The North West Company Inc.
2020 Annual Report
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
Year Ended
January 31, 2021
Year Ended
January 31, 2020
Year Ended
January 31, 2019
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
$
$
2,359,239
19.0 %
301,427
209,349
143,560
139,874
338,718
$
$
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
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
$
1,191,168
$
1,215,536
$
1,149,861
281,422
505,231
410,965
426,970
366,757
411,016
.56:1
22.4 %
30.7 %
76.4 %
23.6 %
6.09
2.82
6.84
32.37
36.92
16.06
$
$
.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) 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.
THE NORTH WEST COMPANY INC. 2020
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................................
Consolidated Results and Financial Performance...............................................................................
Canadian Operations Financial Performance........................................................................................
International Operations Financial Performance.................................................................................
Consolidated Liquidity and Capital Resources ....................................................................................
Quarterly Financial Information......................................................................................................................
Fourth Quarter Financial Results....................................................................................................................
CEO Transition...................................................................................................................................................
Disclosure Controls ...............................................................................................................................................
Internal Controls Over Financial Reporting.............................................................................................
Outlook .........................................................................................................................................................................
2
3
6
8
9
10
11
14
16
18
23
24
27
27
27
27
Risk Management ................................................................................................................................................... 28
Corporate Social Responsibility & Sustainable Development.....................................................
Critical Accounting Estimates .........................................................................................................................
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 ................................................................................................
34
35
36
37
38
40
42
43
48
49
50
51
52
53
80
81
MANAGEMENT'S DISCUSSION & ANALYSIS
FORWARD-LOOKING STATEMENTS
Inc.
(“NWC”) or
for The North West Company
Unless otherwise stated, this Management's Discussion & Analysis
its
(“MD&A”)
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 2020 annual audited consolidated financial
statements and accompanying notes. The Company's annual
audited consolidated financial statements and accompanying notes
for the year ended January 31, 2021 are in Canadian dollars, except
where otherwise indicated, and are prepared in accordance with
International Financial Reporting Standards (“IFRS”).
The Board of Directors, on the recommendation of its Audit
Committee, approved the contents of this MD&A on April 7, 2021
and the information contained in this MD&A is current to April 7,
2021, 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 Company's
intentions regarding a normal course issuer bid, the anticipated
impact of the COVID-19 pandemic on the Company's operations and
the Company's related business continuity plans, the realization of
expected savings from administrative cost reduction plans and
possible future action by the Company.
Forward-looking statements are based on current expectations
and projections about future events and are inherently subject to,
among other things, risks, uncertainties and assumptions about the
Company, economic factors and the retail industry in general. They
are not guarantees of future performance, and actual events and
results could differ materially from those expressed or implied by
forward-looking statements made by the Company due to, but not
limited to, important factors such as general economic, political and
market factors in North America and internationally 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
future accounting changes, business competition,
applying
technological change, changes in government regulations and
legislation, changes in tax laws, unexpected judicial or regulatory
proceedings, catastrophic events, the Company's ability to complete
capital projects, strategic transactions and integrate acquisitions, the
Company's ability to realize benefits from investments in information
technology ("IT") and systems, including IT system implementations,
or unanticipated results from these initiatives and the Company's
success in anticipating and managing the foregoing risks.
The reader is cautioned that the foregoing list of important
factors is not exhaustive. Other risks are outlined in the Risk
Management section of this MD&A, in the Risk Factors sections of the
Annual Information Form and in our most recent consolidated
financial statements, management information circular, material
change reports and news releases. The reader is also cautioned to
consider these and other factors carefully and not place undue
reliance on forward-looking statements. Other than as specifically
required by applicable law, the Company does not intend to update
any forward-looking statements whether as a result of new
information, future events or otherwise.
Additional information on the Company, including our Annual
Information Form, can be found on SEDAR at www.sedar.com or on
the Company's website at www.northwest.ca.
2THE NORTH WEST COMPANY INC. 2020 President & CEO Message
2020 was the most intensely active and reactive year in The
North West Company’s history. We started with a great playbook and
ended with completely different and unexpected outcomes,
including the highest annual sales gains of any Canadian-based
retailer.
The single constant was the adaptability of North West, or more
accurately, the people of North West and the communities we are
privileged to serve.
Pre-Pandemic Initiatives
Heading into 2020 we had a sharpened focus on growing our
retail market share while seeking out complimentary
core
acquisitions and organic opportunities.
We started with four major actions to enable this: the
divestiture of most of our Giant Tiger stores; setting up reciprocal
product supply agreements with Giant Tiger Store Limited ("GTSL");
streamlining our Canadian administration cost structure and
reinvesting cost savings into lower retail food prices. In total, these
initiatives enabled us to redeploy capital, time and savings into lower
risk and sustainably higher growth and return areas of our business.
That was the plan until March 12, 2020, when the Pandemic hit.
The Pandemic impacted but did not stop this plan. Work was
largely completed or continued with some delays, even under a fast-
changing Pandemic environment. The GT store divestiture closed on
July 5th and we successfully divested all but one of the store leases
that were not acquired by GTSL. Operating the GT stores during a
pending sale or closure period is a hard task at the best of times and
it was compounded by COVID-19 restrictions and uncertainties. As
my first of many acknowledgements, I highlight the ability of our GT
store transition team and thank them for getting this work done so
well.
Our product supply agreements with GTSL continued behind
the scene and had two key streams: optimizing food procurement
costs between our companies and converting approximately 70% of
our sourcing in apparel and home products to GTSL. This work was
not timed to deliver benefits in 2020 but will be a sales and margin
driver in 2021, thanks to the disciplined allocation of time by both
NWC and GTSL, amid the new demands of the Pandemic.
Our administration cost reduction target of $17 million was
achieved by year end, by eliminating positions and streamlining
other expenses, from consulting to travel. Some of the positions
were tied to the GT stores divestiture and the winding down of large
IT projects but most reflected a commitment to stop lower value
work and commit to a smaller number of higher impact initiatives.
Pandemic demands kept some roles in place longer and additional,
unanticipated cost savings were realized in travel, offset by higher
insurance costs.
Pre-Pandemic, the cost savings we achieved were to be
reinvested in our Northern Canada Retail ("NCR") group, to re-capture
profitable market share in shelf-stable food categories and to create
a stronger brand position with our customers. After mid-March we
accelerated price cutting in some store regions but we paused our
overall effort because the surge in Pandemic-related demand made
it almost impossible to test and assess the best approach. While the
Pandemic prevented a full pricing roll-out, it gave us tremendous
insight into items and merchandise categories where our sales lift
surged and by extension, where opportunities exist to lower prices
to retain higher gross profit dollars under post-pandemic conditions.
Pandemic Performance
North West was and continues to be pervasively affected by the
Pandemic, similar to other organizations. Our story isn’t new in this
regard but it does reflect unique attributes of our resiliency,
adaptability and enterprising spirit. These traits, called on heavily
during the Pandemic, are everyday, essential practices at North West,
embedded in our culture and the reason why we’ve been a leading
provider to smaller, geographically distant communities for so long.
live
lower
incomes contribute
Community Response – the Pandemic created higher risks for
communities and the people we serve because they
in
developing economies with limited health service infrastructure
compared to wealthier urban centres. Homes have less living space
to poor health
per person and
determinants and accentuate vulnerability to a virus like COVID-19.
Considering these factors we anticipated a high number of
widespread outbreaks with severe consequences. This did not
happen. There were some situations where transmission exceeded
50% of the population. In most communities, and as a testament to
the control measures put in place and adhered to, infection rates
were very low. The prevention record of these governments,
communities and their members, in the face of such a precarious
situation, has been exemplary.
Safety – Our stores quickly pivoted to safety measures that worked.
PPE, cleaning processes and space modifications were put in place
within days of the Pandemic declaration. There were very few
incidences of COVID-19 contraction traced to our stores. Of 59,500
possible store open days we were only closed for 401 days due to
lockdowns and deep store cleaning after a COVID-19 occurrence or
tracing. Among our 6,900 associates, 117 cases were identified and
less than 10 were traced to a North West workplace.
Availability – Being open for business and staffed everyday with full
product and service availability is a higher bar under the usual
operating conditions we face. Distant, multi-modal supply chains,
extreme weather and staffing are more challenging, at all times. The
Pandemic introduced potentially severe product shortages and
initial staffing challenges that raised the stakes even more, especially
given our role as an essential products and service retailer. Our
sourcing and procurement teams punched above their weight to
ensure an uninterrupted supply of key food products, competing
against the demands of much larger, urban retailers. This translated
trust with
into
communities we serve and was an early driver of the market share
gains we achieved throughout the year.
in-stock conditions,
strengthened
superior
Faced with the risk and then the reality of in-store shopping
restrictions, North West rapidly deployed e-commerce solutions
across all stores within 14 days. This pace was indicative of many
good decisions executed with quality and pace during 2020. When
activated, our online/store pick-up service was heavily used
during community
lockdowns and was almost always a step
ahead of our competition.
3ANNUAL REPORT Community Support – North West plays a larger role in this area
because we know first-hand how important the need is and how few
private sector companies actually make their home within the
communities we serve. The Pandemic dried up funding sources from
sectors that suffered severe business downturns at the same time
that non-profit agencies faced increased demand for their services.
In 2020, we responded by increasing donations by a record $5.5
million, allocated to the following causes:
•
•
•
•
$1.5 million contributed to our Canadian Healthy Horizons
foundation for distribution to a wide-range of community-
led healthy living activities across northern regions;
$1.0 million contributed to our newly-created International
Healthy Horizons Foundation;
$2.4 million in additional funding; to causes ranging from
the United Way to Qaumajuq, the new Inuit Art Centre at
the Winnipeg Art Gallery; and,
Partnering with the Sprott Foundation and Second Harvest
to leverage North West’s community relations, logistics
and operations skills to enable a combined $3.6 million
food donation to residents of over 120 communities in
northern Canada, including a $0.6 million contribution
from North West.
The Sprott Foundation/Second Harvest partnership was one of many
food distribution efforts that North West collaborated on with
northern and other government organizations. The most notable
was the advocacy we led on behalf of rural Alaska families to ensure
their eligibility under the USDA Farmers to Families Food Box
program which, leveraging our store network, delivered for the first
time over 69,000 boxes or 1.2 million pounds of produce and dairy
products to Americans across rural Alaska.
Associate Experience – Our associates handled big increases in sales
volumes while dealing with new work protocols and constraints
presented by COVID-19. These were challenging physical factors.
Added was the stress of being front-line workers, with many living in
high risk circumstances, and the Pandemic anxieties that affected us
all. Under these circumstances we tried our best to recognize
workloads and help each other stay positive, healthy and energized.
These steps included:
•
•
•
•
•
•
$6.4 million in hourly premiums of between $2.00 and
$3.35 per hour paid during the first months during the
Pandemic and afterwards wherever we have experienced
heightened community COVID-19 transmission;
$3.7 million in additional special payments to hourly staff
throughout 2020;
Recruitment of over 180 “Go Team” associates for rapid
assignment to stores needing relief or additional key role
staffing;
Vacation buybacks
restrictions were onerous;
Work from home flexibility for office staff;
Promotion of our Employee and Family Assistance
Programs.
in circumstances where
travel
The payments indicate how different and demanding the work
experience was for North West associates, at all levels. But they don’t
explain what our people continue to accomplish during these times.
In our conversations I am left feeling tremendously inspired and
reassured. Demonstrated, to a person, are the traits I mentioned
earlier: resiliency, adaptability and an enterprising spirit, combined
with a deep sense of professionalism and duty. In my long career at
North West I have never had such a powerful impression of the
strength of our people and collectively, our Company. As CEO and
on behalf of our executive team, I acknowledge this, with gratitude,
as the reason that we sustained our business in 2020.
Sales Achievements – The final chapter in our 2020 story was our
focus and drive for sales amid adverse operating conditions. North
West’s store sales increased by $270 million or 19%, generated from
the same 207 stores as the year before. Without question we
benefitted from lower travel and higher consumer incomes derived
from government support programs in Canada and the U.S. On the
other hand we faced constraints on food supply, closures of most of
our food service departments, a drop-off in convenience store
business and depressed tourism-dependent markets. How we
responded was critical to our performance.
There were many sales highlights. Most impressive was the 36%
growth in general merchandise sales. Simply finding product that we
usually plan and buy for 6-12 months ahead of the selling season
was a huge accomplishment. Knowing what and how much to
purchase with no time to spare made this task even more difficult.
Collaborations with communities were another example of new
food business we successfully pursued during the Pandemic,
together with a massive increase in our other commercial sales, from
PPE to community outdoor living supplies.
Post-Pandemic Growth
The Pandemic presents North West with unprecedented
growth opportunities beyond the successes of 2020 and the post-
pandemic transition year of 2021. After the GT store divestiture we
are a more focused company with a more attractive mix of retail
banners and complementary businesses, like our airline and shipping
investments. We are still seeing attractive opportunities in rural retail
and wholesale, in transportation and in other adjacent spaces within
our core geographies. We are more active in health, triggered by
allowable virtual physician service delivery and billing protocols.
Within our retail businesses that grew the most last year, we have
enhanced customer and community relationships that will enable
new partnership opportunities in a post-Pandemic environment.
Most important and hardest to measure is a renewed pure
merchant capability and 'get sales' attitude within North West. We
convincingly know that we have the ability to set and reach higher
sales goals within both in-store product and service categories and
other channels like B to B and e-commerce, where we had accepted
lesser growth targets in the past. In short, the enterprising spirit at
North West is alive and energized.
4THE NORTH WEST COMPANY INC. 2020 CEO Transition
This is my 24th and last annual letter to shareholders, as I head
towards retirement on August 1st.
I never intended to stay this long, like many who accidently end
up in retailing. I came from a family of small business owners and I
initially recoiled at the idea of joining a large organization, never
mind one as “old” as North West. But I am here, at the end of a
journey that has always felt fresh, stimulating and meaningful.
I am grateful for every aspect of my career at North West. I have
had the freedom to grow as a leader and the privilege to take the
long view and gain a deep sense of the people and the key facets of
our business. Time has enabled me, with the help of many others, to
learn how to work through problems, know when to seize
opportunities and ultimately to sustain relationships and the
organization as a whole.
My retirement has been planned with Sandy Riley and our
entire Board for over three years and it has enabled an internal
successor with tremendous potential to help guide North West to
the next level. My priority is to complete this process by ensuring an
effective transition with Dan McConnell who I have worked closely
with for almost 20 years. I know the Board, together with our senior
team, is equally committed to Dan’s success and I wish him well.
Lastly, and most important, thank-you. Above all, to my spouse
Stella, for being incredibly supportive of my work and to our children
for their understanding of the time and effort. And then, to all of my
associates, colleagues, our customers and the other stakeholders of
The North West Company. Thank-you for being alongside, always
committed to the special community that is North West.
Edward S. Kennedy
President & CEO
April 7, 2021
5ANNUAL REPORT Chairman's Message
Mike Tyson, the former heavyweight champion, famously said
“everybody has a plan, until they get punched in the mouth.”
That pretty much sums up the past year for The North West
Company. We started the year very focused on several key strategic
initiatives, including the completion of the sale of most of our Giant
Tiger stores and a significant restructuring of our Canadian
administrative structure, with the goal of freeing up at least $17
million to invest in lower prices for key food categories in our
Northern markets.
Within a week in March this work had taken a backseat, as we
were forced to pivot to deal with the impact of the global
coronavirus pandemic on the communities in which we operate and
on our business overall.
I have to say that I could not have been prouder of a group of
business colleagues than I have been of the way that the women
and men of The North West Company responded to the COVID
challenge.
Edward and his management team recognized, from the outset
of the pandemic, that our ability to keep customers and
communities sustainably supplied with food and other essential
products and services was going to be crucial to their ability to
weather the COVID storm. This is part and parcel of the privilege and
responsibility of North West and while it is practiced across our
Company every day, COVID put us to the toughest test we have
faced in recent history.
Our team met the COVID challenge superbly. Working long
hours in unusual and very stressful settings, our store teams ensured
their safety and the safety of their customers, found ways to source
and transport products when communities were in lockdown
(including the rapid set-up of on-line ordering), and kept their stores
in-stock throughout.
Our buyers did a great job in procuring product in the face of
worldwide competition for scarce supply, which was particularly
challenging in the early days of the pandemic when consumers
around the world were defensively stocking up their pantries and
much larger grocery chains were leaning into their relationships with
suppliers to meet unprecedented demand.
Our logistics teams at all of our store banners and in our
transportation companies ensured delivery of goods happened on a
timely and uninterrupted basis; in the face of countless adjustments
caused by the lockdowns and by rolling incidents of infection. It was
a huge team effort, led by our individuals at all levels of the
organization, and the results speak for themselves.
While we are obviously pleased with the financial results we
achieved, we are most proud of our role in helping our customers
and their communities weather this crisis.
I
acknowledge, congratulate and thank the community leaders for
their success in addressing these challenges, often without the
resources of larger, urban centres. We played our part but their
resourceful efforts were essential and remarkable!
In that regard,
Looking forward, the sales levels that we experienced this year
will be very difficult to replicate but we know that they are out there
because of what was achieved this year. Our challenge is to learn the
lessons from COVID. For example, how can we apply new e-
commerce processes, and learnings on pricing and our logistics
advantages to maintain sales in categories where we saw a big
upswing during COVID? And how can we capitalize on the strong
relationships which have been fostered during this crisis in order to
identify new products and services which we can facilitate for our
communities? Those are opportunities which face us in the year
ahead and which our North West team and our Board are
embracing.
inclusion, and our
In the midst of all of this, we continue to revitalize our Board
and to make significant advances on our journey towards best in
practice ESG disciplines. For our company, the environment, diversity
and,
longstanding priority on community
responsibility are essential considerations, especially given the size
and composition of regions in which we operate. Our task is to
establish effective processes and standards which reflect their
unique circumstances. For example, shifting to greener energy
sources
in small,
is a very different and difficult proposition
geographically distant locations, whether in the far north or a south
Pacific island. Similarly, issues of reconciliation with Indigenous
peoples is at the very core of our business in a way that is not found
in most other Canadian organizations, private or public-sector. Our
Board and executive team has embarked on a journey which will, we
believe, continue to create authentic, well-articulated policies with
respect to all these areas of corporate social responsibility that are
appropriate for North West and sensitive to our stakeholder interests.
This year, we will be bidding farewell to two long-standing
directors, Wendy Evans and Eric Stefanson. Wendy served for many
years as chair of our Governance Committee while Eric was chair of
our Audit Committee. They have been wonderful colleagues and
great contributors with genuine passion for The North West
Company. We want to thank them very much for their years of
service. They will be missed.
You will notice that we have not added any new directors this
year because, in anticipation of Wendy and Eric’s retirement, we
appointed new directors over the last several years so that they
could spend some time working alongside the retiring directors as
part of a planned transition.
is one other
leadership to
acknowledge. This year, Edward Kennedy is celebrating his 30th year
as a senior executive at The North West Company, and his 25th year
as President & CEO. That length of tenure is, in itself, extraordinary in
Canadian business.
important change
There
in
internationally,
food, expanding
Edward's guiding hand has touched all facets of the Company's
development, from taking North West public, to shifting our product
focus to
forging dozens of
partnerships with Indigenous entities and growing into exciting new
areas like health and transportation, all while being a true ally of the
communities we are privileged to serve. Under Edward's time as
CEO, North West's financial performance has been equally stellar
with sales growth from $590 million to $2.4 billion, EBITDA growth
from $59 million to over $300 million and nearly $1.2 billion in total
dividends paid to shareholders; delivering compound annual returns
of 15.6% – indeed it has been a remarkable run for Edward and the
company.
But in the words of Ecclesiastes 'to everything, there is a season
and a time' and now is the time for Edward to move on to the next
stage of his life and for the Company to move forward under new
leadership.
6THE NORTH WEST COMPANY INC. 2020 The Board has been aware for several years of Edward’s desire
to retire, which has allowed us to prepare for this transition. While it
is very difficult to imagine North West without Edward we have had
plenty of time to get used to the idea and to have put a robust
process in place to plan for a new CEO.
recently as head of our
I am delighted to announce that, when Edward steps down on
August 1 of this year, he will be succeeded by Dan McConnell. Dan
has spent 19 years with North West with a range of key senior
responsibilities, most
International
Operations, based in Boca Raton, Florida. Dan has a strong track
record in his current role and previously as Executive Vice President,
Corporate Development and is well prepared to assume his new
position. He will be supported by a very strong senior management
team. The Board is excited by this appointment because change
brings opportunities and we know Dan’s passion for the business will
be infectious for all Nor' Westers.
As part of our plan, Edward has agreed to remain available to
Dan to help him fully acclimatize to the breadth of his new
responsibilities. The Board is also committed to working closely with
Dan, continuing the CEO transition process, and helping to ensure
Dan's success in his new role.
We are going to miss Edward on a day-to-day basis but we
understand that life goes on. We want to thank him for all of his
contributions and we wish him well in the years ahead. We also want
to congratulate Dan in his appointment and wish him all success as
he embarks on his journey as CEO.
Finally, I want to end as I began, by acknowledging the work of
all of our Nor’westers. This was an extraordinary year which resulted
in extraordinary efforts. I believe that we are all going to look back on
this time as being the most challenging of our business careers-but
we are also going to look back with enormous pride, at the
compelling work we did, helping communities and customers get
through COVID.
On behalf of the Board, thank you!
H. Sanford Riley
Chairman, Board of Directors
April 7, 2021
7ANNUAL REPORT Management's
Discussion &
Analysis
OUR BUSINESS TODAY
The North West Company
leading retailer to rural and
is a
developing small population 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 and a compelling value offer of being 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
these strengths within
complementary businesses.
to apply
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
than our competition. Flexible store models, store
better
management selection and education, store-level merchandise
ordering, 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
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
118 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;
25 Quickstop convenience stores, offering extended hours,
in northern
ready-to-eat foods, fuel and related services
Canadian markets;
5 Giant Tiger ("GT") junior discount stores, offering family
fashion, household products and food in northern market
locations;
2 Valu Lots discount centers and direct-to-customer food
distribution outlets 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;
Crescent Multi Foods ("CMF"), a distributor of produce and
fresh meats to independent grocery stores in Saskatchewan,
Manitoba and northwestern Ontario;
North West Telepharmacy Solutions, the leading provider of
contract tele-pharmacist services to rural hospitals and health
centres across Canada; and
Transport Nanuk Inc. and North Star Air Ltd. ("NSA"), water
and air-based transportation businesses, respectively, serving
northern Canada.
International Operations
27 Alaska Commercial Company ("AC") stores, similar to
Northern and NorthMart, offering a combination of food and
general merchandise to communities across remote and rural
regions of Alaska;
5 Quickstop convenience stores within rural Alaska;
Pacific Alaska Wholesale ("PAW"), a leading distributor to
independent grocery
stores, commercial accounts and
individual households in rural Alaska;
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
8 Riteway Food Markets, 1 Cash and Carry store and a
significant wholesale operation (collectively "RTW") in the
British Virgin Islands.
8THE NORTH WEST COMPANY INC. 2020
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 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
recognizing our presence as a supportive
customers while
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, inclusion 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 or shorter
ones where conditions change, as during COVID-19. Strategies are
regularly reviewed and adjusted at the senior management and
board levels. The Company's overriding goal is to offer 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:
•
•
•
•
managing business continuity, safety requirements and sales
growth opportunities arising from COVID-19 – this became the
Company's top priority from March onward;
ensuring the way we work is "Pure Retail", with top store teams,
lean processes and customer driven support from the rest of
our organization;
investing in product categories with the most market share
upside;
building a superior
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;
logistics capability with a
•
•
•
roll-out of next generation
completing the
information
technology for our stores and support offices that help optimize
the unique elements of our business;
identifying complimentary growth opportunities that leverage
our core remote market capabilities and expertise; and
ensuring that we are responsible towards stakeholder interests
and inclusive of the diverse peoples and cultures that make up
our workforce and the communities we are part of.
Our key initiatives together with the results for 2020 are as follows:
Initiative #1
COVID-19 Risks and Opportunities
This urgent, high priority work was focused on providing a safe,
reliable service to our customers and employees, mitigating other
risks and capturing sales opportunities.
Result
•
Store safety and business continuity was exceptional with
minimal employee COVID-19 cases and service disruptions;
Across North West, our employees' actions embodied our
Principles, especially within frontline and production roles; and
Superior in-stock performance and enterprising responses to
new opportunities delivered leading same store sales growth
rates.
Initiative #2
Pure Retail/Top Store Teams
This initiative refers to people and processes in our stores and is
focused on top store teams, lean processes, and customer-driven
support throughout our organization. Our goal is to optimize store
sales and net performance by creating more ability and freeing more
time to get sales at store level.
Result
•
Training center activity was curtailed and replaced by e-learning
due to COVID-19 protocols;
Over 180 "COVID-19 relief" employees were brought into stores
to provide key role support;
Store management turnover improvements exceeded targets,
partially achieved because of COVID-19-related conditions; and
information on
A new weekly playbook
merchandising programs and operational tasks was successfully
launched in Canadian stores.
that provides
•
•
•
•
•
Initiative #3
Investing in Food Pricing
This initiative focuses on investing in lower prices in product
categories with the most market share upside.
investments were made
Result
Price
in approximately 20% of the
Company’s Northern stores in the first quarter, but the full testing
and roll-out was delayed until 2021-2022 due to the impact of
COVID-19-related factors and other priorities.
9ANNUAL REPORT
Initiative #4
Building a Superior Logistics Capability
We recognize the unique importance of logistics to our business and
we continue to build a superior capability in this area. Our focus is to
optimize our air cargo to provide faster, more reliable and lower cost
transportation service to our stores and customers in remote
markets.
Result
On July 5, 2020, the Company completed the sale of 36 of its Giant
Tiger stores to Giant Tiger Stores Limited which resulted in a pre-tax
gain of $24.7 million or $20.0 million net of tax. Further information
on the Giant Tiger Transaction is provided in the Consolidated
Results financial performance review on page 11. The reciprocal
supply agreements were implemented in 2020, which are expected
to provide further upside in 2021.
Result
•
NSA's cargo aircraft utilization rates exceeded annual targets
and delivered safe, consistent service to northern Canada stores
and to external customers, all within a more demanding
COVID-19 environment;
"Next Gen" efficiency work progressed with the launch of the
lighter pallet program, double-decker truck to plane loads and
investments in store cargo receiving and handling; and
NSA's cargo performance was partially offset by a decline in
passenger revenues due to COVID-19-related travel restrictions.
•
•
Initiative #5
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 system was installed in the remaining AC stores and
has been installed in 18 Northern stores however, the Canadian roll-
out could not be completed in 2020 due to COVID-19-related travel
restrictions. This work will resume in the third quarter of 2021 and be
completed in 2022. The supplier management component of MMS
was
The
implementation of MMS in International Operations was planned for
2020 but is now deferred until 2021 due to COVID-19-related
business priorities.
fourth quarter.
implemented
in Canada
the
in
Initiative #6
Support Office Administrative Cost Reduction
This initiative is focused on achieving $17 million in administrative
cost savings which can be reinvested in lower prices in the
Company's Canadian retail business as outlined in Initiative #3.
Result
In the first quarter of 2020, the Company announced its plans to
reduce administration costs in Canada. By the end of the year, the
Company achieved its $17 million annualized savings target.
Initiative #7
Giant Tiger Transaction
This work is related to completing the sale of 36 of the Company’s
Giant Tiger stores to Giant Tiger Stores Limited and
implementing reciprocal product supply and distribution
agreements.
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
unique 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.
10THE NORTH WEST COMPANY INC. 2020 Consolidated Results
2020 Highlights
•
•
•
•
•
•
•
•
•
•
Sales increased 12.6% to $2.359 billion, our 21st consecutive year
of top line growth.
Same store sales(2) increased 19.0% driven by both food and
general merchandise sales gains.
The Company increased annual incentive plan payments to
front-line managers by $10.8 million and paid $10.1 million in
hourly premiums and one-time special payments to front-line
associates to recognize their critical role
in serving our
customers.
in response to greater
Donations
increased $5.5 million
community needs during COVID-19.
EBITDA(1) increased 37.3%
Debt-to-Equity decreased to 0.56 compared to 0.96 at January
31, 2020.
Return on net assets(1) improved to 22.4% compared to 13.5% in
2019.
Completed the sale of 36 Giant Tiger stores resulting in a pre-
tax gain of $24.7 million or $20.0 million net of tax.
Quarterly dividends increased $0.03 per share or 9.1% to $0.36
per share.
The Company purchased 180,744 shares under a normal course
issuer bid.
FINANCIAL PERFORMANCE
Some of the key performance indicators used by management to
assess results are summarized in the following table:
Key Performance Indicators and Selected Annual Information
($ in thousands, except per share)
2020
2019
2018
Sales
Same store sales % increase(2)
EBITDA(1)
EBIT
Net earnings
Net earnings attributable to
shareholders of the
Company
Net earnings per share -
diluted
Cash flow from operating
activities(3)
$ 2,359,239
$ 2,094,393
$ 2,013,486
19.0 %
1.3 %
2.0 %
$ 301,427
$ 209,349
$ 143,560
$ 139,874
$
2.82
$ 338,718
$
$
$
$
$
$
$
219,575
$ 218,022
130,353
$ 136,001
86,273
$
90,623
82,724
1.68
$
$
86,739
1.77
161,117
$ 155,725
1.32
$
1.28
Cash dividends per share
$
1.38
Total assets
$ 1,191,168
$ 1,215,536
$ 1,149,861
Total long-term liabilities
Return on net assets(1)
Return on average equity(1)
$ 370,802
$
594,482
$ 541,907
22.4 %
30.7 %
13.5 %
20.5 %
15.3 %
23.2 %
(1) See Non-GAAP Financial Measures section.
(2) All references to same store sales exclude the foreign exchange impact.
(3) See Consolidated Liquidity and Capital Resources.
Key Performance Factors The following factors had a significant
impact on the financial results
in 2020 and are referred to
throughout this analysis:
COVID-19 As an essential service provider of food and everyday
products and services, sales were positively impacted by COVID-19-
related consumer spending changes in favor of in-community and
at-home activities resulting from travel restrictions and restaurant
closures, and were supported by enhanced government income
support payments to individuals. The Company was able to maintain
a good in-stock position by working with our vendor partners and
leveraging our supply chain management and logistical expertise
which helped ensure an adequate supply of essential products in the
communities we serve. These factors were partially offset by
periodic government mandated COVID-19-related community
curfews and store closures. The impact of increased sales on
earnings was partially offset by wage premiums and bonuses paid to
front-line associates to recognize their critical role in serving our
customers, and expenses related to the purchase of protective
equipment and enhanced sanitation procedures.
Giant Tiger Transaction On July 5, 2020, the Company completed
the sale of 36 of the Company's 46 Giant Tiger stores (the “Acquired
Stores”) to Giant Tiger Stores Limited (“GTSL”) for cash consideration
of $45.0 million, subject to working capital adjustments, payable in
installments on the second, third and fourth anniversaries of the
transaction closing date and, subject to meeting certain profitability
milestones, additional contingent consideration payable on the
fourth and fifth anniversaries of the closing date of up to $22.5
million. The Company recorded a promissory note receivable with a
fair value of $49.0 million comprised of the net present value of the
installments and estimated additional contingent consideration. The
Giant Tiger Transaction resulted in a pre-tax gain of $24.7 million or
$20.0 million net of tax in the second quarter.
Of the remaining 10 GT locations, the Company (i) retained and
operates five key stores in northern market locations, (ii) converted
one store to a Valu Lots clearance center, and (iii) closed four stores
in the third quarter of 2020. The Company recorded a $9.4 million
asset impairment and store closure provision in the first quarter
substantially related to a reduction in the carrying amount of fixtures
and equipment and right-of-use assets.
As part of the Giant Tiger Transaction, the Company and GTSL
entered into product supply and distribution agreements related to
the supply of food-related products by the Company to the
Acquired Stores and the supply of certain general merchandise and
food products by GTSL to the Company's northern Canada stores.
These agreements enable buying efficiencies for both parties and
will provide the Company with access to an expanded general
merchandise assortment. Further information on the Giant Tiger
Transaction is provided in Note 24 to the consolidated financial
statements.
Consolidated Sales Sales for the year ended January 31, 2021
(“2020”) increased 12.6% to $2.359 billion compared to $2.094 billion
for the year ended January 31, 2020 (“2019”), and were up 17.2%
compared to $2.013 billion for the year ended January 31, 2019
(“2018”). The increase in sales compared to 2019 was driven by same
store sales gains and the impact of new stores largely related to the
re-opening of the Company's CUL store in St. Thomas, USVI which
was destroyed by hurricane Irma in the third quarter of 2017. Sales
were positively impacted by market share gains and COVID-19-
related factors including consumer spending changes in favor of in-
community and at-home activities, supported by enhanced
government income transfers in many jurisdictions. The impact of
foreign exchange on the translation of International Operations sales
11ANNUAL REPORT was also a factor. Excluding the foreign exchange impact, sales
increased 11.5% from 2019 and were up 15.0% from 2018. The
increase in sales compared to 2018 is due to the factors previously
noted. These factors were partially offset by lower sales in Giant Tiger
stores resulting from the Giant Tiger Transaction.
On a same store basis, sales increased 19.0% compared to
increases of 1.3% in 2019 and 2.0% in 2018 as shown in the following
table.
Same Store Sales
(% change)
Food
General merchandise (GM)
Total food & GM sales
2020
15.6 %
36.1 %
19.0 %
2019
1.9 %
(1.1) %
1.3 %
2018
1.7 %
3.2 %
2.0 %
Food sales increased 14.4% from 2019, and were up 13.4%
excluding the foreign exchange impact. Same store food sales
increased 15.6% over last year with quarterly same store sales
increases of 16.3%, 19.1%, 14.5% and 12.0% in the fourth quarter.
Canadian food sales increased 11.0% and International food sales
increased 17.1% excluding the foreign exchange impact.
General merchandise sales increased 11.4% compared to 2019
and were up 9.7% excluding the foreign exchange impact. Same
store general merchandise sales increased 36.1% for the year with an
increase of 12.0% in the first quarter followed by additional increases
of 54.8%, 38.3% and 39.8% in the last three quarters. Canadian
general merchandise sales increased 4.3% as same store sales gains
of 37.5% were largely offset by the impact of the Giant Tiger
Transaction. International general merchandise sales increased 31.5%
excluding the foreign exchange impact led by same store sales gains
and new stores.
Other sales, which include airline revenue, financial services, fuel
and pharmacy, decreased 0.2% compared to 2019 as gains in
financial services and pharmacy sales were more than offset by lower
passenger revenues in NSA and a decrease in fuel sales due to
COVID-19 travel restrictions. Other sales increased 2.4% compared to
2018 mainly due to sales growth in pharmacy and financial services.
Sales Blend The table below shows the consolidated sales blend
over the past three years:
Food
General merchandise and
other
2020
76.4 %
2019
75.2 %
2018
74.7 %
23.6 %
24.8 %
25.3 %
Canadian Operations accounted for 58.3% of total sales (60.7% in
2019 and 61.9% in 2018) while International Operations contributed
41.7% (39.3% in 2019 and 38.1% in 2018).
(1) See Non-GAAP Financial Measures section.
Gross Profit Gross profit
increased 16.6% to $774.6 million
compared to $664.4 million last year driven by sales growth and a
111 basis point increase in gross profit rate. The gross profit rate
increased to 32.8% compared to 31.7% last year primarily due to
favourable changes in product sales blend and higher inventory
turns contributing to lower markdowns and inventory shrinkage.
These factors were partially offset by a higher blend of CUL sales
which carry a lower gross profit rate consistent with a discount
warehouse format and the impact of lower margin wholesale food
sales as part of the Giant Tiger Transaction.
Selling, Operating and Administrative Expenses Selling,
operating and administrative expenses (“Expenses”) of $565.2 million
increased $31.2 million or 5.8% compared to last year but were down
154 basis points as a percentage of sales. This increase in Expenses is
partially due to a $9.4 million Giant Tiger asset impairment and store
closure provision, $18.9 million in higher share-based compensation
costs and $18.2 million in insurance-related gains last year offset by
the impact of the $24.7 million Giant Tiger Transaction gain and a
$5.3 million insurance-related gain this year (collectively "Non-
Comparable Factors"). The increase in share-based compensation
costs is substantially due to mark-to-market adjustments resulting
from changes in the Company's share price. Further information on
share-based compensation costs is provided in Note 14 and Note 18
to the consolidated financial statements.
Excluding the impact of the Non-Comparable Factors, Expenses
increased $14.7 million or 2.7% to last year but were down 232 basis
points as a percentage to sales as higher annual incentive plan costs,
COVID-19-related expenses and corporate donations, were partially
offset by lower Giant Tiger store expenses related to the Giant Tiger
Transaction and Canadian administrative cost reductions, net of a
$5.0 million provision for support office employee severance costs.
Annual incentive plan costs increased $18.2 million of which $10.8
million relates to front-line associates. COVID-19-related expenses of
$19.6 million includes $10.1 million in wage premiums and a special
one-time payment of 5% of wages to non-bonus eligible front-line
associates in recognition of their contributions to serving our
customers and $9.5 million in other COVID-19-related expenses
primarily related to additional employees recruited to provide
support to stores during outbreaks, the purchase of protective
equipment and enhanced sanitation procedures. Donations
increased $5.5 million in response to greater community needs
during COVID-19. The impact of foreign exchange on the translation
of International Operations expenses and higher insurance costs
were also factors.
12THE NORTH WEST COMPANY INC. 2020
("EBITDA(1)")
Earnings from Operations (EBIT) and EBITDA(1) Earnings from
operations or earnings before interest and income taxes ("EBIT”)
increased 60.6% to $209.3 million compared to $130.4 million last
year due to the sales, gross profit and Expense factors previously
noted. Earnings before interest, income taxes, depreciation and
amortization
to $301.4 million
compared to $219.6 million last year. Adjusted EBITDA(1), which
excludes the impact of the previously noted Non-Comparable
Factors, increased $98.4 million or 48.0% compared to last year
driven by earnings gains
International
Operations. Additional information on the financial performance of
Canadian Operations and International Operations is provided on
pages 14 and 16, respectively.
in both Canadian and
increased 37.3%
Interest Expense Interest expense decreased 19.8% to $16.8
million compared to $20.9 million last year. This decrease is due to
lower average debt levels and lower interest rates. Average debt
levels decreased 11.8% compared to last year mainly due to a
decrease in amounts drawn on revolving loan facilities. The average
cost of debt was 3.2% compared to 3.6%
last year. Further
information on interest expense is provided in Note 19 to the
consolidated financial statements.
Income Tax Expense Income taxes increased to $49.0 million
compared to $23.1 million last year and the effective tax rate for the
year was 25.4% compared to 21.1% last year. The increase in income
tax expense is due to higher earnings and a higher effective tax rate.
The increase in the income tax rate is primarily due to the impact of
non-deductible share-based compensation costs
in Canadian
Operations and the blend of earnings in International Operations
across various tax rate 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.
(1) See Non-GAAP Financial Measures section.
(2) Net earnings attributable to shareholders of the Company.
Net Earnings Consolidated net earnings
increased 66.4% to
$143.6 million compared to $86.3 million last year. Net earnings
attributable to shareholders of the Company were $139.9 million
compared to $82.7 million last year and diluted earnings per share
were $2.82 per share compared to $1.68 per share last year due to
the factors previously noted. Excluding the impact of the previously
noted Non-Comparable Factors, adjusted net earnings1 increased
$69.5 million or 92.2% due to the sales, gross profit and expense
factors that contributed to earnings gains
in Canadian and
International Operations. In 2020, the average exchange rate used to
translate International Operations sales and expenses was 1.3390
compared to 1.3246 last year and 1.3041 in 2018.
The Canadian dollar's depreciation versus the U.S. dollar compared
to 2019 had the following net impact on the 2020 results:
Sales........................................................................increase of $10.6 million or 1.1%
Earnings from operations...............................................increase of $0.7 million
Net earnings............................................................................increase of $0.5 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)
2020
2019
2018
Total assets
$ 1,191,168
$
1,215,536
$
1,149,861
Consolidated assets decreased $24.4 million or 2.0% compared to
2019 but were up $41.3 million or 3.6% compared to 2018. The
decrease in consolidated assets compared to last year is primarily
due to the net impact of the Giant Tiger Transaction and a decrease
in accounts receivable and deferred tax assets. The Giant Tiger
Transaction was the primary factor contributing to the decrease in
inventories, property and equipment and right-of-use assets. These
decreases were partially offset by the $49.0 promissory note
receivable resulting from the Giant Tiger Transaction. Further
information on the change in current assets is provided in the
working capital section below. The decrease in deferred tax assets is
due to an increase in deferred income tax liabilities for income
earned in the limited partnership in Canadian Operations. Further
information on deferred tax assets is provided in the net assets
employed section under Canadian Operations and in Note 10 to the
consolidated financial statements. The increase in consolidated
assets compared to 2018 is due to increases in property and
equipment and cash and the promissory note receivable, partially
offset by a decrease in inventories, right-of-use assets and deferred
tax assets as previously noted. The impact of foreign exchange also
contributed to the decrease in assets as the year-end exchange rate
used to translate International Operations assets decreased to 1.2776
compared to 1.3224 last year and 1.3137 in 2018.
Consolidated working capital for the past three years
is
summarized in the following table:
($ in thousands)
Current assets
Current liabilities
Working capital
2020
2019
2018
$ 396,860
$ 399,593
$ 376,297
$ (315,135)
$ (194,084)
$ (196,938)
$ 81,725
$ 205,509
$ 179,359
Working capital decreased $123.8 million or 60.2% to $81.7
million compared to 2019 and decreased $97.6 million or 54.4%
compared to 2018. Current assets decreased $2.7 million or 0.7%
compared to last year but were up $20.6 million or 5.5% compared
to 2018. The decrease in current assets compared to 2019 is primarily
due to lower accounts receivable, mainly related to insurance claims,
and lower inventories due to the Giant Tiger Transaction. A decrease
in income tax receivable due to the realization of the income tax
receivable from 2019 related to the accelerated tax depreciation on
certain capital investments in Canada and the U.S. was also a factor.
These factors were largely offset by an increase in cash. Further
information on the increase in cash is provided in the consolidated
statements of cash flows and the Liquidity and Capital Resources
section.
Current liabilities increased $121.1 million or 62.4% compared
to last year and were up $118.2 million or 60.0% compared to 2018
substantially due to an $88.6 million increase in the current portion
of long-term debt related to US$70.0 million senior notes that
mature in June 2021. An increase in accounts payable and accrued
13ANNUAL REPORT Canadian Operations
FINANCIAL PERFORMANCE
Canadian Operations results for the year are summarized by the key
performance indicators used by management as follows:
Key Performance Indicators
($ in thousands)
Sales
Same store sales % increase
EBITDA (1)
EBIT
Return on net assets (1)
2020
2019
2018
$ 1,376,188
$ 1,271,552
$ 1,246,133
22.3 %
0.3 %
0.9 %
$ 206,498
$ 140,359
$ 130,399
$ 144,141
$ 77,376
$ 72,822
26.3 %
12.3 %
12.6 %
(1) See Non-GAAP Financial Measures section.
Sales Canadian Operations sales increased $104.6 million or 8.2%
to $1.376 billion compared to $1.272 billion in 2019 and were up
$130.1 million or 10.4% compared to 2018 driven by exceptional
same store sales gains in northern Canada partially offset by lower
sales in GT stores as a result of the Giant Tiger Transaction and lower
passenger-related revenue in NSA as a result of COVID-19 travel
restrictions. The same store sales gains were driven by COVID-19-
related consumer spending changes combined with various
government income support programs and special settlement
payments for individuals. A superior in-stock position and market
share gains were also factors.
Same store sales increased 22.3% which is up from 0.3% in 2019
and 0.9% in 2018. Food sales accounted for 68.0% of total Canadian
Operations sales compared to 66.3% last year. The balance was made
up of general merchandise and other sales at 32.0% (33.7% in 2019).
Other sales consist primarily of airline revenue, financial services
revenue, fuel and pharmacy.
Food sales increased by 11.0% from 2019 and were up 13.3%
compared to 2018 as sales gains in northern Canada stores and new
wholesale food sales to Giant Tiger Stores Limited more than offset
the impact of lower sales as a result of the Giant Tiger Transaction.
Same store food sales increased 18.4% compared to 0.7% in 2019. On
a quarterly basis same store food sales increased 15.8%, 23.3%, 18.4%
and 15.7% respectively.
General merchandise sales increased 4.3% from 2019 and were
up 5.7% compared to 2018 as strong same store sales growth in
northern Canada more than offset lower sales in GT stores as a result
of the Giant Tiger Transaction. Same store sales increased 37.5%
compared to a 1.3% decrease in 2019 led by sales gains in motorized,
electronics and home furnishings. On a quarterly basis, same store
general merchandise sales increased 12.5%, 53.8%, 46.7% and 41.6%.
Other sales increased 0.5% from 2019 largely due to sales gains
in financial services and pharmacy which more than offset lower
passenger revenue in NSA as a result of COVID-19 travel restrictions.
Other sales increased 3.4% compared to 2018 primarily due to
pharmacy and financial services.
liabilities due to higher trade accounts payable and accrued annual
incentive plan costs and the impact of foreign exchange on the
translation of International Operations working capital were also
factors. Further information on working capital for the Canadian
Operations and International Operations is on page 15 and page
17, respectively.
Return on net assets employed increased to 22.4% compared to
13.5% in 2019 due to the 60.6% increase in EBIT and a decrease in
net assets employed. Additional information on net assets employed
for the Canadian Operations and International Operations is on page
15 and page 17 respectively. The adoption of IFRS 16 - Leases in
2019 had a significant negative impact on prior years return on net
assets employed primarily due to the inclusion of $127.9 million in
right-of-use assets. Prior to IFRS 16 - Leases, return on net assets
employed averaged 18.7% over the ten years from 2009 to 2018.
Return on average equity increased to 30.7% compared to
20.5% in 2019 due to a 66.4% increase in net earnings partially offset
by higher average equity compared to last year. Further information
on shareholders' equity is provided in the consolidated statements
of changes in shareholders' equity in the consolidated financial
statements.
(1) See Non-GAAP Financial Measures section.
Total Long-Term Liabilities Consolidated total long-term liabilities
for the past three years is summarized in the following table:
($ in thousands)
2020
2019
2018
Total long-term liabilities
$ 370,802
$
594,482
$
541,907
Consolidated long-term liabilities decreased $223.7 million or
37.6% to $370.8 million compared to 2019 and were down $171.1
million or 31.6% from 2018. The decrease in long-term liabilities
compared to 2019 and 2018 is substantially due to lower long-term
debt and lease liabilities. The decrease in long-term debt is due to an
increase in the current portion of long-term debt related to US$70.0
million senior notes that mature in June 2021 and the reduction in
amounts outstanding in revolving loan facilities due to stronger
earnings. The decrease in lease liabilities is largely due to the Giant
Tiger Transaction. The impact of foreign exchange rates on the
translation of U.S. denominated debt was also a factor. These factors
were partially offset by an increase in defined benefit pension plan
obligations compared to 2018 mainly related to a lower discount
rate. Further information on long-term debt is included in the
Consolidated Liquidity and Capital Resources section 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.
14THE NORTH WEST COMPANY INC. 2020 Sales Blend The table below shows the sales blend for the
Canadian Operations over the past three years:
net of $5.9 million in Canada Emergency Wage Subsidy ("CEWS") and
Ontario Remote Air Carrier Support Program ("RACSP") payments.
Food
General merchandise and other
2020
68.0 %
32.0 %
2019
66.3 %
33.7 %
2018
66.3 %
33.7 %
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 greater
discount food competition and lower seasonal general merchandise
sales in 2019 and compared to 2018.
Same Store Sales
(% change)
Food
General merchandise (GM)
Total food & GM sales
2020
18.4 %
37.5 %
22.3 %
2019
0.7 %
(1.3) %
0.3 %
2018
0.4 %
2.7 %
0.9 %
Gross Profit Gross profit dollars increased by 16.0% driven by sales
gains and a higher gross profit rate. The increase in gross profit rate
was mainly due to changes in product sales blend and lower
markdowns and inventory shrinkage due to improved sell-through.
A higher gross profit rate in NSA and the impact of lower sales in
lower gross profit structure
Giant Tiger stores which have a
consistent with a discount format were also factors. These factors
were partially offset by food price reductions in northern Canada
aimed at capturing more local spending dollars and the impact of
lower margin wholesale food sales as part of the Giant Tiger
Transaction.
Selling, Operating and Administrative Expenses
Selling,
operating and administrative expenses (“Expenses”) increased 0.4%
from 2019 but were down 198 basis points as a percentage of sales.
The increase in Expenses is partially due to a $9.4 million Giant Tiger
asset impairment and store closure provision, $17.0 million in higher
share-based compensation costs and $7.5 million in insurance-
related gains last year, offset by the impact of the $24.7 million Giant
Tiger Transaction gain and a $5.3 million insurance-related gain this
year (collectively "Non-Comparable Factors"). The increase in share-
based compensation costs is substantially due to mark-to-market
adjustments resulting from changes in the Company's share price.
Excluding the impact of the Non-Comparable Factors, Expenses
decreased $2.4 million or 0.7% to last year and were down 229 basis
points as a percentage to sales as higher annual incentive plan costs,
payments to front-line associates, corporate donations, insurance
costs and COVID-19-related expenses, were more than offset by
lower Giant Tiger store expenses related to the Giant Tiger
Transaction and Canadian administrative cost reductions, net of a
$5.0 million provision for support office employee severance costs.
Earnings from Operations (EBIT) and EBITDA(1) Earnings from
operations increased $66.8 million or 86.3% to $144.1 million
compared to $77.4 million in 2019 due to the sales, gross profit and
Expense factors previously noted. Earnings from operations as a
percentage of sales was 10.5% compared to 6.1% last year. EBITDA(1)
increased $66.1 million or 47.1% to $206.5 million and was 15.0% as a
percentage of sales compared to 11.0% in 2019. Adjusted EBITDA(1),
which excludes the Non-Comparable Factors previously noted,
increased 51.5% driven by earnings gains in northern Canada.
Improved earnings in NSA was also a factor as higher cargo volumes
and better aircraft utilization more than offset the negative impact of
lower passenger-related earnings due to COVID-19 travel restrictions,
(1) See Non-GAAP Financial Measures section.
Net Assets Employed Net assets employed decreased 9.0% to
$559.8 million compared to $615.3 million last year and were down
4.8% compared to $588.2 million in 2018 as summarized in the
following table:
($ in millions at the end of the fiscal year)
2020
2019
2018
Property and equipment
$ 357.5
$
367.2
$
358.0
Right-of-use assets
Inventories
Accounts receivable
Other assets
Liabilities
50.9
127.4
73.4
148.7
73.4
148.0
83.6
112.4
74.5
145.8
73.3
106.8
(198.1)
(169.3)
(170.2)
Net assets employed
$ 559.8
$
615.3
$
588.2
The decrease in property and equipment and right-of-use
assets compared to last year and 2018 was due to the Giant Tiger
Transaction, partially offset by investments in northern Canada stores
and the purchase of an ATR-72 500 aircraft which replaced a Basler
aircraft. Store-based capital expenditures for the year, which were
negatively impacted by COVID-19 travel restrictions, included the
reconstruction of a warehouse in Iqaluit, Nunavut that was destroyed
by fire in late 2018, the construction of a new store in Pelican
Narrows, Saskatchewan and
in stores, equipment
replacements and staff housing.
investments
Inventory decreased $20.6 million compared to 2019 and was
down $18.4 million compared to 2018 primarily due to the sale of
the Giant Tiger stores. Lower average inventories in northern Canada
stores due to the faster sell-through of sealift and winter road
inventories was also a factor. Average inventory levels in 2020
decreased $24.4 million or 16.1% compared to 2019 and were down
$18.0 million or 12.4% compared to 2018. Inventory turnover was up
to 7.4 times compared to 5.6 times last year and 5.8 times in 2018.
15ANNUAL REPORT
Accounts
receivable decreased $10.2 million or 12.2%
compared to last year but were flat to 2018. The decrease compared
to last year is mainly due to a reduction in insurance claim-related
accounts receivable. Average accounts receivable decreased $3.3
million or 4.5% compared to 2019 but were up $2.3 million or 3.3%
compared to 2018.
Other assets increased $36.3 million or 32.3% compared to last
year and were up $41.8 million or 39.1% compared to 2018. This
increase is primarily due to the $49.0 million promissory note
receivable from the Giant Tiger Transaction and higher cash, partially
offset by a decrease in deferred tax assets. In 2020, the Company
recorded a $24.7 million deferred tax liability on earnings in Canadian
Operations based on the year-end of the limited partnership. This
deferred tax liability has been recorded as a reduction of deferred tax
assets. The payment of cash taxes on these earnings will occur over
the next 14 months. Further information on deferred tax assets and
liabilities is provided in Note 10 to the consolidated financial
statements and additional information on the payment of deferred
taxes is provided in the Outlook section.
Liabilities increased $28.8 million or 17.0% from 2019 and were
up $27.9 million or 16.4% compared to 2018. This increase is largely
due to higher accrued annual incentive plan costs and higher trade
accounts payable related to the timing of payments. These factors
were partially offset by a decrease in the defined benefit plan
obligation mainly due to changes in the discount rate. Further
information on the defined benefit plan obligation is provided in
Note 13 to the consolidated financial statements.
Return on Net Assets (RONA(1)) The return on net assets
employed for Canadian Operations increased to 26.3% from 12.3% in
2019 due to an 86.3% increase in EBIT and a $78.9 million or 12.6%
decrease in average net assets compared to last year due to the
factors previously noted.
(1) See Non-GAAP Financial Measures section.
International Operations
(Stated in U.S. dollars)
FINANCIAL PERFORMANCE
International Operations results for the year are summarized by the
key performance indicators used by management as follows:
Key Performance Indicators
($ in thousands)
Sales
Same store sales % increase
EBITDA(1)
EBIT
Return on net assets (1)
2020
2019
2018
$ 734,168
$ 621,200
$ 588,422
13.6 %
3.5 %
4.2 %
$
$
70,893
48,699
$ 59,808
$ 67,192
$ 39,995
$ 48,447
16.9 %
15.5 %
20.2 %
(1) See Non-GAAP Financial Measures section.
Sales International sales
increased 18.2% to $734.2 million
compared to $621.2 million in 2019, and were up $145.7 million or
24.8% compared to 2018 led by strong same store sales gains and
the re-opening of our CUL store in St. Thomas, USVI. Sales were
positively impacted by consumer spending changes, less travel
outside communities, especially in Alaska, and COVID-19-related
government income support payments within the United States,
including the U.S. Territories served by CUL stores. These gains were
partially offset by periodic government-mandated COVID-19-related
store closures across different Caribbean countries, community
curfews and weak economies in the British Virgin Islands, St. Maarten
and Curacao. The closure of an AC store and convenience store in
Barrow, Alaska on October 31, 2019, net of opening a smaller store in
this market on November 1, 2019, and a decrease in the Alaska
Permanent Fund Dividend ("PFD") to $992 compared to $1,606 in
2019 and 2018 also negatively impacted sales. Same store sales
increased 13.6% compared to 3.5% in 2019 and 4.2% in 2018. Food
sales accounted for 88.1% (88.9% in 2019) of total sales with the
balance comprised of general merchandise and other sales at 11.9%
(11.1% in 2019). Other sales consist primarily of fuel and financial
services revenue.
Food sales increased 17.1% from 2019 and were up 24.2%
compared to 2018. Same store food sales were up 11.5% on top of a
4.0% increase in 2019. Quarterly same store food sales increases were
17.1%, 12.6%, 9.6% and 7.5% in the fourth quarter.
General merchandise sales increased 31.5% from 2019 and were
up 34.6% from 2018. On a same store basis, general merchandise
sales were up 31.8% compared to a decrease of 0.7% in 2019 with
strong sales gains from both AC and CUL stores. Quarterly same
store general merchandise sales increased 9.5%, 58.4%, 21.0% and
35.2% in the fourth quarter led by sales gains in motorized,
electronics, home furnishings and seasonal categories.
Other sales, which consist primarily of fuel sales and financial
services revenue, were down 14.6% from 2019 and 17.8% from 2018
mainly due to lower fuel sales.
16THE NORTH WEST COMPANY INC. 2020
Sales Blend The table below shows the sales blend for the
International Operations over the past three years:
Food
General merchandise and other
2020
88.1 %
11.9 %
2019
88.9 %
11.1 %
2018
88.5 %
11.5 %
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 government income support payments, 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
2020
11.5 %
31.8 %
13.6 %
2019
4.0 %
(0.7) %
3.5 %
2018
4.0 %
5.6 %
4.2 %
Gross Profit Gross profit dollars increased 16.4% as higher sales
more than offset a decrease in the gross profit rate. The decrease in
the gross profit rate is mainly related to more challenging economic
conditions in the British Virgin Islands and a higher blend of Cost-U-
Less sales which carry a lower gross profit rate consistent with a
discount warehouse format. These factors were partially offset by
lower markdowns and inventory shrinkage as a result of improved
sell-through.
last
year
Selling, Operating and Administrative Expenses Selling,
operating and administrative expenses (“Expenses”) increased 14.9%
compared to last year but were down 63 basis points as a
percentage of sales partially due to the impact of an $8.0 million
share-based
insurance-related gain
compensation costs this year. Excluding the impact of the insurance
gain and share-based compensation costs, Expenses increased 7.7%
compared to last year due to the impact of new stores and higher
annual incentive plan costs, COVID-19 wage premiums and a 5% of
wages bonus paid to non-bonus eligible front-line and support
office associates, insurance costs and COVID-19-related expenses.
These factors were partially offset by $3.6 million in support office
restructuring and relocation costs last year.
and higher
Earnings from Operations (EBIT) and EBITDA(1) Earnings from
operations increased $8.7 million or 21.8% to $48.7 million compared
to 2019 due to the sales, gross profit and Expense factors previously
noted. EBITDA(1) increased $11.1 million or 18.5% to $70.9 million and
was 9.7% as a percentage of sales compared to 9.6% in 2019.
Excluding the impact of the insurance gains and share-based
compensation expense, adjusted EBITDA(1) increased 39.4%.
(1) See Non-GAAP Financial Measures section.
Net Assets Employed International Operations net assets
employed of $272.1 million decreased $1.4 million or 0.5% compared
to last year but were up $21.1 million or 8.4% to 2018 as summarized
in the following table:
($ in millions at the end of the fiscal year)
2020
2019
2018
Property and equipment
$ 136.4
$ 142.0
$ 119.5
Right-of-use assets
Inventories
Accounts receivable
Other assets
Liabilities
45.8
78.0
14.1
67.8
41.2
75.6
16.1
48.7
40.6
68.9
13.0
56.6
(70.0)
(50.1)
(47.6)
Net assets employed
$ 272.1
$ 273.5
$ 251.0
Property and equipment decreased $5.6 million or 3.9% to last year
as amortization exceeded
investments mainly due to
lower
COVID-19-related travel restrictions but increased compared to 2018
mainly due to the reconstruction of the CUL store in St. Thomas, USVI
that was completely destroyed by hurricane Irma in 2017. The
increase in right-of-use assets compared to last year and 2018 is due
to lease renewals.
Inventories increased $2.4 million or 3.2% compared to last year
and were up $9.1 million or 13.2% from 2018. The increase from 2018
is largely due to the re-opening of the St. Thomas CUL store. Average
inventory levels in 2020 were up 7.2% compared to 2019 and were
up 14.3% compared to 2018 mainly due to new stores. Inventory
turnover improved to 6.6 times compared to 6.0 times in 2019 and
6.1 times in 2018.
Other assets increased $19.1 million or 39.2% compared to last
year and were up $11.2 million or 19.8% compared to 2018 primarily
due to higher cash balances.
Liabilities increased $19.9 million or 39.7% compared to 2019
and were up $22.4 million or 47.0% compared to 2018 substantially
due to higher trade accounts payable related to the timing of
payments, higher annual incentive plan costs and an increase in
income tax payable.
17ANNUAL REPORT
Return on Net Assets (RONA(1)) The return on net assets
employed for International Operations increased to 16.9% compared
to 15.5% in 2019 due to a 21.8% increase in EBIT partially offset by an
$29.4 million or 11.4% increase in average net assets mainly due to
the re-opening of the St. Thomas CUL store on November 1, 2019.
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 2021.
$ 271,652
$ 197,021
$ 177,833
58,975
8,091
(28,670)
(7,234)
(20,824)
(1,284)
338,718
161,117
155,725
The following table summarizes the number of stores and
selling square footage under North West's various retail banners at
the end of the fiscal year:
(1) See Non-GAAP Financial Measures section.
Consolidated Liquidity
and Capital Resources
The following table summarizes the major components of cash flow:
($ in thousands)
2020
2019
2018
Cash provided by (used in):
Operating activities before
change in non-cash working
capital and other
Change in non-cash working
capital
Change in other non-cash items
Operating activities
Investing activities
Financing activities
(66,900)
(104,272)
(227,060)
(67,236)
(80,793)
(62,357)
713
Effect of foreign exchange
(1,409)
130
Net change in cash
$ 43,349
$ (10,261)
$ 13,288
Cash from Operating Activities Cash flow from operating
activities increased $177.6 million or 110.2% to $338.7 million
compared to 2019 due to a $74.6 million increase in cash earnings to
$271.7 million and an increase in cash from the change in non-cash
working capital and other non-cash items of $103.0 million. The
$74.6 million increase in cash flow from operating activities before
working capital and other items in 2020 compared to 2019 is mainly
due to a $57.3 million or 66.4% increase in net earnings, lower taxes
paid due to timing of installments related to the limited partnership
year-end, partially offset by the net impact of the Giant Tiger
Transaction gain and store closure provision.
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 years. Further
information on working capital is provided in the Canadian and
International net assets employed sections on pages 15 and
17, respectively. The change in other non-cash items is largely
due to changes
liabilities, primarily related
long-term
to
share-based compensation and defined benefit pension
obligation.
in other
is mainly due to
in 2018. This decrease
Cash Used in Investing Activities Net cash used in investing
activities was $66.9 million compared to $104.3 million in 2019 and
$80.8 million
lower
investments
in store-based property and equipment due to
COVID-19 travel restrictions. Net investing in Canadian Operations
insurance proceeds
was $55.0 million net of $5.3 million
compared to $63.2 million net of $11.8 million in insurance proceeds
in 2019 and $69.2 million in 2018. A summary of the Canadian
Operations investing activities is included in net assets employed on
page 15.
International Operations was $11.9
million compared to $41.1 million, net of $5.5 million in insurance
proceeds in 2019 and $11.6 million, net of $18.8 million in insurance
proceeds in 2018. A summary of the
International Operations
investing activities is included in net assets employed on page 17.
Investing
in
in
Northern
NorthMart
Quickstop
Giant Tiger
Alaska Commercial
Cost-U-Less
Riteway Food Market
Other Formats
Number of Stores
Selling square footage
2020
118
2019
117
5
30
5
27
12
9
6
5
28
46
27
12
8
6
2020
693,389
128,185
41,024
90,470
249,212
344,695
61,899
44,097
2019
689,051
116,156
38,509
754,523
249,212
344,695
58,650
27,842
Total at year-end
212
249
1,652,971
2,278,638
In Canadian Operations, a Northern store and a Quickstop
convenience store were opened. The decrease in the number of
Giant Tiger stores is due to the sale of 36 stores and closure of four
stores as part of the Giant Tiger Transaction as previously noted.
Under Other Formats, one Giant Tiger store and a fur marketing
branch were combined into one location and converted to a Valu
Lots clearance center. Total selling square footage in Canada
decreased 39.0% to 986,087 compared to 1,616,780 in 2019 due to
the sale of Giant Tiger stores.
18THE NORTH WEST COMPANY INC. 2020 In International Operations, a QuickStop convenience store was
opened in Alaska and a Riteway Food Market convenience store was
opened in the British Virgin Islands. Total selling square footage
increased to 666,884 compared to 661,858 last year due to the store
openings.
Cash Used in Financing Activities Cash used in financing activities
was $227.1 million compared to cash used of $67.2 million in 2019.
The change compared to last year is largely due to a decrease in
long-term debt net of the issuance of $94.8 million (US$70.0 million)
senior notes, an increase in shareholder dividends and $6.0 million
for shares purchased under a normal course issuer bid. These factors
were partially offset by a decrease in interest payments related to
lower average debt levels and interest rates. Further information on
dividends, the normal course issuer bid, interest and long-term debt
is provided in the following sections.
Shareholder Dividends The Company paid dividends of $67.3
million or $1.38 per share compared to $64.4 million or $1.32 per
share in 2019. Further information on dividends is included in Note
20 to the consolidated financial statements.
The following table shows the quarterly cash dividends per
share paid for the past three years:
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
Total
2020
$ 0.33
0.33
0.36
0.36
$ 1.38
2019
$ 0.33
$
0.33
0.33
0.33
$ 1.32
$
2018
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:
2020
2019
2018
Dividends
$ 67,276
$
64,351
$ 62,329
Cash flow from operating
activities
Dividends as a % of cash flow
from operating activities
$ 338,718
$ 161,117
$ 155,725
19.9 %
39.9 %
40.0 %
Dividends as a percentage of cash flow from operating activities
decreased compared to 2019 and 2018 as the increase in dividends
was more than offset by the increase in cash flow from operating
activities as previously noted.
The Company has a well established track record of increasing
distributions and dividends whether structured as an income trust or
as a share corporation. 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 nine 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 April 7, 2021, the Board of Directors approved a quarterly
dividend of $0.36 per share to shareholders of record on April 16,
2021 and to be paid on April 28, 2021.
Normal Course Issuer Bid On November 10, 2020, the Company
received approval from the Toronto Stock Exchange to proceed with
a Normal Course Issuer Bid ("NCIB"). Under the NCIB, the Company
may acquire up to a maximum of 4,807,437 of its shares, or
approximately 10% of its float for cancellation over the following 12
months. During the year ended January 31, 2021, the Company
purchased 180,774 common shares having a book value of $0.6
million for cash consideration of $6.0 million. The excess of the
purchase price over the book value of the shares of $5.4 million was
charged to retained earnings. All shares purchased were cancelled.
In connection with the NCIB, the Company has established an
automatic securities purchase plan with its designated broker to
facilitate the purchase of Shares under the NCIB at times when the
Company would ordinarily not be permitted to purchase its Shares
due to regulatory restrictions or self-imposed blackout periods.
Under the Plan, before entering a self-imposed blackout period,
North West may, but is not required to, ask the designated broker to
make purchases under the NCIB within specific parameters.
Sources of Liquidity In June 2020, the Company issued US$70.0
million senior notes in two tranches; US$35.0 million due June 16,
2027 with a fixed interest rate of 2.88% and US$35.0 million due June
16, 2032 with a fixed interest rate of 3.09%. These senior 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 $100.0 million senior notes,
the US$52.0 million loan facilities and the US$70.0 million senior
notes that mature June 16, 2021 (collectively "Senior Debt"). The
proceeds from the issuance of the senior notes were used to reduce
amounts drawn on the Company's revolving loan facilities in
Canadian Operations and provide additional capacity for growth
opportunities that may arise during the COVID-19 pandemic
environment or to repay the US$70.0 million senior notes when they
mature on June 16, 2021.
19ANNUAL REPORT
At January 31, 2021, the Canadian Operations have outstanding
US$70.0 million senior notes (January 31, 2020 - US$70.0 million) that
mature June 16, 2021 and 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 Company
also has outstanding $100.0 million in senior notes (January 31, 2020
- $100.0 million) that mature September 26, 2029 and have a fixed
interest rate of 3.74%. 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
in the
International Operations. For more information on the senior notes
instruments, see Note 12 and Note 15 to the
and financial
consolidated financial statements.
investment
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, 2021, the Company had drawn $NIL on these
facilities (January 31, 2020 - $176.7 million).
The Company has committed, revolving
loan facilities of
US$52.0 million that bear interest at U.S. LIBOR plus a spread and
mature on September 26, 2022. These facilities are secured by certain
assets of the Company and rank pari passu with the Company's other
Senior Debt. At January 31, 2021, the Company had drawn US$NIL
on these facilities (January 31, 2020 - US$27.9 million).
The International Operations have a US$40.0 million loan facility
that bears a floating rate of interest based on U.S. LIBOR plus a
spread. In February 2020, the Company extended the maturity date
on this facility to February 2025. This facility is secured by certain
assets of the International Operations. At January 31, 2021, the
International Operations had drawn US$NIL million on this facility
(January 31, 2020 - US$0.7 million).
The loan facilities and senior notes contain covenants and
restrictions including the requirement to meet certain financial ratios
and financial condition tests. The financial covenants include a fixed
charge coverage ratio, minimum current ratio, a leverage test and a
minimum net worth test. At January 31, 2021, the Company is in
compliance with the financial covenants under these facilities.
Current and forecasted debt levels are regularly monitored for
compliance with debt covenants.
Interest Costs and Coverage
Coverage ratio
EBIT ($ in millions)
2020
12.5
2019
6.2
2018
6.9
$ 209.3
$ 130.4
$ 136.0
Interest ($ in millions)
$
16.8
$
20.9
$
19.6
The coverage ratio of earnings from operations ("EBIT") to interest
expense has increased to 12.5 times compared to 6.2 times in 2019
and 6.9 times in 2018 due to a $4.1 million decrease in interest
expense and a 60.6% increase in consolidated EBIT as previously
noted. Additional information on interest expense is provided in
Note 19 to the consolidated financial statements.
Contractual Obligations and Other Commitments
Contractual obligations of the Company at January 31, 2021 are
listed in the chart below:
($ in thousands)
Total
0-1 Year
2-3 Years
4-5 Years
6 Years+
Long-term debt
$ 281,422 $ 90,456 $ 1,410 $
256 $ 189,300
Lease payments
142,262
20,148
36,781
25,423
59,910
Other liabilities (1)
20,908
7,434
13,474
—
—
Total
$ 444,592 $ 118,038 $ 51,665 $ 25,679 $ 249,210
(1) At year-end, the Company had additional long-term liabilities of $57.2
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.
income taxes
Post-Employment Benefits The Company sponsors defined
benefit and defined contribution pension plans covering the
majority of Canadian employees. The Company recorded net
actuarial gains on defined benefit pension plans of $3.7 million net of
deferred
income. This
compares to net actuarial losses on defined benefit pension plans of
$8.5 million in 2019 and gains of $5.0 million in 2018. These gains
and losses 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 other comprehensive
In 2021, the Company will be
required to contribute
approximately $1.6 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 2020, the Company's cash
contributions to the pension plan were $1.6 million compared to
$3.5 million in 2019 and $2.3 million in 2018. The actual amount of
the contribution may be different from the estimate based on
actuarial valuations, plan
in
discount rates, regulatory requirements and other factors. The
Company also expects to contribute approximately $5.0 million to
the defined contribution pension plan and U.S. employees savings
plan in 2021 compared to $5.4 million in 2020 and $5.3 million in
2019. Additional information regarding post-employment benefits is
provided in Note 13 to the consolidated financial statements.
investment performance, volatility
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 consolidated
financial statements regarding these indemnification agreements.
20THE NORTH WEST COMPANY INC. 2020
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 consolidated
financial statements regarding these agreements.
Additional information on commitments, contingencies and
guarantees is provided in Note 22 to the consolidated financial
statements.
On a consolidated basis, the Company had $281.4 million in debt
and $505.2 million in equity at the end of the year and a debt-to-
equity ratio of 0.56:1 compared to 0.96:1 last year. From 2018 to 2020,
equity has increased $94.2 million or 22.9% and debt has decreased
$85.3 million or 23.3%. During this same period, the Company has
made capital expenditures,
including acquisitions and net of
insurance proceeds, of $259.7 million and has paid dividends of
$194.0 million. This reflects the Company's balanced approach of
investing to sustain and grow the business while providing
shareholders with an annual cash return.
The debt outstanding at the end of the fiscal year
is
summarized as follows:
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
transactions with
Transport Nanuk Inc. is included in Note 23 to the consolidated
financial statements.
the Company's
information on
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
is
aggregate potential
approximately $22.0 million (January 31, 2020 - $21.0 million).
letters of credit
liability
related
to
Capital Structure The Company's capital management objectives
are to deploy capital to provide an appropriate total return to
shareholders while maintaining a capital structure that provides the
flexibility to take advantage of growth opportunities, maintain
existing assets, meet obligations and financial covenants and
enhance shareholder value. The capital structure of the Company
consists of bank advances, long-term debt and shareholders' equity.
The Company manages capital to optimize efficiency through an
appropriate balance of debt and equity. In order to maintain or
adjust its capital structure, the Company may purchase shares for
cancellation pursuant to normal course issuer bids, issue additional
shares, borrow additional funds, adjust the amount of dividends paid
or refinance debt at different terms and conditions.
The Company's capital structure over the past three years is
summarized in the following graph.
(CAD$ in thousands at the end of
the fiscal year)
2020
2019
2018
CAD$ senior notes
$ 100,000
$ 100,000
$ 100,000
US$ senior notes
US$ senior notes
Canadian loan facilities
U.S. loan facilities
Promissory note payable
89,300
89,300
—
—
2,822
92,334
—
91,666
—
176,716
134,791
37,893
4,022
36,700
3,600
Total debt
$ 281,422
$ 410,965
$ 366,757
Consolidated debt at the end of the year decreased $129.6 million or
31.5% to $281.4 million compared to $411.0 million in 2019, and was
down $85.3 million or 23.3% from $366.8 million in 2018. The
decrease in debt is primarily due to lower amounts drawn on the
revolving loan facilities. The impact of foreign exchange on the
translation of U.S. denominated debt was also a factor. The Company
has US$140.8 million in debt at January 31, 2021 (January 31, 2020 -
US$99.7 million, January 31, 2019 - US$97.9 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, 2021 was 1.2776 compared to
1.3224 at January 31, 2020 and 1.3137 at January 31, 2019. The
change in the foreign exchange rate resulted in a $6.3 million
decrease in debt compared to 2019 and a $5.1 million decrease
compared to 2018. Average debt outstanding during the year
excluding the foreign exchange impact decreased $63.5 million or
16.8% from 2019 and was down $16.9 million or 5.1% compared to
2018
Lease liabilities at the end of the fiscal year are summarized as
follows:
(CAD$ in thousands at the end of
the fiscal year)
2020
2019
2018
Current portion of lease liability $ 16,393
$ 19,176
$ 21,836
Non-current lease liabilities
104,226
119,928
118,112
Total lease liabilities
$ 120,619
$ 139,104
$ 139,948
Lease liabilities decreased $18.5 million or 13.3% to $120.6 million
compared to $139.1 million in 2019 and were down $19.3 million or
13.8% compared to $139.9 million in 2018. The decrease compared
to 2019 and 2018 is largely due to stores sold as part of the Giant
Tiger Transaction partially offset by new store leases in both
Canadian and International Operations. Further information on lease
in Note 8 to the consolidated financial
liabilities
statements.
is provided
21ANNUAL REPORT
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
into one Common Voting Share
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
in the April 7, 2021 Management
Information Circular which is available on the Company's website at
www.northwest.ca or on SEDAR at www.sedar.com.
is provided
At January 31, 2021, there were 16,379,039 Variable Voting
Shares,
issued and
the
outstanding. Further information on the Company's share capital is
provided in Note 16 to the consolidated financial statements.
representing 33.7% of
total shares
Book value per share attributable to shareholders, on a diluted
basis, at the end of the year increased to $9.92 per share compared
to $8.38 per share in 2019. Total shareholders' equity increased $78.3
million or 18.3% compared to 2019 primarily 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.
Shareholders' Equity The Company has an unlimited number of
authorized shares and had
issued and outstanding shares at
January 31, 2021 of 48,613,319 (January 31, 2020 - 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, 2021, there were
2,052,638 options outstanding representing 4.2% of the issued and
outstanding shares. In addition to share options, there were 322,910
in Performance Share Units ("PSU") that may be settled by the
issuance of shares based on meeting certain performance criteria
and 314,829 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.
formality. Under
If either of the above-noted thresholds is surpassed at any time,
the vote attached to each Variable Voting Share will decrease
automatically without
the
further act or
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.
22THE NORTH WEST COMPANY INC. 2020 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. In 2020, the decrease in sales in the third and fourth quarter compared to the first two quarters of the year is primarily due
to the Giant Tiger Transaction. Net earnings generally follow higher sales, but can be dependent on changes in merchandise sales blend,
promotional activity in key sales periods, variability in share-based compensation costs related to changes in the Company's share price and
other factors which can affect net earnings.
The following is a summary of selected quarterly financial information:
($ thousands)
Sales
2020
2019
EBITDA(1)
2020
2019
Earnings from operations (EBIT)
2020
2019
Net earnings
2020
2019
Net earnings attributable to shareholders of the Company
2020
2019
Earnings per share-basic
2020
2019
Earnings per share-diluted
2020
2019
(1) See Non-GAAP Financial Measures section.
Q1
Q2
Q3
Q4
Total
$
$
$
$
$
$
$
$
$
$
$
$
$
$
592,569
494,529
43,373
58,248
19,471
37,033
12,254
26,225
11,274
25,124
0.23
0.52
0.23
0.51
$
$
$
$
$
$
$
$
$
$
$
$
$
$
648,504 $
552,975
527,282 $
519,521
110,929 $
51,615 $
75,715
59,279
87,830 $
29,596 $
52,934
36,990
62,560 $
17,947 $
35,914
24,838
61,929 $
17,155 $
34,611
24,101
1.27 $
0.35 $
1.25 $
0.35 $
0.71
0.49
0.71
0.49
$
$
$
$
$
$
$
$
$
$
$
$
$
$
565,191
553,061
71,410
50,433
49,114
26,734
32,832
17,263
32,060
16,344
0.66
0.34
0.63
0.33
$
$
$
$
$
$
$
$
$
$
$
$
$
$
2,359,239
2,094,393
301,427
219,575
209,349
130,353
143,560
86,273
139,874
82,724
2.87
1.70
2.82
1.68
23ANNUAL REPORT Fourth Quarter Highlights
CONSOLIDATED RESULTS FOURTH QUARTER
Key Performance Indicators and Selected Fourth Quarter
Information
($ in thousands, except per share)
2020
2019
2018
Sales
Same store sales % increase(2)
Food
General Merchandise
Total
Gross profit
Selling, operating and
$ 565,191
$
553,061
$ 532,483
12.0 %
39.8 %
16.8 %
1.5 %
(1.7) %
0.8 %
4.6 %
2.0 %
4.0 %
$ 187,873
$
169,154
$ 165,321
administrative expenses
(138,759)
(142,420)
(142,075)
EBITDA(1)
EBIT
Interest expense
Income taxes
Net earnings
Net earnings attributable to
shareholders of the
Company
Net earnings per share - basic
Net earnings per share -
diluted
71,410
49,114
(3,448)
(12,834)
32,832
32,060
0.66
50,433
26,734
(5,632)
(3,839)
17,263
16,344
0.34
44,290
23,246
(5,328)
(3,953)
13,965
13,068
0.27
$
0.63
$
0.33
$
0.27
(1) See Non-GAAP Financial Measures section.
(2) All references to same store sales exclude the foreign exchange impact.
Consolidated Fourth Quarter Sales Sales for the quarter increased
2.2% to $565.2 million as strong same store sales gains were largely
offset by lower sales in Giant Tiger stores related to the previously
announced sale of 36 stores which was completed on July 5, 2020
and the closure of five stores in the third quarter (the "Giant Tiger
Transaction"). Further information on the Giant Tiger Transaction is
provided in the annual Consolidated Results section on page 11 and
in Note 24 to the consolidated financial statements. Excluding the
foreign exchange impact, consolidated sales increased 2.4% and
were up 16.8%(2) on a same store basis. Food sales(2) increased 4.4%
and were up 12.0% on a same store basis and general merchandise
sale(2) decreased 4.7% due to the Giant Tiger Transaction but were up
39.8% on a same store basis. Similar to the first three quarters of the
year, sales were driven by market share gains and COVID-19-related
factors
in-
community and at-home activities, supported by enhanced
government income support payments to individuals in many of the
jurisdictions in which the Company operates. Lower food prices in
northern Canada stores and strong
in-stock conditions also
contributed to capturing a higher share of consumer spending.
including consumer spending changes
in favor of
Gross Profit Gross profit increased 11.1% driven by sales gains and a
266 basis point rate increase compared to last year. The increase in
gross profit rate was primarily due to favourable changes in product
sales blend and higher inventory turns contributing to lower
markdowns and inventory shrinkage. These factors were partially
offset by a higher blend of CUL sales which carry a lower gross profit
rate consistent with CUL's discount warehouse format and the
impact of lower margin wholesale food sales as part of the Giant
Tiger Transaction.
Selling, Operating and Administrative Expenses Selling,
operating and administrative expenses ("Expenses") decreased $3.7
million compared to last year and were down 120 basis points as a
percentage to sales. The decrease in Expenses related to the Giant
Tiger Transaction and lower Canadian administration costs was
largely offset by an increase in annual incentive plan costs, the
impact of COVID-19-related expenses and higher share-based
compensation costs. COVID-19-related expenses of $5.8 million
include $3.5 million in wage premiums and a special one-time
payment of 5% of wages to non-bonus eligible front-line
in
recognition of their contributions to serving our customers and $2.3
million in other COVID-19-related expenses primarily related to
temporary workers to provide additional support during outbreaks,
the purchase of protective equipment and enhanced sanitation
procedures. A $2.7 million increase in share-based compensation
costs primarily due to mark-to-market adjustments resulting from
changes in the Company's share price was also a factor. These factors
were partially offset by insurance-related gains of $5.3 million this
year compared to $3.2 million last year.
interest,
Earnings from operations and EBITDA(1) Earnings from operations
or earnings before interest and taxes ("EBIT") increased $22.4 million
to $49.1 million compared to $26.7 million last year and earnings
before
income taxes, depreciation and amortization
("EBITDA(1)") increased $21.0 million to $71.4 million due to the sales,
gross profit and Expense factors previously noted. Adjusted EBITDA(1),
which excludes share-based compensation costs and insurance-
related gains, increased $21.6 million compared to last year and as a
percentage to sales was 12.2% compared to 8.6%.
Interest Expense Interest expense decreased 38.8% to $3.4 million
compared to $5.6 million last year. The decrease in interest expense
is mainly due to lower average debt levels related to a reduction in
amounts drawn on revolving loan facilities. Further information on
debt is provided in Note 12 to the consolidated financial statements.
Lower costs of borrowing were also a factor.
Income Tax Expense Income tax expense was $12.8 million
compared to $3.8 million last year and the consolidated effective tax
rate was 28.1% compared to 18.2%. The increase in income tax
expense is due to higher earnings and a higher effective tax rate. The
increase in the income tax rate was primarily due to the blend of
earnings
rate
impact of non-tax deductible share-based
jurisdictions. The
compensation costs in Canadian Operations was also a factor.
International Operations across various tax
in
Net Earnings Consolidated net earnings increased $15.6 million to
$32.8 million. Net earnings attributable to shareholders were $32.1
million and diluted earnings per share were $0.63 per share
compared to $0.33 per share last year due to the factors noted
above. Adjusted net earnings(1), which excludes the impact of the
after-tax share-based compensation costs and after-tax insurance-
related gains, increased $15.3 million compared to last year driven by
earnings gains in Canadian Operations and International Operations
resulting from the factors previously noted.
24THE NORTH WEST COMPANY INC. 2020 CANADIAN OPERATIONS FOURTH QUARTER
Canadian Operations results for the fourth quarter are summarized
by the following key performance indicators:
Key Performance Indicators
($ in thousands)
Sales
2020
2019
2018
$ 328,429
$ 333,213
$ 324,348
Same store sales % increase
Food
General Merchandise
Total
EBITDA (1)
EBIT
15.7 %
41.6 %
21.2 %
1.6 %
(2.0) %
0.7 %
1.5 %
1.9 %
1.6 %
$
$
53,391
38,444
$ 34,401
$ 28,839
$ 17,642
$ 13,858
(1) See Non-GAAP Financial Measures section.
Sales Canadian Operations sales decreased 1.4% to $328.4 million
compared to $333.2 million in the fourth quarter last year as strong
same store sales gains were more than offset by divested stores as a
result of the Giant Tiger Transaction. Same store sales increased
21.2% driven by market share gains and COVID-19-related consumer
spending changes combined with various income support programs
for
individuals. These factors were partially offset by periodic
COVID-19-related community curfews and store closures. Food sales
increased 2.4% and were up 15.7% on a same store basis due to the
factors previously noted. General merchandise sales decreased 13.9%
from the fourth quarter last year due to the Giant Tiger Transaction
but were up 41.6% on a same store basis led by strong sales gains in
motorized, home furnishings and electronics categories.
Gross Profit Gross profit increased 12.1% driven by sales gains and a
higher gross profit rate. The change in gross profit rate is primarily
due to changes in product sales blend and lower markdowns and
inventory shrinkage due to improved sell-through. A higher gross
profit rate in North Star Air ("NSA") and the impact of lower sales in
Giant Tiger stores which have a
lower gross profit structure
consistent with a discount format were also factors. These factors
were partially offset by food price reductions in northern Canada
aimed at capturing more local spending dollars and the impact of
lower margin wholesale food sales as part of the Giant Tiger
Transaction.
Selling, Operating and Administrative Expenses Selling,
operating and administrative expenses ("Expenses") decreased 8.3%
and were down 191 basis points as a percentage to sales compared
to the fourth quarter last year due to the impact of three-months less
operations as a result of the Giant Tiger Transaction, savings from the
Winnipeg support office cost reductions announced in the first
quarter and the impact of a $5.3 million insurance-related gain this
year compared to a $3.2 million insurance-related gain last year.
These factors were partially offset by higher annual incentive plan
costs, COVID-19-related wage premiums and payments to non-
bonus eligible front-line and support office employees and a $2.1
million increase in share-based compensation costs.
from operations
Canadian Earnings from Operations (EBIT) Canadian fourth
quarter earnings
increased to $38.4 million
compared to $17.6 million last year and EBITDA(1) increased 55.2% to
$53.4 million compared to $34.4 million in the same quarter last year
due to the sales, gross profit and Expense factors previously noted.
Adjusted EBITDA(1), which excludes the impact of the share-based
compensation costs and insurance-related gains, increased $19.0
million compared to last year driven by sales gains in northern
Canada, improved earnings in NSA and the impact of the Giant Tiger
Transaction. NSA EBITDA(1) increased compared to last year as higher
cargo volumes and better aircraft utilization more than offset the
negative impact of lower passenger-related earnings, net of $2.3
million in Canada Emergency Wage Subsidy ("CEWS") payments and
Ontario Remote Air Carrier Support Program ("RACSP") payments.
INTERNATIONAL OPERATIONS
FOURTH QUARTER
(Stated in U.S. dollars)
International Operations
summarized by the following key performance indicators:
results
the
for
fourth quarter are
Key Performance Indicators
($ in thousands)
Sales
2020
2019
2018
$ 183,929
$ 167,002
$ 156,159
Same store sales % increase
Food
General Merchandise
Total
EBITDA(1)
EBIT
7.5 %
35.2 %
10.7 %
1.3 %
(0.4) %
1.1 %
9.9 %
2.2 %
9.0 %
$
$
14,199
$ 12,212
$ 11,415
8,492
$
6,939
$ 6,878
(1) See Non-GAAP Financial Measures section.
Sales International Operations fourth quarter sales increased 10.1%
to $183.9 million compared to $167.0 million in the fourth quarter
last year driven by same store sales growth of 10.7%. Food sales
increased 7.4% and were up 7.5% on a same store basis and general
merchandise sales increased 34.2% and were up 35.2% on a same
store basis. Sales were positively impacted by COVID-19-related
consumer spending changes and government income support
payments within the United States, including U.S. Territories served
by CUL. Strong in-stock conditions and market share gains were also
factors. These factors were partially offset by periodic government-
mandated COVID-19-related
store closures across different
Caribbean countries and weak economies in the British Virgin Islands,
Curacao and St. Maarten.
Gross Profit Gross profit increased 11.7% compared to the fourth
quarter last year driven by sales gains and an increase in the gross
profit rate. The higher gross profit rate is due to changes in product
sales blend and lower markdowns and inventory shrinkage due to
improved sell-through. These factors were partially offset by a higher
blend of Cost-U-Less sales which have a lower gross profit rate
consistent with a discount warehouse format.
Selling, Operating and Administrative Expenses Selling,
operating and administrative expenses ("Expenses") increased 9.8%
compared to last year primarily due to higher annual incentive plan
costs, COVID-19-related expenses and an increase in insurance costs.
These factors were partially offset by $0.9 million in support office
restructuring and relocation costs last year.
25ANNUAL REPORT
Earnings From Operations ("EBIT") and EBITDA(1) Earnings from
operations were $8.5 million compared to $6.9 million in the fourth
quarter last year and EBITDA(1) increased to $14.2 million compared
to $12.2 million last year due to the sales, gross profit and Expense
factors previously noted.
CONSOLIDATED CASH FLOWS
FOURTH QUARTER
Cash from Operating Activities Cash flow from operating
activities
increased $58.3 million or 120.7% to $106.7 million
compared to the fourth quarter of 2019 due to a $20.3 million
increase in cash earnings to $64.0 million and the change in non-
cash working capital and other non-cash items.
The change in non-cash working capital is primarily due to the
change in inventories, accounts receivable and trade accounts
payable and accrued liabilities compared to the prior year. The
change in other non-cash items is largely due to changes in accrued
share-based compensation and defined benefit pension obligation.
The following table summarizes the major components of the fourth
quarter cash flow:
Cash Used in Investing Activities
($ in thousands)
Operating activities
Investing activities
Financing activities
Effect of foreign exchange
Net change in cash
Cash, beginning of period
2020
2019
2018
$ 106,660
$ 48,320
$ 55,029
(11,904)
(81,765)
(1,167)
11,824
59,712
(19,218)
(53,035)
125
(23,808)
51,995
(13,337)
(58,934)
(256)
(17,498)
55,946
Cash, end of year
$ 71,536
$ 28,187
$ 38,448
Cash From Operating Activities
The following table summarizes the major components of the cash
flow from operating activities in the fourth quarter:
($ in thousands)
2020
2019
2018
Net earnings for the period
$ 32,832
$ 17,263
$ 13,965
Adjustments for:
Amortization
22,296
Provision for income taxes
12,834
Interest expense
Equity settled share-based
compensation
Insurance proceeds,
property and equipment
Taxes paid
3,448
1,545
(5,306)
(4,223)
23,699
3,839
5,632
21,044
3,953
5,328
1,251
1,029
(2,276)
(5,327)
—
(8,996)
The following table summarizes the major components of the cash
flow used in investing activities in the fourth quarter:
($ in thousands)
2020
2019
2018
Purchase of property and
equipment
Intangible asset additions
Proceeds from disposal of
property and equipment
Insurance proceeds, property
and equipment
$ (18,180)
$ (26,563)
$ (28,903)
226
744
(4,430)
(1,279)
661
1,286
5,306
11,114
15,559
Cash used in investing activities $ (11,904)
$ (19,218)
$ (13,337)
Cash Used in Investing Activities Net cash used in the fourth
quarter for investing activities was $11.9 million compared to $19.2
million in 2019 and $13.3 million in 2018. Net investing activities
include insurance proceeds of $5.3 million in 2020 compared to
$11.1 million in 2019 and $15.6 million in 2018. Investing activities in
the quarter include the completion of a new store in Pelican
Narrows, Saskatchewan and investments in property and equipment
for stores and staff housing. The decrease in investing activities
compared to 2019 is mainly due to the impact of COVID-19 travel
restrictions.
Loss/(gain) on disposal of
property and equipment
Operating activities before
change in non-cash working
capital and other
Change in non-cash working
capital
596
(357)
(395)
64,022
43,724
35,928
Change in other non-cash items
5,520
37,118
5,379
(783)
19,359
(258)
Cash from operating activities
$ 106,660
$ 48,320
$ 55,029
26THE NORTH WEST COMPANY INC. 2020
Cash Used in Financing Activities
The following table summarizes the major components of the cash
flow used in financing activities in the fourth quarter:
($ in thousands)
2020
2019
2018
Net decrease in long-term debt $ (49,781)
$ (22,135)
$ (28,262)
Payment of lease liabilities,
principal
Payment of lease liabilities,
interest
Dividends
Dividends to non-controlling
interests
Interest paid
Common shares purchased and
cancelled
(4,496)
(6,178)
(5,920)
(1,088)
(17,528)
(2,214)
(644)
(1,396)
(16,089)
(3,427)
(3,810)
(1,438)
(15,587)
(3,761)
(3,966)
(6,014)
—
—
Cash used in financing activities $ (81,765)
$ (53,035)
$ (58,934)
Cash Used in Financing Activities Cash used in the fourth quarter
for financing activities increased to $81.8 million compared to cash
used of $53.0 million in 2019 and $58.9 million in 2018. The change
compared to the fourth quarter last year is primarily due to a
decrease in long-term debt of $49.8 million compared to a decrease
of $22.1 million last year. In addition, there was $6.0 million in shares
purchased under the normal course issuer bid initiated in the quarter
which contributed to the increase in cash used in financing activities.
These factors were partially offset by a $3.2 million decrease in
interest payments compared to the prior year.
CEO TRANSITION
On April 7, 2021, the Board of Directors announced that Edward
Kennedy, President & CEO will be retiring effective August 1, 2021
after 30 years at North West of which 25 years were as President &
CEO. Following a
robust succession planning process, Dan
McConnell will be appointed President & CEO effective August 1,
2021. Mr. McConnell has been with North West for 19 years with a
range of senior executive responsibilities, most recently as President,
International Retail.
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, 2021.
INTERNAL CONTROLS OVER
FINANCIAL REPORTING
financial statements
for external purposes
Management is also responsible for establishing and maintaining
internal controls over financial reporting to provide reasonable
assurance regarding the reliability of financial reporting and the
preparation of
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
financial
reporting using the
Integrated Framework
Internal Control -
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, 2021. There have been no changes in the internal
controls over financial reporting for the year ended January 31, 2021
that have materially affected or are reasonably likely to materially
affect the internal controls over financial reporting.
internal controls over
OUTLOOK
The Company's near-term consumer outlook
remains highly
influenced by the COVID-19 pandemic. While the Company foresees
revenue to remain above average through the duration of COVID-19
based on its role as an essential service and an ongoing shift in
consumer spending in favour of the Company's product and service
offering, there is downside risk to this outlook related to increased
outbreaks of COVID-19, the timing of broad vaccine distribution and
economic challenges within tourism-dependent countries which do
not have strong government income support programs such as the
British Virgin Islands and St. Maarten. The Company is monitoring the
COVID-19 situation on a daily basis and adjusting people practices as
appropriate, as well as product sourcing and distribution
requirements. As a relied-upon provider of everyday needs to many
remote communities, the Company is committed to ensuring
continuity of service throughout this challenging period.
The impact of the Giant Tiger Transaction and transition to
reduced COVID-19 risk conditions is expected to result in lower sales
compared to last year. On an annualized basis, the Giant Tiger
Transaction is expected to result in lower sales, net of wholesale food
sales to the sold Giant Tiger stores, of approximately $200.0 million
but have a positive
impact on earnings from operations of
approximately $10.0 million. The timing and size of the sales impact
of lower COVID-19 transmission and health risk conditions is much
more difficult to estimate. Based on the current vaccine and variant
situation, combined with the Company’s initiatives to retain market
share gains from 2020, it is expected that earnings in 2021 will be
meaningfully above pre-pandemic (2019) levels but likely below
2020.
27ANNUAL REPORT focus, augmented by opportunistic
Beyond the duration of COVID-19’s material impact, positive
and negative, on the Company’s business, the medium and longer-
term outlook for the Company is favourable based on our lower
pricing and cost positions, our emphasis on decentralized execution
capability, the resiliency of our everyday essential product and
service
investments, and
customer
reinforced during COVID-19. Northern
Canada's outlook in particular, is buoyed by different forms of
ongoing government income support payments for individuals and
investment in Indigenous communities and the northern economy
in general. Even with the economic uncertainty in the Caribbean, the
Company believes there will be opportunities to grow market share
organically and through acquisitions.
relationships
In 2020, the Company recorded after-tax insurance related
gains of $4.5 million compared to $13.9 million in 2019. The
settlement of 2018 fire insurance claims and the receipt of payments
are expected to result in further insurance-related earnings gains in
2021 however, the amount and timing of these gains is uncertain.
Global insurance market conditions are becoming more challenging
as insurance companies are limiting their capacity for underwriting
risks in certain geographic areas such as the Caribbean and northern
Canada or in sectors such as the aviation industry. These factors are
expected to continue to result in higher insurance costs; and,
changes
in greater
earnings volatility in the event of future losses. To help mitigate
future losses, the Company has completed resiliency upgrades to
facilities and enhanced preventative measures in all higher risk areas
of its business as well as containing increasing insurance costs
through higher self-insured retention levels.
in self-insured retention
levels may result
In 2020, the Company recorded a $24.7 million deferred tax
liability on earnings in Canadian Operations based on the year-end
of the limited partnership. The payment of taxes on these earnings
will occur over the next 14 months. In addition, the Company
expects that its Canadian monthly income tax installments will
increase in 2021 based on its taxable income in 2020. These income
tax payments will reduce cash flow from operating activities in 2021.
In 2021, the Company expects that capital expenditures will be
in the $75 million range (2020 - $66.9 million), net of expected
recoveries on the settlement of fire insurance claims, with upside for
further growth investments. On the downside, the timing and
amount of store-based capital expenditures will continue to be
impacted by COVID-19-related travel restrictions in at least the first
half of 2021, in addition to other delays that can occur with remote
location capital projects.
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
identifying,
("ERM") program which assists
evaluating and managing risks that may reasonably have an impact
on the Company. Management is accountable for completing an
annual ERM assessment to evaluate risks and the potential impact
that the risks may have on the Company's financial performance and
ability to execute its strategies and achieve its objectives. The results
of this annual assessment and quarterly updates are presented to the
Audit Committee and reported to the Board of Directors. The
principle risks, including environmental and climate-related risks, and
the
the
Company's strategic planning process.
related mitigation strategies are
incorporated
into
in
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 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. 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.
On March 11, 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 have enacted emergency
measures to both combat the spread of the virus and stabilize
economic conditions. Most of the Company's products and services
are considered to be essential by the applicable government
authorities. As such, the Company's focus is on business continuity
and safety plans to help mitigate the health impact of COVID-19 on
employees and customers. This includes the implementation of
physical spacing, including the installation of plexiglass barriers at
checkouts, and enhanced sanitation protocols in stores, distribution
28THE NORTH WEST COMPANY INC. 2020
centers and support offices. The Company is also continuing to work
closely with governments, suppliers and communities to help ensure
the uninterrupted flow of merchandise and continuous operation of
our stores. COVID-19 is a rapidly changing situation and the
Company continues to adjust and adapt its operations as required
and has
increased communications with our customers and
community leaders to help understand their expectations and
protocols.
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,
including a cross-functional
steering committee who are
accountable for monitoring the impact of COVID-19 and mitigating
the risk posed to employees, customers and the business however,
there can be no assurance that these plans and protocols will be
sufficient to minimize the impact.
The future impact of COVID-19 is uncertain and the Company is
not able to reliably forecast the severity and duration of the impact
on the economy, the financial markets, the availability of capital and
on the Company's employees, customers, and suppliers, including
the possible temporary closure of stores or interruptions to the
Company's supply chain. Although the Company foresees continued
demand for the products and services it provides 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 an adverse impact on the Company's operations and financial
condition. Further information on the potential impact of COVID-19
is provided in the Outlook section.
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
In addition to
reflects the
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 as described in the strategy section under Initiative #2.
importance of mitigating this risk.
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 are being phased in from December 2020 to
December 2022 based on the type of aircraft.
These regulations may result in an increase in the number of
pilots required by NSA which may result in higher recruitment and
compensation costs and have a negative impact on the Company's
financial performance. NSA is continuing to assess the impact of the
new regulations on the business. Changes to flight schedules,
operating schedules, fatigue 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.
Business Model The Company sells a broad range of products and
services across geographically and culturally diverse markets.
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
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.
increase
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
initiatives that promote positive
these environments through
community and customer relations. These
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 34. To the extent the Company
is not successful
in maintaining these relations or
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.
is unable to renew
include store
is
The Company
the process of completing
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.
in
the
implementation of new point-of-sale and merchandise management
systems which are described further in the strategy section under
Initiative #5, Project Enterprise. In 2021, the Company will be
in
the merchandise management
implementing
International Operations as part of Project Enterprise. The failure to
successfully upgrade legacy systems, or to migrate from legacy
systems to 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
system
29ANNUAL REPORT 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.
The Company relies on the
Cyber-security
integrity and
continuous availability of its IT systems. In the ordinary course of
business, the Company collects, processes, transmits and retains
confidential and personal information (collectively "Confidential
Information") regarding the Company and its customers, employees
and suppliers. The Company's IT systems are exposed to the risks of
“cyber-attack”, including viruses that can disrupt, 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
frequent and
constantly evolving and are becoming more
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 owns an airline, North Star Air Ltd.,
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 $349 million and assets of $153
million for the year-ended January 31, 2021. 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 has significantly increased resiliency to future
hurricanes, however, certain markets remain exposed to this risk.
The Company 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 $779 million and assets of $302 million for the
year ended January 31, 2021. 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
impact of changing permafrost conditions and
mitigate the
minimize damage to the permafrost.
30THE NORTH WEST COMPANY INC. 2020
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 utilization of the
Company's wholly-owned airline to transport merchandise to its
stores.
On the upside, global warming could result in higher economic
growth in the Company's northern markets and would reduce some
operating costs such as enabling the Company to use lower-cost
sealift year-round to transport merchandise to the Company's stores
compared to higher cost air transportation.
The Company's stores in northern Canada and Alaska are
exposed to the risk of wild fires and other fire related losses. In many
of the Company's remote northern markets, there is limited fire
fighting equipment and capability. In the event of a fire, there is a
high risk of a complete loss of the building, equipment and
inventory. In 2018, the Company had three fires in northern Canada
which destroyed one store and significantly damaged two other
stores. Two of the fires were caused by electrical malfunction and
one was arson-related. The Company was able to re-open the stores
with reduced selling square footage and a limited merchandise
assortment while reconstruction and repairs were being completed.
The Company completed an
fire
mitigation policies and procedures to identify opportunities to
improve fire prevention in its northern Canada stores and has
upgraded facilities to reduce the risk of fire-related losses.
independent review of
its
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
levels,
interest rates and foreign exchange rates.
disposable
Changes
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.
foreign exchange
rates and
inflation
income,
in
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.
infrastructure. This
A major source of employment income in the remote markets
where the Company operates is generated from local government
includes housing,
and spending on public
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
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.
in government
reduction
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
including
environmental
litigation and regulatory compliance costs, all of which could have
an adverse effect on the reputation and financial performance of the
Company.
remediation activities,
incidents and
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,
repatriation, health and safety, employment
duties, currency
standards and minimum wage laws, Payment Card Industry ("PCI")
standards, anti-money
licensing
requirements, product packaging and labeling regulations and
zoning laws. New accounting standards and pronouncements or
changes in accounting standards may also impact the Company's
laundering ("AML") regulations,
31ANNUAL REPORT
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
financial
performance.
the Company's
reputation and
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
In Canada, on-going
implemented.
reductions cannot be
prescription drug reform and changes in dispensing fees could have
an adverse effect on the Company's financial performance if other
fees or offsetting cost reductions cannot be implemented.
The airline industry is also subject to extensive legal, regulatory
and administrative controls and oversight, including airline safety
standards. Failure by the Company to comply with these laws,
regulations and standards could result in the loss of operating
licenses and could have an adverse effect on the Company's financial
performance and reputation.
Furthermore, changes in legislation, including carbon taxes and
the implementation of other greenhouse gas reduction initiatives
and regulations related to transitioning to a low-carbon and more
climate resilient future, could result in additional costs which could
have a negative impact on the Company's financial performance if
the Company is not able to fully pass on these additional costs to its
customers or
reductions and
identify other offsetting cost
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.
services
Food, Drug, Product and Service Safety The Company is exposed
to risks associated with food and drug 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
represent
consultation.
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.
Food
sales
and
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.
Social and political
Social
issues raise public awareness,
perspectives and actions through protests and/or media campaigns.
Issues that may relate to the Company’s business include, but are not
limited to food security, minimum wages, Indigenous rights, diversity
and inclusion, local and ethical sourcing, nutritional labelling and the
environment. Ineffective action or inaction on these matters could
adversely affect the Company’s reputation or financial performance.
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 or maintain its self-insured
retention levels. 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, such as a pandemic, 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.
32THE NORTH WEST COMPANY INC. 2020
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
financial
Company’s
condition.
from operations and
reputation,
results
Post-Employment Benefits The Company engages professional
investment advisors to manage the assets in the defined benefit
pension plans. The performance of the Company's pension plans
and the plan funding requirements are impacted by the returns on
plan assets, changes in the discount rate and regulatory funding
requirements. If capital market returns are below the level estimated
by management or if the discount rate used to value the liabilities of
the plans decreases, the Company may be required to make
contributions to its defined benefit pension plans in excess of those
currently contemplated, which may have an adverse effect on the
Company's financial performance.
The Company regularly monitors and assesses the performance
of the pension plan assets and the impact of changes in capital
markets, changes
in plan member demographics, and other
economic factors that may impact funding requirements, benefit
plan expenses and actuarial assumptions. The Company makes cash
contributions to the pension plan as required and also uses letters of
credit to satisfy a portion of its funding obligations. Effective January
1, 2011, the Company entered into an amended and restated staff
pension plan and added a defined contribution plan. Under the
amended pension plan, all members who did not meet a qualifying
threshold based on number of years in the pension plan and age
were transitioned to the defined contribution pension plan effective
January 1, 2011 and no longer accumulate years of service under the
defined benefit pension plan. Further
information on post-
employment benefits is provided on page 35 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
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.
located
is
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
investors and
employees, which in turn could have an adverse effect on the
financial performance of the Company.
its customers,
Financial Risks In the normal course of business, the Company is
exposed to financial risks that have the potential to negatively
impact its financial performance. The Company manages financial
risk with oversight provided by the Board of Directors, who also
approve specific financial transactions. The Company uses derivative
financial instruments only to hedge exposures arising in respect of
underlying business requirements and not for speculative purposes.
These risks and the actions taken to minimize the risks are described
below. Further information on the Company's financial instruments
and associated risks are provided in Note 15 to the consolidated
financial statements.
in relation to
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
individual and commercial accounts
receivable. The Company manages credit risk by performing regular
credit assessments of its customers and provides allowances for
potentially uncollectible accounts receivable. The Company does not
have any individual customer accounts greater than 10% of total
accounts receivable.
adequate
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
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, 2021,
the Company had undrawn committed revolving loan facilities
available of $400.3 million (January 31, 2020 - $189.8 million).
facilities
credit
to
33ANNUAL REPORT 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. At January 31, 2021, the Company had US$140.8 million in
U.S. denominated debt compared to US$99.7 million at January 31,
2020 and US$97.9 million at January 31, 2019. Further information on
the impact of foreign exchange rates on the translation of U.S.
denominated debt is provided in the Capital Structure section.
The Company is also exposed to currency risk relating to the
translation of International Operations earnings to Canadian dollars.
In 2020, the average exchange rate used to translate U.S.
denominated earnings from the International Operations was 1.3390
compared to 1.3246 last year. The Canadian dollar's depreciation in
2020 compared to the U.S. dollar in 2019 positively impacted
consolidated net earnings by $0.5 million. In 2019, the average
exchange rate was 1.3246 compared to 1.3041 in 2018 which
resulted in an increase in 2019 consolidated net earnings of $0.7
million compared to 2018.
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, 2021, the
Company had no outstanding interest rate swaps.
CORPORATE SOCIAL RESPONSIBILITY &
SUSTAINABLE DEVELOPMENT
The North West Company opened its first store in 1668 as a trading
post in the Cree Nation of Waskaganish in northern Canada and
many of our stores in northern Canada and Alaska have been in
operation for over 200 years. Our continuing presence in the
communities we serve is based on sustainable practices that reflect
our adaptability and respect for the social license and underlying
trust we must earn.
The Company'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 diverse communities we serve. We
believe that building strong, healthy and inclusive 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 inclusive 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 the
communities we serve.
in providing socio-economic benefits
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.
34THE NORTH WEST COMPANY INC. 2020 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 consolidated
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
these estimates and
under
assumptions
judgments by
management about matters that are uncertain and changes in these
estimates could materially
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:
the circumstances. Certain of
impact the consolidated
subjective or complex
require
losses
for expected credit
Valuation of Accounts Receivable The Company records an
allowance for doubtful accounts related to trade accounts receivable
that may potentially be impaired. The Company recognizes loss
("ECL's") on accounts
allowances
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
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.
for doubtful accounts recorded
Valuation of Inventories Inventories are stated at the lower of cost
and net realizable value. Significant estimation is required in: (1) the
determination of margin factors used to convert inventory to cost;
(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; and (3) estimating
inventory losses, or shrinkage, occurring between the last physical
count and the balance sheet date.
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
those estimated, both
inventories and cost of sales may be impacted.
losses experienced vary
from
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, 2021 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 2020 was 2.72% compared to 2.75% in 2019 and 3.75% in 2018.
Management assumed a rate of compensation increase of 4.0% for
fiscal 2018, 2019 and 2020.
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 statements of earnings.
Business Combinations The Company 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.
35ANNUAL REPORT
to
Impairment of Long-lived Assets The Company assesses the
recoverability of values assigned
long-lived assets after
considering potential impairment indicated by such factors as
business and market trends, future prospects, current market value
and other economic factors. Judgment is used to determine if a
triggering event has occurred requiring an impairment test to be
completed. If there is an indication of impairment, the recoverable
amount of the asset, which is the higher of its fair value less costs of
disposal and its value in use, is estimated in order to determine the
extent of the impairment loss. Where the asset does not generate
cash flows that are independent from other assets, the Company
estimates the recoverable amount of the cash-generating unit
("CGU") to which the asset belongs. For tangible and intangible
assets excluding goodwill, judgment is required to determine the
CGU based on the smallest group of assets that generates cash
inflows from continuing use that are largely independent of the cash
inflows of other assets or groups of assets. To the extent that the
carrying value exceeds the estimated recoverable amount, an
impairment charge is recognized in the consolidated statements of
earnings in the period in which it occurs.
Various assumptions and estimates are used to determine the
recoverable amount of a CGU. The Company determines fair value
less costs of disposal using estimates such as market rental rates for
comparable properties, property appraisals and capitalization rates.
The Company determines value in use based on estimates and
assumptions regarding future financial performance. The underlying
estimates for cash flows include estimates for future sales, gross
margin rates and store expenses, and are based upon the stores' past
and expected future performance. Changes which may impact
future cash flows include, but are not limited to, competition,
general economic conditions and increases in operating costs that
cannot be offset by other productivity improvements. To the extent
that management's estimates are not realized, future assessments
could result in impairment charges that may have a significant
impact on the Company's consolidated balance sheets and
consolidated statements of earnings.
Goodwill Goodwill is not amortized but is subject to an impairment
test annually or whenever indicators of impairment are detected.
Judgment is required to determine the appropriate grouping of
CGUs for the purpose of testing for impairment. Judgment is also
required in evaluating indicators of impairment which would require
an impairment test to be completed. Goodwill is allocated to CGUs
that are expected to benefit from the synergies of the related
business combination and represents the lowest level within the
Company at which goodwill is monitored for internal management
purposes, which is both the Company's Canadian Operations and
International Operations segments before aggregation.
The value of the goodwill was tested by means of comparing
the recoverable amount of the operating segment to its carrying
value. The recoverable amount is the greater of its value in use or its
fair value less costs of disposal. The operating segment's recoverable
amount was based on fair value less costs of disposal. A range of fair
values was estimated by inferring enterprise values from the product
of financial performance and comparable trading multiples. Values
assigned to the key assumptions represent management's best
estimates and have been based on data from both external and
internal sources. Key assumptions used
in the estimation of
enterprise value include: budgeted financial performance, selection
of market trading multiples and costs to sell. To the extent that
management's estimates are not realized, future assessments could
result in impairment charges that may have a significant impact on
the Company's consolidated balance sheets and consolidated
statements of earnings.
The Company performed the annual goodwill impairment test
in 2020 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.
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.
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.
The
Promissory Note Receivable This
includes
management's estimate of the fair value of contingent consideration
receivable for the sale of
Additional
information on the promissory note receivable is included in Notes
15 and 24 to the consolidated financial statements.
its Giant Tiger stores.
financial asset
COVID-19 The COVID-19 pandemic has resulted
in material
disruption to business globally and significant economic uncertainty.
In response, governments worldwide have enacted emergency
measures to both combat the spread of the virus and stabilize
economic conditions. The COVID-19 economic environment in
which we operate is uncertain and subject to volatility. The
Company is unable 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,
its
estimates, assumptions and judgments.
including
FUTURE ACCOUNTING STANDARDS
There are no 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. 2020
NON-GAAP FINANCIAL MEASURES
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.
(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.
Reconciliation of consolidated net earnings to EBITDA and adjusted EBITDA
($ in thousands)
Net earnings
Add:
Amortization
Interest expense
Income taxes
EBITDA
Gain on partial insurance settlement
Share-based compensation expense
Gain on disposition of Giant Tiger stores
Giant Tiger asset impairment and store closure provision
Fourth Quarter
Year-to-Date
2020
2019
2020
2019
$
32,832
$
17,263
$
143,560
$
86,273
22,296
3,448
12,834
23,699
5,632
3,839
92,078
16,808
48,981
89,222
20,948
23,132
$
71,410
$
50,433
$
301,427
$
219,575
(5,306)
2,871
—
—
(3,205)
190
—
—
(5,306)
22,495
(24,712)
9,411
(18,170)
3,550
—
—
Adjusted EBITDA
$
68,975
$
47,418
$
303,315
$
204,955
For EBITDA information by business segment, see Note 4 to the consolidated financial statements.
Reconciliation of consolidated net earnings to adjusted net earnings:
($ in thousands)
Net earnings
Gain on partial insurance settlement, net of tax
Share-based compensation expense, net of tax
Gain on disposition of Giant Tiger stores, net of tax
Giant Tiger asset impairment and store closure provision, net of tax
Fourth Quarter
Year-to-Date
2020
2019
2020
2019
$
32,832
$
17,263
$
143,560
$
86,273
(4,460)
2,106
—
—
(2,340)
305
—
—
(4,460)
18,855
(19,991)
6,874
(13,887)
2,991
—
—
Adjusted Net Earnings
$
30,478
$
15,228
$
144,838
$
75,377
The Company recorded gains on fire, hurricane and aircraft 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
consolidated financial statements.
Further information on the gain on the disposition of Giant Tiger stores and the Giant Tiger asset impairment and store closure expense is
provided in the Canadian Operations section and in Note 24 to the consolidated financial statements.
37ANNUAL REPORT (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
Net Assets Employed
2020
2019
$ 1,191.2
$ 1,215.5
(685.9)
402.0
(788.6)
550.1
$ 907.3
$
977.0
(3) Return on Average Equity (ROE) is not a recognized measure
under IFRS. Management believes that ROE is a useful measure to
evaluate
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.
the amount
return on
financial
the
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.
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.
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.
Hedge A risk management technique used to manage interest rate,
foreign currency exchange or other exposures arising from business
transactions.
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.
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.
38THE NORTH WEST COMPANY INC. 2020
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
2020
2019
2018
2017
2016
2015
Year-ended
January 31, 2021
January 31, 2020
January 31, 2019
January 31, 2018
January 31, 2017
January 31, 2016
Fiscal
Year
2014
2013
2012
2011
2010
2009
Year-ended
January 31, 2015
January 31, 2014
January 31, 2013
January 31, 2012
January 31, 2011
January 31, 2010
39ANNUAL REPORT Eleven-Year Financial Summary
Fiscal Year ($ in thousands )
Consolidated Statements of Earnings
Sales - Canadian Operations
Sales - International Operations
Sales - Total
EBITDA(2) - Canadian Operations
EBITDA(2) - International Operations
EBITDA(2) - 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
Promissory note receivable
Other assets, intangible assets and goodwill
Deferred tax assets
Current liabilities
Long-term debt and other liabilities
Total Equity
Consolidated Dollar Per Share/Unit ($)(4)
Net earnings - basic
Net earnings - diluted
EBITDA(2),(3)
Cash flow from operating activities(3)
Dividends/distributions paid during the year(3)
Equity (basic shares/units outstanding end of year)
Market price at January 31
Statistics at Year End(4)
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(2) (%)
Earnings from operations (EBIT) (%)
Total return on net assets(2) (%)
Return on average equity(2) (%)
Debt-to-equity
Dividends/distributions as % of cash flow from operating activities
Inventory turnover (times per year)
2020
2019
2018(1)
2017(1)
2016
$ 1,376,188
983,051
2,359,239
206,498
94,929
301,427
62,357
29,721
92,078
16,808
48,981
139,874
338,718
67,276
75,244
43,349
$ 396,860
531,794
107,766
49,020
98,440
7,288
315,135
370,802
505,231
$
$
$
2.87
2.82
6.18
6.95
1.38
10.39
32.37
159
53
986
667
1,057
1,479
4,735
2,204
48,758
48,613
60,827
12.8
8.9
22.4
30.7
.56:1
19.9
7.1
$ 1,271,552 $ 1,246,133 $ 1,199,473 $ 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)
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)
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)
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
$
$
$
$
399,593 $ 376,297 $ 335,003 $ 327,938
358,121
555,075
—
127,870
—
—
86,909
104,765
32,853
28,233
152,244
194,084
285,792
594,482
367,785
426,970
514,946
127,794
—
96,119
34,705
196,938
541,907
411,016
469,993
—
—
91,502
34,450
171,212
377,580
382,156
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
1.78 $
1.77
4.47
3.19
1.28
8.43
31.17
1.38 $
1.36
3.48
2.91
1.28
7.60
29.14
193
52
1,571
669
798 $
1,148 $
5,672
2,253
48,697
48,751
46,269
188
51
1,552
668
781 $
1,169 $
5,915
2,119
48,680
48,690
38,836
10.5
6.2
13.5
20.5
.96:1
39.9
5.8
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
1.59
1.57
3.43
2.60
1.24
7.57
29.28
185
47
1,518
676
755
1,063
5,715
1,882
48,524
48,542
49,189
9.0
6.4
20.1
21.8
.62:1
47.7
6.1
(1)
IFRS 16 - Leases was applied retrospectively with restatement of certain prior year figures as
described in Accounting Standard Changes Implemented in 2019 as disclosed in the 2019 Annual
Report. 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.
(2) See Non-GAAP Financial Measures on page 37.
40THE NORTH WEST COMPANY INC. 2020 2015
2014
2013
2012
2011
2010
Fiscal Year ($ in thousands )
$ 1,089,898 $ 1,042,168 $ 1,022,985 $ 1,043,050 $ 1,028,396 $ 978,662
469,442
706,137
1,448,104
1,796,035
98,781
98,276
53,071
26,983
125,764
151,347
27,511
31,781
7,981
12,245
35,492
44,026
6,077
6,210
14,539
31,332
69,779
69,656
114,564
132,987
68,700
58,210
37,814
75,983
3,953
8,114
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)
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
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)
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
$ 335,581 $ 315,840 $ 299,071 $ 303,896 $ 295,836 $ 284,789
259,583
345,881
—
—
—
—
55,199
83,293
29,040
17,017
185,377
155,501
144,736
280,682
286,475
357,612
311,692
—
—
68,693
28,074
146,275
248,741
329,283
274,027
—
—
60,567
12,904
190,184
164,960
296,250
286,875
—
—
64,969
19,597
209,738
138,334
322,440
270,370
—
—
53,289
7,422
128,002
215,206
283,709
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
$
$
$
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
1.30 $
1.29
2.85
2.38
1.16
6.80
26.56
178
47
1,422
676
742 $
849 $
1.33 $
1.32
2.86
1.64
1.12
6.66
25.42
178
48
1,386
696
741 $
767 $
4,921
1,726
48,432
48,497
24,080
4,839
1,853
48,413
48,426
17,623
8.4
6.0
19.5
20.6
.63:1
43.8
6.2
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
1.32 $
1.32
2.76
2.67
1.04
6.12
23.14
177
46
1,375
660
734 $
716 $
1.20 $
1.19
2.60
2.39
1.05
5.86
19.40
183
46
1,466
655
702 $
713 $
4,768
1,568
48,384
48,389
17,831
8.8
6.4
20.6
22.1
.55:1
39.0
5.8
5,233
1,668
48,378
48,378
22,418
8.4
6.0
18.5
20.1
.62:1
44.0
5.7
(3) Based on average basic shares/units outstanding.
Consolidated Statements of Earnings
Sales - Canadian Operations
Sales - International Operations
Sales - Total
EBITDA(2) - Canadian Operations
EBITDA(2) - International Operations
EBITDA(2) - 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
Promissory note receivable
Other assets, intangible assets and goodwill
Deferred tax assets
Current liabilities
Long-term debt and other liabilities
Total equity
Consolidated Dollar Per Share/Unit ($)(4)
Net earnings - basic
Net earnings - diluted
EBITDA(2),(3)
Cash flow from operating activities(3)
Dividends/distributions paid during the year(3)
Equity (basic shares/units outstanding at end of year)
Market price at January 31
Statistics at Year End(4)
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(2) (%)
8.7
Earnings from operations (EBIT) (%)
6.2
Total return on net assets(2) (%)
17.9
Return on average equity(2) (%)
24.1
.67:1
Debt-to-equity
60.0 Dividends/distributions as % of cash flow from operating activities
Inventory turnover (times per year)
5.6
(4) 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.
41ANNUAL REPORT
Management’s Responsibility for Financial Statements
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.
April 7, 2021
John D. King, CPA, CA, CMA
EXECUTIVE VICE-PRESIDENT &
CHIEF FINANCIAL OFFICER
THE NORTH WEST COMPANY INC.
42THE NORTH WEST COMPANY INC. 2020
Independent auditor’s report
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, 2021 and 2020, and its financial performance and its cash flows for the years then ended in
accordance with International Financial Reporting Standards as issued by the International Accounting
Standards Board (IFRS).
What we have audited
The Company’s consolidated financial statements comprise:
the consolidated balance sheets as at January 31, 2021 and 2020;
the consolidated statements of earnings for the years then ended;
the consolidated statements of comprehensive income for the years then ended;
the consolidated statements of changes in shareholders’ equity for the years then ended;
the consolidated statements of cash flows for the years then ended; and
the notes to the consolidated financial statements, which include significant accounting policies and
other explanatory information.
Basis for opinion
We conducted our audit in accordance with Canadian generally accepted auditing standards. Our
responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of
the consolidated financial statements section of our report.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for
our opinion.
Independence
We are independent of the Company in accordance with the ethical requirements that are relevant to our
audit of the consolidated financial statements in Canada. We have fulfilled our other ethical responsibilities
in accordance with these requirements.
PricewaterhouseCoopers LLP
One Lombard Place, Suite 2300, Winnipeg, Manitoba, Canada R3B 0X6
T: +1 204 926 2400, F: +1 204 944 1020
“PwC” refers to PricewaterhouseCoopers LLP, an Ontario limited liability partnership.
43CONSOLIDATED FINANCIAL STATEMENTS Key audit matters
Key audit matters are those matters that, in our professional judgment, were of most significance in our
audit of the consolidated financial statements for the year ended January 31, 2021. These matters were
addressed in the context of our audit of the consolidated financial statements as a whole, and in forming
our opinion thereon, and we do not provide a separate opinion on these matters.
Key audit matter
How our audit addressed the key audit matter
Inventories
Refer to note 3 - Significant accounting policies and
note 6 - Inventories to the consolidated financial
statements.
As at January 31, 2021, the Company held inventories
of $227 million at warehouses and stores. 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 using the
retail method of accounting for general merchandise
inventories and the weighted-average cost method for
food inventories. Net realizable value is estimated
based on the amount at which inventories are
expected to be sold, taking into consideration
decreases in retail prices due to obsolescence,
damage or seasonality.
Valuing inventories requires management to use
judgment and estimates related to the determination
of margin factors used to convert inventory to cost and
future retail sales prices and reductions, inventory
losses or shrinkage during periods between the last
physical inventory count and the balance sheet date.
We considered this a key audit matter due to the
magnitude of the inventories balance, the judgment by
management in determining the value of inventories,
and the audit effort involved in testing the inventories
balance at year-end.
Our approach to addressing the matter included the
following procedures, among others:
● Tested the operating effectiveness of relevant
controls relating to the inventory valuation process,
including management's estimate of the inventory
provision.
● Tested the operating effectiveness of relevant
controls relating to the physical inventory count
process and observed the physical inventory count
process for a sample of stores and warehouses
during the year and performed independent test
counts.
● For a sample of inventory items at year-end, tested
the underlying data to purchase invoices.
● For a sample of general merchandise inventory
items valued using the retail method of accounting
at year-end, tested the underlying data to most
recent retail selling prices.
● For a sample of general merchandise inventory
items valued using the retail method of accounting
at year-end, tested the underlying data used by
management and evaluated the reasonableness of
the margin factors applied to convert inventories to
cost.
● Tested that inventories at year-end were recorded
at the lower of cost and net realizable value by
comparing a sample of inventory items to the most
recent retail selling prices of the inventory items.
● Tested that inventories at year-end were recorded
in the correct period by comparing a sample of
inventory purchases before and after year-end to
receiving documents and purchase invoices.
44THE NORTH WEST COMPANY INC. 2020 Key audit matter
How our audit addressed the key audit matter
Tested how management estimated the
inventory provision at year-end; evaluated the
appropriateness of management’s inventory
provisioning method; tested the underlying
data; and evaluated the reasonableness of the
assumptions used by management by
assessing the percentage of shrinkage based
on actual results from the physical inventory
counts performed during the year and historical
percentage of shrinkage.
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.
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.
45CONSOLIDATED FINANCIAL STATEMENTS In preparing the consolidated financial statements, management is responsible for assessing the
Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going
concern and using the going concern basis of accounting unless management either intends to liquidate
the Company or to cease operations, or has no realistic alternative but to do so.
Those charged with governance are responsible for overseeing the Company’s financial reporting
process.
Auditor’s responsibilities for the audit of the consolidated financial statements
Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as
a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s
report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a
guarantee that an audit conducted in accordance with Canadian generally accepted auditing standards
will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and
are considered material if, individually or in the aggregate, they could reasonably be expected to influence
the economic decisions of users taken on the basis of these consolidated financial statements.
As part of an audit in accordance with Canadian generally accepted auditing standards, we exercise
professional judgment and maintain professional skepticism throughout the audit. We also:
Identify and assess the risks of material misstatement of the consolidated financial statements,
whether due to fraud or error, design and perform audit procedures responsive to those risks, and
obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of
not detecting a material misstatement resulting from fraud is higher than for one resulting from error,
as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of
internal control.
Obtain an understanding of internal control relevant to the audit in order to design audit procedures
that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the Company’s internal control.
Evaluate the appropriateness of accounting policies used and the reasonableness of accounting
estimates and related disclosures made by management.
Conclude on the appropriateness of management’s use of the going concern basis of accounting and,
based on the audit evidence obtained, whether a material uncertainty exists related to events or
conditions that may cast significant doubt on the Company’s ability to continue as a going concern. If
we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report
to the related disclosures in the consolidated financial statements or, if such disclosures are
inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to
the date of our auditor’s report. However, future events or conditions may cause the Company to
cease to continue as a going concern.
46THE NORTH WEST COMPANY INC. 2020 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.
From the matters communicated with those charged with governance, we determine those matters that
were of most significance in the audit of the consolidated financial statements of the current period and
are therefore the key audit matters. We describe these matters in our auditor’s report unless law or
regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we
determine that a matter should not be communicated in our report because the adverse consequences of
doing so would reasonably be expected to outweigh the public interest benefits of such communication.
The engagement partner on the audit resulting in this independent auditor’s report is Patrick Green.
Chartered Professional Accountants
Winnipeg, Manitoba
April 7, 2021
47CONSOLIDATED FINANCIAL STATEMENTS 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 8)
Promissory note receivable (Note 24)
Goodwill (Note 9)
Intangible assets (Note 9)
Deferred tax asset (Note 10)
Other assets (Note 11)
TOTAL ASSETS
CURRENT LIABILITIES
Accounts payable and accrued liabilities
Current portion of long-term debt (Note 12)
Current portion of lease liabilities (Note 8)
Income tax payable (Note 10)
NON-CURRENT LIABILITIES
Long-term debt (Note 12)
Lease liabilities (Note 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
See accompanying notes to consolidated financial statements.
Approved on behalf of the Board of Directors
“Annalisa King”
DIRECTOR
“H. Sanford Riley”
DIRECTOR
January 31, 2021
January 31, 2020
$
$
$
71,536
91,443
226,962
6,919
—
396,860
531,794
107,766
49,020
48,263
36,151
7,288
14,026
794,308
1,191,168
205,202
90,456
16,393
3,084
315,135
190,966
104,226
38,446
12,488
24,676
370,802
685,937
174,213
13,394
282,088
21,605
491,300
13,931
505,231
$
$
$
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
$
1,191,168
$
1,215,536
48THE NORTH WEST COMPANY INC. 2020
Consolidated Statements of Earnings
($ in thousands, except per share amounts)
SALES
Cost of sales
Gross profit
Selling, operating and administrative expenses (Notes 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
See accompanying notes to consolidated financial statements.
Year Ended
Year Ended
January 31, 2021
January 31, 2020
$ 2,359,239
$ 2,094,393
(1,584,686)
(1,429,995)
774,553
664,398
(565,204)
(534,045)
209,349
(16,808)
192,541
(48,981)
130,353
(20,948)
109,405
(23,132)
$ 143,560
$
86,273
$ 139,874
3,686
$ 143,560
$
$
2.87
2.82
48,758
49,526
$
$
$
$
82,724
3,549
86,273
1.70
1.68
48,751
49,375
49CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Statements of Comprehensive Income
($ in thousands)
NET EARNINGS FOR THE YEAR
Other comprehensive income/(loss), net of tax:
Items that may be reclassified to net earnings:
Year Ended
Year Ended
January 31, 2021
January 31, 2020
$ 143,560
$
86,273
Exchange differences on translation of foreign controlled subsidiaries
677
828
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
3,747
(143)
4,281
(8,456)
(33)
(7,661)
COMPREHENSIVE INCOME FOR THE YEAR
$ 147,841
$
78,612
OTHER COMPREHENSIVE INCOME/(LOSS) ATTRIBUTABLE TO
The North West Company Inc.
Non-controlling interests
$
4,894
$
(8,041)
(613)
380
TOTAL OTHER COMPREHENSIVE INCOME/(LOSS)
$
4,281
$
(7,661)
COMPREHENSIVE INCOME ATTRIBUTABLE TO
The North West Company Inc.
Non-controlling interests
TOTAL COMPREHENSIVE INCOME
See accompanying notes to consolidated financial statements.
$ 144,768
$
74,683
3,073
3,929
$ 147,841
$
78,612
50THE NORTH WEST COMPANY INC. 2020
Consolidated Statements of Changes in Shareholders' Equity
($ in thousands)
Share
Capital
Contributed
Surplus
Retained
Earnings
AOCI (1)
Total
Non-
Controlling
Interests
Total
Equity
Balance at January 31, 2020
$ 173,681 $
8,650 $ 211,252 $ 20,315 $ 413,898 $
13,072 $ 426,970
Net earnings for the year
Other comprehensive income/(loss)
Other comprehensive loss of equity
investee
Comprehensive income
Purchased and cancelled (Note 16)
Equity settled share-based payments
(Note 14)
Issuance of common shares (Note 16)
Dividends (Note 20)
Balance at January 31, 2021
—
—
—
—
(648)
—
1,180
—
—
—
—
—
—
139,874
—
139,874
3,686 143,560
3,747
1,290
5,037
(613)
4,424
(143)
—
(143)
—
(143)
143,478
(5,366)
1,290
—
144,768
(6,014)
3,073 147,841
(6,014)
—
5,015
(271)
—
—
—
(67,276)
—
—
—
5,015
909
—
—
5,015
909
(67,276)
(2,214)
(69,490)
532
(69,580)
$ 174,213 $ 13,394 $ 282,088 $ 21,605 $ 491,300 $ 13,931 $ 505,231
(67,366)
(72,642)
(2,214)
4,744
—
Balance at January 31, 2019
$ 173,681 $
3,530 $ 201,368 $ 19,867 $ 398,446 $
12,570 $ 411,016
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)
Issuance of common shares (Note 16)
—
—
—
—
—
—
—
—
—
—
—
—
82,724
(8,456)
—
448
82,724
(8,008)
3,549
86,273
380
(7,628)
(33)
—
(33)
—
(33)
74,235
448
74,683
3,929
78,612
5,120
—
—
5,120
—
(64,351)
—
(64,351)
—
—
—
—
5,120
(64,351)
—
—
5,120
(3,427)
—
(67,778)
—
(59,231)
(3,427)
(62,658)
Balance at January 31, 2020
$ 173,681 $
8,650 $ 211,252 $ 20,315 $ 413,898 $
13,072 $ 426,970
(1) Accumulated Other Comprehensive Income
See accompanying notes to consolidated financial statements.
51CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Statements of Cash Flows
($ in thousands)
CASH PROVIDED BY (USED IN)
Operating activities
Net earnings for the year
Adjustments for:
Amortization (Notes 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
Gain on disposition of Giant Tiger stores (Note 24)
Giant Tiger asset impairment and store closure provision (Note 24)
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)
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/(decrease) in long-term debt (Note 12)
Debt issuance (Note 12)
Payment of lease liabilities, principal
Payment of lease liabilities, interest
Dividends (Note 20)
Dividends to non-controlling interests (Note 20)
Interest paid
Issuance of common shares (Note 16)
Common shares purchased and cancelled (Note 16)
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
See accompanying notes to consolidated financial statements.
Year Ended
Year Ended
January 31, 2021
January 31, 2020
$ 143,560
$
86,273
92,078
48,981
16,808
5,015
(5,306)
(14,892)
709
(24,712)
9,411
271,652
58,975
8,091
338,718
(70,886)
(4,358)
3,038
5,306
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
(66,900)
(104,272)
(214,853)
94,808
(19,073)
(5,065)
(67,276)
(2,214)
(8,282)
909
(6,014)
43,018
—
(21,834)
(5,560)
(64,351)
(3,427)
(15,082)
—
—
(227,060)
(67,236)
(1,409)
43,349
28,187
130
(10,261)
38,448
$
71,536
$
28,187
52THE NORTH WEST COMPANY INC. 2020
Notes to
Consolidated
Financial
Statements
($ IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
JANUARY 31, 2021 AND 2020
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 in the following regions: northern Canada, rural Alaska,
the South Pacific and the Caribbean. These regions comprise two
reportable operating
segments: Canadian Operations and
International Operations.
On July 5, 2020, the Company sold 36 of its 46 Giant Tiger ("GT")
stores to Giant Tiger Stores Limited ("GTSL") and recorded a non-
interest bearing promissory note receivable. See Note 24.
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 7, 2021.
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.
(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 to the non-controlling interests. Total
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.
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.
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.
53NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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.
(G)
(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 using the retail method of
inventories and the
accounting for general merchandise
weighted-average cost method for food inventories. Cost
includes the cost to purchase goods net of vendor rebates 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 decreases 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.
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
Impairment
charges on goodwill are not reversed.
its recoverable amount.
All impairment losses are recognized in the consolidated
statement of earnings.
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.
impairment
An
(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 based on the shorter of the lease term and the
useful life of the underlying asset. Right-of-use assets may also
be
for
remeasurements of the lease liability, as applicable.
losses and adjusted
reduced by
impairment
54THE NORTH WEST COMPANY INC. 2020
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,
incremental
borrowing rate as the discount rate.
the Company uses
its
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 the consolidated statements
of earnings.
(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
together with amounts
if any,
previously recorded in contributed surplus are recorded as an
increase to share capital.
received,
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 is 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.
(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
identifiable assets,
transferred over the fair value of the
including intangible assets, and liabilities of the acquiree at the
date of acquisition. Goodwill is not amortized but is subject to
an
indicators of
impairment are detected. Goodwill is carried at cost less
accumulated impairment losses.
impairment test annually and whenever
(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:
(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.
Software
3 – 7 years
Non-compete agreements 3 – 5 years
Other
5 – 10 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.
55NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(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.
income
tax assets and
The Company accounts for deferred income taxes using
the liability method of tax allocation. Under the liability
liabilities are
method, deferred
determined based on the temporary differences between the
financial statement carrying values and tax bases of assets and
liabilities, and are measured using substantively enacted tax
rates and laws that are expected to be in effect in the periods in
which the deferred income tax assets or liabilities are expected
to be realized or settled. The measurement of deferred tax
reflects the tax consequences that would follow the manner in
which the Company expects to settle the carrying amount of its
assets and liabilities. A deferred tax asset is recognized to the
extent that it is probable that future taxable earnings will be
available against which the temporary difference can be
utilized. Deferred tax assets are reviewed at each reporting date
and are reduced to the extent that it is no longer probable that
the related tax benefit will be realized. Deferred tax assets and
liabilities are offset when they relate to income taxes levied by
the same taxation authority and there is a legally enforceable
right to offset the amounts.
Income tax expense is recognized in the consolidated
statement of earnings, except to the extent that it relates to
items recognized directly in other comprehensive income or in
equity, in which case the related income tax expense is also
recognized
in equity
respectively.
in other comprehensive
income or
(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
future
the plan or
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.
reductions
refunds
from
in
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
The Company
Recognition and derecognition
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 liability 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.
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
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
The Company’s financial assets
through profit and
comprised of cash, accounts receivable, promissory note
receivable and other financial assets are classified as amortized
cost. Interest revenue, consisting primarily of service charge
income on customer accounts receivable and interest imputed
on promissory note receivable are included in sales in the
loss.
56THE NORTH WEST COMPANY INC. 2020
consolidated statements of earnings. The Company has no
significant assets measured at fair value.
losses
receivable and
(“ECL’s") on accounts
The Company recognizes loss allowances for expected
the
credit
promissory note 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.
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
in the consolidated statements of
method and
earnings as interest expense. The Company has no significant
liabilities measured at fair value.
included
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 its net investment
in International Operations.
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
losses are
subsequently recognized in earnings when the hedged item
affects earnings.
These gains and
income.
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.
loss on the hedging
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
in
gain or
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.
instrument recognized
(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 potential shares
issued under the Share Option Plan, Performance Share Unit
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.
IFRS
requires management
(U) Use of Estimates, Assumptions & Judgment The
preparation of consolidated financial statements in conformity
with
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
if a
application of accounting policy and to determine
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 estimates 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 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 (Notes 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 (Note 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)
57NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
•
•
•
•
receivable
Defined benefit pension plan obligation and expense
depends on assumptions used in the actuarial valuation
(Note 13)
Leases require 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 8)
includes management's
Promissory note
estimate of the fair value of contingent consideration
receivable for the sale of its Giant Tiger stores (Note 24)
The COVID-19 pandemic has
in material
disruption to business globally and significant economic
uncertainty. In response, governments worldwide have
enacted emergency measures to both combat the spread
of the virus and stabilize economic conditions. The
COVID-19 economic environment in which we operate is
uncertain and subject to volatility. The Company is unable
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,
including its estimates, assumptions and judgments.
resulted
(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. Share repurchases are deducted from share capital at
their historical average cost and the excess between the
repurchase price and historical average cost charged to
retained earnings.
(W) Government Grants The Company recognizes government
grants for expenses incurred in the consolidated statements of
earnings on a systematic basis in the periods in which the
associated expenses are recognized, provided the Company will
comply with the grant conditions and there is reasonable
assurance they will be received.
(X) Future Standards and Amendments There are no IFRS or
IFRIC interpretations that are not yet effective that would be
expected to have a material impact on the Company.
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, 2021
January 31, 2020
$ 935,725
$
842,916
440,463
428,636
$ 1,376,188
$ 1,271,552
$ 866,045
$
731,756
117,006
91,085
International
$ 983,051
$
822,841
Consolidated
$ 2,359,239
$ 2,094,393
Earnings before amortization, interest and income taxes
Canada
International
$ 206,498
$
140,359
94,929
79,216
Consolidated
$ 301,427
$
219,575
Earnings from operations
Canada
International
$ 144,141
$
77,376
65,208
52,977
Consolidated
$ 209,349
$
130,353
Supplemental Information
Assets
Canada(1)
International(1)
January 31, 2021
January 31, 2020
$ 754,162
$
787,392
437,006
428,144
Consolidated
$ 1,191,168
$ 1,215,536
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 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.
Year Ended
January 31, 2021
January 31, 2020
Canada
Int'l
Canada
Int'l
Purchase of property and
equipment
$ 61,331 $ 9,555 $ 67,828 $ 43,477
Amortization
$ 62,357 $ 29,721 $ 62,983 $ 26,239
(1) Canadian total assets includes goodwill of $11,025 (January 31,
2020 – $11,025). International total assets includes goodwill of
$37,238 (January 31, 2020 – $38,544).
58THE NORTH WEST COMPANY INC. 2020 5. ACCOUNTS RECEIVABLE
6.
INVENTORIES
Inventories are valued at the lower of cost and net realizable value.
Valuing inventories requires the Company to use estimates related
to: the determination of margin factors used to convert inventory to
cost; future retail sales prices and reductions, inventory losses or
shrinkage during periods between the last physical count and the
balance sheet date; and vendor rebates based on the volume of
purchases during a period of time, product remaining in closing
inventory and the probability that funds will be collected from
vendors. Included in cost of sales for the year ended January 31,
2021, the Company recorded $1,645 (January 31, 2020 – $1,036) 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, 2021 or 2020.
January 31, 2021
January 31, 2020
Trade accounts receivable
$
82,213
$
81,925
Corporate and other accounts
receivable
Less: allowance for doubtful
accounts
20,360
34,782
(11,130)
(11,838)
$
91,443
$
104,869
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
Credit risk for trade accounts
receivable mentioned above.
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, 2021
January 31, 2020
Balance, beginning of year
$
(11,838)
$
(17,961)
Net charge
Written off
(8,398)
9,106
(7,189)
13,312
Balance, end of year
$
(11,130)
$
(11,838)
59NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 7. PROPERTY & EQUIPMENT
January 31, 2021
Cost
Land
Buildings
Leasehold
improvements
Fixtures &
equipment
Aircraft
Computer
equipment
Construction
in process
Total
Balance, beginning of year
$ 18,869
$ 570,726
$ 83,817 $ 366,311 $ 81,119 $ 76,299
$ 35,125 $ 1,232,266
Additions
Disposals
GT store disposition (Note 24)
337
—
—
35,705
(87)
—
3,467
(3,897)
17,131
(5,091)
23,754
(2,068)
(23,181)
(26,168)
Effect of movements in foreign exchange
(359)
(6,414)
(763)
(4,010)
4,609
(2,313)
—
(1,187)
(14,117)
70,886
—
—
(13,456)
(49,349)
(62)
(12,795)
—
—
Total January 31, 2021
$ 18,847
$ 599,930
$ 59,443 $ 348,173 $ 102,805 $ 77,408
$ 20,946 $ 1,227,552
Accumulated amortization
Balance, beginning of year
Amortization expense
Disposals
GT store disposition (Note 24)
Effect of movements in foreign exchange
Impairment losses
$
—
—
—
—
—
—
$ 304,270
$ 47,279 $ 254,930 $ 16,038 $ 54,674
$
— $ 677,191
24,230
(31)
—
(2,853)
—
4,053
(1,756)
19,358
(2,208)
10,654
(475)
(15,338)
(16,088)
(302)
320
(3,161)
969
—
—
—
4,063
(2,285)
—
(670)
—
—
—
—
—
87
62,358
(6,755)
(31,426)
(6,986)
1,376
Total January 31, 2021
$
—
$ 325,616
$ 34,256 $ 253,800 $ 26,217 $ 55,782
$
87 $ 695,758
Net book value January 31, 2021
$ 18,847
$ 274,314
$ 25,187 $ 94,373 $ 76,588 $ 21,626
$ 20,859 $ 531,794
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
7,378
12,195
3,334
111,305
(8,019)
(10,833)
(13,924)
503
—
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
—
—
—
62,599
(27,331)
964
Total January 31, 2020
$
—
$ 304,270
$ 47,279 $ 254,930 $ 16,038 $ 54,674
$
— $ 677,191
Net book value January 31, 2020
$ 18,869
$ 266,456
$ 36,538 $ 111,381 $ 65,081 $ 21,625
$ 35,125 $ 555,075
The Company reviews its property and equipment for indicators of impairment. During the year ended January 31, 2020 the Company wrote-
off assets with a net book value of $7,909 which were reimbursed by insurance proceeds.
Interest capitalized
Interest attributable to the construction of qualifying assets was capitalized using an average rate of 3.4% and 3.9% for the years ended
January 31, 2021 and 2020 respectively. Interest capitalized in additions amounted to $180 (January 31, 2020 – $195). Accumulated interest
capitalized in the cost total above amounted to $3,027 (January 31, 2020 – $2,847).
60THE NORTH WEST COMPANY INC. 2020
8. RIGHT-OF-USE ASSETS & LEASE LIABILITIES
Right-of-use assets
January 31, 2021
Cost
Balance, beginning of year
Additions
Disposals
Lease extensions and other items
Effect of movements in foreign exchange
Total January 31, 2021
Accumulated amortization
Balance, beginning of year
Amortization expense
Disposals
Impairment losses
Effect of movements in foreign exchange
Total January 31, 2021
Net book value January 31, 2021
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
Land & buildings
Fixtures &
equipment
Aircraft
Total
$
208,216 $
5,820 $
5,104 $
28,390
(61,887)
487
(3,107)
1,788
(1,089)
150
(1)
1,626
(3,671)
—
—
219,140
31,804
(66,647)
637
(3,108)
$
$
$
$
172,099 $
6,668 $
3,059 $
181,826
84,802 $
2,810 $
3,658 $
17,745
(33,815)
1,655
(979)
1,438
(943)
—
—
1,174
(3,485)
—
—
91,270
20,357
(38,243)
1,655
(979)
69,408 $
3,305 $
1,347 $
74,060
102,691 $
3,363 $
1,712 $
107,766
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
1,521
(2,249)
—
678
(630)
—
109,011
22,766
(40,828)
321
84,802 $
2,810 $
3,658 $
91,270
123,414 $
3,010 $
1,446 $
127,870
61NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Lease liabilities
The total current and long-term lease liability is $16,393 (January 31,
2020 - $19,176) and $104,226 (January 31, 2020 - $119,928),
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, 2021, lease
liabilities reflect a weighted-average risk-free rate of 3.7% (January 31,
2020 – 3.8%) and weighted-average remaining lease term of 10.2
years (January 31, 2020 – 9.7 years).
Maturity analysis - contractual undiscounted cash flows
0-1 year
2-3 years
4-5 years
6 years+
January 31, 2021
$
20,148
36,781
25,423
59,910
Total undiscounted cash flows
$ 142,262
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. The Company made variable lease payments not
included in lease liabilities of $7,137 (January 31, 2020 – $6,109).
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
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.
The Company assesses at
lessors.
Other leases
Short-term and low value lease payments are not material.
9. GOODWILL & INTANGIBLE ASSETS
Goodwill
January 31, 2021
January 31, 2020
Balance, beginning of year
$
49,569
$
45,203
Additions
Effect of movements in foreign
exchange
—
(1,306)
4,125
241
Balance, end of year
$
48,263
$
49,569
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 $37,238 (January 31, 2020 – $38,544)
relates to acquisition of subsidiaries by the Company's International
Operations. A goodwill asset balance of $11,025 (January 31, 2020 –
$11,025) 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 was based on its fair value less costs to sell.
The recoverable amount was estimated from the product of financial
performance and trading multiples observed for both the Company
and other publicly traded retail 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
the Company and other public 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.
62THE NORTH WEST COMPANY INC. 2020
Intangible assets
January 31, 2021
Cost
Balance, beginning of year
Additions
Effect of movements in foreign exchange
Total January 31, 2021
Accumulated Amortization
Balance, beginning of year
Amortization expense
Effect of movements in foreign exchange
Total January 31, 2021
Software
Store banners
Other
Total
$ 62,911
$ 10,170
$ 12,895
$ 85,976
3,977
—
—
(345)
381
(113)
4,358
(458)
$ 66,888
$
9,825
$ 13,163
$ 89,876
$ 36,033
8,591
—
$ 44,624
$
$
—
—
—
—
$
8,335
$ 44,368
772
(6)
9,363
(6)
$
9,101
$ 53,725
Net book value January 31, 2021
$ 22,264
$ 9,825
$
4,062
$ 36,151
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
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
3,857
(3,114)
3
$
8,335
$ 44,368
Net book value January 31, 2020
$ 26,878
$ 10,170
$
4,560
$ 41,608
Work in process
As at January 31, 2021, the Company had incurred $23 (January 31,
2020 – $14,338) for intangible assets that were not yet available for
use, and therefore not subject to amortization.
This method
from Royalty approach.
Intangible Asset Impairment Testing
The Company determines the fair value of the store banners using
the Relief
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 on intangible assets and
management considers reasonably foreseeable changes in key
assumptions are unlikely to produce an intangible asset impairment.
63NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Changes in the combined statutory income tax rate primarily reflect
changes in earnings of the Company's subsidiaries across various tax
jurisdictions.
Deferred tax assets of $5,646 (January 31, 2020 - $4,800) arising from
certain foreign income tax losses were not recognized on the
consolidated balance sheets. The income tax losses expire from
2023 – 2031.
Deferred income tax charged (credited) to other comprehensive
income during the year is as follows:
Year Ended
January 31, 2021
January 31, 2020
Net investment hedge:
Origination and reversal of
temporary difference
Impact of change in tax rates
Defined benefit plan
actuarial gain / (loss):
Origination and reversal of
temporary difference
Impact of change in tax rates
$ (1,153)
—
$ (1,153)
$
$
—
—
—
$ 1,384
$
(3,115)
2
(2)
$ 1,386
$
(3,117)
10. INCOME TAXES
The following are the major components of income tax expense:
Year Ended
January 31, 2021
January 31, 2020
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
$ 26,332
$ 15,400
130
(2,191)
124
(1,982)
$ 24,271
$ 13,542
$ 22,598
$
7,425
6
2,106
75
2,090
$ 24,710
$
9,590
Income taxes
$ 48,981
$ 23,132
Income tax expense varies from the amounts that would be
computed by applying the statutory income tax rate to earnings
before taxes for the following reasons:
Year Ended
January 31, 2021
January 31, 2020
Earnings before income taxes
$ 192,541
$ 109,405
Combined statutory income
tax rate
24.0 %
21.3 %
Expected income tax expense
$ 46,197
$ 23,280
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
GILTI tax (1)
(Over)/under provision in prior
years
Other
$
(25)
$ (1,530)
982
130
6
1,836
(85)
(60)
892
124
75
—
108
183
Provision for income taxes
$ 48,981
$ 23,132
Income tax rate
25.4 %
21.1 %
(1) The Company is subject to the Global Intangible Low-Taxed
Income provision ("GILTI") enacted as part of the US Tax Cuts and
Jobs Act in December 2017. This tax is imposed on the foreign
earnings of a controlled foreign corporation. The Company has the
option to account for the GILTI tax as a period cost, if and when
incurred, or to recognize deferred taxes for outside basis temporary
differences expected to reverse as GILTI. The Company has elected
to account for GILTI as a period cost.
64THE NORTH WEST COMPANY INC. 2020
Income tax effects of temporary differences that give rise to significant portions of deferred income tax assets and liabilities are as follows:
Deferred tax assets:
Property & equipment
Lease obligation
Inventory
Share-based compensation and
long-term incentive plans
Defined benefit plan obligation
Accrued liabilities
Deferred limited partnership earnings
Unrealized foreign exchange loss
Other
Deferred tax liabilities:
Goodwill & intangible assets
Property & equipment
Right-of-use assets
Investment in joint venture
Deferred limited partnership earnings
Other
January 31, 2020
Taxes (charged)
credited to net
earnings
Taxes (charged)/
credited to OCI
Other
adjustments
January 31, 2021
$
$
$
$
$
7,791
32,100
2,233
5,039
11,316
3,675
2,038
—
2,634
$
$
4,174
(3,665)
429
1,689
984
(1,256)
(2,038)
—
350
$
—
—
—
—
(1,386)
—
—
1,153
—
11
(481)
(64)
(28)
—
(82)
—
—
24
$
11,976
27,954
2,598
6,700
10,914
2,337
—
1,153
3,008
66,826
$
667
$
(233)
$
(620)
$
66,640
(1,047)
$
(158)
$
(13,115)
(29,530)
(1,654)
—
(1,997)
(47,343)
19,483
(1,719)
3,746
(50)
(24,667)
(2,529)
(25,377)
(24,710)
$
$
$
$
—
—
—
—
—
—
—
(233)
$
$
$
43
217
429
19
(9)
181
880
260
$
(1,162)
(14,617)
(25,355)
(1,685)
(24,676)
(4,345)
(71,840)
(5,200)
$
$
Recorded on the consolidated balance sheet as follows:
Year Ended
Deferred tax assets
Deferred tax liabilities
January 31, 2021
January 31, 2020
$
7,288
$
28,233
(12,488)
(8,750)
$
(5,200)
$
19,483
65NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
February 1, 2019
Taxes (charged)
credited to net
earnings
Taxes charged
to OCI
Other
adjustments 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
Deferred limited partnership earnings
Other
Deferred tax liabilities:
Goodwill & intangible assets
Property & equipment
Right-of-use assets
Investment in joint venture
Other
$
$
$
$
$
17,404
32,228
1,736
4,228
7,846
3,610
1,319
1,170
$
(9,594)
$
(193)
485
810
353
50
719
1,535
—
—
—
—
3,117
—
—
—
69,541
$
(5,835)
$
3,117
(834)
$
(206)
$
(9,181)
(29,302)
(1,130)
(2,784)
(43,231)
26,310
(3,899)
(158)
(524)
1,032
(3,755)
(9,590)
$
$
$
$
—
—
—
—
—
—
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
3,675
2,038
2,634
66,826
(1,047)
(13,115)
(29,530)
(1,654)
(1,997)
(47,343)
19,483
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 $190,737 at
January 31, 2021 (January 31, 2020 – $152,539).
11. OTHER ASSETS
Investment in joint venture (Note 23)
Other
January 31, 2021
January 31, 2020
$ 12,481
1,545
$ 12,252
1,336
$ 14,026
$ 13,588
66THE NORTH WEST COMPANY INC. 2020
12. LONG-TERM DEBT
January 31, 2021
January 31, 2020
Current:
Revolving loan facility (1)
Senior notes (4)
Promissory note payable (8)
Non-current:
Revolving loan facility (1)
Revolving loan facilities (2)
Revolving loan facilities (3)
Senior notes (4)
Senior notes (5)
Senior notes (6)
Revolving loan facility (7)
Promissory notes payable (8)
$
—
$
89,300
1,156
950
—
900
$ 90,456
$
1,850
$
—
—
—
—
89,300
$
—
36,943
176,716
92,334
—
100,000
100,000
—
1,666
—
3,122
$ 190,966
$ 409,115
Total
$ 281,422
$ 410,965
(4) 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, the US$70,000 senior notes due in 2027 and 2032 and
the US$52,000 loan facilities.
(5) In June 2020, the Company issued US$70,000 senior notes. These
US$70,000 senior notes comprise US$35,000 due June 16, 2027 with
a fixed interest rate of 2.88% and US$35,000 due June 16, 2032 with a
fixed interest rate of 3.09%. 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, the
US$70,000 senior notes due June 16, 2021 and the US$52,000 loan
facilities.
(6) 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 due in 2021,
the US$70,000 senior notes due in 2027 and 2032 and the US$52,000
loan facilities.
(7) The Canadian and International Operations have revolving loan
facilities to meet working capital requirements and for general
business purposes. These facilities bear a floating rate of interest and
are secured by certain assets of the Company.
(1) The committed, revolving U.S.
loan facility provides the
International Operations with up to US$40,000 for working capital
requirements and general business purposes. This facility matures
February 12, 2025, bears a floating rate of interest based on U.S.
LIBOR plus a spread and is secured by certain accounts receivable
and inventories of the International Operations. At January 31, 2021,
the International Operations had drawn US$NIL (January 31, 2020 –
US$719) on this facility.
(2) The US$52,000 loan facilities mature September 26, 2022 and
bear interest at U.S. LIBOR plus a spread. These committed loan
facilities are secured by certain assets of the Company and rank pari
passu with the US$70,000 senior notes due in 2021, the US$70,000
senior notes due in 2027 and 2032, the $100,000 senior notes and
the $300,000 Canadian Operations loan facilities. At January 31,
2021, the Company had drawn US$NIL (January 31, 2020 –
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 due in 2021, the $100,000
senior notes, the US$70,000 senior notes due in 2027 and 2032 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.
(8) Promissory notes payable are non-interest bearing, have annual
principal payments and are secured by certain assets of the
Company.
13. POST-EMPLOYMENT BENEFITS
The Company sponsors defined benefit and defined contribution
pension plans covering the majority of Canadian employees.
Effective January 1, 2011, the Company entered into an amended
and restated staff pension plan, which incorporated legislated
changes, administrative practice, and added a defined contribution
provision (the “Amended Plan”). Under the Amended Plan, all
members as of December 31, 2011 who did not meet a qualifying
threshold based on number of years in the pension plan and age
were transitioned to the defined contribution pension plan effective
January 1, 2011 and no longer accumulate years of service under the
defined benefit pension plan.
The defined benefit pension
previously earned by members transitioned to the defined
contribution plan, will continue to accrue in accordance with the
terms of the plan based on the member’s current pensionable
earnings. Members who met the qualifying threshold on January 1,
2011, elected between accruing a defined contribution benefit and
continuing to accrue a defined benefit pension in accordance with
the provisions of the Amended Plan.
The defined benefit pension plans are based on years of service
and final average salary. The Company uses actuarial reports
prepared by independent actuaries for accounting purposes as at
January 31, 2021 and January 31, 2020. The accrued pension
benefits and funding requirements were last determined by actuarial
valuation as at December 31, 2019. The next actuarial valuation is
required as at December 31, 2020. 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.
67NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
During the year ended January 31, 2021, the Company
contributed $1,624 to its defined benefit pension plans (January 31,
2020 – $3,528). During the year ended January 31, 2021, the
Company contributed $4,095 to its defined contribution pension
plans (January 31, 2020 – $3,929). The current best estimate of the
Company's funding obligation for the defined benefit pension plans
for the year commencing February 1, 2021 is $1,577. 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.
Movement in plan assets and defined benefit obligation
Information on the Company’s defined benefit plans, in aggregate, is
as follows:
January 31, 2021
January 31, 2020
Plan assets:
Fair value, beginning of year
$ 95,122
$ 85,665
Accrued interest on assets
Benefits paid
Plan administration costs
Employer contributions
Employee contributions
Return on assets greater than
discount rate
2,584
(5,826)
(538)
1,624
3
4,558
3,195
(5,461)
(542)
3,528
7
8,730
Fair value, end of year
$ 97,527
$ 95,122
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
$ (135,260)
$ (114,634)
(3,842)
(3)
(3,658)
6,215
1,250
(675)
(3,103)
(7)
(4,220)
7,007
(14)
(20,289)
$ (135,973)
$ (135,260)
Plan deficit
$ (38,446)
$
(40,138)
The defined benefit obligation exceeds the fair value of plan assets
as noted in the table. While the plans are not considered fully
funded for financial reporting purposes, registered plans are funded
in accordance with the applicable statutory funding rules and
regulations governing the particular plans.
Defined benefit obligation
The following actuarial assumptions were employed to measure the
plan:
January 31, 2021
January 31, 2020
Discount rate on plan liabilities
Rate of compensation increase
Discount rate on plan expense
Inflation assumption
2.72 %
4.00 %
2.75 %
2.00 %
2.75 %
4.00 %
3.75 %
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 16.8 years
(January 31, 2020 – 17.1 years).
The average life expectancy in years of a member who reaches
normal retirement age of 65 is as follows:
January 31, 2021
January 31, 2020
Average life expectancies at age 65 for current pensioners:
Male
Female
21.5
24.0
Average life expectancies at age 65 for current members aged 45:
Male
Female
22.6
25.3
21.4
23.9
22.6
25.0
Assumptions regarding future mortality experience are set based on
in accordance with published statistics and
actuarial advice
experience. For the years ended January 31, 2021 and 2020,
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
$ (20,063)
$ 25,634
$
$
(1,042)
944
68THE NORTH WEST COMPANY INC. 2020
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.
Statements of earnings and comprehensive income
The following pension expenses have been charged to the
consolidated statements of earnings:
January 31, 2021
January 31, 2020
January 31, 2021
January 31, 2020
Plan assets:
Canadian equities (pooled)
Global equities (pooled)
Real estate equities (pooled)
Debt securities
17 %
41 %
9 %
33 %
17 %
39 %
9 %
35 %
Total
100 %
100 %
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-
It assists with adequately securing benefits and
term costs.
mitigating year-to-year
the Company's cash
in
contributions and pension expense. The defined benefit plans are
subject to, and actively manage, the following specific market risks:
fluctuations
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
in obligations.
because they may not be offset by changes
Investment management of plan assets
to
independent managers.
is outsourced
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
$ 3,842
$
3,103
538
4,095
1,323
542
3,929
1,328
$ 9,798
$
8,902
$
(2,584)
$
(3,195)
3,658
4,220
$ 1,074
$
1,025
The following amounts have been included in other comprehensive
income:
January 31, 2021
January 31, 2020
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
$
4,558
$
8,730
1,250
(675)
(14)
(20,289)
(1,386)
3,117
$
3,747
$
(8,456)
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
$ (15,489)
$ (20,622)
2,092
3,478
$ (13,397)
$ (17,144)
The actual return on the plans assets is summarized as follows:
January 31, 2021
January 31, 2020
Accrued interest on assets
$
2,584
$
3,195
Return on assets greater than
discount rate
4,558
8,730
Actual return on plan assets
$
7,142
$ 11,925
69NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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, 2021 was $22,495 (January 31, 2020 –
$3,550). The carrying amount of the Company’s share-based
compensation arrangements including PSU, share option, DDSU and
EDSU plans are recorded on the consolidated balance sheets as
follows:
Accounts payable and accrued
liabilities
Other long-term liabilities
Contributed surplus
January 31, 2021
January 31, 2020
$ 7,434
13,474
11,825
$ 11,080
10,225
7,081
Total
$ 32,733
$ 28,386
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, 2021 are
$8,755 (January 31, 2020 – $5,216). The total number of PSUs
outstanding at January 31, 2021 that may be settled in treasury
shares is 322,910 (January 31, 2020 - 243,712). There were no PSUs
settled in treasury shares during the year (January 31, 2020 - 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, 2021 are an expense of $3,618 (January 31,
2020 – expense of $346). The total number of deferred share units
outstanding at January 31, 2021 is 314,829 (January 31, 2020 –
318,227). There were 51,750 DDSUs exercised in cash during the
year ended January 31, 2021 (January 31, 2020 – NIL).
Executive Deferred Share Unit Plan
The EDSU plan was implemented to assist executive management to
meet the Company's minimum share ownership guidelines. This
plan provides for the granting of deferred share units to those
executives who elect to receive a portion of their annual short-term
incentive payment in EDSUs, subject to plan limits. Effective April
2016, participants will be credited with EDSUs based on the amount
of their annual short-term incentive payment allocated to the plan
and the fair market value of the Company's shares. The EDSU
account for each participant includes the value of dividends from the
Company as if reinvested in additional EDSU's. The EDSUs are
exercisable at any time after the executive ceases to be an employee
of the Company, but no later than December 31 of the first calendar
year commencing after the holder ceased to be an employee. Each
EDSU entitles the holder to a cash payment equal to the market
value of the equivalent number of the Company's shares,
determined based on their closing price on the TSX on the trading
day preceding the exercise date.
Total compensation expense is measured at the time of the
grant. Subsequent changes in the fair value of the EDSUs based on
changes in the market value of the Company's shares are recognized
at each reporting date. The EDSU plan compensation costs for the
year ended January 31, 2021 are an expense of $217 (January 31,
2020 – recovery of $32).
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
70THE NORTH WEST COMPANY INC. 2020
value of the Standard Options is recognized in net earnings and
contributed surplus over the vesting period.
The assumptions used to measure options at the balance sheet
dates are as follows:
January 31, 2021
January 31, 2020
Dividend yield
4.4 %
4.9 %
Annual risk-free interest rate
0.1% to 0.2%
1.4% to 2.0%
Expected share price volatility
20.8% to 39.1% 11.7% to 17.9%
The maximum number of shares available for issuance is a fixed
number set at 4,354,020, representing 9.0% of the Company’s issued
and outstanding shares at January 31, 2021. 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, 2021 are
an expense of $9,027 (January 31, 2020 – recovery of $2,786). The fair
values for options issued during the year were calculated based on
the following assumptions:
Fair value of options granted
Exercise price
Dividend yield
Annual risk-free interest rate
Expected share price volatility
January 31, 2021
January 31, 2020
$
$
2.70
$
2.69
29.23
$28.11 to $30.01
4.5 %
0.4 %
24.1 %
4.3 %
1.5 %
19.3 %
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, 2021 January 31, 2020 January 31, 2021 January 31, 2020
1,919,959
1,967,723
—
(1,090,772)
(13,915)
—
(15,985)
(31,779)
899,854
461,969
(44,811)
(79,646)
430,340
499,311
(2,295)
(27,502)
815,272
1,919,959
1,237,366
899,854
398,150
1,055,151
279,821
114,517
The weighted-average share price on the dates options were exercised during the year was $33.81 (January 31, 2020 – $30.08).
Weighted-average exercise price
Declining Strike Price Options
Standard Options
Outstanding options, beginning of year
$
27.34
$ 27.36
$
28.01
$ 27.83
January 31, 2021 January 31, 2020 January 31, 2021 January 31, 2020
Granted
Exercised
Forfeited or cancelled
Outstanding options, end of year
Exercisable at end of year
—
23.97
31.28
—
24.26
30.26
29.23
26.60
28.17
28.17
27.77
27.90
$
$
30.15
$ 27.34
25.63
$ 21.40
$
$
28.51
$ 28.01
27.97
$ 27.17
71NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Summary of options outstanding by grant year
Outstanding
Exercisable
Range of
exercise price
Number
outstanding
Weighted-average
remaining
contractual years
Weighted-average
exercise price
Options
exercisable
Weighted-average
exercise price
$
$
$
$
$
$
$
19.99-19.99
21.50-25.63
25.38-28.81
28.93-32.40
27.77-27.77
28.13-30.02
29.23-29.23
37,903
81,175
308,538
429,995
311,095
432,162
451,770
0.2
1.2
2.2
3.4
4.2
5.2
6.4
$ 19.99
$ 22.08
$ 25.50
$ 29.76
$ 27.77
$ 28.18
$ 29.23
37,903
81,175
162,614
141,781
148,375
106,123
—
$ 19.99
$ 22.08
$ 25.53
$ 29.76
$ 27.77
$ 28.18
$
—
Grant
year
2014
2015
2016
2017
2018
2019
2020
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, 2021 are $878 (January 31, 2020 – $806).
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, 2021, the Company had undrawn committed revolving loan facilities available of $400,250 (January 31, 2020 –
$189,844) which mature in 2022 and 2025 (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.
2021
2022
2023
2024
2025
2026+
Total
Accounts payable and accrued liabilities
$
205,202 $
— $
— $
— $
— $
Current portion of long-term debt (Note 12)
Long-term debt (Note 12)
Total
91,551
6,767
—
7,923
—
7,023
—
7,023
—
6,767
— $ 205,202
—
91,551
212,858
248,361
$
303,520 $
7,923 $
7,023 $
7,023 $
6,767 $
212,858 $ 545,114
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, customer and commercial accounts
receivable and promissory note 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.
72THE NORTH WEST COMPANY INC. 2020
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
is generally not
significant. The maximum exposure net of impairment allowances is
$91,443 (January 31, 2020 – $104,869). The Company does not have
individual customers greater than 10% of total accounts
any
receivable. At January 31, 2021, the Company’s gross maximum
credit risk exposure is $102,573 (January 31, 2020 – $116,707). Of this
amount, $9,863 (January 31, 2020 – $14,086) is more than 60 days
past due. The Company has recorded an allowance against its
maximum exposure to credit risk of $11,130 (January 31, 2020 –
$11,838) which is based on expected credit losses for similar financial
assets.
individual customers
The Company has an unsecured, non-interest bearing
promissory note receivable of $49,020 (January 31, 2020 – $NIL) from
Giant Tiger Stores Limited. This promissory note is considered to
have a low credit risk based on the high credit quality of its
counterparty. See Note 24.
As at January 31, 2021 and 2020, 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. The Company has hedged
US$140,000 of
risk with U.S. dollar denominated
borrowings. No ineffectiveness was recognized from the net
investment hedge.
this
(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.
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, based on
floating rate borrowings outstanding at January 31, 2021 a 100
basis point increase in the risk-free rate would cause net
earnings to decrease by approximately $150 (January 31, 2020 –
$1,800). A 100 basis point decrease would cause net earnings
to increase by approximately $150 (January 31, 2020 – $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
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
hedge without
operations, providing
sophisticated treasury management. Short-term imbalances in
foreign currency holdings are rectified by buying or selling at
spot rates when necessary.
economic
an
to
relative
Management considers a 10% variation in the Canadian
reasonably possible.
the U.S. dollar
dollar
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
(January 31, 2020 – $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-.
73NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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, 2021
Cash
Accounts receivable
Promissory note receivable
Other financial assets
Accounts payable and accrued liabilities
Current portion of long-term debt
Long-term debt
January 31, 2020
Cash
Accounts receivable
Other financial assets
Accounts payable and accrued liabilities
Current portion of long-term debt
Long-term debt
Assets (Liabilities) carried at
amortized cost
Maturity Carrying amount
Fair value
Short-term
Short-term
Long-term
Long-term
Short-term
Short-term
Long-term
$
71,536
$
71,536
91,443
49,020
1,393
(205,202)
(90,456)
(190,966)
91,443
49,020
1,393
(205,202)
(91,076)
(198,456)
Assets (Liabilities) carried at
amortized cost
Maturity Carrying amount
Fair value
Short-term
Short-term
Long-term
Short-term
Short-term
Long-term
$
28,187
$
28,187
104,869
1,281
(173,058)
(1,850)
(409,115)
104,869
1,281
(173,058)
(1,850)
(416,295)
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.
The carrying value of the promissory note receivable is a reasonable approximation of fair value. The fair value when recognized was
estimated by calculating the present value of the future expected cash flows using an effective interest rate derived from comparable
debt issuances.
74THE NORTH WEST COMPANY INC. 2020
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, 2021, the debt-to-equity ratio
was 0.56 compared to 0.96 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, 2021
January 31, 2020
$
$
$
90,456
$
190,966
281,422
505,231
0.56
$
$
1,850
409,115
410,965
426,970
0.96
(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, 2021 and 2020,
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, 2021.
16. SHARE CAPITAL
Authorized – The Company has an unlimited number of Common
Voting Shares and Variable Voting Shares.
January 31, 2020
Purchased and cancelled (1)
Issued under option plans (Note 14)
Shares
Consideration
48,750,929
$
173,681
(180,774)
43,164
(648)
1,180
Balance at January 31, 2021
48,613,319
$
174,213
January 31, 2019
48,750,929
$
173,681
Issued under option plans (Note 14)
—
—
Balance at January 31, 2020
48,750,929
$
173,681
(1) Variable voting shares and common voting shares purchased pursuant to
NCIB program. The Company records shares repurchased on a transaction
date basis.
Voting rights
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.
formality.
If either of the above-noted thresholds is surpassed at any time,
the vote attached to each Variable Voting Share will decrease
the
further act or
automatically without
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.
Under
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
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").
is converted
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.
75NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
At January 31, 2021 shares outstanding of 48,613,319 included
16,379,039 (January 31, 2020 – 11,357,628) Variable Voting Shares,
representing 33.7% (January 31, 2020 – 23.3%) of the total shares
issued and outstanding.
Normal Course Issuer Bid
On November 10, 2020, the Company received approval from the
Toronto Stock Exchange to proceed with a Normal Course Issuer Bid
("NCIB"). Under the NCIB, the Company may acquire up to a
maximum of 4,807,437 of its shares, or approximately 10% of its float
for cancellation over the following 12 months. During the year
ended January 31, 2021, the Company purchased 180,774 common
shares having a book value of $648 for cash consideration of $6,014.
The excess of the purchase price over the book value of the shares of
$5,366 was charged to retained earnings. All shares purchased were
cancelled.
In connection with the NCIB, the Company has established an
automatic securities purchase plan with its designated broker to
facilitate the purchase of shares under the NCIB at times when the
Company would ordinarily not be permitted to purchase its shares
due to regulatory restrictions or self-imposed blackout periods.
Under the plan, before entering a self-imposed blackout period,
North West may, but is not required to, ask the designated broker to
make purchases under the NCIB within specific parameters.
18. EMPLOYEE COSTS
Year Ended
January 31, 2021 January 31, 2020
Wages, salaries and benefits
including bonus
$ 329,177
$ 309,541
Post-employment benefits (Note 13)
Share-based compensation (Note 14)
9,798
22,495
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
$
8,984
$
2,133
15,635
8,902
3,550
5,560
1,852
173
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.
19. INTEREST EXPENSE
17. EXPENSES BY NATURE
Interest on long-term debt
$ 11,547
$ 14,558
Year Ended
January 31, 2021
January 31, 2020
Interest on lease liabilities
Net interest on defined benefit
plan obligation
Interest imputed on promissory
note receivable
Interest capitalized
5,065
1,074
(698)
(180)
5,560
1,025
—
(195)
Interest expense
$ 16,808
$ 20,948
Year Ended
January 31, 2021
January 31, 2020
Employee costs (Note 18)
$ 361,470
$ 321,993
Amortization
Operating lease rentals
Gain on partial insurance
settlement (1)
Gain on disposition of Giant Tiger
stores (2)
92,078
6,308
89,222
5,836
(5,306)
(18,170)
(24,712)
—
(1) 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.
(2) The Company recorded a gain on the disposition of 36 of its Giant Tiger
stores. See Note 24.
76THE NORTH WEST COMPANY INC. 2020
20. DIVIDENDS
following
The
shareholders' equity and paid in cash:
is a summary of the dividends recorded
in
Year Ended
January 31, 2021
January 31, 2020
Dividends recorded in equity
and paid in cash
Less: Dividends paid to non-
controlling interests
Shareholder dividends
Dividends per share
$ 69,490
$ 67,778
(2,214)
(3,427)
$ 67,276
$
1.38
$ 64,351
$
1.32
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 April 7, 2021, the Board of Directors declared a dividend of
$0.36 per common share to paid on April 28, 2021 to shareholders of
record as of the close of business on April 16, 2021.
21. NET EARNINGS PER SHARE
Basic net earnings per share is calculated based on the weighted-average shares outstanding during the year. The diluted net earnings per
share takes into account the dilutive effect of all potential ordinary shares. The average market value of the Company’s shares for purposes of
calculating the dilutive effect of share options was based on quoted market prices for the period that the options were outstanding.
($ and shares in thousands, except earnings per share)
Year Ended
Diluted earnings per share calculation:
January 31, 2021
January 31, 2020
Net earnings attributable to shareholders for the year (numerator for diluted earnings per share)
$ 139,874
$ 82,724
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
48,758
768
49,526
48,751
624
49,375
$
$
2.87
2.82
$
$
1.70
1.68
77NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
22. COMMITMENTS, CONTINGENCIES AND
GUARANTEES
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
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.
terms and nature of
the counterparties.
The
78THE NORTH WEST COMPANY INC. 2020 23. SUBSIDIARIES AND JOINT VENTURES
The Company’s principal operating subsidiaries are set out below:
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.
Activity Country of Organization
Company
Subsidiary
Proportion of voting rights held by:
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, 2021, the
Company’s share of the net assets of its joint venture amount to $12,481 (January 31, 2020 – $12,252) comprised assets of $14,790 (January 31,
2020 - $14,955) and liabilities of $2,309 (January 31, 2020 – $2,703). During the year ended January 31, 2021, the Company purchased freight
handling and shipping services from Transport Nanuk Inc. and its subsidiaries of $7,731 (January 31, 2020 – $8,304).
24. DISPOSITION & STORE CLOSURE PROVISION
On July 5, 2020, the Company sold 36 of its 46 Giant Tiger stores (the Acquired Stores) to Giant Tiger Stores Limited for cash consideration of
$45,000, subject to working capital adjustments, and additional contingent consideration payable of up to $22,500. The cash consideration is
payable in installments on the second, third and fourth anniversaries of the transaction closing date and, subject to meeting certain profitability
milestones, the additional contingent cash consideration is payable on the fourth and fifth anniversaries of the closing date. The consideration
has been recorded as an unsecured, non-interest bearing promissory note receivable comprised of the net present value of the estimated
installments, discounted using an interest rate specific to the counterparty. For the year-ended January 31, 2021 the promissory note
receivable included cash consideration of $37,554 and estimated contingent cash consideration of $11,466.
The Company recognized a pre-tax gain on the sale of $24,712 ($19,991, net of tax) in selling, operating and administrative expenses and
recognized interest imputed on the promissory note receivable of $698 (see Note 19).
Giant Tiger Asset Impairment Charge & Store Closure Provision
Of the remaining 10 GT locations, the Company: (i) retained and operates five key stores in northern market locations, (ii) converted one store
to a Valu-Lots clearance center, and (iii) closed four stores in the third quarter of 2020. For the year ended January 31, 2021, the Company
recorded a $9,411 asset impairment and store closure provision, of which $5,938 remains accrued. The store closure provision was included in
selling, operating and administrative expenses in the consolidated statements of earnings, and has been applied to reduce the carrying
amount of fixtures and equipment and right-of-use assets and to increase accrued liabilities on the consolidated balance sheets.
79NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Shareholder Information
Fiscal Year
Quarter Ended
2020
April 30, 2020
July 31, 2020
October 31, 2020
January 31, 2021
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
Share
Price High
Share
Price Low
Share
Price Close
Volume
EPS1
$36.92
$16.06
$32.37
60,827,077
$2.82
28.23
32.01
36.92
35.97
16.06
24.60
27.78
31.40
26.30
29.80
32.85
32.37
18,232,655
15,500,127
14,079,055
13,015,240
$0.23
$1.25
$0.71
$0.63
$33.16
$27.18
$27.56
45,013,403
$1.68
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
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
1 Net earnings per share are on a diluted basis.
Total Return Performance (% at January 31)
This chart illustrates the relative performance of shares of The North
West Company Inc. over the past five years. The index incorporates
the reinvestment of dividends.
The North West Company Inc.
Anticipated Dividend Dates*
Record Date: April 16, 2021
Payment Date: April 28, 2021
Record Date: June 30, 2021
Payment Date: July 15, 2021
Record Date: September 30, 2021
Payment Date: October 15, 2021
Record Date: December 31, 2021
Payment Date: January 17, 2022
*Dividends are subject to approval by the
Board of Directors
The 2021 Annual General Meeting of
Shareholders of The North West Company Inc.
will be held on Wednesday, June 9, 2021 at
11:30 am (Central Time) by virtual only meeting
via live audio webcast online at:
https: web.lumiagm.com/443936254
Transfer Agent and Registrar
AST Trust Company (Canada)
600 The Dome Tower
333-7th Ave SW
Calgary, AB
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, 2021: 48,613,319
Auditors
PricewaterhouseCoopers LLP
Five Year Compound Annual Growth (%)
80THE NORTH WEST COMPANY INC. 2020
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 & Chief Executive Officer
Daniel G. McConnell
President, International Retail
Alex S. Yeo
President, Canadian Retail
John D. King
Executive Vice President &
Chief Financial Officer
Gary Merasty
Executive Vice-President &
Chief Development Officer
Leanne G. Flewitt
Vice-President, Logistics, Supply Chain
& Distribution (Canadian Operations)
Matt D. Johnson
Vice-President, Cost-U-Less Procurement &
Marketing
Laurie J. Kaminsky
Vice-President, NWC Health Products &
Services
Frank W. Kelner
Chairman & Chief Executive Officer,
North Star Air Ltd.
Thomas J. Meilleur
Vice-President, North Star Air Ltd.
BOARD OF DIRECTORS
H. Sanford Riley, Chairman
Brock Bulbuck, CPA, CA 2, 3
Deepak Chopra, FCPA, FCGA 2, 3
Frank J. Coleman 2, 3
Wendy F. Evans 1, 3
Stewart Glendinning 1, 2
Edward S. Kennedy
Annalisa King 1, 2
Violet A. M. Konkle 1, 3
Jennefer Nepinak 2, 3
Kyle A. Hill
Executive Vice-President, Procurement &
Marketing, Alaska Commercial Company
Walter E. Pickett
Vice-President & General Manager,
Alaska Commercial Company
Eric L. Stefanson, FCPA, FCA 1, 2
Victor Tootoo, CPA, CGA 1, 2
Cole J.A. Akerstream
Vice-President, Corporate Development
Kevin T. Sie
Vice-President, Finance
Michael T. Beaulieu
Vice-President, Canadian Store Operations
Jeffrey B. Stout
President & Chief Operating Officer,
North Star Air Ltd.
Steven J. Boily
Vice-President, Information Services
Amanda E. Sutton
Vice-President, Legal & Corporate Secretary
David M. Chatyrbok
Vice-President, Canadian Procurement &
Marketing
James W. Walker
Vice-President & General Manager,
Wholesale Operations (International
Operations)
BOARD COMMITTEES
1 Governance and 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
81ANNUAL REPORT 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