ANNUAL
REPORT
2
0
2
0
OUR
BANNERS
TM
®
Dear shareholders, what a year 2020 was. After starting the year with strong momentum and delivering
a solid first quarter, the world came to a halt in the second half of March and the roller coaster ride has
been intense since then. Reflecting on the last 12 months, I am extremely proud of how strong MTY’s
network has proven to be.
They say “never waste a good crisis”, and we certainly put that saying to test. Like everyone else in our
industry, our business came to a standstill in March and the uncertainty we faced in the subsequent
months was at times extremely challenging. But we had to roll with the punches and go back to our
entrepreneurial roots, make changes, take risks and react fast to a quickly changing environment. Our
operations standards and marketing strategies had to be completely re-assessed. The timelines we had
for the roll out of certain improvements to our e-commerce platforms had to be compressed
dramatically. What we took for granted would never happen was all of a sudden a possibility and
ultimately became the new reality.
In 2020 we proved the value of our brands and the impact it had on customer behaviour in times of
uncertainty. Some of our brands thrived during the pandemic, fueled by timely investments, nimble
marketing campaigns, adaptable franchisees and by craveable food. There were also some brands that
suffered more for various reasons ranging from heavy restrictions in some geographies, reliance on
dine-in or the desertion of major urban centers. For all of our brands, in all geographies, we challenged
common wisdom, re-wrote our play books, re-trained our people and our franchisees and tried to make
the best of a horrible situation.
One of our main priorities at the height of the pandemic was to make sure MTY survived; our growth
had to be paused and our dividend suspended, half of our staff was furloughed and we cut down on
virtually all our spending as we focused all our energy on preserving our liquidities.
Many outside the organization doubted our ability to survive, sending our stock price to levels we hadn’t
seen since 2012. Internally though, it was clear there was a way out of this and that focusing on our
franchisees was the only way for us to rebound as the crisis subsided. There was a significant amount of
struggling involved in the road to recovery, and we are not out of the woods as I write this letter. Slowly
but surely, we are seeing more and more parts of our network emerge, stronger than they were before
the pandemic and ready to fight. Papa Murphy’s, Cold Stone and Yuzu Sushi were among the first few
to emerge, and many more followed.
The drastic actions we took combined with the gradual recovery of our operations enabled MTY to
generate strong cash flows despite the impact of the pandemic. During the last nine months of 2020, we
generated $109.9 million in free cash flows and consequently repaid over $100 million of our long-term
debt, as we made it a priority to pay down our obligations and build a treasure chest for the future.
During the year, we had to take some significant impairment charges as a result of the pandemic and we
ended the year with a loss. These impairments were mainly on our US business and are for the most
part attributable to a change in the risk assumptions used to calculate the fair value of our assets. In
some cases these assets performed very well during 2020 and ultimately carried MTY financially for
most of the year. As is shown in our financial reports for the fourth quarter, our system sales in the US
were actually up compared to 2019, showing how strong our US business remains.
MTY couldn’t have come this far without the help of many. Throughout this difficult period, our
franchisees have been incredibly resilient and keep fighting to save their businesses. Our staff, many of
whom were furloughed and subsequently came back, are as passionate, resourceful and creative as ever
before, constantly asking what more they can do for our franchisees and for MTY. Our suppliers are
often forgotten but suffered just as much as we did from the pandemic and their help in weathering the
storm is invaluable. And our landlords, were for the most part understanding and patient while we were
tried to figure it all out.
That being said, we did see some erosion in our network. We ended the year with 7,001 locations in
operation, 338 of which were temporarily closed at November 30. Most of the erosion came from the
non-renewal of leases for which we were not able to come to reasonable terms with our landlords and
therefore MTY or our franchisees were not willing to accept the risk during this period of uncertainty.
We also opened fewer new locations than expected during 2020, for obvious reasons.
Our system sales dropped to just under $3.5 billion during 2020, as restrictions materially impacted our
business. Canada was hit the hardest especially in the second and fourth quarters, where restrictions
were the heaviest on our casual dining brands and food court operations.
For 2021, we will continue to invest heavily in digital marketing, digital sales channels and in all the
technology that will enable a better digital performance. The last twelve months have caused some
changes in behaviour and customer expectations that we expect will be permanent. MTY finds itself in a
good position to seize the opportunity it presents, increase our relevance to customers we might not
have targeted in the past and retain the customers that enjoyed our food before the pandemic. The
foundation we laid positions us in the right place to seize opportunities as restrictions are lifted and life
inches closer to normalcy.
We remain committed to deliver both organic growth and growth by acquisitions in the future. We are
anchored in the incredible power of our network of franchisees and plan to increase that power in the
coming years as we have done in the past forty.
In conclusion, I am very thankful to our guests, franchise partners, colleagues and shareholders for your
confidence and trust in MTY during this eventful year. The strength of our plans today is the result of a
group of individuals that refused to give up when confronted with uncontrollable events, and instead
focused on the right long-term priorities to grow our restaurant brands for many years to come.
Together, we will emerge.
Eric Lefebvre
Chief Executive Officer
February 18, 2021
Management’s Discussion and Analysis
For the year ended November 30, 2020
Key highlights
• Net income attributable to shareholders of $20.1 million in the quarter, or $0.81 per share,
stable compared to Q4-19.
• Adjusted EBITDA(1) of $35.2 million in the quarter, down 18% compared to Q4-19.
• Free cash flows(1) per diluted share increased by 2% compared to Q4-19, to reach $1.78
• Cash flows from operating activities of $44.8 million, up 18% compared to Q4-19, despite
duration of COVID-19 pandemic.
• Long-term debt repayments of $37.6 million for the quarter.
• System sales(1) of $891.4 million, down 13% compared to Q4-19. Papa Murphy’s and Cold Stone
Creamery had combined organic growth of $49.9 million in the quarter.
• Fourth quarter digital sales(1) represents 17.5% and 25.2% of total system sales for Canada and
the USA respectively in 2020 compared to 4.1% and 12.2% in Q4-19. This was driven by
changes in consumer spending habits and increased investments in online ordering and third
party delivery options.
• 30,222 business days were lost during the quarter. 364 restaurants were temporarily closed at
the beginning of the quarter with 338 still temporarily closed at quarter end. 408 remain
temporarily closed as at the date of this press release, which represents less than 6% of the
network.
• Management initiatives resulting in a reduction of recurring controllable expenses of $2.1
million for Q4-20
(1) See section “Definition of non-GAAP measures” found in the Supplemental Information section for definition.
Management’s Discussion and Analysis
For the fiscal year ended November 30, 2020
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, 2020.
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,
2019.
This MD&A was prepared as at February 17, 2021. 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 “Near-Term Outlook”, “Same-Store
Sales” and “Contingent Liabilities”, 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
2020. 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 17, 2021 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. In addition, the impact of COVID-19 on the operational cash flows and financial condition of the industry in
which the Company operates and on the Company itself continues to evolve and any forward-looking information set
forth herein with respect to such matters is subject to change and actual impact may differ from expectations in a material
way.
Forward-looking statements made in this MD&A are based on a number of assumptions that are believed to be
reasonable on February 17, 2021. 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-
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.
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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 duration and impact of the COVID-19 pandemic, its impact on the ability to
re-open locations as well as on consumer demand upon re-opening and its macro-economic impact; 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, government orders 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 17, 2021. 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 the business.
CORE BUSINESS
Founded in 1979 MTY franchises and operates quick service, fast casual and casual dining restaurants. MTY aims to be
the franchisor of choice in North America and offers the market a range of offering through its many brands. MTY
currently operates under the following banners: Tiki-Ming, Sukiyaki, La Crémière, 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, 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, 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, SweetFrog, Casa Grecque, South
Street Burger, Papa Murphy’s, Yuzu Sushi, Allô! Mon Coco, La Boite Verte, Eat Pure, Turtle Jack’s Muskoka Grill and
COOP Wicked Chicken.
As at November 30, 2020, MTY had 7,001 locations in operation, of which 6,867 were franchised or under operator
agreements, 21 are operated through the joint venture and the remaining 113 locations were operated by MTY.
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.
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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.
In the wake of COVID-19, MTY has also launched multiple ghost kitchens in existing restaurant locations. These ghost
kitchens and the pre-existing MTY restaurant locations are benefiting from the synergies of shared costs, streamlined
workflows as well as being able to respond to the increase in delivery and takeout orders.
Details on other banners added through acquisitions can be found in the supplemental section of this MD&A.
Revenues from franchise locations are generated from royalty fees, 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.
Promotional funds contributions are based on a percentage of gross sales as reported by the franchisees. The Company
is not entitled to retain these promotional fund payments received and is obligated to transfer these funds to be used
solely in promotional and marketing-related costs for specific restaurant banners.
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
are sold at various retailers. The Company also generates revenue from its distribution centers that serve primarily the
Valentine and Casa Grecque franchisees.
ADOPTION OF NEW ACCOUNTING STANDARD
In January 2016, the International Accounting Standards Board (“IASB”) issued IFRS 16, Leases. The standard provides
a comprehensive model for the identification of lease arrangements and their treatment in the financial statements of
both lessees and lessors. It supersedes International Accounting Standards (“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 right-of-use assets and lease liabilities recognized in respect of all leases (subject to limited
exceptions for short-term leases and leases of low-value assets). 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 rental
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 intermediate lessors 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.
IFRS 16 is effective for annual periods beginning on or after January 1, 2019, with earlier application permitted for entities
that apply IFRS 15, Revenue from Contracts with Customers. The guidance allows for either a full retrospective or
modified retrospective transition method. The Company has selected to apply the modified retrospective transition
method. Further, the Company has selected to apply the practical expedients to (i) grandfather the assessment of which
transactions are leases; (ii) the use of the provision for onerous leases as an alternative to performing an impairment
review; (iii) recognition exemption of short-term and low value leases; and (iv) the use of hindsight in determining the
lease term where the contract contains options to extend or terminate the lease.
The financial statements reflect the application of IFRS 16 beginning in fiscal 2020, while the financial statements for
prior periods were prepared under the guidance of the previous standard. For further information, please see section
“Changes in Accounting Policies” further in this MD&A.
COMPLIANCE WITH INTERNATIONAL FINANCIAL REPORTING STANDARDS
Unless otherwise indicated, the financial information presented below, including tabular amounts, is prepared in
accordance with IFRS. Definitions of all non-GAAP measures can be found in the supplemental information section of
this MD&A. The non-GAAP measures used within the context of this MD&A do not have a standardized meaning
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prescribed by GAAP and are therefore unlikely to be comparable to similar measures presented by other issuers. Non-
GAAP measures provide investors with a supplemental measure of the operating performance and financial position and
thus highlight trends in the core business that may not otherwise be apparent when relying solely on GAAP measures.
HIGHLIGHTS OF SIGNIFICANT EVENTS
COVID-19
In December 2019, a novel strain of coronavirus was reported to have surfaced, later to be renamed COVID-19. The
spread of this virus caused a business disruption beginning in March 2020, due to government and health authority
imposed restrictions and changes in customer behavior in Canada, the US and Internationally.
Further while the disruption continues to come in waves, there is uncertainty around the duration of the pandemic, its
medium to longer term impact on the economy and the rules that will apply to MTY’s restaurants as sheltering measures
are continuous changed. The impact of the virus and the efforts to stop it impact MTY and many of its franchisees
materially.
Although the third quarter was met with the gradual lifting of restrictive public health measures which allowed restaurants
within the network to slowly resume normal operations within Canada and the USA, the fourth quarter saw new
restrictions imposed in the Canadian network as a second wave of the virus spread. While the pandemic persists, MTY
continues to focus on the health and safety of its customers, employees and franchisees as well as supporting restaurants
across its network. The government-imposed restrictions and public health authorities evolving response to COVID-19
continue to impact MTY. During the fourth quarter, many restaurants in MTY’s Canadian network were forced to operate
as delivery and take-out options only as a result of a resurgence of COVID-19 cases in the provinces. These new
government-imposed restrictions continue to impact the health of the network. As a result, the number of affected
locations will continue to fluctuate in response to the rapidly changing environment, with a corresponding effect on
customer traffic volumes and revenue at these locations. The majority of the brands in MTY’s portfolio will continue to
be impacted negatively for the coming months. As at November 30, 2020, MTY had 338 locations temporarily closed
with many of those open operating at reduced capacity. During the months of September, October and November, MTY’s
network lost a total of 30,222 days (21,161 in Canada and 9,061 in the US) of combined operations with a total of 364
locations temporarily closed at the beginning of the quarter and a second wave of restrictions being imposed in Canada
throughout the fourth quarter. Locations that are still temporarily closed are mostly located in mall locations, office towers
and non-traditional locations such as airports, gyms and universities.
Since March, MTY has put into place a series of measures in an attempt to help franchisees and ensure the safety and
well-being of its employees, guests and partners:
Postponed the collection of royalties from franchisees for a period of time;
-
- Helped franchisees with the Canada Emergency Commercial Rent Assistance (“CECRA”) program and Canada
Emergency Rent Subsidy (“CERS”) applications;
Put in new safety measures within its network of restaurants such as increased cleaning frequency, the use of
face shields or masks and gloves, the installation of plexiglass at service counters and the suspension of certain
practices like the use of reusable cups, in order to minimize risk;
Signed partnership with aggregators to help facilitate the delivery of food offerings;
Invested and enhanced online ordering technologies to improve the customer experience for many of the
brands and help facilitate take-out, curbside pick-up and delivery orders;
Implemented a work from home policy.
-
-
-
-
The Company also continues to make efforts to preserve capital resources during this challenging and unpredictable
time:
Participated in Canada Emergency Wage Subsidy (“CEWS”) and CERS;
-
- Capital and operational spending was reduced to a minimum.
For the fourth quarter, MTY’s consolidated financial statements have been impacted with respect to the following as a
result of government-imposed restrictions:
Additional expected credit losses on finance lease receivables were taken;
Impairment of right-of-use assets and corporate store capital assets were recorded;
-
-
- Changes to lease liabilities and finance lease receivables were made to reflect changes in lease payment terms.
Further information on these changes can be found in the November 30, 2020 consolidated financial statements.
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NCIB Renewal
On June 29, 2020, the Company announced the renewal of the normal course issuer bid (“NCIB”). The NCIB began on
July 3, 2020 and will end on July 2, 2021 or on such earlier date when the Company completes its purchases or elects
to terminate the NCIB. The renewed period allows the Company to purchase 1,235,323 of its common shares. 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. During the fiscal year ended November 30, 2020, the
Company repurchased and cancelled a total of 364,774 common shares at a weighted average price of $51.72 per
common share, for a total consideration of $18.9 million. For the year, an excess of $14.3 million of the shares repurchase
value over their carrying amount was charged to retained earnings as share repurchase premiums.
Until May 31, 2021, the credit agreement amendment contains various limitations on distributions. The main limitations
on distributions impose restrictions on the repurchase of MTY’s common shares through its NCIB process until such time
as the debt-to-EBITDA falls below 3.50:1.00 ratio.
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 a
joint venture that acquired 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 $26.1 million. The
consideration includes a deferred contingent consideration amounting to $4.1 million, an obligation for the repurchase of
its partner in a joint venture of $2.9 million and cash consideration of $19.1 million. The Company has recorded its interest
as a long-term receivable. The Company has guaranteed liabilities of the joint venture amounting to $7.9 million, which
are payable to Tortoise Group, upon the repurchase of the 30% joint venture partner. At closing, there was 20 franchised
restaurants in operation and three corporate-owned stores.
DESCRIPTION OF RECENT ACQUISITIONS
On December 3, 2019, one of the Company’s wholly owned subsidiaries completed its acquisition of a 70% interest in a
joint venture that acquired 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 $26.1 million. The
consideration includes a deferred contingent consideration amounting to $4.1 million, an obligation for the repurchase of
its partner in a joint venture of $2.9 million and cash consideration of $19.1 million. The Company has recorded its interest
as a long-term receivable. The Company has guaranteed liabilities of the joint venture amounting to $7.9 million, which
are payable to Tortoise Group, upon the repurchase of the 30% joint venture partner. At closing, there was 20 franchised
restaurants in operation and three corporate-owned stores.
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
were 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 US, 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.
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SUMMARY OF SELECT ANNUAL INFORMATION
(in thousands $, except EPS, dividend per common share and
numb er of common shares)
Year ended
November 30, 2020
Year ended
November 30, 2019
Total assets
Total long-term financial liabilities
Operating revenue
Adjusted EBITDA (2)
(Loss) income before taxes
Income before taxes, excluding impairment charges and reversals
Net (loss) income attributable to owners
Total comprehensive (loss) income attributable to owners
Cash flows from operations
Cash flows from operation per diluted share
Free cash flows (2)
Net (loss) income per share - basic
Net (loss) income per share - diluted
Dividends paid on common stock
Dividends per common share
2,013,697
447,654
511,117
1,648,801
536,058
550,942
137,819
(51,949)
75,168
(37,108)
(49,726)
133,652
5.40
140,652
(1.50)
(1.50)
4,633
0.185
147,395
97,997
100,616
77,675
76,489
112,951
4.48
116,938
3.09
3.08
16,713
0.66
Weighted daily average number of common shares
Weighted average number of diluted common shares
(1) See section “Definition of non-GAAP measures” found in the Supplemental Information section for definition.
24,755,351
24,755,351
25,145,210
25,186,483
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SUMMARY OF QUARTERLY FINANCIAL INFORMATION
Quarters ended
(in thousands $, except
system sales, # of
locations & EPS)
System sales (2 & 3)
# of locations
Revenue (4)
Adjusted EBITDA (2)
Normalized Adjusted
EBITDA (2)
Net income (loss)
attributable to owners
Total comprehensive
income (loss)
attributable to owners
Net income (loss)
per share
Net income (loss)
per diluted share
Free cash flows (2)
February
2019 (1)
May
2019 (1)
August November February
2019 (1)
2019 (1)
2020
May
2020
August November
2020
2020
687.8
832.3
1,076.2
1,023.5
999.5
670.7
897.5
891.4
5,941
7,345
7,441
7,373
7,300
7,236
7,123
7,001
107,297
125,571
161,290
156,784
150,780
97,808
135,366
127,163
28,376
34,145
41,847
43,027
41,037
18,213
43,388
35,181
28,376
38,182
42,077
43,027
41,037
18,213
43,388
35,181
14,748
19,337
22,902
20,688
19,008
(99,126)
22,932
20,078
10,657
32,476
10,469
22,887
26,476
(80,422)
(10,691)
14,911
0.59
0.76
0.91
0.83
0.76
(4.01)
0.93
0.81
0.58
0.76
0.91
0.83
0.76
(4.01)
0.93
0.81
24,914
21,767
26,680
43,577
30,738
28,926
37,078
43,910
Free cash flows per
diluted share (2)
1.06
(1) Excludes impact of IFRS 16.
(2) See section “Definition of non-GAAP measures” found in the Supplemental Information section for definition.
(3)
(4) May, August and November 2019 amounts have been restated to reflect a change in presentation for retail promotional
In millions $.
0.84
1.08
1.74
0.78
1.56
1.24
1.78
deductions.
SEGMENT NOTE DISCLOSURE
Management monitors and evaluates the Company’s results 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, 2020
Revenue
During the 2020 fiscal year, the Company’s total revenue decreased to $511.1 million from $550.9 million a year earlier.
Revenues for the two segments of business are broken down as follows:
Segment
Canada
Total Canada
Subdivision
Franchise operation
Corporate stores
Food processing, distribution and retail
Promotional funds
Intercompany transactions
November 30, 2020
($ millions)
November 30, 2019
($ millions) (1)
105.6
18.4
104.2
30.4
(4.6)
254.0
146.6
39.1
91.5
42.5
(4.2)
315.5
US &
International
Franchise operation
Corporate stores
Food processing, distribution and retail
Promotional funds
Intercompany transactions
138.8
51.2
4.2
43.0
(1.8)
235.4
550.9
(1) Prior year amounts have been restated to reflect a change in presentation for retail promotional deductions.
152.2
46.3
4.6
56.4
(2.4)
257.1
511.1
Total US & International
Total operating revenues
Variation
(28%)
(53%)
14%
(28%)
N/A
(19%)
10%
(10%)
10%
31%
N/A
9%
(7%)
Canada revenue analysis:
Revenues from franchise locations in Canada decreased by 28%. Several factors contributed to the variation, as listed
below:
Revenues, 2019 fiscal year
Decrease 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 in gift card breakage income
Increase due to impact of IFRS 16 on rent revenue
Increase due to acquisitions
Other non-material variations
Revenues, 2020 fiscal year
(In millions $)
146.6
(42.5)
0.4
(5.9)
(0.2)
1.2
5.4
0.6
105.6
The decrease to franchising revenues was mostly due to the negative impact of the pandemic. Year-to-date system sales
when excluding acquisitions dropped 33% compared to prior year mostly as a result of COVID-19. At November 30,
2020, the Company still had 197 locations temporarily closed in Canada.
Revenue from corporate-owned locations decreased by 53% to $18.4 million year-to-date. The decrease is mostly due
to the temporary and permanent closure of some corporate locations as well as the impact of reduced sales resulting
from government restrictions imposed during the pandemic.
Food processing, distribution and retail revenues increased by 14% mainly as a result of higher consumer spending in
grocery stores while restaurants were closed during the pandemic. The launch of new products in the retail division as
well as expansion into new provinces also helped generate new sales channels. In 2020, 147 products were sold in the
Canadian retail market compared to 102 in 2019.
The promotional fund revenue decrease of 28% fluctuated in line with the decrease in system sales. This was partially
offset by the new promotional revenues generated by the brands acquired in the last year.
Page 9
US & International revenue analysis:
Revenues from franchise locations in the US and International increased by 10%. Several factors contributed to the
variation, as listed below:
Revenues, 2019 fiscal year
Decrease in recurring revenue streams
Increase in initial franchise fees, renewal fees and transfer fees
Increase in sales of material and services to franchisees
Decrease in gift card breakage income
Increase due to impact of IFRS 16 on rent revenue
Increase due to acquisitions
Impact of variation in foreign exchange rates
Other non-material variations
Revenues, 2020 fiscal year
(In millions $)
138.8
(15.6)
0.7
0.1
(1.7)
0.1
27.2
1.6
1.0
152.2
For the US, franchising revenues increased due to the acquisition of Papa Murphy’s. Excluding the acquisition,
franchising revenues would have decreased by $13.8 million mostly due to the negative impact of the pandemic. Year-
to-date system sales when excluding acquisitions dropped 11% compared to prior year mostly as a result of COVID-19.
At November 30, 2020 the Company still had 141 locations temporarily closed in the US and Internationally.
The decrease of $4.9 million in corporate-owned location revenues is mainly due to reduction in corporate store sales for
locations that were permanently or temporarily closed as a result of the pandemic as well as Papa Murphy’s corporately
owned locations that were converted into franchises.
The increase in promotional funds of $13.4 million is due to the acquisition of Papa Murphy’s. Papa Murphy’s acquisition
contributed to an additional $14.5 million in promotional funds. This was offset by the decrease caused by COVID-19.
Cost of sales and other operating expenses
During the 2020 fiscal year, operating expenses decreased by 7% to $373.8 million, down from $403.5 million a year
ago. Operating expenses for the two business segments were incurred as follows:
Segment
Canada
Total Canada
US &
International
Subdivision
Franchise operation
Corporate stores
Food processing, distribution and retail
Promotional funds
Intercompany transactions
Franchise operation
Corporate stores
Promotional funds
Intercompany transactions
Total US & International
Total cost of sales and other operating expenses
November 30, 2020
($ millions)
November 30, 2019
($ millions) (1)
56.6
17.7
92.5
30.4
(2.5)
194.7
78.9
48.3
56.4
(4.5)
179.1
373.8
68.4
40.7
81.2
42.5
(3.0)
229.8
79.3
54.4
43.0
(3.0)
173.7
403.5
Variation
(17%)
(57%)
14%
(28%)
N/A
(15%)
(1%)
(11%)
31%
N/A
3%
(7%)
(1) Prior year amounts have been restated to reflect a change in presentation for retail promotional deductions and a
reclassification between franchise operations and corporate stores subdivisions.
Page 10
Canada cost of sales and other operating expenses analysis:
Cost of sales and other operating expenses from franchise locations in Canada decreased by $11.8 million or 17%.
Several factors contributed to the variation, as listed below:
Cost of sales and other operating expenses, 2019 fiscal year
Decrease in recurring non-controllable expenses
Decrease in recurring controllable expenses including wages,
professional and consulting services and other office expenses
Increase in expected credit loss provision
Increase due to acquisitions
Decrease due to impact of IFRS 16 on rent expense
Increase due to impact of IFRS 16 on impairment of lease receivables
Other non-material variations
Cost of sales and other operating expenses, 2020 fiscal year
(In millions $)
68.4
(6.5)
(10.7)
1.3
2.1
(2.8)
3.4
1.4
56.6
In response to COVID-19, management was able to take certain actions to reduce expenditures within the organization
resulting in the overall reduction of $10.7 million in controllable expenses. This is primarily due to reductions in wages,
professional fees and travel expenses. Non-controllable expenses also decreased by $6.5 million, which fluctuated in line
with the reduction in revenues.
The variations of expenses from corporate stores, food processing, distribution and retail as well as promotional funds
expense activities were tightly correlated to the related revenues.
US & International cost of sales and other operating expenses analysis:
Cost of sales and other operating expenses from franchise locations in the US & International decreased by $0.4 million.
Several factors contributed to the variation, as listed below:
Cost of sales and other operating expenses, 2019 fiscal year
Decrease in recurring non-controllable expenses
Decrease in recurring controllable expenses including wages,
professional and consulting services and other office expenses
Increase in expected credit loss provision
Increase due to acquisitions
Variation due to intercompany transactions
Decrease due to impact of IFRS 16 on rent expense
Impact of variation in foreign exchange rates
Other non-material variations
Cost of sales and other operating expenses, 2020 fiscal year
(In millions $)
79.3
(3.4)
(8.0)
2.0
10.6
1.2
(4.2)
0.7
0.7
78.9
Operating expenses decreased by $0.4 million mostly due to a reduction in controllable expenses of $8.0 million and was
offset by the increase due to the acquisition of Papa Murphy’s of $10.6 million and an increase in expected credit losses of
$2.0 million as a result of the pandemic. The reduction in controllable expenses was due to reductions in wages, professional
fees, franchising and travel expenses all of which were reduced as part of cost reduction initiatives put into place in response
to COVID-19. Non-controllable expenses also decreased by $3.4 million partially due to a reduction in gift card program costs
during the period.
The variations from corporate stores and promotional funds fluctuated in correlation to the related revenues.
Page 11
Adjusted earnings before interest, taxes, depreciation and amortization (Adjusted EBITDA) (1)
Fiscal year ended November 30, 2020
(In millions $)
Revenues
Expenses
Net profit in joint venture
Adjusted EBITDA
Adjusted EBITDA as a % of Revenues
Canada
254.0
194.7
0.5
59.8
24%
US & International
257.1
179.1
—
78.0
30%
Fiscal year ended November 30, 2019
(In millions $)
Revenues
Expenses
Adjusted EBITDA
Adjusted EBITDA as a % of Revenues
Canada
315.5
229.8
85.7
27%
US & International
235.4
173.7
61.7
26%
Below is a summary of performance segmented by product/service:
(In millions $)
Revenues
Expenses
Net profit in joint venture
Adjusted EBITDA
Adjusted EBITDA as a % of Revenues
(In millions $)
Revenues
Expenses (2)
Adjusted EBITDA
Adjusted EBITDA as a % of Revenues
Fiscal year ended November 30, 2020
Processing,
distribution
and retail
108.8
92.5
—
16.3
15%
Franchise Corporate
64.7
66.0
—
(1.3)
N/A
257.8
135.5
0.5
122.8
48%
Fiscal year ended November 30, 2019
Processing,
distribution
and retail
Franchise Corporate
90.3
95.1
(4.8)
N/A
285.4
147.7
137.7
48%
95.7
81.2
14.5
15%
Promotional
funds
86.8
86.8
—
—
N/A
Intercompany
transactions
(7.0)
(7.0)
—
—
N/A
Promotional
funds
85.5
85.5
—
N/A
Intercompany
transactions
(6.0)
(6.0)
—
N/A
Total
511.1
373.8
0.5
137.8
27%
Total
550.9
403.5
147.4
27%
Total
511.1
373.8
0.5
137.8
27%
Total
550.9
403.5
147.4
27%
(1) See section “Definition of non-GAAP measures” found in the Supplemental Information section for definition.
(2) Prior year amounts have been restated to reflect a reclassification between franchise operations and corporate stores
subdivisions.
Page 12
Several factors contributed to the variation, as listed below:
(In millions $)
Adjusted EBITDA (1), fiscal year of 2019
Variance in recurring revenues and expenses
Increase in initial franchise fees, renewal fees and
transfer fees
Increase in expected credit loss provision
Variance due to acquisitions
Variance due to impact of IFRS 16 on rent revenue
& expense
Variance due to impact of IFRS 16 on impairment
of lease receivables
Variance due to net impact of joint venture
Impact of variation in foreign exchange rates
Other non-material variations
Adjusted EBITDA (1), fiscal year of 2020
Canada
85.7
(31.9)
0.4
(1.5)
3.0
7.5
(3.4)
0.5
—
(0.5)
59.8
US &
International
61.7
(5.9)
0.7
(2.0)
15.8
Total
147.4
(37.8)
1.1
(3.5)
18.8
8.2
15.7
(0.2)
—
0.9
(1.2)
78.0
(3.6)
0.5
0.9
(1.7)
137.8
(1) See section “Definition of non-GAAP measures” found in the Supplemental Information section for definition.
Total adjusted EBITDA for the year ended November 30, 2020 was $137.8 million, a decrease of 6% compared to the
same period last year. The impacts of COVID-19 are the primary reason for the decrease offset mainly by the 2019
acquisitions.
Excluding IFRS 16, Canada contributed 44% of total adjusted EBITDA and a year-over-year decrease of $30.0 million.
This decrease of 35% was mostly due to the decrease in recurring revenues, which resulted from the effects of the
pandemic, including the temporary closures of restaurants and the decrease in customer traffic in the locations remaining
open. The decrease was also partially due to an increase of $1.5 million in expected credit loss provisions resulting from
higher collection risk. These losses were partially offset by acquisitions, which contributed $3.0 million in additional
adjusted EBITDA.
The US & International adjusted EBITDA, excluding IFRS 16 grew by 13% mainly as a result of the acquisition of Papa
Murphy’s. Papa Murphy’s contributed to $15.8 million in adjusted EBITDA growth. This again was offset by the decrease
in recurring revenues resulting from the negative impacts of the pandemic.
Net income (loss)
For the year ended November 30, 2020, a net loss attributable to owners of $37.1 million was recorded or $1.50 per
share ($1.50 per diluted share) compared to net income of $77.7 million or $3.09 per share ($3.08 per diluted share) last
year. The decrease was primarily due to impairments taken during the year resulting from the adverse impact of COVID-
19, which resulted in a non-cash impairment charge of $122.8 million to the Company’s property plant and equipment,
intangible assets and goodwill.
Page 13
Calculation of Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization (Adjusted EBITDA) and
Normalized Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization (Normalized Adjusted
EBITDA) (1)
Year ended
(In thousands $) November 30, 2020 November 30, 2019
Year ended
(Loss) income before taxes
Depreciation - property, plant and equipment and
right-of-use assets
Amortization - intangible assets
Interest on long-term debt
Net interest expense on leases
Impairment charge - right-of-use assets
Impairment charge - property, plant and equipment,
intangible assets and goodwill
Unrealized and realized foreign exchange gain
Interest income
Gain on de-recognition/lease modification of lease
liabilities
Loss (gain) on disposal of property, plant and equipment
and intangible assets
Revaluation of financial liabilities recorded at
fair value through profit and loss
Loss on settlement of promissory notes
Adjusted EBITDA
Transaction costs related to acquisitions
Normalized Adjusted EBITDA
(51,949)
16,998
30,876
16,756
2,481
4,291
122,826
(3,230)
(408)
(2,890)
466
1,602
—
137,819
—
137,819
97,997
4,023
29,185
17,649
—
—
2,619
(402)
(856)
—
(2,341)
(931)
452
147,395
4,267
151,662
(1) See section “Definition of non-GAAP measures” found in the Supplemental Information section for definition.
Other income and expenses
Depreciation of property, plant and equipment and right-of-use assets increased by $13.0 million as a result of the addition
of right-of-use assets associated with IFRS 16.
The acquisition of 70% of Turtle Jack’s Muskoka Grill, COOP Wicked Chicken and Frat’s Cucina, is being accounted for
as a joint venture and MTY therefore presents its net profit only on its consolidated statement of income. The joint venture
is being accounted for under the equity method and the Company’s percentage share of the profits or losses and
movements in other comprehensive income of the Company are being recorded as a separate line but is included in the
adjusted EBITDA numbers presented above.
Under the new IFRS 16 standards, MTY must now record net interest expenses on leases, depreciation on right-of-use
assets, impairment charge on right-of-use assets and gain or loss on the de-recognition/lease modification of lease
liabilities. Since MTY applied a modified retrospective approach on transition, the 2019 results have not been restated.
For further guidance on this, please refer to the “Changes in Accounting Policies” section of this MD&A.
The gain on de-recognition/lease modification of lease liabilities of $2.9 million is due to the early termination of a few
long-term leases by the landlords for which MTY had subsidized the sublease at a loss.
Page 14
RESULTS OF OPERATIONS FOR THE THREE-MONTH PERIOD ENDED NOVEMBER 30, 2020
Revenue
During the fourth quarter of 2020, the Company’s total revenue decreased to $127.1 million from $156.8 million a year
earlier. Revenues for the two segments of business are broken down as follows:
November 30, 2020
($ millions)
November 30, 2019
($ millions) (1)
Segment
Canada
Subdivision
Franchise operation
Corporate stores
Food processing, distribution and retail
Promotional funds
Intercompany transactions
Total Canada
US &
International
Franchise operation
Corporate stores
Food processing, distribution and retail
Promotional funds
Intercompany transactions
Total US & International
Total operating revenues
27.7
4.1
24.8
8.0
(3.4)
61.2
40.4
11.1
1.1
14.2
(0.8)
66.0
127.2
42.2
9.7
25.9
10.9
(2.3)
86.4
39.4
19.3
1.1
12.2
(1.6)
70.4
156.8
Variation
(34%)
(58%)
(4%)
(27%)
N/A
(29%)
3%
(42%)
(0%)
16%
N/A
(6%)
(19%)
(1) Prior year amounts have been restated to reflect a change in presentation for retail promotional deductions.
Canada revenue analysis:
Revenues from franchise locations in Canada decreased by 34%. Several factors contributed to the variation, as listed
below:
Revenues, fourth quarter of 2019
Decrease in recurring revenue streams
Decrease in initial franchise fees, renewal fees and transfer fees
Decrease in turnkey, sales of material to franchisees and rent revenues
Increase due to impact of IFRS 16 on rent revenue
Other non-material variations
Revenues, fourth quarter of 2020
(In millions $)
42.2
(12.4)
(0.1)
(3.0)
0.2
0.8
27.7
The decrease in franchising revenues was mostly due to the negative impact of the pandemic. For the three-month period
ended November 30, 2020, system sales, when excluding acquisitions, dropped 33% compared to prior year mostly as
a result of COVID-19. At November 30, 2020, the Company still had 137 locations temporarily closed in Canada.
Revenue from corporate-owned locations decreased by 58% to $4.1 million during the quarter. The decrease is mostly
due to the temporary or permanent closure of some corporate locations as well as the impact of reduced sales resulting
from government restrictions imposed during the pandemic.
Food processing, distribution and retail revenues decreased by 4% compared to last year. Distribution revenues
decreased by $2.6 million as a result of COVID-19, partially offset by a $1.5 million growth from retail sales channel. The
launch of new products in the retail division as well as expansion into new provinces contributed to the increase in retail
sales. In 2020, 147 products were sold in the retail market compared to 102 in 2019.
The promotional fund revenue decrease of 27% fluctuated in line with the decrease in system sales. This was offset by
the new promotional revenues generated by the brands acquired in the last year.
Page 15
US & International revenue analysis:
Revenues from franchise locations in the US and International increased by $1.0 million but varied accordingly, as
listed below:
Revenues, fourth quarter of 2019
Variance in recurring revenue streams
Increase in initial franchise fees, renewal fees and transfer fees
Decrease in sales of material and services to franchisees
Decrease in gift card breakage income
Other non-material variations
Revenues, fourth quarter of 2020
(In millions $)
39.4
2.6
0.3
(1.6)
(0.4)
0.1
40.4
For the fourth quarter, system sales increased by 4% for US locations, while International locations decreased by 40%
compared to prior year. Robust system sales growth of a few brands in the US and International portfolio offset the impact
of COVID-19 and a decrease in sales and material. As at November 30, 2020, the Company still had 141 locations
temporarily closed in the US and Internationally.
The decrease of $8.2 million in corporate-owned location revenues is partly due to the permanent closure of some
corporate locations as well as the franchising of three portfolios of corporately owned Papa Murphy’s locations.
Promotional fund revenues grew by 16% during the quarter, outpacing the 3% increase in franchising revenues. This
higher increase is due to the higher promotional fund and COOP contributions of the brands that have performed the
best during the quarter, while brands with lower contributions have had weaker performances.
Cost of sales and other operating expenses
During the fourth quarter of 2020, operating expenses decreased by 19% to $92.0 million, down from $113.8 million a
year ago. Operating expenses for the two business segments were incurred as follows:
Segment
Canada
Total Canada
US &
International
Subdivision
Franchise operation
Corporate stores
Food processing, distribution and retail
Promotional funds
Intercompany transactions
Franchise operation
Corporate stores
Promotional funds
Intercompany transactions
Total US & International
Total cost of sales and other operating expenses
November 30, 2020
($ millions)
November 30, 2019
($ millions) (1)
14.6
3.6
21.8
8.0
(1.1)
46.9
22.2
11.8
14.2
(3.1)
45.1
92.0
18.9
10.0
23.1
10.9
(0.9)
62.0
20.7
21.9
12.2
(3.0)
51.8
113.8
Variation
(23%)
(64%)
(6%)
(27%)
N/A
(24%)
7%
(46%)
16%
N/A
(13%)
(19%)
(1) Prior year amounts have been restated to reflect a change in presentation for retail promotional deductions and a
reclassification between franchise operations and corporate stores subdivision.
Page 16
Canada cost of sales and other operating expenses analysis:
Cost of sales and other operating expenses from franchise locations in Canada decreased by $4.3 million or 23%. Several
factors contributed to the variation, as listed below:
Cost of sales and other operating expenses, fourth quarter of 2019
Decrease in recurring non-controllable expenses
Decrease in recurring controllable expenses including wages,
professional and consulting services and other office expenses
Decrease in expected credit loss provision
Decrease due to impact of IFRS 16 on rent expense
Increase due to impact of IFRS 16 on impairment of lease receivables
Other non-material variations
Cost of sales and other operating expenses, fourth quarter of 2020
(In millions $)
18.9
(3.1)
(2.5)
(0.2)
(0.6)
0.7
1.4
14.6
For the quarter, management continued to take actions to reduce expenditures within the organization resulting in the overall
reduction of $2.5 million in recurring controllable expenses, most of which was due to reductions in wages. Non-controllable
expenses also decreased by $3.1 million due to a reduction in turnkey projects.
The variations of expenses from corporate stores, food processing, distribution and retail as well as promotional funds
expense activities were tightly correlated to the related revenues.
US & International cost of sales and other operating expenses analysis:
Cost of sales and other operating expenses from franchise locations in the US & International increased by $1.5 million
or 7%. Several factors contributed to the variation, as listed below:
Cost of sales and other operating expenses, fourth quarter of 2019
Increase in recurring non-controllable expenses
Increase in recurring controllable expenses including wages,
professional and consulting services and other office expenses
Variation due to intercompany transactions
Decrease due to impact of IFRS 16 on rent expense
Increase due to impact of IFRS 16 on impairment of lease receivables
Impact of variation in foreign exchange rates
Other non-material variations
Cost of sales and other operating expenses, fourth quarter of 2020
(In millions $)
20.7
0.7
0.4
1.2
(1.3)
0.3
0.1
0.1
22.2
During the quarter, operating expenses increased by $1.5 million mostly due to an increase in non-controllable expenses,
consulting and professional services and variation of intercompany expenses This was partially offset by IFRS 16 impact on
rent expense.
The variations from corporate stores and promotional funds fluctuated in correlation to the related revenues.
Page 17
Adjusted earnings before interest, taxes, depreciation and amortization (Adjusted EBITDA) (1)
Three-month period ended November 30, 2020
(In millions $)
Revenues
Expenses
Adjusted EBITDA
Adjusted EBITDA as a % of Revenues
Canada
61.2
46.9
14.3
23%
US & International
66.0
45.1
20.9
32%
(In millions $)
Revenues
Expenses
Adjusted EBITDA
Adjusted EBITDA as a % of Revenues
Three-month period ended November 30, 2019
Canada
86.4
62.0
24.4
28%
US & International
70.4
51.8
18.6
26%
Below is a summary of performance segmented by product/service:
Three-month period ended November 30, 2020
(In millions $)
Revenues
Expenses
Adjusted EBITDA
Adjusted EBITDA as a % of Revenues
Franchise Corporate
15.2
15.4
(0.2)
N/A
68.1
36.8
31.3
46%
Processing,
distribution
and retail
25.9
21.8
4.1
16%
Promotional
funds
22.2
22.2
—
N/A
Intercompany
transactions
(4.2)
(4.2)
—
N/A
Three-month period ended November 30, 2019
(In millions $)
Revenues
Expenses
Adjusted EBITDA
Adjusted EBITDA as a % of Revenues
Franchise Corporate
29.0
31.9
(2.9)
N/A
81.6
39.6
42.0
51%
Processing,
distribution
and retail
27.0
23.1
3.9
14%
Promotional
funds
23.1
23.1
—
N/A
Intercompany
transactions
(3.9)
(3.9)
—
N/A
(1) See section “Definition of non-GAAP measures” found in the Supplemental Information section for definition.
Total
127.2
92.0
35.2
28%
Total
156.8
113.8
43.0
27%
Total
127.2
92.0
35.2
28%
Total
156.8
113.8
43.0
27%
Page 18
Several factors contributed to the variation, as listed below:
(In millions $)
Adjusted EBITDA (1), fourth quarter of 2019
Variance in recurring revenues and expenses
Variance in initial franchise fees, renewal fees and
transfer fees
Variance in expected credit loss provision
Variance due to impact of IFRS 16 on rent revenue
& expense
Variance due to impact of IFRS 16 on impairment
of lease receivables
Impact of variation in foreign exchange rates
Other non-material variations
Canada
24.4
(10.5)
(0.1)
0.1
1.9
US &
International
18.6
2.0
0.3
(0.1)
2.0
Total
43.0
(8.5)
0.2
—
3.9
(1.0)
(0.3)
(2.1)
Adjusted EBITDA (1), fourth quarter of 2020
35.2
(1) See section “Definition of non-GAAP measures” found in the Supplemental Information section for definition.
(0.3)
(0.3)
(1.3)
(0.7)
—
(0.8)
14.3
20.9
Total adjusted EBITDA for the quarter ended November 30, 2020 was $35.2 million, a decrease of 18% compared to the
same period last year. Adjusted EBITDA excluding the impacts of IFRS 16 for the three-month period would have been
$13.1 million and $19.2 million in Canada and the US & International, respectively and would have decreased by 25%
when compared to 2019 at $43.0 million. The impacts of COVID-19 are the primary reason for the decrease offset mainly
by the 2019 acquisitions.
Excluding IFRS 16, Canada contributed 41% of total adjusted EBITDA and a decrease for the quarter of $11.3 million.
This decrease of 46% was mostly due to the decrease in recurring revenues resulting from the effects of the pandemic
including the temporary closures of restaurants and the decrease in customer traffic in the locations remaining open
combined
In the US & International, adjusted EBITDA excluding IFRS 16 would have increased by $0.6 million. The increase is
mostly a result of cost control measures put into place as a result of the pandemic, offset by the impact of foreign
exchange.
Net income
For the three-month period ended November 30, 2020, net income attributable to owners of $20.1 million or $0.81 per
share ($0.81 per diluted share) was recorded compared to net income of $20.7 million or $0.83 per share ($0.83 per
diluted share) last year. Net income remained stable when compared to last year as a result of a reduction of operating
expenditures in response to the pandemic and contribution from the US & International segment as described above.
Page 19
Calculation of Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization (Adjusted EBITDA) (1)
Quarter ended
Quarter ended
(In thousands $) November 30, 2020 November 30, 2019
12,882
25,502
(Loss) income before taxes
Depreciation - property, plant and equipment and
right-of-use assets
Amortization - intangible assets
Interest on long-term debt
Net interest expense on leases
Impairment charge - right-of-use assets
Impairment charge - property, plant and equipment,
intangible assets and goodwill
Unrealized and realized foreign exchange gain
Interest income
Gain on de-recognition/lease modification of lease
liabilities
Loss (gain) on disposal of property, plant and equipment
and intangible assets
Revaluation of financial liabilities recorded at
fair value through profit and loss
Loss on settlement of promissory notes
Adjusted EBITDA
3,904
8,013
3,754
585
1,170
2,560
(599)
(139)
(42)
297
2,796
—
35,181
1,467
7,862
5,700
—
—
1,661
5
(298)
—
(656)
1,332
452
43,027
(1) See section “Definition of non-GAAP measures” found in the Supplemental Information section for definition.
Other income and expenses
Depreciation of property, plant and equipment and right-of-use assets increased by $2.4 million as a result of the addition
of right-of-use assets associated with IFRS 16.
Under the new IFRS 16 standards, MTY must now record net interest expenses on leases, depreciation on right-of-use
assets, impairment charge on right-of-use assets and gain or loss on the de-recognition/lease modification of lease
liabilities. Since MTY applied a modified retrospective approach on transition, the 2019 results have not been restated.
For further guidance on this, please refer to the “Changes in Accounting Policies” section of this MD&A.
Interest on long-term debt decreased by $1.9 million as a result of repayments made on the credit facility over the course
of the past 12 months.
Page 20
CONTRACTUAL OBLIGATIONS
The obligations pertaining to the long-term debt and the minimum net rentals for the leases are as follows:
48 - 60
Months Thereafter
$
24 - 36
Months
$
36 - 48
Months
$
6 - 12
Months
$
12 - 24
Months
$
0 - 6
Months
$
(In millions $)
$
Accounts payable and accrued
liabilities
Long-term debt (1)
Interest on long-term debt (2)
Net lease liabilities
Total contractual obligations
111.4
4.2
4.9
6.5
127.0
—
6.3
4.9
6.5
17.7
—
442.1
8.2
12.5
462.8
—
4.8
—
10.8
15.6
—
—
—
8.7
8.7
—
—
—
6.8
6.8
—
3.5
—
25.2
28.7
(1) Amounts shown represent the total amount payable at maturity and are therefore undiscounted. For total commitments,
please refer to the November 30, 2020 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, non-interest-bearing contract cancellation fees and interest rate swap.
(2) When future interest cash flows are variable, they are calculated using the interest rates prevailing at the end of the
reporting period.
LIQUIDITY AND CAPITAL RESOURCES
As at November 30, 2020, the amount held in cash totaled $44.3 million, a decrease of $6.4 million since the end of the
2019 fiscal period.
During the first quarter of 2020, MTY paid $4.6 million in dividends to its shareholders. The dividend payment was
suspended for the remainder of the 2020 fiscal year. The Company also repurchased and cancelled 364,774 (2019 – nil)
of its shares for $18.9 million through its NCIB during the 2020 fiscal year.
During the year, cash flows generated by operating activities were $133.7 million, compared to 113.0 million in 2019.
Excluding the variation in non-cash working capital items, income taxes, interest paid and other, operations generated
$141.9 million in cash flows, compared to $149.2 million in 2019.
The revolving credit facility has an authorized amount of $700.0 million (November 30, 2019 – $700.0 million), of which
$433.0 million was drawn at November 30, 2020 (November 30, 2019 – $518.9 million).
The facility has the following financial covenants:
•
The Debt-to-EBITDA ratio must be less than or equal to the following:
o
o
o
o
4.25:1.00 for the financial quarter ending on May 31, 2020
4.50:1.00 for the financial quarters ending August 31, 2020 and November 30, 2020
4.25:1.00 for the period beginning on December 1, 2020 and ending on May 30, 2021
3.50:1.00 as at May 31, 2021 and thereafter.
•
The interest and rent coverage ratio must be at 2.00:1.00 at all times.
Until May 31, 2021, the credit agreement also contains various limitations on distributions and on the usage of the
proceeds from the disposal of assets. The main limitations on distributions impose restrictions on the issuance of
dividends and the repurchase of MTY’s common shares through its NCIB process until such time as the debt-to-EBITDA
falls below 3.50:1.00.
The revolving facility is repayable without penalty with the balance due on the date of maturity September 23, 2022.
At November 30, 2020, the Company was in compliance with the covenants of the credit agreement.
LOCATION INFORMATION
MTY’s locations can be found in: i) food 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.
Page 21
Number of locations:
Franchises, beginning of the period
Corporate-owned, beginning of period
Canada
US
Joint venture
Total, beginning of the period
Opened during the period
Closed during the period
Acquired during the period
Joint venture acquired during the period
Joint venture closed during the period
Total, end of the period
Franchises, end of the period
Corporate-owned, end of the period
Canada
US
Joint venture
Total, end of the period
Three months
ended November 30
2019
2020
Twelve months
ended November 30
2019
2020
6,989
35
78
21
7,123
39
(161)
—
—
—
7,001
7,278
50
113
—
7,441
84
(152)
—
—
—
7,373
7,229
50
94
—
7,373
185
(578)
—
23
(2)
7,001
6,867
37
76
21
7,001
5,919
42
23
—
5,984
303
(558)
1,644
—
—
7,373
7,229
50
94
—
7,373
The Company’s network opened 185 locations (89 in Canada, 70 in the US and 26 International) for the year ended
November 30, 2020. For the fourth quarter, 39 locations were opened (19 in Canada, 14 in the US and six International).
During the year ended November 30, 2020, the Company’s network closed 578 locations (260 in Canada, 276 in the US
and 42 International). Of the locations closed during the quarter, 52% were located on street front, 25% in malls and
office towers and 23% in other non-traditional formats. For the quarter, 161 locations were closed (85 in Canada, 68 in
the US and eight International).
As at November 30, 2020, the Company’s network had a total of 338 locations temporarily closed as a result of COVID-
19. Of these temporarily closed locations, 197 are in Canada, 108 in the US and the remaining 33 Internationally. As at
February 17, 2021, MTY has 408 temporarily closed. Although these locations are expected to reopen, the timing of
these re-openings is uncertain.
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
% of system sales
12 months ended
November 30
2020
15%
63%
22%
2019
16%
63%
21%
2020
10%
82%
8%
2019
17%
72%
11%
Page 22
The geographical breakdown of MTY’s locations and system sales is as follows:
Geographical location
Canada
US
International
% of location count
November 30
% of system sales
12 months ended
November 30
2020
38%
55%
7%
2019
38%
55%
7%
2020
35%
61%
4%
2019
46%
49%
5%
In Canada, Quebec had the largest portion of total system sales with 18% followed by Ontario with 9%. In the US, only
the state of California exceeded 10% of the total system sales for the year followed by Washington, which contributed to
the network’s sales with 6% of total system sales.
The geographical distribution of system sales is as follows:
% of total system sales
% of total US system sales
Canada 35%
Central US 16%
East Coast, US 10%
West Coast, US
35%
International 4%
Central 27%
East Coast 16%
West Coast 57%
The breakdown by the types of concepts for the system sales is as follows:
Concept type
Quick Service Restaurant (QSR)
Fast Casual
Casual Dining
% of location count
November 30
2020
83%
10%
7%
2019
84%
10%
6%
% system sales
12 months ended
November 30
2020
73%
12%
15%
2019
67%
12%
21%
Page 23
System sales
During the three and twelve-month periods ended November 30, 2020, MTY’s network generated $891.4 million and
$3,459.1 million respectively in sales. The breakdown of system sales by quarter is as follows:
(millions of $)
Canada
US
International
TOTAL
First quarter of 2020
First quarter of 2019
Variance
Second quarter 2020
Second quarter 2019
Variance
Third quarter 2020
Third quarter 2019
Variance
Fourth quarter 2020
Fourth quarter 2019
Variance
Year-to-date 2020
Year-to-date 2019
Variance
425.2
374.5
14%
173.2
413.7
(58%)
302.6
439.1
(31%)
305.7
439.1
(30%)
530.5
269.6
97%
477.0
374.9
27%
566.2
586.9
(4%)
556.8
536.5
4%
1,206.7
1,666.4
(28%)
2,130.5
1,767.9
21%
43.8
43.7
0%
20.5
43.7
(53%)
28.7
50.2
(43%)
28.9
47.9
(40%)
121.9
185.5
(34%)
999.5
687.8
45%
670.7
832.3
(19%)
897.5
1,076.2
(17%)
891.4
1,023.5
(13%)
3,459.1
3,619.8
(4%)
For the fourth quarter of 2020, systems sales decreased by 13% compared to prior year while the year-to-date sales
decreased by 4% from last year. The three-month period decrease is mainly due to the impacts of the second wave of
restrictions across Canada. The split of the fourth quarter sales on a month to date basis is as follows:
(millions of $)
Canada
US
International
TOTAL
September 2020
September 2019
Variance
October 2020
October 2019
Variance
November 2020
November 2019
Variance
124.5
153.6
(19%)
87.2
141.5
(38%)
94.0
144.0
(35%)
188.9
184.5
2%
199.5
193.9
3%
168.4
158.1
7%
9.6
20.9
(54%)
9.9
13.6
(27%)
9.4
13.4
(30%)
323.0
359.0
(10%)
296.6
349.0
(15%)
271.8
315.5
(14%)
Excluding the sales generated from acquisitions, the fourth quarter sales by month are as follows:
(millions of $)
Canada
US
International
TOTAL
September 2020
September 2019
Variance
October 2020
October 2019
Variance
November 2020
November 2019
Variance
119.8
153.6
(22%)
84.6
141.5
(40%)
90.9
144.0
(37%)
188.9
184.5
2%
199.5
193.9
3%
168.4
158.1
7%
9.6
20.9
(54%)
9.9
13.6
(27%)
9.4
13.4
(30%)
318.3
359.0
(11%)
294.0
349.0
(16%)
268.7
315.5
(15%)
Page 24
The overall movement in sales is distributed as follows:
(millions of $) Canada
Three-months sales
ended November 30
US
Inter-
national
TOTAL
Canada
Twelve-months sales
ended November 30
Inter-
national
US
TOTAL
Reported sales – 2019
Net increase in sales
generated by
concepts acquired
during the last 24
months
Net change resulting
from the impact of the
pandemic and the
temporary and
permanent restaurant
closures
Cold Stone Creamery
and Papa Murphy’s
organic growth
Cumulative impact of
foreign exchange
variation
Reported sales – 2020
439.1
536.5
47.9
1,023.5
1,666.5
1,775.0
178.3
3,619.8
10.4
—
—
10.4
92.5
519.3
—
611.8
(143.8)
(27.8)
(18.8)
(190.4)
(552.3)
(240.2)
(58.7)
(851.2)
—
49.9
—
49.9
—
54.3
—
54.3
—
305.7
(1.8)
556.8
(0.2)
28.9
(2.0)
891.4
—
1,206.7
22.1
2,130.5
2.3
121.9
24.4
3,459.1
Due to the severe impact of COVID-19 on the sales of the network, system sales for the twelve-month period ended
November 30, 2020, decreased by 4%. MTY started the quarter with 364 temporarily closed locations because of COVID-
19, of which 338 were still closed as at November 30, 2020. This resulted in a total of 30,222 days of lost business. Of
the closed locations, 197 were in Canada, 108 in the US and 33 were internationally located.
The acquisitions realized partially offset the system sales decline. Papa Murphy’s represents 85% of the total sales
generated by the new acquisitions for the twelve-month period ended November 30,2020. Year-to-date, a weaker
Canadian dollar relative to the US dollar also increased sales and resulted in a favorable variation of $24.4 million in
reported sales.
During the fourth quarter, new openings opened in the last 24 months increased system sales by $7.7 million and $5.6
million in Canada and the US respectively.
Papa Murphy’s and Cold Stone Creamery are the only concepts that currently represent more than 10% of system sales,
generating approximately 31% and 18% respectively of the total sales of MTY’s network for the twelve-month period
ended November 30, 2020. Year-to-date, Taco Time, Thai Express 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 dollars for presentation purposes; they are therefore subject to variations in foreign
exchange rates.
Digital sales
The pandemic has accelerated consumer shifts to online ordering and delivery. Digital sales grew to $636.4 million from
$199.2 million the year before, for the year ended November 30, 2020 and represented 19% of sales. The digital sales
pertained to delivery sales, which have benefited from the Company’s increased investments in online ordering and third
party delivery options.
Page 25
System sales versus digital sales breakdown is as follows for fiscal years ended November 30:
Canada - In store vs digital sales
USA - In store vs digital sales
1,666.4
3.7%
1,206.7
1,767.9
2,130.5
7.6%
22.5%
13.0%
2019
2020
In store
Digital sales
2019
2020
In store
Digital sales
Digital sales for the fourth quarter increased to reach 22.5% of total system sales compared to 8.5% the year before.
The breakdown for the fourth quarter is as follows:
Canada - In store vs digital sales
USA - In store vs digital sales
439.1
305.7
4.1%
536.5
556.8
12.2%
25.2%
17.5%
2019
2020
2019
2020
In store
Digital sales
In store
Digital sales
Same-Store Sales
Due to the impacts of COVID-19 and the number of locations that have closed temporarily, providing same-store sales
information could be misleading as what would be presented would not be a fair representation of the Company’s royalty
earning potential and would also not be a fair indication of the health of the network. Management directs investors to
system sales as a better indication.
Management continues to expect system sales and same-store sales to be impacted into the first half of fiscal 2021.
Although the Company had great momentum prior to COVID-19, current world events will continue to have a drastic
impact on both system and same-store sales in the quarters to come. The Company does expect however that results
will eventually return to normal.
Page 26
CAPITAL STOCK INFORMATION
Stock options
As at November 30, 2020, there were 400,000 options outstanding and 44,444 that are exercisable.
Share trading
MTY’s stock is traded on the Toronto Stock Exchange under the ticker symbol “MTY”. From December 1, 2019 to
November 30, 2020, MTY’s share price fluctuated between $14.23 and $62.82. On November 30, 2020, MTY’s shares
closed at $51.65.
Capital stock
The Company’s outstanding share capital is comprised of common shares. An unlimited number of common shares are
authorized.
As at February 17, 2021, the Company’s issued and outstanding capital stock consisted of 24,706,461 shares (November
30, 2019 – 25,071,235) and 400,000 granted and outstanding stock options (November 30, 2019 – 400,000). During the
twelve-month period ended November 30, 2020, MTY repurchased 364,774 shares for cancellation through its NCIB.
Normal Course Issuer Bid Program
On June 29, 2020, the Company announced the renewal of the NCIB. The NCIB began on July 3, 2020 and will end on
July 2, 2021 or on such earlier date when the Company completes its purchases or elects to terminate the NCIB. The
renewed period allows the Company to purchase 1,235,323 of its common shares. 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.
During the three and twelve months ended November 30, 2020, the Company repurchased and cancelled a total of nil
and 364,774 common shares, respectively (2019 – 98,543 and 98,543, respectively), under the current NCIB, at a
weighted average price of nil and $51.72 per common share respectively (2019 – $53.04 and $53.04 per common share
respectively), for a total consideration of nil and $18.9 million, respectively (2019 – $5.2 million and $5.2 million
respectively).). For the three and twelve months ended November 30, 2020, an excess of nil and $14.3 million,
respectively (2019 – $4.0 million and $4.0 million, respectively) of the shares repurchase value over their carrying amount
was charged to retained earnings as share repurchase premiums.
Until May 31, 2021, the credit agreement amendment contains various limitations on distributions. The main limitations
on distributions impose restrictions on the repurchase of MTY’s common shares through its NCIB process until such time
as the debt-to-EBITDA falls below 3.50:1.00 ratio.
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 that have better performance during winter seasons such
as Papa Murphy’s, which typically does better during winter months. The Company 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. 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. For 2020, the
normal seasonal trends might be affected by the shifts in consumer behavior caused by the pandemic or government
regulations.
OFF-BALANCE SHEET ARRANGEMENTS
MTY has no off-balance sheet arrangements.
Page 27
CONTINGENT LIABILITIES
The Company is involved in legal claims associated with its current business activities. The timing of the outflows, if any,
is out of the control of the Company and is as a result undetermined at the moment. Contingent liabilities are disclosed
as provisions on the interim consolidated statement of financial position.
Included in provisions are the following amounts:
Litigations, disputes and other contingencies
Closed stores
(In thousands $)
2020
$
2,878
187
3,065
2019
$
11,474
1,947
13,421
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 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.
LEASE AGREEMENT GUARANTEES
The Company has guaranteed leases on certain franchise stores in the event the franchisees are unable to meet their
remaining lease commitments. The maximum amount the Company may be required to pay under these agreements
was $13.3 million as at November 30, 2020 (November 30, 2019 - $15.1 million). In addition, the Company could be
required to make payments for percentage rents, realty taxes and common area costs. As at November 30, 2020, the
Company has accrued $1.8 million (November 30, 2019 - nil) with respect to these guarantees.
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.
Remuneration of key management personnel
The remuneration of key management personnel and directors during the years ended November 30, 2020 and 2019
was as follows:
Short-term benefits
Share-based payments
Board member fees
Total remuneration of key management personnel
(In thousands $)
2020
$
2,619
963
75
3,657
2019
$
2,497
657
75
3,229
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 19.77% of the outstanding shares.
Page 28
The Company also pays employment benefits to individuals related to members of the key management personnel
described above. Their total remuneration was as follows:
(In thousands $)
Short-term benefits
Share-based payments
Consulting services
Total remuneration of individuals related to key management personnel
2020
$
505
10
—
515
2019
$
494
22
38
554
The Company has entered into a consulting agreement with one of its joint venture associates to perform corporate
business development and management consulting services, and paid consulting fees to this associate of $0.2 million
for the year ended November 30, 2020 (2019 – nil). The Company has a current net receivable due from its joint venture
associate of $0.1 million as at November 30, 2020 (2019 – nil).
CHANGES IN ACCOUNTING POLICIES
Policies applicable beginning December 1, 2019
Impact of the application of IFRS 16, Leases
On December 1, 2019, the Company adopted IFRS 16 using the modified retrospective approach. The Company has
not restated the comparatives for the 2019 financial year as permitted under the specific transitional provisions in the
standard. The impact from the new leasing standard is therefore recognized in the opening balance sheet on December
1, 2019.
IFRS 16 introduces new or amended requirements with respect to lease accounting. The standard 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. It introduces significant
changes to lessee accounting by removing the distinction between operating and finance leases and requiring the
recognition of a right-of-use asset and corresponding lease liability at the commencement of all leases (subject to limited
exceptions for short-term leases and leases of low-value assets). 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. When the Company is the lessor, lease-related
revenues previously recorded in rental 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 the intermediate lessor
determines 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.
In applying IFRS 16 for the first time, the Company has elected to use the following practical expedients permitted by the
standard:
•
•
•
•
•
the Company has not reassessed, under IFRS 16, contracts that were identified as leases under the previous
accounting standards (IAS 17 and International Financial Reporting Interpretations Committee (“IFRIC”)
Interpretation 4, Determining whether an Arrangement Contains a Lease);
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.
The impact of the adoption of IFRS 16 on the Company’s financial statements is described below.
Page 29
Impact on lessee accounting
IFRS 16 changes how the Company accounts for leases previously classified as operating leases under IAS 17, which
were off-balance-sheet.
Applying IFRS 16, for all leases (except as noted below), the Company;
•
•
•
recognized right-of-use assets and lease liabilities in the consolidated statements of financial position, initially
measured at the present value of future lease payments;
recognized depreciation of right-of-use assets and interest on lease liabilities in the consolidated statements of
income; and
separated the total amount of cash paid into a principal portion (presented within financing activities) and interest
(presented within operating activities) in the consolidated statements of cash flows.
Under IFRS 16, right-of-use assets are tested for impairment in accordance with IAS 36, Impairment of Assets. This
replaces the previous requirement to recognize a provision for onerous lease contracts.
For short-term leases (lease term of 12 months or less) and leases of low-value assets, the Company has opted to
recognize a lease expense on a straight-line basis as permitted by IFRS 16. This expense is presented within operating
expenses, primarily as occupancy costs in the consolidated statements of income.
On adoption of IFRS 16, the Company recognized lease liabilities in relation to leases that had previously been classified
as operating leases under the principles of IAS 17. These liabilities were measured at the present value of the remaining
lease payments, discounted using the Company’s incremental borrowing rate as at December 1, 2019. The weighted
average lessee’s incremental borrowing rate applied to the lease liabilities on December 1, 2019 was 2.749%.
The following table reconciles the operating lease commitments as at November 30, 2019 to the opening balance of
lease liabilities as at December 1, 2019:
(in thousands $)
Operating lease commitments disclosed as at November 30, 2019
Discounted using the Company’s incremental borrowing rate at December 1, 2019
Short-term leases and leases of low-value assets
Adjustments as a result of a different treatment of extension and termination
options
Other
Lease liabilities recognized as at December 1, 2019
$
648,445
(52,507)
(16,228)
34,478
(3,109)
611,079
The associated right-of-use assets were measured at the amount equal to the lease liability, adjusted by the amount of
any prepaid or accrued lease payments and impairment relating to that lease recognized in the consolidated statements
of financial position as at December 1, 2019.
Impact on lessor accounting
As a lessor, leases are still 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. When the Company enters
into a sublease arrangement as an intermediate lessor, the Company accounts for the head lease and the sublease as
two separate contracts. The Company is required to classify the sublease as a finance or operating lease by reference
to the right-of-use asset arising from the head lease.
For finance subleases, the Company derecognizes the right-of-use asset relating to the head lease that is transferred to
the sublessee and recognizes a finance lease receivable in the sublease. Any difference between the right-of-use asset
and finance lease receivable is recognized as a gain or loss in the consolidated statements of income. As the intermediate
lessor, the Company retains the lease liability on the head lease in its consolidated statement of financial position. During
the term of the sublease, the Company recognizes both finance income on the sublease and interest expense on the
head lease.
As a result of this change, the Company has reclassified most of its sublease arrangements as finance leases. As
required by IFRS 9, Financial Instruments, an allowance for expected credit loss has been recognized on the finance
lease receivables.
Page 30
Financial impact of initial application of IFRS 16
The following table summarizes the adjustments to opening balances resulting from the initial adoption of IFRS 16:
(in thousands $)
Assets
Current assets
Current portion of finance lease receivables
Prepaid expenses and deposits
Finance lease receivables
Right-of-use assets
Liabilities
Current liabilities
Provisions
Current portion of deferred revenue and deposits
Current portion of lease liabilities
Lease liabilities
Deferred income taxes
Reserves
Retained earnings
As previously
reported under
IAS 17
November 30,
2019
$
IFRS 16
transition
adjustments
$
December 1,
2019
$
—
9,284
—
—
98,256
(1,972)
428,165
68,838
98,256
7,312
428,165
68,838
13,163
18,761
—
(1,274)
(2,089)
111,414
11,889
16,672
111,414
—
158,430
499,665
(3,737)
499,665
154,693
353,300
(10,692)
342,608
COVID-19 accounting implications on leases
In response to the COVID-19 pandemic, in May 2020 the IASB has issued amendments to IFRS 16 to allow entities to
not account for rent concessions as lease modifications if they are a direct consequence of COVID-19 and meet certain
conditions:
•
•
•
the revised consideration is substantially the same or less than the original consideration;
the reduction in lease payments relates to payments due on or before June 30, 2021; and
no other substantive changes have been made to the terms of the lease.
The Company has adopted this amendment and applied the practicable expedient to all eligible rent concessions. The
Company has recognized negative variable lease payments of $0.6 million (2019 – nil) as part of rent expense, presented
in Cost of goods sold and rent in note 29 of the consolidated financial statements.
IFRIC 23, Uncertainty over income tax treatments
In June 2017, the IASB released IFRIC 23, Uncertainty over Income Tax Treatments, which addresses how to determine
the taxable profit (loss), tax basis, unused tax losses, unused tax credits and tax rates, when there is uncertainty over
income tax treatments under IAS 12, Income Taxes. It specifically considers whether tax treatments should be considered
independently or collectively and assumptions for taxation authorities’ examinations with regard to taxable profit (loss),
tax bases, unused tax losses, unused tax credits or tax rates.
IFRIC 23 was adopted effective December 1, 2019 and resulted in no significant adjustment.
Page 31
CRITICAL ACCOUNTING JUDGMENTS AND ESTIMATES
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.
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 year ended November 30, 2020, 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.
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.
During the years ended November 30, 2020 and 2019, the Company recognized impairment charges on its franchise
rights and trademarks (note 18 of the consolidated financial statements). The total impairment of $51.7 million (2019 –
$1.7 million) represents a write-down of the carrying value to the fair value of the trademarks and franchise rights. The
fair value was determined using significant unobservable inputs such as discount rates and projected operating cash
flows. The fair value is classified as level 3 in the fair value hierarchy.
During the years ended November 30, 2020 and 2019, the Company also recognized impairment charges on its property,
plant and equipment. The cumulative impairment on property, plant and equipment of $3.2 million (2019 – $1.0 million)
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 CGU’s future performance to the earlier of the termination of the lease (if applicable) or five years
Page 32
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.
Impairment of goodwill
Determining whether goodwill is impaired requires an estimation of the recoverable amount in use of the goodwill unit to
which goodwill has been allocated. The value-in-use calculation requires management to estimate the future cash flows
expected to arise from the goodwill unit and a suitable discount rate in order to calculate present value.
During the year ended November 30, 2020, the Company recognized impairment charges of $68.0 million on its goodwill
(note 18 consolidated financial statements). During the year ended November 30, 2019, no impairment charge on
goodwill was required.
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.
Impact of COVID-19
In December 2019, a novel strain of coronavirus was reported to have surfaced, later to be renamed COVID-19. The
spread of this virus caused business disruption beginning in March 2020, due to the closure or modified operating hours
in certain restaurants, and traffic decline in Canada, the US and Internationally.
Further while the disruption is currently expected to come in waves, there is uncertainty around the duration of the
pandemic, its medium to longer term impact on the economy and the rules that will apply to MTY’s restaurants as
sheltering measures are gradually reduced. The impact of the virus and the efforts to stop it impact MTY and many of its
franchisees materially.
As a result of the continued and uncertain economic and business impacts of the COVID-19 pandemic, the Company
continues to monitor the estimates, judgments and assumptions used in the consolidated financial statements. These
estimates, judgments and assumptions are subject to change.
The consolidated financial statements have been impacted with respect to the following as a result of COVID-19:
-
-
-
-
-
-
Additional expected credit losses on accounts receivable, loans receivable and finance lease receivables
were taken;
Expected credit losses on lease guarantees were taken as new provisions;
Impairment testing on property, plant and equipment and right-of-use assets were carried out resulting in
impairments;
Impairment testing on franchise rights, trademarks and goodwill were carried out and material impairments
were recorded;
Provisions for closed stores, and related litigations and disputes were increased to reflect new risks;
Additional fair value adjustment on the $100,000 credit facility interest rate swap resulting from the decrease
in Canadian borrowing rate;
- Changes to lease liabilities and finance lease receivables were made to reflect changes in lease payment
terms;
- Reduction in wage expense for the year ending November 30, 2020 of $6.8 million (2019 – nil) resulting from
the Canadian Employment Wage Subsidies; and
- Reduction in rent expense for the year ending November 30, 2020 of $0.2 million (2019 – nil) resulting from
the Canadian Emergency Rent Subsidies.
Page 33
FUTURE ACCOUNTING CHANGES
A number of new standards, interpretations and amendments to existing standards were issued by the IASB that are not
yet effective for the period ended November 30, 2020 and have not been applied in preparing these consolidated financial
statements.
The following standards or amendments, with the exception of the amendments to IFRS 3, IFRS 9, IAS 39 and IFRS 7,
may have a material impact on the consolidated financial statements of the Company:
Standard
IFRS 3, Business Combinations
IFRS 9, Financial Instruments
IAS 39, Financial Instruments: Recognition and
Measurement
IFRS 7, Financial Instruments: Disclosures
IAS 37, Provisions, Contingent Liabilities and
Contingent Assets
IAS 1, Presentation of Financial Statements
Issue date
October 2018
Effective date for
the Company
December 1, 2020
Impact
No impact
September 2019 December 1, 2020
No impact
May 2020
January 2020 &
July 2020
December 1, 2022
In assessment
December 1, 2023
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 January 1, 2020 and apply prospectively. Earlier application is permitted. The Company will adopt the
amendments on December 1, 2020.
IFRS 9, Financial Instruments, IAS 39, Financial Instruments: Recognition and Measurement, and IFRS 7,
Financial Instruments: Disclosures
In September 2019, the IASB published Interest Rate Benchmark Reform (Amendments to IFRS 9, IAS 39 and IFRS 7)
as a first reaction to the potential effects the Interbank offered rates (“IBOR”) reform could have on financial reporting.
Recent market developments have brought into question the long-term viability of the IBOR benchmarks. The
amendments deal with issues affecting financial reporting in the period before the replacement of an existing interest rate
benchmark with an alternative interest rate and address the implications for specific hedge accounting requirements in
IFRS 9 and IAS 39, which require forward-looking analysis. There are also amendments to IFRS 7 regarding additional
disclosures around uncertainty arising from the interest rate benchmark reform. The amendments to IFRS 9, IAS 39 and
IFRS 7 are effective for annual reporting periods beginning on or after January 1, 2020. Earlier application is permitted.
The Company will adopt the amendments on December 1, 2020.
IAS 37, Provisions, Contingent Liabilities and Contingent Assets
In May 2020, the IASB published Onerous Contracts – Cost of Fulfilling a Contract (Amendments to IAS 37) amending
the standard regarding costs a company should include as the cost of fulfilling a contract when assessing whether a
contract is onerous. The changes in Onerous Contracts – Cost of Fulfilling a Contract (Amendments to IAS 37) specify
that the “cost of fulfilling” a contract comprises the “costs that relate directly to the contract”. Costs that relate directly to
a contract can either be incremental costs of fulfilling that contract or an allocation of other costs that relate directly to
fulfilling contracts. The amendments to IAS 37 are effective for annual reporting periods beginning on or after January 1,
2022. Earlier application is permitted. The Company will adopt the amendments on December 1, 2022.
IAS 1, Presentation of Financial Statements
In January 2020, the IASB issued Classification of Liabilities as Current or Non-current (Amendments to IAS 1) providing
a more general approach to the classification of liabilities under IAS 1 based on the contractual arrangements in place at
the reporting date. The amendments in Classification of Liabilities as Current or Non-current (Amendments to IAS 1)
affect only the presentation of liabilities in the statement of financial position, not the amount or timing of recognition of
any asset, liability income or expenses, or the information that entities disclose about those items. In July 2020, the IASB
published Classification of Liabilities as Current or Non-current – Deferral of Effective Date (Amendment to IAS 1)
deferring the effective date of the January 2020 amendments to IAS 1 by one year. The amendments to IAS 1 are
effective for annual reporting periods beginning on or after January 1, 2023. Earlier application is permitted. The Company
will adopt the amendments on December 1, 2023.
Page 34
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 US, 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.
MTY could be materially and adversely affected by the outbreak of a widespread health epidemic or pandemic, including
arising from various strains of avian flu or swine flu, such as H1N1, or COVID-19, particularly if located in regions from
which the Company derives a significant amount of revenue or profit. The occurrence of such an outbreak or other
adverse public health developments could materially disrupt the business and operations. Such events could also
significantly impact the industry and cause a temporary closure of restaurants, which could severely disrupt MTY’s or the
Company’s franchisees' operations and have a material adverse effect on the business, financial condition and results
of operations.
At this time, the Company is unable to accurately predict the future impact that the pandemic will have on the results of
operations, due to uncertainties including the severity of the disease, the duration of the outbreak, and further actions
that may be taken by governmental authorities to contain the virus or to treat its impact. However, while it is premature
to accurately predict the ultimate impact of these developments, the Company expects the results for the 2021 fiscal year
to be impacted with potential continuing adverse impacts beyond this.
In addition, the operations could be disrupted if any of MTY’s employees or employees of MTY’s business partners were
suspected of having the avian flu or swine flu, or other illnesses such as hepatitis A, norovirus or coronavirus, since this
could require the Company or business partners to quarantine some or all of such employees or disinfect the restaurant
facilities. Outbreaks of avian flu occur from time to time around the world, and such outbreaks have resulted in confirmed
human cases. It is possible that outbreaks could reach pandemic levels. Public concern over avian flu generally may
cause fear about the consumption of chicken, eggs and other products derived from poultry, which could cause customers
to consume less poultry and related products. Because poultry is a menu offering for many of the Company’s Concepts,
this would likely result in lower revenues and profits to both MTY and franchisee partners. Avian flu outbreaks could also
adversely affect the price and availability of poultry, which could negatively impact profit margins and revenues.
Furthermore, other viruses may be transmitted through human contact, and the risk of contracting viruses could cause
employees or guests to avoid gathering in public places, which could adversely affect restaurant guest traffic or the ability
to adequately staff restaurants. MTY could also be adversely affected if government authorities impose mandatory
closures, seek voluntary closures, impose restrictions on operations of restaurants, or restrict the import or export of
products, or if suppliers issue mass recalls of products. Even if such measures are not implemented and a virus or other
disease does not spread significantly, the perceived risk of infection or health risk may adversely affect the business and
operating results.
Please refer to the November 30, 2020 Annual Information Form for further discussion on all risks and uncertainties.
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
Page 35
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 certain regions in which it operates. Exposure to heath epidemics and pandemics, such
as the current COVID-19, are a risk to the Company and its franchise partners. Within a normal economic cycle,
management is of the opinion that these risks 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; and 2) the Company has several concepts
offering affordable dining out options for consumers in an economic slowdown. During extreme economic turmoil,
management believes that the Company has the ability to overcome these risks until the economy re-establishes itself.
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 as well as monitoring procedures.
The Company has determined that the fair values of its financial assets and financial liabilities with short-term maturities
approximate 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, 2020 and 2019. 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:
Financial assets
Loans receivable
Finance lease receivables
Financial liabilities
Long-term debt (1)
(In thousands $)
Carrying
amount
$
2020
Fair
value
$
4,760
468,127
4,760
468,127
Carrying
amount
$
7,145
—
2019
Fair
value
$
7,145
—
443,852
453,397
531,196
542,147
(1) Excludes promissory notes, contingent considerations on acquisition, interest rate swap, cross currency
interest rate swaps and obligations to repurchase non-controlling interests
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
In 2019, 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 and recorded a loss of $0.5 million.
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, 2020 (2019 – $0.1 million).
A fair value re-measurement gain of $0.1 million was recorded for these promissory notes for the year ended November
30, 2020 (2019 – gain of $1.9 million).
Contingent considerations on acquisitions
The Company issued as part of its consideration for the acquisition of Yuzu Sushi, Allô! Mon Coco and investment in
Tortoise Group, 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 December 2022
for Tortoise Group. These contingent considerations have been recorded at fair value and are remeasured on a recurring
basis. The contingent considerations for Allô! Mon Coco were repaid during the year ended November 30, 2020 for a
total repayment amount of $0.9 million.
Page 36
A fair value re-measurement loss of $1.0 million was recorded for the contingent considerations for the year ended
November 30, 2020 (2019 – loss of $0.2 million).
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 which
is remeasured at each reporting period.
A fair value remeasurement loss of $0.2 million (2019 – gain of nil) 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 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, 2020 (2019 – nil).
A fair value re-measurement gain of $1.5 million (2019 – loss of nil) was recorded for this non-controlling interest
obligation.
Obligation to repurchase partner in a joint venture
The Company, in conjunction with the acquisition of its 70% interest in a joint venture that acquired Tortoise Group,
entered into an agreement to acquire the remaining 30% interest by December 2025. The consideration to be paid for
this acquisition will be based on future earnings. The Company recorded a liability at fair value (which is remeasured at
each reporting period. An increase or decrease by 1% in the discount rates used would have an impact of $0.1 million
on the carrying amount as at November 30, 2020 (2019 – nil).
A fair value remeasurement loss of $0.5 million (2019 – nil) was recorded for this obligation to repurchase a partner in a
joint venture.
Interest rate swap
The Company holds an interest rate swap that is contracted to a fix rate on a notional amount of $100.0 million and is
maturing in July 21, 2021. The fair value of this interest rate swap amounted to $1.2 million (2019 – nil) and the Company
recorded a fair value remeasurement loss of $1.6 million for the year ended November 30, 2020 (2019 – loss of $0.7
million). The Company has classified this as level 2 in the fair value hierarchy.
Cross currency interest rate swap
On November 30, 2020, the Company entered two floating to floating 1-month cross currency interest rate swaps. A
fair value of nil was recorded as at November 30, 2020 (2019 – nil).
Receive-Notional
Receive-rate
Pay-Notional
Pay-rate
US$137.6 million
2.44%
CA$180.0 million
US$95.4 million
1.85%
CA$125.0 million
2.45%
1.94%
Page 37
Fair value hierarchy
(In thousands $)
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 and investment in a joint venture
Non-controlling interest buyback options
Obligation to repurchase partner in a joint venture
Financial liabilities
Level 3
2020
$
—
2,928
8,075
1,171
3,364
15,538
2019
$
329
2,738
3,874
2,513
—
9,454
FINANCIAL RISK EXPOSURE
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, 2020.
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 US, 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 US 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 US operations. As at November 30, 2020, the
long-term debt denominated in USD is not exposed to foreign exchange risk as a result of two cross currency interest
rate swaps.
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, 2020, the Company has the following financial instruments denominated in foreign currencies:
Financial assets
Cash
Accounts receivable
Financial liabilities
Accounts payable and deposits
(in thousands $)
USD
$
4,437
645
2020
CAD
$
5,753
836
USD
$
5,194
253
2019
CAD
$
6,902
337
(85)
(110)
(33)
(44)
Net financial assets
4,997
6,479
5,414
7,195
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$0.3 million (2019 – profit of C$0.3 million) on the consolidated statements of income and
comprehensive income.
Page 38
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. $433.0 million (2019 –
$518.9 million) of the credit facility was used as at November 30, 2020. A 100 basis points increase in the bank’s prime
rate would result in additional interest of $4.3 million per annum (2019 – $5.2 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.
As at November 30, 2020, the Company had an authorized revolving credit facility for which the available amount may
not exceed $700.0 million (2019 – $700.0 million) to ensure that sufficient funds are available to meet its financial
requirements.
The following are the contractual maturities of financial liabilities as at November 30, 2020:
(In millions $)
Carrying Contractual
amount cash flows
$
$
0 - 6
Months
$
6 - 12
Months
$
12 - 24
Months Thereafter
$
$
Accounts payable and accrued liabilities
Long-term debt (1)
Interest on long-term debt
Lease liabilities
Total contractual obligations
111.4
460.5
n/a
558.7
1,130.6
111.4
460.9
18.0
574.5
1,164.8
111.4
4.2
4.9
63.2
183.7
—
6.3
4.9
63.2
74.4
—
442.1
8.2
109.6
559.9
—
8.3
—
338.5
346.8
(1) When future interest cash flows are variable, they are calculated using the interest rates prevailing at the end of the
reporting period.
NEAR-TERM OUTLOOK
The Company is closely monitoring the global situation surrounding COVID-19 and taking proactive steps to adapt to the
changes for the well-being and safety of its employees, franchisees and customers, and the continuity of its operations
and businesses. Given the dynamic nature of the situation, it is not possible to ascertain what impact there may be on
the Company’s long-term financial performance. MTY is taking the necessary steps to mitigate the potential
consequences that this situation may have on its operations, franchisees, partners and service to MTY’s customers.
Please refer to section “Highlights of Significant Events” for further details on actions taken in response to COVID-19.
In the very short term, management’s primary focus is to reopen the restaurants that have been temporarily closed as a
result of the pandemic and to rebuild customer confidence by implementing proper safety measures and adjusting the
way customers are served. Even after the pandemic is over, customer consumption patterns may shift temporarily or
permanently from those traditionally witnessed and MTY will have to adapt to new customer behaviours. Management
believes the Company will be able to regain customer confidence in the brands and restore the positive momentum it
saw in the first quarter of 2020. The Company’s focus, after the pandemic, will still be on innovation, quality of food and
customer service in each of the outlets and maximizing the value offered to customers.
The restaurant industry will remain more than ever challenging in the future as customer consumption patterns change
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
Page 39
compete for a finite amount of consumer dollars, each concept needs to preserve and improve the relevance of its
offerings to consumers.
CONTROLS & PROCEDURES
Disclosure controls and procedures
Disclosure controls and procedures should be designed to provide reasonable assurance that information required to be
disclosed by the Company in its annual filings, interim filings or other reports filed or submitted by it under securities
legislation is recorded, processed, summarized and reported within the time periods specified in the securities legislation.
It should include controls and procedures designed to ensure that information required to be disclosed by the Company
in its annual filings, interim filings or other reports filed or submitted under securities legislation is accumulated and
communicated to the Company’s management, including its certifying officers, namely the Chief Executive Officer
("CEO") and the Chief Financial Officer ("CFO"), as appropriate to allow timely decisions regarding required disclosure.
The CEO and the CFO, along with Management, after evaluating the effectiveness of the Company’s disclosure controls
and procedures as at November 30, 2020, have concluded that the Company’s disclosure controls and procedures were
effective.
Internal controls over financial reporting
Internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements in accordance with IFRS. Management is responsible for
establishing adequate internal control over financial reporting for the Company.
An evaluation of the effectiveness of the design and operation of the Company's internal control over financial reporting
was conducted as of November 30, 2020. Based on the evaluation, the CEO and the CFO concluded that the internal
control over financial reporting, as defined by National Instrument 52-109, was appropriately designed and was operating
effectively. The evaluations were conducted in accordance with the framework and criteria established in Internal Control
- Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission
("COSO"), a recognized control model, and the requirements of National Instrument 52-109 - Certification of Disclosure
in Issuers' Annual and Interim Filings.
Limitations of Controls and Procedures
There are inherent limitations in the effectiveness of any control system, including the potential for human error and the
possible circumvention or overriding of controls and procedures. Additionally, judgments in decision-making can be faulty
and breakdowns can occur because of a simple error or mistake. An effective control system can provide only reasonable,
not absolute, assurance that the control objectives of the system are adequately met. Accordingly, the management of
the Company, including its Chief Executive Officer and Chief Financial Officer, does not expect that the control system
can prevent or detect all error or fraud. Finally, projections of any evaluation or assessment of effectiveness of a control
system to future periods are subject to the risks that, over time, controls may become inadequate because of changes in
an entity’s operating environment or deterioration in the degree of compliance with policies or procedures.
Limitation on scope of design
The Company’s management, with the participation of its CEO and CFO, has limited the scope of the design of the
Company’s DC&P 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, 2020, these SPEs represent less than 0.1% of the
Company’s current assets, less than 0.1% of its non-current assets, less than 0.1% of the Company’s current liabilities,
less than 0.1% of long-term liabilities, less than 0.1% of the Company’s revenues and less than 0.1% of the Company’s
net loss.
__________________________
Eric Lefebvre, CPA, CA, MBA Chief Executive Officer
__________________________
Renee St-Onge, CPA, CA Chief Financial Officer
Page 40
SUPPLEMENTAL INFORMATION
List of acquisitions
Other banners added through acquisitions include:
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
July 2016
60% +
40%
100%
# 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 US
25 and 3 mobile
restaurants
14
88
51
115
13
2,839
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
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,
# of corporate
locations
—
3
2
—
—
—
—
5
—
15
—
—
5
9
2
—
1
—
2
5
—
—
13
1
17
4
40
Page 41
Brand
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
Turtle Jack’s Muskoka Grill, COOP
Wicked Chicken and Frat’s Cucina
Acquisition
year
%
ownership
# of franchised
locations
# of corporate
locations
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
December 2019
60%+
5%
83.25% +
9.25%
100%
80%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
70%
167
5
15
23
12
20
36
5
253
26
32
331
31
24
1,301
129
40
20
16
—
—
4
—
2
3
—
8
1
7
—
—
13
103
—
—
3
Definition of non-GAAP measures
The following non-GAAP measures can be found in the analysis of the MD&A:
Adjusted EBITDA
Normalized Adjusted
EBITDA
Free Cash flow
Represents revenues
interest,
less operating expenses (excludes
depreciation and amortization and all other income (charges)) plus share of net profit of a
joint venture accounted for using the equity method. See reconciliation of adjusted EBITDA
to Income before taxes on page 14 and 20.
Normalized EBITDA is adjusted EBITDA before transaction costs related to acquisitions. See
reconciliation of adjusted EBITDA to Income before taxes on page 14 and 20.
Represents the sum total cash flows from operating activities less capital expenditures.
income
tax,
Same-store sales
Comparative sales generated by stores that have been open for at least thirteen months
or that have been acquired more than thirteen months ago.
System sales
Digital sales
System sales are sales of all existing restaurants including those 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.
Digital sales are sales made by customers through online ordering platforms.
Debt-to-EBITDA
Defined as current and long-term debt divided by EBITDA as defined in the credit agreement.
Free cash flows (1) loop to cash flows provided by operating activities
Page 42
(In thousands $)
Cash flow s provided by operating activities
Additions to property, plant and equipment
Additions to intangible assets
Proceeds on disposal of property, plant and
equipment, assets held for sale and intangible
assets
Free cash flow s (1)
February
2019
26,757
(1,954)
(64)
May
2019
21,077
(1,212)
(231)
August Novem ber
2019
37,897
(1,191)
(1,383)
2019
27,220
(809)
(458)
February
2020
30,980
(1,119)
(649)
May
2020
19,207
(316)
(618)
August Novem ber
2020
44,841
(998)
(97)
2020
38,624
(1,764)
(63)
21,767
(1) See section “Definition of non-GAAP measures” found in the Supplemental Information section for definition.
24,914
30,738
28,926
26,680
43,577
37,078
175
2,133
727
8,254
1,526
10,653
281
164
43,910
System Sales (1) to reported royalties
Sales year
ended November 30 2020
(millions of $)
Corporate
Canada
Franchised
Total
Corporate Franchised
Total
TOTAL
US & International
System sales (1)
Franchise royalty
income as a %
of franchise
sales
Reported
royalties
18.4
1,188.3
1,206.7
46.3
2,206.1
2,252.4
3,459.1
—
—
4.86%
57.8
—
—
—
—
4.87%
107.3
—
—
N/A
165.1
Sales year
ended November 30 2019
(millions of $)
Corporate
Canada
Franchised
Total
Corporate Franchised
Total
TOTAL
US & International
System sales (1)
Franchise royalty
income as a %
of franchise
sales
Reported
royalties
39.1
1,627.3
1,666.4
51.2
1,902.2
1,953.4
3,619.8
—
—
5.19%
84.5
—
—
—
—
5.11%
97.2
—
—
N/A
181.7
Page 43
Three-months sales
ended November 30, 2020
(millions of $)
System sales (1)
Franchise royalty
income as a %
of franchise
sales
Reported
royalties
Corporate
Canada
Franchised
4.1
301.6
—
—
4.74%
14.3
Total
305.7
—
—
US & International
Corporate Franchised
11.1
574.6
Total
585.7
TOTAL
891.4
—
—
4.87%
28.0
—
—
N/A
42.3
Three-months sales
ended November 30, 2019
Corporate
Canada
Franchised
9.7
429.4
Total
439.1
US & International
Corporate Franchised
19.3
565.1
Total
584.4
TOTAL
1023.5
—
5.21%
—
—
4.94%
—
N/A
(millions of $)
System sales (1)
Franchise royalty
income as a %
of franchise
sales
Reported
royalties
(1) See section “Definition of non-GAAP measures” found in the Supplemental Information section for definition.
—
22.4
—
—
27.9
—
50.3
Page 44
Consolidated financial statements of
MTY Food Group Inc.
November 30, 2020 and 2019
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, 2020 and 2019, 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 (loss) for the years then ended;
the consolidated statements of comprehensive income (loss) 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, 2020 and 2019
the consolidated statements of cash flows for the years then ended; and
the notes to the consolidated financial statements, which include significant accounting policies and
other explanatory information.
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.
Montréal, Quebec
February 17, 2021
1 FCPA auditor, FCA, public accountancy permit No. A116853
MTY Food Group Inc.
Consolidated statements of income (loss)
Years ended November 30, 2020 and 2019
(In thousands of Canadian dollars, except per share amounts)
Revenue
Expenses
Operating expenses
Depreciation - property, plant and equipment and right-of-use assets
Amortization - intangible assets
Interest on long-term debt
Net interest expense on leases
Impairment charge - right-of-use assets
Impairment charge - property, plant and equipment, intangible assets
and goodwill
Share of net profit of a joint venture accounted for using the equity method
Other income (expenses)
Unrealized and realized foreign exchange gain
Interest income
Gain on de-recognition/lease modification of lease liabilities
(Loss) gain on disposal of property, plant and equipment, assets held
for sale and intangible assets
Revaluation of financial liabilities recorded at fair value
Loss on settlement of promissory notes
(Loss) income before taxes
Income tax expense (recovery)
Current
Deferred
Net (loss) income
Net (loss) income attributable to:
Owners
Non-controlling interests
Net (loss) income per share
Basic
Diluted
29 & 33
13 & 15
16
13
13
18
26
26
32
25
The accompanying notes are an integral part of the consolidated financial statements.
Notes
2020
$
2019
$
28 & 33
511,117
550,942
373,806
16,998
30,876
16,756
2,481
4,291
122,826
568,034
508
3,230
408
2,890
(466)
(1,602)
—
4,460
403,547
4,023
29,185
17,649
—
—
2,619
457,023
—
402
856
—
2,341
931
(452)
4,078
(51,949)
97,997
8,360
(23,414)
(15,054)
(36,895)
(37,108)
213
(36,895)
17,492
2,769
20,261
77,736
77,675
61
77,736
(1.50)
(1.50)
3.09
3.08
Page 6
MTY Food Group Inc.
Consolidated statements of comprehensive income (loss)
Years ended November 30, 2020 and 2019
(In thousands of Canadian dollars)
Notes
2020
$
2019
$
Net (loss) income
(36,895)
77,736
Items that may be reclassified subsequently to net (loss) income
Unrealized loss on translation of foreign operations
Deferred tax recovery on foreign currency translation adjustments
Other comprehensive loss
Total comprehensive (loss) income
32
Total comprehensive (loss) income attributable to:
Owners
Non-controlling interests
(12,660)
42
(12,618)
(49,513)
(49,726)
213
(49,513)
(1,431)
245
(1,186)
76,550
76,489
61
76,550
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, 2020 and 2019
(In thousands of Canadian dollars)
Balance as at November 30, 2018
Net income for the year ended November 30, 2019
Other comprehensive loss
Total comprehensive income
Acquisition of the non-controlling interest of
9974644 Canada Inc. (note 8)
Shares repurchased and cancelled (note 23)
Dividends
Share-based compensation (note 24)
Balance as at November 30, 2019
Adjustment on adoption of IFRS 16 (net of tax) (note 4)
Adjusted balance as at November 30, 2019
Net (loss) income for the year ended November 30, 2020
Other comprehensive loss
Total comprehensive (loss) income
Shares repurchased and cancelled (note 23)
Dividends
Share-based compensation (note 24)
Balance as at November 30, 2020
Capital
stock
$
312,161
—
—
—
(1,222)
—
—
310,939
—
310,939
—
—
(4,524)
—
—
306,415
Other
$
(850)
—
—
—
—
—
—
(850)
—
(850)
—
—
—
—
—
(850)
The following dividends were declared and paid by the Company:
Reserves
Contributed
surplus
Foreign
currency
translation
Total
reserves
Retained
earnings
Equity
attributable
to owners
Equity
attributable
to non-
controlling
interests
$
$
$
$
$
$
1,512
—
—
—
—
—
583
2,095
—
2,095
—
—
—
—
924
3,019
450
—
(1,186)
1,112
—
(1,186)
296,341
77,675
—
—
—
—
—
(736)
—
(736)
—
(12,618)
—
—
—
583
509
—
509
—
(12,618)
2
(4,005)
(16,713)
—
353,300
(10,692)
342,608
(37,108)
—
—
—
—
(13,354)
—
—
924
(11,185)
(14,342)
(4,633)
—
286,525
609,614
77,675
(1,186)
76,489
2
(5,227)
(16,713)
583
664,748
(10,692)
654,056
(37,108)
(12,618)
(49,726)
(18,866)
(4,633)
924
581,755
1,281
61
—
61
(112)
—
(498)
—
732
—
732
213
—
213
—
(186)
—
759
2020
$
Total
$
610,895
77,736
(1,186)
76,550
(110)
(5,227)
(17,211)
583
665,480
(10,692)
654,788
(36,895)
(12,618)
(49,513)
(18,866)
(4,819)
924
582,514
2019
$
$0.185 per common share (2019 – $0.66 per common share)
4,633
16,713
The accompanying notes are an integral part of the consolidated financial statements.
Page 8
MTY Food Group Inc.
Consolidated statements of financial position
As at November 30, 2020 and 2019
(In thousands of Canadian dollars)
Notes
2020
$
2019
$
Assets
Current assets
Cash
Accounts receivable
Inventories
Assets held for sale
Current portion of loans receivable
Current portion of finance lease receivables
Income taxes receivable
Other assets
Prepaid expenses and deposits
Loans receivable
Finance lease receivables
Contract cost asset
Deferred income taxes
Investment in a joint venture
Property, plant and equipment
Right-of-use assets
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
Current portion of deferred revenue and deposits
Current portion of long-term debt
Current portion of lease liabilities
Long-term debt
Lease liabilities
Deferred revenue and deposits
Deferred income taxes
9
10
11
12
13
12
13
32
14
15
13
16
17
20
21
22
22
21
32
44,302
55,886
9,415
—
1,527
90,303
420
2,792
6,750
211,395
3,233
377,824
5,171
207
26,612
16,551
69,223
864,029
439,452
2,013,697
111,372
3,065
95,233
18,335
13,747
12,888
114,915
369,555
447,654
443,834
41,367
128,773
1,431,183
The accompanying notes are an integral part of the consolidated financial statements.
50,737
65,129
7,531
10,459
4,082
—
563
2,008
9,284
149,793
3,063
—
6,074
238
—
21,363
—
958,099
510,171
1,648,801
100,762
13,421
92,800
20,506
18,761
4,592
—
250,842
536,058
—
38,216
158,205
983,321
Page 9
MTY Food Group Inc.
Consolidated statements of financial position (continued)
As at November 30, 2020 and 2019
(In thousands of Canadian dollars)
Shareholders' equity
Equity attributable to owners
Capital stock
Reserves
Retained earnings
Equity attributable to non-controlling interests
Notes
23
2020
$
2019
$
306,415
(11,185)
286,525
581,755
759
582,514
2,013,697
310,939
509
353,300
664,748
732
665,480
1,648,801
Approved by the Board on February 17, 2021
_________________________________________________ , 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, 2020 and 2019
(In thousands of Canadian dollars)
Notes
2020
$
2019
$
Operating activities
Net (loss) income
Adjusting items:
Interest on long-term debt
Net interest expense on leases
Depreciation - property, plant and equipment and right-of-use assets
Amortization - intangible assets
Impairment charge - property, plant and equipment
Impairment charge - right-of-use assets
Impairment charge - intangible assets and goodwill
Share of net profit of a joint venture accounted for using the equity method
Gain on de-recognition/lease modification of lease liabilities
Loss (gain) on disposal of property, plant and equipment, assets held
for sale and intangible assets
Revaluation of financial liabilities recorded at fair value through profit or
loss
Loss on settlement of promissory notes
Income tax (recovery) expense
Share-based compensation payments
Income taxes paid
Interest paid
Other
Changes in non-cash working capital items
Cash flows provided by operating activities
Investing activities
Net cash outflow on acquisitions
Cash acquired through acquisitions
Additions to property, plant and equipment
Additions to intangible assets
Proceeds on disposal of property, plant and equipment, assets held for
sale and intangible assets
Investment in a joint venture
Cash flows used in investing activities
13
13 & 15
16
18
13
18
26
26
24
34
7
7
15
16
14
(36,895)
77,736
16,756
2,481
16,998
30,876
3,166
4,291
119,660
(508)
(2,890)
17,649
—
4,023
29,185
959
—
1,660
—
—
466
(2,341)
1,602
—
(15,054)
924
141,873
(10,303)
(15,832)
573
17,341
133,652
—
—
(4,197)
(1,427)
12,624
(19,105)
(12,105)
(931)
452
20,261
583
149,236
(22,537)
(15,405)
2,978
(1,321)
112,951
(332,098)
2,459
(5,166)
(2,136)
11,289
—
(325,652)
Page 11
MTY Food Group Inc.
Consolidated statements of cash flows (continued)
Years ended November 30, 2020 and 2019
(In thousands of Canadian dollars)
Financing activities
Issuance of long-term debt
Repayment of long-term debt
Lease payments
Shares repurchased and cancelled
Capitalized financing costs
Dividends paid to non-controlling shareholders of subsidiaries
Acquisition of the non-controlling interest of 9974644 Canada Inc.
Dividends paid
Cash flows (used in) provided by financing activities
Net (decrease) increase in cash
Effect of foreign exchange rate changes on cash
Cash, beginning of period
Cash, end of period
Notes
2020
$
2019
$
34
34
23
34
8
20,000
(109,137)
(13,026)
(18,866)
(525)
(186)
—
(4,633)
(126,373)
(4,826)
(1,609)
50,737
44,302
327,399
(73,852)
—
(5,227)
(1,079)
(498)
(110)
(16,713)
229,920
17,219
1,214
32,304
50,737
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.
35.
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
Leases
Investment in a joint venture
Property, plant and equipment
Intangible assets
Goodwill
Impairment charge – property, plant and equipment, intangible assets and 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
Guarantee
Contingent liabilities
Income taxes
Segmented information
Statement of cash flows
Related party transactions
2
14
14
15
27
30
32
33
39
39
40
40
40
41
42
43
44
45
45
47
47
48
49
50
50
51
52
56
57
58
58
58
59
61
63
64
Page 13
MTY Food Group Inc.
Notes to the consolidated financial statements
For the years ended November 30, 2020 and 2019
(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 (“TSX”). 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, Share-based Payment;
leasing transactions, that are within the scope of IFRS 16, Leases; and
•
• measurements that have some similarities to fair value but are not fair value, such as net realizable value in
International Accounting Standards (“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.
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 17, 2021.
Page 14
MTY Food Group Inc.
Notes to the consolidated financial statements
For the years ended November 30, 2020 and 2019
(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, with the exception of leases and joint arrangements disclosed below, or in notes 4, 13 and 14 to
these 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
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.
Percentage of equity interest
2020
2019
%
100
100
100
100
100
100
65
80
%
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.
Page 15
MTY Food Group Inc.
Notes to the consolidated financial statements
For the years ended November 30, 2020 and 2019
(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, 2020 and 2019
(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)
v)
vi)
vii)
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.
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 that is
not included in the measurement of the finance lease receivable under IFRS 16 is recognized on a straight-
line basis over the term of the relevant lease.
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.
Page 17
MTY Food Group Inc.
Notes to the consolidated financial statements
For the years ended November 30, 2020 and 2019
(In thousands of Canadian dollars, except per share amounts and stock options)
3.
Accounting policies (continued)
Revenue from franchise locations (continued)
viii)
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 $20,529 (2019 –
$12,054). 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 a practical expedient is used to expense
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 evaluate and record assets held for sale at the lower of
their carrying value and fair value less costs to sell.
Leasing
The Company enters into leases for franchised and corporately-owned locations, offices, and equipment in the normal
course of business. The Company adopted IFRS 16 on December 1, 2019. The impact of the adoption of IFRS 16 on
the Company’s financial statements is further described in note 4.
The Company as lessee
The Company recognizes lease liabilities with corresponding right-of-use assets, except for short-term leases and
leases of low value assets, which are expensed on a straight-line basis over the lease term. The Company
recognizes depreciation of right-of-use assets and interest on lease liabilities.
Page 18
MTY Food Group Inc.
Notes to the consolidated financial statements
For the years ended November 30, 2020 and 2019
(In thousands of Canadian dollars, except per share amounts and stock options)
3.
Accounting policies (continued)
Leasing (continued)
The Company as lessor
When the Company enters into a sublease arrangement as an intermediate lessor, the Company accounts for the
head lease and the sublease as two separate contracts. The Company is required to classify the sublease as a
finance or operating lease by reference to the right-of-use asset arising from the head lease. For finance subleases,
the Company derecognizes the right-of-use asset relating to the head lease that is transferred to the sublessee
and recognizes a finance lease receivable in the sublease. As the intermediate lessor, the Company retains the
lease liability on the head lease in its consolidated statement of financial position. During the term of the sublease,
the Company recognizes both finance income on the sublease and interest expense on the head lease.
For the year ended November 30, 2019, leases were classified as finance leases whenever the terms of the lease
transferred substantially all the risks and rewards of ownership to the lessee. All other leases were classified as
operating leases.
The Company as lessor
Rental income from operating leases was recognized on a straight-line basis over the term of the relevant lease.
The Company as lessee
Operating lease payments were recognized as an expense on a straight-line basis over the lease term, except
where another systematic basis was more representative of the time pattern in which economic benefits from the
leased asset were consumed. Contingent rentals arising under operating leases were recognized as an expense
in the period in which they were incurred.
In the event that lease incentives were received to enter into operating leases, such incentives were recognized
as a liability. The aggregate benefit of incentives was recognized as a reduction of rental expense on a straight-
line basis, except where another systematic basis was more representative of the time pattern in which economic
benefits from the leased asset were consumed.
Government grants
Government grants are recognised in profit or loss on a systematic basis over the periods in which the Company
recognises expenses for the related costs for which the grants are intended to compensate.
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 (loss) 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 (loss) 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, 2020 and 2019
(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, 2020 and 2019
(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:
Straight-line
Buildings
Equipment
Straight-line
Leasehold improvements Straight-line
Straight-line
Rolling stock
Straight-line
Computer hardware
25 to 50 years
Three to 10 years
Lesser of the term of the lease or useful life
Five to seven years
Three to seven 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 reviews each reporting period the amortization periods of its intangible assets with finite useful lives.
The Company also reviews each reporting period the useful lives of its intangible assets with indefinite useful lives to
determine whether events and circumstances continue to support an indefinite useful life assessment for those assets.
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.
Page 21
MTY Food Group Inc.
Notes to the consolidated financial statements
For the years ended November 30, 2020 and 2019
(In thousands of Canadian dollars, except per share amounts and stock options)
3.
Accounting policies (continued)
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.
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 CGUs 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. For the
majority of the Company’s long-lived assets, the smallest group of CGUs for which a reasonable and consistent
allocation basis can be identified is the brand level, comprised of franchise rights, trademarks, and perpetual licenses.
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 the CGU or a group of CGUs (“goodwill unit”) 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, 2020, goodwill is allocated as follows:
Canada goodwill
US & International excluding Papa Murphy’s goodwill
Goodwill unit description
A group of CGUs comprised of acquired brands in
Canada’s operating segment
A group of CGUs comprised of acquired brands in the
US & International operating segment, excluding the
Papa Murphy’s brand
Papa Murphy’s goodwill
One CGU comprised of Papa Murphy’s brand
Page 22
MTY Food Group Inc.
Notes to the consolidated financial statements
For the years ended November 30, 2020 and 2019
(In thousands of Canadian dollars, except per share amounts and stock options)
3.
Accounting policies (continued)
Impairment of goodwill (continued)
A goodwill 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 goodwill unit may be impaired. If the recoverable amount of the goodwill
unit is less than its carrying amount, the impairment loss reduces the carrying amount of any goodwill allocated to the
goodwill unit. Any impairment loss for goodwill is recognized directly in profit or loss in the consolidated statement of
income (loss). 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.
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.
Page 23
MTY Food Group Inc.
Notes to the consolidated financial statements
For the years ended November 30, 2020 and 2019
(In thousands of Canadian dollars, except per share amounts and stock options)
3.
Accounting policies (continued)
Financial instruments (continued)
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.
Impairment of financial assets
The Company uses the simplified expected credit-loss (“ECL”) model for its trade receivables, as permitted by IFRS
9. 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, 2020 and 2019
(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
Obligation to repurchase a partner in a joint
venture
Interest rate swap
Provisions
Amortized cost
Amortized cost
Amortized cost
FVTPL
FVTPL
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 management’s best estimate of the expenditure required to settle the obligation at the end of the
reporting period, and are discounted to present value when the effect is material. This is recorded in cost of goods
sold and rent (note 29) on the consolidated statement of income (loss).
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, with the
exception of lease liabilities already recorded pursuant to IFRS 16, 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 and the amount initially recognized less cumulative
amortization recognized, if any.
Page 25
MTY Food Group Inc.
Notes to the consolidated financial statements
For the years ended November 30, 2020 and 2019
(In thousands of Canadian dollars, except per share amounts and stock options)
3.
Accounting policies (continued)
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.
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 24.
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 33). 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 (“COOs”) to make decisions on resources to be allocated to the segment
and to assess its performance.
Joint arrangements
Joint arrangements are arrangements in which the Company exercises joint control as established by contracts
requiring unanimous consent for decisions about the activities that significantly affect the arrangement’s returns. When
the Company has the rights to the net assets of the arrangement, the arrangement is classified as a joint venture and
is accounted for using the equity method. When the Company has rights to the assets and obligations for the liabilities
relating to an arrangement, the arrangement is classified as a joint operation and the Company accounts for each of
its assets, liabilities and transactions, including its share of those held or incurred jointly, in relation to the joint
operation.
Under the equity method of accounting, interests in joint ventures are initially recognized at cost and adjusted
thereafter to recognize the Company’s share of the profits or losses and movements in other comprehensive income
of the investee. When the Company’s share of losses in a joint venture equals or exceeds its interests in the joint
ventures, the Company does not recognize further losses unless it will incur obligations or make payments on behalf
of the joint ventures.
Page 26
MTY Food Group Inc.
Notes to the consolidated financial statements
For the years ended November 30, 2020 and 2019
(In thousands of Canadian dollars, except per share amounts and stock options)
3.
Accounting policies (continued)
Joint arrangements (continued)
Unrealized gains resulting from transactions with joint ventures are eliminated, to the extent of the Company’s share
in the joint venture. For sales of products or services from the Company to its joint ventures, the elimination of
unrealized profits is considered in the carrying value of the investment in equity-accounted investees in the
consolidated statements of financial position and in the share in profit or loss of equity-accounted investees in the
consolidated statements of income.
4. Changes in accounting policies
IFRS 16, Leases
On December 1, 2019, the Company adopted IFRS 16 using the modified retrospective approach. The Company has
not restated the comparatives for the 2019 financial year, as permitted under the specific transitional provisions in the
standard. The impact from the new leasing standard is therefore recognized in the opening balance sheet on
December 1, 2019.
IFRS 16 introduces new or amended requirements with respect to lease accounting. The standard 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. It introduces
significant changes to lessee accounting by removing the distinction between operating and finance leases and
requiring the recognition of a right-of-use asset and corresponding lease liability at the commencement of all leases
(subject to limited exceptions for short-term leases and leases of low-value assets). 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. When the Company is the lessor,
lease-related revenues previously recorded in rental 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 the intermediate
lessor determines 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.
In applying IFRS 16 for the first time, the Company has elected to use the following practical expedients permitted by
the standard:
•
•
•
•
•
the Company has not reassessed, under IFRS 16, contracts that were identified as leases under the previous
accounting standards (IAS 17 and International Financial Reporting Interpretations Committee (“IFRIC”)
Interpretation 4, Determining whether an Arrangement Contains a Lease);
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.
The impact of the adoption of IFRS 16 on the Company’s financial statements is described below.
Impact on lessee accounting
IFRS 16 changes how the Company accounts for leases previously classified as operating leases under IAS 17, which
were off-balance-sheet.
Applying IFRS 16, for all leases (except as noted below), the Company;
•
recognized right-of-use assets and lease liabilities in the consolidated statements of financial position, initially
measured at the present value of future lease payments;
Page 27
MTY Food Group Inc.
Notes to the consolidated financial statements
For the years ended November 30, 2020 and 2019
(In thousands of Canadian dollars, except per share amounts and stock options)
4.
Changes in accounting policies (continued)
IFRS 16, Leases (continued)
•
•
recognized depreciation of right-of-use assets and interest on lease liabilities in the consolidated statements
of income; and
separated the total amount of cash paid into a principal portion (presented within financing activities) and
interest (presented within operating activities) in the consolidated statements of cash flows.
Under IFRS 16, right-of-use assets are tested for impairment in accordance with IAS 36. This replaces the previous
requirement to recognize a provision for onerous lease contracts.
For short-term leases (lease term of 12 months or less) and leases of low-value assets, the Company has opted to
recognize a lease expense on a straight-line basis as permitted by IFRS 16. This expense is presented within operating
expenses, primarily as occupancy costs in the consolidated statements of income.
On adoption of IFRS 16, the Company recognized lease liabilities in relation to leases that had previously been
classified as operating leases under the principles of IAS 17. These liabilities were measured at the present value of
the remaining lease payments, discounted using the Company’s incremental borrowing rate as at December 1, 2019.
The weighted average lessee’s incremental borrowing rate applied to the lease liabilities on December 1, 2019 was
2.749%.
The following table reconciles the operating lease commitments as at November 30, 2019 to the opening balance of
lease liabilities as at December 1, 2019:
Operating lease commitments disclosed as at November 30, 2019
Discounted using the Company’s incremental borrowing rate at December 1, 2019
Short-term leases and leases of low-value assets
Adjustments as a result of a different treatment of extension and
termination options
Other
Lease liabilities recognized as at December 1, 2019
$
648,445
(52,507)
(16,228)
34,478
(3,109)
611,079
The associated right-of-use assets were measured at the amount equal to the lease liability, adjusted by the amount
of any prepaid or accrued lease payments and impairment relating to that lease recognized in the consolidated
statements of financial position as at December 1, 2019.
Impact on lessor accounting
As a lessor, leases are still 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. When the Company
enters into a sublease arrangement as an intermediate lessor, the Company accounts for the head lease and the
sublease as two separate contracts. The Company is required to classify the sublease as a finance or operating lease
by reference to the right-of-use asset arising from the head lease.
For finance subleases, the Company derecognizes the right-of-use asset relating to the head lease that is transferred
to the sublessee and recognizes a finance lease receivable in the sublease. Any difference between the right-of-use
asset and finance lease receivable is recognized as a gain or loss in the consolidated statements of income. As the
intermediate lessor, the Company retains the lease liability on the head lease in its consolidated statement of financial
position. During the term of the sublease, the Company recognizes both finance income on the sublease and interest
expense on the head lease.
As a result of this change, the Company has reclassified most of its sublease arrangements as finance leases. As
required by IFRS 9, an allowance for expected credit loss has been recognized on the finance lease receivables.
Page 28
MTY Food Group Inc.
Notes to the consolidated financial statements
For the years ended November 30, 2020 and 2019
(In thousands of Canadian dollars, except per share amounts and stock options)
4.
Changes in accounting policies (continued)
IFRS 16, Leases (continued)
Financial impact of initial application of IFRS 16
The following table summarizes the adjustments to opening balances resulting from the initial adoption of IFRS 16:
Assets
Current assets
Current portion of finance lease receivables
Prepaid expenses and deposits
Finance lease receivables
Right-of-use assets
Liabilities
Current liabilities
Provisions
Current portion of deferred revenue and deposits
Current portion of lease liabilities
Lease liabilities
Deferred income taxes
Reserves
Retained earnings
As previously
reported under
IAS 17
November 30,
2019
$
IFRS 16
transition
adjustments
$
December 1,
2019
$
—
9,284
—
—
13,163
18,761
—
98,256
(1,972)
428,165
68,838
(1,274)
(2,089)
111,414
98,256
7,312
428,165
68,838
11,889
16,672
111,414
—
158,430
499,665
(3,737)
499,665
154,693
353,300
(10,692)
342,608
COVID-19 accounting implications on leases
In response to the COVID-19 pandemic, in May 2020 the IASB has issued amendments to IFRS 16 to allow lessees
to not account for rent concessions as lease modifications if they are a direct consequence of COVID-19 and meet
certain conditions:
•
•
•
the revised consideration is substantially the same or less than the original consideration;
the reduction in lease payments relates to payments due on or before June 30, 2021; and
no other substantive changes have been made to the terms of the lease.
The Company has adopted this amendment and applied the practicable expedient to all eligible rent concessions. The
Company has recognized negative variable lease payments of $617 (2019 – nil) as part of rent expense, presented in
Cost of goods sold and rent in note 29 of the consolidated financial statements.
Page 29
MTY Food Group Inc.
Notes to the consolidated financial statements
For the years ended November 30, 2020 and 2019
(In thousands of Canadian dollars, except per share amounts and stock options)
4.
Changes in accounting policies (continued)
IFRIC 23, Uncertainty over Income Tax Treatments
In June 2017, the IASB released IFRIC 23, Uncertainty over Income Tax Treatments, which addresses how to
determine the taxable profit (loss), tax basis, unused tax losses, unused tax credits and tax rates, when there is
uncertainty over income tax treatments under IAS 12. It specifically considers whether tax treatments should be
considered independently or collectively and assumptions for taxation authorities’ examinations with regard to taxable
profit (loss), tax bases, unused tax losses, unused tax credits or tax rates.
IFRIC 23 was adopted effective December 1, 2019 and resulted in no significant adjustment.
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.
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 year ended November 30, 2020, 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.
Page 30
MTY Food Group Inc.
Notes to the consolidated financial statements
For the years ended November 30, 2020 and 2019
(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 property, plant and equipment, franchise rights and trademarks (continued)
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.
During the years ended November 30, 2020 and 2019, the Company recognized impairment charges on its
franchise rights and trademarks (note 18). The total impairment of $51,693 (2019 – $1,660) represents a write-
down of the carrying value to the fair value of the trademarks and franchise rights. The fair value was determined
using significant unobservable inputs such as discount rates and projected operating cash flows. The fair value is
classified as level 3 in the fair value hierarchy.
During the years ended November 30, 2020 and 2019, the Company also recognized impairment charges on its
property, plant and equipment (note 18). The cumulative impairment on property, plant and equipment of $3,166
(2019 – $959) 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 CGU’s 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.
Impairment of goodwill
Determining whether goodwill is impaired requires an estimation of the recoverable amount in use of the goodwill
unit to which goodwill has been allocated. The value-in-use calculation requires management to estimate the future
cash flows expected to arise from the goodwill unit and a suitable discount rate in order to calculate present value.
During the year ended November 30, 2020, the Company recognized impairment charges of $67,967 on its
goodwill (note 18). During the year ended November 30, 2019, no impairment charge on goodwill was required.
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.
Impact of COVID-19
In December 2019, a novel strain of coronavirus was reported to have surfaced, later to be renamed COVID-19. The
spread of this virus caused business disruption beginning in March 2020, due to the closure or modified operating
hours in certain restaurants, and traffic decline in Canada, the US and Internationally.
Further while the disruption is currently expected to come in waves, there is uncertainty around the duration of the
pandemic, its medium to longer term impact on the economy and the rules that will apply to MTY’s restaurants as
sheltering measures are gradually reduced. The impact of the virus and the efforts to stop it impact MTY and many of
its franchisees materially.
Page 31
MTY Food Group Inc.
Notes to the consolidated financial statements
For the years ended November 30, 2020 and 2019
(In thousands of Canadian dollars, except per share amounts and stock options)
5. Critical accounting judgments and key sources of estimation uncertainty (continued)
Impact of COVID-19 (continued)
As a result of the continued and uncertain economic and business impacts of the COVID-19 pandemic, the Company
continues to monitor the estimates, judgments and assumptions used in the consolidated financial statements. These
estimates, judgments and assumptions are subject to change.
The consolidated financial statements have been impacted with respect to the following as a result of COVID-19:
-
-
-
-
-
-
Additional expected credit losses on accounts receivable, loans receivable and finance lease receivables were
taken;
Expected credit losses on lease guarantees were taken as new provisions;
Impairment testing on property, plant and equipment and right-of-use assets were carried out resulting in
impairments;
Impairment testing on franchise rights, trademarks and goodwill were carried out and material impairments were
recorded;
Provisions for closed stores, and related litigations and disputes were increased to reflect new risks;
Additional fair value adjustment on the $100,000 credit facility interest rate swap resulting from the decrease in
Canadian borrowing rate;
- Changes to lease liabilities and finance lease receivables were made to reflect changes in lease payment terms;
- Reduction in wage expense for the year ending November 30, 2020 of $6,775 (2019 – nil) resulting from the
Canadian Employment Wage Subsidies; and
- Reduction in rent expense for the year ending November 30, 2020 of $245 (2019 – nil) resulting from the Canadian
Emergency Rent Subsidies.
6.
Future accounting changes
A number of new standards, interpretations and amendments to existing standards were issued by the IASB that are
not yet effective for the period ended November 30, 2020 and have not been applied in preparing these consolidated
financial statements.
The following standards or amendments, with the exception of the amendments to IFRS 3, IFRS 9, IAS 39 and IFRS
7, may have a material impact on the consolidated financial statements of the Company:
Standard
IFRS 3, Business Combinations
IFRS 9, Financial Instruments
IAS 39, Financial Instruments: Recognition and
Measurement
IFRS 7, Financial Instruments: Disclosures
IAS 37, Provisions, Contingent Liabilities and
Contingent Assets
IAS 1, Presentation of Financial Statements
IFRS 3, Business Combinations
Issue date
October 2018
Effective date for
the Company
December 1, 2020
Impact
No impact
September 2019 December 1, 2020
No impact
May 2020
January 2020 &
July 2020
December 1, 2022
In assessment
December 1, 2023
In assessment
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 January 1, 2020 and apply prospectively. Earlier application is permitted. The Company will adopt the
amendments on December 1, 2020.
Page 32
MTY Food Group Inc.
Notes to the consolidated financial statements
For the years ended November 30, 2020 and 2019
(In thousands of Canadian dollars, except per share amounts and stock options)
6.
Future accounting changes (continued)
IFRS 9, Financial Instruments, IAS 39, Financial Instruments: Recognition and Measurement, and IFRS 7,
Financial Instruments: Disclosures
In September 2019, the IASB published Interest Rate Benchmark Reform (Amendments to IFRS 9, IAS 39 and IFRS
7) as a first reaction to the potential effects the Interbank offered rates (“IBOR”) reform could have on financial
reporting. Recent market developments have brought into question the long-term viability of the IBOR benchmarks.
The amendments deal with issues affecting financial reporting in the period before the replacement of an existing
interest rate benchmark with an alternative interest rate and address the implications for specific hedge accounting
requirements in IFRS 9 and IAS 39, which require forward-looking analysis. There are also amendments to IFRS 7
regarding additional disclosures around uncertainty arising from the interest rate benchmark reform. The amendments
to IFRS 9, IAS 39 and IFRS 7 are effective for annual reporting periods beginning on or after January 1, 2020. Earlier
application is permitted. The Company will adopt the amendments on December 1, 2020.
IAS 37, Provisions, Contingent Liabilities and Contingent Assets
In May 2020, the IASB published Onerous Contracts – Cost of Fulfilling a Contract (Amendments to IAS 37) amending
the standard regarding costs a company should include as the cost of fulfilling a contract when assessing whether a
contract is onerous. The changes in Onerous Contracts – Cost of Fulfilling a Contract (Amendments to IAS 37) specify
that the “cost of fulfilling” a contract comprises the “costs that relate directly to the contract”. Costs that relate directly
to a contract can either be incremental costs of fulfilling that contract or an allocation of other costs that relate directly
to fulfilling contracts. The amendments to IAS 37 are effective for annual reporting periods beginning on or after
January 1, 2022. Earlier application is permitted. The Company will adopt the amendments on December 1, 2022.
IAS 1, Presentation of Financial Statements
In January 2020, the IASB issued Classification of Liabilities as Current or Non-current (Amendments to IAS 1)
providing a more general approach to the classification of liabilities under IAS 1 based on the contractual arrangements
in place at the reporting date. The amendments in Classification of Liabilities as Current or Non-current (Amendments
to IAS 1) affect only the presentation of liabilities in the statement of financial position, not the amount or timing of
recognition of any asset, liability income or expenses, or the information that entities disclose about those items. In
July 2020, the IASB published Classification of Liabilities as Current or Non-current – Deferral of Effective Date
(Amendment to IAS 1) deferring the effective date of the January 2020 amendments to IAS 1 by one year. The
amendments to IAS 1 are effective for annual reporting periods beginning on or after January 1, 2023. Earlier
application is permitted. The Company will adopt the amendments on December 1, 2023.
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
Working capital
Discount on non-interest-bearing holdback
Net purchase price
Contingent consideration
Holdback
Net consideration paid/cash outflow
2019
$
30,000
1,427
(242 )
(510 )
30,675
(1,427 )
(5,177 )
24,071
Page 33
MTY Food Group Inc.
Notes to the consolidated financial statements
For the years ended November 30, 2020 and 2019
(In thousands of Canadian dollars, except per share amounts and stock options)
7.
Business acquisitions (continued)
I) Allô! Mon Coco (2019) (continued)
The final purchase price allocation is as follows:
Net assets acquired:
Current assets
Loans receivable
Deferred income taxes
Property, plant and equipment
Franchise rights
Trademark
Goodwill (1)
Current liabilities
Gift card liability
Deferred revenues
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.
2019
$
47
47
213
19
9,709
13,597
7,263
30,848
92
92
81
173
30,675
Page 34
MTY Food Group Inc.
Notes to the consolidated financial statements
For the years ended November 30, 2020 and 2019
(In thousands of Canadian dollars, except per share amounts and stock options)
7.
Business acquisitions (continued)
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
Working capital
Net purchase price
Contingent consideration
Net consideration paid/cash outflow
The final 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 (1)
Current liabilities
Accounts payable and accrued liabilities
Gift card liability and loyalty program liability
Deferred revenues
Net purchase price
(1) Goodwill is deductible for tax purposes.
Total expenses incurred related to acquisition costs amounted to $139.
The purchase price allocation is final.
2019
$
25,389
260
2,224
(285)
27,588
(2,224)
25,364
2019
$
6
6
588
491
195
2,362
9,491
14,736
27,869
82
189
271
10
281
27,588
Page 35
MTY Food Group Inc.
Notes to the consolidated financial statements
For the years ended November 30, 2020 and 2019
(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
Net consideration paid/cash outflow
The final purchase price allocation is as follows:
Net assets acquired:
Current assets
Cash
Accounts receivable
Inventory
Prepaid expenses and deposits
Assets held for sale (2)
Property, plant and equipment
Other intangible assets
Franchise rights
Trademark
Goodwill (1) & (2)
Current liabilities
Accounts payable and accrued liabilities
Provisions (2)
Gift card liability
Deferred income taxes (2)
Net purchase price
2019
$
257,596
(2,435 )
255,161
2019
$
2,435
3,873
1,195
2,344
19,739
29,586
1,054
1,277
45,259
131,551
127,307
336,034
22,475
12,354
2,840
37,669
40,769
78,438
257,596
(1) Goodwill is not deductible for tax purposes.
(2) Figures have been restated to reflect changes to the preliminary purchase price allocation of Papa Murphy’s.
Page 36
MTY Food Group Inc.
Notes to the consolidated financial statements
For the years ended November 30, 2020 and 2019
(In thousands of Canadian dollars, except per share amounts and stock options)
7.
Business acquisitions (continued)
III) Papa Murphy’s (2019) (continued)
Total expenses incurred related to acquisition costs amounted to $4,209.
The purchase price allocation is final.
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
The final 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 (1)
Current liabilities
Accounts payable and accrued liabilities
Gift card liability
Deferred income taxes
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.
2019
$
5,100
(204 )
(39 )
4,857
(696 )
(24 )
4,137
2019
$
24
163
186
373
1,128
395
2,649
635
5,180
304
11
315
8
323
4,857
Page 37
MTY Food Group Inc.
Notes to the consolidated financial statements
For the years ended November 30, 2020 and 2019
(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 (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.
2019
$
22,350
(194 )
(133 )
22,023
(1,117 )
20,906
2019
$
3,229
2
3,231
150
4,122
10,318
4,375
22,196
3
170
173
22,023
Page 38
MTY Food Group Inc.
Notes to the consolidated financial statements
For the years ended November 30, 2020 and 2019
(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.
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 one day but no more than 30 days
Past due for more than 31 days but no more than 60 days
Past due for more than 61 days
Total accounts receivable, net
Allowance for credit losses, beginning of year
Increase (decrease) to current year provision
Additions through acquisition
Reversal of amounts previously written off
Write-offs
Impact of foreign exchange
Allowance for credit losses, end of year
2020
$
68,417
12,531
55,886
35,946
3,818
2,731
13,391
55,886
2020
$
8,176
5,459
—
1,616
(3,554)
834
12,531
2019
$
73,305
8,176
65,129
48,273
2,943
2,433
11,480
65,129
2019
$
9,320
(688)
98
221
(1,493)
718
8,176
Page 39
MTY Food Group Inc.
Notes to the consolidated financial statements
For the years ended November 30, 2020 and 2019
(In thousands of Canadian dollars, except per share amounts and stock options)
10.
Inventories
Raw materials
Work in progress
Finished goods
Total inventories
2020
$
3,505
466
5,444
9,415
2019
$
3,498
359
3,674
7,531
Inventories are presented net of a $51 allowance for obsolescence (2019 – $14). All of the inventories are expected
to be sold within the next 12 months.
Inventories expensed during the year ended November 30, 2020 were $107,798 (2019 – $119,084).
11. Assets held for sale
During the year ended November 30, 2020, the Company disposed of two portfolios comprised of seven and nine
corporately-owned locations in the US segment that were converted into franchises upon completion of the sale. The
Company received a total consideration of $11,689 for both portfolios and recognized a loss on disposal of $140 in its
consolidated statement of income (loss).
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 $143 in aggregate, including principal and interest,
ending in 2026
Less: Allowance for credit losses
Current portion
The capital repayments in subsequent years will be:
2021
2022
2023
2024
2025
Thereafter
$
1,527
2,038
425
269
139
362
4,760
2020
$
2019
$
6,871
2,111
4,760
(1,527)
3,233
9,176
2,031
7,145
(4,082)
3,063
Page 40
MTY Food Group Inc.
Notes to the consolidated financial statements
For the years ended November 30, 2020 and 2019
(In thousands of Canadian dollars, except per share amounts and stock options)
13.
Leases
Leases as a lessee relate primarily to leases of premises in relation to the Company’s operations and its corporate
store locations. For many of the leases related to its franchised locations, the Company is on the head lease of the
premises and a corresponding sublease contract was entered into between the Company and its unrelated franchisee.
The sublease contract is substantially based on the same terms and conditions as the head lease.
Leases and subleases typically have terms ranging between five and 10 years at inception. The Company does not
have options to purchase the premises on any of its leases.
Right-of-use assets
The following table provides the net carrying amount of the right-of-use assets by class of underlying asset and the
changes in the year ended November 30, 2020:
Balance as at December 1, 2019
Additions
Depreciation expense
Impairment losses
De-recognition/lease modification of lease liabilities
Foreign exchange
Balance as at November 30, 2020
Offices,
corporate
and dark
stores
Store
locations
subject to
operating
subleases
$
$
55,937
17,452
(10,951)
(4,090)
893
(905)
58,336
12,088
—
(1,120)
(201)
(489)
—
10,278
Other
$
813
92
(273)
—
3
(26)
609
Total
$
68,838
17,544
(12,344)
(4,291)
407
(931)
69,223
The following table provides the breakdown of interest income and expense recognized in the consolidated statements
of income relating to leases where the Company is the lessee or lessor:
Interest income on finance lease receivables
Interest expense on lease liabilities
Net interest expense on leases
2020
2019
$
13,234
(15,715)
(2,481)
$
—
—
—
Page 41
MTY Food Group Inc.
Notes to the consolidated financial statements
For the years ended November 30, 2020 and 2019
(In thousands of Canadian dollars, except per share amounts and stock options)
13.
Leases (continued)
Maturity analysis
The following table sets out a maturity analysis of lease payments, showing the undiscounted lease payments to be
paid or received after November 30, 2020:
2021
2022
2023
2024
2025
Thereafter
Total undiscounted lease payments
Unguaranteed residual values
Gross investment in the lease
Less: Unearned finance income
Present value of minimum lease payment receivables
Allowance for credit losses
Current portion of finance lease receivables
Finance lease receivables
Leases
$
126,313
109,670
90,772
72,444
55,547
119,749
574,495
—
—
—
—
—
—
—
Finance lease
receivables
Operating
subleases
$
$
112,136
96,020
79,061
62,948
47,910
94,562
492,637
3,074
495,711
(20,036)
475,675
(7,548)
(90,303)
377,824
1,185
1,166
938
793
830
—
4,912
—
—
—
—
—
—
—
The Company has recognized net rent expense of $5,839 (2019 – nil) related to its short-term leases, leases of low-
value assets, and variable lease payments.
Payments recognized as a net expense during the year ended November 30, 2019 amounted to $22,965.
14.
Investment in a joint venture
On December 3, 2019, one of the Company’s wholly owned subsidiaries completed its acquisition of a 70% interest
in a joint venture that had acquired 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 $26,104.
This consideration includes a deferred contingent consideration amounting to $4,129, an obligation for the repurchase
of its partner in a joint venture of $2,870 and cash consideration of $19,105. The Company has recorded its interest
as an investment in a joint venture. The Company has guaranteed liabilities of the joint venture amounting to $7,867,
which is payable to Tortoise Group upon the repurchase of the 30% joint venture partner.
Page 42
MTY Food Group Inc.
Notes to the consolidated financial statements
For the years ended November 30, 2020 and 2019
(In thousands of Canadian dollars, except per share amounts and stock options)
15. Property, plant and equipment
Cost
Balance as at November 30, 2018
Additions
Transfer from assets held for
sale
Disposals
Impairment (note 18)
Foreign exchange
Additions through business
combinations (note 7)
Balance as at November 30, 2019
Additions
Disposals
Impairment (note 18)
Foreign exchange
Balance as at November 30, 2020
Accumulated depreciation
Balance as at November 30, 2018
Eliminated on disposal of assets
Foreign exchange
Depreciation expense
Balance as at November 30, 2019
Eliminated on disposal of assets
Foreign exchange
Depreciation expense
Balance as at November 30, 2020
Carrying amounts
November 30, 2019
November 30, 2020
Leasehold
improve-
Land Buildings
$
$
ments Equipment
$
$
Computer
hardware
Rolling
stock
$
$
1,236
—
5,066
157
7,513
2,197
10,525
2,237
1,910
560
—
—
—
—
—
1,236
—
—
—
—
1,236
—
—
—
—
—
5,223
30
—
—
—
5,253
2,169
(985)
(641)
11
1,273
11,537
707
(309)
(2,147)
(91)
9,697
542
(1,699)
(318)
7
1,425
12,719
3,142
(1,918)
(1,019)
(68)
12,856
—
(15)
—
—
—
2,455
318
(6)
—
(5)
2,762
471
15
—
(63)
—
—
144
567
—
(13)
—
(2)
552
Leasehold
improve-
Land Buildings
$
$
ments Equipment
$
$
Computer
hardware
Rolling
stock
$
$
—
—
—
—
—
—
—
—
—
1,161
—
—
232
1,393
—
—
231
1,624
2,548
(399)
(3)
1,580
3,726
(162)
(42)
1,813
5,335
4,699
(613)
(1)
1,676
5,761
(945)
(54)
2,030
6,792
883
(11)
—
462
1,334
(1)
(5)
487
1,815
97
(10)
—
73
160
(13)
(1)
93
239
Total
$
26,721
5,166
2,711
(2,762)
(959)
18
2,842
33,737
4,197
(2,246)
(3,166)
(166)
32,356
Total
$
9,388
(1,033)
(4)
4,023
12,374
(1,121)
(102)
4,654
15,805
Leasehold
improve-
Land Buildings
$
$
ments Equipment
$
$
Computer
hardware
Rolling
stock
$
$
Total
$
1,236
1,236
3,830
3,629
7,811
4,362
6,958
6,064
1,121
947
407
313
21,363
16,551
Page 43
MTY Food Group Inc.
Notes to the consolidated financial statements
For the years ended November 30, 2020 and 2019
(In thousands of Canadian dollars, except per share amounts and stock options)
16.
Intangible assets
Cost
Balance as at November 30, 2018
Additions
Disposals
Acquisition through business
combinations (note 7)
Foreign exchange
Impairment (note 18)
Balance as at November 30, 2019
Additions (2)
Foreign exchange
Impairment (note 18)
Balance as at November 30, 2020
Accumulated amortization
Balance as at November 30, 2018
Disposals
Foreign exchange
Amortization
Balance as at November 30, 2019
Foreign exchange
Amortization
Balance as at November 30, 2020
Carrying amounts
November 30, 2019
November 30, 2020
Franchise
and master
franchise
rights Trademarks
$
$
337,501
—
—
57,725
(616)
(1,376)
393,234
11
(5,367)
(17,156)
370,722
503,720
8
—
161,410
(1,460)
(284)
663,394
—
(9,244)
(34,537)
619,613
Franchise
and master
franchise
rights Trademarks
$
$
Step-in
rights
$
1,199
—
—
—
—
—
1,199
—
—
—
1,199
Customer
list
$
—
—
—
10,318
—
—
10,318
—
—
—
10,318
Other (1)
$
Total
$
3,524
2,128
(500)
1,472
(12)
—
6,612
1,288
(53)
—
7,847
845,944
2,136
(500)
230,925
(2,088)
(1,660)
1,074,757
1,299
(14,664)
(51,693)
1,009,699
Step-in
rights
$
Customer
list
$
Other (1)
$
Total
$
—
—
—
—
—
—
—
—
620
—
—
120
740
—
119
859
—
—
—
819
819
—
819
1,638
932
(246)
1
867
1,554
(15)
1,015
2,554
87,705
(246)
14
29,185
116,658
(1,864)
30,876
145,670
86,153
—
13
27,379
113,545
(1,849)
28,923
140,619
Franchise
and master
franchise
rights Trademarks
$
$
Step-in
rights
$
Customer
list
$
Other (1)
$
Total
$
279,689
230,103
663,394
619,613
459
340
9,499
8,680
5,058
5,293
958,099
864,029
(1) Other items include $579 (2019 – $579) of licenses with an indefinite term that are not amortized.
(2) Non-cash items are included in additions to intangible assets amounting to $128 (2019 – $nil).
Page 44
MTY Food Group Inc.
Notes to the consolidated financial statements
For the years ended November 30, 2020 and 2019
(In thousands of Canadian dollars, except per share amounts and stock options)
16.
Intangible assets (continued)
Indefinite life intangible assets consist of trademarks and perpetual licenses, where each brand represents a separate
CGU for impairment testing, for 59 CGUs (2019 – 59 CGUs) totalling $620,192 (2019 – $663,973).
17. Goodwill
The changes in the carrying amount of goodwill are as follows:
Goodwill, beginning of year
Additional amounts recognized from business acquisitions (note 7)
Purchase price allocation adjustment (note 7)
Foreign exchange
Goodwill, end of year
Accumulated impairment, beginning of year
Impairment (note 18)
Accumulated impairment, end of year
Carrying amount
As at November 30, 2020, goodwill was allocated to three goodwill units as follows:
Canada
US & International excluding Papa Murphy's (1)
Papa Murphy's (2)
(1) Variance from prior year due to foreign exchange conversion and impairment.
(2) Variance from prior year due to foreign exchange conversion.
2020
$
510,171
—
—
(2,752)
507,419
—
67,967
67,967
2019
$
357,102
153,655
661
(1,247)
510,171
—
—
—
439,452
510,171
2020
$
2019
$
195,350
121,000
123,102
439,452
195,325
188,679
126,167
510,171
18.
Impairment charge – property, plant and equipment, intangible assets and goodwill
During the year ended November 30, 2020, impairment indicators were identified due to the adverse impact of COVID-
19, which resulted in temporary store closures and reduction in sales at franchised and corporately-owned locations.
Accordingly, the Company performed impairment testing, which resulted in $120,266 of impairment losses.
Furthermore, the Company performed its annual impairment test as at August 31, 2020, which resulted in the
recognition of an additional $2,560 of impairment losses, for a total of $122,826 of impairment losses for the year
ended November 30, 2020. Impairment charges were based on the amount by which the carrying values of the assets
exceeded fair value, determined using expected discounted future cash flows for trademarks and multi-period excess
earnings for franchise rights.
Page 45
MTY Food Group Inc.
Notes to the consolidated financial statements
For the years ended November 30, 2020 and 2019
(In thousands of Canadian dollars, except per share amounts and stock options)
18.
Impairment charge – property, plant and equipment, intangible assets and goodwill (continued)
Impairment by geographical segment for the year ended November 30, 2020:
Canada
US & International
Property, plant
and equipment
$
Intangible
assets (1)
$
Goodwill (2)
$
2,379
787
3,166
32,901
18,792
51,693
—
67,967
67,967
Total
$
35,280
87,546
122,826
(1) Comprised of $17,156 and $34,537 of impairment of franchise rights and trademarks respectively.
(2) Impairment was recorded on the goodwill allocated to the US & International excluding Papa Murphy’s goodwill
unit.
Impairment by geographical segment for the year ended November 30, 2019:
Canada
US & International
Property, plant
and equipment
$
Intangible
assets (1)
$
959
—
959
—
1,660
1,660
Goodwill
$
—
—
—
Total
$
959
1,660
2,619
(1) Comprised of $1,376 and $284 of impairment of franchise rights and trademarks respectively.
The key assumptions used, where the recoverable amount was measured as a goodwill unit’s value in use, are those
related to uncertainties around the impact of COVID-19 on projected sales, as well as the discount rates. The sales
forecasts for cash flows considered the weighted average impact of multiple scenarios based on operating results and
internal forecasts prepared by management and approved by the Board.
The following table presents the key assumptions used in the Company’s impairment tests, as well as the recoverable
amounts measured at value in use as at August 31, 2020:
($, except percentage data)
Canada
US &
International
excluding
Papa
Murphy's
2020
2019
US &
International
excluding
Papa
Murphy's
Papa
Murphy's
Papa
Murphy's
Canada
Long-term growth rates
0% to 2%
0% to 2%
0% to 2%
0% to 2%
0% to 2%
1.50%
Discount rates after tax
8.2%
8.3%
8.3%
8.2%
8.3%
8.3%
Discount rates pre-tax
10.7%
10.5%
10.5%
10.4%
10.5%
10.5%
Recoverable amounts
1,113,541
563,568
422,463
1,100,691
690,340
408,537
A change of 100 basis points in discount rates in Canada would result in additional impairment charges on intangible
assets of four brands (2019 – two brands) representing 0.5% (2019 – 1.6%) of the total carrying value of the franchise
rights and trademarks in that goodwill unit. A change of 100 basis points in discount rates in Canada would not result
in additional impairment charges on property, plant and equipment or on goodwill for the years ended November 30,
2020 and 2019. For the Canada goodwill unit, an increase of 830 basis points in the discount rate would have resulted
in its recoverable amount being equal to its carrying value.
Page 46
MTY Food Group Inc.
Notes to the consolidated financial statements
For the years ended November 30, 2020 and 2019
(In thousands of Canadian dollars, except per share amounts and stock options)
18.
Impairment charge – property, plant and equipment, intangible assets and goodwill (continued)
A change of 100 basis points in discount rates in the US & International excluding Papa Murphy’s would result in
additional impairment charges on intangible assets of 11 brands (2019 – one brand) representing 2.9% (2019 – 0.7%)
of the total carrying value of the franchise rights and trademarks in that goodwill unit, and additional impairment
charges on goodwill representing 5.3% (2019 – nil) of the total carrying value of goodwill in that goodwill unit. A change
of 100 basis points in discount rates in the US & International excluding Papa Murphy’s would not result in additional
impairment charges on property, plant and equipment for the years ended November 30, 2020 and 2019. For the US
& International excluding Papa Murphy’s goodwill unit, an increase of 60 basis points in the discount rate would have
resulted in its recoverable amount being equal to its carrying value.
A change of 100 basis points in discount rates in Papa Murphy’s would not result in additional impairment charges on
property, plant and equipment, intangible assets or goodwill for the years ended November 30, 2020 and 2019. For
the Papa Murphy’s goodwill unit, an increase of 300 basis points in the discount rate would have resulted in its
recoverable amount being equal to its carrying value.
19. Credit facility
During the year ended November 30, 2020, the Company modified its existing credit facility payable to a syndicate of
lenders. The modification amended its financial covenants for a period of one year. Transaction costs of $525 were
incurred and will be deferred and amortized over the one-year period. The revolving credit facility has an authorized
amount of $700,000 (2019 – $700,000), of which $433,000 was drawn as at November 30, 2020 (2019 – $518,922).
The syndicate of lenders has amended the Company’s covenants as follows:
The Debt-to-EBITDA (earnings before interest, taxes, depreciation, and amortization) ratio must be less than or
equal to the following:
o 4.25:1.00 for the financial quarter ending on May 31, 2020;
o 4.50:1.00 for the financial quarters ending August 31, 2020 and November 30, 2020;
o 4.25:1.00 for the period beginning on December 1, 2020 and ending on May 30, 2021; and
o 3.50:1.00 as of May 31, 2021 and thereafter.
The interest and rent coverage ratio must be at 2.00:1.00 at all times.
Until May 31, 2021, the credit agreement also contains various limitations on distributions and on the usage of the
proceeds from the disposal of assets. The main limitations on distributions impose restrictions on the issuance of
dividends and the repurchase of MTY’s common shares through its normal course issuer bid (“NCIB”) process until
such time as the debt-to-EBITDA falls below 3.50:1.00 ratio.
The revolving facility is repayable without penalty with the balance due on the date of maturity September 23, 2022.
As at November 30, 2020, the Company was in compliance with its financial covenants.
20. Provisions
Included in provisions are the following amounts:
2020
$
2019
$
Litigations, disputes and other contingencies
Closed stores
11,474
1,947
13,421
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.
2,878
187
3,065
Page 47
MTY Food Group Inc.
Notes to the consolidated financial statements
For the years ended November 30, 2020 and 2019
(In thousands of Canadian dollars, except per share amounts and stock options)
20.
Provisions (continued)
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 Company has recognized
a liability of $187 (2019 – $1,947) for the leases of premises in which it no longer has operations but retains the
obligations contained in the lease agreement, with the exception of leases for which the lease liabilities are already
recorded pursuant to IFRS 16.
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
Transfer to right-of-use assets upon application of IFRS 16 (note 4)
Amounts used
Additions from acquisitions (note 7)
Purchase price allocation adjustment (note 7)
Additions
Impact of foreign exchange
Provision for litigations, disputes and closed stores, ending balance
21. Deferred revenue and deposits
Franchise fee deposits
Unearned rent, advances for restaurant construction and renovation
Supplier contributions and other allowances
Less: Current portion
2020
$
13,421
(1,141)
(1,274)
(10,169)
—
—
2,255
(27)
3,065
2020
$
44,279
938
9,897
55,114
(13,747)
41,367
2019
$
3,640
(1,226)
—
(3,252)
12,093
261
1,912
(7)
13,421
2019
$
44,876
5,060
7,041
56,977
(18,761)
38,216
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.
$16,927 (2019 – $14,835) of revenue recognized in the current year was included in the deferred revenue balance at
the beginning of the year.
Page 48
MTY Food Group Inc.
Notes to the consolidated financial statements
For the years ended November 30, 2020 and 2019
(In thousands of Canadian dollars, except per share amounts and stock options)
21.
Deferred revenue and deposits (continued)
The following table provides estimated revenues expected to be recognized in future years related to performance
obligations that are unsatisfied as at November 30, 2020:
Estimate for fiscal year:
$
2021
2022
2023
2024
2025
Thereafter
13,747
8,038
6,879
5,544
10,907
9,999
55,114
22.
Long-term debt
Non-interest-bearing contract cancellation fees and holdbacks on acquisitions
Contingent consideration on acquisitions and investment in a joint venture
(note 26) (1)
Fair value of promissory notes for Houston Avenue Bar & Grill (note 26)
Fair value of promissory notes related to buyback obligation of Houston Avenue
Bar & Grill and Industria Pizzeria + Bar (note 26) (2)
Fair value of non-controlling interest buyback obligation in 10220396 Canada
Inc. (note 26) (2)
Fair value of non-controlling interest option in 9974644 Canada Inc. (note 26) (3)
Fair value of obligation to repurchase partner in a joint venture (4)
Fair value of interest rate swap (5)
Revolving credit facility payable to a syndicate of lenders (note 19) (6)
Credit facility financing costs
Less: Current portion
2020
$
2019
$
12,500
14,423
8,075
—
2,928
—
1,171
3,364
1,152
433,000
(1,648)
460,542
(12,888)
447,654
3,874
329
2,738
1,549
964
—
—
518,922
(2,149)
540,650
(4,592)
536,058
(1) Yuzu Sushi (payable August 2021) and joint venture interest (payable December 2022)
(2) Payable June 2022.
(3) Payable on demand.
(4) Maximum maturity date of December 2025.
(5) Interest rate swap is fixing the interest rate at 2.273% on $100,000 of the outstanding revolving credit facility until
July 21, 2021.
(6) 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, 2020, the Company had drawn US$233,010 and CA$128,000 (2019 – CA$518,922) and has elected to pay
interest based on the London Inter-Bank Offered rate (“LIBOR”) plus applicable margins.
Page 49
MTY Food Group Inc.
Notes to the consolidated financial statements
For the years ended November 30, 2020 and 2019
(In thousands of Canadian dollars, except per share amounts and stock options)
23. Capital stock
Authorized, unlimited number of common shares without nominal or par value:
2020
Number
2020
Amount
$
2019
Number
Balance, beginning of year
Shares repurchased and cancelled
Balance, end of year
25,071,235
(364,774)
24,706,461
310,939
(4,524)
306,415
25,169,778
(98,543)
25,071,235
2019
Amount
$
312,161
(1,222)
310,939
On June 29, 2020, the Company announced the renewal of the NCIB. The NCIB began on July 3, 2020 and will end
on July 2, 2021 or on such earlier date when the Company completes its purchases or elects to terminate the NCIB.
The renewed period allows the Company to purchase 1,235,323 of its common shares. 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.
Until May 31, 2021, the Company’s credit agreement (note 19) contains limitations on distributions that include
restrictions on the repurchase of MTY’s common shares through its NCIB process until such time as the debt-to-
EBITDA falls below 3.50:1.00 ratio.
During the year ended November 30, 2020, the Company repurchased and cancelled a total of 364,774 common
shares (2019 – 98,543 common shares) under the current NCIB, at a weighted average price of $51.72 per common
share (2019 – $53.04 per common share), for a total consideration of $18,866 (2019 – $5,227). An excess of $14,342
(2019 – $4,005) of the shares’ repurchase value over their carrying amount was charged to retained earnings as share
repurchase premiums.
24. Stock options
The Company offered for the benefit of certain key members 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, 2020 (2019 –
100,000).
Under the stock option plan of the Company, the following options were granted and are outstanding as at November
30:
2020
Number of
Options
Weighted
average
exercise price
Number of
Options
Outstanding beginning of year
Granted
Outstanding end of year
Vested end of year
400,000
—
400,000
44,444
$
50.19
—
50.19
48.36
200,000
200,000
400,000
22,222
2019
Weighted
average
exercise
price
$
48.36
52.01
50.19
48.36
Page 50
MTY Food Group Inc.
Notes to the consolidated financial statements
For the years ended November 30, 2020 and 2019
(In thousands of Canadian dollars, except per share amounts and stock options)
24.
Stock options (continued)
At November 30, 2020, 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
6.3
8.8
7.6
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 five years from date of grant. The options will expire on October 21, 2029.
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 $924 was recorded for the year ended November 30, 2020 (2019 – $583). The expense
is presented in wages and benefits in operating expenses in the consolidated statements of income.
25.
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
2020
2019
24,755,351
—
24,755,351
25,145,210
41,273
25,186,483
(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 400,000 (2019 – 200,000).
Page 51
MTY Food Group Inc.
Notes to the consolidated financial statements
For the years ended November 30, 2020 and 2019
(In thousands of Canadian dollars, except per share amounts and stock options)
26.
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
In 2019, 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 and recorded a loss of $452.
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 $45 on the fair value, as at November 30, 2020 (2019 – $80).
A fair value re-measurement gain of $139 was recorded for these promissory notes for the year ended November 30,
2020 (2019 – gain of $1,897).
Contingent considerations on acquisitions
The Company issued as part of its consideration for the acquisition of Yuzu Sushi, Allô! Mon Coco and investment in
Tortoise Group, 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 December 2022
for Tortoise Group. These contingent considerations have been recorded at fair value and are re-measured on a
recurring basis. The contingent considerations for Allô! Mon Coco were repaid during the year ended November 30,
2020 for a total repayment amount of $910.
A fair value re-measurement loss of $997 was recorded for the contingent considerations for the year ended November
30, 2020 (2019 – loss of $223).
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 22) which is remeasured at each reporting period.
A fair value remeasurement loss of $207 (2019 – gain of $30) 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 22)
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, 2020 (2019 – $21).
A fair value re-measurement gain of $1,549 (2019 – loss of $48) was recorded for this non-controlling interest
obligation.
Page 52
MTY Food Group Inc.
Notes to the consolidated financial statements
For the years ended November 30, 2020 and 2019
(In thousands of Canadian dollars, except per share amounts and stock options)
26.
Financial instruments (continued)
Fair value of recognized financial instruments (continued)
Obligation to repurchase partner in a joint venture
The Company, in conjunction with the acquisition of its 70% interest in a joint venture that acquired Tortoise Group,
entered into an agreement to acquire the remaining 30% interest by December 2025. The consideration to be paid for
this acquisition will be based on future earnings. The Company recorded a liability at fair value (note 22) which is
remeasured at each reporting period. An increase or decrease by 1% in the discount rates used would have an impact
of $67 on the carrying amount as at November 30, 2020 (2019 – nil).
A fair value remeasurement loss of $494 (2019 – nil) was recorded for this obligation to repurchase a partner in a joint
venture.
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 $1,152 (2019 – nil) and the Company
recorded a fair value remeasurement loss of $1,592 for the year ended November 30, 2020 (2019 – loss of $725).
The Company has classified this as level 2 in the fair value hierarchy.
Cross currency interest rate swaps
On November 30, 2020, the Company entered two floating to floating 1-month cross currency interest rate swaps. A
fair value of nil was recorded as at November 30, 2020 (2019 – nil).
Receive-Notional
Receive-rate
Pay-Notional
Pay-rate
US$137,600
US$95,410
2.44%
1.85%
CA$180,000
CA$125,000
2.45%
1.94%
Fair value hierarchy
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 and investment in a joint venture
Non-controlling interest buyback options
Obligation to repurchase partner in a joint venture
Financial liabilities
Level 3
2020
$
—
2,928
8,075
1,171
3,364
15,538
2019
$
329
2,738
3,874
2,513
—
9,454
Page 53
MTY Food Group Inc.
Notes to the consolidated financial statements
For the years ended November 30, 2020 and 2019
(In thousands of Canadian dollars, except per share amounts and stock options)
26.
Financial instruments (continued)
Fair value of recognized financial instruments (continued)
The Company has determined that the fair values of its financial assets and financial liabilities with short-term
maturities approximate 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, 2020 and 2019. 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
Finance lease receivables
Financial liabilities
Long-term debt (1)
Carrying
amount
$
2020
Fair
value
$
4,760
468,127
4,760
468,127
Carrying
amount
$
7,145
—
2019
Fair
value
$
7,145
—
443,852
453,397
531,196
542,147
(1) Excludes promissory notes, contingent considerations on acquisition, interest rate swap, cross currency interest
rate swaps 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 and Finance lease receivables – The carrying amount for these financial instruments
approximates fair value due to the short-term maturity of these instruments and/or the use of market interest
rates.
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.
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, 2020.
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 US, 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 US 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 US operations.
As at November 30, 2020, the long-term debt denominated in USD is not exposed to foreign exchange risk as a result
of two cross currency interest rate swaps.
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.
Page 54
MTY Food Group Inc.
Notes to the consolidated financial statements
For the years ended November 30, 2020 and 2019
(In thousands of Canadian dollars, except per share amounts and stock options)
26.
Financial instruments (continued)
Foreign exchange risk (continued)
As at November 30, 2020, the Company has the following financial instruments denominated in foreign currencies:
Financial assets
Cash
Accounts receivable
Financial liabilities
Accounts payable and deposits
USD
$
4,437
645
2020
CAD
$
5,753
836
USD
$
5,194
253
2019
CAD
$
6,902
337
(85)
(110)
(33)
(44)
Net financial assets
4,997
6,479
5,414
7,195
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$250 (2019 – profit of C$271) 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. $433,000 (2019 –
$518,922) of the credit facility was used as at November 30, 2020. A 100 basis points increase in the bank’s prime
rate would result in additional interest of $4,330 per annum (2019 – $5,189) 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, 2020, the Company had an authorized revolving credit facility for which the available amount may
not exceed $700,000 (2019 – $700,000) 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 19.
Page 55
MTY Food Group Inc.
Notes to the consolidated financial statements
For the years ended November 30, 2020 and 2019
(In thousands of Canadian dollars, except per share amounts and stock options)
26.
Financial instruments (continued)
Liquidity risk (continued)
The following are the contractual maturities of financial liabilities as at November 30, 2020:
Carrying Contractual
amount cash flows
$
$
0 to 6
months
$
6 to 12
months
$
12 to 24
months Thereafter
$
$
Accounts payable and accrued liabilities
Long-term debt (note 22)
Interest on long-term debt (1)
Lease liabilities
111,372
460,542
n/a
558,749
111,372
460,892
17,975
574,495
1,130,663 1,164,734
111,372
4,231
4,902
63,157
183,662
—
6,287
4,902
63,157
74,346
—
442,124
8,171
109,670
559,965
—
8,250
—
338,511
346,761
(1) When future interest cash flows are variable, they are calculated using the interest rates prevailing at the end of
the reporting period.
27. 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, 2020
and 2019 were as follows:
Debt
Equity
Debt-to-equity ratio
2020
$
2019
$
460,542
583,070
0.79
540,650
665,480
0.81
Page 56
MTY Food Group Inc.
Notes to the consolidated financial statements
For the years ended November 30, 2020 and 2019
(In thousands of Canadian dollars, except per share amounts and stock options)
27.
Capital disclosures (continued)
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 US and Canada to reduce the level of long-term
debt.
After May 31, 2021, the Company’s credit facility imposes a maximum debt-to-proforma EBITDA ratio of 4.0:1.0 after
an acquisition in excess of $150,000 for a period of twelve months after acquisition; 3.5:1.0 anytime thereafter and
until the maturity date of September 23, 2022.
28. Revenue
Royalties
Franchise and transfer fees
Retail, food processing and
distribution revenues
Sale of goods, including
construction revenue
Gift card breakage income
Promotional funds
Other franchising revenue
Other
For the year ended
November 30, 2020
US &
Canada International
$
$
TOTAL
$
57,798
5,872
107,333
4,262
165,131
10,134
November 30, 2019
Canada
$
84,477
5,488
US &
International
$
TOTAL
$
97,239
3,476
181,716
8,964
103,765
4,593
108,358
90,689
4,176
94,865
24,095
313
30,401
29,000
2,836
254,080
48,029
4,466
56,406
23,030
8,918
257,037
72,124
4,779
86,807
52,030
11,754
511,117
48,710
318
42,461
38,791
4,609
315,543
51,431
6,084
42,999
24,954
5,040
235,399
100,141
6,402
85,460
63,745
9,649
550,942
Page 57
MTY Food Group Inc.
Notes to the consolidated financial statements
For the years ended November 30, 2020 and 2019
(In thousands of Canadian dollars, except per share amounts and stock options)
29. Operating expenses
For the year ended
November 30, 2020
US &
Canada International
$
$
November 30, 2019
TOTAL
$
Canada
$
US &
International
$
TOTAL
$
Cost of goods sold and rent
Retail, food processing and
distribution costs
Wages and benefits
Wage and rent subsidy
Consulting and
professional fees
Gift cards - related costs
Royalties
Promotional funds
Impairment for expected
credit losses
Other (1)
15,888
20,315
36,203
35,859
28,350
64,209
91,865
39,619
(7,020)
7,599
—
16
30,401
—
62,412
—
7,694
5,522
5,890
56,406
5,497
10,870
194,735
3,300
17,532
179,071
91,865
102,031
(7,020)
15,293
5,522
5,906
86,807
8,797
28,402
373,806
80,388
47,762
—
8,999
—
266
42,461
—
59,847
—
7,125
9,083
6,355
42,999
715
13,413
229,863
472
19,453
173,684
80,388
107,609
—
16,124
9,083
6,621
85,460
1,187
32,866
403,547
(1) Other operating expenses are comprised mainly of travel and promotional costs, and other office administration
expenses.
30. Guarantee
The Company has guaranteed leases on certain franchise stores in the event the franchisees are unable to meet their
remaining lease commitments. The maximum amount the Company may be required to pay under these agreements
was $13,374 as at November 30, 2020 (2019 – $15,057). In addition, the Company could be required to make
payments for percentage rents, realty taxes and common area costs. As at November 30, 2020, the Company has
accrued $1,796 (2019 – nil) with respect to these guarantees.
31. 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 20. 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 58
MTY Food Group Inc.
Notes to the consolidated financial statements
For the years ended November 30, 2020 and 2019
(In thousands of Canadian dollars, except per share amounts and stock options)
32.
Income taxes
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
Revision of estimates for tax exposures
Other - net
Provision for income taxes
$
2020
%
$
(13,766)
26.5
26,067
(4,313)
(511)
12,196
(247)
161
(2,655)
183
(5,410)
(692)
(15,054)
8.3
1.0
(23.5)
0.5
(0.3)
5.1
(0.4)
10.4
1.3
28.9
(4,511)
(103)
(376)
(106)
273
(676)
208
—
(515)
20,261
2019
%
26.6
(4.6)
(0.1)
(0.4)
(0.1)
0.3
(0.7)
0.2
—
(0.5)
20.7
Page 59
MTY Food Group Inc.
Notes to the consolidated financial statements
For the years ended November 30, 2020 and 2019
(In thousands of Canadian dollars, except per share amounts and stock options)
32.
Income taxes (continued)
The variation in deferred income taxes during the year were as follows:
Net deferred tax assets
(liabilities) in relation to:
Property, plant and
equipment and
assets held for sale
Finance lease
receivables
Right-of-use assets
Accounts receivable
Deferred costs
Inventory
Provisions and gift
cards
Long-term debt
Non-capital losses
Intangible assets
Accrued expenses
Deferred revenue
Lease liabilities
Net deferred tax assets
(liabilities) in relation to:
Property, plant and
equipment and
assets held for sale
Accounts receivable
Deferred costs
Inventory
Provisions and gift
cards
Long-term debt
Non-capital losses
Intangible assets
Accrued expenses
Deferred revenue
November
30, 2019
$
Recognized
in profit or
loss
$
Recognized
in other
comprehen-
sive loss Acquisition
$
$
Impact of
initial
application
of IFRS 16
Foreign
exchange
$
November
30, 2020
$
(2,383)
661
—
—
(51)
(1,352)
72
16,235
1,124
2,344
(191,027)
6,217
10,854
—
(157,967)
15,926
(187)
533
123
30
3,233
(907)
(1,539)
19,527
2,644
(848)
(15,782)
23,414
—
—
—
—
—
—
—
42
—
—
—
—
—
42
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
122
(1,600)
(138,019)
(17,573)
—
—
—
(329)
—
—
—
—
(538)
160,196
3,737
681
200
(27)
(23)
(2)
(474)
23
23
2,902
(299)
(91)
(827)
2,208
(121,412)
(17,560)
455
(1,252)
100
18,665
282
828
(168,598)
8,562
9,377
143,587
(128,566)
November
30, 2018
$
Recognized
in profit or
loss
$
Recognized
in other
comprehen-
sive loss Acquisition
$
$
Purchase
price
allocation
adjustment
Foreign
exchange
$
November
30, 2019
$
1,691
824
(1,134)
(121)
15,067
(646)
289
(145,162)
3,207
10,099
(115,886)
(1,080)
(868)
(218)
37
543
1
483
(2,286)
(159)
778
(2,769)
—
—
—
—
—
245
—
—
—
—
245
(3,138)
(3)
—
156
569
1,522
1,566
(44,009)
3,165
(30)
(40,202)
160
—
—
—
67
—
—
—
—
—
227
(16)
(4)
—
—
(11)
2
6
430
4
7
418
(2,383)
(51)
(1,352)
72
16,235
1,124
2,344
(191,027)
6,217
10,854
(157,967)
Page 60
MTY Food Group Inc.
Notes to the consolidated financial statements
For the years ended November 30, 2020 and 2019
(In thousands of Canadian dollars, except per share amounts and stock options)
32.
Income taxes (continued)
As at November 30, 2020, there were approximately $910 (2019 – $52) 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, 2020, there were approximately $1,827 (2019 – $1,273) 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 2037 and 2040.
The deductible temporary difference in relation to foreign exchange on intercompany loans for which a deferred tax
asset has not been recognized amounts to $4,237 (2019 – $633).
No deferred income tax liability is recognized on unremitted earnings of $4,716 (2019 – $60,279) 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.
33. 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; processing, distribution and retail; and promotional fund revenues and expenses. This information is disclosed
below.
Page 61
MTY Food Group Inc.
Notes to the consolidated financial statements
For the years ended November 30, 2020 and 2019
(In thousands of Canadian dollars, except per share amounts and stock options)
33.
Segmented information (continued)
Below is a summary of each geographical and operating segment’s performance during the years ended November 30, 2020 and 2019.
November 30, 2020
Franchising
$
Corporate
$
CANADA
Processing,
distribution
and retail
$
Promotional
funds
$
Revenue
Operating expenses
Segment profit (loss)
Total assets
Total liabilities
105,646
56,703
48,943
1,250,921
940,270
18,407
17,685
722
16,853
17,163
104,235
92,451
11,784
23,794
7,476
30,401
30,401
—
6,934
6,934
Interco
$
(4,609)
(2,505)
(2,104)
Total
Canada
$
254,080
194,735
59,345
— 1,298,502
971,843
—
Franchising
$
Corporate
$
US & INTERNATIONAL
Processing,
distribution
and retail
$
Promotional
funds
$
152,155
78,819
73,336
662,642
427,831
46,274
48,341
(2,067)
38,958
17,914
4,593
—
4,593
—
—
56,406
56,406
—
13,595
13,595
Total US &
International
$
Total
consolidated
$
Interco
$
(2,391)
(4,495)
2,104
257,037
179,071
77,966
511,117
373,806
137,311
—
—
715,195
459,340
2,013,697
1,431,183
November 30, 2019 (1)
Franchising
$
Corporate
$
CANADA
Processing,
distribution
and retail
Promotional
funds
$
$
Revenue
Operating expenses
Segment profit (loss)
Total assets
Total liabilities
146,598
68,437
78,161
995,215
663,510
39,133
40,688
(1,555)
6,132
3,657
91,570
81,294
10,276
17,862
5,030
42,461
42,461
—
5,708
5,708
Interco
$
(4,219)
(3,017)
(1,202)
Total
Canada
$
315,543
229,863
85,680
— 1,024,917
677,905
—
Franchising
$
Corporate
$
US & INTERNATIONAL
Processing,
distribution
and retail
Promotional
funds
$
$
138,788
79,322
59,466
605,751
296,148
51,283
54,412
(3,129)
11,787
2,922
4,176
—
4,176
—
—
42,999
42,999
—
6,346
6,346
Total US &
International
Total
consolidated
$
$
235,399
173,684
61,715
550,942
403,547
147,395
Interco
$
(1,847)
(3,049)
1,202
—
—
623,884
305,416
1,648,801
983,321
(1) Prior year amounts have been restated to reflect a reclassification between franchise operations and corporate stores subdivisions.
Page 62
MTY Food Group Inc.
Notes to the consolidated financial statements
For the years ended November 30, 2020 and 2019
(In thousands of Canadian dollars, except per share amounts and stock options)
34. 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
holdbacks
Promissory
notes
Non-
controlling
interest
buyback
obligation
Non-
controlling
interest
option
Obligation to
repurchase
partner in a
joint venture
Interest rate
swap
Contingent
consideration
$
$
$
$
$
518,922
(2,149)
14,423
3,067
1,549
964
3,874
Balance as at November 30, 2019
Changes from financing activities:
Increase in term revolving credit
facility
Repayments of term revolving
credit facility, holdbacks and
contingent consideration
Payment of upfront fees
Changes from operating activities:
Interest paid
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 26)
Foreign exchange
Other
Changes from investing activities:
Issuance of obligation to
repurchase partner in a joint
venture (note 14)
Issuance of contingent
consideration (note 14)
Balance as at November 30, 2020
20,000
—
—
(2,305)
—
—
—
1,063
—
(60)
(621)
(105,922)
—
—
—
—
—
—
—
—
—
(525)
—
1,026
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(139)
—
—
(1,549)
—
—
207
—
—
—
(910)
—
—
—
—
997
—
(15)
Total
$
540,650
20,000
(109,137)
(525)
—
—
—
—
(1,165)
(1,165)
—
—
1,592
—
725
1,026
1,063
1,602
(60)
89
—
—
—
—
—
—
—
494
—
—
—
—
—
433,000
—
(1,648)
—
12,500
—
2,928
—
—
—
—
—
2,870
—
2,870
—
1,171
4,129
8,075
—
3,364
—
1,152
4,129
460,542
Page 63
MTY Food Group Inc.
Notes to the consolidated financial statements
For the years ended November 30, 2020 and 2019
(In thousands of Canadian dollars, except per share amounts and stock options)
34.
Statement of cash flows (continued)
Changes in non-cash operating activities are as follows:
2020
$
2019
$
Accounts receivable
Inventories
Loans receivable
Other assets
Prepaid expenses and deposits
Accounts payable and accrued liabilities
Provisions
Gift card and loyalty program liabilities
Deferred revenue and deposits
(10,381)
1,073
(1,948)
(1,316)
(1,218)
9,431
(2,390)
3,126
2,302
(1,321)
Non-cash items are included in proceeds from dispositions of capital assets amounting to $136 (2019 – $612).
7,941
(1,973)
2,555
(784)
1,440
11,597
(9,161)
4,625
1,101
17,341
Non-cash items are included in additions to intangible assets amounting to $128 (2019 – $nil).
The variation of accounts receivables includes non-cash transfers from long-term debt amounting to nil (2019 –
$906).
35. 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.
Remuneration of key management personnel
The remuneration of key management personnel and directors during the years ended November 30, 2020
and 2019 was as follows:
2020
$
2019
$
Short-term benefits
Share-based payments
Board member fees
Total remuneration of key management personnel
2,497
657
75
3,229
Key management personnel is composed of the Company’s CEO, COOs 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.
2,619
963
75
3,657
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 19.77% of the outstanding shares.
Page 64
MTY Food Group Inc.
Notes to the consolidated financial statements
For the years ended November 30, 2020 and 2019
(In thousands of Canadian dollars, except per share amounts and stock options)
35.
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 payments
Consulting services
2020
$
505
10
—
2019
$
494
22
38
Total remuneration of individuals related to key management personnel
554
The Company has entered into a consulting agreement with one of its joint venture associates to perform
corporate business development and management consulting services, and paid consulting fees to this
associate of $155 for the year ended November 30, 2020 (2019 – nil). The Company has a current net receivable
due from its joint venture associate of $135 as at November 30, 2020 (2019 – nil).
515
Page 65
CORPORATE
INFORMATION
Head Office
8210 Transcanada Highway
Saint-Laurent
QC H4S 1M5 Canada
T. : 514 336-8885
F. : 514 336-9222
www.mtygroup.com
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
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
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
Directors
Stanley Ma
Claude St-Pierre
Eric Lefebvre
Dickie Orr*
David Wong*
Murat Armutlu*
Garry O’Connor*
*Audit Committee
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