A N N U A L R E P O R T
WE ARE
TABLE OF CONTENTS
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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 LY S I S
C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S
PRESIDENT'S
M E S S A G E
2022 was a year of continuing recovery, with our country
and the world emerging from the worst impacts of the
pandemic. K-Bro is also moving forward and leaving
behind some of the worst effects of COVID-19. Our
business continued to recover in 2022 as we saw ongoing
strength in revenue, our healthcare volume continued to
be higher than historical amounts and hospitality volumes
approached pre-pandemic levels. While labour and
utility cost pressures impacted our operations, we also
realized price adjustments to help mitigate the impacts.
As a result, 2022 was a solid year for K-Bro and we enter
2023 filled with optimism for our company. While deliv-
ering industry-leading service, we have always embraced
our responsibility to society. We prioritize customer and
employee relationships, environmental stewardship and
creating positive impacts where we do business. In 2023,
we are excited to advance our sustainability agenda for
the long-term and intend to publish our inaugural sustain-
ability report by the end of the year.
We begin 2023 expecting continuing increases in our
volumes throughout our Canadian and UK operations, while
also seeing the benefits of our labour optimization and
utility hedging efforts. We will have a full year of processing
100% of Alberta Health Services (“AHS”) volume throughout
Alberta, having integrated all of the additional volume during
2022. At the same time, we continue to pursue strategically
valuable acquisitions and will move quickly when we see
opportunities, including the recently announced acquisi-
tion of Paranet in Quebec City. All of these factors should
present strong organic and acquisition growth opportunities
for K-Bro in 2023.
· We saw strong Canadian results and continuing recovery
in our UK operations.
· Our balance sheet remained conservative throughout
the year, with year-end debt of $45mm. We expect a
strong balance sheet throughout 2023.
We are appreciative of your continuing support and confi-
dence, and we commit ourselves every day to providing the
best possible service for our customers, a safe and fulfilling
environment for all of our Canadian and UK employees, and
superior financial performance for our shareholders. We
wish you a good 2023.
Our 2022 highlights included:
· Revenue and EBITDA were $277mm and $36.5mm.
In addition to other changes, we expect to realize the
full-year benefit from 100% of the new AHS volume and
the annual impact of price adjustments agreed to in
2022 across various markets.
L I N D A M c C U R D Y
2
WE ARE DEPENDABLE. I A M P L E A S E D T H AT
K - B R O F I N I S H E D 202 2
W I T H S T R E N G T H A N D
M O M E N T U M , A N D W E
A R E O P T I M I S T I C A B O U T
O U R O R G A N I C A N D
A C Q U I S I T I O N G R O W T H
O P P O R T U N I T I E S A S W E
M O V E A H E A D I N T O 2023.
3
2022 ANNUAL REPORT CHAIRMAN'S
M E S S A G E
Almost all companies have faced significant challenges in
the aftermath of the pandemic, yet K-Bro has dealt with
the challenges in ways that bode well for our growth and
financial performance. We are especially grateful that our
Canadian and UK staff have overall remained healthy and that
we have continued to provide a safe environment for all of
our employees. This is a reflection of our Company’s values,
including how important it is that we provide the best possible
workplace for our team.
We never stop working hard every day to provide best-in-class
service to all of our customers and the best possible results for
our shareholders. I am optimistic about 2023, and especially
happy that we began the year with an acquisition in our existing
Quebec market.
On behalf of our Company and Board, thank you for our confi-
dence and loyalty. We will continue to do what is best for our
customers, employees, community and shareholders, and we
look forward to a bright future.
M I C H A E L
P E R C Y
4
WE ARE DEPENDABLE. OFFICERS &
D I R E C T O R S
K-BRO IS THE L ARGEST HEALTHCARE & HOSPITALIT Y
L AUNDRY & LINEN PRO CESSOR IN CANADA , & WITH
THE ACQUISITION OF FISHERS WE ARE NO W ONE OF
THE L ARGEST IN THE UK & EUROPE.
We operate 15 facilities and two distribution centers, including ten facilities and two distributions centers
in Canada, and five facilities in the UK (Scotland and the North East of England).
Our core values remain central to our reputation, and we continue to relentlessly focus on providing
industry-leading quality and service. Our ability to deliver on commitments to our valued customers
remains second to none.
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 commitment to responsibility into our new businesses,
employees and the communities in which we live and work.
RO W 1 MATTHEW HILLS, STEVEN MATYAS, ELISE REES, MICHAEL PERCY
RO W 2 RYO UTAHARA, TREVOR RYE, SCOTT INGLIS
RO W 3 MICHAEL JONES, LUCY RENAUT, DIMITRI HAMM, BARB LEWIS
RO W 4 KEVIN STEPHENSON, JAMES EWART, ANDREW MACKEEN
RO W 5 KRISTIE PLAQUIN, SEAN CURTIS, JEFF GANNON, LINDA MCCURDY
5
2022 ANNUAL REPORT 6
FINANCIAL
H I G H L I G H T S
The following unaudited financial data has been derived from
K-Bro’s consolidated financial statements, which have been
audited by PricewaterhouseCoopers LLP. The information set
forth below should be read in conjunction with the Management’s
Discussion & Analysis, Consolidated Financial Statements and
Notes sections of this Annual Report.
R E V E N U E U P
23.5%
E B I T D A(1)(2 ) D O W N
14.7%
275
250
225
200
175
48
44
40
36
32
28
24
($)
2018
2019
2020
2021
2022
($)
2018
2019
2020
2021
2022
(In millions of Canadian dollars) Years ended December 31
(In millions of Canadian dollars) Years ended December 31
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. 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 COVID-19 pandemic caused world governments to institute travel restrictions both in and out of and within Canada and the UK, which has had an adverse impact on the Corporation’s
hospitality business. The COVID-19 pandemic has also contributed to unusually competitive labour markets, causing inefficiencies in attracting, training and retaining employees. While
the Corporation anticipates labour markets will stabilize, the timing remains uncertain. In addition to this, certain geopolitical events and other factors have resulted in rising and unstable
commodity costs for key inputs such as natural gas, electricity and diesel. The combination of all these events has had a negative impact to consolidated EBITDA.
7
2022 ANNUAL REPORT Years ended December 31,
2022
2021
2020
2019
2018
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
276,623
36,492
13.2
3,906
0.37
36,635
45,166
1.81
65.9
73.8
8.0
2.2
16.7
0.4
294,108
36.0
27.6
27.3
223,992
42,791
19.1
8,692
0.81
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
30,271
37,973
27,922
40,657
31,021
62,494
34,825
70,203
2.57
46.8
42.2
8.5
4.7
9.2
2.7
366,616
47.2
33.4
34.2
2.94
40.9
93.0
10.8
2.3
4.5
6.7
416,078
46.4
23.7
39.0
2.80
51.1
40.8
9.3
5.6
29.3
5.7
445,914
43.2
32.7
42.1
2.36
51.1
56.7
11.9
3.1
16.2
14.5
351,404
41.7
32.0
33.4
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.
MANAGEMENT'S
D I S C U S S I O N
& A N A LY S I S
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13
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15
19
20
26
28
29
30
30
I N T R O D U C T I O N
S T R AT E G Y
F O U R T H Q U A R T E R O V E R V I E W
S 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 AT I O N
S U M M A R Y O F R E S U LT S & K E Y E V E N T S
O U T L O O K
R E S U LT S O F O P E R AT I O N S
L I Q U I D I T Y & C A P I TA L R E S O U R C E S
D I V I D E N D S
D I S T R I B U TA B L E C A S H F L O W
O U T S TA N D I N G C O M M O N S H A R E S
R E L AT E D PA R T Y T R A N S A C T I O N
9
2022 ANNUAL REPORT 30
33
34
34
35
35
35
C R I T I C A L A C C O U N T I N G E S T I M AT E S
T E R M I N O L O G Y
C H A N G E S I N A C C O U N T I N G P O L I C I E S
R E C E N T A C C O U N T I N G P R O N O U N C E M E N T S
F I N A N C I A L I N S T R U M E N T S
C R I T I C A L R I S K S & U N C E R TA I N T I E S
C O N T R O L S & P R O C E D U R E S
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 LY 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 LT S O F O P E R AT I O N S
The following Management's Discussion and Analysis
(“MD&A”) is supplemental to, and should be read in conjunc-
tion with, the audited consolidated financial statements of
K-Bro Linen Inc. (“the Corporation”) for the years ended
December 31, 2022 and 2021 (the “2022 Audited Financial
Statements”), as well as the unaudited interim condensed
consolidated financial statements for the periods ended
March 31, 2022, June 30, 2022 and September 30, 2022. 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 21, 2023.
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 perfor-
mance and are based on management’s estimates and
assumptions that are subject to risks and uncertainties,
which could cause K-Bro’s actual performance and finan-
cial results in future periods to differ materially from the
forward-looking information contained in this MD&A. These
risks and uncertainties include, among other things: (i)
risks associated with acquisitions, including the possibility
of undisclosed material liabilities; (ii) K-Bro's competitive
environment; (iii) 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 documentation in respect there of; (v) increased
capital expenditure requirements; (vi) reliance on key
personnel; (vii) changing trends in government outsourcing;
(viii) changes or proposed changes to minimum wage laws in
Ontario, British Columbia, Alberta, 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) avail-
ability and access to labour; (xiii) rising wage rates in all
jurisdictions 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) interest and
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 financial outlook may not be
appropriate for purposes other than this MD&A. Forward
11
2022 ANNUAL REPORT INDUSTRY & MARKET
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.
looking information included in this 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 compa-
rable to similar measures presented by other issuers.
Please see “Terminology” for further discussion.
I N T R O D U C T I O N
CORE BUSINESS
The Corporation is the largest owner and operator of
laundry and linen processing facilities in Canada and a
market leader for laundry and textile rental services in
Scotland and the North East of England. K-Bro and its
wholly owned subsidiaries operate across Canada and the
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 five UK sites located in Cupar, Perth,
Newcastle, Livingston and Coatbridge.
12
WE ARE DEPENDABLE. INDUSTRY CHARACTERISTICS
& TRENDS
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
arrangements exists within this industry. Service relation-
ships 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 and other geopolitical risks
have introduced atypical instability in both the healthcare
and the hospitality sectors which is inconsistent with the
historical characteristics of and trends in K-Bro’s industry.
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.
CUSTOMERS & PRODUCT MIX
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.
S T R AT E G Y
K-Bro maintains the following three-part strategic focus:
Secure and Maintain LongTerm 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 longterm 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 onsite services. K-Bro
performs the sterilization of operating room linen packs
for nine major hospitals in Toronto and the four health
authorities in the Vancouver area.
13
2022 ANNUAL REPORT
FO U R T H Q U A R T E R
O V E R V I E W
Net earnings for the fourth quarter of 2022 were $0.3
million or $0.03 per Common Share (basic). Cash flow
from operating activities for the fourth quarter of 2022
was $1.0 million and distributable cash flow was $3.0
million. Consolidated revenue for the fourth quarter of
2022 increased to $70.7 million or by 13.6% compared to
2021 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 transition of the new rural AHS
business which commenced in late Q3 2021, healthcare
practice changes as a result of the COVID-19 pandemic and
price increases across various markets serviced.
EBITDA (see “Terminology”) remained relatively consistent
quarter over quarter with EBITDA for the fourth quarter
of 2022 being $8.7 million compared to $8.9 million in the
fourth quarter of 2021, which is a decrease of 2.3%. For the
Canadian division, the Corporation recorded EBITDA of $7.7
million during the fourth quarter of 2022 which was consis-
tent with the $7.8 million recorded in the fourth quarter of
2021. The UK division also saw consistent EBITDA whereby
the Corporation recorded EBITDA of $1.0 million during
the fourth quarter of 2022 compared to $1.1 million in
the fourth quarter of 2021. On a consolidated basis, the
Corporation’s EBITDA margin decreased from 14.4% in
2021 to 12.3% in 2022. For the Canadian division, Q4 EBITDA
margin decreased to 14.2% from 16.2% for the compara-
tive quarter of 2021. For the UK division, Q4 EBITDA margin
decreased to 6.0% from 8.0% for the comparative quarter
of 2021. For the Canadian division, the reduction in EBITDA
margin is primarily related to temporary labour inefficien-
cies resulting from unusually competitive labour markets in
certain cities in which we operate as well as the AHS transi-
tion, higher natural gas rates and higher delivery costs
related to increased diesel rates and the AHS transition. For
the UK division, the reduction in EBITDA margin is primarily
related to labour efficiencies offset by significant increases
in natural gas rates in 2022.
S E L E C T E D A N N U A L
F I N A N C I A L I N FO R M AT I O N
Years Ended December 31,
($ Thousands of CDN
dollars, except percentages
and per share amounts)
UK
Canadian
Division Division
2022
2022
Canadian
UK
Division Division
2021
2021
2022
Canadian
UK
Division Division
2020
2020
2021
Revenue
EBITDA(1)
Net earnings (loss)
212,035
32,365
6,042
64,588
4,127
(2,136)
276,623
36,492
3,906
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)
2020(2)
196,591
38,244
3,782
Net earnings (loss) per share:
Basic
Diluted
0.567
0.563
(0.200)
(0.199)
0.366
0.364
1.282
1.273
(0.463)
(0.460)
0.819
0.813
1.032
1.025
(0.673)
(0.669)
0.358
0.356
Total assets
Long-term debt (excludes lease liabilities)
325,760
45,166
332,519
37,973
323,811
40,657
Weighted average number
of shares outstanding:
Basic
Diluted
10,657,742
10,735,269
10,608,539
10,686,187
10,557,147
10,629,237
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.
14
WE ARE DEPENDABLE.
S U M M A RY O F 2022 R E S U LT S ,
K E Y E V E N T S & O U T LO O K
Net earnings were $3.9 million or $0.37 per Common
Share (basic). Cash flow from operating activities was
$26.1 million and distributable cash flow was $19.6 million.
Revenue increased in fiscal 2022 to $276.6 million or by
23.5% compared to 2021. Consolidated revenue for the
fourth quarter of 2022 increased to $70.7 million or by 13.6%
compared to 2021 primarily related to easing of COVID-19
pandemic restrictions which drove stronger hospitality client
activity combined with the continued strength of healthcare
revenues. Healthcare revenue benefitted from the transition
of the new rural AHS business, which commenced in late
Q3 2021, and changes to healthcare practices following the
COVID-19 pandemic. Certain price increases were secured
across various markets serviced to offset inflation-related
cost increases with further increases to be implemented in
Q1 and Q2 2023.
EBITDA (see “Terminology”) decreased in 2022 to $36.5
million or by 14.7% compared to $42.8 million in 2021. On a
consolidated basis, EBITDA margin decreased from 19.1%
in 2021 to 13.2% in 2022.
For the Canadian division, the EBITDA margin decreased to
15.3% in 2022 from 21.7% in 2021. The decrease in margin
is primarily related to temporary labour inefficiencies
resulting from unusually competitive labour markets in
certain cities in which we operate, higher natural gas rates,
higher delivery costs related to increased diesel rates, and
lower government assistance received. The margin is also
impacted by the AHS transition and the repricing of the
Corporation’s existing business in Edmonton and Calgary
with AHS which took effect on August 1, 2021 in advance of
the business being fully transitioned.
For the UK division, the EBITDA margin decreased to 6.4%
in 2022 from 7.6% in 2021. The reduction in EBITDA margin
is primarily related to labour efficiencies which are offset by
increases in natural gas rates in 2022.
KEY EVENTS IN OUR MARKETS
ARE SUMMARIZED BELO W
ACQUISITION OF BUANDERIE PARANET
On March 2, 2023, the Corporation announced the closing
of a share purchase agreement to acquire all the assets of
a private laundry and linen services company incorporated
in Canada and operating in Quebec City, Quebec for total
consideration of $11.5 million and a potential earnout of
$1.9 million. The acquisition will be accounted for using the
acquisition method, whereby the purchase consideration
will be allocated to the net assets acquired. Paranet is a
private laundry and linen services company for the Quebec
City healthcare and hospitality markets. The purchase price
will be satisfied by drawing down on the Corporation’s
revolving credit facility. At the time the financial state-
ments were authorized for issue, and due to the timing of
the acquisition, the Corporation has not yet completed the
accounting for the acquisition of Paranet.
3SHEALTH CONTRACT EXTENSION
In Q2 2022, the Corporation extended its existing contract
with 3sHealth for an additional six years to May 31, 2031 on
terms that are consistent with the existing contract.
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.
15
2022 ANNUAL REPORT On April 27, 2021, the Corporation was selected to provide
laundry services for Alberta Health Services ("AHS") for the
entire province. The award was the result of a competitive
RFP process and extends K-Bro's existing relationships
with AHS.
account amounts accrued in 2022 that are to be paid in 2023.
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.
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. In 2022, the Corporation incurred
one-time transition costs and experienced temporary
margin impacts as the new volume was transitioned into
the Corporation’s two facilities in Edmonton and Calgary.
Management is confident in their ability to return to 2019
margin levels, consistent with historical seasonal trends,
once we gain efficiencies from the AHS transition which is
anticipated to occur in the later half of 2023.
The award renews all of K-Bro's existing volume in
Edmonton and Calgary and awards additional health-
care volume for other sites in Alberta. The new volume is
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 was completed in
early April 2022.
REVOLVING CREDIT FACILITY
In Q2 2022, the Corporation completed an amendment to its
existing revolving credit facility, which extended the agree-
ment from July 31, 2024 to July 31, 2026. The Corporation’s
incremental borrowing rate under its existing credit facility
is determined by the Canadian prime rate plus an applicable
margin based on the ratio of Funded Debt to EBITDA as
defined in the credit agreement. Throughout fiscal 2022, the
Canadian prime rate has risen from 3.7% in January 2022 to
6.45% in December 2022. As a result of this increase, total
interest rate expense would increase $1.1 million on an
annual basis assuming the December 31, 2022 credit facility
utilization rate of $47,002.
CAPITAL INVESTMENT PLAN
For fiscal 2023, the Corporation’s planned capital spending
is expected to be approximately $7.0 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
COVID-19 RISK & GEOPOLITICAL STABILITY
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 an adverse impact on the Corporation’s
hospitality business. While government-imposed restric-
tions eased significantly over the course of 2022, and vacci-
nation rates continued to rise, the uncertainty regarding
the ongoing COVID-19 pandemic remains a threat to
the continued recovery in the Corporation’s hospitality
business. The COVID-19 pandemic has also contributed to
unusually competitive labour markets, causing inefficien-
cies in attracting, training and retaining employees. While
the Corporation anticipates labour markets will stabilize,
the timing remains uncertain.
In addition to this, certain geopolitical events and other
factors have resulted in rising and unstable commodity
costs for key inputs such as natural gas, electricity and
diesel. In the event these cost increases exceed price
increase mechanisms this could have an adverse effect on
our business prospects and results of operations.
The Corporation’s Credit Facility is subject to floating
interest rates and, therefore, is subject to fluctuations in
interest rates which are beyond the Corporation’s control.
Increases in interest rates, both domestically and interna-
tionally, could negatively affect the Corporation’s cost of
financing its operations and investments.
The duration and full financial effects of the COVID-19
pandemic, geopolitical events and rising interest rates,
continue to be uncertain at this time. The Corporation is
managing ongoing risks 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.
The following table depicts the impact of the COVID-19
pandemic on the Corporation’s revenue for 2022 and 2021.
16
WE ARE DEPENDABLE. Healthcare
Revenue
Hospitality
Revenue
Change (2021 Change (2021
compared
to 2019)
compared
to 2019)
Consolidated
Revenue
Change (2021
compared
to 2019) Month
Healthcare
Revenue
Hospitality
Revenue
Change (2022 Change (2022
compared
to 2019)
compared
to 2019)
Month
25%
January
26%
February
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%
-14%
-19%
-20%
-18%
-22%
-19%
-13%
-18%
-11%
-9%
-8%
-9%
-5%
1%
1%
-1%
24%
January
28%
February
30%
March
Q1 2022 compared to 27%
Q1 2019 (Jan to Mar)
24%
April
26%
May
26%
June
Q2 2022 compared to 25%
Q2 2019 (Apr to Jun)
20%
July
27%
August
22%
September
Q3 2022 compared to 23%
Q3 2019 (Jul to Sep)
20%
October
26%
November
25%
December
Q4 2022 compared to 24%
Q4 2019 (Oct to Dec)
-37%
-26%
-10%
-23%
-7%
-3%
-8%
-6%
-4%
-2%
-13%
-6%
-1%
2%
-7%
-3%
YTD
20%
-49%
-11%
YTD
25%
-11%
Consolidated
Revenue
Change (2022
compared
to 2019)
1%
5%
12%
6%
11%
13%
9%
11%
9%
12%
5%
9%
11%
16%
11%
12%
9%
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 pandemic, geopolit-
ical events and rising interest rates on revenue, expenses,
assets, liabilities, and note disclosures could result in a
material adjustment to the carrying value of the asset or
liability affected.
For both periods, the recoverable amount for the CGUs
was assessed using an earnings multiple approach. If the
result of the earnings multiple approach indicated a higher
level of sensitivity a probability weighted discounted cash
flow approach was performed. The Corporation refer-
ences Board approved budgets and cash flow forecasts,
trailing twelve-month EBITDA, implied multiples and
discount rates in the valuation calculations.
IMPAIRMENT OF ASSETS
Earnings multiple approach (FVLCD)
(i) The Corporation performed its annual assessment for
goodwill impairment for the Canadian division and for the
UK division as at December 31, 2022 and December 31,
2021 in accordance with its policy described in Note 2(k)
and Note 2(h). The Corporation also performed impair-
ment assessments for CGUs where there could be a risk
of impairment due to the presence of potential impair-
ment indicators at the CGU level.
The assumptions used are based on the Corporation’s
board approved budgets, cash flow forecasts, trailing
twelve-month EBITDA and the implied multiples. For both
fiscal years, cash flows were projected based on actual
results for the fiscal year tested as well as business
forecasts for the immediate fiscal year following the
testing period and then extrapolated for revenue growth
and expected changes in the general economy and
specific markets within which the CGU operates.
17
2022 ANNUAL REPORT
The implied multiple is calculated by utilizing the average
multiples of comparable public companies. The Corporation
used an implied average forward multiple of 10.60 (2021 -
10.80) to calculate the recoverable amounts. Where a CGU
has sufficient headroom a probability weighted discounted
cash flow approach was not performed.
Where a CGU shows sensitivity to the earnings multiple
approach, particularly those CGUS with a strong hospi-
tality base, higher uncertainty as a result of COVID-19 or
higher uncertainty due to geopolitical events or unusu-
ally competitive labour markets, a secondary test in
performed based on a probability-weighted discounted
cash flow approach.
Probability weighted discounted cash flow (VIU)
The recoverable amounts are determined using the value-
in-use (“VIU”) approach which considers the probability
weighted discounted future cash flows specific to each
CGU tested.
The assumptions used are based on the Corporation’s
board approved budgets, cash flow forecasts, trailing
twelve-month EBITDA, the pre-tax discount rate and
terminal value growth rate. For both fiscal years, cash
flows were projected based on actual results for the
fiscal year tested as well as business forecasts for the
immediate fiscal year following the testing period and
then extrapolated for revenue growth and expected
changes in the general economy and specific market
within which the CGU operates.
The discounted cash flows consider the specifics environ-
ment within which each of the CGUs operate. Estimating
the specific cash flows requires judgments on both past
and future performance as well as overall market expec-
tations. The calculation of the recoverable amount using
the discounted cash flow was based on the following key
assumptions:
Testing Methodology
December 31, 2022
Pre-tax Discount Rate
December 31, 2022
Terminal Value Growth Rate
December 31, 2022
December 31, 2021
Calgary
Edmonton
Vancouver 2*
Vancouver 1
Victoria*
UK
FVLCD
FVLCD
FVLCD
FVLCD
FVLCD
VIU
n/a
n/a
n/a
n/a
n/a
15.4%
n/a
n/a
n/a
n/a
n/a
2.0%
n/a
n/a
2.0%
n/a
2.0%
2.0%
* For the year ended December 31, 2021, these CGUs were tested using the VIU methodology.
For the December 31, 2022 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 8% to 12 % for 2023, 7% for 2024 with
sales returning to normalized levels thereafter with
sales growth estimates used 2%. These represent the
Corporation’s best estimate of cash flows over the
forecast period.
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%.
The terminal value growth rate is based on manage-
ment's best estimate of the long-term growth rate for
its CGUs after the forecast period, considering historic
performance and future economic forecasts.
Based on testing performed at December 31, 2022 and
December 31, 2021 no impairment was determined to exist.
ii) Recoverable Amount
The recoverable amount of each CGU is sensitive to
changes in the market conditions which could result in
material changes. The Corporation does not believe there
is a reasonable change in the key assumptions that would
cause the recoverable amount of any CGU to break even
or have an impairment. The table below shows the sensi-
tivity of key assumptions to a reasonable change.
18
WE ARE DEPENDABLE.
Recoverable Amount
Change in Pre-tax Discount
Rate Increase of 1%
Change in Terminal Value
Growth Rate Decrease of 1%
December 31, 2022
December 31, 2021
December 31, 2022
December 31, 2021
December 31, 2022
December 31, 2021
Calgary
Edmonton
Vancouver 2*
Vancouver 1
Victoria*
UK
n/a
n/a
n/a
n/a
n/a
£50,261
n/a
n/a
$31,176
n/a
$8,290
£53,083
n/a
n/a
n/a
n/a
n/a
-£4,201
n/a
n/a
-$3,152
n/a
-$770
-£4,915
n/a
n/a
n/a
n/a
n/a
-£4,458
n/a
n/a
-$2,818
n/a
-$834
-£4,988
* For the year ended December 31, 2021, these CGUs were tested using the VIU methodology.
O U T LO O K
The Corporation’s healthcare segment continues to
outperform relative to historical levels, with a steady trend.
For the hospitality segment, management expects a good
level of activity with the easing of government-imposed
restrictions on international border crossings, increasing
business/leisure travel, and price increases will continue
to support the strong recovery momentum in hospitality
revenues experienced through 2022. The Corporation
continues to pursue price increases to offset inflation-re-
lated costs and anticipates that 2023 results will reflect the
full impact of price increases secured in the later part of Q4
2022 and into Q2 2023.
Within 2022, management has been focused on operational
efficiencies and the transition of new AHS business, which
was completed in early April 2022. Into 2023, management
will continue to focus on optimizing plant efficiencies
associated with the transition of new AHS business.
From an input cost perspective, since early March 2022,
particularly in the UK, the Corporation has faced significant
volatility in energy costs due to current geopolitical issues. In
April 2022, to mitigate this instability, the Corporation locked
in natural gas supply rates in the UK until December 2024.
Based on these locked in rates natural gas as a percent of
revenue has increased approximately 2.5 percentage points
from historical levels for 2022. As we move into 2023, we
expect to mitigate these cost increases with price increases
to our customers.
The Corporation is also facing temporary labour ineffi-
ciencies from unusually competitive
labour markets.
Management is focused on the retention of existing staff,
in addition to implementing strategies to recruit and hire
new staff. The Corporation has achieved some success
in certain markets but is still focusing efforts on other
markets. The Corporation is managing more challenging
regional labour availability with complementary temporary
foreign worker programs.
Management is confident in their ability to return to 2019
margin levels, consistent with historical seasonal trends,
once we gain efficiencies from the AHS transition which
is anticipated to occur in the later half of 2023. However,
this will also be dependent on our ability to attract and
retain staff in each of the markets in which we operate.
Management anticipates labour markets will stabilize, but
the timing remains uncertain.
With continued momentum in existing operations, manage-
ment has refocused attention on strategic acquisitions, such
as the recently announced acquisition of Paranet, to accel-
erate growth in both North America and Europe, geogra-
phies 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 opportu-
nities, should they arise. For further information about the
impact of the COVID-19 pandemic on our business, see the
“Summary of Interim Results, and Key Events”
19
2022 ANNUAL REPORT
R E S U LT S O F O P E R AT I O N S
KEY PERFORMANCE DRIVERS
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,
($ Thousands of CDN dollars, except
percentages and per share amounts)
Category
Indicator
Growth
EBITDA(1)
Revenue
Distributable cash flow(2)
Profitability
EBITDA(1)
EBITDA margin
Net earnings (loss)
Canadian
Division
2022
UK
Division
2022
-0.6%
13.3%
-13.9%
14.5%
7,745
14.2%
822
981
6.0%
(542)
Stability
Debt to total capital(3)
Unutilized line of credit
Cash on hand
Payout ratio
Dividends declared per share
Cost containment Wages and benefits
Utilities
Delivery
Expenses included in EBITDA
41.0%
6.8%
13.1%
85.8%
35.4%
14.3%
16.1%
94.0%
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)
39.9%
6.3%
11.4%
83.8%
37.9%
7.4%
18.0%
92.0%
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%
12.9%
85.6%
2022
-2.3%
13.6%
-54.2%
8,726
12.3%
280
20.6%
52,998
2,636
106.9%
0.300
39.7%
8.5%
13.8%
87.7%
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 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”.
20
($ Thousands of CDN dollars, except
percentages and per share amounts)
Category
Indicator
Growth
EBITDA(1)
Revenue
Distributable cash flow(2)
Profitability
EBITDA(1)
EBITDA margin
Net earnings (loss)
Canadian
Division
2022
UK
Division
2022
-18.4%
15.8%
32.6%
57.8%
32,365
15.3%
6,042
4,127
6.4%
(2,136)
Stability
Debt to total capital(3)
Unutilized line of credit
Cash on hand
Payout ratio
Dividends declared per share
Cost containment Wages and benefits
Utilities
Delivery
Expenses included in EBITDA
41.2%
6.4%
12.8%
84.7%
36.4%
15.7%
15.8%
93.6%
Years Ended December 31,
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)
37.4%
5.7%
9.9%
78.3%
40.1%
7.8%
16.3%
92.4%
2021
11.9%
13.9%
-12.1%
42,791
19.1%
8,692
17.0%
59,638
1,110
46.9%
1.200
37.9%
6.0%
11.0%
80.9%
2022
-14.7%
23.5%
-28.8%
36,492
13.2%
3,906
20.6%
52,998
2,636
65.9%
1.200
40.1%
8.6%
13.5%
86.8%
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 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
2022 ANNUAL REPORT
QUARTERLY FINANCIAL INFORMATION CONSOLIDATED
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)
2022
2021
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 recovery (expense)
Net earnings (loss)
Net earnings (loss) as a % of revenue
Basic earnings (loss) per share
Diluted earnings (loss) per share
43,963
26,708
70,671
61,945
8,726
12.3%
6,505
1,639
582
302
280
0.4%
0.026
0.026
42,683 43,523
30,945 27,367
73,628 70,890
43,237
18,197
61,434
62,607 61,207
11,021
9,683
15.0% 13.7%
54,372
7,062
11.5%
6,466
1,340
3,215
759
2,456
3.3%
0.230
0.228
6,570
1,001
2,112
496
1,616
2.3%
0.152
0.151
6,527
1,000
(465)
(19)
(446)
-0.7%
(0.042)
(0.042)
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
22,266
61,493
42,712 43,058
9,963
4,556
52,675 47,614
49,896
11,597
18.9%
40,470 37,553
12,205 10,061
23.2% 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
Total assets
Total long-term financial liabilities
325,760
105,744
321,527 329,677 325,041
99,302
100,408 106,327
332,519 330,494 326,157 316,101
97,582 100,306 89,343
102,617
Funds provided by operations
Long-term debt (excludes lease liabilities)
Dividends declared per share
1,049
45,166
0.300
11,530
3,838
39,141 45,224
0.300
0.300
9,713
36,615
0.300
7,743
37,973
0.300
12,543
38,270
0.300
3,047
8,542
40,696 36,811
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”.
22
QUARTERLY FINANCIAL INFORMATION - CANADIAN DIVISION
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
Net earnings as a % of revenue
Basic earnings per share
Diluted earnings per share
2022
2021
Q4
Q3
Q2
Q1
Q4
Q3
Q2
Q1
42,419
12,032
54,451
46,707
7,745
14.2%
822
1.5%
0.077
0.076
41,197
13,870
55,067
41,936
11,347
53,283
41,687
7,547
49,234
46,037
9,030
16.4%
45,212
8,071
15.1%
41,715
7,519
15.3%
2,122
3.9%
0.199
0.197
1,669
3.1%
0.157
0.156
1,429
2.9%
0.134
0.134
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
36,659
9,510
20.6%
32,734
11,422
25.9%
2,944
6.4%
0.277
0.275
4,460
10.1%
0.421
0.418
41,432
3,270
44,702
33,744
10,958
24.5%
4,157
9.3%
0.392
0.390
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”.
23
2022 ANNUAL REPORT QUARTERLY FINANCIAL INFORMATION - UK DIVISION
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)
2022
2021
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) income
Net (loss) income as a % of revenue
Basic (loss) earnings per share
Diluted (loss) earnings per share
1,544
14,676
16,220
15,239
981
6.0%
(542)
-3.3%
(0.051)
(0.050)
1,486
17,075
18,561
1,587
16,020
17,607
1,550
10,650
12,200
16,570
1,991
10.7%
15,995
1,612
9.2%
12,657
(457)
-3.7%
334
1.8%
0.031
0.031
(53)
-0.3%
(0.005)
(0.005)
(1,875)
-15.4%
(0.176)
(0.175)
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%
(796)
-5.2%
(0.075)
(0.074)
(1,049)
-12.3%
(0.099)
(0.098)
(2,523)
-86.6%
(0.238)
(0.237)
Quarterly Financial Information - UK Division
(in local currency Sterling £)
(Thousands, except percentages
and per share amounts)
2022
2021
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) income
Net (loss) income as a % of revenue
Basic (loss) earnings per share
Diluted (loss) earnings per share
967
9,200
10,167
9,553
614
6.0%
(341)
-3.3%
(0.032)
(0.032)
987
11,327
12,314
1,005
10,153
11,158
912
6,267
7,179
10,994
1,320
10.7%
10,134
1,024
9.2%
7,448
(269)
-3.7%
1,011
7,325
8,336
7,665
671
8.0%
959
7,877
8,836
7,633
1,203
13.6%
935
4,028
4,963
931
737
1,668
4,505
458
9.2%
2,181
(513)
-30.8%
221
1.8%
0.021
0.020
(32)
-0.3%
(0.003)
(0.003)
(1,103)
-15.4%
(0.104)
(0.103)
(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 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”.
24
WE ARE DEPENDABLE. REVENUE, EARNINGS & EBITDA
OPERATING EXPENSES
For the year ended December 31, 2022, K-Bro’s consoli-
dated revenue increased by 23.5% to $276.6 million from
$224.0 million in the comparative period. This increase was
primarily a result of COVID-19 pandemic restrictions being
eased, the completion of the AHS transition, healthcare
practice changes due to the COVID-19 pandemic and price
increases across various markets to offset inflation-related
cost increases. In 2022, approximately 62.7% of K-Bro’s
consolidated revenue was generated from healthcare
institutions, which is lower compared to 74.4% in 2021, this
is primarily related to the recovery of hospitality activity
following the easing of COVID-19 pandemic restrictions.
Consolidated EBITDA decreased in the year to $36.5 million
from $42.8 million in 2021, which is a decrease of 14.7%.
The consolidated EBITDA margin decreased to 13.2% in
2022 compared to 19.1% in 2021. The decrease in margin
is primarily related to higher natural gas prices partic-
ularly in the UK, the additional labour costs incurred due
to temporary inefficiencies from unusually competitive
labour markets in certain cities in which we operate, higher
delivery costs related to higher diesel rates as well as
the AHS transition, repricing of the Corporation’s existing
business in Edmonton and Calgary with AHS which took
effect on August 1, 2021 in advance of the business being
fully transitioned and lower government assistance received
in the Canadian division from $0.9 million received in 2021
to $0.0 million in 2022.
Net earnings decreased by $4.8 million or 55.1% from $8.7
million in 2021 to $3.9 million in 2022, and net earnings as
a percentage of revenue decreased by 2.5% to 1.4% in 2022
from 3.9% in 2021. The change in net earnings is primarily
related to the flow through items in EBITDA discussed above,
higher finance costs related to increased interest rates for
the revolving credit facility, and lower income tax expense.
Wages and benefits increased by $26.2 million to $111.0
million compared to $84.8 million in the comparative
period of 2021, and as a percentage of revenue increased
by 2.2 percentage points to 40.1%. The increase as a
percentage of revenue is primarily related to a $-0.8
million decrease in government assistance received in
the Canadian division, escalating minimum wage rates,
temporary
from unusually competitive
labour markets in certain cities in which we operate and
the transitioning of the new AHS business.
inefficiencies
Linen increased by $3.4 million to $31.3 million compared
to $27.9 million in the comparative period of 2021, and as a
percentage of revenue decreased by 1.2 percentage points to
11.3%. The decrease as a percentage of revenue is primarily
related to the changes to the mix of linen and higher hospi-
tality volumes processed compared to the prior year.
Utilities increased by $10.3 million to $23.8 million compared
to $13.5 million in the comparative period of 2021, and as a
percentage of revenue increased by 2.6 percentage points to
8.6%. The increase as a percentage of revenue is primarily
related to increased natural gas rates, particularly in the UK,
as well as in British Columbia for the fourth quarter of 2022.
Delivery increased by $12.6 million to $37.3 million
compared to $24.7 million in the comparative period of
2021, and as a percentage of revenue increased by 2.5
percentage points to 13.5%. The increase as a percentage
of revenue is primarily related to rising diesel prices and
the costs associated with the new rural AHS business along
with delivery route inefficiencies associated with the incre-
mental hospitality volumes processed in the year as well
as a decrease in government assistance received in the
Canadian division.
Occupancy costs increased by $0.6 million to $4.5 million
compared to $3.9 million in the comparative period of
2021, and as a percentage of revenue remained relatively
constant at 1.6%. The increase in spending is related to
increased facility rent as well as increased facility repairs
& maintenance.
Materials and supplies increased by $1.8 million to $10.9
million compared to $9.1 million in the comparative period
of 2021, and as a percentage of revenue remained relatively
constant at 4.0%. The increase in spending is due to
increased volume.
25
2022 ANNUAL REPORT Repairs and maintenance increased by $2.7 million to $10.4
million compared to $7.7 million in the comparative period
of 2021, and as a percentage of revenue increased by 0.4
percentage points to 3.8%. The increase as a percentage of
revenue is primarily related to related to one-time costs and
increased prices.
Corporate costs increased by $1.5 million to $11.0 million
compared to $9.5 million in the comparative period of
2021, and as a percentage of revenue remained relatively
constant at 4.0%.
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.
L I Q U I D I T Y
& C A P I TA L
R E S O U R C E S
In 2022, cash generated by operating activities was $26.1
million with a debt to total capitalization of 20.6%. The
change in cash from operations is primarily due to the
change in working capital items driven mainly from the
timing of cash receipts, prepaid expenses with suppliers and
the timing of tax payments. The Corporation’s capital struc-
ture 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 unuti-
lized balance of $53.0 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 conserva-
tive amount of leverage and balance sheet flexibility in the
short and longterm basis in order to ensure that sufficient
capital is available for future growth needs.
During 2022, cash used in financing activities was $13.1
million compared to $22.7 million in 2021. Financing activities
consisted of net repayment of the revolving credit facility,
dividends paid to Shareholders and principal elements of
lease payments.
During 2022, cash used in investing activities was $11.4
million compared to $10.5 million in 2021. Investing activi-
ties are primarily related to the purchase of plant equipment.
26
WE ARE DEPENDABLE. CONTRACTUAL OBLIGATIONS
Payments due under contractual obligations for the next five years and thereafter are as follows:
($ Thousands of CDN dollars)
Total
2023
Payments Due by Year
2024 to 2025
2026 to 2027
Subsequent
Long-term debt
Lease liabilities
Utility commitments
Linen purchase obligations
Property, plant and equipment commitments
45,166
61,172
26,592
10,161
2,341
-
10,236
11,958
10,161
2,341
-
17,188
13,139
-
-
45,166
12,799
1,495
-
-
-
20,949
-
-
-
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, 2022. The source of funds for these
commitments will be from operating cash flow and, if neces-
sary, the undrawn portion of the revolving credit facility.
FINANCIAL POSITION
Years Ended December 31,
($ Thousands, except percentages)
2022
2021
Cash and cash equivalents
Long-term debt
(excludes lease liabilities)
Shareholders’ equity
Total capital
Debt to total capital
(see Terminology for definition)
(2,636)
45,166
(1,110)
37,973
176,542
219,072
20.6%
186,401
223,264
17.0%
For the period ended December 31, 2022, the Corporation
had a debt to total capital of 20.6%, unused revolving credit
facility of $53.0 million and has not incurred any events of
default under the terms of its credit facility.
As at December 31, 2022, the Corporation had net working
capital of $36.6 million compared to its working capital
position of $30.3 million at December 31, 2021. The increase
in working capital is primarily attributable to additional
requirements driven mainly from increased client activity as
a result of the COVID-19 pandemic, prepaid expenses with
suppliers and the timing of tax payments.
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.
27
2022 ANNUAL REPORT
D I V I D E N D S
Fiscal Period
Payment Date
# of Shares
Outstanding
Amount
Per Share
2022
Total Amount
(1)(3)(5)(7)
2021
Amount
Per Share
Total Amount
(2)(4)(6)(8)
February 15
March 15
April 15
May 13
June 15
July 15
August 15
September 15
October 14
November 15
December 15
January 13
10,719,778
10,719,778
10,719,778
10,719,778
10,775,140
10,775,140
10,774,180
10,773,190
10,773,190
10,773,190
10,773,190
10,773,190
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
1,072
1,072
1,072
3,216
1,072
1,078
1,078
3,228
1,077
1,077
1,077
3,234
1,076
1,076
1,076
3,227
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
1.20000
12,905
1.20000
12,846
1 The total amount of dividends declared was $0.10000 per share for a total of $1,071,881 per month for January - March 2022; when rounded in thousands, $3,216 of dividends were declared in Q1 2022.
2 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.
3 The total amount of dividends declared was $0.10000 per share for a total of $1,071,881 for April 2022, $1,077,514 for May 2022, and $1,077,514 for June 2022. When rounded in thousands,
$3,228 of dividends were declared in Q2 2022.
4 The total amount of dividends declared was $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.
5 The total amount of dividends declared was $0.10000 per share for a total of $1,077,417 for July 2022, $1,077,318 for August 2022, and $1,077,318 for September 2022. When rounded in
thousands, $3,234 of dividends were declared in Q3 2022.
6 The total amount of dividends declared were $0.10000 per share for a total of $1,071,881 per month for July - September 2021; when rounded in thousands, $3,216 of dividends were declared in Q3 2021.
7 The total amount of dividends declared was $0.10000 per share for a total of $1,077,319 per month for October - December 2022; when rounded in thousands, $3,227 of dividends were declared in Q4 2022.
8 The total amount of dividends declared was $0.10000 per share for a total of $1,067,689 per month for October - December 2021; when rounded in thousands, $3,216 of dividends were declared in Q4 2021.
For the year ended December 31, 2022, the Corporation
declared a $1.200 per Common Share dividend compared to
$1.823 per Common Share of Distributable Cash Flow (see
“Terminology”). The actual payout ratio was 65.9%.
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 provin-
cial and territorial legislation, unless indicated otherwise.
28
WE ARE DEPENDABLE.
D I S T R I B U TA B L E C A S H F LO W
(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)
2022
2021
Q4
Q3
Q2
Q1
Q4
Q3
Q2
Q1
Cash provided by operating activities
1,049
11,530
3,838
9,713
7,743
12,543
3,047
8,542
Deduct (add):
Net changes in non-cash working capital items(1)
Share-based compensation expense
Maintenance capital expenditures(2)
Principle elements of lease payments
(4,994)
410
706
1,908
1,204
438
520
1,834
(4,929)
428
1,078
1,821
3,098
512
690
1,834
(1,358)
417
281
1,808
1,978
486
426
1,765
(7,022)
439
275
1,742
692
506
112
1,852
Distributable cash flow
3,019
7,534
5,440
3,579
6,595
7,888
7,613
5,380
Dividends declared
Dividends declared per share
Payout ratio(3)
3,227
0.300
106.9%
3,234
0.300
42.9%
3,228
0.300
59.3%
3,216
0.300
89.9%
3,216
0.300
48.8%
3,216
0.300
40.8%
3,211
0.300
42.2%
3,203
0.300
59.5%
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)
10,675
10,659
10,650
10,641
10,622
10,611
10,603 10,597
10,751
10,750
10,716
10,703
10,701
10,700
10,673 10,663
19,572
12,905
65.9%
23,148
12,894
55.7%
23,502
12,875
54.8%
25,675
12,859
50.1%
27,476
12,846
46.8%
27,767
12,833
46.2%
30,929 30,575
12,820 12,805
41.9%
41.4%
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.
29
2022 ANNUAL REPORT
O U T S TA N D I N G
S H A R E S
As at December 31, 2022, the Corporation had 10,773,190
Common Shares outstanding. Basic and diluted weighted
average number of Common Shares outstanding for 2022
were 10,657,742 and 10,735,269, respectively (10,608,539 and
10,686,187, respectively, for the comparative 2021 periods).
In accordance with the Corporation’s Long Term Incentive
(“LTI”) plan and in conjunction with the performance of
the Corporation in the 2021 fiscal year, on April 23, 2022
the Compensation, Nominating and Corporate Governance
Committee approved LTI compensation of $1.8 million
(2021 – $1.8 million) to be paid as Common Shares issued
from treasury. As at December 31, 2022, the value of the
Common Shares held by the LTI custodian was $1.9 million
(December 31, 2021 – $2.7 million) which was comprised of
64,552 in unvested Common Shares (December 31, 2021 –
78,632) with a nil aggregate cost (December 31, 2021 – $nil).
As at March 21, 2023 there were 10,773,190 Common
Shares issued and outstanding including 64,552 Common
Shares issued but held as unvested treasury shares.
R E L AT E D PA R T Y
T R A N S A C T I O N S
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, 2022, the Corporation incurred fees totaling
$72,000 (2021 – $138,000).
difficult, subjective and complex
judgments, and/or
requiring estimates that are inherently uncertain and which
may change in subsequent reporting periods.
K-Bro has continuously refined and documented
its
management and internal reporting systems to ensure
that 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
development 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,
C R I T I C A L
A C C O U N T I N G
E S T I M AT E S
· allowance for doubtful accounts;
· segment information;
· property, plant and equipment;
The Corporation’s summary of significant accounting
policies are contained in Note 2 to the 2022 Audited
Financial Statements.
The 2022 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
· 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.
30
WE ARE DEPENDABLE. COVID-19 RISK & GEOPOLITICAL STABILITY
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 an adverse impact on the Corporation’s
hospitality business. While government-imposed restric-
tions eased significantly over the course of 2022, and vacci-
nation rates continued to rise, the uncertainty regarding
the ongoing COVID-19 pandemic remains a threat to
the continued recovery in the Corporation’s hospitality
business. The COVID-19 pandemic has also contributed to
unusually competitive labour markets, causing inefficien-
cies in attracting, training and retaining employees. While
the Corporation anticipates labour markets will stabilize,
the timing remains uncertain.
In addition to this, certain geopolitical events and other
factors have resulted in rising and unstable commodity
costs for key inputs such as natural gas, electricity and
diesel. In the event these cost increases exceed price
increase mechanisms this could have an adverse effect on
our business prospects and results of operations.
The Corporation’s Credit Facility is subject to floating
interest rates and, therefore, is subject to fluctuations in
interest rates which are beyond the Corporation’s control.
Increases in interest rates, both domestically and interna-
tionally, could negatively affect the Corporation’s cost of
financing its operations and investments.
The duration and full financial effects of the COVID-19
pandemic, geopolitical events and rising interest rates,
continue to be uncertain at this time. The Corporation is
managing ongoing risks 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.
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 pandemic, geopolit-
ical events and rising interest rates 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
determining the appropriate discount rate and
growth rate, and
determining the appropriate comparable companies
used in earnings multiple approach.
SEGMENT IDENTIFICATION
its reportable segments,
When determining
the
Corporation considers qualitative factors, such as
operations that offer distinct products and services and
are considered to be significant by the Chief Operating
Decision Maker, identified as the Chief Executive Officer.
Aggregation occurs when the operating segments have
similar economic characteristics and have similar (a)
products and services; (b) geographic proximity; (c) type
or class of customer for their products and services;
(d) methods used to distribute their products or provide
their services; and (e) nature of the regulatory environ-
ment, if applicable.
31
2022 ANNUAL REPORT
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
UNCERTAINT 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.
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 equipment.
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 recoverable 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.
32
WE ARE DEPENDABLE.
T E R M I N O LO G Y
EBITDA
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 subtotal 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.
Three Months Ended December 31,
Years Ended December 31,
($ Thousands of CDN dollars)
2022
2021
Net earnings
Add:
Income tax expense
Finance expense
Depreciation of property, plant and equipment
Amortization of intangible assets
EBITDA
280
302
1,639
6,120
385
8,726
1,499
1
800
5,958
670
8,928
2022
3,906
1,538
4,980
23,766
2,302
36,492
2021
8,692
3,788
3,449
23,625
3,237
42,791
NON-GA AP MEASURES
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 activi-
ties, distributable cash flow is considered relevant because
it provides an indication of how much cash generated by
operations is available after capital expenditures. It should be
noted that although we consider this measure to be distrib-
utable cash flow, financial and non-financial covenants in
our credit facilities and dealer agreements may restrict
cash from being available for dividends, reinvestment in
the Corporation, potential acquisitions, or other purposes.
Investors should be cautioned that distributable cash flow
may not actually be available for growth or distribution from
the Corporation. Management refers to “Distributable cash
flow” as to cash provided by (used in) operating activities
with the addition of net changes in non-cash working capital
items, less share-based compensation, 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.
33
2022 ANNUAL REPORT DEBT TO TOTAL CAPITAL
“Debt to total capital” is defined by management as the
total longterm 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, 2022, the Corporation has not entered
into any off balance sheet arrangements.
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
Corporation has prepared its December 31, 2022 audited
consolidated financial statements in accordance with IFRS.
See Note 2 of the 2022 Audited Financial Statements for more
information regarding the significant accounting principles
used to prepare the 2022 Audited Financial Statements.
R E C E N T
A C C O U N T I N G
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 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 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.
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
financial statements. The
Corporation’s consolidated
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.
34
F I N A N C I A L
I N S T R U M E N T S
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.
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
subsequently 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.
C R I T I C A L R I S K S &
U N C E R TA I N T I E S
As at December 31, 2022, there are no material changes in
the Corporation’s risks or risk management activities since
December 31, 2021. 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
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.
C O N T R O L S &
P R O C E D U R E S
In order to ensure that information with regard to reports
filed or submitted under securities legislation present fairly
in all material respects the financial information of K-Bro,
management, including the President and Chief Executive
Officer (“CEO”) and the Chief Financial Officer (“CFO”), are
responsible for establishing and maintaining disclosure
controls and procedures, as well as internal control over
financial reporting.
35
2022 ANNUAL REPORT DISCLOSURE CONTROLS
& PROCEDURES
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, 2022, and the CEO and CFO have
concluded that these controls were operating effectively.
INTERNAL CONTROLS OVER
FINANCIAL REPORTING
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, 2022, 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, 2022, 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 »).
36
WE ARE DEPENDABLE.
CONSOLIDATED
F I N A N C I A L
S TAT E M E N T S
39
44
45
46
47
48
76
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
C O N S O L I D AT E D S TAT E M E N T S O F F I N A N C I A L P O S I T I O N
C O N S O L I D AT E D S TAT E M E N T S O F E A R N I N G S
& C O M P R E H E N S I V E I N C O M E
C O N S O L I D AT E D S TAT E M E N T S O F C H A N G E S I N E Q U I T Y
C O N S O L I D AT E D S TAT E M E N T S O F C A S H F L O W
N O T E S T O T H E C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S
C O R P O R AT E I N F O R M AT I O N
37
2022 ANNUAL REPORT 38
WE ARE DEPENDABLE. 39
2022 ANNUAL REPORT 40
WE ARE DEPENDABLE. 41
2022 ANNUAL REPORT 42
WE ARE DEPENDABLE. 43
2022 ANNUAL REPORT C O N S O L I D AT E D S TAT E M E N T S
O F F I N A N C I A L P O S I T I O N
($ 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)
Assets classified as held for sale (note 7)
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
Lease liabilities (note 13)
Income taxes payable
Dividends payable to shareholders
Long-term debt (note 11)
Lease liabilities (note 13)
Provisions (note 10)
Deferred income taxes (note 14)
SHAREHOLDERS’ EQUITY
Share capital
Contributed surplus
Deficit
Accumulated other comprehensive (loss) income
Contingencies and commitments (note 15)
DECEMBER 31, 2022
DECEMBER 31, 2021
2,636
37,761
1,917
6,386
31,383
80,083
696
80,779
203,185
4,428
37,368
325,760
32,505
279
-
9,615
-
1,075
43,474
45,166
44,042
2,382
14,154
149,218
208,463
2,323
(32,232)
2,012
176,542
325,760
1,110
36,847
-
4,475
31,340
73,772
-
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
The accompanying notes are an integral part of these consolidated financial statements.
Approved by the
Board of Directors
ELISE REES,
DIRECTOR
MATTHEW HILLS,
DIRECTOR
44
WE ARE DEPENDABLE.
C O N S O L I D AT E D S TAT E M E N T S O F
E A R N I N G S & C O M P R E H E N S I V E I N C O M E
Years Ended December 31,
($ Thousands of CDN dollars, except share and per share amounts)
REVENUE
Expenses
Wages and benefits (note 27)
Delivery (note 27)
Linen (note 6)
Utilities
Corporate (note 27)
Materials and supplies
Repairs and maintenance
Occupancy costs
Remeasurement expense
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
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
2022
276,623
110,957
37,326
31,337
23,754
11,014
10,936
10,419
4,535
(147)
240,131
36,492
23,766
2,302
4,980
31,048
5,444
1,441
97
1,538
3,906
(2,648)
1,258
0.37
0.36
2021
223,992
84,840
24,744
27,921
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
10,657,742
10,735,269
10,608,539
10,686,187
The accompanying notes are an integral part of these consolidated financial statements.
45
2022 ANNUAL REPORT
C O N S O L I D AT E D S TAT E M E N T S
O F C H A N G E S I N E Q U I T Y
($ Thousands of CDN dollars)
Total Share Contributed
Surplus
Capital
Accumulated Other
Comprehensive
Income (loss)
Deficit
As at December 31, 2021
Total comprehensive income (loss)
Dividends declared (note 19)
Employee share based compensation expense
Shares forfeited during the year
Shares vested during the year
As at December 31, 2022
206,660
-
-
-
(62)
1,865
208,463
2,338
-
-
1,788
62
(1,865)
2,323
(23,233)
3,906
(12,905)
-
-
-
(32,232)
636
(2,648)
-
-
-
-
(2,012)
($ Thousands of CDN dollars)
Total Share Contributed
Surplus
Capital
Accumulated Other
Comprehensive
Income (loss)
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
The accompanying notes are an integral part of these Consolidated Financial Statements.
Total
Equity
186,401
1,258
(12,905)
1,788
-
-
176,542
Total
Equity
189,504
7,895
(12,846)
1,848
-
186,401
46
WE ARE DEPENDABLE.
C O N S O L I D AT E D S TAT E M E N T S
O F C A S H F LO W
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)
Accretion expense (note 10)
Employee share based compensation expense
Remeasurement expense
Deferred income taxes
Change in non-cash working capital items (note 20)
Cash provided by operating activities
FINANCING ACTIVITIES
Net proceeds (repayment) from 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.
2022
3,906
23,766
2,302
39
1,788
(147)
97
31,751
(5,621)
26,130
7,193
(7,397)
(12,903)
(13,107)
(11,370)
33
(88)
(11,425)
1,598
(72)
1,110
2,636
4,600
4,962
2021
8,692
23,625
3,237
57
1,848
-
126
37,585
(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
47
2022 ANNUAL REPORT
N O T E S T O T H E C O N S O L I D AT E D
F I N A N C I A L S TAT E M E N T S
(Thousands of Canadian dollars except share and per share amounts, Years ended December 31, 2022 and 2021)
K-Bro Linen Inc. (the "Corporation" or “K-Bro”) is incor-
porated 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, health-
care, manufacturing and pharmaceutical sectors. Fishers'
client base includes major hotel chains and prestigious
venues across Scotland and the North East of England. The
company operates in 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 21, 2023.
1. BASIS OF PRESENTATION
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. SIGNIFICANT ACCOUNTING
POLICIES
The principal accounting policies applied in the preparation
of these Consolidated Financial Statements are set out
below. These policies have been consistently applied to all
the 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 inter-
company 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.
48
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
49
2022 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 catego-
ries 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.
50
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 compen-
sation 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.
51
2022 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.
52
WE ARE DEPENDABLE. If a change of control occurs, all LTI Shares held by the
Administrator in respect of unvested grants will vest
immediately. LTI participants are entitled to receive
dividends on all common shares granted under the LTI
whether vested or unvested. In most circumstances,
unvested common shares held by the LTI 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 partic-
ipant is terminated without cause, retires or resigns on a
basis which constitutes constructive dismissal, the partici-
pant 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 about 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.
53
2022 ANNUAL REPORT R) THE CORPORATION’S LEASING ACTIVITIES
· the amount of the initial measurement of lease liability,
& 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
· 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
Corporation:
the
incremental borrowing rate,
the
· 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.
54
WE ARE DEPENDABLE.
3. CHANGES & UPDATES IN
ACCOUNTING POLICIES
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
and Measurement, IFRS 7 Financial Instruments:
Disclosures, IFRS 4 Insurance Contracts and IFRS 16
Leases. The amendments apply for annual periods
beginning on or after January 1, 2021.
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. NEW STANDARDS &
INTERPRETATIONS
NOT YET ADOPTED
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 amend-
ments to existing standards that will become effective in
future years.
· 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 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.
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. CRITICAL ACCOUNTING
ESTIMATES & JUDGMENTS
The preparation of the Corporation’s consolidated financial
statements, in conformity with IFRS, requires management
of the Corporation to make estimates and assumptions
that affect the reported amount of assets and liabilities and
disclosures of contingent assets and liabilities at the date
of the financial statements and the reported amounts of
revenues and expenses during the reported period. Actual
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 & Geopolitical Stability
The ongoing COVID-19 pandemic has caused world
governments 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 an adverse impact
on the Corporation’s hospitality business. While govern-
ment-imposed restrictions eased significantly over
55
2022 ANNUAL REPORT
the course of 2022, and vaccination rates continued to
rise, the uncertainty regarding the ongoing COVID-19
pandemic remains a threat to the continued recovery
in the Corporation’s hospitality business. The COVID-19
pandemic has also contributed to unusually competi-
tive labour markets, causing inefficiencies in attracting,
training and retaining employees. While the Corporation
anticipates labour markets will stabilize, the timing
remains uncertain.
In addition to this, certain geopolitical events and other
factors have resulted in rising and unstable commodity
costs for key inputs such as natural gas, electricity and
diesel. In the event these cost increases exceed price
increase mechanisms this could have an adverse effect
on our business prospects and results of operations.
The Corporation’s Credit Facility is subject to floating
interest rates and, therefore, is subject to fluctuations in
interest rates which are beyond the Corporation’s control.
Increases in interest rates, both domestically and inter-
nationally, could negatively affect the Corporation’s cost
of financing its operations and investments.
The duration and full financial effects of the COVID-19
pandemic, geopolitical events and rising interest rates,
continue to be uncertain at this time. The Corporation
is managing ongoing risks through the Corporation’s
business continuity plan and other mitigating measures.
Any estimate of the length and severity of these develop-
ments is therefore 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 pandemic,
geopolitical events and rising interest rates 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.
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.
Lease Term
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.
56
WE ARE DEPENDABLE.
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.
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. LINEN IN SERVICE
Linen in Service
($ Thousands of CDN dollars)
2022
2021
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.
Provisions
Balance, beginning of year
Additions
Amortization charge
Effect of movement
in exchange rates
Balance, end of year
31,340
31,946
(31,337)
(566)
31,549
27,878
(27,921)
(166)
31,383
31,340
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.
57
7. PROPERT Y, PL ANT & EQUIPMENT
($ 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, 2021
Opening net book amount
Additions(2)(3)(4)
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
At December 31, 2021
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
Year Ended, December 31, 2022
Opening net book amount
Additions(2)(3)(4)
Change in asset retirement obligation
Disposals
Transfers
Assets classified as held for sale(5)
Depreciation charge
Effect of movement in exchange rates
Closing net book amount
4,039
-
-
-
-
(652)
-
(75)
3,312
58,210
59
-
-
-
(44)
(5,977)
(530)
51,718
108,062
10,357
-
(13)
7
-
(10,876)
(652)
106,885
222
106
-
-
(7)
-
(93)
(8)
220
7,904
8,477
-
(3,473)
-
-
(3,076)
(214)
9,618
298
292
-
-
-
-
(267)
-
323
128
(434)
-
-
-
(3,477)
(16)
33,045 1,746 213,526
19,538
119
(434)
-
(3,486)
-
-
-
(696)
-
(23,766)
-
(1,497)
(2)
29,246 1,863 203,185
At December 31, 2022
Cost
Accumulated impairment losses
Accumulated depreciation
Net book amount
3,312
-
-
3,312
77,804
(207)
(25,879)
51,718
208,434
(2,113)
(99,436)
106,885
1,303
-
22,322
(5)
(1,083) (12,699)
9,618
220
3,688
(14)
(3,351)
323
59,873 1,863 378,599
-
(2,339)
-
(30,627)
- (173,075)
29,246 1,863 203,185
1 Included in laundry equipment are assets under development in the amount of $181 (2021 - $4,616). 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 to be paid, with amounts remaining in accounts payable and accrued liabilities of $697 (2021 - $873).
3 Additions include amounts from the Canadian Division of $10,598 (2021 - $26,287) and from the UK Division of $8,940 (2021 - $2,683).
4 Includes ROUA additions from the Canadian Division of $1,691 (2021 - $16,135), comprised of buildings of $0 (2021 - $15,205) and vehicles of $1,691 (2021 - $930). From the UK Division, ROUA
additions were $6,800 (2021 - $2,152), comprised of buildings of $0 (2021 - $1,594) and vehicles of $6,800 (2021 - $558). This has resulted in corresponding increases to the lease liabilities in
the amount of $1,691 (2021 - $16,135) for the Canadian Division and $6,800 (2021 - $2,152) for the UK Division.
5 Assets classified as held for sale are comprised of land and a building in Cupar, Scotland. The asset is currently marketed for sale, and it is anticipated to be sold during fiscal 2023.
58
WE ARE DEPENDABLE.
8. INTANGIBLE ASSETS
($ Thousands of CDN dollars,
except share and per share amounts)
Healthcare
Relationships
Hospitality
Relationships
Computer
Software
Brand
Total
77
-
(39)
-
38
19,200
(19,162)
38
38
-
(36)
-
2
19,200
(19,198)
2
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
Year Ended, December 31, 2022
2,325
-
(2,181)
(144)
-
343
88
(85)
-
346
At December 31, 2022
22,715
(22,715)
-
1,375
(1,029)
346
4,345
-
-
(62)
4,283
4,283
-
4,283
4,283
-
-
(203)
4,080
4,080
-
4,080
9,980
360
(3,237)
(114)
6,989
47,629
(40,640)
6,989
6,989
88
(2,302)
(347)
4,428
47,370
(42,942)
4,428
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
9. G OOD WILL
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)
Calgary
Edmonton Vancouver 2
Vancouver 1
Victoria
Canadian
Division
UK
Division
Total
Gross amount of goodwill
Changes due to movement
in exchange rates
Accumulated impairment
8,082
-
4,346
-
-
-
3,413
-
-
2,630
-
3,208
-
21,679
-
18,100
153
39,779
153
-
1,700
1,700
-
1,700
Balance at January 1, 2022
8,082
4,346
3,413
2,630
1,508
19,979
18,253
38,232
Changes due to movement
in exchange rates
Balance at December 31, 2022
-
-
-
-
-
-
(864)
(864)
8,082
4,346
3,413
2,630
1,508
19,979
17,389
37,368
59
2022 ANNUAL REPORT
10. PROVISIONS
The Corporation's provision includes a current provision
of $279 (2021 - $703) to recognize restructuring costs,
and a long-term provision of $2,382 (2021 - $2,811) 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, 2022 to be $3,203 (2021
- $3,032). Management has estimated the present value of
this obligation at December 31, 2022 to be $2,382 (2021 -
$2,811 ) using an inflation rate of 2.0% (2021 – 1.80%) and
pre-tax weighted average risk-free interest rate of 3.30% to
4.07% (2021 - 0.91% to 1.66%) 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, 2022, if actual costs were to differ by
10% from management's estimate the obligation would
be an estimated $266 (2021 - $351) higher or lower. It is
possible the estimated costs could change and changes
to these estimates could have a significant effect on the
Corporation's consolidated financial statements.
The Corporation recorded the following provision activity
during the year:
($ 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 rates
Balance, end of year
Current portion
Non-current portion
Balance, beginning of year
Charges against provisions
Adjustments/settlement
Changes due to movement in exchange rates
Balance, end of year
Current portion
Non-current portion
For Year Ended, December 31, 2022
703
-
(424)
-
279
279
-
For Year Ended, December 31, 2021
884
-
(181)
-
703
703
-
2,811
39
(434)
(34)
2,382
-
2,382
2,789
57
(26)
(9)
2,811
-
2,811
-
-
-
-
-
-
-
-
-
-
-
-
-
-
3,514
39
(858)
(34)
2,661
279
2,382
3,673
57
(207)
(9)
3,514
703
2,811
60
WE ARE DEPENDABLE. 11. LONG-TERM DEBT
($ Thousands of CDN dollars)
Prime Rate Loan (1)
At January 1, 2021
Net repayment of debt
Closing balance at December 31, 2021
At January 1, 2022
Net proceeds from debt
Closing balance at December 31, 2022
40,657
(2,684)
37,973
37,973
(7,193)
45,166
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, 2026. 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, 2022 the combined interest rate was 6.95%
(December 31, 2021 – 2.70%).
On July 18, 2022, the Corporation completed an amendment
to its existing revolving credit facility, which extended the
agreement from July 31, 2024 to July 31, 2026.
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, 2022 and December 31, 2021.
The Corporation has a revolving credit facility of up to
$100,000 plus a $25,000 accordion of which $47,002 is
utilized (including letters of credit totaling $1,836) as at
December 31, 2022. Interest payments only are due during
the term of the facility.
Drawings under the revolving credit facility are available by
way of Bankers’ Acceptances, Canadian prime rate loans,
Libor of UK pounds based loans, letters of credit or standby
letters of guarantee. Drawings under the revolving credit
facility bear interest at a floating rate, plus an applicable
margin based on certain financial performance ratios.
A general security agreement over all assets, a mortgage
against all leasehold interests and real property, insurance
policies and an assignment of material agreements have
been pledged as collateral.
The carrying value of borrowings approximate their fair
value as the debt is based on a floating rate, the interest
rate risk has not changed, and the impact of discounting is
not significant.
The Corporation has incurred no events of default under the
terms of its credit facility agreement.
12. FINANCE EXPENSE
($ Thousands of CDN dollars)
Interest on long-term debt
Lease interest expense
Accretion expense
Other charges, net
2022
1,757
2,070
39
1,114
4,980
2021
818
2,144
57
430
3,449
61
2022 ANNUAL REPORT
13. LEA SES
A) AMOUNTS RECOGNIZED IN THE BALANCE SHEET
The balance sheet reflects the following amounts relating to leases:
($ Thousands of CDN dollars, except share and per share amounts)
December 31, 2022
December 31, 2021
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:
37,348
9,429
46,777
43,992
9,665
53,657
(9,615)
44,042
-
8,491
8,491
42,632
7,731
50,363
48,865
8,074
56,939
(9,206)
47,733
16,799
1,488
18,287
($ Thousands of CDN dollars, except share and per share amounts)
December 31, 2022
December 31, 2021
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
4,913
2,990
7,903
2,070
26
9,493
4,620
2,903
7,523
2,144
26
9,338
62
WE ARE DEPENDABLE.
C) RECONCILIATION OF EXPECTED LEASE LIABILITIES
($ Thousands of CDN dollars, except share and per share amounts)
December 31, 2022
December 31, 2021
Lease liabilities
Balance at January 1,
Right-of-use asset additions
Right-of-use asset disposals
Interest expense
Cash payment of lease payments
Effect of movement in exchange rates
Total lease liabilities
14. INCOME TAXES
56,939
8,491
(3,679)
2,070
(9,467)
(697)
53,657
A reconciliation of the expected income tax expense to the actual income tax expense is as follows:
($ Thousands of CDN dollars, except share and per share amounts)
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
2022
1,441
1,441
144
(47)
97
46,003
18,287
-
2,144
(9,312)
(183)
56,939
2021
3,662
3,662
150
(24)
126
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, except share and per share amounts)
Earnings before income taxes
Non-taxable items
Income subject to tax
Income tax at statutory rate of 25.39% (2021 - 25.48%)
Difference between Canadian and foreign tax rates
Impact of substantively enacted rates and other
Income tax expense
2022
5,444
(933)
4,511
1,146
351
41
1,538
2021
12,480
(1,878)
10,602
2,702
524
562
3,788
63
2022 ANNUAL REPORT The analysis of the deferred tax assets and deferred tax liabilities is as follows:
($ Thousands of CDN dollars, except share and per share amounts)
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
2022
(16,904)
(16,904)
25,608
5,450
31,058
14,154
2021
(17,236)
(17,236)
26,010
5,326
31,336
14,100
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, except share and per share amounts)
Lease Liabilities
Provisions
Offering Costs & Other
Total
Deferred tax assets:
At January 1, 2021
Charged (credited) to the statement of earnings
Related to movements in exchange rates
At December 31, 2021
Charged (credited) to the statement of earnings
Related to movements in exchange rates
At December 31, 2022
(10,825)
(3,662)
42
(14,445)
716
154
(13,575)
(548)
(11)
-
(559)
57
-
(502)
(1,477)
(779)
24
(2,232)
(683)
88
(2,827)
(12,850)
(4,452)
66
(17,236)
90
242
(16,904)
($ Thousands of CDN dollars, except share and per share amounts)
Linen in
Service
Property, Plant
& Equipment
Intangible Assets
& Goodwill
LTIP &
Other
Total
Deferred tax liabilities:
At January 1, 2021
Charged (credited) to the statement of earnings
Related to movements in exchange rates
At December 31, 2021
Charged (credited) to the statement of earnings
Related to movements in exchange rates
At December 31, 2022
5,636
(310)
-
5,326
124
-
5,450
19,496
4,804
(66)
24,234
311
(198)
24,347
1,382
86
(24)
1,444
(428)
(87)
929
334
(2)
-
332
-
-
332
26,848
4,578
(90)
31,336
7
(285)
31,058
The Company has $11,200 of UK trading loss carry-forwards the benefit of which has been reflected in these financial
statements. For tax purposes, these losses are deductible against future UK profits. These losses do not expire.
64
WE ARE DEPENDABLE.
15. CONTINGENCIES &
COMMITMENTS
A) CONTINGENCIES
The Corporation has standby letters of credit issued as
part of normal business operations in the amount of $1,836
(December 31, 2021 – $2,389) which will remain outstanding
for an indefinite period of time.
Grievances for unspecified damages were lodged against
the Corporation in relation to labor matters. The Corporation
has disclaimed liability and is defending the actions. It is
not practical to estimate the potential effect of these griev-
ances, but legal advice indicates that it is not probable that
a significant liability will arise.
B) COMMITMENTS
Utility Commitments
The Corporation was committed to estimated natural gas
and electricity commitments for the next five calendar
years and thereafter as follows:
Utility commitments ($ Thousands of CDN dollars)
Linen Purchase Commitments
At December 31, 2022, the Corporation was committed
to linen expenditure obligations in the amount of $10,161
(December 31, 2021 – $12,075) to be incurred within the
next year.
Property, Plant & Equipment Commitments
At December 31, 2022, the Corporation was committed to
capital expenditure obligations in the amount of $2,341
(December 31, 2021 – $445) 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 objec-
tives. 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, 2022, the
Corporation held trust funds on deposit in the amount of
$964 (2022 – $814).
11,958
10,781
2,358
1,495
-
-
26,592
2023
2024
2025
2026
2027
Subsequent
16. SHARE CAPITAL
A) AUTHORIZED
The Corporation is authorized to issue an unlimited number of common shares and such number of shares of one class
designated as preferred shares which number shall not exceed 1/3 of the common shares issued and outstanding from
time to time.
B) ISSUED
($ Thousands of CDN dollars, except share and per share amounts)
Balance, beginning of year
Common shares issued under LTI
Common shares forfeited under LTI
Balance, end of year
2022
10,719,778
55,362
(1,950)
10,773,190
2021
10,676,889
42,889
-
10,719,778
Unvested common shares held in trust for LTI
64,552
78,632
65
2022 ANNUAL REPORT
17. EARNINGS PER SHARE
A) BASIC
Basic earnings per share is calculated by dividing the net earnings attributable to equity holders of the Corporation by the
weighted average number of ordinary shares in issue during the year.
($ Thousands of CDN dollars, except share and per share amounts)
Net earnings
Weighted average number of shares outstanding (thousands)
Net earnings per share, basic
2022
3,906
10,658
0.37
2021
8,692
10,609
0.82
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
18. LONG-TERM INCENTIVE PL AN
2022
2021
10,657,742
77,527
10,735,269
10,608,539
77,648
10,686,187
3,906
10,735
0.36
8,692
10,686
0.81
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.
($ Thousands of CDN dollars)
Balance, beginning of year
Issued during year
Forfeited during year
Vested during year
Balance, end of year
2022
Unvested
78,632
37,172
(1,950)
(49,302)
64,552
2022
Vested
595,660
18,190
-
49,302
663,152
2021
Unvested
79,423
29,331
-
(30,122)
78,632
2021
Vested
551,980
13,558
-
30,122
595,660
The cost of the 64,552 (2021 – 78,632) unvested Common shares held by the LTIP Account at December 31, 2022 was $0 (2021 - $0).
66
WE ARE DEPENDABLE.
19. DIVIDENDS TO SHAREHOLDERS
During the year ended December 31, 2022, the Corporation declared total dividends to shareholders of $12,905 or $1.200
per share (2021 - $12,846 or $1.200 per share).
The Corporation’s policy is to pay dividends to Shareholders of its available cash to the maximum extent possible consistent
with good business practice considering requirements for capital expenditures, working capital, growth capital and other
reserves considered advisable by the Directors of the Corporation. All such dividends are discretionary. Dividends are
declared payable each month to the Shareholders on the last business day of each month and are paid by the 15th day of
the following month.
20. NET CHANGE IN NON-CASH W ORKING CAPITAL ITEMS
Years Ended, December 31,
($ Thousands of CDN dollars, except share and per share amounts)
Accounts receivable
Linen in service
Prepaid expenses and deposits
Accounts payable and other liabilities(1)
Income taxes payable / receivable
2022
(1,248)
(536)
(2,037)
1,713
(3,513)
(5,621)
2021
(8,819)
(788)
(284)
4,841
(660)
5,710
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 2022 - ($424) and in
2021 - ($181), 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 2022 ($176) and 2021 $561.
21. FINANCIAL INSTRUMENTS
C) PRICE RISK
Currency Risk
A) FAIR VALUE
The Corporation’s financial instruments at December
31, 2022 and 2021 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, 2022, a strengthening or weakening of $0.01 of the
Canadian dollar to the U.S. dollar with all other variables
67
2022 ANNUAL REPORT
held constant could have a favorable or unfavorable
impact of approximately $1, respectively, on net earnings.
Based on financial instrument balances as at December
31, 2022, 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 $93, respectively, on
other comprehensive loss.
Interest Rate Risk
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.
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 $452 (2021 -
$380) to net earnings.
Other Price Risk
The Corporation’s exposure to other price risk is limited
since there are no significant financial instruments which
fluctuate as a result of changes in market prices.
D) CREDIT RISK
The Corporation has financial assets that are subject to
the expected credit loss model. The Corporation’s financial
assets that are exposed to credit risk consist of cash and
cash equivalents and accounts receivable. The Corporation,
in the normal course of business, is exposed to credit risk
from its customers.
Management believes that the risks associated with concen-
trations of credit risk with respect to accounts receivable
are limited due to the generally short payment terms, and
Accounts Receivable
The Corporation applies the IFRS 9 simplified approach to
measuring expected credit losses which uses a lifetime
expected loss allowance for all trade receivables and
contract assets.
To measure the expected credit losses, trade receivables
have been grouped based on shared credit risk charac-
teristics and the days past due. The expected loss rates
are based on the payment profiles of sales over a period
of 60 months before December 31, 2022 or January 1,
2022 respectively and the corresponding historical credit
losses experienced within this period. The historical loss
rates are adjusted to reflect current and forward-looking
information on macroeconomic factors affecting the
ability of the customers to settle the receivables. The
Corporation has identified the GDP and the unemploy-
ment rate of the countries in which it provides services
to be the most relevant factors, and accordingly adjusts
the historical loss rates based on expected changes in
these factors.
On that basis, the loss allowance as at December 31, 2022
and 2021 was determined as follows for trade receivables:
($ Thousands of CDN dollars, except share and per share amounts)
December 31, 2022
Current
1 to 60 days
61 to 90 days
Greater than 90 days
December 31, 2021
Current
1 to 60 days
61 to 90 days
Greater than 90 days
Gross
Allowance
27,986
8,145
1,324
450
37,905
-
-
-
144
144
Gross
Allowance
24,132
10,419
1,322
1,117
36,990
-
-
-
143
143
Net
27,986
8,145
1,324
306
37,761
Net
24,132
10,419
1,322
974
36,847
68
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, except share and per share amounts)
Opening loss allowance at January 1,
Adjustments made during the year
Recoveries (Write-offs)
Effect of movements in exchange rates
Balance, end of year
E) LIQUIDITY RISK
Years Ended, December 31,
2022
2021
143
(10)
11
-
144
267
(87)
(35)
(2)
143
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
2023
Payments Due by Year
2024 to 2025
2026 to 2027
Subsequent
Long-term debt
Lease liabilities
Utility commitments
Linen purchase obligations
Property, plant and equipment commitments
45,166
61,172
26,592
10,161
2,341
-
10,236
11,958
10,161
2,341
-
17,188
13,139
-
-
45,166
12,799
1,495
-
-
-
20,949
-
-
-
The Corporation has a credit facility with a maturity date of
July 31, 2026 (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.
22. CAPITAL MANAGEMENT
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.
69
2022 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.
Years Ended, December 31,
2022
45,166
1,836
176,542
223,544
(2,636)
220,908
2021
37,973
2,389
186,401
226,763
(1,110)
225,653
During 2022 and 2021, remuneration to directors and key
management personnel was as follows:
($ Thousands of CDN dollars)
2022
2021
Years Ended, December 31,
Salaries and retainer fees
Short-term bonus incentives
Post-employment benefits
Share-based payments
1,802
1,007
63
1,399
4,271
1,872
993
64
1,521
4,450
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, 2022, the Corporation
incurred such fees totaling $72 (2021– $138).
($ Thousands of CDN dollars, except share and per share amounts)
Long-term debt, including current portion
Issued and outstanding letters of credit
Shareholders’ equity
Less: Cash and cash equivalents
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.
23. REL ATED PART Y
TRANSACTIONS
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.
70
WE ARE DEPENDABLE.
24. EXPENSES BY NATURE
($ Thousands of CDN dollars)
2022
2021
Years Ended, December 31,
Wages and benefits
Linen
Utilities
Delivery
Materials and supplies
Occupancy costs
Repairs and maintenance
Other expenses
130,971
31,337
23,754
23,050
13,522
4,727
10,419
2,351
240,131
100,617
27,921
13,547
14,564
10,782
4,052
7,695
2,023
181,201
During the year ended December 31, 2022, wages and benefits
reflected in the table above includes an offset of government
grants recognized in the year of $0 (2021 - $3,746).
25. SEGMENTED INFORMATION
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 pharmaceu-
tical, through five 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, 2031. For the year ended December
31, 2022, from these three major customers the Corporation
has recorded revenue of $130,360 (2021 – $116,865), repre-
senting 47.1% (2021 – 52.2%) of total revenue.
($ Thousands of CDN dollars)
2022
2021
Healthcare
Hospitality
Canadian division
Healthcare
Hospitality
UK division
167,239
44,796
212,035
6,167
58,421
64,588
60.4%
16.2%
76.6%
2.3%
21.1%
23.4%
159,938
23,135
183,073
6,613
34,306
40,919
71.4%
10.3%
81.7%
3.0%
15.3%
18.3%
Total segment revenue
276,623
100.0%
223,992
100.0%
71
2022 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, except share and per share amounts)
Canadian Division
UK Division
Total
2022
Net earnings (loss)
EBITDA
2021
Net earnings (loss)
EBITDA
6,042
32,365
(2,136)
4,127
Canadian Division
UK Division
13,604
39,678
(4,912)
3,113
3,906
36,492
Total
8,692
42,791
The Canadian division net earnings includes non-cash employee share based compensation expense of $1,788 (2021 – $1,848).
Segment Assets
Segment assets are measured in the same way as in the financial statements. These assets are allocated based on the
operations of the segment and the physical location of the asset.
The Corporation’s cash and cash equivalents are not considered to be segment assets but are managed by the treasury function.
($ Thousands of CDN dollars, except share and per share amounts)
At December 31, 2022
Canadian Division
UK Division
Total assets
Other:
Cash and cash equivalents
Total segment assets
249,604
(27)
249,577
76,156
(2,609)
73,547
At December 31, 2021
Canadian Division
UK Division
Total assets
Other:
Cash and cash equivalents
Total segment assets
254,225
-
254,225
78,294
(1,110)
77,184
Total
325,760
(2,636)
323,124
Total
332,519
(1,110)
331,409
72
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 except share and per share amounts)
At December 31, 2022
Total liabilities
Other:
Long-term debt (note 11)
Total segment liabilities
At December 31, 2021
Total liabilities
Other:
Long-term debt (note 11)
Total segment liabilities
Canadian Division
UK Division
127,038
(45,166)
81,872
22,180
-
22,180
Canadian Division
UK Division
123,109
(37,973)
85,136
23,009
-
23,009
Total
149,218
(45,166)
104,052
Total
146,118
(37,973)
108,145
26. IMPAIRMENT OF ASSETS
i) The Corporation performed its annual assessment for
goodwill impairment for the Canadian division and for the
UK division as at December 31, 2022 and December 31,
2021 in accordance with its policy described in Note 2(k)
and Note 2(h). The Corporation also performed impair-
ment assessments for CGUs where there could be a risk
of impairment due to the presence of potential impair-
ment indicators at the CGU level.
For both periods, the recoverable amount for the CGUs
was assessed using an earnings multiple approach. If the
result of the earnings multiple approach indicated a higher
level of sensitivity a probability weighted discounted cash
flow approach was performed. The Corporation refer-
ences Board approved budgets and cash flow forecasts,
trailing twelve-month EBITDA, implied multiples and
discount rates in the valuation calculations.
Earnings multiple approach (FVLCD)
The assumptions used are based on the Corporation’s
board approved budgets, cash flow forecasts, trailing
twelve-month EBITDA and the implied multiples. For both
fiscal years, cash flows were projected based on actual
results for the fiscal year tested as well as business
forecasts for the immediate fiscal year following the
testing period and then extrapolated for revenue growth
and expected changes in the general economy and
specific markets within which the CGU operates.
The implied multiple is calculated by utilizing the average
multiples of comparable public companies. The Corporation
used an implied average forward multiple of 10.60 (2021
- 10.80) to calculate the recoverable amounts. Where
a CGU has sufficient headroom a probability weighted
discounted cash flow approach was not performed.
Where a CGU shows sensitivity to the earnings multiple
approach, particularly those CGUS with a strong hospi-
tality base, higher uncertainty as a result of COVID-19 or
higher uncertainty due to geopolitical events or unusu-
ally competitive labour markets, a secondary test in
performed based on a probability-weighted discounted
cash flow approach.
Probability weighted discounted cash flow (VIU)
The recoverable amounts are determined using the value-
in-use (“VIU”) approach which considers the probability
weighted discounted future cash flows specific to each
CGU tested.
The assumptions used are based on the Corporation’s
board approved budgets, cash flow forecasts, trailing
twelve-month EBITDA, the pre-tax discount rate and
terminal value growth rate. For both fiscal years, cash
flows were projected based on actual results for the
fiscal year tested as well as business forecasts for the
immediate fiscal year following the testing period and
then extrapolated for revenue growth and expected
changes in the general economy and specific market
within which the CGU operates.
73
2022 ANNUAL REPORT
The discounted cash flows consider the specifics environment within which each of the CGUs operate. Estimating the
specific cash flows requires judgments on both past and future performance as well as overall market expectations. The
calculation of the recoverable amount using the discounted cash flow was based on the following key assumptions:
Testing Methodology
December 31, 2022
Pre-tax Discount Rate
December 31, 2022
Terminal Value Growth Rate
December 31, 2022
December 31, 2021
Calgary
Edmonton
Vancouver 2*
Vancouver 1
Victoria*
UK
FVLCD
FVLCD
FVLCD
FVLCD
FVLCD
VIU
n/a
n/a
n/a
n/a
n/a
15.4%
n/a
n/a
n/a
n/a
n/a
2.0%
n/a
n/a
2.0%
n/a
2.0%
2.0%
* For the year ended December 31, 2021, these CGUs were tested using the VIU methodology.
For the December 31, 2022 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 8% to 12 % for 2023, 7% for 2024 with
sales returning to normalized levels thereafter with
sales growth estimates used 2%. These represent the
Corporation’s best estimate of cash flows over the
forecast period.
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%.
The terminal value growth rate is based on manage-
ment's best estimate of the long-term growth rate for
its CGUs after the forecast period, considering historic
performance and future economic forecasts.
Based on testing performed at December 31, 2022 and
December 31, 2021 no impairment was determined to exist.
ii) Recoverable Amount
The recoverable amount of each CGU is sensitive to
changes in the market conditions which could result in
material changes. The Corporation does not believe there
is a reasonable change in the key assumptions that would
cause the recoverable amount of any CGU to break even
or have an impairment. The table below shows the sensi-
tivity of key assumptions to a reasonable change.
Recoverable Amount
Change in Pre-tax Discount
Rate Increase of 1%
Change in Terminal Value
Growth Rate Decrease of 1%
December 31, 2022
December 31, 2021
December 31, 2022
December 31, 2021
December 31, 2022
December 31, 2021
Calgary
Edmonton
Vancouver 2*
Vancouver 1
Victoria*
UK
n/a
n/a
n/a
n/a
n/a
£50,261
n/a
n/a
$31,176
n/a
$8,290
£53,083
n/a
n/a
n/a
n/a
n/a
-£4,201
n/a
n/a
-$3,152
n/a
-$770
-£4,915
n/a
n/a
n/a
n/a
n/a
-£4,458
n/a
n/a
-$2,818
n/a
-$834
-£4,988
* For the year ended December 31, 2021, these CGUs were tested using the VIU methodology.
74
WE ARE DEPENDABLE.
27. G OVERNMENT GRANTS
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,
2022, the Corporation submitted claims of $0.0 (2021
- $921.0) under the CEWS program, with $0.0 (2021 -
$0.0) outstanding in receivables on the Corporation’s
Consolidated Statements of
financial position at
December 31, 2022.
· 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
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 $0 (2021 - $810) is reflected as a contract
liability on the Corporation’s Consolidated Statements
of financial position at December 31, 2022.
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, 2022, the Corporation submitted claims of £0.0 ($0.0)
(2021 - £1,627 ($2,826)) under the CJRS program with
£0.0 ($0.0) (2021 - £0.0 ($0.0)) outstanding in receivables
on the Corporation’s Consolidated Statements of finan-
cial position at December 31, 2022.
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,
2022, $0 (2021 - $3,746) of government grants were offset to
operating expenses which includes, wages and benefits of
$0 (2021 - $2,633), delivery of $0 (2021 - $864), and corpo-
rate costs of $0 (2021 - $249).
During the year ended December 31, 2022, $810 (2021 –
$855) of the deferred linen service credit was recognized
in revenue such that the closing balance of $0 (2021 - $810)
is reflected as a contract liability on the Corporation’s
Consolidated Statements of financial position at December
31, 2022.
28. SUBSEQUENT EVENTS
A) DIVIDENDS
The Corporation’s Board of Directors declared an eligible
dividend of $0.10 per Common share of the Corporation
payable on each of February 15, March 15, and April 14,
2023 to Shareholders of record on January 31, February 28,
and March 31, 2023, respectively.
A) BUSINESS ACQUISITION
The March 2, 2023, the Corporation announced the closing
of a share purchase agreement to acquire all the assets of
a private laundry and linen services company incorporated
in Canada and operating in Quebec City, Quebec for total
consideration of $11,500 and a potential earnout of $1,900.
The acquisition will be accounted for using the acquisi-
tion method, whereby the purchase consideration will be
allocated to the net assets acquired. Paranet is a private
laundry and linen services company for the Quebec City
healthcare and hospitality markets. The purchase price will
be satisfied by drawing down on the Corporation’s revolving
credit facility. At the time the financial statements were
authorized for issue, and due to the timing of the acquisi-
tion, the Corporation has not yet completed the accounting
for the acquisition of Paranet.
75
2022 ANNUAL REPORT CORPORATE
I N F O R M AT I O N
BOARD OF DIRECTORS
ELISE REES
Audit Committee Chair
FCA, FCPA, ICD.D.
MATTHEW HILLS, MBA
STEVEN MATYAS, BSC
Compensation
Committee Chair
LINDA MCCURDY, MBA
President & CEO
K-Bro Linen Systems Inc.
MICHAEL PERCY, PHD
Board Chair
EXECUTIVE OFFICERS
LINDA MCCURDY, MBA
President & CEO
SEAN CURTIS
Senior VP & COO
KRISTIE PLAQUIN, CPA, CA
Chief Financial Officer
TRANSFER AGENT
& REGISTRAR
TSX Trust Company
Calgary, Alberta
AUDITORS
Pricewaterhouse
Coopers LLP
Edmonton, Alberta
LEGAL COUNSEL
Stikeman Elliott
Toronto, Ontario
PRINCIPAL BANK
TD Bank
Edmonton, Alberta
STOCK EXCHANGE
LISTING
TSX: KBL
CANADA LOCATIONS
CORPORATE OFFICE
P 780 453 5218
F 780 455 6676
14903 - 137 Ave
Edmonton, AB T5V 1R9
VANCOUVER 1
KEVIN STEPHENSON
General Manager
P 604 420 2203
F 604 420 2313
#401 - 8340
Fraser Reach Court,
Burnaby, BC V3N 0G2
CALGARY
JEFF GANNON
General Manager
P 403 724 9001
F 403 720 2959
6969 – 55 St SE
Calgary, AB T2C 4Y9
REGINA
BARB LEWIS
General Manager
P 06 757 5276
F 306 757 5280
730 Dethridge Bay
Regina, SK S4N 6H9
MONTRÉAL
P 450 378 3187
F 450 378 8245
599, Rue Simonds
Sud Granby, QC J2J 1C1
VICTORIA
ANDREW MACKEEN
General Manager
P 250 474 5699
F 250 474 5680
861 Van Isle Way
Victoria, BC V9B 5R8
VANCOUVER 2
RYO UTAHARA
General Manager
P 604 681 3291
F 604 685 1458
8035 Enterprise Street
Burnaby, BC V5A 1V5
EDMONTON
TREVOR RYE
General Manager
P 780 451 3131
F 780 452 2838
15223 – 121 A Ave
Edmonton, AB T5V 1N1
TORONTO
JAMES EWART
General Manager
QUÉBEC
DIMITRI HAMM
Directeur Général
P 416 233 5555
F 416 233 4434
6045 Freemont Blvd
Mississauga, ON L5R 4J3
P 418 661 6163
F 418 661 4000
367 Boulevard DesChutes,
Québec City, QC G1E 3G1
UK LOCATIONS
HEAD OFFICE
P 01334654033
Edenfields,
Cupar Trading Estate
Cupar, Fife, KY154SX
CUPAR
JOE MCDONAGH
General Manager
P 01334655220
Prestonhall Industrial
Estate, Cupar, Fife,
KY154RD
PERTH
KELLY FOX
General Manager
P 01738210106
Inveralmond Industrial
Estate, Ruthvenfield
Avenue, Perth, PH13UF
LIVINGSTON
ALAN JOHNSTON
General Manager
P 01506426816
2 Gregory Road, Kirkton
Campus, Livingston,
EH547DR
COATBRIDGE
AMY LIDDELL
General Manager
P 01236449010
18 Palacraig Street,
Coatbridge, ML54RY
NEWCASTLE
STEVE BRUMBILL
General Manager
P 01916053106
Unit L4, Intersect 19,
High Flatworth, Tyne
Tunnel Industrial Estate,
North Shields, NE297UT
INQUIRIES@K-BROLINEN.COM
76
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K-BROLINEN.COM