Hydro One names new board of directors after en masse resignation

TORONTO — A new board of directors has been appointed to Hydro One Ltd. just over a month after its chief executive retired and the entire board resigned en masse.

Ten new board members were named as replacements for Hydro One’s previous 14-member board, which resigned last month.

The power utility says Tom Woods will serve as the interim board chair until the new directors can convene to permanently fill the position.

The new board comes in a time of sweeping change for Hydro One.

Its chief executive Mayo Schmidt suddenly retired last month after political intervention.

He had been labelled “the six-million-dollar man” on the campaign trail by newly elected Premier Doug Ford for his hefty compensation.

Under a deal reached with the new Tory government, Schmidt was not entitled to the $10.7 million severance he would have been entitled to if he’d been removed by the board, and instead received a $400,000 lump sum payment in lieu of all post-retirement benefits.

Several days later, Ford’s Progressive Conservatives introduced omnibus legislation that in part would grant the government authority to approve executive compensation at the utility.

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Turkey’s president vows to boycott iPhones amid currency crisis triggered by U.S. dispute

Turkish President Recep Tayyip Erdogan vowed to boycott American electronics, including Apple Inc.’s iPhone, as he retaliates against Donald Trump’s attempts to isolate his economy.

After the U.S. imposed sanctions on two Turkish ministers and amid growing domestic pressure from businesses and banks to contain a currency crisis, Erdogan said he wouldn’t back down in the face of the economic attack against his country.

“There is a cost for those who are plotting the operation” against Turkey, he said in televised remarks from Ankara, without specifying when the boycott would start or how it would be enforced. “If they’ve got iPhone, there is Samsung on the other side. In our country, there is Venus Vestel,” he said, referring to a Turkish-made smartphone.

While the economic penalties would probably do little to dent U.S. economic interests, Erdogan’s threat shows that the standoff over the fate of an American pastor held in Turkey isn’t going to end soon. The move is reminiscent of steps by President Vladimir Putin to ban food imports from countries that slapped sanctions on Russia in 2014 over its annexation of Crimea.

The difference is that unlike Russia, the U.S. and Turkey are NATO members. Erdogan warned that the U.S. is putting decades-old alliances at risk and pushing Turkey to seek allies elsewhere.

The lira rallied for the first time in a week nonetheless. Two Turkish business lobbies and the heads of two banks increased pressure on the government and central bank to act to stem a slide that saw the lira lose more than a quarter of its value in less than two weeks. It rose 5.1 per cent to 6.5530 per dollar by 1:31 p.m. in Istanbul.

Turkey’s President Recep Tayyip Erdogan gestures prior to delivering a speech in Ankara, Turkey, Tuesday, Aug. 14, 2018. Erdogan said his country will boycott U.S.-made electronic goods amid a diplomatic spat that has helped trigger a Turkish currency crisis.

The Union of Chambers and Commodities Exchanges of Turkey and the Turkish Industry and Business Association called on the government to cut spending, improve ties with the European Union and bring to an end the spat with the U.S.

Policy makers need to adopt a series of measures “so that the situation doesn’t make permanent damage to the real economy,” the Union of Chambers and Commodities Exchanges of Turkey and the Turkish Industry and business Association said in a joint statement. “Businesses are determined to provide support for success of the economy’s government program.”

While Erdogan didn’t address their concerns in his speech, he said Turks have already begun converting foreign exchange into Turkish lira because it would be tantamount to “surrendering” if they did otherwise.

Below are the highlights of Erdogan’s speech in Ankara:

Turkey is facing a clear economic attack; the nation’s banks are better capitalized than counterparts anywhere around the world and there isn’t anything that could justify the swift depreciation in the lira.

Turkey has economic problems that it should take notice of and fix such as a wide current-account deficit and high consumer inflation rate.

Enmity towards Turkey stems from the fact that Turkey has been growing fast and now stands as the world’s 13th largest economic by purchasing power.

It’s unclear what the U.S. trying to achieve by targeting an ally with whom it worked together in places including Somalia, Afghanistan and Kosovo.

Bloomberg.com

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There’s only one main reason a wage gap exists. Call it motherhood

Much of our federal and provincial governments’ social engineering has been in an effort to rectify the gender wage gap. Employment equity, pay equity, pay transparency legislation and the uncompetitive equalizing of wages between part-time and full-time workers — all have been justified on that basis.

According to the Canadian Women’s Foundation, Canada has the seventh-highest wage gap among the 38 countries in the OECD, at 25 per cent for full-time workers.

The more reliable Statistics Canada has the gap at only 13 per cent.

But is there, in fact, a gender wage gap that is a difference in wages based on gender?

Women are graduating from all areas, other than the STEM disciplines, at a much higher rate, and with better marks than their male peers. Are employers actually discriminating against them in hiring or promotions?

In understanding whether discrimination accounts, the only two relevant questions are:

  1. Are equally qualified women having more difficulty obtaining higher paid employment? and
  2. Are women paid less than men, once they obtain employment, based upon their gender as opposed to other factors such as seniority or hours of work?

According to a study just released by Canadian Press, of the top 60 companies in the TSX, not one is headed by a woman and only three have female CFOs. Of the 312 highest compensated positions, with average compensation approximating $5 million, only 25 are women. This superficially supports the existence of a gender pay gap.

With the average worker in Canada making only $50,000, or one per cent of this group’s income, the highest earners dramatically skew the average, thereby increasing the gender wage gap.

In reality, the only significant cause of women earning less than men is when they choose to leave the workforce and have children. What the research shows is that there is no gender wage gap but rather a child-bearing penalty. Henrik Kleven, an economist at Princeton University, using data from Denmark, which offers new parents an entire year of paid leave after the birth of a child, concluded that women earned as much as men — until they had a child. He found that, after bearing children, women disproportionately opt for careers that are less time consuming and are also less willing to travel, often a requisite for promotions. Denmark is not anomalous. A 2009 U.S. study led by University of Chicago’s Marianne Bertrand echoes that conclusion. What is notable is that these studies found that women who did not have children ended up financially in the same position as men.

This is hardly surprising. If a man similarly decides to take a year off work, he will miss that year of experience, career opportunities and be viewed as less reliable when promotions are considered. If they take additional years off, equivalent to women who take a year of maternity leave for each child, they fall even further behind.

The gap is also a function of the areas to which women choose to apply. Although more women are entering STEM (science, technology, engineering and math) professions in Canada than before, the incumbents are still predominantly male. What is notable is that men apply disproportionately to STEM vocations even in the most egalitarian societies, such as Scandinavia. And STEM professions are paid more than such professions as clerical work, administrative work or social work that women disproportionately apply to. Why? Because STEM jobs create more value for their businesses.

Another major factor in the purported gender wage gap is that women are attracted to jobs, such as training and social work, that permit interaction with small groups of people, inherently limiting the potential pay. Men, on the other hand, more often apply to jobs with more leverage or scale, such as planning or executive positions, which impact greater numbers of people, jobs which society accordingly awards greater remuneration to.

Men also disproportionately apply to jobs in the trades and in positions of manual labour. When I was in university, I had a summer job at Stelco’s open hearth furnace. We went into the furnaces, hammering and drilling, to clean them before restarting them. We had to wear wooden pieces under our shoes so that our rubber soles would not melt. We could not drink water but only concentrated lemon juice — and in small quantities or we would vomit. The air was constantly filled with multi-colour particles, which we were breathing in. My foreman was dying of silicosis but he could not retire as he had six children. The pay was excellent, it was all male — but I don’t see feminist lobby groups demanding more women being permitted to work in such jobs or my female friends at the time applying to them.

Why do men apply to those sometimes hellish jobs? According to Kim Parker at the Pew Research Center, “men are likely to place a greater emphasis on their role as financial providers.” As result, they are more likely to accept abominable working conditions and work around the clock. The few women who opt for those conditions and hours earn the same. The different choices men and women make is at the heart of this debate.

The government can, and unfortunately does, legislate equal pay for work of equal value and attempts to argue that such jobs are equivalent in value to jobs disproportionately occupied by women, but such legislation only makes us less competitive. Much as the Trudeau government might like a steelworker to be paid the same as an office clerk through employment equity legislation, we can’t price our steel above that of our international competitors.

The Canadian Womens’ Foundation predictably recommends eliminating barriers for women entering high-wage occupations, such as in STEM fields. The problem is, there appear to be no barriers at all. The portion of the wage gap not accounted for by the child-bearing penalty appears to be a function of choice.

• Howard Levitt is senior partner of Levitt LLP, employment and labour lawyers. He practises employment law in eight provinces. 

The most recent of his six books is War Stories from the Workplace: Columns by Howard Levitt.

Twitter.com/HowardLevittLaw

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Times Up gives $750,000 for combatting sexual misconduct

WASHINGTON — A fund dedicated to aiding victims of sexual harassment and assault is giving $750,000 in grants to local organizations across the country.

The Times Up Legal Defence Fund is announcing its first round of grants to 18 organizations to help support low-wage and domestic workers who have experienced sexual misconduct in the workplace.

Among the recipients are organizations dedicated to sexual harassment education and outreach. Also benefiting are groups that offer targeted resources and services to transgender individuals, immigrants, non-English speakers, and migrant workers, among others.

The fund was established in January to help defray legal costs for victims of sexual harassment, assault and other misconduct in the workplace. It has so far raised nearly $22 million.

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Data Communications Management Corp. Announces Second Quarter Financial Results for 2018

media

BRAMPTON, Ontario — DATA Communications Management Corp. (TSX:DCM) (“DCM” or the “Company”), a leading provider of business communication solutions to companies across North America, announced its consolidated financial results for three and six months ended June 30, 2018.

“Our revenue continued to demonstrate year over year growth, thanks to contributions from our recent acquisitions and a second consecutive quarter of growth in our core DCM business. Our sales pipeline continues to be robust, strengthened by recent wins in the licensed cannabis industry in which we have recently been awarded multi-year contracts with several leading licensed producers to provide Health Canada compliant packaging labels for a variety of cannabis products. We expect to see incremental revenue in this emerging market in the third and fourth quarters as these producers come to market,” said Gregory J. Cochrane, President & CEO.

“I am disappointed with our gross margin in the second quarter, which was largely attributed to higher volumes of lower margin product mix compared to last year, and to a lesser extent the impact of paper and other raw materials price increases that are being experienced industry-wide. Nonetheless, we plan to effect price increases as contract terms allow us, and longer-term we expect to achieve higher margins with these customers. On the positive side, we continue to see gross margin improvements on non-contracted business and we expect significantly improved margins in our packaging label business and other newly contracted business in the second half of the year, which is typically seasonally stronger in any event,” he continued.

To support anticipated growth in the cannabis market and other growth opportunities in the label market, DCM announces it has secured the first Gallus Heidelberg Labelfire 340 hybrid digital ink-jet / flexographic label press in the Canadian market.

“DCM has been successful in applying its expertise in managing highly complex, regulatory compliant, variable content for web to print-on-demand production and has developed innovative solutions for the cannabis market. This press is expected to further differentiate DCM’s capabilities in the market,” Mr. Cochrane concluded.

RESULTS OF OPERATIONS

All financial information in this press release is presented in Canadian dollars and in accordance with International Financial Reporting Standards (“IFRS”), as issued by the International Accounting Standards Board (“IASB”).

Table 1 The following table sets out selected historical consolidated financial information for the periods noted.










For the periods ended June 30, 2018 and 2017
Apr. 1 to
Apr. 1 to
Jan. 1 to
Jan. 1 to


June 30,
June 30,
June 30,
June 30,


2018
2017
2018
2017
(in thousands of Canadian dollars, except share and per share amounts, unaudited)
$
$
$
$
Revenues (1)
78,176

73,066

166,692

143,192
Cost of revenues
59,587

55,062

126,628

108,828
Gross profit
18,589

18,004

40,064

34,364









Selling, general and administrative expenses
17,750

15,715

35,422

30,739
Restructuring expenses
736

1,735

800

3,621
Acquisition costs
270

13

313

969









(Loss) income before finance costs and income taxes
(167)
541

3,529

(965)









Finance costs (income)







Interest expense
1,273

1,181

2,412

2,131
Interest income
(2)

–



(4)
0
Amortization of transaction costs
158

121

301

236


1,429

1,302

2,709

2,367









(Loss) income before income taxes
(1,596)
(761)
820

(3,332)









Income tax (recovery) expense







Current
(288)
288

555

339
Deferred
(114)
(468)
(304)
(993)


(402)
(180)
251

(654)









Net (loss) income for the period
(1,194)
(581)
569

(2,678)









Basic (loss) earnings per share
(0.06)
(0.04)
0.03

(0.20)
Diluted (loss) earnings per share
(0.06)
(0.04)
0.03

(0.20)
Weighted average number of common shares outstanding, basic
20,870,234
13,637,875
20,456,993
13,079,515
Weighted average number of common shares outstanding, diluted
20,870,234
13,637,875
20,495,793
13,079,515









(1)


2018 revenues include the impact of the adoption of new accounting standard IFRS 15. Refer to note 3 of the unaudited consolidated interim financial statements for three and six months ended June 30, 2018 for further details on the impact of the adoption of new accounting standards.

As at June 30, 2018 and December 31, 2017
As at June
As at Dec. 31,


30, 2018
2017
(in thousands of Canadian dollars, unaudited)
$
$
Current assets
83,402

82,804
Current liabilities
61,919

68,648





Total assets
141,648

131,859
Total non-current liabilities
72,254

68,610





Shareholders’ equity / (deficit)
7,475

(5,399)







Table 2 The following table provides reconciliations of net (loss) income to EBITDA and of net (loss) income to Adjusted EBITDA for the periods noted. See “Non-IFRS Measures”.

EBITDA and Adjusted EBITDA Reconciliation










For the periods ended June 30, 2018 and 2017
Apr. 1 to
Apr. 1 to
Jan. 1 to
Jan. 1 to


June 30,
June 30,
June 30,
June 30,


2018
2017
2018
2017
(in thousands of Canadian dollars, unaudited)
$
$
$
$
Net (loss) income for the period
(1,194)
(581)
569

(2,678)









Interest expense
1,273

1,181

2,412

2,131
Interest income
(2)

–



(4)

–


Amortization of transaction costs
158

121

301

236
Current income tax (recovery) expense
(288)
288

555

339
Deferred income tax recovery
(114)
(468)
(304)
(993)
Depreciation of property, plant and equipment
1,176

1,058

2,324

1,943
Amortization of intangible assets
1,232

906

2,301

1,599
EBITDA
2,241

2,505

8,154

2,577









Restructuring expenses
736

1,735

800

3,621
One-time business reorganization costs
839

–



1,171

–


Acquisition costs
270

13

313

969
Adjusted EBITDA (1)
4,086

4,253

10,438

7,167

(1)


2018 revenues include the impact of the adoption of new accounting standard IFRS 15. Refer to note 3 of the unaudited consolidated interim financial statements for three and six months ended June 30, 2018 for further details on the impact of the adoption of new accounting standards.

Table 3 The following table provides reconciliations of net (loss) income to Adjusted net (loss) income and a presentation of Adjusted net (loss) income per share for the periods noted. See “Non-IFRS Measures”.

Adjusted Net (Loss) Income Reconciliation










For the periods ended June 30, 2018 and 2017
Apr. 1 to
Apr. 1 to
Jan. 1 to
Jan. 1 to


June 30,
June 30,
June 30,
June 30,


2018
2017
2018
2017
(in thousands of Canadian dollars, except share and per share amounts, unaudited)
$
$
$
$
Net (loss) income for the period
(1,194)
(581)
569

(2,678)









Restructuring expenses
736

1,735

800

3,621
One-time business reorganization costs
839

–



1,171

–


Acquisition costs
270

13

313

969
Tax effect of the above adjustments
(410)
(453)
(513)
(945)
Adjusted net (loss) income (1)
241

714

2,340

967









Adjusted net (loss) income per share, basic
0.01

0.05

0.11

0.07
Adjusted net (loss) income per share, diluted
0.01

0.05

0.11

0.07
Weighted average number of common shares outstanding, basic
20,870,234

13,637,875

20,456,993

13,079,515
Weighted average number of common shares outstanding, diluted
21,742,477

13,637,875

20,495,793

13,079,515
Number of common shares outstanding, basic
21,523,515

19,263,235

21,523,515

19,263,235
Number of common shares outstanding, diluted
22,395,758

19,263,235

21,587,945

19,263,235

(1)


2018 revenues include the impact of the adoption of new accounting standard IFRS 15. Refer to note 3 of the unaudited consolidated interim financial statements for three and six months ended June 30, 2018 for further details on the impact of the adoption of new accounting standards.

Revenues

For the quarter ended June 30, 2018, DCM recorded revenues of $78.2 million, an increase of 7.0% or $5.1 million compared with the same period in 2017. Excluding the effects of adopting IFRS 15, for the quarter ended June 30, 2018, revenues were $3.9 million, or 5.3%, higher than the same period last year. The increase in revenues for the quarter ended June 30, 2018 was primarily due to additional revenues from the acquisitions of BOLDER Graphics and Perennial, new revenues contributed by a major Canadian Schedule I bank which DCM won late in the third quarter of 2017 and increased volumes in labels and thermal paper work for customers. The increase in revenues was partially offset by the reduction in spend by certain customers, particularly in the financial institutions sector due to a technological shift in the way they conduct business.

For the six months ended June 30, 2018, DCM recorded revenues of $166.7 million, an increase of 16.4% or $23.5 million compared with the same period in 2017. Excluding the effects of adopting IFRS 15, for the six months ended June 30, 2018, revenues were $3.9 million, or 5.3%, higher than the same period last year. The increase in revenues for the six months ended June 30, 2018 was primarily due to additional revenues from the acquisitions of Eclipse, Thistle BOLDER Graphics and Perennial, new revenues contributed by a major Canadian Schedule I bank which DCM won late in the third quarter of 2017, increased volumes in labels work for existing and new retailer customers, and a one-time increase in volume from a long-standing customer which generated $8.9 million in higher revenues relative to the same period last year. The increase in revenues was partially offset by the reduction in spend by certain customers, particularly in the financial institutions sector due to a technological shift in the way they conduct business. Overall, DCM continues to benefit from the growth initiatives it effected throughout 2017 and the first half of 2018 to help offset some of the secular declines experienced by the industry.

Cost of Revenues and Gross Profit

For the quarter ended June 30, 2018, cost of revenues increased to $59.6 million from $55.1 million for the same period in 2017, resulting in a $4.5 million or 8.2% increase over the same period last year. Excluding the effects of the adjustments upon adoption of IFRS 15, cost of revenues $2.8 million or 5.0% relative to the same period last year. For the six months ended June 30, 2018, cost of revenues increased to $126.6 million from $108.8 million for the same period in 2017, resulting in a $17.8 million or 16.4% increase over the same period last year. Excluding the effects of the adjustments upon adoption of IFRS 15, cost of revenues increased by $13.5 million or 12.4% relative to the same period last year.

Gross profit for the quarter ended June 30, 2018 was $18.6 million, which represented an increase of $0.6 million or 3.2% from $18.0 million for the same period in 2017. Excluding the effects of adopting IFRS 15, gross profit $1.1 million or 6.3% relative to the same period last year. Gross profit as a percentage of revenues decreased to 23.8% for the quarter ended June 30, 2018 compared to 24.6% for the same period in 2017 however, excluding the effects of adopting IFRS 15, gross profit as a percentage of revenues was 24.9% for the quarter ended June 30, 2018. The decrease in gross profit as a percentage of revenues for the quarter ended June 30, 2018 was positively impacted by higher gross margins attributed to Eclipse, Thistle, BOLDER Graphics and Perennial, and due to the refinement of DCM’s pricing discipline and cost reductions realized from prior cost savings initiatives. The increase in gross profit as a percentage of revenues was, however, partially offset by changes in product mix, the impact of paper and other raw materials price increases and compressed margins on contracts with certain existing customers.

Gross profit for the six months ended June 30, 2018 was $40.1 million, which represented an increase of $5.7 million or 16.6% from $34.4 million for the same period in 2017. Excluding the effects of adopting IFRS 15, gross profit increased by $5.0 million or 14.5% relative to the same period last year. Gross profit as a percentage of revenues for the six months ended June 30, 2018 remained largely unchanged from the prior year at 24.0%, however, excluding the effects of adopting IFRS 15, gross profit as a percentage of revenues was 24.3% for the six months ended June 30, 2018. The increase in gross profit as a percentage of revenues for the six months ended June 30, 2018 was positively impacted by higher gross margins attributed to Eclipse, Thistle, BOLDER Graphics and Perennial, and due to the refinement of DCM’s pricing discipline and cost reductions realized from prior cost savings initiatives. The increase in gross profit as a percentage of revenues was, however, partially offset by changes in product mix, the impact of paper and other raw materials price increases and compressed margins on contracts with certain existing customers.

Selling, General and Administrative Expenses

Selling, general and administrative (“SG&A”) expenses for the quarter ended June 30, 2018 increased $2.0 million or 12.9% to $17.8 million compared to $15.7 million in the same period in 2017. Excluding the effects of adopting IFRS 9 and 15, SG&A expenses were $2.1 million higher for the quarter ended June 30, 2018 when compared to the same period last year. As a percentage of revenues, these costs were 22.7% (or 23.1% before the affects of adopting IFRS 9 and 15) of revenues for the six months ended June 30, 2018 and 2017, respectively. The increase in SG&A expenses for the quarter ended June 30, 2018 was primarily attributable to the acquisitions of Eclipse, Thistle, BOLDER Graphics and Perennial, one time business reorganization costs of $0.8 million, additional professional fees and higher sales commission costs commensurate with the increase in revenues.

SG&A expenses for the six months ended June 30, 2018 increased $4.7 million or 15.2% to $35.4 million compared to $30.7 million for the same period of 2017. Excluding the effects of adopting IFRS 9 and 15, SG&A expenses were $4.5 million higher for the six months ended June 30, 2018 when compared to the same period last year. As a percentage of revenues, these costs were 21.2% (or 21.8% before the effects of adopting IFRS 9 and 15) and 21.5% of revenues for the six months ended June 30, 2018 and 2017, respectively. The increase in SG&A expenses for the six months ended June 30, 2018 was primarily attributable to the acquisitions of Eclipse, Thistle, BOLDER Graphics and Perennial, one time business reorganization costs of $0.8 million, additional professional fees and higher sales commission costs commensurate with the increase in revenues.

Restructuring Expenses

For the quarter ended June 30, 2018, DCM incurred restructuring expenses of $0.7 million compared to $1.7 million in the same period in 2017. The restructuring expenses of $0.7 million during the quarter ended June 30, 2018 primarily related to headcount reductions across the operational, sales and administration functions of the business. For the quarter ended June 30, 2017, DCM incurred restructuring expenses of $1.7 million of which $1.5 million primarily related to headcount reductions across the sales and customer service functions of the business and a lease exit charge of $0.3 million associated with the closure of its manufacturing and warehouse facility in Regina, Saskatchewan.

For the six months ended June 30, 2018, DCM incurred net restructuring expenses $0.8 million compared to $3.6 million in the same period in 2017. DCM incurred $1.9 million of restructuring costs related to 1) headcount reductions in indirect labour as a result of the plant consolidations completed during the current quarter, in addition to reductions of certain individuals within the sales and administrative functions, and 2) costs incurred to facilitate the closure and consolidation of the Multiple Pakfold, BOLDER Graphics and Granby, Quebec facilities into DCM’s Brampton, Ontario, Calgary, Alberta and Drummondville, Quebec facilities, respectively. Total restructuring costs were offset by a recovery of $1.1 million related to the termination of DCM’s lease agreement for its Granby, Quebec facility

For the six months ended June 30, 2017, DCM incurred restructuring expenses of $3.6 million. $3.7 million of restructuring costs were incurred related to headcount reductions in DCM’s indirect labour force across its operations, which were designed to streamline DCM’s order-to-production process and across the sales and customer service functions of the business. These restructuring costs were offset by a recovery of $0.3 million related to a sub-lease of a closed facility in Richmond Hill, Ontario and DCM also incurred a lease exit charge associated with the closure of its manufacturing and warehouse facility in Regina, Saskatchewan of $0.3 million.

Adjusted EBITDA

For the quarter ended June 30, 2018, Adjusted EBITDA was $4.1 million, or 5.2% of revenues, after adjusting EBITDA for the $0.7 million in restructuring charges, $0.3 million of acquisition costs and $0.8 million of one-time business reorganization costs. Excluding the effects of adopting IFRS 9 and 15, Adjusted EBITDA was $4.6 million or 6.0% of revenues for the quarter ended June 30, 2018 compared with an Adjusted EBITDA of $4.3 million or 5.8% for the same period last year. Adjusted EBITDA for the three months ended June 30, 2018 decreased $0.2 million or 3.9% from the same period in the prior year which was 5.8% of revenues in 2017. The decrease in Adjusted EBITDA for the three months ended June 30, 2018 was primarily attributable to lower gross profit as a result of product mix and higher SG&A expenses. This was partially offset by improved pricing discipline and cost savings from restructuring efforts carried out in the second half of 2017.

For the six months ended June 30, 2018, Adjusted EBITDA was $10.4 million, or 6.3% of revenues, after adjusting EBITDA for the $0.8 million in restructuring charges, $0.3 million of acquisition costs and $1.2 million of one-time business reorganization costs. Excluding the effects of adopting IFRS 9 and 15, Adjusted EBITDA was $9.9 million or 6.1% of revenues for the six months ended June 30, 2018 compared with an Adjusted EBITDA of $7.2 million or 5.0% for the same period last year. The $3.3 million increase in Adjusted EBITDA for the six months ended June 30, 2018 over the six months of 2017 was attributable to higher gross profit as a result of revenues contributed by DCM’s core business, in addition to the Eclipse, Thistle, BOLDER Graphics and Perennial acquisitions, improved pricing initiatives implemented part-way through the prior year, and cost savings from the restructuring efforts carried out in the second half of 2017. This was partially offset by higher SG&A expenses.

Interest Expense

Interest expense, including interest on debt outstanding under DCM’s credit facilities, on certain unfavourable lease obligations related to closed facilities, and on DCM’s employee benefit plans and including interest accretion expense related to certain debt obligations recorded at fair value, was $1.3 million for the three months ended June 30, 2018 compared to $1.2 million for the same period in 2017, and was $2.4 million for the six months ended June 30, 2018 compared to $2.1 million for the same period in 2017. Interest expense for the three and six months ended June 30, 2018 was higher than the same periods in the prior year primarily due to the increase in the debt outstanding under DCM’s credit facilities in order to fund a portion of the upfront cash components of the purchase price, settle certain debt assumed and pay for related costs incurred to complete the acquisitions of Eclipse, Thistle and BOLDER Graphics in 2017 and the acquisition of Perennial in 2018.

Income Taxes

DCM reported a loss before income taxes of $1.6 million and a net income tax recovery of $0.4 million for the quarter ended June 30, 2018 compared to a loss before income taxes of $2.6 million and a net income tax recovery of $0.2 million for the quarter ended June 30, 2017. Excluding the impacts of adopting IFRS 9 and 15, the net income tax recovery was $0.3 million for the quarter ended June 30, 2017. The current income tax recovery and expense were primarily related to the income taxes payable on DCM’s estimated taxable income for the quarters ended June 30, 2018, and 2017, respectively. The deferred income tax recoveries primarily related to changes in estimates of future reversals of temporary differences and new temporary differences that arose during the quarters ended June 30, 2018 and 2017, respectively.

DCM reported income before income taxes of $0.8 million and a net income tax expense of $0.3 million for the six months ended June 30, 2018 compared to a loss before income taxes of $3.3 million and a net income tax recovery of $0.7 million for the six months ended June 30, 2017. Excluding the impacts of adopting IFRS 9 and 15, the net income tax expense was $0.1 million for the six months ended June 30, 2018. The current income tax expense was due to the taxes payable on DCM’s estimated taxable income for the six months ended June 30, 2018. The deferred income tax recovery for the six months ended June 30, 2018 primarily relates to changes in estimates of future reversals of temporary differences, primarily representing adjustments due to the adoption of IFRS 15 including the full utilization of loss carryforwards and new temporary differences that arose during the six month period ended June 30, 2018.

Net Income

Net loss for the quarter ended June 30, 2018 was $1.2 million compared to net loss of $2.1 million for the same period in 2017. Excluding the impacts of adopting IFRS 9 and 15, net loss for the quarter ended June 30, 2018 was $0.8 million. The decrease in comparable profitability for the quarter ended June 30, 2018 was primarily due to lower gross profit as a percentage of revenue, due to higher volumes of lower margin product and higher levels of SG&A including the post-acquisition financial results of Eclipse, Thistle, BOLDER Graphics and Perennial, and was partially offset by refined discipline in DCM’s pricing strategy and cost reductions as a result of the restructuring efforts.

Net income for the six months ended June 30, 2018 was $0.6 million compared to a net loss of $2.7 million for the same period in 2017. Excluding the impacts of adopting IFRS 9 and 15, for the six months ended June 30, 2018 was $0.2 million. The decrease in comparable profitability the six months ended June 30, 2018 was primarily due to the increase in revenues which included the post-acquisition financial results of Eclipse, Thistle, BOLDER Graphics and Perennial, in addition to a refined discipline in DCM’s pricing strategy and cost reductions as a result of the restructuring efforts. This increase was partially offset by lower gross profit as a percentage of revenue, due to higher volumes of lower margin product and higher levels of SG&A including the post-acquisition financial results of Eclipse, Thistle, BOLDER Graphics and Perennial.

Adjusted Net Income

Adjusted net income for the quarter ended June 30, 2018 was $0.2 million compared to Adjusted net income of $0.7 million for the same period in 2017. Excluding the impacts of adopting IFRS 9 and 15, Adjusted net income for the quarter ended June 30, 2018 was $0.6 million. The decrease in comparable profitability for the quarter ended June 30, 2018 was primarily due to lower gross profit as a percentage of revenue, due to higher volumes of lower margin product and higher levels of SG&A including the post-acquisition financial results of Eclipse, Thistle, BOLDER Graphics and Perennial, and was partially offset by refined discipline in DCM’s pricing strategy and cost reductions as a result of the restructuring efforts.

Adjusted net income for the six months ended June 30, 2018 was $2.3 million compared to Adjusted net income of $1.0 million for the same period in 2017. Excluding the impacts of adopting IFRS 9 and 15, for the six months ended June 30, 2018 was $1.9 million. The increase in comparable profitability for the six months ended June 30, 2018 was primarily due to the increase in revenues which included the post-acquisition financial results of Eclipse, Thistle, BOLDER Graphics and Perennial, in addition to a refined discipline in DCM’s pricing strategy and cost reductions as a result of the restructuring efforts. This increase was partially offset by lower gross profit as a percentage of revenue, due to higher volumes of lower margin product and higher levels of SG&A including the post-acquisition financial results of Eclipse, Thistle, BOLDER Graphics and Perennial.

CASH FLOW FROM OPERATIONS

During the three months ended June 30, 2018, cash flows generated by operating activities were $5.8 million compared to cash flows generated by operating activities of $3.9 million during the same period in 2017. $2.7 million of current year cash flows resulted from operations, after adjusting for non-cash items, compared with $3.3 million in 2017. Current period cash flows from operations were positively impacted by the increase in revenues and better gross margins from improved pricing discipline however this was slightly offset by a $2.0 million increase in SG&A expense over the prior year comparative period. Changes in working capital during the three months ended June 30, 2018 generated $5.4 million in cash compared with $2.7 million in the prior year. Given the increase in trade receivables as a result of higher sales in the current quarter, there was a corresponding increase in accounts payable for higher volumes in inventory purchases and related manufacturing costs. Timing of payments to suppliers are fairly commensurate with collections on outstanding receivables from DCM’s customers.

In addition, $1.8 million of cash was used to make payments primarily related to severances and lease termination costs, compared with $1.7 million of payments in 2017. Contributions made to the Company’s pension plans were $0.3 million which decreased from $0.5 million in the prior year while income tax payments increased by $0.3 million for the three months ended June 30, 2018.

During the six months ended June 30, 2018, cash flows generated by operating activities were $11.9 million compared to cash flows generated by operating activities of $2.3 million during the same period in 2017. A total of $8.2 million of the current period cash flows resulted from operations, after adjusting for non-cash items, compared with $4.7 million for the same period last year. Current period cash flows from operations were positively impacted by the increase in revenues and better gross margins from improved pricing discipline however this was slightly offset by a $4.7 million increase in SG&A expense over the prior year comparative period. Changes in working capital during the six months ended June 30, 2018 generated $9.1 million in cash compared with $1.8 million of cash generated in the prior year. There was an increase in accounts payable for higher volumes in inventory purchases and related manufacturing costs as a result of higher revenues during the six month period ended June 30, 2018.

In addition, $3.9 million of cash was used to make payments primarily related to severances and lease termination costs, compared with $3.3 million of payments in 2017. Contributions made to the Company’s pension plans were $0.6 million, which decreased from $0.9 million in the prior year while income tax payments increased by $0.9 million for the six months ended June 30, 2018.

INVESTING ACTIVITIES

During the three months ended June 30, 2018, $9.8 million in cash flows were used for investing activities compared with $1.7 million during the same period in 2017. In 2018, $0.7 million of cash was used to invest in IT equipment, in addition to incurring certain costs for leasehold improvements to facilitate the consolidation of the Granby, Québec and BOLDER Graphics facilities into DCM’s Drummondville, Quebec and Calgary, Alberta locations, respectively. Furthermore, $1.6 million of cash was used to further invest in DCM’s ERP project. In 2018, $7.5 million of net cash was used to acquire the business of Perennial.

During the six months ended June 30, 2018, $11.2 million in cash flows were used for investing activities compared with $6.6 million during the same period in 2017. In 2018, $1.3 million of cash was used to invest in IT equipment, in addition to incurring certain costs for leasehold improvements to facilitate the consolidation of the Multiple Pakfold, Granby, Québec and BOLDER Graphics facilities into DCM’s Brampton, Ontario, Drummondville, Quebec and Calgary, Alberta locations, respectively. Furthermore, $2.5 million of cash was used to further invest in DCM’s ERP project. In 2018, $7.5 million of net cash was used to acquire the business of Perennial.

FINANCING ACTIVITIES

During the three months ended June 30, 2018, cash flow generated by financing activities was $4.7 million compared to cash flow used for financing activities of $5.0 million during the same period in 2017. DCM used net cash received from the issuance of common shares and warrants of $0.7 million and cash from advances under its credit facilities totaling $10.4 million to repay $4.8 million in outstanding principal amounts under its credit facilities. DCM also paid a total of $0.6 million related to the promissory notes issued in connection with the acquisitions of Thistle Eclipse and BOLDER. DATA also incurred $0.9 million of transaction costs related to the amendments to its senior credit facilities and the establishment of a new credit facility.

During the six months ended June 30, 2018, cash flow used for financing activities was $0.1 million compared to cash flow generated by financing activities of $1.9 million during the same period in 2017. DCM used a portion of cash generated from its operations to repay $6.7 million in outstanding principal amounts under its various credit facilities and paid a total of $3.4 million related to the promissory notes issued in connection with the acquisitions of Thistle, Eclipse and BOLDER. DATA also incurred $0.9 million of transaction costs related to the amendments to its senior credit facilities and the establishment of a new credit facility.

OUTLOOK

In the second quarter of 2018, DCM continued to experience higher revenues over the prior year as a result of modest growth in its core business, combined with incremental revenue from the acquisitions made in 2017 and the first half of 2018. DCM maintains the 2018 financial outlook it issued in February 2018, buoyed by continued revenue growth trends, expanding opportunities within its existing customer base and new customer wins, particularly as a leading supplier in the emerging market for Health Canada compliant packaging labels in the licensed cannabis market.

Despite lower margins experienced in the second quarter compared to the first quarter, and price and inflationary pressures the Company is experiencing, DCM continues to realize gross margin improvements on non-contracted business and expects significantly improved margins in the packaging label business and other newly contracted business in the second half of the year, which is typically seasonally stronger in any event.

Revenues

DCM anticipates total revenues of between $295.0 million and $310.0 million for fiscal 2018, representing growth of approximately 2% to 7% compared to revenues of $289.5 million in fiscal 2017.

Adjusted EBITDA

Adjusted EBITDA for fiscal 2018 is estimated to be between $22.0 million and $25.0 million compared to Adjusted EBITDA in fiscal 2017 of $16.1 million.

Capital Expenditures

For fiscal 2018, DCM presently expects to spend approximately $1.5 million on capital expenditures. DCM expects to incur approximately $3.0 million mostly relating to the ERP project which will be incurred primarily through the first three quarters of 2018.

As part of establishing the above guidance, DCM made the following assumptions:

  • New customer wins and sales initiatives focused on capturing greater wallet share from DCM’s existing customer base, including increasingly capitalizing on its technology-enabled value-added services provided to customers, will offset continued expected declines in the Company’s traditional business communications market;
  • DCM will benefit from the full-year results of the acquisitions of Eclipse, Thistle and BOLDER Graphics and continue to experience growth rates in each of those businesses consistent with the past year, and DCM will benefit from the partial year of results from the acquisition of Perennial, commencing May 8, 2018.
  • The three acquisitions DCM completed in 2017 will continue to generate incremental cross-selling opportunities and cost synergies across the entire business of the Company in 2018, as will the acquisition of Perennial in May 2018;
  • DCM will be able to translate its sales pipeline into new customer acquisitions;
  • Improved year over year margins will be achieved through ongoing strategic initiatives relating to productivity improvements and continuing efforts by management to drive improved profitability;
  • DCM will be able to effect increases in the prices of products sold to customers to mitigate increases in the costs of paper, and consumables, CPI and freight charges that are being experienced industry-wide and longer-term realize higher margins with these customers, while experiencing nominal if any volume loss;
  • The Company continues to explore additional strategic acquisition opportunities, and, while there can be no certainty that any such opportunities will be completed, such acquisitions could impact the outlook provided;
  • Economic conditions in North America will not deteriorate; and
  • The above guidance is based on the accounting policies applied in the unaudited interim consolidated financial statements and accompanying notes of DCM for the second quarter of 2018 and IFRS in effect for the period ended June 30, 2018.

DCM cautions that the assumptions used to prepare the guidance provided above, although currently reasonable, may prove to be incorrect or inaccurate. Accordingly, actual results may differ materially from expectations as set forth above. The guidance provided above should be read in conjunction with, and is qualified by, the section Forward-looking Statements contained in this press release.

About DATA Communications Management Corp.

DCM is a communication solutions partner that adds value for major companies across North America by creating more meaningful connections with their customers. We pair customer insights and thought leadership with cutting-edge products, modular enabling technology and services to power our clients’ go-to market strategies. We help our clients manage how their brands come to life, determine which channels are right for them, manage multimedia campaigns, deploy location-specific and 1:1 marketing, execute custom loyalty programs, and fulfill their commercial printing needs all in one place.

Our extensive experience has positioned us as experts at providing communication solutions across many verticals, including the financial, retail, healthcare, consumer health, energy, and not-for-profit sectors. Thanks to our locations throughout Canada and in the United States (Chicago, Illinois and New York, New York), we are able to meet our clients’ varying needs with scale, speed, and efficiency – no matter how large or complex the ask. And we can do it all with advanced DCM security, regulatory compliance, and bilingual communications, in print or digital.

Additional information relating to DATA Communications Management Corp. is available on www.datacm.com, and in the disclosure documents filed by DATA Communications Management Corp. on the System for Electronic Document Analysis and Retrieval (SEDAR) at www.sedar.com.

FORWARD-LOOKING STATEMENTS

Certain statements in this press release constitute “forward-looking” statements that involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance, objectives or achievements of DCM, or industry results, to be materially different from any future results, performance, objectives or achievements expressed or implied by such forward-looking statements. When used in this press release, words such as “may”, “would”, “could”, “will”, “expect”, “anticipate”, “estimate”, “believe”, “intend”, “plan”, and other similar expressions are intended to identify forward-looking statements. These statements reflect DCM’s current views regarding future events and operating performance, are based on information currently available to DCM, and speak only as of the date of this press release. These forward-looking statements involve a number of risks, uncertainties and assumptions and should not be read as guarantees of future performance or results, and will not necessarily be accurate indications of whether or not such performance or results will be achieved. Many factors could cause the actual results, performance, objectives or achievements of DCM to be materially different from any future results, performance, objectives or achievements that may be expressed or implied by such forward-looking statements. The principal factors, assumptions and risks that DCM made or took into account in the preparation of these forward-looking statements include: the limited growth in the traditional printing industry and the potential for further declines in sales of DCM’s printed business documents relative to historical sales levels for those products; the risk that changes in the mix of products and services sold by DCM will adversely affect DCM’s financial results; the risk that DCM may not be successful in reducing the size of its legacy print business, realizing the benefits expected from restructuring and business reorganization initiatives, reducing costs, reducing and repaying its long-term debt, and growing its digital and marketing communications businesses; the risk that DCM may not be successful in managing its organic growth; DCM’s ability to invest in, develop and successfully market new digital and other products and services; competition from competitors supplying similar products and services, some of whom have greater economic resources than DCM and are well-established suppliers; DCM’s ability to grow its sales or even maintain historical levels of its sales of printed business documents; the impact of economic conditions on DCM’s businesses; risks associated with acquisitions by DCM; the failure to realize the expected benefits from the acquisitions of Thistle Printing, Eclipse Colour & Imaging, BOLDER Graphics and Perennial Group of Companies and risks associated with the integration of such acquired businesses; risks related to the disruption of management time from ongoing business operations due to the acquisition of the Perennial Group of Companies; increases in the costs of paper and other raw materials used by DCM; and DCM’s ability to maintain relationships with its customers. Additional factors are discussed elsewhere in this press release and under the headings “Risk Factors” and “Risks and Uncertainties” in DCM’s management’s discussion and analysis and in DCM’s other publicly available disclosure documents, as filed by DCM on SEDAR (www.sedar.com). Should one or more of these risks or uncertainties materialize, or should assumptions underlying the forward-looking statements prove incorrect, actual results may vary materially from those described in this press release as intended, planned, anticipated, believed, estimated or expected. Unless required by applicable securities law, DCM does not intend and does not assume any obligation to update these forward-looking statements.

NON-IFRS MEASURES

This press release includes certain non-IFRS measures as supplementary information. Except as otherwise noted, when used in this press release, EBITDA means earnings before interest and finance costs, taxes, depreciation and amortization and Adjusted net income (loss) means net income (loss) adjusted for the impact of certain non-cash items and certain items of note on an after-tax basis. Adjusted EBITDA means EBITDA adjusted for restructuring expenses, one-time business reorganization costs, goodwill impairment charges, gain on redemption of convertible debentures, and acquisition costs. Adjusted net income (loss) means net income (loss) adjusted for restructuring expenses, one-time business reorganization costs, goodwill impairment charges, gain on redemption of convertible debentures, acquisition costs and the tax effects of those items. Adjusted net income (loss) per share (basic and diluted) is calculated by dividing Adjusted net income (loss) for the period by the weighted average number of common shares (basic and diluted) outstanding during the period. In addition to net income (loss), DCM uses non-IFRS measures including Adjusted net income (loss), Adjusted net income (loss) per share, EBITDA and Adjusted EBITDA to provide investors with supplemental measures of DCM’s operating performance and thus highlight trends in its core business that may not otherwise be apparent when relying solely on IFRS financial measures. DCM also believes that securities analysts, investors, rating agencies and other interested parties frequently use non-IFRS measures in the evaluation of issuers. DCM’s management also uses non-IFRS measures in order to facilitate operating performance comparisons from period to period, prepare annual operating budgets and assess its ability to meet future debt service, capital expenditure and working capital requirements. Adjusted net income (loss), Adjusted net income (loss) per share, EBITDA and Adjusted EBITDA are not earnings measures recognized by IFRS and do not have any standardized meanings prescribed by IFRS. Therefore, Adjusted net income (loss), Adjusted net income (loss) per share, EBITDA and Adjusted EBITDA are unlikely to be comparable to similar measures presented by other issuers.

Investors are cautioned that Adjusted net income (loss), Adjusted net income (loss) per share, EBITDA and Adjusted EBITDA should not be construed as alternatives to net income (loss) determined in accordance with IFRS as an indicator of DCM’s performance. For a reconciliation of net income (loss) to EBITDA and a reconciliation of net income (loss) to Adjusted EBITDA, see Table 2 above. For a reconciliation of net income (loss) to Adjusted net income (loss) and a presentation of Adjusted net income (loss) per share, see Table 3 above.

CONSOLIDATED STATEMENTS OF FINANCIAL POSITION






(in thousands of Canadian dollars, unaudited)
June 30, 2018
$

December 31, 2017
$





Assets



Current assets



Trade receivables
70,067

41,193
Inventories
10,052

36,519
Prepaid expenses and other current assets
3,283

5,092


83,402

82,804
Non-current assets



Other non-current assets
454

–


Deferred income tax assets
2,899

6,108
Restricted cash
515

515
Property, plant and equipment
17,900

18,831
Pension assets
2,010

760
Intangible assets
17,553

14,473
Goodwill
16,915

8,368







141,648

131,859





Liabilities



Current liabilities



Bank overdraft
2,164

2,868
Trade payables and accrued liabilities
41,508

34,306
Current portion of credit facilities
5,480

8,725
Current portion of promissory notes
4,823

4,374
Provisions
3,188

3,950
Income taxes payable
2,627

3,188
Deferred revenue
2,129

11,237


61,919

68,648
Non-current liabilities



Provisions
475

2,702
Credit facilities
53,597

47,207
Promissory notes
1,494

2,829
Deferred income tax liabilities
1,985

1,295
Other non-current liabilities
3,688

3,413
Pension obligations
7,850

8,133
Other post-employment benefit plans
3,165

3,031


134,173

137,258





Equity



Shareholders’ equity/(deficit)



Shares
251,217

248,996
Warrants
806

287
Contributed surplus
1,633

1,368
Translation reserve
220

183
Deficit
(246,401)
(256,233)


7,475

(5,399)







141,648

131,859







CONSOLIDATED STATEMENTS OF OPERATIONS






(in thousands of Canadian dollars, except per share amounts,


For the three months
For the three months

unaudited)


ended June 30, 2018


ended June 30, 2017


$
$





Revenues
78,176

73,066





Cost of revenues
59,587

55,062





Gross profit
18,589

18,004





Expenses



Selling, commissions and expenses
9,200

8,690
General and administration expenses
8,550

7,025
Restructuring expenses
736

1,735
Acquisition costs
270

13


18,756

17,463





(Loss) income before finance costs and income taxes
(167)
541





Finance costs (income)



Interest expense
1,273

1,181
Interest income
(2)

–


Amortization of transaction costs
158

121


1,429

1,302





Loss before income taxes
(1,596)
(761)





Income tax (recovery) expense



Current
(288)
288
Deferred
(114)
(468)


(402)
(180)





Net loss for the period
(1,194)
(581)





Basic loss per share
(0.06)
(0.04)





Diluted loss per share
(0.06)
(0.04)







CONSOLIDATED STATEMENTS OF OPERATIONS






(in thousands of Canadian dollars, except per share amounts,


For the six months
For the six months

unaudited)


ended June 30, 2018
ended June 30, 2017


$
$





Revenues
166,692

143,192





Cost of revenues
126,628

108,828





Gross profit
40,064

34,364





Expenses



Selling, commissions and expenses
19,661

17,208
General and administration expenses
15,761

13,531
Restructuring expenses
800

3,621
Acquisition costs
313

969


36,535

35,329





Income (loss) before finance costs and income taxes
3,529

(965)





Finance costs (income)



Interest expense
2,412

2,131
Interest income
(4)
—
Amortization of transaction costs
301

236


2,709

2,367





Income (loss) before income taxes
820

(3,332)





Income tax (recovery) expense



Current
555

339
Deferred
(304)
(993)


251

(654)





Net income (loss) for the period
569

(2,678)





Basic earnings (loss) per share
0.03

(0.20)





Diluted earnings (loss) per share
0.03

(0.20)







CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS






(in thousands of Canadian dollars, unaudited)


For the three months
For the three months


ended June 30, 2018
ended June 30, 2017


$
$





Net loss for the period
(1,194)
(581)










Other comprehensive income (loss):








Items that may be reclassified subsequently to net loss



Foreign currency translation
15

(56)


15

(56)





Items that will not be reclassified to net loss



Re-measurements of pension and other post-employment benefit obligations
891

(758)
Taxes related to pension and other post-employment benefit adjustment above
(232)
197


659

(561)





Other comprehensive income (loss) for the period, net of tax
674

(617)





Comprehensive loss for the period
(520)
(1,198)







CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)






(in thousands of Canadian dollars, unaudited)


For the six months
For the six months


ended June 30, 2018
ended June 30, 2017


$
$





Net income (loss) for the period
569

(2,678)










Other comprehensive loss:








Items that may be reclassified subsequently to net income (loss)



Foreign currency translation
37

(74)


37

(74)





Items that will not be reclassified to net income (loss)



Re-measurements of pension and other post-employment benefit obligations
1,214

(2,103)
Taxes related to pension and other post-employment benefit adjustment above
(316)
547


898

(1,556)





Other comprehensive income (loss) for the period, net of tax
935

(1,630)





Comprehensive income (loss) for the period
1,504

(4,308)







CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (DEFICIT)
















(in thousands of Canadian dollars,






Conversion
Contributed
Translation


Total equity

unaudited)


Shares
Warrants
options
surplus
reserve
Deficit
(deficit)


$
$
$


$
$
$















Balance as at December 31, 2016
237,432

–



128

1,164

258

(248,917)
(9,935)















Net loss for the period

–



–



–



–



–



(2,678)
(2,678)
Other comprehensive loss for the period

–



–



–



–



(74)
(1,556)
(1,630)
Total comprehensive loss for the period

–



–



–



–



(74)
(4,234)
(4,308)















Shares issued on the redemption of convertible debentures

–



–



(128)
128

–



–



–


Cancellation of convertible debentures

–



–



–



–



–



–



–


Issuance of common shares
10,662

280

–



(15)

–



–



10,927
Share-based compensation expense

–



–



–



59

–



–



59















Balance as at June 30, 2017
237,432

–



–



1,292

184

(253,151)
(14,243)






























Balance as at December 31, 2017
248,996

287

–



1,368

183

(256,233)
(5,399)
Impact of change in accounting policy

–



–



–



–



–



8,365

8,365


248,996

287

–



1,368

183

(247,868)
2,966















Net income for the period

–



–



–



–



–



569

569
Other comprehensive income for the period

–



–



–



–



37

898

935
Total comprehensive income for the period

–



–



–



–



37

1,467

1,504















Issuance of common shares and warrants, net
2,221

519

–



–



–



–



2,740
Share-based compensation expense

–



–



–



265

–



–



265















Balance as at June 30, 2018
251,217

806

–



1,633

220

(246,401)
7,475






















CONSOLIDATED STATEMENTS OF CASH FLOWS






(in thousands of Canadian dollars, unaudited)


For the three months
For the three months


ended June 30, 2018
ended June 30, 2017


$
$





Cash provided by (used in)








Operating activities



Net loss for the period
(1,194)
(581)
Adjustments to net loss



Depreciation of property, plant and equipment
1,176

1,058
Amortization of intangible assets
1,232

906
Share-based compensation expense
171

7
Pension expense
135

135
(Gain) loss on disposal of property, plant and equipment
(5)
42
Write-off of intangible assets
242

–


Provisions
870

1,735
Amortization of transaction costs
158

121
Accretion of non-current liabilities and related interest expense
150

219
Other non-current liabilities
120

(248)
Other post-employment benefit plans, net
67

55
Income taxes recovery
(402)
(180)


2,720

3,269
Changes in working capital
5,418

2,721
Contributions made to pension plans
(304)
(453)
Provisions paid
(1,769)
(1,653)
Income taxes paid
(278)
(5)


5,787

3,879





Investing activities



Purchase of property, plant and equipment
(665)
(811)
Purchase of intangible assets
(1,616)
(846)
Proceeds on disposal of property, plant and equipment
26

2
Net cash consideration for acquisition of businesses
(7,505)

–




(9,760)
(1,655)





Financing activities



Issuance of common shares and warrants, net
685

8,080
Proceeds from credit facilities
10,395

3,500
Repayment of credit facilities
(4,816)
(4,003)
Repayment of convertible debentures

–



(11,175)
Repayment of other liabilities
(100)
(166)
Repayment of promissory notes
(585)
(935)
Transaction costs
(863)
(288)
Finance lease payments
(6)
(18)


4,710

(5,005)





Decrease in (bank overdraft) / (decrease) in cash and cash equivalents during the period
737

(2,781)
(Bank overdraft) cash and cash equivalents – beginning of period
(2,916)
1,838
Effects of foreign exchange on cash balances
15

(46)
Bank overdraft – end of period
(2,164)
(989)







CONSOLIDATED STATEMENTS OF CASH FLOWS






(in thousands of Canadian dollars, unaudited)


For the six months
For the six months


ended June 30, 2018
ended June 30, 2017


$
$





Cash provided by (used in)








Operating activities



Net income (loss) for the period
569

(2,678)
Adjustments to net income (loss)



Depreciation of property, plant and equipment
2,324

1,943
Amortization of intangible assets
2,301

1,599
Share-based compensation expense
265

59
Pension expense
269

270
(Gain) loss on disposal of property, plant and equipment
(129)
22
Write-off of intangible assets
242

–


Provisions
934

3,621
Amortization of transaction costs
301

236
Accretion of non-current liabilities and related interest expense
311

317
Other non-current liabilities
446

(118)
Other post-employment benefit plans, net
134

110
Income tax expense (recovery)
251

(654)


8,218

4,727
Changes in working capital
9,107

1,836
Contributions made to pension plans
(588)
(912)
Provisions paid
(3,923)
(3,340)
Income taxes paid
(894)
(5)


11,920

2,306





Investing activities



Purchase of property, plant and equipment
(1,286)
(948)
Purchase of intangible assets
(2,518)
(1,079)
Proceeds on disposal of property, plant and equipment
150

22
Net cash consideration for acquisition of businesses
(7,505)
(4,638)


(11,159)
(6,643)





Financing activities



Issuance of common shares and warrants, net
685

8,069
Proceeds from credit facilities
10,395

17,089
Repayment of credit facilities
(6,695)
(7,601)
Repayment of convertible debentures

–



(11,175)
Repayment of other liabilities
(201)
(455)
Repayment of promissory notes
(3,393)
(1,064)
Transaction costs
(868)
(605)
Finance lease payments
(13)
(2,400)


(90)
1,858





Decrease in (bank overdraft) / (decrease) in cash and cash equivalents during the period
671

(2,479)
(Bank overdraft) cash and cash equivalents – beginning of period
(2,868)
1,544
Effects of foreign exchange on cash balances
33

(54)
Bank overdraft – end of period
(2,164)
(989)








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