201 7
A N N U A L
R E P O R T
TA B L E O F C O N T E N T S
P R E S I D E N T ’ S M E S S A G E
C H A I R M A N ’ S M E S S A G E
O F F I C E R S & D I R E C TO R S
F I N A N C I A L H I G H L I G H T S
M A N A G E M E N T ’ S D I S C U S S I O N & A N A L Y S I S
C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S
2
4
5
7
1 3
4 3
“ W E W I L L C O N T I N U E
T O P U R S U E P R O F I TA B L E
G R O W T H D O M E S T I C A L L Y
A N D I N T E R N AT I O N A L L Y ,
& I A M E X C I T E D A B O U T
O U R O P P O R T U N I T I E S I N
2 0 1 8 A N D B E Y O N D .”
P R E S I D E N T ’ S M E S S A G E
2017 WAS A YEAR UNLIKE ANY OTHER IN OUR HISTORY. THE YEAR ENDED
WITH K-BRO HAVING MORE PATHS TO PROFITABLE GROWTH THAN AT ANY
TIME IN OUR HISTORY, AND WE BELIEVE THAT WE ARE WELL POSITIONED
FOR GROWTH ACROSS OUR DIFFERENT MARKETS.
KEY ACHIEVEMENT INCLUDED:
• Our acquisition of Fishers in November for $58 million
• Revenue and Adjusted EBITDA were $171 million and
(£35 million). Fishers is a leading UK linen services
$26.8 million respectively, representing changes from
company with six plants and one depot in Scotland
2016 of 7.2% and -4.7% respectively. We have
and the North East of England. We believe the
commented on 2017 and 2018 margins in past filings,
acquisition was well-priced and provides a platform
and noted in our 2016 Annual Report that “…we will
for further growth opportunities in the UK and Europe.
also incur transition and other one-time costs related
The Fishers acquisition
is K-Bro’s first growth
to positioning our Company for years of new growth
opportunity outside of Canada.
opportunities”. We have communicated in our filings
that we expect a return to historical margins in 2019.
• We opened our new Toronto plant, moving from a
39,000 square foot plant into our 80,000 square foot
plant. With our significant increase in capacity and
lower operating costs, we are optimistic about our
Toronto growth prospects. In late 2016 and early 2017
we added healthcare accounts representing $7.6
million in additional revenue.
• We made substantial progress in building a new state-
of-the-art healthcare plant in Vancouver, which will
enable us to realize lower operating costs and greater
capacity. We also began renovation of our hospitality
plant, which will further provide us with lower costs
and additional capacity. Both plants are expected to
open in the first half of 2018, and in the past year we
have already added healthcare accounts representing
$5.2m in additional revenue.
• Our Regina plant had a full year of smooth operations,
with the transition of our Saskatchewan volume
having been completed in 2016. We are pleased with
Regina’s operations and have additional capacity to
meet growth opportunities.
We begin 2018 as the largest company in our industry in
Canada and a leading position in the UK, with growth
opportunities both in Canada and overseas. We are excited
about our two new state-of-the-art Vancouver plants that
will open in 2018, and we now operate nine plants in Canada
and six plants in the UK.
We are optimistic about our growth opportunities, and look
forward to an exciting future for K-Bro and our customers,
employees, and suppliers. Our management team and
2,800 employees appreciate your confidence and support,
and we work hard every day to earn it. We look forward to
• ~$92 million of equity was raised
in April and
sharing a successful future with you.
December, and we increased our credit facility with TD
to $100 million (leaving us with approximately $55.6
million of unused drawdown capacity at year-end).
The additional equity offerings enabled us to maintain
significant flexibility in our capital structure, and our
larger bank line allows us to fund additional organic
and acquisition growth.
LINDA McCURDY
2
WE ARE DEPENDABLE. “ O U R C O N T I N U I N G
E F F O R T S T O B U I L D N E W
S TAT E - O F - T H E - A R T P L A N T S
H AV E S T R E N G T H E N E D O U R
C O M P E T I T I V E P O S I T I O N S
& E N A B L E D U S T O O F F E R
A N I M P R O V E D S E R V I C E
AT L O W E R C O S T S F O R
O U R C U S T O M E R S .”
CHAIRMAN’S MESSAGE
2017 WAS AN IMPORTANT YEAR FOR K-BRO,
AND WE ARE PLEASED THAT THE COMPANY IS
WELL-POSITIONED FOR PROFITABLE GROWTH.
The Fishers acquisition is the Company’s first outside of Canada. We have
acquired a market leader with six plants in Scotland and the North East
of England, and we now have additional overseas growth opportunities
going forward.
Our new Toronto plant opened in 2017, and we are opening two new and
refurbished Vancouver plants in 2018. Our continuing efforts to build new
state-of-the-art plants have strengthened our competitive positions and
enabled us to offer an improved service at lower costs for our customers. This
will continue to be our model in the years ahead as we grow and strengthen
our valued relationships.
On behalf of our entire Company, thank you for your support and confidence.
All of us at K-Bro — the management team, our 2,800 employees, and our
Board — will continue to work hard every day to earn your loyalty and trust. We
look forward to a successful 2018 and beyond.
ROSS SMITH
V I C TO R I A | VA N C O U V E R | C A L G A R Y | E D M O N TO N | R E G I N A
TO R O N TO | M O N T R É A L | Q U É B E C C I T Y | S C OT L A N D
4
WE ARE DEPENDABLE. O F F I C E R S & D I R E C TO R S
K-BRO IS CANADA’S LARGEST HEALTHCARE AND HOSPITALITY LAUNDRY
AND LINEN PROCESSOR IN CANADA, AND WITH THE ACQUISITION OF
FISHERS WE ARE NOW ONE OF THE LARGEST IN THE UK AND EUROPE.
We operate 15 facilities and three distribution centers, including
K-Bro provides the vital products and services that help
nine facilities and two distributions centers in Canada, and
people heal, travel, live, and play. We’re helping hospitals and
six facilities and one distribution center in the UK (Scotland
extended care centres care for the young, old and vulnerable
and the North East of England).
in environmentally responsible ways. Our responsibility also
Our core values remain central to our reputation, and we
continue to relentlessly focus on providing industry-leading
quality and service. Our ability to deliver on commitments to
our valued customers remains second to none.
extends to ensuring that we have a safe culture at K-Bro. As our
society becomes more diverse, we integrate our commitment
to responsibility into our new businesses, employees and
the communities in which we live and work.
“ I N 2 0 1 7 W E O P E N E D O U R N E W S TAT E - O F - T H E - A R T T O R O N T O
F A C I L I T Y , A N D B E G A N C O N S T R U C T I O N A N D R E N O VAT I O N O F O U R
T W O VA N C O U V E R F A C I L I T I E S T H AT W I L L O P E N I N 2 0 1 8 . B Y T H E
E N D O F 2 0 1 8 W E W I L L H AV E M O S T O F O U R C A N A D I A N V O L U M E
P R O C E S S E D I N R E C E N T L Y C O N S T R U C T E D A N D M O D E R N I Z E D
F A C I L I T I E S A C R O S S T H E C O U N T R Y .”
SEAN CURTIS, SENIOR VICE-PRESIDENT AND COO
“ B E C A U S E L E A D E R S H I P A N D P R O G R E S S A R E I M P O R TA N T T O
S TA K E H O L D E R S , W E H AV E M A D E S I G N I F I C A N T I N V E S T M E N T S
I N E X I S T I N G M A R K E T S A S W E L L A S N E W O N E S . I N 2 0 1 8 W E
W I L L O P E N O N E N E W P L A N T A N D R E N O VAT E A N O T H E R . A S
W E L L K - B R O W I L L S E E T H E F I R S T F U L L - Y E A R B E N E F I T O F O U R
F I S H E R S A C Q U I S I T I O N . W I T H O U R O P E R AT I N G A N D F I N A N C I A L
T R A N S A C T I O N S N E A R L Y C O M P L E T E , W E H AV E B U I L T T H E
P L AT F O R M F O R P R O F I TA B L E G R O W T H A N D N E W C H A N N E L S
O F VA L U E C R E AT I O N .”
LINDA MCCURDY, PRESIDENT AND CHIEF EXECUTIVE OFFICER
“ W E M A I N TA I N A F L E X I B L E C A P I TA L S T R U C T U R E E V E N A S
W E H AV E C O M P L E T E D S I G N I F I C A N T A C Q U I S I T I O N S A N D
T H E C O N S T R U C T I O N O F N E W P L A N T S . T H I S F L E X I B I L I T Y
P R O V I D E S K - B R O W I T H T H E A B I L I T Y T O F U N D N E W G R O W T H
O P P O R T U N I T I E S .”
KRISTIE PLAQUIN, CHIEF FINANCIAL OFFICER
FROM LEFT TO RIGHT: ROSS SMITH, LINDA MCCURDY, KRISTIE PLAQUIN, MICHAEL PERCY, SEAN CURTIS, STEVEN MATYAS,
MATTHEW HILLS, SYLVAIN TREMBLAY, DIMITRI HAMM, KEVIN STEPHENSON, STEVE CUMMINGS, JEFF GANNON, KEVIN MCELGUNN, SEAN JACKSON
REVENUE
(In millions of Canadian dollars) Years ended December 31
2017
2016
2015
2014
2013
2012
50
100
150
200
EBITDA AND ADJUSTED EBITDA
(In millions of Canadian dollars) Years ended December 31
3
2017
2016
2015
2014
2013
2012
18
20
22
24
26
28
TOTAL SHAREHOLDER RETURN
$100 investment in 2009
375
372
429
384
327
239
K-Bro Linen Inc.
S&P/TSX Composite Index
100
200
300
400
2017
2016
2015
2014
2013
2012
174
160
132
144
130
115
7
F I N A N C I A L
H I G H L I G H T S
The following unaudited financial data has been
derived from K-Bro’s consolidated financial
statements, which have been audited by
PricewaterhouseCoopers LLP. The information set
forth below should be read in conjunction with the
Management’s Discussion & Analysis, Consolidated
Financial Statements and Notes sections of this
Annual Report.
REVENUE
UP
7.2%
EBITDA
DOWN
14.7%
ADJUSTED
EBITDA
DOWN
4.7%
1 The total shareholder return graph reflects the total cumulative return, assuming
reinvestment of all dividends, of $100 invested on December 31, 2009 in each of
the Shares of the Corporation and the S&P/TSX Composite (TRIV) Index.
2 The year-end values of each investment shown on the total shareholder return
graph are based on share price appreciation plus dividend reinvestment.
3 Adjusted EBITDA is a measure which has been reported in order to assist in the
comparison of historical EBITDA to current results. Adjusted EBITDA is defined as
EBITDA (defined above) with the exclusion of certain material items that are
unusual in nature, infrequently occurring or not considered part of our core
operations. The calculation of Adjusted EBITDA normalizes the impact of the
transaction costs related to the acquisition of Fishers, and the related impact on
EBITDA (as defined above). During the fourth quarter in 2017, K-Bro incurred $2.8
million in transaction costs directly related to the acquisition of Fishers, which is
not expected to occur in the normal course of operations. The normalization of
this expense from the calculation of EBITDA is considered by Management to be
a more accurate representation of continuing operations.
2017 ANNUAL REPORT
“ W E R E L E N T L E S S L Y F O C U S
O N D E L I V E R I N G T H E H I G H E S T
Q U A L I T Y & S E R V I C E T O O U R
M A N Y VA L U E D C U S T O M E R S .
T H AT C O R E C O M M I T M E N T
E N A B L E S U S T O C O N T I N U E
TO G R O W & D E L I V E R S T R O N G
F I N A N C I A L R E S U L T S .”
8
WE ARE DEPENDABLE. We are committed to remain as Canada’s premier
linen processing company, with nine plants across our
country. We have also welcomed Fishers to the K-Bro
family with our 2017 acquisition of one of the UK’s
largest and highest quality linen processors.
We continue to focus our growth
initiatives on
businesses that we know and have a track record of
operating in a superior fashion. We remain focused on
growth
in regions where we have an existing
competitive advantage or can develop one. K-Bro has
invested over $250 million in our business in the last
decade. These investments have enabled K-Bro to
grow in current and new markets in Canada and
overseas. We continue to play a significant role in
providing high quality linen services to health care and
hospitality customers in all of our markets.
W E A R E D E P E N D A B L E .
Our 15 plants and three distribution centres in
Canada and the UK provide services to almost 2,900
customers, and we have more than 2,800 employees.
We finished 2017 with total assets of $295 million,
market capitalization of $434 million and significant
financial capacity to finance further organic and
acquisition growth.
“ K - B R O C O N T I N U E S
T O E X C E L AT W I N N I N G
N E W O P P O R T U N I T I E S
A N D R E N E W I N G O U R
E X I S T I N G C O N T R A C T S
W I T H O U R VA L U E D
C U S T O M E R S . W E
C O N T I N U E TO F O C U S O N
O U R C O R E B U S I N E S S
O F P R O V I D I N G T H E
H I G H E S T Q U A L I T Y
L I N E N S E R V I C E S I N T H E
I N D U S T R Y , B U I L D I N G
O N D E C A D E S O F
E X P E R I E N C E .”
SEAN CURTIS, SENIOR VICE-PRESIDENT AND COO
9
2017 ANNUAL REPORT One of our key strategies for growth is to pursue opportunities
for expansion through acquisition. We follow a strict set of
criteria when evaluating another organization’s potential,
examining every facet of a target company. Does it open up
a new or strategically placed geographic market or market
niche for us? Is there a potential for growth in the market it
DIVERSIFIED & INTEGRATED SERVICES
We provide critical services including, support and management
of linen requirements that address each and every one of
our customers’ needs.
serves? Will we be able to build on relationships the company
STRATEGICALLY POSITIONED
already has in place? Can we build on an pre-existing base of
business? Does it enhance our resources overall?
Taking advantage of relationships already in place includes
maintaining the existing team of a company. The ability and
commitment demonstrated by staff members is a factor in
K-Bro has fifteen plants (nine in Canada) and three
distribution centres located in Canada and Scotland, which
ensure our ability to provide uninterrupted service in the
wake of disasters, pandemics or other adversity.
our decision-making process for acquisitions. The bottom
LONG-TERM STABLE CONTRACTS
line is that we want profitable, dependable operations
where we can bring our expertise and resources to grow the
existing base of business. We continue to review and pursue
accretive opportunities in new markets and we believe that
such opportunities may be available in the future to further
add to our growth.
Our November 2017 acquisition of Fishers was an excellent
fit with these criteria. We were attracted to Fishers because
the Company has a strong position in a well-defined market
and a strong and successful management team. Its leading
position in the growing UK market, specifically in Scotland
and northern England, provides a foundation for future organic
and acquisition growth overseas for K-Bro. There are
By anticipating our customers’ needs, delivering consistently
dependable service and acting with integrity, K-Bro has
developed long-term relationships with its customers.
COMMITTED WORKFORCE
Our corporate culture enables us to attract and retain quality
laundry staff and our national presence provides opportunities
for career advancement. Eight members of our senior
management team have an average tenure of in excess of 15
years with K-Bro.
SINGLE SOURCE FOR CUSTOMERS
customer and operating synergies that are already being
K-Bro is able to deliver total linen management services,
shared between our Canadian and UK businesses. Our
including laundering, drying, folding, quota cart development,
acquisition price was accretive to K-Bro, and we have
sterilization, and more that focus on efficiencies and cost
maintained financial flexibility to
fund organic and
savings. As one of the largest linen purchasers in Canada, we
acquisition growth going forward.
leverage our market position to drive savings for our customers.
K-Bro works in partnership with our clients to reduce their
linen consumption.
K-BRO CONTINUED TO ADD NEW
CLIENTS AND ADD BUSINESS FROM
EXISTING CLIENTS IN 2017.
We successfully integrated significant new healthcare volume
in British Columbia (previously processed by another linen
processor), and in Toronto we were awarded two large
healthcare accounts (also previously processed by another
linen processor). In Alberta we added additional volume from
our current healthcare clients. We also completed our acquisition
During 2017 we enjoyed an entire year of fine-tuning our
Regina operations after the large volume transitions in 2015
and 2016, completed the transition to our new highly-
automated Toronto plant, and began construction and
renovation of two Vancouver plants. Each of our new plants
is a state-of-the-art facility that provides us with significant
capacity increases while also lowering our operating costs.
K-Bro’s value-added services provide a ‘one-stop shop’ for
linen services, and currently include:
of Fishers, providing us with a significant UK presence.
• Exchange cart preparation
Each new customer was a victory for the entire K-Bro team
and a reflection of the company as a whole, rather than any
individual. The qualities that contribute to our success are the
same ones that define us as leaders in customer service – an
impeccable and dependable record, comprehensive service
programs, financial stability, competitive costs, experience
in transitioning large accounts, and access to the resources
that support growth, including the ability to purchase linen
• Delivery of carts to user wards and departments
• Reusable OR linen and pack rental (KOR services)
• Distribution and control of uniforms
• Personal clothing services
• Customer service programs
• Linen purchase and supply
• Linen inventory management reports and services
• Sterilization of operating room linen packs
and equipment in anticipation of higher volume.
At K-Bro, we continue to innovate and develop new
Our policy at K-Bro has always been one of proactive
response. In order to meet our goal of being the absolute
best laundry and linen services provider in the country, we
continually review our service offerings, adding to our menu
and providing more comprehensive service capabilities than
other linen companies. We watch our industry and think
ahead to strategically address the future needs of the markets
we serve. Our clients talk to us not only about their present
needs, but about the direction of the future. They depend
on the knowledge we’ve accumulated over our history.
processes and systems, and further refine business delivery
and practices. When we launched our company on the
public markets we stated that we were ready for whatever
lay ahead of us. As the events of the next thirteen years
unfolded, our readiness contributed to our success in
dependability and growth. The hands-on nature of our
management team and established relationships with
open lines of communication with our customers are the
source of our advantage.
1 1
2017 ANNUAL REPORT “ A S E V E N T S H AV E U N F O L D E D S I N C E E N T E R I N G T H E
P U B L I C M A R K E T , O U R R E A D I N E S S H A S C O N T R I B U T E D
T O O U R S U C C E S S I N D E P E N D A B I L I T Y & G R O W T H .”
The following selected unaudited financial data has been derived from K-Bro’s consolidated financial statements, which
have been audited by PricewaterhouseCoopers LLP. The information set forth below should be read in conjunction with
the Management’s Discussion & Analysis, Consolidated Financial Statements and Notes sections of this Annual Report.
Years ended December 31
2017
2016
2015
2014
2013
2012
Income Statement Data
Revenue
EBITDA
EBITDA%
Net earnings
Net earnings per share (Diluted)
Balance Sheet Data
Working Capital
Long-Term Debt
Other Financial Data
Distributable cash per share
Payout Ratio%
Price to earnings multiple (12 month trailing)
Price to EBITDA multiple (12 month trailing)
Return on shareholders’ equity ROE %
Total Shareholder return, YTD%
Total Shareholder return, 5 yrs%
Market capitalization
Share price:
170,559
159,089
144,537
136,440
131,202
126,290
23,985
28,236
27,140
26,241
23,317
14.1
5,718
0.63
17.7
18.8
19.2
17.8
11,527
12,068
12,198
10,336
1.44
1.52
1.72
1.47
24,517
19.4
11,149
1.59
32,008
13,766
42,780
25,800
8,670
2,349
21,717
9,434
0
19,640
8,064
5,818
2.20
55.5
65.6
15.7
2.8
0.9
19.3
2.76
43.5
29.3
11.9
9.9
14.9
66.4
2.69
44.8
33.5
14.9
10.7
13.1
2.85
42.0
26.9
12.5
11.1
19.4
2.61
44.2
27.0
12.0
14.5
41.2
155.0
182.9
235.2
2.72
41.8
18.1
8.2
16.5
34.9
253.8
434.211
338,190
406,872
367,023
280,976
203,613
High
Low
Close
45.00
37.39
41.32
50.98
36.69
42.15
56.99
43.00
50.95
47.90
36.90
46.11
40.50
28.38
39.60
30.18
21.20
28.86
($ Thousands of Canadian dollars, except per share data and percentages)
1 2
WE ARE DEPENDABLE.
M A N A G E M E N T ’ S
D I S C U S S I O N &
A N A L Y S I S
1 3
2017 ANNUAL REPORT I N T R O D U C T I O N
S T R AT E G Y
F O U R T H Q U A R T E R O V E R V I E W
S U M M A R Y O F 2 0 1 7 R E S U L T S ,
K E Y E V E N T S & O U T L O O K
O U T L O O K
K E Y P E R F O R M A N C E D R I V E R S
R E S U L T S O F O P E R AT I O N S
L I Q U I D I T Y & C A P I TA L R E S O U R C E S
D I V I D E N D S
D I S T R I B U TA B L E C A S H F L O W
T E R M I N O L O G Y
C H A N G E S I N A C C O U N T I N G P O L I C I E S
R E C E N T A C C O U N T I N G P R O N O U N C E M E N T S
F I N A N C I A L I N S T R U M E N T S
C R I T I C A L R I S K S & U N C E R TA I N T I E S
C O N T R O L S & P R O C E D U R E S
1 7
1 8
1 8
2 0
2 5
2 6
2 7
3 3
3 4
3 5
3 7
40
40
4 1
4 1
42
1 4
WE ARE DEPENDABLE. M A N A G E M E N T ’ S D I S C U S S I O N &
A N A L Y S I S O F F I N A N C I A L C O N D I T I O N
& R E S U L T S O F O P E R AT I O N S
The following Management’s Discussion and Analysis (“MD&A”)
is supplemental to, and should be read in conjunction with,
the audited Consolidated Financial Statements of K-Bro Linen
Inc. (“the Corporation”) for the years ended December 31, 2017
and 2016, as well as the unaudited interim condensed
Consolidated Financial Statements for the periods ended
March 31, 2017, June 30, 2017 and September 30, 2017. The
Corporation and its wholly-owned subsidiaries, including K-Bro
Linen Systems Inc. and Fishers Topco Ltd., are collectively
referred to as “K-Bro” in this MD&A.
Management is responsible for the information contained
in this MD&A and its consistency with information presented
to the Audit Committee and Board of Directors. All information
in this document has been reviewed and approved by the
Audit Committee and Board of Directors. This review was
performed by management with information available as of
March 14, 2018.
In the interest of providing current holders (“Shareholders”)
of common shares of K-Bro Linen Inc. and potential investors
with information regarding current results and future
prospects, our public communications often include written
or verbal forward-looking statements. Forward-looking
statements are disclosures regarding possible events,
conditions, or results of operations that are based on
assumptions about future economic conditions and courses
of action, and include future-oriented financial information.
information that
This MD&A contains forward-looking
represents
internal expectations, estimates or beliefs
concerning, among other things, future activities or future
operating results and various components thereof. The use
of any of the words “anticipate”, “continue”, “expect”, “may”,
“will”, “project”, “should”, “believe”, and similar expressions
suggesting future outcomes or events are intended to identify
forward-looking information. Statements regarding such
forward-looking information reflect management’s current
beliefs and are based on information currently available
to management.
These statements are not guarantees of future performance
and are based on management’s estimates and assumptions
that are subject to risks and uncertainties, which could cause
K-Bro’s actual performance and financial results in future
periods to differ materially from the forward-looking
information contained in this MD&A. These risks and
uncertainties include, among other things: (i) risks associated
with acquisitions, including the possibility of undisclosed
material liabilities; (ii) K-Bro’s competitive environment; (iii)
1 5
include:
information
utility costs, minimum wage legislation and labour costs; (iv)
K-Bro’s dependence on long-term contracts with the
associated renewal risk; (v) increased capital expenditure
requirements; (vi) reliance on key personnel; (vii) changing
trends in government outsourcing; (viii) changes or proposed
changes to minimum wage laws in Ontario, British Columbia,
Alberta and the United Kingdom (the “UK”), which could have
an adverse effect on expenses in respect of employees situated
in those jurisdictions and while a portion of such expenses
may be passed on to or be recoverable from customers, there
can be no assurances that will occur; (ix) the availability of
future financing and (x) foreign exchange rates. Material
factors or assumptions that were applied in drawing a
conclusion or making an estimate set out in the forward-
looking
(i) volumes and pricing
assumptions; (ii) expected impact of labour cost initiatives;
(iii) frequency of one-time costs impacting quarterly and
annual financial results; and (iv) the
level of capital
expenditures. Although the forward-looking information
contained in this MD&A is based upon what management
believes are reasonable assumptions, there can be no
assurance that actual results will be consistent with these
forward-looking statements. Certain statements regarding
forward-looking information included in this MD&A may be
considered “financial outlook” for purposes of applicable
securities laws, and such financial outlook may not be
appropriate for purposes other than this MD&A. Forward
looking information included in this MD&A includes the
expected annual healthcare revenues to be generated from
the Corporation’s contracts with the William Osler Health
System and Trillium Health Partners and other new customers,
the anticipated capital costs for the Toronto and Vancouver
facilities, calculation of costs, including one-time costs impacting
the quarterly financial results, and statements with respect
to future expectations on margins and volume growth.
All forward-looking information in this MD&A is qualified by
these cautionary statements. Forward-looking information
in this MD&A is presented only as of the date made. Except
as required by law, K-Bro does not undertake any obligation
to publicly revise these forward-looking statements to reflect
subsequent events or circumstances.
This MD&A also makes reference to certain measures in this
document that do not have any standardized meaning as
prescribed by IFRS and, therefore, are considered non-
GAAP measures. These measures may not be comparable
to similar measures presented by other issuers. Please see
“Terminology” for further discussion.
2017 ANNUAL REPORT “ E V E R Y D AY W E M U S T E A R N
T H E R E S P E C T & F A I T H
O F O U R C U S T O M E R S W I T H
T H E H I G H E S T Q U A L I T Y &
H I G H E S T VA L U E S E R V I C E .”
1 6
WE ARE DEPENDABLE. I N T R O D U C T I O N
CORE BUSINESS
The Corporation is the largest owner and operator of laundry
and linen processing facilities in Canada and a market leader
for laundry and textile rental services in Scotland and the North
East of England. K-Bro and its wholly owned subsidiaries,
operate across Canada and the United Kingdom (“UK”),
providing a range of linen services to healthcare institutions,
hotels and other commercial accounts that include the
processing, management and distribution of general linen
and operating room linen.
The Corporation’s operations
in Canada
include nine
processing facilities and two distribution centres under
three distinctive brands,: K-Bro Linen Systems Inc., Buanderie
HMR and Les Buanderies Dextraze. The Corporation operates
in ten Canadian cities: Québec City, Montréal, Toronto, Regina,
Saskatoon, Prince Albert, Edmonton, Calgary, Vancouver
and Victoria.
The Corporation’s operations in the UK include Fishers Topco
Ltd. (“Fishers”) which was acquired by K-Bro on November
27, 2017. Fishers was established in 1900 and is a leading
operator of laundry and linen processing facilities in Scotland,
management and distribution of general, workwear and clean
room garment services. Other types of processors in Fishers
industry in the UK include independent privately owned
facilities (i.e., typically, small single facility companies), public
sector central laundries and public and private sector OPLs.
Our partnerships with healthcare institutions and hospitality
clients across Canada and the UK demonstrate K-Bro’s
commitment to building relationships that foster continuous
improvement, providing flexibility to adjust to changing
circumstances as required and which incorporate incentives,
penalties and the sharing of risks and rewards as
circumstances warrant.
In this competitive industry, KBro is distinctive in its ability
to deliver products and services that provide value to
our customers. Management believes that the healthcare
and hospitality sectors of the laundry and linen services
industry represent a stable base of annual recurring business
with opportunities for growth as additional healthcare
beds and funds are made available to meet the needs of an
aging demographic.
providing linen rental, workwear hire and cleanroom garment
INDUSTRY CHARACTERISTICS & TRENDS
services to the hospitality, healthcare, manufacturing and
pharmaceutical sectors. The Corporation operates seven sites,
including one distribution center, which are located in Cupar,
Perth, Newcastle, Livingston, Inverness and Coatbridge.
INDUSTRY & MARKET
Management believes that the industry in which K-Bro
operates exhibits the following characteristics and trends:
Stable Industry with Moderate Cyclicality
As evidenced by the stability in the number of approved
hospital beds in the healthcare system and hotel rooms in
In Canada, K-Bro provides laundry and linen services to
the hospitality industry. The potential for step-changes in
healthcare, hospitality and other commercial customers.
volumes and
revenues
that align with contractual
Typical services offered by K-Bro include the processing,
management and distribution of general and operating
room linens, including sheets, blankets, towels, surgical
gowns and drapes and other linen. Other types of processors
in K-Bro’s industry include independent privately owned
facilities (i.e. typically small, single facility companies), public
sector central laundries and public and private sector on-
premise laundries (known as “OPLs”). Participants in other
sectors of the Canadian laundry and linen services industry,
such as uniform rental companies (which own and launder
uniforms worn by their customers’ employees) typically do
not offer services that significantly overlap with those
offered by K-Bro.
arrangements exists within
this
industry. Service
relationships are generally formalized through contracts in
the healthcare sector that are typically long term (from
seven to ten years), while contracts in the hospitality sector
usually range from two to five years.
Outsourcing and Privatization
In Canada, healthcare institutions and regional authorities are
facing funding pressures and must continually evaluate the
allocation of scarce resources. Consequently, there are often
advantages to healthcare institutions in outsourcing the
processing of healthcare linen to private sector laundry
companies such as K-Bro because of the economies of scale
In the UK, Fishers provides laundry and linen services to
and significant management expertise that can be provided on
healthcare, hospitality and other commercial customers.
a more comprehensive & cost-effective basis than customers
Typical services offered by Fishers include the processing,
can achieve in operating their own laundry facilities.
1 7
2017 ANNUAL REPORT Fragmentation
Most cities have at least one and sometimes several private
sector competitors operating in the healthcare and hospitality
sectors of the laundry and linen services industry. Management
believes that the presence of these operators provides
consolidation opportunities for larger industry participants
with the financial means to complete acquisitions.
CUSTOMERS & PRODUCT MIX
K-Bro’s Canadian customers include some of the largest
healthcare institutions and hospitality providers in Canada.
In the UK, Fishers customer includes some of the largest
hotel chains operating in Scotland. Healthcare customers
include acute care hospitals and long-term care facilities
primarily in Canada. Most of K-Bro’s hospitality customers
(typically >250 rooms) generate between 500,000 and 3
million pounds of linen per year. Most healthcare customers
generate between 500,000 pounds of linen per year for a
hospital and up to 41 million pounds of linen per year for a
Canadian healthcare region.
S T R AT E G Y
K-Bro maintains the following three-part strategic focus:
Secure and Maintain Long-Term Contracts with
Large Healthcare and Hospitality Customers
K-Bro’s core service is providing high quality laundry and
linen services at competitive prices to large healthcare and
hospitality customers under long-term contracts. K-Bro’s
contracts in the healthcare sector typically range from seven
to ten years in length. Contracts in the hospitality sector
typically range from two to five years.
Extend Core Services To New Markets
Management may in the future expand its core services to
new markets either through acquisitions or by establishing
new facilities. Its choice of areas for expansion will depend
on the availability of suitable acquisition candidates, the
volume of healthcare and hospitality linen to be processed
and the policies of applicable governments.
Introduce Related Services
In addition to focusing on its core services, the Corporation
also attempts
to capitalize on attractive business
opportunities by introducing closely related services that
enable it to provide more complete solutions to K-Bro’s
healthcare and hospitality customers. These related service
offerings include K-Bro Operating Room (“KOR”) services and
on-site services. K-Bro performs the sterilization of operating
room linen packs for six major hospitals in Toronto.
F O U R T H
Q U A R T E R
O V E R V I E W
In the fourth quarter of 2017, revenue increased by 21.0% to
$47.5 million from $39.3 million in the comparative period.
This increase was due to the acquisition of Fishers, additional
awarded healthcare volume from the Vancouver lower
mainland contract, William Osler Health System volume,
Trillium Health Partners volume, organic growth at existing
customers, and new customers secured in existing markets.
EBITDA was $4.5 million for the three months ended
December 31, 2017, compared to $6.4 million in the
comparative period of 2016. The change in EBITDA and margin
was primarily associated with the one-time transaction
costs related to the acquisition of Fishers which was $2.8
Management has demonstrated its ability to successfully
million, offset by efficiencies gained as a result of the capital
expand K-Bro’s business
into new markets from
its
expenditures made in Toronto.
established bases. Since 2005, K-Bro has entered four new
geographic markets across Canada, and in late 2017 entered
into the UK market. These new markets have contributed
significantly to K-Bro’s growth. Management believes that
new outsourcing opportunities will continue to arise in the
near to medium-term and that K-Bro is well-positioned for
continued growth, particularly as healthcare and hospitality
institutions continue to increase their focus on core services
and confront pressures for capital and cost savings.
REVENUE
UP
7.2%
SELECTED ANNUAL
FINANCIAL INFORMATION
Revenue
Earnings before income taxes
Net earnings
Adjusted net earnings
Net earnings (loss) per share:
Basic
Diluted
Adjusted net earnings (loss) per share:
Basic
Diluted
Total assets
Long-term debt
CANADIAN
DIVISION
2017
UK
DIVISION
2017
165,831
12,402
8,599
8,599
0.947
0.943
0.947
0.943
4,728
(2,923)
(2,881)
(50)
(0.317)
(0.316)
(0.006)
(0.005)
Weighted average number of shares outstanding:
Basic
Diluted
($ Thousands, except percentages and per share amounts)
1 Prior to the acquisition of Fishers on November 27, 2017, K-Bro was reporting and operating as a single Canadian division.
2017
2016 1
2015 1
170,559
9,479
5,7 18
8,549
0.629
0.627
0.94 1
0.938
295,213
42,780
159,089
144,537
16,367
1 1 ,527
1 1 ,527
17,261
12,068
12,068
1.449
1.443
1.524
1.522
1.449
1.443
168,289
25,800
1.524
1.522
143,023
2,349
9,083,693
9, 1 1 4,874
7,955,026
7,920,609
7,986,729
7,930,492
1 9
2017 ANNUAL REPORT
S U M M A R Y O F 2 0 1 7 R E S U L T S ,
K E Y E V E N T S & O U T L O O K
FINANCIAL GROWTH
K-Bro’s Canadian division delivered strong financial results
in 2017 driven by the operating results from all nine of its
processing plants and two distribution centers. In the UK,
net earnings were impacted as a result of $2.8 million in
K-Bro financed the cash portion of the acquisition, the
repayment of Fishers’ outstanding debt facilities and the
payment of management fees and transaction costs from
existing cash resources and existing loan facilities, including
an amendment to its existing revolving credit facility.
acquisition costs incurred in the quarter. Net earnings were
As part of the Fishers’ acquisition, the purchase price
$5.7 million or $0.63 per Common Share (basic). Cash flow
included an earn out to be paid dependent upon financial
from operating activities was $18.8 million and distributable
performance of Fishers for the year ended December 31,
cash flow was $20 million. Revenue increased in fiscal 2017
2017. Based off the Fishers’ audited financial statements and
to $170.6 million or by 7.2% compared to 2016. This increase
the calculation in accordance with the share purchase
was due to the acquisition of Fishers, additional awarded
agreement, no additional consideration for the earnout is
healthcare volume from the Vancouver lower mainland
payable as at December 31, 2017 or in future periods.
contract, William Osler Health System volume, Trillium
Health Partners volume, organic growth at existing
customers, and new customers secured in existing markets.
The acquired business contributed revenues of $4.7 million
(in Sterling £2.8 million) and a net loss of $2.9 million (in
Sterling £1.7 million) to the Corporation for the period from
EBITDA (see Terminology) decreased in 2017 to $24.0 million
November 27, 2017 to December 31, 2017.
or by 14.7% compared to $28.1 million in 2016. The
Corporation’s EBITDA margin decreased from 17.7% in 2016
compared to 14.1% in 2017. The change in EBITDA and
margin was primarily associated with one-time transaction
costs of $2.8 million related to the acquisition of Fishers, the
relocation of our new Toronto facility, offset by the
efficiencies gained as a result of the capital expenditures
made in Toronto. Management estimates the one-time
costs incurred related to the Toronto transition and capacity
constraints at certain plants on a year-to-date basis to be
approximately $4.7 million.
Acquisition of Fishers
Fishers was acquired by K-Bro on November 27, 2017 for
cash consideration of $57.6 million (in Sterling £33.9 million).
Fishers, an operator of laundry and linen processing facilities
established in 1900, is a leading commercial laundry
business in Scotland and the North East of England which
provides linen rental, workwear hire and cleanroom garment
services to the hospitality, healthcare, manufacturing and
pharmaceutical sectors. The company operates seven
facilities, including one distribution center, which are
located in Cupar, Perth, Newcastle, Livingston, Inverness
and Coatbridge.
If the acquisition had occurred on January 1, 2017,
consolidated pro-forma revenue and profit for the year
ended December 31, 2017 would have been $223.5 million
and $8.8 million respectively. These amounts have been
calculated using the Fishers results and adjusting them for:
• differences in the accounting policies between the
group and the subsidiary; and
• the additional depreciation and amortization that
would have been charged assuming the fair value
adjustments to property, plant and equipment and
intangible assets had applied from January 1, 2017,
together with the consequential tax effects.
Pro-forma net profit includes expenses which are not
expected to be recurring as part of normal operations, which
include transaction costs incurred in the sale of Fishers’ for
$1.0 million (in Sterling £0.6 million), and loss on disposal of
assets of $1.1 million (in Sterling £0.6 million).
2 0
WE ARE DEPENDABLE. Equity Offerings
On April 25, 2017 the Corporation closed a bought deal
offering of 1,518,000 common shares at $38.00/share. The
net proceeds of the offering after deducting expenses of the
offering and the underwriter’s fee were $55.0 million. The
net proceeds of the offering were used to reduce the
revolving debt to nil, and to fund the build out of the
Corporation’s state-of-the-art facilities
in Toronto and
Vancouver, and for general corporate purposes.
Build out of Corporation’s facilities in
Toronto and Vancouver
Repayment of indebtedness
General corporate purpose
Use of proceeds as at December 31, 2017
Amount remaining
Net proceeds from share issuance on
April 25, 2017
($ Millions)
2017
22.3
32.4
0.3
55.0
–
55.0
On December 12, 2017 the Corporation closed a bought deal
offering of 924,600 common shares at $37.35/share. The net
proceeds of the offering after deducting expenses of the
offering and the underwriter’s fee were $32.7 million. The
net proceeds of the offering were used to partially pay down
indebtedness that was incurred under K-Bro’s amended
$100 million senior secured revolving credit facility to fund
the acquisition of Fishers.
Cash Consideration of acquisition of Fishers
Indebtedness incurred to fund acquisition
Repayment of indebtedness
Use of proceeds as at December 31, 2017
Amount remaining
Net proceeds from share issuance
on December 12, 2017
($ Millions)
2017
57.6
(57.6)
32.7
32.7
–
32.7
2 1
2017 ANNUAL REPORT “ R E V E N U E
I N C R E A S E D I N F I S C A L
2 0 1 7 T O $ 1 7 0 . 6 M O R
B Y 7 . 2 % C O M PA R E D
T O 2 0 1 6 .”
2 2
WE ARE DEPENDABLE. Revolving Credit Facility
On November 27, 2017, K-Bro completed an amendment to
its existing revolving credit facility, which extended the
agreement to July 31, 2021, and increased the available limit
from $85 million to $100 million plus a $25 million
accordion, of which $44.4 million is utilized (including letters
of credit totaling $1.7 million as at December 31, 2017).
Management intends to continually assess its opportunities
to maintain a conservative amount of leverage and balance
The construction and/or upgrade of three of our large
facilities will enable us to bid on a significant amount of
additional business, but also will create margin pressure
through 2018 as K-Bro incurs one-time and transition costs
associated with these large investments. While the margin
pressure may vary by quarter through 2018, management
believes that the one-time and transition costs incurred in
2017 and 2018 will position K-Bro to achieve more growth
and a lower cost structure into the future and that K-Bro will
return to normalized margins closer to those achieved in
sheet flexibility in the short and long-term basis in order to
2015 as it enters 2019.
ensure that sufficient capital is available for future growth
needs. A copy of the Corporation’s amended and restated
Key events in our Toronto and Vancouver markets are
credit agreement is available under the Corporation’s
summarized below.
profile at www.sedar.com.
Near-Term and Long-Term Growth
and Margin Impact
Vancouver Facility Development
As announced on March 2, 2016, K-Bro has commenced the
planning and development of a new state-of-the- art facility
Management has embarked on a strategy in its Toronto and
with a projected investment of up to $55 million. As at
Vancouver markets that it believes will position K-Bro for
December 31, 2017, K-Bro has incurred $29.8 million of the
accelerated growth
in
its healthcare and hospitality
total expected capital costs. The new Vancouver plant will
businesses. The strategy includes capital investments to
be located in Burnaby, and K-Bro expects to transition to the
build large efficient state-of-the-art facilities with meaningful
new facility during the second quarter of 2018. The new
additional capacity in Toronto and Vancouver. In addition,
facility will enable K-Bro to expand current capacity, to
K-Bro will invest to upgrade one of its current Vancouver
accommodate the additional awarded volume, and to
plants to create a more efficient facility with meaningful
provide the opportunity to consolidate the healthcare
additional capacity.
These investments are being made because management
believes that new opportunities, both current and future,
justify the significant additional capacity. As previously
announced we have secured $7.6 million of new revenue
from William Osler Health Systems and Trillium Health
Partners. The transition of the William Osler Health Systems
to K-Bro was completed in the second quarter of 2017 and
the transition of Trillium Health Partners to K-Bro
commenced in the third quarter and was completed early
volume from its existing two Vancouver-area facilities. In
addition to investing in the new facility, K-Bro will upgrade
and replace equipment at one of its existing Vancouver-area
facilities, which will be used to process the consolidated
hospitality volume. K-Bro will not be renewing the lease for
the remaining Vancouver-area facility and related assets will
be transferred to the other K-Bro facilities. K-Bro believes it
will achieve significant operating efficiencies at its new
plant. It is anticipated that transition costs associated with
the new Vancouver plant will negatively impact EBITDA
margins over the second and third quarters of 2018 while
in the fourth quarter of 2017. Management believes that
the plant becomes operational.
many new customer opportunities will present themselves
to K-Bro going forward.
Toronto Facility Development
Furthermore, during the prior year in Vancouver we re-signed
During the first quarter, K-Bro completed the transition to
most of our current healthcare volume through to 2027
its new state-of-the-art facility in Toronto. Management
and were awarded six new healthcare accounts representing
estimates that the cost to commission the new leased
an additional $5.2 million in annual revenue with additional
facility
is $37 million
for new efficiency enhancing
new customer opportunities going forward. Service to
equipment, and leaseholds. As at December 31, 2017, K-Bro
these six new healthcare customers commenced during
has incurred $37 million of the total expected capital cost.
Q4 2017, which was earlier than anticipated to help facilitate
K-Bro’s strategy includes significant growth in its healthcare
the logistical management and strategic requirements of
and hospitality volumes, and the additional capacity and
the customers.
the long-term lease enables K-Bro to grow into the
additional capacity as opportunities emerge.
2 3
2017 ANNUAL REPORT Toronto Contract Awards
On February 28, 2017 K-Bro was awarded a five year contract
to provide laundry and linen services to St. Michael’s
Hospital. The contract contains two renewal options for an
additional two years. The contract extends the existing
relationship between K-Bro and St. Michaels Hospital and is
a result of a competitive RFP process.
On March 24, 2017 K-Bro was awarded a contract to provide
laundry and linen services to Trillium Health Partners. The
new contract is for seven years with renewal options for an
additional eight years, and is a result of a competitive RFP
process. Expected additional annual revenue from the contract
is $4 million and processing commenced in Q3 2017.
Toronto Collective Bargaining Agreement
Teamsters Canada represented 14 drivers in our Toronto
facility. The Collective Bargaining Agreement representing
these employees expired on December 31, 2016. The
members of the bargaining unit rejected K-Bro’s contract
proposal and on January 31, 2017 K-Bro locked out the 14
Toronto drivers and employed replacement drivers to service
its Toronto accounts. There have been no service interruptions
to any customers as a result of the lock-out. In September,
K-Bro reinstated five drivers on terms agreed to between
the employee and employer. No collective agreement has
been negotiated and employees are operating in a non-
union environment on terms substantially the same as the
contract drivers. K-Bro has been advised that the Ministry of
Labour is closing the file regarding this labour dispute.
Management estimates transition and one-time costs
associated with this lock-out were approximately $0.6
million on a year-to-date basis.
Alberta Contract Awards
On March 1, 2018, K-Bro was awarded a one year extension
to provide laundry and linen services to Calgary Alberta Health
Services. The contract extends the existing relationship
between K-Bro and Alberta Health Services Calgary.
2 4
WE ARE DEPENDABLE. O U T L O O K
"We are very excited to add the Fishers platform as K-Bro's
K-Bro’s focus is on profitable growth in the years to come
first acquisition outside of Canada. Fisher’s is our largest
as we execute our strategy of expanding geographically
acquisition to date and is aligned with our growth strategy.
and adding new services for our customers. K-Bro is
Fishers provides us with critical mass in an attractive new
committed to building value for our Shareholders, our
geographical region and is well positioned for future
customers and our employees.
growth." said Linda McCurdy, President & Chief Executive
Officer of K-Bro. "The UK linen hospitality market is mature
and highly fragmented and we expect to leverage Fishers'
leading market position, experienced local management
team, entrenched customer relationships and proven track
record of stable and profitable operations to take advantage
of the significant organic growth and consolidation
opportunities available to us, similar to what we have
achieved in Canada.”
“We continue to make progress in the construction of our
new Vancouver facility with a targeted completion date of
early 2018. We view 2017 and 2018 as transition years that
will impact our margins but once complete will enable us to
realize additional efficiencies, increase capacity and increase
market share. While the margin pressure may vary by
quarter through 2018, we believe that the one-time and
K-Bro also has several proposals pending and has entered
into discussions with potential new customers. In addition,
K-Bro continues to seek potential acquisition candidates.
Neither the timing nor the degree of likelihood of success
of any of these proposals or acquisitions can be stated with
any degree of accuracy.
EFFECTS OF ECONOMIC UNCERTAINTY
K-Bro believes that it is positioned to withstand market
volatility and uncertainty given that:
• Approximately 66.1% of its revenues in the quarter
were from large publicly funded healthcare customers
which are geographically diversified across multiple
provinces;
transition costs incurred in 2018 will position the company
• at December 31, 2017, K-Bro had unutilized borrowing
to achieve more growth and a lower cost structure into the
capacity of $55.6 million or 55.6% of its revolving
future and that the company will return to normalized
credit facility available; and,
margins closer to those achieved in 2015 as it enters 2019.
We remain excited about our growth plans and are confident
in our ability to continue to provide value to our customers
and our Shareholders.”
• K-Bro’s prudent approach to managing capital has
added cash flow and liquidity to the Corporation,
thereby improving its ability to withstand the turmoil
in the national and global capital markets.
“ W E R E M A I N
E X C I T E D A B O U T O U R
G R O W T H P L A N S & A R E
C O N F I D E N T I N O U R
A B I L I T Y T O C O N T I N U E
P R O V I D I N G VA L U E T O
O U R C U S T O M E R S &
S H A R E H O L D E R S .”
K E Y P E R F O R M A N C E D R I V E R S
K-Bro’s key performance drivers focus on growth, profitability, stability and cost containment in order to maintain dividends
and maximize Shareholder value. The following table outlines our results on a period-to-period comparative basis in each of
these areas:
CAN
UK
Q4 2017 Q4 2017 Q4 2017
UK
Q4 20165 YTD 2017 YTD 2017
CAN
YTD 2017 YTD 20165
GROWTH
EBITDA1 %
Adjusted EBITDA2 %
Revenue
Distributable cash flow %
PROFITABILITY
10.1
10.1
9.0
EBITDA1 6
EBITDA margin %
Adjusted EBITDA2
Adjusted EBITDA margin2 %
Net earnings
Adjusted net earnings3 %
6,961
16.3
6,961
16.3
1,594
1,594
(2,508)
-53.0
323
6.8
(2,881)
(50)
STABILITY
Debt to total capitalization4 %
Unutilized line of credit
Cash on hand
Payout ratio%
Dividends declared per share
COST CONTAINMENT
-29.6
15.2
21.0
-52.0
4,453
9.4
7,284
15.3
(1,287)
1,544
18.4
55,570
11,276
107.1
0.300
5.3
5.3
4.2
25.5
6,321
16.1
6,321
16.1
2,197
2,197
18.1
57,550
–
41.7
0.300
-5.8
-5.8
4.2
26,493
(2,508)
16.0
26,493
16.0
8,599
8,599
-53.0
323
6.8
(2,881)
(50)
-14.7
-4.7
7.2
-9.2
23,985
14.1
26,816
15.7
5,718
8,549
4.4
4.4
10.1
3.4
28,131
17.7
28,131
17.7
11,527
11,527
18.4
55,570
11,276 –
55.5
1.200
18.1
57,550
43.5
1.200
Wages and benefits%
Utilities%
5.7
Expenses included in EBITA% 83.7
41.7
37.4
7.7
153.0
41.3
5.9
90.6
41.1
6.4
83.9
41.4
6.0
84.0
37.4
7.7
153.0
41.2
6.1
85.9
40.9
6.1
82.3
($ Thousands, except percentages and per share amounts)
1 EBITDA is defined as revenue less operating expenses (which equates to net earnings before income tax, finance expense (recovery) and depreciation and amortization).
See Terminology.
2 Adjusted EBITDA is defined as EBITDA (defined above) with the exclusion of certain material items that are unusual in nature, infrequently occurring or not considering part
of our core operations. See Terminology for a complete description of the adjusted items.
3 Adjusted net earnings is defined as net earnings with the exclusion of certain material items that are unusual in nature, infrequently occurring
or not considered part of our core operations. See Terminology for a complete description of the adjusted items.
4 Debt to total capitalization is defined as total debit divided by total capital. See Terminology.
5 Prior to the acquisition of Fishers on November 27, 2017, K-Bro was reporting and operating as a single Canadian division
6 EBITDA in prior periods has been restarted with ‘gain (loss) on disposal of assets’ in included expenses.
2 6
WE ARE DEPENDABLE.
R E S U L T S O F O P E R AT I O N S
QUARTERLY FINANCIAL INFORMATION - CONSOLIDATED
The following table provides certain selected consolidated financial and operating
data prepared by K-Bro management for the preceding eight quarters:
Healthcare revenue
Hospitality revenue
Total revenue
Expenses included in EBITDA4
EBITDA1 4
EBITDA as a % of revenue
Adjusted EBITDA2
Adjusted EBITDA as a % of revenue
Depreciation and amortization
Finance expense (recovery)
Earnings before income taxes
Income tax expense
Net earnings (loss)
Net earning (loss) as a % of revenue
Basic earnings (loss) per share2
Diluted earnings (loss) per share3
Adjusted net earnings
Basic adjusted earnings (loss) per share
Diluted adjusted earnings (loss) per share3
Q4
Q3
Q2
2017
Q1
Q4
Q3
Q2
Q1
2016
31,385
16,124
29,021
14,577
28,499 28,053
10,905
11,995
28,374
27,333
27,553 28,124
10,877
14,224
11,916
10,688
47,509
43,598
40,494 38,958
39,251
41,557
39,469 38,812
43,056
4,453
9.4
7,284
15.3
4,105
786
(438)
849
(1,287)
-2.7
(0.132)
(0.132)
1,544
0.159
0.158
35,487
33,837
8,111
18.6
8,111
18.6
6,657
16.4
6,693
16.5
3,213
3,246
101
4,797
1,379
61
3,350
1,013
3,418
2,337
7.8
0.359
0.358
3,418
0.359
0.358
5.8
0.257
0.256
2,337
0.257
0.256
34,194
4,764
12.2
4,764
12.2
2,809
185
1,770
520
1,250
3.2
0.157
0.156
1,250
0.157
0.156
32,930
34,019
31,973 32,036
6,321
7,538
7,496
6,776
16.1
18.1
19.0
17.5
6,321
7,538
7,496
6,776
16.1
18.1
19.0
17.5
2,866
2,748
2,674
2,737
247
3,208
1,011
(11)
4,801
1,387
110
393
4,712
3,646
1,328
1,114
2,197
3,414
3,384
2,532
5.6
0.276
0.274
2,197
0.276
0.274
8.2
0.429
0.427
3,414
0.429
0.427
8.6
0.426
0.425
3,384
0.426
0.425
6.5
0.319
0.318
2,532
0.319
0.318
Total assets
Total long-term financial liabilities
295,213
57,594
199,452
9,205
195,957 180,583
41,134
8,407
168,289
153,923
148,068 146,816
33,949
17,596
14,360
12,717
Funds provided by operations
Long-term debt
Dividends declared per share
6,395
42,780
0.300
3,788
2,297
-
-
0.300
0.300
6,300
32,363
0.300
6,071
7,581
4,143
6,726
25,800
10,338
7,252
5,970
0.300
0.300
0.300 0.300
($ Thousands, except percentages and per share amounts)
1 EBITDA is defined as revenue less operating expenses (which equates to net earnings before income tax, finance expense (recovery) and depreciation and amortization).
See Terminology.
2 Adjusted EBITDA is defined as EBITDA (defined above) with the exclusion of certain material items that are unusual in nature, infrequently
occurring or not considered part of our core operations. See Terminology for a complete description of the adjusted items.
3 Adjusted net earnings is defined as net earnings with the exclusion of certain material items that are unusual in nature, infrequently occurring
or not considered part of our core operations. See Terminology for a complete description of the adjusted items.
4 EBITDA in prior periods has been restated with ‘gain (loss) on disposal of assets’ in included expenses.
2 7
2017 ANNUAL REPORT
$170.559 MILLION
2017 REVENUE
$116.958
$53.601
(In Millions)
HEALTHCARE
HOSPITALITY
$159.089 MILLION
2016 REVENUE
$111.384
$47.705
(In Millions)
HEALTHCARE
HOSPITALITY
Historically, the Corporation’s financial and operating results
capitalization of 18.4% Due to the strategic plans K-Bro
are stronger in the second and third quarters as a result of
expects to execute in the coming fiscal year, management
seasonality and the associated higher hospitality volumes.
expects the debt to total capitalization to increase, mainly as
Other fluctuations in net income from quarter-to-quarter can
a result of strategic capital expenditures as part of the
also be attributed to hiring and labour cost trends, timing
investment in the new Vancouver facility. Management
of linen purchases, utility costs, timing of repairs and
believes the unutilized balance of $55.6 million with respect
maintenance expenditures, business development, capital
to its revolving credit facility is sufficient for the Corporation’s
spending patterns and changes in corporate tax rates and
operations in the foreseeable future. However, management
income tax expenses.
For the year ended December 31, 2017, the Corporation’s
distributable cash flow was $20 million with a debt to total
intends to continually assess its opportunities to maintain a
conservative amount of leverage and balance sheet flexibility
in the short and long-term basis in order to ensure that
sufficient capital is available for future growth needs.
2 8
WE ARE DEPENDABLE. Q U A R T E R L Y F I N A N C I A L
I N F O R M AT I O N –
C A N A D I A N D I V I S I O N
The following table provides certain selected consolidated financial and operating data prepared by K-Bro management
for the preceding eight quarters:
Healthcare revenue
Hospitality revenue
Total revenue
Expenses included in EBITDA4
EBITDA1 4
EBITDA as a % of revenue
(EBITDA margin)
Adjusted EBITDA2
Adjusted EBITDA as a % of revenue
Q4
Q3
Q2
2017
Q1
Q4
Q3
Q2
2016
Q1
31,375
11,406
29,021 28,499
14,577
11,995
28,053
10,905
28,374
27,333
27,553
28,124
10,877
14,224
11,916
10,688
42,781
43,598 40,494
38,958
39,251
41,557
39,469
38,812
35,820
6,961
35,487
33,837
8,111
6,657
34,194
4,764
32,930
34,019
31,973
32,036
6,321
7,538
7,496
6,776
16.3
6,961
18.6
8,111
16.4
6,693
12.2
4,764
16.1
6,321
18.1
19.0
17.5
7,538
7,496
6,776
(Adjusted EBITDA margin)
16.3
18.6
16.5
12.2
16.1
18.1
19.0
17.5
Depreciation and amortization
Finance expense (recovery)
Earnings before income taxes
Income tax expense
Net earnings
Net earning as a % of revenue
Basic earnings per share
Diluted earnings per share
Adjusted net earnings
Basic adjusted earnings per share
Diluted adjusted earnings per share
3,708
768
2,485
891
1,594
3.7
0.164
0.163
1,594
0.164
0.163
3,213
3,246
101
4,797
1,379
61
3,350
1,013
3,418
2,337
7.8
0.359
0.358
3,418
0.359
0.358
5.8
0.257
0.256
2,337
0.257
0.256
2,809
185
1,770
520
1,250
3.2
0.157
0.156
1,250
0.157
0.156
($ Thousands, except percentages and per share amounts)
2,866
2,748
2,674
247
3,208
1,011
2,197
5.6
0.276
0.274
2,197
0.276
0.274
(11)
4,801
1,387
3,414
8.2
0.429
0.427
3,414
0.429
0.427
2,737
393
3,646
1,114
110
4,712
1,328
3,384
2,532
8.6
0.426
0.425
3,384
0.426
0.425
6.5
0.319
0.318
2,532
0.319
0.318
1 EBITDA is defined as revenue less operating expenses (which equates to net earnings before income tax, finance expense (recovery) and depreciation and amortization).
See Terminology.
2 Adjusted EBITDA is defined as EBITDA (defined above) with the exclusion of certain material items that are unusual in nature, infrequently
occurring or not considered part of our core operations. See Terminology for a complete description of the adjusted items.
3 Adjusted net earnings is defined as net earnings with the exclusion of certain material items that are unusual in nature, infrequently occurring
or not considered part of our core operations. See Terminology for a complete description of the adjusted items.
4 EBITDA in prior periods has been restated with ‘gain (loss) on disposal of assets’ in included expenses.
2 9
2017 ANNUAL REPORT
Q U A R T E R L Y F I N A N C I A L
I N F O R M AT I O N – U K D I V I S I O N
The following table provides certain selected consolidated financial and operating data prepared by K-Bro management
for the preceding eight quarters:
In reporting currency Canadian $
Q4
Q3
Q2
2017
Q1
Q4
Q3
Q2
2016
Q1
Healthcare revenue
Hospitality revenue
Total revenue
Expenses included in EBITDA
EBITDA1
(EBITDA margin)
Adjusted EBITDA2
Adjusted EBITDA as a % of revenue
(Adjusted EBITDA margin)
Depreciation and amortization
Finance expense (recovery)
Earnings before income taxes
Income tax expense
Net earnings
Net earning as a % of revenue
Basic earnings per share
Diluted earnings per share
Adjusted net earnings3
Basic adjusted earnings per share3
Diluted adjusted earnings per share3
10
4,718
4,728
7,236
(2,508)
-53.0
323
6.8
397
18
(2,923)
(42)
(2,881)
-60.9
(0.296)
(0.295)
(50)
(0.005)
(0.005)
($ Thousands, except Percentages and per share Amounts)
1 EBITDA is defined as revenue less operating expenses (which equates to net earnings before income tax, finance expense (recovery) and depreciation and amortization).
See Terminology.
2 Adjusted EBITDA is defined as EBITDA (defined above) with the exclusion of certain material items that are unusual in nature, infrequently
occurring or not considered part of our core operations. See Terminology for a complete description of the adjusted items.
3 Adjusted net earnings is defined as net earnings with the exclusion of certain material items that are unusual in nature, infrequently occurring
or not considered part of our core operations. See Terminology for a complete description of the adjusted items.
4 EBITDA in prior periods has been restated with ‘gain (loss) on disposal of assets’ in included expenses.
3 0
WE ARE DEPENDABLE.
In local currency sterling £
Q4
Q3
Q2
2017
Q1
Q4
Q3
Q2
Q1
2016
Healthcare revenue
Hospitality revenue
Total revenue
Expenses included in EBITDA
EBITDA1
(EBITDA margin)
Adjusted EBITDA 2
Adjusted EBITDA as a % of revenue
(Adjusted EBITDA margin)
Depreciation and amortization
Finance expense (recovery)
Earnings before income taxes
Income tax expense
Net earnings
Net earning as a % of revenue
Basic earnings per share
Diluted earnings per share
6
2,755
2,761
4,227
(1,466)
-53.1
188
6.8
232
(3)
(1,695)
(25)
(1,670)
-60.5
(0.172)
(0.171)
Adjusted net earnings 3
Basic adjusted earnings per share 3
Diluted adjusted earnings per share 3
(16)
(0.002)
(0.002)
($ Thousands, except Percentages and per share Amounts)
1 EBITDA is defined as revenue less operating expenses (which equates to net earnings before income tax, finance expense (recovery) and depreciation and amortization).
See Terminology.
2 Adjusted EBITDA is defined as EBITDA (defined above) with the exclusion of certain material items that are unusual in nature, infrequently
occurring or not considered part of our core operations. See Terminology for a complete description of the adjusted items.
3 Adjusted net earnings is defined as net earnings with the exclusion of certain material items that are unusual in nature, infrequently occurring
or not considered part of our core operations. See Terminology for a complete description of the adjusted items.
REVENUE, EARNINGS & EBITDA
For the year ended December 31, 2017, K-Bro’s revenue
Fishers, transition costs related to the transition to our new
increased by 7.2% to $170.6 million from $159.1 million in the
Toronto facility, training costs related to new staff, labour
comparative period. This increase was due to additional
costs associated transitioning volume in Vancouver during
volume from the acquisition of Fishers, additional awarded
Q4 2017 and costs related to mitigating the effect related to
healthcare volume from the Vancouver lower mainland
the lock-out of the unionized delivery drivers in Toronto,
contract signed in 2016, William Osler Health System
offset by higher revenues. In addition, throughout 2017 the
volume, Trillium Health Partners volume, organic growth at
company incurred significant overtime and one-time costs
existing customers, and new customers secured in existing
to support new business, strong volumes and temporary
markets. In 2017, approximately 68.6% of K-Bro’s revenue
capacity constraints in certain markets that we operate in.
was generated from healthcare institutions, which is slightly
lower compared to 70.0% in 2016, primarily related to the
acquisition of Fishers which is hospitality based.
Net earnings decreased by $5.8 million from $11.5 million in
2016 to $5.7 million in 2017. Net earnings as a percentage of
revenue decreased by 3.8%, from 7.2% in 2016 to 3.4% in
EBITDA decreased in the year to $24.0 million from $28.1
2017. This decrease in net earnings is primarily due to the
million in 2016, which is a decrease of 14.7%. The EBITDA
flow through items in EBITDA discussed above and higher
margin decreased to 14.1% in 2017 compared to 17.7% in
depreciation of property, plant and equipment and interest
2016, due to transaction costs related to the acquisition of
expense, offset by a lower income tax expense.
3 1
2017 ANNUAL REPORT
OPERATING EXPENSES
Wages and benefits increased to $70.4 million in 2017 from
storage requirements related to the additional volume from
$65.1 million in 2016, and increased as a percentage of
the Vancouver lower mainland contract. Occupancy costs
revenue from 40.9% in 2016 to 41.2% in the same period of
include $0.2 million related to the incremental volume
2017. The increase in the period is due to the incremental
processed as a result of the acquisition of Fishers.
labour required to process the increased volumes, significant
overtime costs and one-time costs to support new business,
strong volumes and temporary capacity constraints in
certain of our markets as well as one-time transition costs
associated with the Toronto facility move and rising labour
costs from incremental increases in the wage rate. Wages
and benefits include $1.8 million related to the incremental
volume processed as a result of the acquisition of Fishers.
Materials and supplies increased to $5.5 million and to 3.2%
as a percentage of revenue, compared to $4.8 million and
3.0% in 2016, due to higher costs associated with the move
to the new Toronto facility and to support the increased
volumes in certain markets. Materials and supplies include
$0.2 million related to the incremental volume processed as
a result of the acquisition of Fishers.
Linen expenses increased to $19.0 million in 2017 from $17.5
million in 2016, and increased as a percentage of revenue to
11.1% from 11.0% in 2016. The increase is a result of increased
healthcare volumes from new customers. Linen expenses
include $0.6 million related to the incremental volume
processed as a result of the acquisition of Fishers.
Repairs and maintenance increased to $5.6 million and to
3.3% as a percentage of revenues, compared to $4.9 million
and 3.1% in 2016, primarily related to the timing of scheduled
maintenance activities. Repairs and maintenance include
$0.2 million related to the incremental volume processed as
a result of the acquisition of Fishers.
Utility costs increased to $10.4 million compared to $9.8
million in 2016 and remained constant as a percentage of
revenue at 6.1%. The increase is primarily due to the
incremental volume processed, the transition to the new
Toronto facility, the new carbon levy in Ontario and Alberta,
offset by improved efficiencies in the new Toronto facility.
Utility costs include $0.4 million related to the incremental
volume processed as a result of the acquisition of Fishers.
Corporate costs increased to $10.9 million and to 6.4% as a
percentage of revenues compared to $7.5 million and 4.7%
in 2016, primarily due to the timing of costs and initiatives to
support the Corporation’s growth and business strategies
across the plants. Corporate costs include an additional $3.0
million related to the acquisition of Fishers of which $2.8
million are transaction related costs and $0.2 million relates
to the ongoing operations of Fishers.
Delivery costs increased to $18.3 million and to 10.7% as a
percentage of revenues compared to $16.0 million and
10.0% in 2016. The increase is a result of increased business
activity, higher cost of diesel, transition costs related to the
new Toronto facility and temporary costs to mitigate the
effects related to the lock-out of the Toronto unionized
delivery drivers. Delivery costs include $1.0 million related to
the incremental volume processed as a result of the
acquisition of Fishers.
Occupancy costs increased to $6.5 million and to 3.8% as a
percentage of revenue, compared to $5.3 million and 3.3%
in 2016. This increase is a result of the new Toronto facility
and additional warehousing costs to address the temporary
Depreciation of property, plant and equipment and
amortization of intangible assets represents the expense
related to the appropriate matching of certain of K-Bro's
long-term assets to the estimated useful life and period of
economic benefit of those assets. The increase during the
quarter is related to the completion of the new Toronto
facility and the acquisition of Fishers.
Income tax includes current and future income taxes based
on taxable income and the temporary timing differences
between the tax and accounting bases of assets and
liabilities. Income tax reflects the provision on the earnings
of the Corporation.
3 2
WE ARE DEPENDABLE. L I Q U I D I T Y & C A P I TA L R E S O U R C E S
In 2017 cash generated by operating activities was $18.8
issuance of Common Shares, offset by net repayment to the
million, compared to $24.5 million during 2016. The change
revolving credit facility, and dividends paid to Shareholders.
in cash from operations is primarily due to the change in
working capital items driven mainly from the timing of business
activity and payments related to capital commitments.
During 2017, cash used in investing activities was $101.3
million compared to $38.4 million in 2016. Investing activities
related primarily to the acquisition of Fishers, purchase of
During 2017, cash generated by financing activities was
plant equipment for the new Vancouver plant, cash
$93.8 million compared to $13.8 million in 2016. Financing
settlement of plant equipment for the new Toronto plant,
activities in 2017 consisted of net proceeds from the
and the purchase of equipment in existing plants to
revolving credit facility, $87.7 million net proceeds from
facilitate strategic growth.
CONTRACTUAL OBLIGATIONS
Payments due under contractual obligations for the next five years and thereafter are as follows:
PAYMENTS DUE BY PERIOD
Long-term debt
Operating lease commitments
Utility commitments
Linen purchase obligations
Property, plant and equipment
Total
42,780
68,276
9,676
10,232
< 1 Year
-
9,588
5,827
10,232
commitments
28,748
28,748
1-3 Years
42,780
15,379
2,575
-
-
4-5 Years
-
11,115
1,274
-
-
> 5 Years
-
32,194
-
-
-
The operating lease obligations are secured by automotive equipment and plants, and are more fully described in the
Corporation’s audited annual consolidated financial statements. The source of funds for these commitments will be from
operating cash flow and, if necessary, the undrawn portion of the revolving credit facility.
FINANCIAL POSITION
Cash and cash equivalents
Long-term debt
Shareholders' equity
Total capitalization
Debt to total capitalization % (see Terminology for definition)
2017
2016
(11,276)
42,780
201,587
233,091
18.4
-
25,800
116,672
142,472
18.1
For the year ended December 31, 2017, the Corporation had a
deposits related to the acquisition of equipment related
debt to total capitalization ratio of 18.4%, unused borrowing
across the plants.
capacity of $55.6 million and has not incurred any events of
default under the terms of its credit agreement.
Management believes that K-Bro has the capital resources
and liquidity necessary to meet its commitments, support
As at December 31, 2017, the Corporation had net working
its operations and finance its growth strategies. In addition
capital of $32.0 million compared to its working capital
to K-Bro’s ability to generate cash from operations and its
position of $13.8 million at December 31, 2016. The increase in
revolving credit facility, K-Bro believes it is also able to issue
working capital is primarily attributable to timing differences
additional Common Shares or
increase
its borrowing
related in the cash settlement of new plant equipment, and
capacity, if necessary, to provide for capital spending and
sustain its property, plant and equipment.
3 3
2017 ANNUAL REPORT
D I V I D E N D S
#OF SHARES
FISCAL PERIOD PAYMENT DATE OUTSTANDING
AMOUNT
PER SHARE
1 2 3 4
2017
TOTAL
AMOUNT
1 2 3 4
AMOUNT
PER SHARE
2016
TOTAL
AMOUNT
5 6 7
January
February
March
Q1
April
May
June
Q2
July
August
September
Q3
October
November
December
Q4
YTD
February 15
March 15
April 13
8,023,480
8,023,480
8,023,480
May 15
June 15
July 14
9,541,480
9,583,902
9,583,902
August 15
September 15
October 13
9,583,902
9,583,902
9,583,902
November 15
December 15
9,583,902
9,583,902
January 15
10,508,502
0.10000
0.10000
0.10000
0.30000
0.10000
0.10000
0.10000
0.30000
0.10000
0.10000
0.10000
0.30000
0.10000
0.10000
0.10000
0.30000
1.20000
802
802
802
2,407
954
958
958
2,871
958
958
958
2,875
958
958
1,501
2,968
11,121
0.10000
0.10000
0.10000
0.30000
0.10000
0.10000
0.10000
0.30000
0.10000
0.10000
0.10000
0.30000
0.10000
0.10000
0.10000
0.30000
1.20000
799
799
799
2,396
799
802
802
2,403
802
802
802
2,407
802
802
802
2,407
9,613
1 The total amount of dividends paid was $0.10000 per share for a total of $802,348 per month for January - March 2017; when rounded in thousands, $2,407 of dividends were paid for the quarterly period.
2 The total amount of dividends paid was $0.10000 per share for a total of $954,148 for April 2017, $958,390 for May 2017, and $958,390 for June 2017. When rounded in thousands, $2,871 of dividends were
paid for the quarterly period.
3 The total amount of dividends paid was $0.10000 per share for a total of $958,390 per month for July - September 2017; when rounded in thousands, $2,875 of dividends were paid in Q3.
4 The total amount of dividends paid was $0.10000 per share for a total of $958,390 for October 2017, $958,390 for November 2017, and $1,050,850 for December 2017; when rounded in thousands, $2,968 of
dividends were paid in Q4.
5
The total amount of dividends paid was $0.10000 per share for a total of $798,571 per month for January - March 2016; when rounded in thousands, $2,396 of dividends were paid for the quarterly period.
6 The total amount of dividends paid was $0.10000 per share for a total of $798,571 for April 2016, $802,348 for May 2016, and $802,348 for June 2016. When rounded in thousands, $2,403 of dividends were
paid for the quarterly period.
7 The total amount of dividends paid was $0.10000 per share for a total of $802,348 per month for July - September 2016; when rounded in thousands, $2,407 of dividends were paid in Q3 and Q4.
For the three months ended December 31, 2017, the
the Directors of the Corporation. All such dividends are
Corporation declared a $0.300 per Common Share dividend
discretionary. Dividends are declared payable each month in
compared to $0.284 per Common Share of Distributable
equal amounts to Shareholders on the last business day of
Cash Flow (see Terminology). The payout ratio for the three
each month and are paid by the 15th of the following month.
months ended December 31, 2017 was 107.1%
The Corporation’s policy is to pay dividends to Shareholders
from its available distributable cash flow while considering
requirements for capital expenditures, working capital,
growth capital and other reserves considered advisable by
The Corporation designates all dividends paid or deemed to
be paid as Eligible Dividends for purposes of subsection
89(14) of the Income Tax Act (Canada), and similar provincial
and territorial legislation, unless indicated otherwise.
3 4
WE ARE DEPENDABLE.
D I S T R I B U TA B L E C A S H F L O W
(see Terminology)
(all amounts in this section in $000’s except per share amounts and percentages)
The Corporation’s source of cash for dividends is distributable cash flow provided by operating activities.
Distributable cash flow, reconciled to cash provided by operating activities as calculated under IFRS,
is presented as follows:
Q4
Q3
Q2
2017
Q1
Q4
Q3
Q2
2016
Q1
Cash provided by operating activities
6,395
3,788
2,297 6,300
6,071
7,581
4,143 6,726
Deduct (add):
Net changes in non-cash working capital items1
Share-based compensation
Maintenance capital expenditures 2
2,942
333
349
(3,917)
(4,161)
276
192
494
427
1,214
405
179
(336)
1,102
(2,625)
368
264
337
289
330
1,270
665
483
293
Distribution cash flow
Dividends declared
Dividends declared per share
Payout ratio 3 %
Weighted average shares outstanding
7,237
5,537
4,502
2,771
2,968
2,407
0.300 0.300 0.300 0.300
53.5
2,875
2,871
107.1
39.7
51.8
5,775
5,853
5,168 5,285
2,407
2,407
2,403
2,396
0.300 0.300 0.300 0.300
41.7
41.1
46.5
45.3
during the period, basic
9,718
9,511
9,104
7,979
7,965
7,957
7,952
7,946
Weighted average shares outstanding
during period, diluted
9,755
9,548
9,133
7,999
8,004
7,991
7,965
7,965
Trailing-twelve months ("TTM")
Distributable cash flow
Dividends
Payout ratio 3 %
20,047 23,051 21,667 21,298
9,624
45.2
11,121 10,560 10,092
55.5
46.6
45.8
22,081 20,908 21,426
21,731
9,613 9,602
9,591 9,579
43.5
45.9
44.8
44.1
($ Thousands, except percentages and per share amounts)
1 Net changes in non-cash working capital is excluded from the calculation as management believes it would introduce significant cash flow variability and affect underlying cash flow from operating activities.
Significant variability can be caused by such things as the timing of receipts (which individually are large because of the nature of K-Bro’s customer base and timing may vary due to the timing of customer
approval, vacations of customer personnel, etc.) and the timing of disbursements (such as the payment of large volume rebates done once annually). As well, large increases in working capital are generally
required when contracts with new customers are signed as linen is purchased and accounts receivable increase. Management feels that this amount should be excluded from the distributable cash flow calculation.
2 Maintenance capital expenditures include costs required to maintain or replace assets which do not have a discrete return on investment.
3 The ratio of dividends paid compared to distributable cash flow is periodically reviewed by the Board of Directors to take into account the current and prospective performance of the business and other
items considered to be prudent. Payout ratio is calculated on the dividends declared divided by the distributable cash flow.
3 5
2017 ANNUAL REPORT
OUTSTANDING SHARES
As at December 31, 2017, the Corporation had 10,508,502
Common Shares outstanding. Basic and diluted weighted
these estimates and assumptions which are based on past
experience and other factors that are deemed reasonable
under the circumstances.
average number of Common Shares outstanding for 2017
K-Bro has hired individuals and consultants who have the
were 9,083,693 and 9,114,874, respectively, (7,955,026 and
skills required to make such estimates and ensures that
7,986,729, respectively, for the comparative 2016 periods).
individuals or departments with the most knowledge of the
In accordance with the Corporation’s long term incentive
plan (the “LTI Plan”) and in conjunction with the performance
of the Corporation in the 2016 fiscal year, on April 21, 2017
the Compensation, Nominating and Corporate Governance
activity are responsible for the estimates. Furthermore, past
estimates are reviewed and compared to actual results, and
actual results are compared to budgets in order to make
more informed decisions on future estimates.
Committee of the Board of Directors approved LTI
K-Bro’s leadership team’s mandate includes ongoing
compensation of $1.7 million (2016 – $1.6 million) to be paid
development of procedures, standards and systems to
as Common Shares issued from treasury. As at December 31,
allow K-Bro staff to make the best decisions possible
2017, the value of the Common Shares held in trust by the
and ensuring those decisions are in compliance with the
LTI trustee was $2.3 million (December 31, 2016 – $1.9 million)
Corporation’s policies.
which was comprised of 54,880 in unvested Common
Shares (December 31, 2016 – 44,634) with a nil aggregate
cost (December 31, 2016 – $nil).
As at March 14, 2018 there were 10,508,502 Common Shares
issued and outstanding including 54,880 Common Shares
issued but held as unvested treasury shares.
RELATED PARTY TRANSACTIONS
Preparation of the Corporation’s consolidated financial
statements requires management to make estimates and
assumptions that affect:
• volume rebates;
•
•
linen in service;
intangible assets;
• goodwill;
•
income taxes;
The Corporation incurred expenses in the normal course of
• provisions;
business for advisory consulting services provided by Mr.
• allowance for doubtful accounts;
Matthew Hills, a Director of the Corporation. The amounts
• segment information; and,
charged are recorded at their exchange amounts and are on
• business combinations.
arm’s length terms. For the year ended December 31, 2017, the
Corporation incurred fees totaling $138,000 (2016– $138,000).
CRITICAL ACCOUNTING ESTIMATES
The following discusses the most significant accounting
judgments and estimates in the Corporation’s consolidated
financial statements.
The Corporation’s summary of significant accounting
Intangible Assets
policies are contained in note 2 to the audited consolidated
financial statements.
The Corporation’s financial statements include estimates
and assumptions made by management in respect of
operating
results, financial conditions, contingencies,
commitments, and related disclosures. Actual results may
vary from these estimates. The following are, in the opinion
of management, the Corporation’s most critical accounting
estimates, being those that involve the most difficult,
subjective and complex
judgments, and/or requiring
estimates that are inherently uncertain and which may
change in subsequent reporting periods.
K-Bro has continuously refined and documented
its
management and internal reporting systems to ensure that
The Corporation accounts for intangible assets and goodwill
in accordance with IFRS 3, Business Combinations and IAS
38, Intangible Assets. In a business combination, K-Bro may
acquire the assets and assume certain liabilities of an
acquired entity. The allocation of the purchase price for
these transactions involves judgment in determining the
fair values assigned to the tangible and intangible assets
acquired and the liabilities assumed on the acquisition. The
determination of these fair values involves a variety of
assumptions, including revenue growth rates, expected
operating income, discount rates, and earnings multiples. If
K-Bro’s estimates or assumptions change prior to finalizing
the purchase price allocation for a transaction, a revision to
the purchase price allocation or the carrying value of the
related assets and liabilities acquired may impact our net
accurate, timely, internal and external information is gathered
income in future periods.
and disseminated. Management also regularly evaluates
3 6
WE ARE DEPENDABLE. At the date of the acquisition, K-Bro must estimate the
as the Chief Executive Officer. Aggregation occurs when the
value of acquired intangible assets that do not have a well-
operating segments have similar economic characteristics,
defined market value, such as the value of customer lists
and have similar (a) products and services; (b) geographic
and relationships and non-competition agreements.
proximity; (c) type or class of customer for their products
Valuing these assets involves estimates of the future net
benefit to K-Bro and the useful life of such benefits and is
based upon various internal and external factors. A change
in those estimates could cause a material change to the
value of the intangible assets.
and services; (d) methods used to distribute their products
or provide their services; and (e) nature of the regulatory
environment, if applicable.
Provisions
The Corporation is required to restore the leased premises of
Although intangible assets are amortized over their useful
its leased plants. A provision has been recognized for the
life, if the estimated value of an intangible asset has declined
present value of the estimated expenditure required to remove
below its amortized book value, a write-down would be
any leasehold improvements and installed equipment.
recorded in the period in which the event causing the decline
in value occurred, which would increase amortization
expense and decrease the intangible assets balance.
Management regularly evaluates these estimates and
judgments. Revisions
to accounting estimates are
recognized in the period in which the estimate is revised if
The Corporation reviews goodwill at least annually and
the revision affects only that period or in the period of the
other non-financial assets when there is any indication that
revision and future periods if the revision affects both
the asset might be impaired. The Corporation applies
current and future periods.
judgment in assessing the likelihood of renewal of significant
contracts included in the intangible assets. The Corporation
has estimated the fair value of CGUs to which goodwill is
allocated based on value in use using discounted cash flow
models that required assumptions about future cash flows,
T E R M I N O L O G Y
margins, and discount rates. At this time, K-Bro does not
EBITDA
believe any intangible assets have a book value in excess of
their fair market value.
Recognition of Rebate Liabilities
We report on our EBITDA (Earnings before interest, taxes,
depreciation and amortization) because it is a key measure
used by management to evaluate performance. EBITDA is
utilized in measuring compliance with debt covenants and
In applying its accounting policy for volume rebates, the
in making decisions relating to dividends to Shareholders.
Corporation must determine whether the processing
We believe EBITDA assists
investors
in assessing our
volume thresholds will be achieved. The most difficult and
performance on a consistent basis as it is an indication of
subjective area of judgment is whether a contract will
our capacity to generate income from operations before
generate satisfactory volume to achieve minimum levels.
taking into account management’s financing decisions and
Management considers all appropriate
facts and
costs of consuming tangible and intangible capital assets,
circumstances
in making this assessment
including
which vary according to their vintage, technological
historical experience, current volumetric run-rates, and
currency and management’s estimate of their useful life.
expected future events.
Linen in Service
The estimated service lives of linen in service are reviewed at
least annually and are updated if expectations change as a
result of physical wear and tear, technical or commercial
obsolescence and legal or other limits of use.
Segment Identification
Accordingly, EBITDA comprises revenues less operating
costs before financing costs, capital asset and intangible
asset amortization, and income taxes.
EBITDA is a sub-total presented within the statement of
earnings in accordance with the amendments made to IAS
1 which became effective January 1, 2016. EBITDA is not
considered an alternative to net earnings in measuring
K-Bro’s performance. EBITDA should not be used as an
exclusive measure of cash flow since it does not account for
When determining its reportable segments, the Corporation
the impact of working capital changes, capital expenditures,
considers qualitative factors, such as operations that offer
debt changes and other sources and uses of cash, which are
distinct products and services and are considered to be
disclosed in the consolidated statements of cash flows.
significant by the Chief Operating Decision Maker, identified
3 7
2017 ANNUAL REPORT
3 MTHS ENDED
DECEMBER 31
YEARS ENDED
DECEMBER 31
2017
(1,287)
849
786
3,543
562
4,453
2016
2,197
1,011
247
2,438
428
6,321
2017
5,718
3,761
1,133
11,606
1,767
23,985
2016
11,527
4,840
739
9,235
1,790
28,131
Net earnings (loss)
Add
Income tax expense
Finance expense
Depreciation of property, plant and equipment
Amortization of intangible
EBITDA
($ Thousands of CDN)
NON-GAAP MEASURES
Adjusted EBITDA
Adjusted EBITDA is a measure which has been reported in
quarter in 2017, K-Bro incurred $2.8 million in transaction
order to assist in the comparison of historical EBITDA to
costs directly related to the acquisition of Fishers, which is
current results. Adjusted EBITDA is defined as EBITDA
not expected to occur in the normal course of operations.
(defined above) with the exclusion of certain material items
The normalization of this expense from the calculation of
that are unusual in nature, infrequently occurring or not
EBITDA is considered by Management to be a more accurate
considered part of our core operations. The calculation of
representation of continuing operations. One-time costs
Adjusted EBITDA normalizes the impact of the transaction
related to the Toronto plant transition, capacity constraints
costs related to the acquisition of Fishers, and the related
and the Toronto driver lock-out have not been adjusted for
impact on EBITDA (as defined above). During the fourth
in the table below.
CAN
UK
2017
6,961
2017
(2,508)
3 MTHS ENDED
DECEMBER 31
2017
4,453
2016
6,321
CAN
UK
YEARS END
DECEMBER
2017
26,493
2017
(2,508)
2017
23,985
2016
28,131
EBITDA
Add: Transaction costs incurred
in the acquisition of Fishers
-
2,831
2,831
-
-
2,831
2,831
-
Adjusted EBITDA
6,961
323
7,284
6,321
26,493
323
26,816 28,131
($ Thousands CDN)
3 8
WE ARE DEPENDABLE.
ADJUSTED NET EARNINGS & ADJUSTED NET EARNINGS PER SHARE
Adjusted net earnings and adjusted net earnings per share
normalizes the impact of the transaction costs related to
are measures which have been reported in order to assist in
the acquisition of Fishers, and the related impact on net
the comparison of historical net earnings to current results.
earnings and net earnings per share. The normalization of
Adjusted net earnings is defined as net earnings with the
this net expense in the calculation of adjusted net earnings
exclusion of certain material items that are unusual in
and adjusted net earnings per share is considered by
nature, infrequently occurring or not considered part of our
management to be a more accurate representation of the
core operations. The calculation of adjusted net earnings
net earnings from core operations.
Net earnings (loss)
Add (net of corporate income taxes):
Transaction costs incurred in the
CAN
2017
1,594
UK
2017
(2,881)
2017
(1,287)
2016
2,197
CAN
2017
8,599
UK
2017
(2,881)
2017
5,718
2016
11,527
acquisition of Fishers
-
2,831
2,831
-
-
2,831
2,831
-
Adjusted net earnings
1,594
(50)
1,544
2,197
8,599
(50)
8,549
11,527
Weighted average number
of shares outstanding:
Basic
Diluted
Adjusted net earnings per share:
9,717,890 9,717,890 9,717,890 7,964,645
9,083,693 9,083,693 9,083,693 7,955,026
9,755,183 9,755,183 9,755,183 8,003,999
9,114,874
9,114,874 9,114,874 7,986,729
Basic
Diluted
0.164
(0.005)
0.163
(0.005)
0.159
0.158
0.276
0.274
0.947
0.943
(0.006)
(0.005)
0.941
0.938
1.449
1.443
DISTRIBUTABLE CASH FLOW
Distributable cash flow is a measure used by management
to evaluate its performance. While the closest IFRS measure
is cash provided by operating activities, distributable cash
flow is considered relevant because it provides an indication
provide an indication of the sustainability of dividends. The
payout ratio depends on the distributable cash and the
Corporation’s dividend policy.
DEBT TO TOTAL CAPITALIZATION
of how much cash generated by operations is available after
Debt to total capitalization is defined by management as the
capital expenditures. It shall be noted that although we
total long-term debt less cash and cash equivalents divided
consider this measure to be distributable cash flow, financial
by the Corporation’s total shareholder’s equity. This is a
and non-financial covenants in our credit facilities and
measure used by investors to assess the Corporation’s
dealer agreements may restrict cash from being available
financial structure.
for dividends, re-investment in the Corporation, potential
acquisitions, or other purposes.
Investors should be
cautioned that distributable cash flow may not actually be
available for growth or distribution from the Corporation.
Management refers to “Distributable cash flow” as to cash
provided by (used in) operating activities with the addition
of net changes in non-cash working capital items, less share-
based compensation, and maintenance capital expenditures.
PAYOUT RATIO
Distributable Cash Flow, Payout Ratio, Debt to Total
Capitalization, Adjusted EBITDA, Adjusted net earnings, and
Adjusted net earnings per share are not calculations based
on IFRS and are not considered an alternative to IFRS
measures in measuring K-Bro’s performance. Distributable
Cash Flow, Payout Ratio, Adjusted EBITDA, Adjusted net
earnings, and Adjusted net earnings per share do not have
standardized meanings in IFRS and are therefore not likely to
be comparable with similar measures used by other issuers.
Payout ratio is defined by management as the actual cash
dividend divided by distributable cash. This is a key measure
used by investors to value K-Bro, assess its performance and
OFF BALANCE SHEET ARRANGEMENTS
As at December 31, 2017, the Corporation has not entered
into any off balance sheet arrangements.
3 9
2017 ANNUAL REPORT
C H A N G E S I N ACCO U N T I N G P O L I C I E S
The Corporation has prepared its December 31, 2017 audited consolidated financial statements in accordance with IFRS.
See Note 2 of the Corporation’s audited annual Consolidated Financial Statements for more information regarding the
significant accounting principles used to prepare the Consolidated Financial Statements.
R E C E N T AC C O U N T I N G
P R O N O U N C E M E N T S
The following standard has been issued but has not yet been
applied in preparing the consolidated financial statements.
•
IFRS 15, Revenue from Contracts with Customers, was
issued in May 2014 by the IASB and supersedes IAS 18,
"Revenue", IAS 11 "Construction Contracts" and other
interpretive guidance
associated with
revenue
recognition. IFRS 15 provides a single model to determine
how and when an entity should recognize revenue, as
•
well as requiring entities to provide more informative,
relevant disclosures in respect of its revenue recognition
criteria. IFRS 15 is to be applied prospectively and is
effective for annual periods beginning on or after January
1, 2018, with earlier application permitted. The new
standard introduces expanded disclosure requirements.
The Corporation has undertaken a detailed review of
contracts entered with key customers and other forms of
agreements with customers and has evaluated the
provisions under the five-step model specified by the
new guidance. In addition, the Corporation continues to
monitor additional interpretive guidance related to the
new standard as it becomes available, as well as
comparing
the conclusions made on
specific
interpretative issues to other peers in the packaging
industry, to the extent that such information is available.
The standard will be implemented by the Corporation in
2018. The Corporation expects the new revenue
recognition guidance will not have a material impact on
the consolidated financial statements. The Corporation
currently intends to select the modified retrospective
approach with results in the cumulative effect of
adoption recognized at the date of initial application at
January 1, 2018.
•
IFRS 9, Financial Instruments, was issued in July 2014 by
the IASB and supersedes IAS 39, “Financial Instruments:
Recognition and Measurement”. IFRS 9 addresses the
classification, measurement and recognition of financial
assets and financial liabilities. IFRS 9 retains but simplifies
the mixed measurement model and establishes three
primary measurement categories for financial assets:
amortized cost, fair value through OCI and fair value
through P&L. IFRS 9 is to be applied prospectively and is
effective for annual periods beginning on or after January
1, 2018, with earlier application permitted. The Corporation
has determined the adoption of the standard will not
have a material impact to the consolidated financial
statements.
IFRS 16, Leases, was issued in January 2016 and applies to
annual reporting periods beginning on or after January 1,
2019. IFRS 16 specifies how an IFRS reporter will recognize,
measure, present and disclose leases. The standard
provides a single lessee accounting model, requiring
lessees to recognize assets and liabilities for all leases
unless the lease term is 12 months or less or the underlying
asset has a low value. Lessors continue to classify leases as
operating or finance, with IFRS 16’s approach to lessor
accounting substantially unchanged from its predecessor,
IAS 17. The Corporation is in the process of evaluating the
impact that IFRS 16 may have on the financial statements.
The standard will affect primarily the accounting for the
Corporation's operating leases. The Corporation has not
yet determined to what extent these commitments will
result in the recognition of assets and liabilities for future
payments and how this will affect EBITDA, net earnings
and classification of cash flows.
• On June 20, 2016 the IASB issued an amendment to IFRS
2 "Share-based Payment" addressing three classification
and measurement issues. The amendment clarifies the
measurement basis
for cash-settled, share based
payments and the accounting for modifications that
change an award from cash-settled to equity settled. It
also introduces an exception to the principles in IFRS 2
that will require an award to be treated as if it was wholly-
equity settled, where an employer is obliged to withhold
an amount for the employee's tax obligation associated
with a share based payment and pay that amount to the
tax authority. The amendments are effective for periods
beginning on or after January 1, 2018. The Corporation has
determined the adoption of the standard will not have a
material impact to the consolidated financial statements.
4 0
WE ARE DEPENDABLE. F I N A N C I A L I N S T R U M E N T S
K-Bro’s financial instruments at December 31, 2017 consist
Derivative financial
instruments are utilized by the
of cash and cash equivalents, accounts receivable, accounts
Corporation to manage cash flow risk against the volatility
payable and accrued liabilities, dividends payable and long-
in interest rates on its long-term debt and foreign exchange
term debt. The Corporation does not enter into financial
rates on
its equipment purchase commitments. The
instruments for trading or speculative purposes. Financial
Corporation typically does not utilize derivative financial
assets are either classified as available for sale, held to
instruments for trading or speculative purposes. The
maturity, trading or loans and receivables. Financial liabilities
Corporation has a floating interest rate debt that gives rise
are recorded at amortized cost. Initially, all financial assets
to risks that its earnings and cash flows may be adversely
and financial liabilities must be recorded on the balance
impacted by fluctuations in interest rates. In order to
sheet at fair value. Subsequent measurement is determined
manage these risks, the Corporation may enter into interest
by the classification of each financial asset and liability.
rate swaps, forward contracts on foreign currency, utilities
Unrealized gains and losses on financial assets that are held
and textiles or option contracts. The Corporation has entered
as available for sale are recorded in other comprehensive
into several electrical and natural gas contracts at December
income until realized, at which time they are recorded in the
31, 2017. The Corporation has examined the terms of the
consolidated statement of earnings. All derivatives, including
natural gas and electricity contracts and has determined
embedded derivatives that must be separately accounted
that these contracts will be physically settled and as such
for, are recorded at fair value in the consolidated balance
are not considered to be financial instruments.
sheet. Transaction costs related to financial instruments are
capitalized and then amortized over the expected life of the
financial instrument using the effective interest method.
C R I T I C A L R I S K S & U N C E R TA I N T I E S
As at December 31, 2017, there are no material changes in
successfully integrate and operate additional businesses;
the Corporation’s risks or risk management activities since
utility costs; the labour markets; the fact that our credit
December 31, 2016. The Corporation’s results of operations,
facility imposes numerous covenants and encumbers assets;
business prospects, financial condition, cash dividends to
and environmental matters.
Shareholders and the trading price of the Corporation’s
Common Shares are subject to a number of risks. These risk
factors include: dependence on long-term contracts and
the associated renewal risk thereof; the effects of market
volatility and uncertainty; potential future tax changes; the
competitive environment; our ability to acquire and
For a discussion of these risks and other risks associated
with an investment in Corporation Shares, see Risk Factors
– Risks Related to K-Bro and the Laundry and Linen Industry
detailed in the Corporation’s Annual Information Form that
is available under the Corporation’s profile at www.sedar.com.
4 1
2017 ANNUAL REPORT C O N T R O L S & P R O C E D U R E S
In order to ensure that information with regard to reports filed or submitted under securities legislation present fairly in all
material respects the financial information of K-Bro, management, including the President and Chief Executive Officer
(“CEO”) and the Chief Financial Officer (“CFO”), are responsible for establishing and maintaining disclosure controls and
procedures, as well as internal control over financial reporting.
DISCLOSURE CONTROLS & PROCEDURES
The Corporation has established disclosure controls and
Corporation’s CEO and CFO have evaluated the effectiveness
procedures to ensure that information disclosed in this
of these disclosure controls and procedures for the year
MD&A and the related financial statements of K-Bro was
ended December 31, 2017, and the CEO and CFO have
properly recorded, processed, summarized and reported
concluded that these controls were operating effectively.
to the Board of Directors and the Audit Committee. The
INTERNAL CONTROLS OVER FINANCIAL REPORTING
The CEO and CFO acknowledge responsibility for the design
no evaluation of controls can provide absolute assurance
of
internal controls over financial reporting
(“ICFR”).
that all control issues, including instance of fraud, if any,
Consequently the CEO and CFO confirm that the additions
have been detected. These inherent limitations include,
to these controls that occurred during the year ended
amongst other items: (i) that managements’ assumptions
December 31, 2017 did not materially affect, or are reasonably
and judgments could ultimately prove to be incorrect under
likely to materially affect, the Corporation’s ICFR. Based
varying conditions and circumstances; or, (ii) the impact of
upon their evaluation of these controls for the year ended
isolated errors.
December 31, 2017, subject to the limitation on scope of
design as discussed below, the CEO and CFO have concluded
that these controls were operating effectively.
Additionally, controls may be circumvented by the
unauthorized acts of individuals, by collusion of two or more
people, or by management override. The design of any system
A control system, no matter how well conceived and
of controls is also based, in part, upon certain assumptions
operated, can provide only reasonable, and not absolute,
about the likelihood of future events, and there can be no
assurance that the objectives of the control system are met.
assurance that any design will succeed in achieving its
As a result of the inherent limitations in all control systems,
stated goals under all potential (future) conditions.
LIMITATION ON SCOPE OF DESIGN
K-Bro has limited the scope of design of DCP and our Internal Controls over Financial Reporting (ICFR) to exclude controls,
policies and procedures of Fishers acquired on November 27, 2017. The scope limitation is in accordance with section 3.3(1)
(b) of NI 52-109 which allows an issuer to limit its design of ICFR to exclude controls, policies and procedures of a business
that the issuer acquired not more than 365 days before the end of the fiscal period.
FISHERS
Current assets
Non-current assets
Current liabilities
Non-current liabilities
(Millions)
AS AT
DEC 31, 2017
27.9
42.0
11.3
4.0
FISHERS
Revenue
Expense
Income from operations
(Millions)
YEAR ENDED
DEC 31, 2017
4.7
(7.6)
(2.9)
Additional information regarding K-Bro including required securities filings are available on
our website at www.k-brolinen.com and on the Canadian Securities Administrators’ website
at www.sedar.com; the System for Electronic Document Analysis and Retrieval (“SEDAR”).
Vous pouvez obtenir des renseignements supplémentaires sur la Société, y compris les documents
déposés auprès des autorités de réglementation, sur notre site Web, au www.k-brolinen.com et sur
le site Web des autorités canadiennes en valeurs mobilières au www.sedar.com, le site Web du
Système électronique de données, d’analyse et de recherche (« SEDAR »).
4 2
WE ARE DEPENDABLE.
C O N S O L I D AT E D
F I N A N C I A L
S TAT E M E N T S
YEAR ENDED DEC 31, 2017
4 3
2017 ANNUAL REPORT I N D E P E N D E N T A U D I TO R ' S R E P O R T
C O N S O L I D AT E D S TAT E M E N T S
O F F I N A N C I A L P O S I T I O N
C O N S O L I D AT E D S TAT E M E N T S O F
E A R N I N G S & C O M P R E H E N S I V E I N C O M E
C O N S O L I D AT E D S TAT E M E N T S
O F C H A N G E S I N E Q U I T Y
C O N S O L I D AT E D S TAT E M E N T S
O F C A S H F L O W
N O T E S TO T H E C O N S O L I D AT E D
F I N A N C I A L S TAT E M E N T S
C O R P O R AT E I N F O R M AT I O N
4 5
4 6
4 7
4 8
4 9
5 0
7 9
4 4
WE ARE DEPENDABLE. MARCH 14, 2018
I N D E P E N D E N T A U D I TO R ' S R E P O R T
TO THE SHAREHOLDERS OF K-BRO LINEN INC.
We have audited the accompanying consolidated financial
An audit involves performing procedures to obtain audit
statements of K-Bro Linen Inc. and its subsidiaries, which
evidence about the amounts and disclosures
in the
comprise the consolidated statements of financial position
consolidated financial statements. The procedures selected
as at December 31, 2017 and December 31, 2016, and the
depend on the auditor’s judgment, including the assessment
consolidated statements of earnings and comprehensive
of the risks of material misstatement of the consolidated
income, changes in equity and cash flows for the years
financial statements, whether due to fraud or error. In
then ended, and the related notes, which comprise a
making those risk assessments, the auditor considers
summary of significant accounting policies and other
internal control relevant to the entity’s preparation and fair
explanatory information.
Management’s responsibility for the
consolidated financial statements
Management is responsible for the preparation and fair
presentation of these consolidated financial statements in
accordance with International Financial Reporting Standards,
and for such internal control as management determines is
necessary to enable the preparation of consolidated financial
statements that are free from material misstatement, whether
due to fraud or error.
Auditor’s responsibility
presentation of the consolidated financial statements 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.
An audit also includes evaluating the appropriateness of
accounting policies used and the reasonableness of
accounting estimates made by management, as well as
evaluating the overall presentation of the consolidated
financial statements.
We believe that the audit evidence we have obtained in our
audits is sufficient and appropriate to provide a basis for our
audit opinion.
Our responsibility is to express an opinion on these
Opinion
consolidated financial statements based on our audits. We
conducted our audits
in accordance with Canadian
generally accepted auditing standards. Those standards
require that we comply with ethical requirements and plan
and perform the audit to obtain reasonable assurance
about whether the consolidated financial statements are
free from material misstatement.
In our opinion, the consolidated financial statements present
fairly, in all material respects, the financial position of K-Bro
Linen Inc. and its subsidiaries as at December 31, 2017 and
December 31, 2016 and their financial performance and
their cash flows for the years then ended in accordance with
International Financial Reporting Standards.
PricewaterhouseCoopers LLP
TD Tower, 10088 102 Avenue NW, Suite 1501
Edmonton, AB, Canada T5J 3N5
T 1 780 441 6700
F 1 780 441 6776
“PwC” refers to PricewaterhouseCoopers LLP, an Ontario limited liability partnership.
4 5
CHARTERED PROFESSIONAL ACCOUNTANTS
2017 ANNUAL REPORT C O N S O L I D AT E D S TAT E M E N T S
O F F I N A N C I A L P O S I T I O N
DEC 31, 2017
DEC 31, 2016
ASSETS
Current assets
Cash and cash equivalents
Accounts receivable
Income tax receivable
Prepaid expenses and deposits
Linen in service (note 7)
Property, plant and equipment (note 8)
Intangible assets (note 9)
Goodwill (note 10)
LIABILITIES
Current liabilities
Accounts payable and accrued liabilities
Income taxes payable
Dividends payable to shareholders
Long-term debt (note 12)
Unamortized lease and inducements (note 14)
Provisions (note 11)
Deferred income taxes (note 15)
SHAREHOLDERS' EQUITY
Share capital
Contributed surplus
Retained earnings (deficit)
Accumulated other comprehensive loss
Contingencies and commitments (note 16)
(Thousands of Canadian dollars)
Approved by the Board of Directors
11,276
29,718
2,281
3,309
21,456
68,040
171,668
16,979
38,526
295,213
34,143
838
1,051
36,032
42,780
2,583
2,393
9,838
93,626
199,772
1,952
(65)
(72)
201,587
295,213
ROSS S. SMITH, DIRECTOR
MATTHEW HILLS, DIRECTOR
The accompanying notes are an integral part of these consolidated financial statements.
-
18,451
-
1,472
11,511
31,434
113,258
3,141
20,456
168,289
16,270
596
802
17,668
25,800
1,863
-
6,286
51,617
109,390
1,944
5,338
-
116,672
168,289
4 6
WE ARE DEPENDABLE.
C O N S O L I D AT E D S TAT E M E N T S O F
E A R N I N G S & C O M P R E H E N S I V E I N C O M E
Years ended December 31
REVENUE
Expenses
Wages and benefits (note 27)
Linen (note 7)
Utilities
Delivery (note 27)
Occupancy costs
Materials and supplies
Repairs and maintenance
Corporate
Loss on disposal of property, plant and equipment (note 28)
EBITDA (note 28)
Other expenses
Depreciation of property, plant and equipment (note 8)
Amortization of intangible assets (note 9)
Finance expense (note 13)295,213
Earnings before income taxes
Current income tax expense
Deferred income tax expense
Income tax expense
Net earnings
36,032
Other comprehensive loss
Item that may be subsequently reclassified to earnings:
Foreign currency translation differences on foreign operations
Total comprehensive income
Net earnings per share (note 18)
Basic
Diluted
2017
170,559
70,352
18,998
10,393
18,292
6,460
5,537
5,627
10,879
36
146,574
23,985
11,606
1,767
1,133
14,506
9,479
2,137
1,624
3,761
5,718
(72)
5,646
0.63
0.63
2016
159,089
65,075
17,547
9,776
15,965
5,313
4,808
4,855
7,514
105
130,958
28,131
9,235
1,790
739
11,764
16,367
4,467
373
4,840
11,527
-
11,527
1.45
1.44
Weighted average number of shares outstanding:
Basic
Diluted
9,083,693
9,114,874
7,955,026
7,986,729
($ Thousands of Canadian dollars, except share and per share amounts)
The accompanying notes are an integral part of these consolidated financial statements.
4 7
2017 ANNUAL REPORT
C O N S O L I D AT E D S TAT E M E N T S
O F C H A N G E S I N E Q U I T Y
TOTAL SHARE
CAPITAL
CONTRIBUTED
SURPLUS
RETAINED
EARNINGS
(DEFICIT)
ACCUMULATED
OTHER
COMPREHENSIVE
LOSS
TOTAL
EQUITY
As at January 1, 2017
109,390
1,944
Total comprehensive income
-
Net proceeds from common
shares issued (note 17)
Deferred income tax impact
of share issuance (note 17)
Dividends declared (note 20)
Employee share based
compensation expense
Shares vested during the year
As at December 31, 2017
(Thousands of Canadian dollars)
87,655
1,227
-
-
1,500
199,772
-
-
-
-
1,508
(1,500)
1,952
5,338
5,718
-
-
(11,121)
-
-
(65)
-
116,672
(72)
5,646
-
-
-
-
-
87,655
1,227
(11,121)
1,508
-
(72 )
201,587
TOTAL SHARE
CAPITAL
CONTRIBUTED
SURPLUS
RETAINED
EARNINGS
(DEFICIT)
ACCUMULATED
OTHER
COMPREHENSIVE
LOSS
As at January 1, 2016
108,079
1,737
Total comprehensive income
Dividends declared (note 20)
Employee share based
compensation expense
-
-
-
Shares vested during the year
1,311
As at December 31, 2016
109,390
($ Thousands of Canadian dollars)
-
-
1,518
(1,311)
1,944
3,424
11,527
(9,613)
-
-
5,338
-
-
-
-
-
-
The accompanying notes are an integral part of these consolidated financial statements.
TOTAL
EQUITY
113,240
11,527
(9,613)
1,518
-
116,672
4 8
WE ARE DEPENDABLE.
C O N S O L I D AT E D S TAT E M E N T S
O F C A S H F L O W
Years ended December 31
OPERATING ACTIVITIES
Net Earnings
Depreciation of property, plant and equipment (note 8)
Amortization of intangible assets (note 7)
Lease inducements, net of amortization
Accretion expense
Employee share based compensation expense
Loss on disposal of property, plant and equipment
Deferred income taxes
146,574
Change in non-cash working capital items (note 21)
Cash provided by operating activities
14,506
FINANCING ACTIVITIES 3
Net proceeds of revolving debt
Net proceeds from issuance of common shares (note 17)
Dividends paid to shareholders
Cash used in financing activities
INVESTING ACTIVITIES
Purchase of property, plant and equipment (note 8)
Proceeds from disposal of property, plant and equipment
Acquisition of business (note 6)
Cash provided by financing activities
Ch ange in cash and cash equivalents during the year
Effect of exchanges on cash
Cash and cash equivalents, beginning of year
Supplementary cash flow information
Interest paid
Income taxes paid
($ Thousands of Canadian dollars)
2017
5,718
11,606
1,767
401
42
1,508
36
1,624
22,702
(3,922)
18,780
16,980
87,655
(10,872)
93,763
(44,494)
-
(56,774)
(101,268)
11,275
1
11,276
703
5,000
2016
11,527
9,235
1,790
1,167
-
1,518
105
373
25,715
(1,194)
24,521
23,451
-
(9,610)
13,841
(38,367)
5
(38,362)
-
-
-
631
4,062
The accompanying notes are an integral part of these consolidated financial statements.
4 9
2017 ANNUAL REPORT
N O T E S TO T H E C O N S O L I D AT E D
F I N A N C I A L S TAT E M E N T S
(Thousands of Canadian dollars, except share and per share amounts, years ended December 31, 2017 and 2016)
K-Bro Linen Inc. (the "Corporation" or “K-Bro”) is incorporated
in Canada under the Business Corporations Act (Alberta).
K-Bro is the largest owner and operator of laundry and linen
processing facilities in Canada and a market leader for
laundry and textile services in Scotland and the North East
of England. K-Bro and its wholly owned subsidiaries, operate
across Canada and the United Kingdom (“UK”), provide a
range of linen services to healthcare institutions, hotels and
other commercial organizations that include the processing,
management and distribution of general
linen and
operating room linen.
1. BASIS OF PRESENTATION
The consolidated financial statements of the Corporation
have been prepared in accordance with International
Financial Reporting Standards (IFRS) as published in the
CPA Canada Handbook. The preparation of financial
statements in conformity with IFRS requires the use of
certain critical accounting estimates.
It also requires
management to exercise its judgment in the process of
applying the Corporation’s accounting policies. The areas
involving a higher degree of judgment or complexity, or
areas where assumptions and estimates are significant to
The Corporation’s operations
in Canada
include nine
the Consolidated Financial Statements are disclosed in
processing facilities and two distribution centres under
Note 5.
three distinctive brands, including K-Bro Linen Systems Inc.,
Buanderie HMR and Les Buanderies Dextraze, in ten
Canadian cities: Québec City, Montréal, Toronto, Regina,
Saskatoon, Prince Albert, Edmonton, Calgary, Vancouver
and Victoria.
2. SIGNIFICANT ACCOUNTING POLICIES
The principal accounting policies applied in the preparation
of these consolidated financial statements are set out
below. These policies have been consistently applied to all
The Corporation’s operations include Fishers Topco Ltd.
the periods presented, unless otherwise stated.
("Fishers") which was acquired by K-Bro on November 27,
2017. Fishers was established in 1900 and is an operator of
A. Basis of Measurement
laundry and linen processing facilities in Scotland, providing
linen rental, workwear hire and cleanroom garment services
to
the hospitality, healthcare, manufacturing and
pharmaceutical sectors. Fishers' client base includes major
hotel chains and prestigious venues across Scotland and
the North East of England. The company operates in seven
cities, in Scotland and the North East of England with
facilities in Cupar, Perth, Newcastle, Livingston, Inverness
and Coatbridge.
The consolidated financial statements have been prepared
under the historical cost convention.
B. Principles of Consolidation
The consolidated financial
statements
include
the
Corporation, its wholly owned subsidiaries and the long-
term incentive plan trust (note 2(q) (ii)). All intercompany
balances and transactions have been eliminated upon
consolidation.
The Corporation’s common shares are traded on the Toronto
Stock Exchange under the symbol “KBL”. The address of the
C. Cash and Cash Equivalents
Corporation’s registered head office is 14903 – 137 Avenue,
Edmonton, Alberta, Canada.
These audited annual consolidated financial statements
(the “consolidated financial statements”) were approved
and authorized for issuance by the Board of Directors (“the
Board”) on March 14, 2018.
Cash and cash equivalents includes cash on hand, deposits
with banks, other short-term highly liquid investments with
original maturities of three months or less.
Cash and cash equivalents are classified as loans and
receivables and are carried at amortized cost, which is
equivalent to fair value.
5 0
WE ARE DEPENDABLE. D. Linen in Service
Gains and losses on disposals of property, plant and
Linen in service is stated at cost less accumulated depreciation.
equipment are determined by comparing the proceeds
The cost is based on the expenditures that are directly
with the carrying amount of the asset.
attributable to the acquisition of
linen, amortization
commences when linen is put into service, with operating
G. Impairment of Financial Assets
room linen amortized across its estimated service life of 24
months and general linen amortized based on usage which
results in an estimated average service life of 24 months.
E. Revenue Recognition
At each reporting date, the Corporation assesses whether
there is objective evidence that a financial asset is impaired.
If such evidence exists, the Corporation recognizes an
impairment loss equal to the difference between the
amortized cost of the loan or receivable and the present
Revenue from linen management and laundry services is
value of the estimated future cash flows, discounted using
primarily based on written service agreements whereby the
the instrument's original effective interest rate. The carrying
Corporation agrees to collect, launder, deliver and replenish
amount of the asset is reduced by this amount either directly
linens. The Corporation recognizes revenue in the period in
or indirectly through the use of an allowance account.
which the services are provided.
F. Property, Plant and Equipment
Property, plant and equipment are stated at cost less
accumulated depreciation and accumulated impairment
losses. Cost
includes expenditures
that are directly
attributable to the acquisition of the items. Subsequent costs
are included in the asset’s carrying amount or recognized as
a separate asset, as appropriate, only when it is probable that
future economic benefits associated with the item will flow
to the Corporation and the cost of the item can be reliably
measured. The carrying amount of a replaced part is
derecognized. Repairs and maintenance are charged to the
statement of earnings during the financial period in which
they are incurred.
Impairment losses on financial assets carried at amortized
cost are reversed in subsequent periods if the amount of the
loss decreases and the decrease can be related objectively
to an event occurring after the impairment was recognized.
H. Impairment of Non-Financial Assets
Property, plant and equipment and intangible assets are
tested
for
impairment when events or changes
in
circumstances indicate that the carrying amount may not
be recoverable. Long-lived assets that are not amortized are
subject to an annual impairment test. For the purpose of
measuring recoverable amounts, assets are grouped at the
lowest level for which there are separately identifiable cash
flows (cash-generating unit or “CGU”). The recoverable
amount is the higher of an asset's fair value less costs to sell
General and specific borrowing costs that are directly
and value in use (being the present value of the expected
attributable to the acquisition, construction or production of
future cash flows of the relevant asset or CGU). An
a qualifying asset are capitalized during the period of time
impairment loss is recognized for the amount by which the
that is required to complete and prepare the asset for its
asset's carrying amount exceeds its recoverable amount.
intended use or sale. Qualifying assets are assets that
The Corporation evaluates impairment losses, other than
necessarily take a substantial period of time to get ready for
goodwill impairment, for potential reversals when events or
their intended use or sale.
circumstances warrant such consideration.
The major categories of property, plant and equipment are
depreciated on a straight-line basis to allocate their cost over
their estimated useful lives as follows:
ASSET
Building
Laundry Equipment
Office Equipment
Delivery Equipment
Computer Equipment
Leasehold Improvements
RATE
15 - 25 Years
7 - 20 Years
2 - 5 Years
5 - 10 Years
2 Years
Lease Term
5 1
2017 ANNUAL REPORT I. Intangible Assets
K. Business Combinations
Intangible assets acquired in a business combination are
Business combinations are accounted for using the
recorded at fair value at the acquisition date. Subsequently
acquisition method. The acquired identifiable net assets are
they are carried at cost less accumulated amortization and
measured at their fair value at the date of acquisition. The
accumulated impairment losses.
The major categories of intangible assets are depreciated on
a straight-line basis to allocate their cost over their estimated
useful lives as follows:
ASSET
Customer Contracts
Computer software
Brand
RATE
1 - 20 Years
5 Years
Indefinite
These estimates are reviewed at least annually and are
updated if expectations change as a result of changing client
relationships or technological obsolescence.
J. Income Taxes
consideration transferred includes the fair value of any asset or
liability resulting from a contingent consideration arrangement.
Any excess of the purchase price over the fair value of the
net assets acquired is recognized as goodwill. Any deficiency
of the purchase price below the fair value of the net assets
acquired is recorded as a gain in net earnings. Associated
transaction costs are expensed when incurred.
L. Goodwill
Goodwill is the residual amount that results when the
purchase price of an acquired business exceeds the sum of
the amounts allocated to the identifiable assets acquired,
less liabilities assumed, based on their estimated fair values
at the acquisition date. Goodwill is allocated as of the date
of the business combination. Goodwill
is tested for
The tax expense for the year comprises current and deferred
impairment annually
in the fourth quarter, or more
tax. Tax is recognized in statement of earnings, except to the
frequently if events or changes in circumstances indicate a
extent that
it relates to
items recognized
in other
potential impairment.
comprehensive income or directly in equity. In this case, the
tax is also recognized in other comprehensive income or
directly in equity, respectively.
Goodwill acquired through a business combination is
allocated to each CGU, or group of CGUs, that are expected
to benefit from the related business combination. A CGU
The current income tax provision is calculated on the basis
represents the lowest level within the entity at which the
of the tax laws enacted or substantively enacted at the
goodwill is monitored for internal management purposes.
balance sheet date of the taxation authority where the
Corporation operates and generates taxable
income.
M. Volume Rebates
Management periodically evaluates positions taken in tax
returns with respect to situations in which applicable tax
regulation
is subject to
interpretation.
It establishes
provisions where appropriate on the basis of amounts
expected to be paid to the tax authorities.
Deferred income tax is recognized, using the liability
method, on temporary differences arising between the tax
bases of assets and liabilities and their carrying amounts in
the Consolidated Financial Statements. Deferred income
tax is determined using tax rates and laws that have been
enacted or substantively enacted by the balance sheet date
and are expected to apply when the related deferred
income tax asset is realized or the deferred income tax
liability is settled.
Deferred income tax assets are recognized only to the extent
that it is probable that future taxable profit will be available
against which the temporary differences can be utilized.
The Corporation earns revenue from linen management
and laundry services based on written service agreements
whereby K-Bro has agreed to collect, launder, deliver and
replenish linens. K-Bro recognizes revenue in the period in
which the services are provided. Volume rebates, where
applicable, are recorded based on annualized expected
volumes when it is reasonable that the criteria are likely to
be met. Based on past experience, management believes
that volumes utilized for any estimates are reasonable and
would not expect a material deviation to the balance of
accrued liabilities or revenue.
N. Earnings Per Share
Basic earnings per share (“EPS”) is calculated by dividing net
earnings for the period attributable to Shareholders of the
Corporation by the weighted average number of Common
shares outstanding during the period.
5 2
WE ARE DEPENDABLE. Diluted EPS is calculated by adjusting the weighted average
• Revenue and expense items are translated at the
number of common shares outstanding for dilutive instruments.
average rates of exchange, except depreciation and
The number of common shares included within the weighted
amortization, which are translated at the rates of
average is computed using the treasury stock method. The
exchange applicable to the related assets, with any
Corporation’s potentially dilutive Common shares are
gains or losses recognized within “finance expense” in the
comprised of long-term incentive plan equity compensation
consolidated statements of earnings & comprehensive
granted to officers and key employees (notes 2(q)(ii)).
income (loss).
O. Foreign Currency Translation
P. Lease Inducements
The consolidated financial statements are presented in
Leases in which substantially all the risks and rewards of
Canadian dollars. The Corporation's operations in Canada
ownership are retained by the lessor are classified as
have a functional currency of Canadian dollars. The
operating leases. Tenant allowances and lease inducements
Corporation's operations in the UK have a functional
are deferred when credited or received and amortized on a
currency of pounds sterling.
i. Translation of foreign entities
The functional currency for each of the Corporation’s
subsidiaries is the currency of the primary economic
environment in which it operates. Operations with foreign
functional currencies are translated into the Corporation’s
presentation currency in the following manner:
• Monetary and non-monetary assets and liabilities are
translated at the spot exchange rate in effect at the
reporting date;
• Revenue and expense items (including depreciation and
amortization) are translated at average rates of exchange
prevailing during the period, which approximate the
exchange rates on the transaction dates;
•
Impairment of assets are translated at the prevailing
rate of exchange on the date of the impairment
recognition, and;
straight-line basis as a reduction of rent expense over the
term of the related lease. For lease contracts with escalating
lease payments, total rent expense for the lease term is expensed
on a straight-line basis over the lease term. The difference
between rent expensed and amounts paid is recorded as an
increase or deferral in unamortized lease inducements.
Q. Employee Benefits
i. Post-employment benefit obligations
The Corporation contributes on behalf of its employees to
their individual Registered Retirement Savings Plans subject to
an annual maximum of 10% of gross personal earnings. The
Corporation accounts for contributions as an expense in the
period that they are incurred. The Corporation does not provide
any other post-employment or post-retirement benefits.
ii. Existing equity-based compensation plan
of the Corporation
On June 16, 2011, the Shareholders of the Corporation
approved a new Long-term Incentive Plan (“LTI”). Under the
LTI, awards are granted annually in respect of the prior fiscal
• Exchange gains and losses that result from translation are
year to the eligible participants based on a percentage of
recognized as a foreign currency translation difference
annual salary. The amount of the award (net of withholding
in accumulated other comprehensive income.
ii. Translation of transactions and balances
Transactions in currencies other than the entity’s functional
currency are recognized at the rates of exchange prevailing
at the date of the transaction as follows:
• Monetary assets and liabilities are translated at the
exchange rate in effect at the reporting date;
obligations) is satisfied by issuing treasury shares to be held
in trust by the trustee pursuant to the terms of the LTI. All
awards issued under the provisions of the LTI are recorded
as compensation expense.
Subject to the discretion of the Compensation, Nominating
and Corporate Governance Committee of the Board of
Directors, one-quarter of a Participant’s grant will vest on
the Determination Date (defined as the first May 15th
• Non-monetary items are translated at historical exchange
following the date that the Directors of the Corporation
rates; and
5 3
approve the audited consolidated financial statements of the
Corporation for the prior year). The remaining three-quarters
of the Participant’s grant will vest on November 30th
following the second anniversary of the Determination Date.
2017 ANNUAL REPORT If a change of control occurs, all LTI Shares held by the
R. Financial Instruments
Trustee in respect of unvested grants will vest immediately.
LTI participants are entitled to receive dividends on all
common shares granted under the LTI whether vested or
unvested. In most circumstances, unvested common shares
held by the LTI trustee for a participant will be forfeited if
the participant resigns or is terminated for cause prior to
the applicable vesting date, and those common shares will
be disposed of by the trustee to K-Bro for no consideration
and such Common shares shall thereupon be cancelled.
If a participant
is terminated without cause, retires
Financial assets and financial liabilities are initially recognized
at fair value and are subsequently accounted for based on
their classification as described below. The classification
depends on the purpose for which the financial instruments
were acquired and their characteristics. Except in very limited
circumstances, the classification is not changed subsequent
to initial recognition. Transaction costs are recognized
immediately in income or are capitalized, depending upon
the nature of the transaction and the associated instrument.
or resigns on a basis which constitutes constructive
Derivatives are initially recognized at fair value on the date a
dismissal, the participant will be entitled to receive his or
derivative contract is entered into and are subsequently
her unvested common shares on the regular vesting
remeasured to their fair value at the end of each reporting
schedule under the LTI.
period and included as part of the profit and loss.
Loans, receivables and other liabilities
Loans, receivables and other liabilities are accounted for at amortized cost using the effective interest method.
The Corporation has made the following classifications:
Financial assets
Accounts receivable
Financial liabilities
Accounts payable and accrued liabilities
Dividends payable
Long-term debt
CLASSIFICATION MEASUREMENT
Loans and receivables
Amortized cost
Other liabilities
Amortized cost
Other liabilities
Amortized cost
Other liabilities
Amortized cost
Financial assets and liabilities are offset and the net amount reported in the balance sheet when there is a legally enforceable
right to offset the recognized amounts and there is an intention to settle on a net basis or realize the asset and settle the
liability simultaneously.
5 4
WE ARE DEPENDABLE.
3. SIGNIFICANT ACCOUNTING POLICIES
On January 1, 2017 the Corporation adopted the amendments
to IAS 7, Statement of Cash Flows, and amendments to IAS
12 Recognition of Deferred Tax Assets for Unrealized Losses.
IAS 7 was amended to improve information provided to
users of financial statements about an entity's financing
activities. IAS 12 was amended to provide further clarity and
examples in the practice around the recognition of a
deferred tax asset that is related to a debt instrument
measured at fair value. Adoption of the amendments did
not result in any changes to the presentation or disclosures
in the financial statements.
On October 1, 2017 the Corporation adopted a policy to
account for asset retirement obligations to restore the
premises of its leased plants. Previously the effect of applying
this policy was immaterial. The present value of the obligation
is recognized in the period in which the obligations are
incurred. The estimated present value of the obligation is
the discounted expected future cash flows to settle the
obligation at a pre-tax risk free interest rate that reflects
current market assessments of the time value of money. The
associated asset retirement costs are capitalized as part of
the carrying amount of the long-lived asset and depreciated
over the life of the lease or estimated life of the asset,
whichever is shorter. In subsequent periods, the asset retirement
obligation is adjusted for the passage of time through
accretion expense, which is recognized as a finance cost
and for changes in the amount or timing of the underlying
future cash flows. Changes in the estimated future costs or
in the discount rate applied are added to, or deducted from, the
cost of the asset. Actual expenditures are charged against
the provision when incurred with any difference between
actual and estimated costs recorded in net earnings.
4. NEW STANDARDS &
INTERPRETATIONS NOT YET ADOPTED
The following standards have been issued but have not yet
been applied in preparing the interim condensed consolidated
financial statements.
•
IFRS 15, Revenue from Contracts with Customers, was
issued in May 2014 by the IASB and supersedes IAS 18,
"Revenue", IAS 11 "Construction Contracts" and other
interpretive guidance
associated with
revenue
recognition. IFRS 15 provides a single model to determine
how and when an entity should recognize revenue, as
well as requiring entities to provide more informative,
relevant disclosures in respect of its revenue recognition
criteria. IFRS 15 is to be applied prospectively and is
effective for annual periods beginning on or after January
1, 2018, with earlier application permitted. The new
standard introduces expanded disclosure requirements.
The Corporation has undertaken a detailed review of
contracts entered with key customers and other forms of
agreements with customers and has evaluated the
provisions under the five-step model specified by the
new guidance. In addition, the Corporation continues to
monitor additional interpretive guidance related to the
new standard as it becomes available, as well as
comparing
the conclusions made on
specific
interpretative issues to other peers in the industry, to the
extent that such information is available. The standard
will be implemented by the Corporation in 2018. The
Corporation expects the new revenue recognition
guidance will not have a material impact on the
consolidated financial statements other than additional
disclosure requirements. The Corporation currently intends
to select the modified retrospective approach with
results in the cumulative effect of adoption recognized
at the date of initial application at January 1, 2018.
•
IFRS 9, Financial Instruments, was issued in July 2014 by
the IASB and supersedes IAS 39, “Financial Instruments:
Recognition and Measurement”. IFRS 9 addresses the
classification, measurement and recognition of financial
assets and financial liabilities. IFRS 9 retains but simplifies
the mixed measurement model and establishes three
primary measurement categories for financial assets:
amortized cost, fair value through OCI and fair value
through P&L. IFRS 9 is to be applied prospectively and is
effective for annual periods beginning on or after January
1, 2018, with earlier application permitted. The Corporation
has determined
the adoption of
the standard
will not have a material impact to the consolidated
financial statements.
•
IFRS 16, Leases, was issued in January 2016 and applies to
annual reporting periods beginning on or after January 1,
2019. IFRS 16 specifies how an IFRS reporter will recognize,
measure, present and disclose leases. The standard
provides a single lessee accounting model, requiring
lessees to recognize assets and liabilities for all leases
unless the lease term is 12 months or less or the underlying
asset has a low value. Lessors continue to classify leases
as operating or finance, with IFRS 16’s approach to lessor
accounting substantially unchanged from its predecessor,
IAS 17. The Corporation is in the process of evaluating the
impact that IFRS 16 may have on the financial statements.
The standard will affect primarily the accounting for the
Corporation's operating leases. The Corporation has not
yet determined to what extent these commitments will
result in the recognition of assets and liabilities for future
payments and how this will affect EBITDA, net earnings
and classification of cash flows.
5 5
2017 ANNUAL REPORT • On June 20, 2016 the IASB issued an amendment to
IFRS 2 "Share based Payment" addressing three
Recognition of Rebate Liabilities
In applying its accounting policy for volume rebates, the
classification and measurement issues. The amendment
Corporation must determine whether the processing
clarifies the measurement basis for cash-settled, share
volume thresholds will be achieved. The most difficult and
based payments and the accounting for modifications
subjective area of judgment is whether a contract will
that change an award from cash-settled to equity
generate satisfactory volume to achieve minimum levels.
settled. It also introduces an exception to the principles
Management considers all appropriate
facts and
in IFRS 2 that will require an award to be treated as if it
circumstances
in making this assessment
including
was wholly-equity settled, where an employer is obliged
historical experience, current volumetric run-rates, and
to withhold an amount for the employee's tax obligation
expected future events.
associated with a share based payment and pay that
amount to the tax authority. The amendments are
effective for periods beginning on or after January 1,
2018. The Corporation has determined the adoption of
the standard will not have a material impact to the
consolidated financial statements.
5. CRITICAL ACCOUNTING ESTIMATES
& JUDGMENTS
The preparation of the Corporation’s consolidated financial
statements, in conformity with IFRS, requires management
of the Corporation to make estimates and assumptions that
affect the reported amount of assets and liabilities and
disclosures of contingent assets and liabilities at the date of
the financial statements and the reported amounts of
revenues and expenses during the reported period. Actual
Linen in Service
The estimated service lives of linen in service are reviewed at
least annually and are updated if expectations change as a
result of physical wear and tear, technical or commercial
obsolescence and legal or other limits of use.
Segment identification
When determining its reportable segments, the Corporation
considers qualitative factors, such as operations that offer
distinct products and services and are considered to be
significant by the Chief Operating Decision Maker, identified
as the Chief Executive Officer. Aggregation occurs when the
operating segments have similar economic characteristics,
and have similar (a) products and services; (b) geographic
proximity; (c) type or class of customer for their products
and services; (d) methods used to distribute their products
or provide their services; and (e) nature of the regulatory
results could differ from those estimates.
environment, if applicable.
The estimates and associated assumptions are based on
historical experience and various other factors that are believed
Provisions
The Corporation is required to restore the leased premises of
to be reasonable under the circumstances, the results of
its leased plants. A provision has been recognized for the
which form the basis of making the judgments about
present value of the estimated expenditure required to
carrying values of assets and liabilities that are not readily
remove any
leasehold
improvements and
installed
apparent from other sources. These estimates and judgments
equipment. Refer to note 11 for more details about estimation
have been applied in a manner consistent with prior periods.
and judgments for this provision.
The following discusses the most significant accounting
judgments and estimates that the Corporation has made in
the preparation of the consolidated financial statements:
Impairment of goodwill and non-financial assets
The Corporation reviews goodwill at least annually and
other non-financial assets when there is any indication that
the asset might be impaired. The Corporation applies
judgment in assessing the likelihood of renewal of significant
contracts included in the intangible assets described in
note 9. The Corporation has estimated the fair value of CGUs
to which goodwill is allocated based on value in use using
Business Combinations
In a business combination the Corporation acquires assets
and assumes liabilities of an acquired business. Judgment is
required to determine the fair values assigned to the
tangible and intangible assets acquired and liabilities
assumed in the acquisition. Determining fair values involves
a variety of assumptions, including revenue growth rates,
expected operating income and discount rates. During a
measurement period, not to exceed one year, adjustments
of the initial estimates may be required to finalize the fair
value of assets acquired and liabilities assumed.
discounted cash flow models that required assumptions
Management regularly evaluates these estimates and
about future cash flows, margins, and discount rates. Refer
judgments. Revisions
to accounting estimates are
to note 10 for more details about methods and assumptions
recognized in the period in which the estimate is revised if
used in estimating net recoverable amount.
the revision affects only that period or in the period of the
revision and future periods if the revision affects both
current and future periods.
5 6
WE ARE DEPENDABLE. 6. BUSINESS ACQUISITIONS
On November 27, 2017, the Corporation acquired all of the
from existing cash resources and existing loan facilities,
outstanding shares of Fishers Topco Limited ("Fishers"), a
including an amendment to its existing revolving credit
United Kingdom-based laundry and linen services company
which increased the available limit from $85,000 to
(the "Acquisition"). Fishers was a private company limited by
$100,000 plus a $25,000 accordion.
shares and is incorporated in the United Kingdom. The
acquired business consisted of contracts primarily in the
hospitality sector in Scotland and the North East of England,
which complements the existing business of the Corporation.
The business acquisition has been accounted for using the
acquisition method, whereby the purchase consideration
was allocated to the fair values of the net assets acquired.
The Corporation financed the cash portion of the acquisition,
the repayment of Fishers’ outstanding debt facilities and
the payment of management fees and transaction costs
In addition, on December 12, 2017 the Corporation entered
into an agreement to sell common shares , the net proceeds
from the share offering were used to partially pay down the
indebtedness that was incurred under the Corporation’s
amended revolving credit facility to initially fund the
Acquisition. For further details regarding the share offering
refer to note 17.
The purchase price allocated to the net assets acquired,
based on their estimated fair values, was as follows:
Cash consideration
Net assets acquired:
Cash working capital
Non-cash working capital, net
Property, plant & equipment
Leasehold inducements
Asset retirement obligations
Intangible assets
Deferred income tax liabilities
Goodwill
(In Thousands)
2017
IN STERLING £ 1
2017
IN CAN $
33,910
57,610
492
4,365
11,594
(219)
(316)
9,200
(1,860)
10,654
33,910
836
7,416
19,697
(372)
(537)
15,630
(3,160)
18,100
57,610
1 For the year ended December 31, 2017, $2,831 (in Sterling £1,654) in professional fees associated with the acquisition has been included in Corporate expenses.
5 7
2017 ANNUAL REPORT
As part of the acquired working capital, the Corporation
ended December 31, 2017 would have been $223,454 and
received various accounts receivable which when valued at
$8,798 respectively. These amounts have been calculated
fair value of $8,307 (in Sterling £4,898) were equivalent to their
using the subsidiary’s results and adjusting them for:
exchange amounts, all of which are expected to be collectible.
• Differences in the accounting policies between the
Intangible assets acquired are made up of $4,247 (in Sterling
group and the subsidiary; and
£2,500) for the brand, and $11,383 (in Sterling £6,700) for the
customer contracts along with related relationships and
customer lists. The goodwill is attributable to the workforce,
and the efficiencies and synergies created between the
existing business of the Corporation and the acquired
business. Goodwill will not be deductible for tax purposes.
The acquired business contributed revenues of $4,728 (in Sterling
£2,761) and net loss of $2,881 (in Sterling £1,670) to the group
for the period from November 27, 2017 to December 31, 2017.
• The additional depreciation and amortization that
would have been charged assuming the fair value
adjustments to property, plant and equipment and
intangible assets had applied from January 1, 2017,
together with the consequential tax effects.
Pro-forma net profit includes expenses which are not
expected to be recurring as part of normal operations, which
include transaction costs incurred in the sale of Fishers’ for
$972 (in Sterling £568), and loss on disposal of assets of $1,089
If the acquisition had occurred on January 1, 2017,
(in Sterling £636).
consolidated pro-forma revenue and net profit for the year
7. LINEN IN SERVICE
Balance, beginning of year
Acquisition of business
Additions
Amortization charge
Effect of movement in charge
Balance, end of year
2017
11,511
7,234
21,718
(18,998)
(9)
21,456
2016
11,279
17,779
(17,547)
-
11,511
5 8
WE ARE DEPENDABLE.
8. PROPERTY, PLANT & EQUIPMENT
LAND BUILDINGS
LAUNDRY OFFICE DELIVERY COMPUTER
EQUIP
EQUIP 1 EQUIP
EQUIP
LEASEHOLD SPARE
IMPROVEMENTS2 PARTS
TOTAL
YEAR ENDED, DECEMBER 31, 2016
Opening net book amount
2,454
17,964
54,316
341
Additions
Disposals
Depreciation charge
-
-
-
281
21,464
-
(107)
71
-
(980)
(6,056)
(108)
Closing net book amount
2,454
17,265
69,617
304
AT DECEMBER 31, 2016
Cost
2,454
19,012
110,175
710
Accumulated depreciation
-
(1,747)
(40,558)
(406)
Net book amount
2,424
17,265
69,617
304
266
60
(3)
(73)
250
683
(433)
250
YEAR ENDED, DECEMBER 31, 2017
Opening net book amount
2,454
17,265
69,617
304
250
Additions 4
-
20
36,599
49
Acquisitions of business 5
1,571
3,947
14,177
Disposals
Depreciation charge
Effect of movement in exchange rates
-
-
(2)
-
(36)
(990)
(7,207)
(108)
(7)
(21)
-
-
-
Closing net book amount
4,023
20,235
113,129
245
AT DECEMBER 31, 2017
17
-
-
(59)
-
208
539
208
-
(370)
377
1,279
(902)
377
377
417
-
-
(423)
-
371
11,834
427 88,141
12,242
136 34,462
-
(1,648)
-
-
(110)
(9,235)
22,428
563 113,258
32,065
563 166,941
(9,637)
- (53,683)
22,428
563 113,258
22,428
563 113,258
13,141
144 50,387
-
-
(2,819)
-
-
-
19,695
(36)
- (11,606)
-
(30)
32,750
707 171,668
Cost
4,023
22,972
160,031
759
701
1,695
45,163
707 236,051
Accumulated depreciation
-
(2,737)
(46,902)
(514)
(493)
(1,324)
(12,413)
- (64,383)
Net book amount
4,023
20,235
113,129
245
208
371
32,750
707 171,668
1
2
Included in laundry equipment are assets under development in the amount of $23,625 (2016 - $16,536). These assets are not available for service and accordingly are not presently being depreciated.
Included in leasehold improvements are assets under development in the amount of $8,251 (2016 - $11,547). These assets are not available for service and accordingly are not presently being depreciated.
3 Total property, plant and equipment additions include amounts in accounts payable of $5,799 (2016 - $1,721).
2017 Additions include amounts from the Canadian Division of $50,387 and from the UK Division of $0.
Includes amounts related to property, plant and equipment assets of the acquired business which are included in the reportable segment for the UK division.
4
5
5 9
2017 ANNUAL REPORT
9. INTANGIBLE ASSETS
YEAR ENDED, DECEMBER 31, 2016
Open net book amount
Additions
Amortization charge
Closing net book amount
At December 31, 2016
Cost
Accumulated amortization
Net book amount
YEAR ENDED, DECEMBER 31, 2017
Opening net book amount
Additions
Acquisition of business 1
Amortization charge
Effect of movement in exchange rates
Closing net book amount
AT DECEMBER 31, 2017
Cost
Accumulated amortization
Net book amount
HEALTHCARE
RELATIONSHIPS
HOSPITALITY
RELATIONSHIP
COMPUTER
SOFTWARE
BRAND
TOTAL
3,550
-
(1,043)
2,507
19,200
(16,693)
2,507
2,507
-
-
(1,043)
-
1,464
19,200
(17,736)
1,464
1,381
-
(747)
634
8,550
(7,916)
634
634
-
11,383
(724)
(18)
11,275
-
-
-
-
927
(927)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
4,247
-
(7)
4,240
4,931
-
(1,790)
3,141
28,677
(25,536)
3,141
3,141
-
15,630
(1,767)
(25)
16,979
19,915
(8,640)
11,275
927
(927)
4,240
44,282
-
(27,303)
-
4,240
16,979
1
Includes amounts related to intangible assets of the acquired business which are included in the reportable segment for the UK division.
6 0
WE ARE DEPENDABLE.
10. GOODWILL
The Corporation performed its annual assessment for goodwill impairment for the Canadian CGU as at December 31, 2017
and for the UK division as at November 28, 2017 in accordance with its policy described in note 2(l). Goodwill has been
allocated to the following CGUs:
Calgary
Edmonton
Vancouver 2
Victoria
Vancouver 1
Montréal
Québec
Canadian division
UK division
Changes due to movement in exchange rate
UK division
Goodwill
($ Thousands)
2017
5,382
4,346
3,413
3,208
2,630
823
654
20,456
2017
18,100
(30)
18,070
38,526
2016
5,382
4,346
3,413
3,208
2,630
823
654
20,456
2016
-
-
-
20,456
6 1
2017 ANNUAL REPORT
“ T H E G O O D W I L L I S AT T R I B U TA B L E
T O T H E W O R K F O R C E , & T H E
E F F I C I E N C I E S & S Y N E R G I E S
C R E AT E D B E T W E E N T H E E X I S T I N G
B U S I N E S S O F T H E C O R P O R AT I O N
& T H E A C Q U I R E D B U S I N E S S”
6 2
WE ARE DEPENDABLE. Canadian division
In assessing goodwill for impairment at December 31, 2017,
the Corporation determined that: the assets and liabilities
of the CGUs evaluated have not changed significantly from
the prior year at December 31, 2016; the estimated
recoverable amounts of the CGUs exceeded their carrying
amounts by a significant amount; no events or circumstances
have changed.
In performing our analysis, estimated recoverable amounts
were determined based on the value in use of the CGUs
using available cash flow forecasts over a 5 year period that
made maximum use of observable markets for inputs and
outputs,
including actual historical performance. For
periods beyond the budgeted period, cash flows were
extrapolated using growth rates that did not exceed the
long-term averages for the business. Key assumptions
included a weighted average growth rate of 3% (2016 – 3%)
and a pre-tax discount rate of 10% to 12% (2016 – 11% to 13%)
for all CGUs. The growth rates represent management’s current
assessment of future industry trends and are based on both
external and internal sources, as well as historical data.
after the acquisition that gave rise to the goodwill (note 6).
The best evidence of fair value is the acquisition price paid
by the Corporation which was negotiated between two
unrelated parties adjusted for estimated disposal costs and
any entity specific considerations. This analysis indicated the
recoverable amount was not significantly different from the
carrying amount of the CGU. The fair value estimate is
included in level 2 of the fair value hierarchy.
11. PROVISIONS
The Corporation's provision includes obligations to restore
leased premises of its leased plants. A provision has been
recognized
for the present value of the estimated
expenditure required to remove leasehold improvements
and installed equipment. The Corporation estimates the
undiscounted, inflation adjusted cash flows required to
settle these obligations at December 31, 2017 to be $2,853.
Management has estimated the present value of this
obligation at December 31, 2017 to be $2,393 using an
inflation rate of 1.72% and pre-tax weighted average risk-
free interest rate of 0.75% to 2.5% dependent upon length
of the lease term, which reflects current market assessments
The recoverable amount of each CGU was in excess of its
of the time value of money. These obligations are expected
carrying amount. Significant CGUs with an individual
to be incurred over an estimated period from 2019 to 2033.
carrying value greater than 10% of the total consolidated
carrying value
include Edmonton, Calgary, Victoria,
Vancouver 1 and 2. For these CGUs the recoverable amount
significantly exceeds the carrying amount. Based on
sensitivity analysis, no reasonably possible change in key
assumptions would cause the carrying amount of these
CGUs to exceed its recoverable amount.
Management estimates the provision based on information
from previous asset retirement obligations, as well as plant
specific factors. Factors that could impact the estimated
obligation are labour costs, the extent of removal work
required, the number of lease extensions exercised and the
inflation rate. As at December 31, 2017, if actual costs were to
differ by 10% from management's estimate the obligation
Based on sensitivity analysis, no reasonably possible change
would be an estimated $239 higher or lower. It is possible
in growth rate assumptions would cause the carrying value
the estimated costs could change and changes to these
to exceed the recoverable amount. A 1% change in the
estimates could have a significant effect on the Corporation's
discount rate would not have a significant impact on the
consolidated financial
statements. The Corporation
recoverable amounts of CGUs. The recoverable amount of
recorded the following asset retirement obligation activity
each CGU is sensitive to changes in market conditions and
during the year:
could result in material changes. The process for determining
the recoverable amount is subjective and requires management
to exercise significant judgment in determining the future
Balance, beginning of year
growth rates and discount rates.
UK Division
In performing our analysis, estimated recoverable amounts
were determined based on fair value less costs of disposal.
Management performed
its assessment
for goodwill
Adoption of standard
Additions
Acquisition of business
Accretion expense
Changes due to movement
in exchange rates
impairment on November 28, 2017, the day immediately
Balance, end of year
2017
2016
-
1,302
513
537
42
(1)
2,393
-
-
-
-
-
-
-
($ Thousands of Canadian dollars, except share and per
share amounts)
6 3
2017 ANNUAL REPORT
12. LONG-TERM DEBT
AT JANUARY 1, 2016
Net proceeds from debt
Closing balance at December 31, 2016
AT JANUARY 1, 2017
Net proceeds from debt
Closing balance at December 31, 2017
PRIME RATE LOAN 1
2,349
23,451
25,800
25,800
16,980
42,780
1 Prime rate loan, collateralized by a general security agreement, bear interest at prime plus an interest margin dependent on certain financial ratios, with a monthly repayment of interest only, maturing on
July 31, 2021 (December 31, 2016 – July 31, 2020). The additional interest margin can range between 0.0% to 1.25% dependent upon the calculated Debt/EBITDA financial ratio, with a range between 0 to 3.5x.
As at December 31, 2017, the combined interest rate was 3.7% (December 31, 2016 – 2.7%).
During 2017 the Corporation completed an amendment to
A general security agreement over all assets, a mortgage
its existing revolving credit facility, which extended the
against all leasehold interests and real property, insurance
agreement to July 31, 2021, and increased the available limit
policies and an assignment of material agreements have
from $85,000 to $100,000 plus a $25,000 accordion, of
been pledged as collateral.
which $44,430 is utilized (including letters of credit totaling
$1,650) as at December 31, 2017. Interest payments only are
due during the term of the facility.
Drawings under the revolving credit facility are available by way
of Bankers’ Acceptances, Canadian prime rate loans, Libor of UK
pounds based loans, letters of credit or standby letters of
guarantee. Drawings under the revolving credit facility bear
interest at a floating rate, plus an applicable margin based on
certain financial performance ratios.
The carrying value of borrowings approximate their fair value
as the debt is based on a floating rate, the interest rate risk has
not changed, and the impact of discounting is not significant.
The Corporation has incurred no events of default under the
terms of its credit facility agreement.
13. FINANCE EXPENSE
Interest on long-term debt
Accretion expense
Other charges, net
14. UNAMORTIZED LEASE INDUCEMENTS
Balance, beginning of year
Lease inducement received
Acquisition charge
Amortization charge
Less current portion,
including in accrued liabilities
2017
2016
396
42
695
1,133
2017
2,112
408
370
(98)
2,792
372
-
367
739
2016
839
1,497
-
(224)
2,112
(209)
(249)
2,583
1,863
($ Thousands of Canadian dollars, except share and per share amounts)
6 4
WE ARE DEPENDABLE.
15. INCOME TAXES
A reconciliation of the expected income tax expense to the actual income tax expense is as follows:
Current tax:
Current tax on profits for the year
Total current tax
Deferred tax:
Origination and reversal of temporary differences
Impact of substantively enacted rated and other
Total deferred tax
2017
2016
2,137
2,137
4,467
4,467
1,578
46
1,624
385
(12)
373
The tax on the Corporation’s earnings differs from the theoretical amount that would arise using the weighted
average tax rate applicable to earnings of the consolidated entities as follows:
Earnings before income taxes
Non-deductible expenses
Income subject to tax
Income tax at statutory rate of 26.53% (2016 - 26.58%)
Difference between Canadian and foreign tax rates
Impact of substantively enacted rates and other
Income tax expense
The analysis of the deferred tax assets and deferred tax liabilities is as follows:
Deferred tax assets:
Deferred tax asset to be recovered after more than 12 months
Deferred tax liability to be recovered within 12 months
Deferred tax liabilities:
Deferred tax asset to be recovered after more than 12 months
Deferred tax liability to be recovered within 12 months
Deferred tax liabilities, net
2017
2016
9,479
4,657
14,136
3,750
1
10
3,761
16,367
1,743
18,110
4,814
-
26
4,840
2017
2016
(2,368)
(95)
(2,463)
8,467
3,834
12,301
9,838
(601)
(94)
(695)
3,982
2,999
6,981
6,286
6 5
2017 ANNUAL REPORT
The movement of deferred income tax assets and liabilities during the year, without taking into consideration
the offsetting of balances within the same tax jurisdictions, is as follows:
ASSET OFFERING
RETIREMENT
COSTS
OBLIGATION AND OTHER
-
-
-
-
(451)
(244)
(695)
(238)
196
(1,227)
1
TOTAL
(451)
(244)
(695)
(238)
(304)
(1,227)
1
DEFERRED TAX ASSETS
AT JANUARY 1, 2016
Charged (credited) to the statement of earning
AT DECEMBER 31, 2016
Acquisition of business
Charged (credited) to the statement of changes in earnings
(500)
Charged (credited) to the statement of changes in equity
Related to movements in exchange rates
-
-
At December 31, 2017
(500)
(1,963)
(2,463)
DEFERRED TAX LIABILITIES
AT JANUARY 1, 2016
Charged (credited) to the
statement of earnings
AT DECEMBER 31, 2016
Acquisition of business
Charged (credited) to the
statement of earnings
Related to movements
in exchange rate
At December 31, 2017
($ Thousands of Canadian dollars)
LINEN IN
SERVICE
INTANGIBLE
PROPERTY,
PLANT AND ASSETS AND
GOODWILL
EQUIPMENT
TOTAL
2,923
2,432
1,009
6,364
76
2,999
32
800
1
3,832
786
3,218
708
1,406
(1)
5,331
(245)
764
2,657
617
6,981
3,397
(282)
1,924
(1)
(1)
3,138
12,301
16. CONTINGENCIES & COMMITMENTS
A. Contingencies
The Corporation has standby letters of credit issued as part of normal business operations in the amount of $1,650 (December
31, 2016 – $1,650) which will remain outstanding for an indefinite period of time.
Grievances for unspecified damages were lodged against the Corporation in relation to labour matters. The Corporation has
disclaimed liability and is defending the actions. It is not practical to estimate the potential effect of these grievances but
legal advice indicates that it is not probable that a significant liability will arise.
B. Commitments
i. Operating leases and utility commitments
At December 31, 2017, the Corporation was committed to minimum lease payments for operating leases on buildings and
equipment and estimated natural gas and electricity commitments for the next five calendar years and thereafter are as follows:
OPERATING LEASE COMMITMENTS
UTILITY COMMITMENTS
2018
2019
2020
2021
2022
Subsequent
($ Thousands of Canadian dollars)
9,588
8,629
6,750
5,760
5,355
32,194
68,276
2018
2019
2020
2021
2022
Subsequent
5,827
1,287
1,288
1,274
-
-
9,676
i. Linen purchase commitments
At December 31, 2017, the Corporation was committed to linen expenditure obligations in the amount of $10,232
(December 31, 2016 – $6,926) to be incurred within the next year.
ii. Property, plant and equipment commitments
At December 31, 2017, the Corporation was committed to capital expenditure obligations in the amount of $28,748
(December 31, 2016 – $28,897) to be incurred within the next year and $0 (December 31, 2016 – $8,628) to be incurred in
the next two years.
6 7
2017 ANNUAL REPORT
17. SHARE CAPITAL
A. Authorized
The Corporation is authorized to issue an unlimited number of common shares and such number of shares of one class
designated as preferred shares which number shall not exceed 1/3 of the common shares issued and outstanding from
time to time.
B. Issued
Balance, beginning of the year
Common share issued under LTI
Common share issuance under equity offering
2017
8,023,480
42,422
2,442,600
2016
7,985,713
37,767
-
Balance, end of year
10,508,502
8,023,480
Unvested common shares held in trust for LTI
54,880
44,634
Proceeds from share issuance
Underwriter fee
Cost associated with share issuance
Net proceeds from share issuance
Deferred income tax impact of share issuance (note 17)
Total impact to share capital
2017
92,218
(3,689)
(874)
87,655
1,227
88,882
On April 25, 2017 the Corporation closed a bought deal
On December 12, 2017 the Corporation closed a bought deal
offering of 1,518,000 common shares at $38.00/share. The
offering of 924,600 common shares at $37.35/share. The net
net proceeds of the offering after deducting expenses of the
proceeds of the offering after deducting expenses of the
offering and the underwriter’s fee were $55,000. The net
offering and the underwriter’s fee were $32,655. The net
proceeds of the offering were used to reduce the revolving
proceeds of the offering were used to partially pay down
debt to nil, and to fund the build out of the Corporation’s
indebtedness that was incurred under K-Bro's amended
state-of-the-art facilities in Toronto and Vancouver, and for
$100,000 senior secured revolving credit facility to fund the
general corporate purposes.
acquisition of Fishers.
18. EARNINGS PER SHARE
A. Basic
Basic earnings per share is calculated by dividing the net earnings attributable to equity holders of the Corporation
by the weighted average number of ordinary shares in issue during the year.
Net earnings
Weighted average number of shares outstanding (thousands)
Net earnings per share, basic
2017
2016
5,718
9,084
0.63
11,527
7,955
1.45
The basic net earnings per share calculation excludes the unvested Common shares held by the LTIP Trust.
6 8
WE ARE DEPENDABLE.
B. Diluted
Diluted earnings per share is calculated by adjusting the weighted average number of ordinary shares to assume conversion
of all dilutive potential ordinary shares.
Basic weighted average shares for the year
Dilutive effect of LTI shares
Diluted weighted average shares for the year
Net earnings
Weighted average number
Net earnings per share, diluted
2017
9,083,693
31,181
9,114,874
2017
5,718
9,115
0.63
2016
7,955,026
31,703
7,986,729
2016
11,527
7,987
1.44
19. LONG-TERM INCENTIVE PLAN
A trust was formed to hold equity grants issued under the terms
its power over the LTIP Trust. Therefore the Corporation has
of the LTI on behalf of the participants (the “LTIP Trust”). The
consolidated the LTIP Trust. Compensation expense is recorded
Corporation is neither a trustee of the LTIP Trust nor a direct
by the Corporation in the period earned. Dividends paid by
participant of the LTI; however, under certain circumstances
the Corporation with respect to unvested Common shares
the Corporation may be the beneficiary of forfeited Common
held by the LTIP Trust are paid to LTI participants. Unvested
shares held by the LTIP Trust. The Corporation has control
Common shares held by the LTIP Trust are shown as a reduction
over the LTIP Trust as it is exposed, or has rights, to variable
of shareholders’ equity.
returns and has the ability to affect those returns through
Balance, beginning of year
Issued during year
Vested during year
2017
2016
Unvested
44,634
28,544
(18,298)
Vested
375,958
13,879
18,298
Unvested
39,716
26,336
(21,418)
Vested
343,109
11,431
21,418
Balance, end of year
54,880
408,135
44,634
375,958
The cost of the 54,880 (2016 – 39,716) unvested Common shares held by the LTIP Trust at December 31, 2017 was nil (2016 - nil).
20. DIVIDENDS TO SHAREHOLDERS
During the year ended December 31, 2017, the Corporation
capital expenditures, working capital, growth capital and other
declared total dividends to shareholders of $11,121 or $1.200
reserves considered advisable by the Directors of the
per share (2016 - $9,613 or $1.200 per share).
Corporation. All such dividends are discretionary. Dividends
The Corporation’s policy is to pay dividends to Shareholders of
its available cash to the maximum extent possible consistent
with good business practice considering requirements for
are declared payable each month to the Shareholders on
the last business day of each month and are paid by the 15th
day of the following month.
6 9
2017 ANNUAL REPORT
21. NET CHANGE IN NON-CASH WORKING CAPITAL ITEMS
Accounts receivable
Linen in service
Prepaid expenses and deposits
Accounts payable and accrued liabilities 1
Income taxes payable / receivable
2017
(2,961)
(2,720)
(309)
4,930
(2,862)
(3,922)
2016
(1,296)
(232)
(411)
340
405
(1,194)
1 Accounts payable and accrued liabilities exclude the net change in non-cash amounts related to the acquisition of property, plant and equipment that have been committed
to but not yet paid of $4,078 (2016 - $3,905).
22. FINANCIAL INSTRUMENTS
A. Fair value
The Corporation’s financial instruments at December 31,
2017 and 2016 consist of cash and cash equivalents, accounts
receivable, accounts payable and accrued
liabilities,
dividends payable to shareholders, and long term debt. The
carrying value of accounts receivable, accounts payable and
accrued liabilities, and dividends payable to shareholders
approximate fair value due to the immediate or short-term
maturity of these financial instruments. The fair value of the
Corporation's
interest-bearing debt approximates the
The Corporation’s operations in the UK transacts in Sterling
pounds £, with minimal revenue and expenses that are
incurred in other foreign currencies. The Corporation is
sensitive to foreign exchange risk arising from the translation
of the financial statements of subsidiaries with a functional
currency other than the Canadian dollar impacting other
comprehensive income (loss).
For large capital expenditure commitments denominated
in a foreign currency, the Corporation will enter into foreign
exchange forward contracts
if considered prudent to
mitigate this risk.
respective carrying amount due to the floating rate nature
Based on financial instrument balances as at December 31,
of the debt.
B. Financial risk management
The Corporation’s activities are exposed to a variety of
financial risks: price risk, credit risk and liquidity risk. The
Corporation’s overall risk management program focuses on
the unpredictability of financial and economic markets and
seeks to minimize potential adverse effects on the
Corporation’s financial performance. Risk management is
carried out by financial management in conjunction with
overall corporate governance.
C. Price risk
i. Currency risk
Foreign currency risk arises from the fluctuations in foreign
exchange rates and the degree of volatility of these rates
relative to the Canadian dollar.
The Corporation’s operations in Canada are not significantly
exposed to foreign currency risk as all revenues are received
in Canadian dollars and minimal expenses are incurred in
foreign currencies.
2017, a strengthening or weakening of $0.01 of the Canadian
dollar to the U.S. dollar with all other variables held constant
could have a favorable or unfavorable impact of approximately
$46, respectively, on net earnings.
Based on financial instrument balances as at December 31,
2017, a strengthening or weakening of $0.01 of the Canadian
dollar to the Sterling pounds £, with all other variables held
constant could have an unfavorable or favorable impact of
approximately $54, respectively, on other comprehensive loss.
ii. Interest rate risk
The Corporation is subject to interest rate risk as its credit
facility bears interest at rates that depend on certain
financial ratios of the Corporation and vary in accordance
with market interest rates. Based on the credit facility at
year end, the sensitivity to a 100 basis point movement in
interest rates would result in an impact of $428 to net
earnings.
iii. Other price risk
The Corporation’s exposure to other price risk is limited
since there are no significant financial instruments which
fluctuate as a result of changes in market prices.
7 0
WE ARE DEPENDABLE.
D. Credit risk
The Corporation’s financial assets that are exposed to credit
contractual relationship with the customer and the nature
risk consist of cash and cash equivalents and accounts
of the customer which in many cases is a publicly funded
receivable. The Corporation, in the normal course of business,
health care entity.
is exposed to credit risk from its customers. The allowance
for doubtful accounts and past due receivables are reviewed
by management at each balance sheet reporting date. Any
amounts greater than 60 days are reviewed for impairment
on a specific identification basis and have been fully
accounted for as at December 31, 2017.
Management believes that the risks associated with
concentrations of credit risk with respect to accounts
receivable are limited due to the nature of the customers and
the generally short payment terms. The credit risk associated
with cash and cash equivalents is minimized by ensuring
these financial assets are held with Canadian chartered
The Corporation updates its estimate of the allowance
banks and Standard Chartered Bank United Kingdom.
for doubtful accounts based on the evaluation of the
recoverability of accounts receivable balances of each
customer taking into account historic collection trends, the
The aging of the Corporation’s receivables and related
allowance for doubtful accounts are:
DECEMBER 31, 2016
GROSS
ALLOWANCE
Current
31-60 days
Greater than 60 days
15,470
2,730
282
18,482
-
-
31
31
DECEMBER 31, 2017
GROSS
ALLOWANCE
Current
31-60 days
Greater than 60 days
22,813
5,906
1,367
30,086
-
-
368
368
NET
15,470
2,730
251
18,451
NET
22,813
5,906
999
29,718
While the Corporation evaluates a customer’s credit worthiness before credit is extended, provisions for potential credit
losses are also maintained. The change in allowance for doubtful accounts was as follows:
Balance, beginning of year
Adjustment made during the year
Acquisition of business
Effect of movements in exchange rates
Balance, end of year
2017
31
(10)
348
(1)
368
2016
30
1
-
-
31
7 1
2017 ANNUAL REPORT
E. Liquidity risk
The Corporation’s accounts payable and dividend payable are due within one year.
Payments due under contractual obligations for the next five years and thereafter are as follows:
Long-term debt
Operating lease commitments
Utility commitments
Linen purchase obligations
Property, plant and equipment commitments
PAYMENTS DUE PERIOD
TOTAL
< 1 YEAR
1-3 YEARS
4-5 YEARS > 5 YEARS
42,780
68,276
9,676
10,232
28,748
-
9,588
5,827
10,232
28,748
42,780
15,379
2,575
-
-
-
11,115
1,274
-
-
-
32,194
-
-
-
The Corporation has a credit facility with a maturity date of
and the Corporation has maintained financial ratios that
July 31, 2021 (Note 12). The degree to which the Corporation is
management believes are conservative compared to financial
leveraged may reduce its ability to obtain additional financing
covenants applicable to the credit facility. A significant portion
for working capital and to finance investments to maintain
of the available facility remains undrawn.
and grow the current levels of cash flows from operations.
The Corporation may be unable to extend the maturity date
of the credit facility.
Management, to reduce liquidity risk, has historically renewed
the terms of the credit facility in advance of its maturity dates
Management measures liquidity risk through comparisons
of current financial ratios with financial covenants contained
in the credit facility.
7 2
WE ARE DEPENDABLE.
23. CAPITAL MANAGEMENT
The Corporation views its capital resources as the aggregate
The Corporation pays a dividend which reduces its ability
of its debt, shareholders’ equity and amounts available under
to internally finance growth and expansion. However the
its credit facility. In general, the overall capital of the Corporation
availability of the Corporation’s revolving line of credit provides
is evaluated and determined in the context of its financial
sufficient access to capital to allow K-Bro to take advantage
objectives and its strategic plan.
of acquisition opportunities. The merits of the dividend are
The Corporation’s objective in managing capital is to ensure
periodically evaluated by the Board.
sufficient liquidity to pursue its growth and expansion strategy,
The primary measures used by the Corporation to monitor
while taking a conservative approach towards financial
its financial leverage are the ratios of Funded Debt to EBITDA
leverage and management of financial risk. The Corporation’s
(earnings before income taxes, depreciation and amortization)
capital is composed of shareholders’ equity and long-term
and Fixed Charge Coverage. EBITDA is an additional GAAP
debt. The Corporation’s primary uses of capital are to finance
measure as prescribed by IFRS and has been presented in
its growth strategies and capital expenditure programs.
the manner in which the chief operating decision maker
The Corporation currently funds these requirements from
assesses performance.
internally-generated cash flows and interest bearing debt.
The Corporation manages a Funded Debt to EBITDA ratio calculated as follows:
Long-term debt, including current proportion
Issued and outstanding letters of credit
Cash and cash equivalents
Funded debt
Net earnings for the trailing twelve months
Add:
Income tax expense
Finance expense
Depreciation of property, plant and equipment
Amortization of intangible assets
EBITDA (note 28)
Funded debt to EBITDA
2017
42,780
1,650
(11,276)
33,154
5,718
3,761
1,133
11,606
1,767
23,985
1.38x
2016
25,800
1,650
-
27,450
11,527
4,840
739
9,235
1,790
28,131
0.98x
The Corporation manages a Fixed Charge Coverage calculated on a trailing twelve-month basis as follows:
2017
23,985
1,133
11,121
12,254
2.0x
2016
28,131
739
9,613
10,352
2.7x
EBITDA (note28)
Finance expense
Dividends to shareholders
Fixed charge coverage
7 3
2017 ANNUAL REPORT
24. RELATED PARTY TRANSACTIONS
The Corporation transacts with key
individuals from
Key management personnel are defined as the executive
management and with the Board who have authority and
officers of the Corporation including the President and Chief
responsibility to plan, direct and control the activities of the
Executive Officer, Senior Vice-President, Chief Financial
Corporation. The nature of these dealings were in the form
Officer and one employee acting in the capacity of Managing
of payments for services rendered in their capacity as
Director, UK.
Directors (retainers and meeting fees, including share-based
payments) and as employees of the Corporation (salaries,
benefits, short-term bonuses and share-based payments).
During 2017 and 2016, remuneration to directors and key
management personnel was as follows:
Salaries and retainer fees
Short-term bonus incentives
Post-employment benefits
Share-based payments
2017
1,487
912
45
1,290
3,734
2016
1,431
867
43
1,181
3,522
1 Renumeration to directors and key management personnel for 2016 has been restated based off the change in key management personnel as defined.
The Corporation incurred expenses in the normal course of business for advisory consulting services provided by a Director.
The amounts charged are included as salaries and retainer fees. For the year ended December 31, 2017, the Corporation
incurred such fees totaling $138 (2016 – $138).
25. EXPENSES BY NATURE
Wages and benefits
Linen
Utilities
Delivery
Material and supplies
Occupancy costs
Repair and maintenance
Other expenses
2017
82,184
18,998
10,393
11,358
6,683
6,652
5,627
4,679
2016
77,154
17,547
9,776
8,793
6,083
5,505
4,855
1,245
146,574
130,958
7 4
WE ARE DEPENDABLE.
26. SEGMENTED INFORMATION
The Chief Executive Officer (“CEO”) is the corporation’s chief
The CEO primarily uses a measure of EBITDA to assess the
operating decision-maker. The Chief Executive Officer
performance of the operating segments. However, the CEO
examines the Corporation’s performance and allocation of
also receives information about the segments’ revenue and
resources both from geographic perspective and service
assets on a monthly basis.
type, and has identified two reportable segments of
its business:
A. Segment revenue
1. Canadian division - provides laundry and linen services to
the healthcare and hospitality sectors through nine
operating divisions located in Vancouver, Victoria, Calgary,
Edmonton, Regina, Toronto, Montréal, and Québec
City. Management has assessed that the services
offered and the economic characteristics associated
with these divisions are similar, and therefore they have
been aggregated into one reportable segment which
operates exclusively in Canada.
2. UK division - provides laundry and linen services
primarily to the hospitality sector with less than 10% of
the revenue generated in other service sectors, through
six plants and a distribution center located in North
Lanarkshire, Inverness, West Lothian, North Shields,
Perth, and Fife.
The aggregation assessment requires significant judgment
by management. Economic indicators used by management
to assess the economic characteristics are the gross margin
and the growth rate of each division.
Healthcare
Hospitality
Canadian division
Healthcare
Hospitality
UK division
The Corporation disaggregates revenue from contracts with
customers by geographic location and customer-type for
each of our segments, as we believe it best depicts how the
nature, amount, timing and uncertainty of our revenue and
cash flows are affected by economic factors.
Sales between segments are carried out at arm’s length and
are eliminated on consolidation. The revenue from external
parties
is measured
in the same manner as
in the
consolidated statements of earnings & comprehensive
income and as disclosed in Note 2(e).
In Edmonton, the Corporation is the significant supplier of
laundry and linen services to the entity which manages all
major healthcare facilities in the region and this contract
expires on March 31, 2023. In Calgary, the major customer is
contractually committed to February 28, 2019, in Vancouver
the major customer is contractually committed to March 1,
2027, and in Saskatchewan the major customer is contractually
committed to June 1, 2025. For the twelve months ended
December 31, 2017, from these four major customers the
Corporation has recorded revenue of $92,340 (2016 – $87,782),
representing 54.1% (2016 – 55.2%) of total revenue.
2017
2016
116,948
48,883
165,831
10
4,718
4,728
68.6 %
28.7 %
97.2 %
0.0 %
2.8 %
2.8 %
111,384
47,705
70.0 %
30.0 %
159,089
100.0 %
-
-
-
0.0 %
0.0 %
0.0 %
Total segment revenue
170,559
100.0 %
159,089
100.0 %
7 5
2017 ANNUAL REPORT
B. Segment EBITDA
Segment EBITDA is calculated consistent with the presentation in the financial statements. The EBITDA is allocated based
on the operations of the segment, and where the earnings and costs are generated from.
Net earnings (loss)
Add:
Income tax expense (recovery)
Finance expense
Depreciation of property, plant and equipment
Amortization of intangible assets
Transaction costs due to acquisition of business
EBITDA
Net earnings (loss)
Add:
Income tax expense
Finance expense
Depreciation of property, plant and equipment
Amortization of intangible assets
EBITDA
CANADIAN
DIVISION
UK
DIVISION
2017
8,599
3,803
1,115
11,400
1,576
26,493
CANADIAN
DIVISION
2016
11,527
4,840
739
9,235
1,790
28,131
2017
(2,881)
(42)
18
206
191
2,831
323
UK
DIVISION
2016
-
-
-
-
-
-
OTHER
2017
-
-
-
-
-
(2,831)
(2,831)
OTHER
2016
-
-
-
-
-
-
2017
5,718
3,761
1,133
11,606
1,767
-
23,985
2016
11,527
4,840
739
9,235
1,790
28,131
The Canadian division net earnings includes non-cash employee share based compensation expense of $1,508 (2016 – $1,518).
C. Segment assets
Segment assets are measured in the same way as in the financial
The Corporation’s cash and cash equivalents are not
statements. These assets are allocated based on the operations
considered to be segment assets, but are managed by the
of the segment and the physical location of the asset.
treasury function.
YEAR ENDED DECEMBER 31
Total assets
Other:
Cash and cash equivalents
Intercompany loans
Total segment assets
YEAR ENDED DECEMBER 31
Total assets
Total segment assets
CANADIAN
DIVISION
UK
DIVISION
2017
2017
2017
225,339
69,874
295,213
-
(10,934)
214,405
CAN
DIVISION
2016
168,289
168,289
(11,276)
10,934
(11,276)
-
69,532
283,937
UK
DIVISION
2016
-
-
2016
168,289
168,289
7 6
WE ARE DEPENDABLE.
D. Segment liabilities
Segment liabilities are measured in the same way as in the financial statements. These liabilities are allocated
based on the operations of the segment.
The Corporation’s borrowings are not considered to be segment liabilities, but are managed by the treasury function.
YEAR ENDED DECEMBER 31
Total liabilities
Other:
Long-term debt (note 12)
Total segment assets
YEAR ENDED DECEMBER 31
Total liabilities
Other:
Long-term debt (note 12)
Total segment assets
CANADIAN
DIVISION
UK
DIVISION
2017
78,410
(42,780)
35,630
CANADIAN
DIVISION
2016
51,617
(25,800)
25,817
2017
15,216
2017
93,626
-
(42,780)
15,216
50,846
UK
DIVISION
2016
-
-
-
2016
51,617
(25,800)
25,817
27. STATEMENTS OF EARNINGS & COMPREHENSIVE INCOME - RECLASSIFICATION
The Corporation has made a reclassification that affects
emphasized with the strategic growth of the Corporation. In
some of the costs related to wages and benefits, and delivery
order to maintain comparability, the financial statements
costs. The reason is to give a true and fair view based on the
for 2016 and 2017 have been adjusted. The reclassification
intended function of the delivery costs, which have been
does not affect EBITDA or net earnings.
YEAR ENDED
DECEMBER 31,2017
YEAR ENDED
DECEMBER 31, 2016
After
Reclassification Reclassification Reclassification Reclassification Reclassification Reclassification
Before
Before
After
Wages & benefits
Delivery
Total
77,286
11,358
88,644
(6,934)
6,934
-
70,352
18,292
88,644
72,247
8,793
81,040
(7,172)
7,172
-
65,075
15,965
81,040
7 7
2017 ANNUAL REPORT
28. EBITDA RECLASSIFICATION
The Corporation has made a reclassification on the
statement of earnings and comprehensive income, in which
the “loss on disposal of property plant and equipment” has
now been included as part of EBITDA, the financial
statements for 2016 and 2017 have been adjusted. The
reclassification does not affect net earnings.
29. SUBSEQUENT EVENTS
A. Dividends
The Corporation’s Board of Directors declared an eligible
dividend of $0.10 per Common share of the Corporation
payable on each of February 15, March 15 and April 13, 2018
to Shareholders of record on January 31, February 28, and
March 31, 2018 respectively.
B. Alberta Healthcare Contract Extension
On March 1, 2018, the Corporation was awarded a 1 year
extension to provide laundry and linen services to Alberta
Health Services Calgary. The contract extends the existing
relationship between the Corporation and Alberta Health
Services Calgary.
“ K - B R O ’ S F O C U S I S O N
P R O F I TA B L E G R O W T H
I N T H E Y E A R S T O C O M E
A S W E E X E C U T E O U R
S T R AT E G Y O F E X PA N D I N G
G E O G R A P H I C A L L Y &
A D D I N G N E W S E R V I C E S
F O R O U R C U S T O M E R S .”
7 8
WE ARE DEPENDABLE. BOARD OF DIRECTORS
ROSS SMITH,
FCPA, FCA (Chair)
Corporate Director
MATTHEW HILLS, MBA
Managing Director
LLM Capital Partners
STEVEN MATYAS, BSc
CEO
Staples Retail Inc.
LINDA MCCURDY, MBA
President & CEO
K-Bro Linen Systems Inc.
MICHAEL PERCY, PhD
Professor
School of Business
University of Alberta
EXECUTIVE OFFICERS
LINDA MCCURDY, MBA
President & CEO
SEAN CURTIS, Senior VP & COO
(Edmonton)
CORPO RAT E I NF OR MATI ON
LOCATIONS - CANADA
CORPORATE OFFICE
VANCOUVER 2
REGINA
QUÉBEC
4590 Canada Way
Burnaby, BC
V5G 1J6
P 604 681 3291
F 604 685 1458
730 Dethridge Bay
Regina, SK
S4N 6H9
P 306 757 5276
F 306 757 5280
367 Boulevard Des
Chutes, Québec City
QC G1E 3G1
P 418 661 6163
F 418 661 4000
John Truong
Operations Manager
Sean Jackson
General Manager
Dimitri Hamm
Directeur Général
Fabien Poirier
Directeur Opérations
CALGARY
TORONTO
6969 – 55 St SE
Calgary, AB
T2C 4Y9
P 403 724 9001
F 403 720 2959
6045 Freemont Blvd
Mississauga, ON
L5R 4J3
P 416 233 5555
F 416 233 4434
Jeff Gannon
General Manager
Kevin Stephenson
General Manager
Andrew Mackeen
Operations Manager
Johan Sellarajah
Operations Manager
14903 - 137 Ave
Edmonton, AB
T5V 1R9
P 780 453 5218
F 780 455 6676
VICTORIA
861 Van Isle Way
Victoria, BC
V9B 5R8
P 250 474 5699
F 250 474 5680
Steve Cummings
General Manager
VANCOUVER 1
8035 Enterprise St
Burnaby, BC
V5A 1V5
P 604 420 2203
F 604 420 2313
Kevin McElgunn
General Manager
KRISTIE PLAQUIN, CPA, CA
Chief Financial Officer
Peter Papagianeas
Operations Manager
P 780 451 3131
F 780 452 2838
Trevor Rye
General Manager
EDMONTON
15223 – 121 A Ave
Edmonton, AB
T5V 1N1
MONTRÉAL
599, Rue Simonds
Sud Granby, QC
J2J 1C1
P 450 378 3187
F 450 378 8245
Sylvain Tremblay
Directeur Général
TRANSFER AGENT
& REGISTRAR
AST Trust Company
Calgary, Alberta
AUDITORS
PricewaterhouseCoopers LLP
Edmonton, Alberta
LEGAL COUNSEL
Stikeman Elliott
Toronto, Ontario
McLennan Ross LLP
Edmonton, Alberta
PRINCIPAL BANK
TD Bank
Edmonton, Alberta
STOCK EXCHANGE LISTING
TSX: KBL
LOCATIONS - UK
HEAD OFFICE
3 Riggs Place,
Cupar, Fife,
KY155JA
P 01334654033
CUPAR
Prestonhall Industrial
Estate, Cupar, Fife,
KY154RD
P 01334655220
David Emslie
General Manager
PERTH
LIVINGSTON
NEWCASTLE
Inveralmond Industrial
Estate, Ruthvenfield
Avenue, Perth,
PH13UF
P 01738210106
James Dearsley
General Manager
INVERNESS
Unit 63, Carsegate
Road, Inverness,
IV38EX
P 01463229537
James Dearsley
General Manager
2 Gregory Road, Kirkton
Campus, Livingston,
EH547DR
P 01506426816
Joe White
General Manager
RIGGS PLACE
3 Riggs Place,
Cupar, Fife,
KY155JA
P 01334654033
Joe White
General Manager
Unit L4, Intersect 19,
High Flatworth, Tyne
Tunnel Industrial
Estate, North Shields,
NE297UT
P 01916053106
Mark Ferguson
General Manager
COATBRIDGE
18 Palacraig Street,
Coatbridge,
ML54RY
P 01236449010
John Marshall
General Manager
NOTICE OF
ANNUAL MEETING
The annual meeting of Shareholders will be held at
the Offices of Stikeman Elliott LLP, Calgary and
Elliott Boardrooms, 5300 Commerce Court West, 199
Bay Street, Toronto, Ontario on Wednesday, June 13,
2018 at 9:00 a.m. EDT
INQUIRIES@K-BROLINEN.COM | K-BROLINEN.COM
INQUIRIES@K-BROLINEN.COM | K-BROLINEN.COM