ADF Group Inc. — Management Reports 2021

Apr 30, 2021

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MANAGEMENT’S DISCUSSION & ANALYSIS of the Financial Position and Operating Results Fiscal Year Ended on January 31, 2021

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Toronto Stock Exchange : TSX : DRX
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Table of Contents

Financial Highlights................................................................... 1

Management’s Discussion and Analysis of the Financial Situation and Operating Results ......................................... 2

FORWARD-LOOKING STATEMENTS

Management of ADF Group Inc. wishes to inform the reader that this document contains forward-looking statements within the meaning of applicable securities laws, in which Management’s expectations regarding ADF Group Inc.’s future performance may be discussed

These forward-looking statements include information concerning ADF Group’s probable or foreseeable future operating results and financial position, and involve certain risks and uncertainties with regard to their future realization. These forward-looking statements are based on currently available data in regard to competition, financial position, economic conditions and operating plans.

The principal risks and uncertainties that could affect ADF Group Inc.’s results, such that those results could differ materially from those expressed in any forward-looking statements, are presented in Sections "Current Economic Environment" and "External Factors to Which the Corporation’s Performance is Exposed" of the Management’s Discussion and Analysis of the Financial Position and Operating Results for the fiscal year ended January 31, 2021.

Management’s Discussion and Analysis of the Financial Position and Operating Results Fiscal year ended on: January 31, 2021 Financial Highlights Page: 1 of 22

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REVENUES

EBITDA[(2) ]

GROSS MARGIN

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(In million $) (In million $ and as a % of revenues) (in million $ and as a % of revenues)
$16.3M
$26.2M
$179.7M
$172.6M
9.5%
$135.1M 15.2%
$16.5M
$5.2M $9.5M 9.2%
$1.9M 2.9%
7.1%
1.4%
2019 2020 2021 2019 2020 2021 2019 2020 2021
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Fiscal Years Ended January 31,	2021	2020 2019(4) 2018(4) 2017(4)
(In thousands of dollars) OPERATING RESULTS Revenues Earnings before interest, taxes, depreciation and amortization (EBITDA)(1) (2) Income (loss) before income taxes expense (recovery) Net income(loss)	$	$ $ $ $ 179,710 135,073 180,474 102,846 5,225 1,945 8,436 8,462 (1,986) (2,393) 2,172 2,513 (2,132) (374) (7,213) 1,499
	172,593
	16,341
	9,019
	6,867
FINANCIAL POSITION Total assets Shareholders’ equity Total debt, net of liquidities(2) Workingcapital(2)		173,544 163,212 175,258 158,684 94,407 96,895 95,782 105,650 36,181 29,652 35,353 31,716 29,313 31,848 34,768 24,769
	189,951
	99,565
	7,775
	38,548
OTHER CONSOLIDATED FINANCIAL DATA Liquidities(3) Cash flows from operating activities Net acquisition ofproperty, plant and equipment		3,983 4,164 2,998 334 (894) 11,675 3,662 (10,635) 360 3,063 4,831 6,809
	17,806
	28,842
	1,460
RATIOS Working capital(2) Long-term debt to shareholders’ equity (2)		1.58:1 1.85:1 1.74:1 1.77:1 0.43:1 0.35:1 0.40:1 0.30:1
	1.62:1
	0.26:1
PER SHARE INFORMATION(In dollars per share) Basic earnings per share Book valueper share(2)		(0.07) (0.01) (0.22) 0.05 2.89 2.97 2.93 3.24
	0.21
	3.05

(1) Excluding foreign exchange variations.

(2) EBITDA, total debt, net of liquidities, working capital, the book value per share as well as the working capital and the long-term debt to shareholders’ equity ratios, are not a performance measures recognized by IFRS standards, and are not likely to be comparable to similar measures presented by other issuers. Management, as well as investors, consider these to be useful information to assist them in assessing the Corporation’s profitability and ability to generate funds to finance its operations (refer to Section "Non-GAAP Measures" of the MD&A Report for the fiscal year ended January 31, 2021 for the definition of these metrics and reconciliation to the most comparable IRFS measures).

(3) Including cash, cash equivalents, net of the bank overdraft, when applicable.

(4) The Corporation adopted IFRS 16 Leases on February 1[st] , 2019, using the amended retrospective method that does not require the restatement of financial statements from prior fiscal years. As a result, the comparative data prior to February 1, 2019, in this table have not been adjusted.

Fiscal year ended on: January 31, 2021 Page: 2 of 22

Management’s Discussion and Analysis of the Financial Position and Operating Result s

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Table of Contents of the MD&A Report

1.	General .......................................................................................................................................................................................................................... 3
2.	Forward-Looking Statements ........................................................................................................................................................................................ 3
3.	General Overview .......................................................................................................................................................................................................... 3
4.	Commercial Positioning ................................................................................................................................................................................................. 3
5.	Market Trends ............................................................................................................................................................................................................... 4
6.	Significant Events of the Fiscal Year .............................................................................................................................................................................. 4
7.	Significant Event That Occurred Since January 31, 2021 ............................................................................................................................................... 5
8.	COVID-19 ....................................................................................................................................................................................................................... 5
9.	Exchange Rate ............................................................................................................................................................................................................... 5
10.	Non-GAAP Measures ..................................................................................................................................................................................................... 6
11.	Performance Indicators ("KPI")...................................................................................................................................................................................... 8
12.	Selected Annual Financial Information .......................................................................................................................................................................... 8
13.	Analysis of Operating Results For the Fiscal Year Ended January 31, 2021 ................................................................................................................... 9
14.	Comments on Quarterly Results .................................................................................................................................................................................. 11
15.	Cash Flows and Financial Position ............................................................................................................................................................................... 12
16.	Capital Stock ................................................................................................................................................................................................................ 15
17.	Stock Option Plan ........................................................................................................................................................................................................ 15
18.	Share Units .................................................................................................................................................................................................................. 15
19.	Dividend ...................................................................................................................................................................................................................... 17
20.	Order Backlog .............................................................................................................................................................................................................. 17
21.	Financial Position ......................................................................................................................................................................................................... 17
22.	Current Economic Environment .................................................................................................................................................................................. 17
23.	Related Party Transactions .......................................................................................................................................................................................... 18
24.	External Factors to Which the Corporation’s Performance is Exposed ....................................................................................................................... 18
25.	Financial Instruments .................................................................................................................................................................................................. 19
26.	Assessment of the Effectiveness of Disclosure Controls and Procedures, and Internal Control Over Financial Reporting ......................................... 19
27.	Disclosure and Insider Trading Policies ........................................................................................................................................................................ 20
28.	Significant Accounting Policies, Estimation Uncertainty and Critical Accounting Judgments ...................................................................................... 20
29.	Environnement ............................................................................................................................................................................................................ 21
30.	Human Resources ........................................................................................................................................................................................................ 21
31.	Subsequent Event ........................................................................................................................................................................................................ 21
32.	Outlook ........................................................................................................................................................................................................................ 22
33.	Additional Information ................................................................................................................................................................................................ 22

Fiscal year ended on: January 31, 2021 Page: 3 of 22

Management’s Discussion and Analysis of the Financial Position and Operating Result s

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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, 2020 and January 31, 2021. It also compares the operating results and cash flows for the fiscal year ended January 31, 2021 to those of the previous year. This MD&A covers all major events that occurred during the 2021 fiscal year and between February 1, 2021 and April 7, 2021.

This MD&A should be read in conjunction with the Corporation’s audited consolidated financial statements and the notes thereto for the fiscal year ended January 31, 2021. The consolidated financial statements and the comparative information have been prepared in accordance with the International Financial Reporting Standard ("IFRS") as issued by the International Accounting Standards Board ("IASB"). The significant accounting policies applied by the Corporation in accordance with IFRS are presented in Note 2 to the audited consolidated financial statements for the fiscal year ended January 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 24 "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 nonresidential 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) dual-purpose building, adjacent to the fabrication plant, housing a 2,323-square-meter (25,000 square feet) paint and blast zone, and a 2,137square-meter (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 nonresidential 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.

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5. MARKET TRENDS

The nonresidential 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 nonresidential 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.

Now that the fiscal year ended January 31, 2021, is behind us, we can draw the following conclusions: Despite the uncertainty surrounding the pandemic, the markets served by our Corporation have maintained a more than adequate growth rate, allowing us to win several contracts.

This being so, future trends in these same markets are generally positive. The impact of COVID-19 still places a fair amount of uncertainty on our analysis, given the fact that there are still uncertain risks associated with the different variants and the pace at which the vaccine is being deployed, but generally excluding these factors, the pipeline of new projects should be promising.

The new U.S. administration has announced plans for investments worth around US$1.9 trillion, including infrastructure projects, while New York State has announced investments worth a record US$306 billion.

On the Canadian side, and for the first time in its history, the total of the 100 largest public infrastructure projects, exceeded 250 billion Canadian dollars.

All of these investments will have a domino effect on private investments, which, combined with low interest rates, are expected to generate business opportunities for our Corporation. In light of these observations, we are relatively confident that we will be able to continue to grow our backlog (see Section 8 "COVID-19").

6. SIGNIFICANT EVENTS OF THE FISCAL YEAR

6.1

Renewal of the Credit Facility

On February 28, 2020, the Corporation has secured an increase in its Canadian credit facility, bringing it from $20.0 million to $30.0 million. The other terms and conditions remain unchanged. On September 28, 2020, this credit facility was extended, without amendment. This increase will allow the Corporation to support the sustained growth of its order backlog.

6.2

New Contracts

• On March 23, 2020, the Corporation announced the award of two new contracts in North America worth a total of $65.0 million, one as part of the construction of a new industrial building in the transportation sector in Quebec, and the other consists in the construction of a new commercial building in California. In both cases, ADF was entrusted with the design and engineering of connections, the fabrication, including the procurement of raw material (steel) and industrial coating, as well as the installation of these new structures. These new contracts will be carried out at both of ADF’s fabrication plants, one in Terrebonne, Quebec and the other in Great Falls, Montana. Fabrication work on both new projects has started in July 2020, and should extend over a 12-month period.

• On November 25, 2020, the Corporation announced the award of two new contracts in the commercial building sector in the U.S.A., worth a total of $101.0 million. The scope of the largest of these contracts, in terms of value and tonnage, relates to the design and engineering of connections, fabrication, which also includes industrial coating and the supply of raw material (steel), and the installation of the steel structure of a new building with a commercial vocation in the Northwestern U.S.A. Fabrication is expected to start in the first months of 2021 at ADF’s plant located in Terrebonne, Quebec, and will run until the third quarter of the year 2021.

The other contract, is located in the Northeastern U.S.A. and consists in, among other things, the supply of raw material (steel) and shop drawings, and the fabrication of the steel structure used in the construction of a new government building. Fabrication is expected to begin later in 2021 and will run until mid-2022.

• On January 25, 2021, the Corporation announces the award of new contracts in the commercial building and transportation infrastructure sectors in the USA and in Canada, worth a total of $102 million. The scope of the largest of these contracts, in terms of value and tonnage, covers all services included in ADF's global offer, which consist in the design and engineering of connections, fabrication including industrial coating, the production of shop drawings, steel procurement, and the installation of the new steel structure of a large commercial building in Southeastern U.S.A. This project is characterized by a fast-track construction schedule. Fabrication is expected to start in the first months of 2021 at ADF's plant located in Terrebonne, Quebec.

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The other major contracts won by ADF, in the transportation infrastructure sector in the Western USA and in the commercial building sector in Eastern Canada, also subject to accelerated schedules, include all services comprised in ADF's overall offering.

All of these contracts are scheduled to begin in the coming months, and will run until the end of the year 2021. Both ADF’s fabrication plants and paint shops, in Terrebonne, Quebec, and in Great Falls in the state of Montana, will be involved in the carrying out these new projects.

6.3 Dividends

• On April 8, 2020, the Corporation’s Board of Directors approved a semi-annual dividend of $0.01 per share, which was paid on May 15, 2020 to shareholders of record as at April 30, 2020.

• On September 9, 2020, the Corporation’s Board of Directors approved a semi-annual dividend of $0.01 per share, paid on October 16, 2020 to shareholders of record as at September 30, 2020.

• 6.4 New Loans

On May 5, 2020, the Corporation obtained two new loans from a U.S. bank, totalling $5.7 million (US$4.0 million). These loans are guaranteed by the U.S. Small Business Administration ("SBA") and were issued to two U.S. subsidiaries of ADF under the U.S. Care Act in response to COVID-19. These loans should be reimbursed over an 18-month period starting in December 2020, or after, subject to the latest legislative changes to the program. In addition, if certain conditions are met, these loans may be partially or even fully forgiven. During the fourth quarter ended on January 31, 2021, the Corporation assessed that it met these terms and therefore recognized the forgiveness of a portion of the total debt, being US$3.0 million ($3.9 million).

6.5

U.S Revolving Credit

In November 2020, the Corporation renewed the agreement for its revolving credit agreement with a U.S. bank. This renewal brings the available limit to US$2.0 million from US$1.6 million as at January 31, 2020. The other terms and conditions remained unchanged.

7. SIGNIFICANT EVENT THAT OCCURRED SINCE JANUARY 31, 2021

Dividend

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

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 that continue to affect these same markets as of the date of this Report.

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.

However, in order for ADF’s fabrication plant in Terrebonne, Quebec, to remain in operation, and in addition to the required sanitary and physical distancing measures, Management initially had to limit the number of employees per work shift. This limitation has allowed the Corporation to maintain a sufficient level of fabrication in order to serve its various customers, but has resulted in some operational limitations. In addition, some additional costs have also been incurred as a result of the various measures taken. At the date hereof, the number of employees per shift has virtually returned to the pre-pandemic level.

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 operational activities 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, which are very uncertain and cannot be predicted at the time of this filing, including new information that may emerge regarding the severity of COVID-19 and the measures taken to contain it or address its impact, among others.

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 fiscal year ended January 31, 2021, as well as during the previous fiscal year, the Corporation used the following exchange rates between the Canadian and US dollars:

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(CA$/US$)	Consolidated Statements of Income (loss) and Comprehensive Income(Loss)	Consolidated Statements of Income (loss) and Comprehensive Income(Loss)	Consolidated Statements of Financial Position
	Quarterly	Cumulative
	2021 2020	2021 2020	2021 2020
First quarter (April 30) Second quarter (July 31) Third quarter (October 31) Fourthquarter(January 31)	1.3784 1.3322 1.3664 1.3282 1.3222 1.3235 1.2866 1.3163	1.3784 1.3322 1.3723 1.3302 1.3557 1.3280 1.3388 1.3251	1.3910 1.3423 1.3404 1.3148 1.3318 1.3160 1.2780 1.3233
Annual averages	1.3388 1.3251

Although the Canadian dollar gain in value against the U.S. currency during the fourth quarter, it lost value against the U.S. currency on an annual average basis. Given the strengthening Canadian dollar in the fourth quarter, the closing rate for the fiscal year ended January 31, 2021, is 3.4% lower than a year earlier, which will have a downward impact on US-denominated assets and liabilities.

Even though 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 a favorable impact of $0.5 million on the gross margin for the fiscal year ended January 31, 2021, and generated a foreign exchange loss of $0.7 million on the Consolidated Statement of Income (Loss) during the same period.

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:

operating performance and the achievement of objectives:
Fiscal Years Ended January31,	2021	2020
Working capital(in thousands of dollars) Current ratio Long-term debt and lease liabilities to shareholders’ equity ratio(1) Total debt, net of liquidities(in thousands of dollars)(1) Total credit facilities and long-term debt including lease liabilities, net of cash and cash equivalents, to shareholders’ equity ratio(1) Liabilities to shareholders’ equity ratio Earnings before interest, tax, depreciation and amortization (EBITDA)(in thousands of dollars) EBITDA margin(as a percentage of revenues) Book value per share(in dollars) Return on shareholders’ equity	$38,548 1.62:1 0.26:1 $7,775 0.08:1 0.91:1 $16,341 9.5% $3.05 6.9%	$29,313 1.58:1 0.43:1 $36,181 0.38:1 0.84:1 $5,225 2.9% $2.89 (2.3)%

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

10.1 Working Capital

The working capital indicator is used by the Corporation to assess whether current assets are sufficient to meet current liabilities. Working capital is equal to current assets, less current liabilities, whereas the current ratio is calculated by dividing current assets by current liabilities.

Generally, Management’s goal is to maintain a current ratio of at least 2.0:1. Although this ratio was below this goal as at January 31, 2021 and 2020, the Corporation establishes the achievement of this goal on the pursuit of its strategy focusing on the execution of contracts generating positive cash flows throughout their execution. However, the Corporation also recognizes that the growth of its order backlog adds some pressure on working capital, thus explaining the level of this ratio in relation to the Corporation’s long-term objective. It should be noted that the drawing up and/or revision of this corporate goal depends on a number of factors, such as the economic context and development projects that might materialize.

10.2 Long-Term Debt and Lease Liabilities to Shareholders’ Equity Ratio

This ratio indicates the extent to which the Corporation depends on long-term financing as it measures the relationship between the Corporation’s indebtedness and the capital invested by shareholders. It represents the Corporation’s total long-term debt and lease liabilities, including the current portion and credit facilities, over shareholders’ equity.

Generally, the Corporation’s goal is to reduce this ratio through monthly reimbursements to creditors and the expected operating profitability. However, the pursuit of this goal could be hindered by the increase in the US dollar in relation to the Canadian dollar since a portion of the longterm debt and lease liabilities are denominated in US dollars. In the long-term, Management’s strategy is to maintain prudent management of its capital structure and debt ratio based on its potential development projects, economic context and business opportunities.

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The long-term debt and lease liabilities to shareholders’ equity ratio and the total indebtedness, net of liquidities improved during the fiscal year ended January 31, 2021, given the improvement in liquidities and the reimbursement of the credit facility.

10.3 Total Debt, Net of Liquidities

This indicator indicates, in absolute value, the Corporation’s total net leverage. Although total debts exceed the liquidities, the Corporation believes that a reasonable leverage represents an effective use of its liquidities and its borrowing power.

The following table reconciles this indicator with the items in the Consolidated Statement of Financial Position:

As at January31,	2021	2020
(In thousands of dollars) Cash and cash equivalents Credit facilities Current portion of lease liabilities Current portion of long-term debt Long-term debt Lease liabilities	$ (17,806) — 1,143 1,904 18,368 4,166	$ (3,983) 13,105 1,070 1,903 19,156 4,930
Total debt, net of liquidities	7,775	36,181

10.4 Total Credit Facilities and Long-Term Debt Including Lease Liabilities, Net of Cash and Cash Equivalents, to Shareholders’ Equity Ratio

This ratio measures the level of long-term financing including credit facilities, net of cash and cash equivalents, in relation to the capital invested by shareholders. It represents the Corporation’s total credit facilities and long-term debt including lease liabilities, net of cash and cash equivalents, over shareholders’ equity.

10.5 Liabilities to Shareholders’ Equity Ratio

This ratio indicates the extent to which the Corporation depends on financing by creditors and suppliers. It represents the Corporation’s total liabilities over shareholders’ equity.

In the short-term, Management’s goal is to maintain this ratio at an adequate level through, among other things, monthly repayments of the long-term debt, including lease liabilities, and the anticipated operating profitability. However, the achievement of this objective could be slowed down by certain factors, of which:

• An increase in accounts payable and other current liabilities;

• The issuance of new long-term debts and lease liabilities, and

• The impact of fluctuations in the Canadian dollar in relation to the US dollar on US-denominated liabilities.

10.6 EBITDA and EBITDA Margin

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

• Financial revenues and financial expenses;

• Income tax expense;

• Foreign exchange losses, and

• Depreciation and amortization of property, plant and equipment, intangible assets and right-of-use assets.

Net income (loss) is reconciled with EBITDA in the table below:

Fiscal Years Ended January 31,	2021	2020
(In thousands of dollars) Net income(loss)	$ 6,867	$ (2,132)
Income tax expense Net financial expenses Amortization Foreign exchange loss	2,152 1,663 4,915 744	146 2,082 4,723 406
EBITDA — As a % of revenues	16,341 9.5%	5,225 2.9%

EBITDA for the fiscal years ended January 31, 2021 and 2020, includes the impacts from the following items: the fiscal year ended January 31, 2020 was impacted by an out of court settlement of a commercial litigation in Florida, United States. This settlement ended a dispute between ADF and one of its customers relating to a structural steel fabrication and steel erecting project in Florida, United States. Following the settlement, ADF collected a total amount of $13.9 million (US$10.5 million). However, this settlement generated a pre-tax loss of $7.7 million (US$5.8 million) which had been recognized in the results for the quarter ended October 31, 2019, and which had therefore reduced EBITDA by the same amount.

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For the fiscal year ended January 31, 2021, the Corporation benefited from grants related to COVID-19 from the Canadian and US governments. The total amount included in the results, and thus having mainly improved the gross margin, and to a lesser extent the selling and administrative expenses, and therefore the EBITDA, totalled $6.3 million. This amount does not, however, take into account the direct costs incurred by the Corporation in order to put in place the health and physical distancing measures required by the local government authorities, nor does it take into account the operational efficiency losses due to these same measures.

10.7 Book Value

This financial ratio indicates the book value of each outstanding share (multiple voting shares and subordinate voting shares) issued at the end of the targeted period. The book value is equal to shareholders’ equity divided by the total number of shares outstanding.

The book value per share went from $2.89 on January 31, 2020, to $3.05 on January 31, 2021, representing a 5.5% increase, which is mainly explained by the net income recorded during the fiscal year ended January 31, 2021.

10.8 Return on Shareholders’ Equity

This ratio indicates the return on shareholders’ investment during the relevant fiscal year. It is equal to net income (loss) over shareholders’ equity.

Based on net income recorded during the fiscal year ended January 31, 2021, return on shareholders’ equity was 6.9% compared to a return of - 2.3% for the fiscal year ended January 31, 2020.

11. PERFORMANCE INDICATORS ("KPI")

The Corporation measures its performance on a company-wide basis through the following elements:

• Profitability;

• Liquidities;

• Growth and competitive positioning, and

• Financial position and returns.

To this end, the Corporation developed KPIs. The indicators against which each item is assessed are presented below:

Items Measured	Profitability	Liquidities	Growth and Competitive Positioning	Financial Position and Returns
KPI	Gross margin	EBITDA	Revenues	Working capital
	EBITDA	Cash flows	Order backlog	Long-term debt including lease liabilities to shareholders’ equity ratio
	Production capacity utilization			Total net debt including lease liabilities to shareholders’ equity ratio Return on equity
What is being measured	Operating performance assessment	Assessment of liquidity generation	Assessment of growth, future revenues, and competitive positioning	Assessment of short-term and long- term financial position soundness, and return to shareholders

Most of these KPIs are discussed later in this MD&A. Some of these KPIs are not publicly disclosed since they are of a competitive nature.

Moreover, the Corporation’s incentive plan is based on the achievement of financial objectives and specific personal goals.

12.

SELECTED ANNUAL FINANCIAL INFORMATION

SELECTED ANNUAL FINANCIAL INFORMATION
Fiscal YearsEndedJanuary 31,	2021	2020 2019(1)
(In thousands of dollars and in dollars per share) Revenues Net income (loss) — Basic and diluted per share Total assets Non-current liabilities Annual dividendper share	$ 172,593 6,867 0.21 189,951 28,338 0.02	$ $ 179,710 135,073 (2,132) (374) (0.07) (0.01) 173,544 163,212 28,488 29,057 0.02 0.02

(1) The Corporation adopted IFRS 16 Leases on February 1, 2019, using the modified retrospective method, for which no restatement of the prior fiscal years financial statement presentation was required. The comparative figures for the fiscal year ended January 31, 2019, have therefore not been restated.

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1. ANALYSIS OF OPERATING RESULTS FOR THE FISCAL YEAR ENDED JANUARY 31, 2021

13.1

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Revenues for the fiscal year ended January 31, 2021, totalled $172.6 million, down $7.1 million from the previous year. This decrease is mainly due to the production schedule, while the recently signed projects have not yet been put into production. In addition, and as a reminder, the fiscal year ended January 31, 2019, was largely impacted by the uncertainty surrounding the tariffs on steel and aluminum, which resulted in the loss of three contracts for ADF.

Net income (loss) increased by $9.0 million during the fiscal year ended January 31, 2021, over the 2020 fiscal year. First, the fiscal year ended January 31, 2020, was impacted by the out of court settlement regarding a commercial dispute in Florida, U.S.A. This settlement ended a legal dispute opposing ADF to one of its clients with regard to a structural steel fabrication and steel erecting contract in Florida, U.S.A. Pursuant to this out of court settlement, ADF collected the sum of $13.9 million (US$10.5 million). This settlement has however decreased revenues and generated a pre-tax loss of $7.7 million (US$5.8 million) which was recognized in the results for the quarter ending October 31, 2019, given the write-off of an equivalent amount under the Corporation’s "Contract Assets" financial statement heading.

Secondly, the results for the fiscal year ended January 31, 2021, were impacted by subsidies related to COVID-19, totalling $6.3 million from which direct and indirect costs related the implementation of the required sanitary and physical distancing measures need to be deducted.

Total assets increased by $16.4 million, which mainly stems from the increase in net liquidities and accounts receivable, in line with the increase in the activity level.

During the 12 months of operations between February 1, 2020 and January 31, 2021, the Corporation pursued its activities consisting of the design and engineering of connections, fabrication, including industrial coating, and installation of complex steel structures and heavy steel builtups, in Canada and the United States.

Revenues and Gross Margin

Revenues and Gross Margin
Fiscal Years Ended January31,	2021	2020	Changes 2021/2020
(In thousands of dollars and in percentages) Revenues Cost ofgoods sold	$ 172,593 146,388	$ 179,710 163,203	$ % (7,117) (4.0) (16,815) (10.3)
Gross margin — As a % of revenues	26,205 15.2%	16,507 9.2%	9,698 58.8 6.0

a) Revenues

Revenues during the fiscal year ended January 31, 2021, totalled $172.6 million, down by $7.1 million compared with the fiscal year ended January 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 fiscal year.

The decrease in revenues is mostly explained by the fabrication schedule, with recently signed projects not yet having reached the fabrication phase. As previously explained, and had it not been for the write-off resulting from the out of court settlement above-mentioned, fiscal 2020 revenues would have totalled $187.4 million.

The change in the foreign exchange rate during the 2021 fiscal year has in turn increased the level of revenues by $2.4 million.

In terms of economic dependency, 66% of the Corporation’s revenues during the fiscal year ended January 31, 2021, were realized with three (3) clients, for respective amounts of $63.6 million and $28.1 million from the United States, and $21.5 million from Canada, and who each accounted for 10% or more of the Corporation’s revenues.

During the fiscal year ended January 31, 2020, 72% of the Corporation’s revenues, were realized with four (4) clients (two (2) of whom were part of the revenues concentration for the fiscal year ended January 31, 2019), for respective amounts of $43.4 million, $32.8 million, $31.9 million and $20.5 million, all from the United States, and who each accounted for 10% or more of the Corporation’s revenues.

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 increased by $9.7 million during the 2021 fiscal year over the 2020 fiscal year. As a percentage of revenues, the gross margin went from 9.2% during the fiscal year ended January 31, 2020, to 15.2% during the fiscal year ended January 31, 2021.

This increase, as a percentage of revenues, was due to better overall prices on projects completed during the fiscal year, but also by the recognition of COVID-19 pandemic-related grants during the fourth quarter ended January 31, 2021.

First, the Corporation benefited from the Canada Emergency Wage Subsidy ("CEWS") program for a total amount of $1.9 million. The Corporation had also received US$4.0 million in loans during the fiscal year ended January 31, 2021, from the U.S. Payroll Protection Program (PPP). These loans, which are subject to certain terms and conditions, could be forgiven in whole or in part. During the fourth quarter ended

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January 31, 2021, the Corporation assessed that it met these terms, and therefore recognized the forgiveness of a portion of the total debt, or US$2.8 million, thus improving the gross margin by $3.6 million in Canadian dollar.

As described in Section 20 "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 fiscal year ended January 31, 2021, were comprised of 32% of fabrication hours, which also includes industrial coating, which is the 2% below than during the fiscal year ended January 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 US dollars mitigates the impact of exchange rate fluctuations.

13.2 Selling and Administrative Expenses

Fiscal Years Ended January31,	2021	2020	Changes 2021/2020
(In thousands of dollars and in percentages) Selling and administrative expenses — As a % of revenues	$ 14,779 8.6%	$ 16,005 8.9%	$ % (1,226) (7.7) (0.3)

Selling and administrative expenses amounted to $14.8 million, which is $1.2 million less than during the 2020 fiscal year. This variation results from a decrease in expenses related to professional fees, which were particularly affected during the fiscal year ended January 31, 2020, by the legal fees related to the out of court litigation settlement previously mentioned.

13.3 Amortization

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

Fiscal Years Ended January31,	2021	2020	Changes 2021/2020
(In thousands of dollars and in percentages) Amortization — As a % of revenues	$ 4,915 2.8%	$ 4,723 2.6%	$ % 192 4.1 0.2

The amortization expense for the 2021 fiscal year amounted to $4.9 million, which was $0.2 million higher than that of the 2020 fiscal year, which is in line with the moderate level of investment in property, plant and equipment during the fiscal year.

The amortization expenses breakdown is as follows:

The amortization expenses breakdown is as follows:
Fiscal Years Ended January31,	2021	2020	Changes 2021/2020
(In thousands of dollars and in percentages) Amortization expense included in cost of goods sold Amortization expense included in selling and administrative expenses	$ 3,713 1,202	$ 3,586 1,137	$ % 127 3.5 65 5.7
Total amortization	4,915	4,723	192 4.1
Net Financial Expenses
Fiscal Years Ended January31,	2021	2020	Changes 2021/2020
(In thousands of dollars and in percentages) Net financial expenses — As a % of revenues	$ 1,663 1.0%	$ 2,082 1.2%	$ % (419) (20.1) (0.2)

13.4 Net Financial Expenses

The decrease in net financial expenses relates to the variation in the average balance of the Corporation outstanding debts, including the reduction in the use of credit facilities (see Section 15 "Cash Flows and Financial Position" hereinafter).

13.5 Foreign Exchange Loss

Foreign Exchange Loss
Fiscal Years Ended January31,	2021	2020	Changes 2021/2020
(In thousands of dollars and in percentages) Foreign exchange loss — As a % of revenues	$ 744 0.4%	$ 406 0.2%	$ % 338 83.3 0.2

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13.7

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The foreign exchange loss recorded during the fiscal year ended January 31, 2021, includes a $1.7 million foreign exchange loss on ongoing operations and a $0.9 million realized and not realized foreign exchange gain relating to the fair value of financial derivatives. During the 2021 fiscal year, a $1.1 million foreign exchange loss on the translation of foreign subsidiaries was recorded in Comprehensive Income (Loss).

The foreign exchange loss recorded during the fiscal year ended January 31, 2020, includes a $0.2 million foreign exchange loss on ongoing operations and a $0.2 million realized and not realized foreign exchange loss relating to the fair value of financial derivatives. During the 2020 fiscal year, a $0.3 million foreign exchange gain on the translation of foreign subsidiaries was recorded in Comprehensive Income (Loss).

The Corporation is exposed to exchange rate fluctuations between the Canadian and US dollars, since a significant portion of its revenues is generally recorded in US dollars. For the fiscal year ended January 31, 2021, 81% of the Corporation’s revenues were recorded in US dollars (92% during the fiscal year ended January 31, 2020). Considering the improvement in U.S. markets and its new plant in Great Falls, Montana, the Corporation expects that the percentage of its revenues in US dollars will continue to be significant during the fiscal year 2022.

In line with its hedging policy, to manage its net risk between the future US-denominated cash inflows and outflows, the Corporation entered into foreign exchange forward contracts. As at January 31, 2021, the Corporation was party to foreign exchange forward contracts for the sale of US$24.1 million (US$50.6 million as at January 31, 2020) with maturities varying between three (3) months to nine (9) months with rates between 1.2763 and 1.3412 (between 1.3005 and 1.3415 as at January 31, 2020).

Based on the balance as at January 31, 2021, of the Corporation’s financial instruments denominated in foreign currencies, a 10% fluctuation in the exchange rate between the Canadian and US dollars (all other variables remaining constant), would have had an impact of $0.6 million on net income (loss) before tax (an immaterial impact for the fiscal year ended January 31, 2020).

However, this information only applies to financial instruments based on year-end balances and does not take into account the impact of foreign exchange fluctuations on revenues and other miscellaneous expenses for a complete fiscal year.

13.6 Income Tax Expense

Income Tax Expense
Fiscal Years Ended January31,	2021	2020	Changes 2021/2020
(In thousands of dollars and in percentages) Income tax expense — As a % of revenues	$ 2,152 1.2%	$ 146 0.1 %	$ % 2,006 Pos. 1.1

The effective tax rates for the fiscal year ended January 31, 2021, stood at 23.9%, compared with the Corporation’s Canadian effective rate, which is 26.5%.

The income tax expense during the periods analyzed was impacted by the revenue mix, either positive or negative, of the Canadian parent company and its different U.S. subsidiaries, including, for the fiscal year ended January 31, 2020, a loss before income tax resulting from the out of court settlement previously mentioned herein.

The Corporation deems it prudent not to recognized these new differed tax assets related to its U.S. operations, and that as from the write-off of differed tax assets during the fourth quarter ended January 31, 2018, which also resulted from tax losses from U.S. subsidiaries. As a result, the Corporation recognizes these assets progressively as its U.S. subsidiaries record profits, and in view of this position, the $7.7 million impact from the out of court settlement, was therefore tax-free.

As at January 31, 2021, the Corporation had operating tax losses estimated at $37.8 million available in the United States ($33.3 million as at January 31, 2020) for carry forwards, for which no deferred tax benefit has been recorded in the Consolidated Statement of Income (Loss). This will have a favorable 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.

Net Income (Loss), Basic and Diluted Earnings per Share

Net Income (Loss), Basic and Diluted Earnings per Share
Fiscal Years Ended January31,	2021	2020
(In thousands of dollars and in dollars per share) Total net income (loss) — As a % of revenues Total basic and diluted earningsper share	$ 6,867 4.0% 0.21	$ (2,132) 1.2% (0.07)

The increase in net income during the fiscal year ended January 31, 2021, compared with the 2020 fiscal year, is previously explained in this section, and more specifically, from the improvement in gross margin and the decrease in selling and administrative expenses and financial expenses, as well as the impact of government subsidies related to COVID-19, net of direct costs incurred and operational inefficiencies associated with government-mandated health and physical distancing measures.

14. COMMENTS ON QUARTERLY RESULTS

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 nonresidential construction market in which the Corporation is active goes through upward and downward cycles.

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Overall, quarterly fluctuations in the following indicators result mainly from the changes in the revenue mix and accrued costs within different projects and for every 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, these fluctuations are mostly explained by the fabrication schedules of the different projects announced by the Corporation. Considering that 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 year, revenues and operating results can differ significantly from quarter to quarter because of these execution schedules.

14.1

Results for the Last Eight (8) Quarters

Fiscal Years Ended January 31,	2021	2020
	4th Quarter (01.31.2021) 3rd Quarter (10.31.2020) 2nd Quarter (07.31.2020) 1stQuarter (04.30.2020)	4thQuarter (01.31.2020) 3rdQuarter (10.31.2019) 2ndQuarter (07.31.2019) 1stQuarter (04.30.2019)
(In thousands of dollars and in dollars per share) Revenues Gross margin — As a % of revenues EBITDA(1) — As a % of revenues Income (loss) before income tax expense (recovery) — As a % of revenues Net income (loss) — Basic and dilutedper share	$ $ $ $ 37,142 47,158 42,496 45,797 6,453 7,507 7,407 4,837 17% 16% 17% 11% 3,777 5,020 4,577 2,967 10% 11% 11% 6% 2,263 3,421 3,895 (560) 6% 7% 9% (1)% 2,108 2,579 2,112 68 0.06 0.08 0.06 0.00	$ $ $ $ 46,342 42,103 54,119 37,146 3,992 992 5,753 5,770 9% 2% 11% 16% 1,618 (2,424) 3,012 3,019 3% (6)% 6% 8% (484) (3,978) 1,176 1,300 (1)% (9)% 2% 3% (110) (4,059) 419 1,618 (0.00) (0.12) 0.01 0.05

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

14.2 Results for the Fourth Quarter Ended January 31, 2021

For the three months ended January 31, 2021, the Corporation recorded revenues of $37.1 million, down $9.2 million from the fourth quarter of the 2020 fiscal year. The decline in this quarter, and also in relation to the previous quarter ended October 31, 2020, is due to the timing of the production schedules of the recently awarded contracts, and the slowdown that comes with the Holiday season, the latter having been more marked because of ADF’s Management intent to minimize the risk of the COVID-19 virus spread during this period.

The gross margin as a percentage of revenues stood at 17.4% for the fourth quarter ended January 31, 2021, compared with 8.6% for the same quarter in the 2020 fiscal year. The increase in margins is in line with the trends observed in recent quarters, including the pandemic-related grants previously mentioned herein. It should be noted that all three previous quarters of the 2021 fiscal years were negatively impacted by the costs and internal inefficiencies also brought about by the pandemic.

As mentioned in Section 10.6, EBITDA for the quarter ended January 31, 2021, benefited from subsidies related to COVID-19 totaling $6.3 million, which sum does not take into account the direct costs and the impact of operational inefficiencies brought by the implementation of various health and physical distancing measures.

The Corporation has therefore recorded a net income of $2.1 million during the last quarter of 2021 fiscal year, compared with a net loss of $0.1 million for the same period in fiscal year 2020.

15.

CASH FLOWS AND FINANCIAL POSITION

Although under pressure, 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 January 31, 2021, cash and cash equivalents totalled $17.8 million, up by $13.8 million compared with January 31, 2020. In addition, as at January 31, 2021, the Corporation did not draw from its credit facilities, whereas it used $13.1 million as at January 31, 2020. As a result, the overall financial position of the Corporation improved by $26.9 million during the 12-month period ended January 31, 2021.

As explained in Section 6 "Significant Events of the Fiscal Year", the Corporation increased its credit facilities by $10.0 million, bringing the total available funds to $30.0 million. Management believes that these available funds are sufficient to support the growth and execution of its order backlog in hand on January 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 (see Section 32 "Outlook").

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15.1 Operating Activities

During the 2021 fiscal year, the Corporation used cash flows from its operating activities and assigned its cash flows as follows:

Fiscal Years Ended January31,	2021	2020
(In thousands of dollars) Net income adjusted for non-cash items	$ 10,205	$ 4,761
Changes in non-cash operating working capital items: Accounts receivable Holdbacks on contracts Contract assets Inventories Prepaid expenses and other current assets Accounts payable and other current liabilities Contract liabilities Other	(11,378) 508 5,236 830 (922) 3,580 20,793 (10)	(10,360) (5,491) 3,660 554 74 13,597 (7,679) (10)
	18,637	(5,655)
Cash flows(use in)from operatingactivities	28,842	(894)

Net income adjusted for non-cash items totalled $10.2 million during the 2021 fiscal year, which is $5.4 million higher than during the 2020 fiscal year. This difference is for the most part explained by an increase in net income, net of the impact of public subsidies related to the COVID-19 pandemic totalling $6.3 million, of which $2.2 million was not collected as at January 31, 2021.

During the 2021 fiscal year, changes in non-cash operating working capital items generated cash of $18.6 million. This cash inflow is mostly explained by the net change in contract assets and liabilities ($26.0 million) and the increase in accounts payable and other current liabilities ($3.6 million), net of the increase in accounts receivable ($11.4 million). These variations are in line with the activity level as at January 31, 2021, compared with the same date a year ago, in line with the growth of the order backlog.

Overall, as a result, operating activities generated cash flows of $28.8 million during the fiscal year ended January 31, 2021, compared with a cash outflow of $0.9 million during the fiscal year ended January 31, 2020.

During the 2020 fiscal year, changes in non-cash operating working capital items used cash of $5.7 million. This cash outflow is mostly explained by the increase in accounts receivable ($10.4 million) and in holdbacks on contracts ($5.5 million), and the decrease in contract liabilities ($7.7 million), net of the increase in accounts payable and other current liabilities ($13.6 million). These variations are in line with the activity level as at January 31, 2020, compared with the same date a year ago, in line with the order backlog’s growth.

15.2

Investing Activities

The Corporation’s investing activities are summarized as follows:

Investing Activities The Corporation’s investing activities are summarized as follows:
Fiscal Years Ended January31,	2021	2020
(In thousands of dollars) Acquisition of property, plant and equipment Acquisition of intangible assets Government grants Others	$ (1,460) (361) — 68	$ (1,186) (452) 826 142
Cash flows used in investingactivities	(1,753)	(670)

During the 2021 fiscal year, $1.8 million in liquidities were used, mainly for the acquisition of property, plant and equipment ($1.5 million) and intangible assets ($0.4 million).

The intangible assets for both fiscal years relate primarily to the internal development and implementation of production, estimating and financial software.

The Corporation estimates capital expenditure for fiscal year 2022 at less than $5.0 million, which will primarily be used to keep the production equipment current at its plants in Terrebonne, Quebec and in Great Falls, Montana.

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15.3 Financing Activities

The Corporation’s financing activities were as follows:

Financing Activities The Corporation’s financing activities were as follows:
Fiscal Years Ended January31,	2021	2020
(In thousands of dollars) Variation in the credit facilities Issuance of long-term debt Repayment of long-term debt Payment of lease liabilities Dividends paid Interestpaid	$ (13,105) 5,654 (1,918) (961) (653) (1,460)	$ 6,500 — (1,884) (771) (653) (1,827)
Cash flow(used in)from financingactivities	(12,443)	1,365

During fiscal year 2021, financing activities used liquidities of $12.4 million, compared with a cash generation of $1.4 million during the previous fiscal year. These funds went toward the reimbursement of the credit facilities, net of the issuance of the long-term debt (see Section 6.4 "New Loans").

During the fiscal years 2021 and 2020, the Corporation reimbursed $2.9 million and $2.7 million respectively on its long-term debts and lease liabilities. During the 2021 and 2020 fiscal years, the Corporation also paid a total of $0.7 million in dividends to its Shareholders of Record.

15.4 Payment of Rents and Interest and Payment of Principal on Debt

The Corporation pays interest on its long-term debts, based on interest rates ranging between 1.98% and 4.05% as at January 31, 2021. The Corporation is currently making monthly principal repayments totaling less than $0.2 million on these debts. Other rent payments relating to lease liabilities and other long-term contracts are described in Section 15.6 below.

15.5 Debt Covenants

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

15.6

Contractual Obligations

a) Long-Term Debt

Long-term debt, excluding interests and deferred financing costs, is detailed as follows:

(In thousands of dollars)	$
Less than one year	1,909
2 to 3 years	4,811
4 to 5 years	2,353
And over	11,276
Total	20,349

b) Lease Liabilities

The lease liabilities excluding interest, are detailed as follows:

(In thousands of dollars)	$
Less than one year	1,143
2 to 3 years	1,568
4 to 5 years	1,084
And over	1,514
Total	5,309

c) Operating Leases and Other Long-Term Contracts

As at January 31, 2021, the Corporation’s commitments totalled $0.2 million under long-term contracts. The minimum annual payments are spread over the next two (2) fiscal years and are as follows:

Fiscal Years Ended January 31,	2022	2023
(In thousands of dollars)	$	$ 67
Long-term contracts	113

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15.7 Commitments Related to Letters of Credit as at January 31, 2021

The Corporation held letters of credit, totalling US$3.4 million as at January 31, 2021 and 2020, corresponding to $4.4 million and $4.5 million respectively.

16. CAPITAL STOCK

Information on the outstanding shares:

	(In thousands of dollars, and in number of shares)	Subordinate Voting Shares	Multiple Voting Shares(1)	Total Outstanding Shares
		Number $	Number $	Number $ 32,635,206 68,120
	As at January 31, 2020 and 2021	18,292,099 52,119	14,343,107 16,001

(1) These shares carry 10 votes per share.

At the date hereof, the number of shares outstanding was unchanged.

17. STOCK OPTION PLAN

During the fiscal year ended January 31, 2021, a total of 50,000 stock options expired. The number of stock options issued and outstanding went from 55,000 options as at January 31, 2020, to 5,000 options as at January 31, 2021. These 5,000 options, which had a weighted average life of 1.36 year before maturity, had a weighted average exercise price of $1.21 as at January 31, 2021.

18. SHARE UNITS

18.1 Deferred Share Units (DSU) Plan

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 18.1 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.

During the fiscal years ended January 31, 2021 and 2020, DSU compensation to external directors recorded in the Consolidated Statement of Income (Loss) amounted to an expense of $0.3 million and $0.4 million respectively, including the impact of the change in the market price of the Corporation’s share, which amounted to an expense of $0.2 million and an expense of $0.1 million, respectively during the fiscal years ended January 31, 2021 and 2020.

The fluctuation in DSU for External Directors was as follows:

years ended January 31, 2021 and 2020. The fluctuation in DSU for External Directors was as follows:
Fiscal Years Ended January 31,	2021	2020
(In number of deferred share units) Outstanding, at the beginning of year Granted Distributed	Number 464,467 155,054 ―	Number 403,827 265,772 (205,132)
Outstandingand vested, at the end ofyear	619,521	464,467

The carrying amount and the intrinsic value of the liabilities related to the external directors’ vested DSU amounted to $1.0 million as at January 31, 2021 ($0.6 million as at January 31, 2020).

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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.

The DSU compensation for Executive Officers and key employees, amounted to a $0.1 million expense for the fiscal year ended January 31, 2021 (an expense of $0.1 million for the fiscal year ended January 31, 2020) and include the impact of the change in the market price of the Corporation’s share, which amounted to an immaterial amount during the fiscal years ended January 31, 2021 and 2020.

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

The fluctuation in DSU for the Executive Officers and key employees was as follows:
Fiscal Years Ended January31,	2021	2020
(In number of deferred share units) Outstanding, at the beginning of year Granted Distributed Forfeited	Number 198,208 95,252 ― ―	Number 272,444 2,332 (67,465) (9,103)
Outstanding,at the end ofyear	293,460	198,208
Vested, at the end ofyear	174,125	136,559

The carrying amount of the liabilities related to Executive Officers and key employees’ DSU, amounting to $0.4 million as at January 31, 2021 ($0.3 million as at January 31, 2020), and of which $0.3 million correspond to the intrinsic value of vested DSU as at January 31, 2021 ($0.2 million as at January 31, 2020).

18.2 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 (Loss) 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 fiscal year ended January 31, 2021, PSU compensation for Executive Officers and key employees amounted to an expense of $0.5 million (no expense for the fiscal year ended January 31, 2020) including the impact of the variation in the Corporation's share price, which amounted to an expense of $0.1 million during the fiscal year ended January 31, 2021 (no impact from the variation in the Corporation’s share price during the fiscal year ended January 31, 2020).

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

price during the fiscal year ended January 31, 2020). Fluctuations in PSU for Executive Officers and key employees were as follows:
Fiscal Years Ended January31,	2021	2020
(In number of performance share units) Outstanding, at the beginning of year Granted	Number 211,373 134,875	Number ― 211,373
Outstanding,at the end ofyear	346,248	211,373
Vested, at the end ofyear	126,948	―

As at January 31, 2021, the carrying amount of the liabilities related the Executive Officers and key employees’ PSU, amounted to $0.5 million (no amount as at January 31, 2020), including an amount of $0.2 million, which corresponds to the intrinsic value of the vested PSU as at January 31, 2021.

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19. DIVIDEND

During the fiscal year ended January 31, 2021, two semi-annual dividends of $0.3 million each (or $0.01 per share), were recognized as distribution to the Shareholders of Record of the Corporation as at April 30, 2020 and September 30, 2020 respectively, totalling $0.7 million (or $0.02 per share), of which $0.4 million for subordinate voting shares and $0.3 million for Multiple Voting Shares. These sums were paid on May 15, 2020 and October 16, 2020, respectively.

During the fiscal year ended January 31, 2020, two semi-annual dividends of $0.3 million each (or $0.01 per share), were recognized as distribution to the shareholders of record of the Corporation as at April 30, 2019 and September 30, 2019 respectively, totalling $0.7 million (or $0.02 per share), of which $0.4 million for subordinate voting shares and $0.3 million for Multiple Voting Shares. These sums were paid on May 15, 2019 and October 16, 2019, respectively.

20. ORDER BACKLOG

ADF Group’s order backlog totalled $436.2 million on January 31, 2021, compared with $328.7 million on the same date a year earlier. This variation is attributable to new contracts and contract modifications, net of contracts execution.

As at January 31, 2021, 34% of the order backlog consisted of fabrication hours – the Corporation’s core business and most value-added activity – compared with 39% on January 31, 2020. Most of the contracts in hand as at January 31, 2021, will progressively be executed by the end of the fiscal year ending January 31, 2023.

21.

FINANCIAL POSITION

As at January 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 January 31, 2020.

January 31, 2020.
Sections	Changes	Explanatory Notes
Cash and cash equivalents, net of the variation in the credit facilities	(In millions of dollars) 26.9	See Section 15 "Cash Flows and Financial Position" hereinabove.
Accounts receivable	10.7	Increase in billing, in line with the level of activity and progress of work schedules.
Holdbacks on contracts	(0.8)	Based on the activity level and billing schedules of contracts in hand.
Contract assets, net of contract liabilities	(25.5)	Net difference between work progress and progressive revenue billing. The variation reflects the progress schedule.
Property, plant and equipment, intangible assets and right-of-use assets	(4.2)	Variation stems from the impact of foreign exchange rate ($1.5 million), and amortization ($4.9 million), net of acquisitions and disposals of property, plant and equipment, intangible assets and right- of-use assets($2.2 million).
Accounts payable and other current liabilities	3.8	In line with the level of activity as at January 31, 2021.
Long-term debt and lease liabilities (including current portions)	(1.5)	Variation stemming from debts and lease liabilities repayments ($2.9 million), forgiveness of a portion of the US-denominated debt ($3.9 million – see Section 6.4), and the impact of the foreign exchange rate ($0.7 million), net of the issuance of new debts and the variation in lease liabilities ($6.0 million).
Accumulated other comprehensive income (loss)	(1.1)	Variation mostly caused by the impact of the variation in the foreign exchange rates on the translation of foreign operations.

22. 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

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1. EXTERNAL FACTORS TO WHICH THE CORPORATION’S PERFORMANCE IS EXPOSED

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• 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 32 "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", 24 "External Factors to Which the Corporation’s Performance is Exposed" and 32 "Outlook").

23.

RELATED PARTY TRANSACTIONS

During the fiscal year ended January 31, 2021, certain advances were granted to executive-shareholders. These advances were fully reimbursed at the date hereof and no outstanding balances remained as at January 31, 2021.

Moreover, in the normal course of business, management agreements have been reached with companies held by a group of majority shareholders. These transactions are measured at the exchange value, which is the consideration established and accepted by the related parties:

Company	Type	Transactions with ADF Group Inc.	Fiscal Years Ended January 31,	Fiscal Years Ended January 31,
			2021	2020
Groupe JPMP Inc.	Executives	Three executives of ADF Group are compensated through this company for their work within the Corporation, as stipulated in their contracts of employment (see Section 10 "Executive Compensation" of the Management Information Circular for the 2021 fiscal year).	(In $) 1,215,610	(In $) 1,400,911 137,139
ADF Group Inc.	Executives	Other compensation paid directly to Executives.	241,114

24.1 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.

24.2

Exchange Rate

The exchange rate fluctuation between the Canadian and US dollars has an impact on the Corporation’s results. Thus, a $0.7 million foreign exchange loss was recorded for the fiscal year ended January 31, 2021, compared with a $0.4 million foreign exchange loss for the 2020 fiscal year.

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 US dollars;

• When advantageous, the raw material (steel) and welding products required for fabrication are purchased in US dollars, and

• A foreign exchange policy to protect a portion of the net exchange risk between cash inflows and outflows denominated in US dollars.

24.3 Operating Risks and Uncertainties

The following is a description of the Corporation’s main operating risks and uncertainties:

a) Uncertainties Relating to the World Economy

The uncertainty related to the global economy could have a negative impact on the Corporation’s business segment, i.e. the nonresidential construction industry, particularly in North America, its primary market. At the date hereof, although the Corporation’s order backlog will provide work for the next quarters, the uncertainty relating to the global economy could adversely affect the Corporation’s revenues and profitability beyond that period (please also refer to Section 8 "COVID-19").

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b) Bonding Capacity and Irrevocable Letters of Credit

During the fiscal year ended January 31, 2021, the Corporation maintained the necessary bid bonds and/or letters of credit to its business partners, required for bids, as well as in the scope of contractual commitments, or other financial instruments, such as performance, payment and supply bonds, or an irrevocable letter of credit.

c) Operational Risks and Uncertainties That Could Have an Impact on the Corporation’s Financial Position and Operating Results

Normally, ADF’s contracts are performed under contractual arrangements at firm prices. ADF has developed and applies rigorous risk assessment and management practices to reduce the nature and extent of the financial, technical and legal risks specific to each of these contractual agreements. ADF’s continued commitment to strict risk management practices when undertaking and executing contracts includes the technical risks assessment, legal review of contracts, application of tight cost controls and scheduling of projects, regular review of projects’ revenues, costs and cash flows, and implementation of agreements aimed at generating positive cash flows from projects and other provisions aimed at mitigating risks.

The following items could have an impact on the Corporation’s future financial position and operating results:

• Economic conditions could exert pressure on the profit margins on new projects to be negotiated with clients and have an impact on the order backlog and the award of new contracts;

• Contractual changes overlapping two periods, that is, for which costs would have been recognized but no revenues recorded during a given period and no final settlement concluded with the client at the end of that period, could have an impact on the Corporation’s results and cash flows in the following period, subsequent to the signing of this agreement;

• An increase in the price of steel might be a risk, although it would be mitigated by the sale price adjustment clauses concluded with clients and included in contracts;

• The risk associated with the fluctuations in interest rates is also mitigated by having a good mix between fixed-rate and variable-rate debts, as well as available liquidities, when appropriate, that can generate financial revenues;

• Competition in the Corporation’s business segment;

• Economic dependency related to the concentration of its client base; the Corporation strives to mitigate this risk through its development strategy of broadening its geographical and market sectors;

• The imposition by the United States, historically ADF's main market, of tariffs or other protectionist measures on imported processed steel;

• Fluctuations in the exchange rate between the Canadian and US dollars. However, this risk is mitigated in part by the foreign currency hedge policy adopted by the Corporation’s Executive Officers, and

• The nature of contracts in hand, depending on the type of client, can influence the delay of collection. When these contracts are funded by government agencies, it is possible that the collection period of contract receivables is not impacted upward. However, the risk related to the collection is minimal given that these sums are actually guaranteed by government agencies. When these same contracts are funded by non-governmental organizations, Management believes that the vast majority of these accounts are not doubtful accounts since that they are with well-established companies.

25.

FINANCIAL INSTRUMENTS

A significant number of items in the Corporation’s 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, longterm debt and derivative financial instruments, whose fair market value is negative.

As at January 31, 2021 and 2020, 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 receivable, contract assets and liabilities, credit facilities, and accounts payable and other current liabilities), or because the Corporation believes it could obtain similar conditions and schedules in the case of the long-term debt (excluding lease liabilities) 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 28 "Financial Instruments" in the Consolidated Financial Statements for the fiscal year ended January 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 and an interest rate swap, where appropriate.

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 hereinabove in this MD&A, as well as in Note 27 "Financial Risk Management" in the Consolidated Financial Statements for the fiscal year ended January 31, 2021.

26. ASSESSMENT OF THE EFFECTIVENESS OF DISCLOSURE CONTROLS AND PROCEDURES, AND INTERNAL CONTROL OVER FINANCIAL REPORTING

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 Corporation’s interim and annual

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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.

The Chief Executive Officer and the Chief Financial Officer have evaluated the effectiveness of Corporation’s disclosure controls and procedures as at January 31, 2021, as well as the effectiveness of Corporation’s internal control over financial reporting as of the same date using the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) on Internal Control – Integrated Framework (2013 Framework) and have concluded that they are effective.

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

27.

DISCLOSURE AND INSIDER TRADING POLICIES

In accordance with its internal policies and guidelines, the Corporation diligently reports all relevant financial information. In addition, when the Corporation publishes its financial results or announces major contract awards or any other material information, it enforces a blackout period for its directors and managers, as well as for its personnel who wishes to trade on ADF Group’s securities, in order to ensure compliance and transparency of any trading by persons regarded as insiders. With regard to the employees, this blackout period can, under the circumstances, be either enforced for all the Corporation’s employees or limited to a more restricted number of employees according to their knowledge of privilege information concerning the event to be disclosed.

28. SIGNIFICANT ACCOUNTING POLICIES, ESTIMATION UNCERTAINTY AND CRITICAL ACCOUNTING JUDGMENTS

The summary of ADF’s significant accounting policies is described in Note 2 "Summary of Significant Accounting Policies" of the notes to Audited Consolidated Financial Statements for the Fiscal Year Ended January 31, 2021.

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 recognized immediately.

The significant accounting judgements and estimates used by the Corporation to prepare the financial statements are:

28.1

Revenue Recognition

The identification of revenue-generating contracts with customers, the identification of performance obligations, the determination of the transaction price and its allocation between identified performance obligations, the use of the appropriate revenue recognition method (over time or at a specific point in time) for each performance obligation and the measure of progress for performance obligation satisfied over time are the main aspects of the revenue recognition process, all of which require judgment and the use of assumptions.

The transaction price corresponds to the amount of consideration to which the Corporation expects to be entitled in exchange for transferring promised goods or services to a customer. Such amount may require the Corporation to estimate an amount of a variable consideration, notably from estimated volume of work, claims and unpriced change orders, incentives or penalties, among others. Furthermore, the Corporation needs to constraint the transaction price by including only the amount for which it is highly probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is subsequently resolved. The amount of variable consideration to be included in the transaction price of a given contract is determined by using various estimates and assumptions, which could be based on historical experience with the same customer or other similar contracts, third-party assessments, legal interpretation of relevant contractual clauses and probabilistic methodologies, among others. Due to the uncertain nature of the estimations, the amount of a variable consideration may vary significantly over time. Such estimated amount of a variable consideration then needs to be updated at the end of each reporting period.

The determination of anticipated costs for completing a contract is based on estimates that can be affected by a variety of factors such as potential variances in scheduling and cost of materials along with the availability and cost of qualified labour and subcontractors, productivity, and possible claims from subcontractors. A change in any of those factors could affect revenues recognition.

28.2 Assessment and Amortization of Long-Lived Assets

Management reviews the useful lives of its amortizable assets at each reporting date. The carrying amounts are analyzed at the end of each fiscal year. Actual results could however differ because of technical obsolesce, particularly with regard to hardware and software.

28.3 Significant Judgment in Determining the Lease Term of Contracts

The Corporation determines the lease term as the non-cancellable period of the lease, together with any periods covered by an option to extend the lease, if it is reasonably certain to be exercised, or any periods covered by an option to terminate the lease, if it is reasonably certain not to be exercised. The Corporation applies judgment in assessing whether it is reasonably certain to exercise its options to extend its leases or to not exercise its options to terminate its leases, by considering all facts and circumstances that create an economic incentive to exercise an extension option or not to exercise a termination option. The assessment is reviewed if a significant event or a significant change in circumstances occurs which affects this assessment and that is within the Corporation’s control.

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28.4 Income Taxes

The Corporation calculates the income tax expense for each jurisdiction where it operates. However, the actual income tax amounts become definitive only upon the filing of income tax returns and acceptance thereof by the competent authorities, which occur after the financial statements are published.

Judgements must periodically be made to determine if deferred income tax assets must be recognized in the Consolidated Statement of Financial Position. Deferred income tax assets, including unused tax losses, require Management to assess whether the Corporation will generate taxable income in subsequent periods, in order to use deferred income tax assets. Once the assessment is done, if the Corporation believes that it is likely that a portion of its deferred income tax assets will not be realized, the deferred income tax asset is derecognized. The estimate of future taxable income is based on cash flow from operations forecasts and applicable tax laws in effect in each jurisdiction. Should future cash flows and taxable profit differ materially from these estimates, it could have an impact on the Corporation’s ability to realize the net deferred income tax assets at the reporting date of the financial position.

28.5

Impairment of Non-Financial Assets

ADF’s Management makes judgments in assessing whether changes to certain factors would be considered an indicator of impairment, which include both internal and external factors such as :

• i. changes in signed backlog,

• ii. changes in earnings before interest depreciation and amortization (EBITDA) margin,

• iii. changes in EBITDA multiples of comparable companies, and

• iv. the Corporation’s market capitalization compared to its net assets.

An impairment loss is recognized, if any, for the amount by which an assets or CGUs (cash-generating units) carrying amount exceeds its recoverable amount, which is the higher of fair value less cost of disposal and value in use.

For the purpose of assessing the potential impairment of the Corporation's non-financial assets, management would use the fair value less costs of disposal model to estimate the fair value based on earnings before interest depreciation and amortization (EBITDA) multiple approach. The significant assumptions, which affect the financial analysis include revenues, operating costs and margins, foreign exchange rates and comparable companies EBITDA multiple. These estimates are subject to certain risks and uncertainties that may affect the determination of the recoverability of the Corporation’s non-financial assets.

As of January 31, 2021, the management of the Corporation has determined that there is no indicator of impairment and therefore no impairment test has been performed.

29.

ENVIRONNEMENT

ADF’s operations are subject to various laws and regulations adopted by federal, provincial, state and local governments pertaining to environmental protection.

The Corporation’s facilities in Terrebonne, Québec and in Great Falls, Montana, were built on vacant lands. The operations that could have a potential impact on the environment are welding, which generates smoke, and equipment maintenance, which generates waste oil, and industrial coating, which generate fumes and vapours, ADF has installed appropriate pollution control equipment in order to comply with the existing laws and regulations and ensures to perform in the normal course of business, the investments required to meet the highest standards.

Waste oil is recuperated by specialized firms. The Corporation has the necessary environmental certificates of authorization for its facilities and for all expansion phases subsequently carried out.

Moreover, as part of the construction of its new paint shop at its Terrebonne facilities, the Corporation updated its environmental certificate of authorization for all its operations located in Terrebonne, including its fabrication plant. Following these investments, ADF Group’s facilities in Terrebonne meet the highest environmental standards.

For the fiscal years ended January 31, 2021 and 2020, and taking into account the preceding paragraph, the requirements with regard to environmental protection did not have a significant financial or operational impact on the Corporation’s capital expenditures, net income (loss) and competitive position. The Corporation does not expect to incur any costs outside the normal course of business to comply with environmental requirements.

30.

HUMAN RESOURCES

As at January 31, 2021, the Corporation employed a total of 505 people across its head office, fabrication complex and paint shop in Terrebonne, Quebec, Canada, and its office, fabrication plant and paint shop in Great Falls, Montana, U.S.A., and as well as the sales office and various construction sites in United States.

31. SUBSEQUENT EVENT

Dividend

On April 7, 2021, the Corporation’s Board of Directors approved a semi-annual dividend of $0.01 per share payable on May 17, 2021, to Shareholders of Record as at April 30, 2021.

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32. OUTLOOK

The fiscal year that just ended is a good example of our Corporation’s resilience. Despite the impacts of the pandemic and its effects, not only on the economy in general, but also on the way we operate, we have been able to continue to grow our order backlog and greatly improve our cash position.

For the fourth consecutive year, we continued the growth of our order backlog, which reached $436.2 million at January 31, 2021, while our net cash flow improved by nearly $27.0 million during the 12-month period ended the same date. Our results also improved compared with the previous fiscal year. As previously explained in this MD&A Report, we have benefited from some government incentives put in place to address the effects of the pandemic, but have also had additional costs and operational inefficiencies associated with this pandemic.

We are therefore starting the 2022 fiscal year with a strong order backlog and a sound cash position. The only downside we see to these prospects is the price of the contracts that are currently in the backlog, and at the negotiation stage. The contracts recently won by ADF, and the market in general, still offer increasingly tight prices, which put a certain pressure on our margins. We welcome the recent announcements of infrastructure investment projects that are expected to reduce this pressure, but in the meantime, and while we expect revenues to increase in the next fiscal year in light of the order backlog, we also expect margins to decline in future quarters.

However, we will continue our efforts to grow the backlog and our strategies to improve our operational efficiency. We have promising improvement projects in sights, and will do everything we can to maintain our competitive advantage and take ADF to new heights.

33. 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

/ Signed /

Chief Financial Officer

/ Signed /

Executive Vice-President, Treasurer and Corporate secretary

Terrebonne, Quebec, Canada, April 7, 2021

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The electronic version of this document is also available ADF GROUP INC. at www.adfgroup.com and at www.sedar.com. 300 Henry-Bessemer Terrebonne, Quebec, Canada J6Y 1T3 Ce document est aussi disponible en français. T. (450) 965-1911 / 1 800) 263-7560 infos@adfgroup.com / www.adfgroup.com Toronto Stock Exchange: TSX: DRX*