Financial Highlights
All currency figures in this report are in Canadian dollars, unless otherwise noted
($ in thousands, except per share information)
RESULTS FOR THE YEAR
Sales
Same store sales % increase (1)
Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA) (2)
Earnings from operations (EBIT)
Net earnings
Net earnings attributable to The North West Company Inc.
Cash flow from operating activities (3)
FINANCIAL POSITION
Total assets
Total debt
Total equity
FINANCIAL RATIOS
Debt-to-equity
Return on net assets (RONA) (2)
Return on average equity (ROE) (2)
Sales blend: Food
General Merchandise and other
PER SHARE ($) - DILUTED
EBITDA (2)
Net earnings
Cash flow from operating activities
Market price: January 31
high
low
Year Ended
January 31, 2019
Year Ended
January 31, 2018(4)
Year Ended
January 31, 2017(4)
$
$
$
$
2,013,486
2.0%
189,343
129,808
90,632
86,748
127,120
$
$
1,985,122
1.2%
169,624
113,971
69,691
67,154
141,419
1,844,093
1.3%
166,498
118,131
77,076
77,076
126,024
$
1,022,921
$
930,948
$
805,821
366,757
421,104
313,549
382,156
229,266
367,785
.87:1
17.0%
22.6%
74.7%
25.3%
3.85
1.77
2.59
31.17
32.19
26.50
$
$
.82:1
16.7%
18.3%
76.7%
23.3%
3.44
1.36
2.87
29.14
33.75
28.45
$
.62:1
20.1%
21.8%
78.5%
21.5%
3.40
1.57
2.57
29.28
33.15
24.08
(1) All references to same store sales exclude the foreign exchange impact.
(2) See Non-GAAP Financial Measures section.
(3) See Consolidated Liquidity and Capital Resources.
(4) Sales have been restated due to the adoption of IFRS 15 as described in Accounting Standards Implemented in 2018. 2016 has not been restated for IFRS 15.
THE NORTH WEST COMPANY INC. 2018
Annual Report
TABLE OF CONTENTS
Management's Discussion & Analysis
Forward-Looking Statements
President & CEO Message
Chairman's Message
Our Business Today
Vision, Principles and Strategies
Key Performance Drivers and Capabilities to Deliver Results
Consolidated Results Financial Performance
Canadian Operations Financial Performance
International Operations Financial Performance
Consolidated Liquidity and Capital Resources
Quarterly Financial Information
Disclosure Controls
Internal Controls over Financial Reporting
Outlook
Risk Management
Corporate Social Responsibility and Sustainable Development
Critical Accounting Estimates
Accounting Standards Implemented in 2018
Future Accounting Standards
Non-GAAP Financial Measures
Glossary of Terms
Eleven-Year Financial Summary
Consolidated Financial Statements
Management’s Responsibility for Financial Statements
Independent Auditor’s Report
Consolidated Balance Sheets
Consolidated Statements of Earnings
Consolidated Statements of Comprehensive Income
Consolidated Statements of Changes in Shareholders’ Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
Shareholder Information
Corporate Governance
2
3
4
5
6
7
8
10
12
14
18
19
19
20
20
25
26
27
29
30
31
32
34
34
36
37
38
39
40
41
69
70
MANAGEMENT'S DISCUSSION & ANALYSIS
FORWARD-LOOKING STATEMENTS
Unless otherwise stated, this Management's Discussion & Analysis
(“MD&A”) for The North West Company Inc. (“NWC”) or its predecessor
North West Company Fund (“NWF” or “Fund”) and its subsidiaries
(collectively, “North West Company”, the “Company”, “North West”, or
“NWC”) is based on, and should be read in conjunction with the 2018
annual audited consolidated financial statements and accompanying
financial
notes. The Company's annual audited consolidated
statements and accompanying notes
the year ended
January 31, 2019 are in Canadian dollars, except where otherwise
indicated, and are prepared in accordance with International Financial
Reporting Standards (“IFRS”).
for
The Board of Directors, on the recommendation of its Audit
Committee, approved the contents of this MD&A on April 10, 2019 and
the information contained in this MD&A is current to April 10, 2019,
unless otherwise stated.
This MD&A contains forward-looking statements about North West
including its business operations, strategy and expected financial
performance and condition. Forward-looking statements include
statements that are predictive in nature, depend upon or refer to future
events or conditions, or include words such as “expects”, “anticipates”,
“plans”, “believes”, “estimates”, “intends”, “targets”, “projects”, “forecasts” or
negative versions thereof and other similar expressions, or future or
conditional future financial performance (including sales, earnings,
growth rates, capital expenditures, dividends, debt levels, financial
capacity, access to capital, and liquidity), ongoing business strategies
or prospects, and possible future action by the Company.
Forward-looking statements are based on current expectations
and projections about future events and are inherently subject to,
among other things, risks, uncertainties and assumptions about the
Company, economic factors and the retail industry in general. They are
not guarantees of future performance, and actual events and results
could differ materially from those expressed or implied by forward-
looking statements made by the Company due to, but not limited to,
important factors such as general economic, political and market
factors in North America and internationally, interest and foreign
exchange rates, changes in accounting policies and methods used to
report financial condition, including uncertainties associated with
critical accounting assumptions and estimates, the effect of applying
future accounting changes, business competition, technological
change, changes in government regulations and legislation, changes
in tax laws, unexpected judicial or regulatory proceedings, catastrophic
events, the Company's ability to complete capital projects, strategic
transactions and integrate acquisitions, the Company's ability to realize
benefits from investments in information technology ("IT") and
systems , including IT system implementations or unanticipated results
from these initiatives and the Company's success in anticipating and
managing the foregoing risks.
The reader is cautioned that the foregoing list of important factors
is not exhaustive. Other risks are outlined in the Risk Management
section of this MD&A, in the Risk Factors sections of the Annual
Information Form and in our most recent consolidated financial
statements, management
information circular, material change
reports and news releases. The reader is also cautioned to consider
these and other factors carefully and not place undue reliance on
forward-looking statements. Other than as specifically required by
applicable law, the Company does not intend to update any forward-
looking statements whether as a result of new information, future
events or otherwise.
Additional information on the Company, including our Annual
Information Form, can be found on SEDAR at www.sedar.com or on the
Company's website at www.northwest.ca.
2THE NORTH WEST COMPANY INC. Giant Tiger Stores Limited to ensure that the full potential of our stores
is being achieved.
from poor decisions,
Our most challenging business in 2018 was North Star Air ("NSA"),
the airline that we acquired in mid-2017. NSA’s rapid growth in 2018
was planned and actually exceeded our revenue targets, made up of
new business carrying North West store freight. The issues we faced
stemmed
in hindsight, on third party
maintenance utilization. This created a domino effect of excessive
aircraft downtime, heavy utilization of more expensive contract carriers
and unplanned ramp-up costs to create an in-house maintenance
capability. By year-end we had stabilized our cost situation but not in
time to prevent the hit to our overall bottom line growth and return
on assets.
The important messages on NSA are that it is completely on-
strategy and that the execution fixes are very doable. We are persistent
on seeing a significant financial turnaround from NSA this year. We are
also patient, recognizing that there is a longer-term capability at play
and that we are still in the early stages of becoming a leading, fully-
integrated sourcing, logistics and local fulfillment service to remote
markets.
An important new reporting framework for North West this year
is Environment, Social and Governance or "ESG". For many years each
component of ESG has been integral to the net social benefit that we
aspire to deliver. What is new is the organization and disclosure level,
which will feature a roadmap on where we are and where we expect
to go within each ESG area. One of our key new ESG initiatives is in
Community Engagement and a commitment to closer collaborative
relationships with the Indigenous peoples that we are privileged to
serve and work with around the world. I look forward to sharing more
specifics later this fiscal year.
At North West we serve great markets matched with our own
enterprising energy, solid ideas and strategies that will make an impact,
now and longer term. I want to acknowledge our people wherever
they work and the valued role they play in getting this right work done
in 2019 and beyond.
Edward S. Kennedy
President & CEO
April 10, 2019
President & CEO Message
2018 was a year of building on success and adapting to
unexpected challenges and opportunities. We accomplished this
while transitioning to a new business structure and new leadership
roles that set us up to deliver higher returns within each of our store
banners and regions. We were focused on the right mix of short,
medium and long-range work, to a greater degree than previously, and
this put us in a good position to drive the consistent, sustainable
performance that we are known for.
Getting sales was a key accomplishment last year, with same store
sales accelerating throughout the year to finish up 4.0% in the fourth
quarter and up 2.0% for the year compared to 1.3% in the prior two
years. This was achieved despite weakness in our Giant Tiger business,
which represents approximately 15% of our total revenues.
In 2019 we will keep up our sales pace through a combination of
favourable consumer spending power and our focus on sales
readiness, Top Markets and Top Categories. In our remote markets,
government spending, natural resource development, higher-end
tourism and even post-hurricane reconstruction are unique income
drivers. They enable us to focus on growth when urban retail is facing
headwinds like high consumer debt levels and overbuilt bricks and
mortar, as they are now.
On the sales readiness side, two important initiatives from last year
are enabling us to go after sales with more conviction. The first is the
creation of more decentralized structures for our Alaskan, Caribbean
and northern Canada businesses led by separate Presidents for
International and Canadian Retail. The purpose is to put people with
the highest possible level of authority and accountability as close as
possible to our customers. The success of our British Virgin Island
business demonstrates this as have many other individual store and
region situations in the past.
The second trigger for sales readiness is what we call Pure Retail.
This work starts with a mindset of innovation aimed at leaning out our
work everywhere, but especially the day-to-day non selling tasks in our
stores. From a standing start in late 2017 our team embraced this
project, freeing up almost 300,000 hours that can be shifted to activities
like staying in-stock and merchandising for sales.
Top Categories is another get sales pillar and is a good indicator
of how well we learn and adapt. The clear winners that we’ve doubled
down on are at two ends of the purchase spectrum: new stand-alone
convenience stores and store-within-store, and big ticket, comprised
of furniture, appliances and motorized. Both speak to the breadth of
our store and logistics network advantage, as a reliable everyday needs
provider and as a source for hard to ship-and-finance consumer goods.
Besides more growth from these categories in 2019 the focus is now
on banner-specific opportunities like fresh food at Cost-U-Less, fashion
at Giant Tiger and basic general merchandise in our northern banners.
Top Markets is in the medium range now, with another 3-5 years
of investment within our most important markets. Like 2017, our Top
Market priority list was impacted by damage to facilities, in this case,
fires at two of our largest northern Canada stores: Happy Valley and
Iqaluit. We’ve adapted in stride to these events and planning is
advanced for accelerated long-term investment in both locations
which will be largely financed by insurance proceeds. Overall, Top
Markets
is foundational, sustaining work that also
contributes an immediate sales and market share capture.
investment
Giant Tiger results again fell short in 2018 with only modest
improvement throughout the year. This is a business that we are
carefully investing in to avoid urban market over-competition and to
leverage more of our strength in rural communities where we have
confidence in Giant Tiger’s distinct consumer appeal. We are also
spending more time on our relationship with our Master Franchisee,
3ANNUAL REPORT building depth in our senior ranks and ensuring a pool of talented
leaders as we plan for succession and growth.
Last year we also continued the process of transforming the
membership and leadership of our Board, recognizing the planned
departure of four members over the next three years. We are delighted
to welcome Jennifer Nepinak as our newest member. Jennifer is Senior
Advisor for the Canadian Museum for Human Rights and will become
Vice President of Indigenous Engagement at the University of
Winnipeg on August 1st and, in those roles, works extensively with
indigenous groups across the country. At the leadership level, Bob
Kennedy who will be the first of our long standing directors to retire,
has stepped down as Chair of the Human Resources and
Compensation Committee with Vi Konkle stepping into this role. This
transition approach is planned for the Governance and Audit
Committees, currently chaired by Wendy Evans and Eric Stefanson,
respectively.
A final important piece of work for the Board last year was to clearly
define our strategic role and to schedule more time for strategy
engagement and review with management. Beginning in the Third
Quarter last year, we now start each board session with an in-depth
strategy agenda and beginning in the First Quarter of this year we will
reallocate more in-person meeting time from committees to business
reviews and director education.
for
I would like to close these remarks by again thanking all
Nor'Westers
their
communities and to the success of the Company. Your efforts are an
inspiration to all of us on the Board who see how much you value your
work and the contribution you make, day in and day out. Thank you.
their dedication and commitment
to
H. Sanford Riley
Chairman, Board of Directors
April 10, 2019
Chairman's Message
On behalf of the Board of The North West Company I’m pleased
to report on our work over the past year, as well as our perspectives on
a number of important issues that we will be facing in the years ahead.
2018 was a year of consolidation for the Company as we digested
several significant acquisitions, recovered from the effects of the major
hurricanes in 2017 which destroyed or severely damaged our stores in
a number of Caribbean markets, and made significant operational
improvements to our core Canadian businesses. As Edward Kennedy
comments elsewhere in this report, the work wasn’t easy, and not
without its challenges, but we remain confident that it will generate
long-term performance enhancement for the Company.
An
important task at the board
level was to shepherd
management’s work on the development of a Sustainability Roadmap
for the Company, which can be found on the company’s website
www.northwest.ca. While we at North West face a number of the same
types of social, environmental, technological, and cultural issues that
all enterprises do in this day and age, the specific nature and impact
of our issues are quite unique. Let me offer several examples.
First, we are proud to serve and operate in many Indigenous
communities which demonstrate extraordinary resiliency and pride.
We are proud to be a partner in a journey towards continually
improving social and economic outcomes. The prosperity of these
communities is critical to future generations within the communities
and the future of our Company and Canada.
We have been doing business in some of these communities, like
Waskaganish on the shores of James Bay, for over 350 years and have
seen our relationship with them evolve significantly over those years.
But today, in the context of the righting of historical wrongs
through processes like Truth and Reconciliation, we are required to play
an even more active role in helping our communities to improve
economically and socially. Our commitment to doing that needs to
be explicit and detailed, and we expect to be accountable to our
customers for living up to our promises.
Second, the communities we serve in both the north and the
Caribbean have been impacted by weather conditions which are
undoubtedly connected to climate change. The increase in hurricanes
in the Caribbean, and the melting of permafrost and sea ice in the
north, are having an impact on the lives of our customers in these
regions and, as a result, on our businesses. Our customers expect us
to play a more significant role to build awareness of these issues, and
to promote, and engage in, programs which address them, but in ways
which respect the particular challenges faced by virtue of their
remoteness, small populations and low incomes. For example, when
you operate in communities without practical access to greener energy
you think twice about the appropriateness of imposing a carbon tax.
The Sustainability Roadmap is our first step in what we see as a
renewed
journey of partnership and reconciliation with the
communities we serve. In addition to setting expectations and targets,
we believe this approach will help measure our progress as we work
collaboratively to find further ways to improve our relationships and
to help address the issues of Sustainability that are most important to
all of our stakeholders.
Much of this work is being led by our new Executive Vice President,
Gary Merasty, who left our Board to join the ranks of senior
management in North West last spring. In addition to Gary, we are very
pleased with the other significant changes to the structure and
composition of our senior management team that were accomplished
last year. In the fall , we were delighted to welcome Alex Yeo to North
West as President, Canadian Retail and to see the focus which Dan
McConnell has brought to his is new role as President of our
International Retail group. With other key additions, we are actively
THE NORTH WEST COMPANY INC.4 Management's
Discussion &
Analysis
OUR BUSINESS TODAY
The North West Company is a leading retailer to rural and remote
communities and urban neighbourhoods in the following regions:
northern Canada, western Canada, rural Alaska, the South Pacific and
the Caribbean. Our stores offer a broad range of products and services
with an emphasis on food. Our value offer is to be the best local
shopping choice for everyday household and lifestyle needs.
North West's core strengths include: our ability to adapt to varied
community preferences and priorities; our on-the-ground presence
with hard-to-replicate operating skills, customer insights and facilities;
our logistics capability in moving product to remote or difficult-to-
reach markets; and our ability to apply these strengths within
complementary businesses.
North West has a rich enterprising legacy as one of the longest
continuing retail enterprises in the world. The Company traces its roots
back to 1668 and many of our stores in northern Canada have been in
operation for over 200 years. In 2017, the Alaskan retail subsidiary,
Alaska Commercial Company, celebrated its 150th anniversary.
Today these northern stores serve communities with populations
ranging from 300 to 9,000. A typical store is 6,500 square feet in size
and offers food, family apparel, housewares, appliances, outdoor
products and services such as fuel, post offices, pharmacies, income
tax return preparation, quick-service prepared food, prepaid card
products, ATMs, cheque cashing and proprietary credit programs.
Growth at North West has come from market share expansion
within existing locations and from applying our expertise and
infrastructure to new product categories, markets and complementary
businesses. The latter includes vertical investments in shipping and air
cargo, wholesaling to independent stores, opening Giant Tiger junior
discount stores in rural communities and urban neighbourhoods in
western Canada, and retailing through mid-sized warehouse and
supermarket format stores serving the South Pacific islands and the
Caribbean.
A key strength and ongoing strategy of North West is our ability
to capture unique community-by-community selling opportunities
better than our competition. Flexible store development models, store
management selection and education, store-level merchandise
ordering, community relations and enterprising incentive plans are all
ingredients of the model we have built to sustain this leading market
position. We believe that our enterprising culture, continued, efficient
enhancement of our execution skills in general, and our logistics and
selling skills specifically, are essential components to meeting
customer needs within each market we serve.
North West delivers its products and services through the
following retail, wholesale and complimentary businesses:
Canadian Operations
•
•
•
•
•
•
•
•
•
•
•
117 Northern stores, offering a combination of food, financial
services and general merchandise to remote northern Canadian
communities;
5 NorthMart stores, targeted at larger northern markets with an
emphasis on an expanded selection of fresh foods, apparel and
health products and services;
22 Quickstop convenience stores, offering extended hours,
ready-to-eat foods, fuel and related services in northern Canadian
markets;
44 Giant Tiger ("GT") junior discount stores, offering family
fashion, household products and food to urban neighbourhoods
and larger rural centers in western Canada;
1 Valu Lots discount center and direct-to-customer food
distribution outlet for remote communities in Canada;
1 Solo Market store, targeted at less remote, rural markets;
2 Pharmacy and Convenience stores, stand-alone northern
pharmacy and convenience store;
1 North West Company Fur Marketing outlet, trading in furs
and offering Indigenous handicrafts and authentic Canadian
heritage products;
Crescent Multi Foods ("CMF"), a distributor of produce and fresh
meats to independent grocery stores in Saskatchewan, Manitoba
and northwestern Ontario;
North West Telepharmacy Solutions, the leading provider of
contract tele-pharmacist services to rural hospitals and health
centres across Canada; and
Transport Nanuk Inc. and North Star Air Ltd. ("NSA"), water
and air-based transportation businesses, respectively, serving
northern Canada.
International Operations
•
•
•
•
•
•
27 Alaska Commercial Company ("AC") stores, similar to
Northern and NorthMart, offering a combination of food and
general merchandise to communities across remote and rural
regions of Alaska;
5 Quickstop convenience stores within rural Alaska;
Pacific Alaska Wholesale ("PAW"), a leading distributor to
independent grocery stores, commercial accounts and individual
households in rural Alaska;
11 Cost-U-Less ("CUL") mid-sized warehouse stores, offering
discount food and general merchandise products to island
communities in the South Pacific and the Caribbean;
1 Cost-U-Less Express neighborhood food store in Guam,
offering convenience with an emphasis on fresh and prepared
foods, grocery and larger pack size food products; and
7 Riteway Food Markets, 1 Cash and Carry store and a
significant wholesale operation (collectively "RTW") in the
British Virgin Islands.
5ANNUAL REPORT VISION
At North West our mission is to be a trusted provider of goods and
services within hard-to-access and less developed markets. Our vision
is to help people live better in these communities by doing our job
well, with their interests as our first priority. This starts with our
customers' ability and desire to shop locally with us for the widest
possible range of products and services that meet their everyday
needs. We respond by being more innovative, reliable, convenient,
locally adaptable, welcoming and by having the lowest local price,
enabled by lean, innovative processes. For our associates, we want to
be a preferred, fulfilling place to work. For our investors, we want to
deliver risk-adjusted, top-quartile total returns over the long term.
PRINCIPLES
The way we work at North West is shaped by six core principles:
Customer Driven, Enterprising, Passion, Accountability, Trust, and
Personal Balance.
Customer Driven refers to looking through the eyes of our customers
while recognizing our local presence as a supportive community
citizen.
Enterprising is our spirit of innovation, improvement and growth,
reflected in our unrelenting focus on new and better products, services
and processes.
Passion refers to how we value our work, our privileged local market
presence and the opportunity to find solutions that make a difference
in our customers' lives.
Accountability is our management approach to getting work done
through effective roles, tasks and resources.
Trust at North West means doing what you say you will do, with
fairness, integrity and respect.
Personal Balance is our commitment to sustaining ourselves and our
organization, so that we work effectively and sustainably in our roles
and for our customers and communities.
STRATEGIES
The strategies at North West are aligned with a total return approach
to investment performance. We aim to deliver top-quartile returns
through an equal emphasis on growth and dividend yield with
opportunities considered in terms of their growth potential and ability
to sustain an attractive cash return within a lower business risk profile.
The Company's strategies are developed in multi-year cycles and
are reviewed and adjusted as required at the senior management and
board levels. The current focus is on the following areas:
•
•
•
•
•
ensuring the way we work is "Pure Retail", with top store
teams, lean processes, and customer driven store-centric
support from the rest of our organization;
prioritizing investment in the Company's "Top Markets", our
largest and highest sales and profit potential locations, so
that sustaining capital is better balanced with new products
and services while allocating more selling space to "Top
Categories" which offer the highest everyday convenience
and service value to our customers;
building a superior logistics capability with a focus on
optimizing our air cargo capability to provide faster more
reliable and lower cost service to our stores and customers
in remote markets in Canada;
completing the roll-out of next generation information
technology for our stores and support offices that help
optimize the unique elements of our remote retailing
business; and
identifying complimentary growth opportunities.
Our key priorities are detailed below together with the results for
2018:
Initiative #1
Pure Retail
"Pure Retail" refers to top store teams, lean processes, and customer-
driven, store centric support throughout our organization. The goal is
to optimize store sales and net performance by creating more ability
and freeing more time to get sales at store level.
Result
Eliminated 297,000 hours in low-value work compared to a target of
250,000 on an annualized basis. The hours saved were reinvested in
getting sales through merchandising and execution at store level
which contributed to a 2.0% increase in same store sales led by a 3.2%
sales gain in general merchandise and a 1.7% increase in same store
food sales. Sales gains as noted under the Top Markets and Top
Categories initiative below were also a key contributor to the sales
growth. Top Store teams work did not achieve its key role retention
targets and this will be a priority focus in 2019.
Initiative #2
Investing in Top Markets and Top Categories
This initiative prioritizes our largest and highest potential categories
and store locations.
Result
Seven convenience stores and a pharmacy were opened in northern
Canada. Four Top Market store replacements and remodels were
completed as planned for a total of 23 projects completed under this
initiative. Overall, Top Markets have met financial projections and have
delivered above average sales growth. Top Market investments are
expected to continue to roll-out at a pace of 3-5 stores per year over
2019-2021, with continuous learnings from prior investments.
Top Categories sales, which include convenience and fresh food,
big-ticket, and health products and services, were up 4.1% compared
to last year. Convenience food was the largest dollar growth
contributor with an increase of 4.7% followed by big-ticket motorized
and home furnishings sales which were up 10.7% compared to last
year.
Initiative #3
Building a Superior Logistics Capability
Recognizing the unique importance of logistics to our business, we
continue to invest in building a superior capability in this area, with a
focus on providing faster, more reliable and lower cost transportation
service to our stores and customers in remote markets.
Result
North Star Air exceeded revenue targets but operating margin
performance was $6.0 million below target mainly due to excessive
aircraft downtime resulting from delays by third-party maintenance
providers, higher than planned use of back-up leased aircraft and
unplanned ramp-up costs related to building an in-house aircraft
maintenance capability.
6THE NORTH WEST COMPANY INC. Initiative #4
Next Generation Merchandise and Store Systems ("Project
Enterprise")
Project Enterprise is focused on implementing new, higher capability
point-of-sale ("POS"), merchandise management ("MMS"), which
includes pricing, promotions, category management and vendor
revenue management, and workforce management ("WFM") systems.
This initiative is expected to deliver improvements in pricing and
margin management,
inventory management and store staff
productivity, all aligned with the Company's "Top" strategies.
Result
The development of custom financial services functionality was
completed and POS was piloted in 5 stores in northern Canada. The
POS roll-out is expected to be completed in Alaska stores in the fourth
quarter of 2019 and approximately 40% of northern Canada stores by
the end of the year with the remainder completed in 2020. The pricing
component of the MMS was implemented in Canadian Operations in
February 2018 and the category and supplier management
components are expected to be implemented in the third quarter of
2019. The implementation of MMS in International Operations is
planned for 2020.
Initiative #5
Identifying Complimentary Growth Opportunities
This initiative is focused on identifying and evaluating opportunities in
complimentary businesses which leverage our core capabilities and
market presence.
Result
This work was slowed in 2018 to enable other priority initiatives but
will continue into 2019.
KEY PERFORMANCE DRIVERS AND
CAPABILITIES REQUIRED TO DELIVER RESULTS
The ability to protect and enhance the performance of our "Top"
Markets and Categories: Our Top Markets and Categories offer the
highest potential for market share growth, improved productivity and
customer satisfaction. We believe that the effective execution of our
Top strategy will deliver higher and more consistent returns and will
lead to new growth ideas that can be applied across all stores.
The ability to be a leading community store in every market we
serve: This depends on connecting with the customers and
communities we serve in a highly valued way. It starts with being able
to locally tailor our store formats, product/service mix, community
support and store associate employment offer, while still realizing the
scale efficiencies of our size or the size of our alliance partners. Investing
in relationships, a broad range of products, services and store sizes,
flexible technology platforms and “best practice” work processes, are
all required to achieve this goal.
Our ability to build and maintain supportive community
relations: Our ongoing community presence depends on being a
trusted, open, respectful, adaptable and a socially helpful organization.
Obtaining or renewing store leases and business licenses is often
subject to community approval and depends on our track record of
solid store operations, our positive community relations and the
perceived community and customer value of our retail store compared
to other options.
Our ability to develop highly capable store level employees and
work practices: Enhancing store execution and capability as part of
our Pure Retail strategies recognizes the important role of executable
work processes that drive sales and enable our managers and other
key store-level personnel to actively manage the other key facets of
their store. This enables a store's full potential to realize local selling
opportunities, meet our customer service commitments and build and
maintain positive community relationships. It also recognizes that our
store roles must be great jobs that offset remoteness, employment
competition from other local sectors and other market conditions that
create challenges in attracting and retaining the best people. Related
to this is our on-going ability to hire locally and assist local associates
to reach their full potential.
Our ability to deliver merchandise and information through our
store network: The integration and build-out of our air cargo
capability in northern Canada is aimed at creating an advantage for
us and our customers in delivering and receiving products faster,
cheaper and more reliably than other alternatives. Our success on
this initiative and others related to logistics and information services
enables us to create a truly superior network.
Our ability to reduce costs across all of our store banners, improve
competitiveness and create more time and skill at store level to
sell merchandise: A key goal of our Pure Retail initiative is to shift
more staff time and skill towards selling merchandise tailored to the
unique markets we serve, while reducing costs in the non-selling facets
of store work. Pure Retail is expected to continue to "free" hours of
lower value store time through process change and through
technology tools like our new WFM and POS systems.
The financial capability to sustain the competitiveness of our core
strengths and to pursue growth: Our investment priorities center
on next level technology, superior logistics, Top Categories and Top
Markets while applying higher payback learnings in areas such as
to all stores. Non-capital
energy-efficiency and
expenditures are centered on Pure Retail improvements to our in-store
capabilities
structures, processes,
through
compensation, recruiting and training.
technology
improved
store
7ANNUAL REPORT Consolidated Results
2018 Highlights
•
•
•
•
•
•
Sales increased to $2.013 billion, our 19th consecutive year of top
line growth.
Same store sales(1) increased 2.0% driven by both food and general
merchandise sales gains.
EBITDA(2) increased 11.6%.
Total returns to shareholders were 11.7% for the year and were
8.9% on a compound annual basis over the past five years.
Seven Quickstop convenience stores, three Giant Tiger stores and
one pharmacy were opened in Canadian Operations.
Two RTW stores and one CUL store damaged by hurricane Irma
in September 2017 were fully re-opened
in International
Operations.
FINANCIAL PERFORMANCE
Some of the key performance indicators used by management to
assess results are summarized in the following table:
Key Performance Indicators and Selected Annual Information
($ in thousands,
except per share)
Sales
2018
2017(4)
2016(4)
$ 2,013,486
$ 1,985,122
$ 1,844,093
Same store sales % increase(1)
2.0%
1.2%
1.3%
EBITDA(2)
EBIT
Net earnings
$ 189,343
$ 129,908
$
90,632
Net earnings attributable to
shareholders of the Company $
86,748
Net earnings per share -
diluted
Cash flow from operating
activities(3)
Cash dividends per share
Total assets
$
1.77
$ 127,120
$
1.28
$ 1,022,921
Total long-term liabilities
$ 424,936
$
$
$
$
$
$
$
$
$
169,624
113,971
69,691
67,154
1.36
141,419
1.28
930,948
377,580
$
$
$
$
$
$
$
$
$
166,498
118,131
77,076
77,076
1.57
126,024
1.24
805,821
285,792
Return on net assets(2)
Return on average equity(2)
17.0%
22.6%
16.7%
18.3%
20.1%
21.8%
(1) All references to same store sales exclude the foreign exchange impact.
(2) See Non-GAAP Financial Measures section.
(3) See Consolidated Liquidity and Capital Resources.
(4) 2017 sales have been restated due to the adoption of IFRS 15 as described in
Accounting Standards Implemented in 2018. 2016 has not been restated for IFRS 15.
Consolidated Sales Sales for the year ended January 31, 2019 (“2018”)
increased 1.4% to $2.013 billion compared to $1.985 billion for the year
ended January 31, 2018 (“2017”), and were up 9.2% compared to
$1.844 billion for the year ended January 31, 2017 (“2016”). The increase
in sales compared to 2017 was driven by same store sales gains, a full
year of NSA operations, and the impact of new stores in Canadian
Operations. These factors were partially offset by store closures in
Canadian and International Operations. Further information on the
store closures
International
is provided under Canadian and
Operations on page 10 and 12 respectively. Excluding the foreign
exchange impact, sales increased 1.5% from 2017 and were up 9.8%
from 2016. The increase in sales compared to 2016 is due to the factors
previously noted, the acquisition of RTW and the adoption of IFRS 15.
This increase is not comparable as 2016 was not restated for the
adoption of IFRS 15. On a same store basis, sales increased 2.0%
compared to increases of 1.2% in 2017 and 1.3% in 2016.
Food sales decreased 1.1% from 2017, and were down 1.2%
excluding the foreign exchange impact as same store sales gains were
more than offset by the impact of closed stores. Same store food sales
increased 1.7% over last year. Quarterly same store sales improved
throughout the year with a decrease of 0.3% in the first quarter and
increases of 0.3%, 2.2% and 4.6% in the last three quarters. Canadian
food sales increased 0.4% and International food sales decreased 3.7%
excluding the foreign exchange impact.
General merchandise sales increased 5.0% compared to 2017 and
were up 4.9% excluding the foreign exchange impact with both
Canadian and International Operations contributing to the sales gains.
Same store general merchandise sales increased 3.2% for the year with
a decrease of 0.4% in the first quarter and increases of 4.2%, 6.8% and
2.0% in the last three quarters. Canadian general merchandise sales
increased 5.5% led by same store sales growth in northern markets and
the impact of new stores in rural and urban markets. International
general merchandise sales increased 2.6% excluding the foreign
exchange impact led by sales gains in Alaskan markets.
Other sales, which include airline revenue, financial services, fuel
and pharmacy, increased 19.8% compared to 2017 mainly due to sales
growth in NSA and higher fuel sales. Other sales increased 141.3%
compared to 2016 substantially due to the NSA acquisition and the
the
reclassification of
implementation of IFRS 15 as described in Accounting Standards
Implemented in 2018. This increase in sales is not comparable as 2016
was not restated for IFRS 15.
financial services
revenue
related
to
Sales Blend The table below shows the consolidated sales blend over
the past three years:
Food
General merchandise
and other
2018
74.7%
2017(1)
76.7%
2016(1)
78.5%
25.3%
23.3%
21.5%
(1) 2017 sales blend has been restated due to the adoption of IFRS 15 as described in
Accounting Standards Implemented in 2018. 2016 has not been restated for IFRS 15.
Canadian Operations accounted for 61.9% of total sales (60.4% in 2017
and 61.0% in 2016) while International Operations contributed 38.1%
(39.6% in 2017 and 39.0% in 2016).
(1) 2017 sales have been restated due to the adoption of IFRS 15 as described in
Accounting Standards Implemented in 2018. 2014 to 2016 have not been restated.
Gross Profit Gross profit increased 2.5% to $640.5 million compared
to $624.7 million last year due to sales growth and a 34 basis point
increase in the gross profit rate. The gross profit rate increased to 31.8%
from 31.5% last year largely due to product sales blend changes
partially offset by higher general merchandise inventory shrink in
Canadian Operations.
8THE NORTH WEST COMPANY INC. Selling, Operating and Administrative Expenses Selling, operating
and administrative expenses (“Expenses”) of $510.6 million were flat to
last year and were down 37 basis points as a percentage of sales. The
impact of a full-year of NSA expenses, new stores, higher share-based
compensation costs and an increase in amortization expense mainly
related to capital investments in Top Markets and facilities and
equipment in NSA were offset by a $17.0 million hurricane related
insurance gain, the impact of store closures and one-time acquisition
related costs of $6.3 million last year largely related to stamp duties
paid to the Government of the British Virgin Islands.
Earnings from Operations (EBIT) Earnings from operations or
earnings before interest and income taxes ("EBIT”) increased 14.0% to
$129.9 million compared to $114.0 million last year due to the gross
profit and expense factors previously noted. Earnings before interest,
income taxes, depreciation and amortization ("EBITDA2") increased
11.6% to $189.3 million compared to $169.6 million last year. Excluding
the impact of the insurance gain, one-time acquisition related costs
and share-based compensation option expense, adjusted EBITDA2
decreased 1.1% compared to last year and as a percentage to sales was
8.8% compared to 9.0% last year.
Interest Expense Interest expense increased 37.7% to $14.0 million
compared to $10.1 million last year. The increase in interest expense is
due to higher average debt levels and higher average cost of borrowing
compared to last year. Average debt levels increased 20.1% compared
to last year mainly due to the acquisition of NSA in the second quarter
last year and capital asset investments. The average cost of borrowing
was 3.7% compared to 3.1% last year. Further information on interest
expense is provided in Note 18 to the consolidated financial
statements.
Income Tax Expense The provision for income taxes decreased 25.9%
to $25.3 million compared to $34.1 million last year and the effective
tax rate for the year was 21.8% compared to 32.9% last year. The
decrease in income tax expense is primarily due to the impact of U.S.
tax reform related to a reduction in the U.S. federal corporate tax rate
from 35.0% to 21.0% effective January 1, 2018 and $5.8 million in
transition tax and a decrease in deferred tax assets last year. Changes
in earnings of the Company's subsidiaries across various tax
jurisdictions were also a factor. Further information on income tax
expense, the effective tax rate, the impact of U.S. tax reform and
deferred tax assets and liabilities is provided in Note 9 to the
consolidated financial statements.
(1) Net earnings attributable to shareholders of the Company
Net Earnings Consolidated net earnings
increased 30.0% to
$90.6 million compared to $69.7 million last year. Net earnings
attributable to shareholders of the Company were $86.7 million
compared to $67.2 million last year and diluted earnings per share were
$1.77 per share compared to $1.36 per share last year due to the factors
previously noted. Excluding the impact of the insurance gain,
acquisition expenses, share-based compensation option expense and
the one-time U.S. tax reform expense, adjusted net earnings2 decreased
$2.9 million or 3.5% largely due to the impact of the hurricane-related
store closures. Additional information on the financial performance of
Canadian Operations and International Operations is included on page
10 and page 12 respectively. In 2018, the average exchange rate used
to translate International Operations sales and expenses was 1.3041
compared to 1.2930 last year and 1.3169 in 2016.
The Canadian dollar's appreciation versus the U.S. dollar compared to
2017 had the following net impact on the 2018 results:
Sales.........................................................................increase of $6.5 million or 0.9%
Earnings from operations...............................................increase of $0.5 million
Net earnings............................................................................increase of $0.4 million
Diluted earnings per share.......................................increase of $0.01 per share
Total Assets Consolidated total assets for the past three years is
summarized in the following table:
($ in thousands)
Total assets
2018
2017
2016
$1,022,921
$ 930,948
$ 805,821
Consolidated assets increased $92.0 million or 9.9% compared to
2017 and were up $217.1 million or 26.9% compared to 2016. The
increase in consolidated assets compared to last year is due to a $45.0
million increase in property and equipment and an increase in current
assets. The increase in property and equipment compared to 2017 is
related to capital expenditures on new stores, major store renovations,
equipment replacements and staff housing renovations as part of our
Top Markets initiative. The reconstruction of stores damaged by
hurricanes in 2017 and the completion of hangar and distribution
facilities to support NSA in providing cargo service to more of the
Company's stores in northern Canada were also factors. Information
on the increase in current assets is provided in the working capital table
below. The impact of foreign exchange was also a factor, particularly
compared to 2017, as the year-end exchange rate used to translate
International Operations assets increased to 1.3137 compared to
1.2301 last year and 1.3030 in 2016.
Consolidated working capital for the past three years
is
summarized in the following table:
($ in thousands)
Current assets
Current liabilities
Working capital
2018
2017
2016
$ 376,829
$ 335,003
$ 327,938
$ (176,881)
$ (171,212)
$ (152,244)
$ 199,948
$ 163,791
$ 175,694
Working capital increased $36.2 million or 22.1% to $199.9 million
compared to 2017 and increased $24.3 million or 13.8% compared to
2016. Current assets increased $41.8 million or 12.5% compared to last
year and were up $48.9 million or 14.9% compared to 2016. The increase
in current assets compared to 2017 is primarily due to higher cash,
accounts receivable and inventories partially related to the impact of
new stores. Current liabilities increased $5.7 million or 3.3% compared
to last year and were up $24.6 million or 16.2% compared to 2016
mainly due to higher trade accounts payable. The impact of foreign
exchange on the translation of International Operations working
capital was also a factor. Further information on working capital for the
9ANNUAL REPORT Canadian Operations and International Operations is on page 11 and
page 14 respectively.
The increase in total assets compared to 2016 is due to the factors
previously noted and the impact of the RTW and NSA acquisitions in
2017 including additional investments in aircraft and hangar facilities.
These acquisitions and related investments resulted in an increase of
$125.1 million in total assets in 2017 compared to 2016. Further
information on the assets acquired is provided in Note 24 to the
consolidated financial statements.
Return on net assets employed increased to 17.0% compared to
16.7% in 2017 as the 14.0% increase in EBIT was partially offset by an
increase in net assets employed. Additional information on net assets
employed for the Canadian Operations and International Operations
is on page 11 and page 14 respectively.
Return on average equity increased to 22.6% compared to 18.3%
in 2017 due to a 30.0% increase in net earnings partially offset by higher
average equity compared to last year. Further information on
shareholders' equity is provided in the consolidated statements of
changes
in the consolidated financial
statements.
in shareholders' equity
Total Long-Term Liabilities Consolidated total long-term liabilities
for the past three years is summarized in the following table:
($ in thousands)
2018
2017
2016
Total long-term liabilities
$ 424,936
$
377,580
$
285,792
Consolidated long-term liabilities increased $47.4 million or 12.5%
to $424.9 million compared to 2017 and were up $139.1 million or
48.7% from 2016. The increase in long-term liabilities compared to 2017
and 2016 is substantially due to an increase in long-term debt largely
related to investments in property and equipment and the RTW and
NSA acquisitions as previously noted under the total assets section.
The impact of foreign exchange rates on the translation of U.S.
denominated debt was also a factor. Further information on long-term
debt is included in the Sources of Liquidity and Capital Structure
sections on page 16 and page 17 respectively and in Note 11 to the
consolidated financial statements.
Canadian Operations
FINANCIAL PERFORMANCE
Canadian Operations results for the year are summarized by the key
performance indicators used by management as follows:
Key Performance Indicators
($ in thousands)
Sales
2018
2017(2)
2016(2)
$ 1,246,133
$ 1,199,473
$ 1,125,330
Same store sales % increase
0.9%
0.9%
1.7%
EBITDA (1)
EBIT
$
$
114,215
$ 112,393
$ 109,736
70,099
$
72,597
$
74,445
Return on net assets (1)
14.0%
17.2%
20.7%
(1) See Non-GAAP Financial Measures section.
(2) 2017 sales have been restated due to the adoption of IFRS 15 as described in Accounting
Standards Implemented in 2018. 2016 has not been restated for IFRS 15.
Sales Canadian Operations sales increased $46.7 million or 3.9% to
$1.246 billion compared to $1.199 billion in 2017 and were up $120.8
million or 10.7% compared to 2016 due to the acquisition of NSA, the
impact of new stores and same store sales growth. These sales gains
were partially offset by stores closed during the year. Further
information on store closures is provided under investing activities in
the Consolidated Liquidity and Capital Resources section. Same store
sales increased 0.9% which is flat to 2017 but down from 1.7% in 2016.
Food sales accounted for 66.3% (68.5% in 2017) of total Canadian
Operations sales. The balance was made up of general merchandise
and other sales at 33.7% ( 31.5% in 2017). Other sales consist primarily
of airline revenue, financial services revenue, fuel and pharmacy.
Food sales increased by 0.4% from 2017 and were up 0.9%
compared to 2016. This increase in sales compared to 2017 was due
to same store sales gains in northern markets and the impact of new
stores. These gains were offset by lower sales in southern markets due
in part to price discounting and the impact of store closures in northern
markets. Same store food sales increased 0.4% compared to 0.8% in
2017. On a quarterly basis, same store food sales decreased 0.7% and
0.4% in the first and second quarters respectively and increased 1.1%
and 1.5% in the third and fourth quarters respectively. Food inflation
in northern markets related to supplier cost increases and higher
freight costs was partially offset by price discounting in southern
markets.
General merchandise sales increased 5.5% from 2017 and were
up 4.7% compared to 2016 led by same store sales growth in northern
Canada and the impact of new stores. Same store sales increased 2.7%
compared to a 1.2% increase in 2017. On a quarterly basis, same store
general merchandise sales decreased 0.7% in the first quarter with
increases of 3.7%, 5.6% and 1.9% in the second, third and fourth
quarters respectively.
Other sales increased 21.5% from 2017 mainly due to a full-year
of NSA operations and higher fuel sales. Other sales increased 149.4%
compared to 2016 primarily due to the acquisition of NSA and the
reclassification of
the
implementation of IFRS 15 as described in Accounting Standards
Implemented in 2018. This increase in sales is not comparable as 2016
was not restated for IFRS 15.
financial services
revenue
related
to
10THE NORTH WEST COMPANY INC. Sales Blend The table below shows the sales blend for the Canadian
Operations over the past three years:
Food
General merchandise and
other
2018
66.3%
2017(1)
68.5%
2016(1)
72.7%
33.7%
31.5%
27.3%
(1) Sales blend for 2017 has been restated due to the adoption of IFRS 15 as described in
Accounting Standards Implemented in 2018. 2016 has not been restated for IFRS 15.
Same Store Sales Canadian Operations same store sales for the past
three years are shown in the following table. Food sales are impacted
by changes in commodity costs, transportation costs and promotional
pricing. In 2017 and 2018, same store sales gains in northern Canada
stores were partially offset by lower sales in southern and less remote
markets mainly due to price discounting.
Same Store Sales
(% change)
Food
General merchandise
Total sales
2018
0.4%
2.7%
0.9%
2017
0.8%
1.2%
0.9%
2016
2.0%
0.6%
1.7%
Gross Profit Gross profit dollars increased by 4.0% driven by sales
growth and a modest increase in the gross profit rate. The increase in
gross profit rate was mainly due to changes in product sales blend
partially offset by higher inventory shrinkage and markdowns in
general merchandise.
Selling, Operating and Administrative Expenses Selling, operating
and administrative expenses (“Expenses”) increased 5.7% from 2017
and were up 48 basis points as a percentage of sales. The increase in
Expenses is primarily due to the impact of a full-year of NSA expenses,
new stores, higher share-based compensation costs and an increase
in amortization expense mainly related to capital investments in NSA.
Amortization related to intangible assets and capital investments in
Top Markets were also a factor. Further information on property and
equipment, intangible assets and share-based compensation costs is
provided in Note 7, Note 8 and Note 13 respectively to the consolidated
financial statements.
NSA was impacted by an increase in third party maintenance costs
and unexpected reliance on higher cost third party aircraft resulting
from extended downtime of one of our ATR aircraft due to maintenance
delays. An investment in higher employee costs to establish an in-
house aircraft maintenance capability was also a factor. This investment
is expected to help reduce third party delays and maintenance costs
in the future.
Earnings from Operations (EBIT) Earnings from operations
decreased $2.5 million or 3.4% to $70.1 million compared to
$72.6 million in 2017 as the positive impact of higher sales and gross
profit were more than offset by higher Expenses as previously noted.
Earnings from operations as a percentage of sales was 5.6% compared
to 6.1% last year. EBITDA(2) from Canadian Operations increased $1.8
million or 1.6% to $114.2 million and was 9.2% as a percentage of sales
compared to 9.4% in 2017.
(2) See Non-GAAP Measures Section of Management's Discussion & Analysis
Net Assets Employed Net assets employed increased 13.1% to $513.8
million compared to $454.2 million last year, and were up 37.8%
compared to $372.9 million in 2016 as summarized in the following
table:
Net Assets Employed
($ in millions at the end of the fiscal
year)
2018
2017
2016
Property and equipment
$ 358.0
$
332.3
$
247.1
Inventories
Accounts receivable
Other assets
Liabilities
145.8
73.3
107.6
138.4
66.8
96.8
130.3
65.9
82.8
(170.9)
(180.1)
(153.2)
Net assets employed
$ 513.8
$
454.2
$
372.9
Capital expenditures for the year included the opening of five pre-
built modular design convenience stores that were transported to the
Arctic by sealift, the acquisition of two convenience stores and a
pharmacy, three new Giant Tiger stores, and Top Markets investments
related to major store renovation projects, new equipment, staff
housing improvements and refrigeration upgrades. The completion of
hangar and distribution facilities to support NSA in providing cargo
service to more of the Company's stores in northern Canada was also
a factor.
Inventory increased $7.4 million compared to 2017 and was up
$15.5 million compared to 2016 mainly due to new stores. A higher
investment in inventory in stores serviced by sealift and winter road to
take advantage of lower transportation costs was also a factor. Average
inventory levels in 2018 increased $9.1 million or 6.6% compared to
2017 and were up $12.0 million or 9.0% compared to 2016. Inventory
turnover was down slightly to 5.8 times compared to 6.0 times last year
and 6.0 times in 2016.
11ANNUAL REPORT Accounts receivable increased $6.5 million or 9.7% to last year and
were up $7.4 million or 11.2% compared to 2016 mainly due to higher
customer and insurance claim-related accounts receivable. Average
accounts receivable increased $2.3 million or 3.4% compared to 2017
and were up $5.0 million or 7.9% compared to 2016. The increase in
average accounts receivable is due in part to higher motorized,
electronics and home furnishings sales.
Other assets increased $10.8 million or 11.2% compared to last
year and were up $24.8 million or 30.0% compared to 2016. This
increase is due to higher cash to support financial services and the
timing of deposits, an increase in intangible assets related to new point-
of-sale, merchandise management and workforce management
system software as part of Project Enterprise, and an increase in
goodwill related to the acquisition of a pharmacy in 2018 and NSA in
2017. An increase in prepaid expenses primarily related to deposits and
insurance was also a factor.
Liabilities decreased $9.2 million or 5.1% from 2017 but were up
$17.7 million or 11.6% compared to 2016. The decrease is primarily due
to a reduction in defined benefit plan obligation due mainly to a
change in the discount rate and lower income taxes payable. Further
information on the defined benefit plan obligation is provided in Note
12 to the consolidated financial statements. The increase in liabilities
compared to 2016 is mainly due to the NSA acquisition and higher
trade accounts payable related to the timing of payment cycles and
accrued share-based compensation costs.
Further information on the assets and liabilities related to the
acquisition of NSA is provided in Note 24 to the consolidated financial
statements.
Return on Net Assets The return on net assets employed for
Canadian Operations decreased to 14.0% from 17.2% in 2017 due to a
3.4% decrease in EBIT and an $80.6 million or 19.2% increase in average
net assets compared to last year.
International Operations
(Stated in U.S. dollars)
FINANCIAL PERFORMANCE
International Operations results for the year are summarized by the key
performance indicators used by management as follows:
Key Performance Indicators
($ in thousands)
Sales
2018
2017(2)
2016(2)
$
588,422
$ 607,618
$ 545,799
Same store sales % increase
4.2%
1.8%
0.4%
EBITDA(1)
EBIT
$
$
57,610
45,863
$
$
44,262
31,999
$ 43,049
$ 33,173
Return on net assets (1)
22.8%
15.8%
19.2%
(1) See Non-GAAP Financial Measures section.
(2) Sales for 2017 have been restated due to the adoption of IFRS 15 as described in
Accounting Standards Implemented in 2018. 2016 has not been restated for IFRS 15.
Sales International sales decreased 3.2% to $588.4 million compared
to $607.6 million in 2017, but were up $42.6 million or 7.8% compared
to 2016. The decrease in sales compared to 2017 is due to the impact
of store closures in the Caribbean due to the hurricanes that occurred
in the third quarter of 2017 and the closure of a Cost-U-Less store in
the first quarter of 2018 which more than offset same store sales growth
and the positive impact of a reconstruction economy in the British
Virgin Islands. The increase in sales compared to 2016 is due to the RTW
acquisition and same store sales growth. Further information about the
impact of the hurricanes is provided below. Same store sales increased
4.2% compared to 1.8% in 2017 and 0.4% in 2016. Food sales accounted
for 88.5% (89.1% in 2017) of total sales with the balance comprised of
general merchandise and other sales at 11.5% (10.9% in 2017). Other
sales consist primarily of fuel and financial services revenue.
Food sales decreased 3.7% from 2017 but were up 9.0% compared
to 2016. Same store food sales were up 4.0% compared to a 2.3%
increase in 2017 with all banners contributing to the sales increase.
Quarterly same store food sales increases were 0.4%, 1.6%, 4.1% and
9.9% in the fourth quarter. Sales in Alaska stores and certain Cost-U-
Less markets were positively impacted by the early issuance of the
February Supplemental Nutrition Assistance Program ("SNAP") benefit
payments in January due to the U.S. Government shut-down.
General merchandise sales increased 2.6% from 2017 but were
down 4.1% from 2016. On a same store basis, general merchandise
sales were up 5.6% compared to a decrease of 1.4% in 2017. Quarterly
same store general merchandise sales increased 1.3%, 6.5%, 11.9% and
2.2% in the fourth quarter led by same store sales growth in AC stores.
Sales in AC stores were positively impacted by a 45.5% increase in the
Permanent Fund Dividend ("PFD") to $1,600 this year compared to
$1,100 in 2017 and $1,022 in 2016.
Other sales, which consists of fuel sales and financial services
revenue were down 6.5% from 2017 but were up 50.2% from 2016. The
increase compared to 2016 is mainly due to the reclassification of
financial services revenue related to the implementation of IFRS 15 as
described in Accounting Standards Implemented in 2018. This increase
in sales is not comparable as 2016 was not restated for IFRS 15.
12THE NORTH WEST COMPANY INC. Sales Blend The table below shows the sales blend for the
International Operations over the past three years:
Food
General merchandise and
other
2018
88.5%
2017(1)
89.1%
2016(1)
87.6%
11.5%
10.9%
12.4%
(1) Sales blend for 2017 has been restated due to the adoption of IFRS 15 as described in
Accounting Standards Implemented in 2018. 2016 has not been restated for IFRS 15.
Same Store Sales International Operations same store sales for the
past three years are shown in the following table. General merchandise
same store sales are impacted by consumer spending on big-ticket
durable goods that are largely influenced by special payments, such
as the PFD and regional Native corporation dividends, which can result
in greater sales volatility.
Same Store Sales
(% change)
Food
General merchandise
Total sales
2018
4.0%
5.6%
4.2%
2017
2.3 %
(1.4)%
1.8 %
2016
1.0 %
(3.9)%
0.4 %
Gross Profit Gross profit dollars decreased 1.0% as lower sales more
than offset an increase in the gross profit rate. The increase in the gross
profit rate is due to the blend of sales across the various jurisdictions
partially offset by an increase in promotional activities and competitive
pricing in certain Caribbean markets.
Selling, Operating and Administrative Expenses Selling, operating
and administrative expenses (“Expenses”) decreased 11.0% compared
to last year and were down 190 basis points as a percentage of sales
due to a $13.1 million hurricane-related insurance gain this year, the
impact of the previously noted store closures and the impact of one-
time acquisition costs of $4.3 million predominately related to stamp
duties paid to the Government of the British Virgin Islands last year.
Excluding the impact of the insurance gain and the acquisition costs,
Expenses increased 1.3% compared to last year partially due to higher
insurance costs and utility expenses.
Earnings from Operations (EBIT)
Earnings from operations
increased $13.9 million or 43.4% to $45.9 million compared to 2017
due to the hurricane-related insurance gain and the other factors
previously noted. EBITDA(2) increased $13.4 million or 30.2% to $57.6
million and was 9.8% as a percentage of sales compared to 7.3% in
2017.
(2) See Non-GAAP Measures Section of Management's Discussion & Analysis
Hurricanes Irma and Maria Impact In September 2017, the
Company's CUL stores in St. Maarten and St. Thomas, and the RTW
operations in the British Virgin Islands ("BVI") were impacted by
hurricanes Irma and Maria. These category five hurricanes had a
devastating impact on the people and infrastructure on these and
other islands in the Caribbean.
A CUL store in St. Maarten partially re-opened in November 2017
and fully re-opened in September 2018. Three RTW stores in the BVI
required complete reconstruction. Two of the RTW stores opened at
the end of the third quarter and the remaining store is expected to
open in the second half of 2019. A CUL store in St. Thomas, USVI, is
expected to reopen in the fourth quarter of 2019. The hurricane related
sales and EBITDA(2) by
store closures negatively
impacted
approximately $34.9 million and $2.3 million respectively in 2018 as the
impact of the full-year closure of the St. Thomas CUL store was partially
offset by the re-opening of the St. Maarten CUL store and the two RTW
stores.
The Company expects that its insurance proceeds will be
sufficient to cover repair and reconstruction costs and also has business
interruption insurance that will help mitigate the earnings impact of
the store closures. In the third quarter, the Company recorded a $13.1
million gain on the partial settlement of hurricane-related insurance
claims. The insurance gain was primarily due to the difference between
the replacement cost of the assets destroyed and their book value. The
settlement of these claims and the receipt of payments are expected
to result in insurance-related gains in the consolidated statements of
earnings in subsequent periods.
13ANNUAL REPORT Net Assets Employed International Operations net assets employed
of $208.8 million increased $13.1 million or 6.7% compared to last year
and were up $37.1 million or 21.6% to 2016 as summarized in the
following table:
Consolidated Liquidity
and Capital Resources
Net Assets Employed
The following table summarizes the major components of cash flow:
($ in millions at the end of the fiscal
year)
2018
2017
Property and equipment
$ 119.5
$ 111.9
$
Inventories
Accounts receivable
Other assets
Liabilities
68.9
13.0
56.2
(48.8)
68.0
11.3
49.8
(45.3)
2016
85.2
63.6
10.0
53.1
(40.2)
Net assets employed
$ 208.8
$ 195.7
$ 171.7
The increase in property and equipment is mainly due to the repair
and reconstruction of the CUL and RTW stores related to the hurricane
damage in 2017. Investments in fixtures and equipment were also a
factor. The increase in net assets employed compared to 2016 is
substantially due to the acquisition of RTW. Further information on the
assets and liabilities related to the acquisition of RTW is provided in
Note 24 to the consolidated financial statements.
Inventories increased $0.9 million compared to last year and were
up $5.3 million or 8.3% from 2016. Average inventory levels in 2018
were down 1.2% compared to 2017 but were up 7.8% compared to
2016 mainly due to the acquisition of RTW partially offset by the impact
of the hurricane-related store closures and re-opening as previously
noted. Inventory turnover was flat to last year at 6.1 times and was
down slightly from 6.2 in 2016.
Other assets increased $6.4 million or 12.9% compared to last year
and were up $3.1 million compared to 2016 primarily due to higher
cash balances and an increase in prepaid expenses partially offset by
a decrease in deferred tax assets.
Liabilities increased $3.5 million or 7.7% compared to 2017 and
were up $8.6 million or 21.4% compared to 2016 mainly due to higher
trade accounts payable and an increase in deferred tax liabilities
partially offset by a decrease in income tax payable related to U.S. tax
reform.
Return on Net Assets The return on net assets employed for
International Operations increased to 22.8% compared to 15.8% in
2017 due to a 43.4% increase in EBIT.
($ in thousands)
2018
2017
2016
Cash provided by (used in):
Operating activities before
change in non-cash working
capital and other
Change in non-cash working
capital
(20,792)
Change in other non-cash items
(1,284)
Operating activities
Investing activities
Financing activities
Effect of foreign exchange
127,120
(80,793)
(33,752)
713
$149,196
$ 134,222
$ 132,351
2,271
4,926
141,419
(165,861)
19,928
(569)
(10,799)
4,472
126,024
(77,682)
(54,398)
(944)
Net change in cash
$ 13,288
$
(5,083)
$
(7,000)
Cash from Operating Activities Cash flow from operating activities
decreased $14.3 million or 10.1% to $127.1 million compared to 2017
and was up $1.1 million or 0.9% compared to 2016. The decrease in
cash flow from operating activities is mainly due to the change in non-
cash working capital which negatively impacted cash flow from
operating activities by $20.8 million this year compared to an increase
in cash flow of $2.3 million in 2017 and a decrease in cash flow of $10.8
million in 2016. The change in non-cash working capital is primarily
due to the change in inventories, accounts receivable and accounts
payable and accrued expenses compared to the prior year. Further
information on working capital is provided in the Canadian and
International net assets employed sections on pages 11 and 14
respectively.
The $15.0 million increase in cash flow from operating activities
before working capital and other items in 2018 compared to 2017 is
due in part to an increase in net earnings and higher amortization and
interest expense partially offset by a $17.0 million hurricane-related
insurance gain that is deducted from cash flow from operating
activities and recorded as proceeds from insurance settlement in
investing activities.
Cash flow from operating activities and unutilized credit available
on existing loan facilities are expected to be sufficient to fund operating
requirements, pension plan contributions, sustaining and planned
growth-related capital expenditures as well as anticipated dividends
during 2019.
The compound annual growth rate ("CAGR") for cash flow from
operating activities is 2.5% over the past four years as shown in the
following graph:
14THE NORTH WEST COMPANY INC. Cash Used in Investing Activities Net cash used in investing
activities was $80.8 million compared to $165.9 million in 2017 and
$77.7 million in 2016. The decrease is mainly due to the acquisition of
RTW and NSA in 2017 and the $18.8 million in insurance proceeds
received in 2018 related to insurance claims on the Company's stores
destroyed by the hurricanes. Net investing in Canadian Operations was
$69.2 million compared to $121.4 million in 2017 and $63.3 million in
2016. A summary of the Canadian Operations investing activities is
included in net assets employed on page 11. Investing in International
Operations was $11.6 million, net of $18.8 million in insurance
proceeds, compared to $44.5 million, net of $7.0 million in insurance
proceeds in 2017 and $14.4 million in 2016. A summary of the
International Operations investing activities is included in net assets
employed on page 14.
The following table summarizes the number of stores and selling
square footage under NWC's various retail banners at the end of the
fiscal year:
Number of Stores
Selling square footage
Northern
NorthMart
Quickstop
Giant Tiger
Alaska Commercial
Cost-U-Less
Riteway Food Market
Other Formats
2018
117
2017
119
5
27
44
27
11
8
6
6
21
41
27
12
6
7
2018
686,256
106,968
43,056
720,523
269,893
315,725
58,650
39,063
2017
688,583
134,210
35,003
672,794
269,893
318,191
54,712
46,366
Total at year-end
245
239
2,240,134
2,219,752
In Canadian Operations, seven Quickstop convenience stores were
opened and one QuickStop was closed in northern Canada, and three
Giant Tiger stores were opened. Two Northern stores were closed, one
of which was destroyed by fire and the operations were transferred to
another Northern store in the community and a NorthMart store in Hay
River, NT was closed. Under Other Formats, the standalone Tim Hortons
in Thompson, MB and a Fur Marketing Branch in Toronto, ON were
closed. Total selling square footage in Canada increased 0.9% to
1,570,826 compared to 1,551,916 in 2017 as a result of the new stores.
In International Operations, a Cost-U-Less store in Kauai, Hawaii
was closed and two Riteway Food Market stores destroyed by
Hurricane Irma were re-opened. Total selling square footage increased
to 669,308 compared to 667,836 last year as the impact of the CUL store
closure largely offset the square footage added from the two RTW
stores opened.
Cash From/(Used in) Financing Activities Cash used in financing
activities was $33.8 million compared to cash provided by financing
activities of $19.9 million in 2017 and cash used in financing activities
of $54.4 million in 2016. The change compared to last year is largely
due to an increase in amounts drawn on revolving loan facilities this
year compared to the issuance of $100.0 million in senior notes in 2017
which was used to reduce amounts drawn on the Company's revolving
loan facilities. An increase in interest due primarily to the timing of
interest payments on the $100.0 million in senior notes was also a factor.
Further information on dividends, interest and the loan facilities is
provided in the following sections.
Shareholder Dividends The Company paid dividends of $62.3
million or $1.28 per share consistent with 2017. Further information on
dividends is included in Note 19 to the consolidated financial
statements.
The following table shows the quarterly cash dividends per share
paid for the past three years:
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
Total
2018
$ 0.32
0.32
0.32
0.32
2017
$ 0.32
0.32
0.32
0.32
$ 1.28
$ 1.28
2016
0.31
0.31
0.31
0.31
1.24
$
$
The payment of dividends on the Company's common shares is subject
to the approval of the Board of Directors and is based on, among other
factors, the financial performance of the Company, its current and
anticipated future business needs and the satisfaction of solvency tests
imposed by the Canada Business Corporations Act (“CBCA”) for the
declaration of dividends. The dividends were designated as eligible
dividends in accordance with the provisions of the Canadian Income
Tax Act.
The following table shows dividends paid in comparison to cash
flow from operating activities for the past three years:
2018
2017
2016
Dividends
$ 62,329
$ 62,315
$ 60,169
Cash flow from operating
activities
Dividends as a % of cash flow
from operating activities
$ 127,120
$ 141,419
$126,024
49.0%
44.1 %
47.7%
Dividends as a percentage of cash flow from operating activities has
averaged 46.9% over the past three years.
Since converting back to a share corporation on January 1, 2011,
the dividend has increased at a compound annual growth rate ("CAGR")
of 4.2% over the past seven years as shown in the following graph:
(1) North West Company Fund converted to a share corporation effective January 1, 2011.
In addition to the $0.96 per share dividend paid in 2011, the Company also paid a $0.09
per unit final distribution from the Fund as part of the conversion to a share corporation.
Subsequent Event - Dividends On March 14, 2019, the Board of
Directors approved a quarterly dividend of $0.33 per share, an increase
of $0.01 or 3.1% per share, to shareholders of record on March 29, 2019,
to be paid on April 15, 2019.
Post-Employment Benefits The Company sponsors defined benefit
and defined contribution pension plans covering the majority of
Canadian employees. The Company recorded net actuarial gains on
defined benefit pension plans of $5.0 million net of deferred income
taxes in other comprehensive income. This compares to net actuarial
gains on defined benefit pension plans of $1.2 million in 2017 and $2.4
million in 2016. These gains in other comprehensive income were
15ANNUAL REPORT immediately recognized in retained earnings. Actuarial gains and
losses occur primarily due to changes in the discount rate used to
calculate pension liabilities and returns on pension plan assets.
In 2019, the Company will be
required to contribute
approximately $2.8 million to the defined benefit pension plans. In
addition to the cash funding, a portion of the pension plan obligation
may be settled by the issuance of a letter of credit in accordance with
pension legislation. In 2018, the Company's cash contributions to the
pension plan were $2.3 million compared to $3.5 million in 2017 and
$1.5 million in 2016. The actual amount of the contribution may be
different from the estimate based on actuarial valuations, plan
investment performance, volatility in discount rates, regulatory
requirements and other factors. The Company also expects to
contribute approximately $4.8 million to the defined contribution
pension plan and U.S. employees savings plan in 2019 compared to
$4.8 million in 2018 and $4.3 million in 2017. Additional information
regarding post-employment benefits is provided in Note 12 to the
consolidated financial statements.
Sources of Liquidity The Company has outstanding $100.0 million
in senior notes (January 31, 2018 - $100.0 million) that mature
September 26, 2029 and have a fixed interest rate of 3.74%. The notes
are secured by certain assets of the Company and rank pari passu with
the Company's other senior debt comprised of the $300.0 million
Canadian Operations loan facilities, the US$70.0 million senior notes
and the US$52.0 million loan facilities.
At January 31, 2019, the Canadian Operations have outstanding
US$70.0 million senior notes (January 31, 2018 - US$70.0 million). The
senior notes, which mature June 16, 2021, have a fixed interest rate of
3.27% on US$55.0 million and a floating interest rate on US$15.0 million
based on U.S. LIBOR plus a spread payable semi-annually. The senior
notes are secured by certain assets of the Company and rank pari passu
with the Company's other senior debt. The Company has designated
certain U.S. denominated debt as a hedge against the U.S. dollar
investment in the International Operations. For more information on
the senior notes and financial instruments, see Note 11 and Note 14 to
the consolidated financial statements.
The Canadian Operations also have committed, revolving loan
facilities of $300.0 million that bear a floating rate of interest based on
Bankers Acceptances rates plus a stamping fee and mature on
September 26, 2022. These facilities are secured by certain assets of
the Company and rank pari passu with the Company's other senior
debt. At January 31, 2019, the Company had drawn $134.8 million on
these facilities (January 31, 2018 - $91.1 million).
The Company has committed, revolving loan facilities of US$52.0
million that bear interest at U.S. LIBOR plus a spread and mature on
September 26, 2022. These facilities are secured by certain assets of the
Company and rank pari passu with the Company's other senior debt.
At January 31, 2019, the Company had drawn US$27.9 million on these
facilities (January 31, 2018 - US$27.9 million).
The International Operations have a US$40.0 million loan facility
which matures October 31, 2020 and bears a floating rate of interest
based on U.S. LIBOR plus a spread. This facility is secured by certain
accounts receivable and inventories of the International Operations.
At January 31, 2019, the International Operations had drawn US$NIL
on this facility (January 31, 2018 - US$1.4 million).
The loan facilities and senior notes contain covenants and
restrictions including the requirement to meet certain financial ratios
and financial condition tests. The financial covenants include a fixed
charge coverage ratio, minimum current ratio, a leverage test and a
minimum net worth test. At January 31, 2019, the Company is in
compliance with the financial covenants under these facilities. Current
and forecasted debt levels are regularly monitored for compliance with
debt covenants.
Interest Costs and Coverage
Coverage ratio
EBIT ($ in millions)
Interest ($ in millions)
2018
9.3
$ 129.9
$ 13.9
2017
11.3
$ 114.0
$ 10.1
2016
16.4
$ 118.1
$
7.2
The coverage ratio of earnings from operations ("EBIT") to interest
expense has decreased to 9.3 times compared to 11.3 times in 2017
largely due to a $3.8 million increase in interest expense partially offset
by an increase in consolidated EBIT as previously noted. Additional
information on interest expense is provided in Note 18 to the
consolidated financial statements.
Contractual Obligations and Other Commitments
Contractual obligations of the Company are listed in the chart below:
($ in thousands)
Total
0-1 Year
2-3 Years
4-5 Years
6 Years+
Long-term debt
(including capital
lease obligations) $366,757
$
900
$ 93,466
$ 172,391
$100,000
Operating leases
167,552
28,439
38,093
26,192
74,828
Other liabilities (1)
28,271
13,998
14,273
—
—
Total
$562,580
$ 43,337
$145,832
$ 198,583
$174,828
(1) At year-end, the Company had additional long-term liabilities of $43.7 million
which include other liabilities, defined benefit plan obligations and deferred
income tax liabilities. These liabilities have not been included as the timing
and amount of the future payments are uncertain.
Director and Officer Indemnification Agreements The Company
has agreements with its current and former directors, trustees, and
officers to indemnify them against charges, costs, expenses, amounts
paid in settlement and damages incurred from any lawsuit or any
judicial, administrative or investigative proceeding in which they are
sued as a result of their service. Due to the nature of these agreements,
the Company cannot make a reasonable estimate of the maximum
amount it could be required to pay to counterparties. The Company
has also purchased directors', trustees' and officers' liability insurance.
No amount has been recorded in the financial statements regarding
these indemnification agreements.
Other Indemnification Agreements The Company provides
indemnification agreements to counterparties for events such as
intellectual property right infringement, loss or damage to property,
claims that may arise while providing services, violation of laws or
regulations, or as a result of litigation that might be suffered by the
counterparties. The terms and nature of these agreements are based
on the specific contract. The Company cannot make a reasonable
estimate of the maximum amount it could be required to pay to
counterparties. No amount has been recorded in the financial
statements regarding these agreements.
Giant Tiger Master Franchise Agreement The Company has a Master
Franchise Agreement (MFA) with Giant Tiger Stores Limited, based in
Ottawa, Ontario, which grants the Company the exclusive right to open
Giant Tiger stores in western Canada, subject to meeting a minimum
store opening commitment. Under the agreement, Giant Tiger Stores
Limited provides product sourcing, merchandising, systems and
administration support to the Company's Giant Tiger stores in return
for a royalty based on sales. The Company is responsible for opening,
16THE NORTH WEST COMPANY INC. owning, operating and providing food buying and distribution services
to the stores. At January 31, 2019, the Company owns 44 Giant Tiger
stores and is in compliance with the minimum store opening
commitment. The agreement expires July 31, 2040. Additional
information on commitments, contingencies and guarantees is
provided in Note 22 to the consolidated financial statements.
Related Parties The Company has a 50% ownership interest in a
Inc. and
Canadian Arctic shipping company, Transport Nanuk
purchases freight handling and shipping services from Transport
Nanuk Inc. and its subsidiaries. The purchases are based on market rates
for these types of services in an arm's length transaction. Additional
information on the Company's transactions with Transport Nanuk Inc.
is included in Note 23 to the consolidated financial statements.
Letters of Credit In the normal course of business, the Company
issues standby letters of credit in connection with defined benefit
pension plans, purchase orders and performance guarantees. The
aggregate potential liability related to letters of credit is approximately
$22 million (January 31, 2018 - $22 million).
Capital Structure The Company's capital management objectives
are to deploy capital to provide an appropriate total return to
shareholders while maintaining a capital structure that provides the
flexibility to take advantage of growth opportunities, maintain existing
assets, meet obligations and financial covenants and enhance
shareholder value. The capital structure of the Company consists of
bank advances,
long-term debt and shareholders' equity. The
Company manages capital to optimize efficiency through an
appropriate balance of debt and equity. In order to maintain or adjust
its capital structure, the Company may purchase shares for cancellation
pursuant to normal course issuer bids, issue additional shares, borrow
additional funds, adjust the amount of dividends paid or refinance debt
at different terms and conditions.
On a consolidated basis, the Company had $366.8 million in debt
and $421.1 million in equity at the end of the year and a debt-to-equity
ratio of 0.87:1 compared to 0.82:1 last year.
The Company's capital structure is summarized in the preceding graph.
Over the past five years, the Company's debt-to-equity ratio has ranged
from 0.61:1 to 0.87:1. Equity has increased $91.8 million or 27.9% to
$421.1 million over the past four years and interest-bearing debt has
increased $165.4 million or 82.1% to $366.8 million compared to $201.4
million in 2014. From 2014 to 2018, the Company has made capital
expenditures, including acquisitions, of $482.9 million and has paid
dividends of $299.2 million. This reflects the Company's balanced
approach of investing to sustain and grow the business while providing
shareholders with an annual cash return.
Consolidated debt at the end of the year increased $53.2 million
or 17.0% to $366.8 million compared to $313.5 million in 2017, and was
up $137.5 million or 60.0% from $229.3 million in 2016. The increase in
debt is mainly due to higher amounts drawn on the revolving loan
facilities largely resulting from the acquisition of RTW and NSA and
investments in Top Markets, major store remodels and aircraft. Further
information is provided under investing activities. The impact of foreign
exchange on the translation of U.S. denominated debt was also a factor.
The Company has US$97.9 million in debt at January 31, 2019 (January
31, 2018 - US$99.4 million, January 31, 2017 - US$79.1 million) that is
exposed to changes in foreign exchange rates when translated into
Canadian dollars. The exchange rate used to translate U.S.
denominated debt into Canadian dollars at January 31, 2019 was
1.3137 compared to 1.2301 at January 31, 2018 and 1.3030 at
January 31, 2017. The change in the foreign exchange rate resulted in
an $8.2 million increase in debt compared to 2017 and a $1.0 million
increase compared to 2016. Average debt outstanding during the year
excluding the foreign exchange impact increased $60.4 million or
22.2% from 2017 and was up $120.9 million or 57.4% compared to 2016.
The debt outstanding at the end of the fiscal year is summarized as
follows:
($ in thousands at the end of
the fiscal year)
CAD$ senior notes
US$ senior notes
Canadian revolving loan
facilities
U.S. revolving loan facilities
Promissory note payable
2018
2017
$ 100,000
$ 100,000
$
91,666
85,760
134,791
36,700
3,600
91,648
36,141
—
2016
—
91,035
126,344
11,887
—
Total
$ 366,757
$ 313,549
$ 229,266
Shareholders' Equity The Company has an unlimited number of
authorized shares and had
issued and outstanding shares at
January 31, 2019 of 48,750,929 (January 31, 2018 - 48,690,212). The
Company has a Share Option Plan that provides for the granting of
options to certain officers and senior management. Each option is
exercisable into one common share of the Company at a price specified
in the option agreement. At January 31, 2019, there were 2,398,063
options outstanding representing 4.9% of the issued and outstanding
shares. Further information on share options is provided in Note 13 to
the consolidated financial statements.
On June 14, 2017, the Company’s Common Shares were replaced
by Variable Voting Shares and Common Voting Shares. The two classes
of shares have equivalent rights except for voting rights. Holders of
Variable Voting Shares are entitled to one vote per share except where
(i) the number of outstanding Variable Voting Shares exceeds 25% of
the total number of all issued and outstanding Variable Voting Shares
and Common Voting Shares, or (ii) the total number of votes cast by or
on behalf of the holders of Variable Voting Shares at any meeting on
any matter on which a vote is to be taken exceeds 25% of the total
number of votes cast at such meeting. Variable Voting Shares may only
be held, beneficially owned or controlled, directly or indirectly, by
persons who are not Canadians (within the meaning of the Canada
Transportation Act). At January 31, 2019, there were 12,300,338
Variable Voting Shares, representing 25.2% of the total shares issued
and outstanding. Further information on the Company's share capital
is provided in Note 15 to the consolidated financial statements.
17ANNUAL REPORT Book value per share attributable to shareholders, on a diluted
basis, at the end of the year increased to $8.31 per share compared to
$7.51 per share in 2017. Total shareholders' equity increased $38.9
million or 10.2% compared to 2017 largely due to the impact of higher
net earnings and an increase in other comprehensive income. Further
information is provided in the consolidated statements of changes in
shareholders' equity in the consolidated financial statements.
QUARTERLY FINANCIAL INFORMATION
Historically, the Company's first quarter sales are the lowest and fourth
quarter sales are the highest, reflecting consumer buying patterns. Due
to the remote location of many of the Company's stores, weather
conditions are often more extreme compared to other retailers and
can affect sales in any quarter. Net earnings generally follow higher
sales, but can be dependent on changes in merchandise sales blend,
promotional activity in key sales periods, variability in share-based
compensation costs related to changes in the Company's share price
and other factors which can affect net earnings.
The following is a summary of selected quarterly financial information:
($ thousands)
Q1
Q2
Q3
Q4
Total
Sales
2018
2017(1)
EBITDA
2018
2017
$ 465,730
$503,796
$511,477
$532,483
$2,013,486
$ 485,789
$515,184
$486,957
$497,192
$1,985,122
$ 39,532
$ 42,438
$ 70,461
$ 36,912
$ 189,343
$ 30,115
$ 47,304
$ 45,612
$ 46,593
$ 169,624
Earnings from operations (EBIT)
2018
2017
Net earnings
$ 25,592
$ 27,824
$ 54,903
$ 21,589
$ 129,908
$ 16,740
$ 33,192
$ 31,824
$ 32,215
$ 113,971
2018
2017
$ 18,581
$ 18,620
$ 39,528
$ 13,903
$
9,071
$ 23,261
$ 21,034
$ 16,325
Net earnings attributable to shareholders of the Company
2018
2017
$ 17,758
$ 17,644
$ 38,340
$ 13,006
$
8,386
$ 22,720
$ 20,648
$ 15,400
Earnings per share-basic
2018
2017
$
$
0.36
0.17
$
$
Earnings per share-diluted
2018
2017
$
$
0.36
0.17
$
$
0.37
0.47
0.36
0.46
$
$
$
$
0.78
0.42
0.78
0.42
$
$
$
$
0.27
0.32
0.27
0.31
$
$
$
$
$
$
$
$
90,632
69,691
86,748
67,154
1.78
1.38
1.77
1.36
(1) Sales have been restated due to the adoption of IFRS 15 as described in
Accounting Standards Implemented in 2018.
(2) Excluding the foreign exchange impact
(3) See Non-GAAP Measures Section of Management's Discussion & Analysis
Fourth Quarter Highlights Fourth quarter consolidated sales
increased 7.1% to $532.5 million led by same store sales gains in
International Operations, the impact of foreign exchange on the
translation of International Operations sales and new stores in
Canadian Operations. The early issuance of the February Supplemental
Nutrition Assistance Program ("SNAP") benefit payments in January
due to the U.S. Government shut-down and the re-opening of two
stores in the British Virgin Islands that were previously closed as a result
of the hurricanes last year were also factors contributing to the sales
gains in International Operations. Excluding the foreign exchange
impact, consolidated sales increased 4.5% and were up 4.0%2 on a same
store basis. Food sales2 increased 4.6% and were up 4.6% on a same
store basis and general merchandise sales2 increased 3.5% and were
up 2.0% on a same store basis. These gains were partially offset by the
temporary closure of a NorthMart store in Iqaluit, Nunavut due to a fire
and the disposition of a standalone Tim Hortons in Canadian
Operations, and the closure of a Cost-U-Less ("CUL") store in Kauai,
Hawaii in the first quarter this year.
Gross profit increased 5.4% driven by higher sales partially offset
by a 51 basis point decrease in gross profit rate. The decrease in gross
profit rate was primarily due to competitive pricing pressures and
changes in sales blend in International Operations. Selling, operating
and administrative expenses increased 15.3% and were up 191 basis
points as a percentage to sales. This increase was primarily due to
higher incentive plan costs, utilities and insurance expense. The impact
of new stores, an increase in North Star Air Ltd. ("NSA") expenses and
the impact of foreign exchange on the translation of International
Operations expenses were also factors.
The increase in incentive plan costs is primarily due to a $7.5
million increase in share-based compensation related to an option
expense of $3.6 million compared to an option expense recovery of
$2.8 million last year. A substantial portion of the options granted are
accounted for as a liability and are re-measured based on the share
price at each quarterly reporting date. The increase in option expense
was due to an increase in share price in the quarter this year compared
to a decrease in the fourth quarter last year. Changes made to share-
based compensation plans in 2018 will begin to mitigate most of the
expense volatility inherent in the prior share-based compensation
plans as the performance share units and options granted under these
plans are exercised or expire. Excluding the share-based compensation
option expense, selling, operating and administration expenses
increased 9.9% and were up 67 basis points as a percentage to sales
compared to last year.
Earnings from operations decreased 33.0% to $21.6 million
compared to $32.2 million last year and earnings before interest,
income taxes, depreciation and amortization (EBITDA3) decreased $9.7
million or 20.8% to $36.9 million due to the factors previously noted.
Excluding the impact of the share-based compensation option
expense, adjusted EBITDA3 was down 7.6% compared to last year and
as a percentage to sales was 7.6% compared to 8.8% last year.
Income tax expense decreased $9.0 million to $3.8 million and the
consolidated effective tax rate was 21.4% compared to 44.0% last year.
This decrease was primarily due to the impact of U.S. tax reform in the
fourth quarter last year and the blend of earnings in International
Operations across the various tax rate jurisdictions. The most significant
impact of U.S. tax reform was a reduction in the federal corporate
income tax rate from 35.0% to 21.0% effective January 1, 2018 and the
implementation of a one-time transition tax on undistributed earnings
in foreign subsidiaries. These changes resulted in an additional income
tax expense of $5.8 million in the fourth quarter last year.
Net earnings decreased $2.4 million or 14.8% to $13.9 million. Net
earnings attributable to shareholders were $13.0 million and diluted
earnings per share were $0.27 per share compared to $0.31 per share
last year due to the factors noted above. Excluding the impact of the
share-based compensation option expense and U.S. tax reform in the
18THE NORTH WEST COMPANY INC. INTERNAL CONTROLS OVER
FINANCIAL REPORTING
Management is responsible for establishing and maintaining internal
controls over financial reporting to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
International Financial Reporting Standards. All internal control
systems, no matter how well designed, have inherent limitations.
Therefore, even those systems determined to be effective can only
provide reasonable assurance with respect to financial reporting and
may not prevent or detect misstatements. Projections of any
evaluations of effectiveness to future periods are subject to the risk that
controls may become ineffective because of changes in conditions or
the degree of compliance with policies and procedures may
deteriorate. Furthermore, management is required to use judgment in
evaluating controls and procedures. Based on an evaluation of the
Company's internal controls over financial reporting using the Internal
Control - Integrated Framework published by The Committee of
Sponsoring Organizations of the Treadway Commission (“COSO
Framework”), 2013, the Company's CEO and CFO have concluded that
the internal controls over financial reporting were designed and
operated effectively as at January 31, 2019. There have been no
changes in the internal controls over financial reporting for the year
ended January 31, 2019 that have materially affected or are reasonably
likely to materially affect the internal controls over financial reporting.
fourth quarter last year, adjusted net earnings2 decreased 7.5%
compared to last year due to the higher expenses as previously noted.
Comprehensive income increased to $20.2 million compared to
$11.6 million last year as the decrease in net earnings was more than
offset by the impact of foreign exchange on the translation of
International Operations financial statements and the remeasurement
of defined benefit pension plans. The change in foreign exchange rates
resulted in a gain of $1.4 million compared to a loss of $5.7 million last
year. The remeasurement of defined benefit pension plan assets and
liabilities resulted in a net actuarial gain of $5.0 million compared to a
gain of $1.2 million last year.
Cash flow from operating activities in the quarter decreased $7.8
million to $47.7 million compared to cash flow from operating activities
of $55.5 million last year as the change in non-cash working capital
was more than offset by an increase in taxes paid due to the timing of
installments and a decrease in net earnings. The change in non-cash
working capital is primarily related to the change in inventories and
accounts receivable compared to the prior year. The decrease in other
non-cash items is mainly due to a reduction in long-term liabilities
related to share-based compensation.
Cash used for investing activities in the quarter decreased to $13.3
million compared to $40.0 million last year. The purchase of property
and equipment in the quarter was largely related to investments in Top
Markets. Investing activities in the quarter last year was higher due to
the purchase of aircraft and equipment to expand the number of stores
serviced by NSA.
Cash flow used in financing activities in the quarter was $51.6
million compared to $42.9 million last year. The net change in long-
term debt in the quarter is due to changes in amounts drawn on the
Company's revolving loan facilities. The increase in interest paid is
mainly due to the timing of interest payments on the $100.0 million
senior notes. Further information on long-term debt is provided in the
Sources of Liquidity section and in Note 9 to the Company's Interim
Condensed Consolidated Financial Statements.
Further information on the quarterly financial performance of the
Company is provided in the interim MD&A available on the Company's
website at www.northwest.ca or on SEDAR at www.sedar.com.
(2) Excluding the foreign exchange impact.
(3) See Non-GAAP Financial Measures Section in the 2018 fourth quarter report
to shareholders.
DISCLOSURE CONTROLS
Management is responsible for establishing and maintaining a system
of disclosure controls and procedures to provide reasonable assurance
that material information relating to the Company is reported to senior
management, including the Chief Executive Officer (“CEO”) and Chief
Financial Officer (“CFO”) on a timely basis so that decisions can be made
regarding public disclosure. Based on an evaluation of the Company's
disclosure controls and procedures, as required by National Instrument
52-109 (Certification of Disclosure in Issuers' Annual and Interim
Filings), the Company's CEO and CFO have concluded that these
controls and procedures were designed and operated effectively as of
January 31, 2019.
19ANNUAL REPORT OUTLOOK
RISK MANAGEMENT
As noted under the Strategy section, the Company's principal focus
continues to be on its store network, products, people and facilities.
Successful execution enables the Company to capture sales at a higher
rate with lower-risk products and services. Other priority work in 2019
includes fire and hurricane risk mitigation and discount banner
competitive strategies (Cost-U-Less and Giant Tiger).
The near-term consumer outlook remains stable to positive in
most of the Company's markets and aligns with our lower risk product
and service focus, augmented by opportunistic investments. Northern
Canada's economic outlook remains positive for 2019 with a ramp-up
of government investment within Indigenous communities, resource
development, and other public sector capital projects. The western
Canadian retail environment is important for our Giant Tiger ("GT")
business and is expected to stabilize compared to cost and margin
pressures in 2018. We expect price inflation to be a larger factor in 2019
and contribute to a modest net improvement to margins.
Economic conditions in Alaska are expected to continue to
recover from depressed conditions over the past two years led by
stronger commercial fishing, more oil and gas activity, public
infrastructure projects and higher Permanent Fund Dividend
payments. Southern market prospects vary significantly from island to
island. In the Caribbean, post-hurricane construction activity is
expected to continue to help offset tourism downturns in the BVI and
USVI but is lagging in St. Maarten, while fiscally stable islands, like
Cayman, take advantage of a strong U.S. travel economy. Guam's
prospects are stable to slightly positive depending on geo-political
factors related to North Korea's negative impact on tourism and the
pace of significant military base construction and personnel
deployment over the next five years.
The settlement of hurricane and fire related insurance claims and
the receipt of payments are expected to result in insurance-related
gains in the consolidated statement of earnings in 2019. These gains
will be partially offset by higher insurance costs in northern Canada
and the Caribbean and costs incurred to relocate our International store
operations support office from Bellevue, Washington to Anchorage,
Alaska and South Florida. This relocation is expected to be completed
by the end of the second quarter and will result in our International
Operations executives and store support teams being closer to the
markets they serve.
Capital expenditures for 2019, net of expected recoveries on the
settlement of hurricane and fire insurance claims, are expected to be
in the $90.0 million range (2018 - $80.8 million) reflecting major store
replacements, store renovations, staff housing and store-based
warehouse expansions under the Company's Top Markets and Top
Categories initiatives. These investments also include the planned
opening of six GT stores and the completion of "New Store Experience"
upgrades in GT stores. The Company will also complete upgrades on
its facilities in the Caribbean to increase resiliency to a category 5
hurricane and will continue to invest in implementing new information
systems as described under the strategy section, with
full
implementation expected to be completed in Canada in the fourth
quarter of 2019. All store-based capital expenditures can be impacted
by the completion of landlord negotiations, shipment of construction
materials to remote markets, and weather-related delays and therefore
their actual amount and timing can fluctuate.
The mandate of the Board of Directors includes ensuring that processes
are in place to identify and manage the principle risks of the business,
for which the Board has delegated primary responsibility to the Audit
Committee. The North West Company maintains an Enterprise Risk
Management ("ERM") program which assists in identifying, evaluating
and managing risks that may reasonably have an impact on the
Company. Management is accountable for completing an annual ERM
assessment to evaluate risks and the potential impact that the risks
may have on the Company's financial performance and ability to
execute its strategies and achieve its objectives. The results of this
annual assessment and quarterly updates are presented to the Audit
Committee and reported to the Board of Directors. The principle risks
and related mitigation strategies are incorporated into the Company's
strategic planning process.
The North West Company is exposed to a number of risks in its
business. The descriptions of the risks below are not the only ones
facing the Company. Additional risks and uncertainties not presently
known to the Company, or that the Company deems immaterial, may
also impair the operations of the Company. If any of such risks actually
occur, the business, financial condition, liquidity and results of
operations of the Company could be materially adversely affected.
Readers of this MD&A are also encouraged to refer to the Key
Performance Drivers and Capabilities Required to Deliver Results and
Outlook sections of this MD&A, as well as North West's Annual
Information Form, which provides further information on the risk
factors facing the Company. While the Company employs strategies to
minimize these risks, these strategies do not guarantee that events or
circumstances will not occur that could negatively impact the
Company's financial condition and performance.
Careful consideration should be given to the risk factors which include,
but are not limited to, the following:
Employee Development and Retention Attracting, retaining and
developing high caliber employees is essential to effectively managing
our business, executing our strategies and meeting our objectives. Due
to the vast geography, small size and remoteness of the Company's
individual markets, there is an ongoing need for capable staffing,
particularly at the store management level. The degree to which the
Company is not successful in retaining and developing employees and
establishing appropriate succession plans could lead to a lack of
knowledge, skills and experience required to effectively run our
operations and execute our strategies and could negatively affect
financial performance. The Company's overall priority on building and
sustaining store people capability reflects the importance of mitigating
this risk. In addition to compensation programs and investments in
staff housing that are designed to attract and retain qualified personnel,
the Company also continues to implement and refine initiatives such
as comprehensive store-based manager-in-training programs as part
of the Pure Retail initiative. In March 2019, the Company opened a
training center in Winnipeg, Manitoba which will facilitate the delivery
of its comprehensive training programs on a more consistent basis.
In addition to employee development and retention risks related
to the Company's retail operations, these risks also impact the
Company's airline operations. Transport Canada has issued new
Canadian Airline Regulations ("CAR") with respect to pilot fatigue and
flight duty times on December 12, 2018. The implementation of these
new regulations is based on the type of aircraft and take effect in
December 2020 and December 2022 for NSA.
These regulations may result in an increase in the number of pilots
required by NSA which, combined with an existing global shortage of
pilots, may result in higher recruitment and compensation costs and
a negative impact on the Company's financial performance. NSA is
20THE NORTH WEST COMPANY INC. related to upgrading or implementing new IT systems may not be
realized which could adversely affect the Company's operations,
financial performance or reputation. To help mitigate these risks, the
Company uses a combination of specialized internal and external IT
resources as well as a strong governance structure and disciplined
project management.
The Company also depends on accurate and reliable information
from its IT systems for decision-making and operating the business. As
the volume of data and the complexity and integration of IT systems
increases, there is a greater risk of errors in data or misinterpretation of
the data which could negatively impact decision making and in turn,
have an adverse effect on the Company's financial performance.
Cyber-security The Company relies on the integrity and continuous
availability of its IT systems. In the ordinary course of business, the
Company collects, processes, transmits and retains confidential and
personal
Information")
regarding the Company and its customers, employees and suppliers.
The Company's IT systems are exposed to the risks of “cyber-attack”,
including viruses that can disrupt or paralyze IT systems or result in
unauthorized access to Confidential Information.
"Confidential
(collectively
information
The Company has implemented security software and measures,
including monitoring, testing and employee training, to prevent
unauthorized access to its IT systems and Confidential Information, and
to reduce the likelihood of disruptions. Cyber-attacks are constantly
evolving and are becoming more frequent and sophisticated in nature
and there is a risk that the Company's security measures may be
breached or unauthorized access may not be detected on a timely
basis. Furthermore, employee error, faulty password management or
malfeasance may result in unauthorized access to IT systems and
Confidential Information. Any prolonged failure relating to IT system
availability, breaches of IT system security, a significant loss of data, an
impairment of data integrity or unauthorized access to Confidential
Information, could adversely affect the financial performance,
operations and reputation of the Company and may result in regulatory
enforcement actions or litigation.
Logistics and Supply Chain The Company relies on a complex and
elongated outbound supply chain due to the remoteness of the
Company's stores. The delivery of merchandise to a substantial portion
of the Company's stores involves multiple carriers and multiple modes
of transportation including trucks, trains, aircraft, ships and barges
through various ports and transportation hubs. The Company's
reputation and financial performance can be negatively impacted by
supply chain events or disruptions outside of the Company's control,
including changes in foreign and domestic regulations which increase
the cost of transportation; the quality of transportation infrastructure
such as roads, ports and airports; labour disruptions at transportation
companies; or the consolidation, financial difficulties or bankruptcy of
transportation companies. To help mitigate these risks, the Company
acquired North Star Air Ltd. in 2017 and has an investment in Transport
Nanuk Inc., an arctic shipping company, which provides the Company
with greater control over key components of our logistics network and
service to our stores in northern Canada.
to
flight
continuing to assess the impact of the new regulations on the business.
Changes
fatigue
schedules, operating
management systems and employee recruiting, compensation and
training programs are expected to help mitigate the impacts of the
new regulations and employee development and retention risk.
schedules,
Business Model The Company serves geographically diverse markets
and sells a very wide range of products and services. Operational scale
can be difficult to achieve and the complexity of the Company's
business model is higher compared to more narrowly-focused or larger
retailers. Management continuously assesses the strength of its
customer value offer to ensure that specific markets, products and
services are financially attractive. The Company's Pure Retail initiative
is focused on simplifying work across the Company, with a focus on
stores. To the extent the Company is not successful in developing and
executing its strategies, it could have an adverse effect on the financial
condition and performance of the Company.
Competition The Company has a leading market position in a large
percentage of the markets it serves. Sustaining and growing this
position depends on our ability to continually improve customer
satisfaction while identifying and pursuing new sales opportunities.
We actively monitor competitive activity and we are proactive in
enhancing our value offer elements, ranging from in-stock position to
service and pricing. To the extent that the Company is not effective in
responding to consumer trends or enhancing its value offer, it could
have a negative impact on financial performance. Furthermore, the
entry of new competitors, an increase in competition, both local and
outside the community, a significant expansion of E-Commerce, or the
introduction of new products and services in the Company's markets
could also negatively affect the Company's financial performance.
Community Relations A portion of the Company's sales are derived
from communities and regions that restrict commercial
land
ownership and usage by non-indigenous or non-local owned
businesses or which have enacted policies and regulations to support
locally-owned businesses. We successfully operate within these
environments through initiatives that promote positive community
and customer relations. These include store lease arrangements with
community-based development organizations and initiatives to
recruit local residents into management positions and to incorporate
community stakeholder advice into our business at all levels. Further
information on community relations is provided under Corporate
Social Responsibility and Sustainable Development on page 25. To the
extent the Company is not successful in maintaining these relations or
lease agreements with community-based
is unable to renew
organizations, or is subject to punitive fees or operating restrictions, it
could have an adverse effect on the Company's reputation and
financial performance.
Information Technology The Company relies on information
technology (“IT”) to support the current and future requirements of the
business. A significant or prolonged disruption in the Company's
current IT systems could negatively impact day-to-day operations of
the business which could adversely affect the Company's financial
performance and reputation.
The Company is in the process of completing the implementation
of new point-of-sale, workforce management and merchandise
management systems which are described further in the strategy
section under Initiative #4, Project Enterprise. In 2019, the Company
will be upgrading its financial reporting software. The failure to
successfully upgrade legacy systems, or to migrate from legacy systems
to the new IT systems, could have an adverse effect on the Company's
operations, reputation and financial performance. There is also a risk
that the anticipated benefits, cost savings or operating efficiencies
21ANNUAL REPORT Climate Change, Natural Disasters and Fire The Company's
operations are exposed to extreme weather conditions ranging from
blizzards to hurricanes, typhoons and cyclones which can cause loss
of life, damage to or destruction of key stores and facilities, or temporary
business disruptions. The stores located in the South Pacific, Caribbean
and coastal areas of Alaska are also at risk of earthquakes and tsunamis
which can result in loss of life and destruction of assets. The destruction
of assets and the impact on the local economy resulting from these
types of extreme weather conditions, particularly where more than one
location is impacted, could have a material adverse effect on the
operations and financial condition and performance of the Company.
Severe weather conditions can also have a negative impact on NSA's
operations by disrupting the transportation of merchandise and
passengers.
The impact of warmer ocean water temperatures has increased
the risk of frequency, severity and duration of hurricanes and typhoons.
In 2017, islands in the Caribbean were devastated by two category five
hurricanes which resulted in the destruction of four of the Company's
stores and significantly damaged a CUL store in St. Maarten. Rebuilding
will significantly increase resiliency to future hurricanes however,
certain markets remain exposed to this risk. Further information on the
impact of these hurricanes is provided in the International Operations
financial performance section.
The Company completed an assessment of its stores in the
Caribbean and is in the process of upgrading its most hurricane-
vulnerable stores to improve the building construction, where
level. These
practical, to a category
improvements should help mitigate the impact of hurricanes on the
Company's stores however, there can be no certainty that the damage
from hurricanes will not be severe including significant damage to or
loss of stores and warehouses.
five hurricane resiliency
Longer-term global warming conditions would also have a more
pronounced effect, both positive and negative, on the Company's
most northern latitude stores. On the downside, global warming will
result in rising sea levels, which will cause flooding, and melting
permafrost which could damage or destroy the Company's stores,
warehouses and housing. The Company has 71 stores in northern
Canada and 16 stores in Alaska that are potentially exposed to changes
in permafrost. Rising sea levels and melting permafrost would also have
the same negative impact on our customers which, combined with
the potential damage to our facilities, could have a material adverse
effect on the Company's operations, financial condition and
performance. The Company has in-depth knowledge of and expertise
in construction in northern markets and continues to incorporate new
engineering and construction techniques in designing buildings and
facilities to help mitigate the impact of changing permafrost
conditions.
The Company relies upon the availability of winter roads to 40
communities in northern Canada. Global warming conditions may
shorten or eliminate the availability of winter roads which would result
in higher transportation costs to these remote locations. To the extent
that higher transportation costs cannot be offset by other cost
reductions or passed on through higher prices, this may result in lower
operating margins which may have an adverse effect on the
Company's financial performance. This risk related to the availability of
winter roads is partially mitigated by the acquisition of NSA and the
utilization of the Company's wholly-owned airline to transport
merchandise to its stores.
On the upside, global warming could result in higher economic
growth in the Company's northern markets and would reduce some
operating costs such as enabling the Company to use lower-cost sealift
year-round to transport merchandise to the Company's stores
compared to higher cost air transportation.
The Company's stores in northern Canada and Alaska are exposed
to the risk of wild fires and other fire related losses. In many of the
Company's remote northern markets, there is limited fire fighting
equipment and capability. In the event of a fire there is a high risk of a
complete loss of the building, equipment and inventory. In 2018, the
Company had three fires in northern Canada which destroyed one
store and significantly damaged two other stores. Two of the fires were
caused by electrical malfunction and one was arson-related. The
Company was able to re-open the stores with reduced selling square
footage and a limited merchandise assortment while reconstruction
and repairs are being completed. The Company has fire risk mitigation
policies and procedures and is undertaking an independent review to
identify opportunities to improve fire prevention in its northern stores,
which are expected to be largely implemented by the end of 2019.
In addition to the risk mitigation activities previously noted, the
Company also maintains insurance to help mitigate the impact of
losses however, there can be no assurance that one or more large
claims or that any given loss will be mitigated in all circumstances.
Further information on insurance risk is provided below.
Economic Environment External factors which affect customer
demand and personal disposable income, and over which the
Company exercises no influence, include government fiscal health,
general economic growth, changes in commodity prices, inflation,
unemployment rates, personal debt
levels of personal
disposable income, interest rates and foreign exchange rates. Changes
in inflation rates and foreign exchange rates are unpredictable and may
impact the cost of merchandise and the prices charged to consumers
which in turn could negatively impact sales and net earnings.
levels,
Our largest customer segments derive most of their income
directly or indirectly from government infrastructure spending or direct
payment to individuals in the form of social assistance, child care
benefits and old age security. While these tend to be stable sources of
income, independent of economic cycles, a decrease in government
income transfer payments to individuals, a recession, or a significant
and prolonged decline in consumer spending could have an adverse
effect on the Company's operations and financial performance.
Furthermore, customers in many of the Company's markets
benefit from product cost subsidies through programs, such as
Nutrition North Canada ("NNC"), the U.S. Supplemental Nutrition
Assistance Program ("SNAP") and the by-pass mail system in Alaska,
which contribute to lower living costs for eligible customers. A change
in government policy could result in a reduction in financial support
for these programs which would have a significant impact on the price
of merchandise and consumer demand and could have an adverse
effect on the Company's operations and financial condition.
A major source of employment income in the remote markets
where the Company operates is generated from local government and
spending on public infrastructure. This includes housing, schools,
health care facilities, military facilities, roads and sewers. Local
employment levels will fluctuate from year-to-year depending on the
degree of infrastructure activity and a community's overall fiscal health.
A similar fluctuating source of income is employment related to
tourism and natural resource development. A significant or prolonged
infrastructure
reduction
projects, natural resource development and tourism spending would
have a negative impact on consumer income which in turn could result
in a decrease in sales and gross profit, particularly for more discretionary
general merchandise items.
in government transfers, spending on
Management regularly monitors economic conditions and
considers factors which can affect customer demand in making
operating decisions and the development of strategic initiatives and
long-range plans.
22THE NORTH WEST COMPANY INC. Fuel and Utility Costs Compared to other retailers, the Company is
more exposed to fluctuations in the price of energy, particularly oil.
Due to the vast geography and remoteness of the store network,
expenses related to aviation fuel, diesel-generated electricity and
heating fuel costs are a more significant component of the Company's
and its customers' expenses. To the extent that escalating fuel and
utility costs cannot be offset by alternative energy sources, energy
conservation practices or offsetting productivity gains, this may result
in higher retail prices or lower operating margins which may affect the
Company's financial performance. In this scenario, consumer retail
spending could also be negatively affected by higher household
energy-related expenses which could have an adverse effect on the
Company's financial performance.
Environmental The Company owns a large number of facilities and
real estate, particularly
in remote locations, and is subject to
environmental risks associated with the contamination of such facilities
and properties. The Company operates retail fuel outlets in a number
of locations and uses fuel to heat stores and housing. The Company
also has aviation fuel storage containers and operates aviation fuel
dispensing equipment. Contamination resulting from gasoline,
heating and aviation fuel is possible. The Company employs operating,
training, monitoring and testing procedures to minimize the risk of
contamination. The Company also operates refrigeration equipment
in its stores and distribution centres which, if the equipment fails, could
release gases that may be harmful to the environment. The Company
has monitoring and preventative maintenance procedures to reduce
the risk of this contamination occurring. Even with these risk mitigation
policies and procedures, the Company could incur increased or
unexpected costs related to environmental incidents and remediation
activities, including litigation and regulatory compliance costs, all of
which could have an adverse effect on the reputation and financial
performance of the Company.
Laws, Regulations and Standards The Company is subject to various
laws, regulations and standards administered by federal, provincial and
foreign regulatory authorities, including but not limited to income,
commodity and other taxes, securities
laws, duties, currency
repatriation, health and safety, employment standards and minimum
wage laws, Payment Card Industry ("PCI") standards, anti-money
licensing requirements, product
laundering ("AML") regulations,
packaging and labeling regulations and zoning laws. New accounting
standards and pronouncements or changes in accounting standards
may also impact the Company's financial results.
These laws, regulations and standards and their interpretation by
various courts and agencies are subject to change. In the course of
complying with such changes, the Company may incur significant
costs. Failure by the Company to fully comply with applicable laws,
regulations and standards could result
financial penalties,
assessments, sanctions, loss of operating licenses or legal action that
could have an adverse effect on the reputation and the financial
performance of the Company.
in
The Company is also subject to various privacy laws and
regulations regarding the protection of personal information of its
customers and employees. Any failure in the protection of this
information or non-compliance with laws or regulations could
negatively affect the Company's reputation and financial performance.
A portion of the Company's sales and net earnings are derived
from financial services and pharmacy operations, which are subject to
laws, regulations and standards. Changes in legislation regarding
financial services fees, including but not limited to ATM, pre-paid Visa
card and cheque-cashing fees and fees earned on customer accounts
receivable, could have an adverse impact on the Company's financial
performance if other fees or offsetting cost reductions cannot be
implemented. In Canada, on-going prescription drug reform and
changes in dispensing fees could have an adverse effect on the
Company's financial performance if other fees or offsetting cost
reductions cannot be implemented.
The airline industry is also subject to extensive legal, regulatory
and administrative controls and oversight, including airline safety
standards. Failure by the Company to comply with these laws,
regulations and standards could result in the loss of operating licenses
and could have an adverse effect on the Company's financial
performance and reputation.
Furthermore, changes in legislation, including carbon taxes and
the implementation of other greenhouse gas reduction initiatives and
regulations related to transitioning to a low-carbon and more climate
resilient future, could result in additional costs which could have a
negative impact on the Company's financial performance if the
Company is not able to fully pass on these additional costs to its
customers or identify other offsetting cost reductions and efficiencies.
Income Taxes In the ordinary course of business, the Company is
subject to audits by tax authorities. The Company regularly reviews its
compliance with tax legislation, filing positions, the adequacy of its tax
provisions and the potential for adverse outcomes. While the Company
believes that its tax filing positions are appropriate and supportable,
the possibility exists that certain matters may be reviewed and
challenged by the tax authorities. If the final outcome differs materially
from the tax provisions, the Company's income tax expense and its
earnings could be affected positively or negatively in the period in
which the outcome is determined.
Food and Product Safety The Company is exposed to risks associated
with food safety, product handling and general merchandise product
defects. The Company also operates pharmacies and provides tele-
pharmacy services and is subject to risks associated with errors made
through medication dispensing or patient consultation. Food sales
represent approximately 75% of total Company sales. A significant
outbreak of a food-borne illness or increased public concerns with
certain food products could have an adverse effect on the reputation
and financial performance of the Company and could lead to
unforeseen liabilities from legal claims. The Company has food
preparation, handling, dispensing and storage procedures which help
mitigate these risks.
The Company also has product recall procedures in place in the
event of a food-borne illness outbreak or product defect. The existence
of these procedures does not eliminate the underlying risks and the
ability of these procedures to mitigate risk in the event of a food-borne
illness or product recall is dependent on their successful execution.
Insurance The Company manages its exposure to certain risks
through an integrated insurance program which combines an
appropriate level of self-insurance and the purchase of various
insurance policies. The Company's insurance program is based on
various lines and limits of coverage and is arranged with financially
stable insurance companies as rated by professional rating agencies.
There can be no assurance that the Company's insurance program will
be sufficient to cover one or more large claims, or that any given risk
will be mitigated in all circumstances. There can also be no assurance
that the Company will be able to continue to purchase insurance
coverage at reasonable rates. To the extent that the Company's
insurance policies do not provide sufficient coverage for a loss, it could
have an adverse impact on the Company's operating results and
financial condition.
Vendor and Third Party Service Partner Management The
Company relies on a broad base of manufacturers, suppliers and
operators of distribution facilities to provide goods and services. Events
or disruptions affecting these suppliers outside of the Company's
23ANNUAL REPORT control could in turn result in delays in the delivery of merchandise to
the stores and therefore negatively impact the Company's reputation
and financial performance. A portion of the merchandise the Company
sells is purchased offshore. Offshore sourcing could provide products
that contain harmful or banned substances or do not meet the required
standards. The Company uses offshore consolidators and sourcing
agents to monitor product quality and reduce the risk of sub-standard
products however, there is no certainty that these risks can be
completely mitigated in all circumstances.
NSA also relies upon suppliers and third party service partners for
specialized aviation parts and aircraft maintenance services. A
prolonged disruption affecting the supply of parts or provision of
maintenance services could negatively impact the availability of
aircraft to service the Company's customers, or result in higher than
anticipated costs, which could have an adverse effect on the
Company's financial performance and reputation.
Management of Inventory Success in the retail industry depends
on being able to select the right merchandise, in the correct quantities
in proportion to the demand for such merchandise. A miscalculation
of consumer demand for merchandise could result in having excess
inventory for some products and missed sales opportunities for others
which could have an adverse effect on operations and financial
performance. Excess inventory may also result in higher markdowns
or inventory shrinkage all of which could have an adverse effect on the
financial performance of the Company.
Litigation and Casualty Losses In the normal course of business, the
Company is subject to a number of claims and legal actions that may
be made by its customers, suppliers and others. The Company records
a provision for litigation claims if management believes the Company
has liability for such claim or legal action. If management's assessment
of liability or the amount of any such claim is incorrect, or the Company
is unsuccessful in defending its position, any difference between the
final judgment amount and the provision would become an expense
or a recovery in the period such claim was resolved.
Consistent with risks inherent in the aviation industry, NSA could
be subject to large liability claims arising out of major accidents or
disasters involving aircraft which can result in serious injury, death or
destruction of property. Accidents and disasters may occur from factors
outside of the Company’s control such as severe weather, lightning
strikes, wind shear and bird strikes. Any such accident or disaster could
have a material adverse effect on the Company’s reputation, results
from operations and financial condition.
Post-Employment Benefits The Company engages professional
investment advisors to manage the assets in the defined benefit
pension plans. The performance of the Company's pension plans and
the plan funding requirements are impacted by the returns on plan
assets, changes
in the discount rate and regulatory funding
requirements. If capital market returns are below the level estimated
by management or if the discount rate used to value the liabilities of
the plans decreases, the Company may be required to make
contributions to its defined benefit pension plans in excess of those
currently contemplated, which may have an adverse effect on the
Company's financial performance.
The Company regularly monitors and assesses the performance
of the pension plan assets and the impact of changes in capital markets,
changes in plan member demographics, and other economic factors
that may impact funding requirements, benefit plan expenses and
actuarial assumptions. The Company makes cash contributions to the
pension plan as required and also uses letters of credit to satisfy a
portion of its funding obligations. Effective January 1, 2011, the
Company entered into an amended and restated staff pension plan
and added a defined contribution plan. Under the amended pension
plan, all members who did not meet a qualifying threshold based on
number of years in the pension plan and age were transitioned to the
defined contribution pension plan effective January 1, 2011 and no
longer accumulate years of service under the defined benefit pension
plan. Further information on post-employment benefits is provided on
page 26 and in Note 12 to the consolidated financial statements.
Dependence on Key Facilities There are five major distribution
centres which are located in Winnipeg, Manitoba; Anchorage, Alaska;
San Leandro, California; Port of Tacoma, Washington; and a third party
managed facility in Miami, Florida. In addition, the Company's Canadian
Operations support office is located in Winnipeg, Manitoba, NSA's
support office is located in Thunder Bay, Ontario and the International
Operations has support offices in Anchorage, Alaska and Bellevue,
Washington. A significant or prolonged disruption at any of these
facilities due to fire, inclement weather or otherwise could have a
material adverse effect on the financial performance of the Company.
Geopolitical Changes in the domestic or international political
environment may impact the Company's ability to source and provide
products and services. Acts of terrorism, riots, and political instability,
especially in less developed markets, could have an adverse effect on
the financial performance of the Company.
Ethical Business Conduct The Company has a Code of Business
Conduct and Ethics policy which governs both employees and
Directors. The Company also has a Whistleblower Policy that provides
direct access to members of the Board of Directors. Unethical business
conduct could negatively impact the Company's reputation and
relationship with its customers, investors and employees, which in turn
could have an adverse effect on the financial performance of the
Company.
Financial Risks In the normal course of business, the Company is
exposed to financial risks that have the potential to negatively impact
its financial performance. The Company manages financial risk with
oversight provided by the Board of Directors, who also approve specific
financial transactions. The Company uses derivative
financial
instruments only to hedge exposures arising in respect of underlying
business requirements and not for speculative purposes. These risks
and the actions taken to minimize the risks are described below. Further
information on the Company's financial instruments and associated
risks are provided in Note 14 to the consolidated financial statements.
Credit Risk Credit risk is the risk of financial loss to the Company if a
customer or counterparty to a financial instrument fails to meet its
contractual obligations. The Company is exposed to credit risk primarily
in relation to individual and commercial accounts receivable. The
Company manages credit risk by performing
regular credit
assessments of its customers and provides allowances for potentially
uncollectible accounts receivable. The Company does not have any
individual customer accounts greater than 10% of total accounts
receivable.
Liquidity Risk Liquidity risk is the risk that the Company will not be
able to meet its financial obligations as they come due or can do so
only at excessive cost. The Company manages liquidity risk by
maintaining adequate credit facilities to fund operating requirements,
pension plan contributions and planned sustaining and growth-
related capital expenditures, and regularly monitoring actual and
forecasted cash flow and debt levels. At January 31, 2019, the Company
had undrawn committed revolving loan facilities available of $231.5
million (January 31, 2018 - $266.6 million).
24THE NORTH WEST COMPANY INC. Currency Risk Currency risk is the risk that the fair value or future cash
flows of a financial instrument will fluctuate because of changes in
foreign exchange rates. The Company is exposed to currency risk,
primarily the U.S. dollar, through its net investment in International
Operations and its U.S. dollar denominated borrowings. The Company
manages its exposure to currency risk by hedging the net investment
in foreign operations with a portion of U.S. dollar denominated
borrowings as described in the Sources of Liquidity section on page
16. At January 31, 2019, the Company had US$97.9 million in U.S.
denominated debt compared to US$99.4 million at January 31, 2018
and US$79.1 million at January 31, 2017. Further information on the
impact of foreign exchange rates on the translation of U.S.
denominated debt is provided in the Capital Structure section on page
17.
The Company is also exposed to currency risk relating to the
translation of International Operations earnings to Canadian dollars. In
2018, the average exchange rate used to translate U.S. denominated
earnings from the International Operations was 1.3041 compared to
1.2930 last year. The Canadian dollar's depreciation in 2018 compared
to the U.S. dollar in 2017 positively impacted consolidated net earnings
by $0.4 million. In 2017, the average exchange rate was 1.2930
compared to 1.3169 in 2016 which resulted in a decrease in 2017
consolidated net earnings of $0.5 million compared to 2016.
Interest Rate Risk Interest rate risk is the risk that the fair value or
future cash flows of a financial instrument will fluctuate because of
changes in market interest rates. The Company is exposed to interest
rate risk primarily through its long-term borrowings. The Company
manages exposure to interest rate risk though a combination of fixed
and floating interest rate debt and may use interest rate swaps. Further
information on long-term debt is provided in Note 11 to the
consolidated financial statements. As at January 31, 2019, the Company
had no outstanding interest rate swaps.
CORPORATE SOCIAL RESPONSIBILITY &
SUSTAINABLE DEVELOPMENT
The North West Company opened its first store in 1668 as a trading
post in the Cree Nation of Waskaganish in northern Canada and many
of our stores in northern Canada and Alaska have been in operation
for over 200 years. Our continuing presence in the communities we
serve is based on sustainable practices that reflect our adaptability and
respect for the social license and underlying trust we must earn.
The Company has recently framed its social responsibility and
sustainability objectives under the following four pillars which are part
of the Company's Sustainability Roadmap:
Stronger Communities;
Better Quality of Life for our Customers;
Empowered Employees; and
Respect for the Environment.
•
•
•
•
A brief description of each pillar is as follows:
Stronger Communities We are committed to provide significant,
meaningful social benefit to the communities we serve. We believe
that building strong, healthy relationships through listening and
collaboration is an approach that adds value for both the community
and the Company in areas such as employment, capital investment
and sponsorship.
Better Quality of Life for our Customers We are committed to
provide reliable access to everyday products and services that meet
the lifestyle needs of our customers and that are as affordable as
possible. In addition, we advocate for policies and programs that
improve the quality of life for the people and communities we serve.
This goes to the heart of community and cultural sustainability and to
our role in providing socio-economic benefits in the communities we
serve.
Empowered Employees We are committed to enhance employee
satisfaction and effectiveness through our Company values of
customer service, trust, enterprising ideas, passion for what we do,
accountability and personal balance. We strive to provide our diverse
and talented employees with the best
job experiences and
opportunities, beginning with key roles in our stores.
Respect for the Environment We are committed to minimize our
environmental footprint in a way that accommodates the conflicting
realities of remote, costly-to-serve geographies populated by lower-
income communities. We look for innovation across our business from
efficient building design to eco-friendly energy alternatives and
limiting product packaging and waste.
The Board of Directors are accountable for overseeing the
Company's Corporate Social Responsibility and Sustainable
Development initiatives which are integrated within the Company's
risk management and strategic planning process. In addition to the
information provided on climate change and environmental risk
factors previously noted under Risk Management, further information
on the Sustainability Roadmap is available on the Company's website
at www.northwest.ca.
25ANNUAL REPORT CRITICAL ACCOUNTING ESTIMATES
The preparation of financial statements in accordance with IFRS
requires management to make estimates, assumptions and judgments
that affect the application of accounting policies and the reported
amounts and disclosures made
in the consolidated financial
statements and accompanying notes. Judgment has been used in the
application of accounting policy and to determine if a transaction
should be recognized or disclosed in the financial statements while
estimates and assumptions have been used to measure balances
recognized or disclosed. These estimates, assumptions and judgments
are based on management's historical experience, knowledge of
current events, expectations of future outcomes and other factors that
management considers reasonable under the circumstances. Certain
of these estimates and assumptions require subjective or complex
judgments by management about matters that are uncertain and
changes in these estimates could materially impact the consolidated
financial statements and disclosures. Management regularly evaluates
the estimates and assumptions it uses and revisions are recognized in
the period in which the estimates are reviewed and in any future
periods affected. The areas that management believes involve a higher
degree of judgment or complexity, or areas where the estimates and
assumptions may have the most significant impact on the amounts
recognized in the consolidated financial statements include the
following:
Valuation of Accounts Receivable The Company records an
allowance for doubtful accounts related to accounts receivable that
may potentially be impaired. The Company recognizes loss allowances
for expected credit losses ("ECL's") on accounts receivable. The change
in ECL's is recognized in net earnings and reflected as an allowance
against accounts receivable. The Company uses historical trends,
timing of recoveries and management's judgment as to whether
current economic and credit conditions are such that actual losses are
likely to differ from historical trends. A significant change in one or
more of these factors could impact the estimated allowances for
doubtful accounts recorded in the consolidated balance sheets and
the provisions for debt loss recorded in the consolidated statement of
earnings. Additional information on the valuation of accounts
receivable is provided in Note 5 and the Credit Risk section in Note 14
to the consolidated financial statements.
Valuation of Inventories Inventories are stated at the lower of cost
and net realizable value. Significant estimation is required in: (1) the
determination of discount factors used to convert inventory to cost
after a physical count at retail has been completed; (2) recognizing
merchandise for which the customer's perception of value has
declined and appropriately marking the retail value of the merchandise
down to the perceived value; (3) estimating inventory losses, or
shrinkage, occurring between the last physical count and the balance
sheet date; and (4) the impact of vendor rebates on cost.
General Merchandise inventories counted at retail are converted
to cost by applying average cost factors by merchandise category.
These cost factors represent the average cost-to-retail ratio for each
merchandise category based on beginning inventory and purchases
made throughout the year.
Inventory shrinkage is estimated as a percentage of sales for the
period from the date of the last physical inventory count to the balance
sheet date. The estimate is based on historical experience and the most
recent physical inventory results. To the extent that actual losses
experienced vary from those estimated, both inventories and cost of
sales may be impacted.
Changes or differences in these estimates may result in changes
to inventories on the consolidated balance sheets and a charge or
credit to cost of sales in the consolidated statements of earnings.
Additional information regarding inventories is provided in Note 6 to
the consolidated financial statements.
Post-Employment Benefits The defined benefit plan obligations are
accrued based on actuarial valuations which are dependent on
assumptions determined by management. These assumptions include
the discount rate used to calculate benefit plan obligations, the rate of
compensation increase, retirement ages and mortality rates. These
assumptions are reviewed by management and the Company's
actuaries.
The discount rate used to calculate benefit plan obligations and
the rate of compensation
increase are the most significant
assumptions. The discount rate used to calculate benefit plan
obligations and plan asset returns is based on market interest rates, as
at the Company's measurement date of January 31, 2019 on a portfolio
of Corporate AA bonds with terms to maturity that, on average,
matches the terms of the defined benefit plan obligations. The
discount rate used to measure the benefit plan obligations for fiscal
2018 was 3.75% compared to 3.5% in 2017 and 4.0% in 2016.
Management assumed a rate of compensation increase of 4.0% for
fiscal 2018 - 2016.
These assumptions may change in the future and may result in
material changes in the defined benefit plan obligation on the
Company's consolidated balance sheets, the defined benefit plan
expense on the consolidated statements of earnings and the net
actuarial gains or losses recognized in comprehensive income and
retained earnings. Changes in financial market returns and interest
rates could also result in changes to the funding requirements of the
Company's defined benefit pension plans. Additional information
regarding the Company's post-employment benefits, including the
sensitivity of a 100 basis point change in the discount rate, is provided
in Note 12 to the consolidated financial statements.
Amortization of Long-lived Assets The Company makes estimates
about the expected useful lives of long-lived assets, including aircraft,
the expected residual values of the assets and the most appropriate
method to reflect the realization of the assets future economic benefit.
This includes using judgment to determine which asset components
constitute a significant cost in relation to the total cost of an asset.
Changes to these estimates, which can be significant, could be caused
by a variety of factors, including changes in expected useful lives or
residual values, changes to maintenance programs and changes in
utilization of the aircraft. Estimates and assumptions are evaluated at
least annually and any adjustments are accounted for as a change in
estimate, on a prospective basis, through amortization expense in the
Company's consolidated statement of earnings.
Business Combinations The Company's accounts for business
combinations using the acquisition method of accounting which
requires the acquired assets and assumed liabilities to be recorded at
their estimated fair values. Judgment is required to determine the fair
value of the assets and liabilities with the most significant judgment
and assumptions required to determine the estimated fair values of
intangible assets, particularly trade names.
The Company uses the royalty relief method to determine the fair
value of the trade name intangible assets. This technique values the
intangible assets based on the present value of the expected after-tax
royalty cash flow stream using a hypothetical licensing arrangement.
Significant assumptions include, among others, the determination of
projected revenues, royalty rate, discount rates and anticipated
average income tax rates.
26THE NORTH WEST COMPANY INC. Impairment of Long-lived Assets The Company assesses the
recoverability of values assigned to long-lived assets after considering
potential impairment indicated by such factors as business and market
trends, future prospects, current market value and other economic
factors. Judgment is used to determine if a triggering event has
occurred requiring an impairment test to be completed. If there is an
indication of impairment, the recoverable amount of the asset, which
is the higher of its fair value less costs of disposal and its value in use,
is estimated in order to determine the extent of the impairment loss.
Where the asset does not generate cash flows that are independent
from other assets, the Company estimates the recoverable amount of
the cash-generating unit ("CGU") to which the asset belongs. For
tangible and intangible assets excluding goodwill, judgment is
required to determine the CGU based on the smallest group of assets
that generates cash inflows from continuing use that are largely
independent of the cash inflows of other assets or groups of assets. To
the extent that the carrying value exceeds the estimated recoverable
amount, an impairment charge is recognized in the consolidated
statements of earnings in the period in which it occurs.
Various assumptions and estimates are used to determine the
recoverable amount of a CGU. The Company determines fair value less
costs of disposal using estimates such as market rental rates for
comparable properties, property appraisals and capitalization rates.
The Company determines value in use based on estimates and
assumptions regarding future financial performance. The underlying
estimates for cash flows include estimates for future sales, gross margin
rates and store expenses, and are based upon the stores' past and
expected future performance. Changes which may impact future cash
flows include, but are not limited to, competition, general economic
conditions and increases in operating costs that cannot be offset by
other productivity improvements. To the extent that management's
estimates are not realized, future assessments could result in
impairment charges that may have a significant impact on the
Company's consolidated balance sheets and consolidated statements
of earnings.
Goodwill Goodwill is not amortized but is subject to an impairment
test annually or whenever indicators of impairment are detected.
Judgment is required to determine the appropriate grouping of CGUs
for the purpose of testing for impairment. Judgment is also required
in evaluating indicators of impairment which would require an
impairment test to be completed. Goodwill is allocated to CGUs that
are expected to benefit from the synergies of the related business
combination and represents the lowest level within the Company at
which goodwill is monitored for internal management purposes,
which is both the Company's Canadian Operations and International
Operations segments before aggregation.
The value of the goodwill was tested by means of comparing the
recoverable amount of the operating segment to its carrying value.
The recoverable amount is the greater of its value in use or its fair value
less costs of disposal. The operating segment's recoverable amount
was based on fair value less costs of disposal. A range of fair values was
estimated by inferring enterprise values from the product of financial
performance and comparable trading multiples. Values assigned to the
key assumptions represent management's best estimates and have
been based on data from both external and internal sources. Key
assumptions used in the estimation of enterprise value include:
budgeted financial performance, selection of market trading multiples
and costs to sell. To the extent that management's estimates are not
realized, future assessments could result in impairment charges that
may have a significant impact on the Company's consolidated balance
sheets and consolidated statements of earnings.
The Company performed the annual goodwill impairment test in
2018 and determined that the recoverable amount exceeded its
carrying value. No goodwill
identified and
management considers any reasonably foreseeable changes in key
assumptions unlikely to produce a goodwill impairment.
impairment was
Income and Other Taxes Deferred tax assets and liabilities are
recognized for the future income tax consequences attributable to
temporary differences between the financial statement carrying values
of assets and liabilities and their respective income tax bases. Deferred
income tax assets or liabilities are measured using enacted or
substantively enacted income tax rates expected to apply to taxable
income in the years in which those temporary differences are expected
to be recovered or settled. The calculation of current and deferred
income taxes requires management to use judgment regarding the
interpretation and application of tax legislation in the various
jurisdictions in which the Company operates. The calculation of
deferred income tax assets and liabilities is also impacted by estimates
of future financial results, expectations regarding the timing of reversal
of temporary differences, and assessing the possible outcome of audits
of tax filings by the regulatory agencies.
Changes or differences in these estimates or assumptions may
result in changes to the current or deferred income tax balances on
the consolidated balance sheet, a charge or credit to income tax
expense in the consolidated statements of earnings and may result in
cash payments or receipts. Additional information on income taxes is
provided in Note 9 to the consolidated financial statements.
ACCOUNTING STANDARDS IMPLEMENTED IN
2018
Implemented The Company adopted
New Standards
the
amendments to IFRS 9 Financial Instruments, IFRS 15 Revenue from
Contracts with Customers and the amended IFRS 2 Share-based
payments effective February 1, 2018, as required by the IASB.
Share-based payments The amendments to IFRS 2 Share-based
payments are in relation to the classification and measurement of share-
based payment transactions, specifically, accounting for the effects of
vesting and non-vesting conditions on the measurement of cash-
settled share-based transactions. The adoption of these amendments
did not result in any measurement adjustments to the liability for share-
based payments.
Financial Instruments The amended IFRS 9 Financial Instruments is
a multi-phase project with the goal of improving and simplifying
financial
The standard establishes new
principles for:
instrument reporting.
Classification and measurement. IFRS 9 uses a single approach to
determine measurement of financial assets by both cash flow
characteristics and how an entity manages financial impairment,
replacing the multiple classification options in IAS 39 with three
categories: amortized cost, fair value through other comprehensive
income and fair value through profit or loss ("FVTPL"). Financial liabilities
are classified and measured based on two categories: amortized cost
or FVTPL.
27ANNUAL REPORT the new
requirements
implemented
The Company
for
classification and measurement, including impairment, retrospectively
with any cumulative effects of initial application recorded in opening
retained earnings. The adoption of IFRS 9 did not result in any
measurement adjustments to financial assets and liabilities. The
adoption of IFRS 9 did result in certain classification changes, as
summarized in the table below.
Asset/Liability
New Classification under IFRS 9
Cash
Accounts receivable
Other financial assets
Accounts payable and accrued
liabilities
Current portion of long-term debt
Long-term debt
Amortized cost(1)
Amortized cost(1)
Amortized cost(1)
Amortized cost(2)
Amortized cost(2)
Amortized cost(2)
(1) Previously classified as loans and receivables under IAS 39
(2) Classified as financial liabilities at amortized cost under IAS 39
Financial assets are not reclassified subsequent to their initial
recognition, unless the Company identifies changes in its business
model requiring reassessment. Financial assets are subsequently
measured at amortized cost if both of the following conditions are met
and they are not designated as FVTPL:
•
•
financial asset is held within a business model whose objective is
to hold financial assets 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 on the principal amount outstanding.
These assets are subsequently measured at amortized cost using
the effective interest rate method, less any impairment. Measurement
gains or losses are recognized in net earnings in the period when the
asset is derecognized or impaired.
"Expected credit loss" impairment model As at January 31, 2018
and thereafter the Company applied a new forward-looking lifetime
expected credit loss ("ECL") impairment model to its accounts
receivable under IFRS 9.
Revenue from Contracts with Customers, continued
The change in ECL's is recognized in earnings and reflected as an
allowance against accounts receivable. The Company adopted the
practical expedient to determine ECL's using a provision matrix based
on historical trends, timing of recoveries and management's judgment
as to whether current economic and credit conditions are such that
actual losses are likely to differ from historical trends. Adoption of the
revised ECL based provision matrix resulted in an insignificant
measurement adjustment to the Company's accounts receivable.
Certain receivables are also individually assessed for lifetime expected
credit losses.
Prior to January 31, 2018 a financial asset was considered to be
impaired if objective evidence indicated that one or more events had
a negative effect on the estimated future cash flows of that asset. An
impairment loss was calculated as the difference between its carrying
amount, and the present value of the estimated future cash flows
discounted at their original effective interest rate.
Revenue from Contracts with Customers The IFRS 15 Revenue
from Contracts with Customers standard contains a comprehensive
model which specifies the criteria and timing for recognizing revenue,
and also requires additional disclosures in the notes to the financial
statements. The core principle of the standard is that revenue is
recognized to depict the transfer of promised goods or services to the
customer at an amount that reflects the consideration to which the
Company is entitled. A contract based five step analysis of transactions
is used to determine whether, how much and when revenue is
recognized. New estimates and judgmental thresholds have also been
introduced.
Revenue on the sale of goods and services is recorded at the time
the sale is made or service is rendered to the customer. Sales are
presented net of tax, returns and discounts and are measured at the
fair value of the consideration received or receivable from the customer
for the products sold or services supplied. Service charges on customer
accounts receivable are accrued each month on balances outstanding
at each account's billing date.
The Company adopted the standard retrospectively with the
restatement of comparative periods. As a result of these changes
certain commissions and service fees previously included in selling,
operating and administrative expenses are now presented in sales and
cost of sales. These changes had no impact on earnings from
operations, net earnings or retained earnings previously reported. The
impact of this change on the comparative period is as follows:
SALES
Cost of sales
Gross profit
Selling, operating and administrative expenses
Earnings from operations
Year Ended January 31, 2018
(Previously Reported)
IFRS 15 Amendment
Year Ended January 31, 2018
(Revised)
$
$
1,953,743
$
31,379
$
(1,367,657)
586,086
(472,115)
7,276
38,655
(38,655)
113,971
$
— $
1,985,122
(1,360,381)
624,741
(510,770)
113,971
28THE NORTH WEST COMPANY INC. Annual Improvements In December 2017, the IASB issued
amendments effective for the Company February 1, 2019. A summary
of these amendments is as follows:
•
•
•
IFRS 3 Business Combinations clarifies how a company accounts
for increasing its interest in a joint operation that meets the
definition of a business;
IAS 12 Income Taxes specifies that all income tax consequences
of dividends are recognized consistently with the transactions
that generated the distributable profits (i.e. in net earnings, other
comprehensive income or equity); and
IAS 23 Borrowing Costs clarifies that specific borrowings to finance
the construction of a qualifying asset should be transferred to the
general borrowings pool once the construction of the qualifying
asset has been completed.
The adoption of these amendments are not expected to have a
material impact on the Company.
Post-Employment Benefits In February 2018, the IASB issued
amendments to IAS 19 Employee Benefits. The amendments require a
company to update its assumptions for the remainder of the reporting
period after a plan change. Amendments have also been included
clarifying the effect of a plan amendment on the asset ceiling. The
amendments are effective for the Company February 1, 2019 and are
not expected to have a material impact on the Company.
Definition of Material In May 2017, the IASB issued amendments
to IAS 1 Presentation of Financial Statements and IAS 8 Accounting
Policies, Changes in Accounting Estimates and Errors. These amendments
clarified the definition of material. Under the amended definition,
information is material if omitting, misstating or obscuring it could
reasonably be expected to influence the decisions that the primary
users of general purpose financial statements make. The amendments
are effective for the Company February 1, 2020 and are required to be
applied prospectively. The implementation of these amendments is
not expected to have a significant impact on the Company.
There are no other IFRS or IFRIC interpretations that are not yet effective
that would be expected to have a material impact on the Company.
FUTURE ACCOUNTING STANDARDS
A number of new standards, and amendments to standards and
interpretations, are not yet effective for the year ended January 31,
2019, and have not been applied in preparing these consolidated
financial statements.
Leases IFRS 16 Leases replaces the current guidance in IAS 17 for
operating and finance lease accounting. This standard requires lessees
to recognize a lease liability representing the obligation for future lease
payments and a right-of-use asset in the consolidated balance sheets
for substantially all lease contracts, initially measured at the present
value of unavoidable lease payments. Purchase, renewal and
termination options which are reasonably certain of being exercised
are also included in the measurement of the lease liability. Lease
payment liabilities will not include variable lease payments.
Under the new standard the Company will recognize new right-
of-use assets and lease liabilities for its operating leases of land,
buildings and equipment. In addition, the nature and timing of leasing
expenses will change as operating lease expenses recorded in cost of
sales and selling, operating and administrative expenses are replaced
by a depreciation charge for right-of-use assets and interest expense
on lease liabilities. The Company plans to apply IFRS 16 on February 1,
2019 using the full retrospective approach with restatement of the
comparative period financial statements. The cumulative effect of the
initial application will be recorded by restating opening retained
earnings at February 1, 2018.
The Company continues to execute its detailed implementation
plan. The portfolio of leases has been identified and the leasing
information required to support the change in accounting standards
has been summarized for each lease. The Company has configured its
accounting system to account for leases under IFRS 16 and populated
the detailed lease data. Processes and controls are being modified and
training is being conducted to support the implementation. The
Company is continuing to evaluate the impact of these changes on its
consolidated financial statements, technology, processes and internal
controls.
The implementation of this accounting standard will have a
material impact on the consolidated financial statements with
increases in total assets and long-term liabilities. Any difference
between the recognition of right-of-use assets and lease liabilities will
be recognized in retained earnings.
Based on the information available at April 10, 2019, the Company
estimates that it will record a right-of-use asset of approximately
$112 million to $121 million and a corresponding lease liability of
$124 million to $133 million with the difference between the right-of-
use asset and lease liability, net of the deferred tax impact, recorded in
opening retained earnings at February 1, 2018. The actual impact of
the initial application of IFRS 16 may vary from this estimate as critical
accounting estimates and judgments are subject to change until the
Company issues its April 30, 2019 first quarter report to shareholders.
Uncertainty over Income Tax Treatments In June 2017, the
IASB issued IFRIC Interpretation 23. The interpretation provides
guidance on the accounting for current and deferred tax liabilities and
assets in circumstances in which there is uncertainty over income tax
treatments. The Company will adopt IFRIC 23 for the annual period
beginning February 1, 2019 and it is not expected to have a material
impact on the Company.
29ANNUAL REPORT NON-GAAP FINANCIAL MEASURES
Reconciliation of consolidated net earnings to adjusted net
earnings:
(1) Earnings Before Interest, Income Taxes, Depreciation and
Amortization (EBITDA), Adjusted EBITDA and Adjusted Net
Earnings are not recognized measures under IFRS. Management uses
these non-GAAP financial measures to exclude the impact of certain
income and expenses that must be recognized under IFRS. The
excluded amounts are either subject to volatility in the Company's
share price or may not necessarily be reflective of the Company's
underlying operating performance.
factors can make
comparisons of the Company's financial performance between
periods more difficult. The Company may exclude additional items if
it believes that doing so will result in a more effective analysis and
explanation of the underlying financial performance. The exclusion of
these items does not imply that they are non-recurring.
These
These measures do not have a standardized meaning prescribed by
GAAP and therefore they may not be comparable to similarly titled
measures presented by other publicly traded companies and should
not be construed as an alternative to the other financial measures
determined in accordance with IFRS.
Reconciliation of consolidated net earnings to EBITDA and
adjusted EBITDA
($ in thousands)
Net earnings
Add:
Amortization
Interest expense
Income taxes
EBITDA
2018
2017
2016
$ 90,632
$
69,691
$
77,076
59,435
13,965
25,311
55,653
10,145
34,135
48,367
7,220
33,835
$ 189,343
$ 169,624
$ 166,498
Less: Gain on partial insurance
settlement
(16,955)
—
Add:
Acquisition costs
Share-based compensation
option expense
—
4,510
6,344
2,886
—
—
2,510
Adjusted EBITDA
$ 176,898
$ 178,854
$ 169,008
For EBITDA information by business segment, see Note 4 to the
consolidated financial statements.
($ in thousands)
Net earnings
2018
2017
2016
$ 90,632
$
69,691
$
77,076
Less: Gain on partial insurance
settlement
(13,176)
—
Add:
Acquisition costs, net of tax
—
Share-based compensation
option expense
U.S. Tax reform transition and
deferred tax expense
4,224
—
6,188
2,886
5,835
—
—
2,510
—
Adjusted Net Earnings
$ 81,680
$
84,600
$
79,586
Acquisition costs were incurred to complete the North Star Air Ltd. and
Roadtown Wholesale Trading Ltd. transactions. They comprise stamp
duty, external legal fees and other costs all of which are included in
selling, operating and administrative expenses.
is presented as a
The Company is exposed to market price fluctuations in its share price
through share-based compensation costs. Accrued share-based
compensation
liability on the Company's
consolidated balance sheets. This liability is recorded at fair value at
each reporting date based on the market price on the Company's
shares at the end of each reporting period with the changes in fair
value recorded in selling, operating and administrative expenses.
U.S. tax reform transition and deferred tax expense were incurred due
to new corporate tax legislation enacted in December 2017. They
comprise a one-time transition tax on undistributed accumulated
earnings in foreign owned subsidiaries and also the re-measurement
of deferred tax assets and liabilities.
(2) Return on Net Assets (RONA) is not a recognized measure under
IFRS. Management believes that RONA is a useful measure to evaluate
the financial return on the net assets used in the business. RONA is
calculated as earnings from operations (EBIT) for the year divided by
average monthly net assets. The following table reconciles net assets
used in the RONA calculation to IFRS measures reported in the
consolidated financial statements as at January 31 for the following
fiscal years:
($ in millions)
Total assets
2018
2017
2016
$ 1,022.9
$
930.9
$
805.8
Less: Total liabilities
Add: Total long-term debt
(601.8)
366.8
Net Assets Employed
$
787.9
$
(548.8)
313.5
695.6
(438.0)
229.3
597.1
$
(3) Return on Average Equity (ROE) is not a recognized measure
under IFRS. Management believes that ROE is a useful measure to
evaluate the financial return on the amount invested by shareholders.
ROE is calculated by dividing net earnings for the year by average
monthly total shareholders' equity. There is no directly comparable
IFRS measure for return on equity.
30THE NORTH WEST COMPANY INC. GLOSSARY OF TERMS
AC Alaska Commercial Company store banner.
Basic earnings per share Net earnings attributable to shareholders of The
North West Company Inc. divided by the weighted-average number of
shares outstanding during the period.
Fair value The amount of consideration that would be agreed upon in an
arm's length transaction between knowledgeable, willing parties who are
under no compulsion to act.
Gross profit Sales less cost of goods sold and inventory shrinkage.
Gross profit rate Gross profit divided by sales.
Basis point A unit of measure that is equal to 1/100th of one percent.
GT Giant Tiger store banner.
Book value per share Equity attributable to shareholders of The North
West Company Inc. divided by the number of shares, basic or diluted,
outstanding at the end of the year.
CGAAP (Canadian generally accepted accounting principles) The
consolidated financial statements for the fiscal years 2009 and prior were
prepared in accordance with Canadian generally accepted accounting
principles as issued by the Canadian Institute of Chartered Accountants.
Compound Annual Growth Rate ("CAGR") The compound annual
growth rate is the year-over-year percentage growth rate over a given period
of time.
Conversion to a Share Corporation On January 1, 2011, the North West
Company Fund (the “Fund”) completed a conversion to a corporation
named The North West Company Inc. (the “Company”) by way of a plan of
arrangement under section 192 of the Canada Business Corporations Act.
The details of the conversion and the Arrangement are contained in the
management information circular dated April 29, 2010 which is available on
the Company's website at www.northwest.ca or on SEDAR at
www.sedar.com.
The MD&A contains references to “shareholders”, “shares” and
“dividends” which were previously referred to as “unitholders”, “units” and
“distributions” under the Fund.
CUL Cost-U-Less store banner.
Debt covenants Restrictions written into banking facilities, senior notes
and loan agreements that prohibit the Company from taking actions that
may negatively impact the interests of the lenders.
Debt loss An expense resulting from the estimated loss on potentially
uncollectible accounts receivable.
Debt-to-equity ratio Provides information on the proportion of debt and
equity the Company is using to finance its operations and is calculated as
total debt divided by shareholders' equity.
Diluted earnings per share The amount of net earnings for the period
attributable to shareholders of The North West Company Inc. divided by the
weighted-average number of shares outstanding during the period
including the impact of all potential dilutive outstanding shares at the end
of the period.
EBIT (Earnings From Operations) Net earnings before interest and income
taxes provides an indication of the Company's performance prior to interest
expense and income taxes.
EBIT margin EBIT divided by sales.
EBITDA Net earnings before interest, income taxes, depreciation and
amortization provides an
indication of the Company's operational
performance before allocating the cost of interest, income taxes and capital
investments. See Non-GAAP Financial Measures section.
EBITDA margin EBITDA divided by sales.
Hedge A risk management technique used to manage interest rate, foreign
currency exchange or other exposures arising from business transactions.
Interest coverage Net earnings before interest and income taxes divided
by interest expense.
IFRS (International Financial Reporting Standards) Effective for the 2011
fiscal year, the consolidated financial statements were prepared in
accordance with International Financial Reporting Standards as issued by
the International Accounting Standards Board. Comparative financial
information for the year ended January 31, 2011 (“2010”) previously reported
in the consolidated financial statements prepared in accordance with
CGAAP has been restated in accordance with the accounting policies and
financial statement presentation adopted under IFRS. Further information
on the transition to IFRS and the impact on the Company's consolidated
financial statements is provided in the 2011 Annual Financial Report
available on SEDAR at www.sedar.com or on the Company's website at
www.northwest.ca.
NSA North Star Air Ltd., a regional airline providing cargo and passenger
services.
Return on Average Equity ("ROE") Net earnings divided by average
shareholders' equity. See Non-GAAP Financial Measures section.
Return on Net Assets ("RONA") Net earnings before interest and income
taxes divided by average net assets employed (total assets less accounts
payable and accrued liabilities, income taxes payable, defined benefit plan
obligations, deferred tax liabilities, and other long-term liabilities). See Non-
GAAP Financial Measures section.
RTW Roadtown Wholesale Trading Ltd. collectively consisting of the
Riteway Food Markets banner, a Cash and Carry store and a significant
wholesale operation.
Same store sales Retail food and general merchandise sales from stores
that have been open more than 52 weeks in the periods being compared,
excluding the impact of foreign exchange. Total same store sales consists
of retail food and general merchandise sales and excludes other sales.
Working capital Total current assets less total current liabilities.
Year The fiscal year ends on January 31. Each fiscal year has 365 days of
operations with the exception of a "leap year" which has 366 days of
operations as a result of February 29. The following table summarizes the
fiscal year:
Fiscal
Year
2018
2017
2016
2015
2014
2013
Year-ended
January 31, 2019
January 31, 2018
January 31, 2017
January 31, 2016
January 31, 2015
January 31, 2014
Fiscal
Year
2012
2011
2010
2009
2008
2007
Year-ended
January 31, 2013
January 31, 2012
January 31, 2011
January 31, 2010
January 31, 2009
January 31, 2008
31ANNUAL REPORT Eleven-Year Financial Summary
Fiscal Year
($ in thousands )
Consolidated Statements of Earnings
Sales - Canadian Operations
Sales - International Operations
Sales - Total
EBITDA(3) - Canadian Operations
EBITDA(3) - International Operations
EBITDA(3) - Total Operations
Amortization - Canadian Operations
Amortization - International Operations
Amortization - Total
Interest
Income taxes
Net earnings attributable to shareholders of the Company
Cash flow from operating activities
Dividends/distributions paid during the year
Capital and intangible asset expenditures
Net change in cash
Consolidated Balance Sheets
Current assets
Property and equipment
Other assets, intangible assets and goodwill
Deferred tax assets
Current liabilities
Long-term debt and other liabilities
Total Equity
Consolidated Dollar Per Share/Unit ($)(5)
Net earnings - basic
Net earnings - diluted
EBITDA(3),(4)
Cash flow from operating activities(4)
Dividends/distributions paid during the year
Equity (basic shares/units outstanding end of year)
Market price at January 31
Statistics at Year End(5)
Number of stores - Canadian
Number of stores - International
Selling square feet (000's) end of year - Canadian Stores
Selling square feet (000's) end of year - International Stores
Sales per average selling square foot - Canadian
Sales per average selling square foot - International
Number of employees - Canadian Operations
Number of employees - International Operations
Average shares/units outstanding (000's)
Shares/Units outstanding at end of fiscal year (000's)
Shares/Units traded during the year (000's)
Financial Ratios
EBITDA(3) (%)
Earnings from operations (EBIT) (%)
Total return on net assets(3) (%)
Return on average equity(3) (%)
Debt-to-equity
Dividends/distributions as % of cash flow from operating activities
Inventory turnover (times per year)
(1) Certain 2017 amounts have been restated upon the adoption of IFRS 15 as
described in Accounting Standards Implemented in 2018. Amounts prior to
2017 have not been restated.
2018
2017 (1)
2016
2015
2014
1,246,133
767,353
2,013,486
114,215
75,128
189,343
44,116
15,319
59,435
13,965
25,311
86,748
127,120
62,329
103,219
13,288
$ 376,829
514,946
98,237
32,909
176,881
424,936
421,104
$
$
$
1.78
1.77
3.89
2.61
1.28
8.39
31.17
193
52
1,571
669
798
1,148
5,672
2,253
48,697
48,751
46,269
9.4
6.4
17.0
22.6
.87:1
49.0
6.0
$ 1,199,473
785,649
1,985,122
112,393
57,231
169,624
39,796
15,857
55,653
10,145
34,135
67,154
141,419
62,315
122,035
(5,083)
$1,125,330
718,763
1,844,093
109,736
56,762
166,498
35,291
13,076
48,367
7,220
33,835
77,076
126,024
60,169
77,745
(7,000)
$
$
$
$
335,003
469,993
91,502
34,450
171,212
377,580
382,156
$ 327,938
358,121
86,909
32,853
152,244
285,792
367,785
1.38
1.36
3.48
2.91
1.28
7.60
29.14
188
51
1,552
668
781
1,169
5,915
2,119
48,680
48,690
38,836
8.5
5.7
16.7
18.3
.82:1
44.1
6.0
$
$
$
1.59
1.57
3.43
2.60
1.24
7.57
29.28
185
47
1,518
676
755
1,063
5,715
1,882
48,524
48,542
49,189
9.0
6.4
20.1
21.8
.62:1
47.7
6.1
$1,089,898
706,137
1,796,035
98,276
53,071
151,347
31,781
12,245
44,026
6,210
31,332
69,779
132,987
58,210
75,983
8,114
$ 335,581
345,881
83,293
29,040
155,501
280,682
357,612
$1,042,168
582,232
1,624,400
100,896
36,942
137,838
30,302
10,070
40,372
6,673
27,910
62,883
115,086
56,180
52,329
6,776
$ 315,840
311,692
68,693
28,074
146,275
248,741
329,283
$
$
$
1.44
1.43
3.12
2.74
1.20
7.37
30.53
181
47
1,463
676
756
1,045
5,482
1,896
48,509
48,523
35,631
8.4
6.0
19.5
20.6
.63:1
43.8
6.2
$
$
$
1.30
1.29
2.85
2.38
1.16
6.80
26.56
178
47
1,422
676
742
849
4,921
1,726
48,432
48,497
24,080
8.5
6.0
18.4
19.3
.61:1
48.8
5.7
(2) The financial results for 2009 and 2008 are reported in accordance with
CGAAP and have not been restated to IFRS.
32THE NORTH WEST COMPANY INC. 2013
2012
2011
2010
CGAAP(2)
2009
CGAAP(2)
2008
$1,022,985 $1,043,050
470,596
1,513,646
106,510
27,207
133,717
29,155
7,994
37,149
6,979
25,701
63,888
128,992
50,320
51,133
11,691
520,140
1,543,125
111,225
27,111
138,336
29,258
9,018
38,276
7,784
28,013
64,263
79,473
54,229
43,207
(16,322)
$1,028,396
466,740
1,495,136
97,998
27,883
125,881
28,745
7,827
36,572
6,026
25,322
57,961
115,469
50,797
46,376
(4,247)
$ 299,071 $ 303,896
274,027
60,567
12,904
190,184
164,960
296,250
286,875
64,969
19,597
209,738
138,334
322,440
$ 295,836
270,370
53,289
7,422
128,002
215,206
283,709
$
$
$
1.33 $
1.32
2.86
1.64
1.12
6.66
25.42
178
48
1,386
696
741 $
767 $
4,839
1,853
48,413
48,426
17,623
1.32
1.32
2.76
2.67
1.04
6.12
23.14
177
46
1,375
660
734
716
4,768
1,568
48,384
48,389
17,831
$
$
$
1.20
1.19
2.60
2.39
1.05
5.86
19.40
183
46
1,466
655
702
713
5,233
1,668
48,378
48,378
22,418
$ 978,662
469,442
1,448,104
98,781
26,983
125,764
27,511
7,981
35,492
6,077
14,539
69,656
114,564
68,700
37,814
3,953
$ 284,789
259,583
55,199
17,017
185,377
144,736
286,475
$
$
$
1.45
1.44
2.61
2.38
1.42
5.92
21.09
184
46
1,445
654
682
718
5,301
1,601
48,180
48,378
24,814
9.0
6.5
20.0
21.0
.57:1
68.2
5.6
8.8
6.4
20.6
22.1
.55:1
39.0
5.8
(3) See Non-GAAP financial measures on page 30.
8.4
6.0
18.5
20.1
.62:1
44.0
5.7
8.7
6.2
17.9
24.1
.67:1
60.0
5.6
(4) Based on average basic shares/units outstanding.
$ 921,621
522,745
1,444,366
96,599
33,675
130,274
26,727
8,423
35,150
5,470
7,841
81,813
107,973
67,245
45,294
1,548
$ 285,843
258,928
73,177
5,852
171,946
161,928
289,926
$ 899,263
493,371
1,392,634
90,606
31,651
122,257
24,501
7,553
32,054
8,307
6,518
75,378
90,178
67,730
46,118
3,998
$ 285,088
248,856
68,632
6,597
172,216
162,547
274,410
$
$
1.71
1.69
2.73
2.26
1.39
6.04
17.94
1.58
1.56
2.56
1.89
1.40
5.75
16.14
Fiscal Year
($ in thousands )
Consolidated Statements of Earnings
Sales - Canadian Operations
Sales - International Operations
Sales - Total
EBITDA(3) - Canadian Operations
EBITDA(3) - International Operations
EBITDA(3) - Total Operations
Amortization - Canadian Operations
Amortization - International Operations
Amortization - Total
Interest
Income taxes
Net earnings attributable to shareholders of the Company
Cash flow from operating activities
Dividends/distributions paid during the year
Capital and intangible asset expenditures
Net change in cash
Consolidated Balance Sheets
Current assets
Property and equipment
Other assets, intangible assets and goodwill
Deferred tax assets
Current liabilities
Long-term debt and other liabilities
Total equity
Consolidated Dollar Per Share/Unit ($)(5)
Net earnings - basic
Net earnings - diluted
EBITDA(3),(4)
Cash flow from operating activities(4)
Dividends/distributions paid during the year(4)
Equity (basic shares/units outstanding at end of year)
Market price at January 31
Statistics at Year End(5)
$
$
$
$
178
43
1,396
617
651
723
5,408
1,339
47,718
47,722
16,402
180
46
1,423
653
654
752
5,358
1,545
47,799
48,017
20,080
Number of stores - Canadian
Number of stores - International
Selling square feet (000's) end of year - Canadian Stores
Selling square feet (000's) end of year - International Stores
Sales per average selling square foot - Canadian
Sales per average selling square foot - International
Number of employees - Canadian Operations
Number of employees - International Operations
Average shares/units outstanding (000's)
Shares/Units outstanding at end of fiscal year (000's)
Shares/Units traded during the year (000's)
Financial Ratios
EBITDA(3) (%)
8.8
Earnings from operations (EBIT) (%)
6.5
Total return on net assets(3) (%)
19.8
Return on average equity(3) (%)
28.6
.78:1
Debt-to-equity
75.1 Dividends/distributions as % of cash flow from operating activities
Inventory turnover (times per year)
5.8
(5) Effective January 1, 2011, North West Company Fund converted to a share corporation called The North
West Company Inc. The comparative information refers to units of the Fund.
9.0
6.6
18.7
29.3
.72:1
62.3
5.6
33ANNUAL REPORT Management’s Responsibility for Financial Statements
Independent Auditor’s Report
The management of The North West Company Inc. is responsible
for the preparation, presentation and integrity of the accompanying
consolidated financial statements and all other information in the
annual report. The consolidated financial statements have been
prepared by management in accordance with International Financial
Reporting Standards as issued by the International Accounting
Standards Board and include certain amounts that are based on the
best estimates and judgment by management.
In order to meet its responsibility and ensure integrity of financial
information, management has established a code of business ethics,
and maintains appropriate internal controls and accounting systems.
An internal audit function is maintained that is designed to provide
reasonable assurance that assets are safeguarded, transactions are
authorized and recorded and that the financial records are reliable.
Ultimate responsibility for financial reporting to shareholders rests
with the Board of Directors. The Audit Committee of the Board of
Directors, consisting of independent Directors, meets periodically with
management and with the internal and external auditors to review the
audit results, internal controls and the selection and consistent
application of appropriate accounting policies. Internal and external
auditors have unlimited access to the Audit Committee. The Audit
Committee meets separately with management and the external
auditors to review the financial statements and other contents of the
annual report and recommend approval by the Board of Directors. The
Audit Committee also recommends the independent auditor for
appointment by the shareholders.
PricewaterhouseCoopers LLP, an independent firm of auditors
appointed by the shareholders, have completed their audit and
submitted their report as follows.
To the Shareholders of The North West Company Inc.
Our opinion
In our opinion, the accompanying consolidated financial statements
present fairly, in all material respects, the financial position of The North
West Company Inc. and its subsidiaries, (together, the Company) as at
January 31, 2019 and 2018, and its financial performance and its cash
flows for the years then ended in accordance with International
Financial Reporting Standards (IFRS).
What we have audited
The Company's consolidated financial statements comprise:
• the consolidated balance sheets as at January 31, 2019 and 2018;
• the consolidated statements of earnings for the years then ended;
• the consolidated statements of comprehensive income for the years
then ended;
• the consolidated statements of changes in shareholders' equity for
the years then ended;
• the consolidated statements of cash flows for the years then ended;
and
• the notes to the consolidated financial statements, which include a
summary of significant accounting policies.
Basis for opinion
We conducted our audit in accordance with Canadian generally
accepted auditing standards. Our responsibilities under those
standards are further described in the Auditor's responsibilities for the
audit of the consolidated financial statements section of our report.
We believe that the audit evidence we have obtained is sufficient and
appropriate to provide a basis for our opinion.
Edward S. Kennedy
PRESIDENT & CEO
THE NORTH WEST COMPANY INC.
John D. King, CPA, CA, CMA
EXECUTIVE VICE-PRESIDENT &
CHIEF FINANCIAL OFFICER
THE NORTH WEST COMPANY INC.
April 10, 2019
Independence
We are independent of the Company in accordance with the ethical
requirements that are relevant to our audit of the consolidated financial
statements
fulfilled our other ethical
responsibilities in accordance with these requirements.
in Canada.
We have
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.
34THE NORTH WEST COMPANY INC.
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.
• 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 Nicole Murray.
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:
CHARTERED PROFESSIONAL ACCOUNTANTS
WINNIPEG, MANITOBA
April 10, 2019
•
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.
35CONSOLIDATED FINANCIAL STATEMENTS Consolidated Balance Sheets
($ in thousands)
CURRENT ASSETS
Cash
Accounts receivable (Note 5)
Inventories (Note 6)
Prepaid expenses
NON-CURRENT ASSETS
Property and equipment (Note 7)
Goodwill (Note 8)
Intangible assets (Note 8)
Deferred tax assets (Note 9)
Other assets (Note 10)
TOTAL ASSETS
CURRENT LIABILITIES
Accounts payable and accrued liabilities
Current portion of long-term debt (Note 11)
Income tax payable (Note 9)
NON-CURRENT LIABILITIES
Long-term debt (Note 11)
Defined benefit plan obligation (Note 12)
Deferred tax liabilities (Note 9)
Other long-term liabilities
TOTAL LIABILITIES
SHAREHOLDERS’ EQUITY
Share capital (Note 15)
Contributed surplus
Retained earnings
Accumulated other comprehensive income
Equity attributable to The North West Company Inc.
Non-controlling interests
TOTAL EQUITY
TOTAL LIABILITIES & EQUITY
See accompanying notes to consolidated financial statements.
Approved on behalf of the Board of Directors
“Eric L. Stefanson, FCPA, FCA”
DIRECTOR
“H. Sanford Riley”
DIRECTOR
January 31, 2019
January 31, 2018
$
38,448
90,323
236,317
11,741
376,829
514,946
45,203
39,199
32,909
13,835
646,092
$
25,160
80,765
222,072
7,006
335,003
469,993
41,231
37,628
34,450
12,643
595,945
$ 1,022,921
$ 930,948
$
175,726
$ 170,166
900
255
176,881
365,857
28,969
9,007
21,103
424,936
601,817
173,681
3,530
211,191
20,132
408,534
12,570
421,104
—
1,046
171,212
313,549
34,095
6,468
23,468
377,580
548,792
172,619
2,570
181,844
12,918
369,951
12,205
382,156
$ 1,022,921
$ 930,948
36THE NORTH WEST COMPANY INC.
Consolidated Statements of Earnings
($ in thousands, except per share amounts)
SALES
Cost of sales
Gross profit
Selling, operating and administrative expenses (Notes 16, 17)
Earnings from operations
Interest expense (Note 18)
Earnings before income taxes
Income taxes (Note 9)
NET EARNINGS FOR THE YEAR
NET EARNINGS ATTRIBUTABLE TO
The North West Company Inc.
Non-controlling interests
TOTAL NET EARNINGS
NET EARNINGS PER SHARE (Note 20)
Basic
Diluted
WEIGHTED-AVERAGE NUMBER OF SHARES OUTSTANDING (000's)
Basic
Diluted
(1) Certain prior period figures have been reclassified as described in Note 3.
See accompanying notes to consolidated financial statements.
Year Ended
Year Ended
January 31, 2019 January 31, 2018(1)
$ 2,013,486
$ 1,985,122
(1,372,943)
(1,360,381)
640,543
(510,635)
129,908
(13,965)
115,943
(25,311)
624,741
(510,770)
113,971
(10,145)
103,826
(34,135)
$
90,632
$
69,691
86,748
3,884
90,632
67,154
2,537
69,691
$
$
1.78
1.77
$
$
1.38
1.36
48,697
49,144
48,680
49,275
37CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Statements of Comprehensive Income
($ in thousands)
NET EARNINGS FOR THE YEAR
Other comprehensive income/(loss), net of tax:
Items that may be reclassified to net earnings:
Exchange differences on translation of foreign controlled subsidiaries
Items that will not be subsequently reclassified to net earnings:
Remeasurements of defined benefit plans (Note 12)
Remeasurements of defined benefit plan of equity investee
Total other comprehensive income/(loss), net of tax
Year Ended
Year Ended
January 31, 2019
January 31, 2018
$
90,632
$
69,691
8,049
4,952
(24)
12,977
(7,934)
1,175
(173)
(6,932)
COMPREHENSIVE INCOME FOR THE YEAR
$
103,609
$
62,759
OTHER COMPREHENSIVE INCOME/(LOSS) ATTRIBUTABLE TO
The North West Company Inc.
Non-controlling interests
TOTAL OTHER COMPREHENSIVE INCOME/(LOSS)
COMPREHENSIVE INCOME ATTRIBUTABLE TO
The North West Company Inc.
Non-controlling interests
TOTAL COMPREHENSIVE INCOME
See accompanying notes to consolidated financial statements.
$
$
12,142
835
12,977
$
$
(6,932)
—
(6,932)
$
98,890
$
60,222
4,719
2,537
$
103,609
$
62,759
38THE NORTH WEST COMPANY INC.
Consolidated Statements of Changes in Shareholders' Equity
($ in thousands)
Share
Capital
Contributed
Surplus
Retained
Earnings
AOCI (1)
Total
Non-
Controlling
Interests
Total
Equity
Balance at January 31, 2018
$ 172,619
$
2,570
$ 181,844
$ 12,918
$ 369,951 $
12,205 $ 382,156
Net earnings for the year
Other comprehensive income
Other comprehensive income/(loss)
of equity investee
Comprehensive income
Acquisition non-controlling
interests
Equity settled share-based
payments (Note 13)
Dividends (Note 19)
Issuance of common shares
(Note 15)
—
—
—
—
—
—
—
—
—
—
—
—
2,022
—
86,748
4,952
(24)
91,676
—
—
(62,329)
1,062
1,062
(1,062)
—
960
(62,329)
—
7,214
—
7,214
—
—
—
—
—
86,748
12,166
3,884
835
90,632
13,001
(24)
—
(24)
98,890
4,719
103,609
—
(400)
(400)
2,022
—
2,022
(62,329)
(3,954)
(66,283)
—
—
—
(60,307)
(4,354)
(64,661)
Balance at January 31, 2019
$173,681
$
3,530
$ 211,191
$20,132 $408,534 $ 12,570 $ 421,104
Balance at January 31, 2017
$ 168,283
$
2,647
$ 176,003
$ 20,852
$ 367,785 $
— $ 367,785
Net earnings for the year
Other comprehensive income/(loss)
Other comprehensive income/(loss)
of equity investee
Comprehensive income
Acquisition of subsidiary with non-
controlling interest (Note 24)
Equity settled share-based
payments (Note 13)
Dividends (Note 19)
Issuance of common shares
(Note 15)
—
—
—
—
—
—
—
4,336
4,336
—
—
—
—
—
259
—
(336)
(77)
67,154
1,175
—
(7,934)
67,154
(6,759)
(173)
—
(173)
2,537
—
—
69,691
(6,759)
(173)
68,156
(7,934)
60,222
2,537
62,759
—
—
(62,315)
—
(62,315)
—
—
—
—
—
—
12,150
12,150
259
—
259
(62,315)
(2,482)
(64,797)
4,000
(58,056)
—
4,000
9,668
(48,388)
Balance at January 31, 2018
$ 172,619
$
2,570
$ 181,844
$ 12,918
$ 369,951 $
12,205 $ 382,156
(1) Accumulated Other Comprehensive Income
See accompanying notes to consolidated financial statements.
39CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Statements of Cash Flows
($ in thousands)
CASH PROVIDED BY (USED IN)
Operating activities
Net earnings for the year
Adjustments for:
Amortization (Note 7, 8)
Provision for income taxes (Note 9)
Interest expense (Note 18)
Equity settled share option expense (Note 13)
Gain on partial insurance settlement (Note 16)
Taxes paid
Loss on disposal of property and equipment
Change in non-cash working capital
Change in other non-cash items
Cash from operating activities
Investing activities
Purchase of property and equipment (Note 7)
Business acquisitions (Note 24)
Intangible asset additions (Note 8)
Proceeds from disposal of property and equipment
Proceeds from interim insurance settlement on
property and equipment
Cash used in investing activities
Financing activities
Debt issuance (Note 11)
Net increase/(decrease) in long-term debt (Note 11)
Dividends (Note 19)
Dividends to non-controlling interests (Note 19)
Interest paid
Cash (used in)/from financing activities
Effect of changes in foreign exchange rates on cash
NET CHANGE IN CASH
Cash, beginning of year
CASH, END OF YEAR
See accompanying notes to consolidated financial statements.
Year Ended
Year Ended
January 31, 2019
January 31, 2018
$
90,632
$
69,691
59,435
25,311
13,965
2,022
(16,955)
(26,446)
1,232
149,196
(20,792)
(1,284)
127,120
(93,555)
(400)
(9,664)
4,033
18,793
(80,793)
—
44,785
(62,329)
(3,954)
(12,254)
(33,752)
713
13,288
25,160
55,653
34,135
10,145
259
—
(36,213)
552
134,222
2,271
4,926
141,419
(114,948)
(51,204)
(7,087)
370
7,008
(165,861)
100,000
(9,092)
(62,315)
(2,482)
(6,183)
19,928
(569)
(5,083)
30,243
$
38,448
$
25,160
40THE NORTH WEST COMPANY INC.
Notes to
Consolidated
Financial
Statements
($ IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
JANUARY 31, 2019 AND 2018
1. ORGANIZATION
The North West Company Inc. (NWC or the Company) is a
corporation amalgamated under the Canada Business Corporations
Act (CBCA) and governed by the laws of Canada. The Company,
through its subsidiaries, is a leading retailer to rural and remote
communities and urban neighbourhoods in the following regions:
northern Canada, western Canada, rural Alaska, the South Pacific and
the Caribbean. These regions comprise two reportable operating
segments: Canadian Operations and International Operations.
In 2017, the Company acquired 76% of the outstanding shares of
Roadtown Wholesale Trading Ltd. (RTW), operating primarily as
Riteway Food Markets in the British Virgin Islands. The Company also
acquired 100% of the outstanding common shares of North Star Air
Ltd., a Thunder Bay based airline providing cargo and passenger
services within northwestern Ontario, Canada. See Note 24 for a
discussion of these acquisitions.
The address of its registered office is 77 Main Street, Winnipeg,
Manitoba. These consolidated financial statements have been
approved for issue by the Board of Directors of the Company on
April 10, 2019.
2. BASIS OF PREPARATION
(A) Statement of Compliance
These consolidated financial
statements have been prepared in accordance with International
Financial Reporting Standards (IFRS), as issued by the International
Accounting Standards Board (IASB).
(B) Basis of Measurement The consolidated financial statements
have been prepared on a going concern basis, under the historical
cost convention, except for the following which are measured at
fair value, as applicable:
•
•
•
Liabilities for share-based payment plans (Note 13)
Defined benefit pension plan (Note 12)
Assets and liabilities acquired in a business
combination (Note 24)
The methods used to measure fair values are discussed further in
the notes to these financial statements.
(C) Functional and Presentation Currency The presentation
currency of the consolidated financial statements is Canadian
dollars, which is the Company’s functional currency. All financial
information is presented in Canadian dollars, unless otherwise
stated, and has been rounded to the nearest thousand.
3. SIGNIFICANT ACCOUNTING POLICIES
The accounting policies set out below have been applied to all years
presented in these consolidated financial statements, and have been
applied consistently by both the Company and its subsidiaries using
uniform accounting policies for like transactions and other events in
similar circumstances.
(A) Basis of Consolidation Subsidiaries are entities controlled, either
directly or indirectly, by the Company. Control is established when
the Company has rights to an entity's variable returns, and has the
ability to affect those returns through its power over the entity.
Subsidiaries are fully consolidated from the date on which control
is transferred to the Company until the date that control ceases.
The Company assesses control on an ongoing basis.
Net Earnings or loss and each component of other
comprehensive income are attributed to the shareholders of the
Company and
Total
the non-controlling
comprehensive income is attributed to the shareholders of the
Company and to the non-controlling interests even if this results
in the non-controlling interests having a deficit balance on
consolidation.
interests.
to
A joint arrangement can take the form of a joint operation
or a joint venture. Joint ventures are those entities over which the
Company has joint control of the rights to the net assets of the
arrangement, rather than rights to its assets and obligations for
its liabilities. The Company’s 50% interest in Transport Nanuk Inc.
has been classified as a joint venture. Its results are included in
the consolidated statements of earnings using the equity method
of accounting. The consolidated financial statements include the
Company's share of both earnings and other comprehensive
income from the date that significant influence or joint control
commences until the date that it ceases. Joint ventures are carried
in the consolidated balance sheets at cost plus post-acquisition
changes in the Company’s share of net assets of the entity, less
any impairment in value.
All significant inter-company amounts and transactions have
been eliminated.
(B) Business Combinations Business combinations are accounted
for using the acquisition method of accounting.
The
consideration transferred is measured at the fair value of the assets
given, equity instruments issued and liabilities assumed at the
date of exchange. Acquisition costs incurred are expensed and
included in selling, operating and administrative expenses. Any
contingent consideration to be transferred by the acquirer will be
recognized at fair value at the acquisition date. Subsequent
changes to the fair value of the contingent consideration which
is deemed to be an asset or liability will be recognized in either
net earnings or as a change to other comprehensive income (OCI).
If the contingent consideration is classified as equity, it will not be
remeasured and settlement is accounted for within equity.
41NOTES TO CONSOLDATED FINANCIAL STATEMENTS
Identifiable assets acquired, and liabilities and contingent
liabilities assumed in a business combination, are measured
initially at their fair values at the acquisition date irrespective of
the extent of any non-controlling interest. The excess of the cost
of the acquisition over the fair value of the Company’s share of
the identifiable net assets acquired is recorded as goodwill. If the
cost of acquisition is less than the fair value of the net assets of
the subsidiary acquired, the difference is recognized directly in
the consolidated statement of earnings.
Non-controlling interests are measured either at fair value or
their proportionate share of the acquiree's identifiable net assets
at the date of acquisition.
(C) Revenue Recognition Revenue on the sale of goods and
services is recorded at the time the sale is made or service is
rendered to the customer. Sales are presented net of tax, returns
and discounts and are measured at the fair value of the
consideration received or receivable from the customer for the
products sold or services supplied. Service charges on customer
account receivables are accrued each month on balances
outstanding at each account’s billing date.
(D) Inventories Inventories are valued at the lower of cost and net
realizable value. The cost of warehouse inventories is determined
using the weighted-average cost method. The cost of retail
inventories is determined primarily using the retail method of
accounting for general merchandise inventories and the cost
method of accounting for food inventories on a first-in, first-out
basis. Cost includes the cost to purchase goods net of vendor
allowances plus other costs incurred in bringing inventories to
their present location and condition. Net realizable value is
estimated based on the amount at which inventories are
expected to be sold, taking into consideration fluctuations in retail
prices due to obsolescence, damage or seasonality.
Inventories are written down to net realizable value if net
When
realizable value declines below carrying amount.
circumstances that previously caused inventories to be written
down below cost no longer exist or when there is clear evidence
of an increase in selling price, the amount of the write-down
previously recorded is reversed.
(E) Vendor Rebates Consideration received from vendors related
to the purchase of merchandise is recorded on an accrual basis
as a reduction in the cost of the vendor’s products and reflected
as a reduction of cost of sales and related inventory when it is
probable they will be received and the amount can be reliably
estimated.
(F) Property and Equipment Property and equipment are stated
at cost less accumulated amortization and any impairment losses.
Cost includes any directly attributable costs, borrowing costs on
qualifying construction projects, and the costs of dismantling and
removing the items and restoring the site on which they are
located. When major components of an item of property and
equipment have different useful lives, they are accounted for as
separate items. Amortization methods, useful lives and residual
values are reviewed at each reporting date and adjusted if
appropriate. Assets under construction and land are not
amortized. Amortization is calculated from the dates assets are
available for use using the straight-line method to allocate the
cost of assets less their residual values over their estimated useful
lives.
Estimated useful lives of Property and Equipment are as follows:
Buildings 3% – 8%
Leasehold improvements 3% – 20%
Aircraft 3.3% – 20%
Fixtures and equipment 8% – 20%
Computer equipment 12% – 33%
Major aircraft maintenance overhaul expenditures, including
labour, are capitalized and depreciated over the expected life of
the maintenance cycle. Any remaining carrying value, if any, is
derecognized when the major maintenance overhaul occurs. All
other costs associated with maintenance of aircraft fleet assets are
charged to the statement of earnings as incurred.
(G) Impairment of Non-financial Assets Tangible assets and
definite life intangible assets are reviewed at each balance sheet
date to determine whether events or conditions indicate that their
carrying amount may not be recoverable. If any such indication
exists, the recoverable amount of the asset, which is the higher of
its fair value less costs of disposal and its value in use, is estimated
in order to determine the extent of the impairment loss. Where
the asset does not generate cash flows that are independent from
other assets, the Company estimates the recoverable amount of
the cash-generating unit (CGU) to which the asset belongs. For
tangible and intangible assets excluding goodwill, the CGU is the
smallest group of assets that generates cash inflows from
continuing use that are largely independent of the cash inflows
of other assets or groups of assets. CGU's may comprise individual
stores or groups of stores.
Goodwill and indefinite life intangible assets are not
amortized but are subject to an impairment test annually and
whenever indicators of impairment are detected. Goodwill is
allocated to CGUs that are expected to benefit from the synergies
of the related business combination and represents the lowest
level within the Company at which goodwill is monitored for
internal management purposes. The goodwill asset balance
largely relates to the Company's acquired subsidiary, Cost-U-Less,
and is allocated to the International Operations operating
segment.
Any impairment charge is recognized in the consolidated
statement of earnings in the period in which it occurs, to the
extent that the carrying value exceeds its recoverable amount.
Where an impairment loss other than an impairment loss on
goodwill subsequently reverses due to a change in the original
estimate, the carrying amount of the asset is increased to the
revised estimate of its recoverable amount. Impairment charges
on goodwill are not reversed.
All impairment losses are recognized in the consolidated
statement of earnings. An impairment loss, except an impairment
loss related to goodwill, is reversed if the reversal can be related
objectively to an event occurring after the impairment loss was
recognized.
(H) Leases Leases in which a significant portion of the risks and
rewards of ownership are retained by the lessor are accounted for
as operating leases. Assets leased under operating leases are not
recorded on the consolidated balance sheets. Rental payments
are recorded in selling, operating and administrative expenses in
the consolidated statements of earnings. Lease incentives
received are recognized as part of the total lease expense, over
the term of the lease.
42THE NORTH WEST COMPANY INC.
Leases in which the Company has substantially all of the risks
and rewards of ownership are accounted for as finance leases. At
commencement, finance leases are capitalized at the lower of the
fair value of the leased property and the present value of minimum
lease payments, and are recorded in property and equipment on
the consolidated balance sheets. Finance lease liabilities are
recorded in long-term debt and are reduced by the amount of
the lease payment net of imputed interest (finance charges).
(I) Borrowing Costs Borrowing costs directly attributable to the
acquisition or construction of qualifying assets are capitalized as
part of the cost of the respective asset until it is ready for its
intended use. Qualifying assets are those assets that necessarily
take a substantial period of time to prepare for their intended use.
Borrowing costs are capitalized based on the Company’s
weighted-average cost of borrowing. All other borrowing costs
are expensed as incurred.
(J) Goodwill Goodwill represents the excess of the consideration
transferred over the fair value of the identifiable assets, including
intangible assets, and liabilities of the acquiree at the date of
acquisition. Goodwill is not amortized but is subject to an
impairment test annually and whenever indicators of impairment
are detected. Goodwill is carried at cost less accumulated
impairment losses.
(K)
Intangible Assets Intangible assets with finite lives are carried
at cost less accumulated amortization and any impairment loss.
Amortization is recorded on a straight-line basis over the term of
the estimated useful life of the asset as follows:
Software
Non-compete agreements
3 – 7 years
3 – 5 years
Intangible assets with indefinite lives comprise the Cost-U-Less
and RTW banners. These assets are not amortized but instead
tested for impairment annually or more frequently if indicators of
impairment are identified.
(L) Share-based Payment Transactions
Equity settled plans Certain stock options and performance share
units settled in common shares are equity settled share-based
payment plans. The grant date fair values of these benefits are
recognized as an employee expense over the vesting period, with
corresponding increases in equity.
The fair value of these plans is determined using an option
pricing model. Market conditions attached to certain equity-
settled share-based payments are taken into account when
estimating the fair value of the equity instruments granted. Upon
exercise or settlement of equity-based instruments, consideration
received, if any, together with amounts previously recorded in
contributed surplus are recorded as an increase to share capital.
Cash settled plans Certain stock options, certain Performance
Share Units, the Executive Deferred Share Unit Plan and the
Director Deferred Share Unit Plan are cash settled share-based
payments. These plans are measured at fair value at each balance
sheet date and a charge or recovery recognized through the
consolidated statement of earnings over the vesting period. A
corresponding adjustment is reflected in accounts payable and
accrued liabilities or other long-term liabilities.
Estimates related to vesting conditions are reviewed
regularly and the value of the charges under both cash settled
and equity settled plans are adjusted in the consolidated
statement of earnings to reflect expected and actual levels of
benefits vesting.
(M) Foreign Currency Translation The accounts of
foreign
operations have been translated into the presentation currency,
Canadian dollars. Assets and liabilities are translated at the period-
end exchange rate, and revenues and expenses at the average
rate for the period. Foreign exchange gains or losses arising from
the translation of the net investment in foreign operations and
the portion of the U.S. denominated borrowings designated as a
hedge against this investment are recorded in equity as other
comprehensive income. Foreign exchange gains or losses
recorded in accumulated other comprehensive income (AOCI) are
recognized in net earnings when there is a reduction in the net
investment in foreign operations.
Items included in the financial statements of the Company
and its subsidiaries are measured using the currency of the
primary economic environment in which the entity operates
(functional currency). Transactions in foreign currencies are
translated to the respective functional currencies at exchange
rates approximating the rates in effect at the transaction dates.
Monetary assets and liabilities denominated in foreign currencies
at the reporting date are retranslated to the functional currency
at the exchange rate ruling at that date.
(N) Income Taxes Income tax expense includes taxes payable on
current earnings and changes in deferred tax balances. Current
income tax expense is the expected tax payable on taxable
income for the period, using tax rates enacted or substantively
enacted at the reporting date, and any adjustment to tax payable
in respect of previous periods.
The Company accounts for deferred income taxes using the
liability method of tax allocation. Under the liability method,
deferred income tax assets and liabilities are determined based
on the temporary differences between the financial statement
carrying values and tax bases of assets and liabilities, and are
measured using substantively enacted tax rates and laws that are
expected to be in effect in the periods in which the deferred
income tax assets or liabilities are expected to be realized or
settled. The measurement of deferred tax reflects the tax
consequences that would follow the manner in which the
Company expects to settle the carrying amount of its assets and
liabilities. A deferred tax asset is recognized to the extent that it
is probable that future taxable earnings will be available against
which the temporary difference can be utilized. Deferred tax
assets are reviewed at each reporting date and are reduced to the
extent that it is no longer probable that the related tax benefit will
be realized. Deferred tax assets and liabilities are offset when they
relate to income taxes levied by the same taxation authority and
there is a legally enforceable right to offset the amounts.
Income tax expense is recognized in the consolidated
statement of earnings, except to the extent that it relates to items
recognized directly in other comprehensive income or in equity,
in which case the related income tax expense is also recognized
in other comprehensive income or in equity respectively.
43NOTES TO CONSOLDATED FINANCIAL STATEMENTS
(O) Employee Benefits The Company maintains either a defined
benefit or defined contribution pension plan for the majority of
its Canadian employees, and an employee savings plan for its U.S.
employees. Other benefits include employee bonuses, employee
share purchase plans and termination benefits.
(P) Provisions A provision is recognized if, as a result of a past event,
the Company has a present legal or constructive obligation that
can be estimated reliably, and it is probable that an outflow of
economic benefits will be required to settle the obligation.
(Q) Financial Instruments
Defined Benefit Pension Plan The actuarial determination of the
defined benefit obligations for pension benefits uses the
projected unit credit method prorated on services which
incorporates management’s best estimate of the discount rate,
salary escalation, retirement rates, termination rates and
retirement ages of employees. The discount rate used to value
the defined benefit obligation is derived from a portfolio of high
quality Corporate AA bonds denominated in the same currency
in which the benefits are expected to be paid and with terms to
maturity that, on average, match the terms of the defined benefit
plan obligations. Bonds included in the curve are denominated
in the currency in which the benefits will be paid that have terms
to maturity approximating the terms of the related pension
liability.
The amount recognized in the consolidated balance sheets
at each reporting date represents the present value of the defined
benefit obligation, and is reduced by the fair value of plan assets.
Any recognized asset or surplus is limited to the present value of
economic benefits available in the form of any future refunds from
the plan or reductions in future contributions. To the extent that
there is uncertainty regarding entitlement to the surplus, no asset
is recorded. The Company’s funding policy is in compliance with
statutory regulations and amounts funded are deductible for
income tax purposes.
The actuarially determined expense for current service is
recognized annually in the consolidated statement of earnings.
The actuarially determined net interest costs on the net defined
benefit plan obligation are recognized in interest expense.
All actuarial remeasurements arising from defined benefit
plans are recognized in full in the period in which they arise in the
consolidated statements of comprehensive income, and are
immediately recognized in retained earnings. The effect of the
asset ceiling is also recognized in other comprehensive income.
Defined Contribution Pension Plans The Company sponsors
defined contribution pension plans for eligible employees where
fixed contributions are paid into a registered plan. There is no
obligation for the Company to pay any additional amount into
these plans. Contributions to the defined contribution pension
plans are expensed as incurred.
Short-term Benefits An undiscounted liability is recognized for the
amount expected to be paid under short-term incentive plans or
employee share purchase plans if the Company has a present legal
or constructive obligation to pay this amount as a result of past
service provided by the employee and the obligation can be
estimated reliably.
Termination Benefits Termination benefits are expensed at the
earlier of when the Company can no longer withdraw the offer of
those benefits and when the Company recognizes costs for a
restructuring. If the effect is significant, benefits are discounted
to present value.
Recognition and derecognition The Company initially recognizes
financial instruments on the trade date at which it becomes a
party to the contractual provisions of the instrument. Financial
instruments are initially measured at fair value. For financial assets
or financial liabilities not at fair value through provide or loss,
transaction costs that are directly attributable to the acquisition
or issue of the financial asset or financial liabilities are included in
the initial fair value.
Financial assets are derecognized when the contractual
rights to receive cash flows and benefits related from the financial
asset expire, or the Company transfers the control or substantially
all the risks and rewards of ownership of the financial asset to
another party. Financial liabilities are derecognized when
obligations under the contract expire, are discharged or cancelled.
Financial assets and liabilities are offset and the net amount
presented in the consolidated balance sheets when the Company
has a legal right to offset the amounts and intends to either settle
on a net basis or realize the asset and settle the liability
simultaneously.
Financial assets On initial recognition, all financial assets are
classified to be subsequently measured at amortized cost, fair
value through other comprehensive income or fair value through
profit and loss. The Company’s financial assets comprised of cash,
accounts receivable and other financial assets are classified as
amortized cost. Interest revenue, consisting primarily of service
charge income on customer accounts receivable, is included in
sales in the consolidated statements of earnings. The Company
has no significant assets measured at fair value.
The Company recognizes loss allowances for expected credit
losses (“ECL’s") on accounts receivable. The change in ECL’s is
recognized in net earnings and reflected as an allowance against
accounts receivable. The Company uses historical trends, timing
of recoveries and management’s judgment as to whether current
economic and credit conditions are such that actual losses are
likely to differ from historical trends. Certain receivables are also
individually assessed for lifetime expected credit losses.
Financial liabilities On initial recognition, financial liabilities are
classified to be subsequently measured at amortized cost or fair
value. The Company’s financial liabilities comprised of long-term
debt, accounts payable and accrued liabilities and certain other
liabilities are classified as amortized cost. Interest expense is
recorded using the effective interest rate method and included
in the consolidated statements of earnings as interest expense.
The Company has no significant liabilities measured at fair value.
Hedging The Company is exposed to financial risks associated with
movements in foreign exchange rates. The Company uses a net
investment hedge to counterbalance gains and losses arising on
the retranslation of foreign operations with gains and losses on a
financial liability. The Company has designated certain U.S.
investment in
denominated debt as a hedge of
international operations.
its net
44THE NORTH WEST COMPANY INC.
To the extent that the hedging relationship is effective, the
foreign exchange gains and losses arising from translation of this
debt are included in other comprehensive income and presented
within shareholders’ equity as accumulated other comprehensive
income. These gains and losses are subsequently recognized in
earnings when the hedged item affects earnings.
To qualify for hedge accounting, the Company documents
its risk management strategy, the relationship between the
hedging instrument and the hedged item and the nature of the
risks being hedged.
The Company also documents the
assessment of the effectiveness of the hedging relationship to
show that the hedge has been and will likely be highly effective
on an ongoing basis.
Hedge accounting is discontinued when the hedging
instrument expires or is sold, terminated, exercised, or no longer
qualifies for hedge accounting. At that time, any cumulative gain
or loss on the hedging instrument recognized in accumulated
other comprehensive income is retained in equity until the
forecasted transaction occurs. If a hedged transaction is no longer
expected to occur, the net cumulative gain or loss recognized is
other comprehensive income is transferred to the consolidated
statements of earnings for the period.
(R) Cash Cash comprises cash on hand and balances with banks.
(S) Net Earnings Per Share Basic net earnings per share are
calculated by dividing the net earnings attributable to
shareholders of The North West Company Inc. by the weighted-
average number of common shares outstanding during the
period. Diluted net earnings per share is determined by adjusting
these net earnings and the weighted-average number of
common shares outstanding for the effects of all potentially
dilutive shares, which comprise shares issued under the Share
Option Plan and Director Deferred Share Unit Plan.
(T) Dividends Dividends declared and payable to the Company's
shareholders are recognized as a liability in the consolidated
balance sheets in the period in which distributions are declared.
in conformity with
financial statements
(U) Use of Estimates, Assumptions & Judgment The preparation
IFRS requires
of
management to make estimates, assumptions and judgments
that affect the application of accounting policies, the reported
amounts of revenues and expenses during the reporting period
and disclosure of contingent assets and
in the
consolidated financial statements and notes. Judgment has been
used in the application of accounting policy and to determine if
a transaction should be recognized or disclosed in these financial
statements while estimates and assumptions have been used to
measure balances recognized or disclosed.
liabilities
Estimates, assumptions and judgments are based on
management’s historical experience, best knowledge of current
events, conditions and actions that the Company may undertake
in the future and other factors that management believes are
reasonable under the circumstances. Estimates and underlying
assumptions are reviewed on an ongoing basis. Certain of these
estimates
judgments by
management about matters that are uncertain and changes in
these estimates could materially
impact the consolidated
financial statements and notes. Revisions to accounting estimates
are recognized in the period in which the estimates are reviewed
and in any future periods affected.
require subjective or complex
The areas that management believes involve a higher degree
of judgment or complexity, or areas where the estimates and
assumptions may have the most significant impact on the
amounts recognized in the consolidated financial statements
include the following:
•
•
•
•
•
•
•
•
Allowance for doubtful accounts is estimated based on an
expected credit loss impairment model based on historical
trends, timing of recoveries and management's judgment as
to whether current economic and credit conditions are such
that actual losses are likely to differ from historical trends
(Notes 5, 14)
Inventories are remeasured based on the lower of cost and
net realizable value (Note 6)
Amortization methods
for property and equipment,
including aircraft, are based on management's estimate of
the most appropriate method to reflect the pattern of an
asset's future economic benefit. This includes judgment of
what asset components constitute a significant cost in
relation to the total cost of an asset (Note 7)
Impairment of long-lived assets is influenced by judgment
in determining indicators of impairment and estimates used
to measure impairment losses, if any (Note 7)
Recognition of identifiable assets and liabilities acquired in
a business combination requires judgment as to their fair
value (Note 24)
Goodwill and indefinite life intangible asset impairment is
dependent on judgment used to identify indicators of
impairment and estimates used to measure impairment
losses, if any (Notes 8, 24)
Income taxes have judgment applied to determine when tax
losses, credits and provisions are recognized based on tax
rules in various jurisdictions (Note 9)
Defined benefit pension plan obligation and expense
depends on assumptions used in the actuarial valuation
(Note 12)
(V) Share capital
Common shares are classified as equity.
Incremental costs directly attributable to the issue of ordinary
shares are recognized as a deduction from equity, net of any tax
effects.
(W) New Standards Implemented The Company adopted the
amendments to IAS 9 Financial Instruments, IFRS 15 Revenue from
Contracts with Customers and the amended IFRS 2 Share-based
payments effective February 1, 2018, as required by the IASB.
Financial Instruments
IFRS 9 Financial
Instruments is a multi-phase project with the goal of improving
and simplifying financial instrument reporting. The standard
establishes new principles for:
The amended
Classification and measurement. IFRS 9 uses a single approach to
determine measurement of financial assets by both cash flow
characteristics and how an entity manages financial impairment,
replacing the multiple classification options in IAS 39 with three
categories: amortized cost,
through other
comprehensive income and fair value through profit or loss
("FVTPL"). Financial liabilities are classified and measured based
on two categories: amortized cost or FVTPL.
fair value
45NOTES TO CONSOLDATED FINANCIAL STATEMENTS
and measurement,
The Company implemented the new requirements for
classification
impairment,
retrospectively with any cumulative effects of initial application
recorded in opening retained earnings. The adoption of IFRS 9
did not result in any measurement adjustments to financial assets
and liabilities. The adoption of IFRS 9 did result in certain
classification changes, as summarized in the table below.
including
Asset/Liability
New Classification under IFRS 9
Cash
Accounts receivable
Other financial assets
Accounts payable and accrued
liabilities
Amortized cost(1)
Amortized cost(1)
Amortized cost(1)
Amortized cost(2)
Current portion of long-term debt
Amortized cost(2)
Long-term debt
Amortized cost(2)
(1) Previously classified as loans and receivables under IAS 39
(2) Classified as financial liabilities at amortized cost under IAS 39
Financial assets are not reclassified subsequent to their initial
recognition, unless the Company identifies changes in its business
model requiring reassessment. Financial assets are subsequently
measured at amortized cost if both of the following conditions
are met and they are not designated as FVTPL:
•
•
financial asset is held within a business model whose
objective is to hold financial assets 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 on the principal amount outstanding.
These assets are subsequently measured at amortized cost using
the effective
impairment.
Measurement gains or losses are recognized in net earnings in the
period when the asset is decrecognized or impaired.
interest rate method,
less any
"Expected credit loss" impairment model As at January 31, 2018 and
thereafter the Company applied a new forward-looking lifetime
expected credit loss ("ECL") impairment model to its accounts
receivable under IFRS 9.
The change in ECL's is recognized in earnings and reflected as an
allowance against accounts receivable. The Company adopted
the practical expedient to determine ECL's using a provision
matrix based on historical trends, timing of recoveries and
management's judgment as to whether current economic and
credit conditions are such that actual losses are likely to differ from
historical trends. Adoption of the revised ECL based provision
matrix resulted in an insignificant measurement adjustment to
the Company's accounts receivable. Certain receivables are also
individually assessed for lifetime expected credit losses.
Prior to January 31, 2018 a financial asset was considered to be
impaired if objective evidence indicated that one or more events
had a negative effect on the estimated future cash flows of that
asset. An impairment loss was calculated as the difference
between its carrying amount, and the present value of the
estimated future cash flows discounted at their original effective
interest rate.
Revenue from Contracts with Customers The IFRS 15 Revenue
from Contracts with Customers standard contains a comprehensive
model which specifies the criteria and timing for recognizing
revenue, and also requires additional disclosures in the notes to
the financial statements. The core principle of the standard is that
revenue is recognized to depict the transfer of promised goods
or services to the customer at an amount that reflects the
consideration to which the Company is entitled. A contract based
five step analysis of transactions is used to determine whether,
how much and when revenue is recognized. New estimates and
judgmental thresholds have also been introduced.
Revenue on the sale of goods and services is recorded at the time
the sale is made or service is rendered to the customer. Sales are
presented net of tax, returns and discounts and are measured at
the fair value of the consideration received or receivable from the
customer for the products sold or services supplied. Service
charges on customer accounts receivable are accrued each
month on balances outstanding at each account's billing date.
The Company adopted the standard retrospectively with the
restatement of comparative periods. As a result of these changes
certain commissions and service fees previously included in
selling, operating and administrative expenses are now presented
in sales and cost of sales. These changes had no impact on
earnings from operations, net earnings or retained earnings
impact of this change on the
previously reported.
comparative period is as follows:
The
Revenue from Contracts with Customers, continued
SALES
Cost of sales
Gross profit
Selling, operating and administrative expenses
Earnings from operations
Year Ended January 31, 2018
(Previously Reported)
IFRS 15 Amendment
Year Ended January 31, 2018
(Revised)
$
$
1,953,743
$
31,379
$
(1,367,657)
586,086
(472,115)
7,276
38,655
(38,655)
113,971
$
— $
1,985,122
(1,360,381)
624,741
(510,770)
113,971
46THE NORTH WEST COMPANY INC.
(W) New Standards implemented (continued)
Share-based payments The amendments to IFRS 2 Share-based
payments are in relation to the classification and measurement of
share-based payment transactions, specifically, accounting for the
effects of vesting and non-vesting conditions on
the
measurement of cash-settled share-based transactions. The
adoption of these amendments did not result
in any
liability for share-based
measurement adjustments to the
payments.
(X) Future Standards and Amendments A number of new
standards, and amendments to standards and interpretations, are
not yet effective for the year ended January 31, 2019, and have
not been applied in preparing these consolidated financial
statements.
Leases IFRS 16 Leases replaces the current guidance in IAS 17 for
operating and finance lease accounting. This standard requires
lessees to recognize a lease liability representing the obligation
for future lease payments and a right-of-use asset in the
consolidated balance sheets for substantially all lease contracts,
initially measured at the present value of unavoidable lease
payments. Purchase, renewal and termination options which are
reasonably certain of being exercised are also included in the
measurement of the lease liability. Lease payment liabilities will
not include variable lease payments.
Under the new standard the Company will recognize new right-
of-use assets and lease liabilities for its operating leases of land,
buildings and equipment. In addition, the nature and timing of
leasing expenses will change as operating lease expenses
recorded in cost of sales and selling, operating and administrative
expenses are replaced by a depreciation charge for right-of-use
assets and interest expense on lease liabilities. The Company plans
to apply IFRS 16 on February 1, 2019 using the full retrospective
approach with restatement of the comparative period financial
statements. The cumulative effect of the initial application will be
recorded by restating opening retained earnings at February 1,
2018.
The Company continues to execute its detailed implementation
plan. The portfolio of leases has been identified and the leasing
information required to support the change in accounting
standards has been summarized for each lease. The Company has
configured its accounting system to account for leases under IFRS
16 and populated the detailed lease data. Processes and controls
are being modified and training is being conducted to support
the implementation. The Company is continuing to evaluate the
impact of these changes on its consolidated financial statements,
technology, processes and internal controls.
The implementation of this accounting standard will have a
material impact on the consolidated financial statements with
increases in total assets and long-term liabilities. Any difference
between the recognition of right-of-use assets and lease liabilities
will be recognized in retained earnings.
Based on the information available at April 10, 2019, the Company
estimates that it will record a right-of-use asset of approximately
$112,000 to $121,000 and a corresponding lease liability of
$124,000 to $133,000 with the difference between the right-of-
use asset and lease liability, net of the deferred tax impact,
recorded in opening retained earnings at February 1, 2018. The
actual impact of the initial application of IFRS 16 may vary from
this estimate as critical accounting estimates and judgments are
subject to change until the Company issues its April 30, 2019 first
quarter report to shareholders.
Uncertainty over Income Tax Treatments In June 2017, the IASB
issued IFRIC Interpretation 23. The interpretation provides
guidance on the accounting for current and deferred tax liabilities
and assets in circumstances in which there is uncertainty over
income tax treatments. The Company will adopt IFRIC 23 for the
annual period beginning February 1, 2019 and it is not expected
to have a material impact on the Company.
Annual Improvements In December 2017, the IASB issued
amendments effective for the Company February 1, 2019. A
summary of these amendments is as follows:
•
•
•
specifies that all
IFRS 3 Business Combinations clarifies how a company
accounts for increasing its interest in a joint operation that
meets the definition of a business;
IAS 12
income tax
Income Taxes
consequences of dividends are recognized consistently with
the transactions that generated the distributable profits (i.e.
in net earnings, other comprehensive income or equity); and
IAS 23 Borrowing Costs clarifies that specific borrowings to
finance the construction of a qualifying asset should be
transferred to the general borrowings pool once the
construction of the qualifying asset has been completed.
The adoption of these amendments are not expected to have a
material impact on the Company.
Post-Employment Benefits In February 2018, the IASB issued
amendments to IAS 19 Employee Benefits. The amendments
require a company to update its assumptions for the remainder
of the reporting period after a plan change. Amendments have
also been included clarifying the effect of a plan amendment on
the asset ceiling. The amendments are effective for the Company
February 1, 2019 and are not expected to have a material impact
on the Company.
Definition of Material In May 2017, the IASB issued amendments
to IAS 1 Presentation of Financial Statements and IAS 8 Accounting
Policies, Changes in Accounting Estimates and Errors. These
amendments clarified the definition of material. Under the
amended definition, information is material if omitting, misstating
or obscuring it could reasonably be expected to influence the
decisions that the primary users of general purpose financial
statements make. The amendments are effective for the
Company February 1, 2020 and are required to be applied
prospectively. The implementation of these amendments is not
expected to have a significant impact on the Company.
There are no other IFRS or IFRIC interpretations that are not yet
effective that would be expected to have a material impact on
the Company.
47NOTES TO CONSOLDATED FINANCIAL STATEMENTS
4. SEGMENTED INFORMATION
The Company is a retailer of food and everyday products and services
in two geographical segments, Canada and International. The
Canadian segment consists of subsidiaries operating retail stores and
complimentary businesses to serve northern and western Canada.
The International segment consists of subsidiaries operating in the
continental United States, Caribbean and South Pacific. Financial
information for these business segments is regularly reviewed by the
Company’s President and Chief Executive Officer to assess
performance and make decisions about the allocation of resources.
The following key information is presented by geographic segment:
Year Ended
January 31, 2019
January 31, 2018
Canada
Int'l
Canada
Int'l
Purchase of property and
equipment
$ 68,639 $ 24,916 $ 92,313 $ 22,635
Amortization
$ 44,116 $ 15,319 $ 39,796 $ 15,857
5. ACCOUNTS RECEIVABLE
Consolidated Statements of Earnings
January 31, 2019
January 31, 2018
Year Ended
Sales(1)
Canada
Food
General merchandise and
other
Canada
International
Food
General merchandise and
other
International
January 31, 2019
January 31, 2018
$ 825,668
$
822,158
420,465
377,315
$ 1,246,133
$ 1,199,473
$ 679,215
$
699,632
88,138
767,353
86,017
785,649
Consolidated
$ 2,013,486
$ 1,985,122
Earnings before amortization, interest and income taxes
Trade accounts receivable
$ 85,872
$ 80,374
Corporate and other
accounts receivable
Less: allowance for doubtful
accounts
22,412
16,322
(17,961)
(15,931)
$ 90,323
$ 80,765
The carrying values of accounts receivable are a reasonable
approximation of their fair values. The maximum exposure to credit
risk at the reporting date is the carrying value of each class of receivable
mentioned above. Credit risk for trade accounts receivable is discussed
in Note 14. Corporate and other accounts receivable have a lower risk
profile relative to trade accounts receivable because they are largely
due from government or corporate entities.
Canada
International
$ 114,215
$
112,393
75,128
57,231
Movements in the allowance for doubtful accounts for customer and
commercial accounts receivables are as follows:
Consolidated
$ 189,343
$
169,624
Earnings from operations
Canada
International
$
70,099
$
59,809
72,597
41,374
Consolidated
$ 129,908
$
113,971
January 31, 2019
January 31, 2018
Balance, beginning of year
$
(15,931)
$
(14,384)
Net charge
Written off
(10,337)
8,307
(9,972)
8,425
(1) Prior period sales figures have been reclassified as described in Note 3.
Balance, end of year
$
(17,961)
$
(15,931)
January 31, 2019
January 31, 2018
6.
INVENTORIES
Supplemental Information
Assets
Canada
International
$ 684,550
$
634,399
338,371
296,549
Consolidated
$ 1,022,921
$
930,948
Canadian total assets includes goodwill of $8,357 (January 31, 2018
– $6,730). International total assets includes goodwill of $36,846
(January 31, 2018 – $34,501).
Retail inventories are valued at the lower of cost and net realizable value.
Valuing retail inventories requires the Company to use estimates
related to: adjusting to cost inventories valued at retail; future retail
sales prices and reductions; and inventory losses during periods
between the last physical count and the balance sheet date. Included
in cost of sales for the year ended January 31, 2019, the Company
recorded $1,522 (January 31, 2018 – $1,335) for the write-down of
inventories as a result of net realizable value being lower than cost.
There was no reversal of inventories written down previously that are
no longer estimated to sell below cost during the year ended
January 31, 2019 or 2018.
48THE NORTH WEST COMPANY INC.
7. PROPERTY & EQUIPMENT
January 31, 2019
Cost
Land
Buildings
Leasehold
improvements
Fixtures &
equipment
Aircraft
Computer
equipment
Construction
in process
Total
Balance, beginning of year
$ 17,101
$ 468,951
$
73,774
$ 322,153
$
81,530
$
77,252
$
22,592
$1,063,353
Additions
Disposals
Effect of movements in foreign exchange
381
(11)
621
44,417
(2,680)
9,429
3,803
(2,091)
1,436
22,212
(4,894)
7,173
6,390
(3,346)
—
7,731
(8,078)
955
8,621
—
483
93,555
(21,100)
20,097
Total January 31, 2019
$ 18,092
$ 520,117
$
76,922
$ 346,644
$
84,574
$
77,860
$
31,696
$1,155,905
Accumulated amortization
Balance, beginning of year
$
— $ 258,810
$
41,457
$ 222,808
$
2,541
$
67,744
$
— $ 593,360
Amortization expense
Disposals
Effect of movements in foreign exchange
—
—
—
20,304
(2,226)
4,227
4,985
(1,249)
871
18,247
(3,960)
5,178
Total January 31, 2019
$
— $ 281,115
Net book value January 31, 2019
$ 18,092
$ 239,002
$
$
46,064
$ 242,273
30,858
$ 104,371
$
$
7,129
(273)
—
9,397
75,177
1,504
(7,980)
842
$
$
62,110
15,750
$
$
—
—
—
52,169
(15,688)
11,118
— $ 640,959
31,696
$ 514,946
January 31, 2018
Cost
Land
Buildings
Leasehold
improvements
Fixtures &
equipment
Aircraft
Computer
equipment
Construction
in process
Total
Balance, beginning of year
$ 16,367
$ 442,041
$
69,735
$ 309,155
$
— $
74,298
$
11,607
$ 923,203
Additions through business acquisitions
(Note 24)
Additions
Disposals
Effect of movements in foreign exchange
975
308
—
(549)
27,760
15,937
(8,531)
(8,256)
32
7,253
(2,056)
(1,190)
6,249
22,439
(9,623)
(6,067)
26,332
55,198
—
—
1,773
2,317
(240)
(896)
—
63,121
11,496
114,948
—
(511)
(20,450)
(17,469)
Total January 31, 2018
$ 17,101
$ 468,951
$
73,774
$ 322,153
$
81,530
$
77,252
$
22,592
$1,063,353
Accumulated amortization
Balance, beginning of year
$
— $ 246,054
$
37,952
$ 216,196
$
— $
64,880
$
— $ 565,082
Amortization expense
Disposals
Effect of movements in foreign exchange
—
—
—
20,997
(4,813)
(3,428)
5,184
18,299
2,541
(931)
(748)
(6,552)
(5,135)
—
—
3,640
(224)
(552)
Total January 31, 2018
$
— $ 258,810
Net book value January 31, 2018
$ 17,101
$ 210,141
$
$
41,457
$ 222,808
32,317
$
99,345
$
$
2,541
78,989
$
$
67,744
9,508
$
$
—
—
—
50,661
(12,520)
(9,863)
— $ 593,360
22,592
$ 469,993
The Company reviews its property and equipment for indicators of impairment. During the prior year ended January 31, 2018 the Company
wrote-off assets with a net book value of $7,008 due to the impact of hurricanes in the Caribbean which were reimbursed by insurance proceeds.
There were no significant financial write-off's due to store fires and no assets were identified as impaired at January 31, 2019 and 2018.
Interest capitalized
Interest attributable to the construction of qualifying assets was capitalized using an average rate of 3.8% and 3.4% for the years ended January 31,
2019 and 2018 respectively. Interest capitalized in additions amounted to $374 (January 31, 2018 – $502). Accumulated interest capitalized in
the cost total above amounted to $2,652 (January 31, 2018 – $2,278).
49NOTES TO CONSOLDATED FINANCIAL STATEMENTS
8. GOODWILL & INTANGIBLE ASSETS
Goodwill
January 31, 2019
January 31, 2018
Balance, beginning of year
$
41,231
$
37,752
Additions
Effect of movements in foreign
exchange
1,627
2,345
5,544
(2,065)
Balance, end of year
$
45,203
$
41,231
Goodwill Impairment Testing
A goodwill asset balance of $36,846 (January 31, 2018 – $34,501)
relates to acquisition of subsidiaries by the Company's International
Operations. A goodwill asset balance of $8,357 (January 31, 2018 –
$6,730) relates to acquisitions by the Company's Canadian Operations.
These balances were tested by means of comparing the recoverable
amount of the operating segment to its carrying value. The recoverable
amount is the greater of its value in use or its fair value less costs of
disposal.
The recoverable amount was estimated from the product of financial
performance and trading multiples observed for comparable public
companies. Values assigned to the key assumptions represent
management's best estimates and have been based on data from both
external and internal sources. This fair value measurement was
categorized as a Level 3 fair value measurement based on the inputs
in the valuation technique used. Key assumptions used in the
estimation of enterprise value are as follows:
•
•
•
Financial performance was measured with actual and
budgeted earnings based on sales and expense growth
specific to each store and the Company's administrative
offices. Financial budgets and forecasts are approved by
senior management and consider historical sales volume
and price growth;
The ratio of enterprise value to financial performance was
determined using a range of market trading multiples from
comparable companies;
Costs to sell have been estimated as a fixed percentage of
enterprise value. This is consistent with the approach of an
independent market participant.
No impairment has been identified on goodwill, and management
considers reasonably foreseeable changes in key assumptions are
unlikely to produce a goodwill impairment.
Intangible assets
January 31, 2019
Cost
Balance, beginning of year
Additions
Effect of movements in foreign exchange
Software
Store banners
Other
Total
$
54,662
$
9,461
$
9,817
$
73,940
7,502
—
—
642
535
202
8,037
844
Total January 31, 2019
$
62,164
$
10,103
$
10,554
$
82,821
Accumulated Amortization
Balance, beginning of year
Amortization expense
Effect of movements in foreign exchange
Total January 31, 2019
$
29,271
6,481
—
$
35,752
$
$
—
—
—
—
Net book value January 31, 2019
$ 26,412
$ 10,103
$
7,041
$
36,312
785
44
$
$
7,870
2,684
7,266
44
$
43,622
$ 39,199
50THE NORTH WEST COMPANY INC. Intangible assets
January 31, 2018
Cost
Balance, beginning of year
Additions
Effect of movements in foreign exchange
Total January 31, 2018
Accumulated Amortization
Balance, beginning of year
Amortization expense
Effect of movements in foreign exchange
Total January 31, 2018
Net book value January 31, 2018
Software
Store banners
Other
Total
$
47,605
$
9,121
$
9,981
$
66,707
7,057
—
$
54,662
$
24,837
4,434
—
$
29,271
$ 25,391
909
(569)
9,461
—
—
—
—
9,461
$
$
$
$
30
(194)
9,817
6,476
558
7
7,041
2,776
$
$
$
$
7,996
(763)
$
73,940
$
31,313
4,992
7
$
36,312
$ 37,628
Work in process
As at January 31, 2019, the Company had incurred $13,271 (January 31,
2018 – $11,762) for intangible assets that were not yet available for use,
and therefore not subject to amortization.
Intangible Asset Impairment Testing
The Company determines the fair value of the store banners using the
Relief from Royalty approach. This method requires management to
make long-term assumptions about future sales, terminal growth rates,
royalty rates and discount rates. Sales forecasts for the following
financial year together with medium and terminal growth rates ranging
from 2% to 5% are used to estimate future sales, to which a royalty rate
of 0.5% is applied. The present value of this royalty stream is compared
to the carrying value of the asset. No impairment has been identified
reasonably
on
foreseeable changes in key assumptions are unlikely to produce an
intangible asset impairment.
intangible assets and management considers
51NOTES TO CONSOLDATED FINANCIAL STATEMENTS 9.
INCOME TAXES
The following are the major components of income tax expense:
Year Ended
January 31, 2019
January 31, 2018
Current tax expense:
Current tax on earnings for
the year
Withholding taxes
Over provision in prior years
Deferred tax expense:
Origination and reversal of
temporary differences
Impact of change in tax rates
Under provision in prior years
$ 24,522
$ 35,985
761
(2,181)
991
(354)
$ 23,102
$ 36,622
$
300
$ (4,723)
In December 2017, new corporate tax legislation was enacted in the
United States which reduced the federal corporate tax rate from 35%
to 21% effective January 1, 2018. There was also a one-time transition
tax introduced on undistributed accumulated earnings in foreign
owned subsidiaries. For the year-ended January 31, 2018, these
changes resulted in an estimated income tax expense of $5,835,
comprised of $1,827 for the re-measurement of deferred tax assets and
liabilities and $4,008 for transition tax related to certain of the
Company's subsidiaries.
For the year-ended January 31, 2019 the estimated transition tax of
$4,008 was reduced to $3,237 based on additional information and
interpretations from the U.S. Department of the Treasury became
available.
(133)
2,042
1,791
445
Deferred tax assets of $3,900 arising from certain foreign income tax
losses were not recognized on the consolidated balance sheets. The
income tax losses expire from 2022 – 2036.
$
2,209
$ (2,487)
Income taxes
$ 25,311
$ 34,135
Deferred income tax charged (credited) to other comprehensive
income during the year is as follows:
Year Ended
January 31, 2019
January 31, 2018
Income tax expense varies from the amounts that would be computed
by applying the statutory income tax rate to earnings before taxes for
the following reasons:
Year Ended
January 31, 2019
January 31, 2018
Earnings before income taxes
$115,943
$103,826
Defined benefit plan
actuarial gain / (loss):
Origination and reversal of
temporary difference
Impact of change in tax rates
Combined statutory income
tax rate
Expected income tax
expense
21.8%
26.5%
$ 25,231
$ 27,561
Investments:
Increase (decrease) in income taxes resulting from:
Origination and reversal of
temporary difference
Non-deductible expenses/
non-taxable income
Unrecognized income tax
losses
Withholding taxes
Impact of change in tax rates
Transition tax
(Over)/under provision in prior
years
Other
$
22
$
(330)
422
761
(133)
(771)
(139)
(82)
76
991
1,791
4,008
91
(53)
Provision for income taxes
$ 25,311
$ 34,135
Income tax rate
21.8%
32.9%
Changes in the combined statutory income tax rate primarily reflect
changes in earnings of the Company's subsidiaries across various tax
jurisdictions.
$ 1,828
5
$ 1,833
$
$
—
—
$ 1,833
$
$
$
$
$
430
(12)
418
(27)
(27)
391
52THE NORTH WEST COMPANY INC. Income tax effects of temporary differences that give rise to significant portions of deferred income tax assets and liabilities are as follows:
January 31, 2019
February 1, 2018
Taxes (charged)
credited to net
earnings
Taxes (charged)
credited to OCI Other adjustments
January 31, 2019
Deferred tax assets:
Property & equipment
Inventory
Share-based compensation and
long-term incentive plans
Defined benefit plan obligation
Accrued liabilities
Other
Deferred tax liabilities:
Goodwill & intangible assets
Property & equipment
Investment in joint venture
Other
$
$
$
$
$
17,660
1,993
4,003
9,236
4,603
412
37,907
(643)
(6,012)
(1,109)
(2,161)
(9,925)
27,982
$
$
$
$
$
(354)
(346)
205
443
468
885
1,301
(147)
(3,053)
(21)
(289)
(3,510)
(2,209)
$
$
$
$
$
—
—
—
(1,833)
—
—
(1,833)
—
—
—
—
—
(1,833)
$
$
$
$
$
98
89
20
174
17
398
(44)
(116)
—
(276)
(436)
(38)
$
17,404
1,736
4,228
7,846
5,245
1,314
37,773
(834)
(9,181)
(1,130)
(2,726)
(13,871)
23,902
$
$
$
$
Recorded on the consolidated balance sheet as follows:
Year Ended
Deferred tax assets
Deferred tax liabilities
January 31, 2019
January 31, 2018
$
$
32,909
(9,007)
23,902
$
$
34,450
(6,468)
27,982
53NOTES TO CONSOLDATED FINANCIAL STATEMENTS January 31, 2018
February 1, 2017
Taxes (charged)
credited to net
earnings
Taxes (charged)
credited to OCI
Acquired in
business
combinations
Other
adjustments
January 31, 2018
Deferred tax assets:
Goodwill & intangible assets
$
672
$
(672)
$
Property & equipment
Inventory
Share-based compensation and
long-term incentive plans
Defined benefit plan obligation
Accrued expenses not
deductible for tax
Other
15,971
2,477
3,746
9,182
4,464
(912)
$
35,600
Deferred tax liabilities:
Goodwill & intangible assets
$
(1,077)
Property & equipment
Net investment hedge
Investment in joint venture
Deferred limited partnership
earnings
Other
—
(97)
(1,370)
(2,597)
(267)
(5,408)
30,192
$
$
1,781
(401)
276
472
286
1,330
3,072
393
(1,817)
—
234
2,597
(1,992)
(585)
2,487
$
$
$
$
$
$
$
$
—
—
—
—
(418)
—
—
(418)
—
—
—
27
—
—
27
(391)
$
$
$
—
—
—
—
—
—
—
—
—
(4,272)
—
—
—
(1)
$
$
(4,273)
(4,273)
$
$
$
$
$
—
(92)
(83)
(19)
—
(147)
(6)
(347)
41
77
97
—
—
99
314
(33)
$
$
$
$
$
—
17,660
1,993
4,003
9,236
4,603
412
37,907
(643)
(6,012)
—
(1,109)
—
(2,161)
(9,925)
27,982
In assessing the recovery of deferred income tax assets, management considers whether it is probable that the deferred income tax assets will be
realized. The recognition and measurement of the current and deferred tax assets and liabilities involves dealing with uncertainties in the application
of complex tax regulations and in the assessment of the recoverability of deferred tax assets. The ultimate realization of deferred income tax assets
is dependent upon the generation of future taxable income during the periods in which the temporary differences are deductible.
Actual income taxes could vary from these estimates as a result of future events, including changes in income tax laws or the outcome of
tax reviews by tax authorities and related appeals. To the extent the final outcome is different from the amounts initially recorded, such differences,
which could be significant, will impact the tax provision in the period in which the outcome is determined.
No deferred tax has been recognized in respect of temporary differences between the carrying value and tax value of investments in
subsidiaries. The Company is in a position to control the timing and reversal of these differences and believes it is probable that they will not
reverse in the foreseeable future. The temporary differences associated with the Company’s foreign subsidiaries are approximately $122,776 at
January 31, 2019 (January 31, 2018 – $103,736).
10. OTHER ASSETS
Investment in joint venture (Note 23)
Other
January 31, 2019
January 31, 2018
$ 10,375
3,460
$
9,294
3,349
$ 13,835
$
12,643
54THE NORTH WEST COMPANY INC. 11. LONG-TERM DEBT
Current:
Promissory note payable
Non-current
Revolving loan facilities (1)
Revolving loan facilities (2)
Revolving loan facilities (3)
Revolving loan facilities (4)
Revolving loan facilities (5)
Senior notes (6)
Senior notes (7)
Promissory note payable (8)
January 31, 2019
January 31, 2018
$
$
$
900
900
$
$
—
—
—
$
1,776
36,700
134,791
—
—
91,666
100,000
2,700
34,365
91,108
—
540
85,760
100,000
—
Total
$ 366,757
$ 313,549
$ 365,857
$ 313,549
loan facility provides the
(1) The committed, revolving U.S.
International Operations with up to US$40,000 for working capital
requirements and general business purposes. This facility matures
October 31, 2020, bears a floating rate of interest based on U.S. LIBOR
plus a spread and is secured by certain accounts receivable and
inventories of the International Operations. At January 31, 2019, the
International Operations had drawn US$NIL (January 31, 2018 –
US$1,444) on this facility.
(2) The US$52,000 loan facilities mature September 26, 2022 and bear
interest at U.S. LIBOR plus a spread. These loan facilities are secured by
certain assets of the Company and rank pari passu with the US$70,000
senior notes, the $100,000 senior notes and the $300,000 Canadian
Operations loan facilities. At January 31, 2019, the Company had drawn
US$27,936 (January 31, 2018 – US$27,936) on these facilities.
(3) These committed, revolving loan facilities provide the Company's
Canadian Operations with up to $300,000 for working capital and
general business purposes. These facilities mature September 26, 2022,
are secured by certain assets of the Company and rank pari passu with
the US$70,000 senior notes, the $100,000 senior notes and the US
$52,000 loan facilities. These facilities bear a floating interest rate based
on Bankers Acceptances rates plus stamping fees or the Canadian
prime interest rate.
(4) The revolving U.S. loan facility provides the International Operations
with up to US$1,500 for Roadtown Wholesale Trading Ltd.'s (RTW)
working capital requirements and general business purposes. This
facility bears a floating rate of interest based on a U.S. dollar base rate
plus a spread and is secured by certain assets of RTW.
(5) The Canadian Operations also have a $2,375 revolving loan facility
to meet North Star Air Ltd's. (NSA) working capital requirements and
for general business purposes. This facility bears a floating rate of
interest and is secured by the assets of NSA.
(6) The US$70,000 senior notes mature on June 16, 2021, have a fixed
interest rate of 3.27% on US$55,000 and a floating interest rate on US
$15,000 based on U.S. LIBOR plus a spread. The senior notes are secured
by certain assets of the Company and rank pari passu with the $300,000
Canadian Operations loan facilities, the $100,000 senior notes and the
US$52,000 loan facilities.
(7) The $100,000 senior notes mature September 26, 2029, have a fixed
interest rate of 3.74%, are secured by certain assets of the Company
and rank pari passu with the $300,000 Canadian Operations loan
facilities, the US$70,000 senior notes and the US$52,000 loan facilities.
(8) The Promissory Note Payable in the amount of $3,600 is non-interest
bearing, has annual principal payments of $900 and is secured by
certain assets of the Company.
12. POST-EMPLOYMENT BENEFITS
incorporated
The Company sponsors defined benefit and defined contribution
pension plans covering the majority of Canadian employees. Effective
January 1, 2011, the Company entered into an amended and restated
staff pension plan, which
legislated changes,
administrative practice, and added a defined contribution provision
(the “Amended Plan”). Under the Amended Plan, all members as of
December 31, 2011 who did not meet a qualifying threshold based on
number of years in the pension plan and age were transitioned to the
defined contribution pension plan effective January 1, 2011 and no
longer accumulate years of service under the defined benefit pension
plan. The defined benefit pension previously earned by members
transitioned to the defined contribution plan, will continue to accrue
in accordance with the terms of the plan based on the member’s
current pensionable earnings. Members who met the qualifying
threshold on January 1, 2011, elected between accruing a defined
contribution benefit and continuing to accrue a defined benefit
pension in accordance with the provisions of the Amended Plan.
The defined benefit pension plans are based on years of service
and final average salary. The Company uses actuarial reports prepared
by independent actuaries for accounting purposes as at January 31,
2019 and January 31, 2018. The accrued pension benefits and funding
requirements were last determined by actuarial valuation as at
December 31, 2017. The next actuarial valuation is required as at
December 31, 2018. The Company also sponsors an employee savings
plan covering certain U.S. employees with at least six months of service.
Under the terms of the plan, the Company is obligated to make
contributions that range between 3% and 5% of eligible compensation.
During the year ended January 31, 2019, the Company
contributed $2,317 to its defined benefit pension plans (January 31,
2018 – $3,487). During the year ended January 31, 2019, the Company
contributed $3,435 to
its defined contribution pension plans
(January 31, 2018 – $3,129). The current best estimate of the
Company's funding obligation for the defined benefit pension plans
for the year commencing February 1, 2019 is $2,775. In addition to the
cash funding, a portion of the pension plan obligation may be settled
by the issuance of a letter of credit in accordance with pension
legislation. The actual amount paid may vary from the estimate based
on actuarial valuations being completed, investment performance,
volatility in discount rates, regulatory requirements and other factors.
55NOTES TO CONSOLDATED FINANCIAL STATEMENTS Movement in plan assets and defined benefit obligation
Information on the Company’s defined benefit plans, in aggregate, is
as follows:
The average life expectancy in years of a member who reaches normal
retirement age of 65 is as follows:
January 31, 2019
January 31, 2018
January 31, 2019
January 31, 2018
Plan assets:
Fair value, beginning of year
$
84,337
$
78,280
Average life expectancies at age 65 for current pensioners:
Accrued interest on assets
Benefits paid
Plan administration costs
Employer contributions
Employee contributions
Return on assets greater than
discount rate
2,908
(3,988)
(459)
2,317
8
542
3,075
(4,612)
(388)
3,487
9
4,486
Fair value, end of year
$
85,665
$
84,337
Plan obligations:
Defined benefit obligation,
beginning of year
Current service costs
Employee contributions
Interest on plan liabilities
Benefits paid
Actuarial remeasurement due to:
Plan experience
Financial assumptions
Defined benefit obligation, end of
year
$ (118,432)
$ (112,358)
(3,016)
(8)
(4,070)
4,649
1,646
4,597
(3,387)
(9)
(4,397)
4,612
6,599
(9,492)
$ (114,634)
$ (118,432)
Plan deficit
$ (28,969)
$
(34,095)
The defined benefit obligation exceeds the fair value of plan assets as
noted in the table. While the plans are not considered fully funded for
financial reporting purposes, registered plans are funded in accordance
with the applicable statutory funding rules and regulations governing
the particular plans.
Defined benefit obligation
The following actuarial assumptions were employed to measure the
plan:
January 31, 2019
January 31, 2018
Discount rate on plan liabilities
Rate of compensation increase
Discount rate on plan expense
Inflation assumption
3.75%
4.00%
3.50%
2.00%
3.50%
4.00%
4.00%
2.00%
The assumptions used are the best estimates chosen from a range of
possible actuarial assumptions, which may not necessarily be borne
out in practice. The weighted-average duration of the defined benefit
obligation at the end of the reporting period is 15.8 years (January 31,
2018 – 17.1 years).
Male
Female
21.3
23.8
21.3
23.8
Average life expectancies at age 65 for current members aged 45:
Male
Female
22.5
24.9
22.5
24.9
Assumptions regarding future mortality experience are set based on
actuarial advice in accordance with published statistics and experience.
For the years ended January 31, 2019 and 2018, mortality assumptions
have been estimated at 106% of the base mortality rates in the
CPM2014PRIV table based on pension size and industry classification.
Sensitivity of key assumption
The following table outlines the sensitivity of a 1% change in the
discount rate used to measure the defined benefit plan obligation and
cost for the defined benefit pension plans. The table reflects the impact
on both the current service and interest cost expense components.
The sensitivity analysis provided in the key assumption table is
hypothetical and should be used with caution. The sensitivities have
been calculated independently of any changes in other assumptions.
Actual experience may result in changes in a number of key
assumptions simultaneously. Changes in one factor may result in
changes in another, which could amplify or reduce the impact of such
assumptions.
Defined benefit
plan obligation
Benefit plan cost
Discount rate:
Impact of:
1% increase
1% decrease
$ (15,904)
$
20,211
$ (1,003)
$
960
Plan assets
The major categories of plan assets as a percentage of total plan assets
are listed below. The pension plans have no direct investment in the
shares of the Company.
January 31, 2019
January 31, 2018
Plan assets:
Canadian equities (pooled)
Global equities (pooled)
Real estate equities (pooled)
Debt securities
17%
38%
9%
36%
17%
41%
9%
33%
Total
100%
100%
56THE NORTH WEST COMPANY INC.
Governance and plan management
The Company's Pension Committees oversee the pension plans. These
committees are responsible for assisting the Board of Directors to fulfill
its governance responsibilities for the plans. The committees assist with
plan administration, regulatory compliance, pension investment and
monitoring responsibilities.
Plan assets are subject to the risk that changes in market prices,
such as interest rates, foreign exchange and equity prices will affect
their value. A Statement of Investment Policy and Procedures (SIPP)
guides the investing activity of the defined benefit pension plans to
mitigate market risk. Assets are expected to achieve, over moving three
to four-year periods, a return at least equal to a composite benchmark
made up of passive investments in appropriate market indices. These
indices are consistent with the policy allocation in the SIPP.
Periodically, an Asset-Liability Modeling study is done to update
the policy allocation between liability hedging assets and return
seeking assets. This is consistent with managing both the funded status
of the defined benefit pension plans and the Company's long-term
costs. It assists with adequately securing benefits and mitigating year-
to-year fluctuations in the Company's cash contributions and pension
expense. The defined benefit plans are subject to, and actively manage,
the following specific market risks:
Interest rate risk: is managed by allocating a portion of plan investments
to liability hedging assets, comprised of a passive universe bond fund.
Currency risk: is managed through asset allocation. A significant portion
of plan assets are denominated in the same currency as plan
obligations.
The following amounts have been included in other comprehensive
income:
January 31, 2019
January 31, 2018
Current Year:
Return on assets greater than
discount rate
Actuarial remeasurement due to:
Plan experience
Financial assumptions
Taxes on actuarial remeasurement
in OCI
Net actuarial remeasurement
recognized in OCI
$
542
$
4,486
1,646
4,597
(1,833)
6,599
(9,492)
(418)
$
4,952
$
1,175
Cumulative gains/losses recognized in OCI:
Cumulative gross actuarial
remeasurement in OCI
Taxes on cumulative actuarial
remeasurement in OCI
Total actuarial remeasurement
recognized in OCI, net
$
(9,049)
$ (15,834)
361
2,194
$
(8,688)
$ (13,640)
The actual return on the plans assets is summarized as follows:
January 31, 2019
January 31, 2018
Equity price risk: The defined benefit pension plans are directly exposed
to equity price risk on return seeking assets. Fair value or future cash
flows will fluctuate due to changes in market prices because they may
not be offset by changes in obligations. Investment management of
plan assets is outsourced to independent managers.
Accrued interest on assets
$
2,908
$
3,075
Return on assets greater than
discount rate
542
4,486
Actual return on plan assets
$
3,450
$
7,561
Statements of earnings and comprehensive income
The following pension expenses have been charged to the
consolidated statements of earnings:
January 31, 2019
January 31, 2018
Employee costs (Note 17)
Defined benefit pension plan,
current service costs included
in post-employment benefits
Plan administration costs
Defined contribution pension
plan
Savings plan for U.S. employees
Interest expense (Note 18)
Accrued interest on assets
Interest on plan liabilities
$
3,016
$
3,387
459
3,435
1,389
388
3,129
1,168
$
8,299
$
8,072
$ (2,908)
$ (3,075)
4,070
4,397
$
1,162
$
1,322
13. SHARE-BASED COMPENSATION
The Company offers the following share-based payment plans:
Performance Share Units (PSUs); Share Options; Director Deferred Share
Units (DDSUs); Executive Deferred Share Units (EDSUs) and an
Employee Share Purchase Plan. The purpose of these plans is to directly
align the interests of the participants and the shareholders of the
Company by providing compensation that is dependent on the
performance of the Company’s common shares.
The total expense relating to share–based payment plans for the
year ended January 31, 2019 was $11,204 (January 31, 2018 – $8,820).
The carrying amount of the Company’s share-based compensation
arrangements including PSU, share option, DDSU and EDSU plans are
recorded on the consolidated balance sheets as follows:
Accounts payable and accrued
liabilities
Other long-term liabilities
Contributed surplus
January 31, 2019
January 31, 2018
$ 13,998
14,273
1,961
$ 14,164
14,188
1,001
Total
$ 30,232
$ 29,353
57NOTES TO CONSOLDATED FINANCIAL STATEMENTS
Performance Share Units
The Company has granted Performance Share Units to officers and
senior management. Each PSU entitles the participant to receive either
a cash payment equal to the market value of the number of notional
units granted or one share of the Company for each notional unit
granted at the end of the vesting period based on the achievement of
specific performance based criteria. The PSU account for each
participant includes the value of dividends from the Company as if
reinvested in additional PSUs. PSU awards vest with the employee on
the third fiscal year following the date of the grant to which the award
relates. Compensation expense is measured based on the grant date
fair market value of the award. The associated compensation expense
is recognized over the vesting period based on the estimated total
compensation to be paid out at the end of the vesting period factoring
in the probability of the performance criteria being met during that
period. Compensation costs related to the PSUs for the year ended
January 31, 2019 are $4,097 (January 31, 2018 – $4,048).
Director Deferred Share Unit Plan
This Plan is available for independent Directors. Participants are
credited with deferred share units for the amount of the annual equity
retainer, and for the portion of the annual cash retainer and fees each
participant elects to allocate to the DDSU plan. Each deferred share
unit entitles the holder to receive a share of the Company. The DDSUs
are exercisable by the holder at any time but no later than December
31 of the first calendar year commencing after the holder ceases to be
a Director. A participant may elect at the time of exercise of any DDSUs ,
subject to the consent of the Company, to have the Company pay an
amount in cash equal to the aggregate current market value of the
shares, determined based on the closing price of the shares on the TSX
on the trading day preceding the exercise date. This cash payment is
in consideration for the surrender by the participant to the Company
the right to receive shares from exercising the DDSUs. Effective
December 2016, the Plan was amended for those DDSUs credited to
participants for the portion of the annual cash retainer and fees each
participant elects to allocate to the Plan. The holder of these DDSUs is
entitled to receive at the time of exercise, an amount in cash equal to
the aggregate current market value of the shares, determined based
on the closing price of the shares on the TSX on the trading day
preceding the exercise date.
Compensation expense is initially measured at the time of the
grant. Subsequent changes in the fair value of the DDSUs based on
changes in the market value of the Company's shares are recognized
at each reporting date. The DDSU plan compensation costs for the
year ended January 31, 2019 are of $1,752 (January 31, 2018 –$1,047).
The total number of deferred share units outstanding at January 31,
2019 is 270,277 (January 31, 2018 – 249,108). There were 21,186 DDSUs
exercised during the year ended January 31, 2019 (January 31, 2018 –
NIL).
Executive Deferred Share Unit Plan
The EDSU plan was implemented to assist executive management to
meet the Company's minimum share ownership guidelines. This plan
provides for the granting of deferred share units to those executives
who elect to receive a portion of their annual short-term incentive
payment in EDSUs, subject to plan limits. Effective April 2016,
participants will be credited with EDSUs based on the amount of their
annual short-term incentive payment allocated to the plan and the
fair market value of the Company's shares. The EDSU account for each
participant includes the value of dividends from the Company as if
reinvested in additional EDSU's. The EDSUs are exercisable at any time
after the executive ceases to be an employee of the Company, but no
later than December 31 of the first calendar year commencing after
the holder ceased to be an employee. Each EDSU entitles the holder
to a cash payment equal to the market value of the equivalent number
of the Company's shares, determined based on their closing price on
the TSX on the trading day preceding the exercise date.
Total compensation expense is measured at the time of the grant.
Subsequent changes in the fair value of the EDSUs based on changes
in the market value of the Company's shares are recognized at each
reporting date. The EDSU plan compensation costs for the year ended
January 31, 2019 are $62 (January 31, 2018 – $28).
Share Option Plan
The Company has a Share Option Plan that provides for the granting
of options to certain officers and senior management. Options are
granted at fair market value based on the volume weighted-average
closing price of the Company’s shares for the five trading days
preceding the grant date. Effective June 14, 2011, the Share Option
Plan was amended and restated. The amendments afford the Board of
Directors the discretion to award options giving the holder the choice,
upon exercise, to either deduct a portion of all dividends declared after
the grant date from the options exercise price or to exercise the option
at the strike price specified at the grant date ("Declining Strike Price
Options"). Options issued prior to June 14, 2011 and certain options
issued subsequently are standard options ("Standard Options"). Each
option is exercisable into one share of the Company at the price
specified in the terms of the option. Declining Strike Price options allow
the employee to acquire shares or receive a cash payment based on
the excess of the fair market value of the Company’s shares over the
exercise price.
The fair value of the Declining Strike Price Options is remeasured
at the reporting date and recognized both in net earnings and as a
liability over the vesting period. The grant date fair value of the Standard
Options is recognized in net earnings and contributed surplus over the
vesting period.
The maximum number of shares available for issuance is a fixed
number set at 4,354,020, representing 8.9% of the Company’s issued
and outstanding shares at January 31, 2019. Fair value of the
Company's options is determined using an option pricing model. Share
options granted vest on a graduated basis over four to five years and
are exercisable over a period of seven years. The share option
compensation costs for the year ended January 31, 2019 are $4,510
(January 31, 2018 – $2,886). The fair values for options issued during
the year were calculated based on the following assumptions:
Fair value of options granted
Exercise price
Dividend yield
Annual risk-free interest rate
Expected share price volatility
January 31, 2019
January 31, 2018
$ 2.86
$ 3.12 to 4.30
$ 27.77
$ 32.40
4.3%
2.1%
19.2%
4.2%
1.2%
21.6%
The assumptions used to measure options at the balance sheet dates
are as follows:
January 31, 2019
January 31, 2018
Dividend yield
Annual risk-free interest rate
4.1%
4.4%
1.8%
1.8% to 2.1%
Expected share price volatility
15.9% to 19.5%
16.6% to 20.5%
58THE NORTH WEST COMPANY INC. The expected dividend yield is estimated based on the quarterly dividend rate and the closing share price on the date the options are granted.
The expected share price volatility is estimated based on the Company's historical volatility over a period consistent with the expected life of the
options. The risk-free interest rate is estimated based on the Government of Canada bond yield for a term to maturity equal to the expected life
of the options.
The following continuity schedules reconcile the movement in outstanding options during the year:
Number of options outstanding
Declining Strike Price Options
Standard Options
Outstanding options, beginning of year
Granted
Exercised
Forfeited or cancelled
Outstanding options, end of year
Exercisable at end of year
January 31, 2019 January 31, 2018 January 31, 2019 January 31, 2018
2,464,940
2,082,892
—
(474,423)
(22,794)
441,269
(28,527)
(30,694)
454,177
372,992
(223,670)
(173,159)
442,642
63,843
(16,855)
(35,453)
1,967,723
2,464,940
430,340
454,177
658,364
773,188
16,253
237,026
The weighted-average share price on the dates options were exercised during the year was $30.49 (January 31, 2018 – $31.65).
Weighted-average exercise price
Declining Strike Price Options
Standard Options
January 31, 2019 January 31, 2018 January 31, 2019 January 31, 2018
Outstanding options, beginning of year
$
26.18
$
24.81
$
Granted
Exercised
Forfeited or cancelled
Outstanding options, end of year
Exercisable at end of year
Summary of options outstanding by grant year
—
20.09
23.04
27.36
20.91
$
$
32.34
21.68
26.36
26.18
19.52
$
$
$
$
24.28
27.77
20.52
27.84
27.83
24.27
$
23.21
32.40
22.71
26.31
24.28
20.67
$
$
Outstanding
Exercisable
Range of
exercise price
Number
outstanding
Weighted-average
remaining
contractual years
Weighted-average
exercise price
Options
exercisable
Weighted-average
exercise price
$
$
$
$
$
$
$
17.32-17.32
19.31-23.21
21.54-24.79
23.05-25.63
26.93-28.81
29.37-32.40
27.77-27.77
7,999
282,206
337,523
481,709
454,193
461,441
372,992
0.2
1.2
2.2
3.2
4.2
5.4
6.2
$
$
$
$
$
$
$
17.32
19.41
21.61
23.11
26.97
31.20
27.77
7,999
282,206
223,846
160,566
NIL
NIL
NIL
$
$
$
$
17.32
19.40
21.61
23.11
N/A
N/A
N/A
Grant
year
2012
2013
2014
2015
2016
2017
2018
Employee Share Purchase Plan
The Employee Share Purchase Plan provides participants with the opportunity to acquire an ownership interest in the Company. The Company
contributes an additional 33% of the amount invested, subject to a maximum annual contribution of 2% of the participants' base salary. The plan
is administered by a trustee who uses the funds received to purchase shares on the TSX on behalf of the participating employees. These shares
are registered in the name of the plan trustee on behalf of the participants.
The Company’s contribution to the plan is recorded as compensation expense. The employee share purchase plan compensation costs for
the year ended January 31, 2019 are $783 (January 31, 2018 – $811).
59NOTES TO CONSOLDATED FINANCIAL STATEMENTS 14. FINANCIAL INSTRUMENTS
The Company's activities expose it to a variety of financial risks including liquidity risk, credit risk and market risk. The Company's overall risk
management program focuses on minimizing potential adverse effects on financial performance.
The Company manages funding and financial risk management with oversight provided by the Board of Directors, who also approve specific
financial transactions. The Company uses derivative financial instruments only to hedge exposures arising in respect of underlying business
requirements and not for speculative purposes.
Liquidity risk
Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they come due or can do so only at excessive cost. The
Company’s operational cash flow is reasonably stable and predictable. This reflects the business risk profile of the majority of markets in which the
Company operates and its product mix. Cash flow forecasts are produced regularly and reviewed against the Company’s debt portfolio capacity
and maturity profile to assist management in identifying future liquidity requirements. The Company’s funding strategy is to ensure a mix of funding
sources offering flexibility and cost effectiveness to match the business requirements.
The Company is financed by a combination of cash flow from operating activities, bank advances, senior notes and committed revolving loan
facilities. At January 31, 2019, the Company had undrawn committed revolving loan facilities available of $231,507 (January 31, 2018 – $266,322)
which mature in 2020 and 2022 (Note 11).
The following table analyzes the Company’s financial liabilities into relevant maturity groupings based on the remaining period from the balance
sheet date to the contractual maturity date. The amounts disclosed in the table are the contractual undiscounted cash flows or an estimation in
respect of floating interest rate liabilities, and as a result may not agree to the amounts disclosed on the balance sheet.
2019
2020
2021
2022
2023
2024+
Total
Accounts payable and accrued liabilities
$
175,726
Current portion of long-term debt (Note 11)
Long-term debt (Note 11)
Operating leases (Note 21)
Total
900
12,606
28,439
$
217,671
—
—
13,506
20,648
34,154
—
—
105,465
17,445
122,910
—
—
182,555
14,355
196,910
—
—
3,740
11,837
15,577
— $ 175,726
—
900
124,946
442,818
74,828
167,552
199,774 $ 786,996
Credit risk
Credit risk is the risk of financial loss to the Company if a customer or
counterparty to a financial instrument fails to meet its contractual
obligations. The Company’s exposures to credit risk arise primarily from
holdings of cash and its customer and commercial accounts receivable.
To mitigate credit risk, the Company maintains deposits with
financial institutions with minimum equivalent short-term credit ratings
of “A1.” The maximum exposure on cash is equal to the carrying amount
of these instruments.
It is the Company’s policy that customers who wish to trade on
credit terms are subject to credit verification procedures including
policies governing: credit approvals, limits, collections and fraud
prevention. The Company provides impairment allowances for
potentially uncollectible accounts receivable. Receivable balances are
comprised of approximately forty thousand customers spread across a
wide geography, substantially reducing the Company’s risk through the
diversity of its customer base. Further, receivables are centrally
monitored on an ongoing basis with the result that the Company’s
exposure to individual customers is generally not significant. The
maximum exposure net of impairment allowances is $90,323 (January
31, 2018 – $80,765). The Company does not have any individual
customers greater than 10% of total accounts receivable. At January 31,
2019, the Company’s gross maximum credit risk exposure is $108,284
(January 31, 2018 – $96,696). Of this amount, $18,617 (January 31, 2018
– $16,427) is more than 60 days past due. The Company has recorded
an allowance against its maximum exposure to credit risk of $17,961
(January 31, 2018 – $15,931) which is based on historical payment
records for similar financial assets.
As at January 31, 2019 and 2018, the Company has no significant
credit risk related to derivative financial instruments.
Market risk
(a) Currency risk
The Company operates internationally and is
exposed to foreign exchange risk arising from various currency
exposures, primarily with respect to the U.S. dollar. Foreign
exchange risk arises from U.S. dollar denominated borrowings and
net investments in foreign operations.
Management is responsible for managing foreign currency
risk. The Company’s U.S. dollar net investment is exposed to foreign
currency translation risk. A significant portion of this risk has been
hedged with U.S. dollar denominated borrowings.
In respect of recognized foreign currency assets and liabilities,
the Company has limited exposure. Procurement and related
borrowing activity are generally conducted in currencies matching
cash flows generated by underlying operations, providing an
economic hedge without sophisticated treasury management.
Short-term imbalances in foreign currency holdings are rectified
by buying or selling at spot rates when necessary.
Management considers a 10% variation in the Canadian dollar
relative to the U.S. dollar reasonably possible. Considering all major
exposures to the U.S. dollar as described above, a 10% appreciation
of the Canadian dollar against the U.S. dollar in the year-end rate
would cause net earnings to decrease by approximately $100. A
10% depreciation of the Canadian dollar against the U.S. dollar year-
end rate would cause net earnings to increase by approximately
$100.
(b)
Interest rate risk Interest rate risk is the risk that the fair value of
future cash flows of a financial instrument will fluctuate because
of changes in market interest rates. The Company is exposed to
interest rate risk primarily through its long-term borrowings.
60THE NORTH WEST COMPANY INC. The Company manages exposure to interest rate risk by
monitoring its blend of fixed and floating interest rates, and may
modify this blend using interest rate swaps. The goal of
management is to manage the trade-off between obtaining the
most beneficial effective rates of interest, while minimizing the
impact of interest rate volatility on earnings.
Management considers a 100 basis point change in interest
rates reasonably possible. Considering all major exposures to
interest rates as described above, a 100 basis point increase in the
risk-free rate would cause net earnings to decrease by
approximately $1,463. A 100 basis point decrease would cause net
earnings to increase by approximately $1,463.
(c) Accounting classifications and fair value estimation The following
table comprises the carrying amounts of the Company’s financial
instruments. Financial instruments are either carried at amortized
cost using the effective interest rate method or fair value.
The Company uses a three-level hierarchy to categorize financial
instruments carried at fair value as follows:
• Level 1 – Fair values measured using quoted prices (unadjusted) in
active markets for identical instruments
• Level 2 – Fair values measured using directly or indirectly
observable inputs, other than those included in Level 1
• Level 3 – Fair values measured using inputs that are not based on
observable market data
These amounts represent point-in-time estimates and may not reflect fair value in the future. These calculations are subjective in nature, involve
uncertainties and are a matter of significant judgment.
January 31, 2019
Cash
Accounts receivable
Other financial assets
Accounts payable and accrued liabilities
Current portion of long-term debt
Long-term debt
January 31, 2018
Cash
Accounts receivable
Other financial assets
Accounts payable and accrued liabilities
Long-term debt
Assets (Liabilities) carried at
amortized cost
Maturity Carrying amount
Short-term
Short-term
Long-term
Short-term
Short-term
Long-term
$
38,448
90,323
1,216
(175,726)
(900)
(365,857)
Fair value
$
38,448
90,323
1,216
(175,726)
(900)
(365,392)
Assets (Liabilities) carried at
amortized cost
Maturity Carrying amount
Short-term
Short-term
Long-term
Short-term
Long-term
$
25,160
80,765
1,197
(170,166)
(313,549)
Fair value
$
25,160
80,765
1,197
(170,166)
(310,737)
The methods and assumptions used in estimating the fair value of the Company’s financial instruments are as follows:
•
•
The fair value of short-term financial instruments approximates their carrying values due to their immediate or short-term period to maturity.
Any differences between fair value and book values of short-term financial instruments are considered to be insignificant.
The fair value of long-term debt with fixed interest rates is estimated by discounting the expected future cash flows using the current risk-free
interest rate on an instrument with similar terms adjusted for an appropriate risk premium. This is considered a level 2 fair value estimate.
61NOTES TO CONSOLDATED FINANCIAL STATEMENTS Capital management
The Company’s objectives in managing capital are to deploy capital to
provide an appropriate total return to shareholders while maintaining
a capital structure that provides the flexibility to take advantage of the
growth opportunities of the business, maintain existing assets, meet
obligations and financial covenants and enhance shareholder value. The
capital structure of the Company consists of bank advances, long-term
debt and shareholders’ equity. The Company manages capital to
optimize efficiency through an appropriate balance of debt and equity.
In order to maintain or adjust its capital structure, the Company may
purchase shares for cancellation pursuant to normal course issuer bids,
issue additional shares, borrow additional funds, adjust the amount of
dividends paid or refinance debt at different terms and conditions.
The Company’s process and policies for managing capital are
monitored by management and are reflected in the following measures:
(a) Debt-to-equity ratio At January 31, 2019, the debt-to-equity ratio
was 0.87 compared to 0.82 last year. The debt-to-equity ratio is
within the Company’s objectives. The debt-to-equity ratio is
calculated as follows:
Current portion of
long-term debt
Long-term debt
Total debt
Total equity
Debt-to-equity ratio
January 31, 2019
January 31, 2018
$
$
$
900
365,857
366,757
421,104
0.87
$
$
$
—
313,549
313,549
382,156
0.82
(b) Financial covenants As a result of borrowing agreements entered
into by the Company, there are certain financial covenants that
must be maintained. Financial covenants include a fixed charge
coverage ratio, minimum current ratio, a leverage test and a
minimum net worth test. Compliance with financial covenants is
reported quarterly to the Board of Directors. During the years
ended January 31, 2019 and 2018, the Company is in compliance
with all financial covenants. Other than the requirements imposed
by these borrowing agreements and solvency tests imposed by
the CBCA, the Company is not subject to any externally imposed
capital requirements.
Capital management objectives are reviewed on an annual basis. The
capital management objectives were substantially unchanged for the
year ended January 31, 2019.
15. SHARE CAPITAL
Authorized – The Company has an unlimited number of Common
Voting Shares and Variable Voting Shares.
Balance at January 31, 2018
48,690,212
$ 172,619
Issued under option plans (Note 13)
60,717
1,062
Shares
Consideration
Balance at January 31, 2019
48,750,929
$ 173,681
Balance at January 31, 2017
48,542,514
$
168,283
Issued for acquisition of RTW (Note 24)
133,944
Issued under option plans (Note 13)
13,754
4,000
336
Balance at January 31, 2018
48,690,212
$
172,619
On June 14, 2017, the Company's Common Shares were replaced by
Variable Voting Shares and Common Voting Shares. The two classes of
shares have equivalent rights as shareholders except for voting rights.
Holders of Variable Voting Shares are entitled to one vote per share
except where (i) the number of outstanding Variable Voting Shares
exceeds 25% of the total number of all issued and outstanding Variable
Voting Shares and Common Voting Shares, or (ii) the total number of
votes cast by or on behalf of the holders of Variable Voting Shares at
any meeting on any matter on which a vote is to be taken exceeds 25%
of the total number of votes cast at such meeting.
If either of the above-noted thresholds is surpassed at any time, the
vote attached to each Variable Voting Share will decrease automatically
without further act or formality. Under the circumstances described
in paragraph (i) above, the Variable Voting Shares as a class cannot carry
more than 25% of the total voting rights attached to the aggregate
number of issued and outstanding Variable Voting Shares and
Common Voting Shares of the Company. Under the circumstances
described in paragraph (ii) above, the Variable Voting Shares as a class
cannot, for the given Shareholders' meeting, carry more than 25% of
the total number of votes cast at the meeting.
Variable Voting Shares may only be held, beneficially owned or
controlled, directly or indirectly, by persons who are not Canadians
(within the meaning of the Canada Transportation Act). An issued and
outstanding Variable Voting Share is converted into one Common
Voting Share automatically and without any further act of the Company
or the holder, if such Variable Voting Share becomes held, beneficially
owned and controlled, directly or indirectly, otherwise than by way of
security only, by a Canadian, as defined in the Canada Transportation
Act.
At January 31, 2019 shares outstanding of 48,750,929 included
12,300,338 Variable Voting Shares, representing 25.2% of the total
shares issued and outstanding.
62THE NORTH WEST COMPANY INC. 16. EXPENSES BY NATURE
18. INTEREST EXPENSE
Year Ended
January 31, 2019
January 31, 2018
Year Ended
January 31, 2019
January 31, 2018
Employee costs (Note 17)
$ 304,907
$
296,417
Amortization
Operating lease rentals
Gain on partial insurance
settlement(1)
59,435
34,774
(16,955)
55,653
35,394
—
(1) The Company recorded a gain on the partial settlement of hurricane
Irma related insurance claims in the Caribbean. This gain was largely
due to the difference between the replacement cost of the assets and
their book value.
Interest on long-term debt
$ 13,177
$ 9,325
Net interest on defined benefit
plan obligation
Less: interest capitalized
1,162
(374)
1,322
(502)
Interest expense
$ 13,965
$ 10,145
19. DIVIDENDS
17. EMPLOYEE COSTS
The following is a summary of the dividends recorded in shareholders'
equity and paid in cash:
Year Ended
January 31, 2019
January 31, 2018
Wages, salaries and benefits
including bonus
$ 285,404
$ 279,525
Post-employment benefits (Note 12)
8,299
Share-based compensation
(Note 13)
11,204
8,072
8,820
Included in the above are the following amounts in respect of key
management compensation:
Wages, salaries and benefits
including bonus
Post-employment benefit expense
Share-based compensation
$
5,296
1,820
6,677
$
4,603
1,160
5,314
Key management personnel are those individuals who have the
authority and responsibility for planning, directing and controlling the
activities of the Company. The Company’s key management personnel
are comprised of the Board of Directors, Chief Executive Officer and the
senior officers of the Company.
Year Ended
January 31, 2019
January 31, 2018
Dividends recorded in equity
and paid in cash
Less: Dividends paid to non-
controlling interests
Shareholder dividends
Dividends per share
$ 66,283
$ 64,797
(3,954)
(2,482)
$ 62,329
$
1.28
$ 62,315
$
1.28
The payment of dividends on the Company’s common shares is subject
to the approval of the Board of Directors and is based upon, among
other factors, the financial performance of the Company, its current
and anticipated future business needs, and the satisfaction of solvency
tests imposed by the CBCA for the declaration of dividends. Dividends
are recognized as a liability in the consolidated financial statements in
the year in which the dividends are approved by the Board of Directors.
On March 14, 2019, the Board of Directors declared a dividend of
$0.33 per common share to be paid on April 15, 2019 to shareholders
of record as of the close of business on March 29, 2019.
63NOTES TO CONSOLDATED FINANCIAL STATEMENTS
20. NET EARNINGS PER SHARE
Basic net earnings per share is calculated based on the weighted-average shares outstanding during the year. The diluted net earnings per share
takes into account the dilutive effect of all potential ordinary shares. The average market value of the Company’s shares for purposes of calculating
the dilutive effect of share options was based on quoted market prices for the period that the options were outstanding.
($ and shares in thousands, except earnings per share)
Year Ended
Diluted earnings per share calculation:
January 31, 2019
January 31, 2018
Net earnings attributable to shareholders for the year (numerator for diluted earnings per share)
$
86,748
$
67,154
Weighted-average shares outstanding (denominator for basic earnings per share)
Dilutive effect of share-based compensation
Denominator for diluted earnings per share
Basic earnings per share
Diluted earnings per share
21. OPERATING LEASE COMMITMENTS
48,697
447
49,144
48,680
595
49,275
$
$
1.78
1.77
$
$
1.38
1.36
The Company leases various retail stores, offices, warehouses and equipment under non-cancellable operating leases. The leases have varying
terms, escalation clauses and renewal rights. The future minimum lease payments are as follows:
Year Ended
January 31, 2019
January 31, 2018
Due within 1 year
Within 2 to 5 years inclusive
After 5 years
Land and buildings
Other leases
Land and buildings
Other leases
$ 27,137
$
1,302
$
29,620
$
62,822
74,828
1,463
—
69,692
72,438
1,659
1,299
—
64THE NORTH WEST COMPANY INC. 22. COMMITMENTS, CONTINGENCIES AND
GUARANTEES
Commitments
The Company has a Master Franchise Agreement (MFA) with Giant
Tiger Stores Limited, based in Ottawa, Ontario which grants the
Company the exclusive right to open Giant Tiger stores in western
Canada, subject to meeting a minimum store opening commitment.
Under the agreement, Giant Tiger Stores Limited provides product
sourcing, merchandising, systems and administration support to the
Company’s Giant Tiger stores in return for a royalty based on sales. The
Company is responsible for opening, owning, operating and providing
distribution services to the stores. As at January 31, 2019, the Company
owns 44 Giant Tiger stores and is in compliance with the minimum
store opening commitment. The agreement expires July 31, 2040.
Contingencies
In the ordinary course of business, the Company is subject to audits by
taxation authorities. While the Company believes that its filing
positions are appropriate and supportable, the possibility exists that
certain matters may be reviewed and challenged by the taxation
authorities. The Company regularly reviews the potential for adverse
outcomes and the adequacy of its tax provisions. The Company
believes that it has adequately provided for these matters. If the final
outcome differs materially from the provisions, the Company’s income
tax expense and its earnings could be affected positively or negatively
in the period in which the matters are resolved.
The Company is involved in various legal matters arising in the
normal course of business. The occurrence of the confirming future
events is not determinable or it is not possible to determine the
amounts that may ultimately be assessed against the Company. The
resolution of these matters is not expected to have a material adverse
effect on the Company’s financial position, results of operations or cash
flows.
Guarantees
The Company has provided the following guarantees to third parties:
The Company has entered into indemnification agreements with
its current and former directors and officers to indemnify them, to the
extent permitted by law, against any and all charges, costs, expenses,
amounts paid in settlement and damages incurred by the directors
and officers as a result of any lawsuit or any judicial, administrative or
investigative proceeding in which the directors and officers are sued
as a result of their service. These indemnification claims will be subject
to any statutory or other legal limitation period. The nature of the
indemnification agreements prevents the Company from making a
reasonable estimate of the maximum potential amount it could be
required to pay to counterparties. The Company has purchased
director and officer liability insurance. No amount has been recorded
in the consolidated financial statements with respect to these
indemnification agreements.
In the normal course of operations, the Company provides
indemnification agreements to counterparties for various events such
as intellectual property right infringement, loss or damages to property,
claims that may arise while providing services, violation of laws or
regulations, or as a result of litigation that might be suffered by the
counterparties. The terms and nature of these indemnification
agreements prevents the Company from making a reasonable estimate
of the maximum potential amount it could be required to pay to
counterparties. No amount has been recorded in the consolidated
financial statements with respect to these indemnification agreements.
65NOTES TO CONSOLDATED FINANCIAL STATEMENTS
23. SUBSIDIARIES AND JOINT VENTURES
The Company’s principal operating subsidiaries are set out below:
Activity Country of Organization
Company
Subsidiary
Proportion of voting rights held by:
NWC GP Inc.
North West Company Holdings Inc.
The North West Company LP
NWC (U.S.) Holdings Inc.
The North West Company (International) Inc.
General Partner
Holding Company
Retailing
Holding Company
Retailing
The North West Finance Company Cooperatie U.A.
Finance Company
Canada
Canada
Canada
United States
United States
Netherlands
Roadtown Wholesale Trading Ltd.
North Star Air Ltd.
Retailing
Airline
British Virgin Islands
Canada
100%
100%
100% (less one unit)
99%
100%
100%
1%
77%
100%
The investment in joint venture comprises a 50% interest in a Canadian Arctic shipping company, Transport Nanuk Inc. At January 31, 2019, the
Company’s share of the net assets of its joint venture amount to $10,375 (January 31, 2018 – $9,294) comprised assets of $12,800 (January 31,
2018 - $10,925) and liabilities of $2,425 (January 31, 2018 – $1,631). During the year ended January 31, 2019, the Company purchased freight
handling and shipping services from Transport Nanuk Inc. and its subsidiaries of $8,163 (January 31, 2018 – $7,806).
66THE NORTH WEST COMPANY INC. 24. BUSINESS ACQUISITION
On February 9, 2017, the Company acquired 76% of the outstanding common shares of Roadtown Wholesale Trading Ltd. (RTW),
operating primarily as Riteway Food Markets in the British Virgin Islands (BVI). RTW is the leading retailer in BVI with eight retail
outlets, a Cash and Carry store and a significant wholesale operation. Based on the Company's closing share price on that date, the
purchase price was $35,593 (US$27,044). This was comprised of cash consideration of $31,593 (US$24,004) financed through existing
loan facilities and the issuance of 133,944 common shares, in accordance with the form of consideration elected to be received by
RTW shareholders. The purchase price allocation based on management's best estimate of the acquisition date fair values of assets
acquired and liabilities assumed is as follows:
CURRENT ASSETS
Cash
Accounts receivable
Inventories
Prepaid expenses
NON-CURRENT ASSETS
Property and equipment
Goodwill
Intangible assets
TOTAL ASSETS
CURRENT LIABILITIES
Accounts payable and accrued liabilities
NET IDENTIFIABLE ASSETS
Less: non-controlling interests
CONSIDERATION
Less: cash acquired
Less: share consideration
NET CASH FLOW FOR BUSINESS ACQUISITION
February 9, 2017
$
$
$
8,738
2,647
12,432
616
24,433
34,574
2,085
909
37,568
$
62,001
$
(14,258)
47,743
(12,150)
$
35,593
(8,738)
(4,000)
$
22,855
This acquisition was completed to gain access to a new market, consistent with the Company's overall Caribbean growth plans.
The acquisition was accounted for using the acquisition method. On February 9, 2017, accounts payable and accrued liabilities
includes a $7,470 (US$5,676) dividend payable to RTW shareholders declared prior to the acquisition. This dividend was paid
subsequent to the closing of the acquisition and was fully funded by the cash acquired.
For the year-ended January 31, 2018 the Company incurred $5,765 in acquisition costs substantially related to stamp duty paid to
the Government of the British Virgin Islands. These acquisition costs are included in selling, operating and administrative expenses
in the consolidated statements of earnings.
67NOTES TO CONSOLDATED FINANCIAL STATEMENTS 24. BUSINESS ACQUISITION (continued)
On June 15, 2017, the Company acquired 100% of the outstanding common shares of North Star Air Ltd. (NSA). NSA is a Thunder
Bay based airline, providing cargo and passenger services within northwestern Ontario, Canada. The purchase price was $30,755,
subject to working capital adjustments, and was financed through existing loan facilities. The preliminary purchase price allocation
based on management's best estimate of the acquisition date fair values of assets acquired and liabilities assumed is as follows:
CURRENT ASSETS
Cash
Accounts receivable
Inventories
Prepaid expenses
NON-CURRENT ASSETS
Property and equipment
Goodwill
TOTAL ASSETS
CURRENT LIABILITIES
Accounts payable and accrued liabilities
Deferred tax liability
NET IDENTIFIABLE ASSETS & CONSIDERATION
Less: cash acquired
NET CASH FLOW FOR BUSINESS ACQUISITION
June 15, 2017
$
$
$
$
$
2,406
5,258
1,053
1,852
10,569
28,547
3,459
32,006
42,575
(7,547)
(4,273)
30,755
(2,406)
$
28,349
This acquisition was completed to allow the Company to deliver faster, more consistent service to our customers. The acquisition
was accounted for using the acquisition method.
In the fourth quarter of 2017, the Company revised its fair value estimates and updated the NSA purchase price allocation based
on the final settlement of working capital adjustments. The result was to decrease the purchase price by $585 with a corresponding
decrease in assets acquired of $439 and an increase in current liabilities of $146.
68THE NORTH WEST COMPANY INC. Shareholder Information
Fiscal Year
Quarter Ended
2018
April 30, 2018
July 31, 2018
October 31, 2018
January 31, 2019
2017
April 30, 2017
July 31, 2017
October 31, 2017
January 31, 2018
2016
April 30, 2016
July 31, 2016
October 31, 2016
January 31, 2017
Share
Price High
Share
Price Low
Share
Price Close
Volume
$32.19
$26.50
$31.17
46,269,066
29.18
30.90
30.41
32.19
26.50
27.43
27.03
28.41
27.61
29.72
28.70
31.17
12,470,336
10,442,107
9,319,834
14,036,789
EPS1
$1.77
0.36
0.36
0.78
0.27
$33.75
$28.45
$29.14
38,835,538
$1.36
32.28
33.75
32.00
32.90
28.78
29.68
29.37
28.45
32.20
30.54
31.48
29.14
10,508,104
8,949,833
8,193,983
11,183,618
0.17
0.46
0.42
0.31
$33.15
$24.08
$29.28
49,189,285
$1.57
33.15
31.13
30.89
30.23
27.56
27.70
24.58
24.08
27.89
30.50
25.60
29.28
13,914,839
9,094,678
11,714,391
14,465,377
0.36
0.34
0.57
0.30
1 Net earnings per share are on a diluted basis.
Total Return Performance (% at January 31)
illustrates
the
This chart
West Company
Inc. over
the reinvestment of dividends.
relative performance of shares of The North
incorporates
the past
five years. The
index
The North West Company Inc.
Anticipated Dividend Dates*
Record Date: March 29, 2019
Payment Date: April 15, 2019
Record Date: June 28, 2019
Payment Date: July 15, 2019
Record Date: September 30, 2019
Payment Date: October 15, 2019
Record Date: December 31, 2019
Payment Date: January 15, 2020
*Dividends are subject to approval by the
Board of Directors
The 2019 Annual General and Special Meeting
of Shareholders of The North West Company
Inc. will be held on Wednesday, June 12, 2019 at
11:30 a.m. in the Muriel Richardson Auditorium,
Winnipeg Art Gallery, 300 Memorial Boulevard,
Winnipeg, Manitoba
Transfer Agent and Registrar
AST Trust Company (Canada)
2001 Robert-Bourassa Blvd.
Suite 1600
Montreal, QC
Toll-free: 1 800 387 0825
www.astfinancial.com/ca-en
Stock Exchange Listing
The Toronto Stock Exchange
Stock Symbol NWC
ISIN #: CA6632781093
CUSIP #: 663278109
Number of shares issued and outstanding at
January 31, 2019: 48,750,929
Auditors
PricewaterhouseCoopers LLP
Five Year Compound Annual Growth (%)
69ANNUAL REPORT Corporate Governance
Complete disclosure of The North West Company Inc's. corporate governance is provided in the Company’s Management Information Circular,
which is available on the Canadian Securities Administrators’ website at www.sedar.com or in the investor section of the Company’s website at
www.northwest.ca.
EXECUTIVES
EXECUTIVES
Edward S. Kennedy
President and Chief Executive Officer
Craig T. Gilpin
Executive Vice-President and
Chief Corporate Officer
John D. King CPA, CA, CMA
Executive Vice-President and
Chief Financial Officer
Daniel G. McConnell
President, International Retail
Matt D. Johnson
Vice-President, Cost-U-Less Food
Procurement and Marketing
Laurie J. Kaminsky
Vice-President, NWC Health Products
and Services
Frank Kelner
President, North Star Air Ltd.
Tom Meilleur
Vice-President, North Star Air Ltd.
Gary Merasty
Executive Vice-President, Chief Development Officer
Beth Millard-Hales
Vice-President, Human Resources
BOARD OF DIRECTORS
H. Sanford Riley, Chairman
Brock Bulbuck 2, 3
Deepak Chopra, FCPA, FCGA 2, 3
Frank J. Coleman 1, 2
Wendy F. Evans 1, 3
Stewart Glendinning 2, 3
Edward S. Kennedy
Robert J. Kennedy 1, 3
Annalisa King 2, 3
Toby A. Noiles
Executive Vice-President, Canadian
Food Procurement & Marketing
Walter E. Pickett
Vice-President and General Manager,
Alaska Commercial Company
Violet (Vi) A. M. Konkle 1, 3
Eric L. Stefanson, FCPA, FCA 1, 2
Alex S. Yeo
President, Canadian Retail
Glenn R. Revet
Vice-President, Sales and Operations, Giant Tiger
Victor Tootoo, CPA, CGA 2, 3
Michael T. Beaulieu
Vice-President, Canadian Sales & Operations
Northern Canada Retail, Central Division
Chris J. Santschi
Vice-President, Canadian Sales and Operations, BOARD COMMITTEES
Northern Canada Retail, National Division
1 Governance & Nominating
Steven J. Boily
Vice-President, Information Services
Michael C. Scott
Vice-President, General Merchandise
Procurement & Marketing
2 Audit
3 Human Resources, Compensation, and
Pension
J. Robert Cain
Vice-President, Logistics and Distribution
(International Operations)
Jeff Stout
Vice-President, North Star Air Ltd.
For additional copies of this report or for
general information about the Company,
contact the Corporate Secretary:
David M. Chatyrbok
Vice-President, Canadian Sales & Operations,
Northern Canada Retail, NorthMart/Major
Markets Division
Leanne G. Flewitt
Vice-President, Logistics & Distribution
(Canadian Operations)
Kyle A. Hill
Vice-President of Strategy & Special Projects
The North West Company Inc.
Amanda E. Sutton
Vice-President, Legal and Corporate Secretary Gibraltar House, 77 Main Street
Winnipeg, Manitoba Canada R3C 2R1
T 204 934 1756 F 204 934 1317
board@northwest.ca
Company Website: www.northwest.ca
James W. Walker
Vice-President and General Manager,
Wholesale Operations (International
Operations)
70THE NORTH WEST COMPANY INC. Nor'Westers are associated with the vision,
perseverance, and enterprising spirit of the original
North West Company and Canada's early fur trade.
We trace our roots to 1668, and the establishment of
one of North America's early trading posts at
Waskaganish on James Bay. Today, we continue to
embrace this pioneering culture as true "frontier
merchants."
The North West Company Inc.
Gibraltar House, 77 Main Street
Winnipeg, Manitoba Canada R3C 2R1
T 204 934 1756 F 204 934 1317
Toll -free 1 800 563 0002
investorrelations@northwest.ca
www.northwest.ca