit facility
During the year ended November 30, 2019 the Company modified its existing credit facility payable to a syndicate of
lenders. The modification resulted in an increase to the revolving credit facility which now has an authorized amount
of $700,000 (2018 – $500,000). Transaction costs of $1,079 were incurred and will be deferred and amortized over
the remaining 3 years of the life of the revolving credit facility. As at November 30, 2019, $518,922 was drawn from
the revolving credit facility (2018 – $256,143).
Interest rates are variable and are based on various financing instruments that have maturities from 1 to 180 days.
Interest rates also depend on the Company’s debt-to-equity ratio, where a lower indebtedness results in more
favorable terms.
The Company has the following interest options:
-
-
Amount drawn in Canadian dollars – option to pay interest based on Canada prime rate as determined by
the Toronto-Dominion Bank of Canada, plus a margin not exceeding 1.40% or interest based on banker’s
acceptance, plus a margin not exceeding 2.40%
Amounts drawn in US dollars – option to pay interest based on US base rates plus a margin not exceeding
2.00% or interest based on LIBOR plus a margin not exceeding 2.50%
Canada prime rate as at November 30, 2019 was 3.95% (2018 – 3.95%) and US base rate was 5.25% (2018 – 5.75%).
Under this facility, the Company is required to comply with certain financial covenants, including a debt to EBITDA
ratio and interest and rent coverage ratio.
On January 15, 2019, the Company entered into an interest rate swap fixing the interest rate at 2.273% on $100,000
of the outstanding revolving credit facility until July 21, 2021.
As at November 30, 2019, the Company was in compliance with those financial covenants.
Page 56
MTY Food Group Inc.
Notes to the consolidated financial statements
For the years ended November 30, 2019 and 2018
(In thousands of Canadian dollars, except per share amounts and stock options)
17. Provisions
Included in provisions are the following amounts:
Litigations, disputes and other contingencies
Closed stores
2019
$
11,216
1,947
13,163
2018
$
2,390
1,250
3,640
The provision for litigation, disputes and other contingencies represents management’s best estimate of the outcome
of litigations and disputes that are ongoing at the date of the statement of financial position. This provision is made of
multiple items; the timing of the settlement of this provision is unknown given its nature, as the Company does not
control the litigation timelines. The majority of provisions were the result of pre-acquisition provisions acquired as part
of a business acquisition.
The payables related to closed stores mainly represent amounts that are expected to be disbursed to exit leases of
underperforming or closed stores. The negotiations with the various stakeholders are typically short in duration and
are expected to be settled within a few months following the recognition of the provision.
The provisions also varied in part due to foreign exchange fluctuations related to the US subsidiaries.
Provision for litigations, disputes and closed stores,
beginning balance
Reversals
Amounts used
Additions from acquisitions (note 7)
Additions
Impact of foreign exchange
2019
$
3,640
(1,226)
(3,252)
12,093
1,912
(4)
2018
$
4,581
(1,897)
(2,810)
—
3,710
56
Provision for litigations, disputes and closed stores, ending balance
13,163
3,640
Page 57
MTY Food Group Inc.
Notes to the consolidated financial statements
For the years ended November 30, 2019 and 2018
(In thousands of Canadian dollars, except per share amounts and stock options)
18. Deferred revenue and deposits
Franchise fee deposits
Unearned rent
Supplier contributions and other allowances
Current portion
2019
$
44,876
5,060
7,041
56,977
(18,761 )
38,216
2018 (1)
$
42,024
3,415
8,730
54,169
(20,784 )
33,385
(1) 2018 Figures have been adjusted to reflect IFRS15 figures that were adopted by the Company on December 1,
2019.
Deferred revenues consist mostly of initial, transfer and renewal franchise fees paid by franchisees, as well as upfront
fees paid by master franchisees, which are generally recognized on a straight-line basis over the term of the related
agreement. Deferred revenues also include amounts paid in advance for restaurant construction and renovation, as
well as upfront fees received from agreements with suppliers, which are amortized over the term of the related
agreement.
There were no significant changes to contract liabilities during the year.
$7,946 of franchise fee deposit revenue recognized in the current year was included in the deferred revenue balance
at the beginning of the year (2018 – $5,332).
The following table provides estimated revenues expected to be recognized in future years related to performance
obligations that are unsatisfied as at November 30, 2019:
Estimate for fiscal year:
2020
2021
2022
2023
2024
Thereafter
$
18,761
6,469
5,577
4,516
3,598
18,056
56,977
Page 58
MTY Food Group Inc.
Notes to the consolidated financial statements
For the years ended November 30, 2019 and 2018
(In thousands of Canadian dollars, except per share amounts and stock options)
19.
Long-term debt
Non-interest-bearing contract cancellation fees and holdbacks on
acquisitions
Contingent consideration related to the acquisition of Yuzu Sushi (repayable
August 2021) and Allô! Mon Coco (repayable October 2020 and January
2022) (note 23)
Fair value of promissory notes for Houston Avenue Bar & Grill repayable May
2021 (note 23)
Fair value of promissory notes related to buyback obligation of Houston
Avenue Bar & Grill and Industria Pizzeria + Bar (note 23)(1)
Fair value non-controlling interest buyback obligation in 10220396 Canada
Inc. (note 23)(1)
Fair value non-controlling interest option in 9974644 Canada Inc. (note 23)(2)
Revolving credit facility payable to a syndicate of lenders (note 16)(3)
Credit facility financing costs
Current portion
2019
$
2018
$
14,423
11,898
3,874
329
2,738
1,549
964
518,922
(2,149 )
540,650
(4,592)
536,058
—
—
7,034
1,501
994
256,143
(1,954 )
275,616
(7,416 )
268,200
(1) Payable June 2022.
(2) Payable on demand.
(3) Under the revolving credit facility, the Company has the option to draw funds in Canadian or in US dollars, at its
discretion. The facility’s maturity is September 23, 2022 and must be repaid in full at that time. As at November
30, 2019, the Company had drawn C$518,922 and US$nil, (2018 – C$237,522 and US$14,000) and had elected
to pay interest based on LIBOR and bankers’ acceptances plus the applicable margins.
20. Capital stock
Authorized, unlimited number of common shares without nominal or par value
Number
2019
Amount
$
Number
2018
Amount
$
Balance beginning of year
Shares repurchased and
cancelled
Shares issued as part of
acquisition (note 7)
Balance end of year
25,169,778
312,161
21,374,497
114,545
(98,543 )
(1,222 )
—
—
—
25,071,235
—
310,939
3,795,281
25,169,778
197,616
312,161
On June 27, 2019, the Company announced the renewal of the normal course issuer bid (NCIB) to purchase up to
1,258,488 of its common shares. The NCIB began on July 3, 2019 and will end on July 2, 2020 or on such earlier date
when the Company completes its purchases or elects to terminate the NCIB. These purchases will be made on the
open market plus brokerage fees through the facilities of the TSX and/or alternative trading systems at the prevailing
market price at the time of the transaction, in accordance with the TSX’s applicable policies. All common shares
purchased pursuant to the NCIB will be cancelled.
Page 59
MTY Food Group Inc.
Notes to the consolidated financial statements
For the years ended November 30, 2019 and 2018
(In thousands of Canadian dollars, except per share amounts and stock options)
20.
Capital stock (continued)
In fiscal 2019, the Company repurchased and cancelled a total of 98,543 common shares under the previous and
current NCIB (2018 – nil), at a weighted average price of $53.04 per common share (2018 – nil), for a total
consideration of $5,227 (2018 – nil). An excess of $4,005 (2018 – nil) of the shares’ repurchase value over their
carrying amount was charged to retained earnings as share repurchase premiums.
21. Stock options
The Company offered for the benefit of certain key member’s of management a stock option plan. In accordance with
the terms of the plan the Company may grant stock options on the common shares at the discretion of the Board of
Directors. 100,000 shares are available for issuance under the stock option plan as at November 30, 2019 (2018 –
300,000).
Under the stock option plan of the Company, the following options were granted and are outstanding as at November
30:
2019
Number of
Options
Weighted
average
exercise price
Number of
Options
Outstanding beginning of year
Granted
Outstanding end of year
Vested end of year
200,000
200,000
400,000
22,222
$
48.36
52.01
50.19
48.36
200,000
—
200,000
—
2018
Weighted
average
exercise
price
$
48.36
—
48.36
—
At November 30, 2019, the range of exercise prices and the weighted average remaining contractual life of options
are as follows:
Range of
exercise prices
$
Number
outstanding
Weighted average remaining
contractual life
(years)
48.36
52.01
200,000
200,000
400,000
7.3
9.8
8.6
Options granted during the year ended November 30, 2019 have a service condition in order to vest and will be fully
vested and exercisable in 5 years from date of grant. The options will expire on October 21, 2029.
Page 60
MTY Food Group Inc.
Notes to the consolidated financial statements
For the years ended November 30, 2019 and 2018
(In thousands of Canadian dollars, except per share amounts and stock options)
21.
Stock options (continued)
The weighted average fair value of the stock options granted for the year ended November 30, 2019 was $13.23 per
option. The fair value of the options granted was estimated at the grant date for purposes of determining share-based
payment expense using the Black-Scholes option-pricing model.
The following weighted average assumptions were used:
Acquisition date share price
Exercise price
Expected dividend yield
Expected volatility
Risk-free interest rate
Expected life (in years)
2019
$52.01
$52.01
1.27%
24.9%
1.57%
8 years
A compensation expense of $583 was recorded for the year ended November 30, 2019 (2018 – $630). The expense
is presented in wages and benefits in operating expenses in the consolidated statements of income.
22.
Income per share
The following table provides the weighted average number of common shares used in the calculation of basic income
per share and that used for the purpose of diluted income per share:
Weighted daily average number of common shares - basic
Assumed exercise of stock options (1)
Weighted daily average number of common shares - diluted
2019
2018
25,145,210
41,273
25,186,483
24,228,206
44,444
24,272,650
(1) The calculation of the assumed exercise of stock options includes the effect of the average unrecognized future
compensation cost of dilutive options. The number of excluded options was 200,000 (2018 – 155,556).
Page 61
MTY Food Group Inc.
Notes to the consolidated financial statements
For the years ended November 30, 2019 and 2018
(In thousands of Canadian dollars, except per share amounts and stock options)
23.
Financial instruments
In the normal course of business, the Company uses various financial instruments which by their nature involve risk,
including market risk and the credit risk of non-performance by counterparties. These financial instruments are subject
to normal credit standards, financial controls, risk management and monitoring procedures.
Fair value of recognized financial instruments
Promissory notes issued as part of its consideration for the acquisition of Houston Avenue Bar & Grill and
Industria Pizzeria + Bar
The Company settled and cancelled 4 of the 6 promissory notes that were recorded as part of the acquisition of
Houston Avenue Bar & Grill and Industria Pizzeria + Bar. These 4 promissory notes were subject to earn-out provisions
and the Company realized a loss on settlement of $452 on the consolidated statement of income for the year ending
November 30, 2019. The Company issued as part of the settlement a new promissory note based on future earnings
amounting to $329. This note is payable in May 2021.
A discounted cash flow method was used to capture the present value of the expected future economic benefits that
will flow out of the Company, with respect to these promissory notes. These notes are subject to significant
unobservable inputs such as discount rates and projected revenues and EBITDA. An increase or decrease by 1% in
the discount rates used would have an impact of $80 on the fair value, as at November 30, 2019 (2018 – $145).
A fair value re-measurement gain of $1,897 was recorded for these promissory notes for the year ended November
30, 2019 (2018 – loss of $993).
Contingent considerations on acquisitions
The Company issued as part of its consideration for the acquisition of Yuzu Sushi and Allô! Mon Coco contingent
considerations to the vendors. These contingent considerations are subject to earn-out provisions, which are based
on future earnings and are repayable in August 2021 for Yuzu Sushi and October 2020 and January 2022 for Allô!
Mon Coco. These contingent considerations have been recorded at fair value and are remeasured on a recurring
basis.
A fair value re-measurement loss of $223 was recorded for the contingent considerations for the year ended November
30, 2019 (2018 – nil).
Obligations to repurchase non-controlling interests
The Company has entered into an agreement to purchase the shares of a minority interest shareholder of 9974644
Canada Inc. at the option of the holder at any time after December 9, 2017. The consideration is based on a multiplier
of EBITDA, as prescribed by the terms of the shareholder agreement. The Company records a liability at fair value
(note 19) which is remeasured at each reporting period.
A fair value remeasurement gain of $30 (2018 – $7) was recorded for this non-controlling interest obligation.
The Company, in conjunction with the acquisition of Houston Avenue Bar & Grill and Industria Pizzeria + Bar, entered
into an agreement to acquire the non-controlling interest in 10220396 Canada Inc., in June 2022. The consideration
to be paid for this acquisition will be based on future earnings. The Company recorded a liability at fair value (note
19) which is remeasured at each reporting period.
A discounted cash flow method was used to capture the present value of the expected future economic benefits that
will flow out of the Company with respect to this obligation. The non-controlling interest buyback obligation is subject
to significant unobservable inputs such as a discount rate and projected EBITDA. An increase or decrease by 1% in
the discount rates used would have an impact of $21 on the carrying amount as at November 30, 2019 (2018 – $52).
A fair value re-measurement loss of $48 (2018 – loss of $475) was recorded for this non-controlling interest obligation.
Page 62
MTY Food Group Inc.
Notes to the consolidated financial statements
For the years ended November 30, 2019 and 2018
(In thousands of Canadian dollars, except per share amounts and stock options)
23.
Financial instruments (continued)
Fair value of recognized financial instruments (continued)
Interest rate swap
The Company holds an interest rate swap that is contracted to a fix rate on a notional amount of $100,000 and is
maturing in July 21, 2021. The fair value of this interest rate swap amounted to $725 and the company recorded a
fair value remeasurement loss of $725 for the year ended in November 30, 2019.
Fair value hierarchy
Financial liabilities
Promissory notes for Houston Avenue Bar & Grill
Promissory notes related to buyback obligation of Houston Avenue Bar &
Grill and Industria Pizzeria + Bar
Contingent considerations on acquisitions
Non-controlling interest buyback options
Financial liabilities
Level 3
2019
329
2,738
3,874
2,513
9,454
2018
—
7,034
—
2,495
9,529
The Company has determined that the fair value of its financial assets and financial liabilities with short-term maturities
approximates their carrying value. These financial instruments include cash, accounts receivables, accounts payable
and accrued liabilities and deposits. The table below shows the fair value and the carrying amount of other financial
instruments as at November 30, 2019 and November 30, 2018. Since estimates are used to determine fair value, they
must not be interpreted as being realizable in the event of a settlement of the instruments.
Financial assets
Loans receivable
Financial liabilities
Long-term debt(1)
Carrying
amount
$
7,145
2019
Fair
value
$
7,145
Carrying
amount
$
8,104
2018
Fair
value
$
8,104
531,196
542,147
266,087
268,954
(1) Excludes promissory notes, contingent considerations on acquisition and obligations to repurchase non-controlling
interests
Determination of fair value
The following methods and assumptions were used to estimate the fair values of each class of financial instruments:
Loans receivable – The loans receivable generally bear interest at market rates and therefore it is management’s
opinion that the carrying value approximates the fair value.
Long-term debt – The fair value of long-term debt is determined using the present value of future cash flows
under current financing agreements based on the Company’s current estimated borrowing rate for similar debt.
Page 63
MTY Food Group Inc.
Notes to the consolidated financial statements
For the years ended November 30, 2019 and 2018
(In thousands of Canadian dollars, except per share amounts and stock options)
23.
Financial instruments (continued)
Determination of fair value (continued)
The Company, through its financial assets and financial liabilities, is exposed to various risks. The following analysis
provides a measurement of risks as at November 30, 2019.
Credit risk
The Company’s credit risk is primarily attributable to its trade receivables. The amounts disclosed in the consolidated
statement of financial position represent the maximum exposure to credit risk for each respective financial asset as at
the relevant dates. The Company believes that the credit risk of accounts receivable is limited as other than receivables
from international locations, the Company’s broad client base is spread mostly across Canada and the USA, which
limits the concentration of credit risk.
The credit risk on the Company’s loans receivable is similar to that of its accounts receivable.
Foreign exchange risk
Foreign exchange risk is the Company’s exposure to decreases or increases in financial instrument values caused by
fluctuations in exchange rates. The Company’s exposure to foreign exchange risk mainly comes from sales
denominated in foreign currencies. The Company’s USA and foreign operations use the U.S. dollar (USD) as
functional currency. The Company’s exposure to foreign exchange risk stems mainly from cash, accounts receivable,
long-term debt denominated in US dollars, other working capital items and financial obligations from its USA
operations.
Fluctuations in USD exchange rates are deemed to have minimal risk as they are mostly offset by the stand-alone
operations of the Company’s US entities.
As at November 30, 2019, the Company has the following financial instruments denominated in foreign currencies:
Financial assets
Cash
Accounts receivable
Financial liabilities
Accounts payable and deposits
Long-term debt
November 30, 2019
November 30, 2018
USD
$
5,194
253
(33)
—
CAD
$
6,902
337
(44)
—
USD
$
980
330
CAD
$
1,304
439
(32 )
(14,000 )
(43 )
(18,621 )
Net financial Assets (liabilities)
5,414
7,195
(12,722 )
(16,921 )
All other factors being equal, a reasonable possible 5% rise in foreign currency exchange rates per Canadian dollar
would result in a profit of C$360 (2018 – C$846 loss) on the consolidated statements of income and comprehensive
income.
Page 64
MTY Food Group Inc.
Notes to the consolidated financial statements
For the years ended November 30, 2019 and 2018
(In thousands of Canadian dollars, except per share amounts and stock options)
23.
Financial instruments (continued)
Interest rate risk
Interest rate risk is the Company’s exposure to increases and decreases in financial instrument values caused by the
fluctuation in interest rates. The Company is exposed to cash flow risk due to the interest rate fluctuation in its floating-
rate interest-bearing financial obligations.
Furthermore, upon refinancing of a borrowing, depending on the availability of funds in the market and lender
perception of the Company’s risk, the margin that is added to the reference rate, such as LIBOR or prime rates, could
vary and thereby directly influence the interest rate payable by the Company.
Long-term debt stems mainly from acquisitions of long-term assets and business combinations. The Company is
exposed to interest rate risk with its revolving credit facility which is used to finance the Company’s acquisitions. The
facility bears interest at a variable rate and as such the interest burden could change materially. $518,922 (2018 –
$256,143) of the credit facility was used as at November 30, 2019. A 100 basis points increase in the bank’s prime
rate would result in additional interest of $5,189 per annum (2018 – $2,561) on the outstanding credit facility.
Liquidity risk
Liquidity risk refers to the possibility of the Company not being able to meet its financial obligations when they become
due. The Company has contractual and fiscal obligations as well as financial liabilities and is therefore exposed to
liquidity risk. Such risk can result, for example, from a market disruption or a lack of liquidity. The Company actively
maintains its credit facility to ensure it has sufficient available funds to meet current and foreseeable financial
requirements at a reasonable cost.
As at November 30, 2019, the Company had an authorized revolving credit facility for which the available amount may
not exceed $700,000 (2018 – $500,000) to ensure that sufficient funds are available to meet its financial requirements.
The terms and conditions related to this revolving credit facility is described in note 16.
The following are the contractual maturities of financial liabilities as at November 30, 2019
Carrying
amount
Contractual
cash flows
$
$
0 to 6
months
$
6 to 12
months
12 to 24
months
Thereafter
$
$
$
Accounts payable
and accrued
liabilities
Long-term debt (note 19)
Interest on long-term
debt (1)
100,762
540,650
n/a
641,412
100,762
542,631
100,762
3,418
40,475
683,868
7,143
111,323
—
1,647
7,143
8,790
—
11,185
14,285
25,470
—
526,381
11,904
538,285
(1) When future interest cash flows are variable, they are calculated using the interest rates prevailing at the end of
the reporting period.
Page 65
MTY Food Group Inc.
Notes to the consolidated financial statements
For the years ended November 30, 2019 and 2018
(In thousands of Canadian dollars, except per share amounts and stock options)
24. Capital disclosures
The Company’s objectives when managing capital are:
(a) To safeguard its ability to obtain financing should the need arise;
(b) To provide an adequate return to its shareholders; and
(c) To maintain financial flexibility in order to have access to capital in the event of future acquisitions.
The Company defines its capital as follows:
(a) Shareholders’ equity;
(b) Long-term debt including the current portion;
(c) Deferred revenue including the current portion; and
(d) Cash
The Company’s financial strategy is designed and formulated to maintain a flexible capital structure consistent with
the objectives stated above and to respond to changes in economic conditions and the risk characteristics of the
underlying assets. The Company may invest in longer or shorter-term investments depending on eventual liquidity
requirements.
The Company monitors capital on the basis of the debt-to-equity ratio. The debt-to-equity ratios at November 30, 2019
and 2018 were as follows:
Debt
Equity
Debt-to-equity ratio
2019
$
540,650
665,480
0.81
2018
$
275,616
610,895
0.45
The increase in debt-to-equity ratio is due to the increase in long-term debt as a result of the acquisition of Papa
Murphy’s. Maintaining a low debt-to-equity ratio is a priority in order to preserve the Company’s ability to secure
financing at a reasonable cost for future acquisitions. The Company expects to maintain a low ratio by continuously
using the expected cash flows from the newly acquired business in both the USA and Canada to reduce the level of
long-term debt.
The Company’s credit facility imposes a maximum debt-to- proforma EBITDA ratio of 4:1 after an acquisition in excess
of $150,000 for a period of twelve months after acquisition; 3.5:1 anytime thereafter and until the maturity date of
September 23, 2022.
Page 66
MTY Food Group Inc.
Notes to the consolidated financial statements
For the years ended November 30, 2019 and 2018
(In thousands of Canadian dollars, except per share amounts and stock options)
25. Revenue
Royalties
Franchise and transfer fees
Retail, food processing and
distribution revenues
Rent
Sale of goods, including
construction revenues
Gift card breakage income
Promotional funds
Other franchising revenue
Other
26. Operating expenses
For the year ended
November 30, 2019
November 30, 2018
Canada
US &
International
TOTAL
Canada
US &
International
TOTAL
$
$
$
$
84,477
5,488
90,689
1,342
48,710
318
42,461
38,791
3,267
97,239
3,476
4,176
—
51,431
6,084
42,999
24,954
5,040
181,716
8,964
94,865
1,342
100,141
6,402
85,460
63,745
8,307
73,781
4,609
46,741
1,820
50,172
553
35,400
33,851
2,729
$
$
Restated
(note 4)
67,259
3,708
3,492
—
29,003
6,262
28,559
21,678
2,729
141,040
8,317
50,233
1,820
79,175
6,815
63,959
55,529
5,458
315,543
235,399
550,942
249,656
162,690
412,346
For the year ended
November 30, 2019
November 30, 2018
Canada
US &
International
TOTAL Canada
US &
International
TOTAL
$
$
$
$
$
$
Restated
(note 4)
Cost of goods sold and rent
Retail, food processing and
distribution costs
Wages and benefits
Consulting and professional fees
Gift cards – related costs
Royalties
Promotional funds
Other (1)
35,859
28,350
64,209
37,864
16,921
54,785
80,388
47,762
8,999
—
266
42,461
14,128
—
59,847
7,125
9,083
6,355
42,999
19,925
80,388
107,609
16,124
9,083
6,621
85,460
34,053
39,997
39,057
6,443
—
477
35,400
10,162
—
36,089
1,806
7,452
6,605
28,559
20,663
39,997
75,146
8,249
7,452
7,082
63,959
30,825
173,684
287,495
(1) Other operating expenses are comprised mainly of travel and promotional costs, credit losses and other office
229,863
403,547
169,400
118,095
administration expenses.
Page 67
MTY Food Group Inc.
Notes to the consolidated financial statements
For the years ended November 30, 2019 and 2018
(In thousands of Canadian dollars, except per share amounts and stock options)
27. Operating lease arrangements
Operating leases as lessee relate to leases of premises in relation to the Company’s operations. Leases typically have
terms ranging between 5 and 10 years at inception. The Company does not have options to purchase the premises
on any of its operating leases.
The Company has entered into various long-term leases and has sub-leased substantially all of the premises based
on the same terms and conditions as the original lease to unrelated franchisees. The minimum rentals, exclusive of
occupancy and escalation charges, and additional rent paid on a percentage of sales basis, payable under the leases
are as follows:
2020
2021
2022
2023
2024
Thereafter
Lease
commitments
$
Sub-leases
$
138,027
119,814
101,299
81,376
62,026
145,903
648,445
123,713
107,015
89,895
71,566
55,125
125,716
573,030
Net
commitments
$
14,314
12,799
11,404
9,810
6,901
20,187
75,415
Payments recognized as a net expense during the year ended November 30, 2019 amount to $22,965 (2018 –
$18,331).
Operating leases as lessor relate to the properties leased or owned by the Company, with lease terms ranging between
5 to 10 years. Some have options to extend the duration of the agreements, for periods ranging between 1 and 15
years. None of the agreements contain clauses that would enable the lessee or sub-lessee to acquire the property.
During the year, the Company earned rental revenue of $1,342 (2018 – $1,820).
The Company has recognized a liability of $1,947 (2018 – $1,250) for the leases of premises in which it no longer has
operations but retains the obligations contained in the lease agreement (note 17).
28. Guarantee
The Company has provided a guarantee on certain leases for which it is not the lessee, for a cumulative amount of
$15,057 (2018 – $9,330).
29. Contingent liabilities
The Company is involved in legal claims associated with its current business activities. The Company’s estimate of
the outcome of these claims is disclosed in note 17. The timing of the outflows, if any, is out of the control of the
Company and is as a result undetermined at the moment.
Page 68
MTY Food Group Inc.
Notes to the consolidated financial statements
For the years ended November 30, 2019 and 2018
(In thousands of Canadian dollars, except per share amounts and stock options)
30.
Income taxes
On December 22, 2017, the United States enacted the “U.S. Tax Cuts and Job Act”, commonly referred to as U.S. tax
reform, which resulted in the U.S statutory federal income tax rate to be reduced to 21.0% from the previous rate of
35.0%, effective January 1, 2018. Consequently, for its fiscal year ending on November 30, 2018 (prior year), the
Company recorded a net tax benefit of $34,853 during the year, which is primarily derived from the re measurement
of the Company’s deferred income tax balances.
Variations of income tax expense from the basic Canadian federal and provincial combined tax rates applicable to
income from operations before income taxes are as follows:
Combined income tax rate in Canada
Add effect of:
Difference between Canadian and
foreign statutory rate
Non-taxable portion of
capital gains
Permanent differences
Recognition of previously
unrecognized deferred tax assets
Losses in subsidiaries for which no
deferred income tax assets is
recognized
Rate variation on deferred income tax
Adjustment to prior
year provisions
Other – net
Provision for income taxes
$
2019
%
$
2018
%
26,067
26.6
21,362
26.7
(4,511 )
(103 )
(376 )
(106 )
273
(676 )
208
(515 )
20,261
(4.6 )
(0.1 )
(0.4 )
(0.1 )
0.3
(0.7 )
0.2
(0.5 )
20.7
(3,987 )
8
1,356
(758 )
132
(34,853 )
649
(88 )
(16,179 )
(5.0 )
0.0
1.7
(0.9 )
0.2
(43.6 )
0.8
(0.1 )
(20.2 )
Page 69
MTY Food Group Inc.
Notes to the consolidated financial statements
For the years ended November 30, 2019 and 2018
(In thousands of Canadian dollars, except per share amounts and stock options)
30.
Income taxes (continued)
The variation in deferred income taxes during the year were as follows:
November
30, 2018
Recognized in
profit or loss
Recognized in
other
comprehen-
sive income Acquisition
Foreign
exchange
$
$
$
$
$
November
30, 2019
$
Net deferred tax assets
(liabilities) in relation to:
Property, plant and
equipment
Accounts receivable
Deferred costs
Inventory
1,691
824
(1,134 )
(121 )
Provisions and gift card
15,067
Long-term debt
Non-capital losses
(646 )
289
(1,080 )
(868 )
(218 )
37
543
1
483
Intangible assets
(145,162 )
(2,286 )
Accrued expenses
Deferred revenue
3,207
10,099
(159 )
778
—
—
—
—
—
245
—
—
—
—
(3,138 )
(3 )
—
156
569
1,522
1,566
(14 )
(4 )
—
—
(11 )
2
6
(44,009 )
430
3,165
(30 )
4
7
(115,886 )
(2,769 )
245
(40,202 )
420
(2,541)
(51)
(1,352)
72
16,168
1,124
2,344
(191,027)
6,217
10,854
(158,192)
Net deferred tax assets
(liabilities) in relation to:
Property, plant and
equipment
Accounts receivable
Deferred costs
Inventory
November
30, 2017
Recognized in
profit or loss
$
$
801
1,553
(783 )
(83 )
46
(766 )
(341 )
(37 )
Provisions and gift card
18,814
(4,811 )
Long-term debt
Non-capital losses
(336 )
461
Intangible assets
(145,625 )
Accrued expenses
Deferred revenue
5,190
10,345
766
(194 )
42,835
(2,221 )
(377 )
Recognized in
other
comprehen-
sive loss Acquisition
Foreign
exchange
$
November
30, 2018
$
$
Adjusted,
note 7
820
—
—
—
591
(54 )
22
$
—
—
—
—
—
(1,020)
—
—
—
—
(40,434 )
(1,938 )
138
—
100
131
24
37
(10 )
(1 )
473
(2 )
—
1,691
824
(1,134)
(121)
15,067
(646)
289
(145,162)
3,207
10,099
(115,886)
Page 70
(109,663 )
34,900
(1,020)
(38,917 )
(1,186 )
MTY Food Group Inc.
Notes to the consolidated financial statements
For the years ended November 30, 2019 and 2018
(In thousands of Canadian dollars, except per share amounts and stock options)
30.
Income taxes (continued)
As at November 30, 2019, there were approximately $52 (2018 – $311) of capital losses which may be applied against
capital gains for future years and be carried forward indefinitely. The deferred income tax benefit of these capital
losses has not been recognized.
As at November 30, 2019, there were approximately $1,273 (2018 – $1,026) in non-capital losses accumulated in one
of the Company’s subsidiaries for which no deferred income tax asset was recognized. These capital losses will expire
between 2035 and 2038.
The deductible temporary difference in relation to foreign exchange on intercompany loans for which a deferred tax
asset has not been recognized amounts to $633 (2018 – $15).
No deferred income tax liability is recognized on unremitted earnings of $60,279 (2018 – $52,000) related to the
investments in subsidiaries. Such unremitted earnings are reinvested in the subsidiaries and will not be repatriated in
the foreseeable future.
The Company has an uncertain tax risk related to pre-acquisition periods whereby tax returns were filed by previous
owners.
31. Segmented information
Management monitors and evaluates results of the Company based on geographical segments; these two segments
being Canada and US & International. The Company and its chief operating decision-maker assess the performance
of each operating segment based on its segment profit and loss which is equal to revenue less operating expenses.
Within those geographical segments, the Company’s chief operating decision-maker also assesses the performance
of subdivisions based on the type of product or service provided. These subdivisions include franchising, corporate
stores, food processing, retail and distribution and promotional fund revenues and expenses. This information is
disclosed below.
Page 71
MTY Food Group Inc.
Notes to the consolidated financial statements
Years ended November 30, 2019 and 2018
(In thousands of Canadian dollars, except per share amounts and stock options)
31.
Segmented information (continued)
Below is a summary of each geographical and operating segment’s performance during the year ended November 30, 2019 and 2018. 2018 amounts have been restated to
reflect change in IFRS 15, detail of which can be found in note 4.
November 30, 2019
Revenue
Operating expenses
Segment profit (loss)
Total assets
Total liabilities
November 30, 2018
Revenue
Operating expenses
Segment profit (loss)
Total assets
Total liabilities
CANADA
US & INTERNATIONAL
Franchising Corporate
$
$
Processing,
Distribution
and Retail
$
Promotional
funds Interco
$
$
Total
Canada
$
Franchising Corporate
$
$
Processing,
Distribution
and Retail
$
Promotional
funds Interco
$
$
Total US &
International
$
Total
Consolidated
$
146,598
68,437
39,133
40,688
91,570
81,294
42,461 (4,219)
42,461 (3,017)
315,543
229,863
138,788
76,663
51,283
57,071
4,176
—
42,999 (1,847)
42,999 (3,049)
235,399
173,684
550,942
403,547
78,161
(1,555)
10,276
— (1,202)
85,680
62,125
(5,788)
4,176
—
1,202
61,715
147,395
995,215
663,859
6,132
3,657
17,862
5,030
5,708
5,359
— 1,024,917
—
677,905
605,559
297,615
11,946
3,081
—
—
6,346
4,687
—
—
623,851
1,648,768
305,383
983 288
CANADA
US & INTERNATIONAL
Franchising Corporate
$
$
Processing,
Distribution
and Retail
$
Promotional
funds Interco
$
$
Total
Canada
$
Franchising Corporate
$
$
Processing,
Distribution
and Retail
$
Promotional
funds Interco
$
$
Total US &
International
$
Total
Consolidated
$
136,935
61,576
34,848
35,351
46,741
39,997
35,401 (4,269)
35,401 (2,925)
249,656
169,400
106,023
62,066
24,928
29,126
3,492
—
(312)
28,559
28,559 (1,656)
162,690
118,095
412,346
287,495
75,359
(503)
6,744
— (1,344)
80,256
43,957
(4,198)
3,492
—
1,344
44,595
124,851
821,486
388,499
4,900
2,371
10,112
1,703
6,470
5,922
—
—
842,968
398,495
389,513
222,119
781
1,897
—
—
6,258
6,114
—
—
396,552
230,130
1,239,520
628,625
Page 72
MTY Food Group Inc.
Notes to the consolidated financial statements
Years ended November 30, 2019 and 2018
(In thousands of Canadian dollars, except per share amounts and stock options)
32. Statement of cash flows
Changes in liabilities and assets arising from financing and investing activities:
Revolving
credit facility
Loan
financing
costs
Non-interest-
bearing contracts
and holdback
Promissory
notes
Non -controlling
interest buyback
obligation
Non-controlling
interest option
Contingent
consideration
Total
Balance as at November 30, 2018
Changes from financing activities:
Increase in term revolving credit facility
Repayment in term revolving credit facility
Repayment of holdback
Payment of upfront fees
Recovery of accounts receivable from creditor
Repayment of promissory notes
Other
Changes from non-cash transactions:
Amortization of transaction costs directly
attributable to a financing arrangement
Accretion of interest on non-interest-bearing
holdbacks
Revaluation of financial liabilities recorded at
fair value through profit and loss (note 23)
Loss on settlement of promissory note
Foreign exchange
Changes from investing activities:
Issuance of holdback (note 7)
Transfer to accounts receivable
Issuance of contingent consideration (note 7)
Balance as at November 30, 2019
$
256,143
$
(1,954)
$
11,898
327,399
(64,583)
—
—
—
—
—
(1,079)
—
—
(8,813)
—
—
2
—
—
—
—
(39)
—
—
884
—
—
—
—
—
—
—
518,922
—
—
—
(2,149)
—
72
—
1,360
—
—
(67)
6,990
2,983
—
14,423
$
7,034
—
—
—
—
(2,076)
(446)
—
—
—
(1,897)
452
—
—
—
—
3,067
$
1,501
$
994
$
—
$
275,616
—
—
—
—
—
—
—
—
48
—
—
—
—
—
1,549
—
—
—
—
—
—
—
—
(30)
—
—
—
—
—
964
—
—
—
—
—
—
—
—
223
—
—
—
—
3,651
3,874
327,399
(64,583)
(8,813)
(1,079)
(2,076)
(446)
74
884
1,360
(1,656)
452
(106)
6,990
2,983
3,651
540,650
Page 73
MTY Food Group Inc.
Notes to the consolidated financial statements
Years ended November 30, 2019 and 2018
(In thousands of Canadian dollars, except per share amounts and stock options)
32.
Statement of cash flows (continued)
Changes in non-cash operating activities are as follows:
Accounts receivable
Inventories
Loans receivable
Prepaid expenses and deposits
Other asset
Accounts payable and accrued liabilities
Provisions
Gift card and loyalty program liabilities
Deferred revenue & deposits
2019
$
(10,381 )
1,073
(1,948 )
(1,218 )
(1,316 )
9,431
(2,390 )
3,126
2,302
(1,321 )
2018
$
(3,738 )
1,426
1,050
(3,113 )
326
(5,645 )
(991 )
4,569
1,610
(4,506 )
Non-cash items are included in proceeds from dispositions of capital assets amounting to $612 (2018 – $145).
The variation of accounts receivables includes non-cash transfers from long-term debt amounting to $906.
33. Related party transactions
Balances and transactions between the Company and its subsidiaries, which are related parties of the
Company, have been eliminated on consolidation. Details of transactions between the Company and other
related parties are disclosed below.
Compensation of key management personnel
The remuneration of key management personnel and directors during the years ended November 30 was as
follows:
Short-term benefits
Share-based payment
Board member fees
Total remuneration of key management personnel
2019
$
2,497
657
75
3,229
2018
$
2,051
659
64
2,774
Key management personnel is composed of the Company’s CEO, COO’s and CFO. The remuneration of
directors and key executives is determined by the Board of Directors having regard to the performance of
individuals and market trends.
Given its widely held share base, the Company does not have an ultimate controlling party; its most important
shareholder is its Chair of the Board of Directors, who controls 19.5% of the outstanding shares.
Page 74
MTY Food Group Inc.
Notes to the consolidated financial statements
Years ended November 30, 2019 and 2018
(In thousands of Canadian dollars, except per share amounts and stock options)
33.
Related party transactions (continued)
The Company also pays employment benefits to individuals related to members of the key management
personnel described above. Their total remuneration was as follows:
Short-term benefits
Share-based payment
Consulting services
Total remuneration of individuals related to key
management personnel
2019
$
494
22
38
554
2018
$
452
20
13
485
34. Subsequent events
Acquisition of Turtle Jack’s Muskoka Grill, COOP Wicked Chicken and Frat’s Cucina
On December 3, 2019, one of the Company’s wholly owned subsidiaries completed its acquisition of a 70%
interest in Turtle Jack's Muskoka Grill, COOP Wicked Chicken and Frat’s Cucina (together “Tortoise Group”),
three casual dining concepts operating in the province of Ontario, for a consideration of $19,106. There are
currently 19 franchised Turtle Jack's restaurants in operation. The two COOP Wicked Chicken and the Frat's
Cucina restaurants are company-owned, both concepts being in their start-up period.
Dividends
On January 13, 2020, the Company approved a quarterly dividend of $0.185 per common share to be paid out
on February 14, 2020.
Page 75
CORPORATE INFORMATION
Head Office
8210 Transcanada Highway
Saint-Laurent
QC H4S 1M5 Canada
T. : 514 336-8885
F. : 514 336-9222
www.mtygroup.com
Transfer Agent
& Registrar
Computershare Trust
Company of Canada
100 University Ave.,
9th Floor, Toronto
ON M5J 2Y1 Canada
T. : 1.800 564-6253
service@computershare.com
Directors
Stanley Ma
Claude St-Pierre
Eric Lefebvre
Dickie Orr*
David Wong*
Murat Armutlu*
Garry O’Connor*
*Audit Committee
Auditors
PricewaterhouseCoopers
LLP/s.r.l./s.e.n.c.r.l.
1250 René-Lévesque Blvd. W.,
suite 2500
Montreal
QC Canada H3B 4Y1
T. : 514 205-5000
F. : 514 876-1502
Solicitors
Fasken Martineau DuMoulin LLP
800, rue du Square-Victoria,
suite 3700
Montreal
QC Canada H4Z 1E9
T. : 514 397-7400
1 800 361-6266
F. : 514 397-7600
Investors Relations
Eric Lefebvre
T. : 514 336-8885
F. : 514 336-9222
ir@mtygroup.com
MTY Food Group Inc.
Groupe d’alimentation MTY Inc.
8210 Transcanada Highway
Saint-Laurent QC H4S 1M5, Canada
T. : 514 336-8885 | F. : 514 336-9222
TSX “MTY”
MTYGROUP.COM