Management's Discussion & Analysis

of the Financial Position and Operating Results

Unaudited Interim Condensed Consolidated Financial Statements

Three-Month and Nine-Month Periods Ended October 31, 2021

Toronto Stock Exchange: TSX : DRX

1.	GENERAL 1
2.	FORWARD-LOOKING STATEMENTS 1
3.	GENERAL OVERVIEW 1
4.	COMMERCIAL POSITIONING 1
5.	MARKET TRENDS 2
6.	SIGNIFICANT EVENTS OF THE THREE-MONTH AND NINE-MONTH PERIODS ENDED OCTOBER 31, 2021 2
7.	MAJOR EVENTS THAT OCCURRED SINCE OCTOBER 31, 2021 2
8.	COVID-19 2
9.	EXCHANGE RATE 3
10.	NON-GAAP MEASURES 3
11.	ANALYSIS OF OPERATING RESULTS FOR THE THREE-MONTH AND NINE-MONTH PERIODS ENDED OCTOBER 31, 2021 4
12.	COMPARATIVE INFORMATION FOR THE LAST EIGHT QUARTERS 8
13.	CASH FLOW AND FINANCIAL POSITION 8
14.	CAPITAL STOCK 10
15.	STOCK OPTION PLAN 10
16.	SHARE-BASED COMPENSATION 10
17.	ORDER BACKLOG 12
18.	FINANCIAL POSITION 12
19.	CURRENT ECONOMIC ENVIRONMENT 13
20.	EXTERNAL FACTORS TO WHICH THE CORPORATION'S PERFORMANCE IS EXPOSED 13
21.	FINANCIAL INSTRUMENTS 14
22.	CONTROLS AND PROCEDURES 14
23.	SIGNIFICANT ACCOUNTING POLICIES, ESTIMATION UNCERTAINTY AND CRITICAL ACCOUNTING JUDGEMENTS 14
24.	HUMAN RESOURCES 14
25.	SUBSEQUENT EVENTS 14
26.	OUTLOOK 15
27.	ADDITIONAL INFORMATION 15
	UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS 16
	NOTES TO THE UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS 21

1. GENERAL

The purpose of this management's discussion and analysis of the financial position and operating results ("MD&A") is to provide the reader with an overview of the changes in the financial position of ADF Group Inc. ("ADF", "ADF Group" or "the Corporation") between February 1, 2021 and October 31, 2021. It also compares the operating results and cash flows for the three-month and nine-month periods ended October 31, 2021 to those of the same periods of the previous fiscal year. This MD&A covers all major events that occurred between February 1, 2021 and December 7, 2021, on which date ADF Group Inc.'s Board of Directors approved the unaudited interim condensed consolidated financial statements, as well as the MD&A for the three-month and nine-month periods ended October 31, 2021.

This MD&A should be read in conjunction with the Corporation's Unaudited Interim Condensed Consolidated Financial Statements and the notes thereto for the three-month and nine-month periods ended October 31, 2021, as well with the Audited Consolidated Financial Statement and MD&A Report forthe fiscal year ended January 31, 2021. The unaudited interim condensed consolidated financial statements and the comparative information for the three-month and nine-month periods ended October 31, 2021, have been prepared in accordance with the International Financial Reporting Standard ("IFRS") as issued by the International Accounting Standards Board ("IASB") and applicable to interim financial reports, including International Accounting Standard 34 Interim Financial Reporting. The summary of significant accounting policies applied by the Corporation in accordance with IFRS is presented in Note 2 to the Unaudited Interim Condensed Consolidated Financial Statements for the Three-Month and Nine-Month Periods Ended October 31, 2021.

The Corporation reports its results in Canadian dollars. All amounts in this MD&A are expressed in Canadian dollars, except where otherwise indicated.

2. FORWARD-LOOKING STATEMENTS

In order to provide shareholders and potential investors with additional information regarding ADF, in particular Management's assessment of future plans and operations, certain statements in this MD&A are forward-looking statements subject to risks, uncertainties and other important factors that could cause the Corporation's actual performance to differ from those expressed in or implied by these forward-looking statements.

Such factors include, but are not limited to the impact of economic conditions in Canada and the United States; industry conditions including amendments in laws and regulations; increased competition; potential shortfall of qualified personnel or managers; availability and fluctuations in commodity prices; foreign exchange or interest rate fluctuations; stock market volatility; and the impact of accounting policies issued by Canadian, U.S. and international standard setters. Some of these factors are further discussed under Section 20 "External Factors to Which the Corporation's Performance is Exposed" in this MD&A. It should be noted that the list of factors that may affect future growth, results and performance, provided in this MD&A, is not exhaustive. The reader should not place undue reliance on forward-looking statements.

The expectations expressed by the forward-looking statements are based on information available to the Corporation on the date such statements were made. However, there can be no assurance that such estimates will prove to be correct. All subsequent forward-looking statements made, whether written or verbally, by the Corporation or persons acting on its behalf, are expressly qualified in their entirety by the caveats referred to above. Unless otherwise required by applicable securities legislation, the Corporation expressly disclaims any intention, and assumes no obligation, to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

3. GENERAL OVERVIEW

From a blacksmith shop founded in 1956, ADF Group has become over the years a North American leader in the design and engineering of connections, fabrication, including industrial coating, and installation of complex steel structures, heavy steel built-ups, as well as miscellaneous and architectural metalwork. The Corporation's products and services are intended for the following five principal segments of the non-residential construction industry: office towers and high-rises, commercial and recreational buildings, airport facilities, industrial complexes and transport infrastructure. The Corporation uses the latest technologies in its industry and operates two state-of-the-art fabrication plants and two cuttingedge paint shops. ADF Group's complex located in Canada houses the Corporation's head office, the 58,530-square-metre (630,000-square-foot) fabrication plant, which includes the 3,900 square-meter (42,000 square feet) paint shop. ADF's complex in the United-States is home to the 9,290-square-metre (100,000 square feet) fabrication plant, the 60-acre pre-assembly yard and the 4,460-square-meter (48,000 square feet) dualpurpose building, adjacent to the fabrication plant, housing a 2,323-square-meter (25,000 square feet) paint and blast zone, and a 2,137-squaremeter (23,000 square feet) area for preparation and detailing work.

A pioneer in the development and implementation of innovative solutions, the Corporation is recognized for its engineering expertise, its project management, its important fabrication capacity and its skills in two specialized market niches: the fabrication of steel superstructures with a high level of architectural and geometric complexity, and projects subject to fast-track schedules. ADF Group's commitment to deliver every project in accordance with the industry's highest quality standards constitutes a core aspect of the Corporation's mission.

4. COMMERCIAL POSITIONING

ADF Group serves a diversified client base in the non-residential construction market in Canada and the United States:

General contractors;
Project owners;
Engineering firms and project architects;
Structural steel erectors, and
Other steel structure fabricators.

5. MARKET TRENDS

The non-residential construction industry includes the products and services related to the construction of commercial, institutional and industrial buildings, such as office towers, commercial buildings, hotels, sports complexes, museums, recreational complexes, as well as manufacturing plants and other industrial facilities. This sector also encompasses public works, including the construction and renovation of infrastructures and buildings, notably, hydroelectric dams, airports, bridges and overpasses. It should be noted that the demand in this sector is related to business cycles. Generally, there are more private projects in a bull cycle, whereas government projects take over in a bear cycle.

According to Management, approximately half of the non-residential projects use structural steel as a structural component, while the other half primarily uses concrete. Generally, structural steel accounts for about 10% to 20% of a project's total cost, depending on the project's nature. Structural steel offers a number of advantages when compared to other materials, which explains its increasing use in the construction of complex structures. These advantages include durability, speed of installation, greater flexibility in fast-track projects, lower installation and maintenance costs, as well as its high strength/weight ratio as a result of improved alloys.

Generally, there are more complex steel structure projects in the United States than in Canada, which can result in a certain dependence of the Corporation on the U.S. market.

In early November, the U.S. government finally approved its infrastructure investment plan, totaling US$1.2 trillion (US$1,200,000,000,000!). Of this amount, sums are planned, among others, for new infrastructure, including highways (US$110 billion), transport/airports (US$42 billion) and energy structures (US$70 billion), all these sectors in particular being served by ADF. These investments are expected to generate an increase in new projects for the next 5 years.

Even before this announcement, other factors confirmed that the construction sector is in good shape, including the U.S. Architectural Billing Index ("ABI") which was up in September and at record levels for the past eight (8) months. All these aspects allow ADF's Management to look forward to the coming quarters and fiscal years with renewed optimism and thus continue the growth of its order backlog that started in recent quarters.

6. SIGNIFICANT EVENTS OF THE THREE-MONTH AND NINE-MONTH PERIODS ENDED OCTOBER 31, 2021

Dividend

On April 7, 2021, the Corporation's Board of Directors approved a semi-annual dividend of $0.01 per share, paid on May 17, 2021 to shareholders of record as at April 30, 2021.

On September 8, 2021, the Corporation's Board of Directors approved a semi-annual dividend of $0.01 per share, which was paid on October 15, 2021 to shareholders of record as at September 30, 2021.

New Contracts

On September 9, 2021, the Corporation announced the signing of new contracts totalling nearly $50.0 million, in Canada and the United States. The largest of these new contracts was won in the transportation infrastructure sector in the Western USA. Fabrication work is scheduled to begin in early 2022 at both ADF's plants located in Terrebonne, Quebec and in Great Falls, Montana, and run until the fall of 2022, followed by the steel erection work of this new structure at the job site, which is scheduled to extend approximately over a 10-month period.

7. MAJOR EVENTS THAT OCCURRED SINCE OCTOBER 31, 2021

7.1. U.S. Revolving Credit

On November 1st 2021, the Corporation renewed its revolving credit agreement with a U.S. bank. This renewal increased the available limit from US$2.0 million as at January 31, 2021, to $2.5 million. In addition, this revolving credit will henceforth bear interest at the SOFR rate (US $) one month plus 2.11%, compared with the LIBOR rate (US $) of one month plus 2.0% under the previous agreement. All other terms and conditions have remained unchanged.

7.2. New Financing

On November 9, 2021, the Corporation obtained from the Business Development Bank of Canada a bank loan of $30.0 million, of which $16.2 million will go towards the repayment of an existing loan, and $13.8 million to increase the Corporation's working capital.

Refer to section 25 "Subsequent Events" for more details on this new bank loan as well as the renewal of the revolving credit agreement.

8. COVID-19

Since March 2020, the COVID-19 pandemic has spread to North America. The markets served by ADF have, of course, not been spared by the many waves.

A number of Canadian provinces and U.S. states, including Quebec and Montana, have instituted confinement periods or have introduced certain restrictions to contain the spread of the virus, except for essential services. Since the beginning of this pandemic and at the time of this MD&A Report, all of ADF's facilities, including all of its job sites, remained open and operational.

The Corporation has taken steps to care for its employees, including allowing them to work remotely and implementing strategies to support appropriate social distancing techniques for employees who cannot work remotely. The Corporation has also taken precautions with regard to the hygiene of employees, facilities and offices, as well as the implementation of significant travel restrictions. The Corporation is also evaluating

its business continuity plans for all of its operations in the context of this pandemic. This situation is evolving rapidly and the Corporation will continue to monitor and mitigate developments affecting its staff, suppliers, customers and the general public as much as it can.

So, although for the moment the impact of COVID-19 on ADF's operations is limited, the extent to which the virus can have an impact on its results will depend on future developments, including new information that may emerge. We will continue to monitor the announcements and measures from Public Health Authorities wherever our Corporation operates, including the impact of new variants on reopening measures.

9. EXCHANGE RATE

The Corporation is subject to foreign currency fluctuations from the translation of revenues, expenses, assets and liabilities of its foreign operations and from commercial transactions denominated in foreign currencies. Average monthly rates (considered a reasonable approximation to actual rates at the date of transactions) are used to translate revenues (except for foreign exchange forward contracts) and expenses for the periods mentioned, while closing rates translate assets and liabilities.

During the 3-month and 9-month periods ended October 31, 2021, and during each of the last four quarters, the Corporation used the following exchange rates between the Canadian and U.S. dollars:

	Consolidated Statements of Income and
	Comprehensive IncomeQuarterlyCumulative			Consolidated Statements of
(CA$/US$)			Financial Position
Third quarter (October 31, 2020)	1.3222	1.3557	1.3318
Fourth quarter (January 31, 2021)	1.2866	1.3388	1.2780
First quarter (April 30, 2021)	1.2585	1.2585	1.2285
Second quarter (July 31, 2021)	1.2293	1.2439	1.2462
Third quarter (October 31, 2021)	1.2571	1.2482	1.2384

The Canadian dollar has gain value against the U.S. dollar over the periods analyzed.

Independently, and in order to mitigate this pressure and in accordance with its internal policy, the Corporation enters, from time to time and according to its internal policy, into foreign exchange contracts in order to cover the foreign exchange risk. These exchange rate variations have had an adverse impact of $2.7 million and $8.9 million on gross margin for the 3-month and 9-month periods ended October 31, 2021, respectively.

In addition, the foreign exchange variation has generated a $0.2 million foreign exchange gain during the 3-month period ended October 31, 2021, and a foreign exchange loss of $0.1 million during the 9-month period ended at the same date, in the Consolidated Statement of Income.

10. NON-GAAP MEASURES

The financial information in this MD&A has been prepared in accordance with IFRS, with the exception of certain financial indicators that do not have standardized meaning as prescribed by IFRS and therefore are considered non-GAAP (Generally Accepted Accounting Principles). When such indicators are used, they are defined and the reader is informed. The Corporation uses the following non-GAAP indicators to measure its operating performance and the achievement of objectives:

Periods of:		9 months ended October 31,	12 months ended January 31,
	2021	2020	2021	2020
Working capital (in thousands of dollars)	$33,345	$37,502	$38,548	$29,313
Current ratio	1.43: 1	1.73: 1	1.62:1	1.58:1
Long-term debt to shareholders' equity ratio (1)	0.22: 1	0.31: 1	0.26:1	0.43:1
(1)Total debt, net of liquidities (in thousands of dollars)	$8,778	$11,691	$7,775	$36,181
Total credit facilities and long-term debt, net of cash and cashequivalents, to shareholders' equity ratio (1)	0.08: 1	0.12: 1	0.08:1	0.38:1
Liabilities to shareholders' equity ratio	0.98: 1	0.82: 1	0.91:1	0.84:1
Earnings before interest, tax, depreciation and amortization (EBITDA)(in thousands of dollars)	$13,884	$12,564	$16,341	$5,225
EBITDA margin (as a percentage of revenues)	5.9%	9.3%	9.5%	2.9%
Book value per share (in dollars)	$3.26	$3.03	$3.05	$2.89
Return on shareholders' equity	10.1%	(4.7)%	6.9%	(2.3)%

(1) Includes current and non-current portions of the lease liabilities.

Refer to Section 10 "Non-GAAP Measures" of the Management's Discussion and Analysis of the Financial Position and Operating Results for the Fiscal Year Ended January 31, 2021, for the definition of the financial indicators in the above table, except for article 10.1 below.

10.1. EBITDA and EBITDA Margin

EBITDA shows the extent to which the Corporation generates profits from operations, without considering the following items:

Net financial expenses;
Income tax expense (recovery);
Foreign exchange (gains) losses, and
Depreciation and amortization of property, plant and equipment, intangible assets and right-of-use assets.

Net income is reconciled with EBITDA in the table below:

	3 Months		9 Months
Periods Ended October 31,	2021	2020	2021	2020
(In thousands of dollars)	$	$	$	$
Net income	2,788	2,579	8,681	4,759
Income tax expense	459	842	424	1,997
Net financial expenses	333	472	930	1,324
Amortization	1,268	1,234	3,722	3,685
Foreign exchange loss (gain)	(150)	(107)	127	799
EBITDA	4,698	5,020	13,884	12,564
— As a % of revenues	4.3%	10.6%	5.9%	9.3%

11. ANALYSIS OF OPERATING RESULTS FOR THE THREE-MONTH AND NINE-MONTH PERIODS ENDED OCTOBER 31, 2021

11.1. Revenues and Gross Margin

3-Month Periods Ended October 31,	2021	2020	Changes 2021/2020
(In thousands of dollars and in percentages)	$	$	$	%
Revenues	110,189	47,158	63,301	133.7
Cost of goods sold	103,987	39,651	64,336	162.3
Gross margin	6,202	7,507	(1,305)	(17.4)
— As a % of revenues	5.6%	15.9%		(10.3)

9-Month Periods Ended October 31,	2021	2020	Changes 2021/2020
(In thousands of dollars and in percentages)	$	$	$	%
Revenues	233,747	135,451	98,296	72.6
Cost of goods sold	214,134	115,700	98,434	85.1
Gross margin	19,613	19,751	(138)	(0.7)
— As a % of revenues	8.4%	14.6%		(6.2)

a) Revenues

Revenues during the 3-month period ended October 31, 2021, totalled $110.2 million, up by $63.0 million over the same period ended October 31, 2020.

Revenues for the 9-month period ended October 31, 2021, totalled $233.7 million, compared with $135.5 million for the same period ended October 31, 2020.

Revenues are recognized progressively based on costs incurred to date relative to the total estimated costs at completion on the various projects executed during the periods concerned.

The increase in revenues stems for the most part from the execution of projects in the backlog, during the analyzed periods.

As previously explained in Section 8 "COVID-19", ADF's fabrication, industrial coatings and steel erecting (installation) operations were not significantly impacted by the pandemic, at least during the analyzed periods.

The change in the foreign exchange rate during the 3-month and 9-month periods ended October 31, 2021, had a negative impact on revenues, amounting to $6.7 million and $23.6 million, respectively.

In terms of economic dependency, 86% of the Corporation's revenues during the 9-month periods ended October 31, 2021, were realized with three (3) clients, each having represented 10% or more of the Corporation's revenues for respective amounts of $23.3 million from Canada, and $150.8 million and $27.6 million from the United States (71% of the Corporation's revenues during the 9-month period ended October 31, 2020, were realized with three (3) clients for respective amounts of $51.2 million, $26.1 million from the United States, and $18.8 million from Canada).

Although the Corporation attempts to limit the concentration of its revenues, given the nature of its activities and market, its revenues are likely to remain concentrated among a restricted number of clients in upcoming quarters.

b) Gross Margin

The gross margin, in dollar value, decreased by $1.3 million during the 3-month period ended October 31, 2021, compared with the same period of the previous fiscal year. As a percentage of revenues, the gross margin went from 15.9% during the 3-month period ended October 31, 2020, to 5.6% during the same period ended October 31, 2021.

During the 9-month period ended October 31, 2021, the gross margin totalled at $19.6 million or 8.4% of revenues, compared with $19.8 million or 14.6% of revenues for the same period a year ago.

As mentioned in Section 32 "Outlook" of the Corporation's MD&A Report for the fiscal year ended January 31, 2021, a certain pressure on margins was expected at the beginning of the fiscal year due to the start-up of certain projects signed with lower prices. Although this pressure was less felt in the quarter ended April 30, 2021, the product mix during the second and third quarters of the current fiscal year had the previously anticipated impact. In addition, during the second quarter ended July 31, 2021, the Corporation adopted a cautious approach, and adjusted downwards the anticipated profitability on one of its ongoing projects. The Corporation expects that this adjustment will be more than sufficient to absorb the anticipated increase in costs.

Finally, gross margin for the 9 months ended October 31, 2021, includes a $1.6 million subsidy from Canada emergency wage subsidy ("CEWS") program recorded during the first quarter ended April 30, 2021.

As described in Section 17 "Order Backlog", the fabrication hours are not only the Corporation's core activity, but are also its most valueadded activity. To that effect, the revenues during the 3-month and 9-month periods ended October 31, 2021, were comprised of 29% and 31% of fabrication hours respectively, compared with 38% and of 31% revenues for the 3-month and 9-Month Periods Ended October 31, 2020.

Increases or decreases in raw material (mainly steel) prices do not generally have a material impact on the gross margin since in some of the contracts in hand, the clients supply the steel to be transformed by ADF, whereas protection clauses with regard to price changes are usually included in contracts where ADF supplies the steel. In addition, the natural hedge attributable to revenues and the purchase of raw materials in U.S. dollars mitigates the impact of exchange rate fluctuations.

It should be noted that for the quarter ended October 31, 2021, and as of the date of this MD&A Report, the pandemic did not have an impact on ADF's operations regarding the supply or cost of raw materials, mainly steel.

11.2. Selling and Administrative Expenses

3-Month Periods Ended October 31,	2021	2020	Changes 2021/2020
(In thousands of dollars and in percentages)	$	$	$	%
Selling and administrative expenses	2,772	3,721	(949)	(25.5)
— As a % of revenues	2.5%	7.9 %		(5.4)

9-Month Periods Ended October 31,	2021	2020	Changes 2021/2020
(In thousands of dollars and in percentages)	$	$	$	%
Selling and administrative expenses	9,451	10,872	(1,421)	(13.1)
— As a % of revenues	4.0%	8.0%		(4.0)

During the 3-month period ended October 31, 2021, selling and administrative expenses amounted to $2.8 million, posting a decrease of $0.9 million compared with the same period ended October 31, 2020.

For the 9-month period ended October 31, 2021, selling and administrative expenses amounted to $9.5 million, posting a $1.4 million decrease compared with the same period ended October 31, 2020.

This cumulative decrease as at October 31, 2021, reflects the aforementioned "CEWS", which reduced the selling and administrative expenses for the 9-month period ended October 31, 2021, by $0.3 million, together with the decrease in travel costs following the implementation of the various pandemic-related confinement measures, significantly limiting travel since the end of the first quarter ended April 30, 2020.

Given the important increase in revenues during the 3-month and 9-month periods ended October 31, 2021, and the reduction in expenses, selling and administrative expenses as a percentage of revenues stood at 2.5% and 4.0% respectively during these same periods, compared with 7.9% and 8.0% respectively, a year ago.

11.3. Amortization

In accordance with IFRS standards, amortization expense is included in cost of goods sold and selling and administrative expenses. However, Management considers it appropriate to continue separately commenting on the trend in amortization expense since it is considered a significant, although non-cash, component in the analysis of the Corporation's profit margins.

3-Month Periods Ended October 31,	2021	2020	Changes 2021/2020
(In thousands of dollars and in percentages)	$	$	$	%
Amortization	1,268	1,234	34	2.8
— As a % of revenues	1.2%	2.6%		(1.4)


9-Month Periods Ended October 31,	2021	2020	Changes 2021/2020
(In thousands of dollars and in percentages)	$	$	$	%
Amortization	3,722	3,685	37	1.0
— As a % of revenues	1.6%	2.7%		(1.1)

The amortization expense during the 3-month and 9-month periods ended October 31, 2021, was relatively similar to that of the 3-month and 9-month periods ended October 31, 2020, with the majority of the capital expenditure made in the past year, not yet operational.

The amortization expense for the analysed periods was distributed as follows:

3-Month Periods Ended October 31,	2021	2020	Changes 2021/2020
(In thousands of dollars and in percentages)	$	$	$	%
Amortization expense included in cost of goods sold	925	927	(2)	(0.2)
Amortization expense included in selling and administrative
expenses	343	307	36	11.7
Total amortization	1,268	1,234	34	2.8

9-Month Periods Ended October 31,	2021	2020	Changes 2021/2020
(In thousands of dollars and in percentages)	$	$	$	%
Amortization expense included in cost of goods sold	2,728	2,793	(65)	(2.3)
Amortization expense included in selling and administrative
expenses	994	892	102	11.4
Total amortization	3,722	3,685	37	1.0

11.4. Net Financial Expenses

3-Month Periods Ended October 31,	2021	2020	Changes 2021/2020
(In thousands of dollars and in percentages)	$	$	$	%
Net financial expenses	333	472	(139)	(29.4)
— As a % of revenues	0.3%	1.0%		(0.7)

9-Month Periods Ended October 31,	2021	2020	Changes 2021/2020
(In thousands of dollars and in percentages)	$	$	$	%
Net financial expenses	930	1,324	(394)	(29.8)
— As a % of revenues	0.4%	1.0%		(0.6)

The decrease in net financial expenses during the 3-month and 9-month periods ended October 31, 2021, is attributable to the variation in the average debt balances, including the use of the credit facilities for the respective periods.

11.5. Foreign Exchange Loss (Gain)

3-Month Periods Ended October 31,	2021	2020	Changes 2021/2020
(In thousands of dollars and in percentages)	$	$	$	%
Foreign exchange loss (gain)	(150)	(107)	(43)	(40.2)
— As a % of revenues	(0.1)%	(0.2)%		0.1

9-Month Periods Ended October 31,	2021	2020	Changes 2021/2020
(In thousands of dollars and in percentages)	$	$	$	%
Foreign exchange loss (gain)	127	799	(672)	(84.1)
— As a % of revenues	0.1%	0.6%		(0.5)

In accordance with its internal policy, and in order to reduce the impact of foreign exchange fluctuations on US-denominated contracts in the order backlog, the Corporation occasionally enters into foreign exchange contracts to cover this foreign exchange risk. In doing so, as required by accounting policies, foreign exchange gains or losses resulting from the valuation of the foreign exchange contracts at their fair values at the end of each presentation period are included in the foreign exchange loss, which partly explains the variation in the quarter.

The foreign exchange gain recorded during the quarter ended October 31, 2021, includes a $0.1 million foreign exchange loss on ongoing operations and a $0.2 million realized and not realized foreign exchange gain relating to the fair value of financial derivatives. During the 3-month period ended October 31, 2021, a $0.2 million foreign exchange loss on the translation of foreign subsidiaries was recorded in Comprehensive Income.

The foreign exchange loss recorded during the 9-month period ended October 31, 2021, includes a $0.2 million foreign exchange gain on ongoing operations and a $0.3 million realized and not realized foreign exchange loss relating to the fair value of financial derivatives. During the 9-month period ended October 31, 2021, a $1.1 million foreign exchange loss on the translation of foreign subsidiaries was recorded in Comprehensive Income.

The foreign exchange gain recorded during the quarter ended October 31, 2020, includes an immaterial foreign exchange loss on ongoing operations and a $0.1 million realized and not realized foreign exchange gain relating to the fair value of financial derivatives. The foreign exchange loss recorded during the 9-month period ended October 31, 2020, includes a $0.5 million foreign exchange loss on ongoing operations and a $0.3 million realized and not realized foreign exchange loss relating to the fair value of financial derivatives.

The Corporation is exposed to exchange rate fluctuations between the Canadian and U.S. dollars since a significant portion of its revenues is usually generally recorded in U.S. dollars.

During the 3-month and 9-month periods ended October 31, 2021, the portion of revenues realized in U.S. dollars was 92% and 87% respectively (78% and 79% during the 3-month and 9-month periods ended October 31, 2020, respectively). Considering the improvement in U.S. markets and our production facilities in Great Falls, Montana, the Corporation expects that the percentage of its revenues in U.S. dollars should remain at a fairly high level in the fiscal year ending January 31, 2022.

11.6. Income Tax Expense

3-Month Periods Ended October 31,	2021	2020	Changes 2021/2020
(In thousands of dollars and in percentages)	$	$	$	%
Income tax expense (recovery)	459	842	(383)	(45.5)
— As a % of revenues	0.4%	1.8%		(1.4)

9-Month Periods Ended October 31,	2021	2020	Changes 2021/2020
(In thousands of dollars and in percentages)	$	$	$	%
Income tax expense (recovery)	424	1,997	(1,573)	(78.8)
— As a % of revenues	0.2%	1.5%		(1.3)

Once again, the effective tax rates during the analyzed periods are hard to compare with the Corporation's Canadian effective rate, which is 27%.

The income tax expense for the 3-month and 9-month periods ended October 31, 2021, stems primarily from the mix in profits or losses of ADF's various subsidiaries, according to their respective legal and tax jurisdictions. In addition, and as discussed in previous MD&A Reports, and in light of the tax assets write-off recorded in the fiscal year ended January 31, 2018, the Corporation recognizes progressively some of these previously written off tax assets based on the pre-tax earnings level of its U.S. subsidiaries, virtually eliminating any income tax expense from the Corporation's US subsidiaries.

As at October 31, 2021, the Corporation had operating tax losses estimated at $29.2 million in the United States available for carry forwards, for which no deferred tax benefit has been recorded in the Corporation's Consolidated Statements of Income. This will have a favourable impact on future cash outflows of the Corporation, which will not have to pay future income tax until the full amount of available tax attributes has been used in the different jurisdictions where the Corporation executes contracts.

11.7. Net Income, Basic and Diluted Earnings per Share

		3 Months	9 Months
Periods Ended October 31,	2021	2020	2021	2020
(In thousands of dollars and dollars per share)	$	$	$	$
Total net income	2,788	2,579	8,681	4,759
— As a % of revenues	2.5%	5.5%	3.7%	3.5%
Total earnings per share (basic and diluted)	0.09	0.08	0.27	0.15

The variation in net income during the 3-month period ended October 31, 2021, compared with the same period a year ago is for the most part explained by the elements previously mentioned.

With respect to net income for the 9-month period ended October 31, 2021, the increase also reflects the items previously mentioned including the decrease in selling and administrative expenses and income tax expense, and the impact from $1.9 million subsidy under Canada's Emergency Wage Subsidy ("CEWS") Program.

12. COMPARATIVE INFORMATION FOR THE LAST EIGHT QUARTERS

The trends observed in the analysis of quarterly results do not necessarily represent those of the future results of the Corporation. ADF's fabrication activities are not, as such, subject to seasonal fluctuations. However, the non-residential construction market in which the Corporation is active goes through upward and downward cycles.

Overall, quarterly fluctuations in the following indicators result mainly from the changes in the revenue mix and the costs recognized on different projects underway and for each given period, together with the lags between the recognition of costs and revenues, where appropriate, that could result from the use of estimates based on the percentage-of-completion method.

More specifically, and in light of the results for the last eight (8) quarters presented hereinafter, the variations from one quarter to the other are mostly explained by the respective fabrication schedules of the various projects announced by the Corporation. Considering that revenues are recognized progressively based on incurred costs to date compared to the total estimated cost at completion on these different projects carried out by the Corporation, revenues and operating results can differ significantly from quarter to quarter because of these execution schedules.

Fiscal Years		2022		2021				2020
	3rd Quarter	2nd Quarter	1st Quarter	4th Quarter	3rd Quarter	2nd Quarter	1st Quarter	4th Quarter
3-Month Periods Ended	(10.31.2021)	(07.31.2021)	(04.30.2021)	(01.31.2021)	(10.31.2020)	(07.31.2020)	(04.30.2020)	(01.31.2020)
(In thousands of dollars and indollars per share)	$	$	$	$	$	$	$	$
Revenues	110,189	73,171	50,387	37,142	47,158	42,496	45,797	46,342
Gross margin	6,202	5,639	7,772	6,453	7,507	7,407	4,837	3,992
— As a % of revenues	6%	8%	15%	17%	16%	17%	11%	9%
EBITDA (1)	4,698	3,074	6,112	3,777	5,020	4,577	2,967	1,618
— As a % of revenues	4%	4%	12%	10%	11%	11%	6%	3%
Income (loss) before income tax
expense (recovery)	3,247	1,362	4,496	2,263	3,421	3,895	(560)	(484)
— As a% of revenues	3%	2%	9%	6%	7%	9%	(1)%	(1)%
Net income (loss)	2,788	1,498	4,395	2,108	2,579	2,112	68	(110)
— Basic and diluted per share	0.09	0.05	0.13	0.06	0.08	0.06	0.00	(0.00)

(1) See Section 10 "Non-GAAP Measures" for the definition of EBITDA.

13. CASH FLOW AND FINANCIAL POSITION

Despite the impact from the pandemic, the Corporation has a sound financial position and is on a solid footing to address its financial needs. Taking into account its cash and cash equivalents position, its credit facilities and the level of planned capital spending, the Corporation does not expect any liquidity risk in a foreseeable future.

On October 31, 2021, cash and cash equivalents totalled $14.7 million, down by $3.1 million compared with January 31, 2021, but $0.4 million higher than as at July 31, 2021. In addition, the Corporation did not use its current credit facilities as at October 31, 2021, nor as at January 31, 2021.

Management believes that these available funds are sufficient to support the execution of its order backlog in hand on October 31, 2021, and to meet its financial commitments for the 2022 fiscal year.

Furthermore, the Corporation continually appraises the opportunities to use part of its liquidities to finance certain projects that could provide additional long-term competitive advantages. It also looks at opportunities for accelerated payments discounts negotiated with suppliers.

13.1. Operating Activities

During the 3-month and 9-month periods ended October 31, 2021, the Corporation generated cash flows from its operating activities and assigned it as follows:

		3 Months		9 Months
Periods Ended October 31,	2021	2020	2021	2020
(In thousands of dollars)	$	$	$	$
Net income adjusted for non-cash items	4,583	4,610	15,878	9,561
Changes in non-cash operating working capital items:
Accounts receivable	27,072	546	4,138	6,620
Holdbacks on contracts	(2,960)	(431)	(4,299)	(2,454)
Contract assets	(8,747)	3,077	(13,917)	4,547
Inventories	(2,175)	913	(2,338)	263
Prepaid expenses and others current assets	60	30	1,032	(636)
Accounts payable and other current liabilities	15,137	(298)	30,111	(4,000)
Contract liabilities	(27,156)	(2,251)	(13,335)	13,922
Other	(3)	(3)	(8)	(8)
	1,228	1,583	1,384	18,254
Income tax paid	(152)	—	(1,227)	—
Cash flows from operating activities	5,659	6,193	16,035	27,815

a) Net income adjusted for non-cash items

Adjusted net income for non-cash items of $4.6 million for the 3-month period ended October 31, 2021 is practically the same as for the 3 month period ended October 31, 2020.

For the 9 months ended October 31, 2021, net income adjusted for non-cash items was $6.3 million higher than that during the same period a year ago. This increase is primarily attributable to the increase in net income and the change in non-cash gain or loss.

b) Change in non-cash working capital

The change in non-cash working capital generated $1.2 million in the 3-month period ended October 31, 2021. The cash inflow was mainly attributable to the decrease in accounts receivable ($27.1 million), and the increase in accounts payable and other current liabilities ($15.1 million) net of the increase in holdbacks on contracts ($3.0 million), in contract assets ($8.7 million) and in inventories ($2.2 million) and the decrease in contract liabilities ($27.2 million).

During the 9-month period ended October 31, 2021, changes in non-cash operating working capital items generated cashflow of $1.4 million, which resulted mainly from the decrease in accounts receivable ($4.1 million) and the increase in accounts payable and other current liabilities ($30.1 million), net of the increase in holdbacks on contracts ($4.3 million), in contract assets ($13.9 million), and in inventories ($2.3 million) and the decrease in contract liabilities ($13.3 million).

These changes are in line with the activity level for the 3-month and 9-month periods ended October 31, 2021, compared with the same periods a year earlier, but more particularly by the revenue recognition level compared with the billing already made to customers.

During the 3-month period ended October 31, 2020, changes in non-cash operating working capital items generated cash flow of $1.6 million. This cash inflow is mostly explained by the net variation in contract assets and liabilities. During the 9-month period ended October 31, 2020, changes in non-cash operating working capital items generated cash flow of $18.3 million. This cash inflow is mostly explained by the decrease in accounts receivable ($6.6 million) and the increase in contract liabilities ($13.9 million) net of the decrease in accounts payable and other current liabilities ($4.0 million).

13.2. Investing Activities

The Corporation's investing activities are summarized as follows:

		3 Months		9 Months
Periods Ended October 31,	2021	2020	2021	2020
(In thousands of dollars)	$	$	$	$
Acquisition of property, plant and equipment	(3,772)	(516)	(14,431)	(733)
Acquisition of intangible assets	(131)	(108)	(422)	(249)
Other	25	17	42	66
Cash flows used in investing activities	(3,878)	(607)	(14,811)	(916)

During the 3-month and 9-Month periods ended October 31, 2021, a total of $3.9 million and $14.8 million in liquidities, respectively, were used mostly for the acquisition of fabrication equipment for ADF's plant in Terrebonne, Quebec.

In light of the market outlook, and as previously mentioned during ADF's most recent Annual General Meeting of Shareholders and the MD&A Report for the periods ended July 31, 2021, the Corporation is moving forward with a capital investment program to automate its fabrication operations. These acquisitions were financed from the Corporation's cash. However, ADF's Management finalized new financing agreement after the close of the quarter ended October 31, 2021 (see Section 25 "Subsequent Events" of this MD&A Report).

During the 3-month and 9-month periods ended October 31, 2020, a total of $0.6 million and $0.9 million in liquidities were respectively used, mostly toward the acquisition of property, plant and equipment and intangible assets.

The Corporation estimates total capital expenditures for fiscal 2022 of approximately $25.0 million, which will be primarily used for the automation of its fabrication plant in Terrebonne, Quebec.

13.3. Financing Activities

The Corporation's financing activities were as follows:

		3 Months		9 Months
Periods Ended October 31,	2021	2020	2021	2020
(In thousands of dollars)	$	$	$	$
Variation in credit facilities	—	—	—	(13,105)
Repayment of long-term debt	(475)	(477)	(1,421)	(1,444)
Payment of lease liabilities	(242)	(240)	(725)	(730)
Issuance of long-term debt	—	—	—	5,654
Dividends paid	(327)	(327)	(653)	(653)
Interests paid	(346)	(267)	(806)	(991)
Cash flows used in financing activities	(1,390)	(1,311)	(3,605)	(11,269)

During the 3-month period ended October 31, 2021, financing activities used $1.4 million in liquidities, compared with $1.3 million for the same quarter of the previous year. These cash outflows are mainly attributable to the reimbursement of the long-term debt and lease liabilities, and dividends paid.

For the 9-month period ended October 31, 2021, financing activities used $3.6 million in liquidities, compared with $11.3 million during the same period a year ago, primarily for the same reasons as mentioned above.

The Corporation did not issue subordinate voting shares during the 3-month and 9-month periods ended October 31, 2021 and 2020.

13.4. Contractual Obligations

No significant change has occurred in contractual obligations since the publication of the tables summarizing the information relating to contractual obligations in Section 15.6 of the annual MD&A Report for the fiscal year ended January 31, 2021.

13.5. Debt Covenants

As at October 31, 2021, the Corporation respected all of the covenants with its lenders, and still did at the date hereof. Management expects it will continue to respect its commitments during the fiscal year 2022.

14. CAPITAL STOCK

As at October 31, 2021, and January 31, 2021, the Corporation had 32,635,206 shares outstanding for a total amount of $68.1 million, of which 18,292,099 for subordinate voting shares totalling $52.1 million, and 14,343,107 multiple voting shares for a total of $16.0 million. At the date hereof, the number of shares outstanding remained unchanged.

15. STOCK OPTION PLAN

The number of stock options issued and outstanding remained unchanged at 5,000 options as at October 31, 2021, compared to January 31, 2021. These 5,000 options, which had a weighted average life of 0.62 year before maturity, had a weighted average exercise price of $1.21 as at October 31, 2021.

16. SHARE-BASED COMPENSATION

16.1. Deferred Share Units ("DSU")

a) External Directors

This deferred compensation plan allows every external director, who wants to participate, to defer in whole or in part his/her director's compensation (including fees and attendance fees), by electing to receive a percentage of this compensation in the form of DSU, which will be bought back in cash by the Corporation on the date the external director ceases to be a director of the Corporation by reason of death, retirement or loss of function as director.

When a director elects to participate in this plan, the Corporation credits the account of the director for a number of units equal to the deferred compensation divided by the market value of the subordinate voting shares, which is established using the average closing price during the five (5) trading days preceding the date of grant. DSU are not convertible into shares of the Corporation and do not result in a dilution to shareholders.

In addition, and independently to DSU that can be granted to external directors for the purposes of deferring their directors' compensation, the DSU plan also allows the Corporation's Board of Directors to award, at its discretion, DSU to any external director, executive officer and key employee. If it sees fit, the Board of Directors can attach conditions related to time and/or to the Corporation's performance to the vesting of these DSU.

When the Corporation pays dividends on subordinate and multiple voting shares, the accounts of the Directors, Executive Officers and key employees (see Section 16.1 b) below) are credited for the amount in the form of additional units using the same basis of calculation previously described.

The DSU are re-evaluated at fair value at the end of each reporting period until the vesting date, using the market price of the Corporation's subordinate voting shares.

DSU compensation to External Directors recorded in the Consolidated Statement of Income amounted to an immaterial amount during the 3-month period ended October 31, 2021, and a $0.2 million expense of during the 9-month period ended October 31, 2021, including the impact of the change in the market price of the Corporation's share, which amounted to an immaterial amount during the 3-month period ended October 31, 2021 and a recovery of $0.1 million during the 9-month period ended October 31, 2021 (an immaterial amount, including the impact of the change in the market price of the Corporation's share during the 3-month and 9 month periods ended October 31, 2020, respectively).

The fluctuation in DSU for External Directors was as follows:

	3 Months		9 Months
Periods Ended October 31,	2021	2020	2021	2020
(In number of deferred share units)	Number	Number	Number	Number
Outstanding, at the beginning of period	50,000	614,297	619,521	464,467
Granted	310	5,224	135,917	155,054
Distributed	—	—	(705,128)	—
Outstanding and vested, at the end of period	50,310	619,521	50,310	619,521

The carrying amount and the intrinsic value of the liabilities related to the External Directors vested DSU amounted to $0.1 million as at October 31, 2021, and $1.0 million as at January 31, 2021.

b) Executive Officers and Key Employees

As set forth in the DSU Plan, the Corporation may grant DSU, on a discretionary basis, Executive Officers and key employees. These DSU usually vest gradually over a 2 to 5-year period, at a rate of 20% to 50% per year. The vested DSU will be bought back in cash by the Corporation on the date its holder ceases to be an officer or employee of the Corporation by reason of death, retirement or loss of function as officer or employee.

The DSU are progressively expensed as incurred over the vesting period and their costs is determined using a valuation model based on the market price of the Corporation's subordinate voting shares.

During the 3-month and 9-month periods ended October 31, 2021, DSU compensation for Executive Officers and key employees amounted to a recovery of $0.1 million and a $0.1 million expense, respectively, including the impact of the change in the market price of the Corporation's share, which amounted to an immaterial amount for the 3-month and 9-month periods ended October 31, 2021, respectively (immaterial amounts during the 3-month and 9-month periods ended October 31, 2020, including the impact of the change in the market price of the Corporation's share).

The fluctuation in DSU for the Executive Officers and key employees was as follows:

3 Months			9 Months
2021	2020	2021	2020
Number	Number	Number	Number
294,766	291,992	293,460	198,208
35,804	1,468	37,110	95,252
330,570	293,460	330,570	293,460
234,987	174,125	234,987	174,125

The carrying amount of the liabilities related to Executive Officers and key employees' DSU, amounting to $0.4 million as at October 31, 2021 and as at January 31, 2021, and of which $0.4 million correspond to the intrinsic value of vested DSU as at October 31, 2021, and $0.3 million as at January 31, 2021.

16.2. Performance Share Units Plan ("PSU")

As part of its long-term compensation plan, the Corporation may issue PSU to its Executive Officers and key employees. PSU are not convertible into shares of the Corporation and do not result in dilution for shareholders. The acquired PSU are only redeemable in cash by the Corporation upon the expiration of three (3) years after their grant (the "PSU Settlement Date"), subject to the achievement of financial targets. PSU tranches whose vesting conditions have not been met on the applicable vesting date are canceled, without compensation.

PSU also entitle holders to receive additional units each time dividends are paid on the Corporation's subordinate voting shares.

Compensation expense is recognized in the Consolidated Statement of Income over the vesting period and the counterpart is recognized in current liabilities in the Consolidated Statement of Financial Position. Changes in fair value between the grant date and the valuation date result in a change in liability and compensation expense.

The fair value of a PSU at any given date (for example, its grant date, vest date or PSU settlement date, etc.) is equal to the market value of the subordinate voting shares of the Corporation on that date, calculated using the average closing price subordinate voting shares of the Corporation on the Toronto Stock Exchange during the five (5) trading days immediately preceding that date.

During the 3-month and 9-month periods ended October 31, 2021, PSU compensation for Executive Officers and key employees amounted to a recovery of $0.1 million and an expense of $0.1 million respectively, including the impact of the change in the market price of the Corporation's share, which amounted to a recovery of $0.1 million and an immaterial amount during the 3-month and 9-month periods ended October 31, 2021, respectively (an expense of $0.1 million and $0.3 million respectively, including the impact of the variation in the Corporation's share price, which amounted to an immaterial amount during the 3-month and 9-month periods ended October 31, 2020).

Fluctuations in PSU for Executive Officers and key employees were as follows:

	3 Months			9 Months
Periods Ended October 31,	2021	2020	2021	2020
(In number of performance share units)	Number	Number	Number	Number
Outstanding, at the beginning of the period	282,288	365,376	346,248	231,571
Granted	35,456	1,070	93,549	134,875
Distributed	—	—	(122,053)	—
Outstanding, at the end of the period	317,744	366,446	317,744	366,446
Vested, at the end of the period	178,621	126,948	178,621	126,948

As at October 31, 2021, the carrying amount of the liabilities related the Executive Officers and key employees' PSU, amounted to $0.4 million and $0.5 million as at January 31, 2021, including an amount of $0.3 million, which corresponds to the intrinsic value of the vested PSU as at October 31, 2021 and $0.2 million as at January 31, 2021.

17. ORDER BACKLOG

ADF Group's order backlog totalled $310.3 million on October 31, 2021, compared with $282.5 million on the same date a year earlier and $436.2 million on January 31, 2021. This variation is attributable to the execution of contracts net of newly signed contracts and contractual changes.

As at October 31, 2021, 40% of the order backlog consisted of fabrication hours – the Corporation's core business and most value-added activity – compared to 34% as at January 31, 2021. Most of the contracts on hand as at October 31, 2021, will be progressively executed between now and the end of the fiscal year ending January 31, 2023.

18. FINANCIAL POSITION

As at October 31, 2021, the Corporation had a sound financial position. The Corporation's solid Consolidated Statement of Financial Position allowed it to obtain, when required, the necessary bonding for the award of large-scale contracts. This represents a major advantage for ADF within its markets.

The following table provides details on the major changes in the Consolidated Statement of Financial Position between January 31, 2021 and October 31, 2021.

Sections	Changes	Explanatory Notes
	(In millions of dollars)
Cash and cash equivalents	(3.1)	See Section 13 "Cash Flow and Financial Position" hereinabove.
Accounts receivable	(5.4)	Decrease in billing, in line with the work progress schedules.
Holdbacks on contracts	4.0	In accordance with the level of activity and the billing schedule ofcontracts on hand.

Sections	Changes	Explanatory Notes
	(In millions of dollars)
Contract assets, net of contract liabilities	27.5	Net difference between work progress and progressive revenuebilling. The change reflects the level of activity during the period, andmore particularly the level of revenue recognition compared with theinvoicing already made to customers.
Inventories	2.3	In accordance with the level of activity and the start of fabrication ofcontracts recently signed and completed.
Property, plant and equipment, intangibleassets and right-of-use assets	10.0	Change stemming from net acquisitions ($14.9 million), net ofamortization ($3.7 million) and the impact from the foreign exchangerate ($1.2 million).
Accounts payable and other current liabilities	29.9	In line with the activity level as at October 31, 2021.
Long-term debt and lease liabilities (includingcurrent portions)	(2.1)	Changeresultingfromreimbursementsoflong-termdebt($1.4 million) and lease liabilities ($0.7 million, and the foreignexchange rate impact being immaterial.
Accumulated other comprehensive income	(1.1)	Variation mostly caused by the impact of the variation in the foreignexchange rates on the translation of foreign operations.

19. CURRENT ECONOMIC ENVIRONMENT

Although the trends are improving in certain markets served by the Corporation, a degree of uncertainty remains regarding the economic context. In times of economic uncertainty, the Corporation is faced with the following challenges:

Its business segment is strongly dependent on project owners' capacity to finance their projects. For lack of financing, certain projects can be delayed or simply abandoned. Although the Corporation strives to mitigate this risk by focusing its marketing efforts on projects whose financing is most likely to materialize, it has no control over financial market trends, and
Certain project owners who secured financing on the start-up of projects could be forced to cease the work pursuant to the withdrawal of financing, due to a lack of capital of either the project lender or the owner. The Corporation mitigates this risk by ensuring that amounts due are diligently collected and, insofar as possible, maintaining at all times a positive cash flow for every project. Moreover, the Corporation does business with owners who are financially solid. At the date hereof, no project of the Corporation is subject to such constraints.

From a financing point of view, the Corporation has a sound financial position and currently respects all its financial covenants. It expects it will continue to do so during the next 12 months. Capital expenditures are subject to very close monitoring by Management. The Corporation does not anticipate any liquidity problems, in particular since its principal credit facility is issued by a Canadian chartered bank with a solid credit rating, and the Corporation's major clients are leaders in their respective fields. Based on the foregoing, the Corporation maintains its short-term prospects (see Section 26 "Outlook") and does not currently foresee any short-term elements that could compromise its course of business.

That being said, and in light of the fact that the Corporation does not enjoy all the visibility from which it normally benefits in its markets, the Corporation will continue to use caution and will closely monitor the situation (see Sections 8 "COVID-19", 20 "External Factors to Which the Corporation's Performance is Exposed" and 26 "Outlook").

20. EXTERNAL FACTORS TO WHICH THE CORPORATION'S PERFORMANCE IS EXPOSED

20.1. Global Pandemic

A pandemic outbreak, as COVID-19 demonstrates, must now be considered in external factors that may influence ADF's performance. Although the type of pandemic or future variant is innumerable, and the impacts of these pandemics on the sector in which our Corporation operates can be multiple, the Corporation will now have to monitor this new risk. The measures taken by ADF to minimize the impacts of COVID-19 on all operations will serve as the basis for future years and will need to be adjusted, if necessary, according to the potential impacts of future pandemics.

20.2. Exchange Rate

The exchange rate fluctuation between the Canadian and U.S. dollars has an impact on the Corporation's results. Thus, a $0.2 million foreign exchange gain and $0.1 million foreign exchange loss was recorded respectively during the 3-month and 9-month periods ended October 31, 2021, compared with a foreign exchange gain of $0.1 million and a foreign exchange loss of $0.8 million recorded during the 3-month and 9-month periods ended October 31, 2020, respectively.

In order to minimize the impact of exchange rate fluctuations on its results, the Corporation implemented the following protective measures:

Issuance of new debts in U.S. dollars;
When advantageous, the raw material (steel) and welding products required for fabrication are purchased in U.S. dollars, and
A foreign exchange policy to protect a portion of the net risk between the U.S-denominated cash inflows and outflows.

20.3. Risks and Uncertainties Related to the Corporation's Operations

ADF's markets are subject to several risk and uncertainty factors, which could have an impact on its business, financial position and operating results. These risks and uncertainties include, but are not limited to the following factors, which are further detailed in the Section 24 "External Factors to Which the Corporation's Performance is Exposed" in the Corporation's MD&A for the fiscal year ended January 31, 2021:

Uncertainties relating to the world economy;
Bonding capacity and irrevocable letters of credit, and
Operational risks and uncertainties that could have an impact on the Corporation's financial position and operating results.

21. FINANCIAL INSTRUMENTS

A significant number of items in the Corporation's Consolidated Statement of Financial Position include financial instruments. The Corporation's financial assets consist of cash, cash equivalents, accounts receivable, holdbacks on contracts, contract assets, as well as derivative financial instruments, whose fair market value is positive. Financial liabilities include credit facilities, accounts payable and other current liabilities, contract liabilities, long-term debt and derivative financial instruments, whose fair market value is negative.

As at October 31, 2021, the carrying amount of these financial instruments did not significantly differ from the fair market value, either because of their forthcoming maturity date (in the case of cash, cash equivalents, accounts receivable, holdbacks on contracts, contract assets and liabilities, credit facilities, and accounts payable and other current liabilities), or because the Corporation believed it could obtain similar conditions and schedules (in the case of the long-term debt) or since they are re-evaluated at their fair value at the end of every period (in the case of derivative financial instruments) (see Note 10 "Financial Instruments" in the Unaudited Interim Condensed Consolidated Financial Statements for the Three-Month and Nine-Month Period Ended October 31, 2021).

Derivative financial instruments are typically used to manage the Corporation's foreign exchange and interest rate risk exposure. They are generally comprised of foreign exchange forward contracts.

The Corporation is mostly exposed to credit, liquidity and market risks, including exchange rate and interest rate risks, when using financial instruments. A description of how the Corporation manages these risks is included in Note 27 "Financial Risk Management" in the Corporation's Audited Consolidated Financial Statements for the Fiscal Year Ended January 31, 2021, and has remained unchanged for the interim period ended October 31, 2021.

22. CONTROLS AND PROCEDURES

In accordance with National Instrument 52-109, Certification of Disclosure in Issuers' Annual and Interim Filings, disclosure controls and procedures have been designed to provide reasonable assurance that the information that must be presented in the Corporation's interim and annual reports is accumulated and communicated to management on a timely basis, including the Chief Executive Officer and the Chief Financial Officer, so that appropriate decisions can be made regarding disclosure. Internal control over financial reporting has also been designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with IFRS.

During the three-month period ended October 31, 2021, no changes were made to the internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, internal controls and procedures.

23. SIGNIFICANT ACCOUNTING POLICIES, ESTIMATION UNCERTAINTY AND CRITICAL ACCOUNTING JUDGEMENTS

The unaudited interim condensed consolidated financial statements have been prepared using the same accounting policies as the ones used in the preparation of the Corporation's audited consolidated financial statements for the fiscal year ended January 31, 2021.

Refer the Corporation's audited consolidated financial statements for the fiscal year ended January 31, 2021, and the unaudited interim condensed consolidated financial statements for the quarter and 9-month period ended October 31, 2021, for more information about the significant accounting policies, estimation uncertainty, as well as the critical accounting judgements used to prepare the financial statements.

24. HUMAN RESOURCES

As at October 31, 2021, the Corporation employed a total of 568 people across its head office, fabrication complex and paint shop in Terrebonne, Quebec, and its office, fabrication plant and paint shop in Great Falls, Montana, U.S.A., and as well as the various construction sites in United States.

25. SUBSEQUENT EVENTS

25.1. U.S. Revolving Credit

On November 1st 2021, the Corporation renewed its revolving credit agreement with a U.S. bank. This renewal increased the available limit to from US$2.0 million as at January 31, 2021, to US$2.5 million. In addition, this revolving credit will henceforth bear interest at the SOFR rate (US $) one month plus 2.11%, compared with the LIBOR rate (US $) of one month plus 2.0% under the previous agreement. All other terms and conditions have remained unchanged.

25.2. New Financing

On November 9, 2021, the Corporation obtained, from the Business Development Bank of Canada (BDC), a $30.0 million bank loan which is secured by an immovable hypothec of $40.0 million on the Corporation's building located in Terrebonne, Quebec, as well as other guarantees.

This loan will be used as follows:

⎯ $16.2 million for the repayment of the existing loan, and
⎯ $13.8 million to increase the Corporation's working capital.

This loan will bear interest at the base annual rate of BDC, less 1.5%, and will be payable monthly. The capital will be repayable by a first installment of $140,800 on March 23, 2022, and will be followed by 215 equal monthly installments of $138,880 starting on April 23, 2022, and ending on February 23, 2040. The Corporation will be committed to respect certain annual financial ratios, as of January 31, 2022.

26. OUTLOOK

The quarter ended October 31, 2021, was, like the previous one, impacted by projects previously mentioned in the Corporation's MD&A Report for periods ended July 31, 2021. Although these projects generate lower margins than normally achieved by ADF, the significant volume of steel being fabricated and erected still generates adequate dollars. These lower-priced projects will be completed by the fourth quarter ending next January 31, allowing margin to improve.

We have added, at the beginning of the quarter ended October 31, 2021, new contracts totalling $50.0 million, and are currently negotiating several projects at bid stage. The pipeline of projects in the markets served by ADF, allows us to be optimistic and confident that we will be able to continue to grow our order backlog.

After the closing of the quarter ended October 31, 2021, and as explained in more detail in the section 25 "Subsequent Events" of this MD&A Report, we have also finalized a new financing agreement to support our investment program in new equipment to automate our fabrication processes at our plant in Terrebonne, Quebec.

We are therefore entering the last quarter of fiscal 2022 with the most encouraging premises: massive infrastructure investment programs in the United States that will bring many opportunities over the next five years, capital investments that will allow us to improve our operational efficiency, and the necessary liquidities and financing supporting these investments and our working capital as well, allowing us to continue to grow the order backlog. The coming quarters look very interesting and promising for our Corporation and its shareholders.

27. ADDITIONAL INFORMATION

The Corporation regularly discloses information through press releases, quarterly and annual reports and the Annual Information Form, available on the Corporation's website at www.adfgroup.com and the SEDAR (System for Electronic Document Analysis and Retrieval) website at www.SEDAR.com.

Mr. Jean-Francois Boursier, CPA, CA Ms. Marise Paschini

Terrebonne, Quebec, Canada, December 7, 2021

/ Signed / / Signed /

Chief Financial Officer Executive Vice-President, Treasurer and Corporate Secretary

NOTE TO THE READERS

Three-Month and Nine-Month Periods Ended October 31, 2021 and 2020.

These unaudited interim condensed consolidated financial statements have been prepared by the Management of ADF Group Inc. and have not been reviewed by the external auditor.

CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

As at	October 31, 2021	January 31, 2021






































Total liabilities and shareholders' equity	210,499	189,951

The accompanying notes are an integral part of these unaudited interim condensed consolidated financial statements.

ON BEHALF OF THE BOARD OF DIRECTORS,

Director Director

/ Signed / / Signed /

Mr. Jean Paschini Mr. Guy Pelletier, CPA, CA, ASC

CONSOLIDATED STATEMENTS OF INCOME

		3 Months		9 Months
Periods Ended October 31,	2021	2020	2021	2020
(In thousands of Canadian dollars, except the number of shares and the amounts of shares)	$	$	$	$
Revenues (Note 11)	110,189	47,158	233,747	135,451
Cost of goods sold	103,987	39,651	214,134	115,700
Gross Margin	6,202	7,507	19,613	19,751
Selling and administrative expenses	2,772	3,721	9,451	10,872
Net financial expenses (Note 7)	333	472	930	1,324
Foreign exchange (gain) loss	(150)	(107)	127	799
	2,955	4,086	10,508	12,995
Income before income tax expense	3,247	3,421	9,105	6,756
Income tax expense	459	842	424	1,997
Net income for the period	2,788	2,579	8,681	4,759
Earnings per share
— Basic and diluted per share (Note 8)	0.09	0.08	0.27	0.15
Average number of outstanding basic and diluted shares (in thousands) (Note 8)	32,635	32,635	32,635	32,635

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

	3 Months		9 Months
Periods Ended October 31,	2021	2020	2021	2020
(In thousands of Canadian dollars)	$	$	$	$
Net income for the period	2,788	2,579	8,681	4,759
Other comprehensive income:
Exchange differences on translation of foreign operations (a)	(191)	(215)	(1,068)	296
Comprehensive income for the period	2,597	2,364	7,613	5,055

a) Will subsequently be reclassified to net income.

The accompanying notes are an integral part of these unaudited interim condensed consolidated financial statements.

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

	Capital Stock	ContributedSurplus	Accumulated OtherComprehensive Income	RetainedIncome	Total
(In thousands of Canadian dollars)	$	$	$	$	$
Balance, February 1, 2020	68,120	6,435	6,942	12,910	94,407
Net income for the period	―	―	―	4,759	4,759
Other comprehensive income	―	―	296	―	296
Comprehensive income for the period	―	―	296	4,759	5,055
Dividends (Note 5)	―	―	―	(653)	(653)
Balance, October 31, 2020	68,120	6,435	7,238	17,016	98,809

	Capital Stock	ContributedSurplus	Accumulated OtherComprehensive Income	RetainedIncome	Total
(In thousands of Canadian dollars)	$	$	$	$	$
Balance, February 1, 2021	68,120	6,435	5,886	19,124	99,565
Net income for the period	―	―	―	8,681	8,681
Other comprehensive income (loss)	―	―	(1,068)	―	(1,068)
Comprehensive income (loss) for the period	―	―	(1,068)	8,681	7,613
Dividends (Note 5)	―	―	―	(653)	(653)
Balance, October 31, 2021	68,120	6,435	4,818	27,152	106,525

The accompanying notes are an integral part of these unaudited interim condensed consolidated financial statements.

CONSOLIDATED STATEMENTS OF CASH FLOWS

		3 Months	9 Months
Periods Ended October 31,	2021	2020	2021	2020
(In thousands of Canadian dollars)	$	$	$	$
OPERATING ACTIVITIES
Net income for the period	2,788	2,579	8,681	4,759
Non-cash items:
Amortization of property, plant and equipment (Note 3)	883	866	2,578	2,602
Amortization of right-of-use assets	253	254	764	750
Amortization of intangible assets	132	114	380	333
Unrealized (gain) loss on derivative financial instruments	(247)	(7)	387	98
Unrealized foreign exchange loss (gain)	219	(766)	1,518	(2,483)
Share-based compensation (Note 6)	(236)	133	333	381
Income tax expense	459	842	424	1,997
Net financial expenses (Note 7)	333	472	930	1,324
Others	(1)	123	(117)	(200)
Net income adjusted for non-cash items	4,583	4,610	15,878	9,561
Changes in non-cash working capital items (Note 9)	1,228	1,583	1,384	18,254
Income tax paid	(152)	―	(1,227)	―
Cash flows from operating activities	5,659	6,193	16,035	27,815
INVESTING ACTIVITIES
Acquisition of property, plant and equipment	(3,772)	(516)	(14,431)	(733)
Acquisition of intangible assets	(131)	(108)	(422)	(249)
Others	25	17	42	66
Cash flows used in investing activities	(3,878)	(607)	(14,811)	(916)
FINANCING ACTIVITIES
Variation in credit facilities	―	―	―	(13,105)
Issuance of long-term debt	―	―	―	5,654
Repayment of long-term debt	(475)	(477)	(1,421)	(1,444)
Payment of lease liabilities	(242)	(240)	(725)	(730)
Dividends paid (Note 5)	(327)	(327)	(653)	(653)
Interests paid	(346)	(267)	(806)	(991)
Cash flows used in financing activities	(1,390)	(1,311)	(3,605)	(11,269)
Impact of fluctuations in foreign exchange rate on cash flows	(29)	(98)	(768)	(786)
Net change in cash and cash equivalents during the period	362	4,177	(3,149)	14,844
Cash and cash equivalents, beginning of the period	14,295	14,650	17,806	3,983
Cash and cash equivalents, end of the period	14,657	18,827	14,657	18,827

The accompanying notes are an integral part of these unaudited interim condensed consolidated financial statements.

Three-Month and Nine-Month Periods Ended October 31, 2021 and 2020

All tabular figures are in thousands of Canadian dollars (CA$) and in dollars per share, unless otherwise specified.

NOTE 1 NATURE OF BUSINESS

ADF GROUP INC. ("ADF", "ADF Group" or "the Corporation") is the parent company and is incorporated under the Canada Business Corporations Act. Its head office is located at 300 Henry-Bessemer Street, in Terrebonne, Quebec. The Corporation's securities are traded on the Toronto Stock Exchange under the ticker symbol DRX. The Corporation operates two fabrication plants and two paint shops, in Canada and in the United States. The Corporation concentrates its activities in the design and engineering of connections, fabrication, including industrial coating, and the installation of complex steel superstructures, heavy steel built-ups, as well as miscellaneous and architectural metalwork. The Corporation's products and services are intended for the following five principal segments of the non-residential construction industry: office towers and high-rises, commercial and recreational buildings, airport facilities, industrial complexes, and transport infrastructure.

These present unaudited interim condensed consolidated financial statements were approved by the Corporation's Board of Directors on December 7, 2021, and were signed on its behalf.

NOTE 2 BASIS OF PREPARATION

2.1 Statement of Compliance

These Unaudited Interim Condensed Consolidated Financial Statements are prepared in accordance with International Financial Reporting Standards ("IFRS") issued by the International Accounting Standards Board ("IASB"), and applicable to interim financial reports, including International Accounting Standard 34, Interim Financial Reporting. These Unaudited Interim Condensed Consolidated Financial Statements are intended to provide an update on the January 31, 2021 annual Audited Consolidated Financial Statements. Accordingly, they do not include all of the information required for annual financial statements and must be read in conjunction with the Corporation's annual Audited Consolidated Financial Statements as at January 31, 2021.

These financial statements have been prepared using the same accounting policies as outlined in Note 2 to the Corporation's Audited Consolidated Financial Statements for the Fiscal Year Ended January 31, 2021, except for income taxes in interim periods, which they are calculated using the tax rate that would be applicable to expected annual results in each jurisdiction.

2.2 Basis of Measurement

These Unaudited Interim Condensed Consolidated Financial Statements have been prepared under the historical cost convention, except for the evaluation of certain financial instruments measured at the fair value. Historical cost is generally based on the fair value of the consideration given in exchange for assets.

2.3 Functional and Reporting Currency

Items included in each of the Corporation's entities financial statements are measured using the currency of the primary economic environment in which the entity operates (the "functional currency"). The Corporation's functional currencies are the Canadian dollar for its Canadian entity, and the U.S. dollar for its U.S. entities. These Unaudited Interim Condensed Consolidated Financial Statements are presented in Canadian dollars, which is the Corporation's reporting currency.

2.4 Estimation Uncertainty and Critical Accounting Judgements

The preparation of financial statements in accordance with IFRS requires Management to make judgements in the application of accounting policies used and to make estimates and assumptions that affect the reported amounts of assets and liabilities, as well as the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the periods. Because financial reporting involves accounting judgements and entails the use of estimates, actual results could differ from those estimates. Underlying estimates and assumptions are periodically reviewed and the impact of any changes is immediately recognized.

The types of significant estimates, judgments and assumptions made by Management in applying the Corporation's accounting policies are the same as those applied and described in the Note 3 to the Consolidated Financial Statements for the Fiscal Year Ended January 31, 2021.

Since March 2020, the COVID-19 pandemic has spread to North America. The markets served by the Corporation have, of course, not been spared by the many waves that continue to affect these same markets as of the date hereof.

A number of Canadian provinces and U.S. states, including Quebec and Montana, have instituted confinement periods or have introduced certain restrictions to contain the spread of the virus, except for essential services. Since the beginning of this pandemic and at the date hereof, all of the Corporation's facilities, including all of its job sites, remained open and operational.

The Corporation has also taken precautions with regard to the hygiene of employees, facilities and offices, as well as the implementation of significant travel restrictions. The Corporation is also evaluating its business continuity plans for all of its operations in the context of this pandemic. This situation is evolving rapidly and the Corporation will continue to monitor and mitigate developments affecting its staff, suppliers, customers and the general public as much as it can.

During this health crisis, various government programs were put in place in Canada and the United States allowing the Corporation and some of its subsidiaries to benefit from government grants. During the 9-month period ended October 31, 2021, a $1,879,000 government grant was recognized against salaries expense in the Consolidated Statement of Income, and collected in July 2021.

Management's estimates and judgments considered the uncertainties, including the uncertainty that the pandemic is causing in the various markets where the Corporation operates, and economic implications of the COVID-19 pandemic on the Corporation's business, financial performance and financial position, and did not result in a material impact for the 3-month and 9-month periods ended October 31, 2021.

However, at the date of publication of these unaudited interim condensed consolidated financial statements, although the Corporation was able to reduce the short-term impact of the crisis without significant reduction of its activities, it is not possible at this time to reliably assess the duration and the severity the global pandemic nor the long-term consequences it may have on the Corporation's financial results, financial position and cash flows.

NOTE 3 PROPERTY, PLANT AND EQUIPMENT

The book value of the property, plant and equipment under construction and not subject to amortization stood at $12,152,000 as at October 31, 2021 ($356,000 as at January 31, 2021). These amounts were mainly for additions made to the Corporation's facilities located in Terrebonne, Quebec.

As at October 31, 2021, the Corporation had committed to the purchase of machinery totalling $6,120,000.

NOTE 4 CREDIT FACILITY

On October 29, 2021, the Corporation renewed its Canadian operating credit facility agreement. Under this renewal, the available amount remains at $30,000,000, and all other terms and conditions have remained unchanged. The credit facility was unused as at October 31, 2021, and as at January 31, 2021.

NOTE 5 SHAREHOLDERS' EQUITY

During the 3-month period ended October 31, 2021, the Corporation recognized as distribution to its Shareholders of Record as at September 30, 2021, and paid on October 15, 2021, semi-annual dividends totalling $327,000 or $0.01 per share, of which $184,000 for subordinate voting shares and $143,000 for multiple voting shares.

During the 3-month period ended October 31, 2020, the Corporation recognized as distribution to its Shareholders of Record as at September 30, 2020, and paid on October 16, 2020, semi-annual dividends totalling $327,000 or $0.01 per share, of which $184,000 for subordinate voting shares and $143,000 for multiple voting shares.

This distribution made during the third quarter ended October 31, 2021, brings the total amount of dividends declared and paid to $653,000 or $0.02 per share for the 9-month period ended October 31, 2021, representing dividends of $367,000 for subordinate voting shares and $286,000 for multiple voting shares (representing dividends of $367,000 for subordinate voting shares and $286,000 for multiple voting shares totaling $653,000 or $0.02 per share for the 9-month period ended October 31, 2020).

NOTE 6 SHARE-BASED COMPENSATION

6.1 Deferred Share Units Plan ("DSU")

a) External Directors

The DSU are re-evaluated at fair value at the end of each reporting period until the vesting date, using the market price of the Corporation's subordinate voting shares.

DSU compensation to External Directors recorded in the Consolidated Statement of Income amounted to an immaterial amount during the 3-month period ended October 31, 2021, and an expense of $162,000 during the 9-month period ended October 31, 2021, including the impact of the change in the market price of the Corporation's share, which amounted to an immaterial amount during the 3-month period ended October 31, 2021 and a recovery of $98,000 during the 9-month period ended October 31, 2021 (an immaterial expense for the 3 month and 9-month periods ended October 31, 2020, including the impact from the change in the market price of the Corporation's share).

The fluctuation in DSU for External Directors was as follows:

		3 Months		9 Months
Periods Ended October 31,	2021	2020	2021	2020
(In number of deferred share units)	Number	Number	Number	Number
Outstanding, at the beginning of period	50,000	614,297	619,521	464,467
Granted	310	5,224	135,917	155,054
Distributed	―	―	(705,128)	―
Outstanding and vested, at the end of period	50,310	619,521	50,310	619,521

The carrying amount and the intrinsic value of the liabilities related to the External Directors vested DSU amounted to $81,000 as at October 31, 2021 ($985,000 as at January 31, 2021), and is recorded in "Accounts Payable and Other Current Liabilities" in the Consolidated Statements of Financial Position.

b) Executive Officers and Key Employees

During the 3-month and 9-month periods ended October 31, 2021, DSU compensation for Executive Officers and key employees amounted to a recovery of $114,000 and an expense of $69,000 respectively, including the impact of the change in the market price of the Corporation's share, which amounted to an immaterial amount for the 3-month and 9-month periods ended October 31, 2021, respectively (immaterial amounts, including the impact of the change in the market price of the Corporation's share, during the same periods ended October 31, 2020).

The fluctuation in DSU for the Executive Officers and key employees was as follows:

	3 Months			9 Months
Periods Ended October 31,	2021	2020	2021	2020
(In number of deferred share units)	Number	Number	Number	Number
Outstanding, at the beginning of the period	294,766	291,992	293,460	198,208
Granted	35,804	1,468	37,110	95,252
Outstanding, at the end of the period	330,570	293,460	330,570	293,460
Vested, at the end of the period	234,987	174,125	234,987	174,125

The carrying amount of the liabilities related to Executive Officers and key employees' DSU, amounting to $447,000 as at October 31, 2021 ($386,000 as at January 31, 2021), is recorded in "Accounts Payable and Other Current Liabilities" in the Consolidated Statements of Financial Position, and of which $378,000 correspond to the intrinsic value of vested DSU as at October 31, 2021 ($277,000 as at January 31, 2021).

6.2 Performance Share Units Plan ("PSU")

During the 3-month and 9-month periods ended October 31, 2021, PSU compensation for Executive Officers and key employees amounted to a recovery of $95,000 and an expense of $102,000 respectively, including the impact of the change in the market price of the Corporation's share, which amounted to a recovery of $126,000 and an immaterial amount during the 3-month and 9-month periods ended October 31, 2021, respectively (a $48,000 and $290,000 expense during the 3-month and 9-month periods ended October 31, 2020, respectively, including the impact of the variation in the Corporation's share price, which amounted to an immaterial amount).

Fluctuations in PSU for Executive Officers and key employees were as follows:

		3 Months	9 Months
Periods Ended October 31,	2021	2020	2021	2020
(In number of performance share units)	Number	Number	Number	Number
Outstanding, at the beginning of the period	282,288	365,376	346,248	231,571
Granted	35,456	1,070	93,549	134,875
Distributed	―	―	(122,053)	―
Outstanding, at the end of the period	317,744	366,446	317,744	366,446
Vested, at the end of the period	178,621	126,948	178,621	126,948

As at October 31, 2021, the carrying amount of the liabilities related the Executive Officers and key employees' PSU, amounted to $424,000 ($520,000 as at January 31, 2021), is recorded in "Accounts Payable and Other Current Liabilities" in the Consolidated Statements of Financial Position, including an amount of $288,000, which corresponds to the intrinsic value of the vested PSU as at October 31, 2021 ($202,000 as at January 31, 2021).

NOTE 7 NET FINANCIAL EXPENSES

Net financial expenses were as follows:

	3 Months		9 Months
Periods Ended October 31,	2021	2020	2021	2020
(In thousands of CA$)	$	$	$	$
Interest on long-term debt	151	264	519	782
Interest on lease liabilities	57	64	157	194
Interest on credit facilities	24	83	116	292
Others	101	61	138	56
	333	472	930	1,324

NOTE 8 EARNINGS PER SHARE

Diluted earnings per share were calculated using the treasury stock method. The table hereafter reconciles the numerator and denominator used in the calculation of basic and diluted earnings per share:

	3 Months		9 Months
Periods Ended October 31,	2021	2020	2021	2020
Numerator (in thousands of CA$)Numerator applicable to basic and diluted earnings per share	$2,788	$2,579	$8,681	$4,759
Denominator (in thousands)Basic and diluted weighted average number of shares	32,635	32,635	32,635	32,635

For the purpose of computing diluted earnings per share, the Corporation must account for stock options as a dilutive instrument.

During the 3-month and 9-month periods ended October 31, 2021 and 2020, none of the stock options were included in the computation of diluted earnings per share because of their antidilutive effect.

NOTE 9 SUPPLEMENTAL CASH FLOWS INFORMATION

The following table sets out in detail the components of the "Change in non-cash working capital items":

	3 Months		9 Months
Periods Ended October 31,	2021	2020	2021	2020
(In thousands of CA$)	$	$	$	$
Accounts receivable	27,072	546	4,138	6,620
Holdbacks on contracts	(2,960)	(431)	(4,299)	(2,454)
Contract assets	(8,747)	3,077	(13,917)	4,547
Inventories	(2,175)	913	(2,338)	263
Prepaid expenses and other current assets	60	30	1,032	(636)
Accounts payable and other current liabilities	15,137	(298)	30,111	(4,000)
Contract liabilities	(27,156)	(2,251)	(13,335)	13,922
Other	(3)	(3)	(8)	(8)
Change in non-cash working capital items	1,228	1,583	1,384	18,254

NOTE 10 FINANCIAL INSTRUMENTS

10.1 Categories for Measurement

The next table provides the book value per class of financial instruments:

As at	October 31, 2021	January 31, 2021
(In thousands of CA$)	$	$
Financial assets at amortized cost
Cash and cash equivalents	14,657	17,806
Accounts receivable	44,863	50,234
Holdbacks on contracts	14,818	10,785
	74,338	78,825
Financial assets at fair value through net income
Derivative financial instruments	130	517
	130	517
Financial liabilities to amortized cost
Accounts payable and other current liabilities (1)	55,332	24,781
Long-term debt (2)	18,762	20,272
	74,094	45,053

(1) Excludes amounts due for statutory liabilities, employee benefits and share-based payments.

(2) Excludes lease liabilities.

As at October 31, 2021, given the upcoming maturity dates of cash and cash equivalents, accounts receivable, other current assets, holdbacks on contracts, contract assets, credit facilities, accounts payable and other current liabilities, as well as contract liabilities, their fair value was approximately equal to their book value.

The fair value of the long-term debt (excluding the lease liabilities) did not differ significantly from its book value as at October 31, 2021, as the effective interest rates reflect current market conditions.

10.2 Fair Value Hierarchy of Financial Assets and Liabilities

In accordance with IFRS, the Corporation measures its financial assets and liabilities using the following fair value hierarchies, which have been defined as follows:

Fair value Level 1: Quoted price (unadjusted) in active markets for identical assets or liabilities.
Fair value Level 2: For inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly (i.e. prices) or indirectly (i.e. derived from prices).
Fair value Level 3: Inputs for the asset or liability that are not based on observable market data (unobservable inputs).

For all financial instruments measured at fair value, the Corporation classified fair value measurements at level 2, as they are primarily based on observable data other than in an active market.

NOTE 11 SEGMENTED INFORMATION

The Corporation operates in one operational sector, being, the non-residential construction industry, primarily in the United States and Canada. This sector includes the following areas of expertise: the design and engineering of connections, fabrication, including industrial coating, and installation of complex steel structures, heavy steel built-ups, as well as miscellaneous and architectural metalwork.

	3 Months		9 Months
Periods Ended October 31,	2021	2020	2021	2020
(In thousands of CA$)	$	$	$	$
Revenues
Canada	9,216	10,161	30,865	27,883
United States	100,973	36,997	202,882	107,568
	110,189	47,158	233,747	135,451

As at	October 31, 2021	January 31, 2021
(In thousands of CA$)	$	$
Non-current assets (1)
Canada	59,010	46,794
United States	40,350	42,561
	99,360	89,355

(1) The non-current assets mainly include property, plant and equipment, intangible assets, right-of-use assets, investment tax credits and others non-current assets.

Revenues from external clients were allocated to each country on the basis of project's location.

During the 9-month period ended October 31, 2021, 86% of the Corporation's revenues were realized with three (3) clients, each representing more than 10% of revenues (71% of the Corporation's revenues were realized with three (3) clients during the 9-month period ended October 31, 2020).

The following table, presents the breakdown of revenues for each these clients:

9-Month Periods Ended October 31,	2021		2020
	Canada	United States	Canada	United States
(In thousands of CA$)	$	$	$	$
Client A	―	150,786	―	―
Client B	―	―	―	51,154
Client C	―	27,575	―	26,063
Client D	23,278	―	18,775	―
	23,278	178,361	18,775	77,217

NOTE 12 SUBSEQUENT EVENTS

12.1 U.S. Revolving Credit

On November 1st 2021, the Corporation renewed its revolving credit agreement with a U.S. bank. This renewal increased the available limit to from US$2,018,360 as at January 31, 2021, to US$2,537,100. In addition, this revolving credit will henceforth bear interest at the SOFR rate (US $) one month plus 2.11%, compared with the LIBOR rate (US $) of one month plus 2.0% under the previous agreement. All other terms and conditions have remained unchanged.

12.2 New Financing

On November 9, 2021, the Corporation obtained, from the Business Development Bank of Canada (BDC), a $30,000,000 bank loan which is secured by an immovable hypothec of $40,000,000 on the Corporation's building located in Terrebonne, Quebec, as well as other guarantees.

This loan will be used as follows:

⎯ $16,178,250 for the repayment of the existing loan, and
⎯ $13,821,750 to increase the Corporation's working capital.

The electronic version of this document is also available at www.adfgroup.com and at www.sedar.com.

Ce document est aussi disponible en français.

ADF GROUP INC. 300 Henry-Bessemer Terrebonne, Quebec, Canada J6Y 1T3

T. (450) 965-1911 / 1 *800) 263-7560 [email protected] / www.adfgroup.com

Toronto Stock Exchange: TSX: DRX

AI assistant

ADF Group Inc. — Interim / Quarterly Report 2022

44820_rns_2021-12-08_ace70ee7-5a29-4822-87f3-c5e85e380e8c.pdf

Management's Discussion & Analysis

1. GENERAL

2. FORWARD-LOOKING STATEMENTS

3. GENERAL OVERVIEW

4. COMMERCIAL POSITIONING

5. MARKET TRENDS

6. SIGNIFICANT EVENTS OF THE THREE-MONTH AND NINE-MONTH PERIODS ENDED OCTOBER 31, 2021

Dividend

New Contracts

7. MAJOR EVENTS THAT OCCURRED SINCE OCTOBER 31, 2021

7.1. U.S. Revolving Credit

7.2. New Financing

8. COVID-19

9. EXCHANGE RATE

10. NON-GAAP MEASURES

10.1. EBITDA and EBITDA Margin

11. ANALYSIS OF OPERATING RESULTS FOR THE THREE-MONTH AND NINE-MONTH PERIODS ENDED OCTOBER 31, 2021

11.1. Revenues and Gross Margin

a) Revenues

b) Gross Margin

11.2. Selling and Administrative Expenses

11.3. Amortization

11.4. Net Financial Expenses

11.5. Foreign Exchange Loss (Gain)

11.6. Income Tax Expense

11.7. Net Income, Basic and Diluted Earnings per Share

12. COMPARATIVE INFORMATION FOR THE LAST EIGHT QUARTERS

13. CASH FLOW AND FINANCIAL POSITION

13.1. Operating Activities

a) Net income adjusted for non-cash items

b) Change in non-cash working capital

13.2. Investing Activities

13.3. Financing Activities

13.4. Contractual Obligations

13.5. Debt Covenants

14. CAPITAL STOCK

15. STOCK OPTION PLAN

16. SHARE-BASED COMPENSATION

16.1. Deferred Share Units ("DSU")

a) External Directors

b) Executive Officers and Key Employees

16.2. Performance Share Units Plan ("PSU")

17. ORDER BACKLOG

18. FINANCIAL POSITION

19. CURRENT ECONOMIC ENVIRONMENT

20. EXTERNAL FACTORS TO WHICH THE CORPORATION'S PERFORMANCE IS EXPOSED

20.1. Global Pandemic

20.2. Exchange Rate

20.3. Risks and Uncertainties Related to the Corporation's Operations

21. FINANCIAL INSTRUMENTS

22. CONTROLS AND PROCEDURES

23. SIGNIFICANT ACCOUNTING POLICIES, ESTIMATION UNCERTAINTY AND CRITICAL ACCOUNTING JUDGEMENTS

24. HUMAN RESOURCES

25. SUBSEQUENT EVENTS

25.1. U.S. Revolving Credit

25.2. New Financing

26. OUTLOOK

27. ADDITIONAL INFORMATION

NOTE TO THE READERS

CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

CONSOLIDATED STATEMENTS OF INCOME

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

CONSOLIDATED STATEMENTS OF CASH FLOWS

Three-Month and Nine-Month Periods Ended October 31, 2021 and 2020

NOTE 1 NATURE OF BUSINESS

NOTE 2 BASIS OF PREPARATION

2.1 Statement of Compliance

2.2 Basis of Measurement

2.3 Functional and Reporting Currency

2.4 Estimation Uncertainty and Critical Accounting Judgements

NOTE 3 PROPERTY, PLANT AND EQUIPMENT

NOTE 4 CREDIT FACILITY

NOTE 5 SHAREHOLDERS' EQUITY

NOTE 6 SHARE-BASED COMPENSATION

6.1 Deferred Share Units Plan ("DSU")

a) External Directors

ADF Group Inc. Interim / Quarterly Report 2022