BMTC Group Inc. — Interim / Quarterly Report 2021

Dec 11, 2020

Quarterly Management Report*

Caution regarding forward-looking statements

This Quarterly Management Report contains certain forward-looking statements with respect to the Company. These forward-looking statements are identified by the use of terms and phrases such as "anticipate", "believe", "estimate", expect", "intend", "may", "plan", "predict", "project", "will", "would", as well as the opposites of these terms and similar terminology, including references to assumptions.

Forward-looking statements, by their nature, necessarily involve risks and uncertainties that could cause actual results to differ materially from those contemplated by these forward-looking statements. Results indicated in forward-looking statements may differ materially from actual results for a number of reasons, which the Company has identified in the 2020 Annual Information Form under "Narrative Description of the Business - Risk Factors", and other risks detailed from time to time in the Company's continuous disclosure documents.

The reader is cautioned that the factors we refer to above are not exhaustive of the factors that may affect any of the Company's forward-looking statements. The reader is also cautioned to consider these and other factors carefully and not to put undue reliance on forward-looking statements.

The Company made a number of assumptions in making forward-looking statements in this Quarterly Management Report. The Company considers the assumptions on which these forward-looking statements are based to be reasonable.

These statements reflect current expectations regarding future events and operating performance and speak only as of the date of release of this Quarterly Management Report, and represent the Company's expectations as of that date. The Company disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, other than as required by law.

Non-International Financial Reporting Standards (IFRS) financial measures

The Company discloses adjusted net earnings, which includes or excludes certain amounts that are not considered representative of the performance measures and financial recurrence of the Company. Management believes that this measure is useful in understanding and analyzing the operational performance of the Company and that it can provide additional information.

Adjusted net earnings as well as same store revenues are not an earnings measure recognized by IFRS and do not have a standardized meanings prescribed by IFRS. Therefore, adjusted net earnings and same store revenues as discussed in this Quarterly Management Report may not be compared to similar measures presented by other issuers. These measures of performance should not be considered as alternatives to indicators of performance calculated according to IFRS, but rather as a source of additional information.

The Company discloses in this MD&A under the section "Results" a reconciliation between net earnings and adjusted net earnings.

* The financial information is in Canadian dollars and has been prepared in accordance with the International Financial Reporting Standards (IFRS).

Results*

For the nine month period ended October 31, 2020, the Company's revenues decreased by $77,919,000 to $470,770,000 compared to $548,689,000 recorded in the corresponding 2019 period, a 14.2% decrease. Net earnings for the nine month period ended October 31, 2020 amounted to $27,927,000 compared to $20,674,000 recorded in the corresponding 2019 period. Basic net earnings per share amounted to $0.82 compared to $0.60 recorded in the corresponding 2019 period.

The variation in adjusted net earnings would be $7,340,000 or $0.22 per basic share for the nine month period ended October 31, 2020 and is explained as follows:

	(Unaudited and $ in thousands)
	October 31, 2020	31 octobre 2019
Net earnings	27 927	20 674
Variation in cost of options (after-tax)	-	(87)
Adjusted net earnings	27 927	20 587
Minus: Adjusted net earnings for 2019	20 587
Variation	7 340

This variation in adjusted after-tax income is allocated throughout the quarters as follows:

		(Unaudited and $ in thousands)
	Increase (decrease)in retail operating	Increase (decrease)in investment	Increase (decrease)in adjusted
	earnings	earnings	operating earnings
As at April 30, 2020	784	(9 695)	(8 911)
As at July 31, 2020	1 707	4 416	6 123
As at Oct. 31, 2020	11 744	(1 616)	10 128
Total	14 235	(6 895)	7 340

Despite the significant drop in sales during the first semester of 2020, following the temporary store closures due to COVID-19, the Company managed to improve its retail operating results for the nine month period ended October 31, 2020 by $19,056,000 or an after tax increase of $14,235,000.

* As of February 1, 2019, the Company has applied IFRS 16 retrospectively, without restating comparative information as permitted by the standard

Annual financial information

($ in thousands, except for per share amounts)

	January 31, 2020	31 janvier 2019
	$	$
Revenue	720 169	742 474
Net earnings	36 034	45 165
Total assets	382 040	367 624
Net earnings per share
Basic	1,05	1,29
Diluted	1,05	1,29
Dividends per share	0,28	0,28

Financial position and dividends

Cash, net of the bank overdraft, and investments increased by $84,688,000 during the nine month period ended October 31, 2020. Investments consist of bank notes, government and corporate bonds and common shares, which at the close of the period had a market value of $208,673,000 (including cash).

As at October 31, 2020, the working capital showed a deficit of $28,715,000, an increase of $9,248,000 compared to the year ended January 31, 2020. The Company's shareholders' equity increased from $216,624,000 as at January 31, 2020, to $238,661,000 as at October 31, 2020. As at October 31, 2020, the book value per share stood at $7.03, compared to $6.35 as at January 31, 2020.

Pursuant to the normal course issuer-bid put in place on April 15, 2019, and renewed on April 15, 2020, accordingly, 123,300 common shares were repurchased and cancelled by the Company. As a result of this change, the Company had as at October 31, 2020, 33,964,700 common shares issued and outstanding.

During the nine month period ended October 31, 2020, no options were granted. As at April 1st, 2020, options regarding 197,100 Common Shares expired and were cancelled as they were out of money. As at April 1st, 2020, the closing price of the Common Shares on the Toronto Stock Exchange was $5.97. The Company may still grant pursuant to the Plan a total of 5,710,864 options, representing 16.8% of the issued and outstanding shares of the Company.

A semi-annual eligible dividend of $0.15 per Common Share has been declared to holders registered at the close of business on December 21st, 2020, which will be paid on January 4th, 2021.

Company pension plans

The pension expense for all plans for the three month and nine month periods ended October 31st, 2020, amounted to $1,817,000 and $4,668,000 (compared to $1,734,000 and to $6,136,000 for the three month and nine month periods ended October 31, 2019).

Contributions paid by the Company for all plans for the three month and nine month periods ended October 31st, 2020, amounted to $1,472,000 and to $3,633,000 (compared to $1,404,000 and to $5,146,000 for the three month and nine month periods ended October 31, 2019).

Related party transactions

The Company is bound by leases expiring in December 2024, for which a lease liability of $2,279,000 is recorded as at October 31, 2020.

On February 1, 2019, upon IFRS 16 implementation, a right-of-use asset and a lease liability of $3,123,000 were recorded in connection with leases entered with Gestion Maurice Tanguay. For the nine month period ended October 31, 2020, depreciation of $396,000 relating to the right-of-use asset and a $77,000 interest expense were recognized in earnings in connection with these leases.

Commitments

Payments due by period

	(Unaudited and $ in thousands)
	Carryingamount	Contractualcash flows	Under 1 year	2 - 5 years	After 5 years
Lease liability	16 277	18 045	4 414	11 492	2 139

Accounting policies and accounting estimates

The accounting policies used in preparing the consolidated financial statements are described in Note 3 to the consolidated financial statements.

The International Accounting Standards Board ("IASB") issued IFRS 16, Leases, which has become effective for fiscal years beginning on or after January 1, 2019, and has had an impact on BMTC's consolidated financial statements. More detailed information is presented in Note 3.1 to the interim consolidated financial statements.

The main estimates discuss allowances on inventories and supplier rebates receivable. Inventory allowances are taken for obsolete and/or damaged products as well as for slow inventory turnover items. The allowances are based on many years of historic experience. As for supplier rebates, a reasonable estimate of accrued amounts receivable is determined based on existing agreements with the Company's suppliers. Rebates for unsold merchandise are deducted from the value of the inventories at the date of the consolidated financial statements.

Financial instruments

The Company operates retail outlets in 32 locations across Quebec. A significant portion of the Company's sales are realized through the offering of financing solutions, by third-party credit providers, to the Company's customers. The cost of financing these sales is assumed by the Company, and is expensed, as the associated sales are realized. The Company assumes no credit risk in these transactions. The Company's working capital is composed primarily of accounts receivable, customer deposits, inventory and cash, while its short-term liabilities are towards suppliers of goods and services, as well as the debt relating to the stock option plan. The change in working capital reflects the associated fluctuations in all of the constituent accounts incurred during the normal course of the Company's activities. The Company has a positive cash position, which is invested in various financial instruments.

The Company records its investments at market value as indicated in Note 3 and Note 7 to the unaudited consolidated financial statements as at October 31, 2020. The Company has no hedges against its investments in US funds and assumes 100% of any fluctuations in the markets for these investments. Furthermore, the Company assumes the risks interest rate fluctuations have on its fixedincome investments, as well as the risks stock market fluctuations have on the value of investments in publicly traded companies.

The Company owns most of its stores and distribution centers, such that commitments regarding leasing contracts are relatively insignificant with regard to its overall activities as detailed in Note 9 and 10 to the unaudited consolidated financial statements as of October 31, 2020. The Company holds no hedging contracts or any other type of derivative products.

Quarterly results *

(Unaudited and $ in thousands, except for per share amounts)

		April 30,2020	April 30,2019	July 31,2020	July 31,2019
		$	$	$	$
Revenue		100 445	150 310	175 973	215 067
Net earnings		(12 427)	(3 455)	19 579	13 480
Net earnings per share
	Basic	(0,36)	(0,10)	0,57	0,39
	Diluted	(0,36)	(0,10)	0,57	0,39

		October 31,2020	October 31,2019	January 31,2020	January 31,2019
		$	$	$	$
Revenue		194 352	183 312	171 480	174 634
Net earnings		20 775	10 649	15 360	11 813
Net earnings per share
	Basic	0,61	0,31	0,45	0,34
	Diluted	0,61	0,31	0,45	0,34

*Comparative data relating to revenue have been restated following a change in presentation.

For the three-month period ended October 31, 2020, the Company's revenues increased by $11,040,000 to $194,352,000, compared to $183,312,000 recorded for the corresponding period, a 6% increase. Net earnings for the three-month period ended October 31, 2020, amounted to $20,775,000 compared to $10,649,000 recorded for the corresponding 2019 period. Basic net earnings per share increased to $0.61 compared to $0.31 for the corresponding 2019 period.

The variation to the adjusted net earnings would be $10,128,000 or $0.30 per basic share for the quarter ended October 31, 2020 and is explained as follows:

	(Unaudited and $ in thousands)
	October 31, 2020	October 31, 2019
Net earnings	20 775	10 649
Variation of cost of options (after-tax)	-	(2)
Adjusted net earnings	20 775	10 647
Minus: Adjusted net earnings for 2019	10 647
Variation	10 128

Operations

BMTC Inc.

The Company continues to restructure all of its websites and the first phase of the implementation of a distinct e-commerce platform for its banners Brault & Martineau and EconoMax is now completed and operational. The process of implementation will continue throughout 2020 for the following phases as well as the restructuring for all the other banners of the Company. The Company also reviewed its IT systems in to order standardize them throughout the banners, as well as to allow them to be more aligned with its e-commerce strategies. Following this review, the Company decided to invest and to modify its existing IT systems, the integration and implementation which will continue for a 3 to 5 year period.

Brault & Martineau Division

On November 6, 2019, the Company proceeded with the sale of the Kirkland store. During this same transaction, the Company purchased land along the Autoroute 40 in the city of Kirkland in order to build a new Brault & Martineau store of approximately 80,000 square feet which replaced the actual Kirkland store. On this same land, the Company built an EconoMax store of approximately 50,000 square feet which replaced the EconoMax store on Côte-Vertu. The new stores opened on October 27th, 2020.

The Company continues the evaluation process for different sites as well as its existing stores to modify them or in certain cases proceed with the reconstruction of a new store based on its new prototype. The new Kirkland store will be the second of the banner to be modified. The Company anticipates that in the next few years it will incur costs related to the modification and improvement of it's actual network is to be considered.

Risk factors and market tendencies

The Company operates a furniture, electronic and household appliance retail business, and is therefore subject to many risk factors such as:

• Sensitivity to general economic conditions

• Reliance on key personnel

• Investment portfolio risks

• Third-party credit providers for financing solutions to clients

• Labour relations with employees, some of whom are unionized

• Maintaining profitability and managing growth

• Highly competitive nature of the retail industry

• Effectiveness of its marketing programs

• Capacity to anticipate changes in fashion trends and consumer tastes

• Retention of senior management

The Company is also dependent on its management information systems, its distribution operations, and its suppliers.

For a number of years, we have seen an increasing presence of strong competitors operating on a national and international level. Furthermore, the Company has witnessed a deflationary trend in many products that it sells, forcing it to innovate by bringing new products to market.

The majority of sales are realized using financing solutions offered by third-party credit providers. A significant increase in interest rates or a tightening of credit conditions could have a significant impact on the Company's sales. There are no guarantees the Company will be able to continue procuring such advantageous financing solutions for its customers, which in the past has permitted the Company to maintain its growth.

It is impossible to isolate and measure the importance of each individual risk to which the Company is exposed. In the past, the Company has managed to adapt to these changes and maintain its market share notably by aggressive marketing campaigns and efficient management.

Management discussion and outlook for the future of the Company

On March 11th, 2020, the World Health Organization declared COVID-19 a global pandemic. The financial impact of COVID-19 began to manifest itself by a decrease in store traffic and consequently store revenues in the early weeks of March 2020. Following the rapid rise of COVID-19 cases in the province of Quebec, our priority during this difficult period remains at all times the health and safety of our employees and clients. In order to protect the Quebec population and to prevent the spread of COVID-19 by encouraging social distancing initiatives recommended by both levels of government, the Company decided on March 18th, 2020, to temporarily close its retail sales network, namely our Ameublements Tanguay banner in the Quebec City area and the Brault & Martineau and EconoMax banners in the Montreal area. On March 23rd, 2020, the Quebec government announced, for the same reason, the closure of all non-essential retail stores across the province.

In order to address the devastating effects of COVID-19 and to assure its short and long-term financial health, the Company decided to maintain its operations at a strict minimum level while preserving its presence in our market and controlling its working capital position. The following actions were undertaken by the Company during these last weeks in order to support its operating and working capital objectives:

• Following the closure of our retail sales network on March 18th , 2020, the Company temporarily laid off approximately 75% of its personnel, the vast majority stemming from our retail stores.

• Our online and delivery services remained operational across Quebec to ensure the population in confinement the ability to rely on essential goods while respecting government-mandated security protocols. We modified our services to offer contactless home delivery.

• During this period, the Company introduced several measures and protocols in preparation for the reopening of our stores across our sales network to ensure and protect the health and security of our employees and our clients. These new measures and protocols will be in effect until the end of the COVID-19 pandemic.

• The Company has also made technological and operational improvements to its sales network. These modifications will allow us to reduce our fixed costs and will contribute to our initiatives of effective cost controls.

• The Company applied for the Canada Emergency Wage Subsidy given the 30% or more decrease in revenues during the prescribed period.

During the nine month period ended October 31st, 2020, the company delivered strong operational results, despite the negative financial impact of COVID-19.

The decrease in revenues during this period was recorded during the first semester of 2020 and was entirely due to the temporary physical store closures. During the first quarter of 2020, the Company had all its 32 points of sale closed for a period of 43 consecutive days, leaving only online sales operational. The loss of revenues arising from the first quarter store closures amounted to $52,029,000. During the second quarter of 2020, the Company had a total of 15 points of sale closed for a period of 25 consecutive days while the other 17 points of sale were closed for the first 5 days of the quarter, again leaving only online sales operational. The loss of revenues arising from the second quarter store closures amounted to $25,465,000.

During the closure of our retail stores, from March 19th to May 3rd, 2020, online sales increased significantly. Despite this significant increase, the online sales only partially compensated for in-store sales for the 2019 corresponding period.

During this second quarter the Company was able to reopen all of it's 32 points of sale and in order to mitigate the loss of revenues during the closure, the Company proactively aligned its cost structure accordingly. These steps were taken throughout the first semester in order to protect the Company's viability and preserve its working capital during these highly uncertain times. Thanks to these new measures the Company believes it will be able to produce positive operating results.

In-store sales increased significantly, between 45% and 80%, in the days following their reopening, on May 4th, May 25th and June 1st, 2020, compared to the same periods in 2019. The new measure related to COVID-19 which the Company had to implement in its stores and distribution centers and the effects of the closures and re-openings of our stores had a significant impact on the Company's financial results in the first semester. Despite these additional costs, the Company still managed to improve its operating results by approximately $19,370,000 or $14,235,000 after tax. In addition, online sales continued to grow significantly despite the gradual reopening of our stores compared to the 2019 corresponding period.

Despite a context that remains difficult for many retailers in Quebec, the Company managed to increase its revenues by 6% during the 3rd quarter of 2020 compared to the 2019 corresponding period. The Company continued to focus on online sales, which experienced a record increase since the start of the pandemic, by actively pursuing the improvement of its digital platforms, its live chat initiative with online customers as well as the improvement of our telephone sales department for all of the BMTC Group Inc. banners.

It is also Management's opinion that the digital platforms of our banners are essential in order to allow the Company to increase its market shares as well as to allow customers to start their shopping experience online to then complete their purchases in one of our stores with the help of our sales representatives.

The significant increase in revenues is partly due to improvements in marketing and strategic measures implemented, our extensive store network and the strength of digital platforms, which have enabled the Company to increase its market share in Quebec. On the other hand, Management is aware that this increase is also partly due to the fact that it has benefited from a transfer of consumer spending related to the restrictions imposed by the various levels of government due to COVID-19 pandemic, more precisely the restrictions related to travel, the closure of restaurants and all forms of entertainment in the cultural and sporting world.

The new measure related to COVID-19 which the Company had to implement in its stores and distribution centers and the effects of the closures and re-openings of our stores had a significant impact on the Company's operational costs in the nine month period ended October 31st, 2020. Despite these additional costs, the Company still managed to improve its operating results by approximately $19,370,000 or $14,235,000 after tax.

During the 3rd quarter of 2020, the Company also managed to significantly improve its net earnings, by recording an increase of 95% compared to the corresponding period of 2019. This increase was in part possible due to technological improvements and the constant attention put on operational efficiency. The Company also benefited from the Emergency Wage Subsidy from Canada following a drop in sales of more than 30% in the 1st and 2nd quarters of 2020.

As at October 31, 2020, cash and investments had a market value of $208,673,000. The Company's financial position will allow it to weather through this period of uncertainty with more ease. Also, the Company owns nearly all its stores and distribution centers, which reduces pressure on cash flow requirements.

As a result of the increase in sales since the gradual reopening of our stores, the Company was able to call-back about 75% of it's sales staff. The Company must continue to respect social distancing as well as the maximum number of people allowed in a commercial establishment due to the regulations set by the provincial government with COVID-19, thus limiting the number of possible sales staff per store.

The rehiring of temporarily laid-off employees is in progress and proceeding as the situation evolves. The Company has actively worked to promote a call-back of its employees as soon as possible and according to operational needs.

Finally, since mid-June, the Company has had issues with its supply logistics. Many of the Company's suppliers, who have also been affected by the consequences of COVID-19, are unable to honour and deliver placed orders. This problem seems widespread in our industry and is not unique to the Company. Therefore, it is possible that this could have a negative impact on future results because orders on hand may not be able to delivered due to this short coming.

In this new economy the widespread cost restructuring as well as technological and operational improvements have produced a massive increase in unemployment rate in response to the COVID-19 pandemic. In addition, to the increase in the cost of living and the high level of Quebecers who are in debt are all factors which could inhibit consumer spending in the near future.

It is difficult to predict the future level of consumer confidence and the possible impact on sales of BMTC Group Inc. Management is confident that the Company's operational efficiency during this crisis, its market leadership and solid financial position will allow us to emerge a stronger organization despite these difficult market conditions and maintain its objectives increasing its market share and profitability in Quebec.

We would like to take this opportunity to thank all our fellow citizens who are relentlessly working day and night with extreme dedication to reduce spread of COVID-19 and who to caring for those who have been infected. Our thoughts are also with all those who have in any way been affected by the virus.

Disclosure controls and procedures (DCPs) and internal controls over financial reporting (ICRF)

The Company's management evaluated, as at January 31, 2020, the effectiveness of the design and operation of its DCPs and ICFR, as defined under National Instrument 52-109 - Certification of Disclosure in Issuers' Annual and Interim Filings. The evaluation was performed under the supervision of the Company's President and Chief Executive Officer (CEO) as well as the Chief Financial Officer (CFO). Based on such evaluation of ICFR, the President and CEO and CFO have concluded that the Company's DCPs and ICFR were effective as at January 31, 2020.

No changes were made in the Company's ICFR during the period beginning on August 1, 2020 and ended October 31, 2020, which have materially affected, or are reasonably likely to materially affect, the Company's ICFR.

Other information

This Quarterly Management Report ended October 31, 2020 provides an analysis of the unaudited consolidated results of operations, financial position, and cash flows of BMTC Group Inc. and its subsidiary.

Additional information relating to the Company is available on the Company's website at www.bmtc.ca as well as on SEDAR at www.sedar.com.

This Quarterly Management Report is intended to assist in the understanding and assessment of significant changes and trends, as well as risks and uncertainties, related to the results of operations and financial position of the Company.

(s) Marie-Berthe Des Groseillers

Marie-Berthe Des Groseillers President and Chief Executive Officer December 10th, 2020