BMTC Group Inc. — Management Reports 2022

Apr 29, 2022

**Annual Management Report ***

Caution regarding forward-looking statements

This Annual 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 2022 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 Annual 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 Annual 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 Annual 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 Annual Management Report under the section "Results" a reconciliation between net earnings and adjusted net earnings.

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

Results

For the year ended January 31, 2022, the Company's revenues increased by $170,389,000 to $819,445,000 compared to $649,056,000 recorded for the year ended January 31, 2021, a 26.3% increase. Net earnings for the year ended January 31, 2022 amounted to $81,931,000 compared to $54,842,000 recorded for the year ended January 31, 2021. Basic net earnings per share amounted to $2.43 compared to $1.61 recorded for the year ended January 31, 2021.

For the year ended January 31, 2022, the share repurchase program contributed to an increase in basic earnings of $0.02 per share, whereas during the year ended January 31, 2021, it contributed to an increase of $0.01 on basic net earnings per share.

The Company met the eligibility criteria for the Canadian Emergency Wage Subsidy (CEWS) during the quarter ended April 30, 2021. The Company received $1,441,000 after-tax which contributed to an increase of $0.04 on basic net earnings per share compared to $5,759,000 $ after-tax for the year ended January 31, 2021 which contributed to an increase of $0.17 on basic net earnings per share.

The Company has chosen to provide readers in this annual management report the results for the years ended January 31, 2020, and 2019 in addition to those of January 31, 2021. Management believes that the results for the year ended January 31, 2021 are not representative of the normal course results of the company. The impact of COVID-19 on the year ended January 31, 2021, makes it difficult to compare and analyze the results.

The variation in adjusted net earnings would be $31,407,000 or $0.93 per basic share for the year ended January 31, 2022, as well as the comparable years ended of January 31, 2021, 2020 and 2019 are explained as follows:

($ in thousands)

		($ in	thousands)
Net earnins	Jan. 31, 2022 81 931	Jan. 31, 2021 54 842	Jan. 31, 2020 Jan. 31, 2019 36 034 45 165
g Gain on disposal of fixed assets (after-tax) Variation in cost of options (after-tax) CEWS (after-tax) Adjusted net earnings Minus: Adjusted net earnings for the previous period	- - (1 441)	- - (5759)	(1 048) (4 522) (87) (226) - - 34 899 40 417 40417 49 513
	80 490 **49 083 **	49 083 34899
Variation	**31 407 **	14 184	(5 518) (9 096)

The variations in net adjusted earnings is allocated throughout the quarters as follows for the years ended January 31, 2022, 2021, 2020 and 2019:

($ in thousands)

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Increase
Increase Increase (decrease)
(decrease) (decrease) in adjusted
in retail operations in investment net earnings
As at April 30, 2021 5 733 15 929 21 662
As at July 31, 2021 7 524 1 580 9 104
As at Oct 31, 2021 340 2 724 3 064
As at Jan. 31, 2022 1 419 (3 842) (2 423)
Total 15 016 16 391 31 407
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 7 897 (1 616) 6 281
As at Jan. 31, 2021 4 905 5 786 10 691
Total 15 293 (1 109) 14 184
As at April 30, 2019 (5 586) 1 924 (3 662)
As at July 31, 2019 (1 681) (1 772) (3 453)
As at Oct 31, 2019 (3 249) 2 333 (916)
As at Jan. 31, 2020 230 2 283 2 513
Total (10 286) 4 768 (5 518)
As at April 30, 2018 1 934 (1 815) 119
As at July 31, 2018 1 870 1 095 2 965
As at Oct 31, 2018 (6 242) 231 (6 011)
As at Jan. 31, 2019 (6 367) 198 (6 169)
Total (8 805) (291) (9 096)
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Annual financial information

($ in thousands, except for per share amounts)

January 31, 2022 January 31, 2021 January 31, 2020 January 31, 2019

Revenue Net earnings Total assets Net earnings per share basic and diluted	$ $ $ $
	819 445 649 056 720 169 742 474 81 931 54 842 36 034 45 165 549 926 450 207 382 040 367 624 2,43 1,61 1,05 1,29
Dividends per share	0,34 0,29 0,28 0,28

Financial position and dividends

Cash, net of the bank overdraft, and investments increased by $62,234,000 during the year ended January 31, 2022. Investments consist of treasuries bearing interest, government and corporate bonds and common shares, which at the close of the year had a market value of $237,326,000 (including cash net of bank overdraft).

As at January 31, 2022, the working capital showed a deficit of $369,000, a decrease of $34,237,000 compared to the year ended January 31, 2021. The Company's shareholders' equity increased from $270,708,000 as at January 31, 2021, to $387,866,000 as at January 31, 2022. As at January 31, 2022, the book value per share stood at $11.60, compared to $7.99 as at January 31, 2021.

Pursuant to the normal course issuer-bid put in place on April 15, 2020, and renewed on April 15, 2021, accordingly, 457,000 common shares were repurchased and cancelled by the Company. As a result of this change, the Company had as at January 31, 2022, 33,423,000 common shares issued and outstanding.

During the year ended January 31, 2022, no options were granted. The Company may still grant pursuant to the Plan a total of 5,710,864 options, representing 17.09% of the issued and outstanding shares of the Company.

During the fiscal year ended January 31, 2022, the Company paid eligible dividends totalling $0.34 per common share to holders.

Company pension plans and treatment of future actuarial gains and losses

As at January 31, 2022, the Company established the accounting cost of pension benefits according to IFRS.

The accounting cost of pension benefits earned by employees is determined by actuarial calculations based on management's best estimate assumptions.

In accordance with IFRS, a discount rate of 3.50% for the supplementary pension plan (SPP) and 3.45% for the additional supplemental pension plan (APP) was used as at January 31, 2022, whereas a discount rate of 2.80% and 2.65% was used respectively as at January 31, 2021. The discount rates must reflect the rate of return of high-quality corporate bonds, which cash flows match those of the pension plans.

According to IFRS, the plans presented a surplus of $41,767,100 as at January 31, 2022. As at January 31, 2021, the deficit was $27,719,000. The financial position of the pension plans has improved over the last year. This change is mainly due to the decrease of the present value of obligations arising from the increase in the discount rates.

For the period between February 1, 2021 and January 31, 2022, the pension expense (including the defined contribution component) amounted to $8,482,000 while contributions made by the Company for all plans combined amounted to $5,289,300, of which the totality was for current service (compared to a pension expense of $8,394,000 for the period ended January 31, 2021).

The current IFRS result in a relatively predictable pension expense. For the year ending January 31, 2023, the pension expense is estimated to be between $4,800,000 and $5,800,000.

An actuarial valuation for funding purposes of the SPP as at December 31, 2018, revealed a surplus on a going-concern basis of $54,200,000 and a deficit on a solvency basis of $5,600,000. The Company has no special payments to make, since there is a surplus on a going-concern basis and the stabilization provision is fully funded. The next actuarial valuation for funding purposes, will be completed as at December 31, 2021.

As at January 1, 2016, the SPP was modified in a way that any eligible employee hired after December 31, 2015 is solely entitled to defined contribution benefits.

Related party transactions

For the year ended January 31, 2022, the Company paid management fees of $1,705,000 (compared to $1,665,000 for the year ended January 31, 2021), to Gestion Maurice Tanguay, a corporation controlled by Mrs. Jacques Tanguay. The management contract ensures the management of the affairs of Ameublements Tanguay Inc., including the management of personnel, the supervision of purchases and ensuring the growth of revenues. The contract is renewed annually for a 12 month period unless notice to the contrary is given by either party to the agreement.

The Company is bound by leases expiring in December 2024, for which a lease liability of $1,636,000 is recorded as at January 31, 2022.

For the year ended January 31, 2022, depreciation of $528,000 relating to the right-of-use asset and a $79,000 interest expense were recognized in earnings in connection with these leases.

Lease liability

Payments due by period

Lease liability	Carrying Contractual amount cash flows Under 1year 2 - 5years After 5years ($ in thousands)
	12 733 13 771 4 421 8 132 **1 218 **

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 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 unaudited interim consolidated financial statements.

Financial instruments

The Company operates retail outlets in 30 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 consolidated financial statements as at January 31, 2022. 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 fixed-income 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 and lease liabilities are relatively insignificant with regard to its overall activities as detailed in Note 9 of the consolidated financial statements as of January 31, 2022. The Company holds no hedging contracts or any other type of derivative products.

Quarterly results

($ in thousands, except for per share amounts)

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April 30 April 30 April 30 April 30
2021 2020 2019 2018
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	April 30 April 30 April 30 April 30 2021 2020 2019 2018
Revenue Net (loss) earnings Net (loss) earnings per share Basic and diluted	177 208 100 445 150 310 162 754 10 479 (12 427) (3 455) 4 806 0,31 (0,36) (0,10) 0,13 July 31 July 31 July 31 July 31 2021 2020 2019 2018
Revenue Net earnings Net earnings per share Basic and diluted	231 624 175 973 215 067 220 368 28 683 19 579 13 480 16 933 0,85 0,57 0,39 0,48

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October 31 October 31 October 31 October 31
2021 2020 2019 2018
Revenue 213 955 194 352 183 312 184 718
Net earnings 20 189 20 775 10 649 11 613
Net earnings per share
Basic and diluted 0.67 0.61 0.31 0.34
January 31 January 31 January 31 January 31
2022 2021 2020 2019
Revenue 196 658 178 286 171 480 174 634
Net earnings 22 580 26 915 15 360 11 813
Net earnings per share
Basic and diluted 0.67 0.79 0.45 0.34
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For the three month period ended January 31, 2022, the Company's revenues increased by $18,372,000 to $196,658,000, compared to $178,286,000 recorded for the corresponding 2021 period, a 10.3% increase. Net earnings for the three month period ended January 31, 2022, amounted to $22,580,000 compared to $26,915,000 recorded for the corresponding 2021 period. Basic net earnings per share decreased to $0.67 compared to $0.79 for the corresponding 2021 period.

For the three month period ended January 31, 2022, the share repurchase program contributed to an increase in basic earnings of $0.01 per share where during the corresponding 2021 period, it had no impact on basic net earnings or losses per share.

The Company determined that it met the eligibility criteria and applied for the Canadian Emergency Wage Subsidy (CEWS) during the quarter ended January 31, 2021. The Company received $1,912,000 after-tax which contributed to an increase of $0.06 on basic net earnings per share.

The variation in adjusted net earnings would be ($2,423,000) or ($0.07) per basic share for the three month period ended January 31, 2022, as well as the comparable periods ended of 2021, 2020 and 2019 are explained as follows:

		($ in thousands)	($ in thousands)
Net earnings Gain on disposal of fixed assets (after-tax) Variation in cost of options (after-tax) CEWS (after-tax) Adjusted net earnings Variation Minus: Adjusted net earnings for the previous period	Jan. 31, 2022 22 580 - - **- **	Jan. 31, 2021 26 915 - - (1912)	Jan. 31, 2020 Jan. 31, 2019 15 360 11 813 (1 048) - - (14) - - 14 312 11 799 11 799 17968 2 513 (6 169)
	22 580 **25 003 **	25 003 14312
	(2 423)	10 691

Operations

Brault & Martineau Division

The Brault & Martineau store, at 500 boulevard Le Corbusier in Laval, ceased its operations on December 5, 2021. As announced earlier this year, the company entered into a partnership agreement for the development of this property into several residential rental towers. The real estate development will begin in the year 2022.

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 subsidiary 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 18[th] , 2020, the Company temporarily laid off approximately 75% of its personnel, the vast majority stemming from our retail stores.

• The 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 and was granted the Canadian Emergency Wage Subsidy from the Government of Canada (CEWS).

During the first quarter of 2020, the Company had all of 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 store closures during this period amounted to $52,029,000. During the second quarter of 2020, the Company had 15 points of sale closed for a period of 25 consecutive days, leaving only online sales operational. The loss of revenues arising from the store closures during this period amounted to $25,465,000.

The Company has proactively aligned its cost structure in order to mitigate the loss of revenues incurred during the last fiscal year due to the store closures. The Company intends to maintain these measures throughout the fiscal year 2022, 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.

The Company continues 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 Company was able to increase significantly it's revenues during the year ended January 31, 2022 compared to results during the corresponding 2021 period as well as the corresponding 2020 and 2019 periods. In fact, the Company recorded one of the highest revenues in its history. This 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.

Since mid-June 2021, 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.

On May 5, 2021, the Canadian federal government imposed important tariffs on upholstered furniture imported from Vietnam and China while not allowing any grace period either for orders in production or for products already in transit to Canada, which can take up 3 to 4 months to reach our ports.

Complaints about unfairly priced Chinese and Vietnamese-made products have been a long simmering issue in the furniture business. Although, when the Canadian federal government announced it was seeking to level the playing fields with tariffs, everyone in the industry was expecting tariffs in the range of 10 to 20 per cent, similar to what the U.S. recently implemented.

It is difficult to predict the future level of consumer spending, although it is quite possible that the Company's future results may not reflect the performance of the last two years. The high level of inflation combined with gas prices will have an impact on consumer spending. Also, management is aware that the increase in the last two years was partly due to the fact that the Company 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 other forms of entertainment in the cultural and sporting world. Since these restrictions are no longer in place, we expect consumer spending could transfer back to these types of

di

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.

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

The Company's management evaluated, as at January 31, 2022, 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, 2022.

No changes were made in the Company's ICFR during the period beginning on November 1, 2021 and ended January 31, 2022, which have materially affected, or are reasonably likely to materially affect, the Company's ICFR.

Other information

This Annual Management Report for the year ended January 31, 2022 provides an analysis of the consolidated results of operations, financial position, and cash flows of the Company and its subsidiaries.

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 Annual 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 April 25, 2022