The North West Company Inc.
2021 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, 2022
Year Ended
January 31, 2021
Year Ended
January 31, 2020
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
$
$
2,248,796
(0.4) %
311,375
220,425
157,451
154,802
224,135
$
$
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
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 attributable to shareholders
Cash flow from operating activities
Market price: January 31
high
low
$
1,219,273
$
1,191,168
$
1,215,536
235,640
580,204
281,422
505,231
410,965
426,970
.41:1
23.8 %
29.0 %
76.7 %
23.3 %
6.35
3.16
4.57
35.05
38.20
30.24
$
$
.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
(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. 2021
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 ................................................................................
Disclosure Controls ...................................................................................................
Internal Controls Over Financial Reporting ................................................................
Outlook .....................................................................................................................
Risk Management .....................................................................................................
Corporate Social Responsibility & Sustainable Development .....................................
Critical Accounting Estimates ....................................................................................
Future Accounting Standards ....................................................................................
Non-GAAP Financial Measures ..................................................................................
Glossary of Terms & Abbreviations ............................................................................
Eleven-Year Financial Summary ................................................................................
Consolidated Financial Statements
Management’s Responsibility for Financial Statements .............................................
Independent Auditor’s Report ...................................................................................
Consolidated Balance Sheets .....................................................................................
Consolidated Statements of Earnings ........................................................................
Consolidated Statements of Comprehensive Income ...............................................
Consolidated Statements of Changes in Shareholders’ Equity ...................................
Consolidated Statements of Cash Flows ....................................................................
Notes to Consolidated Financial Statements .............................................................
Shareholder Information .......................................................................................
Corporate Governance ...........................................................................................
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MANAGEMENT'S DISCUSSION & ANALYSIS
FORWARD-LOOKING STATEMENTS
Inc. (“NWC”) and
Unless otherwise stated, this Management's Discussion & Analysis
its
(“MD&A”) for The North West Company
subsidiaries (collectively, “North West Company”, the “Company”,
“North West”, or “NWC”) is based on, and should be read in
conjunction with the 2021 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, 2022 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 13, 2022
and the information contained in this MD&A is current to April 13,
2022, 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,
supply chain and the Company's related business continuity plans,
the realization of cost savings from 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 changes
in economic conditions, political and market factors in North
America and internationally. These factors include, but are not
limited to, the duration and the impact of the COVID-19 pandemic,
changes in inflation, interest and foreign exchange rates, the
Company's ability to maintain an effective supply chain, changes in
accounting policies and methods used to report financial condition,
including uncertainties associated with critical accounting
assumptions and estimates, the effect of applying future accounting
changes, business competition, technological change, changes in
government regulations and
laws,
unexpected judicial or regulatory proceedings, catastrophic events,
the Company's ability to complete and realize benefits from capital
projects, E-Commerce investments, strategic transactions and the
integration of 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.
legislation, changes
in tax
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. 2021 President & CEO Message
I am deeply honored to write my first letter as CEO of the North
West Company, and extremely proud of what we have been able to
accomplish in 2021. As I reflect on this fiscal year, I must start by
expressing my gratitude to our People. Thousands of team members
across the organization made it possible for us to welcome our
customers to our stores every day, while navigating the challenges of
the Covid-19 pandemic for the second year. They are true leaders,
whose passion and dedication enable us to continue helping to
make people’s lives better in the communities we serve.
We began 2021 guided by three principles that directed our
pandemic response: Health and Safety of our customers and
employees, Product Availability and finally Community Focus. The
pandemic lingered for most of 2021, and these guiding principles
proved to be the cornerstone of our actions that propelled much of
our success. By adhering to them, we were able to showcase the
deeply rooted attributes of resiliency, adaptability and enterprising
spirit that are trademarks of our culture, and the reason why we’ve
been a leading provider of everyday products and services to
smaller, geographically distant communities for so long.
Health and Safety – The variants of COVID-19 that started
emerging in 2021, first with Delta and then Omicron, tested our
agility and focus with each new infection but we conquered each
wave. Government income support payments for individuals were
extended at the beginning of the year and started winding down
towards the end, while travel restrictions impacted our communities
to various degrees. Our pandemic response continued to focus on
the health and safety of our staff and customers through enhanced
cleaning and sanitization procedures, face mask protocols and
physical distancing. We offered curbside pickup and home delivery
services
implementing strict
protocols that ensured the safety of our staff, customers and
community members.
in high-risk communities while
Product Availability – Our teams understood that the supply
chain environment we operated in 2021 had the potential of putting
at risk our ability to have the essential items for our customers, on
top of dealing with inflationary pressures. We partnered with our
vendors, transportation companies and community organizations to
ensure we maintained a strong in-stock position on the everyday
essential items our customers depend on. We also focused on
advancing our purchase of inventory across our network to avoid
potential supply chain congestion and the impact of extended lead
times.
The North West Company has a competitive advantage in
northern Canada by owning North Star Air (”NSA”). Our cargo airline
provided agility in navigating supply chain constraints and increased
customer demand. In the fourth quarter, we also put in service our
new ATR-LCD (Large Cargo Door). This aircraft is equipped with an
over-sized panel door that facilitates loading and unloading of
palletized cargo. We are using this aircraft as a proof-of-concept, to
test the reduction of aircraft turn times and labour requirements for
both third party and our own cargo, as we incorporate learnings and
apply innovative solutions to improve our fleet and supply chain
capabilities.
We also secured an additional warehouse in Winnipeg to help
optimize our ability to move heavy and high cube merchandise to
our stores using the lower freight cost winter road network.
Community Focus – Being a dependable, community-based
retailer has always been our commitment, but in the face of the
felt the need to do more. Our
pandemic challenges, we
commitment is stronger than ever. In 2021, we donated $2.1 million
throughout our different geographies to non-profit organizations,
food banks and strategic partners. We also partnered with Harvest
Manitoba and the Assembly of Manitoba Chiefs to enable a donation
of 1,000 boxes of baby food to several communities in Manitoba.
Many community leaders have reached out to me to recognize
the extra efforts of our store teams in keeping the stores open and
safe and, in many cases, offering extra support to vulnerable
customers. An example that showcases this commitment occurred
in October 2021, when a state of emergency was declared and
Iqaluit's residents were warned that local water supplies were unsafe
to consume. Our support office, warehouse and airline teams
partnered to swiftly respond and began the process of moving over
112,000 pounds of water to the market.
In Alaska, we delivered 3 million pounds of fresh food to 115
communities through the USDA Farmers to Families Food Box
program. The food boxes were evenly allocated between rural
villages and urban centers across Alaska and delivered free of charge
to tribal governments, food banks, churches and other non-profits
who managed the distribution to families. These actions have not
only strengthened our relationships with the communities we serve,
but also reinvigorated our purpose as an organization.
Our enterprising spirit and growth focus drive our
results – Today, our enterprising spirit is stronger than ever as we
continue to expand our retail footprint with new stores and new
concepts. In Canada, we opened a new “healthier-for-you” store,
Inuulisautinut Niuvirvik, in Iqaluit, Nunavut. The name means “a place
to get things for a healthy mind and body”. It includes healthier
grocery options, a Booster Juice, full pharmacy and optical. This is a
new concept store, a
first-of-a-kind wellness hub, that the
community has received with excitement for the new services it
offers and for the employment opportunities we are able to provide
for the community.
In our International Operations, we opened Alaska Commercial
Company (“AC”) stores in three new communities: Skagway, Galena
and Gambell. These communities have welcomed us and are
enthusiastic to have an AC store for the first time. In the British Virgin
Islands, we transformed the Cash & Carry store into the newly
designed ‘Riteway Home’ store, creating the island’s premier place to
shop for General Merchandise and Home Goods.
Over the past two years, we have also leveraged our supply
chain and logistics capabilities to expand our B-to-B sales. During the
early days of the pandemic, it started with supplying essential
products and Personal Protective Equipment
local
governments and hospitals, as well as food hampers in a time of
need. We saw the opportunity to leverage our capabilities by
expanding our network of services across our Canada and
International networks providing not only medical supplies and
masks but also other essentials for communities including food
boxes, refrigerators and hospital beds, to name a few.
(“PPE”) to
3ANNUAL REPORT
These new enterprising ventures, and our focused commitment
to execute within the three guiding principles outlined above, have
translated
into meaningful results. Consolidated net earnings
increased $13.9 million or 9.7% compared to 2020 and $71.2 million
or 82.5% compared to 2019, while diluted earnings per share
increased 12.1% to $3.16 compared to $2.82 last year.
This journey has highlighted the benefits of our strategic
initiative of decentralizing our banner operations. There is a President
at the helm of each of our business units: Northern Canadian Retail in
Winnipeg, Alaska Commercial Company in Anchorage, and the
Caribbean and Pacific Banners in Boca Raton. Our commitment to
assign the highest possible level of authority and accountability to
those who are as close as possible to our customers has allowed us
to be closer to our markets and to uncover and capitalize on the
greatest opportunities.
Our company has a rich history and a compelling story we want
to share with our People, Communities, Shareholders, Suppliers and
other Stakeholders in a more meaningful way, and we are aligning
our efforts to accomplish this in the near future. This includes our
initiatives around ESG, to which our sustainability report will provide
further details later this year in June.
I would like to close with a message of gratitude. I would like to
once again thank our passionate and committed people and teams.
We are moving with purpose towards the future, and their everyday
actions are the foundation upon which the trust of our customers,
communities and shareholders is built. I am confident that by
aligning our business model to our value proposition of bringing to
communities products and services that help people live better, we
will be able to keep up the great momentum we have and position
the North West Company for success in the years to come.
Daniel G. McConnell
President & CEO
April 13, 2022
Looking Ahead – A post-pandemic environment will have
lingering challenges as we enter 2022 with similar supply chain
constraints world-wide, coupled with
inflationary
pressures and lower income support in our markets.
increasing
We will focus our efforts to continue to capture market share
through better in-store assortment and execution. We will invest in
our stores with store renovations that were postponed during the
pandemic. We are also working on optimizing our cost and pricing
as we deal with inflationary pressures and continue to deliver value
to our customers.
To grow, we will continue to explore opportunities in new
markets, new channels, as well as in new products and services. This
includes pursuing B-to-B opportunities. We will also continue with
our Alaska Commercial expansion this year, adding new stores in
new communities, as well as the launch of our new E-Commerce
platform.
These initiatives will be accompanied by strategies to attract
and retain top talent, including Diversity, Equity and Inclusion efforts.
In 2021, we launched a corporate-wide survey as a way to listen and
learn from our associates. We will use the feedback to develop a
Diversity, Equity and Inclusion framework that prioritizes creating a
more inclusive culture, developing diverse talents and advancing
diverse partnerships. This
includes a commitment to closer
collaborative relationships with the Indigenous Peoples that we are
privileged to serve and work with around the world.
4THE NORTH WEST COMPANY INC. 2021
Dan and his team have put a lot of effort into leading the
journey of Truth and Reconciliation our Board is on as we seek to
build deeper, more constructive relationships with the communities
we serve, which is the most important aspect of North West’s
approach to ESG.
ESG
is a popular acronym for the
increasing focus that
Shareholders are expecting companies to have in dealing with the
existential
issue of climate change, ensuring good corporate
governance practices, and contributing positively to the social and
economic fabric of the communities they serve.
Our Board has focused our ESG efforts on doing those things
that matter most to the communities we serve and, therefore, our
shareholders. By way of example, it’s difficult for us to take aggressive
positions on carbon reduction, given that many of the communities
we serve have no access to electricity grids and are required to heat
and power their communities with diesel fuel. It’s not that climate
change
just that these communities, and
therefore North West, currently don’t have the same ability to
minimize their carbon footprints because of where they are located.
is unimportant,
it’s
On the other hand, our efforts to help build capacity in the
communities we serve is absolutely crucial to our future success-as is
the importance for us to ensure diversity in our workforce and on our
Board, given the diverse nature of the markets we operate in.
ESG is going to continue to be a significant focus for all
companies, but especially at North West, in the years ahead. It’s my
hope that our efforts will not be driven by a cookie cutter approach
in which our performance is measured off check lists prepared by
ESG “experts” but rather that we will be assessed by our shareholders
on the basis of what aspects of ESG matter most to our specific
circumstances. Our belief is that shareholders will appreciate the
thoughtfulness that we have employed in this process and it’s direct
connection to the creation of shareholder value in our business.
A common theme of my notes to shareholders in recent years
has been the fact that we have been undergoing an orderly
transition in our Board composition and leadership. Over the past
several years, several long-standing directors have retired and we’ve
welcomed a number of new faces to the Board who have brought
their own skills and experiences to bear on the affairs of the
Company. This year, we were delighted to welcome Steve Kroft, the
Executive Chairman of CEL Group of Companies, to our Board. Steve
brings a wealth of business and community experience to our Board
and is already having a significant impact on our deliberations.
Chairman's Message
Last year, as I wrote this report to shareholders, we were
experiencing a lull in the global COVID pandemic. As I review what I
wrote then, I realize that there was a tone of optimism which turned
out to be premature. After a brief summer respite, the Delta and
Omicron variants struck and we were back into a world of masks,
quarantines, and restrictions on travel and public gatherings. It has
been a long two years, with extraordinary challenges for both the
psyches of our people, customers, and communities, and for the
ability of North West to meet the requirements of our customers
during the pandemic. But we have prevailed – meeting the most
important needs of the people who depend upon us while
producing record results for our shareholders.
And so I want to start this message where I concluded last year,
by acknowledging the remarkable work that Nor’Westers did this
past year. Our people maintained their passion for serving the
communities in which they live and work and, in an extraordinary
way, helped everyone get through the most worrying and stressful
time that most of us have ever experienced.
The most significant development for North West this year, and
the focus of your Board’s attention, was the retirement of our long-
standing Chief Executive Officer Edward Kennedy and
the
appointment of his replacement, Dan McConnell.
The Board recognized the daunting challenge of replacing a
CEO with 30 years’ experience but we did have the luxury of time to
help prepare Dan for his new role and to manage the transition from
Edward over a period of several years.
Having selected Dan, the Board’s focus this year shifted to
providing support for Dan’s efforts to start putting his stamp on
North West.
As a result, Dan hit the ground running. Most obviously, our
financial results across all banners continued to be very strong, with
sales of $2.2 billion and net earnings of $157.5 million, both at levels
which far exceed pre-pandemic levels.
But change also brings the opportunity for new perspectives on
how we do business, for new ways of thinking about things, and for
new leaders to emerge. Dan has reshaped North West’s senior
leadership team by giving additional responsibilities to a number of
our most talented executives and by adding new people to the
Company who bring deep knowledge and experience in retailing. It
is exciting to watch as this group of men and women start to make
their mark on North West. In particular I want to acknowledge the
leaders of the different banners who are all new to their positions,
Jim Caldwell, President of Canadian Retail, Kyle Hill, President Alaska
Commercial Company, and Kevin Proctor, President of Cost-U-Less
and Riteway Foods.
Our Executive Vice President and Chief Financial Officer, John
King, has continued to provide us with the continuity of experience
leadership
and knowledge which
transition.
is essential to a successful
And, finally, Dan has added Alison Coville to our team as Chief
People Officer. Her job is particularly significant because of the
special challenges and potential that exist in our more remote
communities to build stronger partnerships and create career
opportunities for the people who live there.
5ANNUAL REPORT The final piece of our transition process is to determine Board
leadership which will work closely with Dan and his team in the years
ahead.
I have had the privilege of serving as Chairman of the North
West Company for over a decade. It has been one of the most
rewarding experiences of my business career but it’s now time for a
new set of hands to lead our revitalized Board on the next leg of the
journey – I am retiring at this AGM, but I’m delighted that Brock
Bulbuck has agreed to assume the Role of Board Chairman. I know
he, and for that matter, all Board members will do a great job on
behalf of our shareholders.
I have a great deal of confidence in the future of our Company
and I thank all Nor’Westers and my colleagues on the Board for their
contributions to the success of the Company, and for their
friendship.
On behalf of the Board, thank you!
H. Sanford Riley
Chairman, Board of Directors
April 13, 2022
6THE NORTH WEST COMPANY INC. 2021 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.
Our stores in Alaska and northern Canada serve communities
with populations ranging from 300 to 9,000. A typical store is 6,500
square feet in size and offers food, family apparel, housewares,
appliances, outdoor products and services such as fuel, post offices,
pharmacies, income tax return preparation, quick-service prepared
food, prepaid card products, ATMs, cheque cashing and proprietary
credit programs.
Growth at North West is driven by market share capture within
existing locations and from applying our expertise and infrastructure
to new product categories, markets and complementary businesses.
The latter includes vertical investments in shipping and air cargo,
wholesaling to independent stores, and retailing through mid-sized
warehouse and supermarket format stores serving the South Pacific
islands and the Caribbean.
A key strength and ongoing strategy of North West is our ability
to seize unique community-by-community selling opportunities
better
than our competition. Flexible store models, store
management 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;
26 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;
3 Pharmacy and Convenience stores, stand-alone northern
pharmacies and convenience stores;
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
30 Alaska Commercial Company ("AC") stores, similar to
Northern and NorthMart, offering a combination of food and
general merchandise to communities across remote and rural
regions of Alaska;
4 Quickstop convenience stores within rural Alaska;
Pacific Alaska Wholesale ("PAW"), a leading distributor to
independent grocery
stores, commercial accounts and
individual households in rural Alaska;
12 Cost-U-Less ("CUL") mid-size warehouse stores, offering
discount food and general merchandise products to island
communities in the South Pacific and the Caribbean; and
9 Riteway Food Markets and a significant wholesale
operation (collectively "RTW") in the British Virgin Islands.
7ANNUAL REPORT
VISION
At North West our mission is to be a trusted provider of goods and
services within harder-to-access, under-served 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 strive to be a preferred,
fulfilling place to work. For our investors, we strive 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 and the opportunity to
make a positive impact 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;
investing in new markets, product categories and services and
identifying complimentary growth opportunities that leverage
our core remote market capabilities and expertise;
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; and
ensuring that we are responsible towards stakeholder interests
and that our workforce is inclusive of the diverse peoples and
cultures that make up the communities we are part of.
Our key initiatives together with the results for 2021 are as follows:
Initiative #1
COVID-19 Risks and Opportunities
This high priority work was focused on providing a safe, reliable
service to our customers and employees, mitigating supply chain
disruptions and being in-stock on essential everyday products, and
capturing sales opportunities.
Result
•
Store safety and business continuity was maintained with
minimal employee COVID-19 cases and non-mandated service
disruptions through the exceptional efforts of our front-line
associates; and
Superior in-stock performance and enterprising responses to
new opportunities such as delivering 3.3 million pounds of
produce, dairy and meat to 115 communities throughout
Alaska in connection with the USDA Farmers to Families Food
Box Program and expanded B-to-B contract sales and special
order services, contributed to retaining and growing market
share.
Initiative #2
Investing in New Markets, Products and Services
This initiative focuses on growing our business through store
openings and expanding products and services within our core
capability as an essential everyday products and service provider.
Result
•
includes a
Stores were opened in new markets in Skagway, Galena and
Gambell, Alaska;
A wellness-focused concept store which
full
pharmacy, our first offering of optical services, groceries with an
emphasis on organic and healthy-eating options, Booster Juice,
and other health products opened in Iqaluit, Nunavut;
Quickstop convenience stores were opened in Rankin Inlet and
Clyde River, Nunavut;
Increased tele-pharmacy services to 64 contracts compared to
51 last year; and
Development work began on a new E-Commerce platform that
will leverage our logistics and supply chain capability in Alaska
to expand B-to-B and B-to-C sales beginning in the third quarter
2022.
Initiative #3
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. This initiative is
focused on optimizing our air cargo to provide faster, more reliable
and lower cost transportation service to our stores and customers in
remote markets.
•
•
•
•
•
THE NORTH WEST COMPANY INC. 20218 Result
•
NSA's cargo aircraft utilization rates continued to exceed annual
targets and delivered consistent service to northern Canada
stores and to external customers, within a challenging
COVID-19 environment;
An ATR 72-500 series aircraft configured for cargo and modified
to include a large cargo door was put into operation in the
fourth quarter of 2021. The large cargo door modification
enables loading and unloading efficiencies and provides NSA
with greater flexibility to offer cargo service for larger items; and
"Next Gen" efficiency work including the implementation of the
lighter pallet program, double-decker truck to plane loads and
investments in expanded hangar facilities achieved the planned
operational efficiencies in cargo handling and freight savings.
Initiative #4
Next Generation Merchandise and Store Systems ("Project
Enterprise")
Project Enterprise is focused on implementing higher capability
point-of-sale ("POS"), merchandise management ("MMS"), which
includes pricing, promotions, category management and vendor
revenue management, and workforce management
("WFM")
systems. This initiative is expected to deliver improvements in pricing
and margins, inventory and store staff productivity.
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 help mitigate inflationary price increases, 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.
Result
Prior to 2021, WFM was implemented in all stores, the new POS was
installed in all AC and CUL stores and MMS was implemented in
Canada. In 2021, the new POS system was installed in 56 Northern
stores however, the roll-out could not be completed due to
COVID-19-related travel restrictions. The remaining Canadian stores
are expected to be completed in early 2023. The implementation of
MMS in International Operations began in 2021 and is expected to
be completed later in 2022 for Alaska stores and in 2023 for CUL
stores.
Our ability to develop highly capable store level employees and
work practices: Store work and related processes 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.
Initiative #5
People and Culture - Diversity, Equity and Inclusion
This work is focused on ensuring that our workforce is inclusive of
the diverse peoples and cultures that make up the communities we
serve.
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.
Result
•
Completed a corporate-wide Diversity, Equity and Inclusion
survey as a way to listen and learn from our associates. The
insights will be used to develop a Diversity, Equity and Inclusion
framework that prioritizes creating a more inclusive culture and
developing diverse talents;
Employees completed over 2,500 e-learning modules, including
modules on cultural awareness and six new on-line courses
were launched; and
Achieved 100 percent participation of new Northern/NorthMart
store management
Indigenous Cultural
Awareness program through our Training Centre.
trainees
in an
•
•
•
•
9ANNUAL REPORT Consolidated Results
2021 Highlights
•
•
•
•
•
•
•
•
•
•
•
Net earnings increased $13.9 million or 9.7% and were up 82.5%
compared to 2019.
Earnings from Operations ("EBIT") increased 5.3% and were up
69.1% compared to 2019.
EBITDA(1) increased 3.3% on top of a 37.3% increase in 2020.
Same store sales(2) were marginally lower by 0.4% compared to
a 19.0% increase in same store sales last year.
Six new stores were opened, three in Canada and three in
International Operations.
Alaska Commercial Company delivered 3.3 million pounds of
produce, dairy and meat to 115 communities in Alaska in
connection with the Farmers to Families Food Box Program.
Return on equity(1) was 29.0% and has averaged 22.7% over the
past 10 years.
Return on net assets(1) improved to 23.8% compared to 22.4% in
2020.
Debt-to-Equity decreased to 0.41 compared to 0.56 at January
31, 2021.
Quarterly dividends increased $0.01 per share or 2.8% to $0.37
per share in July 2021.
The Company purchased 807,037 shares under a normal course
issuer bid.
FINANCIAL PERFORMANCE
Some of the key performance indicators used by management to
assess results are summarized in the following table:
Key Performance Indicators and Selected Annual Information
($ in thousands, except per share)
2021
2020
2019
Sales
$ 2,248,796
$ 2,359,239
$ 2,094,393
Same store sales % increase/
(decrease)(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)
(0.4) %
19.0 %
1.3 %
$ 311,375
$ 220,425
$ 157,451
$
$
$
301,427
$ 219,575
209,349
$ 130,353
143,560
$
86,273
$ 154,802
$
139,874
$
$
82,724
1.68
2.82
338,718
$ 161,117
1.38
$
1.32
$
3.16
$ 224,135
$
$
$
Cash dividends per share
$
1.46
Total assets
$ 1,219,273
$ 1,191,168
$ 1,215,536
Total long-term liabilities
Return on net assets(1)
Return on average equity(1)
$ 344,579
$
370,802
$ 594,482
23.8 %
29.0 %
22.4 %
30.7 %
13.5 %
20.5 %
(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 2021 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 favour of in-community and
at-home activities resulting from travel restrictions and supported by
enhanced government income support payments to individuals.
COVID-19 resulted in global supply chain disruptions however, the
Company was able to maintain a good in-stock position by working
with our vendor partners and leveraging our logistical expertise
which helped ensure an adequate supply of essential products in the
communities we serve. These COVID-19-related factors contributed
to exceptional sales gains in 2020 and had a positive impact on sales
in 2021 but to a lesser extent due to fewer travel restrictions and the
winding down of consumer income support payments. These factors
were partially offset by periodic government mandated COVID-19-
related community curfews and store closures over the past two
years, the impact of 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”). 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 pre-tax gain of $24.7 million or $20.0
million net of tax on the sale of the 36 stores and recorded a $9.4
million asset impairment and store closure provision substantially
related to a reduction in the carrying amount of fixtures and
equipment and right-of-use assets in 2020. Further information on
the Giant Tiger Transaction
in Note 24 to the
consolidated financial statements.
is provided
A comparison of sales and earnings financial measures to 2019 have
been provided to assist in interpreting the impact of COVID-19 and
the Giant Tiger Transaction on the financial results. The calculation of
same store sales compared to 2019 exclude the Acquired Stores and
stores that were closed
in connection with the Giant Tiger
Transaction.
Consolidated Sales Sales for the year ended January 31, 2022
(“2021”) decreased 4.7% to $2.249 billion compared to $2.359 billion
for the year ended January 31, 2021 (“2020”), but were up 7.4%
compared to $2.094 billion for the year ended January 31, 2020
(“2019”). The decrease in sales compared to 2020 was largely due to
lower sales in Giant Tiger stores resulting from the sale and closure of
most of the Company's Giant Tiger stores last year net of the impact
of wholesale food sales to the sold Giant Tiger stores in connection
with the Giant Tiger Transaction and the impact of foreign exchange
on the translation of International Operations sales. Excluding the
foreign exchange impact, sales decreased 2.6% from 2020 but were
up 8.6% from 2019. These factors were partially offset by the impact
of new stores. The increase in sales compared to 2019 is due to the
COVID-19-related sales factors previously noted, the impact of new
stores and the re-opening of the Company's CUL store in St. Thomas,
USVI in the fourth quarter of 2019, which was destroyed by hurricane
Irma in the third quarter of 2017, partially offset by lower sales in
Giant Tiger stores resulting from the Giant Tiger Transaction.
10THE NORTH WEST COMPANY INC. 2021 On a same store basis, sales remained strong and were only
down 0.4% compared to an exceptional COVID-19-related same
store sales increase of 19.0% in 2020 and 1.3% in 2019 as shown in
the following table.
Same Store Sales
(% increase/(decrease))
Food
General merchandise (GM)
Total food & GM sales
2021
0.4 %
(4.2) %
(0.4) %
2020
15.6 %
36.1 %
19.0 %
2019
1.9 %
(1.1) %
1.3 %
Consolidated food sales decreased 4.3% from 2020 and were
down 1.8% excluding the foreign exchange impact. Same store food
sales increased 0.4% on top of a 15.6% increase last year and were up
16.3% compared to 2019. On a quarterly basis, same store sales
increased 0.5% compared to the first quarter last year, decreased
2.1% in the second quarter and increased 0.9% and 2.6% in the third
and fourth quarters respectively. Canadian food sales decreased 5.9%
and International food sales increased 4.2% excluding the foreign
exchange impact.
(1) See Non-GAAP Financial Measures section.
Gross Profit Gross profit decreased 4.8% to $737.8 million
compared to $774.6 million last year due to lower sales. The gross
profit rate decreased 2 basis points compared to last year as higher
gross profit rates in Canadian Operations were offset by lower gross
profit rates in International Operations.
Consolidated general merchandise sales decreased 17.0%
compared to 2020 and were down 16.5% excluding the foreign
exchange impact. Same store general merchandise sales decreased
4.2% for the year compared to a 36.1% increase last year, but were
up 38.1% compared to 2019. On a quarterly basis, same store sales
increased 23.9% in the first quarter followed by decreases of 16.7%,
5.7% and 9.2%
last three quarters. Canadian general
merchandise sales decreased 22.6% due to the exceptional
COVID-19-related sales gains and the impact of the Giant Tiger
International general merchandise sales
Transaction
increased 3.1% excluding the foreign exchange impact led by same
store sales gains and new stores.
last year.
in the
Other sales, which include airline revenue, financial services, fuel
and pharmacy, increased 16.4% compared to 2020 mainly due to
higher passenger revenues in NSA which improved compared to
lower passenger revenues last year due to COVID-19-related travel
restrictions. An increase in pharmacy and fuel sales were also factors.
Other sales increased 16.2% compared to 2019 mainly due to higher
cargo revenues in NSA and sales gains in pharmacy.
Sales Blend The table below shows the consolidated sales blend
over the past three years:
Food
General merchandise and
other
2021
76.7 %
2020
76.4 %
2019
75.2 %
23.3 %
23.6 %
24.8 %
Canadian Operations accounted for 57.4% of total sales (58.3% in
2020 and 60.7% in 2019) while International Operations contributed
42.6% (41.7% in 2020 and 39.3% in 2019).
Selling, Operating and Administrative Expenses Selling,
operating and administrative expenses (“Expenses”) of $517.3 million
decreased $47.9 million or 8.5% compared to last year and were
down 96 basis points as a percentage of sales. The decrease in
Expenses is largely due to lower store expenses related to the Giant
Tiger Transaction, a decrease in COVID-19-related expenses and the
impact of foreign exchange on the translation of International
Operations Expenses. COVID-19 expenses related to wage increases
for front-line associates, the purchase of protective equipment and
enhanced sanitation procedures were $9.3 million this year
compared to $19.6 million last year. Lower annual incentive plan
costs also contributed to the decrease in Expenses. The impact of
Non-Comparable Factors, which includes a $10.6 million decrease in
share-based
to mark-to-market
adjustments, a $12.8 million increase in insurance-related gains this
year, and a $9.4 million Giant Tiger store closure provision and a
$24.7 million gain related to the Giant Tiger Transaction last year,
were also factors. Further information on share-based compensation
costs is provided in Note 14 and Note 18 to the consolidated
the Non-Comparable Factors,
financial statements. Excluding
Expenses decreased $39.7 million or 7.1% due to the factors
previously noted.
compensation
costs due
interest,
Earnings from Operations (EBIT) and EBITDA(1) Earnings from
operations or earnings before interest and income taxes ("EBIT”)
increased 5.3% to $220.4 million compared to $209.3 million last year
and were up $90.1 million or 69.1% compared to 2019 due to the
sales, gross profit and Expense factors previously noted. Earnings
income taxes, depreciation and amortization
before
("EBITDA(1)") increased 3.3% to $311.4 million compared to $301.4
million last year and was up $91.8 million or 41.8% compared to
2019. Adjusted EBITDA(1), which excludes the
impact of the
previously noted Non-Comparable Factors, increased $1.8 million or
0.6% on top of the exceptional COVID-19-related earnings gains last
year and was up $100.2 million or 48.9% compared to 2019 driven by
earnings gains in both Canadian and International Operations.
Additional information on the financial performance of Canadian
Operations and International Operations is provided on pages
13 and 15 respectively.
Interest Expense Interest expense decreased 22.3% to $13.1
million compared to $16.8 million last year. This decrease is due to
lower average debt levels partially offset by higher interest rates.
11ANNUAL REPORT Average debt levels decreased 26.7% compared to last year mainly
due to a decrease in amounts drawn on revolving loan facilities. The
average cost of debt was 3.4% compared to 3.2% last year. Further
information on interest expense is provided in Note 19 to the
consolidated financial statements.
Total Assets Consolidated total assets for the past three years is
summarized in the following table:
($ in thousands)
2021
2020
2019
Total assets
$ 1,219,273
$
1,191,168
$
1,215,536
Income Tax Expense Income taxes increased to $49.9 million
compared to $49.0 million last year and the effective tax rate for the
year was 24.1% compared to 25.4% last year. The increase in income
tax expense is due to higher earnings partially offset by a lower
effective tax rate. The decrease in the effective income tax rate is
primarily due to the change in the amount of non-deductible share-
based compensation costs in Canadian Operations compared to last
year, a decrease in the Global Intangible Low-Taxed Income ("GILTI")
tax and the blend of earnings in International Operations across
various tax rate jurisdictions. The effective income tax rate may also
fluctuate as a result of various factors, including changes in tax law,
the impact of discrete items and changes in tax estimates. 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 9.7% to
$157.5 million compared to $143.6 million last year and were up
82.5% or $71.2 million compared to 2019. Net earnings attributable
to shareholders of the Company were $154.8 million compared to
$139.9 million last year and diluted earnings per share were $3.16 per
share compared to $2.82 per share last year due to the factors
previously noted. Excluding the impact of the previously noted Non-
Comparable Factors, adjusted net earnings1 increased $8.6 million or
5.9% compared to last year and were up $78.0 million or 103.5%
compared to 2019 due to the sales, gross profit and Expense factors
that contributed to earnings gains in Canadian and International
Operations. In 2021, the average exchange rate used to translate
International Operations sales and expenses was 1.2526 compared to
1.3390 last year and 1.3246 in 2019.
The Canadian dollar's appreciation versus the U.S. dollar compared
to 2020 had the following net impact on the 2021 results:
Sales........................................................................decrease of $66.1 million or 6.5%
Earnings from operations..............................................decrease of $4.6 million
Net earnings...........................................................................decrease of $3.6 million
Diluted earnings per share...................................decrease of $0.07 per share
Consolidated assets increased $28.1 million or 2.4% compared to
2020 and were up $3.7 million or 0.3% compared to 2019. The
increase in consolidated assets compared to last year is largely due
to an increase in inventories, property and equipment and deferred
tax assets partially offset by a decrease in cash and right-of-use
assets. Further information on the change in current assets is
provided in the working capital section below. The increase in
property and equipment is due to new stores, store renovations and
investments in aircraft. The increase in deferred tax assets is due to a
decrease in deferred income tax liabilities for income earned in the
limited partnership in Canadian Operations. Further information on
deferred tax assets is provided in the net assets employed section
under Canadian Operations and in Note 10 to the consolidated
financial statements. The decrease in right-of-use assets is due to
amortization which more than offset the impact of new leases and
lease renewals.
The increase in consolidated assets compared to 2019 is
primarily due to higher cash partially offset by a decrease in income
tax receivable and deferred tax assets. The Giant Tiger Transaction
was the primary factor contributing to the decrease in right-of-use
assets which was more than offset by the promissory note. The
impact of foreign exchange was also a factor, particularly compared
to 2019, as the year-end exchange rate used to translate
International Operations assets decreased to 1.2727 compared to
1.2776 last year and 1.3224 in 2019.
Consolidated working capital for the past three years
is
summarized in the following table:
($ in thousands)
Current assets
Current liabilities
Working capital
2021
2020
2019
$ 403,358
$ 396,860
$ 399,593
$ (294,490)
$ (315,135)
$ (194,084)
$ 108,868
$ 81,725
$ 205,509
Working capital increased $27.1 million or 33.2% to $108.9
million compared to 2020 but decreased $96.6 million or 47.0%
compared to 2019. Current assets increased $6.5 million or 1.6%
compared to last year and were up $3.8 million or 0.9% compared to
2019. The increase in current assets compared to 2020 is primarily
due to an increase in accounts receivable and inventories partially
offset by a decrease in cash. Further information on accounts
receivable and inventories is provided in the net assets employed
section under Canadian Operations and International Operations.
Further information on the decrease in cash is provided in the
consolidated statements of cash flows and the Liquidity and Capital
Resources section.
Current liabilities decreased $20.6 million or 6.6% compared to
last year but were up $100.4 million or 51.7% compared to 2019. The
decrease compared to 2020 is substantially due to a $44.2 million
decrease in the current portion of long-term debt related to the
$45.1 million loan facilities that mature on September 26, 2022
compared to the $89.3 million (U.S. $70.0 million) senior notes that
matured in June 2021. Further information on long-term debt is
provided in the Consolidated Liquidity and Capital section and in
Note 12 and Note 25 to the consolidated financial statements. The
decrease in current portion of long-term debt was partially offset by
an increase in accounts payable and accrued liabilities mainly due to
the timing of payments of trade accounts payable. The increase in
current liabilities compared to 2019 is due to an increase in the
12THE NORTH WEST COMPANY INC. 2021 current portion of
long-term debt and accounts payable as
previously noted. Further information on working capital for the
Canadian Operations and International Operations is on page 13 and
page 15 respectively.
Return on net assets employed increased to 23.8% compared to
22.4% in 2020 due to a 5.3% increase in EBIT and a 0.8% decrease in
net assets employed. Additional information on net assets employed
for the Canadian Operations and International Operations is on page
14 and page 16 respectively.
Return on average equity decreased to 29.0% compared to
30.7% in 2020 as a 9.7% increase in net earnings was more than
offset by higher average equity due to an increase in retained
earnings compared to last year. Further information on shareholders'
equity is provided in the consolidated statements of changes in
shareholders' equity in the consolidated financial statements.
(1) See Non-GAAP Financial Measures section.
Total Long-Term Liabilities Consolidated total long-term liabilities
for the past three years is summarized in the following table:
($ in thousands)
2021
2020
2019
Total long-term liabilities
$ 344,579
$
370,802
$
594,482
Consolidated long-term liabilities decreased $26.2 million or
7.1% to $344.6 million compared to 2020 and were down $249.9
million or 42.0% from 2019.
The decrease in long-term liabilities compared to 2020 is
primarily due to a $16.7 million decrease in defined benefit pension
plan obligations mainly related to an increase in the discount rate
and higher investment returns on pension plan assets. An $8.2
million decrease in lease liabilities was also a factor. Additional
information on defined benefit pension plan obligations and lease
liabilities is provided in Note 13 and Note 8 respectively to the
consolidated financial statements.
The decrease in long-term liabilities compared to 2019 is
substantially due to lower long-term debt resulting from a reduction
in amounts outstanding in revolving loan facilities and a $44.4
million increase in the current portion of long-term debt. A decrease
in lease liabilities related to the Giant Tiger Transaction, lower
defined benefit pension plan obligations and the impact of foreign
exchange rates on the translation of U.S. denominated debt were
also factors.
Canadian Operations
FINANCIAL PERFORMANCE
Canadian Operations results for the year are summarized by the key
performance indicators used by management as follows:
Key Performance Indicators
($ in thousands)
Sales
Same store sales %
increase/(decrease)
EBITDA (1)
EBIT
Return on net assets (1)
2021
2020
2019
$ 1,291,139
$ 1,376,188
$ 1,271,552
(2.4) %
22.3 %
0.3 %
$ 215,209
$ 206,498
$ 140,359
$ 153,328
$ 144,141
$ 77,346
26.6 %
26.3 %
12.3 %
(1) See Non-GAAP Financial Measures section.
Sales Canadian Operations sales decreased $85.0 million or 6.2% to
$1.291 billion compared to $1.376 billion in 2020 but were up $19.6
million or 1.5% compared to 2019. The decrease in sales compared
to 2020 is due to lower sales in Giant Tiger stores as a result of the
Giant Tiger Transaction, net of the impact of wholesale food sales to
the sold Giant Tiger stores, and lower same store sales compared to
the exceptional sales gains last year. These factors were partially
offset by an increase in passenger-related revenue in NSA as a result
of changes in COVID-related travel restrictions and higher third-party
cargo revenues.
Food sales accounted for 68.2% of total Canadian Operations
sales compared to 68.0% last year. The balance was made up of
general merchandise and other sales at 31.8% (32.0% in 2020). Other
sales consist primarily of airline revenue, financial services revenue,
fuel and pharmacy.
Same store sales remained strong only decreasing 2.4%
compared to the exceptional same store sales gains last year of
22.3% but were up 22.2% compared to 2019 as the COVID-19-related
impact of in-community consumer spending and various income
transfer and support payments for individuals was less than last year.
Food sales decreased by 5.9% from 2020 due to the impact of
the Giant Tiger Transaction and lower same store sales as previously
noted but were up 4.4% compared to 2019. Same store food sales
decreased 1.2% compared to an 18.4% increase in 2020 and were up
18.5% compared to 2019. On a quarterly basis, same store food sales
increased 3.3% in the first quarter followed by decreases of 5.9% and
1.5% in the second and third quarters respectively and remained flat
to last year in the fourth quarter.
General merchandise sales decreased 22.6% from 2020 and
were down 19.2% compared to 2019 due to the impact of the Giant
Tiger Transaction and lower same store sales as previously noted.
Same store sales decreased 6.8% compared to a 37.5% increase in
2020 but were up 39.2% compared to 2019. On a quarterly basis,
same store general merchandise sales increased 21.7% in the first
quarter but decreased 18.6%, 10.4% and 12.0% in the last three
quarters.
Other sales increased 17.2% from 2020 largely due to an
increase in passenger-related revenue as a result of changes in
COVID-19-related travel restrictions and higher third-party cargo
revenues in NSA and sales gains in pharmacy and fuel. Other sales
increased 17.7% compared to 2019 primarily due to higher revenues
in NSA and sales gains in pharmacy.
13ANNUAL REPORT Sales Blend The table below shows the sales blend for the
Canadian Operations over the past three years:
and RACSP payments received last year, and higher third-party cargo
volumes were also factors.
Food
General merchandise and other
2021
68.2 %
31.8 %
2020
68.0 %
32.0 %
2019
66.3 %
33.7 %
Same Store Sales Canadian Operations same store sales for the
past three years are shown in the following table. The decrease in
same stores sales in 2021 is due to the exceptional COVID-19-related
sales gains in 2020 as previously noted. In 2019, same store sales
gains in northern Canada stores were substantially offset by lower
sales in GT stores due to greater discount food competition and
lower seasonal general merchandise sales.
Same Store Sales
(% increase/(decrease))
Food
General merchandise (GM)
Total food & GM sales
2021
(1.2) %
(6.8) %
(2.4) %
2020
18.4 %
37.5 %
22.3 %
2019
0.7 %
(1.3) %
0.3 %
Gross Profit Gross profit dollars decreased by 5.5% due to lower
sales partially offset by a higher gross profit rate. The increase in
gross profit rate was mainly due to changes in product sales blend
including the impact of lower sales in Giant Tiger stores which have a
lower gross profit structure consistent with a discount format, net of
an increase in lower margin wholesale food sales as part of the Giant
Tiger Transaction.
Selling,
Selling, Operating and Administrative Expenses
operating and administrative expenses (“Expenses”) decreased 10.3%
from 2020 and were down 112 basis points as a percentage of sales.
The decrease in Expenses is primarily due to lower store expenses
related to the Giant Tiger Transaction, a decrease in COVID-19
expenses related to wage premiums and bonuses for front-line
associates, the purchase of protective equipment and enhanced
sanitation procedures and lower annual incentive plan costs. The
impact of Non-Comparable Factors, which includes a $9.9 million
decrease in share-based compensation costs due to mark-to-market
adjustments and a $12.8 million increase in insurance-related gains
this year, and a $9.4 million Giant Tiger store closure provision and a
$24.7 million gain related to the Giant Tiger Transaction last year,
were also factors. Further information on share-based compensation
costs is provided in Note 14 and Note 18 to the consolidated
financial statements. Excluding
the Non-Comparable Factors,
Expenses decreased $28.8 million or 8.2% due to the factors
previously noted.
Earnings from Operations (EBIT) and EBITDA(1) Earnings from
operations increased $9.2 million or 6.4% to $153.3 million compared
to $144.1 million in 2020 and were up $76.0 million or 98.2%
compared to 2019 due to the sales, gross profit and Expense factors
previously noted. Earnings from operations as a percentage of sales
was 11.9% compared to 10.5% last year. EBITDA(1) increased $8.7
million or 4.2% to $215.2 million and was 16.7% as a percentage of
sales compared to 15.0% in 2020. Adjusted EBITDA(1), which excludes
the Non-Comparable Factors,
increased $1.3 million or 0.6%
compared to last year due to the sales, gross profit and Expense
factors previously noted. An increase in passenger-related earnings
as a result of changes in COVID-19-related travel restrictions net of
$2.1 million in Canada Emergency Wage Subsidy ("CEWS") and
Ontario Remote Air Carrier Support Program ("RACSP") payments
received this year to ensure continued operation of passenger
service into remote communities compared to $5.9 million in CEWS
(1) See Non-GAAP Financial Measures section.
Net Assets Employed Net assets employed increased 3.8% to
$580.8 million compared to $559.8 million last year but were down
5.6% compared to $615.3 million in 2019 as summarized in the
following table:
($ in millions at the end of the fiscal year)
2021
2020
2019
Property and equipment
$ 372.4
$
357.5
$
367.2
Right-of-use assets
Inventories
Accounts receivable
Other assets
Liabilities
51.1
136.7
83.6
135.3
50.9
127.4
73.4
148.7
73.4
148.0
83.6
112.4
(198.3)
(198.1)
(169.3)
Net assets employed
$ 580.8
$
559.8
$
615.3
The increase in property and equipment compared to last year
was due to investments in northern Canada stores and the purchase
of an ATR 72-500 aircraft. Store-based capital expenditures for the
year, which were negatively impacted by COVID-19-related travel
restrictions, included three new stores and investments in stores,
fixtures and equipment replacements and staff housing. These
factors also contributed to the increase in property and equipment
compared to 2019 partially offset by the sale and closure of most of
the Company's Giant Tiger stores in connection with the Giant Tiger
Transaction which resulted in a decrease in right-of-use assets.
Inventory increased $9.3 million compared to 2020 but was
down $11.3 million compared to 2019 primarily due to the sale of
the Giant Tiger stores. Average inventory levels in 2021 increased
$10.7 million or 8.4% compared to 2020 but were down $13.7 million
or 9.1% compared to 2019. Inventory turnover decreased to 6.2 times
compared to 7.4 times last year but was up compared to 5.6 times in
2019. The increase in inventories compared to 2020 is due to higher
sealift and winter road inventories in northern Canada stores and
cost inflation. The impact of faster sell-through of sealift and winter
road inventories last year was also a factor.
14THE NORTH WEST COMPANY INC. 2021 Accounts receivable increased $10.2 million or 13.9% compared
to last year but were consistent with 2019. The increase compared to
last year is mainly due to the current portion of the promissory note
receivable from the Giant Tiger Transaction and higher customer
trade accounts receivable. Average accounts receivable increased
$4.5 million or 6.5% compared to 2020 and were up $1.2 million or
1.7% compared to 2019.
Other assets decreased $13.4 million or 9.0% compared to last
year but were up $22.9 million or 20.4% compared to 2019. The
decrease compared to last year is primarily due to the current
portion of the promissory note receivable from the Giant Tiger
Transaction recorded in accounts receivable and lower cash. These
factors were partially offset by an increase in deferred tax assets.
Further information on deferred tax assets and liabilities is provided
in Note 10 to the consolidated financial statements.
Liabilities increased $0.2 million or 0.1% from 2020 and were up
$29.0 million or 17.1% compared to 2019. The increase compared to
2020 is substantially due to a $16.7 million reduction in the defined
benefit plan obligation related to an increase in the discount rate
and higher investment returns on pension plan assets. The impact of
the defined benefit plan obligation was partially offset by an increase
in accounts payable and accrued liabilities related to the timing of
information on the defined benefit plan
payments. Further
obligation is provided in Note 13 to the consolidated financial
statements. The increase in liabilities compared to 2019 is primarily
due to an increase in accounts payable and accrued liabilities as
previously noted.
Return on Net Assets (RONA(1)) The return on net assets
employed for Canadian Operations increased to 26.6% from 26.3% in
2020 as a 6.4% increase in EBIT was partially offset by a $27.6 million
or 5.0% increase in average net assets compared to last year due to
the factors previously noted.
(1) See Non-GAAP Financial Measures section.
International Operations
(Stated in U.S. dollars)
FINANCIAL PERFORMANCE
International Operations results for the year are summarized by the
key performance indicators used by management as follows:
Key Performance Indicators
($ in thousands)
Sales
Same store sales % increase
EBITDA(1)
EBIT
Return on net assets (1)
2021
2020
2019
$ 764,535
$ 734,168
$ 621,200
2.6 %
13.6 %
3.5 %
$
$
76,786
53,566
$ 70,893
$ 59,808
$ 48,699
$ 39,995
19.3 %
16.9 %
15.5 %
(1) See Non-GAAP Financial Measures section.
Sales International sales increased 4.1% to $764.5 million compared
to $734.2 million in 2020, and were up $143.3 million or 23.1%
compared to 2019 led by same store sales gains and new store sales.
Sales were positively impacted by consumer spending changes and
COVID-19-related government income support payments through
the American Rescue Plan and an increase in Supplemental Nutrition
Assistance Program ("SNAP") benefits within Alaska and the U.S.
Territories served by CUL stores. An increase in wholesale food sales
in Alaska related to the USDA Farmers to Families Food Box Program
and an increase in the Alaska Permanent Fund Dividend ("PFD") to
$1,114 compared to $992 in 2020 and $1,606 in 2019 were also
factors. 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. Same store sales
remained strong, increasing 2.6% on top of a 13.6% increase in 2020
and 3.5% in 2019. Food sales accounted for 88.2% (88.1% in 2020) of
total sales with the balance comprised of general merchandise and
other sales at 11.8% (11.9% in 2020). Other sales consist primarily of
fuel and financial services revenue.
Food sales increased 4.2% from 2020 and were up 22.0%
compared to 2019. Same store food sales were up 2.5% which is on
top of an 11.5% increase in 2020. On a quarterly basis, same store
food sales decreased 3.1% in the first quarter followed by increases
of 3.0%, 4.2% and 6.1% in the second, third and fourth quarters
respectively.
General merchandise sales increased 3.1% from 2020 and were
up 35.6% from 2019. On a same store basis, general merchandise
sales were up 3.0% which is on top of a 31.8% increase in 2020. On a
quarterly basis, same store general merchandise sales increased
30.8% in the first quarter, decreased 11.7% in the second quarter,
were up 6.1% in the third quarter and down 1.7% in the fourth
quarter.
Other sales, which consist primarily of fuel sales and financial
services revenue, were up 6.5% from 2020 due to higher fuel sales
but down 9.0% from 2019 largely due to lower financial services
revenues.
15ANNUAL REPORT Sales Blend The table below shows the sales blend for the
International Operations over the past three years:
Food
General merchandise and other
2021
88.2 %
11.8 %
2020
88.1 %
11.9 %
2019
88.9 %
11.1 %
Net Assets Employed International Operations net assets
employed of $274.3 million decreased $2.2 million or 0.8% compared
to last year but were up $0.8 million or 0.3% to 2019 as summarized
in the following table:
($ in millions at the end of the fiscal year)
2021
2020
2019
Property and equipment
$ 143.1
$ 136.4
$ 142.0
Right-of-use assets
Inventories
Accounts receivable
Other assets
Liabilities
40.2
87.4
12.3
65.5
45.8
78.0
14.1
67.8
41.2
75.6
16.1
48.7
(74.2)
(70.0)
(50.1)
Net assets employed
$ 274.3
$ 272.1
$ 273.5
Property and equipment increased $6.7 million or 4.9% to last year
mainly due to three new stores in Alaska. The change in right-of-use
assets compared to last year and 2019 is due to timing of lease
renewals.
Inventories increased $9.4 million or 12.1% compared to last
year and were up $11.8 million or 15.6% from 2019 due to new
stores, cost inflation and higher inventories in certain markets to
compensate for supply chain disruptions and longer lead times for
receiving merchandise. Average inventory levels in 2021 were up
9.7% compared to 2020 and were up 17.7% compared to 2019.
Inventory turnover decreased to 6.4 times compared to 6.6 times in
2020 but improved compared to 6.0 times in 2019.
Other assets decreased $2.3 million or 3.4% compared to last
year but were up $16.8 million or 34.5% compared to 2019
substantially due to changes in cash balances.
Liabilities increased $4.2 million or 6.0% compared to 2020 and
were up $24.1 million or 48.1% compared to 2019 substantially due
to higher trade accounts payable related to the timing of payments.
Return on Net Assets (RONA(1)) The return on net assets
employed for International Operations increased to 19.3% compared
to 16.9% in 2020 due to a 10.0% increase in EBIT and a $9.6 million or
3.3% decrease in average net assets.
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
(% increase/(decrease))
Food
General merchandise (GM)
Total food & GM sales
2021
2.5 %
3.0 %
2.6 %
2020
11.5 %
31.8 %
13.6 %
2019
4.0 %
(0.7) %
3.5 %
Gross Profit Gross profit dollars increased 3.2% 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 the impact of lower gross
profit rate USDA Food Box Program sales.
Selling, Operating and Administrative Expenses Selling,
operating and administrative expenses (“Expenses”) increased 1.1%
compared to last year but were down 64 basis points as a
percentage of sales. The increase in Expenses is mainly due to new
stores and higher utility costs which more than offset the impact of
lower COVID-19 expenses related to wage premiums and bonuses
for front-line associates and the purchase of protective equipment
and a decrease in annual incentive plan costs.
Earnings from Operations (EBIT) and EBITDA(1) Earnings from
operations increased $4.9 million or 10.0% to $53.6 million compared
to 2020 and were up $13.6 million or 33.9% compared to 2019 due
to the sales, gross profit and Expense factors previously noted.
Earnings from operations as a percentage of sales was 7.0%
compared to 6.6% last year. EBITDA(1) increased $5.9 million or 8.3%
to $76.8 million and was 10.0% as a percentage of sales compared to
9.7% in 2020. Excluding the impact of share-based compensation
expense, adjusted EBITDA(1) increased 7.4% compared to last year.
(1) See Non-GAAP Financial Measures section.
(1) See Non-GAAP Financial Measures section.
16THE NORTH WEST COMPANY INC. 2021 Consolidated Liquidity
and Capital Resources
The following table summarizes the major components of cash flow:
($ in thousands)
2021
2020
2019
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
$ 229,782
$ 271,652
$ 197,021
(2,563)
(3,084)
224,135
(75,861)
58,975
8,091
(28,670)
(7,234)
338,718
161,117
(66,900)
(104,272)
(170,196)
(227,060)
(67,236)
Effect of foreign exchange
(188)
(1,409)
130
Net change in cash
$ (22,110)
$ 43,349
$ (10,261)
Cash from Operating Activities Cash flow from operating
activities decreased $114.6 million or 33.8% to $224.1 million
compared to 2020 due to a $48.7 million increase in taxes paid and a
$61.5 million decrease in cash from the change in non-cash working
capital. The increase in taxes paid is primarily due to the timing of
installments related to the limited partnership year-end. 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 14 and 16 respectively. The
change in other non-cash items is mainly due to changes in other
long-term liabilities, primarily related to share-based compensation.
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 2022.
investments
Cash Used in Investing Activities Net cash used in investing
activities was $75.9 million compared to $66.9 million in 2020 and
$104.3 million in 2019. The increase compared to 2020 is largely due
in new stores, store renovations, equipment
to
replacements and the purchase of an ATR 72-500 aircraft by NSA. Net
investing in Canadian Operations was $46.6 million net of $18.1
million in insurance proceeds compared to $55.0 million net of $5.3
million in insurance proceeds in 2020 and $63.2 million net of $11.8
million in insurance proceeds in 2019. A summary of the Canadian
Operations investing activities is included in net assets employed on
page 14.
International Operations was $29.3
million compared to $11.9 million in 2020 and $41.1 million net
of $5.5 million
in 2019. A summary
the International Operations investing activities is included in
of
net assets employed on page 16.
insurance proceeds
Investing
in
in
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:
Northern
NorthMart
Quickstop
Giant Tiger
Alaska Commercial
Cost-U-Less
Riteway Food Market
Other Formats
Number of Stores
Selling square footage
2021
118
2020
118
5
30
5
30
12
9
7
5
30
5
27
12
9
6
2021
693,389
128,185
41,092
90,470
260,544
344,695
61,899
54,847
2020
693,389
128,185
41,024
90,470
249,212
344,695
61,899
44,097
Total at year-end
216
212
1,675,121
1,652,971
In Canadian Operations, under Other Formats, a wellness-focused
store which includes a full pharmacy, optical services, Booster Juice,
groceries and other health products opened in Iqaluit, Nunavut.
Quickstop convenience stores opened in Rankin Inlet and Clyde
River, Nunavut and a small convenience store in Iqaluit was closed.
Total selling square footage in Canada increased 1.2% to 997,834
compared to 986,087 in 2020 due to the new stores.
In International Operations, AC stores were opened in Skagway,
Galena and Gambell, Alaska. A small Quickstop on Prince of Wales
Island, Alaska was closed. Total selling square footage increased to
677,287 compared to 666,884 last year due to the new stores.
Cash Used in Financing Activities Cash used in financing activities
was $170.2 million compared to cash used of $227.1 million in 2020.
The change compared to last year is largely due to a decrease in
long-term debt related to the repayment of the US$70.0 million
senior notes that matured on June 16, 2021 net of an increase in
amounts outstanding on revolving loan facilities, an increase in
shareholder dividends and $28.1 million for shares purchased under
a normal course issuer bid. Further information on dividends, the
normal course issuer bid, interest and long-term debt is provided in
the following sections.
17ANNUAL REPORT Shareholder Dividends The Company paid dividends of $70.4
million or $1.46 per share compared to $67.3 million or $1.38 per
share
in 2020. 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
2021
$ 0.36
0.36
0.37
0.37
$ 1.46
2020
$ 0.33
$
0.33
0.36
0.36
$ 1.38
$
2019
0.33
0.33
0.33
0.33
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 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:
2021
2020
2019
Dividends
$ 70,420
$
67,276
$ 64,351
Cash flow from operating
activities
Dividends as a % of cash flow
from operating activities
$ 224,135
$ 338,718
$ 161,117
31.4 %
19.9 %
39.9 %
Dividends as a percentage of cash flow from operating activities
increased compared to 2020 but was down compared to 2019
primarily due to the changes 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 4.3% over the past ten 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 13, 2022, the Board of Directors approved a quarterly
dividend of $0.37 per share to shareholders of record on April 21,
2022 and to be paid on April 28, 2022.
Normal Course Issuer Bid On November 10, 2021, the Company
received approval from the Toronto Stock Exchange to renew the
Normal Course Issuer Bid ("NCIB"). Under the NCIB, the Company
may acquire up to a maximum of 4,773,508 of its shares, or
approximately 10% of its float for cancellation over the following 12
months. During the year ended January 31, 2022, the Company
purchased 807,037 common shares having a book value of $2.9
million for cash consideration of $28.1 million. The excess of the
purchase price over the book value of the shares of $25.2 million was
charged to retained earnings. 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, the
Company may, but is not required to, ask the designated broker to
make purchases under the NCIB within specific parameters.
Sources of Liquidity At January 31, 2022, the Company has
US$70.0 million in senior notes it issued 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%.
Interest is payable semi-annually on both tranches. The Company
also has outstanding $100.0 million senior notes that mature
September 26, 2029 and have a fixed interest rate of 3.74%. All of the
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 loan facilities and the US$52.0 million loan facilities
(collectively "Senior Debt"). On June 16, 2021, the Company drew on
its revolving loan facilities to repay US$70.0 million senior notes that
matured. The US$70.0 million senior notes that remain outstanding
have been designated as a hedge against the U.S. dollar investment
in the International Operations. For more information on the senior
notes and financial instruments, see Note 12 and Note 15 to the
consolidated financial statements.
The Canadian Operations also have committed, revolving loan
facilities of $300.0 million that bear a floating rate of interest based
on Bankers Acceptances rates plus a stamping fee and mature on
September 26, 2022. These facilities are secured by certain assets of
the Company and rank pari passu with the Company's other Senior
Debt. At January 31, 2022, the Company had $45.1 million
outstanding on these facilities (January 31, 2021 - $NIL). In March
2022, the Company increased this facility to $400.0 million and
extended its maturity date to March 1, 2027.
The Company has committed, revolving
loan facilities of
US$52.0 million that bear interest at U.S. LIBOR plus a spread and
mature on September 26, 2022. These facilities are secured by certain
assets of the Company and rank pari passu with the Company's other
Senior Debt. At January 31, 2022, the Company had US$NIL
outstanding on these facilities (January 31, 2021 - US$NIL). In March
2022, the Company extended the maturity date on this facility to
March 1, 2027.
The International Operations have a committed, revolving loan
facility of US$40.0 million for working capital and general business
purposes that matures February 12, 2025. This facility bears a
floating rate of interest based on U.S. LIBOR plus a spread and is
secured by certain accounts receivable and inventories of the
International Operations. At January 31, 2022, the International
Operations had US$NIL million outstanding on
facility
(January 31, 2021 - US$NIL).
this
18THE NORTH WEST COMPANY INC. 2021
The loan facilities and senior notes contain covenants and
restrictions including the requirement to meet certain financial ratios
and financial condition tests. The financial covenants include a fixed
charge coverage ratio, minimum current ratio, a leverage test and a
minimum net worth test. At January 31, 2022, the Company is in
compliance with the financial covenants under these facilities.
Current and forecasted debt levels are regularly monitored for
compliance with debt covenants.
Interest Costs and Coverage
Coverage ratio
EBIT ($ in millions)
2021
16.8
2020
12.5
2019
6.2
$ 220.4
$ 209.3
$ 130.4
Interest ($ in millions)
$
13.1
$
16.8
$
20.9
The coverage ratio of earnings from operations ("EBIT") to interest
expense has increased to 16.8 times compared to 12.5 times in 2020
and 6.2 times in 2019. The increase in the interest coverage ratio
compared to 2020 is due to a $3.7 million decrease in interest
expense and a 5.3% increase in consolidated EBIT as previously
noted. Additional information on interest expense is provided in
Note 19 to the consolidated financial statements.
Contractual Obligations and Other Commitments
Contractual obligations of the Company at January 31, 2022 are
listed in the chart below:
($ in thousands)
Total
0-1 Year
2-3 Years
4-5 Years
6 Years+
Long-term debt(1) $ 235,640 $ 46,262 $
509 $
— $ 188,869
Lease payments
142,588
22,269
37,415
25,151
57,753
Other liabilities(2)
19,907
7,586
12,321
—
—
Total
$ 398,135 $ 76,117 $ 50,245 $ 25,151 $ 246,622
(1) In March 2022, the Company refinanced the operating loan facilities in
Canadian Operations and extended its maturity from September 26, 2022 to
March 1, 2027. This impacts $45.1 million of the $46.3 million included in
long-term debt due within one year.
(2) At year-end, the Company had additional long-term liabilities of $42.7
million which include other liabilities, defined benefit plan obligations and
deferred income tax liabilities. These liabilities have not been included as the
timing and amount of the future payments are uncertain.
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 $14.2 million net
of deferred income taxes in other comprehensive income. This
compares to net actuarial gains on defined benefit pension plans of
$3.7 million in 2020 and losses of $8.5 million in 2019. 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 2022, the Company will be
required to contribute
approximately $1.5 million to the defined benefit pension plans. In
addition to the cash funding, a portion of the pension plan
obligation may be settled by the issuance of a letter of credit in
accordance with pension legislation. In 2021, the Company's cash
contributions to the pension plan were $2.0 million compared to
$1.6 million in 2020 and $3.5 million in 2019. The actual amount of
the contribution may be different from the estimate based on
in
actuarial valuations, plan
discount rates, regulatory requirements and other factors. The
Company also expects to contribute approximately $6.5 million to
the defined contribution pension plan and U.S. employees savings
plan in 2022 compared to $6.3 million in 2021 and $5.4 million in
2020. 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.
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.
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, 2021 - $22.0 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, sustain 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
19ANNUAL REPORT
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.
to 2020 and a $3.5 million decrease compared to 2019. Average debt
outstanding during the year excluding the foreign exchange impact
decreased $74.6 million or 23.7% from 2020 and was down $138.1
million or 36.5% compared to 2019.
Lease liabilities at the end of the fiscal year are summarized as
follows:
(CAD$ in thousands at the end of
the fiscal year)
2021
2020
2019
Current portion of lease liability $ 18,055
$ 16,393
$ 19,176
Non-current lease liabilities
96,015
104,226
119,928
Total lease liabilities
$ 114,070
$ 120,619
$ 139,104
Lease liabilities decreased $6.5 million or 5.4% to $114.1 million
compared to $120.6 million in 2020 and were down $25.0 million or
18.0% compared to $139.1 million in 2019. The decrease compared
to 2020 is due to lease payments net of new leases. The decrease
compared to 2019 is substantially due to stores sold as part of the
Giant Tiger Transaction partially offset by new store leases. Further
information on
in Note 8 to the
liabilities
consolidated financial statements.
is provided
lease
On a consolidated basis, the Company had $235.6 million in debt
and $580.2 million in equity at the end of the year and a debt-to-
equity ratio of 0.41:1 compared to 0.56:1 last year. From 2019 to 2021,
equity has increased $153.2 million or 35.9% and debt has decreased
$175.3 million or 42.7%. During this same period, the Company has
made capital expenditures,
including acquisitions and net of
insurance proceeds, of $250.2 million and has paid dividends of
$202.0 million. This reflects the Company's balanced approach of
investing to sustain and grow the business while providing
shareholders with an annual cash return.
The debt outstanding at the end of the fiscal year
is
summarized as follows:
(CAD$ in thousands at the end of
the fiscal year)
2021
2020
2019
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
—
88,869
45,107
—
1,664
89,300
89,300
—
—
2,822
92,334
—
176,716
37,893
4,022
Total debt
$ 235,640
$ 281,422
$ 410,965
impact of
Consolidated debt at the end of the year decreased $45.8 million or
16.3% to $235.6 million compared to $281.4 million in 2020, and was
down $175.3 million or 42.7% from $411.0 million in 2019. The
decrease in debt is primarily due to the repayment of the $89.3
million (US$70.0 million) senior notes that matured June 16, 2021,
net of an increase in amounts drawn on the revolving loan facilities.
foreign exchange on the translation of U.S.
The
denominated debt was not significant compared to 2020 but was a
larger factor contributing to the decrease in debt compared to 2019.
The Company has US$70.6 million in debt at January 31, 2022
(January 31, 2021 - US$140.8 million, January 31, 2020 - US$99.7
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, 2022
("2021") was 1.2727 compared to 1.2776 at January 31, 2021 ("2020")
and 1.3224 at January 31, 2020 ("2019"). The change in the foreign
exchange rate resulted in a $0.3 million decrease in debt compared
Shareholders' Equity The Company has an unlimited number of
authorized shares and had
issued and outstanding shares at
January 31, 2022 of 47,878,650 (January 31, 2021 - 48,613,319). 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, 2022, there were
1,864,425 options outstanding representing 3.9% of the issued and
outstanding shares. In addition to share options, there were 263,373
in Performance Share Units ("PSU") that may be settled by the
issuance of shares based on meeting certain performance criteria
and 308,258 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.
20THE NORTH WEST COMPANY INC. 2021
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 is provided in the April 13, 2022 Management
Information Circular which is available on the Company's website at
www.northwest.ca or on SEDAR at www.sedar.com.
At January 31, 2022, there were 14,973,056 Variable Voting
issued and
the
representing 31.3% of
total shares
Shares,
outstanding. Further information on the Company's share capital is
provided in Note 16 to the consolidated financial statements.
Book value per share attributable to shareholders, on a diluted
basis, at the end of the year increased to $11.49 per share compared
to $9.92 per share in 2020. Total shareholders' equity increased $75.0
million or 14.8% compared to 2020 primarily due to an increase in
retained earnings. Further
the
consolidated statements of changes in shareholders' equity in the
consolidated financial statements.
is provided
information
in
QUARTERLY FINANCIAL INFORMATION
Historically, the Company's first quarter sales are the lowest and fourth quarter sales are the highest, reflecting consumer buying patterns. Due
to the remote location of many of the Company's stores, weather conditions are often more extreme compared to other retailers and can affect
sales in any quarter. In 2020, the decrease in sales in the third and fourth quarter compared to the first two quarters of the year is primarily due
to the Giant Tiger Transaction. Net earnings generally follow higher sales, but can be dependent on changes in merchandise sales blend,
promotional activity in key sales periods, variability in share-based compensation costs related to changes in the Company's share price and
other factors which can affect net earnings.
The following is a summary of selected quarterly financial information:
($ thousands)
Sales
2021
2020
EBITDA(1)
2021
2020
Earnings from operations (EBIT)
2021
2020
Net earnings
2021
2020
Net earnings attributable to shareholders of the Company
2021
2020
Earnings per share-basic
2021
2020
Earnings per share-diluted
2021
2020
(1) See Non-GAAP Financial Measures section.
Q1
Q2
Q3
Q4
Total
$
$
$
$
$
$
$
$
$
$
$
$
$
$
550,988
592,569
78,669
43,373
56,312
19,471
40,288
12,254
39,656
11,274
0.82
0.23
0.80
0.23
$
$
$
$
$
$
$
$
$
$
$
$
$
$
565,109 $
553,680
648,504 $
552,975
81,100 $
110,929 $
78,642
75,715
58,462 $
87,830 $
56,063
52,934
42,400 $
62,560 $
39,155
35,914
41,850 $
61,929 $
38,715
34,611
0.86 $
1.27 $
0.86 $
1.25 $
0.81
0.71
0.79
0.71
$
$
$
$
$
$
$
$
$
$
$
$
$
$
579,019
565,191
72,964
71,410
49,588
49,114
35,608
32,832
34,581
32,060
0.72
0.66
0.71
0.63
$
$
$
$
$
$
$
$
$
$
$
$
$
$
2,248,796
2,359,239
311,375
301,427
220,425
209,349
157,451
143,560
154,802
139,874
3.21
2.87
3.16
2.82
21ANNUAL REPORT Fourth Quarter Highlights
CONSOLIDATED RESULTS FOURTH QUARTER
Key Performance Indicators and Selected Fourth Quarter
Information
($ in thousands, except per share)
2021
2020
2019
Sales
Same store sales % change(2)
Food
General Merchandise
Total
Gross profit
Selling, operating and
$ 579,019
$
565,191
$ 553,061
2.6 %
(9.2) %
0.1 %
12.0 %
39.8 %
16.8 %
1.5 %
(1.7) %
0.8 %
$ 184,714
$
187,873
$ 169,154
administrative expenses
(135,126)
(138,759)
(142,420)
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
72,964
49,588
(3,170)
(10,810)
35,608
34,581
0.72
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
$
0.71
$
0.63
$
0.33
(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
2.4% to $579.0 million led by same store sales gains in International
Operations and the impact of new store sales. These gains were
partially offset by the negative impact of foreign exchange on the
translation of International Operations sales. Excluding the foreign
exchange impact, consolidated sales increased 2.9%. Same store
sales were up 0.1%(2) on top of a 16.8% increase in the fourth quarter
last year and were up 17.1% compared to 2019. Food sales(2)
increased 3.0% and were up 2.6% on a same store basis compared to
last year and
increased 15.0% compared to 2019. General
merchandise sales(2) decreased 6.3% and were down 9.2% on a same
store basis coming off of a 39.8% COVID-19-related same store sales
gain last year, but were up 27.3% compared to 2019. Sales continued
to be impacted by COVID-19-related factors including consumer
spending changes in favor of in-community and at-home activities,
higher cost inflation and increases in government income support
payments to individuals in the U.S. compared to last year. These
factors were partially offset by restricted hours and store closures in
certain markets with higher outbreaks of COVID-19 and lower
government income support payments to individuals in Canada
compared to last year.
Gross Profit Gross profit decreased 1.7% as the impact of sales gains
was more than offset by a 134 basis point decrease in gross profit
rate compared to last year. The decrease in gross profit rate was
primarily due to changes in product sales blend, higher inventory
shrinkage and markdowns compared to strong sell-through-driven
lower shrink and markdowns last year as well as the impact of cost
inflation that was not fully passed through in retail prices.
Selling, Operating and Administrative Expenses Selling,
operating and administrative expenses ("Expenses") decreased $3.6
million compared to last year and were down 121 basis points as a
percentage to sales. The decrease in Expenses is largely due to a $9.5
million insurance-related gain this year compared to a $5.3 million
gain last year, lower annual incentive plan costs and the impact of
foreign exchange on the translation of International Operations
Expenses. These factors were partially offset by expenses related to
new stores and higher share-based compensation costs compared
to last year. COVID-19-related expenses were $5.6 million compared
to $5.8 million last year and included $4.1 million in special payments
to non-bonus eligible front-line associates in recognition of their
contributions to serving our customers and $1.5 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. Excluding the
insurance gains and share-based compensation costs, Expenses
decreased 0.1% compared to last year.
Earnings from operations and EBITDA(1) Earnings from operations
or earnings before interest and taxes ("EBIT") increased $0.5 million to
$49.6 million compared to $49.1 million last year and EBITDA(1)
increased $1.6 million to $73.0 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, decreased $1.9 million compared to last year and as a
percentage to sales was 11.6% compared to 12.2%.
Interest Expense Interest expense decreased 8.1% to $3.2 million
compared to $3.4 million last year. The decrease in interest expense
is mainly due to lower average debt levels related to the repayment
of the US$70.0 million senior notes that matured June 16, 2021
partially offset by an increase 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 $10.8 million
compared to $12.8 million last year and the consolidated effective
tax rate was 23.3% compared to 28.1% last year. The decrease in the
income tax rate was primarily due to lower Global Intangible Low-
Taxed Income tax and the blend of earnings in International
Operations across various tax rate jurisdictions.
Net Earnings Consolidated net earnings increased $2.8 million to
$35.6 million. Net earnings attributable to shareholders were $34.6
million and diluted earnings per share were $0.71 per share
compared to $0.63 per share last year due to the factors noted
above. Adjusted net earnings(1), which excludes the impact of the
after-tax
insurance-related gains and the after-tax share-based
compensation costs, increased $1.9 million or 6.1% compared to last
year driven by earnings gains in International Operations, lower
interest costs and the impact of a lower effective tax rate as
previously noted.
22THE NORTH WEST COMPANY INC. 2021
CANADIAN OPERATIONS FOURTH QUARTER
Canadian Operations results for the fourth quarter are summarized
by the following key performance indicators:
Key Performance Indicators
($ in thousands)
Sales
2021
2020
2019
$ 332,668
$ 328,429
$ 333,213
Same store sales % change
Food
General Merchandise
Total
EBITDA (1)
EBIT
0.0 %
(12.0) %
(3.0) %
15.7 %
41.6 %
21.2 %
1.6 %
(2.0) %
0.7 %
$
$
52,208
36,276
$ 53,391
$ 34,401
$ 38,444
$ 17,642
(1) See Non-GAAP Financial Measures section.
Sales Canadian Operations sales increased 1.3% to $332.7 million
building on the exceptional COVID-19-related sales gains in the
fourth quarter last year. Higher cost inflation also contributed to the
sales gains. These factors were partially offset by an increase in
COVID-19-related community curfews and store closures and lower
government consumer income support payments compared to last
year. Same store sales were only down 3.0% compared to a 21.2%
increase last year but were up 17.7% compared to the fourth quarter
in 2019. Food sales increased 0.4% and were consistent with last
year on a same store basis compared to a 15.7% increase in 2020.
General merchandise sales decreased 8.4% from the fourth quarter
last year and were down 12.0% on a same store basis compared to a
41.6% COVID-19-related
last year. Food and general
merchandise same store sales have remained strong over a two year
period with increases of 15.7% and 25.1% respectively compared to
2019.
increase
Gross Profit Gross profit decreased 3.6%, as a lower gross profit rate
more than offset the impact of sales gains, but was up 8.1%
compared to 2019 due to sales and gross profit rate gains. The
decrease in gross profit rate this year is compared to a very strong
gross profit rate in the fourth quarter last year driven by favourable
product sales blend changes and lower shrink and markdowns.
Higher inflationary costs that were not fully passed on were also a
factor.
Selling, Operating and Administrative Expenses Selling,
operating and administrative expenses ("Expenses") decreased 2.7%
and were down 100 basis points as a percentage to sales compared
to the fourth quarter last year largely due to the impact of a $9.5
million insurance-related gain this year compared to a $5.3 million
gain last year and lower annual incentive plan costs. These factors
were partially offset by higher share-based compensation costs
related to changes in share price and new store expenses. Excluding
the insurance-related gains and share-based compensation costs,
Expenses increased 1.1% compared to last year.
Canadian Earnings from Operations (EBIT) and EBITDA(1)
Canadian fourth quarter earnings from operations decreased to
$36.3 million compared to $38.4 million last year and EBITDA(1)
decreased 2.2% to $52.2 million compared to $53.4 million in the
same quarter last year due to the sales, gross profit and Expense
factors previously noted but, were up $18.6 million and $17.8 million
respectively compared to 2019. Adjusted EBITDA(1), which excludes
the
insurance-related gains and share-based
compensation costs, decreased $4.4 million or 8.7% compared to last
year but was up $14.7 million or 46.8% compared to 2019. NSA EBIT
increased slightly compared to last year as higher cargo volumes and
better aircraft utilization was largely offset by $2.3 million in Canada
Emergency Wage Subsidy ("CEWS") and Ontario Remote Air Carrier
Support Program ("RACSP") payments received in the fourth quarter
last year.
impact of the
INTERNATIONAL OPERATIONS
FOURTH QUARTER
(Stated in U.S. dollars)
International Operations
summarized by the following key performance indicators:
results
the
for
fourth quarter are
Key Performance Indicators
($ in thousands)
Sales
2021
2020
2019
$ 194,395
$ 183,929
$ 167,002
Same store sales % change
Food
General Merchandise
Total
EBITDA(1)
EBIT
6.1 %
(1.7) %
5.0 %
7.5 %
35.2 %
10.7 %
1.3 %
(0.4) %
1.1 %
$
$
16,336
10,456
$ 14,199
$ 12,212
$
8,492
$ 6,939
(1) See Non-GAAP Financial Measures section.
Sales International Operations fourth quarter sales increased 5.7% to
$194.4 million compared to $183.9 million in the fourth quarter last
year driven by an increase in same store sales and the impact of new
stores. Same store sales remained strong increasing 5.0% on top of a
10.7% sales gain last year and were up 16.2% compared to the fourth
quarter of 2019. Food sales increased 6.7% and were up 6.1% on a
same store basis compared to a 7.5% sales gain last year. General
merchandise sales decreased 0.5% and were down 1.7% on a same
store basis compared to a robust same stores sales increase of 35.2%
last year. Sales were positively
in
Supplemental Nutrition Assistance Program ("SNAP") benefits within
Alaska and the U.S. Territories served by CUL, an increase in tourism
in certain Caribbean markets and cost inflation compared to last
year.
impacted by an
increase
Gross Profit Gross profit increased 3.3% compared to last year, as
sales gains more than offset a decrease in gross profit rate, and was
up 15.4% compared to 2019 due to sales and gross profit rate gains.
The lower gross profit rate is primarily due to changes in product
sales blend and higher markdowns on seasonal merchandise
compared to last year. Higher inflationary costs that were not fully
passed on were also a factor.
Selling, Operating and Administrative Expenses Selling,
operating and administrative expenses ("Expenses") decreased 0.6%
compared to last year primarily due to lower annual incentive plan
costs which were partially offset by the impact of new store
expenses.
23ANNUAL REPORT
Earnings From Operations ("EBIT") and EBITDA(1) Earnings from
operations were $10.5 million compared to $8.5 million last year and
EBITDA(1) increased to $16.3 million compared to $14.2 million in the
fourth quarter 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 decreased $22.0 million or 20.6% to $84.7 million compared
to the fourth quarter of 2020 but was up $36.4 million or 75.3%
is
compared to 2019. The decrease compared to
substantially due to a $14.1 million increase in taxes paid and a $5.1
million decrease in other non-cash items. The increase in taxes paid
is primarily due to the timing of installments related to the limited
partnership year-end. The change in other non-cash items is largely
due to changes in accrued share-based compensation and defined
benefit pension obligation.
last year
The following table summarizes the major components of the fourth
quarter cash flow:
Cash Used in Investing Activities
2021
2020
2019
$ 84,704
$ 106,660
$ 48,320
The following table summarizes the major components of the cash
flow used in investing activities in the fourth quarter:
($ in thousands)
2021
2020
2019
Purchase of property and
equipment
Intangible asset (additions)/
disposals
Proceeds from disposal of
property and equipment
Insurance proceeds, property
and equipment
$ (22,730)
$ (18,180)
$ (26,563)
(1,904)
—
226
744
(4,430)
661
9,492
5,306
11,114
Cash used in investing activities $ (15,142)
$ (11,904)
$ (19,218)
Cash Used in Investing Activities Net cash used in the fourth
quarter for investing activities was $15.1 million compared to $11.9
million in 2020 and $19.2 million in 2019. Net investing activities
include insurance proceeds of $9.5 million in 2021 compared to $5.3
million in 2020 and $11.1 million in 2019. Investing activities in the
quarter include the completion of a new store in Gambell, Alaska
and investments in property and equipment for stores and staff
housing. The decrease in investing activities compared to 2019 is
mainly due to the impact of COVID-19-related travel restrictions.
($ in thousands)
Operating activities
Investing activities
Financing activities
Effect of foreign exchange
Net change in cash
(15,142)
(77,935)
767
(7,606)
(11,904)
(81,765)
(1,167)
11,824
59,712
(19,218)
(53,035)
125
(23,808)
51,995
Cash, beginning of period
57,032
Cash, end of period
$ 49,426
$ 71,536
$ 28,187
Cash From Operating Activities
The following table summarizes the major components of the cash
flow from operating activities in the fourth quarter:
($ in thousands)
2021
2020
2019
Net earnings for the period
$ 35,608
$ 32,832
$ 17,263
Adjustments for:
Amortization
23,376
Provision for income taxes
10,810
22,296
12,834
3,448
23,699
3,839
5,632
1,545
1,251
3,170
1,684
(9,492)
(18,357)
(5,306)
(4,223)
(2,276)
(5,327)
32
596
(357)
46,831
64,022
43,724
Interest expense
Equity settled share-based
compensation
Insurance proceeds,
property and equipment
Taxes paid
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
Change in other non-cash items
402
37,471
37,118
5,520
5,379
(783)
Cash from operating activities
$ 84,704
$ 106,660
$ 48,320
24THE NORTH WEST COMPANY INC. 2021
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)
2021
2020
2019
Net decrease in long-term debt $ (46,612)
$ (49,781)
$ (22,135)
Payment of lease liabilities,
principal
Payment of lease liabilities,
interest
Dividends
Dividends to non-controlling
interests
Interest paid
Common shares purchased and
cancelled
(4,703)
(4,496)
(6,178)
(1,039)
(17,747)
—
(1,834)
(1,088)
(17,528)
(2,214)
(644)
(1,396)
(16,089)
(3,427)
(3,810)
(6,000)
(6,014)
—
Cash used in financing activities $ (77,935)
$ (81,765)
$ (53,035)
Cash Used in Financing Activities Cash used in financing activities
in the fourth quarter decreased to $77.9 million compared to cash
used of $81.8 million in 2020 and $53.0 million in 2019. The change
compared to the fourth quarter last year is mainly due to a decrease
in long-term debt of $46.6 million compared to a decrease of $49.8
million last year. A decrease in dividends to non-controlling interests
was also a factor.
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, 2022.
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, 2022. There have been no changes in the internal
controls over financial reporting for the year ended January 31, 2022
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 outlook continues to be highly influenced
by the ongoing COVID-19 pandemic, current industry-wide supply
chain disruptions and
inflationary pressures which make sales
forecasting difficult. The transition to reduced COVID-19 risk
conditions and the elimination of COVID-19-related consumer
income support payments and programs such as the USDA Farmers
to Families Food Box Program are expected to result in lower sales in
2022 compared to last year however there is uncertainty to this
outlook related to outbreaks of COVID-19 variants and their impact
on supply chain, the availability of merchandise and higher inflation.
The timing of economic recoveries particularly within tourism-
dependent countries which do not have strong government income
support programs such as the British Virgin Islands and St. Maarten is
also difficult to forecast. In spite of global supply chain disruptions,
the Company's overall current in-stock position on essential food
and general merchandise items remains healthy however in the
current environment these conditions can change rapidly. The
impact of these COVID-19-related factors and $13.3 million in after-
tax insurance-related gains on the settlement of fire insurance claims
in 2021, is expected to result in lower earnings in 2022 compared to
2021 but meaningfully above pre-pandemic (2019) levels.
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 the expected
impact of government transfer payments and higher infrastructure
spending in Indigenous communities, the resiliency of our essential
everyday product and service focus, and changes in customer
in-community shopping patterns established
relationships and
during COVID-19. The Company also continues to assess acquisition
and other business venture opportunities within
its different
businesses and retail divisions.
25ANNUAL REPORT
In 2022, the Company expects that capital expenditures will be in
the $120 million range (2021 - $75.9 million, net of insurance
proceeds) with potential for additional store acquisitions and growth
investments. The timing and amount of store-based capital
expenditures are expected to continue to be impacted by the
availability of building materials and COVID-19-related travel
restrictions, 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
identifying,
("ERM") program which assists
Management
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
centers and support offices. The Company also continues 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
reflects the
In addition to
compensation programs and investments in staff housing that are
designed to attract and retain qualified personnel, the Company also
continues to implement and refine initiatives such as comprehensive
store-based manager-in-training programs.
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 have resulted in an increase in the number of
pilots required by NSA which, combined with a Canada-wide
recruitment and
shortage of pilots, may
in higher
result
26THE NORTH WEST COMPANY INC. 2021
compensation costs and have a negative impact on the Company's
financial performance. 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.
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
The Company relies on the
integrity and
Cyber-security
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, and continues to make
investments in this area to mitigate cyber threats. 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 or its third party service providers' 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.
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
is not successful
on page 32. To the extent the Company
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
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 $339 million and assets of $165
million for the year-ended January 31, 2022. 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, these 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.
27ANNUAL REPORT
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 17 communities in Alaska that
are potentially exposed to changes in permafrost. Collectively these
stores have sales of $806 million and assets of $344 million for the
year ended January 31, 2022. 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.
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 expenses such as utility costs and 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.
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.
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
and spending on public
includes housing,
schools, health care facilities, military facilities, roads and sewers.
Local employment levels will fluctuate from year-to-year depending
on the degree of infrastructure activity and a community's overall
fiscal health. A similar fluctuating source of income is employment
related to tourism and natural resource development. A significant or
prolonged
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
28THE NORTH WEST COMPANY INC. 2021 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.
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
is higher compared to more
the Company's business model
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 continues to focus on simplifying work across the
business, with an emphasis on store processes. To the extent the
Company
its
strategies, it could have an adverse effect on the financial condition
and performance of the Company.
in developing and executing
is not successful
Environmental The Company owns a large number of facilities and
real estate, particularly in remote locations, and is subject to
environmental risks associated with the contamination of such
facilities and properties. The Company operates retail fuel outlets in a
number of locations and uses fuel to heat stores and housing. The
Company also has aviation fuel storage containers and operates
aviation fuel dispensing equipment. Contamination resulting from
gasoline, heating and aviation fuel
is possible. The Company
employs operating, training, monitoring and testing procedures to
minimize the risk of contamination. The Company also operates
refrigeration equipment in its stores and distribution centres which, if
the equipment fails, could release gases that may be harmful to the
environment. The Company has monitoring and preventative
maintenance procedures to reduce the risk of this contamination
occurring. Even with these risk mitigation policies and procedures,
the Company could incur increased or unexpected costs related to
environmental
including
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,
duties, currency
repatriation, health and safety, employment
standards and minimum wage laws, Payment Card Industry ("PCI")
licensing
standards, anti-money
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
financial results.
laundering ("AML") regulations,
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,
financial penalties,
regulations and standards could result
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
reductions cannot be
In Canada, on-going
implemented.
prescription drug reform, changes in dispensing fees, and the
potential implementation of a national pharmacare system 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 costs associated
with recycling and disposal of consumer goods packaging and food
waste, carbon taxes and the implementation of other greenhouse
gas reduction initiatives and regulations related to transitioning to a
in
low-carbon and more climate resilient future, could result
additional costs which could have a negative impact on the
Company's financial performance if the Company is not able to fully
pass on these additional costs to its customers or identify other
offsetting cost reductions and efficiencies.
Food, Drug, Product and Service Safety The Company is exposed
to risks associated with food and drug safety, product packaging,
labelling, handling,
storage and distribution, and general
merchandise product defects. The Company also operates
pharmacies and provides tele-pharmacy services and is subject to
risks associated with the distribution of prescription drugs, errors
made through medication dispensing or patient services and
consultation. Food sales represent approximately 77% of total
Company sales. A significant outbreak of a food-borne illness or food
safety
food tampering or contamination, 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.
including
issues
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.
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.
29ANNUAL REPORT
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.
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 #4, Project Enterprise. In 2022, the Company will be
implementing
in
the merchandise management
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
and disciplined project management.
system
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.
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 continue to be 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.
increases certain risks to the Company
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
which
including risks
associated with product safety and general merchandise product
defects, products that do not meet the required standards or non-
compliance with ethical and safe business practices. The Company
uses offshore consolidators and sourcing agents to monitor product
quality and ethical sourcing standards however, the Company does
not have any direct influence over how these vendors and service
partners are managed and 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.
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.
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
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.
30THE NORTH WEST COMPANY INC. 2021
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. Effective January 1, 2022, the defined
benefit pension plan for Canadian-based executives was closed to
new members however, members prior to the closure will continue
to accumulate service in the plan until the end of their employment.
All of the Company's defined benefit pension plans are closed to
new members and all new eligible employees will participate in the
staff defined contribution plan. Further
information on post-
employment benefits is provided on page 33 and in Note 13 to
the consolidated financial statements.
Dependence on Key Facilities There are five major distribution
centres which are located in Winnipeg, Manitoba; Anchorage, Alaska;
San Leandro, California; Port of Tacoma, Washington; and a third
party managed facility in 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.
to
credit
facilities
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, 2022,
the Company had undrawn committed revolving loan facilities
available of $354.6 million (January 31, 2021 - $400.3 million). In
March 2022, the Company increased the capacity on its revolving
loan facilities in Canadian Operations from $300.0 million to $400.0
million and extended the maturity date to March 1, 2027 which
further reduces liquidity risk. Further information on liquidity is
in the Consolidated Liquidity and Capital Resources
provided
section.
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, 2022, the Company had US$70.6 million in
U.S. denominated debt compared to US$140.8 million at January 31,
2021 and US$99.7 million at January 31, 2020. 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 2021, the average exchange rate used to translate U.S.
denominated earnings from the International Operations was 1.2526
compared to 1.3390 last year. The Canadian dollar's appreciation in
2021 compared to the U.S. dollar in 2020 negatively impacted
consolidated net earnings by $3.6 million. In 2020, the average
exchange rate was 1.3390 compared to 1.3246 in 2019 which
resulted in an increase in 2020 consolidated net earnings of $0.5
million compared to 2019.
31ANNUAL REPORT 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, 2022, the
Company had no outstanding interest rate swaps.
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.
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
job experiences and
and talented employees with the best
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.
32THE NORTH WEST COMPANY INC. 2021 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 statements 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, 2022 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 2021 was 3.43% compared to 2.72% in 2020 and 2.75% in 2019.
Management assumed a rate of compensation increase of 4.0% for
fiscal 2019, 2020 and 2021.
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.
33ANNUAL 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 2021 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 sheets, 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 Note 15
and Note 24 to the consolidated financial statements.
its Giant Tiger stores.
financial asset
FUTURE ACCOUNTING STANDARDS
In May 2021, the International Accounting Standards Board issued
Deferred Tax related to Assets and Liabilities arising from a Single
Transaction, which amended IAS 12, Income Taxes (IAS 12). The
amendments are effective for periods beginning on or after January
1, 2023, with early adoption permitted. The amendments narrowed
the scope of the recognition exemption so that it no longer applies
on initial recognition to transactions that give rise to equal taxable
and deductible temporary differences, such as leases. The Company
does not expect adoption of the standard to have a material impact
on the Company's consolidated financial statements.
There are no other IFRS or IFRIC interpretations that are not yet
effective that would be expected to have a material impact on the
Company.
34THE NORTH WEST COMPANY INC. 2021
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)
EBIT
Add:
Amortization
EBITDA
Fourth Quarter
Year-to-date
Canada
2021
2020
2019
2021
2020
2019
$
36,276 $
38,444 $
17,642
$
153,328
$
144,141
$
77,376
15,932
14,947
16,759
61,881
62,357
62,983
$
52,208 $
53,391 $
34,401
$
215,209
$
206,498
$
140,359
Gain on insurance settlement
Share-based compensation expense
Gain on disposition of Giant Tiger stores
Giant Tiger asset impairment and store closure
provision
Adjusted EBITDA
(9,492)
3,268
—
—
(5,306)
2,262
—
—
(3,205)
136
—
—
(18,124)
10,136
—
—
(5,306)
20,007
(24,712)
9,411
(7,514)
3,025
—
—
$
45,984 $
50,347 $
31,332
$
207,221
$
205,898
$
135,870
($ in thousands)
EBIT
Add:
Amortization
EBITDA
International (Stated in U.S. dollars)
Fourth Quarter
Year-to-date
2021
2020
2019
2021
2020
2019
$
10,456 $
8,492 $
6,939
$
53,566
$
48,699
$
39,995
5,880
5,707
5,273
23,220
22,194
$
16,336 $
14,199 $
12,212
$
76,786
$
70,893
$
19,813
59,808
(8,000)
395
Gain on insurance settlement
Share-based compensation expense
—
274
—
473
—
41
—
1,371
—
1,856
Adjusted EBITDA
$
16,610 $
14,672 $
12,253
$
78,157
$
72,749
$
52,203
($ in thousands)
EBIT
Add:
Amortization
EBITDA
Fourth Quarter
Year-to-date
Consolidated
2021
2020
2019
2021
2020
2019
$
49,588 $
49,114 $
26,734
$
220,425
$
209,349
$
130,353
23,376
22,296
23,699
90,950
92,078
89,222
$
72,964 $
71,410 $
50,433
$
311,375
$
301,427
$
219,575
Gain on insurance settlement
Share-based compensation expense
Gain on disposition of Giant Tiger stores
Giant Tiger asset impairment and store closure
provision
Adjusted EBITDA
(9,492)
3,615
—
—
(5,306)
2,871
—
—
(3,205)
190
—
—
(18,124)
11,854
—
—
(5,306)
22,495
(24,712)
9,411
(18,170)
3,550
—
—
$
67,087 $
68,975 $
47,418
$
305,105
$
303,315
$
204,955
35ANNUAL REPORT
Reconciliation of consolidated net earnings to adjusted net earnings:
($ in thousands)
Net earnings
Gain on 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
Adjusted Net Earnings
Fourth Quarter
Year-to-Date
2021
2020
2019
2021
2020
2019
$
35,608
$
32,832
$
17,263
$
157,451
$
143,560
$
86,273
(6,152)
2,875
—
—
(4,460)
2,106
—
—
(2,340)
(13,275)
305
—
—
9,234
—
—
(4,460)
18,855
(19,991)
6,874
(13,887)
2,991
—
—
$
32,331
$
30,478
$
15,228
$
153,410
$
144,838
$
75,377
The Company recorded gains on 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 certain insurance 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 Consolidated Results section and in Note 24 to the consolidated financial statements.
(2) Return on Net Assets (RONA) is not a recognized measure
under IFRS. Management believes that RONA is a useful measure to
evaluate the financial return on the net assets used in the business.
RONA is calculated as earnings from operations (EBIT) for the year
divided by average monthly net assets. The following table
reconciles net assets used in the RONA calculation to IFRS measures
reported in the consolidated financial statements as at January 31 for
the following fiscal years:
($ in millions)
Total assets
2021
2020
2019
$ 1,219.3
$ 1,191.2
$ 1,215.5
Less: Total liabilities
(639.1)
Add: Total debt and lease liabilities
349.7
(685.9)
402.0
(788.6)
550.1
Net Assets Employed
$ 929.9
$
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 & ABBREVIATIONS
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.
Basis point A unit of measure that is equal to 1/100th of one percent.
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.
B-to-C Business to consumer sales.
Compound Annual Growth Rate ("CAGR") The compound annual
growth rate is the year-over-year percentage growth rate over a given
period of time.
Conversion to a Share Corporation On January 1, 2011, the North West
Company Fund (the “Fund”) completed a conversion to a corporation
named The North West Company Inc. (the “Company”) by way of a plan of
arrangement under section 192 of the Canada Business Corporations Act.
The details of the conversion and the Arrangement are contained in the
management information circular dated April 29, 2010 which is available
on the Company's website at www.northwest.ca or on SEDAR at
www.sedar.com.
The MD&A contains references to “shareholders”, “shares” and
“dividends” which were previously referred to as “unitholders”, “units” and
“distributions” under the Fund.
CUL Cost-U-Less store banner.
Debt covenants Restrictions written into banking facilities, senior notes
and loan agreements that prohibit the Company from taking actions that
may negatively impact the interests of the lenders.
Debt loss An expense resulting from the estimated loss on potentially
uncollectible accounts receivable.
Debt-to-equity ratio Provides information on the proportion of debt
and equity the Company is using to finance its operations and is
calculated as total debt divided by shareholders' equity.
Diluted earnings per share The amount of net earnings for the period
attributable to shareholders of The North West Company Inc. divided by
the weighted-average number of shares outstanding during the period
including the impact of all potential dilutive outstanding shares at the
end of the period.
EBIT (Earnings From Operations) Net earnings before interest and
income taxes provides an indication of the Company's performance prior
to interest expense and income taxes.
B-to-B Business to business sales.
EBIT margin EBIT divided by sales.
36THE NORTH WEST COMPANY INC. 2021
Fiscal
Year
2021
2020
2019
2018
2017
2016
Year-ended
January 31, 2022
January 31, 2021
January 31, 2020
January 31, 2019
January 31, 2018
January 31, 2017
Fiscal
Year
2015
2014
2013
2012
2011
2010
Year-ended
January 31, 2016
January 31, 2015
January 31, 2014
January 31, 2013
January 31, 2012
January 31, 2011
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.
GT Giant Tiger store banner.
Hedge A risk management technique used to manage interest rate,
foreign currency exchange or other exposures arising from business
transactions.
Interest coverage Net earnings before interest and income taxes
divided by interest expense.
IFRS (International Financial Reporting Standards) Effective for the
2011 fiscal year, the consolidated financial statements were prepared in
accordance with International Financial Reporting Standards as issued by
the International Accounting Standards Board. Comparative financial
information for the year ended January 31, 2011 (“2010”) previously
reported in the consolidated financial statements prepared in accordance
with CGAAP has been restated in accordance with the accounting
policies and financial statement presentation adopted under
IFRS.
Further information on the transition to IFRS and the impact on the
Company's consolidated financial statements is provided in the 2011
Annual Financial Report available on SEDAR at www.sedar.com or on the
Company's website at www.northwest.ca.
NSA North Star Air Ltd., a regional airline providing cargo and passenger
services.
Return on Average Equity ("ROE") Net earnings divided by average
shareholders' equity. See Non-GAAP Financial Measures section.
Return on Net Assets ("RONA") Net earnings before interest and
income taxes divided by average net assets employed (total assets less
accounts payable and accrued liabilities, income taxes payable, defined
benefit plan obligations, deferred tax liabilities, and other long-term
liabilities). See Non-GAAP Financial Measures section.
RTW Roadtown Wholesale Trading Ltd. collectively consisting of the
Riteway Food Markets banner, a Cash and Carry store and a significant
wholesale operation.
Same store sales Retail food and general merchandise sales from stores
that have been open more than 52 weeks in the periods being compared,
excluding the impact of foreign exchange. Total same store sales consists
of retail food and general merchandise sales and excludes other sales.
Working capital Total current assets less total current liabilities.
Year The fiscal year ends on January 31. Each fiscal year has 365 days of
operations with the exception of a "leap year" which has 366 days of
operations as a result of February 29. The following table summarizes the
fiscal year:
37ANNUAL 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 ($)
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
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)
2021
2020
2019
2018(1)
2017 (1)
$ 1,291,139
957,657
2,248,796
215,209
96,166
311,375
61,881
29,069
90,950
13,058
49,916
154,802
224,135
70,420
94,070
(22,110)
$ 403,358
554,457
100,844
40,283
98,585
21,746
294,490
344,579
580,204
$
$
$
3.21
3.16
6.45
4.64
1.46
12.12
35.05
161
55
998
677
1,302
1,425
4,926
2,598
48,268
47,879
50,474
13.8
9.8
23.8
29.0
.41:1
31.4
6.3
$ 1,376,188 $ 1,271,552 $ 1,246,133 $ 1,199,473
785,649
1,985,122
112,393
57,231
169,624
39,796
15,857
55,653
10,145
34,135
67,154
141,419
62,315
122,035
(5,083)
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
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)
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 $ 399,593 $ 376,297 $ 335,003
469,993
531,794
—
107,766
—
49,020
91,502
98,440
34,450
7,288
171,212
315,135
377,580
370,802
382,156
505,231
555,075
127,870
—
104,765
28,233
194,084
594,482
426,970
514,946
127,794
—
96,119
34,705
196,938
541,907
411,016
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
1.70 $
1.68
4.50
3.30
1.32
8.76
27.56
1.78 $
1.77
4.47
3.19
1.28
8.43
31.17
198
51
1,617
662
798 $
1,236 $
5,587
2,046
48,751
48,751
45,013
193
52
1,571
669
798 $
1,148 $
5,672
2,253
48,697
48,751
46,269
12.8
8.9
22.4
30.7
.56:1
19.9
7.1
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
1.38
1.36
3.48
2.91
1.28
7.60
29.14
188
51
1,552
668
781
1,169
5,915
2,119
48,680
48,690
38,836
8.5
5.7
16.7
18.3
.82:1
44.1
6.0
(1)
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 35.
38THE NORTH WEST COMPANY INC. 2021 2016
2015
2014
2013
2012
2011
Fiscal Year ($ in thousands )
$ 1,125,330 $ 1,089,898 $ 1,042,168 $ 1,022,985 $ 1,043,050 $ 1,028,396
466,740
718,763
1,495,136
1,844,093
97,998
109,736
56,762
27,883
125,881
166,498
28,745
35,291
7,827
13,076
36,572
48,367
6,026
7,220
25,322
33,835
77,076
57,961
115,469
126,024
50,797
60,169
46,376
77,745
(4,247)
(7,000)
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)
706,137
1,796,035
98,276
53,071
151,347
31,781
12,245
44,026
6,210
31,332
69,779
132,987
58,210
75,983
8,114
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
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
$ 327,938 $ 335,581 $ 315,840 $ 299,071 $ 303,896 $ 295,836
270,370
358,121
—
—
—
—
53,289
86,909
32,853
7,422
128,002
152,244
215,206
285,792
283,709
367,785
345,881
—
—
83,293
29,040
155,501
280,682
357,612
286,875
—
—
64,969
19,597
209,738
138,334
322,440
311,692
—
—
68,693
28,074
146,275
248,741
329,283
274,027
—
—
60,567
12,904
190,184
164,960
296,250
1.20
1.19
2.60
2.39
1.05
5.86
19.40
183
46
1,466
655
702
713
5,233
1,668
48,378
48,378
22,418
$
$
$
1.59 $
1.57
3.43
2.60
1.24
7.57
29.28
185
47
1,518
676
755 $
1,063 $
5,715
1,882
48,524
48,542
49,189
1.44 $
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
9.0
6.4
20.1
21.8
.62:1
47.7
6.1
8.4
6.0
19.5
20.6
.63:1
43.8
6.2
1.30 $
1.29
2.85
2.38
1.16
6.80
26.56
178
47
1,422
676
742 $
849 $
1.33 $
1.32
2.86
1.64
1.12
6.66
25.42
178
48
1,386
696
741 $
767 $
1.32 $
1.32
2.76
2.67
1.04
6.12
23.14
177
46
1,375
660
734 $
716 $
4,921
1,726
48,432
48,497
24,080
8.5
6.0
18.4
19.3
.61:1
48.8
5.7
4,839
1,853
48,413
48,426
17,623
9.0
6.5
20.0
21.0
.57:1
68.2
5.6
4,768
1,568
48,384
48,389
17,831
8.8
6.4
20.6
22.1
.55:1
39.0
5.8
(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 ($)
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
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) (%)
8.4
Earnings from operations (EBIT) (%)
6.0
Total return on net assets(2) (%)
18.5
Return on average equity(2) (%)
20.1
.62:1
Debt-to-equity
44.0 Dividends/distributions as % of cash flow from operating activities
Inventory turnover (times per year)
5.7
39ANNUAL 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 reasonable 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 in accordance with Canadian generally accepted audited standards and submitted their report as follows.
Daniel G. McConnell
PRESIDENT & CEO
THE NORTH WEST COMPANY INC.
April 13, 2022
John D. King, CPA, CA, CMA
EXECUTIVE VICE-PRESIDENT &
CHIEF FINANCIAL OFFICER
THE NORTH WEST COMPANY INC.
40THE NORTH WEST COMPANY INC. 2021
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, 2022 and 2021, 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, 2022 and 2021;
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
Richardson Building, 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.
41CONSOLIDATED 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, 2022. 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
Inventories
Refer to note 3 – Significant accounting policies
and note 6 – Inventories to the consolidated
financial statements.
As at January 31, 2022, the Company held
inventories of $248 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, 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.
How our audit addressed the key audit matter
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.
42THE NORTH WEST COMPANY INC. 2021
Key audit matter
How our audit addressed the key audit matter
• 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.
• 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.
43CONSOLIDATED 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.
44THE NORTH WEST COMPANY INC. 2021
• 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 13, 2022
45CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Balance Sheets
($ in thousands)
CURRENT ASSETS
Cash
Accounts receivable (Note 5)
Inventories (Note 6)
Prepaid expenses
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, 2022
January 31, 2021
$
$
$
49,426
99,241
247,988
6,703
403,358
554,457
100,844
40,283
48,502
34,094
21,746
15,989
815,915
1,219,273
221,319
46,262
18,055
8,854
294,490
189,378
96,015
21,714
14,483
22,989
344,579
639,069
173,081
12,530
355,674
22,350
563,635
16,569
580,204
$
$
$
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
$
1,219,273
$
1,191,168
46THE NORTH WEST COMPANY INC. 2021
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, 2022
January 31, 2021
$ 2,248,796
$ 2,359,239
(1,511,045)
(1,584,686)
737,751
774,553
(517,326)
(565,204)
220,425
(13,058)
207,367
(49,916)
209,349
(16,808)
192,541
(48,981)
$ 157,451
$ 143,560
$ 154,802
2,649
$ 157,451
$ 139,874
3,686
$ 143,560
$
$
3.21
3.16
$
$
2.87
2.82
48,268
49,034
48,758
49,526
47CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Statements of Comprehensive Income
($ in thousands)
NET EARNINGS FOR THE YEAR
Other comprehensive income/(loss), net of tax:
Items that may be reclassified to net earnings:
Exchange differences on translation of foreign controlled subsidiaries
Items that will not be subsequently reclassified to net earnings:
Remeasurements of defined benefit plans (Note 13)
Remeasurements of defined benefit plans of equity investee
Total other comprehensive income, net of tax
COMPREHENSIVE INCOME FOR THE YEAR
OTHER COMPREHENSIVE INCOME/(LOSS) ATTRIBUTABLE TO
The North West Company Inc.
Non-controlling interests
TOTAL OTHER COMPREHENSIVE INCOME
COMPREHENSIVE INCOME ATTRIBUTABLE TO
The North West Company Inc.
Non-controlling interests
TOTAL COMPREHENSIVE INCOME
See accompanying notes to consolidated financial statements.
Year Ended
Year Ended
January 31, 2022
January 31, 2021
$ 157,451
$ 143,560
734
14,174
202
15,110
677
3,747
(143)
4,281
$ 172,561
$ 147,841
$
15,121
$
4,894
(11)
(613)
$
15,110
$
4,281
$ 169,923
$ 144,768
2,638
3,073
$ 172,561
$ 147,841
48THE NORTH WEST COMPANY INC. 2021
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, 2021
$ 174,213 $
13,394 $ 282,088 $ 21,605 $ 491,300 $
13,931 $ 505,231
Net earnings for the year
Other comprehensive income/(loss)
Other comprehensive income of
equity investee
Comprehensive income
Purchased and cancelled (Note 16)
Equity settled share-based payments
(Note 14)
Dividends (Note 20)
—
—
—
—
(2,892)
(29)
—
—
—
—
—
—
80
—
154,802
—
154,802
2,649 157,451
14,174
745
14,919
(11)
14,908
202
—
202
—
202
169,178
(25,172)
745
—
169,923
(28,064)
2,638 172,561
(28,064)
—
—
(70,420)
—
—
—
51
—
51
(70,420)
(70,420)
845
—
845
Issuance of common shares (Note 16)
1,789
(944)
—
Balance at January 31, 2022
(1,132)
(97,588)
$ 173,081 $ 12,530 $ 355,674 $ 22,350 $ 563,635 $ 16,569 $ 580,204
(97,588)
(95,592)
(864)
—
—
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)
Dividends (Note 20)
Issuance of common shares (Note 16)
—
—
—
—
(648)
—
—
1,180
532
—
—
—
—
—
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)
4,744
—
(67,276)
—
(72,642)
—
—
—
—
5,015
(67,276)
909
—
5,015
(2,214)
—
(69,490)
909
(67,366)
(2,214)
(69,580)
Balance at January 31, 2021
$ 174,213 $
13,394 $ 282,088 $ 21,605 $ 491,300 $
13,931 $ 505,231
(1) Accumulated Other Comprehensive Income
See accompanying notes to consolidated financial statements.
49CONSOLIDATED 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)
Goodwill and 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/(repayment) (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, 2022
January 31, 2021
$ 157,451
$ 143,560
90,950
49,916
13,058
51
(18,124)
(63,570)
50
—
—
229,782
(2,563)
(3,084)
224,135
(87,341)
(6,729)
85
18,124
(75,861)
44,071
(85,393)
(18,003)
(4,288)
(70,420)
—
(8,944)
845
(28,064)
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
(66,900)
(214,853)
94,808
(19,073)
(5,065)
(67,276)
(2,214)
(8,282)
909
(6,014)
(170,196)
(227,060)
(188)
(22,110)
71,536
(1,409)
43,349
28,187
$
49,426
$
71,536
50THE NORTH WEST COMPANY INC. 2021
Notes to
Consolidated
Financial
Statements
($ IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
JANUARY 31, 2022 AND 2021
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 13, 2022.
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.
51NOTES 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
52THE NORTH WEST COMPANY INC. 2021
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.
53NOTES 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.
54THE NORTH WEST COMPANY INC. 2021
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 income. These gains and losses are fully or
partially reclassified to earnings on disposal or partial disposal of
foreign operations. Any ineffective portion of the changes in
fair value of the hedging item is recognized immediately in
earnings.
To qualify for hedge accounting, the Company documents
its risk management strategy, the relationship between the
hedging instrument and the hedged item and the nature of the
The Company also documents the
risks being hedged.
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
gain or
in
accumulated other comprehensive income is retained in equity
until the forecasted transaction occurs. If a hedged transaction
is no longer expected to occur, the net cumulative gain or loss
recognized in other comprehensive income is transferred to the
consolidated statements of earnings for the period.
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
to make estimates,
with
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:
•
•
•
•
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)
for property and equipment,
Amortization methods
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)
includes
55NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
•
•
•
•
•
•
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)
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)
Promissory note
includes management's
estimate of the fair value of contingent consideration
receivable for the sale of its Giant Tiger stores (Note 24)
receivable
(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) New Standards Implemented The Company adopted the
Interest Rate Benchmark Reform issued by the IASB in August
2020. This includes amendments to IFRS 9 Financial Instruments,
IAS 39 Financial Instruments: Recognition and Measurement, IFRS
7 Financial Instruments: Disclosures, and IFRS 16 Leases. The
amendments address issues that arise from benchmark reform,
where benchmarks such as interbank offered rates (IBORs) are
For financial
replaced with alternative benchmark rates.
instruments at amortized cost, the amendments introduce a
practical expedient such that if a change in the contractual cash
flows occurs as a result of IBOR reform on an economically
equivalent basis, the change will be accounted for by updating
the effective interest rate prospectively with no immediate
recognition of gain or loss. The Company assessed the impact
of IBOR reform and determined it is not immediately impacted.
The Company continues to monitor benchmark replacement
but does not expect the impact of future developments to be
significant.
IAS 12,
Income Taxes
(Y) Future Standards and Amendments In May 2021, the
International Accounting Standards Board issued Deferred Tax
related to Assets and Liabilities arising from a Single Transaction,
which amended
The
amendments are effective for periods beginning on or after
The
January 1, 2023, with early adoption permitted.
recognition
amendments narrowed
exemption so that it no longer applies on initial recognition to
transactions that give rise to equal taxable and deductible
temporary differences, such as leases. The Company does not
expect adoption of the standard to have a material impact on
the Company's consolidated financial statements.
scope of
(IAS 12).
the
the
There are no further IFRS or IFRIC interpretations that are not yet
effective that would be expected to have a material impact on
the Company's consolidated financial statements.
56THE NORTH WEST COMPANY INC. 2021 4. SEGMENTED INFORMATION
5. ACCOUNTS RECEIVABLE
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.
The following key information is presented by geographic segment:
Consolidated Statements of Earnings
Year Ended
Sales
Canada
Food
January 31, 2022
January 31, 2021
$ 880,154
$
935,725
General merchandise and other
410,985
440,463
Canada
International
Food
$ 1,291,139
$ 1,376,188
$ 844,555
$
866,045
General merchandise and other
113,102
117,006
International
$ 957,657
$
983,051
January 31, 2022
January 31, 2021
Trade accounts receivable
$
86,841
$
82,213
Corporate and other accounts
receivable
Less: allowance for doubtful
accounts
24,565
20,360
(12,165)
(11,130)
$
99,241
$
91,443
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:
Consolidated
$ 2,248,796
$ 2,359,239
January 31, 2022
January 31, 2021
Earnings before amortization, interest and income taxes
Canada
International
$ 215,209
$
206,498
96,166
94,929
Balance, beginning of year
$
(11,130)
$
(11,838)
Net charge
Written off
(9,397)
8,362
(8,398)
9,106
Consolidated
$ 311,375
$
301,427
Balance, end of year
$
(12,165)
$
(11,130)
Earnings from operations
Canada
International
$ 153,328
$
144,141
67,097
65,208
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,
2022, the Company recorded $2,929 (January 31, 2021 – $1,645) 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, 2022 or 2021.
Consolidated
$ 220,425
$
209,349
Supplemental Information
Assets
Canada(1)
International(1)
January 31, 2022
January 31, 2021
$ 775,806
$
754,162
443,467
437,006
Consolidated
$ 1,219,273
$ 1,191,168
Year Ended
January 31, 2022
January 31, 2021
Canada
Int'l
Canada
Int'l
Purchase of property and
equipment
$ 59,753 $ 27,588 $ 61,331 $ 9,555
Amortization
$ 61,881 $ 29,069 $ 62,357 $ 29,721
(1) Canadian total assets includes goodwill of $11,025 (January 31,
2021 – $11,025). International total assets includes goodwill of
$37,477 (January 31, 2021 – $37,238).
57NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. PROPERTY & EQUIPMENT
January 31, 2022
Cost
Land
Buildings
Leasehold
improvements
Fixtures &
equipment
Aircraft
Computer
equipment
Construction
in process
Total
Balance, beginning of year
$ 18,847
$ 599,930
$ 59,443 $ 348,173 $ 102,805 $ 77,408
$ 20,946 $ 1,227,552
Additions
Disposals/retirements
Effect of movements in foreign exchange
1,058
23,341
—
—
(282)
(456)
7,907
(111)
(35)
17,952
(4,479)
(321)
21,493
8,984
6,606
87,341
(3,828)
(18,908)
—
(164)
—
—
(27,608)
(976)
Total January 31, 2022
$ 19,905
$ 622,533
$ 67,204 $ 361,325 $ 120,470 $ 67,320
$ 27,552 $ 1,286,309
Accumulated amortization
Balance, beginning of year
Amortization expense
Disposals/retirements
Effect of movements in foreign exchange
$
—
—
—
—
$ 325,616
$ 34,256 $ 253,800 $ 26,217 $ 55,782
$
87 $ 695,758
24,294
(282)
(256)
3,780
(85)
(19)
18,603
(4,303)
(273)
12,461
5,052
(3,828)
(18,908)
—
(142)
—
—
—
64,190
(27,406)
(690)
Total January 31, 2022
$
—
$ 349,372
$ 37,932 $ 267,827 $ 34,850 $ 41,784
$
87 $ 731,852
Net book value January 31, 2022
$ 19,905
$ 273,161
$ 29,272 $ 93,498 $ 85,620 $ 25,536
$ 27,465 $ 554,457
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/retirements
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/retirements
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
The Company reviews its property and equipment for indicators of impairment. No assets were identified as impaired for the years ended
January 31, 2022 and January 31, 2021.
Interest capitalized
Interest attributable to the construction of qualifying assets was capitalized using an average rate of 3.7% and 3.4% for the years ended
January 31, 2022 and 2021 respectively. Interest capitalized in additions amounted to $95 (January 31, 2021 – $180). Accumulated interest
capitalized in the cost total above amounted to $3,122 (January 31, 2021 – $3,027).
58THE NORTH WEST COMPANY INC. 2021
8. RIGHT-OF-USE ASSETS & LEASE LIABILITIES
Right-of-use assets
January 31, 2022
Cost
Balance, beginning of year
Additions
Disposals
Lease extensions and other items
Effect of movements in foreign exchange
Total January 31, 2022
Accumulated amortization
Balance, beginning of year
Amortization expense
Disposals and other items
Impairment losses
Effect of movements in foreign exchange
Total January 31, 2022
Net book value January 31, 2022
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 and other items
Impairment losses
Effect of movements in foreign exchange
Total January 31, 2021
Net book value January 31, 2021
Land & buildings
Fixtures &
equipment
Aircraft
Total
$
172,099 $
6,668 $
3,059 $
181,826
7,249
(1,776)
2,515
(405)
3,171
(1,290)
(330)
(2)
—
(1,626)
61
—
10,420
(4,692)
2,246
(407)
$
$
$
$
179,682 $
8,217 $
1,494 $
189,393
69,408 $
3,305 $
1,347 $
16,145
(1,327)
(263)
(20)
1,667
(1,577)
—
(1)
726
(861)
—
—
74,060
18,538
(3,765)
(263)
(21)
83,943 $
3,394 $
1,212 $
88,549
95,739 $
4,823 $
282 $
100,844
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
59NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Lease liabilities
The total current and long-term lease liability is $18,055 (January 31,
2021 - $16,393) and $96,015 (January 31, 2021 - $104,226),
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, 2022, lease
liabilities reflect a weighted-average risk-free rate of 3.6% (January 31,
2021 – 3.7%) and weighted-average remaining lease term of 9.6
years (January 31, 2021 – 10.2 years).
Maturity analysis - contractual undiscounted cash flows
0-1 year
2-3 years
4-5 years
6 years+
January 31, 2022
$
22,269
37,415
25,151
57,753
Total undiscounted cash flows
$ 142,588
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 $6,890 (January 31, 2021 – $7,137).
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, 2022
January 31, 2021
Balance, beginning of year
$
48,263
$
49,569
Additions
Effect of movements in foreign
exchange
382
(143)
—
(1,306)
Balance, end of year
$
48,502
$
48,263
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 $37,477 (January 31, 2021 – $37,238)
relates to acquisition of subsidiaries by the Company's International
Operations. A goodwill asset balance of $11,025 (January 31, 2021 –
$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.
60THE NORTH WEST COMPANY INC. 2021
Intangible assets
January 31, 2022
Cost
Balance, beginning of year
Additions
Disposals/retirements
Effect of movements in foreign exchange
Total January 31, 2022
Accumulated Amortization
Balance, beginning of year
Amortization expense
Disposals/retirements
Effect of movements in foreign exchange
Total January 31, 2022
Software
Store banners
Other
Total
$ 66,888
$
9,825
$ 13,163
$ 89,876
4,832
(3,572)
—
—
—
(38)
1,515
—
(17)
6,347
(3,572)
(55)
$ 68,148
$
9,787
$ 14,661
$ 92,596
$ 44,624
7,357
(3,435)
—
$ 48,546
$
$
—
—
—
—
—
$
9,101
$ 53,725
865
—
(10)
8,222
(3,435)
(10)
$
9,956
$ 58,502
Net book value January 31, 2022
$ 19,602
$ 9,787
$
4,705
$ 34,094
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
Work in process
As at January 31, 2022, the Company had incurred $283 (January 31,
2021 – $23) 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.
61NOTES 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 $5,618 (January 31, 2021 - $5,646) arising from
certain foreign income tax losses were not recognized on the
consolidated balance sheets. The income tax losses expire from
2023 – 2032.
Deferred income tax charged (credited) to other comprehensive
income during the year is as follows:
Year Ended
January 31, 2022
January 31, 2021
Net investment hedge:
Origination and reversal of
temporary difference
$ 1,915
$
(1,153)
Impact of change in tax rates
4
—
$ 1,919
$
(1,153)
Defined benefit plan
actuarial gain:
Origination and reversal of
temporary difference
Impact of change in tax rates
$ 5,206
$ 1,384
25
2
$ 5,231
$ 1,386
10. INCOME TAXES
The following are the major components of income tax expense:
Year Ended
January 31, 2022
January 31, 2021
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/(over) provision in prior
years
$ 70,842
$ 26,332
652
(1,843)
130
(2,191)
$ 69,651
$ 24,271
$ (19,669)
$ 22,598
8
(74)
6
2,106
$ (19,735)
$ 24,710
Income taxes
$ 49,916
$ 48,981
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, 2022
January 31, 2021
Earnings before income taxes
$ 207,367
$ 192,541
Combined statutory income
tax rate
24.7 %
24.0 %
Expected income tax expense
$ 51,321
$ 46,197
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 provision in prior years
Other
$ (1,342)
$
(25)
275
652
8
883
(1,917)
36
982
130
6
1,836
(85)
(60)
Provision for income taxes
$ 49,916
$ 48,981
Income tax rate
24.1 %
25.4 %
(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.
62THE NORTH WEST COMPANY INC. 2021
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
Unrealized foreign exchange loss
Other
Deferred tax liabilities:
Goodwill & intangible assets
Property & equipment
Right-of-use assets
Unrealized foreign exchange gain
Investment in joint venture
Deferred limited partnership earnings
Other
Recorded on the consolidated balance sheet as follows:
Year Ended
Deferred tax assets
Deferred tax liabilities
February 1, 2021
Taxes (charged)
credited to net
earnings
Taxes (charged)/
credited to OCI
Other
adjustments
January 31, 2022
$
$
$
$
$
11,976
27,954
2,598
6,700
10,914
2,337
1,153
3,008
$
(1,466)
$
(677)
651
(374)
784
(31)
—
(1,973)
—
—
—
—
(5,231)
—
(1,919)
—
$
(459)
$
10,051
(61)
(4)
448
—
(10)
767
(63)
27,216
3,245
6,774
6,467
2,296
1
972
66,640
$
(3,086)
$
(7,150)
$
618
$
57,022
(1,162)
$
(141)
$
(14,617)
(25,355)
—
(1,685)
(24,676)
(4,345)
(71,840)
(5,200)
(1,795)
805
—
(239)
23,866
325
22,821
19,735
$
$
$
$
—
—
—
—
—
—
—
—
(7,150)
$
$
$
2
22
58
(767)
(27)
—
(28)
(740)
(122)
$
(1,301)
(16,390)
(24,492)
(767)
(1,951)
(810)
(4,048)
(49,759)
7,263
$
$
January 31, 2022
January 31, 2021
$
21,746
(14,483)
$
7,263
$
$
7,288
(12,488)
(5,200)
63NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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
Accrued liabilities
Other
February 1, 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)
$
$
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 $230,282 at
January 31, 2022 (January 31, 2021 – $190,737).
11. OTHER ASSETS
Investment in joint venture (Note 23)
Other
January 31, 2022
January 31, 2021
$ 14,456
1,533
$ 12,481
1,545
$ 15,989
$ 14,026
64THE NORTH WEST COMPANY INC. 2021
12. LONG-TERM DEBT
Current:
Revolving loan facility (2)
Revolving loan facility (3)
Senior notes (4)
Promissory note payable (8)
Non-current:
Revolving loan facility (1)
Senior notes (5)
Senior notes (6)
Revolving loan facility (7)
Promissory notes payable (8)
January 31, 2022
January 31, 2021
$
—
$
45,107
—
1,155
—
—
89,300
1,156
$ 46,262
$ 90,456
$
—
$
—
88,869
89,300
100,000
100,000
(5) 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 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 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.
—
509
—
1,666
(8) Promissory notes payable are non-interest bearing, have annual
principal payments and are secured by certain assets of the
Company.
$ 189,378
$ 190,966
Total
$ 235,640
$ 281,422
13. POST-EMPLOYMENT BENEFITS
(1) The committed, revolving U.S.
loan facility provides the
International Operations with up to US$40,000 for working capital
requirements and general business purposes. This facility matures
February 12, 2025, bears a floating rate of interest based on U.S.
LIBOR plus a spread and is secured by certain accounts receivable
and inventories of the International Operations. At January 31, 2022,
the International Operations had drawn US$NIL (January 31, 2021 –
US$NIL) 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 $100,000 senior notes, the US$70,000 senior notes
due in 2027 and 2032, and the $300,000 Canadian Operations loan
facilities. At January 31, 2022, the Company had drawn US$NIL
(January 31, 2021 – US$NIL) on these facilities. See Note 25,
Subsequent Event.
(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 $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. See
Note 25, Subsequent Event.
(4) The US$70,000 senior notes matured June 16, 2021 and were
repaid. These notes had 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 were secured by certain assets of the
Company and ranked 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.
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, 2010 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. As of January 1, 2022 all of the
Company's defined benefit pension plans are closed to new
members.
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, 2022 and January 31, 2021. The accrued pension
benefits and funding requirements were last determined by actuarial
valuation as at December 31, 2020. The next actuarial valuation is
required as at December 31, 2021. The Company also sponsors an
employee savings plan covering certain U.S. employees with at least
six months of service. Under the terms of the plan, the Company is
obligated to make contributions that range between 3% and 5% of
eligible compensation.
During the year ended January 31, 2022, the Company
contributed $1,955 to its defined benefit pension plans (January 31,
2021 – $1,624). During the year ended January 31, 2022, the
Company contributed $6,303 to its defined contribution pension
plans and U.S. employees savings plans (January 31, 2021 – $5,418).
The current best estimate of the Company's funding obligation for
the defined benefit pension plans for the year commencing
February 1, 2022 is $1,471. In addition to the cash funding, a portion
of the pension plan obligation may be settled by the issuance of a
65NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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, 2022
January 31, 2021
Plan assets:
Fair value, beginning of year
$ 97,527
$ 95,122
Accrued interest on assets
Benefits paid
Plan administration costs
Employer contributions
Employee contributions
Return on assets greater than
discount rate
2,621
(6,273)
(518)
1,955
2
6,037
2,584
(5,826)
(538)
1,624
3
4,558
Fair value, end of year
$ 101,351
$ 97,527
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
$ (135,973)
$ (135,260)
(3,829)
(2)
(3,637)
7,008
(929)
14,297
(3,842)
(3)
(3,658)
6,215
1,250
(675)
$ (123,065)
$ (135,973)
Plan deficit
$ (21,714)
$
(38,446)
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:
The average life expectancy in years of a member who reaches
normal retirement age of 65 is as follows:
January 31, 2022
January 31, 2021
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
22.7
25.1
21.5
24.0
22.6
25.3
Assumptions regarding future mortality experience are set based on
in accordance with published statistics and
actuarial advice
experience. For the years ended January 31, 2022 and 2021,
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
$ (17,429)
$ 21,112
$
$
(1,001)
857
Plan assets
The major categories of plan assets as a percentage of total plan
assets are listed below. The pension plans have no direct investment
in the shares of the Company.
January 31, 2022
January 31, 2021
January 31, 2022
January 31, 2021
Plan assets:
Discount rate on plan liabilities
Rate of compensation increase
Discount rate on plan expense
Inflation assumption
3.43 %
4.00 %
2.72 %
2.00 %
2.72 %
4.00 %
2.75 %
2.00 %
Canadian equities (pooled)
Global equities (pooled)
Real estate equities (pooled)
Debt securities
19 %
37 %
10 %
34 %
17 %
41 %
9 %
33 %
The assumptions used are the best estimates chosen from a range of
possible actuarial assumptions, which may not necessarily be borne
out in practice. The weighted-average duration of the defined
benefit obligation at the end of the reporting period is 15.7
(January 31, 2021 – 16.8 years).
Total
100 %
100 %
66THE NORTH WEST COMPANY INC. 2021
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
Statements of earnings and comprehensive income
The following pension expenses have been charged to the
consolidated statements of earnings:
January 31, 2022
January 31, 2021
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
$ 3,829
$
3,842
518
4,783
1,520
538
4,095
1,323
$ 10,650
$
9,798
The following amounts have been included in other comprehensive
income:
January 31, 2022
January 31, 2021
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
$
6,037
$
4,558
(929)
14,297
1,250
(675)
(5,231)
(1,386)
$ 14,174
$
3,747
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
$
3,916
$ (15,489)
(3,139)
2,092
$
777
$ (13,397)
The actual return on the plans assets is summarized as follows:
January 31, 2022
January 31, 2021
Accrued interest on assets
$
2,621
$
2,584
Return on assets greater than
discount rate
6,037
4,558
Actual return on plan assets
$
8,658
$
7,142
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, 2022 was $11,854 (January 31, 2021 –
$22,495). 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:
$
(2,621)
$
(2,584)
3,637
3,658
$ 1,016
$
1,074
Accounts payable and accrued
liabilities
Other long-term liabilities
Contributed surplus
January 31, 2022
January 31, 2021
$ 7,586
12,321
10,933
$ 7,434
13,474
11,825
Total
$ 30,840
$ 32,733
67NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Performance Share Units
The Company has granted PSUs 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 and recognized over the vesting period
to be paid.
based on
Compensation costs related to the PSUs for the year ended
January 31, 2022 are $6,626 (January 31, 2021 – $8,755). Equity
settled PSUs are redeemed with shares transferred from a trust
established for this plan or by issuing shares from treasury. There
were 155,490 PSUs partially settled by releasing 76,629 shares (Note
16) from the employee trust during the year ended January 31, 2022
(January 31, 2021 - NIL) and a further 13,815 shares issued from
treasury (January 31, 2021 - 12,021). The total number of PSUs
outstanding at January 31, 2022 that may be settled in treasury
shares is 263,373 (January 31, 2021 - 322,910).
total compensation
the estimated
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, 2022 are an expense of $2,022 (January 31,
2021 – expense of $3,618). The total number of deferred share units
outstanding at January 31, 2022 is 308,258 (January 31, 2021 –
314,829). There were 48,388 DDSUs exercised in cash during the
year ended January 31, 2022 (January 31, 2021 – 51,750).
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, 2022 are an expense of $67 (January 31, 2021
– expense of $217).
Share Option Plan
The Company has a Share Option Plan that provides for the granting
of options to certain officers and senior management. Options are
granted at fair market value based on the volume weighted-average
closing price of the Company’s shares for the five trading days
preceding the grant date. Effective June 14, 2011, the Share Option
Plan was amended and restated. The amendments afford the Board
of Directors the discretion to award options giving the holder the
choice, upon exercise, to either deduct a portion of all dividends
declared after the grant date from the options exercise price or to
exercise the option at the strike price specified at the grant date
("Declining Strike Price Options"). Options issued prior to June 14,
2011 and certain options issued subsequently are standard options
("Standard Options"). Each option is exercisable into one share of the
Company at the price specified in the terms of the option. Declining
Strike Price options allow the employee to acquire shares or receive a
cash payment based on the excess of the fair market value of the
Company’s shares over the exercise price.
The
fair value of the Declining Strike Price Options
is
remeasured at the reporting date and recognized both in net
earnings and as a liability over the vesting period. The grant date fair
value of the Standard Options is recognized in net earnings and
contributed surplus over the vesting period.
The maximum number of shares available for issuance is a fixed
number set at 4,354,020, representing 9.1% of the Company’s issued
and outstanding shares at January 31, 2022. 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, 2022 are
an expense of $2,165 (January 31, 2021 – expense of $9,027). The fair
values for options issued during the year were calculated based on
the following assumptions:
January 31, 2022
January 31, 2021
Fair value of options granted
Exercise price
Dividend yield
Annual risk-free interest rate
Expected share price volatility
$
$
4.67
35.51
$
$
4.1 %
1.1 %
25.2 %
2.70
29.23
4.5 %
0.4 %
24.1 %
68THE NORTH WEST COMPANY INC. 2021 The assumptions used to measure options at the balance sheet
dates are as follows:
January 31, 2022
January 31, 2021
Dividend yield
Annual risk-free interest rate
4.2 %
1.3%
4.4 %
0.1% to 0.2%
Expected share price volatility
15.9% to 22.2% 20.8% to 39.1%
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, 2022 January 31, 2021 January 31, 2022 January 31, 2021
815,272
1,919,959
—
—
(225,684)
(1,090,772)
—
(13,915)
1,237,366
329,846
(165,170)
(127,205)
899,854
461,969
(44,811)
(79,646)
589,588
815,272
1,274,837
1,237,366
452,203
398,150
419,792
279,821
The weighted-average share price on the dates options were exercised during the year was $36.22 (January 31, 2021 – $33.81).
Weighted-average exercise price
Declining Strike Price Options
Standard Options
Outstanding options, beginning of year
$
30.15
$ 27.34
$
28.51
$ 28.01
January 31, 2022 January 31, 2021 January 31, 2022 January 31, 2021
Granted
Exercised
Forfeited or cancelled
Outstanding options, end of year
Exercisable at end of year
Summary of options outstanding by grant year
—
27.32
—
—
23.97
31.28
35.39
27.95
30.88
29.23
26.60
28.17
$
$
31.06
$ 30.15
26.78
$ 25.63
$
$
30.13
$ 28.51
28.39
$ 27.97
Outstanding
Exercisable
Range of
exercise price
Number
outstanding
Weighted-average
remaining
contractual years
Weighted-average
exercise price
Options
exercisable
Weighted-average
exercise price
$
$
$
$
$
$
$
20.71-25.63
24.59-28.81
28.15-32.40
27.77-27.77
28.13-30.02
29.23-29.23
34.67-35.51
44,792
165,838
421,297
194,080
364,236
383,224
290,959
0.2
1.2
2.4
3.2
4.3
5.4
6.3
$ 21.97
$ 24.86
$ 29.01
$ 27.77
$ 28.19
$ 29.23
$ 35.37
44,792
165,838
277,188
112,719
177,903
93,555
—
$ 21.97
$ 24.86
$ 29.02
$ 27.77
$ 28.19
$ 29.23
$
—
Grant
year
2015
2016
2017
2018
2019
2020
2021
69NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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, 2022 are $974 (January 31, 2021 – $878).
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, 2022, the Company had undrawn committed revolving loan facilities available of $320,309 (January 31, 2021 –
$400,250) which mature in 2022 and 2025 (Note 12 and Note 25). The undrawn available capacity is net of the aggregate potential liability for
letters of credit of $21,557 (January 31, 2021 - $21,581).
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.
2022
2023
2024
2025
2026
2027+
Total
Accounts payable and accrued liabilities
$
221,319 $
— $
— $
— $
— $
Current portion of long-term debt (Note 12)
Long-term debt (Note 12)
Total
46,747
6,749
—
7,004
—
7,004
—
6,749
—
6,749
— $ 221,319
—
46,747
205,720
239,975
$
274,815 $
7,004 $
7,004 $
6,749 $
6,749 $
205,720 $ 508,041
amount, $9,839 (January 31, 2021 – $9,863) is more than 60 days past
due. The Company has recorded an allowance against its maximum
exposure to credit risk of $12,165 (January 31, 2021 – $11,130) which
is based on expected credit losses for similar financial assets.
The Company has an unsecured, non-interest bearing
promissory note receivable of $50,092 (January 31, 2021 – $49,020)
from Giant Tiger Stores Limited of which $9,809 (January 31, 2021 –
$NIL) has been reclassified to accounts receivable and $40,283
(January 31, 2021 – $49,020) is classified as a non-current asset.
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, 2022 and 2021, the Company has no
significant credit risk related to derivative financial instruments.
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.
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
is generally not
Company’s exposure to
significant. The maximum exposure net of impairment allowances is
$99,241 (January 31, 2021 – $91,443). The Company does not have
any
individual customers greater than 10% of total accounts
receivable. At January 31, 2022, the Company’s gross maximum
credit risk exposure is $111,406 (January 31, 2021 – $102,573). Of this
individual customers
70THE NORTH WEST COMPANY INC. 2021 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$70,000 of this risk with U.S. dollar denominated borrowings.
No ineffectiveness was recognized from the net investment
hedge.
In respect of recognized foreign currency assets and
liabilities, the Company has limited exposure. Procurement
and related borrowing activity are generally conducted in
currencies matching cash flows generated by underlying
operations, providing
hedge without
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
dollar
reasonably possible.
the U.S. 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 (January 31, 2021 - $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, 2021 – $100).
The Company may use derivative financial instruments to
manage market risk. These transactions are approved by the
Board of Directors. The derivatives are entered into with
financial institution counter parties rated AA-.
(b)
Interest rate risk Interest rate risk is the risk that the fair value of
future cash flows of a financial instrument will fluctuate because
of changes in market interest rates. The Company is exposed to
interest rate risk primarily through its long-term borrowings.
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, 2022 a 100
basis point increase in the risk-free rate would cause net
earnings to decrease by approximately $330 (January 31, 2021 –
$150). A 100 basis point decrease would cause net earnings to
increase by approximately $330 (January 31, 2021 – $150).
(c) Accounting classifications and fair value estimation The following
table comprises the carrying amounts of the Company’s
financial instruments. Financial instruments are either carried at
amortized cost using the effective interest rate method or fair
value.
The Company uses a three-level hierarchy to categorize
financial instruments carried at fair value as follows:
•
•
•
Level 1 – Fair values measured using quoted prices
(unadjusted) in active markets for identical instruments
Level 2 – Fair values measured using directly or
indirectly observable inputs, other than those included
in Level 1
Level 3 – Fair values measured using inputs that are not
based on observable market data
These amounts represent point-in-time estimates and may not reflect fair value in the future. These calculations are subjective in nature,
involve uncertainties and are a matter of significant judgment.
January 31, 2022
Cash
Accounts receivable (1)
Promissory note receivable (1)
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
$
49,426
$
49,426
99,241
40,283
1,422
(213,733)
(46,262)
(189,378)
99,241
40,283
1,422
(213,733)
(46,262)
(184,448)
(1) At January 31, 2022, $9,809 of the promissory note receivable due within the next 12 months is included in accounts receivable (January 31, 2021 – $NIL).
71NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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
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
(197,768)
(90,456)
(190,966)
91,443
49,020
1,393
(197,768)
(91,076)
(198,456)
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.
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, 2022 and 2021,
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, 2022.
Capital management
The Company’s objectives in managing capital are to deploy capital
to provide an appropriate total return to shareholders while taking
into consideration key risks, including the duration and severity of
COVID-19. Management maintains 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,
funds, adjust
discretionary capital spending and adjust the amount of dividends
paid or refinance debt at different terms and conditions.
issue additional shares, borrow additional
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, 2022, the debt-to-equity ratio
was 0.41 compared to 0.56 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 (Note 12, 25)
Long-term debt
Total debt
Total equity
Debt-to-equity ratio
January 31, 2022
January 31, 2021
$
$
$
46,262
$
189,378
235,640
580,204
0.41
$
$
90,456
190,966
281,422
505,231
0.56
(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
72THE NORTH WEST COMPANY INC. 2021 16. SHARE CAPITAL
Authorized – The Company has an unlimited number of Common
Voting Shares and Variable Voting Shares.
January 31, 2021
Purchased and cancelled (1)
Issued under share-based compensation
plans (Note 14)
Shares
Consideration
48,613,319
$ 174,213
(807,037)
(2,892)
72,368
1,789
Balance at January 31, 2022
47,878,650
$ 173,110
Shares held in trust, January 31, 2021
Purchased for future settlement of PSUs
Released for settlement of PSUs (Note 14)
—
(85,000)
76,629
Shares held in trust, January 31, 2022
(8,371)
$
—
(304)
275
(29)
Issued and outstanding, net of shares
held in trust, January 31, 2022
47,870,279
$ 173,081
January 31, 2020
Purchased and cancelled (1)
Issued under share-based compensation
plans (Note 14)
48,750,929
$
173,681
(180,774)
43,164
(648)
1,180
Balance at January 31, 2021
48,613,319
$
174,213
(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
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.
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
into one
and outstanding Variable Voting Share
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
At January 31, 2022 shares outstanding of 47,878,650 included
14,973,056 (January 31, 2021 – 16,379,039) Variable Voting Shares,
representing 31.3% (January 31, 2021 – 33.7%) of the total shares
issued and outstanding.
Normal Course Issuer Bid
On November 10, 2021, the Company received approval from the
Toronto Stock Exchange to renew the Normal Course Issuer Bid
("NCIB"). Under the NCIB, the Company may acquire up to a
maximum of 4,773,508 of its shares, or approximately 10% of its float
for cancellation over the following 12 months. During the year
ended January 31, 2022, the Company purchased 807,037 common
shares having a book value of $2,892 for cash consideration of
$28,064. The excess of the purchase price over the book value of the
shares of $25,172 was charged to retained earnings. 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, the
Company may, but is not required to, ask the designated broker to
make purchases under the NCIB within specific parameters.
17. EXPENSES BY NATURE
Year Ended
January 31, 2022
January 31, 2021
Employee costs (Note 18)
$ 325,862
$ 361,470
Amortization
Operating lease rentals
Gain on insurance settlement (1)
Gain on disposition of Giant Tiger
stores (2)
90,950
5,479
(18,124)
92,078
6,308
(5,306)
—
(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.
73NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 18. EMPLOYEE COSTS
20. DIVIDENDS
following
The
shareholders' equity and paid in cash:
is a summary of the dividends recorded
in
Year Ended
January 31, 2022 January 31, 2021
Wages, salaries and benefits
including bonus
$ 303,358
$ 329,177
Year Ended
January 31, 2022
January 31, 2021
Post-employment benefits (Note 13)
Share-based compensation (Note 14)
10,650
11,854
9,798
22,495
Included in the above are the following amounts in respect of key
management compensation:
Dividends recorded in equity
and paid in cash
Less: Dividends paid to non-
controlling interests
Wages, salaries and benefits
including bonus
Post-employment benefit expense
Share-based compensation
$
7,970
$
1,732
6,912
8,984
2,133
15,635
Shareholder dividends
Dividends per share
$ 70,420
$ 69,490
—
(2,214)
$ 70,420
$
1.46
$ 67,276
$
1.38
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 13, 2022, the Board of Directors declared a dividend of
$0.37 per common share to paid on April 28, 2022 to shareholders of
record as of the close of business on April 21, 2022.
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
Year Ended
January 31, 2022
January 31, 2021
Interest on long-term debt
$
8,950
$ 11,547
Interest on lease liabilities
Net interest on defined benefit
plan obligation
Interest imputed on promissory
note receivable
Interest capitalized
4,288
1,016
(1,101)
(95)
5,065
1,074
(698)
(180)
Interest expense
$ 13,058
$ 16,808
74THE NORTH WEST COMPANY INC. 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, 2022
January 31, 2021
Net earnings attributable to shareholders for the year (numerator for diluted earnings per share)
$ 154,802
$ 139,874
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
48,268
766
49,034
48,758
768
49,526
$
$
3.21
3.16
$
$
2.87
2.82
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.
indemnification agreements prevents the
The nature of 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
75NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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, 2022, the
Company’s share of the net assets of its joint venture amount to $14,456 (January 31, 2021 – $12,481) comprised assets of $17,074 (January 31,
2021 - $14,790) and liabilities of $2,618 (January 31, 2021 – $2,309). During the year ended January 31, 2022, the Company purchased freight
handling and shipping services from Transport Nanuk Inc. and its subsidiaries of $9,362 (January 31, 2021 – $7,731).
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, 2022 the Company
recognized interest income of $1,101 (January 31, 2021 - $698) on the promissory note receivable (Note 19) and it had a fair value of $50,092, of
which $9,809 has been reclassified to accounts receivable.
For the year ended January 31, 2021 the Company recognized a pre-tax gain on the sale of $24,712 ($19,991, net of tax) in selling, operating
and administrative expenses.
Giant Tiger Asset Impairment Charge & Store Closure Provision
For the year ended January 31, 2021, the Company recorded an asset impairment and store closure provision of $9,411, of which $5,199
remains accrued at January 31, 2022. The store closure provision in the prior year was included in selling, operating and administrative
expenses in the consolidated statements of earnings, and was 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.
25. SUBSEQUENT EVENTS
On March 2, 2022, the Company refinanced the CAD$300,000 and US$52,000 loan facilities that originally matured September 26, 2022. The
newly increased committed revolving loan facilities, with the existing lenders, provide the Company with up to CAD$400,000 and US$52,000
for working capital and general corporate purposes. The Canadian dollar facilities have a floating interest rate based on Bankers Acceptances
rates plus stamping fees, or the Canadian prime interest rate. The U.S. dollar facilities have a floating interest rate based on U.S. LIBOR or an
alternative reference rate plus a spread.
The new loan facilities mature March 1, 2027 and rank pari passu with the $100,000 and US$70,000 senior notes.
76THE NORTH WEST COMPANY INC. 2021 Shareholder Information
Fiscal Year
Quarter Ended
2021
April 30, 2021
July 31, 2021
October 31, 2021
January 31, 2022
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
Share
Price High
Share
Price Low
Share
Price Close
Volume
EPS1
$38.20
$30.24
$35.05
50,473,763
$3.16
37.82
36.93
37.00
38.20
30.24
34.16
32.93
32.90
35.40
36.36
33.63
35.05
14,615,387
13,211,437
10,437,988
12,208,951
0.80
0.86
0.79
0.71
$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
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 21, 2022
Payment Date: April 28, 2022
Record Date: June 30, 2022
Payment Date: July 15, 2022
Record Date: September 30, 2022
Payment Date: October 14, 2022
Record Date: December 30, 2022
Payment Date: January 16, 2023
*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 8, 2022 at
11:30 am (Central Time) by virtual only meeting
via live audio webcast online at:
https: web.lumiagm.com/471321061
Transfer Agent and Registrar
TSX Trust Company
600 The Dome Tower
333-7th Ave SW
Calgary, AB
Toll-free: 1 800 387 0825
www.tsxtrust.com
Stock Exchange Listing
The Toronto Stock Exchange
Stock Symbol NWC
ISIN #: CA6632782083
CUSIP #: 663278208
Number of shares issued and outstanding at
January 31, 2022: 47,878,650
Auditors
PricewaterhouseCoopers LLP
Five Year Compound Annual Growth (%)
77ANNUAL REPORT
Corporate Governance
Complete disclosure of The North West Company Inc's. corporate governance is provided in the Company’s Management Information Circular,
which is available on the Canadian Securities Administrators’ website at www.sedar.com or in the investor section of the Company’s website at
www.northwest.ca.
EXECUTIVES
EXECUTIVES
Daniel G. McConnell
President & Chief Executive Officer
Jim Caldwell
President, Canadian Retail
Laurie J. Kaminsky
Vice-President, NWC Health Products &
Services
Frank W. Kelner
Chairman & Chief Executive Officer,
North Star Air Ltd.
Kyle A. Hill
President, Alaska Commercial Company
Thomas J. Meilleur
Vice-President, North Star Air Ltd.
J. Kevin Proctor
President, Cost-U-Less & Riteway
Walter E. Pickett
Vice-President & General Manager,
Alaska Commercial Company
BOARD OF DIRECTORS
H. Sanford Riley, Chairman
Brock Bulbuck2, 3
Deepak Chopra1, 3
Frank J. Coleman 2, 3
Stewart F. Glendinning 1, 2
Annalisa King 1, 2
Violet A. M. Konkle 1, 3
Steven Kroft 2, 3
John D. King
Executive Vice President &
Chief Financial Officer
Alison F. Coville
Chief People Officer
Randy Roller
Vice-President & General Manager, Facilities
and Store Planning
Daniel G. McConnell
Jennefer Nepinak 1, 3
Douglas S. Ruckle
Vice-President, Procurement and Marketing -
Alaska Commercial Company
Victor Tootoo1, 2
Cole J.A. Akerstream
Vice-President, Corporate Development
Nicolas Sabogal
Vice-President of Strategy,
Planning and Analytics
Michael T. Beaulieu
Vice-President, Canadian Store Operations
Kevin T. Sie
Vice-President, Finance
Steven J. Boily
Vice-President, Information Services
Jeffrey B. Stout
President & Chief Operating Officer,
North Star Air Ltd.
David M. Chatyrbok
Vice-President, Canadian Procurement &
Marketing
Leanne G. Flewitt
Vice-President, Logistics, Supply Chain
& Distribution (Canadian Operations)
Amanda E. Sutton
Vice-President, Legal & Corporate Secretary
Bret J. Thomson
Vice-President, Construction and Engineering
Matt D. Johnson
Vice-President, Cost-U-Less 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
78THE NORTH WEST COMPANY INC. 2021 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