Table of Contents
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39
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 T O 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 A T E D F I N A N C I A L S T A T E M E N T S
Our country entered 2021 battling COVID,
having suffered too many losses in 2020,
and yet we were hopeful about the year
ahead. While our communities in Canada
and the UK continued to battle COVID, 2021
was also a time of hope and renewal. We
entered 2022 optimistic about our future,
with our company in a strong financial
position and with our customers ready for
a “return to normal”. It may take some time
for the return to be complete, but K-Bro’s
financial and operating strengths position
us to grow with existing and new customers
in all of our markets.
We are grateful that so many of our employees were safe
and healthy during the year. While some of our employees
had COVID at some time during the pandemic, fewer than 15
were in the hospital for COVID and we did not lose anyone
to the disease. We believe that’s a remarkable record in
any circumstance, let alone one in which our employees
continued to come to work every week during the pandemic.
It is a tribute to our employees and their families and their
focus on safe practices at home, and we continued to provide
the safest and cleanest possible environment at our plants.
1
2021 ANNUAL REPORT
While our operations continued to be impacted in 2021, our
overall financial results were encouraging, especially since
government pandemic programs such as CEWS had almost
no impact on our results:
· Revenue and EBITDA were $224mm and $42.8mm.
Our healthcare business remained strong, and we are
optimistic about healthcare volumes in 2022. In addition,
we were honored to be awarded all of Alberta’s volume
in an 11-year contract (we had been processing approx-
imately 70% of the province’s volume). We now process
100% of the healthcare volume under long-term
contract in Alberta and Saskatchewan, most of the
Lower Mainland in B.C., and a significant number of
hospitals in Toronto.
· All of our Canadian plants remained in operation
throughout the year.
· We maintained a conservative balance sheet throughout
the year and have entered 2022 with significant capacity
to fund our organic and acquisition growth.
We are thankful for your continuing support and
confidence, and remain committed to earning your
trust and loyalty every day. We remain focused on
providing best-in-class services for every one of our
healthcare and hospitality customers, to providing
career opportunities in safe environments for our
valued employees, and to working hard for the
financial results that we have all come to expect.
All of us at K-Bro wish you a good 2022, and that
we will continue to see better times ahead.
L I N D A
M c C U R D Y
2
WE ARE DEPENDABLE.
3
2021 ANNUAL REPORT K-Bro continued to face challenges from the world-
wide pandemic throughout 2021, but we entered
2022 with hope and optimism about our future.
Canada and the UK both have high vaccinations
rates, and our economies have strongly rebounded.
K-Bro has seen volumes improve during 2021 and
the beginning of 2022, and we are optimistic about
continuing increases for this year and beyond.
The health and safety of our employees remain a key
concern, and we were grateful for the very low rate of illness
among our staff in the UK and Canada even as our facilities
have remained open throughout the pandemic. We commit
ourselves to an even safer environment for all of our staff.
in 2021 showed a significant
Financial performance
improvement
in our operations, especially given the
continued impact from COVID. Revenue and EBITDA were
$224mm and $42.8mm, and we maintained significant
liquidity throughout the year. We will continue to pursue
organic and acquisition growth opportunities in existing and
new markets.
Finally, 2021 was my first year as K-Bro’s Chair. I want to
thank the management team and all of our staff for their
dedication to our company and the pride that they take in
their work. I also want to thank my predecessor Ross Smith,
who was our Chair from our IPO in 2005 until this past June.
Ross chaired our Board during a time of tremendous growth
and transformation of our business, and we are apprecia-
tive of everything he did for K-Bro for 16 years.
On behalf of our Company and Board, I want to express
our gratitude for your confidence and loyalty. We remain
committed to doing what is best for our customers,
look
employees, communities and shareholders and
forward to our future with optimism and confidence.
M I C H A E L
P E R C Y
4
WE ARE DEPENDABLE. K-Bro is the largest healthcare & hospitality laundry
& linen processor in Canada, & with the acquisition of
Fishers we are now one of the largest in the UK & Europe.
We operate 15 facilities and two distribution centers, including nine facil-
ities and two distributions centers in Canada, and six facilities in the UK
(Scotland and the North East of England).
Our core values remain central to our reputation, and we continue to relent-
lessly focus on providing industry-leading quality and service. Our ability to
deliver on commitments to our valued customers remains second to none.
5
M A T T H E W H I L L S ,
S T E V E N M A T Y A S ,
E L I S E R E E S ,
M I C H A E L P E R C Y ,
L I N D A M c C U R D Y
2021 ANNUAL REPORT
K-Bro provides the vital products and services that help people heal, travel, live, and play. We’re helping hospitals and
extended care centers care for the young, old and vulnerable in environmentally responsible ways. Our responsibility also
extends to ensuring that we have a safe culture at K-Bro. As our society becomes more diverse, we integrate our commit-
ment to responsibility into our new businesses, employees and the communities in which we live and work.
R Y O U T A H A R A , T R E V O R R Y E , S C O T T I N G L I S , M I C H A E L J O N E S , L U C Y R E N A U T ,
D I M I T R I H A M M , J A C K I E B E L A N G E R , K E V I N S T E P H E N S O N , S E A N J A C K S O N , A N D R E W M A C K E E N ,
K R I S T I E P L A Q U I N , S E A N C U R T I S , J E F F G A N N O N
“K-Bro’s focus on investing for the long term has
created a highly efficient, environmentally conscious
& cost-effective network across Canada.”
6
WE ARE DEPENDABLE.
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.
R E V E N U E
U P
13.9%
250
225
200
175
150
($)
48
44
40
36
32
28
24
20
2017
(In millions of Canadian dollars) Years ended December 31
2020
2019
2018
20212021
E B I T D A (1)
U P
11.9%
2017
(In millions of Canadian dollars) Years ended December 31
2020
2019
2018
20212021
1 Effective January 1, 2019, the Corporation has adopted IFRS 16 Leases (“IFRS 16”) using the modified retrospec-
tive method but has not restated comparatives for the prior periods, as permitted under the specific transitional
provisions of IFRS 16. To enable the comparability of previous periods, the Corporation has provided the 2020 and
2019 figures for both EBITDA and net earnings without adoption of IFRS 16 as separate line items. Refer to the
Accounting Changes section of the MD&A for more information.
2 The ongoing COVID-19 pandemic has caused world governments to institute travel restrictions, impacting travel both
in and out of Canada and the UK. This has had and is expected to continue to have a significant adverse impact on
the Corporation’s hospitality business, the duration of which we are unable to predict with any degree of accuracy.
Since mid-March 2020, we have seen significantly reduced hotel occupancy rates compared to historical levels.
Demand for both business and leisure airline travel has declined significantly on a global basis, and airlines are
responding by cancelling international and domestic flights. Accordingly, hospitality volumes in all of our Cana-
dian and UK markets have slowed to historically low levels.
7
2021 ANNUAL REPORT
Years ended December 31,
2021
2020
2019
2018
2017
Income Statement Data
Revenue
EBITDA[1]
EBITDA (%)[1]
Net earnings[1]
Net earnings per share (Diluted)[1]
Balance Sheet Data
Working capital
Long-term debt
Other Financial Data
Distributable cash per share
Payout ratio (%)
Price to earnings multiple (12 months trailing)
Price to EBITDA multiple (12 months trailing)
Return on shareholders’ equity (ROE)(%)
Total shareholder return, YTD (%)
Total shareholder return, 5 yrs (%)
Market capitalization
Share price:
High
Low
Close
223,992
42,791
19.1
8,692
0.81
30,271
37,973
2.57
46.8
42.2
8.5
4.7
9.2
2.7
365,150
47.22
33.36
34.20
196,591
38,244
19.5
3,782
0.36
252,410
47,573
18.8
10,906
1.03
239,534
29,581
12.3
6,169
0.59
170,559
23,985
14.1
5,718
0.63
27,922
40,657
31,021
62,494
34,825
70,203
32,008
42,780
2.94
40.9
93.0
10.8
2.3
4.5
6.7
416,078
46.44
23.73
38.97
2.80
51.1
40.8
9.3
5.6
29.3
1.0
445,914
43.16
32.74
42.05
2.36
51.1
56.7
11.9
3.1
16.2
14.5
351,404
41.71
32.00
33.44
2.20
55.5
65.6
15.7
2.8
0.9
19.3
434,211
45.00
37.39
41.32
1 Effective January 1, 2019, the Corporation has adopted IFRS 16 Leases (“IFRS 16”) using the modified retrospective method but has not restated comparatives for the prior periods, as
permitted under the specific transitional provisions of IFRS 16. Refer to the Accounting Changes section of this MD&A for more information.
($ Thousands of CDN dollars, except percentages and per share data)
8
WE ARE DEPENDABLE.
9
2021 ANNUAL REPORT 12
13
14
15
16
I N T R O D U C T I O N
S T R A T 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 E L E C T E D A N N U A L F I N A N C I A L I N F O R M A T I O N
S U M M A R Y O F R E S U L T S & K E Y E V E N T S
20
O U T L O O K
21
28
R E S U L T S O F O P E R A T I O N S
L I Q U I D I T Y & C A P I T A L R E S O U R C E S
30
D I V I D E N D S
31
D I S T R I B U T A B L E C A S H F L O W
32 O U T S T A N D I N G C O M M O N S H A R E S
32 R E L A T E D P A R T Y T R A N S A C T I O N
32
35
C R I T I C A L A C C O U N T I N G E S T I M A T E S
T E R M I N O L O G Y
36 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
36 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
37
37
38
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 T A I N T I E S
C O N T R O L S & P R O C E D U R E S
10
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 A T I O N S
The following Management's Discussion and Analysis
(“MD&A”) is supplemental to, and should be read in conjunc-
tion with, the audited consolidated financial statements of
K-Bro Linen Inc. (“the Corporation”) for the years ended
December 31, 2021 and 2020 (the “2020 Audited Financial
Statements”), as well as the unaudited interim condensed
consolidated financial statements for the periods ended
March 31, 2021, June 30, 2021 and September 30, 2021. 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 infor-
mation 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 15, 2022.
In the interest of providing current holders (“Shareholders”)
of common shares of K-Bro Linen Inc. (“Common Shares”)
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 condi-
tions and courses of action, and include future oriented
financial information.
This MD&A contains forward looking information that
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 expres-
sions 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 assump-
tions 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 uncer-
tainties include, among other things: (i) risks associated
with acquisitions, including the possibility of undisclosed
material liabilities; (ii) K-Bro's competitive environment;
(iii) utility costs, minimum wage legislation and labour
costs; (iv) K-Bro's dependence on long-term contracts with
the associated renewal risk including, without limitation,
in connection with the settlement of definitive documen-
tation in respect there of; (v) increased capital expendi-
ture 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, Quebec, Saskatchewan and the
United Kingdom (the “UK”); (ix) the availability of future
financing; (x) textile demand; (xi) the adverse impact of the
COVID-19 pandemic on the Corporation, which has been
significant to date and which we believe will continue to be
significant for the short to medium term; (xii) availability
and access to labour; (xiii) rising wage rates in all juris-
dictions the Corporation operates and (ix) foreign currency
risk. Material factors or assumptions that were applied in
drawing a conclusion or making an estimate set out in the
forward-looking information include: (i) volumes and pricing
assumptions; (ii) expected impact of labour cost initiatives;
(iii) frequency of one-time costs impacting quarterly and
annual financial results; (iv) foreign exchange rates; (v) the
level of capital expenditures and (vi) the expected impact
of the COVID-19 pandemic on the Corporation. 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 finan-
cial outlook may not be appropriate for purposes other than
this MD&A. Forward looking information included in this
11
2021 ANNUAL REPORT I N D U S T R Y & M A R K E T
In Canada, K-Bro provides laundry and linen services to
healthcare, hospitality and other commercial customers.
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 facil-
ities (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.
In the UK, Fishers provides laundry and linen services to
healthcare, hospitality and other commercial customers.
Typical services offered by Fishers include the processing,
management and distribution of general linen, workwear
and clean room garment services. Other types of proces-
sors in Fishers’ industry in the UK include publicly traded
companies, 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 hospi-
tality 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, K-Bro is distinctive in its
ability to deliver products and services that provide value
to our customers. Management believes that the health-
care and hospitality sectors of the laundry and linen
services industry represent a stable base of annual recur-
ring business with opportunities for growth as additional
healthcare beds and funds are made available to meet the
needs of an aging demographic.
MD&A includes the expected annual healthcare revenues
to be generated from the Corporation’s contracts with new
customers, calculation of costs, including one-time costs
impacting the quarterly financial results, anticipated future
capital spending and statements with respect to future
expectations on margins and volume growth, as well as
statements related to the impact of the COVID-19 pandemic
on the Corporation.
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 obliga-
tion 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.
Introduction
C O R E B U S I N E S S
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
UK, providing a range of linen services to healthcare insti-
tutions, 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 facil-
ities in Scotland, providing linen rental, workwear hire and
cleanroom garment services to the hospitality, health-
care, manufacturing and pharmaceutical sectors. The
Corporation operates six UK sites located in Cupar, Perth,
Newcastle, Livingston and Coatbridge. The Corporation has
temporarily shut down its facility in Perth as a result of the
COVID-19 pandemic.
12
WE ARE DEPENDABLE. I N D U S T R Y C H A R A C T E R I S T I C S
& T R E N D S
Management believes that the industry in which K-Bro
operates has historically exhibited the following character-
istics and trends:
Generally 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
the hospitality industry. The potential for step-changes in
volumes and revenues that align with contractual arrange-
ments exists within this industry. Service relationships are
generally formalized through contracts in the healthcare
sector that are typically long-term (from five to ten years),
while contracts in the hospitality sector usually range
from two to five years. We note that the ongoing COVID-19
pandemic has introduced atypical instability in both the
healthcare and the hospitality sectors which is inconsis-
tent with the historical characteristics of and trends in
K-Bro’s industry. The continued influence of COVID-19
throughout Canada and the UK, at least in the short-term
to medium-term, is expected to have a significant negative
impact on the Corporation’s business.
Outsourcing and Privatization – In Canada, healthcare
institutions and regional authorities are facing funding
pressures and must continually evaluate the alloca-
tion 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 and significant management expertise that can be
provided on a more comprehensive and cost-effective
basis than customers can achieve in operating their own
laundry facilities.
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. Management
evaluates M&A opportunities on an ongoing basis and
looks to leverage the Corporation’s strong liquidity
position, balance sheet and access to the capital markets
to execute on these opportunities as they arise.
C U S T O M E R S & P R O D U C T M I X
K-Bro’s Canadian customers include some of the largest
healthcare institutions and hospitality providers in Canada.
In the UK, Fishers’ customers include 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 greater than 250 rooms) have historically gener-
ated between 0.5 million and 3 million pounds of linen per
year. Most healthcare customers have historically generated
between 0.5 million pounds of linen per year for a hospital
and up to approximately 40 million pounds of linen per year
for a Canadian healthcare region.
Strategy
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 five to
ten years in length. Contracts in the hospitality sector
typically range from two to five years.
Extend Core Services to New Markets – Management has
demonstrated its ability to successfully expand K-Bro's
business into new markets from its 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 signifi-
cantly 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.
Management may in the future expand its core services
to new markets either through acquisitions or by estab-
lishing new facilities. Its choice of areas for expansion will
depend on the availability of suitable acquisition candi-
dates, 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 services and on site services. K-Bro
performs the sterilization of operating room linen packs
for six major hospitals in Toronto and the four health
authorities in the Vancouver area.
13
2021 ANNUAL REPORT
For the Canadian division, the Canadian Emergency Wage
Subsidy (“CEWS”) was announced by the Federal Government
in response to the COVID-19 pandemic on March 27, 2020,
however the program ended as of October 23, 2021. The
CEWS program, subsidizes a percentage of employee wages
(subject to certain caps) designed for eligible Canadian
employers whose businesses have been impacted by the
COVID-19 pandemic and is intended to help employers
rehire previously laid off workers, retain existing employees,
and assist Canadian businesses through the COVID-19
pandemic. The CEWS program allowed the Corporation to
preserve a significant number of jobs. Without the benefit
of this wage subsidy, the Canadian operations would have
taken available alternative actions. During the fourth quarter
of 2021, the Corporation did not receive a wage subsidy,
compared to 2020 where $0.6 million of the wage subsidy
was recognized and had been netted against the respective
source of the expense.
For the UK division, the Corporation was eligible for the
Coronavirus Job Retention Scheme (“CJRS”) which was
introduced by the UK government on March 20, 2020 to
pay approximately 80% of salaries for employees (subject
to certain caps) who are furloughed, however the program
ended as of September 30, 2021. During the fourth quarter
of 2021, the Corporation did not receive a wage subsidy
compared to Q4 2020 when the Corporation recorded £0.7
million ($1.3 million) of a wage subsidy. The terms of the
CJRS required companies share in the cost of the program,
and as a result the impact to the Q4 2020 EBITDA was a cost
of £69k ($119k) which represents the UK division’s contri-
bution for hours and certain benefits. For greater clarity,
between April to July 2020 the UK division received an
equivalent amount from the government that was then paid
to furloughed employees netting to no impact on EBITDA,
however starting in August 2020 the UK division was required
to make contributions for hours and certain benefits.
Fourth Quarter
Overview
Net earnings for the fourth quarter of 2021 were $1.5 million
or $0.14 per Common Share (basic). Cash flow from operating
activities for the fourth quarter of 2021 was $7.7 million
and distributable cash flow was $6.6 million. Consolidated
revenue for the fourth quarter of 2021 increased to $62.2
million or by 23.5% compared to 2020 primarily related to
restrictions from the COVID-19 pandemic being eased which
drove stronger hospitality client activity and the continued
strength of healthcare revenues as a result of the COVID-19
pandemic and the resulting healthcare practice changes. This
is offset by repricing of the Corporation’s existing business in
Edmonton and Calgary with Alberta Health Services (“AHS”)
which took effect on August 1, 2021 in advance of new rural
business being transitioned to the Corporation. The transi-
tion of new rural business from AHS commenced in late Q3
2021 and is anticipated to be completed by mid-2022 (see
Alberta Contract Award for further details).
EBITDA (see “Terminology”) decreased
in the fourth
quarter to $8.9 million from $11.7 million in 2020, which
is a decrease of 23.9%. For the Canadian division, the
Corporation recorded EBITDA of $7.8 million during the
fourth quarter of 2021 compared to $12.0 million in the
fourth quarter of 2020. For the UK division, the Corporation
recorded EBITDA of $1.1 million during the fourth quarter of
2021 compared to $-0.2 million in the fourth quarter of 2020.
The decrease of $4.2 million in the Canadian division is a
result of a reduction in the amount of CEWS subsidy received
in the quarter from $0.6 million in Q4 2020 to $0.0 million
in Q4 2021, additional labour costs incurred due to exceed-
ingly tight labour markets in certain of the cities in which we
operate, repricing of the Corporation’s existing business in
Edmonton and Calgary with AHS which took effect on August
1, 2021 in advance of new rural business being transitioned
to the Corporation, as well as transition costs for the new
AHS accounts. For the UK division, the increase in EBITDA
of $1.4 million is predominantly driven by increased client
activity related to restrictions from the COVID-19 pandemic
gradually being eased since Q4 2020. On a consolidated
basis, the Corporation’s EBITDA margin decreased from
23.3% in 2020 to 14.4% in 2021. For the Canadian division,
Q4 EBITDA margin decreased to 16.2% from 26.8% for the
comparative quarter of 2020. For the UK division, Q4 EBITDA
margin increased to 8.0% from -3.9% for the comparative
quarter of 2020.
14
WE ARE DEPENDABLE. Selected Annual
Financial Information
Years Ended December 31,
($ Thousands of CDN
dollars, except percentages
and per share amounts)
Canadian
UK
Division Division
2021
2021
Canadian
UK
Division Division
2020
2020
2021
Canadian
UK
Division Division
2019
2019
2020(2)
Revenue
EBITDA(1)
Net earnings (loss)
183,073
39,678
13,604
40,919
3,113
(4,912)
223,992
42,791
8,692
166,682
38,365
10,892
29,909
(121)
(7,110)
196,591
38,244
3,782
186,624
35,843
7,787
65,786
11,730
3,119
Net earnings (loss) per share:
Basic
Diluted
1.282
1.273
(0.463)
(0.460)
0.819
0.813
1.032
1.025
(0.673)
(0.669)
0.358
0.356
0.741
0.737
0.297
0.295
Total assets
Long-term debt (excludes lease liabilities)
332,519
37,973
323,811
40,657
2019
252,410
47,573
10,906
1.038
1.032
352,059
62,494
Weighted average number
of shares outstanding:
Basic
Diluted
10,608,539
10,686,187
10,557,147
10,629,237
10,508,080
10,571,347
1 EBITDA is defined as revenue less operating expenses (which equates to net earnings before income tax, finance expense, and depreciation and amortization). See “Terminology”.
2 Q1 2020 includes an adjustment of $5.5 million for an impairment related charge to the Canadian Division.
15
2021 ANNUAL REPORT
Summary of
2021 Results, Key
Events & Outlook
F I N A N C I A L G R O W T H
Net earnings were $8.7 million or $0.82 per Common
Share (basic). Cash flow from operating activities was
$31.9 million and distributable cash flow was $27.5 million.
Revenue increased in fiscal 2021 to $224.0 million or by
13.9% compared to 2020.
EBITDA (see “Terminology”) increased in 2021 to $42.8
million or by 11.9% compared to $38.2 million in 2020.
On a consolidated basis, EBITDA margin decreased from
19.5% in 2020 to 19.1% in 2021. For the Canadian division,
the EBITDA margin decreased to 21.7% in 2021 from 23.0%
in 2020. The decrease in margin is primarily related to
lower government assistance received in the Canadian
division from $8.3 million received in 2020 to $0.9 million
in 2021, additional labour costs incurred due to exceedingly
tight labour markets in certain cities in which we operate,
repricing of the Corporation’s existing business in Edmonton
and Calgary with AHS which took effect on August 1, 2021
in advance of new rural business being transitioned to the
Corporation, as well as transition costs for the new AHS
accounts. This is offset by a goodwill impairment charge
included in 2020 in the amount of $5.5 million restructuring
costs of $1.6 million and bad debts expense of $0.5 million
in 2020.
For the UK division, the EBITDA margin increased to 7.6%
in 2021 from -0.4% in 2020. The UK division also received
government assistance during 2021 in the amount of £1.6
million ($2.8 million) which has been netted against the
respective source of the expense. Government assistance
received by the UK division through the CJRS from third
quarter of 2020 and onwards required that companies
share in the cost of the program and as a result the impact
to EBITDA during 2021 was a cost of £141k ($245k), which
represents the UK division’s contribution for hours and
certain benefits. The increase in margin is primarily related
to restrictions from the COVID-19 pandemic being eased
which drove stronger hospitality client activity.
Near-Term & Long-Term Growth &
Margin Impact
In 2019, management completed its strategy in its Toronto
and Vancouver markets that it believes will position K-Bro
for long-term growth in its healthcare and hospitality
businesses. The strategy included capital investments
to build large, efficient, state of the art facilities with
meaningful additional capacity in Toronto and Vancouver.
In addition, K-Bro has made investments to upgrade one
of its existing Vancouver plants to create a more efficient
facility with meaningful additional capacity.
The construction and/or upgrade of three of our large facil-
ities enables us to bid on a significant amount of additional
business, but created margin pressure through 2017, 2018
and Q1 2019 as K-Bro incurred significant one time and
transition costs associated with these large investments.
Management believes that the one time and transition costs
incurred will position K-Bro to achieve more long-term
growth and a lower cost structure in the future and that
K-Bro will ultimately return to normalized margins upon
resolution of the COVID-19 pandemic, as more specifically
discussed below.
As disclosed above, the continued spread of COVID-19
throughout Canada and the UK, at least in the short-term
to medium-term, is expected to have a significant negative
impact on the amount of hospitality volume processed by the
Corporation. To date the Corporation has seen an increased
demand on the healthcare portion of the business as a
result of practice changes within the hospitals. Dependent
on the duration of the pandemic, management believes
that the Corporation’s capital investments in Vancouver and
Toronto could position the Corporation to profitably grow
the business, for example as hotel occupancy rates rebound
upon resolution of the public health crisis.
16
WE ARE DEPENDABLE. K E Y E V E N T S I N O U R M A R K E T S
A R E S U M M A R I Z E D B E L O W
Alberta Contract Award
In October 2020, AHS issued a request for proposal for linen
services (the "AHS RFP"). The AHS RFP encompassed the
linen services provided by the Corporation to AHS under its
AHS Calgary contract, as well as the linen services provided
by the Corporation to AHS in Edmonton, for which volumes
were under contract as part of two existing agreements until
2022 and 2023 respectively. The AHS RFP also included new
volume for additional rural and urban locations in Alberta.
On April 27, 2021, the Corporation was selected to provide
laundry services for Alberta Health Services ("AHS") for the
entire province. The award is the result of a competitive RFP
process and extends K-Bro's existing relationships with AHS.
On July 26, 2021, the Corporation announced the signing of
a new 11-year contract, with renewal options for up to an
additional 9 years, to provide laundry and linen services
for AHS province-wide. The contract is anticipated to add
approximately $10.0 million in incremental annual revenue.
The Corporation will continue to incur one-time transi-
tion costs and have temporary margin impacts as the new
volume is transitioned into the Corporation’s two facilities in
Edmonton and Calgary. It is anticipated that the Corporation
will return to normalized margins once the transition is
complete in mid-2022. Capital expenditures are projected in
the amount of approximately $10 million for new linen carts
and additional equipment to support the additional volumes.
The award renews all of K-Bro's existing volume in
Edmonton and Calgary and awards additional healthcare
volume for other sites in Alberta. The new volume will be
serviced from K-Bro's existing state-of-the-art facilities in
Edmonton and Calgary. The transition of new rural business
from AHS commenced in late Q3 2021 and is anticipated to
be completed by mid-2022.
During 2020, in consideration of the ongoing COVID-19
pandemic, management requested temporary changes to
the terms and conditions of the credit facility, which were
as follows:
· An increased Funded Debt to EBITDA covenant for the
period of September 30, 2020 to June 30, 2021 which
gradually allows for a maximum Funded Debt to EBITDA
ratio of 4.5x for Q4 2020 and Q1 2021 including certain
one-time add backs to EBITDA.
· A reduction to the Fixed Charge Covenant for the period
of September 30, 2020 to June 30, 2021 which reduces to
a maximum of 1.1x.
· A restriction on any further dividend increases during
the covenant relief period of July 1, 2020 to June
30, 2021.
These temporary covenant changes as well as the restriction
on dividends expired on June 30, 2021 and the Corporation
must now observe a maximum Funded Debt to EBITDA
covenant of 3.25x and a maximum Fixed Charge covenant
of 1.2x.
Capital Investment Plan
For fiscal 2022, the Corporation’s planned capital spending
is expected to be approximately $5.0 million on a consol-
idated basis. This guidance includes both strategic and
maintenance capital requirements to support existing
base business in both Canada and the UK and does not
take into account amounts accrued in 2021 that are to be
paid in 2022, nor does this account for the projected $10.0
million in additional capital expenditures to support the new
AHS business that was announced earlier in 2021 and is
discussed above under the Alberta Contract Award. We will
continue to assess capital needs within our facilities and
prioritize projects that have shorter term paybacks as well
as those that are required to maintain efficient and reliable
operations.
British Columbia Contract Award
COVID-19 Pandemic
On September 1, 2020 the Corporation was awarded a
five-year extension to provide healthcare laundry and
linen services to part of the Lower Mainland. The contract
extends the existing relationship between the Corporation
and Business Initiatives & Support Services (BISS) for
Vancouver Coastal Health, Fraser Health, Providence
Health Care and Provincial Health Services Authority.
Revolving Credit Facility
On June 30, 2021, the Corporation completed amendments
to its existing revolving credit facility, which extended the
agreement to July 31, 2024 from July 31, 2022.
The ongoing COVID-19 pandemic caused world govern-
ments to institute travel restrictions, impacting travel both
in and out of Canada and the UK. Beginning in mid-March
2020, we saw significantly reduced hotel occupancy rates
compared to historical levels. Demand for both business
and leisure airline travel declined significantly on a global
basis, and airlines responded by cancelling international
and domestic flights. Accordingly, hospitality volumes in
all of our Canadian and UK markets slowed to historically
low levels. However in mid-2021 as government restrictions
began to ease the hospitality segment began to show strong
recovery which is expected to continue.
17
2021 ANNUAL REPORT In late Q1 2020 and into Q2 2020 we initially saw decreases in our healthcare business as a result of hospitals and health author-
ities taking measures to prepare for anticipated surges in COVID-19 related occupancy (i.e., cancellation of elective surgeries).
Since then however, we have continued to see healthcare revenues trend consistently above historical levels due to increased
demand. We cannot predict with certainty how the progression of COVID-19 will impact overall volumes going forward.
The following table depicts the impact of the COVID-19 pandemic on the Corporation’s revenue for 2020 and 2021.
Healthcare
Revenue
Hospitality
Revenue
Change (2020 Change (2020
compared
to 2019)
compared
to 2019)
Consolidated
Revenue
Change (2020
compared
to 2019) Month
Healthcare
Revenue
Hospitality
Revenue
Change (2021 Change (2021
compared
to 2019)
compared
to 2019)
Month
January
February
March
Q1 2020 compared to
Q1 2019 (Jan to Mar)
April
May
June
Q2 2020 compared to
Q2 2019 (Apr to Jun)
3%
5%
0%
3%
-8%
2%
9%
1%
13%
July
12%
August
12%
September
Q3 2020 compared to 12%
Q3 2019 (Jul to Sep)
12%
October
19%
November
24%
December
Q4 2020 compared to 18%
Q4 2019 (Oct to Dec)
7%
7%
-27%
-6%
-94%
-92%
-90%
-92%
-76%
-59%
-53%
-63%
-61%
-69%
-78%
-69%
5%
6%
-12%
-1%
-45%
-39%
-40%
-41%
-29%
-23%
-20%
-24%
-20%
-18%
-22%
-20%
January
25%
February
26%
28%
March
Q1 2021 compared to 26%
Q1 2019 (Jan to Mar)
24%
April
21%
May
22%
June
Q2 2021 compared to 23%
Q2 2019 (Apr to Jun)
16%
July
11%
August
12%
September
Q3 2021 compared to 13%
Q3 2019 (Jul to Sep)
12%
October
19%
November
20%
December
Q4 2021 compared to 17%
Q4 2019 (Oct to Dec)
-80%
-82%
-80%
-81%
-81%
-69%
-49%
-66%
-40%
-30%
-28%
-33%
-28%
-23%
-23%
-25%
Consolidated
Revenue
Change (2021
compared
to 2019)
-14%
-19%
-20%
-18%
-22%
-19%
-13%
-18%
-11%
-9%
-8%
-9%
-5%
1%
1%
-1%
YTD
9%
-60%
-22%
YTD
20%
-49%
-11%
Although the Corporation has developed and implemented
measures to mitigate the effects of the COVID-19 pandemic
which include, temporary restructuring through consoli-
dating operations, reducing headcount, reducing certain
capital expenditures and accessing available government
assistance programs, earnings will continue to be partic-
ularly affected if we continue to experience reductions in
travel and reduced hospitality and healthcare occupancy
rates. The extent of such negative effects on our business
and our financial and operational performance will depend
on future developments, including the duration, spread and
severity of outbreaks, the availability and effectiveness of the
vaccine, the duration and geographic scope of related travel
advisories and restrictions and the extent of the impact of
the COVID-19 pandemic on overall demand for personal and
business travel, all of which are highly uncertain and cannot
be predicted with any degree of accuracy. If hotels continue
to experience significantly reduced occupancy rates, our
consolidated results of operations will be significantly
impacted. Additionally, our suppliers or other third parties
we rely upon may experience delays or shortages, which
could have an adverse effect on our business prospects and
results of operations.
As an ongoing risk, the duration and full financial effect
of the COVID-19 pandemic is unknown at this time, and
continues to be offset through the Corporation’s business
continuity plan and other mitigating measures. Any estimate
of the length and severity of these developments is there-
fore subject to significant uncertainty, and, accordingly,
estimates of the extent to which the COVID-19 pandemic
may materially and adversely affect the Corporation’s
18
WE ARE DEPENDABLE.
operations, financial results and condition in future periods
are also subject to significant uncertainty.
Therefore, uncertainty about judgments, estimates and
assumptions made by management during the preparation
of the Corporation’s interim condensed consolidated finan-
cial statements related to potential impacts of the COVID-19
pandemic on revenue, expenses, assets, liabilities, and note
disclosures could result in a material adjustment to the
carrying value of the assets or liabilities affected.
Impairment of Assets
(a) Impairment Testing at December 31, 2021
The Corporation performed its annual assessment for
goodwill impairment for the Canadian division and for the
UK division as at December 31, 2021 in accordance with
its policy described in Note 2(k).
At December 31, 2021, the recoverable amount for the
CGUs was determined using either a probability-weighted
discounted cash flow approach (hospitality CGUs) or
an earnings multiple approach (healthcare CGUs). The
Corporation references Board approved budgets and
cash flow forecasts, trailing twelve-month EBITDA,
implied multiples and appropriate discount rates in the
valuation calculations.
For the healthcare CGUs whereby the earnings multiple
approach is used the implied multiple is calculated by
utilizing the average multiples of comparable public
companies. For the healthcare CGU’s, the Corporation
used implied average forward multiple of 10.80 to calcu-
late the recoverable amounts. For these CGUs, based on
testing performed at December 31, 2021 no impairment
was determined to exist.
For the hospitality CGUs the probability weighted
discounted cash flow approach was used at both March
31, 2020, December 31, 2020 and December 31, 2021 to
capture the increased risk and uncertainty arising from
COVID-19.
For the December 31, 2021 impairment test, manage-
ment’s probability weighted approach was evaluated
based on an equally weighted probability of a continued
one year downturn in sales to the worst case scenario of
a two year downturn in sales. The scenarios estimated a
decline of 5% to 25% for 2022, and 0% to 10% for 2023,
with sales returning to normalized levels thereafter with
sales growth estimates used 2%. For the December
31, 2020 impairment test, management’s probability
weighted approach was evaluated based on an equally
weighted probability of a continued two year downturn in
sales to the worst case of a three year downturn in sales.
19
The scenarios estimated a decline of 45% for 2021, 30%
for 2022, and 5% for 2023 with sales returning to normal-
ized levels thereafter with sales growth estimates used
2%. This contrasts to the March 31, 2020 impairment test
which contemplated a decline in 2020 and 2021 revenues
only.
As at December 31, 2021 for the goodwill associated
with the remaining hospitality CGUs (the UK Division,
Vancouver 2 and Victoria) the recoverable amounts was
estimated to be £53,083, $31,176 and $8,290 (2020-
£41,070, $21,300 and $6,484) respectively which exceeded
the carrying amounts of the CGUs. No further impairment
was therefore required for any of these CGUs.
The key assumptions in calculating the recoverable
amount of the remaining CGU’s were as follows:
December 31, 2021 December 31, 2020
2.0%
2.0%
13.8% to 16.2%
11.6% to 12.5%
Long-term
growth rate %
Pre-tax
discount rate %
In addition to the key assumptions noted above, manage-
ment has also evaluated other reasonable changes in
estimates and assumptions and did not identify any other
instances that could cause the carrying amount of these
CGUs to exceed the recoverable amount. The table below
summarizes the sensitivity of the key assumptions.
Sensitivity
Recoverable
Long-Term
Pre-Tax
Growth Rate Discount Rate
Increase of 1%
Amount Decrease of 1%
UK Division
Vancouver 2
Victoria
£53,083
$31,176
$8,290
-£4,988
-$2,818
-$834
-£4,915
-$3,152
-$770
The Corporation will continue to carefully monitor the
situation as it pertains to the COVID-19 pandemic and
further consider if there are new, or additional indicators,
that exist during fiscal 2022.
With the ongoing evolution of the COVID-19 pandemic,
the length and severity of these developments is subject
to significant uncertainty. Accordingly, new developments
may materially and adversely affect assumptions used
in the consideration of the impairment of assets, impact
whether a CGU has been impaired, and may change prior
recorded impairment amounts.
2021 ANNUAL REPORT
Outlook
The Corporation’s healthcare segment continues to outper-
form relative to historical levels. For the hospitality segment,
management expects that the current trend towards
loosening restrictions on international border crossings and
increasing business/leisure travel will continue to support
the strong recovery momentum in hospitality revenues
experienced since mid-2021. For the last few quarters,
management has been focused on operational efficien-
cies and the transition of the new AHS business which is
expected to be completed in mid-2022. From an input cost
perspective, since early March 2022, particularly in the UK,
the Corporation has faced significant volatility in the cost of
natural gas due to current geopolitical issues. As a result of
this instability, based on current natural gas supply rates, we
anticipate natural gas as a percent of revenue to increase 3
percentage points from historical levels for 2022 (assuming
average pricing of £0.1190 per kwh in the UK were to remain
in effect for the balance of the year). We expect to mitigate
these cost increases with price increases to our customers
although there could be some lag. Management is confident
that the combination of these factors, a relief in the tempo-
rarily tight labour markets in certain cities in which K-Bro
operates and potential stabilization of natural gas rates will
contribute to a strong 2022.
In addition, management continues to evaluate opportu-
nities to accelerate growth through M&A opportunities
in both North America and Europe, which remain highly
fragmented. K-Bro will look to leverage its strong liquidity
position, balance sheet and access to the capital markets
to execute on these opportunities, should they arise. For
further information about the impact of the COVID-19
pandemic on our business, see the “Summary of 2021
Results, and Key Events”.
(b) Impairment Testing at March 31, 2020
impairment
Management assessed
indicators
that
existed at March 31, 2020, specifically for the five CGUs
that rely primarily on hospitality revenues as a result of
the significant impact that COVID-19 had on the hospi-
tality industry.
For the five CGUs who rely primarily on hospitality
revenues an impairment test was completed using a
probability-weighted discounted cash flow approach
whereby the recoverable amount was based on the
higher of an asset's fair value less costs to sell and value
in use (being the present value of the expected future
cash flows of the relevant asset or CGU).
The key assumptions in calculating the recoverable
amount of the five CGU’s were as follows:
Long-term growth rate %
Pre-tax discount rate %
March 31, 2020
2.0% to 3.0%
10.5% to 12.5%
For the March 31, 2020 impairment test, management’s
probability weighted approach was evaluated based on
an equally weighted probability of a one-year downturn in
sales to the worst case of a two year downturn in sales.
The scenarios estimated a decline of 70% for 2020 and
50% for 2021, with sales returning to normalized levels
thereafter with sales growth estimates used between 2%
to 3%.
As a result of this testing at March 31, 2020, an impair-
ment loss of $5,516 was recognized for three CGUs in
the Canadian division, of which $3,177 was allocated to
goodwill and $2,339 was allocated to PP&E. The table
below summarizes the impairment details:
GCU
Allocated to Allocated
to PP&E
Goodwill
Total
Impairment
Recorded
Recoverable
Amount
Montréal
Québec
Victoria
$823
$654
$1,700
$3,177
-
$2,339
-
$2,339
$823
$2,993
$1,700
$5,516
$2,485
$(1,917)
$5,433
$6,001
20
WE ARE DEPENDABLE.
Results of Operations
K E Y P E R F O R M A N C E D R I V E R S
K-Bro’s key performance drivers focus on growth, profitability, stability and cost containment in order to maintain dividends
and maximize Shareholder value in the long-term. The following outlines our results on a period-to-period comparative
basis in each of these areas:
Three Months Ended December 31,
Canadian
Division
2021
UK
Division
2021
-34.8%
7.8%
608.9%
144.9%
7,788
16.2%
2,043
1,140
8.0%
(544)
($ Thousands of CDN dollars, except
percentages and per share amounts)
Category
Indicator
Growth
Profitability
Stability
EBITDA(1)
Revenue
Distributable cash flow
EBITDA(1)
EBITDA margin
Net earnings (loss)
Debt to total capital(4)
Unutilized line of credit
Cash on hand
Payout ratio
Dividends declared per share
Cost containment Wages and benefits
Utilities
Expenses included in EBITDA
39.9%
6.3%
83.8%
37.9%
7.4%
92.0%
Canadian
Division
2020
UK
Division
2020
36.8%
-3.1%
-109.5%
-65.8%
11,951
26.8%
4,500
(224)
-3.9%
(2,365)
32.5%
5.2%
73.2%
41.7%
13.7%
103.9%
2021
-23.9%
23.5%
-4.2%
8,928
14.4%
1,499
17.0%
59,638
1,110
48.8%
0.300
39.5%
6.6%
85.6%
2020
5.6%
-19.9%
-2.2%
11,727
23.3%
2,135
17.9%
58,693
2,416
46.5%
0.300
33.5%
6.2%
76.7%
1 EBITDA is defined as revenue less operating expenses (which equates to net earnings before income tax, finance expense, and depreciation and amortization). See “Terminology”.
2 Effective January 1, 2019, distributable cash flow includes the addition of principal elements of lease payments. This accounts for the change in accounting policies and the adoption of IFRS 16, where
now the principal elements of lease payments flow through financing outflows opposed to operating cash flows.
3 Q1 2020 includes an adjustment of $5.5 million for an impairment related charge to the Canadian Division.
4 Debt to total capital is defined by management as the total long term debt (excludes lease liabilities) divided by the Corporation’s total capital. See “Terminology”.
21
2021 ANNUAL REPORT
Canadian
Division
2021
UK
Division
2021
3.4% -2672.7%
36.8%
9.8%
39,678
21.7%
13,604
3,113
7.6%
(4,912)
($ Thousands of CDN dollars, except
percentages and per share amounts)
Category
Indicator
Growth
Profitability
Stability
EBITDA(1)
Revenue
Distributable cash flow
EBITDA(1)
EBITDA margin
Net earnings (loss)
Debt to total capital(4)
Unutilized line of credit
Cash on hand
Payout ratio
Dividends declared per share
Cost containment Wages and benefits
Utilities
Expenses included in EBITDA
37.4%
5.7%
78.3%
40.1%
7.8%
92.4%
Years Ended December 31,
Canadian
Division
2020
UK
Division
2020
7.0%
-10.7%
-101.0%
-54.5%
38,365
23.0%
10,892
(121)
-0.4%
(7,110)
32.9%
5.3%
77.0%
42.6%
9.6%
100.4%
2021
11.9%
13.9%
-12.1%
42,791
19.1%
8,692
17.0%
59,638
1,110
46.8%
1.200
37.9%
6.0%
80.9%
2020
-19.6%
-22.1%
5.6%
38,244
19.5%
3,782
17.9%
58,693
2,416
40.9%
1.200
34.4%
5.9%
80.5%
1 EBITDA is defined as revenue less operating expenses (which equates to net earnings before income tax, finance expense, and depreciation and amortization). See “Terminology”.
2 Effective January 1, 2019, distributable cash flow includes the addition of principal elements of lease payments. This accounts for the change in accounting policies and the adoption of IFRS 16, where
now the principal elements of lease payments flow through financing outflows opposed to operating cash flows.
3 Q1 2020 includes an adjustment of $5.5 million for an impairment related charge to the Canadian Division.
4 Debt to total capital is defined by management as the total long term debt (excludes lease liabilities) divided by the Corporation’s total capital. See “Terminology”.
22
WE ARE DEPENDABLE.
Q U A R T E R L Y F I N A N C I A L I N F O R M A T I O N - C O N S O L I D A T E D
Historically, the Corporation’s financial and operating results, particularly in respect of Fishers, are stronger in the second
and third quarters as a result of seasonality and the associated higher hospitality volumes. Other fluctuations in net income
from quarter to quarter can also be attributed to hiring and labour cost trends, timing of linen purchases, utility costs, timing
of repairs and maintenance expenditures, business development, capital spending patterns and changes in corporate tax
rates and income tax expenses.
The following table provides certain selected consolidated financial and operating data prepared by management for the
preceding eight quarters:
Quarterly Financial Information - Consolidated
($ Thousands of CDN dollars, except
percentages and per share amounts)
2021
2020(2)
Q4
Q3
Q2
Q1
Q4
Q3
Q2
Q1
Healthcare revenue
Hospitality revenue
Total revenue
Expenses included in EBITDA
EBITDA(1)
EBITDA as a % of revenue (EBITDA margin)
Depreciation and amortization
Finance expense
Earnings (loss) before income taxes
Income tax expense (recovery)
Net earnings (loss)
Net earnings (loss) as a % of revenue
Basic earnings (loss) per share
Diluted earnings (loss) per share
41,554
20,656
62,210
53,282
8,928
14.4%
6,628
800
1,500
1
1,499
2.4%
0.141
0.140
39,227 42,712
22,266
9,963
61,493 52,675
43,058
4,556
47,614
49,896 40,470
11,597 12,205
18.9% 23.2%
37,553
10,061
21.1%
6,784
883
3,930
1,782
2,148
3.5%
0.202
0.201
6,710
901
4,594
1,183
3,411
6.5%
0.322
0.320
6,740
865
2,456
822
1,634
3.4%
0.154
0.153
41,981
8,376
50,357
38,630
11,727
23.3%
7,110
836
3,781
1,646
2,135
4.2%
0.202
0.200
39,071
12,368
51,439
35,103 35,048
2,417 22,227
37,520 57,275
38,720
12,719
24.7%
27,465 53,532
3,743
10,055
6.5%
26.8%
6,840
1,141
4,738
1,296
3,442
6.7%
0.326
0.323
6,853
791
2,411
798
1,613
4.3%
0.153
0.152
7,081
1,193
(4,531)
(1,123)
(3,408)
-6.0%
(0.323)
(0.322)
Total assets
Total long-term financial liabilities
332,519
102,617
330,494 326,157 316,101
89,343
97,582 100,306
323,811 338,591 330,372 336,127
95,555 113,278 108,207 106,621
Funds provided by (used in) operations
Long-term debt (excludes lease liabilities)
Dividends declared per share
7,743
37,973
0.300
12,543
3,047
38,270 40,696
0.300
0.300
8,542
36,811
0.300
25,023
40,657
0.300
(504)
59,325
0.300
6,289 11,588
56,416 54,693
0.300
0.300
1 EBITDA is defined as revenue less operating expenses (which equates to net earnings before income tax, finance expense, and depreciation and amortization). See “Terminology".
2 Q1 2020 includes an adjustment of $5.5 million for an impairment related charge to the Canadian Division.
23
2021 ANNUAL REPORT
Q U A R T E R L Y F I N A N C I A L I N F O R M A T I O N - C A N A D I A N D I V I S I O N
The following table provides certain selected consolidated financial and operating data prepared by management for the
preceding eight quarters:
Quarterly Financial Information
- Canadian Division
($ Thousands of CDN dollars, except
percentages and per share amounts)
Healthcare revenue
Hospitality revenue
Total revenue
Expenses included in EBITDA
EBITDA(1)
EBITDA as a % of revenue (EBITDA margin)
Net earnings (loss)
Net earnings (loss) as a % of revenue
Basic earnings (loss) per share
Diluted earnings (loss) per share
2021
2020(2)
Q4
Q3
Q2
Q1
Q4
Q3
Q2
Q1
39,835
8,211
48,046
40,258
7,788
16.2%
2,043
4.3%
0.192
0.191
37,564
8,605
46,169
41,107
3,049
44,156
41,432
3,270
44,702
36,659
9,510
20.6%
32,734
11,422
25.9%
33,744
10,958
24.5%
2,944
6.4%
0.277
0.275
4,460
10.1%
0.421
0.418
4,157
9.3%
0.392
0.390
40,305
4,268
44,573
32,622
11,951
26.8%
4,500
10.1%
0.426
0.422
37,417
5,628
43,045
33,598
1,755
35,353
30,999
12,046
28.0%
23,779
11,574
32.7%
33,395
10,316
43,711
40,917
2,794
6.4%
4,404
10.2%
0.417
0.413
4,460
12.6%
0.423
0.420
(2,472)
-5.7%
(0.235)
(0.233)
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 Q1 2020 includes an adjustment of $5.5 million for an impairment related charge to the Canadian Division.
24
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 A T 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 management for the
preceding eight quarters:
Quarterly Financial Information - UK Division
(in reporting currency Canadian $)
($ Thousands of CDN dollars, except
percentages and per share amounts)
2021
2020
Q4
Q3
Q2
Q1
Q4
Q3
Q2
Q1
Healthcare revenue
Hospitality revenue
Total revenue
Expenses included in EBITDA
EBITDA(1)
EBITDA as a % of revenue (EBITDA margin)
Net loss
Net loss as a % of revenue
Basic loss per share
Diluted loss per share
1,719
12,445
14,164
13,024
1,140
8.0%
(544)
-3.8%
(0.051)
(0.051)
1,663
13,661
15,324
13,237
2,087
13.6%
1,605
6,914
8,519
1,626
1,286
2,912
7,736
783
9.2%
3,809
(897)
-30.8%
1,676
4,108
5,784
6,008
(224)
-3.9%
1,654
6,740
8,394
1,505
662
2,167
7,721
673
8.0%
3,686
(1,519)
-70.1%
1,653
11,911
13,564
12,615
949
7.0%
(796)
-5.2%
(0.075)
(0.074)
(1,049)
-12.3%
(0.099)
(0.098)
(2,523)
-86.6%
(0.238)
(0.237)
(2,365)
-40.9%
(0.224)
(0.222)
(962)
(2,847)
-11.5% -131.4%
(0.270)
(0.091)
(0.268)
(0.090)
(936)
-6.9%
(0.089)
(0.088)
Quarterly Financial Information - UK Division
(in local currency Sterling £)
(Thousands, except percentages
and per share amounts)
Healthcare revenue
Hospitality revenue
Total revenue
Expenses included in EBITDA
EBITDA(1)
EBITDA as a % of revenue (EBITDA margin)
2021
2020
Q4
Q3
Q2
Q1
Q4
Q3
Q2
Q1
1,011
7,325
8,336
7,665
671
8.0%
959
7,877
8,836
935
4,028
4,963
931
737
1,668
7,633
1,203
13.6%
4,505
458
9.2%
2,181
(513)
-30.8%
974
2,388
3,362
3,492
(130)
-3.9%
961
3,916
4,877
875
385
1,260
4,487
390
8.0%
2,140
(880)
-69.8%
962
6,931
7,893
7,343
550
7.0%
Net loss
Net loss as a % of revenue
Basic loss per share
Diluted loss per share
(321)
-3.9%
(0.030)
(0.030)
(458)
-5.2%
(0.043)
(0.043)
(610)
-12.3%
(0.058)
(0.057)
(1,444)
-86.6%
(0.136)
(0.135)
(1,376)
-40.9%
(0.130)
(0.129)
(559)
(1,653)
-11.5% -131.2%
(0.157)
(0.053)
(0.156)
(0.052)
(546)
-6.9%
(0.052)
(0.052)
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”.
25
2021 ANNUAL REPORT
R E V E N U E , E A R N I N G S & E B I T D A
For the year ended December 31, 2021, K-Bro’s consoli-
dated revenue increased by 13.9% to $224.0 million from
$196.6 million in the comparative period. This increase was
primarily a result of COVID-19 pandemic restrictions being
eased. In 2021, approximately 74.4% of K-Bro’s consolidated
revenue was generated from healthcare institutions, which
is lower compared to 76.9% in 2020, primarily related to the
COVID-19 pandemic’s effect on the hospitality segment.
Consolidated EBITDA increased in the year to $42.8 million
from $38.2 million in 2020, which is an increase of 11.9%.
The consolidated EBITDA margin decreased to 19.1% in
2021 compared to 19.5% in 2020. The decrease in margin is
primarily related to lower government assistance received
in the Canadian division of $0.9 million in 2021 compared
to $8.3 million in 2020, offset by the impairment of assets
of $5.5 million in the first quarter of 2020, restructuring
costs of $1.6 million and bad debts expense of $0.5 million
in 2020. As well as additional labour costs incurred due to
exceedingly tight labour markets in certain cities in which
we operate, repricing of the Corporation’s existing business
in Edmonton and Calgary with AHS which took effect on
August 1, 2021 in advance of new rural business being
transitioned to the Corporation, as well as transition costs
for the new AHS accounts.
The UK division also received government assistance during
2021 in the amount of £1.6 million ($2.8 million) which has
been netted against the respective source of the expense.
Beginning in the third quarter of 2020 onwards, government
assistance received by the UK division through the CJRS
required that companies share in the cost of the program and
as a result the impact to EBITDA during 2021 was a cost of
£141k ($245k), which represents the UK division’s contribu-
tion for hours and certain benefits.
Net earnings increased by $4.9 million or 129.8% from $3.8
million in 2020 to $8.7 million in 2021, and net earnings as
a percentage of revenue increased by 2.0% to 3.9% in 2021
from 1.9% in 2020. The change in net earnings is primarily
related to the flow through items in EBITDA discussed above,
lower finance costs related to the revolving credit facility, and
higher income tax expense.
26
WE ARE DEPENDABLE. Materials and supplies increased by $2.1 million to $9.1
million compared to $7.0 million in the comparative period
of 2020, and as a percentage of revenue increased by 0.5% to
4.1%. The increase as a percentage of revenue is primarily
related to higher chemical costs due to changes in the mix of
volume resulting from the COVID-19 pandemic.
Repairs and maintenance increased by $0.7 million to $7.7
million compared to $7.0 million in the comparative period
of 2020, and as a percentage of revenue remained relatively
constant at 3.4%. The increase in spending is primarily
related to the additional healthcare and hospitality volumes
processed compared to the prior year.
Corporate costs decreased by $1.0 million to $9.5 million
compared to $10.5 million in the comparative period of
2020, and as a percentage of revenue decreased by 1.2% to
4.2%. The decrease as a percentage of revenue is primarily
related to the decrease in spending is primarily related to
a 2020 provision for bad debt expense of $0.5 million, 2020
restructuring costs of $0.5 million, the timing of initiatives
to support the Corporation’s growth and business strategies
across the plants, and offset by a $0.5 million decrease in
government assistance received in the Canadian division.
Depreciation of property, plant and equipment and amorti-
zation of intangible assets represents the expense related
to the appropriate matching of the Corporation’s long-term
assets to the estimated useful life and period of economic
benefit of those assets.
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 liabil-
ities. Income tax reflects the provision on the earnings of
the Corporation.
O P E R A T I N G E X P E N S E S
Wages and benefits increased by $17.2 million to $84.8
million compared to $67.6 million in the comparative period
of 2020, and as a percentage of revenue increased by 3.5% to
37.9%. The increase as a percentage of revenue is primarily
related to a $6.2 million decrease in government assistance
received in the Canadian division, escalating minimum
wage rates, and inefficiencies associated with lack of labour
workforce availability and the transitioning of the new
AHS business, offset by restructuring costs of $1.1 million
incurred in 2020 related to COVID-19 volumes.
Linen increased by $3.1 million to $27.9 million compared
to $24.8 million in the comparative period of 2020, and as
a percentage of revenue remained relatively constant at
12.5%. The increase in spending is primarily related to the
additional healthcare and hospitality volumes processed
compared to the prior year.
Utilities increased by $1.9 million to $13.5 million compared
to $11.6 million in the comparative period of 2020, and as
a percentage of revenue remained relatively constant at
6.0%. The increase in spending is primarily related to the
additional healthcare and hospitality volumes processed
compared to the prior year.
Delivery increased by $4.0 million to $24.7 million compared
to $20.7 million in the comparative period of 2020, and as
a percentage of revenue increased by 0.5% to 11.0%. The
increase as a percentage of revenue is primarily related to
a $0.7 million decrease in government assistance received
in the Canadian division, offset by management’s efforts
to offset the impact of COVID-19 in the delivery operations
of each plant through temporary reductions in the delivery
labour force, logistics and delivery route optimizations.
Occupancy costs increased by $0.3 million to $3.9 million
compared to $3.6 million in the comparative period of 2020,
and as a percentage of revenue remained relatively constant
at 1.7%. This includes fixed costs that remain constant
regardless of the reduction in volume resulting from the
COVID-19 pandemic, offset by rent concessions received
in certain plants in the UK in the amount of $0.5 million
recorded in the second quarter of 2020.
27
2021 ANNUAL REPORT Liquidity & Capital Resources
In 2021, cash generated by operating activities was $31.9 million with a debt to total capitalization of 17.0%. The change
in cash from operations is primarily due to the change in working capital items driven mainly from the impact of the
COVID-19 pandemic, and the timing of trade payables and collection of cash receipts from customers. The Corporation’s
capital structure includes working capital, a committed revolving credit facility and share capital. We continuously monitor
actual and forecast cash flows and monitor the availability on our committed credit facility. Management believes the
unutilized balance of $59.6 million with respect to its revolving credit facility is sufficient for the Corporation’s operations
in the foreseeable future. However, management 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.
During 2021, cash used in financing activities was $22.7 million compared to $40.8 million in 2020. Financing activities consisted
of net repayment of the revolving credit facility, dividends paid to Shareholders and principal elements of lease payments.
During 2021, cash used in investing activities was $10.5 million compared to $4.4 million in 2020. Investing activities are
primarily related to the purchase of plant equipment.
C O N T R A C T U A L O B L I G A T I O N S
Payments due under contractual obligations for the next five years and thereafter are as follows:
($ Thousands of CDN dollars)
Total
2022
2023 to 2024
2025 to 2026
Subsequent
Payments Due by Period
Long-term debt
Lease liabilities
Utility commitments
Linen purchase obligations
Property, plant and equipment commitments
37,973
69,804
18,601
12,075
445
-
9,242
7,716
12,075
445
37,973
16,361
7,032
-
-
-
13,844
3,853
-
-
-
30,357
-
-
-
The lease liabilities are secured by automotive equipment and plants and are more fully described in the Corporation’s
audited annual consolidated financial statements for the year ended December 31, 2021. The source of funds for these
commitments will be from operating cash flow and, if necessary, the undrawn portion of the revolving credit facility.
28
WE ARE DEPENDABLE.
F I N A N C I A L P O S I T I O N
Years Ended December 31,
($ Thousands, except percentages)
2021
2020
Cash and cash equivalents
Long-term debt
(excludes lease liabilities)
Shareholders’ equity
Total capital
Debt to total capital
(see Terminology for definition)
(1,110)
37,973
(2,416)
40,657
186,401
223,264
17.0%
189,504
227,745
17.9%
For the period ended December 31, 2021, the Corporation
had a debt to total capital of 17.0%, unused revolving credit
facility of $59.6 million and has not incurred any events of
default under the terms of its credit facility.
As at December 31, 2021, the Corporation had net working
capital of $30.3 million compared to its working capital
position of $27.9 million at December 31, 2020. The increase
in working capital is primarily attributable to additional
requirements driven mainly from the impact of the COVID-19
pandemic, and the timing of receivables collections.
Management believes that K-Bro has the capital resources
and liquidity necessary to meet its commitments, support
its operations and finance its growth strategies. In addition
to K-Bro’s ability to generate cash from operations and its
revolving credit facility, K-Bro believes it is also able to raise
capital through equity issuances in the market or increase
its borrowing capacity, if necessary, to provide for capital
spending and to sustain its property, plant and equipment.
29
2021 ANNUAL REPORT Dividends
Fiscal Period
Payment Date
# of Shares
Outstanding
Amount
Per Share
2021
Total Amount
(1)(3)(5)(7)
2020
Total Amount
(2)(4)(6)(8)
Amount
Per Share
February 12
March 15
April 15
May 14
June 15
July 15
August 13
September 15
October 15
November 15
December 15
January 14
10,676,889
10,676,889
10,676,889
10,676,889
10,718,810
10,718,810
10,718,810
10,719,778
10,719,778
10,719,778
10,719,778
10,719,778
January
February
March
Q1
April
May
June
Q2
July
August
September
Q3
October
November
December
Q4
YTD
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
1,068
1,068
1,068
3,203
1,068
1,072
1,072
3,211
1,072
1,072
1,072
3,216
1,072
1,072
1,072
3,216
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
1,060
1,060
1,060
3,181
1,060
1,068
1,068
3,196
1,068
1,068
1,068
3,203
1,068
1,068
1,068
3,203
1.20000
12,846
1.20000
12,783
1 The total amount of dividends declared were $0.10000 per share for a total of $1,067,689 per month for January - March 2021; when rounded in thousands, $3,203 of dividends were declared in Q1 2021.
2 The total amount of dividends declared were $0.10000 per share for a total of $1,060,438 per month for January - March 2020; when rounded in thousands, $3,181 of dividends were declared in Q1 2020.
3 The total amount of dividends declared were $0.10000 per share for a total of $1,067,689 for April 2021, $1,071,881 for May 2021, and $1,071,881 for June 2021 When rounded in thousands,
$3,211 of dividends were declared in Q2 2021.
4 The total amount of dividends declared were $0.10000 per share for a total of $1,060,438 for April 2020, $1,067,689 for May 2020, and $1,067,689 for June 2020. When rounded in thousands,
$3,196 of dividends were declared in Q2 2020.
5 The total amount of dividends declared was $0.10000 per share for a total of $1,071,881 for July 2021, $1,071,978 for August 2021, and $1,071,978 for September 2021. When rounded in thousands,
$3,216 of dividends were declared in Q3 2021.
6 The total amount of dividends declared was $0.10000 per share for a total of $1,067,689 per month for July - September 2020; when rounded in thousands, $3,203 of dividends were declared in Q3 2020.
7 The total amount of dividends declared was $0.10000 per share for a total of $1,071,881 per month for October - December 2021; when rounded in thousands, $3,216 of dividends were declared in Q4 2021.
8 The total amount of dividends declared was $0.10000 per share for a total of $1,067,689 per month for October - December 2020; when rounded in thousands, $3,203 of dividends were declared in Q4 2020.
For the year ended December 31, 2021, the Corporation
declared a $1.200 per Common Share dividend compared to
$2.571 per Common Share of Distributable Cash Flow (see
“Terminology”). The actual payout ratio was 46.8%.
by the Board of Directors. All such dividends are discre-
tionary. Dividends are declared payable each month in equal
amounts to Shareholders on the last business day of each
month and are paid by the 15th of the following month.
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
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.
30
WE ARE DEPENDABLE.
Distributable Cash Flow
(see Terminology) (all amounts in this section in $000s except per share amounts and percentages)
The Corporation’s source of cash for dividends is distributable cash flow provided by operating activities. Distributable
cash flow, reconciled to cash provided by operating activities as calculated under IFRS, is presented as follows:
($ Thousands of CDN dollars, except
percentages and per share amounts)
2021
2020
Q4
Q3
Q2
Q1
Q4
Q3
Q2
Q1
Cash (used in) provided by operating activities
7,743
12,543
3,047
8,542
25,023
(504)
6,289 11,588
Deduct (add):
Net changes in non-cash working capital items(1)
Share-based compensation expense
Maintenance capital expenditures(2)
Principle elements of lease payments
(1,358)
417
281
1,808
1,978
486
426
1,765
(7,022)
439
275
1,742
692
506
112
1,852
16,111
410
(11)
1,627
(13,724)
693
35
1,442
(2,926)
189
280
1,487
3,011
507
328
1,666
Distributable cash flow
6,595
7,888
7,613
5,380
6,886
11,050
7,259
6,076
Dividends declared
Dividends declared per share
Payout ratio(3)
3,216
0.300
48.8%
3,216
0.300
40.8%
3,211
0.300
42.2%
3,203
0.300
59.5%
3,203
0.300
46.5%
3,203
0.300
29.0%
3,196
0.300
44.0%
3,181
0.300
52.4%
Weighted average shares outstanding
during the period, basic
Weighted average shares outstanding
during the period, diluted
Trailing-twelve months (“TTM”)
Distributable cash flow
Dividends
Payout ratio(3)
10,622
10,611
10,603
10,597
10,575
10,563
10,551 10,539
10,701
10,700
10,673
10,663
10,658
10,667
10,627 10,591
27,476
12,846
46.8%
27,767
12,833
46.2%
30,929
12,820
41.4%
30,575
12,805
41.9%
31,271
12,783
40.9%
31,429
12,761
40.6%
29,147 30,060
12,739 12,720
42.3%
43.7%
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.
31
2021 ANNUAL REPORT
Outstanding
Shares
As at December 31, 2021, the Corporation had 10,719,778
Common Shares outstanding. Basic and diluted weighted
average number of Common Shares outstanding for 2021
were 10,608,539 and 10,686,187, respectively (10,557,147 and
10,629,237, respectively, for the comparative 2020 periods).
In accordance with the Corporation’s Long Term Incentive
(“LTI”) plan and in conjunction with the performance of
the Corporation in the 2020 fiscal year, on April 23, 2021
the Compensation, Nominating and Corporate Governance
Committee approved LTI compensation of $1.8 million (2020
– $1.8 million) to be paid as Common Shares issued from
treasury. As at December 31, 2021, the value of the Common
Shares held by the LTI custodian was $2.7 million (December
31, 2020 – $3.1 million) which was comprised of 78,632 in
unvested Common Shares (December 31, 2020 – 79,423)
with a nil aggregate cost (December 31, 2020 – $nil).
As at March 15, 2022 there were 10,719,778 Common Shares
issued and outstanding including 78,632 Common Shares
issued but held as unvested treasury shares.
Related Party
Transactions
The Corporation incurred expenses in the normal course
of business for advisory consulting services provided by
Mr. Matthew Hills, a member of the Board of Directors.
The amounts charged are recorded at their exchange
amounts and are on arm’s length terms. For the year ended
December 31, 2021, the Corporation incurred fees totaling
$138,000 (2020 – $138,000).
Critical
Accounting
Estimates
The Corporation’s summary of significant accounting
policies are contained in Note 2 to the 2021 Audited
Financial Statements.
The 2021 Audited 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,
judgments, and/or requiring
subjective and complex
estimates that are inherently uncertain and which may
change in subsequent reporting periods.
its
K-Bro has continuously refined and documented
management and internal reporting systems to ensure
that accurate, timely, internal and external information is
gathered and disseminated. Management also regularly
evaluates these estimates and assumptions which are
based on past experience and other factors that are
deemed reasonable under the circumstances.
K-Bro has hired individuals and consultants who have the
skills required to make such estimates and ensures that
individuals or departments with the most knowledge of the
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.
K-Bro’s leadership team’s mandate includes ongoing devel-
opment of procedures, standards and systems to allow K-Bro
staff to make the best decisions possible and ensuring those
decisions are in compliance with the Corporation’s policies.
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;
· provisions; and,
· allowance for doubtful accounts;
· segment information;
· property, plant and equipment;
· right of use assets and lease liabilities; and,
· lease terms.
The estimates and associated assumptions are based on
historical experience and various other factors that are
believed to be reasonable under the circumstances, the
results of which form the basis of making the judgments
about carrying values of assets and liabilities that are not
readily apparent from other sources. These estimates and
judgments have been applied in a manner consistent with
prior periods.
32
WE ARE DEPENDABLE. COVID-19 Risk
The ongoing COVID-19 pandemic has caused world govern-
ments to institute travel restrictions both in and out of and
within Canada and the UK, which has had, and is expected
to continue to have a significant adverse impact on the
Corporation’s hospitality business, the duration of which we
are unable to predict with any degree of accuracy.
The extent of such negative effects on our hospitality
business and our financial and operational performance
will depend on future developments, including the duration,
spread and severity of COVID-19 outbreaks, the avail-
ability and effectiveness of the vaccine, the duration and
geographic scope of related travel advisories and restric-
tions and the extent of the impact of the COVID-19 pandemic
on overall demand for personal and business travel, all of
which are highly uncertain and cannot be predicted with
any degree of accuracy. As hotels continue to experience
significantly reduced occupancy rates for an extended
period, consolidated results of operations will be signifi-
cantly impacted. The extent to which the outbreak affects
our earnings will depend on the length of time the hospi-
tality industry continues to experience reduced occupancy
rates. Earnings will continue to be particularly affected if
we continue to experience reductions in travel and reduced
hospitality occupancy rates. Additionally, our suppliers or
other third parties we rely upon may experience delays
or shortages, which could have an adverse effect on our
business prospects and results of operations.
As an ongoing risk, the duration and full financial effect of the
COVID-19 pandemic continues to be uncertain at this time;
the Corporation is managing the ongoing risk through the
Corporation’s business continuity plan and other mitigating
measures. Any estimate of the length and severity of these
developments is therefore subject to significant uncer-
tainty, and accordingly estimates of the extent to which the
COVID-19 pandemic may materially and adversely affect the
Corporation’s operations, financial results and condition in
future periods are also subject to significant uncertainty.
Uncertainty about judgments, estimates and assump-
tions made by management during the preparation of the
Corporation’s consolidated financial statements related to
potential impacts of the COVID-19 outbreak on revenue,
expenses, assets, liabilities, and note disclosures could
result in a material adjustment to the carrying value of the
asset or liability affected.
The following discusses the most significant accounting
judgments and estimates that the Corporation has made in
the preparation of the consolidated financial statements:
A R E A S O F S I G N I F I C A N T
J U D G M E N T
Recognition of Rebate Liabilities
In applying its accounting policy for volume rebates, the
Corporation must determine whether the processing
volume thresholds will be achieved. The most difficult
and subjective area of judgment is whether a contract
will generate satisfactory volume to achieve minimum
levels. Management considers all appropriate facts and
circumstances in making this assessment including
historical experience, current volumetric run-rates, and
expected future events.
Impairment of Goodwill &
Non-financial Assets
Management reviews goodwill at least annually and other
non-financial assets when there is any indication that the
asset might be impaired. The assessment of impairment
is based on management’s judgment of whether there
are sufficient internal and external factors that would
indicate that an asset is impaired.
The Corporation applies judgment in:
·
assessing the likelihood of renewal of significant
contracts included in the intangible assets described
in Note 8
· determining the appropriate discount rate and
growth rate, and
·
determining the appropriate comparable companies
used in earnings multiple approach.
During the first quarter of 2020, based off impairment
indicators that existed as a result of the COVID-19
pandemic, management had assessed the impairment of
assets based off facts and circumstances which suggest
that the carrying amount in certain CGUs may exceed its
recoverable amount, refer to Note 26 for further detail.
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, identi-
fied 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 environment, if applicable.
33
2021 ANNUAL REPORT
Lease Term
Provisions
The Corporation’s provision includes restructure costs
and the restoration for premises of its leased plants.
The Corporation determines restructure costs based
off employment standards and legal consultation. For
leased plants, a provision has been recognized for the
present value of the estimated expenditure required to
remove any leasehold improvements and installed equip-
ment. Refer to Note 10 for more details about estimation
for this provision.
Impairment of Goodwill &
Non-financial Assets
During instances where indication of impairment exists,
the recoverable amount of the asset is estimated in order
to determine the extent of the impairment loss. Where it
is not possible to estimate the recoverable amount of an
individual asset, the Corporation estimates the recover-
able amount of the cash generating unit to which the asset
belongs. The recoverable value of CGUs require the use of
estimates related to the future operating results and cash
generating ability of the assets. The Corporation applies
estimates in identifying the appropriate discount rate
and growth rate used to estimate the recoverable value,
identifying the CGUs to which intangible assets should
be allocated to, and the CGU or group of CGUs at which
goodwill is monitored for internal management purposes.
Management regularly evaluates these estimates and
judgments. Revisions to accounting estimates are recog-
nized in the period in which the estimate is revised if 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.
In determining the lease term, management considers
all facts and circumstances that create an economic
incentive to exercise an extension option, or not exercise
a termination option. Extension options (or periods after
termination options) are only included in the lease term
if the lease is reasonably certain to be extended (or not
terminated). For many of the leases the cash outflows
associated with the lease extension term would be
material. The assessment is reviewed if a significant
event or a significant change in circumstances occurs
which affects this assessment and that is within the
control of the lessee.
A R E A S O F E S T I M A T I O N
U N C E R T A I N T Y
Incremental Borrowing Rate
In applying its accounting policy for leases management
considers all appropriate facts and circumstances in the
determination the lessee’s incremental borrowing rate
being used and these rates are reviewed and update on
an annual basis.
Amortization of Property, Plant &
Equipment, & Intangible Assets
In applying its accounting policy for the amortization of
property, plant and equipment, and intangible assets,
management considers all appropriate facts and circum-
stances in the determination of the appropriate rates and
methodology to allocate costs over their estimated useful
lives, including historical experience, current volumetric
run-rates, and 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.
34
WE ARE DEPENDABLE.
Terminology
E B I T D A
K-Bro reports EBITDA (Earnings before interest, taxes,
depreciation and amortization) as a key measure used by
management to evaluate performance. EBITDA is utilized
to measure compliance with debt covenants and to make
decisions related to dividends to Shareholders. We believe
EBITDA assists investors to assess our performance on
a consistent basis as it is an indication of our capacity to
generate income from operations before taking into account
management’s financing decisions and costs of consuming
tangible and intangible capital assets, which vary according
to their vintage, technological currency and management’s
estimate of their useful life. 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
the impact of working capital changes, capital expenditures,
debt changes and other sources and uses of cash, which are
disclosed in the consolidated statements of cash flows.
($ Thousands of CDN dollars)
Net earnings
Add:
Income tax expense
Finance expense
Depreciation of property, plant and equipment
Amortization of intangible assets
EBITDA
Three Months Ended December 31,
Years Ended December 31,
2021
1,499
1
800
5,958
670
8,928
2020
2,135
1,646
836
6,157
953
11,727
2021
2020(1)
8,692
3,788
3,449
23,625
3,237
42,791
3,782
2,617
3,961
24,048
3,836
38,244
1 Q1 2020 includes an adjustment of $5.5 million for an impairment related charge to the Canadian Division.
35
2021 ANNUAL REPORT N O N - G A A P M E A S U R E
Distributable Cash Flow
Distributable cash flow is a measure used by manage-
ment to evaluate the Corporation’s performance. While
the closest IFRS measure is cash provided by operating
activities, distributable cash flow is considered relevant
because it provides an indication of how much cash gener-
ated by operations is available after capital expenditures.
It should be noted that although we consider this measure
to be distributable cash flow, financial and non-financial
covenants in our credit facilities and dealer agreements
may restrict cash from being available for dividends,
re-investment in the Corporation, potential acquisitions, or
other purposes. Investors should be cautioned that distrib-
utable 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 compen-
sation, maintenance capital expenditures and principal
elements of lease payments.
Payout Ratio
“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 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 Capital
“Debt to total capital” is defined by management as the
total long-term debt (excludes lease liabilities) divided by
the Corporation’s total capital. This is a measure used by
investors to assess the Corporation’s financial structure.
Distributable cash flow, payout ratio, and debt to total
capital are not calculations based on IFRS and are not
considered an alternative to IFRS measures in measuring
K-Bro’s performance. Distributable cash flow, and payout
ratio do not have standardized meanings in IFRS and are
therefore not likely to be comparable with similar measures
used by other issuers.
Off Balance Sheet Arrangements
As at December 31, 2021, the Corporation has not entered
into any off balance sheet arrangements.
Changes in
Accounting
Policies
The Corporation has prepared its December 31, 2021
audited consolidated financial statements in accordance
with IFRS. See Note 2 of the 2021 Audited Financial
Statements for more information regarding the significant
accounting principles used to prepare the 2020 Audited
Financial Statements.
Recent
Accounting
Pronouncements
New standards, interpretations, or amendments that have
been issued, or are not yet effective, have not been further
described or early adopted, where no material impact
is expected on the Corporation's consolidated financial
statements.
The IASB has issued the following new standard and
amendments to existing standards that will become effec-
tive in future years.
· Amendments to IAS 12, Deferred Tax related to Assets
and Liabilities arising from a Single Transaction, that
clarify how companies account for deferred tax on
transactions such as leases and decommissioning
obligations. The amendments are effective for annual
periods beginning on or after January 1, 2023.
· Amendments to IFRS 3, Business Combinations -
Updating a Reference to the Conceptual Framework,
updating a reference to the Conceptual Framework.
· Amendments to
IAS 1, Presentation of Financial
Statements - Disclosure of Accounting Policies,
requiring entities to disclose material, instead of signif-
icant, accounting policy information.
· Amendments to
IAS 1, Presentation of Financial
Statements - Classification of Liabilities as Current or
Noncurrent, clarifying requirements for the classifica-
tion of liabilities as non-current.
· Amendments to IAS 8, Accounting Policies - Changes in
Accounting Estimates and Errors, clarifying the defini-
tion of "accounting policies" and "accounting estimates".
36
WE ARE DEPENDABLE. · Amendments to IAS 16, Property, Plant and Equipment:
Proceeds before intended use, prohibiting reducing the
cost of property, plant, and equipment by proceeds while
bringing an asset to capable operations.
· IAS 37, Provisions, Contingent Liabilities and Contingent
Assets - Onerous Contracts, specifying costs an entity
should include in determining the "cost of fulfilling" a
potential onerous contract.
The Corporation has not adopted any standard, inter-
pretation or amendment that has been issued but is not
yet effective and no material impact is expected on the
Corporation’s consolidated
financial statements. The
Corporation will continue to assess the impacts, if any, the
amendments to existing standards will have on our consol-
idated financial statements, but we currently do not expect
any material impacts.
Financial
Instruments
The Corporation’s financial
instruments at December
31, 2021 and 2020 consist of cash and cash equivalents,
accounts receivable, accounts payable and accrued liabil-
ities, lease liabilities, dividends payable to shareholders,
and long-term debt. The Corporation does not enter into
financial instruments for trading or speculative purposes.
The Corporation classifies its financial assets as those to be
measured subsequently at fair value (either through other
comprehensive income or loss, or though profit or loss), and
those to be measured at amortized cost. The Corporation’s
financial assets are measured at amortized cost using the
effective interest method under IFRS 9. At initial recogni-
tion, K-Bro measures a financial asset at fair value plus, in
the case of a financial asset not at fair value through profit
or loss, transaction costs that are directly attributable to
the acquisition of the financial asset. Transaction costs of
financial assets carried at fair value through profit or loss
are expensed in profit or loss.
Accounts payable and accrued liabilities, and dividends
payable are recognized initially at their fair value and subse-
quently measured at amortized cost using the effective
interest method. Lease liabilities are recognized initially
at their net present value and subsequently measured
at amortized cost using the effective interest method.
The Corporation’s financial liabilities consist of accounts
payable and accrued liabilities, lease liabilities, dividends
payable to shareholders, and long-term debt.
Long-term debt and borrowings are initially recognized at
fair value, net of transaction costs incurred and are subse-
quently measured at amortized cost. Long-term debt and
borrowings are removed from the balance sheet when the
obligation specified in the contract is discharged, cancelled
or expired.
The difference between the carrying amount of a financial
liability that has been extinguished or transferred to another
party and the consideration paid, including any non-cash
assets transferred or liabilities assumed, is recognized in
profit or loss as other income or finance costs. Borrowings
are classified as current liabilities unless the group has an
unconditional right to defer settlement of the liability for at
least 12 months after the reporting period.
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.
Derivatives are initially recognized at fair value on the date
a derivative contract is entered into and are subsequently
remeasured to their fair value at the end of each reporting
period and included as part of the profit and loss. Derivative
financial instruments are utilized by the Corporation to
manage cash flow risk against the volatility in interest
rates on its long-term debt and foreign exchange rates on
its equipment purchase commitments. The Corporation
typically does not utilize derivative financial instruments for
trading or speculative purposes.
The Corporation has a floating interest rate debt that
gives rise to risks that its earnings and cash flows may
be adversely impacted by fluctuations in interest rates. In
order to manage these risks, the Corporation may enter into
interest rate swaps, forward contracts on foreign currency,
utilities and textiles or option contracts.
The Corporation has entered into several electrical and
natural gas contracts at December 31, 2021. The Corporation
has examined the terms of the natural gas and electricity
contracts and has determined that these contracts will
be physically settled and as such are not considered to be
financial instruments.
Critical Risks &
Uncertainties
As at December 31, 2021, there are no material changes in
the Corporation’s risks or risk management activities since
December 31, 2020. The Corporation’s results of operations,
business prospects, financial condition, cash dividends to
Shareholders and the trading price of the Common Shares
are subject to a number of risks. These risk factors include:
the adverse impact of the coronavirus (COVID-19) pandemic
on the Corporation, which is significant, particularly to our
37
2021 ANNUAL REPORT I N T E R N A L C O N T R O L S O V E R
F I N A N C I A L R E P O R T I N G
The CEO and CFO acknowledge responsibility for the
design of internal controls over financial reporting (“ICFR”).
Consequently the CEO and CFO confirm that the additions
to these controls that occurred during the year ended
December 31, 2021, did not materially affect, or are reason-
ably likely to materially affect, the Corporation’s ICFR. Based
upon their evaluation of these controls for the year ended
December 31, 2021, the CEO and CFO have concluded that
these controls were operating effectively.
A control system, no matter how well conceived and
operated, can provide only reasonable, and not absolute,
assurance that the objectives of the control system are met.
As a result of the inherent limitations in all control systems,
no evaluation of controls can provide absolute assurance
that all control issues, including instance of fraud, if any,
have been detected. These inherent limitations include,
amongst other items: (i) that managements’ assumptions
and judgments could ultimately prove to be incorrect under
varying conditions and circumstances; or, (ii) the impact of
isolated errors.
Additionally, controls may be circumvented by the unautho-
rized acts of individuals, by collusion of two or more people,
or by management override. The design of any system of
controls is also based, in part, upon certain assumptions
about the likelihood of future events, and there can be no
assurance that any design will succeed in achieving its
stated goals under all potential (future) conditions.
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 »).
hospitality segment; dependence on long-term contracts
and the associated renewal risk thereof; the effects of
market volatility and uncertainty; potential future tax
changes; the Corporation’s competitive environment and
increased competition; our ability to acquire and success-
fully integrate and operate additional businesses; utility
costs; the labour markets; the fact that our credit facility
imposes numerous covenants and encumbers assets; and,
environmental matters.
The Corporation’s operating results may be subject to
increased risk due to current geopolitical instability that
could have an impact on key input prices, such as natural
gas. This uncertainty has become more pronounced with the
conflict in the Ukraine which began in late February 2022
and has resulted in significant volatility in natural gas supply
rates. We expect to mitigate some of these cost increases
with price increases to our customers through price escala-
tion measures although there could be some lag.
For a discussion of these risks and other risks associated
with an investment in the Common 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 at www.sedar.com.
Controls &
Procedures
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.
D I S C L O S U R E C O N T R O L S
& P R O C E D U R E S
The Corporation has established disclosure controls and
procedures to ensure that information disclosed in this
MD&A and the related financial statements of K-Bro was
properly recorded, processed, summarized and reported
to the Board of Directors and the Audit Committee. The
Corporation’s CEO and CFO have evaluated the effective-
ness of these disclosure controls and procedures for the
year ended December 31, 2021, and the CEO and CFO have
concluded that these controls were operating effectively.
38
WE ARE DEPENDABLE.
39
2021 ANNUAL REPORT 41
I N D E P E N D E N T A U D I T O R ’ S R E P O R T
46 C O N S O L I D A T E D S T A T 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
47
C O N S O L I D A T E D S T A T 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
48 C O N S O L I D A T E D S T A T E M E N T S O F C H A N G E S I N E Q U I T Y
49 C O N S O L I D A T E D S T A T E M E N T S O F C A S H F L O W
50 N O T E S T O T H E C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S
79
C O R P O R A T E I N F O R M A T I O N
40
WE ARE DEPENDABLE.
41
2021 ANNUAL REPORT 42
WE ARE DEPENDABLE. 43
2021 ANNUAL REPORT 44
WE ARE DEPENDABLE. 45
2021 ANNUAL REPORT Consolidated Statements
of Financial Position
($ Thousands of CDN dollars)
ASSETS
Current assets
Cash and cash equivalents
Accounts receivable
Income tax receivable
Prepaid expenses and deposits
Linen in service (note 6)
Property, plant and equipment (note 7)
Intangible assets (note 8)
Goodwill (note 9)
LIABILITIES
Current liabilities
Accounts payable and other liabilities
Provisions (note 10)
Contract liability (note 27)
Lease liabilities (note 13)
Income taxes payable
Dividends payable to shareholders
Long-term debt (note 11)
Lease liabilities (note 13)
Provisions (note 10)
Contract liability (note 27)
Deferred income taxes (note 14)
SHAREHOLDERS’ EQUITY
Share capital
Contributed surplus
Deficit
Accumulated other comprehensive income
Contingencies and commitments (note 15)
DECEMBER 31, 2021
DECEMBER 31, 2020
1,110
36,847
-
4,475
31,340
73,772
213,526
6,989
38,232
332,519
30,114
703
810
9,206
1,596
1,072
43,501
37,973
47,733
2,811
-
14,100
146,118
206,660
2,338
(23,233)
636
186,401
332,519
2,416
28,108
370
4,231
31,549
66,674
208,660
9,980
38,497
323,811
24,620
884
1,259
8,298
2,623
1,068
38,752
40,657
37,705
2,789
406
13,998
134,307
204,869
2,281
(19,079)
1,433
189,504
323,811
The accompanying notes are an integral part of these consolidated financial statements.
Approved by the
Board of Directors
E L I S E R E E S ,
D I R E C T O R
M A T T H E W H I L L S ,
D I R E C T O R
46
WE ARE DEPENDABLE.
Consolidated Statements of Earnings
& Comprehensive Income
Years Ended December 31,
($ Thousands of CDN dollars, except share and per share amounts)
REVENUE
Expenses
Wages and benefits (notes 15 and 27)
Linen (note 6)
Delivery (notes 15 and 27)
Utilities
Corporate (note 27)
Materials and supplies
Repairs and maintenance
Occupancy costs
Gain on disposal of property, plant and equipment
Impairment of assets (note 26)
EBITDA
Other expenses
Depreciation of property, plant and equipment (note 7)
Amortization of intangible assets (note 8)
Finance expense (note 12)
Earnings before income taxes
Current income tax expense
Deferred income tax expense
Income tax expense (note 14)
Net earnings
Other comprehensive income (loss)
Items that may be subsequently reclassified to earnings:
Foreign currency translation differences on foreign operations
Total comprehensive income
Net earnings per share (note 17):
Basic
Diluted
Weighted average number of shares outstanding:
Basic
Diluted
The accompanying notes are an integral part of these consolidated financial statements.
47
2021
223,992
84,840
27,921
24,744
13,547
9,452
9,084
7,695
3,918
-
-
181,201
42,791
23,625
3,237
3,449
30,311
12,480
3,662
126
3,788
8,692
(797)
7,895
0.82
0.81
2020
196,591
67,620
24,780
20,719
11,644
10,520
6,986
7,006
3,561
(5)
5,516
158,347
38,244
24,048
3,836
3,961
31,845
6,399
1,234
1,383
2,617
3,782
655
4,437
0.36
0.36
10,608,539
10,686,187
10,557,147
10,629,237
2021 ANNUAL REPORT
Consolidated Statements
of Changes in Equity
($ Thousands of CDN dollars)
Total Share Contributed
Surplus
Capital
Accumulated Other
Comprehensive
Income
Deficit
As at December 31, 2020
Total comprehensive income (loss)
Dividends declared (note 19)
Employee share based compensation expense
Shares vested during the year
As at December 31, 2021
204,869
-
-
-
1,791
206,660
2,281
-
-
1,848
(1,791)
2,338
(19,079)
8,692
(12,846)
-
-
(23,233)
1,433
(797)
-
-
-
636
($ Thousands of CDN dollars)
Total Share Contributed
Surplus
Capital
Accumulated Other
Comprehensive
Income
Deficit
As at December 31, 2019
Total comprehensive income
Dividends declared (note 19)
Employee share based compensation expense
Shares vested during the year
As at December 31, 2020
203,110
-
-
-
1,759
204,869
2,241
-
-
1,799
(1,759)
2,281
(10,078)
3,782
(12,783)
-
-
(19,079)
778
655
-
-
-
1,433
The accompanying notes are an integral part of these Consolidated Financial Statements.
Total
Equity
189,504
7,895
(12,846)
1,848
-
186,401
Total
Equity
196,051
4,437
(12,783)
1,799
-
189,504
48
WE ARE DEPENDABLE.
Consolidated Statements of Cash Flow
Years Ended December 31,
($ Thousands of CDN dollars)
OPERATING ACTIVITIES
Net earnings
Depreciation of property, plant and equipment (note 7)
Amortization of intangible assets (note 8)
Gain on forgiveness of lease liabilities (note 13(d))
Accretion expense (note 10)
Employee share based compensation expense
Gain on disposal of property, plant and equipment
Impairment of assets (note 26)
Deferred income taxes
Change in non-cash working capital items (note 20)
Cash provided by operating activities
FINANCING ACTIVITIES
Net repayment of revolving debt (note 11)
Principle elements of lease payments (note 13)
Dividends paid to shareholders
Cash used in financing activities
INVESTING ACTIVITIES
Purchase of property, plant and equipment
Proceeds from disposal of property, plant and equipment
Purchase of intangible assets (note 8)
Cash used in investing activities
Change in cash and cash equivalents during the year
Effect of exchange rate changes on cash and cash equivalents
Cash and cash equivalents, beginning of year
Cash and cash equivalents, end of year
Supplementary cash flow information
Interest paid
Income taxes paid
The accompanying notes are an integral part of these consolidated financial statements.
2021
8,692
23,625
3,237
-
57
1,848
-
-
126
37,875
(5,710)
31,875
(2,684)
(7,168)
(12,842)
(22,694)
(10,132)
-
(360)
(10,492)
(1,311)
5
2,416
1,110
3,118
4,600
2020
3,782
24,048
3,836
(464)
29
1,799
(5)
5,516
1,383
39,924
2,472
42,396
(21,837)
(6,222)
(12,775)
(40,834)
(4,420)
7
-
(4,413)
(2,851)
(34)
5,301
2,416
3,849
518
49
2021 ANNUAL REPORT
Notes to the Consolidated
Financial Statements
(Thousands of Canadian dollars except share and per share amounts, Years ended December 31, 2021 and 2020)
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.
The Corporation’s operations in Canada include nine processing
facilities and two distribution centres under 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.
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 an operator
of laundry and linen processing facilities in Scotland, providing
linen rental, workwear hire and cleanroom garment services
to the hospitality, healthcare, manufacturing and pharmaceu-
tical sectors. Fishers' client base includes major hotel chains
and prestigious venues across Scotland and the North East
of England. The company operates in five cities, in Scotland
and the North East of England with facilities in Cupar, Perth,
Newcastle, Livingston and Coatbridge.
The Corporation’s common shares are traded on the Toronto
Stock Exchange under the symbol “KBL”. The address of the
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 15, 2022.
1 . B A S I S O F P R E S E N T A T I O N
The Consolidated Financial Statements of the Corporation
in accordance with International
have been prepared
Financial Reporting Standards as published in the CPA
Canada Handbook (IFRS). The preparation of financial state-
ments in conformity with IFRS requires the use of certain
critical accounting estimates. It also requires manage-
ment 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
Consolidated Financial Statements are disclosed in Note 5.
2 . S I G N I F I C A N T A C C O U N T I N G
P O L I C I E S
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 periods presented, unless otherwise stated.
a) Basis of Measurement
The Consolidated Financial Statements have been prepared
under the historical cost convention.
b) Principles of Consolidation
financial statements
the
The consolidated
Corporation,
its wholly owned subsidiaries, and the
long-term incentive plan account (Note 2(o)). All intercom-
pany balances and transactions have been eliminated upon
consolidation.
include
c) Cash & Cash Equivalents
Cash and cash equivalents includes cash on hand, deposits
with banks, and 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.
50
WE ARE DEPENDABLE. d) Linen in Service
Linen in service is stated at cost less accumulated depre-
ciation. The cost is based on the expenditures that are
directly attributable to the acquisition of linen, amortization
commences when linen is put into service; with operating
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 to
36 months.
e) Revenue Recognition
A laundry services contract is a contract specifically negoti-
ated for the provision of laundry and linen services. Revenue
is based on contractually set pricing on a consistent unit-of-
weight or price-per-piece basis for each service over the
term of the contract. The Corporation reports revenue
under two revenue categories: healthcare and hospitality
services. When determining the proper revenue recognition
method for contracts, the Corporation evaluates whether
two or more contracts should be combined and accounted
for as one single contract and whether the combined or
single contract should be accounted for as more than one
performance obligation. The Corporation accounts for a
contract when, it has commercial substance, the parties
have approved the contract in accordance with customary
business practices and are committed to their obligations,
the rights of the parties and payment terms are identified,
and collectability of consideration is probable.
1. Identifying the Contract
The Corporation's policy for revenue recognition requires
an appropriately authorized contract, with sign-off by
representatives from all respective parties before any
services are provided to a customer. Contained within
the terms of these contracts is detailed information
identifying each party’s rights regarding the laundry
and linen services to be provided, as well as associated
payment terms (i.e., service pricing, early payment
discounts, invoicing requirements, etc.). In addition, the
Corporation’s contracts have commercial substance
as the services to be provided will directly impact the
Corporation’s future cash flows via incoming revenue and
related outgoing expenditures.
As part of the Corporation’s analysis in reviewing and
accepting a contract, the Corporation assesses the likeli-
hood of collection from all prospective customers and
only transacts with those customers from which payment
is probable. As the Corporation’s significant customer
contracts are generally with government-funded health
agencies and large volume hotels, it is probable that the
Corporation will collect the consideration to which is
entitled for the performance of these contracts.
For services provided following the expiration of a contract
and subsequent renewal negotiations, the terms of the
original contract carry forward until the new agreement
has been appropriately authorized. This is confirmed
through verbal approval and is consistent with customary
business practices.
2. Identifying Performance Obligations in a Contract
Linen services are provided to the Corporation’s
customers consecutively over a period of time (i.e., daily
deliveries over the contract term) and the same method
is used to measure the Corporation’s progress in satis-
fying the performance of the contract (i.e., revenue
is based on contractually set pricing on a consistent
unit-of-weight or price-per-piece basis for each service
over the term of the contract). Additionally, these
services generally include integrated processing and
delivery, consist of a single deliverable (clean processed
volume), and in the case of rental linen, are not offered
individually (rental linen is used as an input in the provi-
sion of standard laundry and linen services). Therefore,
the services provided under one service agreement
constitute a single performance obligation.
3. Determining the Transaction Price
The majority of the Corporation’s contracts utilize a fixed
pricing model. These contracts stipulate a fixed rate to be
charged to customers on a price-per-unit basis, including
either weight-based or item-based billing. For these
types of arrangements, revenue is recognized over time
as each unit of linen is processed and delivered using
the fixed consideration rate per the contract. In addition
to the above pricing methodology, some contracts have
additional components which meet the definition of
variable consideration per IFRS 15, which are accounted
for using the most likely amount method. The estimates
of variable consideration and determination of whether
to include estimated amounts in the transaction price
are based largely on an assessment of the Corporation’s
anticipated performance and all information, historical,
current, and forecasted, that is reasonably available.
4. Allocating the Transaction Price
Each of the customer’s individual customer contracts
represents a single performance obligation. As a result,
the transaction price for each contract (based on contrac-
tually stipulated fixed and variable pricing for a single
deliverable) is allocated to each processed item based on
the agreed upon rate.
Volume rebates, where applicable, are recorded based
on annualized expected volumes of individual customer
contracts when it is reasonable that the criteria are
likely to be met. Based on past experience, management
51
2021 ANNUAL REPORT
believes that volumes utilized for any estimates are
reasonable and would not expect a material deviation to
the balance of accrued liabilities or revenue.
5. Performance Obligations Satisfied Over Time
The Corporation typically transfers control of goods or
services and satisfies performance obligations over time,
once clean linen has been provided to the customer and the
customer has accepted delivery of the processed items.
Payment of laundry services are due respective of the
terms as indicated in the customer’s laundry service
contract, whereby customers are generally invoiced on a
monthly basis and consideration is payable when invoiced.
The Corporation presents its contract balances, on a
contract-by-contract basis, in a net contract asset or
liability position, separately from its trade receivables.
Contract assets and trade receivables are both rights to
receive consideration in exchange for goods or services
that the Company has transferred to a customer, however
the classification depends on whether such right is only
conditional on the passage of time (trade receivables)
or if it is also conditional on something else (contract
assets), such as the satisfaction of further performance
obligations under the contract. A contract liability is the
cumulative amount received and contractually receivable
by the Corporation that exceeds the right to consideration
resulting from the Corporation’s performance under a
given contract.
f) Property, Plant & Equipment
Property, plant and equipment are stated at cost less
accumulated depreciation and accumulated impairment
losses. Cost includes expenditures that are directly attrib-
utable 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
Consolidated Statements of Earnings and Comprehensive
Income during the financial period in which they are incurred.
General and specific borrowing costs that are directly
attributable to the acquisition, construction or production
of a qualifying asset are capitalized during the period of
time that is required to complete and prepare the asset for
its intended use or sale. Qualifying assets are assets that
necessarily take a substantial period of time to get ready for
their intended use or sale. The Corporation has not capital-
ized any borrowing costs during the year as there were no
qualifying assets.
Property, plant and equipment include right of use assets
as disclosed under the Corporation’s leasing policy in note
2(r). Right of use assets arise from a lease that is initially
measured on a present value basis, and are classified within
the relevant property, plant and equipment categories based
on the type of asset.
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
Buildings
Laundry equipment
Office equipment
Delivery equipment
Rate
15 – 25 years
7 – 20 years
2 – 5 years
5 – 10 years
Computer equipment
2 years
Leasehold improvements
Lease term
Gains and losses on disposals of property, plant and equip-
ment are determined by comparing the proceeds with the
carrying amount of the asset.
g) Intangible Assets
Intangible assets acquired in a business combination are
recorded at fair value at the acquisition date. Subsequently
they are carried at cost less accumulated amortization and
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
Rate
Customer contracts
1 – 20 years
Computer software
Brand
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.
52
WE ARE DEPENDABLE.
h) Impairment of Non-Financial Assets
j) Business Combinations
Property, plant and equipment and intangible assets are
tested for impairment when events or changes in circum-
stances indicate that the carrying amount may not be recov-
erable. 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 and
value in use (being the present value of the expected future
cash flows of the relevant asset or CGU). An impairment loss
is recognized for the amount by which the asset's carrying
amount exceeds its recoverable amount firstly to the recorded
goodwill, then to the other assets in the CGU on a pro rata
basis, as determined by the carrying amount of each asset
in the CGU. The Corporation evaluates impairment losses,
other than goodwill impairment, for potential reversals when
events or circumstances warrant such consideration.
i) Income Taxes
The tax expense for the year comprises current and deferred
tax. Tax is recognized in the Consolidated Statements of
Earnings and Comprehensive Income, except to the extent
that it relates to items recognized in other comprehensive
income or directly in equity. In this case, the tax is also
recognized in other comprehensive income or directly in
equity, respectively.
The current income tax provision is calculated on the
basis of the tax laws enacted or substantively enacted at
the balance sheet date of the taxation authority where
the Corporation operates and generates taxable income.
Management periodically evaluates positions taken in tax
returns with respect to situations in which applicable tax
regulation is subject to interpretation. It establishes provi-
sions 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.
Business combinations are accounted for using the acqui-
sition method. The acquired identifiable net assets are
measured at their fair value at the date of acquisition. The
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.
k) 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 impairment annually in the fourth quarter, or more
frequently if events or changes in circumstances indicate a
potential impairment.
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
represents the lowest level within the entity at which the
goodwill is monitored for internal management purposes.
l) 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.
Diluted EPS is calculated by adjusting the weighted average
number of common shares outstanding for dilutive instru-
ments. The number of common shares included within the
weighted average is computed using the treasury stock
method. The Corporation’s potentially dilutive Common shares
are comprised of long-term incentive plan equity compensa-
tion granted to officers and key employees (Note 2(o)).
m) Foreign Currency Translation
The consolidated financial statements are presented
in Canadian dollars. The Corporation's operations
in
Canada have a functional currency of Canadian dollars.
The Corporation's operations in the UK have a functional
currency of pounds sterling.
53
2021 ANNUAL REPORT 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 approxi-
mate the exchange rates on the transaction dates;
· Impairment of assets are translated at the prevailing
rate of exchange on the date of the impairment recogni-
tion, and;
· Exchange gains that result from translation are recog-
nized as a foreign currency translation difference in
accumulated other comprehensive income (loss).
Translation of Transactions & 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;
· Non-monetary items are translated at historical exchange
rates; and
· Revenue and expense items are translated at the average
rates of exchange, except depreciation and amortization,
which are translated at the rates of exchange applicable
to the related assets, with any gains or losses recognized
within “finance expense” in the consolidated statements
of earnings & comprehensive income.
n) Provisions
Provisions are recognised when the Corporation has a
present obligation (legal or constructive) as a result of
a past event, it is probable that an outflow of resources
embodying economic benefits will be required to settle
the obligation and a reliable estimate can be made of the
amount of the obligation. Provisions are not recognised for
future operating losses.
Where there are a number of similar obligations, the likeli-
hood that an outflow will be required in settlement is deter-
mined by considering the class of obligations as a whole. A
provision is recognised even if the likelihood of an outflow
with respect to any one item included in the same class of
obligations may be small.
Provisions are measured at the present value of manage-
ment’s best estimate of the expenditure required to settle
the present obligation at the end of the reporting period.
The discount rate used to determine the present value is
a pre-tax rate that reflects current market assessments of
the time value of money and the risks specific to the liability.
The increase in the provision due to the passage of time is
recognised as interest expense.
o) Employee Benefits
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.
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”), which
was amended and restated as of December 31, 2018.
Under the LTI, awards are granted annually in respect of
the prior fiscal year to the eligible participants based on a
percentage of annual salary. The amount of the award (net
of withholding obligations) is satisfied by issuing treasury
shares or cash to be held in trust by the trustee pursuant
to the terms of the LTI. All awards issued under the provi-
sions of the LTI are recorded as compensation expense over
the relevant service period, being the year to which the LTI
relates and the vesting period of the shares.
The Amendment made on December 31, 2018 gave the
Board of Directors the right to elect to satisfy the award
in cash. The Corporation has determined that this change
did not create an obligation to satisfy the award in cash and
therefore the LTI continues to be treated as an equity settled
share based payment.
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
following the date that the Directors of the Corporation
approve the audited consolidated financial statements of the
Corporation for the prior year). The remaining three-quar-
ters of the Participant’s grant will vest on November 30th
following the second anniversary of the Determination Date.
If a change of control occurs, all LTI Shares held by the
Administrator in respect of unvested grants will vest immedi-
ately. LTI participants are entitled to receive dividends on
all common shares granted under the LTI whether vested
or unvested. In most circumstances, unvested common
54
WE ARE DEPENDABLE. shares held by the LTI Administrator 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 Administrator to K-Bro for
no consideration and such Common shares shall thereupon
be cancelled. If a participant is terminated without cause,
retires or resigns on a basis which constitutes construc-
tive dismissal, the participant will be entitled to receive
his or her unvested common shares on the regular vesting
schedule under the LTI.
p) Financial Instruments
The Corporation classifies its financial assets in the
following measurement categories:
· those to be measured subsequently at fair value (either
through other comprehensive income (loss), or though
profit or loss); and
· those to be measured at amortized cost.
The classification depends on the Corporation’s business
model for managing the financial assets and contractual
terms of the cash flows.
At initial recognition, the Corporation measures a financial
asset at fair value plus, in the case of a financial asset not at
fair value through profit or loss, transaction costs that are
directly attributable to the acquisition of the financial asset.
The Corporation’s financial assets consist of cash and cash
equivalents and accounts receivable, which are measured
at amortized cost using the effective interest method under
IFRS 9.
The Corporation's financial liabilities consist of accounts
payable and accrued liabilities, lease liabilities, dividends
payable and long-term debt. Accounts payable and accrued
liabilities and dividends payable are recognized initially at
their fair value and subsequently measured at amortized
cost using the effective interest method. Lease liabilities
are recognized initially at their net present value and subse-
quently measured at amortized cost using the effective
interest method.
Long-term debt and borrowings are initially recognized at
fair value, net of transaction costs incurred and are subse-
quently measured at amortized cost. Long-term debt and
borrowings are removed from the balance sheet when the
obligation specified in the contract is discharged, cancelled
or expired.
The difference between the carrying amount of a financial
liability that has been extinguished or transferred to another
party and the consideration paid, including any non-cash
assets transferred or liabilities assumed, is recognized in
profit or loss as other income or finance costs. Borrowings
are classified as current liabilities unless the group has an
unconditional right to defer settlement of the liability for at
least 12 months after the reporting period.
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.
Derivatives are initially recognized at fair value on the date
a derivative contract is entered into and are subsequently
remeasured to their fair value at the end of each reporting
period and included as part of the profit and loss.
q) Impairment of Financial Assets
Information aabout the impairment of financial assets,
their credit quality and the Corporation’s exposure to credit
risk can be found in Note 21(d). The Corporation utilizes
the application of the simplified approach to provide for
expected credit losses prescribed by IFRS 9, which permits
the use of the lifetime expected loss provision for all trade
receivables. To measure the expected credit losses, the
Corporation’s trade receivables have been grouped based
on operating segment, shared credit risk characteristics
and days past due. Accounting judgment and estimate is
required in the assessment of the lifetime expected default
rate of each trade receivables grouping. The lifetime
expected default rates are reviewed at least annually and
are updated if expectations change.
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
value of the estimated future cash flows, discounted using
the instrument's original effective interest rate. The carrying
amount of the asset is reduced by this amount either directly
or indirectly through the use of an allowance account.
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.
55
2021 ANNUAL REPORT r) The Corporation’s Leasing Activities &
How These Are Accounted For
The Corporation leases various buildings, vehicles and
equipment. Rental contracts are typically made for fixed
periods of one to fifteen years but may have extension
options as described in Note 2(r)(ii) below. Lease terms are
negotiated on an individual basis and contain a wide range
of different terms and conditions. The lease agreements do
not impose any financial covenants, but leased assets may
not be used as security for borrowing purposes.
Leases are recognized as a right-of-use asset and a corre-
sponding liability at the date at which the leased asset is
available for use by the Corporation. Each lease payment is
allocated between the liability and finance cost. The finance
cost is charged to profit or loss over the lease period so
as to produce a constant periodic rate of interest on the
remaining balance of the liability for each period. The right-
of-use asset is depreciated over the shorter of the asset's
useful life and the lease term on a straight-line basis.
Assets and liabilities arising from a lease are initially
measured on a present value basis. Lease liabilities include
the net present value of the following lease payments:
· fixed payments (including in-substance fixed payments),
less any lease incentives receivable
· variable lease payment that are based on an index or a rate
· the amount of the initial measurement of lease liability,
· any lease payments made at or before the commence-
ment date less any lease incentives received,
· any initial direct costs, and
· restoration costs.
Payments associated with short-term leases and leases of
low-value assets are recognized on a straight-line basis as
an expense in profit or loss. Short-term leases are leases
with a lease term of 12 months or less. Low-value assets are
comprised of IT-equipment and small items of office furniture.
(i) Variable Lease Payments
Based on the valuation of the Corporation’s leases, no leases
have been identified that are directly tied to an index or rate,
and whereby an estimate would be required in determining
the uncertainty arising from variable lease payments.
(ii) Extension & Termination Options
Extension and termination options are included in a
number of property and equipment leases across the
Corporation. These terms are used to maximize opera-
tional flexibility in terms of managing contracts. The
majority of extension and termination options held
are exercisable only by the Corporation and not by the
respective lessor.
· amounts expected to be payable by the lessee under
residual value guarantees, and
s) Government Grants
· the exercise price of a purchase option if the lessee is
reasonably certain to exercise that option.
The lease payments are discounted using the interest rate
implicit in the lease. If that rate cannot be determined,
the lessee’s incremental borrowing rate is used, being the
rate that the lessee would have to pay to borrow the funds
necessary to obtain an asset of similar value in a similar
economic environment with similar terms and conditions.
To determine the incremental borrowing rate, the Corporation:
· where possible, uses recent third-party financing
received by the individual lessee as a starting point,
adjusted to reflect changes in financing conditions since
third party financing was received,
· uses a build-up approach that starts with a risk-free
interest rate adjusted for credit risk, and
· makes adjustments specific to the lease, e.g., term,
country, currency and security.
Right-of-use assets are measured at cost comprising
the following:
Government grants, including non-monetary grants at fair
value, are only recognised when there is reasonable assur-
ance that:
(a) all conditions attaching to the Government grant will
be complied with;
(b) the value of the grant can be determined with reason-
able certainty; and
(c) the grant will be received.
Government grants are recognised in the profit or loss over
the periods in which the Corporation recognises related
expenses. Where government grants relate to costs which
have been capitalised as assets these are recognised as
a reduction to the related asset in the consolidated state-
ments of financial position and transferred to profit or loss
over the useful lives of the related assets.
Government grants that are receivable as compensation for
expenses or losses already incurred or for the purpose of
giving immediate financial support to the Corporation with
no future related costs are recognised in profit or loss in the
period in which they relate to.
56
WE ARE DEPENDABLE.
3 . C H A N G E S & U P D A T E S I N
A C C O U N T I N G P O L I C I E S
The Corporation adopted the following accounting standards
and amendments that were effective for our interim and
annual consolidated financial statements commencing
January 1, 2021. These changes did not have a material
impact on our financial results and are not expected to have
a material impact in the future.
Interest Rate Benchmark Reform – Phase 2
In August 2020, the IASB issued Interest Rate Benchmark
Reform – Phase 2, which amends IFRS 9 Financial
Instruments, IAS 39 Financial Instruments: Recognition
Instruments:
and Measurement,
Disclosures, IFRS 4 Insurance Contracts and IFRS 16
Leases. The amendments apply for annual periods
beginning on or after January 1, 2021.
IFRS 7 Financial
The Phase 2 amendments address issues that might
affect financial reporting during the reform of an interest
rate benchmark, including the effects of changes to
contractual cash flows or hedging relationships arising
from the replacement of an interest rate benchmark with
an alternative benchmark rate.
There is significant uncertainty over the timing of when
the replacements for IBORs will be effective and what
those replacements will be. We will actively monitor the
IBOR reform and consider circumstances as we renew or
enter into new financial instruments.
4 . N E W S T A N D A R D S &
I N T E R P R E T A T I O N S
N O T Y E T A D O P T E D
New standards, interpretations, or amendments that have been
issued, or are not yet effective, have not been further described
or early adopted, where no material impact is expected on the
Corporation's consolidated financial statements.
The IASB has issued the following new standard and
amendments to existing standards that will become effec-
tive in future years.
· Amendments to IAS 12, Deferred Tax related to Assets
and Liabilities arising from a Single Transaction, that
clarify how companies account for deferred tax on
transactions such as leases and decommissioning
obligations. The amendments are effective for annual
periods beginning on or after January 1, 2023.
· Amendments to IFRS 3, Business Combinations -
Updating a Reference to the Conceptual Framework,
updating a reference to the Conceptual Framework.
· Amendments to
IAS 1, Presentation of Financial
Statements - Disclosure of Accounting Policies,
requiring entities to disclose material, instead of signif-
icant, accounting policy information.
· Amendments to
IAS 1, Presentation of Financial
Statements - Classification of Liabilities as Current or
Noncurrent, clarifying requirements for the classifica-
tion of liabilities as non-current.
· Amendments to IAS 8, Accounting Policies - Changes in
Accounting Estimates and Errors, clarifying the defini-
tion of "accounting policies" and "accounting estimates".
· Amendments to IAS 16, Property, Plant and Equipment:
Proceeds before intended use, prohibiting reducing the
cost of property, plant, and equipment by proceeds while
bringing an asset to capable operations.
· IAS 37, Provisions, Contingent Liabilities and Contingent
Assets - Onerous Contracts, specifying costs an entity
should include in determining the "cost of fulfilling" a
potential onerous contract.
The Corporation has not adopted any standard, interpretation
or amendment that has been issued but is not yet effective and
no material impact is expected on the Corporation’s consol-
idated financial statements. The Corporation will continue
to assess the impacts, if any, the amendments to existing
standards will have on our consolidated financial statements,
but we currently do not expect any material impacts.
5 . C R I T I C A L A C C O U N T I N G
E S T I M A T E S & J U D G M E N T S
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
results could differ from those estimates.
The estimates and associated assumptions are based on
historical experience and various other factors that are
believed to be reasonable under the circumstances, the
results of which form the basis of making the judgments
about carrying values of assets and liabilities that are not
readily apparent from other sources. These estimates and
judgments have been applied in a manner consistent with
prior periods.
COVID-19 Risk
The ongoing COVID-19 pandemic has caused world
governments to institute travel restrictions both in and
57
2021 ANNUAL REPORT
out of and within Canada and the UK, which has had,
and is expected to continue to have a significant adverse
impact on the Corporation’s hospitality business, the
duration of which we are unable to predict with any
degree of accuracy.
The extent of such negative effects on our hospitality
business and our financial and operational performance
will depend on future developments, including the
duration, spread and severity of COVID-19 outbreaks, the
availability and effectiveness of the vaccine, the duration
and geographic scope of related travel advisories and
restrictions and the extent of the impact of the COVID-19
pandemic on overall demand for personal and business
travel, all of which are highly uncertain and cannot be
predicted with any degree of accuracy. As hotels continue
to experience significantly reduced occupancy rates for
an extended period, consolidated results of operations
will be significantly impacted. The extent to which the
outbreaks affects our earnings will depend on the length
of time the hospitality industry continues to experience
reduced occupancy rates. Earnings will continue to be
particularly affected if we continue to experience reduc-
tions in travel and reduced hospitality occupancy rates.
Additionally, our suppliers or other third parties we rely
upon may experience delays or shortages, which could
have an adverse effect on our business prospects and
results of operations.
As an ongoing risk, the duration and full financial effect
of the COVID-19 pandemic continues to be uncertain at
this time, the Corporation is managing the ongoing risk
through the Corporation’s business continuity plan and
other mitigating measures. Any estimate of the length
and severity of these developments is therefore subject
to significant uncertainty, and accordingly estimates of
the extent to which the COVID-19 pandemic may materi-
ally and adversely affect the Corporation’s operations,
financial results and condition in future periods are also
subject to significant uncertainty.
Uncertainty about judgments, estimates and assump-
tions made by management during the preparation of the
Corporation’s consolidated financial statements related
to potential impacts of the COVID-19 outbreak on revenue,
expenses, assets, liabilities, and note disclosures could
result in a material adjustment to the carrying value of
the asset or liability affected.
The following discusses the most significant accounting
judgments and estimates that the Corporation has made
in the preparation of the consolidated financial statements:
Areas of Significant Judgment
Recognition of Rebate Liabilities
In applying its accounting policy for volume rebates, the
Corporation must determine whether the processing
volume thresholds will be achieved. The most difficult
and subjective area of judgment is whether a contract
will generate satisfactory volume to achieve minimum
levels. Management considers all appropriate facts and
circumstances in making this assessment including
historical experience, current volumetric run-rates, and
expected future events.
Impairment of Goodwill & Non-Financial Assets
Management reviews goodwill at least annually and other
non-financial assets when there is any indication that the
asset might be impaired. The assessment of impairment
is based on management’s judgment of whether there
are sufficient internal and external factors that would
indicate that an asset is impaired.
The Corporation applies judgment in:
·
·
assessing the likelihood of renewal of significant
contracts included in the intangible assets described
in Note 8,
identifying the CGUs to which intangible assets
should be allocated to, and the CGU or group of CGUs
at which goodwill is monitored for internal manage-
ment purposes, and
·
determining the appropriate comparable companies
used in earnings multiple approach.
During the first quarter of 2020, based on impairment
indicators that existed as a result of the COVID-19
pandemic, management had assessed the impairment of
assets based off facts and circumstances which suggest
that the carrying amount in certain CGUs may exceed its
recoverable amount, refer to Note 26 for further detail.
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, identi-
fied 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 environment, if applicable.
58
WE ARE DEPENDABLE.
Lease Term
Provisions
In determining the lease term, management considers
all facts and circumstances that create an economic
incentive to exercise an extension option, or not exercise
a termination option. Extension options (or periods after
termination options) are only included in the lease term
if the lease is reasonably certain to be extended (or not
terminated). For many of the leases the cash outflows
associated with the lease extension term would be
material. The assessment is reviewed if a significant
event or a significant change in circumstances occurs
which affects this assessment and that is within the
control of the lessee.
Areas of Estimation Uncertainty
Incremental Borrowing Rate
In applying its accounting policy for leases management
considers all appropriate facts and circumstances in the
determination the lessee’s incremental borrowing rate
being used and these rates are reviewed and update on
an annual basis.
Amortization of Property, Plant & Equipment,
& Intangible Assets
In applying its accounting policy for the amortization of
property, plant and equipment, and intangible assets,
management considers all appropriate facts and circum-
stances in the determination of the appropriate rates and
methodology to allocate costs over their estimated useful
lives, including historical experience, current volumetric
run-rates, and 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.
The Corporation’s provision includes restructure costs
and the restoration for premises of its leased plants.
The Corporation determines restructure costs based
off employment standards and legal consultation. For
leased plants, a provision has been recognized for the
present value of the estimated expenditure required to
remove any leasehold improvements and installed equip-
ment. Refer to Note 10 for more details about estimation
for this provision.
Impairment of Goodwill & Non-Financial Assets
Management reviews goodwill at least annually and other
non-financial assets when there is any indication that
the asset might be impaired. As part of this review the
Corporation use estimates to calculate the appropriate
discount rate and growth rate which are used to estimate
the recoverable value.
During instances where indication of impairment exists,
the recoverable amount of the asset is estimated in order
to determine the extent of the impairment loss. Where
it is not possible to estimate the recoverable amount of
an individual asset, the Corporation estimates the recov-
erable amount of the cash generating unit to which the
asset belongs. The recoverable value of CGUs require the
use of estimates related to the future operating results
and cash generating ability of the assets.
Management regularly evaluates these estimates and
judgments. Revisions to accounting estimates are recog-
nized in the period in which the estimate is revised if 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.
6 . L I N E N I N S E R V I C E
($ Thousands of CDN dollars)
2021
2020
Balance, beginning of year
Additions
Amortization charge
Effect of movement
in exchange rates
Balance, end of year
31,549
27,878
(27,921)
(166)
26,039
30,177
(24,780)
113
31,340
31,549
59
2021 ANNUAL REPORT
7 . P R O P E R T Y , P L A N T & E Q U I P M E N T
($ Thousands of CDN dollars,
except share and per share amounts)
Laundry
Land Buildings Equipment(1) Equipment Equipment
Office Delivery Computer
Equipment
Leasehold Spare
Improvements Parts
Total
Year Ended, December 31, 2020
Opening net book amount
Additions(2)(3)(5)
Disposals
Transfers
Depreciation charge
Impairment of assets(4)
Effect of movement in exchange rates
Closing net book amount
4,043
-
-
-
-
-
19
4,062
52,524
1
-
-
(5,229)
(207)
125
47,214
119,704
2,329
(2)
153
(11,289)
(2,113)
191
108,973
309
64
-
-
(144)
-
1
230
6,578
5,725
-
-
(2,933)
(5)
70
9,435
708
145
-
-
(459)
(14)
-
380
43
-
-
(3,994)
-
4
40,610 1,856 226,332
8,307
(2)
-
(24,048)
(2,339)
410
36,663 1,703 208,660
-
-
(153)
-
-
-
At December 31, 2020
Cost
Accumulated impairment losses
Accumulated depreciation
Net book amount
4,062
-
-
4,062
61,810
(207)
(14,389)
47,214
189,464
(2,113)
(78,378)
108,973
1,110
-
(880)
230
16,347
(5)
(6,907)
9,435
3,228
(14)
(2,834)
380
60,145 1,703 337,869
-
(2,339)
-
(23,482)
- (126,870)
36,663 1,703 208,660
Year Ended, December 31, 2021
Opening net book amount
Additions(2)(3)(5)
Depreciation charge
Effect of movement in exchange rates
Closing net book amount
4,062
-
-
(23)
4,039
47,214
16,849
(5,702)
(151)
58,210
108,973
10,206
(10,901)
(216)
108,062
230
115
(122)
(1)
222
9,435
1,535
(2,982)
(84)
7,904
380
176
(258)
-
298
46
(3,660)
(4)
36,663 1,703 208,660
28,970
43
(23,625)
-
(479)
-
33,045 1,746 213,526
Cost
Accumulated impairment losses
Accumulated depreciation
Net book amount
4,039
-
-
4,039
78,464
(207)
(20,047)
58,210
199,337
(2,113)
(89,162)
108,062
1,220
-
(998)
222
17,738
(5)
(9,829)
7,904
3,404
(14)
(3,092)
298
60,188 1,746 366,136
(2,339)
-
-
(27,143)
- (150,271)
33,045 1,746 213,526
At December 31, 2021
1 Included in laundry equipment are assets under development in the amount of $4,616 (2020 - $24). These assets are not available for service and accordingly are not presently being depreciated.
2 Total property, plant and equipment additions are inclusive of amounts incurred in the period that are yet be paid, with amounts remaining in accounts payable and accrued liabilities of $873 (2020 - $312).
3 Additions include amounts from the Canadian Division of $26,287 (2020 - $2,544) and from the UK Division of $2,683 (2020 - $5,763).
4 During 2020 based off impairment indicators that existed in the year, the Corporation determined that the carrying value exceeded the recoverable amount for one of their cash generating
units, and an impairment loss was recorded for property, plant and equipment, for further detail refer to note 26.
5 Includes ROUA additions from the Canadian Division of $16,135 (2020 - $1,065), comprised of buildings of $15,205 (2020 - $0) and vehicles of $930 (2020 - $1,065). From the UK Division, ROUA
additions were $2,152 (2020 - $4,684), comprised of buildings of $1,594 (2020 - $0) and vehicles of $558 (2020 - $4,684). This has resulted in corresponding increases to the lease liabilities in
the amount of $16,135 (2020 - $1,065) for the Canadian Division and $2,152 (2020 - $4,684) for the UK Division.
60
WE ARE DEPENDABLE.
8 . I N T A N G I B L E A S S E T S
($ Thousands of CDN dollars,
except share and per share amounts)
Healthcare
Relationships
Hospitality
Relationships
Computer
Software
Brand
Total
Opening net book amount
Additions
Amortization charge
Effect of movement in exchange rates
Closing net book amount
Cost
Accumulated amortization
Net book amount
Opening net book amount
Additions
Amortization charge
Effect of movement in exchange rates
Closing net book amount
Cost
Accumulated amortization
Net book amount
530
-
(453)
-
77
19,200
(19,123)
77
77
-
(39)
-
38
19,200
(19,162)
38
Year Ended, December 31, 2020
8,875
-
(3,383)
66
5,558
-
-
-
-
-
At December 31, 2020
22,911
(17,353)
5,558
927
(927)
-
Year Ended, December 31, 2021
5,558
-
(3,181)
(52)
2,325
-
360
(17)
-
343
At December 31, 2021
22,859
(20,534)
2,325
1,287
(944)
343
4,294
-
-
51
4,345
4,345
-
4,345
4,345
-
-
(62)
4,283
4,283
-
4,283
13,699
-
(3,836)
117
9,980
47,383
(37,403)
9,980
9,980
360
(3,237)
(114)
6,989
47,629
(40,640)
6,989
61
2021 ANNUAL REPORT
9 . G O O D W I L L
Goodwill represents the excess of the acquisition-date fair value of consideration transferred over the fair value of the
identifiable net assets acquired in a business combination. Goodwill is not amortized. Refer to Note 26 for the Corporation’s
impairment testing disclosure.
Goodwill has been allocated to the following CGUs:
($ Thousands of CDN dollars
except share and per share amounts)
December 31, 2021
December 31, 2020
Calgary
Edmonton
Vancouver 2
Vancouver 1
Victoria
Montréal
Québec
Canadian division
UK division
Changes due to movement in exchange rates
UK division
Goodwill
8,082
4,346
3,413
2,630
1,508
-
-
19,979
18,100
153
18,253
38,232
8,082
4,346
3,413
2,630
1,508
-
-
19,979
18,100
418
18,518
38,497
62
WE ARE DEPENDABLE. 1 0 . P R O V I S I O N S
The Corporation's provision includes a current provision
of $703 (2020 - $884) to recognize restructuring costs,
and a long-term provision of $2,811 (2020 - $2,789) that is
comprised of lease provisions and obligations to restore
leased premises of its leased plants.
Management estimates the current provision based on
consultation from legal and current employment standards.
Estimates of the long-term provision, is based off informa-
tion 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.
A long-term provision has been recognized for the present
value of the estimated expenditure required to settle the
lease provision and to remove leasehold improvements and
installed equipment. The Corporation estimates the undis-
counted, inflation adjusted cash flows required to settle
these obligations at December 31, 2021 to be $3,032 (2020
- $2,928). Management has estimated the present value of
this obligation at December 31, 2021 to be $2,811 (2020 -
$2,789) using an inflation rate of 1.80% (2020 – 1.40%) and
pre-tax weighted average risk-free interest rate of 0.91% to
1.66% (2020 - 0.20% to 1.10%) dependent upon length of the
lease term, which reflects current market assessments of
the time value of money. These obligations are expected to
be incurred over an estimated period from 2026 to 2039.
As at December 31, 2021, if actual costs were to differ by
10% from management's estimate the obligation would
be an estimated $351 (2020 - $367) higher or lower. It is
possible the estimated costs could change and changes
to these estimates could have a significant effect on the
Corporation's consolidated financial statements.
The Corporation recorded the following provision activity
during the year:
($ Thousands of CDN dollars)
Asset Retirement Obligations
Restructuring Costs
Other
Total
Balance, beginning of year
Charges against provisions
Adjustments/settlement
Changes due to movement in exchange rate
Balance, end of year
Current portion
Non-current portion
Balance, beginning of year
New provisions
Charges against provisions
Adjustments/settlement
Changes due to movement in exchange rate
Balance, end of year
Current portion
Non-current portion
Year Ended, December 31, 2021
884
-
(181)
-
703
703
-
Year Ended, December 31, 2020
-
1,852
-
(968)
-
884
884
-
2,789
57
(26)
(9)
2,811
-
2,811
2,740
-
29
13
7
2,789
-
2,789
-
-
-
-
-
-
-
98
-
-
(98)
-
-
-
-
3,673
57
(207)
(9)
3,514
703
2,811
2,838
1,852
29
(1,053)
7
3,673
884
2,789
63
2021 ANNUAL REPORT 1 1 . L O N G - T E R M D E B T
($ Thousands of CDN dollars)
Prime Rate Loan (1)
At January 1, 2020
Net repayment of debt
Closing balance at December 31, 2020
At January 1, 2021
Net repayment of debt
Closing balance at December 31, 2021
62,494
(21,837)
40,657
40,657
(2,684)
37,973
1 The revolving credit facility is collateralized by a general security agreement, bears interest at
prime or the applicable banker’s acceptance rate, plus an interest margin dependent on certain
financial ratios, with a monthly repayment of interest only, maturing on July 31, 2024. The addi-
tional interest margin can range between 0.0% to 1.75% dependent upon the calculated Funded
Debt / Credit Facility EBITDA financial ratio, with a range between 0 to 3.25x. The required
calculated Funded Debt / Credit Facility EBITDA financial ratio is subject to change based off
certain terms and conditions. As at December 31, 2021 the combined interest rate was 2.70%
(December 31, 2020 – 2.70%).
On June 30, 2021, the Corporation completed amendments
to its existing revolving credit facility, which extended the
agreement to July 31, 2024 from July 31, 2022.
During 2020, in consideration of the ongoing COVID-19
pandemic, management requested temporary changes to
the terms and conditions of the credit facility. These tempo-
rary covenant changes as well as the restriction on dividends
expired on June 30, 2021 and the Corporation must now
observe a maximum Funded Debt to EBITDA covenant of
3.25x and a maximum Fixed Charge covenant of 1.2x.
Under the credit facility, the Corporation is required, among
other conditions, to respect certain covenants on a consoli-
dated basis. The main covenants are in regard to its Funded
Debt to Credit Facility EBITDA ratio and Total Fixed Charge
Coverage ratio. Management reviews compliance with these
covenants on a quarterly basis in conjunction with filing
requirements under its credit facility. All covenants have
been met as at December 31, 2021 and December 31, 2020.
The Corporation has a revolving credit facility of up to
$100,000 plus a $25,000 accordion of which $40,362 is
utilized (including letters of credit totaling $2,389) as at
December 31, 2021. Interest payments only are due during
the term of the facility.
Drawings under the revolving credit facility are available by
way of Bankers’ Acceptances, Canadian prime rate loans,
Libor of UK pounds based loans, letters of credit or standby
letters of guarantee. Drawings under the revolving credit
facility bear interest at a floating rate, plus an applicable
margin based on certain financial performance ratios.
A general security agreement over all assets, a mortgage
against all leasehold interests and real property, insurance
policies and an assignment of material agreements have
been pledged as collateral.
The carrying value of borrowings approximate their fair
value as the debt is based on a floating rate, the interest
rate risk has not changed, and the impact of discounting is
not significant.
The Corporation has incurred no events of default under the
terms of its credit facility agreement.
1 2 . F I N A N C E E X P E N S E
($ Thousands of CDN dollars)
Interest on long-term debt
Lease interest expense
Accretion expense
Other charges, net
2021
818
2,144
57
430
3,449
2020
1,690
1,944
29
298
3,961
64
WE ARE DEPENDABLE.
1 3 . L E A S E S
a) Amounts Recognized in the Balance Sheet
The balance sheet reflects the following amounts relating to leases:
($ Thousands of CDN dollars)
Right-of-use assets
Buildings
Equipment
Lease liabilities
Buildings
Equipment
Total lease liabilities
Less, current portion of lease liabilities
Long term lease liabilities
Additions to the right-of-use assets during the financial year
Buildings
Equipment
b) Amounts Recognized in the Statement of Earnings
The statement of earnings reflects the following amounts relating to leases:
December 31, 2021
December 31, 2020
42,632
7,731
50,363
48,865
8,074
56,939
(9,206)
47,733
16,799
1,488
18,287
30,549
9,226
39,775
36,501
9,502
46,003
(8,298)
37,705
-
5,749
5,749
($ Thousands of CDN dollars)
December 31, 2021
December 31, 2020
Depreciation charge of right-of-use assets
Buildings
Equipment
Interest expense (included in finance expense)
Expense relating to leases of low-value assets that are not shown
above as short-term leases (included in administrative expenses)
The total cash outflow for leases
4,620
2,903
7,523
2,144
26
9,338
4,130
2,854
6,984
1,944
33
8,199
65
2021 ANNUAL REPORT
c) Reconciliation of Expected Lease Liabilities
($ Thousands of CDN dollars)
December 31, 2021
December 31, 2020
Lease liabilities
Balance at January 1,
Right-of-use asset additions
Interest expense
Cash payment of lease payments
Effect of movement in exchange rates
Total lease liabilities
d) Amendment to IFRS 16 - COVID-19
Related Rent Concessions
During 2020 the Corporation elected to apply the practical
expedient introduced in May 2020 and treated COVID-19
rent related concessions received as if they were not
lease modifications. As such, changes in lease payments
that do not arise from a lease modification are accounted
for as variable lease payments, in which the Corporation
recognizes the variable lease payments in profit or loss in
the respective period in which the event or condition that
triggers those payments occurs.
During the year ended December 31, 2020 a rent conces-
sion for the unconditional forgiveness of debt of $464 was
recognized as a negative variable lease payment included in
the Corporation’s consolidated statements of earnings and
comprehensive income as an offset to occupancy costs and
treated as a forgiveness of lease liabilities, with a non-cash
impact to the principal elements of lease payments included
in financing activities within the Corporation’s consolidated
statements of cash flow.
In March 2021, the IASB amended IFRS 16 - Leases, to
extend the practical expedient introduced in May 2020 in
response to the COVID-19 pandemic, in order to permit
lessees to apply it to rent concessions for which reductions
in lease payments affect payments due on or before June
30, 2022 (extended from June 30, 2021). This amendment
did not have an impact on the Corporation’s financial state-
ments, or to the original treatment during 2020.
46,003
18,287
2,144
(9,312)
(183)
56,939
46,828
5,749
1,944
(8,630)
112
46,003
66
WE ARE DEPENDABLE. 1 4 . I N C O M E T A X E S
A reconciliation of the expected income tax expense to the actual income tax expense is as follows:
($ Thousands of CDN dollars)
Current tax:
Current tax expense on profits for the year
Total current tax expense
Deferred tax:
Origination and reversal of temporary differences
Impact of substantively enacted rates and other
Total deferred tax expense
2021
3,662
3,662
150
(24)
126
2020
1,234
1,234
1,133
250
1,383
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:
($ Thousands of CDN dollars)
Earnings before income taxes
Non-taxable items
Income subject to tax
Income tax at statutory rate of 25.48% (2020 - 25.86%)
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:
($ Thousands of CDN dollars)
Deferred tax assets:
Deferred tax asset to be recovered after more than 12 months
Deferred tax liabilities:
Deferred tax liability to be recovered after more than 12 months
Deferred tax liability to be recovered within 12 months
Deferred tax liabilities, net
67
2021
12,480
(1,878)
10,602
2,702
524
562
3,788
2021
(17,236)
(17,236)
26,010
5,326
31,336
14,100
2020
6,399
(1,112)
5,287
1,367
782
468
2,617
2020
(12,850)
(12,850)
21,212
5,636
26,848
13,998
2021 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:
($ Thousands of CDN dollars)
Lease Liabilities
Provisions
Offering Costs & Other
Total
Deferred tax assets:
At January 1, 2020
Charged (credited) to the statement of earnings
Related to movements in exchange rates
At December 31, 2020
Charged (credited) to the statement of earnings
Related to movements in exchange rates
At December 31, 2021
(10,995)
201
(31)
(10,825)
3,662
42
(14,445)
(563)
15
-
(548)
(11)
-
(559)
(527)
(937)
(13)
(1,477)
(779)
24
(2,232)
(12,085)
(721)
(44)
(12,850)
(4,452)
66
(17,236)
($ Thousands of CDN dollars)
Linen in
Service
Property, Plant
& Equipment
Intangible Assets
& Goodwill
LTIP &
Other
Deferred tax liabilities:
At January 1, 2020
Charged (credited) to the statement of earnings
Related to movements in exchange rates
At December 31, 2020
Charged (credited) to the statement of earnings
Related to movements in exchange rates
At December 31, 2021
4,132
1,504
-
5,636
(310)
-
5,326
17,768
1,682
46
19,496
4,804
(66)
24,234
2,346
(985)
21
1,382
86
(24)
1,444
431
(97)
-
334
(2)
-
332
Total
24,677
2,104
67
26,848
4,578
(90)
31,336
68
WE ARE DEPENDABLE.
1 5 . C O N T I N G E N C I E S &
C O M M I T M E N T S
a) Contingencies
The Corporation has standby letters of credit issued as
part of normal business operations in the amount of $2,389
(December 31, 2020 – $650) which will remain outstanding
for an indefinite period of time.
Grievances for unspecified damages were lodged against
the Corporation in relation to labor matters. The Corporation
has disclaimed liability and is defending the actions. It is
not practical to estimate the potential effect of these griev-
ances, but legal advice indicates that it is not probable that
a significant liability will arise.
With the impact of COVID-19, the operations of certain
plants have significantly been impacted, and as a result
various employees were furloughed throughout 2020.
During 2020 the Corporation has recognized a provision
of $1,852 related to restructuring costs through the state-
ment of earnings, with $703 (December 31, 2020 – $884)
remaining as a current liability on the Corporation’s consol-
idated statement of financial position, refer to Note 10.
b) Commitments
Utility Commitments
The Corporation was committed to estimated natural gas
and electricity commitments for the next five calendar
years and thereafter as follows:
1 6 . S H A R E C A P I T A L
a) Authorized
Utility commitments ($ Thousands of CDN dollars)
2022
2023
2024
2025
2026
Subsequent
7,716
4,292
2,740
2,358
1,495
-
18,601
Linen Purchase Commitments
At December 31, 2021, the Corporation was committed to
linen expenditure obligations in the amount of $12,075
(December 31, 2020 – $4,527) to be incurred within the
next year.
Property, Plant & Equipment Commitments
At December 31, 2021, the Corporation was committed
to capital expenditure obligations in the amount of $445
(December 31, 2020 – $42) to be incurred within the
next year.
Trust Funds on Deposit
The Corporation maintains funds in trust for a customer to
facilitate both parties in achieving their shared objectives.
These funds are not available for the Corporation’s general
operating activities and, as such, have not been recorded
in the accompanying Consolidated Statements of Financial
Position. As at December 31, 2021, the Corporation held
trust funds on deposit in the amount of $814 (2020 – $630).
The Corporation is authorized to issue an unlimited number of common shares and such number of shares of one class
designated as preferred shares which number shall not exceed 1/3 of the common shares issued and outstanding from
time to time.
b) Issued
Balance, beginning of year
Common shares issued under LTI
Balance, end of year
2021
10,676,889
42,889
10,719,778
2020
10,604,382
72,507
10,676,889
Unvested common shares held in trust for LTI
78,632
79,423
69
2021 ANNUAL REPORT
1 7 . E A R N I N G S P E R S H A R E
a) Basic
Basic earnings per share is calculated by dividing the net earnings attributable to equity holders of the Corporation by the
weighted average number of ordinary shares in issue during the year.
($ Thousands of CDN dollars, except share and per share amounts)
Net earnings
Weighted average number of shares outstanding (thousands)
Net earnings per share, basic
2021
8,692
10,609
0.82
2020
3,782
10,557
0.36
The basic net earnings per share calculation excludes the unvested Common shares held by the LTIP Account.
b) Diluted
Diluted earnings per share is calculated by adjusting the weighted average number of ordinary shares to assume conver-
sion of all dilutive potential ordinary shares.
($ Thousands of CDN dollars, except share and per share amounts)
Basic weighted average shares for the year
Dilutive effect of LTI shares
Diluted weighted average shares for the year
Net earnings
Weighted average number of shares outstanding (thousands)
Net earnings per share, diluted
2021
2020
10,608,539
77,648
10,686,187
10,557,147
72,090
10,629,237
8,692
10,686
0.81
3,782
10,629
0.36
1 8 . L O N G - T E R M I N C E N T I V E P L A N
An account was formed to hold equity grants issued under the terms of the LTI on behalf of the participants (the “LTIP
Account”) and under certain circumstances the Corporation may be the beneficiary of forfeited Common shares held by
the LTIP Account. The Corporation has control over the LTIP Account as it is exposed, or has rights, to variable returns
and has the ability to affect those returns through its power over the LTIP Account. Therefore, the Corporation has consol-
idated the LTIP Account. Compensation expense is recorded by the Corporation in the period earned. Dividends paid by
the Corporation with respect to unvested Common shares held by the LTIP Account are paid to LTI participants. Unvested
Common shares held by the LTIP Account are shown as a reduction of shareholders’ equity.
Balance, beginning of year
Issued during year
Vested during year
Balance, end of year
2021
Unvested
79,423
29,331
(30,122)
78,632
2021
Vested
551,980
13,558
30,122
595,660
2020
Unvested
64,924
49,301
(34,802)
79,423
2020
Vested
493,972
23,206
34,802
551,980
The cost of the 78,632 (2020 – 79,423) unvested Common shares held by the LTIP Account at December 31, 2021 was $0 (2020 - $0).
70
WE ARE DEPENDABLE.
1 9 . D I V I D E N D S T O S H A R E H O L D E R S
During the year ended December 31, 2021, the Corporation declared total dividends to shareholders of $12,846 or $1.200
per share (2020 - $12,783 or $1.200 per share).
The Corporation’s policy is to pay dividends to Shareholders of its available cash to the maximum extent possible consistent
with good business practice considering requirements for capital expenditures, working capital, growth capital and other
reserves considered advisable by the Directors of the Corporation. All such dividends are discretionary. Dividends are
declared payable each month to the Shareholders on the last business day of each month and are paid by the 15th day of
the following month.
2 0 . N E T C H A N G E I N N O N - C A S H W O R K I N G C A P I T A L I T E M S
($ Thousands of CDN dollars)
Accounts receivable
Linen in service
Prepaid expenses and deposits
Accounts payable and accrued liabilities(1)
Income taxes payable / receivable
Year Ended, December 31,
2021
(8,819)
(788)
(284)
4,841
(660)
5,710
2020
6,847
(3,731)
134
(1,527)
749
2,472
1 Accounts payable and other liabilities, include the net change of accounts payable, accrued liabilities, net change in the current provision (note 10) related to restructure costs for 2021 - ($181) and in
2020 - $884 , but exclude the net change in non-cash amounts related to the acquisition of property, plant and equipment that have been committed to and paid for during 2021 $561 and 2020 ($1,725).
2 1 . F I N A N C I A L I N S T R U M E N T S
c) Price Risk
a) Fair Value
Currency Risk
The Corporation’s financial
instruments at December
31, 2021 and 2020 consist of cash and cash equivalents,
accounts receivable, accounts payable and accrued liabili-
ties, lease liabilities, dividends payable to shareholders, and
long-term debt. The carrying value of accounts receivable,
accounts payable and accrued liabilities, lease 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 respective carrying
amount due to the floating rate nature 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.
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 signifi-
cantly exposed to foreign currency risk as all revenues
are received in Canadian dollars and minimal expenses
are incurred in foreign currencies.
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 subsid-
iaries 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.
Based on financial instrument balances as at December
31, 2021, a strengthening or weakening of $0.01 of the
Canadian dollar to the U.S. dollar with all other variables
71
2021 ANNUAL REPORT
held constant could have a favorable or unfavorable
impact of approximately $2, respectively, on net earnings.
Based on financial instrument balances as at December
31, 2021, 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 $3, respectively, on
other comprehensive loss.
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 $380 (2020 -
$407 ) to net earnings.
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.
d) Credit Risk
The Corporation has financial assets that are subject to
the expected credit loss model. The Corporation’s financial
assets that are exposed to credit risk consist of cash and
cash equivalents and accounts receivable. The Corporation,
in the normal course of business, is exposed to credit risk
from its customers.
Management believes that the risks associated with concen-
trations of credit risk with respect to accounts receivable
are limited due to the generally short payment terms, and
the nature of the customers, which are primarily publicly
funded health care entities. The credit risk associated with
cash and cash equivalents is minimized by ensuring these
financial assets are held with Canadian chartered banks
and Standard Chartered Bank United Kingdom.
Cash & Cash Equivalents
While cash and cash equivalents are also subject to the
impairment requirements of IFRS 9, there was no identi-
fied impairment.
Accounts Receivable
The Corporation applies the IFRS 9 simplified approach to
measuring expected credit losses which uses a lifetime
expected loss allowance for all trade receivables and
contract assets.
To measure the expected credit losses, trade receivables
have been grouped based on shared credit risk character-
istics and the days past due. The expected loss rates are
based on the payment profiles of sales over a period of
60 months before December 31, 2021 or January 1, 2021
respectively and the corresponding historical credit losses
experienced within this period. The historical loss rates
are adjusted to reflect current and forward-looking infor-
mation on macroeconomic factors affecting the ability of
the customers to settle the receivables. The Corporation
has identified the GDP and the unemployment rate of the
countries in which it provides services to be the most
relevant factors, and accordingly adjusts the historical
loss rates based on expected changes in these factors.
On that basis, the loss allowance as at December 31, 2021
and 2020 was determined as follows for trade receivables:
($ Thousands of CDN dollars)
December 31, 2021
Current
1 to 60 days
61 to 90 days
Greater than 90 days
December 31, 2020
Current
1 to 60 days
61 to 90 days
Greater than 90 days
Gross
Allowance
24,132
10,419
1,322
1,117
36,990
-
-
-
143
143
Gross
Allowance
22,436
4,495
1,144
300
28,375
-
-
-
267
267
Net
24,132
10,419
1,322
974
36,847
Net
22,436
4,495
1,144
33
28,108
72
WE ARE DEPENDABLE.
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:
($ Thousands of CDN dollars)
Opening loss allowance at January 1,
Adjustments made during the year
Write-offs
Effect of movements in exchange rates
Balance, end of year
e) Liquidity Risk
Year Ended, December 31,
2021
267
(87)
(35)
(2)
143
2020
94
640
(468)
1
267
The Corporation’s accounts payable, dividend payable and other liabilities are due within one year.
Payments due under contractual obligations on an undiscounted basis for the next five years and thereafter are as follows:
($ Thousands of CDN dollars)
Total
2022
Payments Due by Period
2023 to 2024
2025 to 2026
Subsequent
Long-term debt
Lease liabilities
Utility commitments
Linen purchase obligations
Property, plant and equipment commitments
37,973
69,804
18,601
12,075
445
-
9,242
7,716
12,075
445
37,973
16,361
7,032
-
-
-
13,844
3,853
-
-
-
30,357
-
-
-
The Corporation has a credit facility with a maturity date of
July 31, 2024 (Note 11). The degree to which the Corporation
is leveraged may reduce its ability to obtain additional
financing for working capital and to finance investments
to maintain and grow the current levels of cash flows from
operations. The Corporation may be unable to extend the
maturity date of the credit facility.
The Corporation’s capital structure includes working capital,
a committed revolving credit facility and share capital. The
Corporation continuously monitors actual and forecast cash
flows and monitors the availability on our committed credit
facility to ensure sufficient liquidity is available.
To reduce liquidity risk, management has historically
renewed the terms of the credit facility in advance of its
maturity dates and the Corporation has maintained financial
ratios that management believes are conservative compared
to financial covenants applicable to the credit facility. A
significant portion of the available facility remains undrawn.
Management measures liquidity risk through comparisons
of current financial ratios with financial covenants contained
in the credit facility.
2 2 . C A P I T A L M A N A G E M E N T
The Corporation’s primary objectives when managing its
capital structure are as follows:
· maintain financial flexibility and availability of capital in
order to meet financial obligations, provide dividends,
execute growth plans, and to continue growth through
business acquisitions;
· manage the Corporation’s activities in a responsible
way in order to provide an adequate return for its share-
holders, while taking a conservative approach towards
financial leverage and management of financial risk; and
· comply with financial covenants required under the
credit facility.
The Corporation pays a dividend which reduces its ability to
internally finance growth and expansion. However, the avail-
ability of the Corporation’s revolving line of credit provides
sufficient access to capital to allow K-Bro to take advantage
of acquisition opportunities. The merits of the dividend are
periodically evaluated by the Board.
73
2021 ANNUAL REPORT
The Corporation monitors its capital structure and financing
requirements using non-GAAP financial metrics required
under its Credit Facility debt covenants, consisting of
Funded Debt to Credit Facility EBITDA ratio and Total Fixed
Charge Coverage ratio. The Funded Debt, Credit Facility
EBITDA, and Total Fixed Charge Coverage are defined
under the terms of the Credit Facility (see Note 11) and do
not have any standardized meaning prescribed under IFRS.
It is therefore unlikely to be comparable to similar measures
presented by other companies. Debt covenant restrictions
will vary due to the timing of Material Transactions as
defined under the terms of the Credit Facility.
The Corporation's capital structure is comprised of borrow-
ings under its credit facility, shareholders' equity, less cash
and cash equivalents.
($ Thousands of CDN dollars)
Long-term debt, including current portion
Issued and outstanding letters of credit
Shareholders’ equity
Less: Cash and cash equivalents
Years Ended, December 31,
2021
37,973
2,389
186,401
226,763
(1,110)
225,653
2020
40,657
650
189,504
230,811
(2,416)
228,395
The Corporation’s financing strategy is to maintain a flexible
structure consistent with the objectives stated above, to
respond adequately to changes in economic conditions and
to allow growth organically and through business acquisi-
tions. In order to maintain and adjust its capital structure,
the Corporation may issue new shares in the market,
contract bank loans and negotiate new credit facilities.
As part of its operational strategy, to mitigate the impact
of COVID-19 the Corporation reduced its planned capital
spending through the deferral of any capital projects that
were not critical to the Corporation’s operations.
2 3 . R E L A T E D P A R T Y
T R A N S A C T I O N S
The Corporation transacts with key individuals from manage-
ment and with the Board who have authority and responsibility
to plan, direct and control the activities of the Corporation.
The nature of these dealings were in the form of payments
for services rendered in their capacity as Directors (retainers
and meeting fees, including share-based payments) and as
employees of the Corporation (salaries, benefits, short-term
bonuses and share-based payments).
Key management personnel are defined as the executive
officers of the Corporation including the President and Chief
Executive Officer, Senior Vice-President, Chief Financial
Officer and one employee acting in the capacity of Managing
Director, UK.
During 2021 and 2020, remuneration to directors and key
management personnel was as follows:
($ Thousands of CDN dollars)
2021
2020
Years Ended, December 31,
Salaries and retainer fees
Short-term bonus incentives
Post-employment benefits
Share-based payments
1,872
993
64
1,521
4,450
1,868
993
64
1,469
4,394
The Corporation incurred expenses in the normal course
of business for advisory consulting services provided by
a Director. The amounts charged are recorded at their
exchange amounts and are subject to normal trade terms.
For the Years ended December 31, 2021, the Corporation
incurred such fees totaling $138 (2020– $138).
74
WE ARE DEPENDABLE.
2 4 . E X P E N S E S B Y N A T U R E
($ Thousands of CDN dollars)
2021
2020
Years Ended, December 31,
Wages and benefits
Linen
Utilities
Delivery
Materials and supplies
Occupancy costs
Repairs and maintenance
Other expenses
100,617
27,921
13,547
14,564
10,782
4,052
7,695
2,023
181,201
81,868
24,780
11,644
12,480
8,126
3,704
7,006
8,739
158,347
During the year ended December 31, 2021, wages and benefits
reflected in the table above includes an offset of government
grants recognized in the year of $3,746 (2020 - $14,255).
2 5 . S E G M E N T E D
I N F O R M A T I O N
The Chief Executive Officer (“CEO”) is the Corporation’s
chief operating decision-maker. The Chief Executive Officer
examines the Corporation’s performance and allocation of
resources both from geographic perspective and service type,
and has identified two reportable segments of its business:
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 there-
fore 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 other sectors
including healthcare, manufacturing and pharma-
ceutical, through six sites which are located in Cupar,
Perth, Newcastle, Livingston and Coatbridge.
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.
The CEO primarily uses a measure of EBITDA to assess the
performance of the operating segments. In addition, the
CEO also receives information about the segments’ revenue
and assets on a monthly basis.
Segment Revenue
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 consoli-
dated statements of earnings & comprehensive income.
In Edmonton and Calgary, the Corporation is the significant
supplier of laundry and linen services to the entity which
manages all major healthcare facilities in the region and is
contractually committed to July 31, 2032. 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 year ended December
31, 2021, from these three major customers the Corporation
has recorded revenue of $116,865 (2020 – $108,559), repre-
senting 52.2% (2020 – 55.2%) of total revenue.
($ Thousands of CDN dollars)
2021
2020
Healthcare
Hospitality
Canadian division
Healthcare
Hospitality
UK division
159,938
23,135
183,073
6,613
34,306
40,919
71.4%
10.3%
81.7%
3.0%
15.3%
18.3%
144,715
21,967
166,682
6,488
23,421
29,909
73.6%
11.2%
84.8%
3.3%
11.9%
15.2%
Total segment revenue
223,992
100.0%
196,591
100.0%
75
2021 ANNUAL REPORT
Segment Net Earnings & EBITDA
Segment net earnings and EBITDA are calculated consistent with the presentation in the financial statements. The net earnings
and EBITDA is allocated based on the operations of the segment, and where the earnings and costs are generated from.
($ Thousands of CDN dollars)
Canadian Division
UK Division
Total
2021
Net earnings (loss)
EBITDA
2020
Net earnings
EBITDA
13,604
39,678
(4,912)
3,113
Canadian Division
UK Division
10,892
38,365
(7,110)
(121)
8,692
42,791
Total
3,782
38,244
The Canadian division net earnings includes non-cash employee share based compensation expense of $1,848 (2020 – $1,799).
Segment Assets
Segment aassets are measured in the same way as in the financial statements. These assets are allocated based on the
operations of the segment and the physical location of the asset.
The Corporation’s cash and cash equivalents are not considered to be segment assets but are managed by the treasury function.
($ Thousands of CDN dollars)
At December 31, 2021
Total assets
Other:
Cash and cash equivalents
Total segment assets
Canadian Division
UK Division
254,225
-
254,225
78,294
(1,110)
77,184
At December 31, 2020
Canadian Division
UK Division
Total assets
Other:
Cash and cash equivalents
Total segment assets
243,414
(679)
242,735
80,397
(1,737)
78,660
Total
332,519
(1,110)
331,409
Total
323,811
(2,416)
321,395
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WE ARE DEPENDABLE.
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.
($ Thousands of CDN dollars)
At December 31, 2021
Total liabilities
Other:
Long-term debt (note 11)
Total segment liabilities
At December 31, 2020
Total liabilities
Other:
Long-term debt (note 11)
Total segment liabilities
Canadian Division
UK Division
123,109
(37,973)
85,136
23,009
-
23,009
Canadian Division
UK Division
112,229
(40,657)
71,572
22,078
-
22,078
Total
146,118
(37,973)
108,145
Total
134,307
(40,657)
93,650
2 6 . I M P A I R M E N T O F A S S E T S
(a) Impairment Testing at December 31, 2021
The Corporation performed its annual assessment for
goodwill impairment for the Canadian division and for the
UK division as at December 31, 2021 in accordance with its
policy described in Note 2(k).
At December 31, 2021, the recoverable amount for the
CGUs was determined using either a probability-weighted
discounted cash flow approach (hospitality CGUs) or
an earnings multiple approach (healthcare CGUs). The
Corporation references Board approved budgets and
forecasts, trailing twelve-month EBITDA,
cash
implied multiples and appropriate discount rates in the
valuation calculations.
flow
For the healthcare CGUs whereby the earnings multiple
approach is used the implied multiple is calculated by
utilizing the average multiples of comparable public
companies. For the healthcare CGU’s, the Corporation used
implied average forward multiple of 10.80 to calculate the
recoverable amounts. For these CGUs, based on testing
performed at December 31, 2021 no impairment was deter-
mined to exist.
For the hospitality CGUs the probability weighted discounted
cash flow approach was used at both March 31, 2020,
December 31, 2020 and December 31, 2021 to capture the
increased risk and uncertainty arising from COVID-19.
For the December 31, 2021 impairment test, manage-
ment’s probability weighted approach was evaluated
based on an equally weighted probability of a continued
one year downturn in sales to the worst case scenario of
a two year downturn in sales. The scenarios estimated a
decline of 5% to 25% for 2022, and 0% to 10% for 2023,
with sales returning to normalized levels thereafter with
sales growth estimates used 2%. For the December 31,
2020 impairment test, management’s probability weighted
approach was evaluated based on an equally weighted
probability of a continued two year downturn in sales to the
worst case of a three year downturn in sales. The scenarios
estimated a decline of 45% for 2021, 30% for 2022, and 5%
for 2023 with sales returning to normalized levels there-
after with sales growth estimates used 2%. This contrasts
to the March 31, 2020 impairment test which contemplated
a decline in 2020 and 2021 revenues only.
As at December 31, 2021 for the goodwill associated with
the remaining hospitality CGUs (the UK Division, Vancouver
2 and Victoria) the recoverable amounts was estimated to
be £53,083, $31,176 and $8,290 (2020- £41,070, $21,300 and
$6,484) respectively which exceeded the carrying amounts
of the CGUs. No further impairment was therefore required
for any of these CGUs.
The key assumptions in calculating the recoverable amount
of the remaining CGU’s were as follows:
77
2021 ANNUAL REPORT
December 31, 2021 December 31, 2020
Long-term
growth rate %
Pre-tax
discount rate %
2.0%
2.0%
Long-term growth rate %
Pre-tax discount rate %
13.8% to 16.2%
11.6% to 12.5%
March 31, 2020
2.0% to 3.0%
10.5% to 12.5%
In addition to the key assumptions noted above, manage-
ment has also evaluated other reasonable changes in
estimates and assumptions and did not identify any other
instances that could cause the carrying amount of these
CGUs to exceed the recoverable amount. The table below
summarizes the sensitivity of the key assumptions.
Sensitivity
Recoverable
Long-Term
Pre-Tax
Growth Rate Discount Rate
Increase of 1%
Amount Decrease of 1%
UK Division
Vancouver 2
Division
Victoria
£53,083
$31,176
$8,290
-£4,988
-$2,818
-£4,915
-$3,152
-$834
-$770
The Corporation will continue to carefully monitor the situa-
tion as it pertains to the COVID-19 pandemic and further
consider if there are new, or additional indicators, that exist
during fiscal 2022.
With the ongoing evolution of the COVID-19 pandemic,
the length and severity of these developments is subject
to significant uncertainty. Accordingly, new developments
may materially and adversely affect assumptions used
in the consideration of the impairment of assets, impact
whether a CGU has been impaired, and may change prior
recorded impairment amounts.
(b) Impairment Testing at March 31, 2020
impairment
Management assessed
indicators
that
existed at March 31, 2020, specifically for the five CGUs
that rely primarily on hospitality revenues as a result of
the significant impact that COVID-19 had on the hospi-
tality industry.
For the five CGUs who rely primarily on hospitality
revenues an impairment test was completed using a
probability-weighted discounted cash flow approach
whereby the recoverable amount was based on the
higher of an asset's fair value less costs to sell and value
in use (being the present value of the expected future
cash flows of the relevant asset or CGU).
The key assumptions in calculating the recoverable
amount of the five CGU’s were as follows:
For the March 31, 2020 impairment test, management’s
probability weighted approach was evaluated based on
an equally weighted probability of a one-year downturn in
sales to the worst case of a two year downturn in sales. The
scenarios estimated a decline of 70% for 2020 and 50% for
2021, with sales returning to normalized levels thereafter
with sales growth estimates used between 2% to 3%.
As a result of this testing at March 31, 2020, an impair-
ment loss of $5,516 was recognized for three CGUs in
the Canadian division, of which $3,177 was allocated to
goodwill and $2,339 was allocated to PP&E. The table
below summarizes the impairment details:
GCU
Allocated to Allocated
to PP&E
Goodwill
Total
Impairment
Recorded
Recoverable
Amount
Montréal
Québec
Victoria
823
654
1,700
3,177
-
2,339
-
2,339
823
2,993
1,700
5,516
2,485
(1,917)
5,433
6,001
2 7 . G O V E R N M E N T G R A N T S
The Corporation received government assistance for both
their Canadian and UK division, under the following govern-
ment programs:
Canadian Division
· The Canada Emergency Wage Subsidy
(“CEWS”)
program was introduced by the Government of Canada
on March 27, 2020, reimbursing eligible employers who
have experienced the required reduction in revenue
for a portion of salaries paid out to employees during
the pandemic. During the year ended December 31,
2021, the Corporation submitted claims of $921 (2020
- $8,348) under the CEWS program, with $0 (2020 -
$299) outstanding in receivables on the Corporation’s
financial position at
Consolidated Statements of
December 31, 2021.
· During 2020, the Corporation received $2,788 of linen in
service from the Ontario Ministry of Health in exchange
for a contractual commitment to provide a deferred
linen service credit of $1,665 to various Ontario hospitals
allocated over the useful life of the linen. The difference
between the fair value of linen in service received and
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WE ARE DEPENDABLE.
the linen service credit is considered to be government
assistance related to an asset that has been recorded as
a reduction in the value of the linens and will recognized
as a reduction of the linen amortization charge over the
life of the linens in service. The deferred linen service
credit of $810 (2020 - $1,665) is reflected as a contract
liability on the Corporation’s Consolidated Statements
of financial position at December 31, 2021.
UK division
· The Coronavirus Job Retention Scheme (“CJRS”) was
introduced by the UK government on March 20, 2020 and
provides eligible employers the ability to access support
to continue paying part of their employees' salary for
those employees that would otherwise have been laid
off during the crisis. During the year ended December
31, 2021, the Corporation submitted claims of £1,627
($2,826) (2020 - £3,433 ($5,907)) under the CJRS program
with £0 ($0) (2020 - £58 ($101)) outstanding in receiv-
ables on the Corporation’s Consolidated Statements of
financial position at December 31, 2021.
In accordance with IAS 20 Accounting for Government Grants
and Disclosure of Government Assistance, the government
grants have been recognized on the Corporation’s consol-
idated statements. During the years ended December 31,
2021, $3,746 (2020 - $14,255) of government grants were
offset to operating expenses which includes, wages and
benefits of $2,633 (2020 - $10,684), delivery of $864 (2020 -
$2,281), and corporate costs of $249 (2020 - $1,290).
During the year ended December 31, 2021, $855 (2020 –
$0) of the deferred linen service credit was recognized in
revenue such that the closing balance of $810 (2020 - $1,665)
is reflected as a contract liability on the Corporation’s
Consolidated Statements of financial position at December
31, 2021.
2 8 . S U B S E Q U E N T E V E N T S
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 14,
2022 to Shareholders of record on January 31, February 28,
and March 31, 2022, respectively.
79
2021 ANNUAL REPORT Board of Directors
E L I S E R E E S
Audit Committee Chair
M AT T H E W H I L L S, MBA
S T E V E N M AT YA S , BSC
L I N D A McC U R DY, MBA
President & CEO
K-Bro Linen Systems Inc.
M I C H A E L P E R C Y, PHD
Board Chair
Executive Officers
L I N D A McC U R DY, MBA
President & CEO
S E A N C U RT I S
Senior VP & COO
K R I S T I E P L AQ U I N, CPA, CA
Chief Financial Officer
T R A N S F E R AG E N T
& R E G I S T R A R
TSX Trust Company
Calgary, Alberta
A U D I TO R S
Pricewaterhouse-
Coopers LLP
Edmonton, Alberta
L E GA L C O U N S E L
Stikeman Elliott
Toronto, Ontario
P R I N C I PA L B A N K
TD Bank
Edmonton, Alberta
S TO C K E XC H A N G E
L I S T I N G
TSX: KBL
Canada Locations
C O R P O R AT E O F F I C E
P 780 453 5218
F 780 455 6676
14903 - 137 Ave
Edmonton, AB T5V 1R9
VA N C O U V E R 1
K E V I N S T E P H E N S O N
General Manager
P 604 420 2203
F 604 420 2313
#401 - 8340
Fraser Reach Court,
Burnaby, BC V3N 0G2
CA LGA RY
J E F F G A N N O N
General Manager
P 4 03 7 24 90 0 1
F 4 03 7 20 29 5 9
R E G I N A
J A C K I E B E L A N G E R
General Manager
P 3 06 7 57 52 7 6
F 3 06 7 57 52 8 0
M O N T R É A L
P 4 50 3 78 3187
F 4 50 3 78 8245
599, Rue Simonds
Sud Granby, QC J2J 1C1
6969 – 55 St SE
Calgary, AB T2C 4Y9
730 Dethridge Bay
Regina, SK S4N 6H9
V I CTO R I A
A N D R E W M A C K E E N
General Manager
P 250 474 5699
F 250 4 74 56 80
VA N C O U V E R 2
R Y O U TA H A R A
General Manager
P 604 681 3291
F 604 685 1458
E D M O N TO N
T R E V O R R Y E
General Manager
P 7 80 4 51 31 3 1
F 7 80 4 52 28 3 8
TO R O N TO
S E A N J A C K S O N
General Manager
P 4 16 2 33 55 5 5
F 4 16 2 33 44 3 4
Q U É B E C
D I M I T R I H A M M
Directeur Général
P 4 18 6 61 6163
F 4 18 6 61 4000
861 Van Isle Way
Victoria, BC V9B 5R8
8035 Enterprise Street
Burnaby, BC V5A 1V5
15223 – 121 A Ave
Edmonton, AB T5V 1N1
6045 Freemont Blvd
Mississauga, ON L5R 4J3
367 Boulevard DesChutes,
Québec City, QC G1E 3G1
UK Locations
H E A D O F F I C E
Edenfields,
Cupar Trading Estate
Cupar, Fife, KY154SX
P E RT H
Inveralmond Industrial
Estate, Ruthvenfield
Avenue, Perth, PH13UF
P 0133465 4033
P 01738210106
R I G G S P L A C E
K E L LY F O X
Business Manager
C O AT B R I D G E
A N D Y M A C K AY
Operations Manager
P 0 1 3 34 6 5 40 3 3
P 0 1 2 36 4 4 90 1 0
3 Riggs Place,
Cupar, Fife, KY155JA
18 Palacraig Street,
Coatbridge, ML54RY
C U PA R
J O E M C D O N A G H
Operations Manager
L I V I N G S TO N
K E L LY F O X
Business Manager
N E W CA S T L E
J O H N W E L L F O R D
Operations Manager
P 0133465 5220
P 01506426816
P 0 1 9 16 0 5 31 0 6
Prestonhall Industrial
Estate, Cupar, Fife,
KY154RD
2 Gregory Road, Kirkton
Campus, Livingston,
EH547DR
Unit L4, Intersect 19,
High Flatworth, Tyne
Tunnel Industrial Estate,
North Shields, NE297UT
Inquiries@K-BroLinen.com
80
WE ARE DEPENDABLE.
K - B R O L I N E N . C O M