ANNUAL
REPORT
2020
A VITAL LINK
IN HEALTHCARE
Profile
Andlauer Healthcare Group Inc. (TSX: AND) is a leading and growing supply chain management company
offering a robust platform of customized third-party logistics (“3PL”) and specialized transportation solutions
for the healthcare sector. Our 3PL services include customized logistics, distribution and packaging solutions
for healthcare manufacturers across Canada. Our specialized transportation services, including air freight
forwarding, ground transportation, dedicated delivery and last mile services, provide a one-stop shop for
our clients’ healthcare transportation needs. Through our complementary service offerings, available across
a coast-to-coast distribution network, we strive to accommodate the full range of our clients’ specialized
supply chain needs on an integrated and efficient basis.
Operational Highlights
/ We implemented our new 220,000 square-foot state-of-the-art logistics and distribution facility in Brampton,
Ontario, commencing operations at the new facility in July 2020;
/ We completed the tuck-in acquisitions of TDS Logistics Ltd. and McAllister Courier Inc. for a combined purchase
price of $15.9 million;
/ Subsequent to year-end, on March 1, 2021, we completed the acquisitions of 100% of Skelton Canada Inc. and 49%
of Skelton USA Inc. for total aggregate consideration of approximately $114.7 million, subject to customary working
capital adjustments; and
/ We successfully maintained service levels across our operations, while closely monitoring the safety measures we
implemented in response to COVID-19 to prioritize the health and safety of our personnel, clients, and suppliers.
Financial Performance
Revenue
($ millions)
Operating Income
($ millions)
EBITDA ($ millions)(1)
and Margin (%)
Net Income and
Comprehensive Income
($ millions)
277.0
290.0
314.3
50.9
70.6
64.4
45.0
40.9
78.9
37.7
30.3
28.2
23.2%
24.3%
25.1%
2018
2019
2020
2018
2019
2020
2018
2019
2020
2018
2019
2020
(1)
Defined as net income (loss) and comprehensive income (loss) for the period before: (i) income tax (recovery) expense; (ii) interest income; (iii) interest expense; and (iv) depreciation and amortization.
To our shareholders,
On behalf of the Board of Directors and management
of Andlauer Healthcare Group Inc. (“AHG”) and our
team of nearly 2,000 employees and owner/operators
across Canada, I am pleased to present AHG’s 2020
Annual Report.
Michael Andlauer
Chief Executive Offi cer
2020 was our fi rst full year as a public company, following the completion of our initial public offering (“IPO”) on the
Toronto Stock Exchange in December 2019. We were just 70 days into our inaugural year as a public company
when the COVID-19 outbreak was declared a global pandemic by the World Health Organization on March 11th.
We responded by rapidly implementing measures to prioritize the health and safety of our people and partners,
and to ensure that our operations were not disrupted. We are an essential business in the Canadian healthcare
industry and our people truly made a difference in ensuring continuity of our business.
From our management team, who have met every day
since last March to assess our heightened safety measures
and business continuity plans, to our personnel handling
the products and to our frontline delivery drivers and
owner/operators, it has been a truly collaborative effort to
ensure the timely delivery of essential products to hospitals,
pharmacies, and clinics across Canada. This is a testament
to our strong shared culture at AHG.
Our 2020 fi nancial results demonstrate our success in
managing through the pandemic, the resiliency of our
business and our focus on generating steady organic
growth by leveraging our unique national platform to
provide specialized supply-chain solutions to the growing
healthcare industry in Canada. Our revenue and operating
income for 2020 increased by 8.4% and 13.2%, respectively,
compared to 2019. Net income increased 24.3% year-over-
year to $37.7 million and EBITDA totaled $78.9 million, 11.8%
ahead of last year. Our EBITDA margin was 25.1% in 2020,
up from 24.3% in 2019.
We also demonstrated our commitment to advancing
the growth strategy that we presented at the time of our
IPO. During 2020, we continued to strengthen our clients’
connection to our platform by broadening our service
offering, including the expansion of our dedicated and last
mile delivery product line. We also expanded our capacity to
attract both new clients and new business with the opening
of our new, state-of-the-art, 220,000 square-foot facility in
Brampton, Ontario this past July. We have allocated half of
this facility to a new customer implementation and we have
a solid pipeline of opportunities to fi ll the remaining capacity
in 2021.
two
In December, we completed our fi rst tuck-in acquisitions as
a public company with the purchase of TDS Logistics Ltd. and
McAllister Courier Inc. for a combined price of $15.9 million.
temperature-controlled
These
focused
transportation
approximately
$22 million of net revenue in 2019, and both increased the
reach of our services and expanded our market presence
in Ontario.
businesses
generated
regionally
Subsequent to year-end, on March 1, 2021, we completed
the acquisitions of 100% of Skelton Canada Inc. and 49% of
Skelton USA Inc. for a total purchase price of approximately
$114.7 million. These acquisitions represent a major milestone
for AHG as they signifi cantly expand our footprint, fortify our
competitive strengths and, through our minority interest in
Skelton USA, provide us with strategic access to the U.S.
market though a well-established operator. Skelton Canada
and USA share the same values as AHG, including a deep
commitment to customers and each other. We expect the
acquisitions to be immediately accretive to cash fl ow and
earnings per share.
Letter to Shareholders (continued)
Skelton Canada is a leading transportation partner to the
Canadian pharmaceutical and biologics industry, with
nationwide reach and a fleet offering validated temperature
control, state-of-the-art security systems and real-time
shipment monitoring. Skelton Canada specializes in 2°C to
8°C and less than -20°C shipments, so we have significantly
expanded our capacity in this area.
Skelton USA really took off in 2017 as a result of their
pharmaceutical customers “pulling” them into the domestic
U.S. market. Skelton USA has been growing rapidly by
successfully leveraging the Skelton reputation and brand
for cold chain expertise.
AHG is differentiated in the highly fragmented healthcare
logistics and transportation market by our unique competitive
strengths, including: end-to-end validated temperature
management, regulatory compliance and quality assurance,
technology-enabled visibility and temperature monitoring
capability throughout the supply chain, and security. We
offer these services across a national platform in Canada
that is unique to AHG. Through ATS Healthcare and
Skelton Canada, we now provide specialized transportation
services, directly or indirectly, in Canada for all of the top 25
global pharmaceutical manufacturers. Through Accuristix,
we manage the Canadian finished goods distribution of
more than $7 billion in pharmaceutical product sales.
AHG is supporting the logistics and distribution of COVID-19
vaccines in certain regions of Canada. We have been
contracted by the Government of Ontario to store and
transport COVID vaccines and ancillary products. We’re
working locally with provincial health units in Ontario and
Alberta to deliver vaccines to hospitals or redistribute
to other points, including long-term care facilities. We’ve
also had orders for our Credo packaging products from
nine provinces, one territory, the Public Health Agency
of Canada and other prominent healthcare distributors,
to help support vaccine distribution. Our involvement in
supporting COVID-19 vaccine logistics and distribution will
increase as the volumes available to Canadians scale up in
the coming months.
Looking ahead, we remain well positioned in a very
attractive market. Spending on healthcare logistics and
transportation has been outpacing GDP growth in Canada
and this growth is expected to continue due to: favourable
demographic trends, an increasing number of healthcare
and adjacent products with unique logistical needs, and
continually evolving industry regulation. Further, demand
for distributed ancillary services is increasing as healthcare
companies focus more on their core competencies.
in 2021,
We expect continued strong performance
supported by ongoing organic growth, a full year of
contributions from our acquisitions of TDS Logistics and
McAllister Courier, and of course, contributions from both
Skelton Canada and our interest in Skelton USA. We remain
focused on continuing to advance the growth strategies
that have contributed to our success in 2020.
In closing, I would like to recognize AHG’s directors,
management and personnel
their exceptional
commitment to our growth and success. I’m very proud of
our team’s achievements since our IPO, particularly while
dealing with a challenging and ever-changing operating
environment in 2020.
for
And to our shareholders, we thank you for your confidence
and support.
Yours in health,
Michael Andlauer
Chief Executive Officer
ANDLAUER HEALTHCARE GROUP INC.
Management’s Discussion and Analysis
of Financial Condition and Results of Operations
for the fiscal year ended December 31, 2020
February 24, 2021
TABLE OF CONTENTS
Cautionary Note Regarding Forward-Looking Information .............................................................................. 1
Basis of Presentation ............................................................................................................................................ 3
Non-IFRS Measures ............................................................................................................................................. 3
Overview ............................................................................................................................................................... 3
Summary of Factors Affecting Performance ....................................................................................................... 6
How We Assess the Performance of Our Business .............................................................................................. 9
Selected Consolidated Financial Information .................................................................................................... 12
Reconciliation of Non-IFRS Measures ............................................................................................................... 14
Results of Operations ......................................................................................................................................... 14
Summary of Quarterly Results .......................................................................................................................... 21
Liquidity & Capital Resources ........................................................................................................................... 22
Cash Flows .......................................................................................................................................................... 24
Contractual Obligations ..................................................................................................................................... 25
Off-Balance Sheet Arrangements ....................................................................................................................... 26
Seasonality .......................................................................................................................................................... 26
Financial Instruments ........................................................................................................................................ 26
Related Party Transactions ................................................................................................................................ 27
Critical Accounting Judgements and Estimates ................................................................................................ 31
Significant New Accounting Standards .............................................................................................................. 32
Accounting Classifications and Fair Values ....................................................................................................... 33
Risk Factors ........................................................................................................................................................ 33
Outstanding Share Data ..................................................................................................................................... 35
Disclosure Controls and Procedures and Internal Controls Over Financial Reporting ................................... 35
Additional Information ...................................................................................................................................... 36
- 1 -
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
This management’s discussion and analysis of financial condition and results of operations (“MD&A”) for
the three months and year ended December 31, 2020 should be read in conjunction with Andlauer
Healthcare Group Inc.’s audited annual consolidated financial statements for the fiscal year ended
December 31, 2020, along with the related notes thereto. This MD&A is presented as of February 24, 2021
and is current to that date unless otherwise stated.
All references in this MD&A to the “Company”, “AHG”, “us”, “our” or “we” refer to Andlauer Healthcare
Group Inc., together with our direct and indirect subsidiaries, on a consolidated basis, which is referred to
as “the Company” in our financial statements. Additionally, all references to “Q4 2020” are to the three
months ended December 31, 2020; “Q4 2019” are to the three months ended December 31, 2019; “Q3
2020” are to the three months ended September 30, 2020; “Q2 2020” are to the three months ended June
30, 2020; “Q1 2020” are to the three months ended March 31, 2020; “Fiscal 2020” are to the year ended
December 31, 2020; “Fiscal 2019” are to the year ended December 31, 2019 and “Fiscal 2018” are to the
year ended December 31, 2018.
Cautionary Note Regarding Forward-Looking Information
This MD&A contains forward-looking information and forward-looking statements (collectively,
“forward-looking information”) within the meaning of applicable securities laws. Forward-looking
information may relate to our future financial outlook and anticipated events or results and may include
information regarding our financial position, business strategy, growth strategies, addressable markets,
budgets, operations, financial results, taxes, dividend policy, plans, objectives and responses to the outbreak
of the coronavirus disease (“COVID-19”). Particularly, information regarding the timing, completion and
anticipated benefits of the proposed acquisitions of the Skelton Companies (as defined below), our
expectations of future results, performance, achievements, facility expansions, leases, platform expansions,
acquisitions, public company costs, payment of dividends, prospects, financial targets or outlook, intentions,
opportunities, the markets in which we operate and the potential impact of, and response measures to be
taken with respect to, COVID-19 is forward-looking information. In some cases, forward-looking
information can be identified by the use of forward-looking terminology such as “plans”, “targets”,
“expects” or “does not expect”, “is expected”, “an opportunity exists”, “budget”, “scheduled”, “estimates”,
“outlook”, “forecasts”, “projection”, “prospects”, “strategy”, “intends”, “anticipates”, “does not anticipate”,
“believes”, “commencing” or variations of such words and phrases or statements that certain actions, events
or results “may”, “could”, “would”, “might”, “will”, “will be taken”, “occur” or “be achieved”. In addition,
any statements that refer to expectations, intentions, projections or other characterizations of future events
or circumstances contain forward-looking information. Statements containing forward-looking information
are not historical facts but instead represent management’s expectations, estimates and projections
regarding future events or circumstances.
Such forward-looking statements are qualified in their entirety by the inherent risks, uncertainties and
changes in circumstances surrounding future expectations which are difficult to predict and many of which
are beyond the control of the Company.
This forward-looking information and other forward-looking information is based on our opinions,
estimates and assumptions in light of our experience and perception of historical trends, current conditions
and expected future developments, as well as other factors that we currently believe are appropriate and
reasonable in the circumstances. Despite a careful process to prepare and review the forward-looking
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information, there can be no assurance that the underlying opinions, estimates and assumptions will prove
to be correct.
Forward-looking information is necessarily based on a number of opinions, estimates and assumptions that,
while considered by the Company to be appropriate and reasonable as of the date of this MD&A, are subject
to known and unknown risks, uncertainties, assumptions and other factors that may cause the actual results,
level of activity, performance or achievements to be materially different from those expressed or implied
by such forward-looking information, including but not limited to:
the impact of the COVID-19 pandemic on our operations, business and financial results;
the impact of changing conditions in the healthcare logistics and transportation services market;
•
•
• our ability to execute our growth strategies;
•
increasing competition in the healthcare logistics and transportation services market in which we
operate;
changes in the attitudes, financial condition and demand of our target market;
• volatility in financial markets;
•
• developments and changes in applicable laws and regulations;
• our ability to source and complete acquisitions;
• our ability to successfully integrate businesses and assets that we acquire;
• our ability to retain existing clients and develop new clientele;
• our ability to retain members of our management team and key personnel;
•
• our ability to expand into additional markets; and
•
increases in driver compensation and the ability to attract and retain employees;
such other factors discussed in greater detail under “Risk Factors” in this MD&A and in our
Annual Information Form dated February 24, 2021 for Fiscal 2020 (the “AIF”) which is available
on our profile on the System for Electronic Document Analysis and Retrieval (“SEDAR”) at
www.sedar.com.
If any of these risks or uncertainties materialize, or if the opinions, estimates or assumptions underlying the
forward-looking information prove incorrect, actual results or future events might vary materially from
those anticipated in the forward-looking information. The opinions, estimates or assumptions referred to
above and described in greater detail in “Risk Factors” should be considered carefully by prospective
investors.
In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the
relevant subject. Forward-looking information is provided for the purpose of presenting information about
management’s current expectations and plans relating to the future and allowing investors and others to get
a better understanding of our anticipated financial position, results of operations and operating environment.
Readers are cautioned that such information may not be appropriate for other purposes.
Although we have attempted to identify important risk factors that could cause actual results to differ
materially from those contained in forward-looking information, there may be other risk factors not
presently known to us or that we presently believe are not material that could also cause actual results or
future events to differ materially from those expressed in such forward-looking information. There can be
no assurance that such information will prove to be accurate, as actual results and future events could differ
materially from those anticipated in such information. Accordingly, investors should not place undue
reliance on forward-looking information, which speaks only as of the date made. The forward-looking
information contained in this MD&A represents our expectations as of the date of this MD&A (or as of the
date they are otherwise stated to be made), and are subject to change after such date. However, we disclaim
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any intention or obligation or undertaking to update or revise any forward-looking information whether as
a result of new information, future events or otherwise, except as required under applicable securities laws.
All of the forward-looking information contained in this MD&A is expressly qualified by the
foregoing cautionary statements.
Basis of Presentation
Our consolidated financial statements have been prepared in accordance with International Financial
Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”) and are
presented in thousands of Canadian dollars unless otherwise indicated.
As described in additional detail in our financial statements for the years ended December 31, 2020 and
2019, our financial statements are presented as consolidated financial statements. AHG’s acquisition of the
AHG Entities (as defined below) in connection with our initial public offering (“IPO”) was a business
combination involving entities under common control in which all of the combining entities are ultimately
controlled by Andlauer Management Group Inc. (“AMG”). This method results in our financial statements
being restated for periods prior to the date of obtaining common control, to reflect the combination as if it
had occurred from the beginning of the period that the entities were under common control, regardless of
the actual date the common control transaction closed.
Non-IFRS Measures
This MD&A makes reference to certain non-IFRS measures. These measures are not recognized measures
under IFRS, do not have a standardized meaning prescribed by IFRS and are therefore unlikely to be
comparable to similar measures presented by other companies. Rather, these measures are provided as
additional information to complement those IFRS measures by providing further understanding of our
results of operations from management’s perspective. Accordingly, these measures should not be
considered in isolation nor as a substitute for analysis of our financial information reported under IFRS. We
use non-IFRS measures including “EBITDA” and “EBITDA Margin”. These non-IFRS measures are used
to provide investors with supplemental measures of our operating performance and thus highlight trends in
our core business that may not otherwise be apparent when relying solely on IFRS financial measures. We
also believe that securities analysts, investors and other interested parties frequently use non- IFRS measures
in the evaluation of issuers. Our management also uses non-IFRS measures in order to facilitate operating
performance comparisons from period to period, to prepare annual operating budgets and to determine
components of management compensation.
For a description of how we define these non-IFRS Measures and an explanation of why the non-IFRS
measures provide useful information to investors, please see “How We Assess the Performance of Our
Business – Non-IFRS Measures” below.
For quantitative reconciliations of net income and comprehensive income to EBITDA for Q4 2020, Fiscal
2020, Q4 2019, and Fiscal 2019, please see “Reconciliation of Non-IFRS Measures” below.
Overview
AHG was incorporated under the Business Corporations Act (Ontario) on November 12, 2019 with its head
office located at 100 Vaughan Valley Blvd, Woodbridge, ON, L4H 3C5. The Company’s subordinate
voting shares (“Subordinate Voting Shares”) are listed on the Toronto Stock Exchange (the “TSX”) under
the stock symbol “AND”.
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Initial Public Offering
On December 11, 2019, we successfully completed an IPO of 10 million Subordinate Voting Shares at a
price of $15.00 per share for gross proceeds of $150 million. The underwriters in the IPO were granted an
over-allotment option (the “Over-Allotment Option”) to purchase up to an additional 1.5 million
Subordinate Voting Shares at a price of $15.00 per Subordinate Voting Share, which was fully exercised
on December 16, 2019, and raised additional gross proceeds of $22.5 million.
In connection with the IPO, we completed a series of reorganization transactions (the “Pre-IPO
Reorganization”), including the settlement of certain outstanding related party balances and the settlement
of the AHG Employee Benefit Plan Trust (the “Employee Trust”), for the benefit of certain executive
officers and employees of the Company and the AHG Entities. In addition, on December 11, 2019, we
completed the acquisition of a number of entities including Associated Logistics Solutions Inc., Credo
Systems Canada Inc., 2186940 Ontario Inc. and their respective subsidiaries (collectively, the “AHG
Entities”) from AMG in consideration for the issuance of 25.175 million multiple voting shares (“Multiple
Voting Shares”, and together with the Subordinate Voting Shares, the “Shares”), and two non-interest
bearing promissory notes in the aggregate principal amount of $200 million. See “Employee Trust” and
“Related Party Transactions”.
In connection with closing of the IPO, we also entered into credit facilities (the “Credit Facilities”) with
Royal Bank of Canada and Canadian Imperial Bank of Commerce, comprised of a revolving facility (the
“Revolving Credit Facility”) in the aggregate principal amount of up to $75 million and a term facility (the
“Term Facility”) in the aggregate principal amount of up to $25 million. See “Liquidity and Capital
Resources – Credit Facilities”.
Employee Trust
In connection with the IPO, as disclosed in AHG’s IPO prospectus dated December 4, 2019 (the “IPO
Prospectus”), the Employee Trust borrowed $13.875 million from AHG (the “Employee Trust Loan”) and
used the proceeds to acquire 0.925 million Subordinate Voting Shares from AMG for the benefit of certain
executive officers and employees of AHG and the AHG Entities.
During Q2 2020, the Trustees of the Employee Trust initiated steps to simplify the Employee Trust
structure. On June 23, 2020, the Employee Trust sold an aggregate of 0.508 million Subordinate Voting
Shares pursuant to a number of private agreements at a price of $32.00 per Subordinate Voting Share for
aggregate proceeds of $16.256 million (the “Employee Trust Disposition”). On June 25, 2020, $13.875
million of the proceeds of the Employee Trust Disposition were used to repay the Employee Trust Loan.
As a result of the simplified Employee Trust structure, including the repayment of the Employee Trust
Loan, there is no ongoing contractual relationship between AHG, or any AHG entity, and the Employee
Trust; and no expenses are incurred by either AHG or an AHG Entity in connection with any allocation or
distribution of Subordinate Voting Shares to a beneficiary by the Employee Trust.
During Q3 2020 and Q4 2020, approximately 0.330 million Subordinate Voting Shares were distributed to
beneficiaries by the Employee Trust.
Acquisitions
We selectively evaluate strategically compelling acquisition opportunities that leverage or expand our
differentiated capabilities. In pursuing potential acquisition opportunities, we will assess several criteria to
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expand our domestic platform, including: (i) complementary tuck-ins; and (ii) entry or expansion into
growth verticals, new verticals and new service offerings. We will assess opportunities for expansion into
the U.S. or international markets through an existing platform that aligns with our core capabilities and
existing service offering.
We completed the tuck-in acquisitions of TDS Logistics Ltd. (“TDS”) and McAllister Courier Inc. (“MCI”)
effective October 1, 2020, our first acquisitions as a public company. These two regionally focused
temperature-controlled transportation businesses are expected to increase the reach of our services and
expand our market presence in Ontario. Together, the two companies generate approximately $22 million
of annual net revenue.
On February 23, 2021, we entered into definitive agreements to acquire 100% of Skelton Canada Inc. and
49% of Skelton USA Inc. for total aggregate consideration of approximately $114.7 million, subject to
customary working capital adjustments. The agreement also includes an option for AHG to acquire the
remaining 51% of Skelton USA Inc. The acquisitions are expected to close on or about March 1, 2021.
Our Business
We are a leading and growing supply chain management company with a platform of customized third-
party logistics (“3PL”) and specialized transportation solutions for the healthcare sector. We offer services
to healthcare manufacturers, wholesalers, distributors and 3PL providers, among others, through a
comprehensive platform of high quality, technology-enabled supply chain solutions for a range of products,
including: pharmaceuticals, vaccines, biologics, narcotics, precursors, active pharmaceutical ingredients,
over-the-counter, natural health, animal health, consumer health, cosmetics, health and beauty aids, and
medical devices. We integrate our uniquely designed nation-wide network of facilities, vehicles, personnel
and technology systems into our clients’ businesses to offer holistic solutions that span all of our clients’
shipping needs and satisfy the requirements of the highly regulated Canadian healthcare sector.
We differentiate our service offerings and deliver value to our clients through our competitive strengths in
temperature management, quality assurance and regulatory compliance, technology-enabled visibility
throughout the supply chain and security. We are committed to developing and expanding long-term
strategic relationships with our clients to provide improved operational efficiencies and access to value-
added services. We generate revenue across five principal product lines: logistics and distribution,
packaging solutions, air freight forwarding, ground transportation, and dedicated and last mile delivery.
We believe that we are Canada’s only national third-party service provider focused exclusively on
delivering customized, end-to-end logistics and specialized transportation solutions to the healthcare sector.
Our 3PL services are provided under our Accuristix brand, through which we provide customized logistics,
distribution and packaging solutions to various healthcare manufacturers. Our specialized transportation
solutions are offered under our ATS Healthcare brand, where we provide a one-stop shop for our clients’
healthcare transportation needs through our specialized air freight forwarding, ground transportation,
dedicated delivery and last mile services. We believe we are a national leader in the Canadian healthcare
logistics and specialized transportation markets we serve.
In our healthcare logistics segment, we serve as an extension of our manufacturing clients, leveraging our
infrastructure and expertise to manage their supply chain activities, allowing them to focus on other strategic
priorities such as sales, marketing, research and development. We focus on serving our logistics clients as
comprehensively as possible and incorporate multiple services from all of our related product lines into our
customized logistics solutions.
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In our specialized transportation segment, we leverage our national infrastructure to offer coast-to-coast
delivery, including specialized facilities, multiple modes of transportation and flexible capacity to
accommodate the full range of our clients’ logistics and/or transportation needs on an integrated and
efficient basis. By combining multiple service offerings, we can effectively provide managed and monitored
movement of our clients’ temperature sensitive and valuable products through a closed-loop nation-wide
system.
Our competitive strengths in temperature management, quality assurance and regulatory compliance,
visibility throughout the supply chain and security are deployed across our nation-wide network of 28
secure, temperature-controlled facilities, the five third-party owned cross-docks that we operate from and
by our team of highly-trained employees. Our security, information and monitoring systems, as well as our
temperature management expertise, allow us to meet and exceed Health Canada guidelines and regulations,
ensuring the integrity and quality of our clients’ temperature sensitive healthcare goods and data.
Additional information about AHG, including our AIF, can be found on our profile on SEDAR at
www.sedar.com or on our website at www.andlauerheathcare.com.
Summary of Factors Affecting Performance
We believe that our performance and future success depend on a number of factors that present significant
opportunities for us. These factors are also subject to a number of inherent risks and challenges, some of
which are discussed below and in the “Risk Factors” section of this MD&A and in our AIF.
Service Offering
We believe that offering a platform of services designed specifically for the healthcare sector puts us in a
unique position as a provider of supply chain solutions. Our competitive strengths in temperature
management, quality assurance and regulatory compliance, visibility throughout the supply chain and
security allow us to provide healthcare clients with specialized, integrated, end-to-end supply chain
solutions. Through our five principal, complementary service offerings: logistics and distribution,
packaging solutions, air freight forwarding, ground transportation, and dedicated and last mile delivery, we
accommodate our clients’ specialized supply chain needs on an integrated and efficient basis.
Relationships with Manufacturers and Distributors
We believe that our market position is strengthened by the desire of our clients to increasingly outsource
their supply-chain management to specialized service providers with the healthcare quality systems,
operational expertise and experience to efficiently optimize their product distribution. We are committed to
developing and expanding long-term strategic relationships with our clients to provide improved
operational efficiencies and access to value-added services. From manufacturers to distributors to retail
locations to front doors across Canada, we store, transport and monitor and manage the temperature
conditions of a range of healthcare products. Our trained personnel comply with healthcare industry
regulations and best practices.
New Development Projects
We secure client contract wins as a foundation for growth and then add incremental warehousing and
distribution square footage through capital efficient leases. Given the required lead-time to build and license
facilities, as we secure new major client contracts, we typically strategically invest in excess capacity in
anticipation of growing client needs, as well as new client opportunities, which enables capital efficient
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growth. We have followed this strategic approach in the past, including in the development of our new
220,000 square-foot facility in Brampton, Ontario, which became operational in July 2020.
National Demographics and Healthcare Spending
We believe that we are strategically positioned to directly benefit from the strong growth expected in the
Canadian healthcare sector, which is driven by a number of favourable trends including an aging population,
increased life expectancy, increasing healthcare spending, and an increasing number of healthcare products
requiring unique logistics needs. Vaccines and biologics, for example, are generally temperature sensitive
and require varying degrees of temperature conditions for transportation and storage.
Regulatory Environment
In order to maintain the safety, quality and efficacy of healthcare products, government regulations set out
rules relating to, among other things, the packaging, warehousing, distribution, transportation and
temperature monitoring of such products. The pace of introduction and complexity of such regulations has
increased in recent years, including through the introduction of, and revisions to, many Health Canada
guidelines, such as Health Canada’s GUI-0069 - Guidelines for Environmental Control of Drugs During
Storage and Transportation (“GUI-0069”), among others. Recognizing the ever-changing regulatory
demands on the healthcare sector, we take a proactive approach to stay aligned with regulatory protocols,
provide environments that are compliant with Good Manufacturing Practices and offer our clients’ real-
time monitoring and reporting. By outsourcing their logistics and transportation needs to AHG and our
specialized services platform, our clients can focus on their core business.
Competition
We believe that we offer a unique set of services in the marketplace and stand apart from other outsourced
healthcare service providers and traditional logistics and transportation companies. In particular, we believe
our differentiated capabilities, including our temperature management expertise, together with our coast-
to-coast distribution network and multiple service offerings, uniquely positions us within our industry and
sets us apart from companies specializing in global integration and supply chain management, national non-
temperature managed solutions, regional temperature managed solutions as well as niche service providers
and insourced transportation services. Notwithstanding the foregoing, we do compete with FedEx,
Purolator, UPS Supply Chain Solutions, Kuehne + Nagel and Lynden Logistics in our delivery of 3PL
services. We also compete with certain regional transportation providers, such as Williams Pharmalogistics
in Quebec and Rogue Transportation Services Inc. in Ontario.
Management & Employees
Our employee culture is one of our fundamental strengths and a strategic priority. Our employees are
passionate about our business and are dedicated to creating and improving solutions for our clients. We
empower our employees through training and professional development programs and maintain open lines
of communication that encourage our employees to suggest ways in which we can improve our operations.
We recognize and celebrate employees who act as leaders within our team and promote movement within
our organization in an effort to retain and encourage our top talent. As a result of this collaborative employee
culture, we have fostered strong relationships with our employees across our operating segments, none of
which are subject to collective bargaining agreements.
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Andlauer Healthcare Group Inc. – 2020 Annual Report
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Cost Management
In order to provide the services that we offer, we incur various operating costs. These costs include amongst
others, labour, rent, fuel, equipment, and insurance. We are susceptible to increases in the price of these
items, many of which can fluctuate, often due to factors beyond our control, such as regional and global
supply and demand dynamics, political events, global pandemics, terrorist activities, the strength of the
Canadian dollar relative to other currencies, and natural disasters.
To mitigate the risk of cost escalation, we focus on operational excellence, synergies between our product
lines and cost controls. We rely on, among other things, long-term planning, budgeting processes, and
internal benchmarking to achieve our profitability targets. Additionally, we mitigate the risk of inflation by
utilizing leases to finance our network of facilities, vehicles and logistics equipment and by using third-
party service providers. We also mitigate our exposure to rising fuel costs through the implementation of
fuel surcharge programs, which pass the majority of cost increases to our clients. In addition, we have
implemented a number of policies that focus on asset efficiency, including fuel economy, asset utilization,
proper repairs and maintenance of equipment, and measured equipment lease renewals. Many of our
contracts include cost escalation indexes that provide for annual price adjustments which further protect us
from escalating costs.
Financial and Operational Highlights
We refer the reader to the section entitled “How We Assess the Performance of Our Business” of this
MD&A for the definition of the items discussed below and, when applicable, to the section entitled
“Reconciliation of Non-IFRS Measures” for quantitative reconciliations of net income and comprehensive
income to EBITDA.
Q4 2020 Compared to Q4 2019
Select highlights include the following:
• Revenue increased 13.1% to $86.6 million, compared to $76.6 million in Q4 2019;
• Operating income increased 25.8% to $14.3 million, compared to $11.3 million in Q4 2019;
• Net income and comprehensive income increased 96.0% to $13.9 million, compared to $7.1 million
in Q4 2019;
• EBITDA increased 23.9% to $22.0 million, compared to $17.7 million in Q4 2019;
• EBITDA Margin was 25.4%, compared to 23.1% in Q4 2019;
• On October 5, 2020, we announced the completion of two tuck-in acquisitions (TDS and MCI), for
a combined purchase price of $15.9 million. – our first acquisitions as a public company. These
acquisitions added approximately $5.5 million of revenue during Q4 2020; and
• We continued our business continuity incident response management in connection with the
ongoing COVID-19 pandemic and successfully maintained service levels while proactively
implementing measures across our operations to prioritize the health and safety of our personnel,
clients, and suppliers.
• Subsequent to Q4 2020, on February 23, 2021, we announced that we have entered into definitive
agreements to acquire 100% of Skelton Canada Inc. and 49% of Skelton USA Inc. (together the
“Skelton Companies”) for total aggregate consideration of approximately $114.7 million, subject to
customary working capital adjustments. The agreement also includes an option for AHG to acquire
the remaining 51% of Skelton USA Inc. We expect the acquisitions to be immediately accretive to
cash flow and earnings per share. The Skelton Companies are specialized in the transportation
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Andlauer Healthcare Group Inc. – 2020 Annual Report
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of refrigerated healthcare products The acquisitions are expected to close on or about March 1,
2021.
Fiscal 2020 Compared to Fiscal 2019
Select highlights include the following:
• Revenue increased 8.4% to $314.3 million, compared to $290.0 million in Fiscal 2019;
• Operating income increased 13.2% to $50.9 million, compared to $45.0 million in Fiscal 2019;
• Net income and comprehensive income increased 24.3% to $37.7 million, compared to $30.3
million in Fiscal 2019;
• EBITDA increased 11.8% to $78.9 million, compared to $70.6 million in Fiscal 2019, despite the
absorption of approximately $2.8 million of incremental costs related to share-based compensation
arrangements and the transition to a public company;
• EBITDA Margin was 25.1%, compared to 24.3% in Fiscal 2019.
How We Assess the Performance of Our Business
We have historically operated and managed our healthcare logistics and specialized transportation operating
segments as separate businesses with separate management teams. Our healthcare logistics segment has
operated under the brand name Accuristix and our specialized transportation segment has operated under
the brand name ATS Healthcare. Following our IPO, both Accuristix and ATS Healthcare have continued
to operate autonomously, each having its own management. Over time, as we grow, our operating segments
may change. If this occurs, we will reflect the change in our reporting practices.
Both of our operating segments conduct their businesses in a manner that limits capital investments,
preferring to lease facilities and certain equipment rather than allocating significant cash flows to capital
expenditures. We believe our business model provides us with greater flexibility, cost savings and lower
risks, as compared to more capital expenditure intensive models. Accordingly, lease costs comprise a
significant component of our expenses. Under IFRS 16, leases have been capitalized, resulting in the costs
associated with our leases being recorded as depreciation and interest expense. We believe that the cash
flows associated with our lease payments are a relevant metric in evaluating the performance of our
business.
Revenue
We generate revenue from the provision of supply chain solutions to the Canadian healthcare sector. Across
our logistics and transportation operating segments, we generate revenue across five principal product lines:
logistics and distribution, packaging solutions, air freight forwarding, ground transportation, and dedicated
and last mile delivery.
Our healthcare logistics segment, which offers services under our Accuristix brand, generates revenue from
the provision of logistics and distribution services and packaging solutions to our clients. Services are
typically provided under master service agreements with terms that range from three to five years in length.
Our logistics contracts typically include a single performance obligation that is satisfied over time as clients
simultaneously receive and consume the benefits of our services. For this performance obligation, we
recognize revenue at the invoiced amount since this amount corresponds directly to our performance and
the value to the client. In some cases, our agreements include other performance obligations related to
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Andlauer Healthcare Group Inc. – 2020 Annual Report
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managing transportation and other client services which are included in the logistics and distribution
product. These services are typically priced at their stand-alone selling prices and are recognized over time
on a proportionate and straight-line basis as the client simultaneously receives and consumes the benefits
of our services. Intersegment revenue generated by Credo Systems Canada Inc. from the sale of thermal
packaging containers to ATS Healthcare, as well as intra-segment revenue between Accuristix and Nova
Pack Ltd. (“Nova Pack”) is eliminated on consolidation.
Our specialized transportation segment, which offers services under our ATS Healthcare brand, generates
revenue from the provision of specialized temperature-controlled, as well as non-temperature controlled,
ground transportation, air freight forwarding and dedicated and last mile transportation services to our
clients. Certain additional services are provided to clients where requested as part of their transportation
contracts, such as chain of custody and other incidental services. Transportation revenue is recognized
proportionally as a shipment moves from origin to destination and the related costs are recognized as
incurred. Performance obligations are short-term, with transit typically taking less than one week.
Generally, clients are billed upon shipment of the freight, and remit payment according to approved
payment terms. Intersegment revenue generated by ATS Healthcare from the provision of transportation
services to Accuristix, on behalf of its logistics clients, is eliminated on consolidation.
As is customary in our industry, most of our client contracts and transportation pricing terms include fuel-
surcharge revenue programs or cost recovery mechanisms to mitigate the effect of fuel price increases over
base amounts established in the contract. However, these fuel surcharge mechanisms may not capture the
entire amount of changes in fuel prices, and there is also a lag between the payment for fuel and collection
of surcharge revenue. Decreases in fuel prices reduce the cost of transportation and services, and will
accordingly reduce our revenues and may reduce margins for certain product lines.
Cost of Transportation and Services
Our cost of transportation and services expense includes the cost of providing or procuring freight
transportation to our clients. The cost of transportation and services for our specialized transportation
segment includes linehaul costs to connect our national network; pick-up and delivery costs paid to brokers,
agents, and our drivers; fuel, toll fees and maintenance costs; and inbound and outbound handling costs
which are largely comprised of hourly paid dock labour. The cost of transportation and services for our
healthcare logistics segment includes purchased transportation services, including fuel surcharges, sourced
from carriers. ATS Healthcare is the largest provider of transportation services to Accuristix. Intersegment
purchased transportation expense is eliminated on consolidation.
Direct Operating Expenses
Direct operating expenses are both fixed and variable and consist of operating costs related to our facilities
(including our distribution centres, branches and the cross-docks that we operate from). Direct operating
expenses consist mainly of personnel costs and facility and equipment expenses such as property taxes,
utilities, equipment maintenance and repair, costs of materials and supplies, security and insurance
expenses. We note that under IFRS 16 the costs associated with our leases are not recognized in our direct
operating expenses.
Selling, General and Administrative Expenses
Selling, General and Administrative (“SG&A”) expenses primarily consist of the cost of salaries and
benefits for executive and certain administration functions, including information technology, sales and
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Andlauer Healthcare Group Inc. – 2020 Annual Report
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client service, finance and accounting, professional fees, facility costs, legal costs and other expenses related
to the corporate infrastructure required to support our business. Our SG&A expenses have increased as a
percentage of revenue from historical levels as we incur additional legal, accounting, insurance and other
expenses associated with being a public company.
Depreciation & Amortization
Depreciation and amortization charges comprise non-cash charges expensed on the statement of income
and comprehensive income to spread the purchase price of assets over their useful lives. Within both of our
operating segments, we lease facilities and certain equipment rather than allocating significant cash flows
to capital expenditures. We believe this approach provides us with greater flexibility and lower risks and
results in cost savings as compared to capital expenditure intensive models. Accordingly, lease costs
comprise a significant component of our expenses. Under IFRS 16, leases have been capitalized, resulting
in depreciation and interest expense rather than direct operating expense.
Operating Income
Operating Income measures the amount of profit derived from our operations after deducting operating
expenses such as cost of transportation and services, direct operating expense, SG&A, and depreciation and
amortization. We do not typically measure “cost of sales or gross profit” as we are a service business.
Other Income/Expense
Other income (expense) comprises income or expenses that do not arise from our main business, such as
exchange gains (losses) and gains resulting from the sale of property, plant and equipment and certain other
insignificant sources.
Interest Income
Interest income comprises interest earned on cash and cash equivalents and, in Fiscal 2019, included interest
earned on certain amounts due from related parties prior to our IPO. Accordingly, interest income declined
in Fiscal 2020 compared to Fiscal 2019.
Interest Expense
Interest expense comprises interest charged to the statement of income and comprehensive income
primarily in connection with leased facilities and equipment under IFRS 16. Interest expense for amounts
due to related parties was included during Fiscal 2019, but no longer impacts our expenses subsequent to
our IPO as loans from related parties were discharged in connection with the Pre-IPO Reorganization. In
connection with our IPO, we entered into the Credit Facilities. Accordingly, the Company began to incur
interest expense on the Credit Facilities on December 11, 2019.
Income Tax Expense
Income tax expense comprises the amount that we have recognized in the accounting period related to our
taxable income. Our effective tax rate is generally close to the statutory rate, but certain differences between
income for tax and accounting income are recognized in the deferred income tax provision.
Previously unrecognized deferred tax assets have been recognized in respect of certain items in Fiscal 2020.
We are confident that AHG, on a standalone basis, will have sufficient taxable profit available in the future
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Andlauer Healthcare Group Inc. – 2020 Annual Report
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against which we can use the benefits therefrom. Accordingly, we have recognized certain deductible
temporary differences comprising costs incurred related to the acquisition of the AHG Entities which were
charged directly to equity in connection with the Pre-IPO Reorganization as well as tax losses from Fiscal
2019 in our provision for income taxes in Fiscal 2020.
Non-IFRS Measures
EBITDA
We define EBITDA as net income and comprehensive income for the period before: (i) income tax
(recovery) expense; (ii) interest income; (iii) interest expense; and (iv) depreciation and amortization.
We believe EBITDA is a useful measure to assess our financial performance because it provides a more
relevant picture of operating results by excluding the effects of expenses that are not reflective of our
underlying business performance.
EBITDA Margin
We define EBITDA Margin as EBITDA divided by revenue. EBITDA Margin represents a measure of our
profitability expressed as a percentage of revenue.
We believe EBITDA Margin is a useful measure to assess our financial performance because it helps
quantify our ability to convert revenues generated from clients into EBITDA.
Selected Consolidated Financial Information
The following table summarizes our results of operations for the periods indicated. The selected
consolidated financial information for Q4 2020, Q4 2019, Fiscal 2020, Fiscal 2019 and Fiscal 2018 has
been derived from our audited annual consolidated financial statements and the related notes thereto
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Andlauer Healthcare Group Inc. – 2020 Annual Report
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($CAD 000s)
Revenue
Logistics & Distribution
Packaging Solutions
Healthcare Logistics Segment
Ground Transportation
Air Freight Forwarding
Dedicated and Last Mile Delivery
Intersegment Revenue
Specialized Transportation Segment
Total revenue
Operating expenses
Cost of transportation and services
Direct operating expense
Selling, general and administrative
expenses
Depreciation & amortization
Three Months Ended
December 31,
2020
2019
2020
D
Year Ended
ecember 31,
2019
26,067
3,924
29,991
48,391
6,091
10,979
(8,820)
56,641
86,632
38,542
18,775
7,310
7,724
72,351
22,664
4,892
27,556
45,685
5,236
4,828
(6,704)
49,045
76,601
32,621
18,586
7,543
6,503
65,253
96,976
19,380
116,356
177,170
22,482
29,795
(31,463)
197,984
314,340
131,392
75,374
28,613
28,022
263,401
88,311
21,307
109,618
169,040
19,656
16,689
(25,015)
180,370
289,988
121,405
74,792
23,092
25,706
244,995
2018
85,125
21,305
106,430
160,489
19,332
13,899
(23,140)
170,580
277,010
116,780
74,190
21,683
23,491
236,144
Operating income
14,281
11,348
50,939
44,993
40,866
Interest expense
Interest income
Other (expense) income
Income tax (recovery) expense
Net income and comprehensive income
Net income and comprehensive income
attributable to
Shareholders of the Company
Non-controlling interests
Earnings per share – basic(1)
Earnings per share – diluted(1)
Select financial metrics
EBITDA
EBITDA Margin
(1,030)
39
(41)
620
13,869
13,869
-
$0.37
$0.36
(980)
276
(122)
(3,447)
7,075
7,075
-
$0.19
$0.19
(4,595)
285
(49)
(8,866)
37,714
37,714
-
$1.00
$0.98
(3,503)
1,004
(145)
(12,004)
30,345
(3,048)
879
19
(10,531)
28,185
29,773
572
$0.79
$0.79
26,723
1,462
N/A
N/A
21,964
25.4%
17,729
23.1%
78,912
25.1%
70,554
24.3%
64,376
23.2%
(1) Earnings per share data is not presented for 2018 as AHG was not incorporated until November 12, 2019. Earnings per share is in respect of
profit from continuing operations attributable to shareholders of the Company.
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Consolidated Balance Sheets
($CAD 000s)
Select financial position data
Total assets
Total non-current liabilities
As At December 31,
2019
2018
2020
252,797
110,394
212,995
94,795
276,577
61,772
Consolidated Statements of Changes in Equity
($CAD 000s)
Select financial data
Distributions to related parties
Dividends
Three Months Ended
December 31,
2020
2019
Year Ended
December 31,
2019
2018
2020
-
1,880
82,016
-
-
7,929
112,016
-
25,850
150
Reconciliation of Non-IFRS Measures
The following table provides a reconciliation of net income and comprehensive income for Q4 2020, Q4
2019, Fiscal 2020, Fiscal 2019 and Fiscal 2018:
($CAD 000s)
Net income and comprehensive income
Income tax expense
Interest expense
Interest income
Depreciation & amortization
EBITDA
Results of Operations
Three Months Ended
December 31,
2020
13,869
(620)
1,030
(39)
7,724
21,964
2019
7,075
3,447
980
(276)
6,503
17,729
Year Ended
December 31,
2019
30,345
12,004
3,503
(1,004)
25,706
70,554
2020
37,714
8,866
4,595
(285)
28,022
78,912
2018
28,185
10,531
3,048
(879)
23,491
64,376
Three months ended December 31, 2020 compared with 2019
The following section provides an overview of our financial performance for Q4 2020 and Q4 2019.
Revenue
Revenue for Q4 2020 increased by 13.1% to $86.6 million, compared with $76.6 million in Q4 2019. Our
TDS and MCI acquisitions accounted for approximately $5.5 million of the $10.0 million increase with the
remaining growth being attributed to organic growth as described below.
Healthcare Logistics Segment
Revenue in our healthcare logistics segment for Q4 2020 was $30.0 million, an increase of 8.8%, or
approximately $2.4 million, compared with Q4 2019. The increase in revenue for this segment was
primarily driven by the factors set out below.
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Logistics & Distribution
Logistics and distribution revenue for Q4 2020 was $26.1 million, an increase of 15.0%, or approximately
$3.4 million, compared with Q4 2019. The increase reflects greater inbound product volume, storage and
handling activities related to our existing client contracts and the implementation of a significant new client
contract, which was a key driver behind the opening of our new 220,000 square-foot facility in Brampton,
Ontario in July 2020.
Packaging Solutions
Packaging revenue for Q4 2020 was $3.9 million, a decrease of 19.8%, or approximately $1.0 million,
compared with Q4 2019. The decline was primarily attributable to measures we implemented in March
2020 to provide for the safety of our employees in connection with the COVID-19 pandemic, including
limiting the number of associates in our operations to allow for physical distancing in accordance with
public health guidelines, which has temporarily reduced our operating capacity.
Specialized Transportation Segment
Revenue in our specialized transportation segment for Q4 2020 was $56.6 million, an increase of 15.5%,
or approximately $7.6 million, compared with Q4 2019. Revenue growth in this segment was primarily
driven by the factors set out below.
Air Freight Forwarding
Air freight forwarding revenue for Q4 2020 was $6.1 million, an increase of 16.3%, or approximately $0.9
million, compared with Q4 2019. The increase was partially attributable to contractual price increases
(adjustments made to accessorial charges and rate agreements), including new surcharges implemented by
our air carriers in connection with revised Transport Canada hours-of-service based pilot safety rules. Air
freight forwarding volume increased by approximately 15% in Q4 2020 as compared to Q4 2019, as
customers continued to adjust to varying levels of national demand as provincial governments attempted to
manage the COVID-19 pandemic.
Ground Transportation
Ground transportation revenue for Q4 2020 was $48.4 million, an increase of 5.9%, or approximately $2.7
million, compared with Q4 2019. The increase reflects incremental revenue from our MCI acquisition of
approximately $1.0 million with the remainder attributed to higher volume from our existing client base,
partially offset by lower fuel costs.
Dedicated and Last Mile Delivery
Dedicated and last mile delivery revenue for Q4 2020 was $11.0 million, an increase of 127.4%, or
approximately $6.2 million, compared with Q4 2019. This growth reflects approximately $4.5 million of
incremental revenue from our TDS acquisition, with the remainder attributed to expanded routes for our
existing clients.
Cost of Transportation and Services
Cost of transportation and services for Q4 2020 was $38.5 million, or 44.5% of revenue, compared with
$32.6 million, or 42.6% of revenue, for Q4 2019. The higher cost of transportation and services and related
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operating ratio for Q4 2020 reflects the addition of TDS and MCI cost profiles. This increase was partially
offset by lower fuel costs in line with the decrease in revenue related to fuel, and savings achieved by
effectively managing our variable costs as volume increased by approximately 3.5% in Q4 2020 as
compared to Q4 2019.
Direct Operating Expenses
Direct operating expenses for Q4 2020 were $18.8 million, or 21.7% of revenue, compared with $18.6
million, or 24.3% of revenue, for Q4 2019. We have incurred certain incremental costs in connection with
our COVID-19 response measures, including additional cleaning activities for our facilities and equipment,
expenses for personal protective equipment for our associates, and other measures impacting productivity;
however, these incremental costs were mitigated through effective productivity management and other cost
controls. During Q4 2020, we continued to qualify for the Canada Emergency Wage Subsidy (“CEWS”)
program in connection with our Nova Pack operations. We recognize government assistance as a reduction
to payroll expense. A total of $0.6 million, or 0.7% of revenue, was recognized as a reduction of direct
operating expenses for Q4 2020 as a result of assistance received from the CEWS program.
Selling, General and Administrative Expenses
SG&A expenses for Q4 2020 were $7.3 million, or 8.4% of revenue, compared with $7.5 million, or 9.8%
of revenue, for Q4 2019. SG&A expenses included share-based compensation arrangements of
approximately $0.8 million, or 0.9% of revenue in Q4 2020 and $1.4 million, or 1.8% of revenue in Q4
2019. These share-based compensation arrangements relate to the initial stock option grants to our directors
and senior management team in connection with the IPO and deferred share unit grants made to our board
of directors, which are intended to provide further alignment with shareholders. A further $0.3 million of
cost, or 0.3% of revenue, is included in Q4 2020 SG&A expenses for incremental costs associated with
being a public company as compared to $0.9 million, or 1.2% of revenue for Q4 2019.
Depreciation and Amortization
Depreciation and amortization for Q4 2020 was $7.7 million compared with $6.5 million for Q4 2019. The
increase in depreciation and amortization for Q4 2020 represents an 18.8% year-over-year increase and is
attributable to leases for new right-of-use logistics and transportation equipment to support growth in our
specialized transportation segment as well as depreciation and amortization related to our TDS and MCI
acquisitions and new Brampton facility.
Other Income/Expense
Other expense for Q4 2020 was effectively $nil compared with other expense of effectively $0.1 for Q4
2019. These amounts are immaterial to our overall performance for these quarters.
Interest Income
Interest income for Q4 2020 was effectively $nil compared with $0.3 million for Q4 2019. Interest income
is generated on our cash and cash equivalents balances, but includes interest on certain related-party loans
in 2019 prior to the IPO.
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Interest Expense
Interest expense for Q4 2020 was $1.0 million compared with $1.0 million for Q4 2019. Interest expense
related to leased facilities and equipment comprises the majority of interest expense; however, $0.1 million
of interest expense was incurred in Q4 2020 in connection with the Credit Facilities which were entered
into at the time of our IPO. We expect to continue to hold debt under the Term Facility, which does not
have any repayment schedule except as a single repayment at the end of the four-year term, and will incur
interest expense on the Term Facility until maturity on March 1, 2025.
Income Tax Expense
Income tax (recovery) expense for Q4 2020 was ($0.6) million compared with $3.4 million for Q4 2019.
Previously unrecognized deferred tax assets have been recognized in our Q4 2020 provision for income
taxes. Management has determined that Andlauer Healthcare Group Inc., on a standalone basis, will have
sufficient future taxable profit available against which the Company can use the benefits therefrom. The
previously unrecognized deferred tax assets arose from deductible temporary differences from Fiscal 2019,
comprising costs incurred by the Company related to the acquisition of the AHG Entities, which were
charged directly to equity, and non-capital tax losses generated in Fiscal 2019.
Operating Income and Net Income and Comprehensive Income
Operating income for Q4 2020 was $14.3 million, an increase of $3.0 million, or 25.8%, compared with
$11.3 million for Q4 2019.
Net income and comprehensive income for Q4 2020 increased by 96.0%, or $6.8 million, to $13.9 million,
from $7.1 million for Q4 2019. The deferred income tax recovery of approximately $4.3 million contributed
significantly to this increase; however, higher segment net income before eliminations for both our
healthcare logistics and specialized transportation operating segments also contributed to the increased
profitability on a consolidated basis.
EBITDA
EBITDA for Q4 2020 increased by 23.9%, to $22.0 million, from $17.7 million for Q4 2019. EBITDA
increased over the year due to the factors discussed above and reflects the incremental contribution of our
TDS and MCI tuck-in acquisitions.
EBITDA Margin
EBITDA Margin for Q4 2020 was 25.4% compared with 23.1% for Q4 2019. IPO related SG&A expenses
and higher costs related to becoming a public company in Q4 2019 contributed to a lower EBITDA margin
in Q4 2019, but the operating performance of our two operating segments continues to result in strong and
stable EBITDA margins at the higher end of our historical range. Approximately 0.7% of the higher Q4
2020 EBITDA margin is attributed to the CEWS program. It is uncertain whether we will continue to
qualify for the CEWS program.
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Andlauer Healthcare Group Inc. – 2020 Annual Report
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Year ended December 31, 2020 compared with 2019
The following section provides an overview of our financial performance for Fiscal 2020 and Fiscal 2019.
Revenue
Revenue for Fiscal 2020 increased by 8.4% to $314.3 million, compared with $290.0 million in Fiscal 2019.
Although revenue within and between Q1 2020 and Q2 2020 was impacted by the COVID-19 pandemic,
Fiscal 2020 revenue growth is within the range of our historical growth trend, as revenue growth (excluding
the TDS and MCI acquisitions) was approximately 6.5%.
Healthcare Logistics Segment
Revenue in our healthcare logistics segment for Fiscal 2020 was $116.4 million, an increase of 6.1%, or
approximately $6.7 million, compared with Fiscal 2019. Revenue growth in this segment was primarily
driven by the factors set out below.
Logistics & Distribution
Logistics and distribution revenue for Fiscal 2020 was $97.0 million, an increase of 9.8%, or approximately
$8.7 million, compared with Fiscal 2019. A large new logistics and distribution client implementation
commenced in July 2020, which contributed approximately $6.8 million to the Fiscal 2020 revenue growth.
Our existing client base contributed approximately $1.9 million, or 2.0%, of Fiscal 2020 revenue growth.
Packaging Solutions
Packaging revenue for Fiscal 2020 was $19.4 million, a decrease of 9.0%, or approximately $1.9 million,
compared with Fiscal 2019. Revenue growth of 14.5% in Q1 2020 arising from the decision of our largest
packaging client to defer certain projects from Q4 2019 was offset by a 27.3% decline in Q2 2020 revenue,
a 9.4% decline in Q3 2020 revenue and a 19.8% decline in Q4 2020 revenue due to the impact of the
COVID-19 pandemic. Since the COVID-19 outbreak was declared a pandemic by the World Health
Organization in March 2020, we have limited the number of associates in our operations to allow for
physical distancing in accordance with public health guidelines, which has temporarily reduced our
operating capacity.
Specialized Transportation Segment
Revenue in our specialized transportation segment for Fiscal 2020 was $198.0 million, an increase of 9.8%,
or approximately $17.6 million, compared with Fiscal 2019. Revenue growth in this segment was primarily
driven by the factors set out below.
Air Freight Forwarding
Air freight forwarding revenue for Fiscal 2020 was $22.5 million, an increase of 14.4%, or approximately
$2.8 million, compared with Fiscal 2019. Approximately half of this revenue increase was attributable to
contractual price increases (adjustments made to accessorial charges and rate agreements), including new
surcharges implemented by our air carriers in connection with revised Transport Canada hours-of-service
based pilot safety rules. The remaining revenue increase was attributable to an increase in air freight
forwarding volume, driven by greater volume in June 2020 and throughout Q3 2020 and most of Q4 2020
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Andlauer Healthcare Group Inc. – 2020 Annual Report
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compared to the same periods in 2019. During this time, wholesalers responded to adjustments by retail
pharmacies to return to 90-day prescription fulfillment and customers expedited shipments in order to adjust
to more normal levels of national demand as provincial governments allowed economies to re-open in
response to declining COVID-19 cases.
Ground Transportation
Ground transportation revenue for Fiscal 2020 was $177.2 million, an increase of 4.8%, or approximately
$8.1 million, compared with Fiscal 2019. The increase in revenue was primarily driven by increased Fiscal
2020 volume compared with Fiscal 2019, partially offset by lower fuel-related revenue compared with
Fiscal 2019. Ground transportation revenue includes approximately $1.0 million of revenue from our MCI
acquisition.
Dedicated and Last Mile Delivery
Dedicated and last mile delivery revenue for Fiscal 2020 was $29.8 million, an increase of 78.5%, or
approximately $13.1 million, compared with Fiscal 2019. The increase includes approximately $4.5 million
of revenue from our TDS acquisition, with the remainder attributable to expanded routes for our existing
clients which commenced in late Fiscal 2019. Dedicated and last mile delivery growth is expected to
continue as Health Canada expands its enforcement of GUI-0069 in connection with temperature-controlled
transportation.
Cost of Transportation and Services
Cost of transportation and services for Fiscal 2020 was $131.4 million, or 41.8% of revenue, compared with
$121.4 million, or 41.9% of revenue, for Fiscal 2019. The slightly lower cost of transportation and services
operating ratio reflects lower fuel costs in line with the decrease in ground transportation revenue related to
fuel for Fiscal 2020 as compared to Fiscal 2019, but are otherwise in line with prior years with no significant
fluctuations in costs versus revenue. The cost of transportation and services operating ratio for Fiscal 2020
also reflects the cost savings achieved by effectively managing our variable costs in response to reduced
volume in April and May 2020, and the successful management of our costs as volume increased in the
months of March and June 2020 and throughout Q3 2020 and Q4 2020.
Direct Operating Expenses
Direct operating expenses for Fiscal 2020 were $75.4 million, or 24.0% of revenue, compared with $74.8
million, or 25.8% of revenue, for Fiscal 2019. We have incurred certain incremental costs in connection
with our COVID-19 response measures, including compensation premiums for certain operational
associates, additional cleaning activities for our facilities and equipment, expenses for personal protective
equipment for our associates, and other measures impacting productivity; however, these incremental costs
were mitigated through operating leverage arising from incremental volume, productivity management and
other cost controls. During Fiscal 2020, we qualified for the CEWS program in connection with our Nova
Pack operations. A total of $2.4 million, or 0.8% of revenue, has been recognized as a reduction of direct
operating expenses for Fiscal 2020 as a result of support received from the CEWS program.
Selling, General and Administrative Expenses
SG&A expenses for Fiscal 2020 were $28.6 million, or 9.1% of revenue, compared with $23.1 million, or
8.0% of revenue, for Fiscal 2019. SG&A expenses for Fiscal 2020 include a $1.7 million increase in share-
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Andlauer Healthcare Group Inc. – 2020 Annual Report
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based compensation arrangements compared to Fiscal 2019, representing 0.5% of revenue. These share-
based compensation arrangements relate to the initial stock option grants to our directors and senior
management team in connection with the IPO and deferred share unit grants made to our board of directors,
which are intended to provide further alignment with shareholders. A further $1.2 million of cost, or 0.4%
of revenue, is included in Fiscal 2020 SG&A expenses for incremental costs associated with being a public
company. We believe approximately $0.4 million of the public company SG&A expenses reflected in Fiscal
2020 were one-time in nature.
Depreciation and Amortization
Depreciation and amortization for Fiscal 2020 was $28.0 million compared with $25.7 million for Fiscal
2019. The increase of $2.3 million for Fiscal 2020 represents an 8.9% year-over-year increase and is
attributable to leases for new right-of-use logistics and transportation equipment to support growth in our
specialized transportation segment. In addition, we implemented our new leased 220,000 square-foot
logistics and distribution facility in Brampton, Ontario, which began to generate new business revenue in
July 2020. Depreciation and amortization has remained constant at 8.9% of revenue for both Fiscal 2020
and Fiscal 2019.
Other Income/Expense
Other expense for Fiscal 2020 was effectively $nil compared with $0.1 million for Fiscal 2019. These
amounts are immaterial to our overall performance for these years.
Interest Income
Interest income for Fiscal 2020 was $0.3 million compared with $1.0 million for Fiscal 2019. Interest
income is generated on our cash and cash equivalents balances, but included interest on certain related party
loans in 2019 prior to the IPO.
Interest Expense
Interest expense for Fiscal 2020 was $4.6 million compared with $3.5 million for Fiscal 2019. Interest
expense related to leased facilities and equipment comprises the significant majority of interest expense;
however, $0.7 million of interest expense was incurred in Fiscal 2020 in connection with the Credit
Facilities which were entered into at the time of our IPO. We expect to continue to hold debt under the
Term Facility, which does not have any repayment schedule except as a single repayment at the end of the
four-year term, and will incur interest expense on the Term Facility until maturity on March 1, 2025.
Income Tax Expense
Income tax expense for Fiscal 2020 was $8.9 million compared with $12.0 million for Fiscal 2019.
Previously unrecognized deferred tax assets have been recognized in our Fiscal 2020 provision for income
taxes. Management has determined that Andlauer Healthcare Group Inc., on a standalone basis, will have
sufficient future taxable profit available against which the Company can use the benefits therefrom. The
previously unrecognized deferred tax assets arose from deductible temporary differences from Fiscal 2019
comprising costs incurred by the Company related to the acquisition of the AHG Entities, which were
charged directly to equity, and non-capital tax losses generated in Fiscal 2019. Our effective tax rate for
Fiscal 2019 approximates the expected statutory rate after adjusting for amortization of share-based options,
which are not deductible for tax purposes.
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Andlauer Healthcare Group Inc. – 2020 Annual Report
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Operating Income and Net Income and Comprehensive Income
Operating income for Fiscal 2020 was $50.9 million, an increase of $5.9 million, or 13.2%, compared with
$45.0 million for Fiscal 2019.
Net income and comprehensive income for Fiscal 2020 increased by 24.3%, or $7.4 million, to $37.7
million, from $30.3 million for Fiscal 2019. Segment net income before eliminations for both our
specialized transportation and our healthcare logistics operating segments were in line with segment
revenue as margins were materially consistent compared with the prior year.
EBITDA
EBITDA for Fiscal 2020 increased by 11.8%, to $78.9 million, from $70.6 million for Fiscal 2019. The
increase in EBITDA was due to the factors discussed above and also reflects the absorption of
approximately $2.8 million of incremental costs related to share-based compensation arrangements and
other public company costs not incurred in Fiscal 2019.
EBITDA Margin
EBITDA Margin for Fiscal 2020 was 25.1%, broadly in line with EBITDA Margin of 24.3% for Fiscal
2019 and within our historical range of expected EBITDA Margins. Operating ratios for our two most
significant operating costs (cost of transportation and services and direct operating expenses) were
improved in Fiscal 2020 as compared to Fiscal 2019; however, these improvements were offset by increases
in SG&A costs attributed to incremental public company costs. Approximately 0.8% of the higher Q4 2020
EBITDA Margin is attributed to the CEWS program. It is uncertain whether we will continue to qualify for
the CEWS program.
Summary of Quarterly Results
While there is no significant seasonality to our business, our results are impacted by our clients’ storage
and shipping activities throughout the year as well as the timing of new client implementations or exits.
The table below sets out our results for each of the eight most recently completed quarters:
($CAD 000s) except per share data
Total revenue
Operating income
Net income and comprehensive income
Net income and comprehensive income
attributed to shareholders of the
Company
EBITDA
Earnings per share – basic(1)
Earnings per share - diluted(1)
Q4-20
86,632
14,281
13,869
13,869
21,964
$ 0.37
$ 0.36
Q3-20
75,805
13,165
8,596
8,596
20,190
$ 0.23
$ 0.22
Q2-20
70,253
11,089
7,067
7,067
17,959
$ 0.19
$ 0.18
Q1-20
81,650
12,404
8,182
8,182
18,799
$ 0.22
$ 0.22
Q4-19
76,601
11,348
7,075
7,075
17,729
$ 0.19
$ 0.19
Q3-19
70,844
11,319
7,763
7,763
17,872
N/A
N/A
Q2-19
71,147
11,404
7,968
7,654
17,745
N/A
N/A
Q1-19
71,396
10,922
7,539
7,281
17,208
N/A
N/A
(1) Earnings per share data is not presented for the first three quarters of 2019 as AHG was not incorporated until November 12, 2019. Earnings
per share is in respect of profit from continuing operations attributable to shareholders of the Company.
Revenue has trended upwards through the past eight quarters with Fiscal 2020 reflecting both strong
shipping volumes from our clients as well as the impact of price increases which were contractually
implemented in the specialized transportation segment in the second half of Fiscal 2019. We believe that
Q1 2020 revenue was favourably impacted by accelerated buying behaviour of our clients’ customers in
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Andlauer Healthcare Group Inc. – 2020 Annual Report
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connection with the COVID-19 pandemic, which negatively impacted Q2 2020 revenue as our clients’
customers reduced inventories to more normal levels. Further, shipping volumes were lower in April and
May 2020 as a result of the government-mandated lockdown and other COVID-19 related restrictions, but
increased in June 2020 as restrictions were lifted by provincial governments. Shipping volumes throughout
Q3 2020 and Q4 2020 returned to more normalized pre-pandemic levels with year-over-year increases
averaging in the mid-single digit percentages.
Revenue for Q4 2020 includes approximately $5.5 million related to our tuck-in acquisitions of TDS and
MCI effective October 1, 2020.
Operating income, net income and comprehensive income, and EBITDA have continued to perform
consistently with revenue growth over the past four quarters, and have effectively absorbed the IPO and
incremental costs associated with being a public company since December 11, 2019.
Liquidity & Capital Resources
Overview
Our principal uses of funds are for operating expenses, taxes, interest, capital expenditures, lease payments
and dividends. We believe that cash generated from our operations, together with amounts available under
the Credit Facilities will be sufficient to meet our future operating expenses, taxes, interest, capital
expenditures, lease payments and any dividends that may be declared by our board of directors. However,
our ability to fund operating expenses, taxes, interest, capital expenditures and future lease payments will
depend on, among other things, our future operating performance, which will be affected by general
economic, financial and other factors, including factors beyond our control. See “Accounting
Classifications and Fair Values”, “Summary of Factors Affecting Performance” and “Risk Factors” in this
MD&A. We review potential acquisitions and investment opportunities in the normal course of our business
and may make select acquisitions and investments to implement our growth strategy when suitable
opportunities arise.
Our acquisitions of TDS and MCI, our first as a public company, for a purchase price of approximately
$15.9 million in cash were funded from existing cash flow from operations.
Working Capital
The following table presents our working capital position as at December 31, 2020 and 2019:
($CAD 000s)
Cash and cash equivalents
Accounts receivable
Inventories
Prepaid expenses and other
Due from related parties
Due from employee trust
Revolving credit facility
Accounts payable and accrued liabilities
Current portion of lease liabilities
Income taxes payable
Working Capital
22
As At December 31,
2019
2020
18,712
30,148
51,060
57,867
1,071
1,228
2,307
2,830
239
381
13,875
-
(3,929)
-
(24,942)
(19,129)
(8,695)
30,569
(25,365)
(21,197)
(1,514)
44,378
Andlauer Healthcare Group Inc. – 2020 Annual Report
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As at December 31, 2020, we had $44.4 million of working capital compared to $30.6 million of working
capital as at December 31, 2019. The $13.8 million increase in working capital is primarily attributable to
profitable growth in our business, partially offset by the distribution of dividends to shareholders of $7.9
million.
Credit Facilities
We entered into the Credit Facilities upon closing of our IPO, comprised of the Revolving Credit Facility
and the Term Facility. On February 19, 2021, in connection with our proposed acquisitions of Skelton
Canada Inc. and Skelton USA Inc., we amended our Credit Facilities to increase the amounts available to
be drawn under the Revolving Credit Facility and the Term Facility each by $25 million. The amended
Credit Facilities comprise a Revolving Credit Facility in the aggregate principal amount of up to $100
million and a Term Facility in the aggregate principal amount of up to $50 million. The remaining terms
and conditions of the Credit Facilities remain unchanged, except that they will mature and be due and
payable on March 1, 2025. As at December 31, 2020, the aggregate amount outstanding before financing
costs under the Credit Facilities was $25 million under the Term Facility and $nil under the Revolving
Credit Facility.
The Revolving Credit Facility is available to be drawn in Canadian dollars by way of prime rate loans,
bankers’ acceptances and letters of credit, and in U.S. dollars by way of base rate loans, LIBOR based loans
and letters of credit, in each case, plus the applicable margin in effect from time to time. The Term Facility
was drawn in a single Canadian dollar advance on closing of the IPO by way of prime rate loans and
subsequently converted to bankers’ acceptances.
The Credit Facilities are subject to customary negative covenants and include financial covenants requiring
us to maintain at all times a maximum net leverage ratio and a minimum interest coverage ratio, tested on
a quarterly basis. At December 31, 2020, we were in compliance with all of the covenants under the Credit
Facilities.
In order to support future potential growth through acquisitions, the Credit Facilities also include an
accordion feature to allow us to increase the commitment under one or both of the Credit Facilities in an
aggregate principal amount of up to $100 million, such that any amounts drawn under the accordion feature
would be in addition to the amounts ordinarily available, subject to the agreement of participating lenders
and provided that we are not, or would not, be in default under the Credit Facilities, or in non-compliance
with any financial covenants and an event of default does not or would not exist, after giving effect thereto
and provided that all representations and warranties are true and correct immediately prior to, and after
giving effect to, such increase. As of the date of this MD&A, this accordion feature remains uncommitted.
Capital Expenditures
Capital expenditures for Q4 2020 and Fiscal 2020 were $0.9 million and $5.0 million, respectively (Q4
2019 and Fiscal 2019 – $3.3 million and $5.9 million, respectively). Capital expenditures have historically
been funded through cash flows from operations. We have traditionally divided our capital expenditures
into two subcategories, capital expenditures (maintenance) and capital expenditures (growth), which are
further detailed below.
There are no known trends or expected fluctuations in our capital resources, including expected changes in
the mix and relative cost of these resources.
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Andlauer Healthcare Group Inc. – 2020 Annual Report
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Capital Expenditures (Maintenance)
Maintenance capital expenditures refers to capital expenditures necessary for us to sustain our assets in
order to continue operating in our current form. We generally seek to maintain our facilities and equipment
at a level consistent with the needs of the sector we operate within and ensure that preventative maintenance
programs are in place to achieve the performance expected from our facilities and equipment. Outlays for
maintenance capital expenditures for Q4 2020 and Fiscal 2020 were $0.4 million and $1.4 million,
respectively (Q4 2019 and Fiscal 2019 – $0.3 million and $1.5 million, respectively). These capital
expenditures were funded through cash flows from operations.
Capital Expenditures (Growth)
Growth capital expenditures comprises expenditures on new assets that are intended to grow our productive
capacity. These capital expenditures are made to acquire or expand leasehold improvements, transportation
and logistics equipment (including pick-up and delivery equipment, warehouse racking, material handling
equipment, warehouse automation equipment and specialized logistics equipment such as coolers or vaults,
among others), furniture and fixtures, and computer equipment to support new contracts or additional
volume from new business. Outlays for growth capital expenditures for Q4 2020 and Fiscal 2020 were $0.5
million and $3.6 million, respectively (Q4 2019 and Fiscal 2019 – $3.0 million and $4.4 million,
respectively) and can range from $1.0 million up to $10.0 million in any given fiscal year, depending on
the underlying expansion need. Growth capital expenditures have also historically been funded through
cash flows from operations. Growth capital expenditures for Fiscal 2020 primarily comprise leasehold
improvements, warehouse racking, material handling equipment, and furniture and fixtures related to our
new 220,000 square-foot facility in Brampton, Ontario, which was implemented during Q2 2020. This new
facility was in operation effective July 2020.
Cash Flows
The following table presents cash flows for the three months and year ended December 31, 2020 and 2019:
($CAD 000s)
Cash flows
Cash from Operating Activities
Cash used in Investing Activities
Cash used in Financing Activities
Net change in cash
Select cash flow data
Capital expenditures
Lease payments
Three Months Ended
December 31,
2020
2019
Year Ended
December 31,
2020
2019
5,516
(16,131)
(7,782)
(18,397)
26,581
(3,397)
(40,665)
(17,481)
51,003
(20,371)
(19,196)
11,436
61,001
(6,165)
(89,781)
(34,945)
(878)
(6,557)
(3,286)
(5,842)
(4,966)
(24,666)
(5,935)
(22,293)
Cash Flow Generated From Operating Activities
Cash flows generated from operating activities for Q4 2020 and Fiscal 2020 totaled $5.5 million and $51.0
million, respectively (Q4 2019 and Fiscal 2019 - $26.6 million and $61.0 million, respectively). The change
in cash flows generated from operating activities relates principally to normal fluctuations in trade accounts
receivable and trade accounts payable and includes a $7 million reduction in income taxes payable at
December 31, 2020 due to the timing of taxes payable for certain subsidiaries.
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Andlauer Healthcare Group Inc. – 2020 Annual Report
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Cash Flow Used In Investing Activities
Cash flows used in investing activities for Q4 2020 and Fiscal 2020 totaled $16.1 million and $20.4 million,
respectively (Q4 2019 and Fiscal 2019 - $3.4 million and $6.2 million, respectively). Cash flows were used
to acquire TDS and MCI ($15.9 million in aggregate) as well as to support our maintenance and growth
capital expenditures.
Cash Flow Used In Financing Activities
We operate our business by utilizing leases to primarily finance our vehicles and facilities, resulting in
significant lease payments on an annual basis. Total cash outflow for leases, including interest expense –
which is reflected in cash flow from operating activities, for Q4 2020 and Fiscal 2020 was $6.6 million and
$24.7 million, respectively (Q4 2019 and Fiscal 2019 – $5.9 million and $22.3 million, respectively).
Further, we paid dividends in Q4 2020 and Fiscal 2020 of $1.9 million and $7.9 million, respectively
(distributions to related parties in Q4 2019 and Fiscal 2019 – $82 million and $112 million, respectively)
and fully repaid the balance on our Revolving Credit Facility in Q1 2020 ($3.9 million).
In Q2 2020, the Employee Trust Loan was repaid in full by the Employee Trust, resulting in positive cash
flow of $13.9 million, offsetting the above uses during Fiscal 2020.
Contractual Obligations
As at December 31, 2020, we had the following contractual commitments:
• Outstanding letters of guarantee in the amount of $0.2 million (December 31, 2019 – $0.2
million).
• Commitments relating to the leasing of fleet equipment, ranging from 66 to 84 months, beginning
upon delivery to us of the equipment in the first quarter of 2021, for total lease commitments of
$9.2 million (December 31, 2019 – $3.0 million).
Credit facilities
As at December 31, 2020, the aggregate amount outstanding under the Credit Facilities was $25 million
under the Term Facility and $nil under the Revolving Credit Facility. The Credit Facilities will mature and
be due and payable on March 1, 2025.
Leases
We lease buildings and equipment in the operation of our healthcare logistics and specialized transportation
business. Building lease terms range from five to ten years, with many leases including optional extension
periods. For Q4 2020, facility lease liabilities are calculated using our incremental borrowing rate of 2.99%
(Q4 2019 – 3.75%). Equipment lease terms range from one to five years. For Q4 2020, equipment lease
liabilities are calculated using our incremental borrowing rate of 3.11% (Q4 2019 – 4.07%) for our
specialized transportation segment and 2.70% (Q4 2019 – 3.95%) for our healthcare logistics segment.
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Andlauer Healthcare Group Inc. – 2020 Annual Report
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The following table summarizes our contractual obligations as at December 31, 2020 based on undiscounted
cash flows:
($CAD 000s)
Credit facilities
Lease liabilities
Lease commitments
Other obligations
Total contractual obligations
Off-Balance Sheet Arrangements
Total
25,000
117,904
9,211
28,857
180,972
Less than
1 Year
1-5 Years
More than
5 years
-
24,720
1,535
26,879
53,134
25,000
71,506
7,676
1,978
106,160
-
21,678
-
-
21,678
We have no off-balance sheet arrangements that have or are reasonably expected to have a current or future
material impact on our financial condition, revenues or expenses, results of operations, liquidity, capital
expenditures or capital resources.
Seasonality
There is no significant seasonality to our business.
Financial Instruments
Financial assets
Accounts receivable are initially recognized when they are originated. All other financial assets and
financial liabilities are initially recognized when we become a party to the contractual provisions of the
instrument.
A financial asset (unless it is an account receivable without a significant financing component) or financial
liability is initially measured at fair value plus, for an item not at fair value through profit and loss (FVTPL),
transaction costs that are directly attributable to its acquisition or issue. An account receivable without a
significant financing component is initially measured at the transaction price.
Our financial assets are comprised of cash and cash equivalents, accounts receivable, and long-term
deposits. On initial recognition, we classify these financial assets as measured at amortized cost, when both
of the following conditions are met:
•
•
it is held within a business model whose objective is to hold assets to collect contractual cash
flows; and
its contractual terms give rise on specified dates to cash flows that are solely payments of
principal and interest on the principal amount outstanding.
These financial assets are subsequently measured at amortized cost using the effective interest method. The
amortized cost is reduced by impairment losses. Interest income, foreign exchange gains and losses and
impairment are recognized in profit or loss. Any gain or loss on de-recognition is recognized in profit or
loss.
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Andlauer Healthcare Group Inc. – 2020 Annual Report
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Impairment of financial assets
Financial assets are assessed for indicators of impairment at the end of each reporting period. Financial
assets are considered to be impaired when there is objective evidence that, as a result of one or more events
that occurred after the initial recognition of the financial asset, the estimated future cash flows of the
investment have been decreased.
For accounts receivable, we apply a simplified approach in calculating expected credit losses (“ECLs”).
Therefore, we do not track changes in credit risk but instead recognize a loss allowance based on lifetime
ECLs at each reporting date. We have established a provision matrix that is based on our historical credit
loss experience, adjusted for forward-looking factors specific to the debtors and the economic environment.
When an account receivable is considered uncollectible, it is written off against the allowance account.
Subsequent recoveries of amounts previously written off are offset against the allowance account. Changes
in the carrying amount of the allowance account are recognized in profit or loss.
Financial liabilities
Our financial liabilities are comprised of accounts payable and accrued liabilities, lease liabilities, income
taxes payable and amounts due from related parties. Our financial liabilities are measured at amortized cost
using the effective interest method. Interest expense and foreign exchange gains and losses are recognized
in profit or loss. Any gain or loss on de-recognition is also recognized in profit or loss.
Related Party Transactions
Intercompany balances and transactions have been eliminated in our consolidated financial statements for
the years ended December 31, 2020 and 2019.
During Fiscal 2020 and Fiscal 2019, we entered into transactions with related parties that were incurred in
the normal course of business. Our policy is to conduct all transactions and settle all balances with related
parties at market terms and conditions. All outstanding balances with these related parties are measured at
amortized cost and are to be settled in cash within two months of the reporting date. None of the balances
are secured. No expense has been recognized in the current year or prior year for bad or doubtful debts in
respect of amounts owed by related parties.
Certain of our operating units provide services to other operating units outside of their reportable segment.
Billings for such services are based on negotiated rates, which approximate fair value, and are reflected as
revenues of the billing segment. These rates are adjusted from time to time based on market conditions.
Such intersegment revenues and expenses are eliminated in our consolidated results. Michael Andlauer, our
Chief Executive Officer (“CEO”), is also our Chief Operating Decision Maker (“CODM”). The CODM
regularly reviews financial information at the operating segment level in order to make decisions about
resources to be allocated to the segments and to assess their performance. Segment results that are reported
to the CODM include items directly attributable to a segment, as well as those that can be allocated on a
reasonable basis. We evaluate performance based on the various financial measures of our two operating
segments.
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Andlauer Healthcare Group Inc. – 2020 Annual Report
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The amounts below are expressed in thousands of Canadian dollars, unless otherwise specified.
Andlauer Management Group Inc.
As of the date hereof, AMG holds all of the Multiple Voting Shares of the Company and 28,500 Subordinate
Voting Shares, representing approximately 66.8% of the issued and outstanding Shares and 89.0% of the
voting power attached to all of the Shares. AMG is owned and controlled by Michael Andlauer, our CEO
and a director of the Company.
During Fiscal 2019, AMG provided key management personnel to us for which it received management
fees. We paid management fees of $670 for Fiscal 2019 to AMG in connection with compensation for key
management personnel. We did not purchase key management personnel services from AMG in Fiscal
2020, and do not intend to purchase such services from AMG going forward. All employees involved in
the AHG business previously employed by AMG became our employees effective at the time of the IPO.
In Fiscal 2019, we recovered facility lease costs from AMG of $320. Recovery of such lease costs has
discontinued in Fiscal 2020 as the facility has been utilized by AHG.
We undertake a limited amount of administrative shared services for AMG. We expect to continue to incur
and recover such costs in connection with AMG. For Fiscal 2020, we charged AMG $12 (Fiscal 2019 -
$12) for recovery of shared services costs.
Effective October 1, 2020, we acquired all of the issued and outstanding shares of TDS Logistics Ltd. and
McAllister Courier Inc. from AMG for a purchase price of approximately $15,878 in cash, funded from
existing cash flow from operations. The acquisition constitutes a “related party transaction” under
Multilateral Instrument 61-101 - Protection of Minority Security Holders in Special Transactions (“MI 61-
101”). The acquisition was reviewed and considered by a special committee of our independent directors.
The special committee, with the assistance of independent legal counsel, took a lead role in respect of the
examination, review and negotiation of the acquisition and related documentation on behalf of AHG. The
acquisition was not subject to the formal valuation and minority approval requirements of MI 61-101 as the
fair market value of the transaction was not more than 25% of AHG’s market capitalization.
Andlauer Properties and Leasing Inc.
Andlauer Properties and Leasing Inc. (“APLI”) is a subsidiary of AMG and leases certain facilities and
logistics and transportation equipment to us. We also lease facilities and logistics and transportation
equipment from arm’s length providers. During Fiscal 2020, we expensed $1,875 (Fiscal 2019 - $1,484)
for leases of logistics and transportation equipment; and $1,447 (Fiscal 2019 - $605) for leases of facilities
from APLI. The specific facilities that we lease from APLI are located at: 881 Bell Blvd. W, Belleville,
Ontario; 18 Sandbourne Dr., Pontypool, Ontario (commenced in January 2021); 80 – 14th Avenue,
Hanover, Ontario; 465 Ofield Road South, Dundas, Ontario; 605 Max Brose Drive, London, Ontario; and
5480 61 Avenue SE, Calgary, Alberta. We expect to continue leasing properties and equipment from APLI.
For Fiscal 2020 we charged APLI $35 (Fiscal 2019 - $18) for recovery of shared services costs.
9143-5271 Québec Inc.
9143-5271 Québec Inc. is a subsidiary of AMG and leases a facility located at 655 Desserte E. Hwy 13,
Laval, Québec to AHG. We also lease facilities from arm’s length providers. During Fiscal 2020, we
expensed $1,468 (Fiscal 2019 - $1,149) for this building. We expect to continue leasing this property.
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Andlauer Healthcare Group Inc. – 2020 Annual Report
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For Fiscal 2020, we charged 9143-5271 Québec Inc. $32 (Fiscal 2019 - $30) for recovery of shared services
costs.
Ready Staffing Solutions Inc.
Ready Staffing Solutions Inc. (“RSS”), a company owned by Mr. Andlauer’s spouse, provides us with
temporary agency employee services – providing hourly dock labour for our handling operations,
principally in the Greater Toronto Area (the “GTA”). We also purchase temporary agency employee
services from arm’s length providers. During Fiscal 2020, we expensed $4,166 (Fiscal 2019 - $4,153) for
purchases of temporary agency employee services from RSS. We expect to continue purchasing temporary
agency services from RSS.
1708998 Ontario Limited (Medical Courier Services)
Medical Courier Services (“MCS”) is a subsidiary owned 80% by AMG and provides transportation
services to us, providing extended reach for shipments where we do not have our own facilities or
equipment. During Fiscal 2020, we expensed $167 (Fiscal 2019 - $253) for deliveries subcontracted to
MCS. We expect to continue subcontracting deliveries to MCS. Similarly, in Fiscal 2020 we invoiced MCS
for $27 (Fiscal 2019 - $7) for transportation services provided to MCS. For Fiscal 2020, we charged MCS
$12 (Fiscal 2019 - $12) for recovery of shared services costs.
McAllister Courier Inc.
MCI was a subsidiary owned 100% by AMG until October 1, 2020, at which time MCI became a wholly-
owned subsidiary of the Company. Prior to this time, MCI provided transportation services to us, extending
our reach for shipments where we did not have our own facilities or equipment. During the first three
quarters of Fiscal 2020, we expensed $682 (Fiscal 2019 - $972) for deliveries subcontracted to MCI and
recovered $21 (Fiscal 2019 - $nil) for the use of certain of our equipment by MCI.
TDS Logistics Ltd.
TDS was a subsidiary owned 100% by AMG until October 1, 2020, at which time TDS became a wholly-
owned subsidiary of the Company. Prior to this time, TDS subcontracted deliveries to us, to take advantage
of efficiencies gained through coincidence of delivery. During the first three quarters of Fiscal 2020, we
charged $534 (Fiscal 2019 - $721) for deliveries subcontracted to us by TDS. During the first three quarters
of Fiscal 2020, we also charged TDS $189 (Fiscal 2019 - $252) for shared services and recovered $273
(Fiscal 2019 - $364) in equipment rental charges. In Fiscal 2019, TDS began to provide transportation
services to us, offering us additional capacity where we could subcontract deliveries to take advantage of
coincidences of delivery. During the first three quarters of Fiscal 2020, TDS charged us $469 (Fiscal 2019
- $558) for deliveries subcontracted to it by AHG.
During Fiscal 2019 we provided TDS with leased facility space, which is a cost recovery. During the first
three quarters of Fiscal 2020 we recovered $492 (Fiscal 2019 - $656) of facility lease costs from TDS.
AWA Transportation & Logistics Inc.
AWA Transportation & Logistics Inc. (“AWA”) is a subsidiary owned 100% by AMG. AWA provides
transportation services to AHG, providing extended reach for shipments where we do not have our own
facilities or equipment. We purchased $813 in services for Fiscal 2020 (Fiscal 2019 - $nil). We expect to
continue subcontracting deliveries to AWA.
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Andlauer Healthcare Group Inc. – 2020 Annual Report
- 30 -
Med Express Ltd.
Med Express Ltd. (“MEL”) is a subsidiary owned 100% by AMG. MEL provides transportation services
to AHG, providing extended reach for shipments where we do not have our own facilities or equipment.
We purchased $25 in services during Fiscal 2020 (Fiscal 2019 - $1). We expect to continue subcontracting
deliveries to MEL.
Bourbon Street Enterprises Inc.
Bourbon Street Enterprises Inc. (“BSE”) is owned directly by Cameron Joyce, a member of our board of
directors. On July 19, 2018, AMG acquired 15% of the non-controlling equity interest held by BSE in
Associated Logistics Solutions Inc. and on June 13, 2019, purchased the remaining 15% equity interest in
ALS from BSE.
D.C. Racking & Maintenance Inc. and Logiserv Inc.
D.C. Racking & Maintenance Inc. (“DCR”) and Logiserv Inc. (“Logiserv”) are also owned by Cameron
Joyce. DCR provides warehouse racking installation, maintenance and repairs for our healthcare logistics
segment. Logiserv provides us with warehouse racking and racking components as well as warehouse
racking installation, maintenance and repairs. We also purchase warehouse racking installation,
maintenance and repairs, and warehouse racking and racking components from arm’s length providers.
During Fiscal 2020, we expensed $64 (Fiscal 2019 - $46) for warehouse racking installation, maintenance
and repair services provided by DCR and Logiserv, and purchased $nil (Fiscal 2019 - $335) in warehouse
racking and racking components from Logiserv. We expect to continue to purchase warehouse racking
installation, maintenance and repair services and warehouse racking and racking components from DCR
and Logiserv.
C-GHBS Inc.
C-G HBS Inc. (“C-GHBS”) is a subsidiary of AMG and provides air travel services to us. We also purchase
air travel services from arm’s length providers. During Fiscal 2020, we purchased $174 (Fiscal 2019 - $329)
from C-GHBS. We expect to continue to purchase air travel services from C-GHBS.
Bulldog Hockey Inc.
Bulldog Hockey Inc. (“BHI”) is a subsidiary of AMG and provides sports and entertainment services to us.
During Fiscal 2020, we purchased $nil (Fiscal 2019 - $25) of sports and entertainment services from BHI
on terms which we believe to be arm’s length. We also purchase sports and entertainment services from
arm’s length providers. We expect to continue to purchase sports and entertainment services from BHI.
Key Management Personnel
Our key management personnel, and persons connected with them, are also considered to be related parties
for disclosure purposes. Key management personnel are defined as those individuals having authority and
responsibility for planning, directing and controlling the activities of the Company and include our CEO,
the other four named executive officers comprising key management and the board of directors.
During Fiscal 2020, we recorded $5,296 (Fiscal 2019 – $3,691) related to key management personnel
salaries and benefits, share-based compensation, and director fees.
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Andlauer Healthcare Group Inc. – 2020 Annual Report
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Due from/to related parties
The chart below summarizes amounts due to or from related parties.
($CAD 000s)
Accounts receivable
Andlauer Management Group Inc.
AWA Transportation Services
TDS Logistics Ltd.
Andlauer Properties and Leasing Inc.
9143-5271 Quebec Inc.
1708998 Ontario Limited (Medical Courier Services)
Trade receivables due from related parties
Due from related parties
Andlauer Management Group Inc.
Andlauer Properties and Leasing Inc.
Total due from related parties
Accounts payable and accrued liabilities
Ready Staffing Solutions Inc.
McAllister Courier Inc.
TDS Logistics Ltd.
Andlauer Properties and Leasing Inc.
Andlauer Management Group Inc.
Med Express Ltd.
D.C. Racking and Maintenance Inc.
Logiserv Inc.
Bulldog Hockey Inc.
C-GHBS Inc.
Trade payables due to related parties
Due to related parties
M. Andlauer
TDS Logistics Ltd.
Total due to related parties
As At December 31,
2019
2020
-
1
-
20
-
3
24
10
371
381
405
23
-
-
18
24
-
-
21
-
-
86
-
-
-
86
60
-
380
-
1
-
441
53
186
239
680
397
71
100
1,196
-
1
1
69
28
153
2,016
161
174
335
2,351
Critical Accounting Judgements and Estimates
The preparation of our audited annual consolidated financial statements in conformity with IFRS requires
management to make judgments, estimates and assumptions about future events. These estimates and the
underlying assumptions affect the reported amounts of assets and liabilities, the disclosures about
contingent assets and liabilities, and the reported amounts of revenues and expenses and apply equally to
both our healthcare logistics segment and our specialized transportation segment. Such estimates include
the expected credit losses on accounts receivable, the useful life of long-lived assets, our incremental
borrowing rate, valuation of property, plant and equipment, valuation of goodwill and intangible assets, the
measurement of identified assets and liabilities acquired in business combinations, share-based
compensation arrangements, the provision for income taxes and other provisions and contingencies. These
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Andlauer Healthcare Group Inc. – 2020 Annual Report
- 32 -
estimates and assumptions are based on management’s best estimates and judgments. Management
evaluates its estimates and assumptions on an ongoing basis using historical experience and other factors,
including the current economic environment, which management believes to be reasonable under the
circumstances. Management adjusts such estimates and assumptions when facts and circumstances dictate.
Actual results could differ from these estimates. Changes in those estimates and assumptions resulting from
changes in the economic environment will be reflected in the consolidated financial statements of future
periods. Information about critical judgments, assumptions and estimation uncertainties that have a
significant risk of resulting in a material adjustment within the next financial year include the following:
•
Establishing the fair value of assets and liabilities, intangible assets and goodwill related to
business combinations;
• Determining the expected credit losses related to trade accounts receivable;
•
•
Estimating the useful life of our property, plant and equipment and determining estimates and
assumptions related to impairment tests for long-lived assets;
Estimating the useful life of our intangible assets and determining estimates and assumptions
related to impairment tests for intangibles and goodwill;
• Determining the valuation of share-based compensation arrangements;
• Determining estimates and assumptions in measuring deferred tax assets and liabilities;
•
Estimating our incremental borrowing rate in connection with measuring lease liabilities; and
• Recognition and measurement of provisions and contingencies.
Significant New Accounting Standards
Adopted During the Period
There were no new standards that became effective for periods beginning on or after January 1, 2020 that
have a material impact on our audited annual consolidated financial statements for the fiscal year ended
December 31, 2020.
During Fiscal 2020 we adopted IAS 20 – Accounting for Government Grants and Disclosure of Government
Assistance, in connection with government assistance received from the CEWS program. Government
assistance received from the CEWS program has been recorded against payroll expense.
To be Adopted in Future Periods
The following new standards and amendments to standards are not yet effective for the year ended
December 31, 2020, and have not been applied in preparing the audited annual consolidated financial
statements for the fiscal year ended December 31, 2020:
Amendments to IAS 1 – Classification of Liabilities as Current or Non-current
On January 23, 2020, the IASB issued amendments to IAS 1 – Presentation of Financial Statements, to
clarify the classification of liabilities as current or non-current. The amendments are effective for annual
periods beginning on or after January 1, 2022. Early adoption is permitted. For the purposes of non-current
classification, the amendments removed the requirement for a right to defer settlement or roll over of a
liability for at least twelve months to be unconditional. Instead, such a right must have substance and exist
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Andlauer Healthcare Group Inc. – 2020 Annual Report
- 33 -
at the end of the reporting period. The extent of the impact of adoption of the amendments has not yet been
determined.
Accounting Classifications and Fair Values
Our financial instruments consist of cash and cash equivalents, accounts receivable, deposits, and accounts
payable and accrued liabilities. We believe that the carrying amount of each of these items is a reasonable
approximation of fair value.
Risk Factors
For a detailed description of risk factors associated with the Company, refer to the “Risk Factors” section
of our AIF, which is available on the Company’s profile on SEDAR at www.sedar.com.
Coronavirus (“COVID-19”)
On March 11, 2020, the COVID-19 outbreak was declared a pandemic by the World Health Organization.
This has resulted in governments worldwide, including the Canadian Federal and Provincial governments,
enacting emergency measures to combat the spread of the virus. These measures, which include the
implementation of travel restrictions, self-imposed quarantine periods, temporary closures or restrictions of
non-essential businesses, limitations on public gatherings, and social distancing guidelines, have caused
material disruption to businesses globally and in Canada resulting in an economic slowdown. Governments
and central banks have reacted with significant monetary and fiscal interventions designed to stabilize
economic conditions, however the success of these interventions is not currently determinable. Further,
depending on the duration of the pandemic, or if the pandemic were to worsen, existing emergency
measures may be extended, or additional restrictive measures may be implemented, causing further
economic impact and uncertainty.
We are actively assessing and responding, where possible, to the effects of the COVID-19 pandemic on
employees, customers, suppliers and other stakeholders. We have successfully adopted a work-from-home
policy for our administrative personnel, and at our facilities that continue to operate, in accordance with
applicable laws, we are taking steps to safeguard employees through enhanced cleaning practices, employee
monitoring strategies, physical distancing and the availability of personal protective equipment in certain
circumstances. We are also taking measures to manage costs where possible.
Certain of our administrative personnel have been working remotely, which could disrupt our management,
business development, customer service, finance, and information technology teams. We may experience
an increase in absences related to the pandemic among our operational personnel, including warehouse
associates, drivers and owner operators, which could have a negative impact on our operations. Further, our
network or facility operations, particularly in areas with a concentrated outbreak of COVID-19, could be
disrupted resulting in an adverse impact on our operating results.
While to date our business has not been materially and adversely affected by COVID-19, the extent to
which COVID-19 (including variant strains and mutations) and its effect on the economy will impact our
business in the future remains highly uncertain and may lead to adverse changes in our cash flows, working
capital levels, debt balances, operating results and financial position in the future. The situation is dynamic
and the ultimate duration and magnitude of the impact on the economy and our business is not known at
this time. Our pandemic management response team will continue to meet regularly as needed to review
procedures, service levels, news, and Health Canada updates to address any challenges as they arise. At this
time, we do not believe there is any immediate risk of significant disruption to our services. In the event of
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Andlauer Healthcare Group Inc. – 2020 Annual Report
- 34 -
a future significant disruption to our service, we will work closely with our clients, suppliers and regulatory
authorities to prioritize the supply and delivery of essential medications and supplies. We continue to
closely monitor this situation and we will provide appropriate updates in a timely manner.
In addition to the other risks that we face, which are detailed in the AIF under the heading “Risk Factors”,
we have exposure, through our financial assets and liabilities, to the following risks from our use of financial
instruments: credit risk, liquidity risk, interest rate risk, and currency risk. Senior management monitors
risk levels and reviews risk management activities as they determine to be necessary.
Credit risk
We are exposed to credit risk in the event of non-performance by counterparties in connection with our
financial assets, namely cash and cash equivalents, accounts receivable and long-term deposits. We do not
typically obtain collateral or other security to support the accounts receivable subject to credit risk but
mitigate this risk by performing credit check procedures for new clients and monitoring credit limits for
existing clients. Thereby, we deal only with what management believes to be financially sound
counterparties and, accordingly, do not anticipate significant loss for non-performance.
The maximum exposure to credit risk for cash and cash equivalents, accounts receivable and long-term
deposits approximate the amount recorded on the consolidated balance sheets.
Liquidity risk
Liquidity risk is the risk that we will encounter difficulty in meeting the obligations associated with our
financial liabilities that are settled by delivering cash or another financial asset. Our approach to managing
liquidity is to ensure, as far as possible, that we will have sufficient liquidity to meet our liabilities when
they are due, under both normal and stressed conditions, without incurring unacceptable losses or risking
damage to our reputation.
Our exposure to liquidity risk is dependent on the collection of accounts receivable, or raising of funds to
meet commitments and sustain operations. We control liquidity risk by management of working capital,
cash flows and the availability of borrowing facilities.
We have entered into Credit Facilities with affiliates of RBC, CIBC, and Bank of Nova Scotia, comprised
of a Revolving Credit Facility in the aggregate principal amount of up to $100 million and a Term Facility
in the aggregate principal amount of up to $50 million. The Credit Facilities are available to be drawn in
Canadian dollars by way of prime rate loans, bankers’ acceptances and letters of credit, and in U.S. dollars
by way of base rate loans, LIBOR based loans and letters of credit, in each case, plus the applicable margin
in effect from time to time. In order to support future potential growth through acquisitions, the Credit
Facilities also include an accordion feature to allow us to increase the commitment under one or both of the
Credit Facilities in an aggregate principal amount of up to $100 million, such that any amounts drawn under
the accordion feature would be in addition to the amounts ordinarily available, subject to the agreement of
participating lenders and provided that we are not, or would not, be in default under the Credit Facilities or
in non-compliance with any financial covenants and an event of default does not or would not exist, after
giving effect thereto and provided that all representations and warranties are true and correct immediately
prior to, and after giving effect to, such increase. As at December 31, 2020, the aggregate amount
outstanding under the Credit Facilities was $25 million under the Term facility. As of the date of this
MD&A, this accordion feature remains uncommitted.
Our accounts payable and accrued liabilities are due and payable in the short-term.
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Andlauer Healthcare Group Inc. – 2020 Annual Report
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Interest rate risk
We have a Revolving Credit Facility and Term Facility that each bear interest at a floating rate subject to
fluctuations in interest rates. Changes in interest rates can cause fluctuations in interest payments and cash
flows. We do not use derivative financial instruments to mitigate the effect of this risk. The Credit Facilities
are available to be drawn in Canadian dollars by way of prime rate loans, bankers’ acceptances and letters
of credit, and in U.S. dollars by way of base rate loans, LIBOR based loans and letters of credit, in each
case, plus the applicable margin in effect from time to time. At December 31, 2020, the term facility
comprises bankers’ acceptances drawn at an interest rate of 1.9%. During the year, there has been no
exposure to significant interest rate fluctuations.
Currency risk
We enter into foreign currency purchase and sale transactions and have assets and liabilities that are
denominated in foreign currencies and thus are exposed to the financial risk of earnings fluctuations arising
from changes in foreign exchange rates and the degree of volatility of these rates. We do not currently use
derivative instruments to reduce our exposure to foreign currency risk.
Outstanding Share Data
Our authorized share capital consists of an unlimited number of Subordinate Voting Shares, an unlimited
number of Multiple Voting Shares and an unlimited number of preferred shares, issuable in series. As at
February 24, 2021, there were 12,502,805 Subordinate Voting Shares issued and outstanding, 25,100,000
Multiple Voting Shares issued and outstanding (each of which is convertible into Subordinate Voting Shares
on a one-for-one basis), and no preferred shares issued and outstanding. In addition, as at such date we had
1,643,750 options, each of which can be exercised or settled for one Subordinate Voting Share and 22,816
Deferred Share Units issued and outstanding under our omnibus incentive plan. As of the date hereof, AMG
holds all of the Multiple Voting Shares and 28,500 of the Subordinate Voting Shares, representing
approximately 66.8% of the issued and outstanding Shares and 89.0% of the voting power attached to all
of the Shares.
Subject to financial results, capital requirements, available cash flow, corporate law requirements and any
other factors that our board of directors may consider relevant, we expect to declare a quarterly dividend
on the Subordinate Voting Shares and Multiple Voting Shares equal to approximately $0.05 per share on
an ongoing basis. Our Q4 2020 dividend, in the amount of $0.05 per Share, was paid on January 15, 2021
for the period beginning on October 1, 2020 and ending on December 31, 2020, to shareholders of record
as at December 31, 2020. Dividends are declared and paid in arrears. The amount and timing of the payment
of any dividends are not guaranteed and are subject to the discretion of our board of directors.
Disclosure Controls and Procedures and Internal Controls Over Financial Reporting
In compliance with the provisions of National Instrument 52-109 – Certification of Disclosure in Issuers’
Annual and Interim Filings, we have filed certificates signed by our CEO and by our Chief Financial Officer
(“CFO”) that, among other things, report on:
•
•
their responsibility for establishing and maintaining disclosure controls and procedures (“DC&P”)
and internal control over financial reporting (“ICFR”) for the Company; and
the design and effectiveness of DC&P and the design and effectiveness of ICFR.
35
Andlauer Healthcare Group Inc. – 2020 Annual Report
- 36 -
Management, including our CEO and CFO, does not expect that the disclosure controls or internal controls
over financial reporting of the Company will prevent or detect all errors and all fraud or will be effective
under all potential future conditions. A control system is subject to inherent limitations and, no matter how
well designed and operated, can provide only reasonable, not absolute, assurance that the control systems
objectives will be met.
Further, the design of a control system must reflect that there are resource constraints, and the benefits of
controls must be considered relative to their costs. Inherent limitations include the realities that judgments
in decision making can be faulty, and that breakdowns can occur because of simple errors or mistakes.
Controls can also be circumvented by individual acts of some persons, by collusion of two or more people
or by management override of the controls. Due to the inherent limitations in a cost-effective control system,
misstatements due to error or fraud may occur and not be detected. The design of any control system is also
based in part upon certain assumptions about the likelihood of future events, and there can be no assurance
that any design will succeed in achieving its stated goals under all potential conditions. Projections of any
evaluations of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may
deteriorate.
Disclosure controls and procedures
The CEO and the CFO, have designed DC&P, or have caused them to be designed under their supervision,
in order to provide reasonable assurance that:
• material information relating to AHG is made known to the CEO and CFO by others, particularly
•
during the period in which the interim and annual filings are being prepared; and
information required to be disclosed by AHG in its annual filings, interim filings or other reports
filed or submitted by it under securities legislation is recorded, processed, summarized and reported
within the time periods specified in securities legislation.
Internal controls over financial reporting
The CEO and CFO have also designed ICFR, or have caused them to be designed under their supervision,
in order to provide reasonable assurance regarding the reliability of financial reporting and the preparation
of financial statements for external purposes in accordance with IFRS.
The control framework used to design our ICFR is based on the criteria set forth by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO) on Internal Control – Integrated
Framework (2013 framework).
Changes in internal controls over financial reporting
No changes were made to our ICFR during Fiscal 2020 that have materially affected, or are reasonably
likely to materially affect, our ICFR.
Additional Information
Additional information about AHG, including our AIF, can be found on our profile on SEDAR at
www.sedar.com or on our website at www.andlauerhealthcare.com.
36
Andlauer Healthcare Group Inc. – 2020 Annual Report Consolidated Financial Statements of
ANDLAUER HEALTHCARE
GROUP INC.
For the years ended December 31, 2020 and 2019
Andlauer Healthcare Group Inc. – 2020 Annual Report
37
KPMG LLP
Commerce Place
21 King Street West, Suite 700
Hamilton ON L8P 4W7
Canada
Telephone (905) 523-8200
Fax (905) 523-2222
INDEPENDENT AUDITORS’ REPORT
To the Shareholders of Andlauer Healthcare Group Inc.
Opinion
We have audited the consolidated financial statements of Andlauer Healthcare Group
Inc. (the “Entity”), which comprise:
the consolidated balance sheets as at December 31, 2020 and December 31,
2019
the consolidated statements of income and comprehensive income for the years
ended December 31, 2020 and December 31, 2019
the consolidated statements of changes in equity for the years ended December
31, 2020 and December 31, 2019
the consolidated statements of cash flow for the years ended December 31, 2020
and December 31, 2019
and notes to the consolidated financial statements, including a summary of
significant accounting policies
(hereinafter referred to as the “financial statements”).
In our opinion, the accompanying financial statements present fairly, in all material
respects, the financial position of the Entity as at December 31, 2020 and December
31, 2019, and its financial performance and its cash flows for the years then ended in
accordance with International Financial Reporting Standards (“IFRS”).
Basis for Opinion
We conducted our audit in accordance with Canadian generally accepted auditing
standards. Our responsibilities under those standards are further described in the
“Auditors’ Responsibilities for the Audit of the Financial Statements” section of our
auditors’ report.
We are independent of the Entity in accordance with the ethical requirements that are
relevant to our audit of the financial statements in Canada and we have fulfilled our
ethical responsibilities in accordance with these requirements.
KPMG LLP is a Canadian limited liability partnership and a member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity.
KPMG Canada provides services to KPMG LLP.
38
Andlauer Healthcare Group Inc. – 2020 Annual Report
We believe that the audit evidence we have obtained is sufficient and appropriate to
provide a basis for our opinion.
Key Audit Matters
Key audit matters are those matters that, in our professional judgment, were of most
significance in our audit of the financial statements for the year ended December 31,
2020. These matters were addressed in the context of our audit of the financial
statements as a whole, and in forming our opinion thereon, and we do not provide a
separate opinion on these matters.
We have determined the matters described below to be the key audit matters to be
communicated in our auditors’ report.
Evaluation of revenue recognition in the Healthcare Logistics Segment
Description of the matter
We draw attention to Note 3(b) Revenue, Healthcare Logistics to the financial
statements. The Entity’s healthcare logistics segment generates revenue from
providing supply chain services for its customers, including logistics and distribution
services and packaging solutions. The total revenues for the healthcare logistics
segment is $117 million, which represents 37% of total revenues. The Entity’s contracts
with customers typically include a single performance obligation. However, in some
cases, the Entity’s contracts with customers have other performance obligations
related to managing transportation and other customer services which are included in
the logistics and distribution of products. These services are typically priced at their
the customer
stand-alone selling prices and are recognized over
simultaneously receives and consumes the benefits of the Entity’s services. The
accounting for a contract or contracts with a customer that contain multiple
performance obligations requires the Entity to allocate the contractual transaction price
to the identified distinct performance obligations. The allocation of the transaction price
requires management to determine the standalone selling price (“SSP”) for each
distinct performance obligation.
time as
Why the matter is a key audit matter
We identified the evaluation of revenue recognition for contracts that contain multiple
performance obligations in the healthcare logistics segment as a key audit matter. This
matter represented an area of higher risk of material misstatement given the complexity
of the various terms in each contract and the need to identify the SSP for each distinct
performance obligation. In addition, there was a need for heightened auditor attention
in evaluating the amount of revenue recognized.
How the matter was addressed in the audit
The primary procedures we performed to address this key audit matter included the
following:
- We selected a statistical sample from all healthcare logistics revenue transactions
in the general ledger. For each sample selected, we compared the amount of
revenue recognized to the source documentation and then examined the
subsequent cash receipt of each sample.
For samples selected related to contracts that include more than one performance
obligation, we obtained the Entity’s master contract summary and tested the stand-
-
39
Andlauer Healthcare Group Inc. – 2020 Annual Report alone selling price used to invoice the customer to evaluate the revenue
recognized. We also performed testing over the master contract summary by
examining the customer contracts to assess the appropriateness of the SSP used
to bill customers for specific performance obligations.
Emphasis of Matter — Basis of Presentation
We draw attention to Note 2 to the financial statements, which describes the basis of
presentation, including the approach to and the purpose for preparing the financial
statements including the comparative information.
Our opinion is not modified in respect of this matter.
Other Information
Management is responsible for the other information. Other information comprises:
the information included in Management’s Discussion and Analysis filed with the
relevant Canadian Securities Commissions.
the information, other than the financial statements and the auditors’ report thereon,
included in a document likely to be entitled “Annual Report”.
Our opinion on the financial statements does not cover the other information and we
do not and will not express any form of assurance conclusion thereon.
In connection with our audit of the financial statements, our responsibility is to read the
other information identified above and, in doing so, consider whether the other
information is materially inconsistent with the financial statements or our knowledge
obtained in the audit and remain alert for indications that the other information appears
to be materially misstated.
We obtained the information included in Management’s Discussion and Analysis filed
with the relevant Canadian Securities Commissions as at the date of this auditors’
report. If, based on the work that we have performed on this other information, we
conclude that there is a material misstatement of this other information, we are required
to report that fact in the auditors’ report.
We have nothing to report in this regard.
The information, other than the financial statements and the auditors’ report thereon,
included in a document likely to be entitled “Annual Report” is expected to be made
available to us after the date of this auditors’ report. If, based on the work we will
perform on this other information, we conclude that there is a material misstatement of
this other information, we are required to report that fact to those charged with
governance.
Responsibilities of Management and Those Charged with Governance for the
Financial Statements
Management is responsible for the preparation and fair presentation of the financial
statements in accordance with International Financial Reporting Standards (IFRS), and
for such internal control as management determines is necessary to enable the
preparation of financial statements that are free from material misstatement, whether
due to fraud or error.
40
Andlauer Healthcare Group Inc. – 2020 Annual Report In preparing the financial statements, management is responsible for assessing the
Entity’s ability to continue as a going concern, disclosing as applicable, matters related
to going concern and using the going concern basis of accounting unless management
either intends to liquidate the Entity or to cease operations, or has no realistic
alternative but to do so.
Those charged with governance are responsible for overseeing the Entity’s financial
reporting process.
Auditors’ Responsibilities for the Audit of the Financial Statements
Our objectives are to obtain reasonable assurance about whether the financial
statements as a whole are free from material misstatement, whether due to fraud or
error, and to issue an auditors’ report that includes our opinion.
Reasonable assurance is a high level of assurance, but is not a guarantee that an audit
conducted in accordance with Canadian generally accepted auditing standards will
always detect a material misstatement when it exists.
Misstatements can arise from fraud or error and are considered material if, individually
or in the aggregate, they could reasonably be expected to influence the economic
decisions of users taken on the basis of the financial statements.
As part of an audit in accordance with Canadian generally accepted auditing
standards, we exercise professional judgment and maintain professional skepticism
throughout the audit.
We also:
Identify and assess the risks of material misstatement of the financial statements,
whether due to fraud or error, design and perform audit procedures responsive to
those risks, and obtain audit evidence that is sufficient and appropriate to provide
a basis for our opinion.
The risk of not detecting a material misstatement resulting from fraud is higher than
for one resulting from error, as fraud may involve collusion, forgery, intentional
omissions, misrepresentations, or the override of internal control.
Obtain an understanding of internal control relevant to the audit in order to design
audit procedures that are appropriate in the circumstances, but not for the purpose
of expressing an opinion on the effectiveness of the Entity's internal control.
Evaluate the appropriateness of accounting policies used and the reasonableness
of accounting estimates and related disclosures made by management.
Conclude on the appropriateness of management's use of the going concern basis
of accounting and, based on the audit evidence obtained, whether a material
uncertainty exists related to events or conditions that may cast significant doubt on
the Entity's ability to continue as a going concern. If we conclude that a material
uncertainty exists, we are required to draw attention in our auditors’ report to the
related disclosures in the financial statements or, if such disclosures are
41
Andlauer Healthcare Group Inc. – 2020 Annual Report inadequate, to modify our opinion. Our conclusions are based on the audit
evidence obtained up to the date of our auditors’ report. However, future events or
conditions may cause the Entity to cease to continue as a going concern.
Evaluate the overall presentation, structure and content of the financial statements,
including the disclosures, and whether the financial statements represent the
underlying transactions and events in a manner that achieves fair presentation.
Communicate with those charged with governance regarding, among other
matters, the planned scope and timing of the audit and significant audit findings,
including any significant deficiencies in internal control that we identify during our
audit.
Provide those charged with governance with a statement that we have complied
with relevant ethical requirements regarding independence, and communicate with
them all relationships and other matters that may reasonably be thought to bear
on our independence, and where applicable, related safeguards.
Obtain sufficient appropriate audit evidence regarding the financial information of
the entities or business activities within the consolidated entity to express an
opinion on the financial statements. We are responsible for the direction,
supervision and performance of the group audit. We remain solely responsible for
our audit opinion.
Determine, from the matters communicated with those charged with governance,
those matters that were of most significance in the audit of the financial statements
of the current period and are therefore the key audit matters. We describe these
matters in our auditors’ report unless law or regulation precludes public disclosure
about the matter or when, in extremely rare circumstances, we determine that a
matter should not be communicated in our auditors’ report because the adverse
consequences of doing so would reasonably be expected to outweigh the public
interest benefits of such communication.
Chartered Professional Accountants, Licensed Public Accountants
The engagement partner on the audit resulting in this auditors’ report is John J.
Pryke.
Hamilton, Canada
February 24, 2021
42
Andlauer Healthcare Group Inc. – 2020 Annual Report Andlauer Healthcare Group Inc.
Consolidated Balance Sheets
As at December 31, 2020 and December 31, 2019
(In thousands of Canadian dollars, except shares, share price and earnings per share)
Assets
Current assets
Cash and cash equivalents
Accounts receivable
Inventories
Prepaid expenses and other
Due from related parties
Due from employee trust
Non-current assets
Long-term deposits
Property, plant and equipment
Goodwill and intangible assets
Deferred income taxes
Total Assets
Liabilities and Equity
Current liabilities
Revolving credit facility
Accounts payable and accrued liabilities
Current portion of lease liabilities
Income taxes payable
Long-term liabilities
Lease liabilities
Deferred income taxes
Due to related parties
Term facility
Total Liabilities
Equity
Common share capital
Contributed surplus
Merger reserve
Retained earnings (deficit)
Commitments and contingencies
Subsequent event
Note
December 31,
2020
December 31,
2019
$
30,148
57,867
1,228
2,830
381
-
92,454
810
118,915
34,479
6,139
$
18,712
51,060
1,071
2,307
239
13,875
87,264
938
103,326
21,421
46
$ 252,797
$ 212,995
$
-
25,365
21,197
1,514
48,076
83,749
1,978
-
24,667
$
3,929
24,942
19,129
8,695
56,695
69,584
321
335
24,555
158,470
151,490
549,662
4,448
(488,916)
29,133
94,327
549,679
1,394
(488,916)
(652)
61,505
6
7
21
2
8
9
17
11
10
18
18
17
21
11
13
15
2
20
24
Total Liabilities and Equity
$ 252,797
$ 212,995
See accompanying notes to the consolidated financial statements.
On behalf of the Board:
“Peter Jelley”
Director
“Thomas G. Wellner”
Director
Page | 1
43
Andlauer Healthcare Group Inc. – 2020 Annual Report
Andlauer Healthcare Group Inc.
Consolidated Statements of Income and Comprehensive Income
For the years ended December 31, 2020 and 2019
(In thousands of Canadian dollars, except shares, share price and earnings per share)
Revenue
16
$ 314,340
$ 289,988
Note
December 31,
2020
December 31,
2019
Operating Expenses
Cost of transportation and services
Direct operating expenses
Selling, general and administrative expenses
Depreciation and amortization
Operating Income
Interest expense
Interest income
Other expenses
Income before income taxes
Current income tax expense
Deferred income tax (recovery) expense
Net income and comprehensive income
Net income attributable to:
Shareholders of the Company
Non-controlling interests
Net earnings per share attributable to the
Shareholders of the Company:
Basic earnings per share
Diluted earnings per share
131,392
75,374
28,613
28,022
263,401
121,405
74,792
23,092
25,706
244,995
50,939
44,993
(4,595)
285
(49)
(3,503)
1,004
(145)
46,580
42,349
15,137
(6,271)
8,866
11,641
363
12,004
37,714
30,345
37,714
-
37,714
1.00
0.98
$
$
$
29,773
572
30,345
0.79
0.79
$
$
$
19
17
17
2
14
14
See accompanying notes to the consolidated financial statements.
44
Page | 2
Andlauer Healthcare Group Inc. – 2020 Annual Report
Andlauer Healthcare Group Inc.
Consolidated Statements of Changes in Equity
For the years ended December 31, 2020 and 2019
(In thousands of Canadian dollars, except shares, share price and earnings per share)
Attributable to Common Shareholders of the Company
Number of
shares
(thousands)
(note 13)
Share
capital
(note 13)
Merger
reserve
(note 2)
Contributed
surplus
(note 15)
Retained
earnings
(deficit)
(note 13)
Total net
parent
investment
(note 2)
Non-
controlling
interests
(note 2)
Total equity
Balance at December 31, 2018
-
$
-
$
-
$
-
$
-
$ 163,811
$
5,917
$ 169,728
Net income and comprehensive
income for the period
Distributions and dividends
Adjustment on acquisition of NCI
Balance at December 10, 2019
Net loss and comprehensive loss
for the period December 11-31,
2019
Shares issued in connection with
the acquisition of the AHG
Entities
-
-
-
-
-
-
-
-
-
-
26,100
391,500
-
-
-
-
-
-
Acquisition of the AHG Entities
-
-
(488,916)
Shares issued in connection with
the initial public offering
11,500
172,500
Transaction costs
Share-based compensation
-
-
(14,321)
-
-
-
-
-
-
-
-
-
-
-
-
-
1,394
-
-
-
-
(652)
-
-
-
-
-
30,425
572
30,997
(112,016)
-
(112,016)
6,489
(6,489)
-
88,709
-
88,709
-
-
(88,709)
-
-
-
-
-
-
-
-
-
(652)
391,500
(577,625)
172,500
(14,321)
1,394
Balance at December 31, 2019
37,600
$ 549,679
$ (488,916)
$
1,394
$
(652)
$
-
$
-
$ 61,505
Net income and comprehensive
income for the year
Share-based compensation
Dividends
-
3
-
-
(17)
-
-
-
-
-
37,714
3,054
-
-
(7,929)
-
-
-
-
-
-
37,714
3,037
(7,929)
Balance at December 31, 2020
37,603
$ 549,662
$ (488,916)
$
4,448
$ 29,133
$
-
$
-
$ 94,327
See accompanying notes to the consolidated financial statements.
Page | 3
45
Andlauer Healthcare Group Inc. – 2020 Annual Report
Andlauer Healthcare Group Inc.
Consolidated Statements of Cash Flow
For the years ended December 31, 2020 and 2019
(In thousands of Canadian dollars, except shares, share price and earnings per share)
Operating activities
Net income for the year
Changes not involving cash:
Depreciation and amortization
Adjustment to capitalized financing costs
Share-based compensation
Deferred income tax (recovery) expense
Loss on disposal of property, plant and equipment
Derecognition of right-of-use assets and liabilities
Changes in non-cash operating working capital:
Accounts receivable
Inventories
Accounts payable and accrued liabilities
Income taxes payable
Net change in other operating working capital balances
Cash flows from operating activities
Financing activities
Distributions to related parties
Dividends
Principal repayments on lease liabilities
Net change in related party balances
Loan to employee trust
Proceeds from revolving credit facility
Proceeds from term facility
Repayment of revolving credit facility
Net financing costs on credit facilities
Proceeds from issuance of share capital
Transaction costs recorded in share capital
Repayment of promissory note
Cash flows used in financing activities
Investing activities
Purchase of property, plant and equipment
Proceeds on disposal of property, plant and equipment
Purchase of intangible assets
Business combinations, net of cash acquired
Cash flows used in investing activities
December 31,
2020
December 31,
2019
Note
$
37,714
$
30,345
11
15
17
18
2
13
18
2
11
11
11
11
13
13
2
9
5
28,022
112
3,037
(6,271)
18
(34)
62,598
(3,040)
(157)
(948)
(7,181)
(269)
51,003
-
(7,929)
(20,736)
(477)
13,875
-
-
(3,929)
-
-
-
-
(19,196)
(4,966)
1
(473)
(14,933)
(20,371)
25,706
-
1,394
363
107
-
57,915
(2,630)
295
(2,154)
8,654
(1,079)
61,001
(112,016)
-
(19,161)
54,733
(13,875)
25,000
25,000
(21,071)
(445)
172,500
(14,321)
(186,125)
(89,781)
(5,935)
-
(230)
-
(6,165)
Net increase (decrease) in cash and cash equivalents
11,436
(34,945)
Cash and cash equivalents, beginning of year
18,712
53,657
Cash and cash equivalents, end of year
$
30,148
$
18,712
See accompanying notes to the consolidated financial statements.
Page | 4
46
Andlauer Healthcare Group Inc. – 2020 Annual Report
Andlauer Healthcare Group Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2020 and 2019
(In thousands of Canadian dollars, except shares, share price and earnings per share)
1. Reporting entity
Andlauer Healthcare Group Inc. (“AHG”) was incorporated under the Ontario Business Corporations Act on
November 12, 2019 with its head office located in Woodbridge, Ontario. AHG’s subordinate voting shares are
listed on the Toronto Stock Exchange under the stock symbol “AND”. AHG specializes in third party logistics and
transportation solutions for the healthcare sector in Canada.
On December 4, 2019, AHG entered into an underwriting agreement and filed a long form prospectus for the
purpose of completing an initial public offering, which closed on December 11, 2019 (the ‘‘Closing’’). AHG raised
gross proceeds of $150,000 through the issuance of 10 million subordinate voting shares at a price of $15.00
per subordinate voting share. On December 16, 2019, a further 1.5 million subordinate voting shares were
issued at a price of $15.00 per subordinate voting share resulting in $22,500 of additional gross proceeds
pursuant to the exercise of an over-allotment option in the underwriting agreement. Transaction costs of
$15,273 were incurred in connection with the initial public offering, of which $14,321 have been offset against
the proceeds of the subordinate voting shares, and $952 were expensed in 2019.
As part of the Closing, in addition to the shares issued to the public, Andlauer Management Group Inc. (“AMG”)
acquired 25.1 million multiple voting shares and 1 million subordinate voting shares of AHG. AMG concurrently
transferred 925,000 subordinate voting shares to an Employee Benefit Plan Trust. Between September 25 and
December 23, 2020, AMG transferred an aggregate of 46,500 of its remaining subordinate voting shares to
select independent owner-operators engaged by AHG. As of the date hereof, AMG holds all of the issued and
outstanding multiple voting shares and 28,500 subordinate voting shares of AHG, representing approximately
66.8% of the issued and outstanding shares and 89.0% of the voting power attached to all of the shares. AMG
is owned and controlled by Michael Andlauer, Chief Executive Officer and a director of AHG.
2. Basis of presentation
a) Statement of compliance
These consolidated financial statements have been prepared in accordance with International Financial
Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”) and using
the accounting policies described herein.
b) Basis of measurement
These consolidated financial statements were prepared on a going concern basis under the historical cost
method except for share based compensation and business combinations, which were recorded at fair
value. Significant accounting policies are presented in note 3 to these consolidated financial statements and
have been consistently applied in each of the periods presented. These consolidated financial statements
were authorized for issue by the Board of Directors effective February 24, 2021.
These financial statements comprise the consolidated financial results of AHG and Associated Logistics
Solutions Inc., Credo Canada Systems Inc., 2186940 Ontario Inc. and their respective subsidiaries
(collectively, the “AHG Entities”) as at and for the years ended December 31, 2020 and 2019, and reflect
the combined financial results of the AHG Entities for the period from January 1 to December 10, 2019,
prior to the date of the initial public offering (collectively the “Company”).
Common control transaction
In connection with a series of transactions that occurred prior to, and on, the date of Closing, AHG acquired
a 100% ownership interest in the AHG Entities in exchange for 25.1 million multiple voting shares valued at
$376,500, 1.0 million subordinate voting shares valued at $15,000 and a promissory note for $186,125
which was settled with the proceeds of the initial public offering and proceeds from the credit facilities
(note 11).
Page | 5
47
Andlauer Healthcare Group Inc. – 2020 Annual Report
Andlauer Healthcare Group Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2020 and 2019
(In thousands of Canadian dollars, except shares, share price and earnings per share)
2. Basis of presentation (continued)
b) Basis of measurement (continued)
Common control transaction (continued)
AHG’s acquisition of the AHG Entities was a business combination involving entities under common control
in which all of the combining entities were ultimately controlled by AMG, both before and after the
reorganization transactions were completed. Business combinations involving entities under common
control are outside the scope of IFRS 3 Business Combinations. AHG accounted for this common control
transaction using book value accounting, based on the book values recognized in the financial statements
of the underlying entities. This election resulted in the financial statements being restated for periods prior
to the date of obtaining common control, to reflect the combination as if it had occurred from the beginning
of the period that the entities were under common control, regardless of the actual date the common
control transaction closed.
(i) Total net parent investment
The comparative statement of changes in equity for the period from January 1, 2019 to December 10,
2019 reflects the combined equity and net income and comprehensive income of the AHG Entities prior
to AHG’s acquisition of the AHG Entities. Accordingly, it is not meaningful to show share capital or
provide an analysis of reserves. Amounts which reflect the carrying value of investments in the
combined entities are disclosed as “Total net parent investment”, while the carrying value of net assets
attributable to shareholders other than the Company are presented as “Non-controlling interests”
(“NCI”).
On June 13, 2019, the outstanding equity interests in Associated Logistics Solutions Inc. were
purchased, reducing the non-controlling interest ownership percentage from 15% to nil. The carrying
amount of NCI purchased at the time of the transaction was $6,489, after giving effect to income
attributable to NCI for the period of $572. As the transaction was with the ultimate parent the
transaction reduced NCI by $6,489 and increased net parent investment by the same amount.
Prior to AHG’s acquisition of the AHG Entities, the AHG Entities paid distributions and dividends to
related parties of $112,016, which includes income tax of $9,379 charged to net parent investment.
(ii) Merger reserve
Pursuant to a share purchase agreement between AHG and its parent, and in connection with a
corporate reorganization immediately prior to the initial public offering, AHG acquired a 100%
ownership interest in the AHG Entities based on the value of consideration of $577,625. Total net
parent investment as at December 10, 2019 (immediately prior to the Closing) was $88,709. A merger
reserve of $488,916 is recorded to reflect the difference in carrying value of the net assets acquired
and the consideration paid since AHG and the AHG Entities were all related parties under common
control of AMG at the time of the acquisition.
(iii) Employee trust
An employee trust was established at Closing, the beneficiaries of which will be executive officers and
employees of the Company. AHG made a non-interest bearing loan of $13,875 to the employee trust
which the employee trust used to acquire 925,000 subordinate voting shares from AMG. On June 25,
2020, the employee trust repaid its loan from AHG in full using a portion of proceeds from the sale of
508,000 subordinate voting shares pursuant to a number of private agreements. Following
distributions of 329,550 subordinate voting shares to beneficiaries, the employee trust continues to
hold 87,450 subordinate voting shares for the benefit of executive officers and employees of the
Company.
48
Page | 6
Andlauer Healthcare Group Inc. – 2020 Annual Report
Andlauer Healthcare Group Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2020 and 2019
(In thousands of Canadian dollars, except shares, share price and earnings per share)
2. Basis of presentation (continued)
c) Basis of combination
(i) Business combinations
The Company measures goodwill as the fair value of the consideration transferred including the fair
value of liabilities resulting from contingent consideration arrangements, less the net recognized
amount of the identifiable assets acquired and liabilities assumed, all measured at fair value as of the
acquisition date. When the excess is negative, a bargain purchase gain is recognized immediately in
income or loss.
Transaction costs, other than those associated with the issue of debt or equity securities, that the
Company incurs in connection with a business combination are expensed as incurred.
(ii) Subsidiaries
The consolidated financial statements comprise the financial statements of the Company and its
subsidiaries. The Company controls an entity when it is exposed to, or has the right to, variable returns
from its involvement with the entity and has the ability to affect those through its power over the
entity. The financial statements of subsidiaries are included in the consolidated financial statements
from the date that control commences until the date that control ceases. The accounting policies of
subsidiaries are aligned with the policies adopted by the Company.
The Company’s wholly-owned subsidiaries include:
Entity
Incorporation Jurisdiction
2040637 Ontario Inc.
2186940 Ontario Inc.
2721275 Ontario Limited
Accuristix Healthcare Logistics Inc.
Accuristix Inc.
Accuristix
Associated Logistics Solutions Inc.
ATS Andlauer Transportation Services GP Inc.
ATS Andlauer Transportation Services LP
Concord Supply Chain Solutions Inc.1
Credo Systems Canada Inc.
McAllister Courier Inc.2
MEDDS Winnipeg – A Medical Delivery Service Corporation
MEDDS Canada – A Medical Delivery Service Corporation1
Nova Pack Ltd.
TDS Logistics Ltd.2
Ontario
Ontario
Ontario
Ontario
Ontario
Ontario
Ontario
Canada
Manitoba
Delaware
Ontario
Ontario
Manitoba
Canada
Ontario
Ontario
Entity has been dormant throughout the entire reporting period.
1
2 Acquired by ATS Andlauer Transportation Services LP on October 1, 2020. See note 5.
(iii) Transactions eliminated on consolidation
Intercompany balances and transactions, and any unrealized income and expenses arising from
intercompany transactions, are eliminated in preparing the consolidated financial statements.
Page | 7
49
Andlauer Healthcare Group Inc. – 2020 Annual Report
Andlauer Healthcare Group Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2020 and 2019
(In thousands of Canadian dollars, except shares, share price and earnings per share)
2. Basis of presentation (continued)
d) Functional and presentation currency
These consolidated financial statements are presented in Canadian dollars, which is the Company’s
functional currency. All financial information presented in Canadian dollars has been rounded to the nearest
thousand.
e)
Judgments and estimates
Preparing the consolidated financial statements requires management to make judgments, estimates and
assumptions that affect the application of accounting policies and the reported amounts of assets and
liabilities, income and expense. Actual results may differ from these estimates. In preparing these
consolidated financial statements, significant judgments made by management in applying the accounting
policies and the key sources of estimation uncertainty were the same as those applied to the consolidated
financial statements for the year ended December 31, 2019. Information about significant judgments,
assumptions and estimation uncertainties that have a significant risk of resulting in a material adjustment
within the next financial year are included in the following notes:
• Note 5 – Establishing the fair value of assets and liabilities, intangible assets and goodwill related to
business combinations;
• Note 6 – Determining the expected credit losses related to trade accounts receivable;
• Note 8 – Estimating the useful life of the Company’s property, plant and equipment and
determining estimates and assumptions related to impairment tests for long-lived assets;
• Note 9 – Estimating the useful life of the Company’s intangible assets and determining estimates
and assumptions related to impairment tests for intangibles and goodwill;
• Note 15 – Determining the valuation of share-based compensation arrangements;
• Note 17 – Determining estimates and assumptions in measuring deferred tax assets and liabilities;
• Note 18 – Estimating the Company’s incremental borrowing rate in connection with measuring lease
liabilities; and
• Note 20 – Recognition and measurement of provisions and contingencies.
3. Significant accounting policies
Foreign currency translation
Transactions in foreign currencies are translated to the respective functional currencies of each entity at
exchange rates at the dates of the transactions. Monetary assets and liabilities denominated in foreign
currencies are translated to the functional currency at the exchange rate in effect at the reporting date. The
foreign currency gain or loss on monetary items is the difference between amortized cost in the functional
currency at the beginning of the period, adjusted for effective interest and payments during the period, and the
amortized cost in foreign currency translated at the exchange rate at the end of the reporting period. Non-
monetary assets and liabilities that are measured in terms of historical cost in a foreign currency are translated
at the rate in effect on the transaction date. Income and expense items denominated in foreign currency are
translated at the date of the transactions. Gains and losses are included in income or loss.
Revenue
Revenue is recognized upon transfer of control of promised products or services to customers in an amount that
reflects the consideration the Company expects to be entitled to receive in exchange for those products or
services. A performance obligation is a promise in a contract to transfer a distinct good or service to the
customer. A contract’s transaction price is allocated to each distinct performance obligation and recognized as
revenue when, or as, the performance obligation is satisfied. The following is a description of the Company’s
performance obligations for the transportation and logistics reportable segments.
50
Page | 8
Andlauer Healthcare Group Inc. – 2020 Annual Report
Andlauer Healthcare Group Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2020 and 2019
(In thousands of Canadian dollars, except shares, share price and earnings per share)
3. Significant accounting policies (continued)
Revenue (continued)
a) Specialized Transportation
The Company’s transportation segment generates revenue from providing specialized ground
transportation, air freight forwarding and dedicated and last mile transportation services for its customers.
Certain additional services may be provided to customers as part of their transportation contracts, such as
temperature control and other incidental services. The transaction price is based on the consideration
specified in the customer’s contract. A contract exists when a customer under a transportation contract
submits a shipment document for the transport of goods from origin to destination. The performance
obligations within each contract are satisfied as the shipments move from origin to destination.
Transportation revenue is recognized proportionally as a shipment moves from origin to destination and
the related costs are recognized as incurred. Performance obligations are short-term, with transit days less
than one week. Generally, customers are billed upon shipment of the freight, and remit payment according
to approved payment terms.
b) Healthcare Logistics
The Company’s healthcare logistics segment generates revenue from providing supply chain services for its
customers, including logistics and distribution services and packaging solutions. The Company’s contracts
typically include a single performance obligation that is satisfied over time as customers simultaneously
receive and consume the benefits of the Company’s services. For this performance obligation, the Company
recognizes revenue at the invoiced amount, which is billed on a fixed price per unit of logistics activities
provided in the month, since this amount corresponds directly to the Company’s performance and the value
to the customer. In some cases, the Company’s contracts include other performance obligations related to
managing transportation and other customer services which are included in the logistics and distribution of
products. These services are typically priced at their stand-alone selling prices and are recognized over time
as the customer simultaneously receives and consumes the benefits of the Company’s services. Contracts
with customers that contain multiple performance obligations require the Company to allocate the
contractual transaction price to the identified distinct performance obligations. The allocation of the
transaction price requires management to determine the standalone selling price for each distinct
performance obligation. These services are recognized as revenue when they are provided to the customer.
Customers are typically billed on a weekly basis for transactional transportation services, and on a monthly
basis for logistics and distribution services, and remit payment according to approved payment terms.
Payment terms may range under certain contracts, but are typically 30 days. The Company recognizes
unbilled revenue for transportation service revenue that has been recognized, but is not yet billed. The
Company will also recognize deferred revenue when customers are billed in advance for transportation and
logistics and distribution services.
Property, plant and equipment
Property, plant and equipment is accounted for at cost less accumulated depreciation and accumulated
impairment losses.
Cost includes expenditures that are directly attributable to the acquisition of the asset, the costs of dismantling
and removing the assets and restoring the site on which they are located and borrowing costs on qualifying
assets.
When parts of an item of property, plant and equipment have different useful lives, they are accounted for as
separate items (major components) of property, plant and equipment.
Page | 9
51
Andlauer Healthcare Group Inc. – 2020 Annual Report
Andlauer Healthcare Group Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2020 and 2019
(In thousands of Canadian dollars, except shares, share price and earnings per share)
3. Significant accounting policies (continued)
Property, plant and equipment (continued)
Gains and losses on disposal of an item of property, plant and equipment are determined by comparing the
proceeds from disposal with the carrying amount of property, plant and equipment, and are recognized in net
income or loss.
Depreciation is based on the cost of an asset less its residual value and is recognized in income or loss over the
estimated useful life of each component of an item of property, plant and equipment. Leased assets are
depreciated over the shorter of the lease term and their useful lives unless it is reasonably certain that the
Company will obtain ownership by the end of the lease term.
Depreciation is computed on either a declining balance basis or a straight-line basis over the estimated useful
lives of the assets as follows:
Asset
Facilities
Furniture and fixtures
Leasehold improvements
Logistics and transportation equipment
Amortization Method
Straight-line over the term of the lease
20-30% declining balance
5-15 year straight-line subject to the shorter of remaining
lease term or useful life
20-30% declining balance, except for storage vaults – which
are amortized straight line over 40 years
Property, plant and equipment acquired or constructed during the year but not placed into use during the year
are not amortized until put into use.
Goodwill and intangible assets
Recognition and measurement
Goodwill arising on the acquisition of subsidiaries is measured at cost less accumulated impairment losses.
Intangible assets consist of customer relationships and internally generated software.
For internally generated software, expenditure on research activities is recognized in profit or loss as incurred.
Development expenditure is capitalized only if the expenditure can be measured reliably, the product or process
is technically and commercially feasible, future economic benefits are probable and the Company intends to
and has sufficient resources to complete development and to use or sell the asset. Otherwise, it is recognized
in profit or loss as incurred. Subsequent to initial recognition, development expenditure is measured at cost less
accumulated amortization and any accumulated impairment losses.
Customer relationships that are acquired by the Company and have finite useful lives are measured at cost less
accumulated amortization and any accumulated impairment losses.
Amortization
Goodwill is not amortized.
Internally generated software is amortized on a straight-line basis over 10 years. Internally generated software
acquired or constructed during the year but not placed into use during the year is not amortized until placed
into use.
Customer relationships are amortized on a straight-line basis over their estimated useful lives of between 5 and
10 years.
52
Page | 10
Andlauer Healthcare Group Inc. – 2020 Annual Report
Andlauer Healthcare Group Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2020 and 2019
(In thousands of Canadian dollars, except shares, share price and earnings per share)
3. Significant accounting policies (continued)
Goodwill and intangible assets (continued)
Impairment
The carrying amounts of the Company’s non-financial assets other than inventoried supplies and deferred tax
assets are reviewed at each reporting date to determine whether there is any indication of impairment. If any
such indication exists, then the asset’s recoverable amount is estimated.
For goodwill, the recoverable amount is estimated on December 31 of each year as part of the annual
impairment test. For the purpose of impairment testing, assets that cannot be tested individually are grouped
together into the smallest group of assets that generates cash inflows from continuing use that are largely
independent of the cash inflows of other assets or groups of assets (the “cash-generating unit”, or “CGU”).
For the purposes of goodwill impairment testing, goodwill acquired in a business combination is allocated to the
group of CGUs (usually an operating segment of the Company), that is expected to benefit from the synergies
of the combination. This allocation is subject to an operating segment ceiling test and reflects the lowest level
at which that goodwill is monitored for internal reporting purposes. The recoverable amount of an asset or CGU
is the greater of its value in use and its fair value less costs to sell. In assessing value in use, the estimated future
cash flows are discounted to their present value using a pre-tax discount rate that reflects current market
assessments of the time value of money and the risks specific to the asset or group of assets.
An impairment loss is recognized if the carrying amount of an asset or its CGU exceeds its estimated recoverable
amount. Impairment losses recognized in respect of CGUs are allocated first to reduce the carrying amount of
any goodwill allocated to the units, if any, and then to reduce the carrying amounts of the other assets in the
unit (group of units) on a prorated basis.
An impairment loss in respect of goodwill is not reversed. In respect of other assets, impairment losses
recognized in prior periods are assessed at each reporting date for any indications that the loss has decreased
or no longer exists. An impairment loss is reversed if there has been a change in the estimates used to determine
the recoverable amount. An impairment loss is reversed only to the extent that the asset’s carrying amount
does not exceed the carrying amount that would have been determined, net of depreciation or amortization, if
no impairment loss had been recognized. Impairment losses and impairment reversals are recognized in income
or loss.
Leases
At inception of a contract, the Company assesses whether a contract is, or contains a lease. A contract is, or
contains, a lease if the contract conveys the right to control the use of an identified asset for a period of time in
exchange for consideration. To assess whether a contract conveys the right to control the use of an identified
asset, the Company assesses whether:
•
•
•
The contract involves the use of an identified asset – this may be specified explicitly or implicitly, and should
be physically distinct or represents substantially all the capacity of a physically distinct asset. If the supplier
has a substantive substitution right, then the asset is not identified;
The Company has the right to obtain substantially all of the economic benefits from use of the asset
throughout the period of use; and
The Company has the right to direct the use of the asset. The Company has the right when it has the
decision-making rights that are most relevant to changing how and for what purpose the asset is used. In
rare cases where the decision about how and for what purpose the asset is used is predetermined, the
Company has the right to direct the use of the asset if either:
-
-
the Company has the right to operate the asset; or
the Company designed the asset in a way that predetermines how and for what purpose it will be
used.
Page | 11
53
Andlauer Healthcare Group Inc. – 2020 Annual Report
Andlauer Healthcare Group Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2020 and 2019
(In thousands of Canadian dollars, except shares, share price and earnings per share)
3. Significant accounting policies (continued)
Leases (continued)
At inception or on reassessment of a contract that contains a lease component, the Company allocates the
consideration in the contract to each lease component on the basis of their relative stand-alone prices. For the
leases of land and buildings in which it is a lessee, the Company has elected to account for the lease and non-
lease components separately.
a) For arrangements in which the Company is a lessee
The Company recognizes a right-of-use (“ROU”) asset and a lease liability at the lease commencement date.
The ROU asset is initially measured at cost, which comprises the initial amount of the lease liability adjusted
for any lease payments made at or before the commencement date, plus any initial direct costs incurred
and an estimate of costs to dismantle and remove the underlying asset or to restore the underlying asset
or the site on which it is located, less any lease incentives received.
The ROU asset is subsequently depreciated using the straight-line method from the commencement date
to the earlier of the end of the useful life of the ROU asset or the end of the lease term. The estimated
useful lives of ROU assets are determined by the estimated lease term. In addition, the ROU asset is
periodically reduced by impairment losses, if any, and adjusted for certain remeasurements of the lease
liability.
The lease liability is initially measured at the present value of the lease payments that are not paid at the
commencement date, discounted using the interest rate implicit in the lease or, if that rate cannot be
readily determined, the Company’s incremental borrowing rate. Generally, the Company uses its
incremental borrowing rate as the discount rate.
Lease payments included in the measurement of the lease liability comprise the following:
•
•
•
•
fixed payments, including in-substance fixed payments;
variable lease payments that depend on an index or a rate, initially measured using the index or
rate as at the commencement date;
amounts expected to be payable under a residual value guarantee; and
the exercise price under a purchase option that the Company is reasonably certain to exercise,
lease payments in an optional renewal period if the Company is reasonably certain to exercise an
extension option, and penalties for early termination of a lease unless the Company is reasonably
certain not to terminate early.
The lease liability is measured at amortized cost using the effective interest method. It is re-measured when
there is a change in future lease payments arising from a change in an index or rate, if there is a change in
the Company’s estimate of the amount expected to be payable under a residual value guarantee, or if the
Company changes its assessment of whether it will exercise a purchase, extension or termination option.
When the lease liability is re-measured in this way, a corresponding adjustment is made to the carrying
amount of the right-of-use asset, or is recorded in profit or loss if the carrying amount of the right-of-use
asset has been reduced to zero.
b) Short-term leases and leases of low-value assets
The Company has elected not to recognize right-of-use assets and lease liabilities for short-term leases of
machinery that have a lease term of 12 months or less and leases of low-value assets, including IT
equipment. The Company recognizes the lease payments associated with these leases as an expense on a
straight-line basis over the lease term.
54
Page | 12
Andlauer Healthcare Group Inc. – 2020 Annual Report
Andlauer Healthcare Group Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2020 and 2019
(In thousands of Canadian dollars, except shares, share price and earnings per share)
3. Significant accounting policies (continued)
Leases (continued)
c) For arrangements in which the Company is a lessor
When the Company acts as a lessor, it determines at lease inception whether each lease is a finance lease
or an operating lease.
To classify each lease, the Company makes an overall assessment of whether the lease transfers
substantially all of the risks and rewards incidental to ownership of the underlying asset. If this is the case,
then the lease is a finance lease; if not, then it is an operating lease. As part of this assessment, the Company
considers certain indicators such as whether the lease is for the major part of the economic life of the asset.
If an arrangement contains lease and non-lease components, the Company applies IFRS 15 to allocate the
consideration in the contract.
The Company recognizes lease payments received under operating leases as income on a straight line basis
over the lease term as part of ‘other income’.
Income taxes
Income tax expense comprises current and deferred tax. Current tax and deferred tax are recognized in income
or loss except to the extent that it relates to a business combination, or items recognized directly in equity or in
other comprehensive income.
Current tax is the expected tax payable or receivable on the taxable income or loss for the year, using tax rates
enacted or substantively enacted at the reporting date, and any adjustment to tax payable in respect of previous
years.
Deferred tax is recognized in respect of temporary differences between the carrying amounts of assets and
liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax is not
recognized for the following temporary differences: the initial recognition of assets or liabilities in a transaction
that is not a business combination and that affects neither accounting nor taxable income or loss, and
differences relating to investments in subsidiaries and jointly controlled entities to the extent that it is probable
that they will not reverse in the foreseeable future. In addition, deferred tax is not recognized for taxable
temporary differences arising on the initial recognition of goodwill. Deferred tax is measured at the tax rates
that are expected to be applied to temporary differences when they reverse, based on the laws that have been
enacted or substantively enacted at the reporting date. Deferred tax assets and liabilities are offset if there is a
legally enforceable right to offset current tax liabilities and assets, and they relate to income taxes levied by the
same tax authority on the same taxable entity, or on different tax entities, but they intend to settle current tax
liabilities and assets on a net basis or their tax assets and liabilities will be realized simultaneously.
A deferred tax asset is recognized for unused tax losses, tax credits and deductible temporary differences, to
the extent that it is probable that future taxable income will be available against which they can be utilized.
Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer
probable that the related tax benefit will be realized.
Page | 13
55
Andlauer Healthcare Group Inc. – 2020 Annual Report
Andlauer Healthcare Group Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2020 and 2019
(In thousands of Canadian dollars, except shares, share price and earnings per share)
3. Significant accounting policies (continued)
Financial instruments
Financial assets
Accounts receivable are initially recognized when they are originated. All other financial assets and financial
liabilities are initially recognized when the Company becomes a party to the contractual provisions of the
instrument.
A financial asset (unless it is an account receivable without a significant financing component) or financial
liability is initially measured at fair value plus, for an item not at fair value through profit and loss (“FVTPL”),
transaction costs that are directly attributable to its acquisition or issue. An account receivable without a
significant financing component is initially measured at the transaction price.
The Company’s financial assets are comprised of cash and cash equivalents, accounts receivable, due from
related parties, and long-term deposits. On initial recognition, the Company classifies these financial assets as
measured at amortized cost, when both of the following conditions are met:
•
•
it is held within a business model whose objective is to hold assets to collect contractual cash flows;
and
its contractual terms give rise on specified dates to cash flows that are solely payments of principal and
interest on the principal amount outstanding.
These financial assets are subsequently measured at amortized cost using the effective interest method. The
amortized cost is reduced by impairment losses. Interest income, foreign exchange gains and losses and
impairment are recognized in profit or loss. Any gain or loss on derecognition is recognized in profit or loss.
Impairment of financial assets
Financial assets are assessed for indicators of impairment at the end of each reporting period. Financial assets
are considered to be impaired when there is objective evidence that, as a result of one or more events that
occurred after the initial recognition of the financial asset, the estimated future cash flows of the investment
have been decreased.
For accounts receivables, the Company applies a simplified approach in calculating expected credit losses
(“ECLs”). Therefore, the Company does not track changes in credit risk but instead recognizes a loss allowance
based on lifetime ECLs at each reporting date. The Company has established a provision matrix that is based on
its historical credit loss experience, adjusted for forward-looking factors specific to the debtors and the
economic environment.
When an account receivable is considered uncollectible, it is written off against the allowance account.
Subsequent recoveries of amounts previously written off are offset against the allowance account. Changes in
the carrying amount of the allowance account are recognized in profit or loss.
Financial liabilities are classified at amortized cost
The Company’s financial liabilities are measured at amortized cost using the effective interest method. Interest
expense and foreign exchange gains and losses are recognized in profit or loss. Any gain or loss on derecognition
is also recognized in profit or loss.
56
Page | 14
Andlauer Healthcare Group Inc. – 2020 Annual Report
Andlauer Healthcare Group Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2020 and 2019
(In thousands of Canadian dollars, except shares, share price and earnings per share)
3. Significant accounting policies (continued)
Financial instruments (continued)
Transaction costs
Transaction costs that are incremental and directly attributable to the acquisition or issue of a financial asset or
financial liability are recorded as follows:
•
•
•
Financial assets or financial liabilities at fair value through profit and loss – expensed to net income as
incurred;
Financial assets or liabilities recorded at amortized cost – included in the carrying value of the financial
asset or financial liability and amortized over the expected life of the financial instrument using the
effective interest method; and
Equity instruments recorded at fair value through other comprehensive income – included in the initial
cost of the underlying asset.
Inventories
Inventories, which consist of repair parts, materials and supplies, are carried at the lower of cost and net
realizable value. Cost is determined on a first-in, first-out basis and includes all costs of purchase and any other
costs incurred in bringing the inventories to their present location and condition. Net realizable value is the
estimated selling price in the ordinary course of business, less applicable variable selling expenses.
Provisions
A provision is recognized if, as a result of a past event, the Company has a present legal or constructive obligation
that can be estimated reliably, and it is probable that an outflow of economic benefits will be required to settle
the obligation. If the effect of the time value of money is material, provisions are determined by discounting the
expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money
and the risks specific to the liability. Where discounting is used, the unwinding of the discount is recognized as
finance cost.
Segmented reporting
The Company is organized into two reportable segments: Specialized Transportation and Healthcare Logistics.
In the Specialized Transportation segment, the Company provides specialized temperature controlled services
to healthcare customers. The Company’s transportation products include: ground transportation (comprising
less-than-truckload and courier services), air freight forwarding, and dedicated and last mile delivery.
In the Healthcare Logistics segment, the Company provides contract logistics services for customers, including
logistics and distribution (comprising warehousing and inventory management, order fulfillment, reverse
logistics, and transportation management), and packaging (comprising reusable thermal packaging solutions
and trade customization services).
Certain of the Company’s operating units provide services to other Company operating units outside of their
reportable segment. Billings for such services are based on negotiated rates, which approximates fair value, and
are reflected as revenues of the billing segment. These rates are adjusted from time to time based on market
conditions. Such intersegment revenues and expenses are eliminated in the Company’s consolidated results.
The Company’s chief executive officer is the Chief Operating Decision Maker (“CODM”) for the Company. The
CODM regularly reviews financial information at the reporting segment level in order to make decisions about
resources to be allocated to the segments and to assess their performance. Segment results that are reported
to the CODM include items directly attributable to a segment, as well as those that can be allocated on a
reasonable basis. The Company evaluates performance based on the various financial measures of its two
reporting segments.
Page | 15
57
Andlauer Healthcare Group Inc. – 2020 Annual Report
Andlauer Healthcare Group Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2020 and 2019
(In thousands of Canadian dollars, except shares, share price and earnings per share)
3. Significant accounting policies (continued)
Share-based compensation
The Company has an omnibus stock option plan and records all stock-based payments, including grants of
employee stock options, at their respective fair values. The fair value of stock options granted to employees and
directors is estimated at the date of grant using the Black Scholes option pricing model. The Company recognizes
share-based compensation expense over the vesting period, over the life of the tranche of shares being
considered. The Company also estimates forfeitures at the time of grant and revises its estimate, if necessary,
in subsequent periods if actual forfeitures differ from these estimates. Any consideration paid by employees on
exercising stock options and the corresponding portion previously credited to contributed surplus are credited
to share capital. If a cashless exercise is undertaken, the employee or director will surrender a number of options
in order to fund the cashless exercise and a further amount, representing the difference between the market
price and the exercise price of the shares may be adjusted to share capital unless the Company chooses to sell
the shares in the amount required to fund the cashless exercise. The Company’s stock option plan is equity-
settled.
The Black-Scholes option pricing model used by the Company to calculate option values was developed to
estimate the fair value. This model also requires assumptions, including expected option life, volatility, risk-free
interest rate and dividend yield, which greatly affect the calculated values.
Expected option life is determined using the time-to-vest-plus-historical-calculation-from-vest-date method
that derives the expected life based on a combination of each tranche’s time to vest plus the actual or expected
life of an award based on the past activity or remaining time to expiry on outstanding awards. Expected
forfeiture is derived from historical patterns. Expected volatility is determined using comparable companies for
which the information is publicly available, adjusted for factors such as industry, stage of life cycle, size and
financial leverage. The risk-free interest rate is determined based on the rate at the time of grant and
cancellation for zero-coupon Canadian government securities with a remaining term equal to the expected life
of the option. Dividend yield is based on the stock option’s exercise price and expected annual dividend rate at
the time of grant.
Government assistance
The Company recognizes government assistance when there is reasonable assurance that it will comply with
the conditions required to qualify for the assistance, and that the assistance will be received. The Company
recognizes government assistance as a reduction to the related expense that the assistance is intended to offset.
4. Segment reporting
The Company is organized into two operating segments, which it also considers to be reportable segments:
Specialized Transportation and Healthcare Logistics. The operating segments are managed independently as
they require different technology and capital resources. For each of the operating segments, the Company’s
CODM reviews internal management reports, evaluating the metrics as summarized in the tables that follow.
The Company evaluates performance based on the various financial measures of its two operating segments.
Performance is measured based on segment income or loss before tax. This measure is included in the internal
management reports that are reviewed by the Company’s CEO and refers to “Income before income taxes” in
the consolidated statements of income and comprehensive income. Segment income or loss before tax is used
to measure performance as management believes that such information is the most relevant in evaluating the
results of certain segments relative to other entities that operate within the same industries.
58
Page | 16
Andlauer Healthcare Group Inc. – 2020 Annual Report
Andlauer Healthcare Group Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2020 and 2019
(In thousands of Canadian dollars, except shares, share price and earnings per share)
4. Segment reporting (continued)
The following table identifies selected financial data as at December 31, 2020 and 2019 and for the years then
ended:
Specialized
Transportation
Healthcare
Logistics
Corporate
Eliminations
Total
As at December 31, 2020 and
for the year then ended
Revenue
Segment income before tax
Interest income
Interest expense
Depreciation and amortization
Segment net income
Segment total assets
Additions of ROU assets
Capital expenditures
Segment total liabilities
As at December 31, 2019 and
for the year then ended
Revenue
Segment income before tax
Interest income
Interest expense
Depreciation and amortization
Segment net income
Segment total assets
Additions of ROU assets
Capital expenditures
Segment total liabilities
$
$
229,447
40,275
(612)
(2,059)
(16,845)
29,716
129,614
15,911
843
119,512
205,385
33,995
901
(1,796)
(16,137)
24,861
125,673
26,311
3,744
80,287
$
$
116,356
10,574
66
(1,871)
(11,177)
7,700
113,358
20,861
4,123
61,502
109,618
10,770
103
(1,639)
(9,569)
7,900
91,837
2,542
2,232
46,750
$
2,400
(4,269)
831
(665)
-
298
572,141
-
-
28,076
$
-
(2,416)
-
(68)
-
(2,416)
592,350
-
-
43,693
$
(33,863)
-
-
-
-
-
(562,316)
-
-
(50,620)
$ 314,340
46,580
285
(4,595)
(28,022)
37,714
252,797
36,772
4,966
158,470
$ (25,015)
-
-
-
-
(572)
(596,865)
-
(41)
(19,240)
$ 289,988
42,349
1,004
(3,503)
(25,706)
29,773
212,995
28,853
5,935
151,490
The Company’s Healthcare Logistics segment purchases transportation services from
its Specialized
Transportation segment. Fees for these services are based on negotiated rates, which approximate fair value,
and are reflected as revenues of the Specialized Transportation segment. Rates are adjusted from time to time
based on market conditions. The Company also charges fees for services and costs incurred from its corporate
office to subsidiaries. Intersegment revenues and expenses and related intersegment payables and receivables
are eliminated in the Company’s consolidated results.
The Company does not have any customers that individually represent more than 10% of revenue for the years
ending December 31, 2020 and 2019.
Page | 17
59
Andlauer Healthcare Group Inc. – 2020 Annual Report
Andlauer Healthcare Group Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2020 and 2019
(In thousands of Canadian dollars, except shares, share price and earnings per share)
5. Business combinations
Effective October 1, 2020, the Company acquired all of the issued and outstanding shares of TDS Logistics Ltd.
(“TDS”) and McAllister Courier Inc. (“MCI”), two regionally focused temperature-controlled transportation
businesses, in a single transaction with AMG for cash consideration of $15,878, the estimated fair value of the
businesses acquired. This related party transaction was accounted for as a business combination under IFRS 3.
These complementary tuck-in acquisitions are expected to increase the reach of the Company’s services and
expand its market presence in Ontario.
For the period from acquisition on October 1, 2020 to December 31, 2020, TDS and MCI contributed revenue of
$5,490 and net income of $477 to the Company’s financial results, before amortization costs of $365 in
connection with the intangible assets acquired. If the acquisitions had occurred on January 1, 2020,
management estimates that consolidated revenue would have been approximately $331,200 and consolidated
net income would have been approximately $37,700 ($38,800 excluding the effect of the incremental
amortization as a result of acquisitions). In determining these amounts, management has assumed that the fair
value adjustments that arose on the date of acquisition would have been the same had the acquisition occurred
on January 1, 2020.
During 2020, transaction costs of $66 have been expensed in selling, general and administrative expenses in the
consolidated statements of income and comprehensive income in relation to these acquisitions.
The following table summarizes the acquisition date fair value of identifiable net assets and goodwill acquired:
Identifiable assets acquired and liabilities assumed
Cash and cash equivalents
Accounts receivable
Prepaid expenses
Property, plant and equipment, including ROU assets
Intangible assets
Accounts payable and accrued liabilities
Lease liabilities
Deferred tax liabilities
Total identifiable net assets
Goodwill
Total consideration transferred
Note
October 1,
2020
$
$
945
3,767
126
1,396
7,303
(1,371)
(599)
(1,835)
9,732
6,146
15,878
8
9
18
17
9
The accounts receivable comprise gross amounts due of $3,767, all of which were expected to be collectible at
the acquisition date.
Of the goodwill and intangible assets acquired through business combinations in 2020, $nil is deductible for tax
purposes.
The Company attributes significant value to an overlapping customer relationship among MCI, TDS and ATS, and
certain ongoing customer relationships with MCI customers. The Company recorded intangible assets of $7,303
in connection with these customer relationships which involved estimating the value of future cash flows
expected to be generated from these customers.
The goodwill is principally attributable to the premium of established business operations with good reputations
in the transportation industry, and the synergies expected to be achieved from integrating the acquired entities
into the Company’s existing business. Goodwill arising from these business combinations has been allocated to
the Specialized Transportation segment.
Page | 18
60
Andlauer Healthcare Group Inc. – 2020 Annual Report
Andlauer Healthcare Group Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2020 and 2019
(In thousands of Canadian dollars, except shares, share price and earnings per share)
6. Accounts receivable
Trade receivables
Trade receivables due from related parties (note 21)
Impairment loss
Accounts receivable
December 31,
2020
December 31,
2019
$
$
58,096
24
(253)
57,867
$
$
50,769
441
(150)
51,060
Estimates are used in determining the impairment loss related to trade receivables. These estimates are based
on management’s best assessment of the ECL of the related receivable balance, which involves estimates
around the cash flows that are expected to be received. There is no impairment loss recorded against trade
receivables due from related parties.
7. Inventories
Inventories consist of:
Packaging inventory
Thermal packaging products and parts
Inventories
December 31,
2020
December 31,
2019
$
$
703
525
1,228
$
$
840
231
1,071
In 2020, the Company purchased a total of $5,248 in inventory (2019 - $5,710) and $5,091 was recognized as an
expense (2019 - $6,005) during the year and included in direct operating expenses.
Page | 19
61
Andlauer Healthcare Group Inc. – 2020 Annual Report
Andlauer Healthcare Group Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2020 and 2019
(In thousands of Canadian dollars, except shares, share price and earnings per share)
8. Property, plant and equipment
Reconciliation of the net carrying amounts for each class of property, plant and equipment is summarized below:
Facilities1
Furniture and
fixtures
Leasehold
improvements
Logistics and
transportation
equipment1
Total
Cost
Balance at December 31, 2018
$ 79,108
$
7,517
$
14,702
$
70,324
$ 171,651
Additions
Dispositions
Balance at December 31, 2019
Additions
Additions through business
combinations (note 5)
Dispositions
17,708
-
96,816
28,724
-
(185)
290
-
7,807
256
29
-
2,033
(330)
16,405
1,550
398
-
14,758
-
85,082
11,208
969
(323)
34,789
(330)
206,110
41,738
1,396
(508)
Balance at December 31, 2020
$ 125,355
$
8,092
$
18,353
$
96,936
$ 248,736
Accumulated depreciation
Balance at December 31, 2018
Depreciation for the year
Dispositions
Balance at December 31, 2019
Depreciation for the year
Dispositions
29,474
11,057
-
40,531
13,340
-
5,614
379
-
5,993
370
-
5,848
1,652
(223)
7,277
1,932
-
38,868
10,115
-
48,983
11,516
(121)
79,804
23,203
(223)
102,784
27,158
(121)
Balance at December 31, 2020
$ 53,871
$
6,363
$
9,209
$
60,378
$
129,821
Net carrying amounts
At December 31, 2019
At December 31, 2020
$ 56,285
$ 71,484
$
$
1,814
1,729
$
$
9,128
9,144
$
$
36,099
$ 103,326
36,558
$ 118,915
1 Facilities and certain logistics and transportation equipment assets are ROU assets, capitalized in accordance with IFRS
16. Refer to note 18.
The Company has applied judgement in estimating the useful life of property, plant and equipment and to determine
the lease terms for ROU lease contracts that include renewal options. The assessment of whether the Company is
reasonably certain to exercise such options impacts the lease term, which significantly affects the amount of lease
liabilities and ROU assets recognized. In applying such judgement, management relies on historical experience and
other factors, including the current economic environment, which management believes is reasonable under the
circumstances.
62
Page | 20
Andlauer Healthcare Group Inc. – 2020 Annual Report
Andlauer Healthcare Group Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2020 and 2019
(In thousands of Canadian dollars, except shares, share price and earnings per share)
9. Goodwill and intangible assets
Goodwill
Customer
relationships
Software
Proprietary
technology
Total
Cost
Balance at December 31, 2018
$ 19,720
$ 22,545
$
5,323
$
1,156
$
48,744
Additions
-
-
Balance at December 31, 2019
19,720
22,545
Additions
Additions through business
combinations (note 5)
-
-
6,146
7,303
230
5,553
473
-
-
1,156
-
-
230
48,974
473
13,449
Balance at December 31, 2020
$ 25,866
$ 29,848
$
6,026
$
1,156
$
62,896
Accumulated amortization
Balance at December 31, 2018
Amortization for the year
Balance at December 31, 2019
Amortization for the year
Balance at December 31, 2020
$
-
-
-
-
-
20,546
1,999
22,545
365
3,348
504
3,852
499
1,156
-
1,156
-
25,050
2,503
27,553
864
$ 22,910
$
4,351
$
1,156
$
28,417
Net carrying amounts
At December 31, 2019
At December 31, 2020
$ 19,720
$ 25,866
$
$
-
6,938
$
$
1,701
1,675
$
$
-
-
$
$
21,421
34,479
The Company performs annual goodwill impairment testing. The Company assesses goodwill at the operating
segment level, which is the lowest level within the Company at which goodwill is monitored for internal
management purposes. The table below sets out goodwill allocated to operating segments:
Operating segment/reportable segment
Healthcare Logistics
Specialized Transportation
December 31,
2020
19,720
6,146
$
December 31,
2019
$ 19,720
-
$
25,866
$ 19,720
The results of the annual impairment testing determined that the recoverable amount of the Healthcare
Logistics operating segment exceeded the respective carrying amount. The recoverable amount of the
Healthcare Logistics operating segment was determined using the value in use approach. The value in use
methodology is based on discounted future cash flows. Management believes that the discounted future cash
flows method is appropriate as it allows more precise valuation of specific future cash flows. Therefore, the
Company has determined that no impairment has arisen in connection with the CGU that gave rise to goodwill
through the business combination. Accordingly, no impairment loss has been recognized in each of the years
ended December 31, 2020 and 2019.
The Company recorded goodwill of $6,146 in connection with the acquisition of TDS and MCI effective October
1, 2020 (note 5). Management believes the recoverable amount of the Specialized Transportation operating
segment remains unchanged and that no impairment has arisen in connection with the CGU that gave rise to
goodwill through the business combinations since the acquisition. Accordingly, no impairment loss has been
recognized in the year ended December 31, 2020.
Page | 21
63
Andlauer Healthcare Group Inc. – 2020 Annual Report
Andlauer Healthcare Group Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2020 and 2019
(In thousands of Canadian dollars, except shares, share price and earnings per share)
9. Goodwill and intangible assets (continued)
The majority of the customer relationships and proprietary technology reflects intangible assets that arose from
a business combination in 2008 of the Specialized Transportation segment and the subsequent disposal of a
portion of those operations in 2009. As at November 1, 2009, estimates of remaining customer relationships
intangibles related to these transactions were recognized with straight-line amortization over 10 years and were
fully amortized as at December 31, 2019.
The Company attributes significant value to an overlapping customer relationship among MCI, TDS and ATS; and
certain ongoing customer relationships with MCI customers which were acquired through business
combinations effective October 1, 2020. Accordingly, customer relationships includes additions of $7,303 in
connection with identifiable intangible assets acquired during the year. These customer relationships
intangibles are amortized on a straight-line basis over five years (note 5).
The Company performs an assessment for indicators of impairment for customer relationships and software at
each reporting period. If an indicator of impairment exists, the Company would perform an impairment test to
determine the recoverable amount. No such indicators of impairment were identified at any of the reporting
periods covered by these financial statements.
10. Accounts payable and accrued liabilities
Trade payables and accrued liabilities
Trade payables due to related parties (note 21)
Deferred revenue (note 16)
Accounts payable and accrued liabilities
11. Credit facilities
Revolving credit facility
Term facility
Less: financing costs
Credit facilities
Recorded in the consolidated balance sheets as follows:
Revolving credit facility
Term facility
Credit facilities
December 31,
2020
December 31,
2019
$
$
24,238
86
1,041
25,365
$
$
22,047
2,016
879
24,942
December 31,
2020
December 31,
2019
$
$
-
25,000
25,000
(333)
24,667
$
$
3,929
25,000
28,929
(445)
28,484
December 31,
2020
December 31,
2019
$
$
-
24,667
24,667
$
$
3,929
24,555
28,484
64
Page | 22
Andlauer Healthcare Group Inc. – 2020 Annual Report
Andlauer Healthcare Group Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2020 and 2019
(In thousands of Canadian dollars, except shares, share price and earnings per share)
11. Credit facilities (continued)
The movement in credit facilities is as follows:
Opening balance
Changes from financing cash flows
Issuance of borrowings – revolving credit facility
Issuance of borrowings – term facility
Less: financing costs
Repayment of revolving credit facility
Non-cash movements
Adjustment to capitalized financing costs
December 31,
2020
December 31,
2019
$
28,484
$
-
-
-
28,484
-
(3,929)
25,000
25,000
50,000
(470)
49,530
(21,071)
28,459
112
25
Ending balance
$
24,667
$
28,484
On December 11, 2019 the Company entered into credit facilities with affiliates of RBC and CIBC at Closing of
the initial public offering. The credit facilities comprise a revolving credit facility in the aggregate principal
amount of $75,000 and a term facility in the aggregate principal amount of $25,000. The credit facilities are
available to be drawn in Canadian dollars by way of prime rate loans, bankers’ acceptances and letters of credit,
and in U.S. dollars by way of base rate loans, LIBOR based loans and letters of credit, in each case, plus the
applicable margin in effect from time to time. At December 31, 2020, the term facility comprises bankers’
acceptances drawn at an interest rate of 1.9% (2019 – prime rate loans at an interest rate of 4.4%).
The credit facilities are guaranteed by each of the Company’s material subsidiaries and are secured by (i) a first
priority lien over all personal property of the Company, subject to certain exclusions and permitted liens, (ii)
charges over certain material leased real property interests, and (iii) a first ranking pledge of 100% of the
securities of any subsidiary owned by the Company.
The credit facilities are subject to customary negative covenants and include financial covenants requiring the
Company to maintain at all times a maximum net leverage ratio and a minimum interest coverage ratio, tested
on a quarterly basis. At December 31, 2020, the Company is in compliance with all of its covenants under the
credit facilities.
The credit facilities will mature and be due and payable on December 11, 2023. There is no repayment schedule
for the term facility except at maturity.
Amounts recognized in the consolidated statements of income and comprehensive income in connection with
interest expense on the credit facilities for the year ended December 31, 2020 was $665 (2019 – $68).
Page | 23
65
Andlauer Healthcare Group Inc. – 2020 Annual Report
Andlauer Healthcare Group Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2020 and 2019
(In thousands of Canadian dollars, except shares, share price and earnings per share)
12. Financial instruments and financial risk management
Accounting classifications and fair values
The Company's financial instruments consist of cash and cash equivalents, accounts receivable, deposits,
accounts payable and accrued liabilities and a term facility. The Company believes that the carrying amount of
each of these items is a reasonable approximation of fair value.
As the term facility bears interest at a floating rate subject to fluctuations in the bank prime rate the carrying
value of the debt approximates fair value.
Financial risk factors
The Company, through its financial assets and liabilities, has exposure to the following risks from its use of
financial instruments: credit risk, liquidity risk, interest rate risk, and currency risk. Senior management
monitors risk levels and reviews risk management activities as they determine to be necessary.
Credit risk
The Company is exposed to credit risk in the event of non-performance by counterparties in connection with
its financial assets, namely cash and cash equivalents, accounts receivable and long-term deposits. The
Company does not typically obtain collateral or other security to support the accounts receivable subject to
credit risk but mitigates this risk by performing credit check procedures for new customers and monitoring
credit limits for existing customers. Thereby, the Company deals only with what management believes to be
financially sound counterparties and, accordingly, does not anticipate significant loss for non-performance.
The maximum exposure to credit risk for cash and cash equivalents, accounts receivable and long-term
deposits approximate the amount recorded on the consolidated balance sheets.
Accounts receivable aging is set out below:
Current (not past due)
0-30 days past due
31-60 days past due
More than 61 days past due
Gross
Unbilled revenue
Impairment loss (note 6)
Accounts receivable, net
December 31,
2020
December 31,
2019
$
$
36,924
12,394
3,975
2,192
55,485
2,635
(253)
57,867
$
$
31,198
12,863
3,567
1,306
48,934
2,276
(150)
51,060
66
Page | 24
Andlauer Healthcare Group Inc. – 2020 Annual Report
Andlauer Healthcare Group Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2020 and 2019
(In thousands of Canadian dollars, except shares, share price and earnings per share)
12. Financial instruments and financial risk management (continued)
Liquidity risk
Liquidity risk is the risk that the Company will encounter difficulty in meeting the obligations associated with
its financial liabilities that are settled by delivering cash or another financial asset. The Company’s approach to
managing liquidity is to ensure, as far as possible, that it will have sufficient liquidity to meet its liabilities when
they are due, under both normal and stressed conditions, without incurring unacceptable losses or risking
damage to the Company’s reputation.
The Company’s exposure to liquidity risk is dependent on the collection of accounts receivable, or raising of
funds to meet commitments and sustain operations. The Company controls liquidity risk by management of
working capital, cash flows and the availability of borrowing facilities.
As of December 31, 2020, $nil (2019 - $3,929) has been drawn on the $75,000 revolving credit facility, and
$25,000 (2019 - $25,000) has been drawn on the $25,000 term facility. There is no repayment schedule for the
term facility except at maturity. The credit facilities are repayable in full on December 11, 2023.
The Company’s accounts payable and accrued liabilities are due and payable in the short-term.
Interest rate risk
The Company has a revolving and term credit facilities that bear interest at a floating rate subject to
fluctuations in the bank prime rate. Changes in the bank prime lending rate can cause fluctuations in interest
payments and cash flows. The Company does not use derivative financial instruments to mitigate the effect of
this risk. The facilities under this agreement are available to be drawn in Canadian dollars by way of prime rate
loans, bankers’ acceptances and letters of credit, and in U.S. dollars by way of base rate loans, LIBOR based
loans and letters of credit, in each case, plus the applicable margin in effect from time to time. At December
31, 2020, the term facility comprises bankers’ acceptances drawn at an interest rate of 1.9% (2019 – prime
rate loans at an interest rate of 4.4%).
During the year, there has been no exposure to significant interest rate fluctuations.
Currency risk
The Company enters into foreign currency purchase and sale transactions and has assets and liabilities that
are denominated in foreign currencies and thus are exposed to the financial risk of earnings fluctuations arising
from changes in foreign exchange rates and the degree of volatility of these rates. The Company does not
currently use derivative instruments to reduce its exposure to foreign currency risk.
At year-end, the Company has the following US dollar foreign currency denominated balances:
Currency risk
Cash
Accounts receivable
Accounts payable and accrued liabilities
December 31,
2020
December 31,
2019
$
$
473
88
169
544
85
55
Page | 25
67
Andlauer Healthcare Group Inc. – 2020 Annual Report
Andlauer Healthcare Group Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2020 and 2019
(In thousands of Canadian dollars, except shares, share price and earnings per share)
13. Share capital
The Company is authorized to issue an unlimited number of subordinate voting common shares, an unlimited
number of multiple voting common shares, and an unlimited number of preferred shares, issuable in series.
The subordinate voting shares and multiple voting shares rank pari passu with respect to the payment of
dividends, return of capital and distribution of assets in the event of liquidation, dissolution, or wind-up.
Holders of multiple voting shares are entitled to four votes per multiple voting share, and holders of
subordinate voting shares are entitled to one vote per subordinate voting share on all matters upon which
holders of shares are entitled to vote.
As of the date hereof, all of the multiple voting shares and 28,500 subordinate voting shares are owned by the
Company’s parent, AMG. The following table summarizes the number of common shares issued (note 1):
Number of common shares (in thousands)
Share capital (in thousands of dollars)
Multiple
voting
common
shares
Subordinate
voting
common
shares
Total
common
shares
Multiple
voting
common
shares
Subordinate
voting
common
shares
Total share
capital
-
-
-
$
-
$
-
$
-
25,100
1,000
26,100
376,500
15,000
391,500
-
10,000
10,000
-
150,000
150,000
-
-
25,100
1,500
-
12,500
1,500
-
37,600
-
-
$ 376,500
22,500
(14,321)
$ 173,179
22,500
(14,321)
$ 549,679
-
3
3
-
(17)
(17)
Balance at November 12, 2019
Shares issued in connection with the
acquisition of the AHG Entities
Shares issued in connection with the
initial public offering
Shares issued in connection with the
over-allotment option
Transaction costs
Balance at December 31, 2019
Shares issued in connection with the
exercise of options (note 15)
Balance at December 31, 2020
25,100
12,503
37,603
$ 376,500
$ 173,162
$ 549,662
Dividends to subordinate voting and multiple voting shareholders
During the year ended December 31, 2020, the Company declared total dividends of $7,929, or $0.21 per
common share, on subordinate voting and multiple voting shares. Included in accounts payable and accrued
liabilities as at December 31, 2020 is $1,880, or $0.05 per common share, for dividends paid on January 15,
2021 to common shareholders of record on December 31, 2020.
68
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Andlauer Healthcare Group Inc. – 2020 Annual Report
Andlauer Healthcare Group Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2020 and 2019
(In thousands of Canadian dollars, except shares, share price and earnings per share)
14. Earnings per share
Basic earnings per share
The basic earnings per share and the weighted average number of common shares outstanding have been
calculated as follows:
(in thousands of dollars and number of shares)
Net income attributable to the common shareholders of the Company
December 31,
2020
December 31,
2019
$
37,714
$
29,773
Weighted average number of common shares
37,600
37,600
Earnings per share – basic
$
1.00
$
0.79
Diluted earnings per share
The basic earnings per share and the weighted average number of common shares outstanding after adjustment
for the effects of all dilutive common shares have been calculated as follows:
(in thousands of dollars and number of shares)
Net income attributable to the common shareholders of the Company
Weighted average number of common shares
Dilutive effects:
Stock options
Deferred share units
Weighted average number of diluted common shares
December 31,
2020
December 31,
2019
$
37,714
$
29,773
37,600
37,600
853
23
38,476
169
-
37,769
Earnings per share – diluted
$
0.98
$
0.79
15. Share-based payment arrangements
Stock option plan (equity-settled)
The Company offers a stock option plan for the benefit of certain of its employees. Each stock option entitles its
holder to receive one subordinate voting common share upon exercise. The exercise price payable for each
option is determined by the Board of Directors at the date of grant. The options vest in equal installments over
four years and the expense is recognized following the treasury method as each installment is fair valued
separately and recorded over the respective vesting periods.
Page | 27
69
Andlauer Healthcare Group Inc. – 2020 Annual Report
Andlauer Healthcare Group Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2020 and 2019
(In thousands of Canadian dollars, except shares, share price and earnings per share)
15. Share-based payment arrangements (continued)
Stock option plan (equity-settled) (continued)
On December 11, 2019 the Board of Directors approved a grant of 1.65 million options, of which 6 thousand
options were exercised during December 2020. Of the options outstanding at December 31, 2020, a total of 700
thousand are held by non-executive directors; 400 thousand are held by executive officers; with the remaining
544 thousand held by key management personnel.
Estimating fair value for share-based payment arrangements requires determining the most appropriate
valuation model for a grant of equity instruments, which is dependent on the terms and conditions of the grant.
The Company is also required to determine the most appropriate inputs to the valuation model, including
estimates and assumptions with respect to expected life, risk-free interest rate, volatility, distribution yield, and
forfeiture rate.
The fair value of the stock options granted was estimated using the Black-Scholes option pricing model using
the following weighted average assumptions:
Exercise price
Average expected option life
Risk-free interest rate
Expected stock price volatility
Average dividend yield
Weighted average fair value per option of options granted
December 11,
2019
$
$
15.00
7 years
1.59%
24.77%
1.33%
3.60
The table below summarizes the changes in the outstanding stock options:
(in thousands of options and in dollars)
Opening balance
Granted
Exercised
Forfeited
Ending balance
December 31, 2020
December 31, 2019
Number of
options
1,650
-
(6)
-
1,644
Weighted
average
exercise price
15.00
$
-
15.00
-
15.00
Number of
options
-
1,650
-
-
1,650
Weighted
average
exercise price
$
-
15.00
-
-
15.00
Options exercisable
669
$
15.00
350
$
15.00
The Company recognized compensation expense of $2,371 for the year ended December 31, 2020 (2019 –
$1,394), with corresponding increases to contributed surplus in connection with the vesting of options issued
at the time of the initial public offering.
70
Page | 28
Andlauer Healthcare Group Inc. – 2020 Annual Report
Andlauer Healthcare Group Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2020 and 2019
(In thousands of Canadian dollars, except shares, share price and earnings per share)
15. Share-based payment arrangements (continued)
During the year 325 thousand options vested, of which 6 thousand were exercised. The options were exercised
on a cashless basis resulting in 3 thousand subordinate voting common shares being issued from treasury and
the surrender of 3 thousand options used to fund the option exercise and employee tax withholdings. The
volume weighted average price used to calculate the cashless exercise in accordance with the Company’s
Omnibus Equity Incentive Plan was $38.75 per share at the time of exercise. The cashless exercise gave rise to
a notional issue of shares at $15.00 per share and a related buy-back at $38.75 per share resulting in a $17 net
reduction in share capital after transferring the option value of the options exercised from contributed surplus
to share capital and funding employee withholding taxes. The transfer of the option value of the options
exercised resulted in a $24 reduction to contributed surplus at $3.60 per share.
Director deferred share units (“DSUs”) program (equity settled)
Each non-executive director receives at least 50% of his or her annual director retainer in DSUs. DSUs vest when
granted but are not redeemable for settlement until the director ceases to be a member of the Board. The
number of DSUs issued is calculated for each director as the director’s quarterly retainer divided by the volume
weighted average trading price on the TSX for the five trading days prior to such issuance. For the year ended
December 31, 2020, the Company recognized a compensation expense of $707, with corresponding increases
to contributed surplus (2019 – $nil).
The table below summarizes the changes in the outstanding DSUs:
(thousands of DSUs)
Outstanding at December 31, 2019
Granted
Outstanding at December 31, 2020
16. Revenue
a) Revenue streams
DSUs
-
23
23
The Company generates revenue primarily from the provision of supply chain transportation and logistics
services to its customers. The Company’s contracts are typically satisfied over a short period of time.
Consequently, the Company applies the practical expedient and does not disclose information related to its
remaining performance obligations.
Page | 29
71
Andlauer Healthcare Group Inc. – 2020 Annual Report
Andlauer Healthcare Group Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2020 and 2019
(In thousands of Canadian dollars, except shares, share price and earnings per share)
16. Revenue (continued)
b) Disaggregation of revenue from contracts with customers
In the following table, revenue from contracts with customers is disaggregated by major products and
service lines. The table also includes a reconciliation of the disaggregated revenue with the Company’s
reportable segments (note 4).
Major products/service lines
Logistics and distribution
Packaging solutions
Healthcare Logistics segment
Ground transportation
Air freight forwarding
Dedicated and last mile delivery
Intersegment revenue
Specialized Transportation segment
Total revenue
c) Deferred revenue
December 31,
2020
December 31,
2019
$
96,976
19,380
$
116,356
177,170
22,482
29,795
(31,463)
197,984
88,311
21,307
109,618
169,040
19,656
16,689
(25,015)
180,370
$ 314,340
$
289,988
The Company bills customers for transportation services based on the pick-up date. When shipments
remain in transit at the end of a period, the Company defers revenue until the shipments are delivered. The
Company does not regularly bill customers in advance for logistics and distribution services. Consequently,
fluctuations in deferred revenue will occur year over year and will depend on specifically negotiated
payment terms resulting from customer billing requests or concerns related to credit risk. To date, the
changes in deferred revenue have been largely insignificant. As at December 31, 2020 there was $1,041
(2019 – $879) recorded in accounts payable and accrued liabilities (note 10). Revenue recognized in 2020
of $836 (2019 – $647) was included in the opening deferred revenue balance at the beginning of the period.
17. Income taxes
a) Amounts recognized in profit or loss
Current income tax expense:
Current taxes on income for the reporting period
Current taxes referring to previous periods and other adjustments
Deferred income tax recovery:
Deferred tax provision on loss for the period
Origination and reversal of temporary differences
Impact of change in tax rates of subsidiaries
Previously unrecognized deferred tax assets
Deferred taxes referring to previous periods and other adjustments
December 31,
2020
December 31,
2019
$
14,439
698
15,137
$
11,718
(77)
11,641
(1,063)
(409)
(12)
(4,066)
(721)
(6,271)
-
361
(21)
-
23
363
Income tax expense reported to the statements of income and
comprehensive income
$
8,866
$
12,004
Page | 30
72
Andlauer Healthcare Group Inc. – 2020 Annual Report
Andlauer Healthcare Group Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2020 and 2019
(In thousands of Canadian dollars, except shares, share price and earnings per share)
17. Income taxes (continued)
Total cash outflow for actual taxes paid for the year ended December 31, 2020 was $22,927 (2019 –
$12,331).
b) Reconciliation of effective tax rate
Income before income taxes
Consolidated Canadian federal and provincial income tax rate
Income tax expense based on statutory rate
Increase (decrease) in income taxes resulting from non-deductible
items or other adjustments
Permanent differences
Impact of varying statutory tax rates of subsidiaries
(Recognized) unrecognized tax losses
Taxes relating to previous periods and other adjustments
Total income tax expense
Deferred taxes
Deferred tax assets
Deferred tax liabilities
Net deferred tax asset (liability)
c) Movement in deferred tax balances
Plant and equipment
Accounts payable and accrued liabilities
Intangibles
Deductions (income) deferred for tax
purposes
Leases
Finance costs
Net deferred tax asset (liability)
$
Plant and equipment
Accounts payable and accrued liabilities
Intangibles
Income deferred for tax purposes
Leases
Net deferred tax asset (liability)
$
December 31,
2020
(1,052)
453
(1,085)
1,303
1,484
3,058
4,161
$
December 31,
2020
46,580
26.5%
12,344
December 31,
2019
$ 42,349
26.5%
11,222
695
(102)
(4,066)
(5)
427
122
271
(38)
$
8,866
$ 12,004
December 31,
2020
December 31,
2019
$
$
6,139
$
(1,978)
4,161
$
46
(321)
(275)
Recognized in
income or
loss
Acquired in
business
combinations
(note 5)
December 31,
2019
$
$
(474)
185
141
2,799
562
3,058
6,271
$
$
(59)
-
(1,935)
-
159
-
$
(1,835)
$
(519)
268
709
(1,496)
763
-
(275)
December 31,
2019
Recognized in
income or
loss
December 31,
2018
$
$
(519)
268
709
(1,496)
763
(275)
$
$
(259)
(58)
513
(626)
67
(363)
$
$
(260)
326
196
(870)
696
88
Page | 31
73
Andlauer Healthcare Group Inc. – 2020 Annual Report
Andlauer Healthcare Group Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2020 and 2019
(In thousands of Canadian dollars, except shares, share price and earnings per share)
17. Income taxes (continued)
d) Unrecognized deferred tax assets
Previously unrecognized deferred tax assets have been recognized in the current year’s provision for
income taxes. The Company has determined that it will have sufficient future taxable profit available against
which the Company can use the benefits therefrom. Deductible temporary differences as at December 31,
2019 represent costs incurred by the Company related to the acquisition of the AHG Entities and charged
directly to equity.
Deductible temporary differences
Tax losses
December 31, 2020
December 31, 2019
Gross amount
-
$
-
-
$
Tax effect
-
-
-
$
$
Gross amount
14,321
$
1,021
15,342
$
$
$
Tax effect
3,795
271
4,066
The Company has non-capital tax loss carryforwards of $901 and $4,012 which will expire in 2039 and 2040
respectively.
e) Uncertainty over income tax treatments
The calculation of current and deferred income taxes requires management to make certain judgements
regarding the tax rules in jurisdictions where the Company performs activities. The Company believes that
its accruals for tax liabilities are adequate for all open tax years based on its assessment of many factors,
including interpretations of tax law and prior experience.
18. Leases
The Company leases buildings and equipment in the operation of its Transportation and Logistics businesses.
The Company is required to estimate the incremental borrowing rates used to discount lease liabilities if the
interest rate implicit in the lease is not readily determined. The Company estimates its incremental borrowing
rates for portfolios of leases with similar characteristics, such as similar risk profiles, same or similar types of
security, and similar lease terms. Building lease terms range from 5 to 10 years. Facilities lease liabilities are
calculated using the Company’s incremental borrowing rate based on the specific lease commitments and term
for each facility. The average incremental borrowing rate for facilities for 2020 is 2.99% (2019 – 3.75%).
Equipment lease terms range from 1 to 5 years. Equipment lease liabilities are calculated using the operating
segment’s average incremental borrowing rate on an equipment lease portfolio basis for that period. The
average incremental borrowing rate for equipment for 2020 is 3.11% for Specialized Transportation and 2.70%
for Healthcare Logistics (2019 – 4.07% for Specialized Transportation; 3.95% for Healthcare Logistics).
Right-of-use assets – Facilities
Opening balance
Add: additions
Less: derecognition
Less: depreciation
Ending balance
74
As at and for
the year ended
December 31,
2020
As at and for
the year ended
December 31,
2019
$
56,285
28,724
(185)
(13,340)
71,484
$
$
49,634
17,708
-
(11,057)
56,285
Page | 32
Andlauer Healthcare Group Inc. – 2020 Annual Report
Andlauer Healthcare Group Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2020 and 2019
(In thousands of Canadian dollars, except shares, share price and earnings per share)
18. Leases (continued)
Right-of-use assets – Logistics and transportation
equipment
Opening balance
Add: additions
Add: additions through business combinations
Less: derecognition
Less: depreciation
Ending balance
Net carrying amounts of right-of-use assets included in
property, plant and equipment
Facilities
Logistics and transportation equipment
Balance
Lease liabilities – Facilities
Opening balance
Add: additions
Add: interest expense
Less: derecognition
Less: principal repayments
Less: interest payments
Ending balance
Lease liabilities – Logistics and transportation equipment
Opening balance
Add: additions
Add: additions through business combinations
Add: interest expense
Less: derecognition
Less: principal repayments
Less: interest payments
Ending balance
As at and for
the year ended
December 31,
2020
As at and for
the year ended
December 31,
2019
$
$
28,018
8,048
588
(183)
(9,215)
27,256
$
$
25,400
11,145
-
-
(8,527)
28,018
December 31,
2020
December 31,
2019
$
$
71,484
27,256
98,740
$
$
56,285
28,018
84,303
As at and for
the year ended
December 31,
2020
As at and for
the year ended
December 31,
2019
$
$
60,948
28,724
2,813
(212)
(11,784)
(2,813)
77,676
$
$
53,927
17,583
2,238
-
(10,562)
(2,238)
60,948
As at and for
the year ended
December 31,
2020
As at and for
the year ended
December 31,
2019
$
$
27,765
8,048
599
1,117
(190)
(8,952)
(1,117)
27,270
$
$
25,093
11,146
-
1,019
-
(8,474)
(1,019)
27,765
Page | 33
75
Andlauer Healthcare Group Inc. – 2020 Annual Report
Andlauer Healthcare Group Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2020 and 2019
(In thousands of Canadian dollars, except shares, share price and earnings per share)
18. Leases (continued)
Cash lease principal payments
Repayments of lease principal
Pre-payment of leases
Total lease payments
Lease liabilities
Facilities
Logistics and transportation equipment
Balance
Lease liabilities included in consolidated balance sheets
Current
Non-current
Balance
Maturity analysis for lease liabilities ‐
contractual undiscounted cash flows
Less than one year
One to 5 years
More than 5 years
Total undiscounted lease liabilities
Year ended
December 31,
2020
Year ended
December 31,
2019
$
$
(20,736) $
-
(20,736) $
(19,036)
(125)
(19,161)
December 31,
2020
December 31,
2019
$
(77,676) $
(27,270)
$
(104,946) $
(60,948)
(27,765)
(88,713)
December 31,
2020
December 31,
2019
$
(21,197) $
(83,749)
$
(104,946) $
(19,129)
(69,584)
(88,713)
December 31,
2020
December 31,
2019
$
$
24,720
71,506
21,678
117,904
$
$
22,407
58,882
19,092
100,381
Amounts recognized in the consolidated statements of income and comprehensive income in connection with
interest expense for lease liabilities for 2020 was $3,930 (2019 – $3,257). Total cash outflow for leases for 2020
was $24,666 (2019 – $22,418).
19. Interest expense
Interest expense recognized in income and
comprehensive income
Leases
Term facility
Other
Total interest expense
December 31,
2020
December 31,
2019
$
$
3,930
665
-
4,595
$
$
3,257
68
178
3,503
Interest expense recognized in the consolidated statements of income and comprehensive income equates to
total interest paid for the years ended December 31, 2020 and 2019.
76
Page | 34
Andlauer Healthcare Group Inc. – 2020 Annual Report
Andlauer Healthcare Group Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2020 and 2019
(In thousands of Canadian dollars, except shares, share price and earnings per share)
20. Commitments and contingencies
a) The Company is, from time to time, involved in claims, legal proceedings and complaints arising in the
normal course of business and provisions for such claims have been recorded where appropriate. The
Company does not believe the final determination of these claims will have an adverse material effect on
its consolidated financial statements.
b) As at December 31, 2020, the Company had outstanding letters of guarantee in the amount of $180
(2019 – $180).
c) The Company has made commitments for fleet equipment, with the terms to begin upon delivery of the
equipment in 2021. Commitments range from 60 to 84 months and total $9,211 (2019 – $2,987).
21. Related parties
During the year, the Company entered into transactions with related parties that were incurred in the normal
course of business. The Company’s policy is to conduct all transactions and settle all balances with related
parties on market terms and conditions. All outstanding balances with these related parties are to be settled in
cash within two months of the reporting date. None of the balances are secured. No expense has been
recognized in the current period or prior period for bad or doubtful debts in respect of amounts owed by related
parties.
The Company is indirectly controlled by Michael Andlauer, the Chief Executive Officer and CODM. Included in
these consolidated financial statements are the following transactions and balances with companies related
either directly or indirectly to Mr. Andlauer.
Andlauer Management Group Inc. (“AMG”) provides key management personnel to the Company for which it
receives management fees. The Company recovers certain facilities lease costs from AMG. The Company also
provides certain shared services (primarily accounting services) to AMG.
Effective October 1, 2020, the Company acquired all of the issued and outstanding shares of TDS Logistics Ltd.
and McAllister Courier Inc., from AMG for cash consideration of $15,878, the estimated fair value of the
businesses acquired (note 5). Accordingly, revenue and expense transactions in connection with TDS and MCI
for 2020 set out in the table below comprise transactions for the nine-month period ending September 30, 2020.
Page | 35
77
Andlauer Healthcare Group Inc. – 2020 Annual Report
Andlauer Healthcare Group Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2020 and 2019
(In thousands of Canadian dollars, except shares, share price and earnings per share)
21. Related parties (continued)
Andlauer Properties and Leasing Inc. (“APLI”) is a subsidiary of AMG and leases certain facilities and logistics and
transportation equipment to the Company. The Company also leases facilities and logistics and transportation
equipment from arm’s length providers. The Company provides certain shared services (primarily accounting
services) to APLI.
9143-5271 (“9143”) Quebec Inc. is a subsidiary of AMG and leases a facility in Quebec to the Company. The
Company provides certain shared services (primarily accounting services) to 9143.
Ready Staffing Solutions Inc., a company owned by Mr. Andlauer’s spouse, provides the Company with
temporary agency employee services – providing hourly dock labour for handling operations, principally in the
GTA. The Company also purchases temporary agency employee services from arm’s length providers.
1708998 Ontario Limited (Medical Courier Services) (“MCS”) is a subsidiary owned 80% by AMG and provides
transportation services to the Company, providing extended reach for shipments where the Company does not
have facilities or equipment. The Company also provides certain shared services (primarily accounting services)
to MCS.
McAllister Courier Inc. is a subsidiary of AMG (until October 1, 2020, at which time MCI became a wholly-owned
subsidiary of the Company – see disclosure under AMG above) and provides transportation services to the
Company, providing extended reach for shipments where the Company does not have facilities or equipment.
TDS Logistics Ltd. is a subsidiary of AMG (until October 1, 2020, at which time TDS became a wholly-owned
subsidiary of the Company – see disclosure under AMG above) and provides transportation services to the
Company, providing additional capacity where the Company can sub-contract deliveries to take advantage of
coincidences of delivery. Similarly, the Company provides transportation services to TDS. The Company also
provides certain shared services (primarily accounting services) to TDS and recovers certain lease costs from
TDS.
Med Express is a subsidiary owned 50% by AMG and provides transportation services to the Company, providing
extended reach for shipments where the Company does not have facilities or equipment.
AWA Transportation & Logistics Inc. is a subsidiary of AMG and provides transportation services to AHG,
providing extended reach for shipments where the Company does not have facilities or equipment.
D.C. Racking & Maintenance Inc. (“DCR”) and Logiserv Inc. (“Logiserv”) are owned by Cameron Joyce, a member
of AHG’s board of directors. DCR provides warehouse racking installation and maintenance and repair services
to the Company. Logiserv provides warehouse racking and racking components as well as warehouse racking
installation, maintenance and repair services. The Company also purchases warehouse racking installation,
maintenance and repairs, and warehouse racking and racking components from arm’s length providers.
C-GHBS Inc. is a subsidiary of AMG and provides air travel services to the Company.
Bulldog Hockey Inc. is a subsidiary of AMG and provides sports and entertainment services to the Company.
78
Page | 36
Andlauer Healthcare Group Inc. – 2020 Annual Report
Andlauer Healthcare Group Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2020 and 2019
(In thousands of Canadian dollars, except shares, share price and earnings per share)
21. Related parties (continued)
Revenue
Transportation services
TDS Logistics Ltd.
1708998 Ontario Limited (Medical Courier Services)
Facility rent recovery
TDS Logistics Ltd.
Andlauer Management Group Inc.
Shared service recovery
TDS Logistics Ltd.
Andlauer Properties and Leasing Inc.
Andlauer Management Group Inc.
9143-5271 Quebec Inc.
1708998 Ontario Limited (Medical Courier Services)
Equipment rental recovery
TDS Logistics Ltd.
McAllister Courier Inc.
Expenses
Transportation services
McAllister Courier Inc.
1708998 Ontario Limited (Medical Courier Services)
TDS Logistics Ltd.
AWA Transportation & Logistics Inc.
Med Express Ltd.
Contract labour services
Ready Staffing Solutions Inc.
Equipment rent
Andlauer Properties and Leasing Inc.
Shared services
Andlauer Management Group Inc.
Facility rent
Andlauer Properties and Leasing Inc.
9143-5271 Quebec Inc.
Sports and entertainment services
Bulldog Hockey Inc.
Maintenance services
D.C. Racking and Maintenance Inc. and Logiserv Inc.
Travel services
C-GHBS Inc.
Capital asset purchases
December 31,
2020
December 31,
2019
$
534
27
492
-
189
35
12
32
12
273
21
682
167
469
813
25
4,166
1,875
-
1,447
1,468
-
64
174
$
721
7
656
320
252
18
12
30
12
364
-
972
253
558
-
-
4,153
1,484
670
605
1,149
25
46
329
Purchases of logistics and transportation equipment
Logiserv Inc.
-
335
Page | 37
79
Andlauer Healthcare Group Inc. – 2020 Annual Report
Andlauer Healthcare Group Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2020 and 2019
(In thousands of Canadian dollars, except shares, share price and earnings per share)
21. Related parties (continued)
Trade receivables due from related parties
Andlauer Management Group Inc.
AWA Transportation Services & Logistics Inc.
TDS Logistics Ltd.
Andlauer Properties and Leasing Inc.
1708998 Ontario Limited (Medical Courier Services)
9143-5271 Quebec Inc.
Total trade receivables
Due from related parties
Andlauer Management Group Inc.
Andlauer Properties and Leasing Inc.
Total due from related parties
Trade payables due to related parties
Ready Staffing Solutions Inc.
McAllister Courier Inc.
TDS Logistics Ltd.
Andlauer Properties and Leasing Inc.
Andlauer Management Group Inc.
Med Express
D.C. Racking and Maintenance Inc.
Logiserv Inc.
Bulldog Hockey Inc.
C-GHBS Inc.
Total trade payables
Due to related parties
M. Andlauer
TDS Logistics Ltd.
Total due to related parties
Key management personnel
December 31,
2020
December 31,
2019
$
$
$
-
$
-
1
-
20
3
-
24
10
371
381
405
23
-
-
18
24
-
-
21
-
-
86
-
-
-
86
$
$
$
$
60
-
380
-
-
1
441
53
186
239
680
397
71
100
1,196
-
1
1
69
28
153
2,016
161
174
335
2,351
The Company’s key management personnel, and persons connected with them, are also considered to be
related parties for disclosure purposes. Key management personnel are defined as those individuals having
authority and responsibility for planning, directing and controlling the activities of the Company and include the
Company’s CEO, four named executive officers comprising key management and the Board of Directors.
80
Page | 38
Andlauer Healthcare Group Inc. – 2020 Annual Report
Andlauer Healthcare Group Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2020 and 2019
(In thousands of Canadian dollars, except shares, share price and earnings per share)
21. Related parties (continued)
Key management personnel compensation comprised the following:
Key management compensation
Salaries and benefits
Share-based payment arrangements
Director deferred share units
Total key management compensation
22. Capital management
December 31,
2020
December 31,
2019
$
$
3,223
1,366
707
5,296
$
$
2,390
1,301
-
3,691
The Company’s policy is to maintain a strong capital base so as to maintain investor, creditor and market
confidence and to sustain future development of the business. Management monitors the return on capital, as
well as the level of dividends and distributions to ordinary shareholders.
The Board of Directors seeks to maintain a balance between the higher returns that might be possible with
higher levels of borrowing and the advantages and security afforded by a sound capital position. The Company
monitors capital using a net leverage ratio, calculated as net debt divided by the last twelve months’ earnings
before interest, taxes, depreciation and amortization (“EBITDA”). The Company seeks to keep its net leverage
ratio below 3.0 in the ordinary course of business.
Revolving credit facility
Total lease liabilities
Term facility
Less: cash and cash equivalents
Net debt
Net income
Interest income
Interest expense
Income tax expense
Depreciation and amortization
EBITDA
Net leverage ratio
23. COVID‐19 Pandemic
December 31,
2020
December 31,
2019
$
-
104,946
24,667
(30,148)
99,465
37,714
(285)
4,595
8,866
28,022
78,912
$
3,929
88,713
24,555
(18,712)
98,485
30,345
(1,004)
3,503
12,004
25,706
70,554
1.26
1.40
On March 11, 2020 the outbreak of a novel coronavirus known as “COVID-19” was declared a global pandemic
by the World Health Organization. This has resulted in governments worldwide, including the Canadian federal
and provincial governments, enacting emergency measures to combat the spread of the virus. These measures,
which include the implementation of travel restrictions, self-imposed quarantine periods, temporary closures
or restrictions of non-essential businesses, limitations on public gatherings, and social distancing guidelines,
have caused material disruption to businesses globally and in Canada resulting in an economic slowdown.
Governments and central banks have reacted with significant monetary and fiscal interventions designed to
stabilize economic conditions, however the success of these interventions is not currently determinable.
Page | 39
81
Andlauer Healthcare Group Inc. – 2020 Annual Report
Andlauer Healthcare Group Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2020 and 2019
(In thousands of Canadian dollars, except shares, share price and earnings per share)
23. COVID‐19 Pandemic (continued)
Depending on the duration of the pandemic, or if the pandemic were to worsen, existing emergency measures
may be extended, or additional restrictive measures may be implemented, causing further economic impact
and uncertainty. The current challenging economic climate may lead to adverse changes in cash flows, working
capital levels and/or debt balances, which may also have a direct impact on the Company’s operating results
and financial position in the future.
The Company’s pandemic management response team meets regularly to review procedures, service levels,
news, and Health Canada updates to address any challenges as they arise. At this time, management does not
believe there is any immediate risk of significant disruption to the Company’s services. In the event of a future
significant disruption to service, the Company will work closely with clients, suppliers and regulatory authorities
to prioritize the supply and delivery of essential medications and supplies.
The Government of Canada introduced the Canada Emergency Wage Subsidy (“CEWS”) as part of its COVID-19
response. The program is currently effective from March 15, 2020 to June 2021 and provides a wage subsidy for
entities that have experienced revenue declines over the comparable period in the prior year. During the year
ended December 31, 2020, the Company recorded a $2,366 reduction to direct operating expenses in
connection with the CEWS for its Nova Pack Ltd. subsidiary. The Company qualified for CEWS assistance for the
4-week period ending December 19, 2020 and recorded a receivable of $235 as at December 31, 2020. It is
uncertain whether the Company will continue to qualify for CEWS assistance in the future.
24. Subsequent event
On February 23, 2021, the Company entered into definitive agreements to acquire 100% of Skelton Canada Inc.
and 49% of Skelton USA Inc. (the “Skelton Companies”) for total aggregate consideration of approximately
$114,700, subject to customary working capital adjustments. The acquisitions are expected to close on or about
March 1, 2021.
AHG will finance the acquisitions through a combination of cash on hand and by drawing $75,000 on its credit
facilities and issuing $25,000 of AHG subordinate voting shares to the shareholders of the Skelton Companies.
In connection with the acquisitions, AHG has entered into an agreement with its lenders to increase the size of
its credit facilities. The amended facilities will consist of a revolving facility in the aggregate principal amount of
up to $100,000 and a term facility in the aggregate principal amount of up to $50,000.
82
Page | 40
Andlauer Healthcare Group Inc. – 2020 Annual Report
Notes
83
Andlauer Healthcare Group Inc. – 2020 Annual Report Shareholder Information
Shares Outstanding (As at Dec. 31, 2020)
Subordinate Voting Shares (“SVS”): 12,502,805
Multiple Voting Shares: 25,100,000
Stock Exchange Listing
Andlauer Healthcare Group’s SVS are listed on the
Toronto Stock Exchange under the symbol “AND”
Investor Contacts
Peter Bromley
Chief Financial Officer
T: 416-744-4916
E: Investor.relations@andlauer.ca
Bruce Wigle
Investor Relations
T: 647-496-7856
E: Investor.relations@andlauer.ca
Registrar and Transfer Agent
TMX Trust Company
Auditor
KPMG LLP
Legal Counsel
Goodmans LLP
Virtual Annual General Meeting
Wednesday, May 12, 2021, at 11 a.m. (ET)
www.andlauerhealthcare.com
84
Andlauer Healthcare Group Inc. – 2020 Annual Report Executive Team
Michael Andlauer
Chief Executive Officer
Peter Bromley, CPA, CA
Chief Financial Officer
Stephen Barr
President, Transportation
Bob Brogan
President, Specialty Solutions
Reg Sheen, CPA, CA
President, Logistics
Board of Directors
Peter Jelley
Chair
Rona Ambrose 1, 2, 3
Lead Director
Michael Andlauer
Director and Chief Executive Officer
Andrew Clark 1, 2
Director
Cameron Joyce
Director
Joseph Schlett, CPA, CA
Director
Evelyn Sutherland, FCPA, FCA 1, 2*, 3
Director
Thomas Wellner 1, 3*
Director
Independent director
1
2 Member of Compensation, Nominating & Governance Committee
3 Member of the Audit Committee
* Denotes Committee Chair
100 Vaughan Valley Blvd.
Vaughan, Ontario
L4H 3C5
www.andlauerhealthcare.com
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