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
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, 2020
Year Ended
January 31, 2019 (4)
Year Ended
January 31, 2018 (4)
$
$
$
$
2,094,393
1.3%
219,575
130,353
86,273
82,724
161,117
$
$
2,013,486
2.0%
218,022
136,001
90,623
86,739
155,725
$
1,215,536
$
1,149,861
$
410,965
426,970
366,757
411,016
.96:1
13.5%
20.5%
75.2%
24.8%
4.45
1.68
3.26
27.56
33.16
27.18
$
$
.89:1
15.3%
23.2%
74.7%
25.3%
4.44
1.77
3.16
31.17
32.19
26.50
$
1,985,122
1.2%
169,624
113,971
69,691
67,154
141,419
930,948
313,549
382,156
.82:1
16.7%
18.3%
76.7%
23.3%
3.44
1.36
2.87
29.14
33.75
28.45
(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) IFRS 16 - Leases was applied retrospectively with restatement of certain prior year figures as described in the Accounting Standard Changes Implemented in
2019. 2017 has not been restated which render certain comparisons to 2018 and 2019 not meaningful.
THE NORTH WEST COMPANY INC. 2019
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 Required to Deliver Results
IFRS 16 - Leases
Consolidated Results and 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
Subsequent Events
Outlook
Risk Management
Corporate Social Responsibility & Sustainable Development
Critical Accounting Estimates
Accounting Standards Implemented in 2019
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
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3
5
6
7
8
9
9
12
14
16
20
21
22
22
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23
29
29
31
36
36
38
39
41
41
43
44
45
46
47
48
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78
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 2019
annual audited consolidated financial statements and accompanying
financial
notes. The Company's annual audited consolidated
statements and accompanying notes
the year ended
January 31, 2020 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 27, 2020 and
the information contained in this MD&A is current to April 27, 2020,
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, the anticipated impact of the COVID-19 pandemic on the
Company's operations and the Company's related business continuity
plans, and possible future action by the Company, including the closing
of the GTSL Transaction which is subject to commercial risks and closing
conditions that are outside the control of the Company, such as various
third party consents which may cause the GTSL Transaction to not close
on the terms and conditions negotiated or at all.
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 including the duration and
the impact of the COVID-19 pandemic, 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
information circular, material change
statements, management
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. 2019
President & CEO Message
2019 positioned North West as an even stronger, more stable,
essential retailer heading into the COVID -19 situation we now all face.
Beyond the incredible day-to-day work of our front line roles, the
areas I want to highlight are talent development, cost streamlining,
further executing on a decentralized business structure, dealing with
our Giant Tiger stores ("GT") and continuing to build North Star Air
("NSA") into a leading airline.
Talent development was foundational last year with time invested
to clarify and assess what effective management means at North West.
This required frank, constructive conversations on expectations for
roles and of each other in key competencies such as being customer
driven, enterprising, resilient, community and culturally responsive and
getting results.
Our talent development scope covered nearly 500 management
positions and gave us an excellent picture of our people strengths, next
level career/succession planning and the need to reinforce or build
capability within specific roles and company-wide measures.
Cost streamlining focused on Canadian administration. The
timing was early in 2020 and will deliver $17 million in annualized
savings beginning mid-year. There were several drivers including the
decentralization of direct customer activities back into our store
banners and regions, the realization of efficiencies from technology
investments and our Giant Tiger store divestiture. Overriding all of these
was the imperative to reinvest savings to deliver more value through
sharper pricing in food categories where we can gain profitable market
share in 2020 and 2021.
A new International structure was largely complete in the fall, with
support offices for Alaska Commercial Company and Cost-U-Less
staffed up in Anchorage and Boca Raton respectively. I recognize the
impact that this has had on our support office employees and I am
pleased that many chose to relocate to our new office locations. These
and other ongoing organization changes are aimed at driving more
and bigger actions from within the unique store and regional
opportunities we can now better see and take advantage of.
Our GT business grew from a single store to nearly $350 million
in sales over 20-years and contributed significant free cash flow for
much of this period. Over the past three years however, it was clear
that we were not able to achieve what GT needed to compete and win
- namely an individual store franchisee approach, supported by a
singular focus on urban markets that were very distinct from the core
customers and smaller communities we were built to serve.
The agreement we subsequently entered into with Giant Tiger
Stores Limited ("GTSL") this March, is more than the sale of our GT stores.
We have retained five large volume stores located in northern hub
locations. We also entered into reciprocal product supply agreements,
which protect and enhance the cost scale benefits GT brought to our
northern Canada store group. The net effect shifts our Canadian
Operations from what was an increasingly volatile and senior
management time-consuming investment to a relationship with GTSL
that aligns with each parties’ long-term goals and strengths.
NSA was a challenged business last year. Like 2019, revenue
growth was not an issue. Parts and maintenance costs were a large
negative variance coupled with much higher usage of expensive third
party aircraft. Underlying these two issues was first, the lack of
maintenance efficiency in our ATR fleet and second, the management
of our Basler flight operations. As we grow the fleet and our knowledge
of how to achieve industry standard parts and labour utilization we will
address the ATR side. The performance of our Basler aircraft was
negatively impacted by two accidents which resulted in higher usage
of expensive third party aircraft. The complete solution to these issues
may result in a reconfiguration of the fleet and usage of different aircraft
for certain flight requirements.
Fortuitously, each one of these key work areas puts us in a solid
position to deal with the unexpected, wide-ranging impacts of
COVID-19.
Starting with NSA, our all-cargo lift capacity is a tremendous
advantage over passenger/cargo combination aircraft during a time
when passenger revenues have collapsed. NSA’s cargo service flying
food and other critical goods has continued uninterrupted through
COVID-19 and should continue to do so, for the benefit of our
customers and all northerners.
COVID-19 places an overdue spotlight on the value of our front
line positions. We have responded with higher compensation and
more important, the hiring of hundreds of new key role positions to
provide relief and business continuity in the event of severe COVID-19
community incidences. These reactive steps sow the seeds for talent
ideas and permanent changes to how we recruit, virtually train and
reward all of our store people.
COVID-19 presents North West with a serious responsibility to
prepare for different incidence severity levels. We expect to be ready
and our revenues will reflect this, offset by added safety and staffing
costs. In northern Canada, subject to high COVID-19 incidence rates in
some communities, we expect consumer spending will be relatively
strong due to government income programs and low private sector
employment reliance. While our stores are just as critical to the
international communities we serve, we expect much more economic
upheaval in these regions without the same degree of government
support.
Beyond our basic, essential role, we are quickly adapting to new
COVID-19 triggered customer needs. With out-of-town travel curtailed,
now is the time to embrace local shopping behaviours that have
changed in our favour by moving faster to lower prices and build
relationships that extend post COVID-19. Now is also the time to
accelerate our work on digital solutions in health and financial services
delivery through our AMDOCS, North West Tele pharmacy and We
Financial platforms,
in addition to new business-to-business
opportunities.
3ANNUAL REPORT
COVID-19 is a worldwide call to selfless, bold actions. At North
West, our mission compels us to help people live better, within
circumstances where we are depended on each day, to be a trusted,
reliable retailer and supplier. Now with the stakes even higher and still
with many unknowns, we have the resources, people, skills and
financial capacity to deliver, during COVID-19 and within the new
business possibilities that emerge.
This year especially, the recognition of our front line people, and
indeed all Nor’Westers, cannot be adequately conveyed through
words in a report. Nevertheless, on behalf of all shareholders, I express
my heartfelt thanks and appreciation for the exceptional perseverance,
courage and
inspiring goodwill demonstrated by North West
employees over these exceptional times.
Edward S. Kennedy
President & CEO
April 27, 2020
4THE NORTH WEST COMPANY INC. 2019 has been constructed in a way which will allow many of those benefits
to continue to flow while allowing us to free up capital from this banner
and focus our attention on more profitable and higher potential core
markets.
As part of that refocus, we restructured our head office operations in
Canada, which allows us to invest into pricing improvements in key
categories. Structurally high living costs are endemic to our northern
communities and a strategic challenge for North West. Coupled with
enhanced government support to the Nutrition North Canada
program, we believe our ability to invest in our communities through
both lower prices and higher wages will enhance both our competitive
position and the sustainability of our key store workforce.
Fiscal 2020 promises to be another year of living in interesting times
for North West. The COVID-19 crisis will continue to play out.
Undoubtedly, unexpected challenges will arise but, as is the case with
most crises such as this, so too will there be unanticipated
opportunities. At North West, we will work diligently to deal with both
as effectively as we can.
I want to acknowledge the efforts of all members of the Board this year
but in particular Bob Kennedy who will be retiring at this year’s annual
meeting. Bob was, for many years, Chairman of our Human Resources
and Compensation Committee and was an important contributor to
all of our deliberations, he will be missed.
And finally, I want to end my remarks where I began - by thanking all
Nor'Westers for their efforts this year. Amidst all of the challenges, you
continued to deliver on our obligations to our communities and
customers in an exemplary fashion!
H. Sanford Riley
Chairman, Board of Directors
April 27, 2020
Chairman's Message
My message this year to my fellow shareholders of The North West
Company is being written in the midst of the most extraordinary
economic and social conditions I can remember. I am sitting at my
kitchen table, doing my part to help stop the spread of the COVID-19
virus, by distancing. Large sections of our economy are in a state of
suspended animation and there is huge uncertainty as to what the
landscape will be like when we all begin to emerge from our homes.
And yet, my colleagues at The North West Company are at work at
home and in offices in Winnipeg, Anchorage, Boca Raton and Road
Town, BVI, supporting the critical and exceptional front line effort of
stores and distribution centres, and at our air and sea lift transportation
operations delivering food and other essential supplies to the
communities we serve. All of these jobs are challenging in the best of
times because of the unique characteristics of the locations we serve
but, in the midst of a global pandemic, the complexity of our enterprise
is magnified. We become the epitome of an “essential service” and we
must deliver, no matter what COVID-19 conditions we face.
At North West, we have dealt with some very significant natural
disasters during the last several years such as the fires, which affected
a number of our communities in northern Manitoba and Ontario and,
of course, hurricanes which ravaged the Caribbean - so our people are
battle tested. But this challenge exceeds anything we have seen to date
in its complexity, its reach, and its risk - and it is stretching our people
in so many ways.
It is therefore appropriate that I start my Chairman’s remarks by
thanking the management team and all Nor'Westers for their
extraordinary efforts during these troubling and difficult times. It is at
times like these that we all fully appreciate how critical the efforts and
commitment of our teams are to the success of our company.
The COVID-19 crisis has driven home to your Board, in the starkest way
imaginable, the special responsibilities that our Company has to
support the communities in which we operate, and their residents.
Our most important obligation is to ensure the continued timely
delivery of foods and other everyday merchandise and services, in
adequate amounts and at the best prices, we can offer. This is of
particular importance for us because we are often the primary supplier.
It is also our obligation, during a crisis such as the one we currently
face, to take all the steps we can to protect the health of our teams,
who are amongst the front line fighters against the pandemic, and the
health of our customers. Finally, we must be ready to work with our
communities to find ways to strengthen them as the economic and
health crises subside. This is what our focus must be for the near future.
As you can see from Edward Kennedy’s report, we were in the midst
of an exceptionally busy year before the COVID-19 virus struck and,
without diminishing the importance of any of the items that Edward
discussed, I want to emphasize the importance of two matters in his
report;
First was our decision to sell most of our Giant Tiger stores in western
Canada, which we operated under a master franchise agreement, to
the franchisor, Giant Tiger Stores Limited. As Edward’s report set out,
while sales at GT were significant, the actual bottom line contribution
of the stores was well below our expectations. However, our ability to
leverage the scale of GT’s sales into better procurement and pricing for
our entire business was an important consideration. The transaction
5ANNUAL REPORT Management's
Discussion &
Analysis
OUR BUSINESS TODAY
The North West Company is a leading retailer to rural and remote
communities in the following regions: northern 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 our 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.
Our stores in Alaska and northern Canada 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 is driven by market share capture 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, 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 seize unique community-by-community selling opportunities
better than our competition. Flexible store models, store management
store-level merchandise ordering,
selection and education,
community relations and enterprising
incentive plans are all
ingredients of our approach to sustain a leading market position. Our
enterprising culture, our execution skills in general, and our logistics
and selling skills specifically, are also 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;
24 Quickstop convenience stores, offering extended hours,
ready-to-eat foods, fuel and related services in northern Canadian
markets;
46 Giant Tiger ("GT") junior discount stores, offering family
fashion, household products and food to urban neighbourhoods
and larger rural centers in western Canada (see Subsequent
Events section on page 22);
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 NWC Motorsports dealership offering sales, service, parts and
accessories for Ski-doo, Honda, Can-am and other premier brands;
1 NWC 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;
4 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;
12 Cost-U-Less ("CUL") mid-size warehouse stores, offering
discount food and general merchandise products to island
communities in the South Pacific and the Caribbean; and
7 Riteway Food Markets, 1 Cash and Carry store and a
significant wholesale operation (collectively "RTW") in the
British Virgin Islands.
6THE NORTH WEST COMPANY INC. 2019 VISION
At North West our mission is to be a trusted provider of goods and
services within harder-to-access, developing communities. Our vision
is to help our customers live better 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, welcoming and adaptable, at the
lowest local price, within what are typically higher cost environments.
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 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 community
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 develops strategies in multi-year cycles and are
reviewed and adjusted at the senior management and board levels.
The Company's overriding goal is on building a strong store network,
offering essential products and services that help our customers to live
better and our business to grow within a wide range of economic
conditions through the following priorities:
•
•
•
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;
investing cost savings to lower prices in product categories with
the most market share upside;
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;
•
•
•
roll-out of next generation
completing the
information
technology for our stores and support offices that help optimize
the unique elements of our remote retailing business;
structuring our business so that more authority is closer to the
different banners, regions, communities and customers we serve;
and
identifying complimentary growth opportunities that leverage
our core remote market capabilities and expertise.
Our key initiatives together with the results for 2019 are as follows:
Initiative #1
Pure Retail/Top Store Teams
"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
Top Store Teams work continued to make improvements compared to
2018 and while retention improved, annual targets were not achieved.
A store Training Center opened in Winnipeg, Manitoba in March 2019,
and graduated 129 store key role trainees by year-end.
Initiative #2
Investing in Top Markets and Top Categories
This initiative prioritizes our largest and highest potential categories
and store locations.
Result
Two convenience stores and a Motorsports store were opened in
northern Canada. Two Top Market store replacements and remodels
were completed as planned for a total of 25 projects completed under
this initiative. Overall, Top Markets have delivered above average sales
growth. Top Market investments are expected to continue to roll-out
at a pace of 2-4 stores per year over 2020-2022.
Top Categories sales, which include convenience and fresh food,
big-ticket, and health products and services, were up 5.0% compared
to last year, achieving sales and margin targets overall. Convenience
food was the largest dollar growth contributor with an increase of 3.1%
followed by fresh food at 7.0%, health products which were up 15.9%
and big-ticket motorized and home furnishings sales which increased
6.2%.
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 optimizing our air cargo to provide faster, more reliable and
lower cost transportation service to our stores and customers in remote
markets.
Result
North Star Air operating margin performance was $4.5 million below
target mainly due to higher charter cargo aircraft usage resulting from
Basler and ATR downtime, higher parts expense and an increase in
insurance costs primarily related to Basler insurance claims.
7ANNUAL REPORT KEY PERFORMANCE DRIVERS AND
CAPABILITIES REQUIRED TO DELIVER RESULTS
The financial capability to sustain the competitiveness of our core
strengths and to pursue growth: Our investment priorities center
on our store management and front line people, lower costs to drive
lower prices, next level technology and superior logistics.
The ability to be a leading community store in every market we
serve: We want to connect with the customers and communities we
serve in a highly valued way. It starts with being able to tailor our store
formats, product/service mix, community support and store
compensation, while still realizing the efficiencies of our size or the size
of our alliance partners. Investing in relationships, embracing a broad
range of products, services and store sizes, flexible technology
platforms and “best practice” work processes, are required to achieve
this goal.
Our ability to build and maintain supportive community
relations: To preserve our community access we must be trusted,
open, respectful, adaptable and socially helpful. Store leases and
business licenses are often subject to community approval and
depend on our track record in these areas 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: Pure Retail store work must drive sales and efficiently
enable our store-level personnel to manage the other key facets of
their store. This enables our full potential to realize local selling
opportunities, meet our customer service commitments and build and
maintain positive community relationships. It recognizes that our store
roles must be great jobs to offset other conditions that create
challenges in attracting and retaining the best people. Related to this
is our on-going ability to hire within-community 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 enables us to deliver and receive
products faster, cheaper and more reliably compared to third-party
providers. Similar advantages are possible through our investment in
information technology.
Initiative #4
Next Generation Merchandise and Store Systems ("Project
Enterprise")
Project Enterprise is focused on implementing 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 margins,
inventory and store staff productivity, aligned with the Company's
"Top" strategies.
Result
The new POS was installed in all CUL stores and 28 northern stores. The
POS roll-out was expected to be completed in all AC stores during the
first quarter of 2020 however COVID-19 travel restrictions will now delay
the completion to the fourth quarter. Full roll out in northern Canada
is now expected to be in 2021 due to the previously noted COVID-19
impact. The category management component of MMS was
implemented in 2019 and the remaining supplier management
component is expected to be completed in the third quarter of 2020.
The implementation of MMS in International Operations was planned
for 2020 but is now deferred until 2021 due to COVID-19 related
business priorities.
Initiative #5
Support Office Structure and Administrative Cost Reduction
This initiative is focused on reducing administrative costs and locating
our International Operations support offices closer to the distinct store
banners we operate.
International store operations support office
Result
in Bellevue,
The
Washington was closed and relocated to Anchorage, Alaska and Boca
Raton, Florida serving our AC and CUL banners respectively. In the first
quarter of 2020, the Company began to reduce administration costs
in Canada by approximately $17 million on an annualized basis
effective as of the end of the second quarter of 2020. Further
information on the administrative cost reduction is provided in the
Subsequent Events section on page 22.
Initiative #6
Giant Tiger Store Performance Improvement
This initiative is focused on delivering better performance from our
Giant Tiger stores through improved merchandise assortments,
pricing, and operating standards while ensuring that these locations
have a path to delivering their full potential value.
Result
Giant Tiger did not achieve financial targets for the year due to
continuing competitive food margin pressures and inconsistent
operating standards within our corporate store model. In the first
quarter of 2020, an agreement was reached to sell 34 GT stores to Giant
Tiger Stores Limited ("GTSL"), retain five stores, close six locations and
convert one location to a clearance centre.
8THE NORTH WEST COMPANY INC. 2019 IFRS 16 - LEASES
Consolidated Results
The Company implemented IFRS 16 - Leases with a date of initial
application of February 1, 2019 using the full retrospective approach
and restated its results for the year ended January 31, 2019 including
its consolidated balance sheets as at January 31, 2019 and February 1,
2018. The adoption of IFRS 16 has had a material impact on the financial
statements and certain financial statement amounts in 2017 and prior
are not comparable to 2018 and 2019.
Prior to the adoption of IFRS 16 - Leases, substantially all leases
were classified as operating leases and lease payments were recorded
in selling, operating and administrative expenses in the consolidated
statements of earnings.
Under IFRS 16, the Company recognizes right-of-use assets and
lease liabilities for its leases of land, buildings and equipment. The
nature and timing of leasing expenses have changed as operating lease
expenses were replaced by an amortization charge for right-of-use
assets and interest expense on lease liabilities. IFRS 16 also changed
the presentation of cash flows relating to leases in the Company’s
consolidated statements of cash flows, but did not cause a difference
in the amount of cash transferred between the lease parties.
Unless otherwise noted, 2017 and prior years have not been
restated for IFRS 16 and therefore certain amounts including but not
limited to, selling, operating and administrative expenses ("Expenses"),
EBIT, EBITDA(2), interest expense, income taxes, net earnings, total assets,
total liabilities and any financial ratios derived from these items are not
comparable to 2018 and 2019.
Further information on the adoption of IFRS 16 - Leases is provided
in Accounting Standards Implemented in 2019 and in Note 3 to the
consolidated financial statements.
2019 Highlights
•
Sales increased to $2.094 billion, our 20th consecutive year of top
line growth.
Same store sales(1) increased 1.3% driven by food sales gains.
EBITDA(2) increased 0.7%.
Two Quickstop convenience stores, two Giant Tiger stores, one
Motorsports store and a pharmacy were opened in Canadian
Operations.
A store Training Center was opened in Winnipeg, Manitoba.
A CUL store was re-opened in St. Thomas, USVI on November 1,
2019 after being destroyed by hurricane Irma in September 2017.
Stores were acquired in Barrow and Bethel, Alaska.
•
•
•
•
•
•
FINANCIAL PERFORMANCE
Some of the key performance indicators used by management to
assess results are summarized in the following table:
Key Performance Indicators and Selected Annual Information
($ in thousands,
except per share)
Sales
2019
2018(4)
2017(4)
$ 2,094,393
$ 2,013,486
$ 1,985,122
Same store sales % increase(1)
1.3%
2.0%
1.2%
EBITDA(2)
EBIT
Net earnings
Net earnings attributable to
shareholders of the
Company
Net earnings per share -
diluted
Cash flow from operating
activities(3)
Cash dividends per share
$ 219,575
$ 130,353
$
$
$
86,273
82,724
1.68
$ 161,117
$
1.32
$
$
$
$
$
$
$
218,022
136,001
90,623
86,739
1.77
155,725
1.28
$
$
$
$
$
$
$
169,624
113,971
69,691
67,154
1.36
141,419
1.28
Total assets(5)
$ 1,215,536
$ 1,149,861
$ 1,047,069
Total long-term liabilities(5)
$ 594,482
$
541,907
$
481,813
Return on net assets(2)
Return on average equity(2)
13.5%
20.5%
15.3%
23.2%
16.7%
18.3%
(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) IFRS 16 - Leases was applied retrospectively with restatement of certain prior year figures
as described in the Accounting Standard Changes Implemented in 2019.
(5) 2017 total assets and total long-term liabilities have been restated for adoption of
IFRS 16 - Leases.
Consolidated Sales Sales for the year ended January 31, 2020 (“2019”)
increased 4.0% to $2.094 billion compared to $2.013 billion for the year
ended January 31, 2019 (“2018”), and were up 5.5% compared to
$1.985 billion for the year ended January 31, 2018 (“2017”). The increase
in sales compared to 2018 was driven by same store sales gains and
the impact of new stores. The impact of foreign exchange on the
translation of International Operations sales was also a factor. Excluding
the foreign exchange impact, sales increased 3.2% from 2018 and were
up 4.7% from 2017. The increase in sales compared to 2017 is due to
the factors previously noted and a full year of NSA operations which
was acquired in June 2017. On a same store basis, sales increased 1.3%
compared to increases of 2.0% in 2018 and 1.2% in 2017 as shown in
the following table.
9ANNUAL REPORT Same Store Sales
(% change)
Food
General merchandise (GM)
Total food & GM sales
2019
1.9 %
(1.1)%
1.3 %
2018
1.7%
3.2%
2.0%
2017
1.3%
0.7%
1.2%
Food sales increased 4.6% from 2018, and were up 3.6% excluding
the foreign exchange impact. Same store food sales increased 1.9%
over last year with quarterly same store sales increases of 2.5% in the
first quarter, 2.3% in the second quarter and 1.5% in the last two
quarters. Canadian food sales increased 2.1% and International food
sales increased 6.1% excluding the foreign exchange impact.
General merchandise sales increased 1.9% compared to 2018 and
were up 1.5% excluding the foreign exchange impact as lower same
store sales were more than offset by the impact of new stores. Same
store general merchandise sales decreased 1.1% for the year with an
increase of 4.1% in the first quarter followed by decreases of 2.0%, 4.3%
and 1.7% in the last three quarters. Canadian general merchandise sales
increased 1.3% 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 2.4% excluding the foreign
exchange impact led by sales gains and new stores.
Other sales, which include airline revenue, financial services, fuel
and pharmacy, increased 2.6% compared to 2018 mainly due to sales
growth in pharmacy and financial services. Other sales increased 22.9%
compared to 2017 substantially due to the NSA acquisition and higher
pharmacy sales.
Sales Blend The table below shows the consolidated sales blend over
the past three years:
Food
General merchandise
and other
2019
75.2%
24.8%
2018
74.7%
25.3%
2017
76.7%
23.3%
Canadian Operations accounted for 60.7% of total sales (61.9% in 2018
and 60.4% in 2017) while International Operations contributed 39.3%
(38.1% in 2018 and 39.6% in 2017).
(1) IFRS 16 - Leases was applied retrospectively with restatement of certain prior year figures
as described in the Accounting Standard Changes Implemented in 2019. 2017 has not
been restated which render certain comparisons to 2018 and 2019 not meaningful.
(2) See Non-GAAP Financial Measures section.
Gross Profit Gross profit increased 3.7% to $664.4 million compared
to $640.5 million last year driven by sales growth. The gross profit rate
decreased to 31.7% compared to 31.8% last year largely due to product
sales blend changes mainly related to a higher blend of Cost-U-Less
sales which carry a lower gross profit rate consistent with a discount
warehouse format.
Selling, Operating and Administrative Expenses Selling, operating
and administrative expenses (“Expenses”) of $534.0 million increased
5.8% compared to last year and were up 44 basis points as a percentage
of sales. This increase in Expenses is largely due to the impact of foreign
exchange on the translation of International Operations expenses, new
stores, the $4.8 million in support office restructuring costs in
International Operations and higher amortization and insurance costs
of $7.2 million and $4.8 million respectively. The impact of $18.2 million
in insurance gains this year compared to $20.1 million in insurance
gains last year was also a factor. These factors were partially offset by a
$7.7 million decrease in share-based compensation costs. Further
information on share-based compensation costs is provided in Note
14 and Note 18 to the consolidated financial statements.
interest,
Earnings from Operations (EBIT) and EBITDA(2) Earnings from
operations or earnings before interest and income taxes ("EBIT”)
decreased 4.2% to $130.4 million compared to $136.0 million last year
due to the gross profit and expense factors previously noted. Earnings
before
income taxes, depreciation and amortization
("EBITDA(2)") increased 0.7% to $219.6 million compared to $218.0
million last year. Adjusted EBITDA(2), which excludes the impact of the
insurance-related gains and share-based compensation, decreased
$4.2 million or 2.0% compared to last year, as earnings gains in northern
Canada and Alaska markets and improved earnings in NSA were more
than offset by the Expense factors previously noted and poor GT store
performance. Further information on GT stores is provided in the
Subsequent Events section. Excluding the GT results and impact of the
International support office restructuring costs, adjusted EBITDA(2)
increased $10.1 million or 5.1% due to earnings gains in northern
Canada and Alaska together with improved earnings in NSA.
Interest Expense Interest expense increased 6.7% to $20.9 million
compared to $19.6 million last year. The increase in interest expense is
due to higher average debt levels. Average debt levels increased 13.6%
compared to last year mainly due to an increase in capital asset
investments. The average cost of borrowing was 3.6% compared to
3.7% last year. Further information on interest expense is provided in
Note 19 to the consolidated financial statements.
Income Tax Expense The provision for income taxes decreased 10.1%
to $23.1 million compared to $25.7 million last year and the effective
tax rate for the year was 21.1% compared to 22.1% last year. The
decrease in income tax expense is primarily due to lower earnings and
changes in earnings of the Company's subsidiaries across various tax
jurisdictions. Further information on income tax expense, the effective
tax rate and deferred tax assets and liabilities is provided in Note 10 to
the consolidated financial statements.
10THE NORTH WEST COMPANY INC. 2019 Consolidated working capital for the past three years
is
summarized in the following table:
($ in thousands)
Current assets
Current liabilities
Working capital
2019
2018(1)
2017(1)
$ 399,593
$ 376,297
$ 334,980
$ (194,084)
$ (196,938)
$ (192,914)
$ 205,509
$ 179,359
$ 142,066
(1) IFRS 16 - Leases was applied retrospectively with restatement of certain 2018 and 2017
figures as described in the Accounting Standard Changes Implemented in 2019.
Working capital increased $26.2 million or 14.6% to $205.5 million
compared to 2018 and increased $63.4 million or 44.7% compared to
2017. Current assets increased $23.3 million or 6.2% compared to last
year and were up $64.6 million or 19.3% compared to 2017. The increase
in current assets compared to 2018 is primarily due to higher accounts
receivable largely related to insurance claims and higher inventories
mainly related to the impact of new stores. An increase in income tax
receivable primarily related to accelerated tax depreciation on certain
capital investments in Canada and the U.S. was also a factor. Current
liabilities decreased $2.9 million or 1.4% compared to last year but were
up $1.2 million or 0.6% compared to 2017 as changes in trade accounts
payable were largely offset by changes in the current portion of lease
liabilities. The impact of foreign exchange on the translation of
International Operations working capital was also a factor. Further
information on working capital for the Canadian Operations and
International Operations is on page 13 and page 15 respectively.
Return on net assets employed, which includes right-of-use assets
as a result of the adoption of IFRS 16 - Leases, decreased to 13.5%
compared to 15.3% in 2018 due to the 4.2% decrease in EBIT and an
increase in net assets employed. Additional information on net assets
employed for the Canadian Operations and International Operations
is on page 13 and page 15 respectively. The adoption of IFRS 16 -
Leases had a significant negative impact on return on net assets
employed primarily due to the inclusion of $127.9 million in right-of-
use assets. Prior to IFRS 16 - Leases, return on net assets employed
averaged 18.3% from 2014 to 2018 and averaged 18.7% over the ten
years from 2009 to 2018.
Return on average equity decreased to 20.5% compared to 23.2%
in 2018 due to a 4.8% decrease in net earnings and higher average
equity compared to last year. Further information on shareholders'
equity is provided in the consolidated statements of changes in
shareholders' equity in the consolidated financial statements.
(1) IFRS 16 - Leases was applied retrospectively with restatement of certain prior year figures
as described in the Accounting Standard Changes Implemented in 2019. 2017 has not
been restated which render certain comparisons to 2018 and 2019 not meaningful.
(2) See Non-GAAP Financial Measures section.
(1) IFRS 16 - Leases was applied retrospectively with restatement of certain prior year figures
as described in the Accounting Standard Changes Implemented in 2019. 2017 has not
been restated which render certain comparisons to 2018 and 2019 not meaningful.
(2) See Non-GAAP Financial Measures section.
(3) Net earnings attributable to shareholders of the Company.
Net Earnings Consolidated net earnings decreased 4.8% to
$86.3 million compared to $90.6 million last year. Net earnings
attributable to shareholders of the Company were $82.7 million
compared to $86.7 million last year and diluted earnings per share were
$1.68 per share compared to $1.77 per share last year due to the factors
previously noted. Excluding the impact of the insurance gain and
share-based compensation expense, adjusted net earnings2 decreased
$8.9 million or 10.6% largely due to higher expenses and poor GT store
performance. Additional information on the financial performance of
Canadian Operations and International Operations is included on
page 12 and page 14 respectively. In 2019, the average exchange
rate used to translate International Operations sales and expenses
was 1.3246 compared to 1.3041 last year and 1.2930 in 2017.
The Canadian dollar's depreciation versus the U.S. dollar compared to
2018 had the following net impact on the 2019 results:
Sales.........................................................................increase of $12.7 million or 1.6%
Earnings from operations...............................................increase of $0.8 million
Net earnings............................................................................increase of $0.7 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)
2019
2018(1)
2017(1)
Total assets
$ 1,215,536
$
1,149,861
$
1,047,069
(1) IFRS 16 - Leases was applied retrospectively with restatement of certain 2018 and 2017
figures as described in the Accounting Standard Changes Implemented in 2019.
Consolidated assets increased $65.7 million or 5.7% compared to
2018 and were up $168.5 million or 16.1% compared to 2017. The
increase in consolidated assets compared to last year and 2017 is
primarily due to an increase in property and equipment and an increase
in current assets. Property and equipment increased $40.1 million or
7.8% compared to 2018 and was up $85.1 million or 18.1% compared
to 2017 mainly due to investments in new stores, major store
renovations, equipment replacements and staff housing renovations
as part of our Top Markets initiative. The reconstruction of a CUL store
in St. Thomas, USVI that was destroyed by hurricane Irma in 2017 and
the acquisition of stores in Barrow and Bethel, Alaska were also factors.
Information on the increase in current assets is provided in the working
capital table below. The impact of foreign exchange was also a factor,
particularly compared to 2017, as the year-end exchange rate used to
increased to 1.3224
translate
compared to 1.3137 last year and 1.2301 in 2017.
International Operations assets
11ANNUAL REPORT Total Long-Term Liabilities Consolidated total long-term liabilities
for the past three years is summarized in the following table:
($ in thousands)
2019
2018(1)
2017(1)
Total long-term liabilities
$ 594,482
$
541,907
$
481,813
(1) IFRS 16 - Leases was applied retrospectively with restatement of certain 2018 and 2017
figures as described in the Accounting Standard Changes Implemented in 2019.
Consolidated long-term liabilities increased $52.6 million or 9.7%
to $594.5 million compared to 2018 and were up $112.7 million or
23.4% from 2017. The increase in long-term liabilities compared to 2018
and 2017 is largely due to an increase in long-term debt related to
investments in property and equipment and the impact of foreign
exchange rates on the translation of U.S. denominated debt. An
increase in lease liabilities, particularly compared to 2017, and higher
defined benefit pension plan obligations were also factors. Further
information on long-term debt is included in the Sources of Liquidity
and Capital Structure sections on page 17 and page 18 respectively
and in Note 12 to the consolidated financial statements. Additional
information on lease liabilities and defined benefit pension plan
obligations is provided in Note 8 and Note 13 respectively to the
consolidated financial statements.
General merchandise sales increased 1.3% from 2018 and were
up 6.8% compared to 2017 led by same store sales growth in northern
Canada and the impact of new stores. Same store sales decreased 1.3%
compared to a 2.7% increase in 2018 as sales gains in northern Canada
were more than offset by lower seasonal general merchandise sales in
GT stores. On a quarterly basis, same store general merchandise sales
increased 3.7% in the first quarter with decreases of 3.1% in the second
and third quarter and a decrease of 2.0% in the fourth quarter.
Other sales increased 2.9% from 2018 mainly due to sales gains in
increased 25.0%
pharmacy and financial services. Other sales
compared to 2017 primarily due to the acquisition of NSA.
Sales Blend The table below shows the sales blend for the Canadian
Operations over the past three years:
Food
General merchandise and other
2019
66.3%
33.7%
2018
66.3%
33.7%
2017
68.5%
31.5%
Same Store Sales Canadian Operations same store sales for the past
three years are shown in the following table. Over this period, same
store sales gains in northern Canada stores each year were substantially
offset by lower sales in GT stores due to the factors previously noted.
Canadian Operations
FINANCIAL PERFORMANCE
Same Store Sales
(% change)
Food
Canadian Operations results for the year are summarized by the key
performance indicators used by management as follows:
General merchandise (GM)
Total food & GM sales
2019
0.7 %
(1.3)%
0.3 %
2018
0.4%
2.7%
0.9%
2017
0.8%
1.2%
0.9%
Key Performance Indicators
($ in thousands)
Sales
2019
2018
2017
$ 1,271,552
$ 1,246,133
$ 1,199,473
Same store sales % increase
0.3%
0.9%
0.9%
EBITDA (1)(2)
EBIT (1)
$
$
140,359
$ 130,399
$ 112,393
77,376
$
72,822
$
72,597
Return on net assets (1)(2)
12.3%
12.6%
17.2%
(1) IFRS 16 - Leases was applied retrospectively with restatement of certain prior year figures
as described in the Accounting Standard Changes Implemented in 2019. 2017 has not
been restated which render certain comparisons to 2018 and 2019 not meaningful.
(2) See Non-GAAP Financial Measures section.
Sales Canadian Operations sales increased $25.4 million or 2.0% to
$1.272 billion compared to $1.246 billion in 2018 and were up $72.1
million or 6.0% compared to 2017 driven by same store sales gains in
northern Canada stores and the impact of new stores. These factors
were partially offset by lower sales in GT stores. Same store sales
increased 0.3% which is down from 0.9% in 2018 and 2017. Food sales
accounted for 66.3% of total Canadian Operations sales consistent with
last year. The balance was made up of general merchandise and other
sales at 33.7% (33.7% in 2018). Other sales consist primarily of airline
revenue, financial services revenue, fuel and pharmacy.
Food sales increased by 2.1% from 2018 and were up 2.5%
compared to 2017 led by sales gains in northern Canada stores. Same
store food sales increased 0.7% compared to 0.4% in 2018 as sales gains
in northern Canada stores were largely offset by lower GT same store
sales related to discount food competition. On a quarterly basis, same
store food sales increased 0.8% and 0.4% in the first and second quarters
respectively, were flat in the third quarter and increased 1.6% in the
fourth quarter.
Gross Profit Gross profit dollars increased by 2.7% 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 and
margin rate improvements in fuel and NSA partially offset by higher
inventory shrinkage and markdowns in general merchandise.
Selling, Operating and Administrative Expenses Selling, operating
and administrative expenses (“Expenses”) increased 2.0% from 2018
but were down 2 basis points as a percentage of sales. The increase in
Expenses is mainly due to higher amortization and insurance and the
impact of new stores. The increase in amortization expense is largely
related to capital investments in Top Markets and NSA. The increase in
insurance expense is due to fire and aviation related insurance claims
combined with unfavourable global insurance market conditions.
These factors were partially offset by insurance-related gains and lower
share-based compensation costs. Further information on property and
equipment and share-based compensation costs is provided in Note
7 and Note 14 respectively to the consolidated financial statements.
Earnings from Operations (EBIT) Earnings from operations increased
$4.6 million or 6.3% to $77.4 million compared to $72.8 million in 2018
due to the sales and Expense factors previously noted. Earnings from
operations as a percentage of sales was 6.1% compared to 5.8% last
year. EBITDA(2) from Canadian Operations increased $10.0 million or
7.6% to $140.4 million and was 11.0% as a percentage of sales
compared to 10.5% in 2018. Adjusted EBITDA(2), which excludes the
impact of insurance gains and share-based compensation, decreased
0.6% as earnings gains in northern Canada and NSA were more than
offset by lower earnings in GT stores compared to last year. Further
information on GT stores is provided in the Subsequent Events section.
12THE NORTH WEST COMPANY INC. 2019 Accounts receivable increased $10.3 million or 14.1% compared
to last year and were up $16.8 million or 25.1% compared to 2017 mainly
due to higher customer and insurance claim-related accounts
receivable. Average accounts receivable increased $5.6 million or 8.2%
compared to 2018 and were up $7.9 million or 11.9% compared to
2017. The increase in average accounts receivable is due in part to
insurance claim-related receivables and higher motorized and home
furnishings sales.
Other assets increased $5.6 million or 5.2% compared to last year
and were up $15.9 million or 16.5% compared to 2017. This increase is
primarily due to higher intangible assets related to new point-of-sale,
merchandise management and workforce management system
software as part of Project Enterprise, and an increase in intangible
assets and goodwill related to pharmacy acquisitions in 2018 and 2019.
An increase in prepaid expenses primarily related to insurance and an
increase in income tax receivable largely due to legislation providing
for the acceleration of tax deductions on qualifying capital investments
were also factors. These factors were partially offset by a decrease in
deferred tax assets mainly due to the previously noted acceleration of
tax depreciation on capital investments. Further information on
deferred tax assets is provided in Note 10 to the consolidated financial
statements.
Liabilities decreased $0.9 million or 0.5% from 2018 and were
down $10.2 million or 5.7% compared to 2017. The decrease compared
to 2017 is primarily due to lower accounts payable related to the timing
of payments and a decrease in accrued share-based compensation.
These factors were partially offset by an increase in defined benefit plan
obligation mainly due to changes in the discount rate. Further
information on share-based compensation and the defined benefit
plan obligation is provided in Note 14 and Note 13 respectively to the
consolidated financial statements.
Return on Net Assets (RONA(2)) The return on net assets employed
for Canadian Operations decreased to 12.3% from 12.6% in 2018 as a
6.3% increase in EBIT was more than offset by a $48.8 million or 8.4%
increase in average net assets compared to last year due to the factors
previously noted.
(1) IFRS 16 - Leases was applied retrospectively with restatement of certain prior year figures
as described in the Accounting Standard Changes Implemented in 2019. 2017 has not
been restated which render certain comparisons to 2018 and 2019 not meaningful.
(2) See Non-GAAP Financial Measures section.
(1) IFRS 16 - Leases was applied retrospectively with restatement of certain prior year figures
as described in the Accounting Standard Changes Implemented in 2019. 2017 has not
been restated which render certain comparisons to 2018 and 2019 not meaningful.
(2) See Non-GAAP Financial Measures section.
Net Assets Employed Net assets employed increased 4.6% to $615.3
million compared to $588.2 million last year and were up 18.0%
compared to $521.5 million in 2017 as summarized in the following
table:
($ in millions at the end of the fiscal year)
2019
2018
2017
Property and equipment
$
367.2
$
358.0
$
332.3
Right-of-use assets(1)
Inventories
Accounts receivable
Other assets(1)
Liabilities(1)
73.4
148.0
83.6
112.4
74.5
145.8
73.3
106.8
67.0
138.4
66.8
96.5
(169.3)
(170.2)
(179.5)
Net assets employed
$
615.3
$
588.2
$
521.5
(1) IFRS 16 - Leases was applied retrospectively with restatement of certain 2018 and 2017
figures as described in the Accounting Standard Changes Implemented in 2019.
Capital expenditures for the year included investments in major
store renovations, equipment replacements and staff housing
renovations as part of our Top Markets initiative and ongoing
reconstruction of a warehouse in Iqaluit, Nunavut that was destroyed
by fire in late 2018. The opening of two Quickstop convenience stores,
two Giant Tiger stores, a new Motorsports store and repair shop in
Iqaluit and the acquisition of a pharmacy in Rankin Inlet, Nunavut were
also factors.
Inventory increased $2.2 million compared to 2018 and was up
$9.6 million compared to 2017 primarily 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 2019 increased $6.4 million or 4.4% compared to
2018 and were up $15.4 million or 11.3% compared to 2017. Inventory
turnover was down slightly to 5.6 times compared to 5.8 times last year
and 6.0 times in 2017.
13ANNUAL REPORT International Operations
(Stated in U.S. dollars)
FINANCIAL PERFORMANCE
International Operations results for the year are summarized by the key
performance indicators used by management as follows:
Key Performance Indicators
($ in thousands)
Sales
2019
2018
2017
$
621,200
$ 588,422
$ 607,618
Same store sales % increase
3.5%
4.2%
1.8%
EBITDA(1)(2)
EBIT(1)
$
$
59,808
39,995
$
$
67,192
48,447
$ 44,262
$ 31,999
Return on net assets (1)(2)
15.5%
20.2%
15.8%
(1) IFRS 16 - Leases was applied retrospectively with restatement of certain prior year figures
as described in the Accounting Standard Changes Implemented in 2019. 2017 has not
been restated which render certain comparisons to 2018 and 2019 not meaningful.
(2) See Non-GAAP Financial Measures section.
in Caribbean markets and commercial
Sales International sales increased 5.6% to $621.2 million compared
to $588.4 million in 2018, and were up $13.6 million or 2.2% compared
to 2017. The increase in sales is partially due to same store sales gains
that were positively impacted by tourism and hurricane reconstruction
fishing and
activity
infrastructure projects in Alaska stores. The re-opening of a CUL store
in St. Thomas, USVI on November 1, 2019 after being destroyed by
hurricane Irma in September 2017 and the return to full operations of
our CUL store in St. Maarten in the third quarter of 2018 after repairing
all of the damage from hurricane Irma were also factors contributing
to the sales gains. These factors were partially offset by the closure of
a small CUL store in Sonora, California on March 31, 2019. Same store
sales increased 3.5% compared to 4.2% in 2018 and 1.8% in 2017. Food
sales accounted for 88.9% (88.5% in 2018) of total sales with the balance
comprised of general merchandise and other sales at 11.1% (11.5% in
2018). Other sales consist primarily of fuel and financial services
revenue.
Food sales increased 6.1% from 2018 and were up 2.1% compared
to 2017. Same store food sales were up 4.0% on top of a 4.0% increase
in 2018 with all banners contributing to the sales increase. Quarterly
same store food sales increases were 5.2%, 5.5%, 4.0% and 1.3% in the
fourth quarter.
General merchandise sales increased 2.4% from 2018 and were
up 5.0% from 2017. On a same store basis, general merchandise sales
were down 0.7% compared to an increase of 5.6% in 2018 as sales gains
in AC stores were more than offset by lower sales in CUL stores.
Quarterly same store general merchandise sales increased 6.2% and
2.8% in the first and second quarter respectively, and decreased 8.5%
and 0.4% in the third and fourth quarter. The Permanent Fund Dividend
("PFD") paid to qualifying Alaska residents was $1,606 consistent with
2018 but up $506 compared to $1,100 in 2017. The 8.5% decrease in
same store sales in the third quarter was substantially due to a delay
in the issuance of PFD cheques until late October. Same store sales
gains in AC stores in the fourth quarter were more than offset by lower
sales in CUL stores.
Other sales, which consist primarily of fuel sales and financial
services revenue, were down 3.8% from 2018 and 10.1% from 2017 due
to lower fuel sales.
Sales Blend The table below shows the sales blend for the
International Operations over the past three years:
Food
General merchandise and other
2019
88.9%
11.1%
2018
88.5%
11.5%
2017
89.1%
10.9%
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 (GM)
Total food & GM sales
2019
4.0 %
(0.7)%
3.5 %
2018
4.0%
5.6%
4.2%
2017
2.3 %
(1.4)%
1.8 %
Gross Profit Gross profit dollars increased 3.9% as higher sales more
than offset a decrease in the gross profit rate. The decrease in the gross
profit rate is mainly related to a higher blend of Cost-U-Less sales which
carry a lower gross profit rate consistent with a discount warehouse
format. An increase in promotional activities in certain Caribbean
markets was also a factor.
Selling, Operating and Administrative Expenses Selling, operating
and administrative expenses (“Expenses”) increased 12.3% compared
to last year and were up 134 basis points as a percentage of sales
substantially due to the impact of a decrease in hurricane-related
insurance gains compared to the prior year and support office
restructuring costs. The impact of new stores and higher insurance
costs were also factors. These factors were partially offset by lower
share-based compensation costs.
In 2019, the finalization of hurricane-related insurance claims
resulted in an $8.0 million insurance-related gain compared to a $13.1
million insurance gain last year. These insurance-related gains are due
to the difference between the replacement cost of the assets destroyed
and their book value, and the recovery of business interruption losses.
The restructuring and relocation of the Company's support office in
Bellevue, Washington to Anchorage, Alaska and Boca Raton, Florida to
relocate executives and store support teams closer to the markets they
serve resulted in $3.6 million in one-time costs. Excluding the impact
of the insurance gains and support office restructuring costs, Expenses
increased 4.8% compared to last year largely due to new stores and
higher insurance costs.
Earnings from Operations (EBIT)
Earnings from operations
decreased $8.5 million or 17.4% to $40.0 million compared to 2018 due
to the impact of the hurricane-related insurance gains, support office
restructuring costs and the other factors previously noted. EBITDA(2)
decreased $7.4 million or 11.0% to $59.8 million and was 9.6% as a
percentage of sales compared to 11.4% in 2018. Excluding the impact
of the insurance gains, share-based compensation expense and
support office restructuring costs, adjusted EBITDA(2) increased 0.6%.
14THE NORTH WEST COMPANY INC. 2019 Return on Net Assets (RONA(2)) The return on net assets employed
for International Operations decreased to 15.5% compared to 20.2% in
2018 due to a 17.4% decrease in EBIT and an $18.7 million increase in
average net assets due to the factors previously noted.
(1) IFRS 16 - Leases was applied retrospectively with restatement of certain prior year figures
as described in the Accounting Standard Changes Implemented in 2019. 2017 has not
been restated which render certain comparisons to 2018 and 2019 not meaningful.
(2) See Non-GAAP Financial Measures section.
(1) IFRS 16 - Leases was applied retrospectively with restatement of certain prior year figures
as described in the Accounting Standard Changes Implemented in 2019. 2017 has not
been restated which render certain comparisons to 2018 and 2019 not meaningful.
(2) See Non-GAAP Financial Measures section.
Net Assets Employed International Operations net assets employed
of $273.5 million increased $22.5 million or 9.0% compared to last year
and were up $36.1 million or 15.2% to 2017 as summarized in the
following table:
($ in millions at the end of the fiscal year)
2019
2018(1)
2017(1)
Property and equipment
$ 142.0
$ 119.5
$ 111.9
Right-of-use assets(1)
Inventories
Accounts receivable
Other assets(1)
Liabilities(1)
41.2
75.6
16.1
48.7
40.6
68.9
13.0
56.6
39.6
68.0
11.3
50.2
(50.1)
(47.6)
(43.6)
Net assets employed
$ 273.5
$ 251.0
$ 237.4
(1) IFRS 16 - Leases was applied retrospectively with restatement of certain 2018 and 2017
figures as described in the Accounting Standard Changes Implemented in 2019.
The increase in property and equipment is mainly due to the
reconstruction of the CUL store in St. Thomas, USVI that was completely
destroyed by hurricane Irma in 2017, the acquisition of stores in Barrow
and Bethel, Alaska and capital investments to facilities in the Caribbean
to increase their resiliency to a category 5 hurricane level. Top Markets
investments in fixtures and equipment and the relocation of the
support office from Bellevue, Washington to Anchorage, Alaska and
Boca Raton, Florida were also factors.
Inventories increased $6.7 million or 9.7% compared to last year
and were up $7.6 million or 11.2% from 2017. Average inventory levels
in 2019 were up 6.6% compared to 2018 and were up 5.3% compared
to 2017 mainly due to new stores. Inventory turnover was 6.0 times
compared to 6.1 times in 2018 and 2017.
Other assets decreased $7.9 million or 14.0% compared to last
year and were down $1.5 million compared to 2017 primarily due to
lower cash balances and a decrease in deferred tax assets substantially
due to legislation that provides for accelerated tax deductions on
qualifying capital investments.
Liabilities increased $2.5 million or 5.3% compared to 2018 and
were up $6.5 million or 14.9% compared to 2017 substantially due to
higher trade accounts payable related to the timing of payments.
15ANNUAL REPORT Consolidated Liquidity
and Capital Resources
The following table summarizes the major components of cash flow:
($ in thousands)
2019
2018(1)
2017(1)
Cash provided by (used in):
Operating activities before
change in non-cash working
capital and other
Change in non-cash working
capital
(28,670)
Change in other non-cash items
(7,234)
Operating activities
Investing activities
Financing activities
Effect of foreign exchange
161,117
(104,272)
(67,236)
130
$197,021
$ 177,833
$ 134,222
(20,824)
(1,284)
155,725
(80,793)
(62,357)
713
2,271
4,926
141,419
(165,861)
19,928
(569)
Net change in cash
$ (10,261)
$
13,288
$
(5,083)
(1) IFRS 16 - Leases was applied retrospectively with restatement of certain prior year figures
as described in the Accounting Standard Changes Implemented in 2019. 2017 has not
been restated which render certain comparisons to 2018 and 2019 not meaningful.
Cash from Operating Activities Cash flow from operating activities
increased $5.4 million or 3.5% to $161.1 million compared to 2018 due
to a $19.2 million increase in cash earnings to $197.0 million partially
offset by the change in non-cash working capital and other non-cash
items. The $19.2 million increase in cash flow from operating activities
before working capital and other items in 2019 compared to 2018 is
mainly due to an increase in amortization, a decrease in proceeds from
property insurance settlements from $17.0 million in 2018 to $7.8
million in 2019 and lower taxes paid.
The change in non-cash working capital is primarily due to the
change in inventories, accounts receivable and accounts payable and
accrued liabilities compared to the prior year. Further information on
working capital is provided in the Canadian and International net assets
employed sections on pages 13 and 15 respectively. The change in
other non-cash items is largely due to changes in accrued share-based
compensation and defined benefit pension obligation.
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 2020.
(1) IFRS 16 - Leases was applied retrospectively with restatement of certain prior year figures
as described in the Accounting Standard Changes Implemented in 2019. 2017 has not
been restated which render certain comparisons to 2018 and 2019 not meaningful.
Cash Used in Investing Activities Net cash used in investing
activities was $104.3 million compared to $80.8 million in 2018 and
$165.9 million in 2017. The increase is mainly due to investments in
property and equipment for store and warehouse replacements
resulting from hurricane Irma and fire damage, and store renovations
and equipment replacements in Top Markets. The acquisition of a
pharmacy in Canadian Operations and two retail stores in International
Operations were also factors. The decrease compared to 2017 is due
to the acquisition of RTW and NSA in 2017. Net investing in Canadian
Operations was $63.2 million net of $11.8 million in insurance proceeds
compared to $69.2 million in 2018 and $121.4 million in 2017. A
summary of the Canadian Operations investing activities is included
in net assets employed on page 13. Investing in International
Operations was $41.1 million, net of $5.5 million in insurance proceeds
compared to $11.6 million, net of $18.8 million in insurance proceeds
in 2018 and $44.5 million, net of $7.0 million in insurance proceeds in
2017. A summary of the International Operations investing activities
is included in net assets employed on page 15.
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
2019
117
2018
117
5
28
46
27
12
8
6
5
27
44
27
12
8
5
2019
689,051
116,156
38,509
754,523
249,212
344,695
58,650
27,842
2018
686,256
106,968
43,056
720,523
269,893
328,955
58,650
25,833
Total at year-end
249
245
2,278,638
2,240,134
In Canadian Operations, two Quickstop convenience stores and two
Giant Tiger stores were opened. Under Other Formats, a new
Motorsports store and repair shop opened in Iqaluit, Nunavut. Total
selling square footage in Canada increased 2.9% to 1,616,780
compared to 1,570,826 in 2018 as a result of the new stores.
In International Operations, a Cost-U-Less store in Sonora,
California was closed and another in St. Thomas, USVI was re-opened
after being completely destroyed by hurricane Irma in 2017. A new
store in Barrow, Alaska was acquired and remodeled replacing a larger
AC store and a small Quickstop convenience store which were closed
as a result of the lease expiration. A convenience store was acquired in
Bethel, Alaska and is being remodeled with an expected opening in
the second quarter of 2020 and is not included in the above table. Total
selling square footage decreased 1.1% to 661,858 compared to 669,308
last year as the impact of the store openings largely offset the square
footage reduction due to closures.
Cash Used in Financing Activities Cash used in financing activities
was $67.2 million compared to cash used of $62.4 million in 2018. The
change compared to last year is largely due to an increase in interest
payments related to higher average debt levels and an increase in
shareholder dividends. Further information on dividends, interest and
the loan facilities is provided in the following sections.
Shareholder Dividends The Company paid dividends of $64.4
million or $1.32 per share compared to $62.3 million or $1.28 per share
in 2018. Further information on dividends is included in Note 20 to the
consolidated financial statements.
16THE NORTH WEST COMPANY INC. 2019 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
2019
$ 0.33
0.33
0.33
0.33
2018
$ 0.32
0.32
0.32
0.32
$ 1.32
$ 1.28
2017
0.32
0.32
0.32
0.32
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 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:
Dividends
Cash flow from operating
activities
Dividends as a % of cash flow
from operating activities
2019
2018(1)
2017(1)
$
64,351
$ 161,117
$
$
62,329
$ 62,315
155,725
$ 141,419
39.9%
40.0 %
44.1%
(1) IFRS 16 - Leases was applied retrospectively with restatement of certain prior year figures
as described in the Accounting Standard Changes Implemented in 2019. 2017 has not
been restated which render certain comparisons to 2018 and 2019 not meaningful.
Dividends as a percentage of cash flow from operating activities has
remained consistent at 40.0% over the past two years.
Since converting back to a share corporation on January 1, 2011,
the dividend has increased at a compound annual growth rate ("CAGR")
of 4.1% over the past eight 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.
On March 12, 2020, the Board of Directors approved a quarterly
dividend of $0.33 per share to shareholders of record on March 31,
2020, which was paid on April 15, 2020.
Post-Employment Benefits The Company sponsors defined benefit
and defined contribution pension plans covering the majority of
Canadian employees. The Company recorded net actuarial losses on
defined benefit pension plans of $8.5 million net of deferred income
taxes in other comprehensive income. This compares to net actuarial
gains on defined benefit pension plans of $5.0 million in 2018 and $1.2
million in 2017. These losses and gains in other comprehensive income
were 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 2020, the Company will be
required to contribute
approximately $1.5 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 2019, the Company's cash contributions to the
pension plan were $3.5 million compared to $2.3 million in 2018 and
$3.5 million in 2017. 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 $4.6 million to the defined contribution
pension plan and U.S. employees savings plan in 2020 compared to
$5.3 million in 2019 and $4.8 million in 2018. Additional information
regarding post-employment benefits is provided in Note 13 to the
consolidated financial statements.
Sources of Liquidity The Company has outstanding $100.0 million
in senior notes (January 31, 2019 - $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 (collectively "Senior Debt").
At January 31, 2020, the Canadian Operations have outstanding
US$70.0 million senior notes (January 31, 2019 - 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 12 and Note 15 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, 2020, the Company had drawn $176.7 million on
these facilities (January 31, 2019 - $134.8 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, 2020, the Company had drawn US$27.9 million on these
facilities (January 31, 2019 - US$27.9 million).
The International Operations have a US$40.0 million loan facility
that bears a floating rate of interest based on U.S. LIBOR plus a spread.
In February 2020, the Company extended the maturity date on this
facility to February 2025. This facility is secured by certain accounts
receivable and
International Operations. At
January 31, 2020, the International Operations had drawn US$0.7
million on this facility (January 31, 2019 - US$NIL).
inventories of the
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, 2020, the Company is in
compliance with the financial covenants under these facilities. Current
and forecasted debt levels are regularly monitored for compliance with
17ANNUAL REPORT debt covenants.
Interest Costs and Coverage
Coverage ratio
EBIT ($ in millions)(1)
Interest ($ in millions)(1)
2019
6.2
$ 130.4
$
20.9
$
$
2018
6.9
136.0
19.6
2017
11.3
114.0
10.1
$
$
(1) IFRS 16 - Leases was applied retrospectively with restatement of certain prior year figures
as described in the Accounting Standard Changes Implemented in 2019. 2017 has not
been restated which render certain comparisons to 2018 and 2019 not meaningful.
The coverage ratio of earnings from operations ("EBIT") to interest
expense has decreased to 6.2 times compared to 6.9 times in 2018 due
to a $1.3 million increase in interest expense and a 4.2% decrease in
consolidated EBIT as previously noted. Additional information on
interest expense is provided in Note 19 to the consolidated financial
statements.
Contractual Obligations and Other Commitments
Contractual obligations of the Company at January 31, 2020 are listed
in the chart below:
($ in thousands)
Total
0-1 Year
2-3 Years
4-5 Years
6 Years+
Long-term debt
$410,965
$ 1,850
$307,793
$
1,322
$100,000
Lease payments
184,317
24,335
46,941
36,270
76,771
Other liabilities (1)
21,305
11,080
10,225
—
—
Total
$616,587
$ 37,265
$364,959
$ 37,592
$176,771
(1) At year-end, the Company had additional long-term liabilities of $54.9 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,
owning, operating and providing food buying and distribution services
to the stores. At January 31, 2020, the Company owns 46 Giant Tiger
stores and is in compliance with the minimum store opening
commitment. The agreement expires July 31, 2040.
On March 12, 2020, the Company entered into a definitive asset
purchase agreement to sell 34 GT stores to Giant Tiger Stores Limited
(the "GTSL Transaction"). The MFA will terminate upon the closing of
the GTSL Transaction. Further information on the GTSL Transaction is
provided in the Subsequent Events section and in Note 24 to the
consolidated financial statements.
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
Canadian Arctic shipping company, Transport Nanuk
Inc. and
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
$21 million (January 31, 2019 - $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.
(1) IFRS 16 - Leases was applied retrospectively with restatement of certain prior year figures
as described in the Accounting Standard Changes Implemented in 2019.
The Company's capital structure over the past three years is
summarized in the preceding graph.
18THE NORTH WEST COMPANY INC. 2019 On a consolidated basis, the Company had $411.0 million in debt and
$427.0 million in equity at the end of the year and a debt-to-equity
ratio of 0.96:1 compared to 0.89:1 last year. From 2017 to 2019, equity
has increased $54.6 million or 14.7% and debt has increased $97.4
million or 31.1%. During this same period, the Company has made
capital expenditures, including acquisitions and net of insurance
proceeds, of $356.0 million and has paid dividends of $189.0 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 $44.2 million
or 12.1% to $411.0 million compared to $366.8 million in 2018, and was
up $97.4 million or 31.1% from $313.5 million in 2017. The increase in
debt is mainly due to higher amounts drawn on the revolving loan
facilities largely resulting from 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$99.7 million
in debt at January 31, 2020 (January 31, 2019 - US$97.9 million,
January 31, 2018 - US$99.4 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, 2020 was 1.3224 compared to 1.3137 at
January 31, 2019 and 1.2301 at January 31, 2018. The change in the
foreign exchange rate resulted in a $0.9 million increase in debt
compared to 2018 and a $9.2 million increase compared to 2017.
Average debt outstanding during the year excluding the foreign
exchange impact increased $46.6 million or 14.1% from 2018 and was
up $107.0 million or 39.4% compared to 2017.
The debt outstanding at the end of the fiscal year is summarized
as follows:
(CAD$ in thousands at the end of
the fiscal year)
CAD$ senior notes
US$ senior notes
Canadian loan facilities
U.S. loan facilities
Promissory note payable
2019
2018
2017
$ 100,000
$ 100,000
$ 100,000
92,334
176,716
37,893
4,022
91,666
134,791
36,700
3,600
85,760
91,648
36,141
—
Total debt
$ 410,965
$ 366,757
$ 313,549
Lease liabilities decreased $0.8 million or 0.6% to $139.1 million
compared to $139.9 million in 2018 but were up $10.4 million or 8.1%
compared to $128.7 million in 2017 as summarized in the table below.
The increase compared to 2017 is largely due to new store leases in
both Canadian and International Operations. Further information on
lease liabilities is provided in Note 8 to the consolidated financial
statements.
Lease Liabilities
(CAD$ in thousands at the end of
the fiscal year)
2019
2018(1)
2017(1)
Current portion of lease liability $ 19,176
$
21,836
$
23,185
Non-current lease liabilities
119,928
118,112
105,541
Total lease liabilities
$ 139,104
$ 139,948
$ 128,726
(1) IFRS 16 - Leases was applied retrospectively with restatement certain prior year figures
as described in the Accounting Standard Changes Implemented in 2019. 2018 and
2017 Lease Liabilities have been presented in accordance with IFRS 16 - Lease.
Shareholders' Equity The Company has an unlimited number of
authorized shares and had
issued and outstanding shares at
January 31, 2020 of 48,750,929 (January 31, 2019 - 48,750,929). 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, 2020, there were 2,819,813
options outstanding representing 5.8% of the issued and outstanding
shares. In addition to share options, there were 243,712 in Performance
Share Units ("PSU") that may be settled by the issuance of shares based
on meeting certain performance criteria and 318,227 in Director
Deferred Share Units ("DDSU") that may be settled by the issuance of
shares. Further information on share options, PSUs and DDSUs is
provided in Note 14 to the consolidated financial statements.
Effective June 12, 2019, the Company amended the rights of its
shares to align them with the Canada Transportation Act ("CTA"), as
amended by the provisions of the Transportation Modernization Act
(Canada). The purpose of these amendments is to increase the
permitted level of foreign ownership allowed in respect of Canadian
air service from 25% to 49%, subject to certain restrictions.
The Company's share capital is comprised of 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 49% 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 49% 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 49% 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 49% of
the total number of votes cast at the meeting.
is converted
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 CTA). An issued and outstanding Variable
Voting Share
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 CTA. Further information on the
Company's Variable Voting Shares and Common Voting Shares is
provided in the April 10, 2019 Management Information Circular which
is available on the Company's website at www.northwest.ca or on
SEDAR at www.sedar.com.
At January 31, 2020, there were 11,357,628 Variable Voting Shares,
representing 23.3% of the total shares issued and outstanding. Further
information on the Company's share capital is provided in Note 16 to
the consolidated financial statements.
Book value per share attributable to shareholders, on a diluted
basis, at the end of the year increased to $8.38 per share compared to
$8.11 per share in 2018. Total shareholders' equity increased $16.0
million or 3.9% compared to 2018 largely due to an increase in retained
earnings and contributed surplus. Further information is provided in
the consolidated statements of changes in shareholders' equity in the
consolidated financial statements.
19ANNUAL REPORT QUARTERLY FINANCIAL INFORMATION
Historically, the Company's first quarter sales are the lowest and fourth quarter sales are the highest, reflecting consumer buying patterns. Due
to the remote location of many of the Company's stores, weather conditions are often more extreme compared to other retailers and can affect
sales in any quarter. Net earnings generally follow higher sales, but can be dependent on changes in merchandise sales blend, promotional activity
in key sales periods, variability in share-based compensation costs related to changes in the Company's share price and other factors which can
affect net earnings.
The following is a summary of selected quarterly financial information(1):
($ thousands)
Sales
2019
2018
EBITDA(2)
2019
2018
Earnings from operations (EBIT)
2019
2018
Net earnings
2019
2018
Net earnings attributable to shareholders of the Company
2019
2018
Earnings per share-basic
2019
2018
Earnings per share-diluted
2019
2018
Q1
Q2
Q3
Q4
Total
$
$
$
$
$
$
$
$
$
$
$
$
$
$
494,529
465,730
58,248
46,520
37,033
26,883
26,225
18,508
25,124
17,685
0.52
0.36
0.51
0.36
$
$
$
$
$
$
$
$
$
$
$
$
$
$
527,282
503,796
51,615
49,599
29,596
29,383
17,947
18,642
17,155
17,666
0.35
0.37
0.35
0.36
$
$
$
$
$
$
$
$
$
$
$
$
$
$
519,521
511,477
59,279
77,613
36,990
56,489
24,838
39,508
24,101
38,320
0.49
0.78
0.49
0.78
$
$
$
$
$
$
$
$
$
$
$
$
$
$
553,061
532,483
50,433
44,290
26,734
23,246
17,263
13,965
16,344
13,068
0.34
0.27
0.33
0.27
$
$
$
$
$
$
$
$
$
$
$
$
$
$
2,094,393
2,013,486
219,575
218,022
130,353
136,001
86,273
90,623
82,724
86,739
1.70
1.78
1.68
1.77
(1) The Company has adopted IFRS 16 - Leases effective February 1, 2019 using the full retrospective approach and restated 2018 in its 2019 annual audited consolidated
financial statements.
(2) See Non-GAAP Financial Measures section.
Restated Selected Financial Information - 2018
The following table compares quarterly results for 2018 previously reported in accordance with IAS 17 - Leases with the restated amounts under
IFRS 16 - Leases:
($ in millions)
Sales
EBITDA2
Earnings from operations
Net earnings
Net earnings attributable to shareholders of the
Company
Net earnings per share:
Basic
Diluted
Adjusted EBITDA2
Adjusted net earnings2
(2) See Non-GAAP Financial Measures section.
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
2018
2018
2018
2018
2018
2018
2018
2018
As
reported
As
restated
As
reported
As
restated
As
reported
As
restated
As
reported
As
restated
$
465.7 $ 465.7 $
503.8 $ 503.8 $
511.5 $ 511.5 $
532.5 $ 532.5
39.5
25.6
18.6
46.5
26.9
18.5
42.4
27.8
18.6
49.6
29.4
18.6
70.5
54.9
39.5
77.6
56.5
39.5
36.9
21.6
13.9
44.3
23.2
14.0
17.8
17.7
17.6
17.7
38.3
38.3
13.0
13.1
0.36
0.36
38.7
17.6
0.36
0.36
45.7
17.5
0.37
0.36
49.1
23.8
0.37
0.36
56.3
23.8
0.78
0.78
50.3
23.7
0.78
0.78
57.4
23.7
0.27
0.27
42.3
19.3
0.27
0.27
49.7
19.3
20THE NORTH WEST COMPANY INC. 2019 to the Expense factors previously noted and lower earnings in GT stores.
Excluding the Giant Tiger results and the impact of the International
support office restructuring costs, adjusted net earnings3 decreased
$1.5 million or 7.5% mainly due to higher depreciation and insurance
costs as previously noted.
Comprehensive income decreased to $16.3 million compared to
$20.3 million last year substantially due to the remeasurement of
defined benefit plans partially offset by the increase in net earnings
noted above. Further information on defined benefit plans is provided
in Note 13 to the Annual Consolidated Financial Statements.
Cash flow from operating activities in the quarter decreased $6.7
million to $48.3 million compared to cash flow from operating activities
of $55.0 million last year as the increase in net earnings was more than
offset by the change in non-cash working capital. The change in non-
cash working capital is primarily related to the change in inventories
and accounts receivable compared to the prior year.
Cash used in investing activities in the quarter increased to $19.2
million compared to $13.3 million last year. Investments in property,
equipment and intangible assets were largely related to investments
in store and warehouse replacements resulting from hurricane and fire-
related damage, store renovations
in Top Markets and the
implementation of new information systems as described in the
strategy section.
Cash flow used in financing activities in the quarter was $53.0
million compared to $58.9 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.
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 2019 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, 2020.
Fourth Quarter Highlights Fourth quarter consolidated sales
increased 3.9% to $553.1 million led by same store food sales gains and
the impact of new store sales largely driven by the November 1, 2019
re-opening of the Company's Cost-U-Less store in St. Thomas, USVI
which was destroyed by hurricane Irma in the third quarter of 2017.
Excluding the foreign exchange impact, consolidated sales increased
4.1% and were up 0.8%2 on a same store basis. Food sales2 increased
5.2% and were up 1.5% on a same store basis led by sales gains in
northern Canada and Alaska stores ("northern markets"). General
merchandise sales2 increased 0.7% and were down 1.7% on a same
store basis as sales gains in northern markets were more than offset by
lower sales in Giant Tiger ("GT") stores.
Gross profit increased 2.3% driven by higher sales as the gross
profit rate decreased 46 basis points compared to last year. The
decrease in gross profit rate was mainly due to increased promotional
pricing, largely in GT markets, and a higher blend of CUL sales which
carry a lower gross profit rate consistent with a discount warehouse
format. North Star Air's ("NSA") loss of a Basler aircraft due to an accident
in December 2019, which resulted in significantly higher operating
costs related to substitute leased aircraft, was also a factor.
Selling, operating and administrative expenses increased 0.2%
and were down 93 basis points as a percentage to sales as a $5.2 million
decrease in share-based compensation costs and the impact of $3.2
million in insurance gains were offset by higher expenses partially
related to new stores, the impact of support office restructuring costs
in International Operations, and higher amortization and insurance
costs. The $3.2 million in insurance gains includes a $0.9 million
insurance gain related to the settlement of the Basler aircraft insurance
claim. This gain was more than offset by the increase in leased aircraft
costs previously noted. The increase in amortization is mainly due to
the impact of capital investments in stores. Excluding the impact of
the share-based compensation costs, insurance gains, and support
office restructuring costs, Expenses increased $7.6 million or 43 basis
points as a percentage to sales partially due to the impact of new stores
and higher depreciation and insurance expense.
Earnings from operations increased 15.0% to $26.7 million
compared to $23.2 million last year and earnings before interest,
income taxes, depreciation and amortization (EBITDA3) increased $6.1
million or 13.9% to $50.4 million due to the gross profit and Expense
factors previously noted. Adjusted EBITDA3, which excludes the impact
of share-based compensation costs and the insurance-related gains,
decreased $2.3 million or 4.6% compared to last year and as a
percentage to sales was 8.6% compared to 9.3% last year as sales gains
and improvements in gross profit were more than offset by the Expense
factors noted above and lower earnings in GT stores. GT EBITDA3 in the
quarter decreased $2.4 million or 86.1% compared to last year. Further
information on Giant Tiger stores is provided in the Subsequent Events
section. Excluding the Giant Tiger results and
impact of the
International support office restructuring costs, adjusted EBITDA3
increased $1.3 million or 2.7% mainly due to earnings gains in northern
Canada and Alaska, partially offset by lower earnings in Pacific region
stores.
Income tax expense decreased $0.1 million to $3.8 million and
the consolidated effective tax rate was 18.2% compared to 22.1% last
year. This rate decrease was primarily due to the impact of non-taxable
share-based compensation costs in Canadian Operations and the
blend of earnings in International Operations across the various tax
rate jurisdictions.
Net earnings increased $3.3 million or 23.6% to $17.3 million. Net
earnings attributable to shareholders were $16.3 million and diluted
earnings per share were $0.33 per share compared to $0.27 per share
last year due to the factors noted above. Adjusted net earnings3, which
excludes the impact of the after-tax insurance-related gains and share-
based compensation costs, decreased 21.2% compared to last year due
21ANNUAL REPORT Winnipeg Support Office Cost Reduction
On March 12, 2020, the Company announced that it will be reducing
administration costs in its Canadian Operations by approximately $17.0
million on an annualized basis and that it expects to record a provision
of approximately $5.0 million in the first quarter of 2020, related
primarily to employee severance costs. This cost reduction will largely
take effect in the first and second quarters of 2020 and is partially related
to recent and ongoing technology investments and the impact of the
previously noted GTSL Transaction and related product supply and
distribution agreements. The Company plans to re-focus on the core
store selling activities in northern Canada and re-invest part of the cost
savings in lower retail food pricing to help drive market share growth
in this region, beginning with approximately $10.0 million
in
annualized pricing investment over the next 12-18 months.
Pandemic COVID-19
Subsequent to January 31, 2020, the World Health Organization
declared the rapidly spreading novel coronavirus ("COVID-19") a
pandemic. This contagious disease outbreak has resulted in material
disruption
to businesses globally and significant economic
uncertainty. In response, governments worldwide, including in
Canada, have enacted emergency measures to both combat the
spread of the virus and stabilize economic conditions. All of the
Company's operations are considered to be essential services by the
applicable government authorities. As such, the Company's focus is
on business continuity and safety plans to ensure uninterrupted
operations and to help mitigate the health impact of COVID-19 on
employees and customers. This includes the implementation of
physical spacing, safety and enhanced sanitation protocols in stores,
distribution centers and support offices. The Company is also working
closely with governments and suppliers to help ensure the
uninterrupted flow of merchandise to our stores. COVID-19 is a rapidly
changing situation and the Company continues to adjust and adapt
its operations as required.
The impact of COVID-19 is highly uncertain and the Company is
not able to reliably forecast the severity and duration of the impact of
COVID-19 on the economy, the financial markets, the availability of
capital and the impact on the Company's employees, customers, and
suppliers, including the temporary closure of stores or interruptions to
the Company's supply chain. Although the Company foresees
continued revenue demand based on its role as an essential service,
the full impact of COVID-19 is not determinable at this time and there
can be no assurance that COVID-19 will not have a material adverse
impact on the Company's operations and financial condition.
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, 2020. There have been no
changes in the internal controls over financial reporting for the year
ended January 31, 2020 that have materially affected or are reasonably
likely to materially affect the internal controls over financial reporting.
SUBSEQUENT EVENTS
Giant Tiger
On March 12, 2020, the Company and Giant Tiger Stores Limited
(“GTSL”) announced they had entered into a definitive asset purchase
agreement (the “GTSL Transaction”) for GTSL to acquire 34 of the
Company’s 46 Giant Tiger stores ( the “Acquired Stores”) for cash
consideration of $45.0 million payable in $15.0 million installments on
the second, third and fourth anniversaries of the transaction closing
date and, subject to meeting certain profitability milestones, total
contingent consideration payable of up to $22.5 million. The purchase
price is subject to certain working capital adjustments including the
estimation of the contingent consideration. Of the remaining 12 GT
locations, the Company will: (i) retain and operate five key stores in
northern market locations, (ii) convert one store to a Valu-Lots
clearance center and (iii) close six stores in the second and third quarter
of 2020. The closed stores are expected to result in a provision of
approximately $9.0 million, which will be recorded in the first quarter
of 2020. The Acquired Stores and closed stores had annualized sales of
$290 million, an EBIT loss of $8.6 million and EBITDA(2) of $0.3 million
for the year-ended January 31, 2020.
As a part of the GTSL Transaction, the Company will enter into
reciprocal product supply and distribution agreements related to the
supply of food-related product by the Company to the Acquired Stores
and certain general merchandise and food-related products by GTSL
to the Company’s northern Canada stores. These agreements will
enable buying and distribution efficiencies for both parties and will
provide the Company access to a stronger, expanded general
merchandise assortment.
The completion of the GTSL Transaction is subject to the
satisfaction of closing conditions and is expected to occur in the
second quarter of 2020.
22THE NORTH WEST COMPANY INC. 2019 OUTLOOK
income-support programs.
in out-of-community purchasing and
The Company's 2020 consumer outlook and operating conditions are
clouded by the COVID-19 situation. Current demand for the
Company's product mix is high due to stock-up shopping, a sharp
injections of
drop-off
government
Within-community
purchasing will remain above normal levels over the duration of
restrictions on non-essential travel and to a lesser degree, restaurant
closures. Offsetting this will be expected declines in resource and
tourism-related employment
the Company's
International Operations, the higher risk of pronounced COVID-19
outbreaks within the small, remote communities served by the
Company and additional operating costs including more relief and
replacement store staffing, safety supplies and higher bank card fees
due to lower cash usage.
income within
The Company is monitoring the COVID-19 situation on a daily
basis and adjusting practices as appropriate, including people, product
sourcing and distribution requirements. As a relied-upon, essential
service provider of everyday needs to many remote communities, the
Company is committed to ensuring continuity of service throughout
this challenging period.
The medium and longer term outlook for the Company's core
business is favourable and aligns with our lower risk product and
service focus, augmented by opportunistic investments. Northern
Canada's outlook in particular, is buoyed by ongoing government
investment within Indigenous communities, resource development,
and other public sector capital projects.
A third owned ATR aircraft will be added to NSA’s fleet in the
second quarter of 2020. This will add redundancy capacity and reduce
reliance on more expensive, chartered planes as well as providing more
opportunity to grow NSA’s third party cargo business. Two Basler
aircraft insurance claims combined with an overall higher insurance
cost environment are expected to result in significantly higher
insurance expenses for NSA in 2020. Actions are underway to mitigate
this cost impact and to ensure that NSA has the optimum fleet model
configuration for its scope of business.
The relocation of our International Operations support office from
Bellevue, Washington to Anchorage, Alaska and Boca Raton, Florida to
support our AC and CUL banners respectively is complete and is
expected to contribute to better market insights and execution. The
closure of our main store in Barrow is expected to be partially mitigated
by the opening of a smaller store in the community but may negatively
impact earnings growth in Alaska over the next three quarters.
In 2019, the Company recorded after-tax insurance related gains
of $13.9 million compared to $15.4 million in 2018. The settlement of
fire insurance claims and the receipt of payments are expected to result
in further insurance-related earnings gains in 2020 however, the
amount and timing of these gains is uncertain. The remaining gains in
2020 are expected to be offset by higher insurance costs primarily in
Canada and the Caribbean. Global insurance market conditions are
more challenging as insurance companies limit their capacity for
underwriting risks in certain geographic areas such as the Caribbean
and northern Canada or in sectors such as aviation. Insurance
companies that do provide coverage in these areas require significantly
higher insurance premiums and higher self-insured retention levels
from companies. These factors are expected to continue to result in
higher insurance costs; and, changes in self-insured retention levels
may result in greater earnings volatility in the event of future losses. To
help mitigate future losses, the Company has completed facilities
upgrades in the Caribbean to a category five hurricane level, has
undertaken fire prevention audits and upgraded facilities to help
reduce the risk of fire related losses, and is reviewing the risk profile of
its current NSA fleet. The Company also continues to review self-
insurance options.
As noted in the Subsequent Events section, the Company has
entered into an agreement to sell 34 of the Company's 46 Giant Tiger
stores to Giant Tiger Stores Limited. The Company also plans to close
six Giant Tiger stores which is expected to result in recording a $9
million provision in the first quarter of 2020. The Company also expects
to record a provision for employee severance costs of approximately
$5 million in the first quarter related to the previously announced
restructuring of its Winnipeg support office. Further information on
the Giant Tiger transaction, store closures and support office
restructuring is provided in the Subsequent Events section and in Note
24 to the consolidated financial statements.
In 2020, the Company expects that capital expenditures,
including investments in aircraft capacity, will be in the $65.0 million
range (2019 - $104.3 million) net of expected recoveries on the
settlement of fire insurance claims. The timing and amount of store-
based capital expenditures may be impacted by COVID-19-related
travel restrictions, 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.
RISK MANAGEMENT
The mandate of the Board of Directors includes ensuring that processes
are in place to identify and manage the principle risks of the business,
including environmental and climate-related risks, 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.
for completing an annual ERM
Management
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,
including environmental and climate-related risks, and the related
mitigation strategies are incorporated into the Company's strategic
planning process.
is accountable
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:
Pandemic A pandemic outbreak of a contagious disease such as the
novel coronavirus ("COVID-19") could result in a widespread health
crisis that could have an adverse effect on the Company's operations
and financial condition. A pandemic could impact the health and
wellness of the Company's employees and customers which could
negatively impact the Company's ability to operate its business or
23ANNUAL REPORT reduce the demand for the merchandise and services provided by the
Company. A pandemic may also result in the temporary closure of the
Company's stores, distribution facilities, airline or support offices and
could result in interruptions to the Company's supply chain, including
reduced availability of product or the temporary closure of suppliers
and transportation companies that are critical to the operation of the
business. Furthermore, a pandemic could result in an economic
downturn, restrictions on travel and trade, disruptions to financial
markets and negatively impact the availability and cost of capital, which
in turn could have an adverse impact on the Company's financial results
and condition.
The food and everyday products the Company provides are
essential, non-discretionary services in the communities we serve. The
Company has business continuity plans and safety protocols to help
mitigate the impact of a pandemic but there can be no assurance that
these plans and protocols will be sufficient to minimize the impact.
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 is delivering 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 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
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,
flight
to
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 29. To
the extent the Company is not successful in maintaining these
relations or is unable
lease agreements with
community-based organizations, or is subject to punitive fees or
operating restrictions,
it could have an adverse effect on the
Company's reputation and financial performance.
renew
to
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 2020, 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
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.
24THE NORTH WEST COMPANY INC. 2019 information
(collectively
"Confidential
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
Information")
personal
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, paralyze or prevent access to IT
systems or result in unauthorized access to Confidential 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; the impact of a pandemic, including COVID-19, that
reduces or restricts transportation to the communities the Company
serves; 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.
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
especially in the northeastern Caribbean. Collectively the stores in this
region have sales of $285.7 million and assets of $155.0 million for the
year-ended January 31, 2020. In 2017, islands in this region were
devastated by two category five hurricanes which resulted in the
destruction of the Company's CUL store in St. Thomas and three RTW
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.
The Company subsequently completed a specific climate-related
risk management assessment of its stores in the northeastern
Caribbean and upgraded its most hurricane-vulnerable stores to
improve the building construction to a category five hurricane
resiliency level. These improvements help mitigate the impact of
hurricanes on the Company's stores however, there can be no certainty
that the damage from hurricanes will not include significant damage
to or loss of stores and warehouses. In addition, hurricanes can result
in significant damage to or destruction of important infrastructure,
including residences, which in turn may result in people relocating from
an island. Any prolonged reduction in population in the communities
the Company operates in could have a material impact on the financial
performance of the Company.
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 operates in 71 communities in northern
Canada and 16 communities in Alaska that are potentially exposed to
changes in permafrost. Collectively these stores have sales of $670.3
million and assets of $317.3 million for the year ended January 31, 2020.
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.
25ANNUAL REPORT 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 were being completed. In 2019, the Company completed
an independent review of its fire mitigation policies and procedures to
identify opportunities to improve fire prevention in its northern
Canadian stores and is continuing to upgrade facilities to reduce the
risk of fire-related losses.
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
reduction in government transfers, spending on infrastructure 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.
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.
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
26THE NORTH WEST COMPANY INC. 2019 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.
Global insurance market conditions are more challenging as insurance
companies limit their capacity for underwriting risks in certain
geographic areas such as the Caribbean and northern Canada or in
sectors such as aviation. Insurance companies that do provide
coverage in these areas are requiring significantly higher insurance
premiums and higher self-insured retention levels from companies.
These factors are expected to continue to result in higher insurance
costs; and, changes in self-insured retention levels may result in greater
earnings volatility in the event of future losses. 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
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.
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
27ANNUAL REPORT 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 30 and in Note 13 to the consolidated financial statements.
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.
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 Fort Lauderdale, 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
Boca Raton, Florida. 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
financial transactions. The Company uses derivative
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 15 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
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.
risk by performing
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, 2020, the Company
had undrawn committed revolving loan facilities available of $189.8
million (January 31, 2019 - $231.5 million).
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
17. At January 31, 2020, the Company had US$99.7 million in U.S.
denominated debt compared to US$97.9 million at January 31, 2019
and US$99.4 million at January 31, 2018. 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
18.
The Company is also exposed to currency risk relating to the
translation of International Operations earnings to Canadian dollars. In
2019, the average exchange rate used to translate U.S. denominated
earnings from the International Operations was 1.3246 compared to
1.3041 last year. The Canadian dollar's depreciation in 2019 compared
to the U.S. dollar in 2018 positively impacted consolidated net earnings
by $0.7 million. In 2018, the average exchange rate was 1.3041
compared to 1.2930 in 2017 which resulted in an increase in 2018
consolidated net earnings of $0.4 million compared to 2017.
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 12 to the
consolidated financial statements. As at January 31, 2020, the Company
had no outstanding interest rate swaps.
28THE NORTH WEST COMPANY INC. 2019
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's social responsibility and sustainability objectives
are framed under the following four pillars:
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 Report is available on the Company's website at
www.northwest.ca.
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 15
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.
29ANNUAL REPORT 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, 2020 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
2019 was 2.75% compared to 3.75% in 2018 and 3.50% in 2017.
Management assumed a rate of compensation increase of 4.0% for
fiscal 2019 - 2017.
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 13 to the consolidated financial statements.
Amortization of Long-lived Assets and Right-of-Use Assets The
Company makes estimates about the expected useful lives of long-
lived assets, including right-of-use assets and 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.
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.
30THE NORTH WEST COMPANY INC. 2019 The Company performed the annual goodwill impairment test in
2019 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 10 to the consolidated financial statements.
Vendor Allowances Accounting for vendor allowances requires
judgement in estimating the volume of purchases during a period of
time, product remaining in opening inventory and the probability that
funds will be collected from vendors. Earned vendor allowances are
allocated between cost of sales and inventories.
Leases The values of right-of-use assets and lease liabilities are
measured based on whether renewal options are reasonably certain
of being exercised and an estimate of the incremental borrowing rate
specific to each leased asset if the interest rate in the lease is not readily
determined. The incremental borrowing rate for the Canadian and
International Operations is determined based on the applicable
corporate bond yield curve with an adjustment that reflects the
security.
ACCOUNTING STANDARDS IMPLEMENTED IN
2019
New Standards Implemented The Company adopted the amended
IFRS 16 - Leases with a date of initial application of February 1, 2019
using the full retrospective approach. The Company recorded the
cumulative effects of initial application in opening retained earnings
as at February 1, 2018, the beginning of the comparative period, and
restated its results for the year ended January 31, 2019. The Company
has also restated its consolidated balance sheets as at January 31, 2019
and February 1, 2018.
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 do not
include variable lease payments that are not based on an index or rate.
Prior to the adoption of IFRS 16, substantially all leases were
classified as operating leases based on the Company’s assessment that
a significant portion of the risks and rewards of ownership were
retained by the lessor. Lease payments were recorded in selling,
operating and administrative expenses in the consolidated statements
of earnings.
Under IFRS 16, the Company recognizes right-of-use assets and
lease liabilities for its leases of land, buildings and equipment. The
nature and timing of leasing expenses have changed as operating lease
expenses were replaced by an amortization charge for right-of-use
assets and interest expense on lease liabilities. IFRS 16 also changed
the presentation of cash flows relating to leases in the Company’s
consolidated statements of cash flows, but did not cause a difference
in the amount of cash transferred between the lease parties.
In applying IFRS 16, the Company has applied the following
practical expedients:
Definition of a lease Previously, the Company determined whether an
arrangement is or contains a lease under IAS 17. On transition to IFRS
16, the Company has elected to apply the practical expedient to
grandfather the assessment of which transactions are leases.
Short-term leases The Company has elected to apply the recognition
exemptions to certain short-term leases.
Impacts on consolidated financial statements The following tables
summarize the impacts of adopting IFRS 16 on the Company’s
consolidated financial statements.
31ANNUAL REPORT New Standards Implemented (continued) Consolidated Statements of Earnings - January 31, 2019
($ in thousands)
SALES
Cost of sales
Gross profit
Selling, operating and administrative expenses
Earnings from operations
Interest expense
Earnings before income taxes
Income taxes
NET EARNINGS FOR THE YEAR
NET EARNINGS ATTRIBUTABLE TO
The North West Company Inc.
Non-controlling interests
TOTAL NET EARNINGS
NET EARNINGS PER SHARE
Basic
Diluted
Year Ended
January 31, 2019
(Previously Reported)
Impact: Adoption of
IFRS 16
$
2,013,486
$
(1,372,943)
640,543
(510,635)
129,908
(13,965)
115,943
(25,311)
90,632
86,748
3,884
90,632
1.78
1.77
$
$
$
$
$
$
$
$
$
$
—
—
—
6,093 (1)
6,093
(5,675) (2)
418
(427) (3)
(9)
(9)
—
(9)
—
—
Year Ended
January 31, 2019
(Restated)
$
2,013,486
(1,372,943)
640,543
(504,542)
136,001
(19,640)
116,361
(25,738)
90,623
86,739
3,884
90,623
1.78
1.77
$
$
$
$
$
(1) Additional amortization on right-of-use assets less previously recorded operating lease rental expense
(2) Interest expense on lease liabilities
(3) Impact of adjustments to deferred tax assets and liabilities
32THE NORTH WEST COMPANY INC. 2019 New Standards Implemented (continued) Condensed Consolidated Balance Sheets - January 31, 2019
($ in thousands)
CURRENT ASSETS
NON-CURRENT ASSETS
Property and equipment
Right-of-use assets
Goodwill
Intangible assets
Deferred tax assets
Other assets
TOTAL ASSETS
CURRENT LIABILITIES
NON-CURRENT LIABILTIES
Long-term debt
Lease liabilities
Defined benefit plan obligation
Deferred tax liabilities
Other long-term liabilities
TOTAL LIABILITIES
SHAREHOLDERS' EQUITY
Share capital
Contributed surplus
Retained earnings
Accumulated other comprehensive income
Equity attributable to The North West Company Inc.
Non-controlling interests
TOTAL EQUITY
TOTAL LIABILITIES & EQUITY
January 31, 2019
(Previously Reported)
Impact: Adoption
of IFRS 16
January 31, 2019
(Restated)
$
376,829
$
(532) (1)
$
376,297
$
$
$
$
514,946
—
45,203
39,199
32,909
13,835
646,092
1,022,921
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
$
$
—
127,794 (2)
—
—
1,796 (3)
(2,118) (1)
127,472
126,940
20,057 (4)
—
118,112 (4)
—
(612) (3)
(529) (5)
116,971
137,028
—
—
(9,823) (6)
(265)
(10,088)
—
(10,088)
514,946
127,794
45,203
39,199
34,705
11,717
773,564
1,149,861
196,938
365,857
118,112
28,969
8,395
20,574
541,907
738,845
173,681
3,530
201,368
19,867
398,446
12,570
411,016
$
1,022,921
$
126,940
$
1,149,861
(1) Prepaid rent removed and incorporated into lease liability calculation
(2) Capitalization of right-of-use assets less both tenant inducements and step-lease accruals which have been incorporated into right-of-use
asset and lease liability calculation
(3) Deferred tax impact of transition adjustments
(4) Recognition of lease liabilities less tenant inducements
(5) Removal of tenant inducements and step-lease accruals incorporated into right-of-use asset and lease liability calculation
(6) Cumulative after tax impact of differences described above on retained earnings
33ANNUAL REPORT New Standards Implemented (continued) Condensed Consolidated Balance Sheets - February 1, 2018
($ in thousands)
CURRENT ASSETS
NON-CURRENT ASSETS
Property and equipment
Right-of-use assets
Goodwill
Intangible assets
Deferred tax assets
Other assets
TOTAL ASSETS
CURRENT LIABILITIES
NON-CURRENT LIABILTIES
Long-term debt
Lease liabilities
Defined benefit plan obligation
Deferred tax liabilities
Other long-term liabilities
TOTAL LIABILITIES
SHAREHOLDERS' EQUITY
Share capital
Contributed surplus
Retained earnings
Accumulated other comprehensive income
Equity attributable to The North West Company Inc.
Non-controlling interest
TOTAL EQUITY
TOTAL LIABILITIES & EQUITY
January 31, 2018
(Previously Reported)
Impact: Adoption
of IFRS 16
February 1, 2018
(Restated)
$
335,003
$
(23) (1)
$
334,980
$
$
$
$
469,993
—
41,231
37,628
34,450
12,643
595,945
930,948
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
$
$
—
115,844 (2)
—
—
2,145 (3)
(1,845) (1)
116,144
116,121
21,702 (4)
—
105,541 (4)
—
(607) (3)
(701) (5)
104,233
125,935
—
—
(9,814) (6)
—
(9,814)
—
(9,814)
469,993
115,844
41,231
37,628
36,595
10,798
712,089
1,047,069
192,914
313,549
105,541
34,095
5,861
22,767
481,813
674,727
172,619
2,570
172,030
12,918
360,137
12,205
372,342
$
930,948
$
116,121
$
1,047,069
(1) Prepaid rent removed and incorporated into lease liability calculation
(2) Capitalization of right-of-use assets less both tenant inducements and step-lease accruals which have been incorporated into right-of-use
asset and lease liability calculation
(3) Deferred tax impact of transition adjustments
(4) Recognition of lease liabilities less tenant inducements
(5) Removal of tenant inducements and step-lease accruals incorporated into right-of-use asset and lease liability calculation
(6) Cumulative after tax impact of differences described above on retained earnings
34THE NORTH WEST COMPANY INC. 2019 New Standards Implemented (continued) Condensed Consolidated Statements of Cash Flows - January 31, 2019
($ in thousands)
CASH PROVIDED BY (USED IN)
Operating activities
Net earnings for the period
Adjustments for:
Amortization
Provision for income taxes
Interest expense
Equity settled share option expense
Gain on partial insurance settlement
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
Cash used in investing activities
Financing activities
Net increase in long-term debt
Payment of lease liabilities, principal
Payment of lease liabilities, interest
Dividends
Dividends to non-controlling interests
Interest paid
Cash used in financing activities
Effect of foreign exchange rates on cash
NET CHANGE IN CASH
Cash, beginning of period
CASH, END OF PERIOD
Year Ended
January 31, 2019
(Previously Reported)
Impact: Adoption
of IFRS 16
Year Ended
January 31, 2019
(Restated)
$
90,632
$
(9) (1)
$
90,623
59,435
25,311
13,965
2,022
(16,955)
(26,446)
1,232
149,196
(20,792)
(1,284)
127,120
22,586 (2)
427
5,675 (3)
—
—
—
(42) (4)
28,637
(32)
—
28,605
82,021
25,738
19,640
2,022
(16,955)
(26,446)
1,190
177,833
(20,824)
(1,284)
155,725
(80,793)
—
(80,793)
44,785
—
—
(62,329)
(3,954)
(12,254)
(33,752)
713
13,288
25,160
—
(22,930) (5)
(5,675) (6)
—
—
—
(28,605)
—
—
—
$
38,448
$
—
$
44,785
(22,930)
(5,675)
(62,329)
(3,954)
(12,254)
(62,357)
713
13,288
25,160
38,448
(1) See preceding section for a description of IFRS 16 adjustments that impact net earnings for the year
(2) Amortization of right-of-use assets
(3) Interest expense on lease liabilities
(4) Loss on leases terminated in period
(5) Payment of lease liabilities
(6) Interest paid on lease liabilities
35ANNUAL REPORT New Standards Implemented (continued) Effective February
1, 2019, the Company adopted IFRIC Interpretation 23 and also
adopted amendments to the following standards: IFRS 3
Business Combinations; IAS 12 Income Taxes; IAS 23 Borrowing
Costs; and IAS 19 Employee Benefits as required by the IASB. A
summary of these changes is as follows:
•
•
•
•
•
Interpretation 23 provides guidance on the
IFRIC
accounting for current and deferred tax liabilities and
assets in circumstances in which there is uncertainty over
income tax treatments;
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);
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;
and
IAS 19 Employee Benefits 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.
NON-GAAP FINANCIAL MEASURES
(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. These
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 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
2019
2018(1)
$ 86,273
$
90,623
89,222
20,948
23,132
82,021
19,640
25,738
$ 219,575
$ 218,022
(18,170)
3,550
(20,053)
11,204
$ 204,955
$ 209,173
The adoption of these amendments did not have a material
impact on the Company.
Less: Gain on partial insurance settlement(2)
Add: Share-based compensation expense(3)
Adjusted EBITDA
(1) IFRS 16 - Leases was applied retrospectively with restatement of certain prior year figures
as described in the Accounting Standard Changes Implemented in 2019.
(2) The Company's 2018 insurance gains for the year have been updated to include a $3.1
million gain in Canadian Operations. This amount had previously been excluded from
adjusted EBITDA because it was comparable to an insurance gain recorded in the third
quarter of 2017.
(3) Share-based compensation expense includes all share-based compensation as
indicated in Note 14 and Note 18 to the Company's Consolidated Financial Statements.
In the prior year, the adjustment for share-based compensation only included stock
options. This change has been made on a comparative basis.
For EBITDA information by business segment, see Note 4 to the
consolidated financial statements.
FUTURE ACCOUNTING STANDARDS
The following new standards, and amendments to standards and
interpretations, are not yet effective for the year ended January 31,
2020, and have not been applied in preparing the annual audited
consolidated financial statements.
Definition of Material In May 2017, the IASB issued amendments to
IAS 1 Presentation of Financial Statements and IAS 8 Accounting Policies,
Changes in Accounting Estimates and Errors. These amendments
clarified the definition of material. Under the amended definition,
information is material if omitting, misstating or obscuring it could
reasonably be expected to influence the decisions that the primary
users of general purpose financial statements make. The amendments
are effective for the Company on February 1, 2020 and are required to
be applied prospectively. The implementation of this amendment is
not expected to have a significant impact on the Company.
There are no other IFRS or IFRIC interpretations that are not yet effective
that would be expected to have a material impact on the Company.
36THE NORTH WEST COMPANY INC. 2019 Reconciliation of consolidated net earnings to adjusted net
earnings:
($ in thousands)
Net earnings
Less: Gain on partial insurance settlement(2), net
of tax
Add: Share-based compensation expense, net
of tax(3)
Adjusted Net Earnings
2019
2018(1)
$ 86,273
$
90,623
(13,887)
(15,439)
2,991
9,138
$ 75,377
$
84,322
(1) IFRS 16 - Leases was applied retrospectively with restatement of certain prior year figures
as described in the Accounting Standard Changes Implemented in 2019.
(2) The Company's 2018 insurance gains for the year have been updated to include a $3.1
million gain in Canadian Operations. This amount had previously been excluded from
adjusted EBITDA because it was comparable to an insurance gain recorded in the third
quarter of 2017.
(3) Share-based compensation expense includes the after-tax impact of all share-based
compensation as indicated in Note 14 and Note 18 to the Company's Consolidated
Financial Statements. In prior years, the adjustment for share-based compensation only
included stock options. This change has been made on a comparative basis.
The Company recorded gains on fire, hurricane Irma and aircraft related
insurance claims. These gains were due to the difference between the
replacement cost of the assets destroyed and their book value and also
for the recovery of business interruption losses on hurricane claims.
Certain share-based compensation costs are presented as liabilities on
the Company's consolidated balance sheets. The Company is exposed
to market price fluctuations in its share price through these share-
based compensation costs. These liabilities are recorded at fair value
at each reporting date based on the market price of the Company's
shares at the end of each reporting period with the changes in fair
value recorded in selling, operating and administrative expenses.
Further information on share-based compensation is provided in Note
14 and Note 18 to the Company's Consolidated Financial Statements.
(2) Return on Net Assets (RONA) is not a recognized measure under
IFRS. Management believes that RONA is a useful measure to evaluate
the financial return on the net assets used in the business. RONA is
calculated as earnings from operations (EBIT) for the year divided by
average monthly net assets. The following table reconciles net assets
used in the RONA calculation to IFRS measures reported in the
consolidated financial statements as at January 31 for the following
fiscal years:
($ in millions)
Total assets
Less: Total liabilities
Add: Total long-term debt and lease liabilities
2019
2018(1)
$ 1,215.5
$ 1,149.9
(788.6)
550.1
(738.8)
506.7
917.8
Net Assets Employed
$
977.0
$
(1) IFRS 16 - Leases was applied retrospectively with restatement of certain prior year figures
as described in the Accounting Standard Changes Implemented in 2019.
(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.
37ANNUAL REPORT 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
2019
2018
2017
2016
2015
2014
Year-ended
January 31, 2020
January 31, 2019
January 31, 2018
January 31, 2017
January 31, 2016
January 31, 2015
Fiscal
Year
2013
2012
2011
2010
2009
2008
Year-ended
January 31, 2014
January 31, 2013
January 31, 2012
January 31, 2011
January 31, 2010
January 31, 2009
38THE NORTH WEST COMPANY INC. 2019 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
Right-of-use assets
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) IFRS 16 - Leases was applied retrospectively with restatement of certain prior
year figures as described in Accounting Standard Changes Implemented in 2019.
Amounts prior to 2018 have not been restated for IFRS 16. Certain 2017 amounts
have been restated upon the adoption of IFRS 15. Amounts prior to 2017 have
not been restated for IFRS 15.
2019(1)
2018(1)
2017 (1)
2016
2015
$1,271,552
822,841
2,094,393
140,359
79,216
219,575
62,983
26,239
89,222
20,948
23,132
82,724
161,117
64,351
121,605
(10,261)
$ 399,593
555,075
127,870
104,765
28,233
194,084
594,482
426,970
$
$
$
1.70
1.68
4.50
3.30
1.32
8.76
27.56
198
51
1,617
662
798
1,236
5,587
2,046
48,751
48,751
45,013
1,246,133
767,353
2,013,486
130,399
87,623
218,022
57,577
24,444
82,021
19,640
25,738
86,739
155,725
62,329
103,219
13,288
376,297
514,946
127,794
96,119
34,705
196,938
541,907
411,016
1.78
1.77
4.47
3.19
1.28
8.43
31.17
193
52
1,571
669
798
1,148
5,672
2,253
48,697
48,751
46,269
$
$
$
$
$ 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)
$
$
$
$
335,003
469,993
—
91,502
34,450
171,212
377,580
382,156
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
$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)
$ 327,938
358,121
—
86,909
32,853
152,244
285,792
367,785
$
$
$
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
$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
$
$
$
1.44
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
10.5
6.2
13.5
20.5
.96:1
39.9
5.8
8.4
6.0
19.5
20.6
.63:1
43.8
6.2
(2) The financial results for 2009 are reported in accordance with CGAAP and
have not been restated to IFRS.
10.8
6.8
15.3
23.2
.89:1
40.0
6.0
8.5
5.7
16.7
18.3
.82:1
44.1
6.0
9.0
6.4
20.1
21.8
.62:1
47.7
6.1
39ANNUAL REPORT 2014
2013
2012
2011
2010
$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
$
$
$
1.30
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
$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)
$ 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
$
$
$
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
$1,028,396
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)
$ 295,836
270,370
—
53,289
7,422
128,002
215,206
283,709
$
$
$
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
8.5
6.0
18.4
19.3
.61:1
48.8
5.7
9.0
6.5
20.0
21.0
.57:1
68.2
5.6
(3) See Non-GAAP Financial Measures on page 36.
8.8
6.4
20.6
22.1
.55:1
39.0
5.8
8.4
6.0
18.5
20.1
.62:1
44.0
5.7
(4) Based on average basic shares/units outstanding.
$ 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
8.7
6.2
17.9
24.1
.67:1
60.0
5.6
CGAAP(2)
2009
$ 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
$
1.71
1.69
2.73
2.26
1.39
6.04
17.94
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
Right-of-use assets
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)
$
$
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) (%)
9.0
Earnings from operations (EBIT) (%)
6.6
Total return on net assets(3) (%)
18.7
Return on average equity(3) (%)
29.3
.72:1
Debt-to-equity
62.3 Dividends/distributions as % of cash flow from operating activities
Inventory turnover (times per year)
5.6
(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.
40THE NORTH WEST COMPANY INC. 2019 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 consolidated 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.
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 27, 2020
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, 2020 and 2019, and February 1, 2018 and its financial
performance and its cash flows for the years ended January 31, 2020
and 2019 in accordance with International Financial Reporting
Standards (IFRS) as issued by the International Accounting Standards
Board.
What we have audited
The Company's consolidated financial statements comprise:
• the consolidated balance sheets as at January 31, 2020 and 2019,
and February 1, 2018;
• the consolidated statements of earnings for the years ended January
31, 2020 and 2019;
• the consolidated statements of comprehensive income for the years
ended January 31, 2020 and 2019;
• the consolidated statements of changes in shareholders' equity for
the years ended January 31 2020 and 2019;
• the consolidated statements of cash flows for the years ended
January 31, 2020 and 2019; and
• the notes to the consolidated financial statements, which include a
summary of significant accounting policies.
Basis for opinion
We conducted our audit in accordance with Canadian generally
accepted auditing standards. Our responsibilities under those
standards are further described in the Auditor's responsibilities for the
audit of the consolidated financial statements section of our report.
We believe that the audit evidence we have obtained is sufficient and
appropriate to provide a basis for our opinion.
Independence
We are independent of the Company in accordance with the ethical
requirements that are relevant to our audit of the consolidated financial
statements
fulfilled our other ethical
responsibilities in accordance with these requirements.
in Canada.
We have
Emphasis of matter - Adoption of new accounting standard
We draw attention to Note 3(w) to the consolidated financial
statements, which describes the adoption of IFRS 16 - Leases. Our
opinion is not modified in respect of this matter.
Other information
Management is responsible for the other information. The other
information comprises the Management’s Discussion and Analysis and
the information, other than the consolidated financial statements and
our auditor’s report thereon, included in the Annual Report.
Our opinion on the consolidated financial statements does not cover
the other information and we do not express any form of assurance
conclusion thereon.
41CONSOLIDATED FINANCIAL STATEMENTS
• Evaluate the appropriateness of accounting policies used and the
reasonableness of accounting estimates and related disclosures
made by management.
• Conclude on the appropriateness of management’s use of the going
concern basis of accounting and, based on the audit evidence
obtained, whether a material uncertainty exists related to events or
conditions that may cast significant doubt on the Company’s ability
to continue as a going concern. If we conclude that a material
uncertainty exists, we are required to draw attention in our auditor’s
report to the related disclosures in the consolidated financial
statements or, if such disclosures are inadequate, to modify our
opinion. Our conclusions are based on the audit evidence obtained
up to the date of our auditor’s report. However, future events or
conditions may cause the Company to cease to continue as a going
concern.
• Evaluate the overall presentation, structure and content of the
consolidated financial statements, including the disclosures, and
whether the consolidated financial statements represent the
underlying transactions and events in a manner that achieves fair
presentation.
• Obtain sufficient appropriate audit evidence regarding the financial
information of the entities or business activities within the Company
to express an opinion on the consolidated financial statements. We
are responsible for the direction, supervision and performance of
the group audit. We remain solely responsible for our audit opinion.
We communicate with those charged with governance regarding,
among other matters, the planned scope and timing of the audit and
significant audit findings, including any significant deficiencies in
internal control that we identify during our audit.
We also provide those charged with governance with a statement that
we have complied with relevant ethical requirements regarding
independence, and to communicate with them all relationships and
other matters that may reasonably be thought to bear on our
independence, and where applicable, related safeguards.
The engagement partner on the audit resulting in this independent
auditor's report is Nicole Murray.
CHARTERED PROFESSIONAL ACCOUNTANTS
WINNIPEG, MANITOBA
April 27, 2020
In connection with our audit of the consolidated financial statements,
our responsibility is to read the other information identified above and,
in doing so, consider whether the other information is materially
inconsistent with the consolidated financial statements or our
knowledge obtained in the audit, or otherwise appears to be materially
misstated.
If, based on the work we have performed, 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.
Responsibilities of management and those charged with
governance for the consolidated financial statements
Management is responsible for the preparation and fair presentation
of the consolidated financial statements in accordance with IFRS, and
for such internal control as management determines is necessary to
enable the preparation of consolidated financial statements that are
free from material misstatement, whether due to fraud or error.
In preparing the consolidated financial statements, management is
responsible for assessing the Company's ability to continue as a going
concern, disclosing, as applicable, matters related to going concern
and using the going concern basis of accounting unless management
either intends to liquidate the Company or to cease operations, or has
no realistic alternative but to do so.
Those charged with governance are responsible for overseeing the
Company's financial reporting process.
Auditor's responsibilities for the audit of the consolidated
financial statements
Our objectives are to obtain reasonable assurance about whether the
consolidated financial statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue an auditor’s
report that includes our opinion. Reasonable assurance is a high level
of assurance, but is not a guarantee that an audit conducted in
accordance with Canadian generally accepted auditing standards will
always detect a material misstatement when it exists. Misstatements
can arise from fraud or error and are considered material if, individually
or in the aggregate, they could reasonably be expected to influence
the economic decisions of users taken on the basis of these
consolidated financial statements.
As part of an audit in accordance with Canadian generally accepted
auditing standards, we exercise professional judgment and maintain
professional skepticism throughout the audit. We also:
•
Identify and assess the risks of material misstatement of the
consolidated financial statements, whether due to fraud or error,
design and perform audit procedures responsive to those risks, and
obtain audit evidence that is sufficient and appropriate to provide a
basis for our opinion. The risk of not detecting a material
misstatement resulting from fraud is higher than for one resulting
from error, as fraud may involve collusion, forgery, intentional
omissions, misrepresentations, or the override of internal control.
• Obtain an understanding of internal control relevant to the audit in
order to design audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on
the effectiveness of the Company’s internal control.
42THE NORTH WEST COMPANY INC. 2019 Consolidated Balance Sheets
($ in thousands)
CURRENT ASSETS
Cash
Accounts receivable (Note 5)
Inventories (Note 6)
Prepaid expenses
Income tax receivable (Note 10)
NON-CURRENT ASSETS
Property & Equipment (Note 7)
Right-of-use assets (Note 3, 8)
Goodwill (Note 9)
Intangible assets (Note 9)
Deferred tax asset (Note 10)
Other assets (Note 11)
TOTAL ASSETS
CURRENT LIABILITIES
NON-CURRENT LIABILITIES
Long-term debt (Note 12)
Lease liabilities (Note 3, 8)
Defined benefit plan obligation (Note 13)
Deferred tax liability (Note 10)
Other long-term liabilities
TOTAL LIABILITIES
SHAREHOLDERS’ EQUITY
Share capital (Note 16)
Contributed surplus
Retained earnings
Accumulated other comprehensive income
Equity attributable to The North West Company Inc.
Non-controlling interests
TOTAL EQUITY
TOTAL LIABILITIES & EQUITY
Accounts payable and accrued liabilities
Current portion of long-term debt (Note 12)
Current portion of lease liability (Note 3, 8)
Income tax payable (Note 10)
$
January 31, 2020 January 31, 2019(1) February 1, 2018(1)
$
28,187
104,869
248,040
12,375
6,122
399,593
555,075
127,870
49,569
41,608
28,233
13,588
815,943
$ 1,215,536
173,058
1,850
19,176
—
194,084
409,115
119,928
40,138
8,750
16,551
594,482
788,566
173,681
8,650
211,252
20,315
413,898
13,072
426,970
$
$
$
38,448
90,323
236,317
11,209
—
376,297
514,946
127,794
45,203
39,199
34,705
11,717
773,564
1,149,861
173,947
900
21,836
255
196,938
365,857
118,112
28,969
8,395
20,574
541,907
738,845
173,681
3,530
201,368
19,867
398,446
12,570
411,016
$
$
$
25,160
80,765
222,072
6,983
—
334,980
469,993
115,844
41,231
37,628
36,595
10,798
712,089
1,047,069
168,683
—
23,185
1,046
192,914
313,549
105,541
34,095
5,861
22,767
481,813
674,727
172,619
2,570
172,030
12,918
360,137
12,205
372,342
$ 1,215,536
$
1,149,861
$
1,047,069
(1) The Company has applied IFRS 16 retrospectively with restatement of the comparative period consolidated financial statements as described in Note 3.
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
43CONSOLIDATED FINANCIAL STATEMENTS Consolidated Statements of Earnings
($ in thousands, except per share amounts)
SALES
Cost of sales
Gross profit
Selling, operating and administrative expenses (Note 17, 18)
Earnings from operations
Interest expense (Note 19)
Earnings before income taxes
Income taxes (Note 10)
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 21)
Basic
Diluted
WEIGHTED-AVERAGE NUMBER OF SHARES OUTSTANDING (000's)
Basic
Diluted
Year Ended
Year Ended
January 31, 2020 January 31, 2019(1)
$ 2,094,393
$ 2,013,486
(1,429,995)
(1,372,943)
664,398
(534,045)
130,353
(20,948)
109,405
(23,132)
640,543
(504,542)
136,001
(19,640)
116,361
(25,738)
$
86,273
$
90,623
$
$
$
$
82,724
3,549
86,273
1.70
1.68
48,751
49,375
$
$
$
$
86,739
3,884
90,623
1.78
1.77
48,697
49,144
(1) The Company has applied IFRS 16 retrospectively with restatement of the comparative period consolidated financial statements as described in Note 3.
See accompanying notes to consolidated financial statements.
44THE NORTH WEST COMPANY INC. 2019
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:
Year Ended
Year Ended
January 31, 2020 January 31, 2019(1)
$
86,273
$
90,623
Exchange differences on translation of foreign controlled subsidiaries
828
7,784
Items that will not be subsequently reclassified to net earnings:
Remeasurements of defined benefit plans (Note 13)
Remeasurements of defined benefit plans of equity investee
Total other comprehensive income/(loss), net of tax
(8,456)
(33)
(7,661)
4,952
(24)
12,712
COMPREHENSIVE INCOME FOR THE YEAR
$
78,612
$ 103,335
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
$
$
$
$
(8,041)
$
11,877
380
835
(7,661)
$
12,712
74,683
3,929
78,612
$
98,616
4,719
$ 103,335
(1) The Company has applied IFRS 16 retrospectively with restatement of the comparative period consolidated financial statements as described in Note 3.
See accompanying notes to consolidated financial statements.
45CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Statements of Changes in Shareholders' Equity
($ in thousands)
Balance at January 31, 2019, previously
reported
Impact of changes in accounting
policy(2)
Restated balance at January 31, 2019(2)
Net earnings for the year
Other comprehensive income/(loss)
Other comprehensive loss of equity
investee
Comprehensive income
Equity settled share-based payments
(Note 14)
Dividends (Note 20)
Share
Capital
Contributed
Surplus
Retained
Earnings
AOCI (1)
Total
Non-
Controlling
Interests
Total
Equity
$ 173,681
$
3,530
$ 211,191
$ 20,132
$ 408,534 $
12,570 $ 421,104
—
—
(9,823)
(265)
(10,088)
— (10,088)
173,681
3,530
201,368
19,867
398,446
12,570
411,016
—
—
—
—
—
—
—
—
—
—
—
5,120
—
5,120
82,724
(8,456)
(33)
74,235
—
(64,351)
(64,351)
—
448
—
448
—
—
—
82,724
(8,008)
3,549
380
86,273
(7,628)
(33)
—
(33)
74,683
3,929
78,612
5,120
(64,351)
(59,231)
—
5,120
(3,427)
(3,427)
(67,778)
(62,658)
Balance at January 31, 2020
$173,681 $
8,650 $ 211,252 $20,315 $413,898 $ 13,072 $426,970
Balance at January 31, 2018, previously
reported
Impact of changes in accounting
policy(2)
Restated balance at February 1, 2018(2)
Restated net earnings for the year(2)
Other comprehensive income
Other comprehensive loss of equity
investee
Restated comprehensive income(2)
Acquisition of subsidiary with non-
controlling interest
Equity settled share-based payments
(Note 14)
Dividends (Note 20)
Issuance of common shares (Note 16)
$ 172,619
$
2,570
$ 181,844
$ 12,918
$ 369,951 $
12,205 $ 382,156
—
—
(9,814)
—
(9,814)
—
(9,814)
172,619
2,570
172,030
12,918
360,137
12,205
372,342
—
—
—
—
—
—
—
1,062
1,062
—
—
—
—
—
2,022
—
(1,062)
86,739
4,952
(24)
91,667
—
—
(62,329)
—
960
(62,329)
—
6,949
—
6,949
—
—
—
—
—
86,739
11,901
3,884
835
90,623
12,736
(24)
—
(24)
98,616
4,719
103,335
—
(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
$ 201,368
$ 19,867
$ 398,446 $
12,570 $ 411,016
(1) Accumulated Other Comprehensive Income
(2) The Company has applied IFRS 16 retrospectively with restatement of the comparative period consolidated financial statements as described in Note 3.
See accompanying notes to consolidated financial statements.
46THE NORTH WEST COMPANY INC. 2019
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, 9)
Provision for income taxes (Note 10)
Interest expense (Note 19)
Equity settled share-based compensation (Note 14)
Insurance proceeds, property and equipment (Note 17)
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
Intangible asset additions (Note 9)
Proceeds from disposal of property and equipment
Insurance proceeds, property and equipment
Cash used in investing activities
Financing activities
Net increase in long-term debt (Note 12)
Payment of lease liabilities, principal
Payment of lease liabilities, interest
Dividends (Note 20)
Dividends to non-controlling interests (Note 20)
Interest paid
Cash used in financing activities
Effect of changes in foreign exchange rates on cash
NET CHANGE IN CASH
Cash, beginning of year
CASH, END OF YEAR
Year Ended
Year Ended
January 31, 2020 January 31, 2019(1)
$
86,273
$
90,623
89,222
23,132
20,948
5,120
(7,790)
(19,916)
32
197,021
(28,670)
(7,234)
161,117
(111,305)
—
(10,300)
705
16,628
(104,272)
43,018
(21,834)
(5,560)
(64,351)
(3,427)
(15,082)
(67,236)
130
(10,261)
38,448
82,021
25,738
19,640
2,022
(16,955)
(26,446)
1,190
177,833
(20,824)
(1,284)
155,725
(93,555)
(400)
(9,664)
4,033
18,793
(80,793)
44,785
(22,930)
(5,675)
(62,329)
(3,954)
(12,254)
(62,357)
713
13,288
25,160
$
28,187
$
38,448
(1) The Company has applied IFRS 16 retrospectively with restatement of the comparative period consolidated financial statements as described in Note 3.
See accompanying notes to consolidated financial statements.
47CONSOLIDATED FINANCIAL STATEMENTS
Notes to
Consolidated
Financial
Statements
($ IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
JANUARY 31, 2020 AND 2019
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.
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 27, 2020.
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 14)
Defined benefit pension plan (Note 13)
Assets and liabilities acquired in a business
combination
The methods used to measure fair values are discussed further in
the notes to these consolidated 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, except for the adoption of IFRS 16 as described
below.
(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.
48THE NORTH WEST COMPANY INC. 2019
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.
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 At contract inception, the Company assesses whether a
contract is, or contains a lease and recognizes a right-of-use asset
and a lease liability at the lease commencement date. The right-
of-use asset is initially measured at cost, which comprises the
initial amount of the lease liability adjusted for any lease payments
made at or before the commencement date, plus any initial direct
costs incurred and an estimate of costs to dismantle and remove
or restore the underlying asset, less any lease incentives received.
Subsequent to initial measurement, the Company applies
the cost model. Right-of-use assets are subsequently amortized
using the straight-line method from the lease commencement
date to the earlier of the end of their useful life or the end of the
lease term. The estimated useful lives of right-of-use assets are
determined on the same basis as those of property and
49NOTES TO CONSOLDATED FINANCIAL STATEMENTS
equipment. Right-of-use assets may also be reduced by
impairment losses and adjusted for remeasurements of the lease
liability, as applicable.
The lease liability is initially measured at the present value of
the lease payments unpaid at the commencement date using the
interest rate implicit in the lease or the Company's incremental
borrowing rate. Lease payments are comprised of fixed payments
including in-substance fixed payments, variable lease payments
based on an index or rate, amounts expected to be payable under
residual value guarantees and the exercise price under a purchase
option that the Company is reasonably certain to exercise and
certain early termination costs. The period over which the lease
payments are discounted is the reasonably certain lease term,
which may include lease renewal options. Generally, the Company
uses its incremental borrowing rate as the discount rate.
Each lease payment is apportioned between the repayment
of the lease liability and a finance cost. The finance cost is
recognized in interest expense in the consolidated statements of
earnings using the effective interest rate method. The lease
liability is remeasured when there is a change in future lease
payments arising from a change in an index or rate, a change in
lease term, a change in the assessment of an option to purchase
the right-of-use asset or a change in an expected residual value
guarantee.
The Company has elected not to recognize right-of-use
assets and lease liabilities for certain short-term leases that have
a lease term of 12 months or less and leases of low-value assets.
Variable lease payments that do not depend on an index or rate
are also expensed as incurred. The Company recognizes these
lease payments as an expense
in selling, operating and
administrative expenses in the consolidated statements of
earnings.
(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 Riteway Food Markets 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 certain
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 consolidated 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
50THE NORTH WEST COMPANY INC. 2019
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.
(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.
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.
(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
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 profit 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, accrued liabilities, lease 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.
51NOTES TO CONSOLDATED FINANCIAL STATEMENTS
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.
denominated debt as a hedge of
investment in
international operations.
its net
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 in
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.
(U) Use of Estimates, Assumptions & Judgment The preparation
of consolidated financial statements in conformity with IFRS
requires 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 liabilities 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
consolidated
statements while estimates and
assumptions have been used to measure balances recognized or
disclosed.
financial
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
judgments by
estimates
require subjective or complex
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.
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:
•
•
•
•
•
•
•
•
•
•
includes
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, 15)
Inventories are remeasured based on the lower of cost and
net realizable value (Note 6)
Amortization methods
for property and equipment,
including aircraft and right-of-use assets, are based on
management's estimate of the most appropriate method
to reflect the pattern of an asset's future economic benefit.
This
judgment of what asset components
constitute a significant cost in relation to the total cost of an
asset (Note 7, 8)
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
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 9)
Income taxes have judgment applied to determine when tax
losses, credits and provisions are recognized based on tax
rules in various jurisdictions (Note 10)
Defined benefit pension plan obligation and expense
depends on assumptions used in the actuarial valuation
(Note 13)
Accounting for vendor allowances requires judgement in
estimating the volume of purchases during a period of time,
product remaining in opening inventory and probability that
funds will be collected from vendors. Earned vendor
allowances are allocated between cost of sales and
inventories (Note 6)
Application of IFRS 16 - Leases requires assumptions and
estimates in order to determine the value of the right-of-use
assets and lease liabilities, the implicit and incremental
borrowing rates, as applicable, and whether renewal options
are reasonably certain of being exercised (Note 3, 8).
(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.
52THE NORTH WEST COMPANY INC. 2019
(W) New Standards Implemented The Company adopted the
amended IFRS 16 - Leases with a date of initial application of
February 1, 2019 using the full retrospective approach. The
Company recorded the cumulative effects of initial application in
opening retained earnings as at February 1, 2018, the beginning
of the comparative period, and restated its results for the year
ended January 31, 2019. The Company also restated
its
consolidated balance sheets as at January 31, 2019 and February
1, 2018.
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 do not include variable lease payments that are not
based on an index or rate.
Prior to the adoption of IFRS 16, substantially all leases were
classified as operating leases based on the Company’s assessment
that a significant portion of the risks and rewards of ownership
were retained by the lessor. Lease payments were recorded in
the
selling, operating and administrative expenses
consolidated statements of earnings.
in
Under IFRS 16, the Company recognizes right-of-use assets
and lease liabilities for its leases of land, buildings, equipment and
aircraft. The nature and timing of leasing expenses have changed
as operating lease expenses were replaced by an amortization
charge for right-of-use assets and interest expense on lease
liabilities. IFRS 16 also changed the presentation of cash flows
relating to leases in the Company’s consolidated statements of
cash flows, but did not cause a difference in the amount of cash
transferred between the lease parties.
In applying IFRS 16, the Company has applied the following
practical expedients:
Definition of a lease Previously, the Company determined whether
an arrangement is or contains a lease under IAS 17. On transition
to IFRS 16, the Company has elected to apply the practical
expedient to grandfather the assessment of which transactions
are leases.
Short-term leases The Company has elected to apply the
recognition exemptions to certain short-term leases.
Impacts on consolidated financial statements The following tables
summarize the impacts of adopting IFRS 16 on the Company’s
consolidated financial statements.
(W) New Standards Implemented (continued) Consolidated Statements of Earnings - January 31, 2019
($ in thousands)
SALES
Cost of sales
Gross profit
Selling, operating and administrative expenses
Earnings from operations
Interest expense
Earnings before income taxes
Income taxes
NET EARNINGS FOR THE YEAR
NET EARNINGS ATTRIBUTABLE TO
The North West Company Inc.
Non-controlling interests
TOTAL NET EARNINGS
NET EARNINGS PER SHARE
Basic
Diluted
Year Ended
January 31, 2019
(Previously Reported)
Impact: Adoption of
IFRS 16
$
2,013,486
$
(1,372,943)
640,543
(510,635)
129,908
(13,965)
115,943
(25,311)
90,632
86,748
3,884
90,632
1.78
1.77
$
$
$
$
$
$
$
$
$
$
—
—
—
6,093 (1)
6,093
(5,675) (2)
418
(427) (3)
(9)
(9)
—
(9)
—
—
Year Ended
January 31, 2019
(Restated)
$
2,013,486
(1,372,943)
640,543
(504,542)
136,001
(19,640)
116,361
(25,738)
90,623
86,739
3,884
90,623
1.78
1.77
$
$
$
$
$
(1) Additional amortization on right-of-use assets less previously recorded operating lease rental expense
(2) Interest expense on lease liabilities
(3) Impact of adjustments to deferred tax assets and liabilities
53NOTES TO CONSOLDATED FINANCIAL STATEMENTS
(W) New Standards Implemented (continued) Condensed Consolidated Balance Sheets - January 31, 2019
($ in thousands)
CURRENT ASSETS
NON-CURRENT ASSETS
Property and equipment
Right-of-use asset
Goodwill
Intangible assets
Deferred tax assets
Other assets
TOTAL ASSETS
CURRENT LIABILITIES
NON-CURRENT LIABILTIES
Long-term debt
Lease liabilities
Defined benefit plan obligation
Deferred tax liabilities
Other long-term liabilities
TOTAL LIABILITIES
SHAREHOLDERS' EQUITY
Share capital
Contributed surplus
Retained earnings
Accumulated other comprehensive income
Equity attributable to The North West Company Inc.
Non-controlling interests
TOTAL EQUITY
TOTAL LIABILITIES & EQUITY
January 31, 2019
(Previously Reported)
Impact: Adoption
of IFRS 16
January 31, 2019
(Restated)
$
376,829
$
(532) (1)
$
376,297
$
$
$
$
514,946
—
45,203
39,199
32,909
13,835
646,092
1,022,921
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
$
$
—
127,794 (2)
—
—
1,796 (3)
(2,118) (1)
127,472
126,940
20,057 (4)
—
118,112 (4)
—
(612) (3)
(529) (5)
116,971
137,028
—
—
(9,823) (6)
(265)
(10,088)
—
(10,088)
514,946
127,794
45,203
39,199
34,705
11,717
773,564
1,149,861
196,938
365,857
118,112
28,969
8,395
20,574
541,907
738,845
173,681
3,530
201,368
19,867
398,446
12,570
411,016
$
1,022,921
$
126,940
$
1,149,861
(1) Prepaid rent removed and incorporated into lease liability calculation
(2) Capitalization of right-of-use assets less both tenant inducements and step-lease accruals which have been incorporated into right-of-
use asset and lease liability calculation
(3) Deferred tax impact of transition adjustments
(4) Recognition of lease liabilities less tenant inducements
(5) Removal of tenant inducements and step-lease accruals incorporated into right-of-use asset and lease liability calculation
(6) Cumulative after tax impact of differences described above on retained earnings
54THE NORTH WEST COMPANY INC. 2019 (W) New Standards Implemented (continued) Condensed Consolidated Balance Sheets - February 1, 2018
($ in thousands)
CURRENT ASSETS
NON-CURRENT ASSETS
Property and equipment
Right-of-use-asset
Goodwill
Intangible assets
Deferred tax assets
Other assets
TOTAL ASSETS
CURRENT LIABILITIES
NON-CURRENT LIABILTIES
Long-term debt
Lease liabilities
Defined benefit plan obligation
Deferred tax liabilities
Other long-term liabilities
TOTAL LIABILITIES
SHAREHOLDERS' EQUITY
Share capital
Contributed surplus
Retained earnings
Accumulated other comprehensive income
Equity attributable to The North West Company Inc.
Non-controlling interest
TOTAL EQUITY
TOTAL LIABILITIES & EQUITY
January 31, 2018
(Previously Reported)
Impact: Adoption
of IFRS 16
February 1, 2018
(Restated)
$
335,003
$
(23) (1)
$
334,980
$
$
$
$
469,993
—
41,231
37,628
34,450
12,643
595,945
930,948
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
$
$
—
115,844 (2)
—
—
2,145 (3)
(1,845) (1)
116,144
116,121
21,702 (4)
— (4)
105,541 (4)
—
(607) (3)
(701) (5)
104,233
125,935
—
—
(9,814) (6)
—
(9,814)
—
(9,814)
469,993
115,844
41,231
37,628
36,595
10,798
712,089
1,047,069
192,914
313,549
105,541
34,095
5,861
22,767
481,813
674,727
172,619
2,570
172,030
12,918
360,137
12,205
372,342
$
930,948
$
116,121
$
1,047,069
(1) Prepaid rent removed and incorporated into lease liability calculation
(2) Capitalization of right-of-use assets less both tenant inducements and step-lease accruals which have been incorporated into right-of-
use asset and lease liability calculation
(3) Deferred tax impact of transition adjustments
(4) Recognition of lease liabilities less tenant inducements
(5) Removal of tenant inducements and step-lease accruals incorporated into right-of-use asset and lease liability calculation
(6) Cumulative after tax impact of differences described above on retained earnings
55NOTES TO CONSOLDATED FINANCIAL STATEMENTS (W) New Standards Implemented (continued) Condensed Consolidated Statements of Cash Flows - January 31, 2019
($ in thousands)
CASH PROVIDED BY (USED IN)
Operating activities
Net earnings for the period
Adjustments for:
Amortization
Provision for income taxes
Interest expense
Equity settled share option expense
Gain on partial insurance settlement
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
Cash used in investing activities
Financing activities
Net increase in long-term debt
Payment of lease liabilities, principal
Payment of lease liabilities, interest
Dividends
Dividends to non-controlling interests
Interest paid
Cash used in financing activities
Effect of foreign exchange rates on cash
NET CHANGE IN CASH
Cash, beginning of period
Year Ended
January 31, 2019
(Previously Reported)
Impact: Adoption
of IFRS 16
Year Ended
January 31, 2019
(Restated)
$
90,632
$
(9) (1) $
90,623
59,435
25,311
13,965
2,022
(16,955)
(26,446)
1,232
149,196
(20,792)
(1,284)
127,120
22,586 (2)
427
5,675 (3)
—
—
—
(42) (4)
28,637
(32)
—
28,605
82,021
25,738
19,640
2,022
(16,955)
(26,446)
1,190
177,833
(20,824)
(1,284)
155,725
(80,793)
—
(80,793)
44,785
—
—
(62,329)
(3,954)
(12,254)
(33,752)
713
13,288
25,160
—
(22,930) (5)
(5,675) (6)
—
—
—
(28,605)
—
—
—
44,785
(22,930)
(5,675)
(62,329)
(3,954)
(12,254)
(62,357)
713
13,288
25,160
38,448
CASH, END OF PERIOD
$
38,448
$
—
$
(1) See preceding pages for a description of IFRS 16 adjustments that impact net earnings for year
(2) Amortization of right-of-use assets
(3) Interest expense on lease liabilities
(4) Loss on leases terminated in period
(5) Payment of lease liabilities
(6) Interest paid on lease liabilities
56THE NORTH WEST COMPANY INC. 2019 (W) New Standards Implemented (continued) Effective February
1, 2019, the Company adopted IFRIC Interpretation 23 and also
adopted amendments to the following standards: IFRS 3 Business
Combinations; IAS 12 Income Taxes; IAS 23 Borrowing Costs; and
IAS 19 Employee Benefits as required by the IASB. A summary of
these changes is as follows:
•
•
•
•
•
IFRIC Interpretation 23 provides guidance on the accounting for
current and deferred tax liabilities and assets in circumstances in
which there is uncertainty over income tax treatments;
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);
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; and
IAS 19 Employee Benefits 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 adoption of these amendments did not have a material impact
on the Company.
(X) Future Standards and Amendments The following new
standards, and amendments to standards and interpretations, are
not yet effective for the year ended January 31, 2020, and have
not been applied in preparing these annual consolidated financial
statements.
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 on February 1, 2020 and are required to be applied
prospectively. The implementation of this amendment 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.
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:
Consolidated Statements of Earnings
Year Ended
Sales
Canada
Food
General merchandise and
other
Canada
International
Food
General merchandise and
other
January 31, 2020
January 31, 2019
$ 842,916
$
825,668
428,636
420,465
$ 1,271,552
$ 1,246,133
$ 731,756
$
679,215
91,085
88,138
International
$ 822,841
$
767,353
Consolidated
$ 2,094,393
$ 2,013,486
Earnings before amortization, interest and income taxes(1)
Canada
International
$ 140,359
$
130,399
79,216
87,623
Consolidated
$ 219,575
$
218,022
Earnings from operations(1)
Canada
International
$
77,376
$
52,977
72,822
63,179
Consolidated
$ 130,353
$
136,001
Supplemental Information
Assets
Canada(2)
International(2)
January 31, 2020
January 31, 2019(1)
$ 787,392
$
757,842
428,144
392,019
Consolidated
$ 1,215,536
$ 1,149,861
Year Ended
January 31, 2020
January 31, 2019
Canada
Int'l
Canada
Int'l
Purchase of property and
equipment
$ 67,828 $ 43,477 $ 68,639 $ 24,916
Amortization(1)
$ 62,983 $ 26,239 $ 57,577 $ 24,444
(1) The Company has applied IFRS 16 retrospectively with restatement
of the comparative period consolidated financial statements as
described in Note 3.
(2) Canadian total assets includes goodwill of $11,025 (January 31,
2019 – $8,357). International total assets includes goodwill of
$38,544 (January 31, 2019 – $36,846).
57NOTES TO CONSOLDATED FINANCIAL STATEMENTS
5. ACCOUNTS RECEIVABLE
6.
INVENTORIES
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, 2020, the Company
recorded $1,036 (January 31, 2019 – $1,522) 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, 2020 or 2019.
January 31, 2020
January 31, 2019
Trade accounts receivable
$ 81,925
$ 85,872
Corporate and other
accounts receivable
Less: allowance for doubtful
accounts
34,782
22,412
(11,838)
(17,961)
$104,869
$ 90,323
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 15. 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.
Movements in the allowance for doubtful accounts for customer and
commercial accounts receivables are as follows:
January 31, 2020
January 31, 2019
Balance, beginning of year
$
(17,961)
$
(15,931)
Net charge
Written off
(7,189)
13,312
(10,337)
8,307
Balance, end of year
$
(11,838)
$
(17,961)
58THE NORTH WEST COMPANY INC. 2019 7. PROPERTY & EQUIPMENT
January 31, 2020
Cost
Land
Buildings
Leasehold
improvements
Fixtures &
equipment
Aircraft
Computer
equipment
Construction
in process
Total
Balance, beginning of year
$ 18,092
$ 520,117
$
76,922
$ 346,644
$
84,574
$
77,860
$
31,696
$1,155,905
Additions
Disposals
Effect of movements in foreign exchange
712
—
65
49,691
(33)
951
10,812
(4,054)
137
27,183
(8,019)
503
7,378
12,195
3,334
111,305
(10,833)
(13,924)
—
168
—
95
(36,863)
1,919
Total January 31, 2020
$ 18,869
$ 570,726
$
83,817
$ 366,311
$
81,119
$
76,299
$
35,125
$1,232,266
Accumulated amortization
Balance, beginning of year
Amortization expense
Disposals
Effect of movements in foreign exchange
$
— $ 281,115
$
46,064
$ 242,273
$
9,397
$
62,110
$
— $ 640,959
—
—
—
22,684
(16)
487
4,694
(3,578)
99
19,303
(6,960)
314
9,565
6,353
(2,924)
(13,853)
—
64
Total January 31, 2020
$
— $ 304,270
Net book value January 31, 2020
$ 18,869
$ 266,456
$
$
47,279
$ 254,930
36,538
$ 111,381
$
$
16,038
65,081
$
$
54,674
21,625
$
$
—
—
—
62,599
(27,331)
964
— $ 677,191
35,125
$ 555,075
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
$
— $ 258,810
$
41,457
$ 222,808
$
2,541
$
67,744
$
— $ 593,360
Accumulated amortization
Balance, beginning of year
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
The Company reviews its property and equipment for indicators of impairment. During the year the Company wrote-off assets with a net book
value of $7,909 which were reimbursed by insurance proceeds. No assets were identified as impaired at January 31, 2020 and 2019.
Interest capitalized
Interest attributable to the construction of qualifying assets was capitalized using an average rate of 3.9% and 3.8% for the years ended January 31,
2020 and 2019 respectively. Interest capitalized in additions amounted to $195 (January 31, 2019 – $374). Accumulated interest capitalized in
the cost total above amounted to $2,847 (January 31, 2019 – $2,652).
59NOTES TO CONSOLDATED FINANCIAL STATEMENTS
8. RIGHT-OF-USE ASSETS & LEASE LIABILITIES
Right-of-use assets
January 31, 2020
Cost
Balance, beginning of year
Additions
Disposals
Effect of movements in foreign exchange
Total January 31, 2020
Accumulated amortization
Balance, beginning of year
Amortization expense
Disposals
Effect of movements in foreign exchange
Total January 31, 2020
Net book value January 31, 2020
January 31, 2019
Cost
Balance, beginning of year
Additions
Disposals
Effect of movements in foreign exchange
Total January 31, 2019
Accumulated amortization
Balance, beginning of year
Amortization expense
Disposals
Effect of movements in foreign exchange
Total January 31, 2019
Net book value January 31, 2019
Land & buildings
Fixtures &
equipment
Aircraft
Total
$
$
$
$
$
$
$
$
$
$
226,416
$
6,717
$
3,672
$
20,558
(39,413)
655
1,345
(2,243)
1
2,062
(630)
—
236,805
23,965
(42,286)
656
208,216
$
5,820
$
5,104
$
219,140
101,863
$
3,538
$
3,610
$
20,567
(37,949)
321
84,802
123,414
$
$
1,521
(2,249)
—
2,810
3,010
$
$
678
(630)
—
3,658
1,446
$
$
201,681
$
5,604
$
3,672
$
30,525
(11,854)
6,064
1,718
(616)
11
—
—
—
109,011
22,766
(40,828)
321
91,270
127,870
210,957
32,243
(12,470)
6,075
226,416
$
6,717
$
3,672
$
236,805
89,311
$
2,660
$
3,142
$
20,647
(10,841)
2,746
101,863
124,553
$
$
1,471
(596)
3
3,538
3,179
$
$
468
—
—
3,610
62
$
$
95,113
22,586
(11,437)
2,749
109,011
127,794
60THE NORTH WEST COMPANY INC. 2019 Lease liabilities
The total current and long-term lease liability is $19,176 (January
31, 2019 - $21,836) and $119,928 (January 31, 2019 - $118,112),
respectively. The Company's lease liabilities are discounted at its
incremental borrowing rate, generally calculated from applicable
Canadian and U.S. corporate bond yields. At January 31, 2020, lease
liabilities reflect a weighted-average risk-free rate of 3.8% (January 31,
2019 – 4.1%) and weighted-average remaining lease term of 9.7 years
(January 31, 2019 – 10.0 years).
Maturity analysis - contractual undiscounted cash flows
0-1 year
2-3 years
4-5 years
6 years+
January 31, 2020
$
24,335
46,941
36,270
76,771
Total undiscounted cash flows
$ 184,317
Variable Lease Payments
Some property leases contain variable payment terms that are linked
to sales generated from a store. For individual stores, up to 100% of
lease payments are on the basis of variable payment terms. Variable
payment terms are used for a variety of reasons, including minimizing
the fixed costs base for newly established stores. Variable lease
payments that depend on sales are recognized in net earnings in the
period in which the condition that triggers those payments occurs (see
Note 17).
Extension Options
Some store leases contain extension options exercisable by the
Company up to one year before the end of the non-cancellable
contract period. Where practicable, the Company seeks to include
extension options in new leases to provide operational flexibility. The
extension options held are exercisable only by the Company and not
by the lessors. The Company assesses at lease commencement
whether it is reasonably certain to exercise the extension options. The
extension options included by the Company do not extend the lease
beyond ten years. The Company reassesses whether it is reasonably
certain to exercise the options if there is a significant event or significant
change in circumstances within its control.
Other leases
Short-term and low value lease payments are not material.
9. GOODWILL & INTANGIBLE ASSETS
Goodwill
January 31, 2020
January 31, 2019
Balance, beginning of year
$
45,203
$
41,231
Additions
Effect of movements in foreign
exchange
4,125
241
1,627
2,345
Balance, end of year
$
49,569
$
45,203
Goodwill represents the excess of the consideration transferred to
acquire businesses over the fair value of their identifiable assets.
Goodwill Impairment Testing
A goodwill asset balance of $38,544 (January 31, 2019 – $36,846)
relates to acquisition of subsidiaries by the Company's International
Operations. A goodwill asset balance of $11,025 (January 31, 2019 –
$8,357) 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 retail 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
retail companies; and
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.
61NOTES TO CONSOLDATED FINANCIAL STATEMENTS Net book value January 31, 2020
$ 26,878
$ 10,170
Intangible assets
January 31, 2020
Cost
Balance, beginning of year
Additions
Write off of fully amortized assets
Effect of movements in foreign exchange
Total January 31, 2020
Accumulated Amortization
Balance, beginning of year
Amortization expense
Write off of fully amortized assets
Effect of movements in foreign exchange
Total January 31, 2020
Intangible assets
January 31, 2019
Cost
Balance, beginning of year
Additions
Effect of movements in foreign exchange
Total January 31, 2019
Accumulated Amortization
Balance, beginning of year
Amortization expense
Effect of movements in foreign exchange
Total January 31, 2019
Software
Store banners
Other
Total
$
62,164
$
10,103
$
10,554
$
82,821
3,861
(3,114)
—
—
—
67
2,314
—
27
6,175
(3,114)
94
$
62,911
$
10,170
$
12,895
$
85,976
$
35,752
3,395
(3,114)
—
$
36,033
$
$
—
—
—
—
—
$
7,870
$
43,622
462
—
3
$
$
8,335
4,560
3,857
(3,114)
3
$
44,368
$ 41,608
Software
Store banners
Other
Total
$
54,662
$
9,461
$
9,817
$
73,940
7,502
—
—
642
535
202
8,037
844
$
62,164
$
10,103
$
10,554
$
82,821
$
29,271
6,481
—
$
35,752
$
$
—
—
—
—
$
7,041
$
36,312
785
44
$
$
7,870
2,684
7,266
44
$
43,622
$ 39,199
Net book value January 31, 2019
$ 26,412
$ 10,103
Work in process
As at January 31, 2020, the Company had incurred $14,338 (January
31, 2019 – $13,271) 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
62THE NORTH WEST COMPANY INC. 2019 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
10. INCOME TAXES
The following are the major components of income tax expense:
Year Ended
January 31, 2020
January 31, 2019(1)
$ 15,400
$ 24,522
124
(1,982)
761
(2,181)
$ 13,542
$ 23,102
Changes in the combined statutory income tax rate primarily reflect
changes in earnings of the Company's subsidiaries across various tax
jurisdictions.
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.
$
7,425
$
75
2,090
727
(133)
2,042
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.
$
9,590
$
2,636
Income taxes
$ 23,132
$ 25,738
(1) The Company has applied IFRS 16 retrospectively with restatement of the
comparative period consolidated financial statements as described in Note
3.
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:
Deferred tax assets of $4,800 (January 31, 2019 - $3,900) arising from
certain foreign income tax losses were not recognized on the
consolidated balance sheets. The income tax losses expire from 2023
– 2030.
Deferred income tax charged (credited) to other comprehensive
income during the year is as follows:
Year Ended
January 31, 2020
January 31, 2019
Defined benefit plan
actuarial gain / (loss):
Origination and reversal of
temporary difference
Impact of change in tax rates
$ (3,115)
(2)
$ (3,117)
$
$
1,828
5
1,833
Year Ended
January 31, 2020
January 31, 2019(1)
Earnings before income taxes
$109,405
$116,361
Combined statutory income
tax rate
Expected income tax
expense
21.3%
21.8%
$ 23,280
$ 25,322
Increase (decrease) in income taxes resulting from:
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
$ (1,530)
$
358
892
124
75
—
108
183
422
761
(133)
(771)
(139)
(82)
Provision for income taxes
$ 23,132
$ 25,738
Income tax rate
21.1%
22.1%
(1) The Company has applied IFRS 16 retrospectively with restatement of the
comparative period consolidated financial statements as described in Note
3.
63NOTES TO CONSOLDATED FINANCIAL STATEMENTS Income tax effects of temporary differences that give rise to significant portions of deferred income tax assets and liabilities are as follows:
January 31, 2020
Deferred tax assets:
Property & equipment
Lease obligation
Inventory
Share-based compensation and
long-term incentive plans
Defined benefit plan obligation
Accrued liabilities
Other
Deferred tax liabilities:
Goodwill & intangible assets
Property & equipment
Right-of-use asset
Investment in joint venture
Other
February 1, 2019(1)
(restated)
Taxes (charged)
credited to net
earnings
Taxes credited to
OCI
Other
adjustments
January 31, 2020
$
$
$
$
$
17,404
32,228
1,736
4,228
7,846
4,929
1,170
69,541
(834)
(9,181)
(29,302)
(1,130)
(2,784)
(43,231)
26,310
$
(9,594)
$
(193)
485
810
353
769
1,535
(5,835)
(206)
(3,899)
(158)
(524)
1,032
(3,755)
(9,590)
$
$
$
$
$
$
$
$
—
—
—
—
3,117
—
—
3,117
—
—
—
—
—
—
3,117
$
(19)
$
65
12
1
—
15
(71)
3
(7)
(35)
(70)
—
(245)
(357)
(354)
$
$
$
$
$
$
$
$
7,791
32,100
2,233
5,039
11,316
5,713
2,634
66,826
(1,047)
(13,115)
(29,530)
(1,654)
(1,997)
(47,343)
19,483
Recorded on the consolidated balance sheet as follows:
Year Ended
Deferred tax assets
Deferred tax liabilities
January 31, 2020 January 31, 2019(1)
$
$
28,233
(8,750)
19,483
$
$
34,705
(8,395)
26,310
(1) The Company has applied IFRS 16 retrospectively with restatement of the comparative period consolidated financial statements as described in Note 3.
64THE NORTH WEST COMPANY INC. 2019 January 31, 2019
Deferred tax assets:
Property & equipment
Lease liability
Inventory
Share-based compensation and
long-term incentive plans
Defined benefit plan obligation
Accrued expenses not
deductible for tax
Other
Deferred tax liabilities:
Goodwill & intangible assets
Property & equipment
Right-of-use assets
Investment in joint venture
Other
February 1, 2018
(previously reported)
IFRS 16 retained
earnings
adjustments(1)
Taxes
(charged)
credited to
net earnings(1)
Taxes charged
to OCI
Other
adjustments January 31, 2019(1)
$
17,660
$
—
$
(354)
$
—
1,993
4,003
9,236
4,603
412
37,907
(643)
(6,012)
—
(1,109)
(2,161)
(9,925)
27,982
32,228
—
—
—
(316)
(144)
—
(346)
205
443
468
885
$
$
$
$
31,768
$
1,301
—
—
$
(147)
(3,053)
(29,302)
—
(58)
(29,360)
2,408
—
(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
32,228
1,736
4,228
7,846
4,929
1,170
69,541
(834)
(9,181)
(29,302)
(1,130)
(2,784)
(43,231)
26,310
(1) The Company has applied IFRS 16 retrospectively with restatement of the comparative period consolidated financial statements as described in Note 3.
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 $152,539 at
January 31, 2020 (January 31, 2019 – $122,776).
11. OTHER ASSETS
Investment in joint venture (Note 23)
Other
January 31, 2020
January 31, 2019(1)
$ 12,252
1,336
$
10,375
1,342
$ 13,588
$
11,717
(1) The Company has applied IFRS 16 retrospectively with restatement of the comparative period consolidated financial statements as described
in Note 3.
65NOTES TO CONSOLDATED FINANCIAL STATEMENTS 12. LONG-TERM DEBT
January 31, 2020
January 31, 2019
Current:
Revolving loan facility (1)
Promissory note payable (8)
Non-current:
Revolving loan facility (1)
Revolving loan facilities (2)
Revolving loan facilities (3)
Revolving loan facility (4)
Revolving loan facility (5)
Senior notes (6)
Senior notes (7)
Promissory notes payable (8)
$
950
900
$
1,850
$
—
36,943
176,716
—
—
92,334
100,000
3,122
$
$
$
—
900
900
—
36,700
134,791
—
—
91,666
100,000
2,700
Total
$ 410,965
$ 366,757
$ 409,115
$ 365,857
loan
(1) The committed, revolving U.S.
facility provides the
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, 2020, the
International Operations had drawn US$0.719 (January 31, 2019 –
US$NIL) on this facility. See Note 24 Subsequent Events.
(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) Promissory notes payable are non-interest bearing, have annual
principal payments of $900 and are secured by certain assets of the
Company.
13. 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
legislated changes,
staff pension plan, which
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.
(2) The US$52,000 loan facilities mature September 26, 2022 and bear
interest at U.S. LIBOR plus a spread. These committed 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, 2020, the Company
had drawn US$27,936 (January 31, 2019 – 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 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.
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,
2020 and January 31, 2019. The accrued pension benefits and funding
requirements were last determined by actuarial valuation as at
December 31, 2018. The next actuarial valuation is required as at
December 31, 2019. 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, 2020, the Company
contributed $3,528 to its defined benefit pension plans (January 31,
2019 – $2,317). During the year ended January 31, 2020, the Company
its defined contribution pension plans
contributed $3,929 to
(January 31, 2019 – $3,435). The current best estimate of the
Company's funding obligation for the defined benefit pension plans
for the year commencing February 1, 2020 is $1,473. 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.
66THE NORTH WEST COMPANY INC. 2019 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, 2020
January 31, 2019
January 31, 2020
January 31, 2019
Plan assets:
Average life expectancies at age 65 for current pensioners:
Fair value, beginning of year
$
85,665
$
84,337
Accrued interest on assets
Benefits paid
Plan administration costs
Employer contributions
Employee contributions
Return on assets greater than
discount rate
3,195
(5,461)
(542)
3,528
7
8,730
2,908
(3,988)
(459)
2,317
8
542
Fair value, end of year
$
95,122
$
85,665
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
$ (114,634)
$ (118,432)
(3,103)
(7)
(4,220)
7,007
(14)
(20,289)
(3,016)
(8)
(4,070)
4,649
1,646
4,597
$ (135,260)
$ (114,634)
Plan deficit
$ (40,138)
$
(28,969)
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:
Male
Female
21.4
23.9
Average life expectancies at age 65 for current members aged 45:
Male
Female
22.6
25.0
21.3
23.8
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, 2020 and 2019, 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
$ (20,289)
$
26,048
$ (1,057)
$
976
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, 2020
January 31, 2019
January 31, 2020
January 31, 2019
Discount rate on plan liabilities
Rate of compensation increase
Discount rate on plan expense
Inflation assumption
2.75%
4.00%
3.75%
2.00%
3.75%
4.00%
3.50%
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 17.1 years (January 31,
2019 – 15.8 years).
Plan assets:
Canadian equities (pooled)
Global equities (pooled)
Real estate equities (pooled)
Debt securities
17%
39%
9%
35%
17%
38%
9%
36%
Total
100%
100%
67NOTES TO CONSOLDATED FINANCIAL STATEMENTS
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.
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.
Statements of earnings and comprehensive income
The following pension expenses have been charged to the
consolidated statements of earnings:
January 31, 2020
January 31, 2019
Employee costs (Note 18)
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 19)
Accrued interest on assets
Interest on plan liabilities
$
3,103
$
3,016
542
3,929
1,328
459
3,435
1,389
$
8,902
$
8,299
The following amounts have been included in other comprehensive
income:
January 31, 2020
January 31, 2019
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
$
8,730
$
542
(14)
(20,289)
1,646
4,597
3,117
(1,833)
$
(8,456)
$
4,952
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
$ (20,622)
$
(9,049)
3,478
361
$ (17,144)
$
(8,688)
The actual return on the plans assets is summarized as follows:
January 31, 2020
January 31, 2019
Accrued interest on assets
$
3,195
$
2,908
Return on assets greater than
discount rate
8,730
542
Actual return on plan assets
$ 11,925
$
3,450
14. 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, 2020 was $3,550 (January 31, 2019 – $11,204).
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:
$ (3,195)
$ (2,908)
4,220
4,070
$
1,025
$
1,162
Accounts payable and accrued
liabilities
Other long-term liabilities
Contributed surplus
January 31, 2020
January 31, 2019
$ 11,080
10,225
7,081
$ 13,998
14,273
1,961
Total
$ 28,386
$ 30,232
68THE NORTH WEST COMPANY INC. 2019
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, 2020 are $5,216 (January 31, 2019 – $4,097). The total
number of PSUs outstanding at January 31, 2020 that may be settled
in treasury shares is 243,712 (January 31, 2019 - 84,138). There were no
PSUs settled in treasury shares during the year (January 31, 2019 - NIL).
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, 2020 are an expense of $346 (January 31, 2019
– expense of $1,752). The total number of deferred share units
outstanding at January 31, 2020 is 318,227 (January 31, 2019 – 270,277).
There were no DDSUs exercised during the year ended January 31,
2020 (January 31, 2019 – 21,186).
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, 2020 are a recovery of $32 (January 31, 2019 – expense of
$62).
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, 2020. 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, 2020 are a recovery
of $2,786 (January 31, 2019 – expense of $4,510). The fair values for
options issued during the year were calculated based on the following
assumptions:
January 31, 2020
January 31, 2019
Fair value of options granted
$ 2.69
Exercise price
Dividend yield
Annual risk-free interest rate
Expected share price volatility
$28.11 to $30.01
4.3%
1.5%
19.3%
$ 2.86
$ 27.77
4.3%
2.1%
19.2%
The assumptions used to measure options at the balance sheet dates
are as follows:
January 31, 2020
January 31, 2019
Dividend yield
4.9%
Annual risk-free interest rate
1.4% to 2.0%
4.1%
1.8%
Expected share price volatility
11.7% to 17.9%
15.9% to 19.5%
69NOTES TO CONSOLDATED FINANCIAL STATEMENTS 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, 2020 January 31, 2019 January 31, 2020 January 31, 2019
1,967,723
2,464,940
—
(15,985)
(31,779)
—
(474,423)
(22,794)
430,340
499,311
(2,295)
(27,502)
454,177
372,992
(223,670)
(173,159)
1,919,959
1,967,723
899,854
430,340
1,055,151
658,364
114,517
16,253
The weighted-average share price on the dates options were exercised during the year was $30.08 (January 31, 2019 – $30.49).
Weighted-average exercise price
Declining Strike Price Options
Standard Options
January 31, 2020 January 31, 2019 January 31, 2020 January 31, 2019
Outstanding options, beginning of year
$
27.36
$
26.18
$
Granted
Exercised
Forfeited or cancelled
Outstanding options, end of year
Exercisable at end of year
Summary of options outstanding by grant year
—
24.26
30.26
27.34
21.40
$
$
—
20.09
23.04
27.36
20.91
$
$
$
$
27.83
28.17
27.77
27.90
28.01
27.17
$
24.28
27.77
20.52
27.84
27.83
24.27
$
$
Outstanding
Exercisable
Range of
exercise price
Number
outstanding
Weighted-average
remaining
contractual years
Weighted-average
exercise price
Options
exercisable
Weighted-average
exercise price
$
$
$
$
$
$
$
18.58-23.21
20.82-24.79
22.33-25.63
26.20-28.81
28.65-32.40
27.77-27.77
28.13-30.02
282,206
337,523
473,598
437,752
446,228
353,197
489,309
0.2
1.2
2.2
3.2
4.4
5.2
6.3
$
$
$
$
$
$
$
18.70
20.91
22.41
26.27
30.51
27.77
28.17
282,206
337,523
315,728
145,912
NIL
88,299
NIL
$
$
$
$
$
18.70
20.91
22.41
26.27
N/A
27.77
N/A
Grant
year
2013
2014
2015
2016
2017
2018
2019
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, 2020 are $806 (January 31, 2019 – $783).
70THE NORTH WEST COMPANY INC. 2019 15. 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, 2020, the Company had undrawn committed revolving loan facilities available of $189,844 (January 31, 2019 – $231,507)
which mature in 2020 and 2022 (Note 12).
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.
2020
2021
2022
2023
2024
2025+
Total
Accounts payable and accrued liabilities
Current portion of long-term debt (Note 12)
Long-term debt (Note 12)
Total
$
$
173,058 $
1,873
13,453
— $
—
— $
—
106,624
225,595
— $
—
3,940
— $
—
— $ 173,058
—
1,873
3,940
121,206
474,758
188,384 $
106,624 $
225,595 $
3,940 $
3,940 $
121,206 $ 649,689
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 $104,869 (January
31, 2019 – $90,323). The Company does not have any individual
customers greater than 10% of total accounts receivable. At January 31,
2020, the Company’s gross maximum credit risk exposure is $116,707
(January 31, 2019 – $108,284). Of this amount, $14,086 (January 31, 2019
– $18,617) is more than 60 days past due. The Company has recorded
an allowance against its maximum exposure to credit risk of $11,838
(January 31, 2019 – $17,961) which is based on expected credit losses
for similar financial assets.
As at January 31, 2020 and 2019, 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.
The Company may use derivative financial instruments to
manage market risk. These transactions are approved by the Board
of Directors. The derivatives are entered into with financial
institution counter parties rated AA-.
(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.
71NOTES TO CONSOLDATED FINANCIAL STATEMENTS 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 $1,800. A 100 basis point decrease would cause net
earnings to increase by approximately $1,800.
(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, 2020
Cash
Accounts receivable
Other financial assets
Accounts payable and accrued liabilities
Current portion of long-term debt
Long-term debt
January 31, 2019
Cash
Accounts receivable
Other financial assets
Accounts payable and accrued liabilities(1)
Current portion of long-term debt
Long-term debt
Assets (Liabilities) carried at
amortized cost
Maturity Carrying amount
Short-term
Short-term
Long-term
Short-term
Short-term
Long-term
$
28,187
104,869
1,281
(173,058)
(1,850)
(409,115)
Fair value
$
28,187
104,869
1,281
(173,058)
(1,850)
(416,295)
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
(173,947)
(900)
(365,857)
Fair value
$
38,448
90,323
1,216
(173,947)
(900)
(365,392)
(1) The Company has applied IFRS 16 retrospectively with restatement of the comparative period consolidated financial statements as described in Note 3.
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.
72THE NORTH WEST COMPANY INC. 2019 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, 2020, the debt-to-equity ratio
was 0.96 compared to the restated ratio of 0.89 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, 2020
January 31, 2019
$
$
$
1,850
409,115
410,965
426,970
0.96
$
$
$
900
365,857
366,757
411,016
0.89
(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, 2020 and 2019, 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, 2020.
16. SHARE CAPITAL
Authorized – The Company has an unlimited number of Common
Voting Shares and Variable Voting Shares.
Shares
Consideration
January 31, 2019
48,750,929
Issued under option plans (Note 14)
—
Balance at January 31, 2020
48,750,929
Balance at January 31, 2018
48,690,212
Issued under option plans (Note 14)
60,717
Balance at January 31, 2019
48,750,929
$
$
$
$
173,681
—
173,681
172,619
1,062
173,681
The Company's share capital is comprised of 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 49% 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 49% 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 49% 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 49% 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 ("CTA").
Effective June 12, 2019, the Company amended the rights of its
shares to align them with the CTA, as amended by the provisions of
the Transportation Modernization Act (Canada). The purpose of these
amendments is to increase the permitted level of foreign ownership
allowed in respect of Canadian air service provided from 25% to 49%,
subject to certain restrictions.
At January 31, 2020 shares outstanding of 48,750,929 included
11,357,628 Variable Voting Shares, representing 23.3% of the total
shares issued and outstanding.
73NOTES TO CONSOLDATED FINANCIAL STATEMENTS 17. EXPENSES BY NATURE
19. INTEREST EXPENSE
Year Ended
January 31, 2020 January 31, 2019(1)
Year Ended
January 31, 2020 January 31, 2019(1)
Employee costs (Note 18) (3)
$ 321,993
$
315,556
Amortization
Operating lease rentals
Gain on partial insurance
settlement(2)
89,222
7,180
82,021
7,357
(18,170)
(20,053)
(1) The Company has applied IFRS 16 retrospectively with restatement of the
comparative period consolidated financial statements as described in Note
3.
(2) The Company recorded gains on insurance claims. These gains were due
to the difference between the replacement cost of the assets destroyed
and their net book values and also for recovery of business interruption
losses on certain insurance claims.
(3) Figures for January 31, 2019 have been reclassified within selling, operating
and administrative expenses.
18. EMPLOYEE COSTS
Year Ended
January 31, 2020 January 31, 2019
Wages, salaries and benefits
including bonus (1)
Post-employment benefits (Note 13)
Share-based compensation (Note 14)
$ 309,541
$
296,053
8,902
3,550
8,299
11,204
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
$
5,560
1,852
173
$
5,296
1,820
6,677
(1) Figures for January 31, 2019 have been reclassified within selling, operating
and administrative expenses.
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.
Interest on long-term debt
$ 14,558
$
13,177
Interest on lease liabilities
Net interest on defined benefit
plan obligation
Less: interest capitalized
5,560
1,025
(195)
5,675
1,162
(374)
Interest expense
$ 20,948
$
19,640
(1) The Company has applied IFRS 16 retrospectively with restatement of the
comparative period consolidated financial statements as described in Note 3.
20. DIVIDENDS
The following is a summary of the dividends recorded in shareholders'
equity and paid in cash:
Year Ended
January 31, 2020
January 31, 2019
Dividends recorded in equity
and paid in cash
Less: Dividends paid to non-
controlling interests
Shareholder dividends
Dividends per share
$ 67,778
$ 66,283
(3,427)
(3,954)
$ 64,351
$
1.32
$ 62,329
$
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 12, 2020, the Board of Directors declared a dividend of
$0.33 per common share which were paid on April 15, 2020 to
shareholders of record as of the close of business on March 31, 2020.
74THE NORTH WEST COMPANY INC. 2019
21. NET EARNINGS PER SHARE
Basic net earnings per share is calculated based on the weighted-average shares outstanding during the year. The diluted net earnings per share
takes into account the dilutive effect of all potential ordinary shares. The average market value of the Company’s shares for purposes of calculating
the dilutive effect of share options was based on quoted market prices for the period that the options were outstanding.
($ and shares in thousands, except earnings per share)
Year Ended
Diluted earnings per share calculation:
January 31, 2020
January 31, 2019(1)
Net earnings attributable to shareholders for the year (numerator for diluted earnings per share)(1)
$
82,724
$
86,739
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
48,751
624
49,375
48,697
447
49,144
$
$
1.70
1.68
$
$
1.78
1.77
(1) The Company has applied IFRS 16 retrospectively with restatement of the comparative period consolidated financial statements as described in Note 3.
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, 2020, the Company
owns 46 Giant Tiger stores and is in compliance with the minimum
store opening commitment. The agreement expires July 31, 2040.
On March 12, 2020, the Company entered into a definitive asset
purchase agreement to sell 34 GT stores to Giant Tiger Stores Limited
(the "GTSL Transaction"). The MFA will terminate upon the closing of
the GTSL Transaction which is expected to occur in the second quarter
of 2020. See Subsequent Events Note 24.
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.
75NOTES 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.
Roadtown Wholesale Trading Ltd.
North Star Air Ltd.
General Partner
Holding Company
Retailing
Holding Company
Retailing
Retailing
Airline
Canada
Canada
Canada
United States
United States
British Virgin Islands
Canada
100%
100%
100% (less one unit)
100%
100%
77%
100%
The investment in joint venture comprises a 50% interest in a Canadian Arctic shipping company, Transport Nanuk Inc. At January 31, 2020, the
Company’s share of the net assets of its joint venture amount to $12,252 (January 31, 2019 – $10,375) comprised assets of $14,955 (January 31,
2019 - $12,800) and liabilities of $2,703 (January 31, 2019 – $2,425). During the year ended January 31, 2020, the Company purchased freight
handling and shipping services from Transport Nanuk Inc. and its subsidiaries of $8,304 (January 31, 2019 – $8,163).
24. SUBSEQUENT EVENTS
International Loan Facility Refinancing
On February 12, 2020, the Company refinanced the US$40,000 loan
facility in the International Operations that originally matured October
31, 2020. The new US$40,000 committed, revolving loan facility, which
matures February 12, 2025, bears a floating rate of interest based on
U.S. LIBOR plus a spread and is secured by certain accounts receivable
and inventory of the International Operations.
Giant Tiger
On March 12, 2020, the Company and Giant Tiger Stores Limited
("GTSL") announced they have entered into a definitive asset purchase
agreement (the "GTSL Transaction") for GTSL to acquire 34 of the
Company’s 46 Giant Tiger stores (the “Acquired Stores”) for cash
consideration of $45,000, payable in $15,000 installments on the
second, third and fourth anniversaries of the transaction closing date
and, subject to meeting certain profitability milestones, total
contingent consideration payable of up to $22,500 on the fourth and
fifth anniversaries of the transaction closing date. Of the remaining 12
GT locations, the Company will: (i) retain and operate five key stores in
northern markets locations, (ii) convert one store to a Valu-Lots
clearance center and (iii) close six stores in the second and third quarter
of 2020. The closed stores are expected to result in a provision of
approximately $9,000, which will be recorded in the first quarter of
2020.
As a part of the GTSL Transaction, the Company will enter into product
supply and distribution agreements with GTSL related to the supply of
food-related product by the Company to the Acquired Stores and
certain general merchandise and food-related products by GTSL to the
Company’s northern Canada stores. These agreements will enable
buying and distribution efficiencies for both parties and will provide
the Company access to an expanded general merchandise assortment.
The completion of the GTSL Transaction is subject to the satisfaction
of closing conditions and is expected to occur in the second quarter
of 2020.
Support Office Cost Reduction
On March 12, 2020, the Company announced that it will be reducing
administration costs in its Canadian Operations and that it expects to
record a provision related to employee severance costs of
approximately $5,000 in the first quarter of 2020.
COVID-19
Subsequent to January 31, 2020, the World Health Organization
declared the rapidly spreading novel coronavirus ("COVID-19") a
pandemic. This contagious disease outbreak has resulted in material
disruption to businesses globally and significant economic uncertainty.
In response, governments worldwide, including in Canada, have
enacted emergency measures to both combat the spread of the virus
and stabilize economic conditions. The Company is not able to reliably
forecast the severity and duration of the impact of COVID-19 on the
economy, the Company's customers, suppliers and employees, and
consequently, its impact on the future financial results and condition
of the Company.
76THE NORTH WEST COMPANY INC. 2019 Shareholder Information
Fiscal Year
Quarter Ended
2019
April 30, 2019
July 31, 2019
October 31, 2019
January 31, 2020
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
Share
Price High
Share
Price Low
Share
Price Close
Volume
$33.16
$27.18
$27.56
45,013,403
33.16
31.62
31.77
28.86
27.72
28.28
27.24
27.18
28.30
30.21
28.18
27.56
13,679,472
9,373,099
11,706,028
10,254,804
EPS1
$1.68
$0.51
$0.35
$0.49
$0.33
$32.19
$26.50
$31.17
46,269,066
$1.77
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
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
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 31, 2020
Payment Date: April 15, 2020
Record Date: June 30, 2020
Payment Date: July 15, 2020
Record Date: September 30, 2020
Payment Date: October 15, 2020
Record Date: December 31, 2020
Payment Date: January 15, 2021
*Dividends are subject to approval by the
Board of Directors
The 2020 Annual General Meeting of
Shareholders of The North West Company Inc.
will be held on Wednesday, June 10, 2020 at
11:30 am (Central Time) by virtual only meeting
via live audio webcast online at:
https://web.lumiagm.com/181772510
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 #: CA6632782083
CUSIP #: 663278208
Number of shares issued and outstanding at
January 31, 2020: 48,750,929
Auditors
PricewaterhouseCoopers LLP
Five Year Compound Annual Growth (%)
77ANNUAL 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
Matt D. Johnson
Vice-President, Cost-U-Less Food
Procurement and Marketing
Daniel G. McConnell
President, International Retail
Laurie J. Kaminsky
Vice-President, NWC Health Services
Alex S. Yeo
President, Canadian Retail
Frank W. Kelner
President, North Star Air Ltd.
John D. King, CPA, CA, CMA
Executive Vice President and CFO
Scott A. McKay
Vice-President, Sales & Operations, Giant Tiger
Gary Merasty
Executive Vice-President, and
Chief Development Officer
Thomas J. Meilleur
Vice-President, North Star Air Ltd.
Kyle A. Hill
Executive Vice-President, Procurement &
Marketing, Alaska Commercial Company
Beth Millard-Hales
Vice-President, Human Resources
Toby A. Noiles
Executive Vice-President, Canadian
Food Procurement & Marketing
Walter E. Pickett
Vice-President and General Manager,
Alaska Commercial Company
Cole J.A. Akerstream
Vice-President, Business Development
Kevin T. Sie, CPA, CA
Vice-President, Finance
Michael T. Beaulieu
Vice-President, Canadian Store Operations
Jeffrey B. Stout
Vice-President, North Star Air Ltd.
Steven J. Boily
Vice-President, Information Services
Amanda E. Sutton
Vice-President, Legal and Corporate Secretary
David M. Chatyrbok
Vice-President, Canadian Sales & Operations,
Northern Canada Retail
James W. Walker
Vice-President and General Manager,
Wholesale Operations (International
Operations)
Leanne G. Flewitt
Vice-President, Logistics, Supply Chain
& Distribution (Canadian Operations)
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 1, 2
Edward S. Kennedy
Robert J. Kennedy 1, 3
Annalisa King 2, 3
Violet (Vi) A. M. Konkle 1, 3
Jennefer Nepinak 2, 3
Eric L. Stefanson, FCPA, FCA 1, 2
Victor Tootoo, CPA, CGA 1, 2
BOARD COMMITTEES
1 Governance & Nominating
2 Audit
3 Human Resources, Compensation, and
Pension
For additional copies of this report or for
general information about the Company,
contact the Corporate Secretary:
The North West Company Inc.
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
78THE NORTH WEST COMPANY INC. 2019 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