We are
dependable.
T A B L E O F C O N T E N T S
1
President’s Message
4
Chairman’s Message
5
Officers & Directors
7
Financial Highlights
9
Management’s Discussion & Analysis
36
Consolidated Financial Statements
1
P R E S I D E N T ’ S
M E S S A G E
2023 was a key year for K-Bro, one in which we put the worst effects of the
pandemic behind us. We realized significant increases in volume, revenue,
EBITDA, and EPS. We were particularly pleased to see these operating and
financial improvements in our Canadian and UK businesses, and we saw increases
in our healthcare and hospitality businesses. In addition to the improvement in
our operating results, we completed two strategic acquisitions to strengthen our
businesses in Québec City and Montréal.
Our balance sheet remains strong, with capacity to continue
to finance growth opportunities. We financed both of our
2023 acquisitions with our credit line. We also began our
NCIB share buyback program in May, and continued the
buyback through to the end of the year and into 2024.
Most importantly, we have entered 2024 expecting continued
growth and profitability. In addition to organic growth
opportunities, we are continuing to consider Canadian and
UK acquisition growth opportunities that are strategically
complementary and accretive to our existing businesses.
We know the pandemic has been difficult for so many
people, including our customer and employees. While our
financial results came under pressure, our company is in a
good position to continue our recovery and to grow, and we
are appreciative of your continuing confidence and support.
We will continue to work hard to provide excellent service
to our many customers, a healthy and fulfilling career for
our three thousand employees in Canada and the UK, and
strong results for our shareholders.
We wish you a good 2024.
Our 2023 highlights included:
· Revenue of $321mm, a 16% increase from 2022
· EBITDA of $56.8 mm, a 55.7% increase
· EPS of $1.64, a 355.6%% increase
Linda McCurdy
2023 Annual Report
2
We Are Dependable. 3
2023 Annual Report 4
C H A I R M A N ’ S
M E S S A G E
K-Bro turned a corner in 2023, with our financial
and operating performance showing significant
improvement after so many pandemic-related
challenges. We had significant organic growth,
and completed two important acquisitions in
our existing Québec City and Montréal markets.
We are pleased to have begun our share buyback efforts in May, while
maintaining the ability to continue funding growth. Our balance sheet is
strong, our cash flow generation is solid, and we enter 2024 with optimism
about both our Canadian and UK markets.
K-Bro never stops striving every day to provide the highest-quality service
to our customers. On behalf of the K-Bro Board and all of our employees,
we appreciate your confidence and never take it for granted. We will
continue working hard to do what is best for our customers, employees
and shareholders, and we look forward to a bright 2024 and beyond.
Michael Percy
We Are Dependable.
5
K-Bro is the largest healthcare & hospitality
laundry & linen processor in Canada, &
with the acquisition of Fishers we are now
one of the largest in the UK & Europe.
We operate 15 facilities and two distribution centers,
including 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.
2023 Annual Report 6
S E A N C U R T I S , K R I S T I E P L A Q U I N , M I C H A E L P E R C Y , E L I S E R E E S ,
S T E V E N M A T Y A S , M A T T H E W H I L L S , R Y O U T A H A R A , T R E V O R R Y E ,
S C O T T I N G L I S , M I C H A E L J O N E S , L U C Y R E N A U T , B E N O I T L A U R E N T ,
D I M I T R I H A M M , B A R B L E W I S , K E V I N S T E P H E N S O N ,
J A M E S E W A R T , A N D R E W M A C K E E N , J E F F G A N N O N , L I N D A M C C U R D Y
We Are Dependable. 7
Financial
Highlights
The following unaudited financial data has been derived from K-Bro’s consolidated financial
statements, which have been audited by PricewaterhouseCoopers LLP. The information set
forth below should be read in conjunction with the Management’s Discussion & Analysis,
Consolidated Financial Statements and Notes sections of this Annual Report.
REVENUE UP
16.0%
EBITDA UP
55.7%
325
300
275
250
225
200
175
56
52
48
44
40
36
32
28
24
($)
2019
2020
2021
2022
2023
($)
2019
2020
2021
2022
2023
(In millions of Canadian dollars) Years ended December 31
(In millions of Canadian dollars) Years ended December 31
1 The COVID-19 pandemic caused world governments to institute travel restrictions both in and out of and within Canada and the UK, which has had an adverse impact on the Corporation’s
hospitality business. The COVID-19 pandemic has also contributed to unusually competitive labour markets, causing inefficiencies in attracting, training and retaining employees. In addition
to this, certain geopolitical events and other factors resulted in rising and unstable commodity costs for key inputs such as natural gas, electricity and diesel. The combination of all these
events has had a negative impact to consolidated EBITDA in 2020, 2021 and 2022.
2023 Annual Report 8
Years ended December 31,
2023
2022
2021
2020
2019
Income Statement Data
Revenue
EBITDA
EBITDA (%)
Net earnings
Net earnings per share (Diluted)
Balance Sheet Data
Working capital
Long-term debt
Other Financial Data
Distributable cash per share
Payout ratio (%)
Price to earnings multiple (12 months trailing)
Price to EBITDA multiple (12 months trailing)
Return on shareholders’ equity (ROE)(%)
Total shareholder return, YTD (%)
Total shareholder return, 5 yrs (%)
Market capitalization
Share price:
High
Low
Close
320,884
56,806
17.7
17,607
1.64
41,382
70,247
3.04
39.8
20.1
6.2
10.1
25.3
7.3
350,971
35.7
27.0
33.0
276,623
36,492
13.2
3,906
0.37
223,992
42,791
19.1
8,692
0.81
196,591
38,244
19.5
3,782
0.36
252,410
47,573
18.8
10,906
1.03
36,635
45,166
30,271
37,973
27,922
40,657
31,021
62,494
1.81
65.9
73.8
8.0
2.2
16.7
0.4
294,108
36.0
27.6
27.3
2.57
46.8
42.2
8.5
4.7
9.2
2.7
366,616
47.2
33.4
34.2
2.94
40.9
93.0
10.8
2.3
4.5
6.7
416,078
46.4
23.7
39.0
2.80
51.1
40.8
9.3
5.6
29.3
5.7
445,914
43.2
32.7
42.1
($ Thousands of CDN dollars, except percentages and per share data)
We Are Dependable.
9
M A N A G E M E N T ' S
D I S C U S S I O N &
A N A L Y S I S
12
Introduction
13
Strategy
14
Fourth Quarter Overview
14
Selected Annual Financial Information
15
Summary of Results & Key Events
20
Outlook
21
Results of Operations
27
Liquidity & Capital Resources
2023 Annual Report 10
29
Dividends
30
Distributable Cash Flow
30
Outstanding Common Shares
31
Related Party Transaction
31
Critical Accounting Estimates
31
Terminology
33
New Accounting Pronouncements Adopted
33
Recent Accounting Pronouncements
34
Critical Risks & Uncertainties
35
Controls & Procedures
We Are Dependable. 11
Management’s Discussion &
Analysis of Financial Condition
& Results of Operations
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, 2023 and 2022 (the “2023 Audited Financial
Statements”), as well as the unaudited interim condensed
consolidated financial statements for the periods ended
March 31, 2023, June 30, 2023 and September 30, 2023. The
Corporation and its wholly owned subsidiaries, including
K-Bro Linen Systems Inc., Para Net Buanderie & Nettoyage
a Sec Inc., Buanderie Villeray Limitée, 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, 2024.
In the interest of providing current holders (“Shareholders”)
of common shares of K-Bro Linen Inc. (“Common Shares”)
and potential investors with information regarding current
results and future prospects, our public communications
often include written or verbal forward looking statements.
Forward looking statements are disclosures regarding
possible events, conditions, or results of operations that
are based on assumptions about future economic condi-
tions and courses of action, and include future oriented
financial information.
This MD&A contains forward looking information that
represents internal expectations, estimates or beliefs
concerning, among other things, future activities or future
operating results and various components thereof. The use
of any of the words “anticipate”, “continue”, “expect”, “may”,
“will”, “project”, “should”, “believe”, and similar expres-
sions suggesting future outcomes or events are intended to
identify forward looking information. Statements regarding
such forward looking information reflect management’s
current beliefs and are based on information currently
available to management.
These statements are not guarantees of future performance
and are based on management’s estimates and assump-
tions that are subject to risks and uncertainties, which could
cause K-Bro’s actual performance and financial results in
future periods to differ materially from the forward-looking
information contained in this MD&A. These risks and uncer-
tainties include, among other things: (i) risks associated
with acquisitions, including (a) the possibility of undisclosed
material liabilities, disputes or contingencies, (b) challenges
or delays in achieving synergy and integration targets, (c)
the diversion of management’s time and focus from other
business concerns and (d) the use of resources that may
be needed in other parts of our business; (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 and
the risks associated with maintaining short term contracts;
(v)
(vi)
increased capital expenditure requirements;
reliance on key personnel; (vii) changing trends in govern-
ment outsourcing; (viii) changes or proposed changes to
minimum wage laws in Ontario, British Columbia, Alberta,
Québec, Saskatchewan and the United Kingdom (the “UK”);
(ix) the availability and terms of future financing; (x) textile
demand; (xi) availability and access to labour; (xii) rising
wage rates in all jurisdictions the Corporation operates and
(xiii) interest rate and foreign currency risk. Material factors
or assumptions that were applied in drawing a conclusion
or making an estimate set out in the forward-looking infor-
mation 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; and (v) the
level of capital expenditures. Although the forward-looking
information contained in this MD&A is based upon what
management believes are reasonable assumptions, there
can be no assurance that actual results will be consistent
with these forward-looking statements. Certain state-
ments regarding forward-looking
included
in this MD&A may be considered “financial outlook” for
purposes of applicable securities laws, and such financial
outlook may not be appropriate for purposes other than
this MD&A. Forward looking information included in this
MD&A includes the expected annual healthcare revenues
to be generated from the Corporation’s contracts with 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.
information
2023 Annual Report 12
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 Accounting Standards and, therefore,
are considered non GAAP measures. These measures may
not be comparable to similar measures presented by other
issuers. Please see “Terminology” for further discussion.
Introduction
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 of England. K-Bro and its wholly
owned subsidiaries operate across Canada and the UK,
providing a range of linen services to healthcare institu-
tions, hotels and other commercial accounts that include
the processing, management and distribution of general
linen and operating room linen.
in Canada
The Corporation’s operations
include ten
processing facilities and two distribution centres under two
distinctive brands: K-Bro Linen Systems Inc. and Buanderie
HMR. 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.
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.
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
industry. Service
relationships are generally formalized through contracts
in the healthcare sector that are typically long term (from
five to ten years), while contracts in the hospitality sector
usually range from two to five years.
this
We Are Dependable.
13
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.
Strategy
In 2023, K-Bro communicated its long-term sustainability
strategy which prioritizes putting people first, supporting
its partners and environmental stewardship. The strategy
focuses on three pillars: People; Partners; and Planet,
and builds on the Corporation’s vision of delivering indus-
try-leading service while embracing its responsibilities to
society as a good corporate citizen – supporting the commu-
nities in which it operates, being a great place to work and a
dependable partner for all its stakeholders.
People - Foster a customer-centric culture, take care of
people, embrace diversity, and ensure K-Bro is a great
place to work.
Partners - Be dependable, exemplify responsible business
practices, support
local communities, and anticipate
evolving trends.
Planet - Operate responsibly, prioritize energy efficiency,
embrace best management practices, and support environ-
mental stewardship across the supply chain.
K-Bro maintains the following three part growth focus:
Secure and Maintain Long-Term Contracts with Large
Healthcare and Hospitality Customers – K-Bro's core
service is providing high quality laundry and linen
services at competitive prices to large healthcare and
hospitality customers under long term contracts. K-Bro's
contracts in the healthcare sector typically range from
five to ten years in length. Contracts in the hospitality
sector typically range from two to five years.
Extend Core Services to New Markets – Management has
demonstrated its ability to successfully expand K-Bro's
business into new markets from its established bases.
Since 2005, K-Bro has entered four new geographic
markets across Canada, and in late 2017 entered into the
UK market. These new markets have contributed signifi-
cantly to K-Bro's growth. Management believes that new
outsourcing opportunities will continue to arise in the
near to medium term and that K-Bro is well positioned
for continued growth, particularly as healthcare and
hospitality institutions continue to increase their focus
on core services and confront pressures for capital and
cost savings.
Management may in the future expand its core services
to new markets either through acquisitions or by estab-
lishing new facilities. Its choice of areas for expansion will
depend on the availability of suitable acquisition candi-
dates, the volume of healthcare and hospitality linen to
be processed and the policies of applicable governments.
Introduce Related Services – In addition to focusing on its
core services, the Corporation also attempts to capitalize
on attractive business opportunities by
introducing
closely related services that enable it to provide more
complete solutions to K-Bro's healthcare and hospitality
customers. These related service offerings include K-Bro
Operating Room services and on site services. K-Bro
performs the sterilization of operating room linen packs
for nine major hospitals in Toronto and the four health
authorities in the Vancouver area.
2023 Annual Report
14
Fourth Quarter
Overview
Net earnings for the fourth quarter of 2023 were $4.2
million or $0.40 per Common Share (basic). Cash flow from
operating activities was $7.8 million and distributable cash
flow was $7.2 million. Consolidated revenue for the fourth
quarter of 2023 increased to $82.5 million or by 16.7%
compared to 2022, primarily related to the impact of price
increases implemented to offset inflation-related costs, as
well as stronger hospitality client activity combined with the
continued strength of healthcare revenues and the acquisi-
tion of Paranet and Villeray during 2023 (see “Key Events”).
EBITDA (see “Terminology”) increased in the fourth quarter
2023 to $14.3 million or by 63.6% compared to $8.7 million
in 2022. On a consolidated basis, EBITDA margin increased
to 17.3% in 2023 from 12.3% in 2022.
Adjusted EBITDA (see “Terminology”) increased in the fourth
quarter 2023 to $13.3 million or by 52.8% compared to $8.7
million in 2022. On a consolidated basis, adjusted EBITDA
margin increased to 16.2% in 2023 from 12.3% in 2022.
For the Canadian division, the EBITDA margin the fourth
quarter increased to 18.6% in 2023 from 14.2% in 2022.
The increase in margin is primarily related to the impact
of stronger client activity, price increases across various
markets serviced, labour efficiencies, and delivery route
optimization combined with reduced fuel rates. The increase
in EBITDA margin was also due to the gain on settlement
of contingent consideration. This relates to the derecogni-
tion of contingent consideration for the Paranet acquisition
since it will not be paid out. This gain is a non-cash item
outside of core operations.
For the Canadian division, the Adjusted EBITDA margin the
fourth quarter increased to 17.1% in 2023 from 14.2% in
2022. The increase in margin is primarily related to stronger
client activity, the impact of price increases across various
markets serviced, labour efficiencies, and delivery route
optimization combined with reduced fuel rates.
For the UK division, in the fourth quarter, the EBITDA margin
increased to 13.2% in 2023 from 6.0% in 2022. The improve-
ment in EBITDA margin is primarily related to the impact of
stronger client activity, price increases, increased produc-
tivity, and delivery cost efficiencies. Adjusted EBITDA was
consistent with EBITDA in the UK for both 2023 and 2022.
Selected Annual
Financial Information
Years Ended December 31,
($ Thousands of CDN
dollars, except percentages
and per share amounts)
Canadian
UK
Division Division
2023
2023
Revenue
EBITDA(1)
Adjusted EBITDA(2)
Net earnings (loss)
241,129
44,699
43,754
12,584
79,755
12,107
12,107
5,023
2023
320,884
56,806
55,861
17,607
Canadian
UK
Division Division
2022
2022
Canadian
UK
Division Division
2021
2021
212,035
32,365
32,365
6,042
64,588
4,127
4,127
(2,136)
2022
276,623
36,492
36,492
3,906
183,073
39,678
39,678
13,604
40,919
3,113
3,113
(4,912)
2021
223,992
42,791
42,791
8,692
Net earnings (loss) per share:
Basic
Diluted
1.180
1.172
0.471
0.468
1.651
1.640
0.567
0.563
(0.200)
(0.199)
0.366
0.364
1.282
1.273
(0.463)
(0.460)
0.819
0.813
Total assets
Long-term debt (excludes lease liabilities)
364,716
70,247
325,760
45,166
332,519
37,973
Weighted average number of shares outstanding:
Basic
Diluted
10,663,949
10,733,256
10,657,742
10,735,269
10,608,539
10,686,187
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 Adjusted EBITDA (as defined below) is defined as EBITDA (defined above) with the exclusion of certain material items that are unusual in nature, infrequently occurring or not considered part of our
core operations. See “Terminology” for a complete description of the adjusted items.
We Are Dependable.
15
Summary of 2023 Results
& Key Events
KEY EVENTS IN OUR MARKETS
ARE SUMMARIZED BELOW
ACQUISITION OF BUANDERIE PARANET
On March 1, 2023 the Corporation completed the acquisi-
tion of 100% of the share capital of Buanderie Para-Net
(“Paranet”) operating as Paranet (the “Paranet Acquisition”),
a private laundry and linen services company operating in
Québec City, Québec. The Paranet Acquisition was completed
through a share purchase agreement consisting of existing
working capital, fixed assets, contracts and an employee
base. The contracts acquired are in the Québec healthcare
and hospitality sector, which complements the existing
business of the Corporation. Based on the Corporation’s
evaluation of the Paranet Acquisition and the criteria in the
identification of a business combination established in IFRS
3, the Paranet Acquisition has been accounted for using the
acquisition method, whereby the purchase consideration is
allocated to the fair values of the net assets acquired.
The Corporation financed the Paranet Acquisition and
transaction costs from existing loan facilities.
The purchase price allocated to the net assets acquired,
based on their estimated fair values, is as follows:
($ Thousands, except percentages)
2022
2023
Cash consideration
Contingent consideration
Total purchase price
11,074
945
12,019
Net earnings were $17.6 million or $1.65 per Common
Share (basic). Cash flow from operating activities was
$41.0 million and distributable cash flow was $32.4 million.
Revenue increased in fiscal 2023 to $320.9 million or by
16.0% compared to 2022. Consolidated revenue for the
fourth quarter of 2023 increased to $82.5 million or by 16.7%
compared to 2022, primarily related to price increases
implemented in 2023, as well as stronger hospitality client
activity combined with the continued strength of healthcare
revenues and the acquisition of Paranet and Villeray (see
“Key Events”).
EBITDA (see “Terminology”) increased in 2023 to $56.8
million or by 55.7% compared to $36.5 million in 2022. On a
consolidated basis, EBITDA margin increased from 13.2% in
2022 to 17.7% in 2023.
Adjusted EBITDA (see “Terminology”) increased in 2023 to
$55.9 million or by 53.1% compared to $36.5 million in 2022.
On a consolidated basis, EBITDA margin increased from
13.2% in 2022 to 17.4% in 2023.
For the Canadian division, the EBITDA margin increased to
18.5% in 2023 from 15.3% in 2022. The increase in margin
is primarily related to impact of price increases across
various markets serviced, the completion of the AHS transi-
tion, operating efficiencies, and lower delivery costs. The
lower delivery costs are attributable to the optimization of
high frequency routes combined with reduced fuel rates.
The increase in EBITDA margin was also due to the gain
on settlement of contingent consideration. This relates
to the derecognition of contingent consideration for the
Paranet acquisition since it will not be paid out. This gain is
a non-cash item outside of core operations.
For the Canadian division, the Adjusted EBITDA margin
increased to 18.1% in 2023 from 15.3% in 2022. The increase
in margin is primarily related to impact of price increases
across various markets serviced, the completion of the AHS
transition, operating efficiencies, and lower delivery costs.
The lower delivery costs are attributable to the optimization
of high frequency routes combined with reduced fuel rates.
For the UK division, the EBITDA margin increased to 15.2%
in 2023 from 6.4% in 2022. The increase in EBITDA margin
is primarily related to the impact of price increases and
increased productivity. In addition, the natural gas hedge
put into place during 2022, lower fuel rates and delivery
cost efficiencies contributed to the margin growth.
Adjusted EBITDA was consistent with EBITDA in the UK for
both 2023 and 2022.
2023 Annual Report
16
The assets and liabilities recognized as a result of the
Paranet Acquisition are as follows:
Acquisition Related Costs
($ Thousands, except percentages)
2022
2023
Net Assets Acquired:
Accounts receivable
Prepaid expenses and deposits
Linen in service
Accounts payable and accrued liabilities(2)
Lease liabilities
Deferred income taxes
Property, plant and equipment(1,2)
Intangible assets
Net identifiable assets acquired
Goodwill
Net assets acquired
1,317
137
970
(1,552)
(1,176)
(1,474)
6,142
2,450
6,814
5,205
12,019
1 Includes ROUA from the Canadian Division of $1,176 comprised of buildings of $964 and ve-
hicles of $212
2 Includes provision of $219 for asset retirement obligation
The provisional intangible assets acquired are made up
of $2,450 for the customer contracts along with related
relationships and customer lists. The goodwill is attribut-
able to the workforce, and the efficiencies and synergies
created between the existing business of the Corporation
and the acquired business. Goodwill will not be deductible
for tax purposes.
Contingent Consideration
In the event that a certain EBITDA target was achieved by
Paranet for the twelve month period ended August 31, 2023,
additional undiscounted consideration of up to $1,890 would
have been payable in cash during the fourth quarter of 2023.
While performance was in-line with expectations, the target
was not achieved; therefore, no payment was made.
During the first three quarters of 2023, the estimated fair
value of the possible payment was classified as contingent
consideration. The fair value of the contingent consider-
ation was estimated by considering the probability-adjusted
future expected cash flows in regards to Paranet achieving
the target that would result in consideration being paid.
The impact of discounting these future cash flows was not
considered because the impact would be nominal. Given that
the EBITDA target was not achieved for the twelve month
period ended August 31, 2023, the contingent consider-
ation amount of $945 has been derecognized and a gain on
settlement of contingent consideration has been recorded
in Consolidated Statement of Earnings and Comprehensive
Income for the twelve months ended December 31, 2023.
For the twelve months ended December 31, 2023, $274 in
professional fees associated with the Paranet Acquisition
has been included in Corporate expenses.
Revenue and Profit Information
The acquired business contributed revenues of $7,819 to the
Corporation for the period from March 1, 2023 to December
31, 2023. If the Paranet Acquisition had occurred on January
1, 2023, consolidated pro-forma revenue for the period
ended December 31, 2023 would have been $322,209.
The acquired business contributed a net deficit of ($316)
to the Corporation for the period from March 1, 2023 to
December 31, 2023. If the Paranet Acquisition had occurred
on January 1, 2023, consolidated pro-forma net income
for the period ended December 31, 2023 would have been
$17,591.
These amounts have been calculated using Paranet’s
results and adjusting them for differences in the accounting
policies between the Corporation and Paranet as it pertains
to property, plant and equipment. The Corporation follows
the requirements of IFRS Accounting Standards whereas
Paranet previously reported under Canadian Accounting
Standards for Private Enterprises (ASPE), the additional
depreciation and amortization that would have been charged
assuming the fair value adjustments to property, plant and
equipment and intangible assets had applied from January
1, 2023, together with the consequential tax effects.
ACQUISITION OF VILLERAY
On November 1, 2023, the Corporation completed the
acquisition of 100% of the share capital of Buanderie
Villeray and its affiliate Buanderie La Relance (the “Villeray
Acquisition”), a private laundry and linen services company
incorporated in Canada and operating in Montréal, Québec.
The Villeray Acquisition was completed through a share
purchase agreement consisting of existing working capital,
fixed assets, customer relationships and an employee
base. Villeray operates in the hospitality and healthcare
sector, which complements the existing business of the
Corporation. As part of the transaction, the Corporation
closed its Granby facility and consolidated existing volumes
into Villeray. Based on the Corporation’s evaluation of the
Villeray Acquisition and the criteria in the identification of
a business combination established in IFRS 3, the Villeray
Acquisition has been accounted for using the acquisition
method, whereby the purchase consideration is allocated to
the fair values of the net assets acquired.
The Corporation financed the Villeray Acquisition and trans-
action costs from existing loan facilities.
We Are Dependable.
17
The purchase price allocated to the net assets acquired,
based on their estimated fair values, is as follows:
($ Thousands, except percentages)
2022
2023
Cash consideration
Contingent consideration
Total purchase price
11,204
500
11,704
The assets and liabilities recognized as a result of the
Villeray Acquisition are as follows:
($ Thousands, except percentages)
2022
2023
Net Assets Acquired:
Accounts receivable
Prepaid expenses and deposits
Income tax receivable
Accounts payable and accrued liabilities(2)
Lease liabilities
Deferred income taxes
Property, plant and equipment(1,2)
Intangible assets
Net identifiable assets acquired
Goodwill
Net assets acquired
1 Includes ROUA from the Canadian Division of $2,706 related to buildings
2 Includes provision of $97 for asset retirement obligation
907
187
69
(807)
(2,706)
(1,416)
7,161
2,530
5,925
5,779
11,704
The provisional intangible assets acquired are made up
of $2,530 related to customer relationships. The goodwill
is attributable to the workforce, and the efficiencies and
synergies created between the existing business of the
Corporation and the acquired business. Goodwill will not be
deductible for tax purposes.
Contingent Consideration
The estimated fair value of payment has been classi-
fied as contingent consideration by exercising significant
judgment as to whether it should be classified as such, or
as renumeration to the former owner, who will be employed
subsequent to the close of the transaction. The Corporation
has determined by considering all relevant factors included
in the agreements as it pertains to employment terms,
valuation of the business, and other relevant terms that the
additional consideration is most appropriately reflected as
contingent consideration.
In the event that a certain EBITDA target is achieved by
Villeray for the twelve month period ended October 31, 2024,
additional undiscounted consideration ranging from $500 to
$1,000 will be payable in cash during the first quarter of
2025. The potential undiscounted amount payable within
the agreement will only be paid should the EBITDA target
be achieved. Should the EBITDA target not be achieved, no
payment will be made.
The fair value of the contingent consideration of $500 was
estimated by considering the probability-adjusted future
expected cash flows in regards to Villeray achieving the
target that would result in consideration being paid. The
impact of discounting those future cash flows was not
considered because the impact would be nominal.
Since the estimated future cash flows and probability of
achieving the EBITDA target are an unobservable input, the
fair value of the contingent consideration is classified as a
level 3 fair value measurement.
Acquisition Related Costs
For the year ended December 31, 2023, $414 in profes-
sional fees associated with the Villeray Acquisition has been
included in Corporate expenses.
Revenue and Profit Information
The acquired business contributed revenues of $1,602 to
the Corporation for the period from November 1, 2023 to
December 31, 2023. If the Villeray Acquisition had occurred
on January 1, 2023, consolidated pro-forma revenue for the
year ended December 31, 2023 would have been $329,021.
If both the Paranet Acquisition and Villeray Acquisition
had occurred on January 1, 2023, consolidated pro-forma
revenue for the year ended December 31, 2023 would have
been $330,346.
The acquired business contributed a net deficit of ($201) to
the Corporation for the period from November 1, 2023 to
December 31, 2023, inclusive of Granby transition related
costs. If the Villeray Acquisition had occurred on January
1, 2023, consolidated pro-forma net income for the period
ended December 31, 2023 would have been $17,721.
These amounts have been calculated using Villeray’s
results and adjusting them for differences in the accounting
policies between the Corporation and Villeray as it pertains
to property, plant and equipment. The Corporation follows
the requirements of IFRS Accounting Standards whereas
Villeray previously reported under Canadian Accounting
Standards for Private Enterprises (ASPE), the additional
depreciation and amortization that would have been charged
assuming the fair value adjustments to property, plant and
equipment and intangible assets had applied from January
1, 2023, together with the consequential tax effects.
2023 Annual Report
18
NORMAL COURSE ISSUER BID
ECONOMIC CONDITIONS
On May 15, 2023, the Corporation announced its intention to
proceed with a normal course issuer bid (NCIB) to purchase
up to 881,481 of its common shares (“Shares”) through the
TSX and / or alternative Canadian trading systems, repre-
senting approximately 10% of the public float of 8,814,816
shares as at May 9, 2023, during the twelve-month period
commencing May 18, 2023 and ending May 17, 2024.
During the year ended December 31, 2023, the Corporation
repurchased and cancelled 199,062 common shares (2022
– nil) for $6,496 under the NCIB, net of transaction costs of
$1 which were recorded in share capital. The average share
price was $32.63, with prices ranging from $30.48 to $35.53.
The Corporation recorded a financial liability of $3,967 related
to the NCIB due to the automatic share repurchase plan for
purchases that could be made from January 1 to March 22,
2024. During the blackout period, no changes can be made
as it pertains to the automated share repurchase plan.
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.
REVOLVING CREDIT FACILITY
On August 31, 2023, the Corporation completed an amend-
ment to its existing revolving credit facility to extend the
agreement from July 31, 2026 to July 31, 2027, as previ-
ously amended on July 18, 2022. In addition, the agree-
ment expanded the revolving credit facility from $100,000
to $125,000 plus a $25,000 accordion. The Corporation’s
incremental borrowing rate under its existing credit facility
is determined by the Canadian prime rate plus an appli-
cable margin based on the ratio of Funded Debt to EBITDA
as defined in the credit agreement. During fiscal 2022
and 2023, the Canadian prime rate increased from 3.70%
in January 2022 to 6.95% in June 2023, and in July 2023 it
increased to 7.20%.
CAPITAL INVESTMENT PLAN
For fiscal 2024, the Corporation’s planned capital spending is
expected to be between $15.0 and $17.0 million on a consol-
idated basis, including the expenditures associated with the
Villeray acquisition. This guidance includes both strategic
and maintenance capital requirements to support existing
base business in both Canada and the UK. 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.
Since 2020, due to changing government restrictions to
mitigate the ongoing COVID-19 pandemic, supply chain
disruption, geopolitical events impacting key inputs such as
natural gas, electricity and diesel and inflationary impacts
to labour and materials the Corporation has faced varying
degrees of financial impact within Canada and the UK.
The COVID-19 pandemic has also contributed to unusu-
ally competitive labour markets, causing inefficiencies in
attracting, training and retaining employees. While labour
markets have been stabilizing, certain regional markets
continue to experience constrained labour availability.
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.
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.
IMPAIRMENT OF ASSETS
The Corporation performed its annual impairment assess-
ment for goodwill for the Canadian division and for the UK
division as at December 31, 2023 and December 31, 2022 in
accordance with its policy described in Note 2(k) and Note 2(h).
The Corporation also performed impairment indicator assess-
ments where there was no goodwill allocated to the CGU.
For both periods, the recoverable amount for the CGUs was
assessed using an earnings multiple approach. For the
year ended December 31, 2023, if the result of the earnings
multiple approach indicated there was a possible impair-
ment, a discounted cash flow was performed.
Earnings multiple approach (Fair value less costs to
dispose, “FVLCD”)
For the years ended December 31, 2023 and 2022, the key
assumption utilized was the implied multiple. The implied
multiple is calculated by utilizing the average multiples of
comparable public companies. The Corporation used an
implied average forward multiple of 9.70 (2022 - 10.60) to
calculate the recoverable amounts. The implied multiple
was applied to the trailing twelve month EBITDA to deter-
mine the recoverable amount of the CGU and compare it to
the carrying value of the CGU.
We Are Dependable. 19
Based on the assessments performed for the year ended
December 31, 2023, no CGU had a recoverable amount
that was less than the carrying value of the CGU. A further
assessment using a discounted cash flow to determine the
value-in-use was not performed due to the headroom from
FVLCD determined using an earnings multiple approach.
Discounted cash flow (Value-in-use, “VIU”)
Where the results of the FVLCD approach indicated there
was a possible impairment, a further assessment using a
discounted cash flow was performed to determine the VIU
of each VGU identified.
For the year ended December 31, 2022, the Corporation
used probability weighted discounted cash flows and the
assumptions for those cash flows were the Corporation’s
board approved budgets, cash flow forecasts, trailing
twelve-month EBITDA, the pre-tax discount rate and
terminal value growth rate.
The probability weighted approach used for the year ended
December 31, 2022 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.
The terminal value growth rate is based on management's
best estimate of the long-term growth rate for its CGUs
after the forecast period, considering historic performance
and future economic forecasts.
The calculation of the recoverable amount was based on the
following key assumptions:
Calgary
Edmonton
Vancouver 2
Vancouver 1
Victoria
Paranet
Villeray
UK
Testing Methodology
December 31, 2022
Pre-tax Discount Rate
December 31, 2022
Terminal Value Growth Rate
December 31, 2022
FVLCD
FVLCD
FVLCD
FVLCD
FVLCD
n/a
n/a
VIU
n/a
n/a
n/a
n/a
n/a
n/a
n/a
15.4%
n/a
n/a
n/a
n/a
n/a
n/a
n/a
2.0%
Based on testing performed at December 31, 2023 and December 31, 2022, no impairment was determined to exist.
Recoverable amount
The recoverable amount of each CGU is sensitive to changes in market conditions which could result in material changes.
For the year ended December 31, 2022, where further assessment using the probability weighted discounted cash flows
was required the sensitivity of key assumptions to a reasonable change was assessed. 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 summarizes the results of the impact on key assumptions to a reasonable change.
2023 Annual Report
Recoverable Amount
December 31, 2022
Change in Pre-tax Discount
Rate Increase of 1%
December 31, 2022
Change in Terminal Value
Growth Rate Decrease of 1%
December 31, 2022
20
n/a
n/a
n/a
n/a
n/a
n/a
n/a
£50,261
n/a
n/a
n/a
n/a
n/a
n/a
n/a
-£4,201
n/a
n/a
n/a
n/a
n/a
n/a
n/a
-£4,458
Calgary
Edmonton
Vancouver 2
Vancouver 1
Victoria
Paranet
Villeray
UK
Outlook
The Corporation’s healthcare and hospitality segments
continues to experience steady growth trends. For the
healthcare segment, management expects activity levels to
remain strong from continued focus on reducing wait times
and enhancing patient care. For the hospitality segment,
management expects solid activity levels from both business
and leisure travel reflecting historical seasonal trends.
The volatility we encountered from energy prices, local
labour market shortages and cost inflation throughout the
pandemic has stabilized. In early 2022, particularly in the
UK, the Corporation faced significant volatility in energy
costs due to geopolitical issues. In April 2022, to mitigate
this instability, the Corporation locked in natural gas supply
rates in the UK until December 2024.
The Corporation also faced temporary labour inefficiencies
from unusually competitive labour markets. While labour
markets have been stabilizing, certain regional markets
continue to experience constrained labour availability.
The Corporation is managing more challenging regional
labour availability with complementary temporary foreign
worker programs and has seen positive staffing support in
this regard.
Throughout 2023, EBITDA margins have benefited from
stronger client activity, price increases that we have secured
to offset inflation-related costs, the completion of the AHS
transition, operating efficiencies, and lower delivery costs.
Going forward, management expects EBITDA margins to
follow historical seasonal trends.
With continued momentum in existing operations, manage-
ment has refocused attention on strategic acquisitions,
such as the acquisitions of Villeray and 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 other economic factors on our business, see the
“Summary of 2023 Results and Key Events”.
We Are Dependable.
21
Results of Operations
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,
Canadian
Division
2023
UK
Division
2023
51.2%
39.0%
15.9%
161.7%
161.7%
19.4%
11,712
18.6%
10,767
17.1%
3,341
2,567
13.2%
2,567
13.2%
908
($ Thousands of CDN dollars, except
percentages and per share amounts)
Category
Indicator
Growth
Profitability
Stability
EBITDA(1)
Adjusted EBITDA(2)
Revenue
Distributable cash flow(3)
EBITDA(1)
EBITDA margin
Adjusted EBITDA(2)
Adjusted EBITDA margin
Net earnings (loss)
Debt to total capital(4)
Unutilized line of credit
Cash on hand
Payout ratio
Dividends declared per share
Cost containment Wages and benefits
Utilities
Delivery
Expenses included in EBITDA
40.2%
6.0%
11.8%
81.4%
33.3%
12.6%
14.2%
86.8%
Canadian
Division
2022
UK
Division
2022
-0.6%
-0.6%
13.3%
-13.9%
-13.9%
14.5%
7,745
14.2%
7,745
14.2%
822
981
6.0%
981
6.0%
(542)
41.0%
6.8%
13.1%
85.8%
35.4%
14.3%
16.1%
94.0%
2022
-2.3%
-2.3%
13.6%
-54.2%
8,726
12.3%
8,726
12.3%
280
20.6%
52,998
2,636
106.9%
0.300
39.7%
8.5%
13.8%
87.7%
2023
63.6%
52.8%
16.7%
138.7%
14,279
17.3%
13,334
16.2%
4,249
29.4%
52,884
5,857
44.4%
0.300
38.6%
7.5%
12.4%
82.7%
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 Adjusted EBITDA (as defined below) is defined as EBITDA (defined above) with the exclusion of certain material items that are unusual in nature, infrequently occurring or not considered part of our
core operations. See “Terminology” for a complete description of the adjusted items.
3 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.
4 Debt to total capital is defined by management as the total long term debt (excludes lease liabilities) divided by the Corporation’s total capital. See “Terminology”.
2023 Annual Report
22
Canadian
Division
2023
UK
Division
2023
38.1%
35.2%
13.7%
193.4%
193.4%
23.5%
44,699
18.5%
43,754
18.1%
12,584
12,107
15.2%
12,107
15.2%
5,023
($ Thousands of CDN dollars, except
percentages and per share amounts)
Category
Indicator
Growth
Profitability
Stability
EBITDA(1)
Adjusted EBITDA(2)
Revenue
Distributable cash flow(3)
EBITDA(1)
EBITDA margin
Adjusted EBITDA(2)
Adjusted EBITDA margin
Net earnings (loss)
Debt to total capital(4)
Unutilized line of credit
Cash on hand
Payout ratio
Dividends declared per share
Cost containment Wages and benefits
Utilities
Delivery
Expenses included in EBITDA
40.2%
6.2%
11.5%
81.5%
33.3%
12.7%
13.8%
84.8%
Year Ended December 31,
Canadian
Division
2022
UK
Division
2022
-18.4%
-18.4%
15.8%
32.6%
32.6%
57.8%
32,365
15.3%
32,365
15.3%
6,042
4,127
6.4%
4,127
6.4%
(2,136)
41.2%
6.4%
12.8%
84.7%
36.4%
15.7%
15.8%
93.6%
2023
55.7%
53.1%
16.0%
65.4%
56,806
17.7%
55,861
17.4%
17,607
29.4%
52,884
5,857
39.8%
1.200
38.5%
7.8%
12.1%
82.3%
2022
-14.7%
-14.7%
23.5%
-28.8%
36,492
13.2%
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 Adjusted EBITDA (as defined below) is defined as EBITDA (defined above) with the exclusion of certain material items that are unusual in nature, infrequently occurring or not considered part of our
core operations. See “Terminology” for a complete description of the adjusted items.
3 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.
4 Debt to total capital is defined by management as the total long term debt (excludes lease liabilities) divided by the Corporation’s total capital. See “Terminology”.
We Are Dependable.
23
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)
2023
2022
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)
Adjusted EBITDA(2)
Adjusted EBITDA as a % of revenue
(Adjusted EBITDA margin)
Depreciation and amortization
Finance expense
Earnings (loss) before income taxes
Income tax expense (recovery)
Net earnings (loss)
Net earnings (loss) as a % of revenue
Basic earnings (loss) per share
Diluted earnings (loss) per share
48,451
34,013
82,464
68,185
14,279
17.3%
13,334
46,621 45,445
40,271 35,300
86,892 80,745
43,823
26,960
70,783
69,199 66,244
17,693 14,501
20.4% 18.0%
17,693 14,501
60,450
10,333
14.6%
10,333
43,963
26,708
70,671
61,945
8,726
12.3%
8,726
42,683
30,945
73,628
43,523 43,237
27,367 18,197
70,890 61,434
62,607
11,021
15.0%
11,021
61,207 54,372
9,683
7,062
13.7% 11.5%
7,062
9,683
16.2%
20.4% 18.0%
14.6%
12.3%
15.0%
13.7% 11.5%
7,298
1,732
5,249
1,000
4,249
5.2%
0.399
0.396
6,872
1,860
8,961
2,294
6,667
7.7%
0.627
0.622
6,803
1,584
6,114
1,423
4,691
5.8%
0.438
0.436
6,321
1,473
2,539
539
2,000
2.8%
0.187
0.186
6,505
1,639
582
302
280
0.4%
0.026
0.026
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)
Total assets
Total long-term financial liabilities
364,716
132,773
341,662 346,532 337,277
113,262 122,178 112,628
325,760 321,527 329,677 325,041
105,744 100,408 106,327 99,302
Funds provided by operations
Long-term debt (excludes lease liabilities)
Dividends declared per share
7,817
70,247
0.300
22,758
1,122
55,162 63,598
0.300
0.300
9,308
53,713
0.300
1,049
45,166
0.300
11,530
39,141
0.300
3,838
9,713
45,224 36,615
0.300
0.300
1 EBITDA is defined as revenue less operating expenses (which equates to net earnings before income tax, finance expense, and depreciation and amortization). See “Terminology”.
2 Adjusted EBITDA (as defined below) is defined as EBITDA (defined above) with the exclusion of certain material items that are unusual in nature, infrequently occurring or not considered part
of our core operations. See “Terminology” for a complete description of the adjusted items
2023 Annual Report 24
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)
Adjusted EBITDA(2)
Adjusted EBITDA as a % of revenue
(Adjusted EBITDA margin)
2023
2022
Q4
Q3
Q2
Q1
Q4
Q3
Q2
Q1
46,952
16,138
63,090
51,378
11,712
18.6%
10,767
44,962
18,417
63,379
43,681
15,480
59,161
42,243
13,256
55,499
50,455
12,924
20.4%
12,924
48,456
10,705
18.1%
10,705
46,141
9,358
16.9%
9,358
42,419
12,032
54,451
46,707
7,745
14.2%
7,745
41,197
13,870
55,067
41,936
11,347
53,283
46,037
9,030
16.4%
9,030
45,212
8,071
15.1%
8,071
41,687
7,547
49,234
41,715
7,519
15.3%
7,519
17.1%
20.4%
18.1%
16.9%
14.2%
16.4%
15.1%
15.3%
Net earnings
Net earnings as a % of revenue
Basic earnings per share
Diluted earnings per share
3,341
5.3%
0.314
0.311
4,169
6.6%
0.392
0.389
2,829
4.8%
0.264
0.263
2,245
4.0%
0.210
0.209
822
1.5%
0.077
0.076
2,122
3.9%
0.199
0.197
1,669
3.1%
0.157
0.156
1,429
2.9%
0.134
0.134
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 Adjusted EBITDA (as defined below) is defined as EBITDA (defined above) with the exclusion of certain material items that are unusual in nature, infrequently occurring or not considered part
of our core operations. See “Terminology” for a complete description of the adjusted items.
We Are Dependable. 25
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)
2023
2022
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)
Adjusted EBITDA(2)
Adjusted EBITDA as a % of revenue
(Adjusted EBITDA margin)
1,499
17,875
19,374
16,807
2,567
13.2%
2,567
1,659
21,854
23,513
1,764
19,820
21,584
1,580
13,704
15,284
18,744
4,769
20.3%
4,769
17,788
3,796
17.6%
3,796
14,309
975
6.4%
975
1,544
14,676
16,220
15,239
981
6.0%
981
1,486
17,075
18,561
1,587
16,020
17,607
1,550
10,650
12,200
16,570
1,991
10.7%
1,991
15,995
1,612
9.2%
1,612
12,657
(457)
-3.7%
(457)
13.2%
20.3%
17.6%
6.4%
6.0%
10.7%
9.2%
-3.7%
Net income (loss)
Net income (loss) as a % of revenue
Basic earnings (loss) per share
Diluted earnings (loss) per share
908
4.7%
0.085
0.085
2,498
10.6%
0.235
0.235
1,862
8.6%
0.174
0.173
(245)
-1.6%
(0.023)
(0.023)
(542)
-3.3%
(0.051)
(0.050)
334
1.8%
0.031
0.031
(53)
-0.3%
(0.005)
(0.005)
(1,875)
-15.4%
(0.176)
(0.175)
Quarterly Financial Information - UK Division
(in local currency Sterling £)
(Thousands, except percentages
and per share amounts)
2023
2022
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)
Adjusted EBITDA(2)
Adjusted EBITDA as a % of revenue
(Adjusted EBITDA margin)
886
10,570
11,456
9,939
1,517
13.2%
1,517
977
12,877
13,854
1,049
11,787
12,836
11,042
2,812
20.3%
2,812
10,578
2,258
17.6%
2,258
962
8,341
9,303
8,711
592
6.4%
592
967
9,200
10,167
987
11,327
12,314
1,005
10,153
11,158
912
6,267
7,179
9,553
614
6.0%
614
10,994
1,320
10.7%
1,320
10,134
1,024
9.2%
1,024
7,448
(269)
-3.7%
(269)
13.2%
20.3%
17.6%
6.4%
6.0%
10.7%
9.2%
-3.7%
Net income (loss)
Net income (loss) as a % of revenue
Basic earnings (loss) per share
Diluted earnings (loss) per share
536
4.7%
0.051
0.051
1,476
10.6%
0.139
0.138
1,108
8.6%
0.103
0.103
(151)
-1.6%
(0.014)
(0.014)
(341)
-3.3%
(0.032)
(0.032)
221
1.8%
0.021
0.020
(32)
-0.3%
(0.003)
(0.003)
(1,103)
-15.4%
(0.104)
(0.103)
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 Adjusted EBITDA (as defined below) is defined as EBITDA (defined above) with the exclusion of certain material items that are unusual in nature, infrequently occurring or not considered part
of our core operations. See “Terminology” for a complete description of the adjusted items.
2023 Annual Report 26
REVENUE, EARNINGS & EBITDA
OPERATING EXPENSES
For the year ended December 31, 2023, K-Bro’s consolidated
revenue increased by 16.0% to $320.9 million from $276.6
million in the comparative period. This increase was primarily
due to increased client activity in the hospitality segment,
the impact of price increases across various markets to
offset inflation-related costs and the acquisitions of Paranet
and Villeray. In 2023, approximately 57.5% of K-Bro’s consol-
idated revenue was generated from healthcare institutions,
which is lower compared to 62.7% in 2022. The change in
revenue mix is primarily related to the increased activity in
the hospitality segment due to an uptick in leisure travel and
the business travel recovery in certain markets.
Consolidated EBITDA increased in the year to $56.8 million
from $36.5 million in 2022, which is a increase of 55.7%.
The consolidated EBITDA margin increased to 17.7% in
2023 compared to 13.2% in 2022. The increase in margin
is primarily related the impact of price increases imple-
mented, as well as increased productivity and delivery route
optimization coupled with lower fuel costs. The increase in
EBITDA margin was also due to the gain on settlement of
contingent consideration. This relates to the derecognition
of contingent consideration for the Paranet acquisition since
it will not be paid out. This gain is a non-cash item outside of
core operations.
Consolidated adjusted EBITDA increased in the year to $55.9
million from $36.5 million in 2022, which is a increase of
53.1%. The consolidated EBITDA margin increased to 17.4%
in 2023 compared to 13.2% in 2022. The increase in margin
is primarily related the impact of price increases imple-
mented, as well as increased productivity and delivery route
optimization coupled with lower fuel costs.
Net earnings increased by $13.7 million or 350.8% from $3.9
million in 2022 to $17.6 million in 2023, and net earnings as
a percentage of revenue increased by 4.1% to 5.5% in 2023
from 1.4% in 2022. The change in net earnings is primarily
related to the flow through items in EBITDA discussed. In
addition, the derecognition of contingent consideration for
Paranet resulted in a non-recurring gain of $0.9 million.
Wages and benefits increased by $12.4 million to $123.4
million compared to $111.0 million in the comparative
period of 2022, and as a percentage of revenue decreased
by 1.6 percentage points to 38.5%. The decrease as a
percentage of revenue is primarily related to the impact
of price increases secured across various markets and
labour efficiencies achieved.
Linen increased by $1.7 million to $33.0 million compared
to $31.3 million in the comparative period of 2022, and
as a percentage of revenue decreased by 1.0 percentage
points to 10.3%. The decrease as a percentage of revenue
is primarily related to the changes to the mix of linen and
higher hospitality volumes processed compared to the
prior year.
Utilities increased by $1.3 million to $25.1 million compared
to $23.8 million in the comparative period of 2022, and
as a percentage of revenue decreased by 0.8 percentage
points to 7.8%. The decrease as a percentage of revenue is
primarily related to the impact of price increases secured,
the UK natural gas hedge which was put in place during
Q2 2022.
Delivery
increased by $1.4 million to $38.7 million
compared to $37.3 million in the comparative period of
2022, and as a percentage of revenue decreased by 1.4
percentage points to 12.1%. The decrease as a percentage
of revenue is primarily related to the optimization of
high-frequency routes, resulting in delivery cost efficien-
cies as well as lower fuel prices.
Occupancy costs increased by $0.9 million to $5.4 million
compared to $4.5 million in the comparative period of
2022, and as a percentage of revenue remained relatively
constant at 1.7%. The increase in spending is largely
related to increased facility rent as well as costs associ-
ated with the Granby facility transition to Villeray.
We Are Dependable. 27
Materials and supplies increased by $1.2 million to $12.1
million compared to $10.9 million in the comparative
period of 2022, and as a percentage of revenue remained
relatively constant at 3.8%.
Repairs and maintenance increased by $2.4 million to
$12.8 million compared to $10.4 million in the comparative
period of 2022, and as a percentage of revenue remained
relatively constant at 4.0%.
Corporate costs increased by $3.4 million to $14.4 million
compared to $11.0 million in the comparative period of
2022, and as a percentage of revenue increased by 0.5
percentage points to 4.5%. The increase as a percentage of
revenue is primarily related to financing costs, compliance
related advisory and professional fees along with acquisi-
tion related costs for Villeray and Paranet.
Gain on settlement of contingent consideration relates
to the derecognition of the contingent consideration for
Paranet since it will not be paid out. The derecognition
of this liability resulted in a non-recurring gain which is
non-cash in nature.
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.
Liquidity &
Capital Resources
In 2023, cash generated by operating activities was $41.0
million with a debt to total capitalization of 29.4%. The
change in cash from operations is primarily due to the
change in working capital items driven from timing of
business activity, including the timing of cash receipts from
customers.
includes working
The Corporation’s capital structure
capital, a committed revolving credit facility and share
capital. We continuously monitor actual and forecast cash
flows and monitor the availability on our committed credit
facility. Management believes the unutilized balance of
$52.9 million with respect to its revolving credit facility is
sufficient for the Corporation’s operations in the foresee-
able future. However, management intends to continually
assess its opportunities to maintain a conservative amount
of leverage and balance sheet flexibility in the short and
long term basis in order to ensure that sufficient capital is
available for future growth needs.
During 2023, cash used in financing activities was $3.7
million compared to $13.1 million in 2022. Financing activ-
ities consisted of net proceeds from the revolving credit
facility, dividends paid to Shareholders, principal elements
of lease payments, and the repurchase of shares under the
Normal Course Issuer Bid.
During 2023, cash used in investing activities was $34.3
million compared to $11.4 million in 2022. The increase in
investing activities is primarily related to the acquisitions of
Villeray and Paranet. Investing activities are also related to
the purchase of plant equipment.
2023 Annual Report 28
CONTRACTUAL OBLIGATIONS
Payments due under contractual obligations for the next five years and thereafter are as follows:
($ Thousands of CDN dollars)
Total
2024
Payments Due by Year
2025 to 2026
2027 to 2028
Subsequent
Long-term debt
Lease liabilities
Utility commitments
Linen purchase obligations
Property, plant and equipment commitments
70,247
58,914
15,599
9,434
9,396
-
11,811
11,278
9,434
9,396
-
18,104
4,321
-
-
70,247
13,635
-
-
-
-
15,364
-
-
-
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, 2023. 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)
2023
2022
Cash and cash equivalents
Long-term debt
(excludes lease liabilities)
Shareholders’ equity
Total capital
Debt to total capital
(see Terminology for definition)
(5,857)
70,247
(2,636)
45,166
174,431
238,821
29.4%
176,542
219,072
20.6%
For the period ended December 31, 2023, the Corporation
had a debt to total capital of 29.4%, unused revolving credit
facility of $52.9 million and has not incurred any events of
default under the terms of its credit facility.
As at December 31, 2023, the Corporation had net working
capital of $41.4 million compared to its working capital
position of $36.6 million at December 31, 2022. The increase
in working capital is primarily attributable to the timing
of cash receipts from customers and the timing of linen
purchases, as well as the acquisition of Paranet and Villeray.
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.
We Are Dependable.
29
Dividends
Fiscal Period
Payment Date
# of Shares
Outstanding
Amount
Per Share
2023
Total Amount
(1)(3)(5)(7)
2022
Amount
Per Share
Total Amount
(2)(4)(6)(8)
February 15
March 15
April 14
May 15
June 15
July 14
August 15
September 15
October 14
November 15
December 15
January 13
10,773,190
10,773,190
10,773,190
10,773,190
10,820,662
10,781,779
10,768,585
10,761,089
10,731,707
10,701,629
10,669,747
10,635,473
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
1,077
1,077
1,077
3,231
1,077
1,082
1,078
3,237
1,078
1,077
1,073
3,228
1,070
1,067
1,063
3,200
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
1.20000
12,896
1.20000
12,905
1 The total amount of dividends declared was $0.10000 per share for a total of $1,077,319 per month for January - March 2023; when rounded in thousands, $3,231 of dividends were declared in Q1 2023.
2 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.
3 The total amount of dividends declared was $0.10000 per share for a total of $1,077,319 for April 2023, $1,082,066 for May 2023, and $1,078,178 for June 2023. When rounded in thousands,
$3,237 of dividends were declared in Q2 2023.
4 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.
5 The total amount of dividends declared was $0.10000 per share for a total of $1,076,859 for July 2023, $1,076,109 for August 2023, and $1,073,171 for September 2023. When rounded in
thousands, $3,228 of dividends were declared in Q3 2023.
6 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.
7 The total amount of dividends declared was $0.10000 per share for a total of $1,070,163 for October 2023, $1,066,975 for November 2023, and $1,063,547 for December 2023. When rounded in thousands,
$3,201 of dividends were declared in Q4 2023.
8 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.
For the year ended December 31, 2023, the Corporation
declared a $1.200 per Common Share dividend compared to
$3.037 per Common Share of Distributable Cash Flow (see
“Terminology”). The actual payout ratio was 39.8%.
by the Board of Directors. All such dividends are discre-
tionary. Dividends are declared payable each month in equal
amounts to Shareholders on the last business day of each
month and are paid by the 15th of the following month.
The Corporation’s policy is to pay dividends to Shareholders
from its available distributable cash flow while considering
requirements for capital expenditures, working capital,
growth capital and other reserves considered advisable
The Corporation designates all dividends paid or deemed
to be paid as Eligible Dividends for purposes of subsection
89(14) of the Income Tax Act (Canada), and similar provin-
cial and territorial legislation, unless indicated otherwise.
2023 Annual Report
30
Distributable Cash Flow
(see Terminology) (all amounts in this section in $000s except per share amounts and percentages)
The Corporation’s source of cash for dividends is distributable cash flow provided by operating activities. Distributable cash flow,
reconciled to cash provided by operating activities as calculated under IFRS Accounting Standards, is presented as follows:
($ Thousands of CDN dollars, except
percentages and per share amounts)
2023
2022
Q4
Q3
Q2
Q1
Q4
Q3
Q2
Q1
Cash provided by operating activities
7,817
22,758
1,122
9,308
1,049
11,530
3,838
9,713
Deduct (add):
Net changes in non-cash working capital items(1)
Share-based compensation expense
Maintenance capital expenditures(2)
Principle elements of lease payments
(3,448)
410
1,103
2,547
8,344 (11,615)
443
1,143
2,340
438
379
2,360
606
505
936
2,144
(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
Distributable cash flow
7,205
11,237
8,811
5,117
3,019
7,534
5,440
3,579
Dividends declared
Dividends declared per share
Payout ratio(3)
3,200
0.300
44.4%
3,228
0.300
28.7%
3,237
0.300
36.7%
3,231
0.300
63.1%
3,227
0.300
106.9%
3,234
0.300
42.9%
3,228
0.300
59.3%
3,216
0.300
89.9%
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)
10,510
10,645
10,706
10,707
10,675
10,659
10,650 10,641
10,588
10,729
10,760
10,733
10,751
10,750
10,716 10,703
32,370
12,896
39.8%
28,184
12,923
45.9%
24,481
12,929
52.8%
21,110
12,920
61.2%
19,572
12,905
65.9%
23,148
12,894
55.7%
23,502 25,675
12,875 12,859
50.1%
54.8%
1 Net change 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.
Outstanding Shares
As at December 31, 2023, the Corporation had 10,635,473
Common Shares outstanding. Basic and diluted weighted
average number of Common Shares outstanding for 2023
were 10,663,949 and 10,733,256, respectively (10,657,742 and
10,735,269, respectively, for the comparative 2022 periods).
In accordance with the Corporation’s Long Term Incentive
(“LTI”) plan and in conjunction with the performance of
the Corporation in the 2022 fiscal year, on April 13, 2023
the Compensation, Nominating and Corporate Governance
Committee approved LTI compensation of $1.8 million (2022
– $1.8 million) to be paid as Common Shares issued from
We Are Dependable.
31
treasury. As at December 31, 2023, the value of the Common
Shares held by the LTI custodian was $2.5 million (December
31, 2022 – $1.9 million) which was comprised of 76,900 in
unvested Common Shares (December 31, 2022 – 64,552)
with a nil aggregate cost (December 31, 2022 – $nil).
As at March 21, 2024 there were 10,583,007 Common Shares
issued and outstanding including 76,900 Common Shares
issued but held as unvested treasury shares.
Related Party
Transactions
The Corporation incurred expenses in the normal course of
business for advisory consulting services provided by Mr.
Matthew Hills, a member of the Board of Directors. The
amounts charged are recorded at their exchange amounts
and are on arm’s length terms. For the year ended December
31, 2023, the Corporation incurred fees totaling $72,000
compared to $72,000 for the same period of fiscal 2022.
Critical
Accounting
Estimates
The preparation of the financial statements, in confor-
mity with IFRS Accounting Standards, requires K-Bro to
make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosures of contin-
gent assets and liabilities at the date of the financial state-
ments and the reported amounts of revenues and expenses
during the reported period. Management regularly evalu-
ates these estimates and assumptions which are based
on past experience and other factors that are deemed
reasonable under the circumstances. This involves varying
judgment and uncertainty and, therefore,
degrees of
amounts currently reported in the financial statements
could differ in the future. Further to those areas discussed
in the Corporation’s 2022 audited financial statements and
annual MD&A, determining the lease term and incremental
borrowing rates under IFRS 16 requires critical judgments
as well as assumptions that have been incorporated into
any asset impairment testing models.
ECONOMIC CONDITIONS
Since 2020, due to changing government restrictions to
mitigate the ongoing COVID-19 pandemic, supply chain
disruption, geopolitical events impacting key inputs such as
natural gas, electricity and diesel and inflationary impacts
to labour and materials the Corporation has faced varying
degrees of financial impact within Canada and the UK.
The COVID-19 pandemic has also contributed to unusu-
ally competitive labour markets, causing inefficiencies
in attracting, training and retaining employees. While the
Corporation anticipates labour markets will stabilize, the
timing remains uncertain and until such time as labour
markets stabilize the Corporation will continue to be
impacted financially by these conditions.
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. Uncertainty about
judgments, estimates and assumptions made by manage-
ment during the preparation of the Corporation’s consol-
idated 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.
Terminology
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 sub total presented within the statement of
earnings in accordance with the amendments made to IAS
1 which became effective January 1, 2016. EBITDA is not
considered an alternative to net earnings in measuring
K-Bro’s performance. EBITDA should not be used as an
exclusive measure of cash flow since it does not account for
the impact of working capital changes, capital expenditures,
debt changes and other sources and uses of cash, which are
disclosed in the consolidated statements of cash flows.
2023 Annual Report 32
Three Months Ended December 31,
Years Ended December 31,
2023
4,249
1,000
1,732
7,043
255
14,279
2022
280
302
1,639
6,120
385
8,726
2023
17,607
5,256
6,649
26,669
625
56,806
2022
3,906
1,538
4,980
23,766
2,302
36,492
($ Thousands of CDN dollars)
Net earnings
Add:
Income tax expense
Finance expense
Depreciation of property, plant and equipment
Amortization of intangible assets
EBITDA
NON-GA AP MEASURES
ADJUSTED EBITDA
Adjusted EBITDA is a measure which has been reported in order to assist in the comparison of historical EBITDA to current
results. “Adjusted EBITDA” is defined as EBITDA (defined above) with the exclusion of certain material items that are
unusual in nature, infrequently occurring or not considered part of our core operations.
($ Thousands of CDN
dollars, except percentages
and per share amounts)
Three Months Ended December 31,
Canadian
Division
2023
UK
Division
2023
Canadian
Division
2022
UK
Division
2022
2023
EBITDA
Deduct non-recurring items:
Gain on settlement of contingent consideration
Adjusted EBITDA
11,712
2,567
14,279
(945)
10,767
-
2,567
(945)
13,334
7,745
-
7,745
981
-
981
($ Thousands of CDN
dollars, except percentages
and per share amounts)
Canadian
Division
2023
UK
Division
2023
Canadian
Division
2022
UK
Division
2022
2023
Years Ended December 31,
2022
8,726
-
8,726
2022
EBITDA
Deduct non-recurring items:
Gain on settlement of contingent consideration
Adjusted EBITDA
44,699
12,107
56,806
32,365
4,127
36,492
(945)
43,754
-
12,107
(945)
55,861
-
32,365
-
4,127
-
36,492
We Are Dependable.
33
DISTRIBUTABLE CASH FLOW
Distributable cash flow is a measure used by manage-
ment to evaluate the Corporation’s performance. While
the closest IFRS Accounting Standards measure is cash
provided by operating activities, 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 distributable cash flow, financial and non
financial covenants in our credit facilities and dealer agree-
ments may restrict cash from being available for dividends,
re-investment in the Corporation, potential acquisitions, or
other purposes. Investors should be cautioned that distrib-
utable cash flow may not actually be available for growth
or distribution from the Corporation. Management refers to
“Distributable cash flow” as to cash provided by (used in)
operating activities with the addition of net changes in non
cash working capital items, less share based 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.
DEBT TO TOTAL CAPITAL
“Debt to total capital” is defined by management as the
total long term debt (excludes lease liabilities) divided by
the Corporation’s total capital. This is a measure used by
investors to assess the Corporation’s financial structure.
Distributable cash flow, payout ratio, and debt to total capital
are not calculations based on IFRS Accounting Standards
and are not considered an alternative to IFRS Accounting
Standards measures in measuring K-Bro’s performance.
Distributable cash flow, and payout ratio do not have
standardized meanings in IFRS Accounting Standards
and are therefore not likely to be comparable with similar
measures used by other issuers.
OFF BAL ANCE SHEET
ARRANGEMENTS
As at December 31, 2023, the Corporation has not entered
into any off balance sheet arrangements.
New Accounting
Pronouncements
Adopted
The Corporation adopted the following accounting standards
and amendments that were effective for our annual consol-
idated financial statements commencing January 1, 2023.
· 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. This change did not have an impact on our
financial results and is not expected to have a material
impact in the future.
· Amendments to IAS 12, Accounting Policies, relates to
a temporary exception to the requirements regarding
deferred tax assets and liabilities related to pillar two
income taxes. This change did not have an impact on our
financial results and is not expected to have a material
impact in the future.
· Amendments to
IAS 1, Presentation of Financial
Statements – Disclosure of Accounting Policies,
related to the disclosure of material rather than signif-
icant accounting policies. This change was applied to
accounting policy disclosure within Note 2.
· Amendments to IAS 8, Accounting Policies – Changes in
Accounting Estimates and Errors, related to the defini-
tion of accounting estimates. This change did not have
an impact on our financial results and is not expected to
have a material impact in the future.
Recent
Accounting
Pronouncements
New standards, interpretations, or amendments that have
been issued, or are not yet effective, have not been further
described or early adopted, where no material impact is
expected on the Corporation's consolidated financial
statements.
The IASB has issued the following new standard and
amendments to existing standards that will become effec-
tive in future years.
2023 Annual Report 34
· 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 IFRS 16, Lease Liability in a Sale and
Leaseback, clarifying the measurement of a lease
liability by the seller in a sale and leaseback transaction.
The Corporation has not adopted any standard, inter-
pretation or amendment that has been issued but is not
yet effective and no material impact is expected on the
Corporation’s consolidated
financial statements. The
Corporation will continue to assess the impacts, if any, the
amendments to existing standards will have on our consol-
idated financial statements, but we currently do not expect
any material impacts.
Critical Risks
& Uncertainties
As at December 31, 2023, there are no material changes in
the Corporation’s risks or risk management activities since
December 31, 2022. 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:
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 successfully 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.sedarplus.ca.
Controls &
Procedures
In order to ensure that information with regard to reports
filed or submitted under securities legislation present fairly
in all material respects the financial information of K-Bro,
management, including the President and Chief Executive
Officer (“CEO”) and the Chief Financial Officer (“CFO”), are
responsible for establishing and maintaining disclosure
controls and procedures, as well as internal control over
financial reporting.
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
period ended December 31, 2023, 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 period ended
December 31, 2023, 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, 2023, 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.
We Are Dependable. 35
Additionally, controls may be circumvented by the unauthorized acts of individuals, by collusion of two or more people, or
by management override. The design of any system 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.
LIMITATION ON SCOPE OF DESIGN
K-Bro has limited the scope of design of DCP and our Internal Controls over Financial Reporting (ICFR) to exclude controls,
policies and procedures of Paranet acquired on March 1, 2023 and Villeray acquired on November 1, 2023. The scope limita-
tion is in accordance with section 3.3(1)(b) of NI 52-109 which allows an issuer to limit its design of ICFR to exclude controls,
policies and procedures of a business that the issuer acquired not more than 365 days before the end of the fiscal period.
Paranet
($ Thousands, except percentages)
As at
December 31, 2023
Villeray
($ Thousands, except percentages)
As at
December 31, 2023
Current assets
Non-current assets
Current liabilities
Non-current liabilities
2,774
13,115
1,094
2,869
Current assets
Non-current assets
Current liabilities
Non-current liabilities
2,352
15,230
1,257
2,803
Paranet
($ Thousands, except percentages)
As at
December 31, 2023
Villeray
($ Thousands, except percentages)
As at
December 31, 2023
Revenue
Expense
Income from Operations
7,819
8,579
(760)
Revenue
Expense
Income from Operations
1,602
1,902
(300)
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.sedarplus.ca; 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.sedarplus.ca, le site Web du
Système électronique de données, d’analyse et de recherche (« SEDAR »).
2023 Annual Report
36
C O N S O L I D A T E D
F I N A N C I A L
S T A T E M E N T S
37
Independent Auditor’s Report
42
Consolidated Statements of Financial Position
43
Consolidated Statements of Earnings & Comprehensive Income
44
Consolidated Statements of Changes in Equity
45
Consolidated Statements of Cash Flow
46
Notes to the Consolidated Financial Statements
76
Corporate Information
We Are Dependable. 37
2023 Annual Report 38
We Are Dependable. 39
2023 Annual Report 40
We Are Dependable. 41
2023 Annual Report Consolidated Statements
of Financial Position
42
($ 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)
Share repurchase liability (note 16)
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
Share repurchase deficit
Contributed surplus
Deficit
Accumulated other comprehensive loss
Contingencies and commitments (note 15)
December 31, 2023
December 31, 2022
5,857
50,306
-
7,443
35,288
98,894
718
99,612
206,798
9,406
48,900
364,716
38,166
206
3,967
12,023
2,086
1,064
57,512
70,247
41,275
2,964
18,287
190,285
206,453
(6,586)
2,252
(27,521)
(167)
174,431
364,716
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
The accompanying notes are an integral part of these consolidated financial statements.
Approved by the
Board of Directors
Elise Rees,
Director
Matthew Hills,
Director
We Are Dependable.
43
Consolidated Statements of
Earnings & Comprehensive Income
Years Ended December 31,
($ Thousands of CDN dollars, except share and per share amounts)
REVENUE
Expenses
Wages and benefits
Delivery
Linen (note 6)
Utilities
Corporate
Materials and supplies
Repairs and maintenance
Occupancy costs
Gain on settlement of contingent consideration (note 27)
Remeasurement expense (gain)
EBITDA
Other expenses
Depreciation of property, plant and equipment (note 7)
Amortization of intangible assets (note 8)
Finance expense (note 12)
Earnings before income taxes
Current income tax expense
Deferred income tax expense
Income tax expense (note 14)
Net earnings
Other comprehensive income (loss)
Items that may be subsequently reclassified to earnings:
Foreign currency translation differences on foreign operations
Total comprehensive income
Net earnings per share (note 17):
Basic
Diluted
Weighted average number of shares outstanding:
Basic
Diluted
The accompanying notes are an integral part of these consolidated financial statements.
2023
320,884
123,394
38,748
32,982
25,124
14,412
12,141
12,758
5,432
(945)
32
264,078
56,806
26,669
625
6,649
33,943
22,863
4,002
1,254
5,256
17,607
1,845
19,452
1.65
1.64
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
10,663,949
10,733,256
10,657,742
10,735,269
2023 Annual Report
44
Consolidated Statements
of Changes in Equity
($ Thousands of CDN dollars)
As at December 31, 2022
Total comprehensive income
Dividends declared (note 19)
Employee share based
compensation expense (note 25)
Repurchase of shares (note 16)
Share repurchase liability (note 16)
Shares vested during the year
As at December 31, 2023
Total Share
Capital
Share
Repurchase
Deficit
Contributed
Surplus
Accumulated Other
Comprehensive
Income (loss)
Deficit
208,463
-
-
-
(3,877)
-
1,867
206,453
-
-
-
-
(2,619)
(3,967)
-
(6,586)
2,323
-
-
1,796
-
-
(1,867)
2,252
(32,232)
17,607
(12,896)
-
-
-
-
(27,521)
(2,012)
1,845
-
-
-
-
-
(167)
($ Thousands of CDN dollars)
As at December 31, 2021
Total comprehensive loss
Dividends declared (note 19)
Employee share based
compensation expense (note 25)
Shares forfeited during the year
Shares vested during the year
As at December 31, 2022
Total Share
Capital
Share
Repurchase
Deficit
Contributed
Surplus
Accumulated Other
Comprehensive
Income (loss)
Deficit
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)
The accompanying notes are an integral part of these Consolidated Financial Statements.
Total
Equity
176,542
19,452
(12,896)
1,796
(6,496)
(3,967)
-
174,431
Total
Equity
186,401
1,258
(12,905)
1,788
-
-
176,542
We Are Dependable.
45
Consolidated Statements
of Cash Flow
Years Ended December 31,
($ Thousands of CDN dollars)
OPERATING ACTIVITIES
Net earnings
Depreciation of property, plant and equipment (note 7)
Amortization of intangible assets (note 8)
Accretion expense (note 10)
Employee share based compensation expense
Remeasurement expense
Gain on settlement of contingent consideration (note 27)
Deferred income tax expense
Change in non-cash working capital items (note 20)
Cash provided by operating activities
FINANCING ACTIVITIES
Net proceeds from revolving debt (note 11)
Repurchase of shares (note 16)
Principle elements of lease payments
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)
Acquisition of businesses, net of cash (note 27, 28)
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.
2023
17,607
26,669
625
80
1,796
32
(945)
1,254
47,118
(6,113)
41,005
25,081
(6,496)
(9,391)
(12,911)
(3,717)
(11,493)
1
(493)
(22,278)
(34,263)
3,025
196
2,636
5,857
6,318
-
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
2023 Annual Report
Notes to the Consolidated
Financial Statements
(Thousands of Canadian dollars except share and per share amounts, Years ended December 31, 2023 and 2022)
46
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 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.
in Canada
The Corporation’s operations
include ten
processing facilities and two distribution centres under
two distinctive brands, including K-Bro Linen Systems
Inc. and Buanderie HMR, in ten Canadian cities: Québec
City, Montréal, Toronto, Regina, Saskatoon, Prince Albert,
Edmonton, Calgary, Vancouver and Victoria.
The Corporation’s operations in the UK include Fishers Topco
Ltd. ("Fishers") which was acquired by K-Bro on November
27, 2017. Fishers was established in 1900 and is an operator of
laundry and linen processing facilities in Scotland, providing
linen rental, workwear hire and cleanroom garment services
to the hospitality, healthcare, manufacturing and pharma-
ceutical sectors. Fishers' client base includes major hotel
chains and prestigious venues across Scotland and the North
of England. The company operates in five cities in Scotland
and the North 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, 2024.
1. BASIS OF PRESENTATION
These Consolidated Financial Statements of the Corporation
have been prepared in accordance with IFRS Accounting
Standards as
International Accounting
Standards Board
(IFRS Accounting Standards). The
preparation of financial statements in conformity with
issued by the
IFRS Accounting Standards 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. MATERIAL 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.
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.
We Are Dependable. 47
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
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.
2023 Annual Report
48
Payment of laundry services are due respective of the
terms as indicated in the customer’s laundry service
contract, whereby customers are generally invoiced on a
monthly basis and consideration is payable when invoiced.
The Corporation presents its contract balances, on a
contract-by-contract basis, in a net contract asset or
liability position, separately from its trade receivables.
Contract assets and trade receivables are both rights to
receive consideration in exchange for goods or services
that the Company has transferred to a customer, however
the classification depends on whether such right is only
conditional on the passage of time (trade receivables)
or if it is also conditional on something else (contract
assets), such as the satisfaction of further performance
obligations under the contract. A contract liability is the
cumulative amount received and contractually receivable
by the Corporation that exceeds the right to consideration
resulting from the Corporation’s performance under a
given contract.
F) PROPERTY, PLANT & EQUIPMENT
Property, plant and equipment are stated at cost less
accumulated depreciation and accumulated impairment
losses. Cost includes expenditures that are directly attrib-
utable to the acquisition of the items. Subsequent costs are
included in the asset’s carrying amount or recognized as
a separate asset, as appropriate, only when it is probable
that future economic benefits associated with the item
will flow to the Corporation and the cost of the item can be
reliably measured. The carrying amount of a replaced part is
derecognized. Repairs and maintenance are charged to the
Consolidated Statements of Earnings and Comprehensive
Income during the financial period in which they are incurred.
General and specific borrowing costs that are directly
attributable to the acquisition, construction or production
of a qualifying asset are capitalized during the period of
time that is required to complete and prepare the asset for
its intended use or sale. Qualifying assets are assets that
necessarily take a substantial period of time to get ready for
their intended use or sale. The Corporation has not capital-
ized any borrowing costs during the year as there were no
qualifying assets.
Property, plant and equipment include right of use assets
as disclosed under the Corporation’s leasing policy in note
2(r). Right of use assets arise from a lease that is initially
measured on a present value basis, and are classified within
the relevant property, plant and equipment categories based
on the type of asset.
The major categories of property, plant and equipment are
depreciated on a straight-line basis to allocate their cost
over their estimated useful lives as follows:
Asset
Buildings
Laundry equipment
Office equipment
Delivery equipment
Rate
15 – 25 years
7 – 20 years
2 – 5 years
5 – 10 years
Computer equipment
2 years
Leasehold improvements
Lease term
Gains and losses on disposals of property, plant and equip-
ment are determined by comparing the proceeds with the
carrying amount of the asset.
G) INTANGIBLE ASSETS
Intangible assets acquired in a business combination are
recorded at fair value at the acquisition date. Subsequently
they are carried at cost less accumulated amortization and
accumulated impairment losses.
The major categories of intangible assets are depreciated
on a straight-line basis to allocate their cost over their
estimated useful lives as follows:
Asset
Rate
Customer contracts
1 – 20 years
Computer software
Brand
5 years
Indefinite
These estimates are reviewed at least annually and are
updated if expectations change as a result of changing
client relationships or technological obsolescence.
H) IMPAIRMENT OF NON-FINANCIAL
ASSETS
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.
We Are Dependable.
49
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.
J) BUSINESS COMBINATIONS
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
in Canadian dollars. The Corporation's operations
Canada have a functional currency of Canadian dollars.
The Corporation's operations in the UK have a functional
currency of pounds sterling.
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:
2023 Annual Report 50
· 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 amorti-
zation, 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 provisions of the LTI
are recorded as compensation expense over the relevant
service period, being the year to which the LTI relates and
the vesting period of the shares.
The Amendment made on December 31, 2018 gave the
Board of Directors the right to elect to satisfy the award
in cash. The Corporation has determined that this change
did not create an obligation to satisfy the award in cash and
therefore the LTI continues to be treated as an equity settled
share based payment.
Subject to the discretion of the Compensation, Nominating
and Corporate Governance Committee of the Board of
Directors, one-quarter of a Participant’s grant will vest
on the Determination Date (defined as the first May 15th
following the date that the Directors of the Corporation
approve the audited consolidated financial statements of the
Corporation for the prior year). The remaining three-quar-
ters of the Participant’s grant will vest on November 30th
following the second anniversary of the Determination Date.
If a change of control occurs, all LTI Shares held by the
Administrator in respect of unvested grants will vest immedi-
ately. LTI participants are entitled to receive dividends on
all common shares granted under the LTI whether vested
or unvested. In most circumstances, unvested common
shares held by the LTI Administrator for a participant will be
forfeited if the participant resigns or is terminated for cause
prior to the applicable vesting date, and those common
shares will be disposed of by the Administrator to K-Bro for
no consideration and such Common shares shall thereupon
be cancelled. If a participant is terminated without cause,
retires or resigns on a basis which constitutes constructive
dismissal, the participant will be entitled to receive his or her
unvested common shares on the regular vesting schedule
under the LTI.
P) FINANCIAL INSTRUMENTS
The Corporation classifies its financial assets in the
following measurement categories:
· those to be measured subsequently at fair value (either
through other comprehensive income (loss), or though
profit or loss); and
· those to be measured at amortized cost.
The classification depends on the Corporation’s business
model for managing the financial assets and contractual
terms of the cash flows.
We Are Dependable. 51
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.
R) THE CORPORATION’S LEASING
ACTIVITIES & HOW THESE ARE
ACCOUNTED FOR
The Corporation leases various buildings, vehicles and
equipment. Rental contracts are typically made for fixed
periods of one to fifteen years but may have extension
options as described in Note 2(r)(ii) below. Lease terms are
negotiated on an individual basis and contain a wide range
of different terms and conditions. The lease agreements do
not impose any financial covenants, but leased assets may
not be used as security for borrowing purposes.
Leases are recognized as a right-of-use asset and a corre-
sponding liability at the date at which the leased asset is
available for use by the Corporation. Each lease payment is
allocated between the liability and finance cost. The finance
cost is charged to profit or loss over the lease period so
as to produce a constant periodic rate of interest on the
remaining balance of the liability for each period. The right-
of-use asset is depreciated over the shorter of the asset's
useful life and the lease term on a straight-line basis.
Assets and liabilities arising from a lease are initially
measured on a present value basis. Lease liabilities include
the net present value of the following lease payments:
· fixed payments (including in-substance fixed payments),
less any lease incentives receivable
· variable lease payment that are based on an index or a rate
· amounts expected to be payable by the lessee under
residual value guarantees, and
· the exercise price of a purchase option if the lessee is
reasonably certain to exercise that option.
2023 Annual Report 52
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:
· the amount of the initial measurement of lease liability,
· any lease payments made at or before the commence-
ment date less any lease incentives received,
· any initial direct costs, and
· restoration costs.
Payments associated with short-term leases and leases of
low-value assets are recognized on a straight-line basis as
an expense in profit or loss. Short-term leases are leases
with a lease term of 12 months or less. Low-value assets are
comprised of IT-equipment and small items of office furniture.
(i) Variable Lease Payments
Based on the valuation of the Corporation’s leases, no leases
have been identified that are directly tied to an index or rate,
and whereby an estimate would be required in determining
the uncertainty arising from variable lease payments.
(ii) Extension & Termination Options
Extension and termination options are included in a
number of property and equipment leases across the
Corporation. These terms are used to maximize opera-
tional flexibility in terms of managing contracts. The
majority of extension and termination options held
are exercisable only by the Corporation and not by the
respective lessor.
3. CHANGES & UPDATES IN
ACCOUNTING POLICIES
The Corporation adopted the following accounting standards
and amendments that were effective for our annual consoli-
dated financial statements commencing January 1, 2023.
· 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. This change did not have an impact on our
financial results and is not expected to have a material
impact in the future.
· Amendments to IAS 12, Accounting Policies, relates to
a temporary exception to the requirements regarding
deferred tax assets and liabilities related to pillar two
income taxes. This change did not have an impact on our
financial results and is not expected to have a material
impact in the future.
· Amendments to
IAS 1, Presentation of Financial
Statements – Disclosure of Accounting Policies,
related to the disclosure of material rather than signif-
icant accounting policies. This change was applied to
accounting policy disclosure within Note 2.
· Amendments to IAS 8, Accounting Policies – Changes in
Accounting Estimates and Errors, related to the defini-
tion of accounting estimates. This change did not have
an impact on our financial results and is not expected to
have a material impact in the future.
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 - Classification of Liabilities as Current or
Noncurrent, clarifying requirements for the classifica-
tion of liabilities as non-current.
· Amendments to IFRS 16, Lease Liability in a Sale and
Leaseback, clarifying the measurement of a lease
liability by the seller in a sale and leaseback transaction.
We Are Dependable.
53
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 consolidated
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.
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:
5. CRITICAL ACCOUNTING
ESTIMATES & JUDGMENTS
The preparation of the Corporation’s consolidated financial
statements, in conformity with IFRS Accounting Standards,
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 liabil-
ities 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.
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.
Economic Conditions
The Corporation applies judgment in:
Since 2020, due to changing government restrictions to
mitigate the ongoing COVID-19 pandemic, supply chain
disruption, geopolitical events impacting key inputs such
as natural gas, electricity and diesel and inflationary
impacts to labour and materials the Corporation has
faced varying degrees of financial impact within Canada
and the UK. The COVID-19 pandemic has also contributed
to unusually competitive labour markets, causing ineffi-
ciencies in attracting, training and retaining employees.
While labour markets have been stabilizing, certain
regional markets continue to experience constrained
labour availability.
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.
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,
·
·
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.
2023 Annual Report
Lease Term
Impairment of Goodwill & Non-Financial Assets
54
Management reviews goodwill at least annually and other
non-financial assets when there is any indication that
the asset might be impaired. As part of this review the
Corporation use estimates to calculate the appropriate
discount rate and growth rate which are used to estimate
the recoverable value.
During instances where indication of impairment exists,
the recoverable amount of the asset is estimated in order
to determine the extent of the impairment loss. Where
it is not possible to estimate the recoverable amount of
an individual asset, the Corporation estimates the recov-
erable amount of the cash generating unit to which the
asset belongs. The recoverable value of CGUs require the
use of estimates related to the future operating results
and cash generating ability of the assets.
Management regularly evaluates these estimates and
judgments. Revisions to accounting estimates are recog-
nized in the period in which the estimate is revised if the
revision affects only that period or in the period of the
revision and future periods if the revision affects both
current and future periods.
6. LINEN IN SERVICE
($ Thousands of CDN dollars)
2023
2022
Balance, beginning of year
Additions
Amortization charge
Effect of movement
in exchange rates
Balance, end of year
31,383
36,547
(32,982)
340
31,340
31,946
(31,337
(566)
35,288
31,383
In determining the lease term, management considers
all facts and circumstances that create an economic
incentive to exercise an extension option, or not exercise
a termination option. Extension options (or periods after
termination options) are only included in the lease term
if the lease is reasonably certain to be extended (or not
terminated). For many of the leases the cash outflows
associated with the lease extension term would be
material. The assessment is reviewed if a significant
event or a significant change in circumstances occurs
which affects this assessment and that is within the
control of the lessee.
AREAS OF ESTIMATION UNCERTAINTY
Incremental Borrowing Rate
In applying its accounting policy for leases management
considers all appropriate facts and circumstances in the
determination the lessee’s incremental borrowing rate
being used and these rates are reviewed and update on
an annual basis.
Amortization of Property, Plant & Equipment,
& Intangible Assets
In applying its accounting policy for the amortization of
property, plant and equipment, and intangible assets,
management considers all appropriate facts and circum-
stances in the determination of the appropriate rates and
methodology to allocate costs over their estimated useful
lives, including historical experience, current volumetric
run-rates, and expected future events.
Linen in Service
The estimated service lives of linen in service are
reviewed at least annually and are updated if expectations
change as a result of physical wear and tear, technical or
commercial obsolescence and legal or other limits of use.
Provisions
The Corporation’s provision includes restructure costs
and the restoration for premises of its leased plants.
The Corporation determines restructure costs based
off employment standards and legal consultation. For
leased plants, a provision has been recognized for the
present value of the estimated expenditure required to
remove any leasehold improvements and installed equip-
ment. Refer to Note 10 for more details about estimation
for this provision.
We Are Dependable.
55
7. PROPERTY, 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, 2022
Opening net book amount
Additions(2)(3)(4)
Change in asset retirement obligation
Disposals
Transfers
Depreciation charge
Assets classified as held for sale(5)
Effect of movement in exchange rates
Closing net book amount
4,039
-
-
-
-
-
(652)
(75)
3,312
58,210
59
-
-
-
(5,977)
(44)
(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)
-
-
-
(23,766)
-
-
(696)
(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
Year Ended, December 31, 2023
Opening net book amount
Additions(2)(3)(4)
Change in asset retirement obligation
Acquisition of businesses (note 27, 28)
Disposals
Depreciation charge
Effect of movement in exchange rates
Closing net book amount
3,312
-
-
-
-
-
26
3,338
51,718
549
-
3,671
-
(6,573)
284
49,649
106,885
10,371
-
8,432
(41)
(11,838)
418
114,227
220
63
-
24
-
(100)
6
9,618
4,561
-
333
(204)
(4,289)
202
213 10,221
323
320
-
42
-
(380)
-
305
9
171
801
-
(3,489)
14
29,246 1,863 203,185
16,103
230
171
-
13,303
-
(245)
-
(26,669)
-
950
-
26,752 2,093 206,798
Cost
Accumulated impairment losses
Accumulated depreciation
Net book amount
3,338
-
-
3,338
82,314
(207)
226,667
(2,113)
(32,458) (110,326)
114,228
49,649
1,381
-
27,268
(5)
(1,169) (17,042)
212 10,221
3,969
(14)
(3,650)
305
60,866 2,093 407,896
(2,339)
-
-
(34,114)
- (198,759)
26,752 2,093 206,798
At December 31, 2023
1 Included in laundry equipment are assets under development in the amount of $651 (2022 - $181). 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 $356 (2022 - $697).
3 Additions include amounts from the Canadian Division of $11,060 (2022 - $10,598) and from the UK Division of $5,043 (2022 - $8,940).
4 Includes ROUA additions from the Canadian Division of $2,012 (2022 - $1,691), comprised of buildings of $0 (2022 - $0) and vehicles of $2,012 (2022 - $1,691). From the UK Division, ROUA
additions were $2,963 (2022 - $6,800), comprised of buildings of $551 (2022 - $0) and vehicles of $2,412 (2022 - $6,800). This has resulted in corresponding increases to the lease liabilities in
the amount of $2,012 (2022 - $1,691) for the Canadian Division and $2,963 (2022 - $6,800) for the UK Division.
5 Assets classified as held for sale are comprised of land and a building in Cupar, Scotland. The asset is currently marketed for sale, and it is anticipated to be sold during fiscal 2024.
2023 Annual Report
8. INTANGIBLE ASSETS
($ Thousands of CDN dollars,
except share and per share amounts)
Healthcare
Relationships
Hospitality
Relationships
Computer
Software
Brand
Total
56
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
Acquisition of businesses (note 27, 28)
Amortization charge
Effect of movement in exchange rates
Closing net book amount
Cost
Accumulated amortization
Net book amount
9. GOODWILL
38
-
(36)
-
2
19,200
(19,198)
2
2
-
-
(2)
-
-
19,200
(19,200)
-
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
Year Ended, December 31, 2023
-
-
4,980
(493)
-
4,487
346
493
-
(130)
-
709
At December 31, 2023
27,695
(23,208)
4,487
1,868
(1,159)
709
4,283
-
-
(203)
4,080
4,080
-
4,080
4,080
-
-
-
130
4,210
4,210
-
4,210
6,989
88
(2,302)
(347)
4,428
47,370
(42,942)
4,428
4,428
493
4,980
(625)
130
9,406
52,973
(43,567)
9,406
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)
Gross amount of goodwill
Changes due to movement
in exchange rates
Accumulated impairment
Balance at January 1, 2023
Goodwill acquired (note 27, 28)
Changes due to movement
in exchange rates
Balance at December 31, 2023
Calgary
Edmonton Vancouver 2 Vancouver 1
Victoria
Paranet Villeray
Canadian
Division
UK
Division
Total
8,082
-
4,346
-
3,413
-
2,630
-
3,208
-
-
-
-
- (1,700)
-
-
-
-
-
-
21,679
-
18,100
(711)
39,779
(711)
(1,700)
-
(1,700)
8,082
4,346
3,413
2,630 1,508
-
-
-
-
-
-
5,205
-
-
5,779
-
19,979
10,984
-
17,389
-
548
37,368
10,984
548
8,082
4,346
3,413
2,630 1,508
5,205
5,779
30,963
17,937
48,900
We Are Dependable.
57
10. PROVISIONS
The Corporation's provision includes a current provision
of $206 (2022 - $279) to recognize restructuring costs,
and a long-term provision of $2,964 (2022 - $2,382) 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, 2023 to be $3,772 (2022
- $3,203). Management has estimated the present value of
this obligation at December 31, 2023 to be $2,964 (2022 -
$2,382 using an inflation rate of 2.51% (2022 – 2.00%) and
pre-tax weighted average risk-free interest rate of 3.05% to
3.91% (2022 - 3.30% to 4.07%) 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 2028 to 2039.
As at December 31, 2023, if actual costs were to differ by
10% from management's estimate the obligation would
be an estimated $317 (2022 - $266) higher or lower. It is
possible the estimated costs could change and changes
to these estimates could have a significant effect on the
Corporation's consolidated financial statements.
The Corporation recorded the following provision activity
during the year:
($ Thousands of CDN dollars)
Asset Retirement Obligations
Restructuring Costs
Total
Balance, beginning of year
Acquisition of businesses (note 27, 28)
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, 2023
2,382
316
80
173
13
2,964
-
2,964
279
-
-
(73)
-
206
206
-
For Year Ended, December 31, 2022
2,811
39
(434)
(34)
2,382
-
2,382
703
-
(424)
-
279
279
-
2,661
316
80
100
13
3,170
206
2,964
3,514
39
(858)
(34)
2,661
279
2,382
2023 Annual Report 58
11. LONG-TERM DEBT
($ Thousands of CDN dollars)
Prime Rate Loan (1)
At January 1, 2022
Net repayment of debt
Closing balance at December 31, 2022
At January 1, 2023
Net proceeds from debt
Closing balance at December 31, 2023
37,973
(7,193)
45,166
45,166
25,081
70,247
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, 2027. 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, 2023 the combined interest rate was 7.70%
(December 31, 2022 – 6.95%).
On August 31, 2023, the Corporation completed an amend-
ment to its existing revolving credit facility to extend the
agreement from July 31, 2026 to July 31, 2027, as previ-
ously amended on July 18, 2022. In addition, the agreement
expanded the revolving credit facility from $100,000 to
$125,000 plus a $25,000 accordion.
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, 2023 and December 31, 2022.
The Corporation has a revolving credit facility of up to
$125,000 plus a $25,000 accordion of which $72,116 is
utilized (including letters of credit totaling $1,869) as at
December 31, 2023. Interest payments only are due during
the term of the facility.
Drawings under the revolving credit facility are available by
way of Bankers’ Acceptances, Canadian prime rate loans,
Libor of UK pounds based loans, letters of credit or standby
letters of guarantee. Drawings under the revolving credit
facility bear interest at a floating rate, plus an applicable
margin based on certain financial performance ratios.
A general security agreement over all assets, a mortgage
against all leasehold interests and real property, insurance
policies and an assignment of material agreements have
been pledged as collateral.
The carrying value of borrowings approximate their fair
value as the debt is based on a floating rate, the interest
rate risk has not changed, and the impact of discounting is
not significant.
The Corporation has incurred no events of default under the
terms of its credit facility agreement.
12. FINANCE EXPENSE
($ Thousands of CDN dollars)
Interest on long-term debt
Lease interest expense
Accretion expense
Other charges, net
2023
4,230
2,068
80
271
6,649
2022
1,757
2,070
39
1,114
4,980
We Are Dependable.
59
13. LEASES
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, 2023
December 31, 2022
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
Acquisition of businesses (note 27, 28)
Buildings
Equipment
36,267
9,878
46,145
43,079
10,219
53,298
(12,023)
41,275
3,882
551
4,424
8,857
37,348
9,429
46,777
43,992
9,665
53,657
(9,615)
44,042
-
-
8,491
8,491
B) AMOUNTS RECOGNIZED IN THE STATEMENT OF EARNINGS
The statement of earnings reflects the following amounts relating to leases:
($ Thousands of CDN dollars, except share and per share amounts)
December 31, 2023
December 31, 2022
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
5,492
4,181
9,673
2,068
15
11,474
4,913
2,990
7,903
2,070
26
9,493
2023 Annual Report
C) RECONCILIATION OF EXPECTED LEASE LIABILITIES
($ Thousands of CDN dollars, except share and per share amounts)
December 31, 2023
December 31, 2022
60
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
53,657
8,857
(213)
2,068
(11,459)
388
53,298
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
2023
4,002
4,002
1,336
(82)
1,254
56,939
8,491
(3,679)
2,070
(9,467)
(697)
53,657
2022
1,441
1,441
144
(47)
97
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 25.46% (2022 - 25.39%)
Difference between Canadian and foreign tax rates
Impact of substantively enacted rates and other
Income tax expense
2023
22,863
(1,774)
21,089
5,370
(217)
103
5,256
2022
5,444
(933)
4,511
1,146
351
41
1,538
We Are Dependable. 61
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
2023
(15,596)
(15,596)
28,091
5,792
33,883
18,287
2022
(16,904)
(16,904)
25,608
5,450
31,058
14,154
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, 2022
Charged (credited) to the statement of earnings
Related to movements in exchange rates
At December 31, 2022
Acquisition of business
Charged (credited) to the statement of earnings
Related to movements in exchange rates
At December 31, 2023
(14,445)
716
154
(13,575)
-
164
(102)
(13,513)
(559)
57
-
(502)
-
(145)
-
(647)
(2,232)
(683)
88
(2,827)
(169)
1,643
(83)
(1,436)
(17,236)
90
242
(16,904)
(169)
1,662
(185)
(15,596)
($ 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, 2022
Charged (credited) to the statement of earnings
Related to movements in exchange rates
At December 31, 2022
Acquisition of business
Charged (credited) to the statement of earnings
Related to movements in exchange rates
At December 31, 2023
5,326
124
-
5,450
194
148
-
5,792
24,234
311
(198)
24,347
1,638
(651)
137
25,471
1,444
(428)
(87)
929
1,232
86
32
2,279
332
-
-
332
-
9
-
341
31,336
7
(285)
31,058
3,064
(408)
169
33,883
The Company has $5,123 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.
2023 Annual Report
62
15. CONTINGENCIES &
COMMITMENTS
A) CONTINGENCIES
The Corporation has standby letters of credit issued as
part of normal business operations in the amount of $1,869
(December 31, 2022 – $1,836) which will remain outstanding
for an indefinite period of time.
Grievances for unspecified damages were lodged against
the Corporation in relation to labor matters. The Corporation
has disclaimed liability and is defending the actions. It is
not practical to estimate the potential effect of these griev-
ances, but legal advice indicates that it is not probable that
a significant liability will arise.
B) COMMITMENTS
Utility Commitments
The Corporation was committed to estimated natural gas
and electricity commitments for the next five calendar
years and thereafter as follows:
Utility commitments ($ Thousands of CDN dollars)
Linen Purchase Commitments
At December 31, 2023, the Corporation was committed
to linen expenditure obligations in the amount of $9,434
(December 31, 2022 – $10,161) to be incurred within the
next year.
Property, Plant & Equipment Commitments
At December 31, 2023, the Corporation was committed to
capital expenditure obligations in the amount of $9,396
(December 31, 2022 – $2,341) 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, 2023, the
Corporation held trust funds on deposit in the amount of
$966 (2022 – $964).
2024
2025
2026
2027
2028
Subsequent
16. SHARE CAPITAL
A) AUTHORIZED
11,278
2,826
1,495
-
-
-
15,599
The Corporation is authorized to issue an unlimited number of common shares and such number of shares of one class
designated as preferred shares which number shall not exceed 1/3 of the common shares issued and outstanding from
time to time.
B) ISSUED
($ Thousands of CDN dollars, except share and per share amounts)
Balance, beginning of year
Common shares issued under LTI
Common shares forfeited under LTI
Common shares repurchased
Balance, end of year
2023
10,773,190
61,345
-
(199,062)
10,635,473
2022
10,719,778
55,362
(1,950)
-
10,773,190
Unvested common shares held in trust for LTI
76,900
64,552
We Are Dependable.
63
C) NORMAL COURSE ISSUER BID
On May 15, 2023, the Corporation announced its intention to proceed with a normal course issuer bid (NCIB) to
purchase up to 881,481 of its common shares (“Shares”) through the TSX and / or alternative Canadian trading systems,
representing approximately 10% of the public float of 8,814,816 shares as at May 9, 2023, during the twelve-month period
commencing May 18, 2023 and ending May 17, 2024.
During the year ended December 31, 2023, the Corporation repurchased and cancelled 199,062 common shares (2022
– nil) for $6,496 under the NCIB, net of transaction costs of $1 which were recorded in share capital. The average share
price was $32.63, with prices ranging from $30.48 to $35.53.
The Corporation recorded a financial liability of $3,967 related to the NCIB due to the automatic share repurchase plan
for purchases that could be made from January 1 to March 22, 2024. During the blackout period, no changes can be made
as it pertains to the automated share repurchase plan.
17. EARNINGS PER SHARE
A) BASIC
Basic earnings per share is calculated by dividing the net earnings attributable to equity holders of the Corporation by the
weighted average number of ordinary shares in issue during the year.
($ Thousands of CDN dollars, except share and per share amounts)
Net earnings
Weighted average number of shares outstanding (thousands)
Net earnings per share, basic
2023
17,607
10,664
1.65
2022
3,906
10,658
0.37
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
2023
2022
10,663,949
69,307
10,733,256
10,657,742
77,527
10,735,269
17,607
10,733
1.64
3,906
10,735
0.36
2023 Annual Report
64
18. LONG-TERM INCENTIVE PL AN
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
2023
Unvested
64,552
41,680
-
(29,332)
76,900
2023
Vested
663,152
19,665
-
29,332
712,149
2022
Unvested
78,632
37,172
(1,950)
(49,302)
64,552
2022
Vested
595,660
18,190
-
49,302
663,152
The cost of the 76,900 (2022 – 64,552) unvested Common shares held by the LTIP Account at December 31, 2023 was $0 (2022 - $0).
19. DIVIDENDS TO SHAREHOLDERS
During the year ended December 31, 2023, the Corporation declared total dividends to shareholders of $12,896 or $1.200
per share (2022 - $12,905 or $1.200 per share).
The Corporation’s policy is to pay dividends to Shareholders of its available cash to the maximum extent possible consistent
with good business practice considering requirements for capital expenditures, working capital, growth capital and other
reserves considered advisable by the Directors of the Corporation. All such dividends are discretionary. Dividends are
declared payable each month to the Shareholders on the last business day of each month and are paid by the 15th day of
the following month.
20. NET CHANGE IN NON-CASH WORKING CAPITAL ITEMS
($ 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
Years Ended, December 31,
2023
(9,978)
(2,616)
(632)
3,110
4,003
(6,113)
2022
(1,248)
(536)
(2,037)
1,713
(3,513)
(5,621)
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 2023 - ($73) and in
2022 - ($424), 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 2023 ($341) and 2022 ($176).
We Are Dependable.
65
21. FINANCIAL INSTRUMENTS
A) FAIR VALUE
The Corporation’s financial instruments at December
31, 2023 and 2022 consist of cash and cash equivalents,
accounts receivable, accounts payable and accrued liabil-
ities, lease liabilities, dividends payable to shareholders,
and long term debt. The 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 approxi-
mates 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.
C) PRICE RISK
Currency Risk
Foreign currency risk arises from the fluctuations in
foreign exchange rates and the degree of volatility of
these rates relative to the Canadian dollar.
The Corporation’s operations in Canada are not 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, 2023, a strengthening or weakening of $0.01 of the
Canadian dollar to the U.S. dollar with all other variables
held constant could have a favorable or unfavorable
impact of approximately $3, respectively, on net earnings.
Based on financial instrument balances as at December
31, 2023, a strengthening or weakening of $0.01 of the
Canadian dollar to the Sterling pound (£), with all other
variables held constant could have an unfavorable or
favorable impact of approximately $110, respectively, on
other comprehensive loss.
Interest Rate Risk
The Corporation is subject to interest rate risk as its credit
facility bears interest at rates that depend on certain
financial ratios of the Corporation and vary in accordance
with market interest rates. Based on the credit facility at
year end, the sensitivity to a 100 basis point movement in
interest rates would result in an impact of $702 (2022 -
$452) to net earnings.
Other Price Risk
The Corporation’s exposure to other price risk is limited
since there are no significant financial instruments which
fluctuate as a result of changes in market prices.
D) CREDIT RISK
The Corporation has financial assets that are subject to
the expected credit loss model. The Corporation’s financial
assets that are exposed to credit risk consist of cash and
cash equivalents and accounts receivable. The Corporation,
in the normal course of business, is exposed to credit risk
from its customers.
Management believes that the risks associated with concen-
trations of credit risk with respect to accounts receivable
are limited due to the generally short payment terms, and
the nature of the customers, which are primarily publicly
funded health care entities. The credit risk associated with
cash and cash equivalents is minimized by ensuring these
financial assets are held with Canadian chartered banks
and Standard Chartered Bank United Kingdom.
Cash & Cash Equivalents
While cash and cash equivalents are also subject to the
impairment requirements of IFRS 9, there was no identi-
fied impairment.
2023 Annual Report
66
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, 2023 or January 1,
2023 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, 2023
and 2022 was determined as follows for trade receivables:
($ Thousands of CDN dollars, except share and per share amounts)
December 31, 2023
Current
1 to 60 days
61 to 90 days
Greater than 90 days
December 31, 2022
Current
1 to 60 days
61 to 90 days
Greater than 90 days
Gross
Allowance
34,638
11,731
3,598
517
50,484
-
-
-
178
178
Gross
Allowance
27,986
8,145
1,324
450
37,905
-
-
-
144
144
Net
34,638
11,731
3,598
339
50,306
Net
27,986
8,145
1,324
306
37,761
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
Acquisition of business
(Write-offs) Recoveries
Effect of movements in exchange rates
Balance, end of year
Years Ended, December 31,
2023
2022
144
16
29
(12)
1
178
143
(10)
-
11
-
144
We Are Dependable.
67
E) LIQUIDITY RISK
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
2024
Payments Due by Year
2025 to 2026
2027 to 2028
Subsequent
Long-term debt
Lease liabilities
Utility commitments
Linen purchase obligations
Property, plant and equipment commitments
70,247
58,914
15,599
9,434
9,396
-
11,811
11,278
9,434
9,396
-
18,104
4,321
-
-
70,247
13,635
-
-
-
-
15,364
-
-
-
The Corporation has a credit facility with a maturity date of
July 31, 2027 (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.
· 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’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 finan-
cial 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;
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.
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
Accounting Standards. It is therefore unlikely to be compa-
rable 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.
2023 Annual Report
($ 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 PARTY
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.
During 2023 and 2022, remuneration to directors and key
management personnel was as follows:
68
Years Ended, December 31,
2023
70,247
1,869
174,431
246,547
(5,857)
240,690
2022
45,166
1,836
176,542
223,544
(2,636)
220,908
($ Thousands of CDN dollars)
2023
2022
Years Ended, December 31,
Salaries and retainer fees
Short-term bonus incentives
Post-employment benefits
Share-based payments
1,879
1,082
66
1,446
4,473
1,802
1,007
63
1,399
4,271
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 year ended December 31, 2023, the Corporation
incurred such fees totaling $72 (2022– $72).
24. EXPENSES BY NATURE
($ Thousands of CDN dollars)
2023
2022
Years Ended, December 31,
Wages and benefits
Linen
Utilities
Delivery
Materials and supplies
Occupancy costs
Repairs and maintenance
Other expenses
145,535
32,982
25,124
23,083
16,263
5,624
12,758
2,709
264,078
130,971
31,337
23,754
23,050
13,522
4,727
10,419
2,351
240,131
We Are Dependable.
69
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 ten
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 four sites which are located in 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, 2023, from these three major customers the Corporation
has recorded revenue of $135,736 (2022 – $130,360), repre-
senting 42.3% (2022 – 47.1%) of total revenue.
($ Thousands of CDN dollars)
2023
2022
Healthcare
Hospitality
Canadian division
Healthcare
Hospitality
UK division
177,838
63,291
241,129
6,502
73,253
79,755
55.4%
19.7%
75.1%
2.1%
22.8%
24.9%
167,239
44,796
212,035
6,167
58,421
64,588
60.5%
16.2%
76.7%
2.2%
21.1%
23.3%
Total segment revenue
320,884
100.0%
276,623
100.0%
2023 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.
70
($ Thousands of CDN dollars, except share and per share amounts)
Canadian Division
UK Division
Total
2023
Net earnings
EBITDA
2022
Net earnings (loss)
EBITDA
12,584
44,699
5,023
12,107
Canadian Division
UK Division
6,042
32,365
(2,136)
4,127
17,607
56,806
Total
3,906
36,492
The Canadian division net earnings includes non-cash employee share based compensation expense of $1,796 (2022 – $1,788).
SEGMENT ASSETS
Segment assets are measured in the same way as in the financial statements. These assets are allocated based on the operations
of the segment and the physical location of the asset.
The Corporation’s cash and cash equivalents are not considered to be segment assets but are managed by the treasury function.
($ Thousands of CDN dollars, except share and per share amounts)
At December 31, 2023
Canadian Division
UK Division
Total assets
Other:
Cash and cash equivalents
Total segment assets
278,983
-
278,983
85,733
(5,857)
79,876
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
Total
364,716
(5,857)
358,859
Total
325,760
(2,636)
323,124
We Are Dependable.
71
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, 2023
Total liabilities
Other:
Long-term debt (note 11)
Total segment liabilities
At December 31, 2022
Total liabilities
Other:
Long-term debt (note 11)
Total segment liabilities
Canadian Division
UK Division
165,348
(70,247)
95,101
24,937
-
24,937
Canadian Division
UK Division
127,038
(45,166)
81,872
22,180
-
22,180
Total
190,285
(70,247)
120,038
Total
149,218
(45,166)
104,052
26. IMPAIRMENT OF ASSETS
Earnings multiple approach (Fair value less costs to
dispose, “FVLCD”)
The Corporation performed its annual impairment assess-
ment for goodwill for the Canadian division and for the UK
division as at December 31, 2023 and December 31, 2022 in
accordance with its policy described in Note 2(k) and Note 2(h).
The Corporation also performed impairment indicator assess-
ments where there was no goodwill allocated to the CGU.
For both periods, the recoverable amount for the CGUs was
assessed using an earnings multiple approach. If the results
of the earnings multiple approach indicated a possible
impairment, a further assessment using a discounted cash
flow to determine the value-in use was performed.
For the years ended December 31, 2023 and 2022, the key
assumption utilized was the implied multiple. The implied
multiple is calculated by utilizing the average multiples of
comparable public companies. The Corporation used an
implied average forward multiple of 9.70 (2022 - 10.60) to
calculate the recoverable amounts. The implied multiple
was applied to the trailing twelve month EBITDA to deter-
mine the recoverable amount of the CGU and compare it to
the carrying value of the CGU.
Based on the assessments performed for the year ended
December 31, 2023, no CGU had a recoverable amount
that was less than the carrying value of the CGU. A further
assessment using a discounted cash flow to determine the
value-in-use was not performed due to the headroom from
FVLCD determined using an earnings multiple approach.
2023 Annual Report
72
Discounted cash flow (Value-in-use, “VIU”)
Where the results of the FVLCD approach indicated there was a possible impairment, a further assessment using a
discounted cash flow was performed to determine the VIU of each VGU identified.
For the year ended December 31, 2022, the Corporation used probability weighted discounted cash flows and the assump-
tions for those cash flows were the Corporation’s board approved budgets, cash flow forecasts, trailing twelve-month
EBITDA, the pre-tax discount rate and terminal value growth rate.
The probability weighted approach used for the year ended December 31, 2022 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.
The terminal value growth rate is based on management's best estimate of the long-term growth rate for its CGUs after
the forecast period, considering historic performance and future economic forecasts.
The calculation of the recoverable amount using the probability weighted discounted future cash flows 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
Calgary
Edmonton
Vancouver 2
Vancouver 1
Victoria
Paranet
Villeray
UK
FVLCD
FVLCD
FVLCD
FVLCD
FVLCD
n/a
n/a
VIU
n/a
n/a
n/a
n/a
n/a
n/a
n/a
15.4%
n/a
n/a
n/a
n/a
n/a
n/a
n/a
2.0%
Based on testing performed at December 31, 2023 and December 31, 2022, no impairment was determined to exist.
Recoverable amount
The recoverable amount of each CGU is sensitive to changes in market conditions which could result in material changes.
For the year ended December 31, 2022, where further assessment using the probability weighted discounted cash flows
was required the sensitivity of key assumptions to a reasonable change was assessed. The Corporation does not believe
there is a reasonable change in the key assumptions that would cause the carrying value of the CGU to exceed its recover-
able amount. The table below summarizes the results of the impact on key assumptions to a reasonable change.
Recoverable Amount
December 31, 2022
Change in Pre-tax Discount
Rate Increase of 1%
December 31, 2022
Change in Terminal Value
Growth Rate Decrease of 1%
December 31, 2022
Calgary
Edmonton
Vancouver 2
Vancouver 1
Victoria
Paranet
Villeray
UK
n/a
n/a
n/a
n/a
n/a
n/a
n/a
£50,261
n/a
n/a
n/a
n/a
n/a
n/a
n/a
-£4,201
n/a
n/a
n/a
n/a
n/a
n/a
n/a
-£4,458
We Are Dependable.
73
27. BUSINESS ACQUISITION
- PARANET
On March 1, 2023 the Corporation completed the acquisi-
tion of 100% of the share capital of Buanderie Para-Net
(“Paranet”) operating as Paranet (the “Paranet Acquisition”),
a private laundry and linen services company operating in
Québec City, Québec. The Paranet Acquisition was completed
through a share purchase agreement consisting of existing
working capital, fixed assets, contracts and an employee
base. The contracts acquired are in the Québec healthcare
and hospitality sector, which complements the existing
business of the Corporation. Based on the Corporation’s
evaluation of the Paranet Acquisition and the criteria in the
identification of a business combination established in IFRS
3, the Paranet Acquisition has been accounted for using the
acquisition method, whereby the purchase consideration is
allocated to the fair values of the net assets acquired.
The Corporation financed the Paranet Acquisition and
transaction costs from existing loan facilities.
The purchase price allocated to the net assets acquired,
based on their estimated fair values, is as follows:
($ Thousands, except percentages)
2022
2023
Cash consideration
Contingent consideration
Total purchase price
11,074
945
12,019
The assets and liabilities recognized as a result of the
Paranet Acquisition are as follows:
($ Thousands, except percentages)
2022
2023
Net Assets Acquired:
Accounts receivable
Prepaid expenses and deposits
Linen in service
Accounts payable and accrued liabilities(2)
Lease liabilities
Deferred income taxes
Property, plant and equipment(1,2)
Intangible assets
Net identifiable assets acquired
Goodwill
Net assets acquired
1,317
137
970
(1,552)
(1,176)
(1,474)
6,142
2,450
6,814
5,205
12,019
1 Includes ROUA from the Canadian Division of $1,176 comprised of buildings of $964 and vehi-
cles of $212
2 Includes provision of $219 for asset retirement obligation
The provisional intangible assets acquired are made up
of $2,450 for the customer contracts along with related
relationships and customer lists. The goodwill is attribut-
able to the workforce, and the efficiencies and synergies
created between the existing business of the Corporation
and the acquired business. Goodwill will not be deductible
for tax purposes.
A) CONTINGENT CONSIDERATION
In the event that a certain EBITDA target was achieved by
Paranet for the twelve month period ended August 31, 2023,
additional undiscounted consideration of up to $1,890 would
have been payable in cash during the fourth quarter of 2023.
While performance was in-line with expectations, the target
was not achieved; therefore, no payment was made.
During the first three quarters of 2023, the estimated fair
value of the possible payment was classified as contingent
consideration. The fair value of the contingent consider-
ation was estimated by considering the probability-adjusted
future expected cash flows in regards to Paranet achieving
the target that would result in consideration being paid.
The impact of discounting these future cash flows was not
considered because the impact would be nominal. Given that
the EBITDA target was not achieved for the twelve month
period ended August 31, 2023, the contingent consider-
ation amount of $945 has been derecognized and a gain on
settlement of contingent consideration has been recorded
in Consolidated Statement of Earnings and Comprehensive
Income for the twelve months ended December 31, 2023.
B) ACQUISITION RELATED COSTS
For the twelve months ended December 31, 2023, $274 in
professional fees associated with the Paranet Acquisition
has been included in Corporate expenses.
C) REVENUE & PROFIT INFORMATION
The acquired business contributed revenues of $7,819 to the
Corporation for the period from March 1, 2023 to December
31, 2023. If the Paranet Acquisition had occurred on January
1, 2023, consolidated pro-forma revenue for the period
ended December 31, 2023 would have been $322,209.
The acquired business contributed a net deficit of ($316) to the
Corporation for the period from March 1, 2023 to December
31, 2023. If the Paranet Acquisition had occurred on January
1, 2023, consolidated pro-forma net income for the period
ended December 31, 2023 would have been $17,591.
These amounts have been calculated using Paranet’s
results and adjusting them for differences in the accounting
policies between the Corporation and Paranet as it pertains
to property, plant and equipment. The Corporation follows
the requirements of IFRS Accounting Standards whereas
Paranet previously reported under Canadian Accounting
2023 Annual Report
Standards for Private Enterprises (ASPE), the additional
depreciation and amortization that would have been charged
assuming the fair value adjustments to property, plant and
equipment and intangible assets had applied from January
1, 2023, together with the consequential tax effects.
28. BUSINESS ACQUISITION
- VILLERAY
On November 1, 2023, the Corporation completed the
acquisition of 100% of the share capital of Buanderie
Villeray and its affiliate Buanderie La Relance (the “Villeray
Acquisition”), a private laundry and linen services company
incorporated in Canada and operating in Montréal, Québec.
The Villeray Acquisition was completed through a share
purchase agreement consisting of existing working capital,
fixed assets, customer relationships and an employee
base. Villeray operates in the hospitality and healthcare
sector, which complements the existing business of the
Corporation. As part of the transaction, the Corporation
closed its Granby facility and consolidated existing volumes
into Villeray. Based on the Corporation’s evaluation of the
Villeray Acquisition and the criteria in the identification of
a business combination established in IFRS 3, the Villeray
Acquisition has been accounted for using the acquisition
method, whereby the purchase consideration is allocated to
the fair values of the net assets acquired.
The Corporation financed the Villeray Acquisition and trans-
action costs from existing loan facilities.
The purchase price allocated to the net assets acquired,
based on their estimated fair values, is as follows:
($ Thousands, except percentages)
2022
2023
Cash consideration
Contingent consideration
Total purchase price
11,204
500
11,704
74
The assets and liabilities recognized as a result of the
Villeray Acquisition are as follows:
($ Thousands, except percentages)
2022
2023
Net Assets Acquired:
Accounts receivable
Prepaid expenses and deposits
Income tax receivable
Accounts payable and accrued liabilities(2)
Lease liabilities
Deferred income taxes
Property, plant and equipment(1,2)
Intangible assets
Net identifiable assets acquired
Goodwill
Net assets acquired
1 Includes ROUA from the Canadian Division of $2,706 related to buildings
2 Includes provision of $97 for asset retirement obligation
907
187
69
(807)
(2,706)
(1,416)
7,161
2,530
5,925
5,779
11,704
The provisional intangible assets acquired are made up
of $2,530 related to customer relationships. The goodwill
is attributable to the workforce, and the efficiencies and
synergies created between the existing business of the
Corporation and the acquired business. Goodwill will not be
deductible for tax purposes.
A) CONTINGENT CONSIDERATION
The estimated fair value of payment has been classi-
fied as contingent consideration by exercising significant
judgment as to whether it should be classified as such, or
as renumeration to the former owner, who will be employed
subsequent to the close of the transaction. The Corporation
has determined by considering all relevant factors included
in the agreements as it pertains to employment terms,
valuation of the business, and other relevant terms that the
additional consideration is most appropriately reflected as
contingent consideration.
In the event that a certain EBITDA target is achieved by
Villeray for the twelve month period ended October 31, 2024,
additional undiscounted consideration ranging from $500 to
$1,000 will be payable in cash during the first quarter of
2025. The potential undiscounted amount payable within
the agreement will only be paid should the EBITDA target
be achieved. Should the EBITDA target not be achieved, no
payment will be made.
We Are Dependable.
75
The fair value of the contingent consideration of $500 was
estimated by considering the probability-adjusted future
expected cash flows in regards to Villeray achieving the
target that would result in consideration being paid. The
impact of discounting those future cash flows was not
considered because the impact would be nominal.
Since the estimated future cash flows and probability of
achieving the EBITDA target are an unobservable input, the
fair value of the contingent consideration is classified as a
level 3 fair value measurement.
B) ACQUISITION RELATED COSTS
For the year ended December 31, 2023, $414 in profes-
sional fees associated with the Villeray Acquisition has been
included in Corporate expenses.
C) REVENUE & PROFIT INFORMATION
The acquired business contributed revenues of $1,602 to
the Corporation for the period from November 1, 2023 to
December 31, 2023. If the Villeray Acquisition had occurred
on January 1, 2023, consolidated pro-forma revenue for the
year ended December 31, 2023 would have been $329,021.
If both the Paranet Acquisition and Villeray Acquisition
had occurred on January 1, 2023, consolidated pro-forma
revenue for the year ended December 31, 2023 would have
been $330,346.
The acquired business contributed a net deficit of ($201) to
the Corporation for the period from November 1, 2023 to
December 31, 2023, inclusive of Granby transition related
costs. If the Villeray Acquisition had occurred on January
1, 2023, consolidated pro-forma net income for the period
ended December 31, 2023 would have been $17,721.
These amounts have been calculated using Villeray’s
results and adjusting them for differences in the accounting
policies between the Corporation and Villeray as it pertains
to property, plant and equipment. The Corporation follows
the requirements of IFRS Accounting Standards whereas
Villeray previously reported under Canadian Accounting
Standards for Private Enterprises (ASPE), the additional
depreciation and amortization that would have been charged
assuming the fair value adjustments to property, plant and
equipment and intangible assets had applied from January
1, 2023, together with the consequential tax effects.
29. SUBSEQUENT EVENTS
A) DIVIDENDS
The Corporation’s Board of Directors declared an eligible
dividend of $0.10 per Common share of the Corporation
payable on each of February 15, March 15, and April 15,
2024, to Shareholders of record on January 31, February 29,
and March 31, 2024, respectively.
2023 Annual Report 76
Corporate Information
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
VICTORIA
Andrew MacKeen
General Manager
P 250 474 5699
F 250 474 5680
861 Van Isle Way
Victoria, BC V9B 5R8
REGINA
Barb Lewis
General Manager
P 306 757 5276
F 306 757 5280
730 Dethridge Bay
Regina, SK S4N 6H9
VANCOUVER 1
Kevin Stephenson
General Manager
P 604 420 2203
F 604 420 2313
#401 - 8340
Fraser Reach Court,
Burnaby, BC V3N 0G2
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 780 453 5218
F 780 455 6676
14903 - 137 Ave
Edmonton, AB T5V 1R9
CALGARY
Jeff Gannon
General Manager
P 403 724 9001
F 403 290 1599
6969 – 55 St SE
Calgary, AB T2C 4Y9
TORONTO
James Ewart
General Manager
MONTRÉAL
Benoit Laurent
Directeur Général
QUÉBEC CITY
Dimitri Hamm
Directeur Général
QUÉBEC CITY
Dimitri Hamm
Directeur Général
P 416 233 5555
F 416 233 4434
6045 Freemont Blvd
Mississauga, ON L5R 4J3
P 514 259 4531
F 450 378 8245
4740 Rue De Rouen
Montréal, QC H1V 3T7
P 418 661 6163
F 418 661 4000
367, boulevard des Chutes
Québec City, QC G1E 3G1
P 418 661 6163
F 418 661 4000
1105, Vincent-Massey
Québec City, QC, G1N 1N2
UK LOCATIONS
HEAD OFFICE
P 01334 654033
Edenfields,
Cupar Trading Estate
Cupar, Fife, KY15 4SX
PERTH
Kelly fox
General Manager
P 01738210106
Inveralmond Industrial
Estate, Ruthvenfield
Avenue, Perth, PH1 3UF
COATBRIDGE
Amy Liddell
General Manager
P 01236 449010
18 Palacecraig Street,
Coatbridge, ML5 4RY
CUPAR
Joe Mcdonagh
General Manager
P 01334 655220
Prestonhall Industrial
Estate, Cupar, Fife,
KY15 4RD
LIVINGSTON
Alan Johnston
General Manager
P 0150 6426816
Unit 2, Gregory Road,
Kirkton Campus,
Livingston, EH54 7DR
NEWCASTLE
Steve Brumbill
General Manager
P 0191 6053106
Unit L4, Intersect 19,
High Flatworth, Tyne
Tunnel Industrial Estate,
North Shields, NE29 7UT
INQUIRIES@K-BROLINEN.COM
We Are Dependable.
K-BROLINEN.COM