Leon's Furniture Ltd. Annual Report 2023

FY2023 Annual Report · Leon's Furniture Ltd.

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S C A L E D F O R G R O W T H

Unlocking
Value

’

Leon’s Furniture Limited
Annual Report 2023

Scaled for
Growth

Leon’s Furniture Limited (“LFL Group”) has built significant
scale in its operations, while delivering steady long-term growth.
We remain focused on generating sustainable and increasing
returns for our shareholders.

Adjusted EBITDA1
($ millions)

$293

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$

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8
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$

Earnings Per Common Share2

$2.06

$0.89

1. Adjusted earnings before interest, income taxes, depreciation and amortization, mark-to-market adjustment due

to the changes in the fair value of the Company’s financial derivative instruments and any non-recurring charges to
income (“Adjusted EBITDA”) is a non-IFRS financial measure used by the Company

2. Adjusted Diluted Earnings Per Share (Non-IFRS measure)

Table of Contents

CEO’s Message

Unlocking Value
Retail Plus
Financial Services
Real Estate

Comprehensive Coverage
Across Canada

Management Team

Our ESG Commitment

Five-Year Review

MD&A

Consolidated Financial Statements

5
8
10
11

Unlocking
Value

LFL Group is pursuing a strategy designed
to unlock the value embedded in our
diversified portfolio of assets. We will take
advantage of our scale to expand our
addressable market beyond the ecosystem
of our traditional retail banners.

Retail
Plus

Financial
Services

Real
Estate

LEON’S FURNITURE LIMITED ANNUAL REPORT 2023 CEO’s
Message

Michael J. Walsh
President & CEO LFL Group

2023 in Review

LFL Group experienced a decrease in our top-line
results in 2023. Total system-wide sales of $2.97 billion
was 2.7% below 2022 levels, and revenue of $2.46 billion
was down 2.5%.

A closer look reveals that growth resumed midway
through the year, with the declines largely confined
to the first half. The slowdown, which was sparked by
a decline in consumer discretionary spend, was also
partly driven by a choice we made in the final months
of 2022 to meaningfully reduce inventory. At that time,
global freight costs were unusually high, the economy
had slowed and consumers were cautious in a high
interest rate environment. We decided not to overcommit
to high-cost merchandise.

I am proud of the way our team navigated
a challenging environment in 2023. While
sales were soft in the first half of the year –
partly due to tactical decisions we made –
we rebounded in the second half to set
us up well for 2024. More importantly, we
maintained our margins, managed costs,
demonstrated financial strength, and
advanced several key strategic initiatives.

“ LFL Group has

always been managed
for the long term.”

Ten-Year
Revenue Growth

43%

Ten-Year Earnings
per Share Growth

131%

LEON’S FURNITURE LIMITED ANNUAL REPORT 2023UNLOCKING VALUECareful management of inventory enabled us to continue
to offer competitive pricing to our customers without
sacrificing margins. Gross margin of 44.1% for the year
was up slightly, a solid achievement given the uneven
sales volumes and macro environment.

We had largely worked through that dynamic halfway
through 2023 and replenished our warehouses with more
reasonably-priced product. The fourth quarter was our
strongest of the year, and we expect the momentum to
carry on into 2024.

Throughout these headwinds, we maintained our
financial strength. We generated $253 million of cash
from operations in 2023, an improvement of $239 million
from the previous year. We repaid $134 million of debt
– more than any other year in the Company’s history –
thereby avoiding some of the financing costs associated
with higher interest rates. The Board of Directors made
the decision in November to increase the regular
quarterly dividend by $0.02 to a new all-time high of
$0.18 per common share.

Managing for the Long Term

As we have said in recent years, investors should evaluate
our performance on a long-term basis. The COVID-19
pandemic and its aftershocks have caused some
anomalies. Early on, LFL Group benefited from the
investments we had made in a best-in-class Ecommerce
presence that smaller competitors could not match. Our
omnichannel capability enabled us to continue to operate
through the lockdowns and post very high year-over-year
growth rates, particularly in 2021.

By 2022 we were facing different challenges such as supply
chain disruptions and high shipping costs. That year also
saw the start of unusually high inflation, which led to
increased interest rates that affected consumer demand
and affordability. We continued to deal with those issues
in 2023, as well as a labour strike at our most important port
in Vancouver.

One common thread has been the ability of the entire
LFL Group team to manage through challenges as they
arise. We have made use of the levers available to us to
control costs, preserve margins, and grow market share
when the opportunity presented.

Another theme has been our ongoing investment in
the business. In recent years we have opened new
distribution centres, introduced innovations in our
stores, formed new partnerships and strengthened our
portfolio of businesses.

One gains an interesting perspective on our performance
by reviewing 10-year trends, which help adjust for the
recent volatility by using 2014 as a base year.

Between 2013 to 2023, we grew system-wide sales at a
cumulative annual growth rate (“CAGR”) of 3.7%, adjusted
EBITDA by 7.4%, net income by 7.3% and EPS by 8.8%.
We believe these are solid trends. During that same
timeframe, we repurchased $410 million of common
shares, paid out over $500 million in dividends, and repaid
$445 million of debt.

LFL Group has always been managed for the long term.
We can withstand some volatility if we know we are
creating value. That mindset is deeply ingrained in this
Company thanks to the ongoing involvement of the
founding Leon family. I believe other shareholders also
benefit from this approach.

Ten-Year
EBITDA Growth

104%

LEON’S FURNITURE LIMITED ANNUAL REPORT 2023Total system-wide sales
($ billions)

Gross profit
(%)

Net income
($ millions)

$2.97

44.13%

$139

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9
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$

Positioned to Unlock Value

Outlook

2024 promises to be an exciting year for LFL Group. We
expect to advance our strategic plan and make progress
on multiple fronts. We are excited and look forward to
sharing with investors the unrecognized value that exists
in the Company.

I would like to express sincere thanks to our entire team,
which grows ever stronger as we are able to provide
new opportunities for long-serving associates in addition
to recruiting talent to help execute our plans. I also thank
our shareholders, business partners, suppliers and
customers for their ongoing support.

“Michael J. Walsh”

Michael J. Walsh
President & Chief Executive Officer
LFL Group

A track record of steady growth and forward-thinking
investment leaves us in the enviable spot where we
stand today.

We have bolstered our competitive position in our
core retail business by delivering consistent value
and innovation highlighted by a full omnichannel
presence. We have quietly built a portfolio of diversified
businesses that support the retail core as well as turning
a profit in their own right. From warranty and insurance,
to distribution, to in-home service, each has the potential
for significant growth in the coming years. With the
scale we have achieved as a true coast-to-coast operator,
we are now in a position to tap into an expanded
addressable market.

In 2023, we announced our intention to create a
Real Estate Investment Trust (“REIT”) that will hold
a portion of the real estate LFL Group has acquired
over its 115-year history.

The potential capital generated by the monetization
of real estate, combined with our ongoing operational
strength and rock solid balance sheet, will afford us the
financial capacity to pursue additional growth. We will
consider further investment in existing businesses as well
as opportunities outside our Company. As always, we will
set a high bar and evaluate options through the lens of
creating long-term value.

LEON’S FURNITURE LIMITED ANNUAL REPORT 2023UNLOCKING VALUEUnlocking
Value

LFL Group consists of three main pillars:
Retail Plus, Financial Services and Real Estate.
Each pillar presents unique opportunities to
unlock value for our stakeholders.

Retail
Plus

Financial
Services

Real
Estate

The full range of operations that
enable us to be a successful
retailer, encompassing our retail
stores and Ecommerce sites, as
well as our distribution, after-
sales service, wholesale and
commercial capabilities.

Insurance and warranty services
for customers who wish to be
protected from hardship due to
unforeseen events.

The portfolio of more than
50 properties we own across
Canada, on which many of our
stores and other facilities reside.

+ For more information, see page 8

+ For more information, see page 10

+ For more information, see page 11

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Retail has been the core of our business
since the Company’s founding 115 years
ago. We are proud to have built Canada’s
preeminent retailer of furniture, appliances,
electronics and mattresses, with more
than 300 locations nationwide and six
Ecommerce sites.

As our network of stores grew, we developed a range of
capabilities and assets to support our retail operations.
Today, LFL Group sources product from around the
world, distributes it across the country, offers warranty
and insurance options, and provides after-sales service
to customers’ homes. We have also amassed a valuable
portfolio of real estate holdings.

These businesses have now reached a scale that enables
them to expand beyond their original purpose of supporting
the LFL Group ecosystem. For example, we have one of
the most extensive last-mile delivery networks in Canada,
and the largest network of home service technicians. We
can make use of this capacity to service new customers,
including those introduced by partner organizations.

DISTRIBUTION

AFTER-SALES
SERVICE

IN SU RAN CE

WAR R ANT Y

RETAILERS, MANUFACTU RER S , OT HER PA RTN ER S

The LFL Group
Ecosystem

Our traditional
customers buying
goods and services
directly from us

Supporting
Capabilities

Assets developed to
support LFL brands,
with the capacity to
service third parties

Larger Addressable
Market

Attracting new
customers buying
from other channels
supported by LFL
Group capabilities

Each business line is profitable, making a positive
contribution to our bottom line. And each has the
potential for significant growth. At the corporate level, we
have been strengthening our team so that senior leaders
can focus on each pillar.

In addition to increasing the overall profitability of the
Company, a diversified portfolio of thriving businesses
helps mitigate the cyclicality we may experience at times
in a particular segment.

Over time, cash generated by our portfolio – including
from the potential sale of certain assets – can be returned
to shareholders or reinvested to fund continued growth.

The following pages describe how we plan to unlock value
within each of our three pillars.

LEON’S FURNITURE LIMITED ANNUAL REPORT 2023UNLOCKING VALUEEvery
business line
is profitable

Proportionate contribution to
total Company profitability

BACKED BY A

$2.1B

RETAIL BUSINESS

WARRANTY

ECOM MERCE

I NSURANCE

A FTER
SA LES
SERV ICE

CO MMERCIAL

LEON’S FURNITURE LIMITED ANNUAL REPORT 2023Retail
Plus

Retail Plus is the foundation of LFL Group. Our retail business will drive our results for the
foreseeable future, and remain a primary focus for our senior management team.

Proven Operators

Distribution

LFL Group has one of the largest last-mile delivery
networks in Canada. Our newest distribution centres
and IT systems are designed to manage hundreds of
thousands of unique items from all our divisions, as well
as external partners. We have the scale and capacity to
unlock value by growing this part of the business.

After-Sales Service

LFL Group has Canada’s largest network of service
technicians, providing household installation and repair
services to our customers, including warranty work.
Our technicians are authorized to service appliances and
electronics from more than 40 manufacturers. We intend
to grow the business we carry out for manufacturers
and vendors who otherwise lack the scale to service the
Canadian market.

LFL Group has a well-established track record as a retail
operator. There are countless aspects to operational
success. To list just a handful:
•

Offer product selection and quality that meets
consumer expectations;
Hire good people and provide them with the training
and resources they need;

•

• Invest in innovation;
•
•
•
•

Develop information systems that provide timely data;
Carefully manage margins and costs;
Act decisively as circumstances change;
Choose a pricing strategy that is suitable for the
current environment;
Take a long-term view of the business.

•

Adhering to such principles has enabled us to deliver
consistent growth in sales and market share. We have
successfully navigated challenges that have adversely
affected many retailers, including a shift to online
shopping, the COVID-19 pandemic and its after-effects,
and swings in economic conditions.

We expect to continue our pattern of steady long-term
growth. In addition, within the Retail Plus pillar, we see
opportunities to unlock value in our distribution and
after-sales service businesses.

Leading the Way in Retail Innovation

LFL Group believes in introducing innovations that can enhance the
customer experience or improve efficiency. New technologies we have
deployed in recent years include life-sized video walls, touchscreen kiosks,
point-of-sale tablets, augmented reality, delivery management tools, and
most significantly, a seamless omnichannel sales capability.

In 2023, we became the first retailer in Canada to use drones to assist
with inventory management. The technology has applications both in our
showrooms and our warehouses.

LEON’S FURNITURE LIMITED ANNUAL REPORT 2023UNLOCKING VALUERetail Plus

The “Plus” means this pillar encompasses much more than our retail stores. It is the
combination of all of these pieces that position us as a leading Canadian retailer.

Retail Stores

Digital

Distribution

Bricks & mortar showrooms
nationwide under multiple banners.

Ecommerce sites that allow customers
to shop from anywhere, creating a true
omnichannel experience.

Warehousing, fulfillment and
last-mile delivery.

Sales associates

7,800

Stores nationwide

303

eCommerce sales

$251M

Visits per annum

69M+

Units moved across all centres

15M+

Delivery stops annually

1M+

After-Sales Service

Wholesale

Commercial

In-home furniture, electronics
and appliance installation and
repair services.

Subsidiary working directly with
overseas manufacturers, custom-
designing private label product lines.

Direct B2B sales of appliances
and furniture to builders and
commercial establishments.

Home service technicians

Contract manufacturers

Builder sales

775+

55+

$320M

Annual home visits

Total imported containers per year

150k

10,000+

LEON’S FURNITURE LIMITED ANNUAL REPORT 2023U N L O C K I N G VA L U E

Financial
Services

Financial Services, the
second of our three pillars,
includes our insurance
and warranty businesses.
Initially viewed as support
for the retail operations,
both have grown to become
significant profit centres in
their own right.

Financial Services

We offer insurance and warranty
services for customers who wish
to be protected from hardship
due to unforeseen events.

Growing our Financial Services Business

Our Financial Services offering, including our unique and often first-to-market
products and services, is a differentiator for LFL Group and increasingly
popular with our customers. We have reached a critical size that enables us
to further expand our book of business while effectively managing risks.

We have an opportunity to expand the addressable market for our insurance
and warranty services through partner relationships. Partners can leverage
our scale to offer comparable services. For example, our subsidiaries Trans
Global Insurance (TGI) and Trans Global Life Insurance (TGLI) are the insurance
providers on all retail transactions completed by Flexiti Financial throughout
its Canadian retail network – not just at LFL Group properties. TGI and TGLI
are the exclusive providers of creditor insurance for over 8,000 retail locations
across Canada.

We believe we can generate as much financial services revenue outside the
LFL Group ecosystem as we do within it. TGI already earns nearly half of its
credit insurance revenue from third parties.

Insurance

Warranty

Coverage of outstanding balances
on purchases in the event of death,
dismemberment, disability, critical
illness and involuntary unemployment.

Extended warranties to provide
repair and replacement service,
extending coverage beyond the
manufacturer’s warranty period.

Storefronts that sell our offering

Customers

8,000+

2M+

Revenue earned from third party partners
on creditor insurance

45%

LFL customers purchase warranty

40%+

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LEON’S FURNITURE LIMITED ANNUAL REPORT 2023U N L O C K I N G VA L U E

Real
Estate

LFL Group owns a significant portion of the land on
which our stores and other facilities reside. Our owned real
estate portfolio comprises more than 50 properties totaling
430 acres across Canada.

The LFL Group
Real Estate Portfolio

Total square footage of real estate
portfolio owned1

Land ownership offers a retailer strategic advantages such as stability and
lower costs. We have the flexibility to refresh our retail footprint and introduce
new showroom formats as consumer preferences evolve.

5.6M ft2

The market value of our real estate assets is well above the historical cost of
$256 million we report for accounting purposes. Our two-part strategy to
unlock that value includes (1) creating a Real Estate Investment Trust, and
(2) developing the properties that remain within LFL Group.

Total square footage of real estate
portfolio leased (excluding franchises)

6.6M ft2

Real Estate

Land Development at LFL Group

In 2023, we announced our intention
to establish a REIT that will hold a
portion of the properties currently
owned by LFL Group. We expect
the REIT will be operated by an
independent management team.
We expect them to work with
development partners to intensify
the use of certain properties and
diversify their tenant base beyond
LFL Group.

LFL Group will retain some real
estate assets within the Company.
We will pursue opportunities
to develop certain properties,
typically working with partners who
contribute capital and expertise.
The most exciting example is our
Toronto head office location, which
we recently announced would
become the site of 4,000 new homes.

Total acres

430

>40 acres

New Residential Community

In early 2024 we received a
change of use approval to
proceed with a new master-
planned community at our
head office location in Toronto.
Subject to further planning and
approvals, the 40-acre site at
highways 401 and 400 will be
home to 4,000 new residential
units, in addition to a new
corporate headquarters and
flagship retail store.

1. Figure includes the full square footage of two
distribution centres which are 50% owned by
LFL Group (see AIF for details).

1 1

LEON’S FURNITURE LIMITED ANNUAL REPORT 2023Comprehensive Coverage
Across Canada

Yukon
1

Northwest
Territories

Alberta
42
7
7
3
2

British
Columbia
36
6
1

Saskatchewan

12
3
1

Manitoba

7
3
1

Legend

The Brick

Leon’s

The Brick Mattress Store

The Brick Outlet

Appliance Canada

Distribution Centre

Newfoundland &
Labrador

1
3

Prince Edward Island

1
1

Quebec
17
10
1

Ontario
58
46
14
5
1
1

New
Brunswick

5
4

Nova Scotia

3
4
1

STORES NATIONWIDE

ECOMMERCE SITES

DISTRIBUTION C ENTRES

303

Leon’s

Appliance Canada

The Brick

184

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The Brick Mattress
Store

The Brick Outlet

LEON’S FURNITURE LIMITED ANNUAL REPORT 2023UNLOCKING VALUEU N L O C K I N G VA L U E

Management
Team

LFL Group is led by a mix
of veterans with decades
of experience within
the Company, and more
recent additions who add
perspectives gained from
external organizations.

Michael J. Walsh
President and CEO of LFL Group

Constantine Pefanis
CFO of LFL Group

Mike was promoted to the Chief
Executive Officer in 2021. He became
President & COO in 2020 after
serving for five years as President
of Leon’s Furniture Division. Mike
is a seasoned executive with over
30 years of retail experience. Prior
to joining the Company, he served
as Vice President of Operations at
Canadian Tire Corporation.

Costa has held various management
positions within Leon’s Furniture
Limited since joining the Company
as Corporate Finance Manager in
May 2005. In 2016 he was appointed
as the Director of Finance, Audit
& IT, a position he held until his
appointment in 2018 to the position
of Chief Financial Officer of the
LFL Group.

Darci Walker
Divisional President of The Brick

Lewis Leon
Divisional President of Leon’s

Darci first joined The Brick in 1982.
Over the course of her career,
she has held several operational
roles spanning franchise stores,
customer care, distribution, IT,
and most recently Vice President
of Operations. Darci was promoted
to President of The Brick on
January 1, 2024.

Lewis joined the Company full-
time in 2005 within the Marketing
department and was most recently
in the role of Associate Vice
President of Marketing for the Leon’s
Furniture Division. He was promoted
to President of Leon’s Furniture
Division on May 12, 2023.

1 3

LEON’S FURNITURE LIMITED ANNUAL REPORT 2023Our ESG
Commitment

LFL Group strives to be an integral part of communities
across Canada. We care about the people who work for us,
the customers who shop in our stores, the places where all
of us live, and the planet our children will inherit.

Minimizing
Our Impact

Responsible
Sourcing

•

LFL Group has established a Responsible Sourcing
Committee to oversee practices relating to vendor
relationships such as approvals, on-boarding,
supplier contracts, audits, correction of deficiencies
and potential terminations.

We have engaged a third party to conduct
independent audits on our suppliers to ensure their
manufacturing processes comply with acceptable
labour practices and other ESG standards.

We aim to carry out all manufacturing, transportation,
storage and operational activities in a sustainable and
energy-efficient manner.

•

We continue to increase recycling of cardboard,
plastics and Styrofoam, utilizing equipment in place
at our distribution centres (DCs) and transporting
materials there where practical. Our total diversion
rate is 85%, including 91% at the DCs. In 2023,
recycling efforts by The Brick division conserved
the equivalent of 12,064 cubic yards of landfill
airspace, 82,501 mature trees, 11,844,253 Kw-hours of
electricity and 19,024,181 million gallons of water.

In 2023 we began to use electric trucks at our
Delta, BC distribution centre and currently have six
in use. We are working to optimize their range and
maximize uptime.

Electronic price tags in our stores can be
reprogrammed repeatedly, reducing the need for
printing and saving over $650,000 annually. Similarly,
electronic receipts emailed to our customers save
paper and ink.

Electric trucks in operation at our
Delta, BC distribution centre

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UNLOCKING VALUE

A Safe and Healthy Workplace

We follow all safety protocols and
best practices to help keep our
associates healthy. Through our
human resources policies, we strive
to ensure that equal opportunities
exist for all our associates and that
our benefits and remuneration
packages are designed to properly
motivate our workforce.

Protecting the Interests of
All Stakeholders

LFL Group has implemented governance policies to
help ensure that we consider the needs of multiple
stakeholder groups.

•

The Company established an ESG Committee
to oversee more formal processes related to
sustainability initiatives and reporting.

The Board of Directors is comprised of a majority
of independent directors. The Board closely
monitors compliance with its Code of Conduct,
and is currently updating the Company’s Business
Continuity Plan.

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Giving Back to
Our Communities

•

The Leon’s Leaf Program was launched in November
2023 to help replenish Canadian forests in the wake
of damage caused by recent wildfires. Customers
have the option to donate in-store towards this
program, with the Government of Canada matching
their contributions. Leon’s has pledged to plant at
least 10,000 trees per year, in partnership with Tree
Canada.

The Brick is marking the 10-year anniversary of its
support for the Children’s Miracle Network, which
funds children’s hospitals across Canada. The Brick
helped raise more than $2.3 million for the Children’s
Miracle Network in 2023, bringing the 10-year total
to over $15 million raised.

The Brick partners with the Homes for Heroes
Foundation, providing furnishings for affordable
urban villages designed to help homeless military
Veterans successfully integrate back into the
community.

Total amount The Brick raised for the
Children’s Miracle Network in 2023

$2.3M

Five-Year
Review

Income Statistics

($ in thousands, except amounts per share)

2023

2022

2021

2020

2019

Revenue

Cost of Sales

Gross Profit

Operating Expenses

Income before income taxes

Provision for income taxes

Net Income

$ 2,454,789

$ 2,517,659

$ 2,512,670

$ 2,220,180

$ 2,283,411

1,371,612

1,408,226

1,404,446

1,236,258

1,284,826

$ 1,083,177

$ 1,109,433

$ 1,108,224

$ 983,922

998,585

900,699

182,478

43,623

873,212

236,221

56,792

831,845

773,437

276,379

210,485

855,539

143,046

69,221

47,235

36,117

$ 138,855

$ 179,429

$ 207,158

$ 163,250

$ 106,929

Common shares outstanding (‘000s)

67,963

67,512

77,623

79,799

77,595

Earnings per common share

2.04

2.66

2.67

2.05

Percent annual change in sales

Net income as a percentage of sales

(2.5%)

5.7%

0.2%

7.1%

13.2%

8.2%

(2.8%)

7.4%

1.38

3.3%

4.7%

Dividend declared

44,863

43,238

$ 146,092

69,977

43,445

Balance Sheet Statistics

($ in thousands, except amounts per share)

2023

2022

2021

2020

2019

Shareholders’ equity

Total assets

Purchase of capital assets

Working capital1

$ 1,028,524

$ 928,885

$ 791,193

$ 1,016,003

$ 915,764

2,221,839

2,193,643

2,453,133

2,418,589

2,146,461

42,103

26,798

14,896

43,493

32,931

212,975

258,714

(34,455)

161,286

100,206

Shareholders’ equity per common share2

15.13

13.76

14.01

13.03

11.80

Common share price range on the Toronto Stock Exchange

High

Low

23.85

16.56

22.84

15.00

26.30

20.09

21.68

10.25

17.29

14.01

1. 2021 and 2018 exclude the amounts of $90,000 and $144,712, respectively, comprised of loans and borrowings due to the classification from non-current liabilities to current liabilities

as at December 31.

2. For year-on-year comparability, 2021 excludes the substantial issuer bid and special dividends. 2020 excludes special dividends.

Revenue
($ in thousands)

Net Income
($ in thousands)

Shareholders’ Equity
($ per share)

$2,283,411

$2,220,180

$2,512,670

$2,517,659

$106,929

$163,250

$207,158

$179,429

$2,454,789

$138,855

$11.80

$13.03

$14.01

$13.76

$15.13

1 6

LEON’S FURNITURE LIMITED ANNUAL REPORT 2023UNLOCKING VALUE

Management’s
Discussion
and Analysis

For the year ended December 31, 2023

Preface .................................................................................................................................18

2. Business Overview ........................................................................................................18

3. Results of Operations..................................................................................................19

4. Store Network.................................................................................................................22

Summary of Consolidated Quarterly Results .............................................23

6. Financial Position ..........................................................................................................23

Liquidity and Capital Resources .........................................................................24

8. Outlook ...............................................................................................................................25

9. Outstanding Common Shares .............................................................................25

10. Related Party Transactions .....................................................................................25

11. Critical Assumptions ..................................................................................................25

12. Risks and Uncertainties ............................................................................................ 27

13. Controls and Procedures .........................................................................................28

14. Non-IFRS and Supplementary Financial Measures ................................29

1 7

LEON’S FURNITURE LIMITED ANNUAL REPORT 20231. Preface
The following Management’s Discussion and Analysis (“MD&A”) is prepared as at February 21, 2024 and is based on the consolidated financial
position and operating results of Leon’s Furniture Limited/Meubles Leon Ltée (the “Company”) as of December 31, 2023 and for the years
ended December 31, 2023 and 2022. It should be read in conjunction with the fiscal year 2023 consolidated financial statements and the notes
thereto. For additional detail and information relating to the Company, readers are referred to the fiscal 2023 quarterly financial statements
and corresponding MD&As which are published separately and available at www.sedarplus.ca.

Cautionary Statement Regarding Forward-Looking Statements

This MD&A is intended to provide readers with the information that management believes is required to gain an understanding of Leon’s
Furniture Limited’s current results and to assess the Company’s future prospects. This MD&A, and in particular the section under heading
“Outlook”, includes forward-looking statements, which are based on certain assumptions and reflect Leon’s Furniture Limited’s current plans
and expectations. These forward-looking statements are subject to a number of risks and uncertainties that could cause actual results and
future prospects to differ materially from current expectations. Some of the factors that can cause actual results to differ materially from
current expectations are: a drop in consumer confidence; dependency on product from third party suppliers, further changes to the Canadian
bank lending rates; and further fluctuations of the Canadian dollar versus the US dollar. Given these risks and uncertainties, investors should
not place undue reliance on forward-looking statements as a prediction of actual results. Readers of this report are cautioned that actual
events and results may vary.

Financial Statements Governance Practice

The consolidated financial statements of the Company have been prepared in accordance with International Financial Reporting Standards
(“IFRS”) as issued by the International Accounting Standards Board (“IASB”). The amounts expressed are in Canadian dollars (“C$”). Per share
amounts are calculated using the weighted average number of shares outstanding before and after considering the potential dilutive effects
of the convertible debentures and the relevant management share purchase plans for the applicable period.

The Audit Committee of the Board of Directors of Leon’s Furniture Limited reviewed the MD&A and the consolidated financial statements,
and recommended that the Board of Directors approve them. Following review by the full Board, the fiscal year 2023 consolidated financial
statements and MD&A were approved on February 21, 2024.

2. Business Overview
Leon’s Furniture Limited is the largest network of home furniture, appliances, electronics, and mattress stores in Canada. Our retail banners
include: Leon’s; The Brick; Brick Outlet and The Brick Mattress Store. As well, The Brick’s Midnorthern Appliance banner alongside with the
Appliance Canada banner, makes the Company the country’s largest commercial retailer of appliances to builders, developers, hotels and
property management companies. Finally, the Company operates six ecommerce sites: leons.ca, thebrick.com, furniture.ca, midnorthern.com,
transglobalservices.com and applicancecanada.com.

The Company’s repair service division, Trans Global Services (“TGS”), provides household furniture, electronics and appliance repair services
to its customers. TGS has contracts to support several manufacturer’s warranty service work in addition to servicing a number of individual
programs offered by other dealers. This division also performs work for products sold with extended warranties and is an integral part of the
retail offering. These extended warranties, underwritten by the Company’s wholly-owned subsidiaries are offered on appliances, electronics
and furniture to provide coverage that extends beyond the manufacturer’s warranty period by up to five years. The warranty contracts
provide both repair and replacement service depending upon the nature of the warranty claim.

The Company’s wholly-owned subsidiaries Trans Global Insurance Company (“TGI”) and its sister company, Trans Global Life Insurance
Company (“TGLI”) also offer credit insurance on the customer’s outstanding financing balances and third-party customer balances. This
credit insurance coverage includes life, dismemberment, disability, critical illness, and involuntary unemployment. These credit insurance
policies are underwritten by TGI and TGLI as they are licensed as insurance companies in all Canadian provinces and territories.

The Company has foreign operations in Asia and the Caribbean, through its wholly-owned subsidiaries First Oceans Trading Corporation and
King & State Limited, respectively. These operations relate to the Company’s import and quality control program for sourcing products from
Asia for resale in Canada through its retail operations, and the retail banners that sell their extended warranties on appliances and electronics
to their customers, respectively.

1 8

MANAGEMENT’S DISCUSSION AND ANALYSISLEON’S FURNITURE LIMITED ANNUAL REPORT 20233. Results of Operations

Summary financial highlights for the three months ended December 31, 2023 and December 31, 2022

For the

Three months ended

(C$ in millions except %, share and per share amounts)

December 31,
2023

Total system-wide sales (1)

Franchise sales (1)

Revenue

Cost of sales

Gross profit

Gross profit margin as a percentage of revenue

Selling, general and administrative expenses (2)

SG&A as a percentage of revenue

Income before net finance costs and income tax expense

Net finance costs

Income before income taxes

Income tax expense

Adjusted net income (1)

Adjusted net income as a percentage of revenue (1)

After-tax mark-to-market loss on financial derivative instruments (1)

Net income

836.5

149.6

686.9

378.2

308.7

44.94%

239.6

34.88%

69.1

(4.2)

64.9

16.0

48.9

7.12%

2.7

46.2

December 31,

2022

804.4

143.2

661.2

373.1

288.1

43.57%

223.1

33.74%

65.0

(6.0)

59.0

14.4

44.6

6.75%

1.4

43.2

Basic weighted average number of common shares

68,031,796

66,957,921

Basic earnings per share

Adjusted basic earnings per share (1)

$0.68

$0.72

$0.65

$0.67

Diluted weighted average number of common shares

68,646,892

67,148,859

Diluted earnings per share

Adjusted diluted earnings per share (1)

Common share dividends declared

Convertible, non-voting shares dividends declared

$0.68

$0.72

$0.18

$0.32

$0.65

$0.67

$0.16

$0.32

1. Non-IFRS financial measure. Refer to section 14 in this MD&A for additional information.
2. Selling, general and administrative expenses (“SG&A”).

$ Increase
(Decrease)

% Increase
(Decrease)

32.1

6.4

25.7

5.1

20.6

16.5

4.1

(1.8)

5.9

1.6

4.3

1.3

3.0

$0.03

$0.05

$0.03

$0.05

$0.02

$0.00

4.0%

4.5%

3.9%

1.4%

7.2%

7.4%

6.3%

(30.0%)

10.0%

11.1%

9.6%

92.9%

6.9%

4.6%

7.5%

4.6%

7.5%

12.5%

0.0%

Same Store Sales (1)

For the

(C$ in millions, except %)

Same store sales (1)

Three months ended

December 31,
2023

671.4

December 31,

2022

648.1

$ Increase

% Increase

23.3

3.6%

1. Supplementary financial measure. Refer to section 14 in this MD&A for additional information.

1 9

MANAGEMENT’S DISCUSSION AND ANALYSISLEON’S FURNITURE LIMITED ANNUAL REPORT 2023Revenue

For the three months ended December 31, 2023, revenue was $686.9 million compared to $661.2 million in the fourth quarter 2022. Revenue
increased $25.7 million or 3.9% as compared to the prior year quarter. The improvement was driven by strong growth in the furniture and
appliance categories, which were supported by strong inventory positions and effective promotions.

Same Store Sales (1)

Same store sales in the quarter increased by 3.6% compared to the fourth quarter 2022, driven by factors discussed in the revenue section.

Gross Profit

The gross profit margin of 44.94% in the quarter increased by 137 basis points from the fourth quarter 2022. This increase in gross margin
percentage during the quarter was primarily driven by more favorable business mix, improved furniture margin due to lower freight costs,
optimized promotional initiatives, and continued growth of the warranty and insurance businesses.

Selling, General and Administrative Expenses (“SG&A”)

The Company’s SG&A as a percentage of revenue for the fourth quarter of 2023 was 34.88% compared to 33.74% for the fourth quarter 2022,
an increase of 114 basis points. The Company’s SG&A as a percentage of revenue for the current quarter increased primarily because of an
increase in point-of-sale retail financing fees due to the increased Bank of Canada interest rates compared to same quarter last year.

Adjusted Net Income (2) and Adjusted Diluted Earnings Per Share (2)

The adjusted net income in the current quarter totaled $48.9 million, which represents an increase of $4.3 million over the prior year’s quarter.
The improvement is driven by strong operational results and reduced interest costs due to lower debt.

The adjusted diluted earnings per share in the fourth quarter of 2023 was $0.72 per share, an increase of 7.5% over the prior year’s quarter.

Net Income and Diluted Earnings Per Share

Net income for the fourth quarter of 2023 was $46.2 million, or $0.68 per diluted earnings per share as compared to the net income of
$43.2 million in the prior year’s quarter, or $0.65 per diluted earnings per share.

1. Supplementary financial measure. Refer to section 14 in this MD&A for additional information.
2. Non-IFRS financial measure. Refer to section 14 in this MD&A for additional information.

2 0

MANAGEMENT’S DISCUSSION AND ANALYSISLEON’S FURNITURE LIMITED ANNUAL REPORT 2023Summary financial highlights for the year ended December 31, 2023 , 2022 and 2021

For the

Year ended

(C$ in millions except %, share and per
share amounts)

Total system-wide sales (1)

Franchise sales (1)

Revenue

Cost of sales

Gross profit
Gross profit margin as a percentage

2023

2022

2,971.5

3,053.0

516.7

2,454.8

1,371.6

1,083.2

535.3

2,517.7

1,408.2

1,109.4

$ Increase
(Decrease)

% Increase
(Decrease)

(81.5)

(18.6)

(62.9)

(36.6)

(26.2)

(2.7%)

(3.5%)

(2.5%)

(2.6%)

(2.4%)

2022

2021

3,053.0

3,057.6

535.3

544.9

2,517.7

2,512.7

1,408.2

1,404.4

1,109.4

1,108.2

$ Increase
(Decrease)

% Increase
(Decrease)

(4.6)

(9.6)

5.0

3.8

1.2

(0.2%)

(1.8%)

0.2%

0.3%

0.1%

of revenue

44.13%

44.06%

44.10%

Selling, general and administrative

expenses (2)

897.7

854.7

43.0

5.0%

854.7

819.1

35.6

4.3%

SG&A as a percentage of revenue

36.57%

33.95%

32.60%

Other income (3)
Income before net finance costs and

income tax expense

Net finance costs

Income before income taxes

Income tax expense

Adjusted net income (1)
Adjusted net income as a percentage

(20.0)

–

(20.0)

100%

–

205.5

(19.5)

186.0

44.5

141.5

254.7

(21.5)

233.2

56.0

177.2

(49.2)

(19.3%)

(2.0)

(47.2)

(11.5)

(35.7)

(9.3%)

(20.2%)

(20.5%)

(20.2%)

254.7

(21.5)

233.2

56.0

177.2

289.1

(15.0)

274.1

68.7

205.5

(34.4)

(11.9%)

6.5

(40.9)

(12.7)

(28.3)

43.3%

(14.9%)

(18.5%)

(13.8%)

of revenue (1)

5.76%

7.04%

8.18%

After-tax mark-to-market loss/(gain)
on financial derivative instruments
(1)

Net income
Basic weighted average number of

2.6

138.9

(2.2)

4.8

218.2%

(2.2)

(1.7)

179.4

(40.5)

(22.6%)

179.4

207.2

(0.5)

(27.8)

(29.4%)

(13.4%)

common shares

67,962,903 67,512,284

67,512,284 77,623,382

Basic earnings per share

Adjusted basic earnings per share (1)
Diluted weighted average number of

$2.04

$2.08

$2.66

$2.62

$(0.62)

$(0.54)

(23.3%)

(20.6%)

$2.66

$2.62

$2.67

$2.65

$(0.01)

$(0.03)

(0.4%)

(1.1%)

common shares

68,654,322 68,164,937

68,164,937 79,062,376

Diluted earnings per share
Adjusted diluted earnings per

share (1)

Common share dividends declared

Convertible, non-voting shares

$2.02

$2.64

$(0.62)

(23.5%)

$2.64

$2.62

$0.02

0.8%

$2.06

$0.66

$2.60

$0.64

$(0.54)

(20.8%)

$0.02

3.1%

$2.60

$0.64

$2.60

$1.89

$–

0.0%

$(1.25)

(66.1%)

dividends declared

$0.32

$0.00

0.0%

$0.32

$–

0.0%

1. Non-IFRS financial measure. Refer to section 14 in this MD&A for additional information.
2. Selling, general and administrative expenses (“SG&A”).
3.

The Company received a $20 million one-time payment to settle the value of warrant rights negotiated as part of the original agreement with CURO. Please refer to
Note 20 of the consolidated financial statements.

Same Store Sales (1)

For the

(C$ in millions, except %)

Same store sales (1)

Year ended

December 31, 2023 December 31, 2022

$ Decrease

% Decrease

2,398.4

2,462.6

(64.2)

(2.6%)

1. Supplementary financial measure. Refer to section 14 in this MD&A for additional information.

2 1

MANAGEMENT’S DISCUSSION AND ANALYSISLEON’S FURNITURE LIMITED ANNUAL REPORT 2023Revenue

For the year ended December 31, 2023, revenue was $2,454.8 million compared to $2,517.7 million in the prior year, a decrease of $62.9 million
or 2.5% as compared to the prior year. This is driven by macro-economic factors that led to a decrease in consumer demand in the first half of
the year, offset by a return to growth in the second half of the year. Despite the cautious consumer sentiment, the mattress product category
grew year-over-year partly as a result of our partnership with Resident, the largest direct-to-consumer mattress company in North America.

Same Store Sales (1)

Same store corporate sales decreased by 2.6% or $64.2 million comparable to the year ended December 31, 2022 driven by the factors
discussed in the revenue section above.

Gross Profit

The gross profit margin increased by 7 basis points from 44.06% for the year ended December 31, 2022 to 44.13% in the year ended
December 31, 2023. This favourable result is due to a decrease in ocean and overland transportation costs and a more favourable product
mix for the year.

Selling, General and Administrative Expenses

The Company’s SG&A as a percentage of revenue for the year ended December 31, 2023 increased to 36.57%, an increase of 262 basis points
over the prior year of 33.95%. The Company’s SG&A as a percentage of revenue for the year increased due to a decline in sales, increases due
to provincial wage increases, an increase in point-of-sale retail financing fees due to the continuing Bank of Canada interest rate increases
and an overall increase in marketing spend to drive revenue.

Adjusted Net Income (2) and Adjusted Diluted Earnings Per Share (2)

Adjusted net income for the year ended December 31, 2023 totaled $141.5 million, a decrease of $35.7 million or 20.2% over the prior year.

Adjusted diluted earnings per share for the Company decreased to $2.06 per share compared to $2.60 per share in the year ended
December 31, 2022, a decrease of $0.54 per share.

Net Income and Diluted Earnings Per Share

Including the mark-to-market impact of the Company’s financial derivatives, net income for the year ended December 31, 2023 was
$138.9 million, or $2.02 per diluted earnings per share (net income of $179.4 million, $2.64 per diluted earnings per share in 2022).

1. Supplementary financial measure. Refer to section 14 in this MD&A for additional information.
2. Non-IFRS financial measure. Refer to section 14 in this MD&A for additional information.

4. Store Network
The Company has 303 retail stores in Canada at December 31, 2023. The following table illustrates the Company’s store count continuity from
December 31, 2022 to December 31, 2023 by retail banner:

Banner

Corporate Stores

Leon’s

Appliance Canada

The Brick (1)

The Brick Mattress Store

Brick Outlet

Corporate Subtotal

Franchise Stores

Leon’s

The Brick

Franchise Subtotal

Total Corporate & Franchise Stores

Includes the Midnorthern Appliance banner.

Number of stores as at
December 31, 2022

Opened

Closed

Number of stores as at
December 31, 2023

117

202

102

304

–

(1)

–

(1)

–

(1)

(2)

118

202

101

303

The Company continues to reposition store locations in markets that allow its divisions to expand their market share and support
existing locations.

2 2

MANAGEMENT’S DISCUSSION AND ANALYSISLEON’S FURNITURE LIMITED ANNUAL REPORT 20235. Summary of Consolidated Quarterly Results
The table below highlights the variability of quarterly results and the impact of seasonality on the Company’s results. The Company’s
profitability is typically lower in the first half of the year, since retail sales are traditionally higher in the third and fourth quarters.

For the quarter ended

December 31

September 30

June 30

March 31

(C$ in millions except per share amounts)

Total system-wide sales (1)

Franchise sales (1)

Revenue

Net income

Adjusted net income (1)

Basic earnings per share

Diluted earnings per share

Adjusted basic earnings per share (1)

Adjusted diluted earnings per share (1)

2023

836.5

149.6

686.9

46.2

48.9

$0.68

$0.72

2022

804.4

143.2

661.2

43.2

44.6

$0.65

$0.67

2023

791.7

130.7

661.0

52.3

51.7

$0.77

$0.76

$0.75

2022

801.0

138.8

662.2

61.3

59.2

$0.91

$0.90

$0.88

$0.87

2023

717.6

123.8

593.8

27.4

28.0

$0.40

$0.41

2022

784.6

137.6

647.0

50.1

47.5

$0.75

$0.74

$0.71

$0.70

2023

625.6

112.6

513.0

12.9

$0.19

2022

662.9

115.7

547.2

24.8

25.8

$0.37

$0.36

$0.38

1. Non-IFRS financial measure. Refer to section 14 in this MD&A for additional information.

6. Financial Position

As at

(C$ in millions)

Total assets

Total non-current liabilities

Assets

December 31, 2023

December 31, 2022

2,221.8

571.2

2,193.6

671.6

Total assets at December 31, 2023 of $2,221.8 million were $28.2 million higher than the $2,193.6 million reported at December 31, 2022. The
movement was primarily driven by increases in trade accounts receivable and property, plant and equipment, offset by a decrease in cash
and cash equivalents.

Non-Current Liabilities

Non-current liabilities of $571.2 million were $100.4 million lower than the $671.6 million reported at December 31, 2022. This is primarily
a result of a decrease in the term loan of $134.4 million, offset by an increase in the long-term portion of lease liabilities of $30.3 million.
Long-term debt and lease liabilities are discussed further in notes 14 and 13, respectively, of the consolidated financial statements.

Net Debt

The table below reflects the Company’s net cash balances, excluding its lease liabilities and restricted marketable securities as at
December 31, 2023.

As at

(C$ in millions)

Term debt

Less: cash, cash equivalents, debt and equity instruments

Net cash/(debt) balance (1)

1. Non-IFRS financial measure. Refer to section 14 in this MD&A for additional information.

December 31, 2023 December 31, 2022

$ Change

100.0

187.1

87.1

234.4

226.0

(8.4)

(134.4)

(38.9)

95.5

At December 31, 2023, the Company’s total net cash balance, excluding its lease liabilities is $87.1 million. The change in the net debt position
is primarily driven by a decrease in the term loan of $134.4 million, offset by a decrease in cash and cash equivalents of $32.4 million.

2 3

MANAGEMENT’S DISCUSSION AND ANALYSISLEON’S FURNITURE LIMITED ANNUAL REPORT 20237. Liquidity and Capital Resources

Liquidity Risk Management

The purpose of liquidity risk management is to maintain sufficient amounts of cash and cash equivalents, and authorized credit facilities,
to fulfill obligations associated with financial liabilities. To manage liquidity risk, the Company prepares budgets and cash forecasts, and
monitors its performance against these. Management also monitors cash and working capital efficiency given current sales levels and
seasonal variability. The Company measures and monitors liquidity risk by regularly evaluating its cash inflows and outflows under expected
conditions through cash flow reporting such that it anticipates certain funding mismatches and ensures the cash management of the
business within certain tolerable levels. These cash flow forecasts are reviewed on a weekly basis by management. The Company mitigates
liquidity risk through continuous monitoring of its credit facilities and the diversification of its funding sources, both in the short term as well
as the long term. As at December 31, 2023, unrestricted liquidity is $416.5 million comprised of cash and cash equivalents, debt and equity
instruments and its undrawn revolving credit facility.

Consolidated Cash Flow Movements

The following table provides a summarized statement of cash flows for the three months and year ended December 31, 2023 and
December 31, 2022:

For the

(C$ in millions)

Cash provided by operating activities

Cash provided by / (used in) investing activities

Cash used in financing activities

Increase (decrease) in cash and cash equivalents

For the

(C$ in millions)

Cash provided by operating activities

Cash used in investing activities

Cash used in financing activities

Increase (decrease) in cash and cash equivalents

December 31, 2023

December 31, 2022

$ Increase (Decrease)

Three months ended

82.1

10.2

(97.9)

(5.6)

92.8

(20.4)

(39.2)

33.2

(10.7)

30.6

(58.7)

(38.8)

December 31, 2023

December 31, 2022

$ Increase (Decrease)

Year ended

253.3

(5.4)

(280.3)

(32.4)

14.3

(36.7)

(244.6)

(267.0)

239.0

31.3

(35.7)

234.6

Operating Activities

 $10.7 million change

Q4 2023

Year-to-Date

 $239.0 million change

The decrease is primarily driven by changes in
working capital related to inventories, trade and
other payables and customer deposits. This is
offset by a decrease in income taxes paid.

The increase is mainly due to trade and other
payables and customer deposits, offset by a gain
on the settlement of warrant.

Investing Activities

 $30.6 million change

 $31.3 million change

Majority of the increase is due to proceeds on sale
of debt and equity instruments.

The increase is primarily driven by proceeds on
settlement of warrant, and by proceeds on sale of
debt and equity instruments. This is offset by an
increase in the purchases of property, plant and
equipment.

Financing Activities

 $58.7 million change

 $35.7 million change

The decrease is due to repayment of long-term
debt.

The decrease is primarily due to the movement
of the term loan balance, offset by the changes in
repurchase of common shares.

Adequacy of Financial Resources

At December 31, 2023, the Company’s current assets exceeded its current liabilities by $213.0 million and its cash and cash equivalents,
restricted marketable securities, and debt and equity instruments were $187.6 million compared to $226.4 million at December 31, 2022. At
December 31, 2023, $229.3 million is available to draw on under the Company’s $250 million revolving credit facility as the borrowing capacity
has been reduced by ordinary letters of credit of $6.9 million and utilizing $13.8 million of the revolving credit facility. The Company believes
that its existing financing resources together with cash flow provided from its current operations and its expanded revolving credit facility
will provide a sound liquidity and working capital position throughout the next twelve months.

2 4

MANAGEMENT’S DISCUSSION AND ANALYSISLEON’S FURNITURE LIMITED ANNUAL REPORT 2023

Contractual Obligations

As at December 31, 2023

(C$ in millions)

Contractual obligations

Long-term debt

Lease payments

Total contractual obligations

Total

108.9

408.6

517.5

2024

12.4

91.2

2025

96.5

64.8

103.6

161.3

2026

–

63.4

Payments Due by Period
2029 &
Beyond

2028

–

59.4

–

67.8

2027

–

62.0

8. Outlook
Given the Company’s strong and continuously improving financial position, our principal objective is to increase our market share and
profitability. We remain focused on our commitment to effectively manage our costs but to also continuously invest in digital innovation that
we believe will drive more customers to both our online eCommerce sites and our 303 store locations across Canada.

9. Outstanding Common Shares
At December 31, 2023, there were 68,032,028 common shares issued and outstanding. During the year ended December 31, 2023, 9,859
series 2012 shares, 55,892 series 2013 shares, 42,299 series 2014 shares and 62,689 series 2015 shares were converted into common shares.
For details on the Company’s commitments related to its redeemable share liability please refer to Note 15 of the consolidated financial
statements.

During the year ended December 31, 2023, no common shares were purchased or cancelled. At December 31, 2023, an obligation of $2 million
was recognized for the repurchase of common shares under the ASPP (at December 31, 2022 – $2 million).

10. Related Party Transactions
For the year ended December 31, 2023, we had no transactions with related parties as defined in IAS 24, Related Party Disclosures, except
those pertaining to transactions with key management personnel in the ordinary course of their employment.

11. Critical Assumptions

Use of estimates and judgments

Management has exercised judgment in the process of applying the Company’s accounting policies. The preparation of consolidated
financial statements in accordance with IFRS requires management to make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and liabilities at the consolidated statements of financial position dates and the
reported amounts of revenue and expenses during the reporting period. Estimates and other judgments are continuously evaluated and are
based on management’s experience and other factors, including expectations about future events that are believed to be reasonable under
the circumstances. Actual results could differ from those estimates. The following discusses the most significant accounting judgments and
estimates that the Company has made in the preparation of the consolidated financial statements.

Consolidation and classification of joint arrangements
Assessing the Company’s ability to control or influence the relevant financial and operating policies of another entity may, depending on
the facts and circumstances, require the exercise of significant judgment to determine whether the Company controls, jointly controls or
exercises significant influence over the entity performing the work. This assessment of control impacts how the operations of these entities
are reported in the Company’s consolidated financial statements (i.e., consolidation, equity investment or proportional share).

The classification of these entities as a subsidiary, joint operation, joint venture, associate or financial instrument requires judgment
by management to analyze the various indicators that determine whether control exists. In particular, when assessing whether a joint
arrangement should be classified as either a joint operation or a joint venture, management considers the contractual rights and obligations,
voting shares, share of board members and the legal structure of the joint arrangement. Subject to reviewing and assessing all the facts and
circumstances of each joint arrangement, joint arrangements contracted through agreements and general partnerships would generally
be classified as joint operations whereas joint arrangements contracted through corporations would be classified as joint ventures. The
application of different judgments when assessing control or the classification of joint arrangements could result in materially different
presentations in the consolidated financial statements.

2 5

MANAGEMENT’S DISCUSSION AND ANALYSISLEON’S FURNITURE LIMITED ANNUAL REPORT 2023Extended warranty revenue recognition
The Company offers extended warranties on certain merchandise. Management has applied judgment in determining the basis upon and
period over which to recognize deferred warranty revenue.

Inventories
The Company estimates the net realizable value as the amount at which inventories are expected to be sold by taking into account
fluctuations of retail prices due to prevailing market conditions. If required, inventories are written down to net realizable value when the cost
of inventories is estimated to not be recoverable due to obsolescence, damage or declining sales prices.

Reserves for slow-moving and damaged inventory are deducted in the Company’s valuation of inventories. Management has estimated the
amount of reserve for slow-moving inventory based on the Company’s historical retail experience.

Impairment of debt instruments
The Company exercises judgment in the determination of whether there are objective indicators of impairment with respect to its debt
instruments. The Company’s review is based on an expected credit loss (“ECL”) approach that employs an analysis of historical data, economic
indicators and any past or future events that may influence the recoverability of the debt instruments held.

Impairment of property, plant and equipment and right-of-use assets
The Company exercises judgment in the determination of cash-generating units (“CGUs”) for purposes of assessing any impairment of
property, plant and equipment and right-of-use assets, as well as in determining whether there are indicators of impairment present.
Should indicators of impairment be present, management estimates the recoverable amount of the relevant CGU. This estimation requires
assumptions about future cash flows, margins and discount rates.

Impairment of goodwill and intangible assets
The Company tests goodwill and indefinite-life intangible assets at least annually and reviews other long-lived intangible assets for any
indication that the asset might be impaired. Significant judgments are required in determining the CGUs or groups of CGUs for purposes
of assessing impairment. Significant judgments are also required in determining whether to allocate goodwill to CGUs or groups of CGUs.
When performing impairment tests, the Company estimates the recoverable amount of the CGUs or groups of CGUs to which goodwill and
indefinite-life intangible assets have been allocated using a discounted cash flow model that requires assumptions about future cash flows,
margins and discount rates.

Provisions
The Company exercises judgment in the determination of recognizing a provision. The Company recognizes a provision when it has a present
legal or constructive obligation as a result of a past event and a reliable estimate of the obligation can be made. Significant judgments are
required to be made in determining the probable outflow of resources that will be required to settle the obligation.

Leases
Management exercises judgment in the process of applying IFRS 16, Leases (“IFRS 16”) and determining the appropriate lease term on a lease-
by-lease basis. Management considers many factors including any events that create an economic incentive to exercise a renewal option
including store performance, expected future performance and past business practice. Renewal options are only included if management is
reasonably certain that the option will be renewed.

Materiality
In preparing this MD&A and the information contained herein, management considers the likelihood that a reasonable investor’s decision
would be influenced to buy or not buy, or to sell or hold securities of the Company if such information were omitted, misstated or obscured
in any way. This concept of materiality is consistent with the notion of materiality applied to financial statements and contained in IFRS.

Recent Accounting Pronouncements

Adoption of new accounting standards

IFRS 17, Insurance Contracts (“IFRS 17”)
In May 2017, the IASB issued IFRS 17, which replaces IFRS 4, Insurance Contracts. IFRS 17 establishes new principles for the recognition,
measurement, presentation and disclosure of insurance contracts. IFRS 17 applies to all types of insurance contracts regardless of the
type of entities that issue them, as well as to certain guarantees and financial instruments with discretionary participation features. IFRS 17
provides a comprehensive model for insurance contracts, covering all relevant accounting aspects. The core of IFRS 17 is the general model,
supplemented by:

• A specific adaptation for contracts with direct participation features (the variable fee approach); and

• A simplified approach (the premium allocation approach) mainly for short-duration contracts.

2 6

MANAGEMENT’S DISCUSSION AND ANALYSISLEON’S FURNITURE LIMITED ANNUAL REPORT 2023In June 2020, the IASB issued amendments to IFRS 17 partly aimed at helping companies implement the standard. IFRS 17, incorporating the
amendments, is effective for annual reporting periods beginning on or after January 1, 2023. Retrospective application is required. Under
IFRS 17, the Company’s insurance contracts are all eligible to be measured by applying the Premium Allocation Approach. This approach
simplifies the measurement of insurance contracts in comparison with the general model.

On transition date, the Company:

• Has identified, recognized and measured each group of insurance contracts as if IFRS 17 had always applied; and

• Has identified, recognized and measured assets for insurance acquisition cash flows as if IFRS 17 has always applied.

The Company has not restated comparative information as the impacts of IFRS 17 are not material.

Amendments to IAS 8, Accounting Policies, Changes in Accounting Estimates and Errors (“IAS 8”)
In February 2021, the IASB issued Definition of Accounting Estimates, which amends IAS 8. The amendments replace the definition of a
change in accounting estimates with a definition of accounting estimates. Under the new definition, accounting estimates are “monetary
amounts in financial statements that are subject to measurement uncertainty”. The amendments provide clarification to help entities to
distinguish between accounting policies and accounting estimates. The amendments are effective for annual periods beginning on or after
January 1, 2023. The adoption of these amendments did not have a material impact on the consolidated financial statements.

Amendments to IAS 1 and IFRS Practice Statement 2
In February 2021, the IASB issued Disclosure of Accounting Policies, which amends IAS 1 and IFRS Practice Statement 2. The amendments
are intended to help preparers in deciding which accounting policies to disclose in their financial statements. The amendments to IAS 1
require companies to disclose their material accounting policy information rather than its material accounting policies. The amendments
also clarify that not all accounting policy information that relates to material transactions, other events or conditions is material to the
financial statements. The amendments to IFRS Practice Statement 2 add guidance and examples to the materiality practice statement,
which explains how to apply the materiality process to identify material accounting policy information. The amendments are effective for
annual periods beginning on or after January 1, 2023 and are to be applied prospectively. The adoption of these amendments did not have a
material impact on the consolidated financial statements.

Amendments to IAS 12, Income Taxes (“IAS 12”)
The amendments to IAS 12 provide clarification in accounting for deferred tax on certain transactions such as leases and decommissioning
obligations. The amendments clarify that the initial recognition exemption does not apply to transactions such as leases and decommissioning
obligations. As a result, entities may need to recognize both a deferred tax asset and a deferred tax liability for temporary differences arising
on initial recognition of leases and decommissioning obligations. The amendments are effective for annual periods beginning on or after
January 1, 2023 and are to be applied to transactions that occur on or after the beginning of the earliest comparative period presented. The
adoption of these amendments did not have a material impact on the consolidated financial statements.

Accounting standards and amendments issued but not yet adopted

Amendments to IAS 1, Presentation of Financial Statements
The amendments to IAS 1 provide a more general approach to the classification of liabilities based on the contractual arrangements in place
at the reporting date. The amendments clarify that the classification of liabilities as current or non-current should be based on rights that are
in existence at the end of the reporting period and align the wording in all affected paragraphs to refer to the right to defer settlement by at
least twelve months and make explicit that only rights in place at the end of the reporting period should affect the classification of a liability.
The amendments are effective for annual reporting periods beginning on or after January 1, 2024 and are to be applied retrospectively. The
adoption of these amendments will not have a material impact on the consolidated financial statements.

12. Risks and Uncertainties
Careful consideration should be given to the following risk factors. These descriptions of risks are not the only ones facing the Company.
Additional risks and uncertainties not presently known to Leon’s, or that the Company deems immaterial, may also impair the operations of
the Company. If any of such risks actually occur, the business, financial condition, liquidity, and results of operations of the Company could
be materially adversely affected.

Readers of this MD&A are also encouraged to refer to Leon’s Annual Information Form (“AIF”) dated February 21, 2024, which provides
information on the risk factors facing the Company. The February 21, 2024 AIF can be found online at www.sedarplus.ca.

2 7

MANAGEMENT’S DISCUSSION AND ANALYSISLEON’S FURNITURE LIMITED ANNUAL REPORT 2023Sensitivity to General Economic Conditions

The household furniture, mattress, appliance and home electronics retailing industry in Canada has historically been subject to cyclical
variations in the general economy and to uncertainty regarding future economic prospects. The Company’s sales are impacted by the health
of the economy in Canada as a whole, and in the regional markets in which the Company operates.

The Company’s sales and financial results are subject to numerous uncertainties. Weakness in sales or consumer confidence could result in
an increasingly challenging operating environment.

Maintaining Profitability & Managing Growth

There can be no assurance that the Company’s business and growth strategy will enable it to sustain profitability in future periods. The
Company’s future operating results will depend on a number of factors, including (i) the Company’s ability to continue to successfully execute
its strategic initiatives, (ii) the level of competition in the household furniture, mattress, appliance and home electronics retailing industry in
the markets in which the Company operates, (iii) the Company’s ability to remain a low-cost retailer, including the effective management
of its supply chain, (iv) the Company’s ability to realize increased sales and greater levels of profitability through its retail stores, (v) the
effectiveness of the Company’s marketing programs, (vi) the Company’s ability to successfully identify and respond to changes in fashion
trends and consumer tastes in the household furniture, mattress, appliance and home electronics retailing industry, (vii) the Company’s
ability to maintain cost effective delivery of its products, (viii) the Company’s ability to hire, train, manage and retain qualified retail store
management and sales professionals, (ix) the Company’s ability to continuously improve its service to achieve new and enhanced customer
benefits and better quality, and (x) general economic conditions and consumer confidence.

Financial Condition of Commercial Sales Customers & Franchisees

Through its commercial sales division, the Company sells products and extends credit to high-rise and condominium builders who purchase
large quantities of products. The Company also sells products and extends credit to its franchisees. Negative changes in the financial
condition of a significant commercial sales customer or a franchisee could impact on the Company’s receivables and ultimately result in the
Company having to take a bad-debt write-off in excess of allowance for bad debts. The occurrence of such an event could have a material
adverse effect on the Company’s business, financial condition, liquidity and results of operations.

Competition

The household furniture, mattress, appliance and home electronics retailing industry is highly competitive and highly fragmented. The
Company faces competition in all regions in which its operations are located by existing stores that sell similar products and also by stores
that may be opened in the future by existing or new competitors in such markets. The Company competes directly with many different
types of retail stores that sell many of the products sold by the Company. Such competitors include (i) department stores, (ii) specialty stores
(such as specialty electronics, appliance, or mattress retailers), (iii) other national or regional chains offering household furniture, mattresses,
appliances and home electronics, and (iv) other independent retailers, particularly those associated with larger buying groups. The highly
competitive nature of the industry means the Company is constantly subject to the risk of losing market share to its competitors. As a result,
the Company may not be able to maintain or to raise the prices of its products in response to competitive pressures. In addition, the entrance
of additional competitors to the markets in which the Company operates, particularly large furniture, appliance or electronics retailers from
the United States could increase the competitive pressure on the Company and have a material adverse effect on the Company’s market
share. The actions and strategies of the Company’s current and potential competitors could have a material adverse effect on the Company’s
business, financial condition, liquidity and results of operations.

13. Controls and Procedures

Disclosure Controls & Procedures

Management is responsible for establishing and maintaining a system of disclosure controls and procedures to provide reasonable assurance
that all material information relating to the Company is gathered and reported on a timely basis to senior management, including the Chief
Executive Officer and Chief Financial Officer so that appropriate decisions can be made by them regarding public disclosure. Based on the
evaluation of disclosure controls and procedures, the CEO and CFO have concluded that the Company’s disclosure controls and procedures
were effective as at December 31, 2023.

Internal Controls over Financial Reporting

Management is also responsible for establishing and maintaining disclosure controls and procedures and internal controls over financial
reporting for the Company. The control framework used in the design of disclosure controls and procedures and internal control over
financial reporting is based on the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal
Control-Integrated Framework (2013).

2 8

MANAGEMENT’S DISCUSSION AND ANALYSISLEON’S FURNITURE LIMITED ANNUAL REPORT 2023Management, including the CEO and CFO, does not expect that the Company’s disclosure controls or internal controls over financial
reporting will prevent or detect all errors and all fraud or will be effective under all potential future conditions. A control system is subject to
inherent limitations and, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control
system’s objectives will be met.

As required by the National Instrument 52-109 – Certification of Disclosure in Issuers’ Annual and Interim filings (“NI 52-109”), the Company’s
CEO and CFO evaluated the effectiveness of internal controls over financial reporting under their supervision and concluded that the
controls and procedures are effective.

During the year ended December 31, 2023, there have been no changes in the Company’s internal controls over financial reporting that have
materially affected, or are reasonably likely to materially affect, the Company’s internal controls over financial reporting.

14. Non-IFRS and Supplementary Financial Measures

Non-IFRS Financial Measures

The Company uses financial measures that do not have standardized meaning under IFRS and may not be comparable to similar measures
presented by other entities. The Company calculates the non-IFRS financial measures by adjusting certain IFRS measures for specific items
the Company believes are significant, but not reflective of underlying operations in the period, as detailed below:

Non-IFRS Measure

Adjusted net income

Adjusted income before income taxes

Adjusted earnings per share – basic

Adjusted earnings per share – diluted

Adjusted EBITDA

IFRS Measure

Net income

Income before income taxes

Earnings per share – basic

Earnings per share – diluted

Net income

Adjusted Net Income
Leon’s calculates comparable measures by excluding the effect of changes in fair value of derivative instruments, related to the net effect
of USD-denominated forward contracts. The Company uses derivative instruments to manage its financial risk in accordance with the
Company’s corporate treasury policy. Management believes excluding from income the effect of these mark-to-market valuations and
changes thereto, until settlement, better aligns the intent and financial effect of these contracts with the underlying cash flows.

The following is a reconciliation of reported net income to adjusted net income, basic and diluted earnings per share to adjusted basic and
diluted earnings per share:

For the

Three months ended

Year ended

(C$ in millions except per share amounts)
Net income
After-tax mark-to-market loss/(gain) on financial derivative instruments
Adjusted net income
Basic earnings per share
Diluted earnings per share
Adjusted basic earnings per share
Adjusted diluted earnings per share

December 31,
2023
46.2
2.7
48.9
$0.68
$0.68
$0.72
$0.72

December 31,

2022
43.2
1.4
44.6
$0.65
$0.65
$0.67
$0.67

December 31,
2023
138.9
2.6
141.5
$2.04
$2.02
$2.08
$2.06

December 31,

2022
179.4
(2.2)
177.2
$2.66
$2.64
$2.62
$2.60

Adjusted EBITDA
Adjusted earnings before interest, income taxes, depreciation and amortization, mark-to-market adjustment due to the changes in the fair
value of the Company’s financial derivative instruments and any non-recurring charges to income (“Adjusted EBITDA”) is a non-IFRS financial
measure used by the Company. The Company considers adjusted EBITDA to be an effective measure of profitability on an operational
basis and is commonly regarded as an indirect measure of operating cash flow, a significant indicator of success for many businesses.
The Company’s Adjusted EBITDA may not be comparable to the Adjusted EBITDA measure of other companies, but in management’s
view appropriately reflects Leon’s specific financial condition. This measure is not intended to replace net income, which, as determined in
accordance with IFRS, is an indicator of operating performance.

2 9

MANAGEMENT’S DISCUSSION AND ANALYSISLEON’S FURNITURE LIMITED ANNUAL REPORT 2023The following is a reconciliation of reported net income to adjusted EBITDA:

For the

Three months ended

Year ended

(C$ in millions)
Net income
Income tax expense
Net finance costs
Depreciation and amortization
Gain on settlement of warrant
Mark-to-market loss/(gain) on financial derivative instruments
Adjusted EBITDA

December 31,
2023
46.2
15.1
4.2
27.0
–
3.6
96.1

December 31,

2022
43.2
13.9
6.0
27.1
–
1.9
92.1

December 31,
2023
138.9
43.6
19.5
107.8
(20.0)
3.5
293.3

December 31,

2022
179.4
56.8
21.5
110.0
–
(3.0)
364.7

Total System Wide Sales
Total system wide sales refer to the aggregation of revenue recognized in the Company’s consolidated financial statements plus the franchise
sales occurring at franchise stores to their customers which are not included in the revenue figure presented in the Company’s consolidated
financial statements. Total system wide sales is not a measure recognized by IFRS and does not have a standardized meaning prescribed by
IFRS, but it is a key indicator used by the Company to measure performance against prior period results. Therefore, total system wide sales
as discussed in this MD&A may not be comparable to similar measures presented by other issuers. We believe that disclosing this measure
is meaningful to investors because it serves as an indicator of the strength of the Company’s overall store network, which ultimately impacts
financial performance.

Franchise Sales
Franchise sales figures refer to sales occurring at franchise stores to their customers which are not included in the revenue figures presented
in the Company’s consolidated financial statements, or in the same store sales figures in this MD&A. Franchise sales is not a measure
recognized by IFRS, and does not have a standardized meaning prescribed by IFRS, but it is a key indicator used by the Company to measure
performance against prior period results. Therefore, franchise sales as discussed in this MD&A may not be comparable to similar measures
presented by other issuers. Once again, we believe that disclosing this measure is meaningful to investors because it serves as an indicator
of the strength of the Company’s brands, which ultimately impacts financial performance.

Net Debt
Net debt is calculated as the principal amount of the term loan less cash, cash equivalents and debt and equity instruments. Net debt is a
non-IFRS financial measure used by the Company. The Company considers net debt to be an effective measure of the overall debt position
and borrowing capacity available to the Company.

Supplementary Financial Measures

The Company uses supplementary financial measures to disclose financial measures that are not (a) presented in the financial statements
and (b) is, or is intended to be, disclosed periodically to depict the historical or expected future financial performance, financial position or
cash flow, that is not a non-IFRS financial measure as detailed above.

Same Store Sales
Same store sales are defined as sales generated by stores, both in store and through online transactions, that have been open for more than
12 months on a fiscal basis. Same store sales as discussed in this MD&A may not be comparable to similar measures presented by other
issuers, however this measure is commonly used in the retail industry. We believe that disclosing this measure is meaningful to investors
because it enables them to better understand the level of growth of our business.

3 0

MANAGEMENT’S DISCUSSION AND ANALYSISLEON’S FURNITURE LIMITED ANNUAL REPORT 2023Consolidated
Financial
Statements

For the year ended December 31, 2023

Management’s Responsibility for Financial Reporting ........................................................................................................................................................................................... 32

Independent Auditor’s Report ............................................................................................................................................................................................................................................... 33

Consolidated Financial Statements

Consolidated Statements of Financial Position ..........................................................................................................................................................................................................36

Consolidated Statements of Income ................................................................................................................................................................................................................................. 37

Consolidated Statements of Comprehensive Income ........................................................................................................................................................................................... 37

Consolidated Statements of Changes in Shareholders’ Equity ........................................................................................................................................................................38

Consolidated Statements of Cash Flows ........................................................................................................................................................................................................................39

Notes to the Consolidated Financial Statements

Note 1

Reporting Entity ............................................................................. 40

Note 15 Management Share Purchase Plan .....................................58

Note 2 Basis of Presentation ................................................................... 40

Note 16 Common Shares ............................................................................ 60

Note 3

Summary of Material Accounting Policies ......................42

Note 17 Revenue ............................................................................................... 60

Note 4

Adoption of Accounting Standards
and Amendments ............................................................................ 51

Note 5 Cash and Cash Equivalents ...................................................... 52

Note 6

Inventories .......................................................................................... 52

Note 7 Deferred Acquisition Costs ...................................................... 52

Note 8

Property, Plant and Equipment and
Right-Of-Use Assets .................................................................... 53

Note 9

Investment Properties .................................................................54

Note 10

Intangible Assets and Goodwill ............................................. 55

Note 11

Trade and Other Payables .........................................................56

Note 12 Provisions .............................................................................................56

Note 13 Leases .................................................................................................... 57

Note 14 Long-term Debt ..............................................................................58

Note 18 Expenses by Nature .......................................................................61

Note 19 Net Finance Costs ...........................................................................61

Note 20 Other Income ....................................................................................61

Note 21

Income Tax Expense .....................................................................62

Note 22 Earnings Per Share .........................................................................63

Note 23 Financial Instruments ..................................................................63

Note 24

Insurance Contract Risk ............................................................. 67

Note 25 Capital Management ...................................................................68

Note 26 Commitments and Contingencies ......................................68

Note 27 Consolidated Statements of Cash Flows ........................69

Note 28 Related Party Transactions .......................................................70

Note 29 Comparative Financial Information ....................................70

3 1

LEON’S FURNITURE LIMITED ANNUAL REPORT 2023M A N AG E M E N T ’ S R E S P O N S I B I L I T Y FO R F I N A N C I A L R E P O RT I N G

Management’s Responsibility for Financial Reporting

The accompanying consolidated financial statements are the responsibility of management and have been
approved by the Board of Directors.

The accompanying consolidated financial statements have been prepared by management in accordance with International Financial
Reporting Standards. Financial statements are not precise since they include certain amounts based upon estimates and judgments. When
alternative methods exist, management has chosen those it deems to be the most appropriate in the circumstances.

Leon’s Furniture Limited/Meubles Leon Ltée (“Leon’s” or the “Company”) maintains systems of internal accounting and administrative
controls, consistent with reasonable costs. Such systems are designed to provide reasonable assurance that the financial information is
relevant and reliable and that Leon’s assets are appropriately accounted for and adequately safeguarded.

The Board of Directors is responsible for ensuring that management fulfils its responsibilities for financial reporting and is ultimately
responsible for reviewing and approving the financial statements. The Board carries out this responsibility through its Audit Committee.

The Audit Committee is appointed by the Board and reviews these consolidated financial statements; considers the report of the external
auditors; assesses the adequacy of the internal controls of the Company; examines the fees and expenses for audit services; and recommends
to the Board the independent auditors for appointment by the shareholders. The Committee reports its findings to the Board of Directors
for consideration when approving these consolidated financial statements for issuance to the shareholders. These consolidated financial
statements have been audited by Ernst & Young LLP, the external auditors, in accordance with Canadian generally accepted auditing
standards on behalf of the shareholders. Ernst & Young has full and free access to the Audit Committee.

“Michael J. Walsh”

“Constantine Pefanis”

Mike Walsh President and CEO

Constantine Pefanis CFO

3 2

LEON’S FURNITURE LIMITED ANNUAL REPORT 2023

I N D E P E N D E N T AU D I TO R ’ S R E P O RT

Independent Auditor’s Report

To the Shareholders of Leon’s Furniture Limited/Meubles Leon Ltée

Opinion

We have audited the consolidated financial statements of Leon’s Furniture Limited/Meubles Leon Ltée and its subsidiaries (the “Group”),
which comprise the consolidated statements of financial position as at December 31, 2023 and 2022, and the consolidated statements of
income, consolidated statements of comprehensive income, consolidated statements of changes in shareholders’ equity and consolidated
statements of cash flows for the years then ended, and notes to the consolidated financial statements, including material accounting
policy information.

In our opinion, the accompanying consolidated financial statements present fairly, in all material respects the consolidated financial position
of the Group as at December 31, 2023 and 2022, and its consolidated financial performance and its consolidated cash flows for the years then
ended in accordance with International Financial Reporting Standards (IFRS).

Basis for Opinion

We conducted our audit in accordance with Canadian generally accepted auditing standards. Our responsibilities under those standards
are further described in the Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements section of our report. We are
independent of the Group in accordance with the ethical requirements that are relevant to our audit of the consolidated financial statements
in Canada, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence
we have obtained is sufficient and appropriate to provide a basis for our opinion.

Key Audit Matter

Key audit matters are those matters that, in our professional judgment, were of most significance in the audit of the consolidated financial
statements of the current period. These matters were addressed in the context of the audit of the consolidated financial statements as a
whole, and in forming the auditor’s opinion thereon, and we do not provide a separate opinion on these matters. For the matter below, our
description of how our audit addressed the matter is provided in that context.

We have fulfilled the responsibilities described in the Auditor’s responsibilities for the audit of the consolidated financial statements
section of our report, including in relation to this matter. Accordingly, our audit included the performance of procedures designed to respond
to our assessment of the risks of material misstatement of the consolidated financial statements. The results of our audit procedures,
including the procedures performed to address the matter below, provide the basis for our audit opinion on the accompanying consolidated
financial statements.

Key audit matter

How our audit addressed the key audit matter

Valuation of Goodwill and Indefinite Life intangibles related to The Brick acquisition

Goodwill and indefinite-life intangible assets arising from the 2013
acquisition of the Brick represent $379 million and $266 million,
respectively as of December 31, 2023. The indefinite-life intangible
assets are comprised of brand name and franchise agreements.
As disclosed in Note 10 of the consolidated financial statements,
the Group allocated these assets to the Brick division (a group of
cash generating units (“CGUs”)) and assesses at least annually, or
at any time if an indicator of impairment exists, whether there has
been an impairment loss in the carrying value of these assets. When
performing impairment tests, the Group estimates the recoverable
amount of the group of CGUs to which goodwill and indefinite-life
intangible assets have been allocated using a discounted cash
flow model.

indefinite-life
Auditing management’s annual goodwill and
intangibles
impairment test was complex, as considerable
management judgement was required due to the significant
measurement uncertainty related to determining the recoverable
amount of the Brick division. Significant assumptions included
revenue growth rate, earnings margins and pre-tax discount rate,
which are affected by expectations about future market and
economic conditions.

To test the estimated recoverable amount of the Brick division,
our audit procedures included, among others, assessing valuation
methodology and evaluating significant assumptions and the
accuracy of underlying data used by management in its analysis.
With the assistance of our valuation specialists, we evaluated the
Group’s model and certain significant assumptions, including the
pre-tax discount rate. We assessed the selection and application
inputs and
of the pre-tax discount rate by evaluating the
mathematical accuracy of the calculation with the assistance of our
valuation specialists.

We assessed the historical accuracy of management’s estimates on
cash flow projections, revenue growth rate and earnings margins by
comparing management’s past projections to actual and historical
performance. We also compared the revenue growth rate to current
industry trends to assess the reasonableness of the revenue growth
rate used by management in its analysis. We performed sensitivity
analysis on significant assumptions, including the pre-tax discount
rate, to evaluate changes in the recoverable amount of the Brick
division that would result from changes in the assumptions.

3 3

LEON’S FURNITURE LIMITED ANNUAL REPORT 2023I N D E P E N D E N T AU D I TO R ’ S R E P O RT

Other Information

Management is responsible for the other information. The other information comprises:

• Management’s Discussion and Analysis

• The information, other than the consolidated financial statements and our auditor’s report thereon, in the Annual Report

Our opinion on the consolidated financial statements does not cover the other information and we do not express any form of assurance
conclusion thereon.

In connection with our audit of the consolidated financial statements, our responsibility is to read the other information, and in doing so,
consider whether the other information is materially inconsistent with the consolidated financial statements or our knowledge obtained in
the audit or otherwise appears to be materially misstated.

We obtained Management’s Discussion and Analysis prior to the date of this auditor’s report. If, based on the work we have performed, we
conclude that there is a material misstatement of this other information, we are required to report that fact in this auditor’s report. We have
nothing to report in this regard.

The Annual Report is expected to be made available to us after the date of the auditor’s report. If based on the work we will perform on this
other information, we conclude there is a material misstatement of other information, we are required to report that fact to those charged
with governance.

Responsibilities of Management and Those Charged with Governance for the Consolidated Financial Statements

Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with IFRS, and
for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are
free from material misstatement, whether due to fraud or error.

In preparing the consolidated financial statements, management is responsible for assessing the Group’s ability to continue as a going
concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management
either intends to liquidate the Group or to cease operations, or has no realistic alternative but to do so.

Those charged with governance are responsible for overseeing the Group’s financial reporting process.

Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements

Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level
of assurance, but is not a guarantee that an audit conducted in accordance with Canadian generally accepted auditing standards will always
detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in
the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated
financial statements.

As part of an audit in accordance with Canadian generally accepted auditing standards, we exercise professional judgment and maintain
professional scepticism throughout the audit. We also:

•

Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, design and
perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our
opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may
involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.

• Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the

circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group’s internal control.

• Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made

by management.

• Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evidence
obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group’s ability to
continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report
to the related disclosures in the consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our
conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may
cause the Group to cease to continue as a going concern.

• Evaluate the overall presentation, structure, and content of the consolidated financial statements, including the disclosures, and whether
the consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation.

• Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to
express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the
group audit. We remain solely responsible for our audit opinion.

3 4

LEON’S FURNITURE LIMITED ANNUAL REPORT 2023I N D E P E N D E N T AU D I TO R ’ S R E P O RT

We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and
significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding
independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our
independence, and where applicable, related safeguards.

From the matters communicated with those charged with governance, we determine those matters that were of most significance in the
audit of the consolidated financial statements of the current period and are therefore the key audit matters. We describe these matters
in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we
determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be
expected to outweigh the public interest benefits of such communication.

The engagement partner on the audit resulting in this independent auditor’s report is Laura Sluce.

Toronto, Canada
February 21, 2024

Chartered Professional Accountants
Licensed Public Accountants

3 5

LEON’S FURNITURE LIMITED ANNUAL REPORT 2023

Consolidated Statements of Financial Position

As at
(C$ in thousands)

Assets
Current assets
Cash and cash equivalents
Restricted marketable securities
Debt securities
Equity securities
Trade receivables
Income taxes recoverable
Inventories
Deferred acquisition costs
Prepaid expenses and other assets
Derivative assets

Total current assets

Non-current assets
Deferred acquisition costs
Loan receivable
Property, plant and equipment and right-of-use assets
Investment properties
Intangible assets
Goodwill
Deferred income tax assets
Total non-current assets

Total assets

Liabilities
Current liabilities
Trade and other payables
Current portion of provisions
Income taxes payable
Customers’ deposits
Current portion of lease liabilities
Dividends payable
Current portion of deferred warranty plan and insurance revenue
Current portion of long-term debt
Derivative liabilities

Total current liabilities
Non-current liabilities
Long-term debt
Lease liabilities
Deferred warranty plan and insurance revenue
Provisions
Deferred income tax liabilities
Total non-current liabilities
Total liabilities
Shareholders’ equity
Common shares
Retained earnings
Accumulated other comprehensive income

Total shareholders’ equity

Total liabilities and shareholders’ equity

Notes December 31, 2023

December 31, 2022

21
6
7

7
15
8
9
10
10
21

11
12
21
17
13
16
17
14
23

14
13
17
12
21

82,744
414
73,718
30,685
197,759
7,174
416,596
13,353
12,612
–

835,055

22,632
19,669
651,764
14,090
271,213
390,120
17,296
1,386,784

2,221,839

282,937
9,736
3,694
160,346
75,127
12,246
68,229
7,500
2,265

622,080

92,500
278,798
111,178
20,360
68,399
571,235
1,193,315

164,875
856,891
6,758

1,028,524

2,221,839

115,127
413
79,025
31,804
180,482
8,227
410,612
12,347
12,607
1,268

851,912

21,940
20,348
608,465
14,470
269,741
390,120
16,647
1,341,731

2,193,643

249,853
9,450
2,407
175,847
74,389
10,858
62,894
7,500
–

593,198

226,875
248,466
108,527
17,044
70,648
671,560
1,264,758

162,636
762,899
3,350

928,885

2,193,643

The accompanying notes are an integral part of these consolidated financial statements.

On behalf of the Board:

“Terrence T. Leon”

“Mary Ann Leon”

Terrence T. Leon
Director

Mary Ann Leon
Director

3 6

LEON’S FURNITURE LIMITED ANNUAL REPORT 2023CONSOLIDATED FINANCIAL STATEMENTS

Consolidated Statements of Income

For the

Year ended

(C$ in thousands except share and per share amounts)

Notes December 31, 2023

December 31, 2022

Revenue

Cost of sales

Gross profit

Selling, general and administrative expenses

Other income

Net finance costs

Net income before income tax

Income tax expense

Net income for the year

Weighted average number of common shares outstanding

Basic

Diluted

Earnings per share

Basic

Diluted

Dividends declared per share

Common

Convertible, non-voting

2,454,789

1,371,612

1,083,177

897,708

(16,467)

19,458

182,478

43,623

138,855

2,517,659

1,408,226

1,109,433

854,693

(3,010)

21,529

236,221

56,792

179,429

67,962,903

68,654,322

67,512,284

68,164,937

$2.04

$2.02

$0.66

$0.32

$2.66

$2.64

$0.64

$0.32

The accompanying notes are an integral part of these consolidated financial statements.

Consolidated Statements of Comprehensive Income

For the

(C$ in thousands)

Net income for the year

Other comprehensive income (loss)
Item that may be reclassified subsequently to profit or loss:

Gain (loss) on debt instruments arising during the year

Reclassification adjustment for loss on disposal of debt instruments

Item that will not be reclassified to profit or loss:

Gain (loss) on equity instruments arising during the year

Income tax (recovery) expense on the above

Other comprehensive income (loss) for the year

Comprehensive income for the year

The accompanying notes are an integral part of these consolidated financial statements.

Year ended

December 31, 2023

December 31, 2022

138,855

179,429

2,465

(249)

1,294

(102)

3,408

142,263

(4,506)

–

(6,801)

673

(10,634)

168,795

3 7

LEON’S FURNITURE LIMITED ANNUAL REPORT 2023CONSOLIDATED FINANCIAL STATEMENTSConsolidated Statements of Changes in Shareholders’ Equity

(C$ in thousands)

As at December 31, 2022

Comprehensive income
Net income for the year

Other comprehensive income for the year

Total comprehensive income

Transactions with shareholders
Dividends declared

Management share purchase plan [note 15]

Total transactions with shareholders

Common
shares

Accumulated other
comprehensive
income

162,636

3,350

–

2,239

–

3,408

–

As at December 31, 2023

164,875

6,758

Retained
earnings

762,899

138,855

–

138,855

(44,863)

–

(44,863)

856,891

(C$ in thousands)

As at December 31, 2021

Comprehensive income (loss)
Net income for the year

Other comprehensive loss for the year

Total comprehensive income (loss)

Transactions with shareholders
Dividends declared

Management share purchase plan [note 15]

Share repurchase commitment [note 16]

Repurchase of common shares [note 16]

Total transactions with shareholders

Common
shares

Accumulated other
comprehensive
income

149,966

13,984

Retained
earnings

627,243

–

13,409

3,625

(4,364)

12,670

–

179,429

(10,634)

–

179,429

–

(43,238)

–

39,375

(39,910)

(43,773)

Total

928,885

138,855

3,408

142,263

(44,863)

2,239

(42,624)

1,028,524

Total

791,193

179,429

(10,634)

168,795

(43,238)

13,409

43,000

(44,274)

(31,103)

As at December 31, 2022

162,636

3,350

762,899

928,885

The accompanying notes are an integral part of these consolidated financial statements.

3 8

LEON’S FURNITURE LIMITED ANNUAL REPORT 2023CONSOLIDATED FINANCIAL STATEMENTSConsolidated Statements of Cash Flows

For the

(C$ in thousands)

Operating activities
Net income before income tax

Add (deduct) items not involving an outlay of cash:

Depreciation of property, plant and equipment, right-of-use assets
and investment properties

Amortization of intangible assets

Amortization of deferred warranty plan revenue

Amortization of deferred insurance revenue

Amortization of premium

Net finance costs

Gain on sale of property, plant and equipment and investment properties

Gain on settlement of warrant
Loss on sale of marketable securities
Fair value gain on loan receivable

Change in operating working capital

Cash received on warranty plan sales

Cash received on insurance sales

Income taxes paid

Cash provided by operating activities

Investing activities
Purchase of property, plant and equipment

Purchase of intangible assets

Proceeds on sale of property, plant and equipment and investment properties

Purchase of debt and equity instruments

Proceeds on sale of debt and equity instruments

Repayment of loan receivable

Proceeds on settlement of warrant

Interest received

Cash used in investing activities

Financing activities

Payment of lease liabilities

Dividends paid

Decrease of employee loans-redeemable shares

Repurchase of common shares

Repayment of term loan

Issuance of term loan

Interest paid

Cash used in financing activities

Net decrease in cash and cash equivalents during the year
Cash and cash equivalents, beginning of year

Cash and cash equivalents, end of year

The accompanying notes are an integral part of these consolidated financial statements.

Notes December 31, 2023

December 31, 2022

Year ended

182,478

236,221

106,739

1,052

(63,333)

(24,408)

(117)

19,458

(85)

(20,000)

249

(1,067)

200,966

903

71,319

24,408

(44,283)

253,313

(42,103)

(2,524)

118

(44,501)

54,304

1,746

20,000

7,512

(5,448)

(76,518)

(43,475)

2,239

–

(134,375)

–

(28,119)

(280,248)

(32,383)

115,127

82,744

108,497

1,470

(58,359)

(17,016)

281

21,529

(34)

–
–
(638)

291,951

(272,552)

72,153

17,016

(94,271)

14,297

(26,798)

(1,038)

322

(36,816)

22,265

1,604

–

3,758

(36,703)

(75,661)

(44,667)

611

(244,274)

(5,625)

150,000

(24,989)

(244,605)

(267,011)

382,138

115,127

3 9

LEON’S FURNITURE LIMITED ANNUAL REPORT 2023CONSOLIDATED FINANCIAL STATEMENTSNotes to the
Consolidated Financial
Statements

For the years ended December 31, 2023 and 2022
Amounts in thousands of Canadian dollars, except share amounts and earnings per share

1. Reporting Entity
Leon’s Furniture Limited (“Leon’s” or the “Company”) was incorporated by the Articles of Incorporation under the Business Corporations
Act on February 28, 1969. Leon’s is a retailer of home furnishings, mattresses, appliances and electronics across Canada. Leon’s is a public
company listed on the Toronto Stock Exchange (TSX – LNF) and is incorporated and domiciled in Canada. The address of the Company’s
head office and registered office is 45 Gordon Mackay Road, Toronto, Ontario, M9N 3X3.

The Company’s business is seasonal in nature. Retail sales are traditionally higher in the third and fourth quarters.

2. Basis of Presentation

Statement of compliance

These consolidated financial statements of the Company are prepared in accordance with International Financial Reporting Standards
(“IFRS”), as issued by the International Accounting Standards Board (“IASB”).

These consolidated financial statements were approved by the Board of Directors for issuance on February 21, 2024.

Basis of measurement

The consolidated financial statements have been prepared under the historical cost convention, except for investments, debt and equity
instruments, derivative instruments and the initial recognition of assets acquired and liabilities assumed in business combinations, which are
measured at fair value.

Functional and presentation currency

Items included in the consolidated financial statements are measured using the currency of the primary economic environment in which
the Company operates (the functional currency). These consolidated financial statements are presented in Canadian dollars, which is the
Company’s functional and presentation currency and is also the functional currency of each of the Company’s subsidiaries.

Use of estimates and judgments

4 0

LEON’S FURNITURE LIMITED ANNUAL REPORT 2023NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSConsolidation and classification of joint arrangements

Assessing the Company’s ability to control or influence the relevant financial and operating policies of another entity may, depending on
the facts and circumstances, require the exercise of significant judgment to determine whether the Company controls, jointly controls or
exercises significant influence over the entity performing the work. This assessment of control impacts how the operations of these entities
are reported in the Company’s consolidated financial statements (i.e., consolidation, equity investment or proportional share).

Extended warranty revenue recognition

The Company offers extended warranties on certain merchandise. Management has applied judgment in determining the basis upon and
period over which to recognize deferred warranty revenue.

Inventories

The Company estimates the net realizable value as the amount at which inventories are expected to be sold by taking into account
fluctuations of retail prices due to prevailing market conditions. If required, inventories are written down to net realizable value when the cost
of inventories is estimated to not be recoverable due to obsolescence, damage or declining sales prices.

Impairment of debt instruments

The Company exercises judgment in the determination of whether there are objective indicators of impairment with respect to its debt
instruments. The Company’s review is based on an expected credit loss (“ECL”) approach that employs an analysis of historical data, economic
indicators and any past or future events that may influence the recoverability of the debt instruments held.

Impairment of property, plant and equipment and right-of-use assets

The Company exercises judgment in the determination of cash-generating units (“CGUs”) for purposes of assessing any impairment of
property, plant and equipment and right-of-use assets, as well as in determining whether there are indicators of impairment present.
Should indicators of impairment be present, management estimates the recoverable amount of the relevant CGU. This estimation requires
assumptions about future cash flows, margins and discount rates.

Impairment of goodwill and intangible assets

The Company tests goodwill and indefinite-life intangible assets at least annually and reviews other long-lived intangible assets for any
indication that the asset might be impaired. Significant judgments are required in determining the CGUs or groups of CGUs for purposes
of assessing impairment. Significant judgments are also required in determining whether to allocate goodwill to CGUs or groups of CGUs.
When performing impairment tests, the Company estimates the recoverable amount of the CGUs or groups of CGUs to which goodwill and
indefinite-life intangible assets have been allocated using a discounted cash flow model that requires assumptions about future cash flows,
margins and discount rates.

Provisions

The Company exercises judgment in the determination of recognizing a provision. The Company recognizes a provision when it has a present
legal or constructive obligation as a result of a past event and a reliable estimate of the obligation can be made. Significant judgments are
required to be made in determining the probable outflow of resources that will be required to settle the obligation.

Leases

Management exercises judgment in the process of applying IFRS 16, Leases (“IFRS 16”) and determining the appropriate lease term on a lease-
by-lease basis. Management considers many factors including any events that create an economic incentive to exercise a renewal option
including store performance, expected future performance and past business practice. Renewal options are only included if management is
reasonably certain that the option will be renewed.

LEON’S FURNITURE LIMITED ANNUAL REPORT 2023NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS3. Summary of Material Accounting Policies
The material accounting policies used in the preparation of these consolidated financial statements are summarized below. These accounting
policies conform, in all material aspects, to IFRS.

Basis of consolidation

The financial statements consolidate the accounts of Leon’s Furniture Limited and its wholly owned subsidiaries: Murlee Holdings Limited,
Leon Holdings (1967) Limited, King and State Limited, Ablan Insurance Corporation, The Brick Ltd., The Brick Warehouse LP, The Brick GP Ltd.,
United Furniture Warehouse LP, United Furniture GP Ltd., First Oceans Trading Corporation, First Oceans Hong Kong Limited, First Oceans
Shanghai Limited, Trans Global Warranty Corporation, Trans Global Life Insurance Company (“TGLI”) and Trans Global Insurance Company
(“TGI”). Subsidiaries are all those entities over which the Company has control. Control is achieved when the Company is exposed, or has
rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee.
The existence and effect of potential voting rights that are currently exercisable or convertible and rights arising from other contractual
arrangements are considered when assessing whether the Company controls another entity. Subsidiaries are fully consolidated from the
date on which control is transferred to the Company and de-consolidated from the date that control ceases. The Company reassesses
whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more of the elements of control.
All inter-company transactions and balances have been appropriately eliminated.

Business combinations

The Company applies the acquisition method in accounting for business combinations. The cost of an acquisition is measured as the
aggregate of the consideration transferred measured at the acquisition date fair value. Transaction costs that the Company incurs in
connection with a business combination are expensed in the period in which they are incurred.

Segment reporting

The Company has two operating segments, Leon’s and The Brick, both in the business of the sale of home furnishings, mattresses, appliances
and electronics in Canada. The Company’s chief operating decision maker, identified as the Chief Executive Officer, monitors the results of
operating segments for the purpose of allocating resources and assessing performance.

Leon’s and The Brick operating segments are aggregated into a single reportable segment because they show a similar long-term economic
performance (gross margin), have comparable products, customers and distribution channels, operate in the same regulatory environment,
and are steered and monitored together.

Accordingly, there is no reportable segment information to provide in these consolidated financial statements.

Foreign currency translation

Foreign currency transactions are translated into the respective functional currency of the Company’s subsidiaries using the exchange rate
at the dates of the transactions. Merchandise imported from the United States and Southeast Asia, paid for in U.S. dollars, is recorded at its
equivalent Canadian dollar value upon receipt when control passes. U.S. dollar trade payables are translated at the year-end exchange rate.
The Company is subject to gains and losses due to fluctuations in the U.S. dollar. Foreign exchange gains and losses resulting from translation
of U.S. dollar accounts payable are included in the consolidated statements of income within cost of sales.

Any foreign exchange gains and losses on monetary debt and equity instruments are recognized in the consolidated statements of income,
and other changes in the carrying amounts are recognized in other comprehensive income. For debt and equity instruments that are not
monetary items, the gain or loss that is recognized in other comprehensive income includes any related foreign exchange component.

4 2

LEON’S FURNITURE LIMITED ANNUAL REPORT 2023NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFinancial instruments

Fair value measurement
The Company measures certain financial instruments at fair value upon initial recognition, and at each consolidated statement of financial
position date. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between
market participants at the measurement date. The fair value measurement is based on the presumption that the transaction to sell the asset
or transfer the liability takes place either in the principal market for the asset or liability or, in the absence of a principal market, in the most
advantageous market for the asset or liability that is accessible. The fair value of an asset or liability is measured using the assumptions that
market participants would use, assuming that market participants act in their economic best interest.

Financial assets and liabilities
A financial asset or liability is recognized if the Company becomes a party to the contractual provisions of the asset or liability. A financial
asset or liability is recognized initially (at settlement date) at its fair value plus, in the case of a financial asset or liability not at fair value through
profit or loss (“FVTPL”), transaction costs that are directly attributable to the acquisition or issue of the instrument. Financial assets and
liabilities carried at FVTPL are initially recognized at fair value and transaction costs are expensed in the consolidated statements of income.

After initial recognition, financial assets are measured at amortized cost or fair value. Where assets are measured at fair value, gains and
losses are either recognized entirely in profit or loss (“FVTPL”) or recognized in other comprehensive income (“FVOCI”).

The Company classifies its financial assets and liabilities according to their characteristics and management’s choices and intentions related
thereto for the purposes of ongoing measurement. Classifications that the Company has used for financial assets include:

a) FVOCI – non-derivative financial assets that are either designated in this category or not classified in any other category and include
marketable securities, which consist primarily of quoted bonds, equities and debentures. These assets are measured at fair value with the
changes in FVOCI, and specifically for equity instruments, with no reclassification of gains or losses to profit and loss on derecognition;

b) Amortized cost – non-derivative financial assets with fixed or determinable payments. This includes trade receivables, and these are
recorded at amortized cost with gains and losses recognized in profit or loss in the period that the asset is no longer recognized or
becomes impaired; and

c) FVTPL – financial assets, which are classified as FVTPL.

Classifications that the Company has used for financial liabilities include:

a) Amortized cost – non-derivative financial liabilities, including long-term debt, measured at amortized cost with gains and losses

recognized in profit or loss in the period that the liability is no longer recognized; and

b) FVTPL – financial liabilities, which are classified as FVTPL.

Financial assets are derecognized if the Company’s contractual rights to the cash flows from the financial asset expire or if the Company
transfers the financial asset to another party without retaining control or substantially all of the risks and rewards of ownership of the asset.
Financial liabilities are derecognized once they are extinguished (i.e., when the obligation in the contract is either discharged or cancelled
or expires).

Impairment of financial assets
In accordance with IFRS 9, Financial Instruments (“IFRS 9”), the Company applies the expected credit loss model. The impairment model
applies to debt instruments measured at amortized cost or at FVOCI, as well as trade receivables, lease receivables, contracts assets (as
defined in IFRS 15, Revenue from Contracts with Customers (“IFRS 15”)), and loan commitments and financial guarantee contracts that are
not at FVTPL. It requires a credit loss to be reflected in profit and loss immediately after an asset or receivable is acquired and subsequent
changes in expected credit losses at each reporting date reflecting the change in credit risk. The Company applies the simplified approach
for trade receivables and calculates expected credit losses based on lifetime expected credit losses.

4 3

LEON’S FURNITURE LIMITED ANNUAL REPORT 2023NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSDerivative instruments

Financial derivative instruments in the form of interest rate swaps and foreign exchange forwards are recorded at fair value on the
consolidated statements of financial position. Fair values are based on quoted market prices where available from active markets, otherwise
fair values are estimated using valuation methodologies, primarily discounted cash flows taking into account external market inputs.
Derivative instruments are recorded in current or non-current assets and liabilities based on their remaining terms to maturity. All changes
in fair value of the derivative instruments are recorded in profit or loss.

Cash and cash equivalents

Cash and cash equivalents include cash on hand, balances with banks and short-term market investments with a remaining term to maturity
of less than 90 days from the date of purchase.

Trade receivables

Trade receivables are amounts due for goods sold in the ordinary course of business. If collection is expected in one year or less, they are
classified as current assets. Otherwise, they are presented as non-current assets.

Trade receivables are initially recognized at fair value and subsequently measured at amortized cost using the effective interest rate method,
less provision for impairment.

Inventories

Inventories are valued at the lower of cost, determined on a first-in, first-out basis, and net realizable value. The Company receives vendor
rebates on certain products based on the volume of purchases made during specified periods. The rebates are deducted from the
inventory value of goods received and are recognized as a reduction of cost of sales upon sale of the goods. Incentives received for a direct
reimbursement of costs incurred to sell the vendor’s products, such as marketing and advertising funds, are recorded as a reduction of those
related costs in the consolidated statements of income, provided certain conditions are met.

Property, plant and equipment

Property, plant and equipment are initially recorded at cost. Historical cost includes expenditures that are directly attributable to the
acquisition of 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 asset will flow to the Company and the cost can be measured reliably.
When significant parts of an item of property, plant and equipment are required to be replaced at intervals, the Company derecognizes the
replaced part and recognizes the new part with its own associated useful life and depreciation. Normal repair and maintenance expenditures
are expensed as incurred.

Land and construction in progress are not depreciated. Depreciation on other assets is provided over the estimated useful lives of the assets
using the following annual rates:

Buildings
Equipment
Vehicles
Building improvements

30 to 50 years
3 to 30 years
5 to 20 years
Over the remaining lease term

The Company allocates the amount initially recognized in respect of an item of property, plant and equipment to its significant parts and
depreciates separately each such part. Residual values, method of depreciation and useful lives of items of property, plant and equipment
are reviewed annually by the Company and adjusted, if appropriate.

Gains and losses on disposal of property, plant and equipment are determined by comparing the proceeds with the carrying amount of the
asset and are included as part of selling, general and administration expenses in the consolidated statements of income.

4 4

LEON’S FURNITURE LIMITED ANNUAL REPORT 2023NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSLeases

The Company as lessee
The Company determines whether a contract is or contains a lease at inception of the contract. A contract is, or contains, a lease if the
contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration.

(i) Right-of-use assets

The Company recognizes a right-of-use asset and a lease liability based on the present value of future lease payments when the lessor makes
the leased asset available for use by the Company. The right-of-use asset is initially measured at cost, which comprises the initial amount
of the lease liability adjusted for any lease payments made at or before the commencement date, plus any initial direct costs incurred and
an estimate of costs to dismantle and remove the underlying asset. The right-of-use asset is subsequently depreciated using the straight-
line method from the commencement date to the earlier of the end of the useful life of the right-of-use asset or the end of the lease term.
The estimated useful lives of right-of-use assets are determined on the same basis as those of property, plant and equipment. Right-of-use
assets are subject to impairment.

(ii) Lease liabilities

The Company recognizes lease liabilities measured at the present value of lease payments to be made over the lease term, discounted
using the interest rate implicit in the lease. The lease payments include fixed payments (including in-substance fixed payments), variable
payments that depend on an index or a rate, renewal options that are reasonably certain to be exercised less any lease incentives receivable.
Variable lease payments that do not depend on an index or rate are recognized as an expense in the period in which the event that triggers
the payment occurs. In addition, the carrying amount of lease payments is remeasured if there is a modification, a change in the lease term
or a change in the in-substance fixed lease payments. The Company has elected to apply the practical expedient to not separate the lease
component and its associated non-lease component.

Management exercises judgment in the process of applying IFRS 16 and determining the appropriate lease term on a lease-by-lease basis.
Management considers many factors including any events that create an economic incentive to exercise a renewal option including store
performance, expected future performance and past business practice. Renewal options are only included if management is reasonably
certain that the option will be renewed.

As most of the Company’s operating lease contracts do not provide the implicit interest rate, nor can the implicit interest rate be readily
determined, the Company uses its incremental borrowing rate as the discount rate for determining the present value of lease payments. The
Company’s incremental borrowing rate for a lease is the rate that the Company would pay to borrow an amount necessary to obtain an asset
of a similar value to the right-of-use asset on a collateralized basis over a similar term.

(iii) Short-term leases and leases of low-value assets

The Company has elected not to recognize right-of-use assets and lease liabilities for short-term leases of property, plant and equipment
that have a lease term of 12 months or less and leases of low-value assets (e.g., laptop computers). The Company recognizes the lease
payments associated with these leases as an expense on a straight-line basis over the lease term.

The Company as a lessor
At the inception of the lease, the Company classifies each lease as either an operating lease or a finance lease. A lease is a finance lease if it
transfers substantially all the risks and rewards of the underlying asset to the lessee; otherwise, the lease is an operating lease. Rental income
from operating leases is recognized on a straight-line basis over the lease term.

4 5

LEON’S FURNITURE LIMITED ANNUAL REPORT 2023NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSInvestment properties

Assets that are held for long-term rental yields or for capital appreciation or both, and that are not occupied by either the Company or any of its
subsidiaries, are classified as investment properties. Investment properties are measured initially at cost, including related transaction costs.
Subsequent to initial recognition, investment properties are carried at cost and depreciated over the estimated useful lives of the properties:

Buildings
Building improvements

30 to 50 years
Over the remaining lease term

Land held by the Company and classified as investment property is not depreciated.

Subsequent expenditures on investment properties are capitalized to the properties’ carrying amount only when it is probable that future
economic benefits associated with the expenditures will flow to the Company and the cost of the item can be measured reliably. All other
repairs and maintenance costs are expensed when incurred. When part of an investment property is replaced, the carrying amount of the
replaced part is derecognized.

If an investment property becomes owner occupied, it is reclassified as property, plant and equipment.

Goodwill and intangible assets

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 tangible and intangible assets acquired, less liabilities assumed, based on their fair value. Goodwill is assigned at the date of the
business acquisition. The Company assesses at least annually, or at any time if an indicator of impairment exists, whether there has been an
impairment loss in the carrying value of goodwill and it is carried at cost less accumulated impairment losses. Impairment losses on goodwill
are not reversed.

Goodwill is allocated to CGUs or groups of CGUs that are expected to benefit from the business combination for the purpose of impairment
testing. A group of CGUs represents the lowest level within the Company at which goodwill is monitored for internal management purposes.

Intangible assets
Intangible assets acquired separately are measured on initial recognition at cost. The cost of intangible assets acquired in a business
combination is their fair value at the date of acquisition. Following initial recognition, intangible assets are carried at cost less any accumulated
amortization and accumulated impairment losses. Internally generated intangible assets, excluding capitalized development costs, are not
capitalized and the related expenditure is reflected in profit or loss in the period in which the expenditure is incurred. The useful lives of
intangible assets are assessed as either finite or indefinite.

Intangible assets with finite useful lives are amortized on a straight-line basis over their estimated useful lives as follows:

Customer relationships
Non-compete agreement
Computer software

8 years
8 years
3 to 7 years

Impairment of non-financial assets

The Company considers at each reporting date whether there is an indication that an asset may be impaired. If impairment indicators are
found to be present, or when annual impairment testing for an asset is required, the non-financial assets are assessed for impairment.

Impairment losses are recognized immediately in income to the extent an asset’s carrying amount exceeds its recoverable amount. The
recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. In assessing value in use, estimated future cash
flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money
and the risks specific to the asset for which the estimates of future cash flows have not been adjusted.

Goodwill and indefinite-life intangible assets are tested annually in the fourth quarter of the year, or when circumstances indicate that
the carrying value may be impaired. The assessment of recoverable amount for goodwill and indefinite-life intangible assets involves
assumptions about future conditions for the economy, capital markets, and specifically, the retail sector. As such, the assessment is subject
to a significant degree of measurement uncertainty.

For the purpose of impairment testing, assets that cannot be tested individually are grouped together into the smallest group of assets
that generate cash inflows from continuing use that are largely independent of the cash inflows of other assets or groups of assets. For the
Company, store-related CGUs are defined as individual stores or regional groups of stores within a geographic market.

4 6

LEON’S FURNITURE LIMITED ANNUAL REPORT 2023NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the Company’s corporate assets that do not generate separate cash inflows, the recoverable amount is determined for the CGU to which
the corporate asset belongs. Where a reasonable and consistent basis of allocation can be identified, corporate assets are allocated to an
individual CGU; otherwise, they are allocated to the smallest group of CGUs for which a reasonable and consistent allocation basis can be
identified. Impairment losses recognized in respect of CGUs are allocated to reduce the carrying amounts of the assets in the CGUs on a
pro rata basis.

Impairment losses recognized in prior periods are assessed at each reporting date for any indication that the loss has decreased or no longer
exists. An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount and the reversal
is recognized in income. An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying
amount that would have been determined, net of depreciation or amortization, if no impairment loss had been recognized.

Income taxes

The Company computes an income tax expense. However, actual amounts of income tax expense only become final upon filing and
acceptance of the tax return by the relevant taxation authorities, which occurs subsequent to the issuance of the annual consolidated
financial statements. Additionally, estimation of income taxes includes evaluating the recoverability of deferred income tax assets based on
an assessment of the ability to use the underlying future tax deductions before they expire against future taxable income. The assessment is
based on existing tax laws and estimates of future taxable income. To the extent that estimates differ from the final tax return, income would
be affected in a subsequent period.

Income tax expense for the period comprises current and deferred income tax. Income tax is recognized in the consolidated statements of
income, except to the extent it relates to items recognized in other comprehensive income or directly in equity, in which case the related tax
is recognized in equity. Levies other than income taxes, such as taxes on real estate, are included in occupancy expenses.

Current income tax
Current income tax expense is based on the results of the year as adjusted for items that are not taxable or not deductible. Current income
tax is calculated using tax rates and laws that were substantively enacted at the end of the reporting period. Management periodically
evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation. It establishes
provisions where appropriate on the basis of amounts expected to be paid to the tax authorities.

Deferred income tax
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 statements of financial position. Deferred income tax is determined using tax rates and laws
that have been enacted or substantively enacted by the consolidated statements of financial position dates 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.

Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset current income tax assets against
current income tax liabilities and when the deferred income tax assets and liabilities relate to income taxes levied by the same taxation
authority where there is an intention to settle the balances on a net basis.

Trade and other payables

Trade and other payables are obligations to pay for goods or services that have been acquired in the ordinary course of business from
suppliers. Trade and other payables are classified as current liabilities if payment is due within one year or less.

Provisions

Provisions are recognized only in those circumstances where the Company has a present legal or constructive obligation as a result of a past
event, when it is probable that an outflow of resources will be required to settle the obligation and a reliable estimate of the amount can
be made.

Provisions are measured at the present value of the expenditures expected to be required to settle the obligation using a pre-tax discount
rate that reflects current market assessments of the time value of money and the risks specific to the obligation.

LEON’S FURNITURE LIMITED ANNUAL REPORT 2023NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSLiability for incured claims
The Company estimates the liability for incurred claims as the fulfilment cash flows related to incurred claims, both reported and unreported,
that have occurred on or before the statement of financial position date. These fulfilment cash flows include adjustment expenses and an
estimate of the future settlement of claims. The liability for incurred claims is actuarially determined on an annual basis using assumptions of
loss emergence, payment rates, interest, and expected expenses associated with the adjustment and payment of such claims. The fulfilment
cash flows incorporate, in an unbiased way, all reasonable and supportable information available without undue cost or effort about the
amount, timing and uncertainty of those future cash flows, they reflect current estimates from the perspective of the Company and include
an explicit adjustment for non-financial risk (the risk adjustment). The Company does not adjust the future cash flows for the time value of
money or the effect of financial risk on the measurement of the liability for incurred claims which are expected to be paid within one year
of being incurred. As this liability for incurred claims is an estimate, the amount of actual claims may differ from the recorded amount. The
liability for incurred claims is derecognized when the obligation to pay a claim no longer exists.

Unpaid warranty claims
Warranty repairs related to warranty plans sold separately are recorded as claims expense at the time the customer reports a claim. For these
warranties, a provision for unpaid warranty claims is established for unpaid reported claims.

The Company also provides a standard warranty for certain products. For these warranties, a provision for warranty claims is recognized
when the underlying products are sold. The amount of the provision is estimated using historical experience and may differ from actual
claims paid.

Product returns
The Company has a return policy allowing customers to return merchandise if not satisfied within certain time frames. The provision for
product returns is based on sales recognized prior to the year-end. The amount of the provision is estimated using historical experience and
actual experience subsequent to the year-end and may differ from the actual returns made.

Long-term debt

Long-term debt is classified as current when the Company expects to settle the debt in its normal operating cycle or the debt is due to be
settled within 12 months after the date of the consolidated statements of financial position.

Share capital

Common shares are classified as equity. Incremental costs directly attributable to the issuance of new shares are shown in equity as a
deduction, net of income tax, from the proceeds.

Revenue

Revenue recognition
IFRS 15 provides a single, principles-based, five-step model that will apply to all contracts with customers with limited exceptions. Under
IFRS 15, revenue is recognized at an amount that reflects the consideration to which an entity expects to be entitled in exchange for
transferring goods or services to a customer.

In addition to the above general principles, the Company applies the following specific revenue recognition policies:

Sale of goods and related services
Revenue from the sale of goods and related services is recognized either when the customer picks up the merchandise ordered or when
merchandise is delivered to the customer’s home and the performance obligation has been satisfied. Any payments received in advance of
delivery are deferred and recorded as customers’ deposits. Revenue is shown net of sales tax.

The Company records a provision for sales returns and price guarantees based on historical experience and actual experience each quarter.

Franchise operations
Leon’s franchisees operate principally as independent owners. The Company charges each franchisee a royalty fee based on a percentage
of the franchisee’s gross revenue. The Company supplies inventory for amounts representing landed cost plus a mark-up. The royalty income
and sales to franchises are recorded by the Company on a monthly basis once the sale occurs and the performance obligations have
been satisfied.

Insurance contracts and revenue
The Company issues insurance contracts through its subsidiaries: TGI and TGLI.

The Company provides credit insurance on balances that arise from customers’ use of their private label financing card. The Company
provides group coverage for losses as discussed in Note 23, thereby providing protection to many customers who do not carry other similar
insurance policies.

4 8

LEON’S FURNITURE LIMITED ANNUAL REPORT 2023NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSInsurance contracts are accounted for under IFRS 17 Insurance Contracts. Insurance contracts are contracts under which the Company has
accepted significant risk, other than financial risk, from another party (the “policyholders”) by agreeing to compensate the policyholders on
the occurrence of a specified uncertain future event (the “insured event”) that adversely affects the policyholders.

Once a contract has been classified as an insurance contract, it remains an insurance contract for the remainder of its term, even if the
insurance risk reduces significantly during this period, unless all rights and obligations are extinguished or expire. Investment contracts can,
however, be reclassified as insurance contracts after inception if insurance risk becomes significant.

Under IFRS 17, the Company’s insurance contracts issued are all eligible to be measured by applying the Premium Allocation Approach
(“PAA”). The PAA is a simplified measurement model that can be applied to insurance contracts with coverage periods of one year or less,
or where the measurement for liability for remaining coverage does not differ materially from applying the General Measurement Model
(“GMM”). The Company applies the PAA measurement model to all eligible insurance contracts that it issues. The Company holds contracts
that have coverage periods of one year or less, or where the difference in liability for remaining coverage between GMM and PAA does not
materially differ.

Premiums on insurance contracts are recognized as revenue over the term of the policies in accordance with the pattern of insurance service
provided under the contract.

Deferred warranty plan revenue
Warranties, underwritten by the Company’s wholly owned subsidiaries, are offered on furniture, appliances and electronic products sold by
the Company and franchisees to provide coverage that extends beyond the manufacturer’s warranty period by up to five years. Warranties
are sold to customers when they make their original purchase and take effect immediately. The warranty contracts provide both repair and
replacement services depending upon the nature of the warranty claim.

The Company’s extended warranty plan revenues are deferred at the time of sale and are recognized as revenue over the weighted average
term of the warranty plan on a straight-line basis.

Deferred acquisition costs
Acquisition costs comprise commissions, premium taxes and other expenses that relate directly to the writing or renewing of warranty and
insurance contracts and are considered costs to obtain the contract. These costs are deferred only to the extent that they are expected to be
recovered from unearned premiums and are amortized over the period in which the revenue from the policies is earned. All other acquisition
costs are recognized as an expense when incurred. For deferred insurance acquisition cashflows, these are a component of the liability for
remaining coverage.

Costs incurred on warranty plan sales, including sales commissions and premium taxes, are recorded as deferred acquisition costs. These
costs are amortized to income in the same pattern as revenue from warranty plan sales is recognized.

Changes in the expected pattern of consumption are accounted for by changing the amortization period and are treated as a change in an
accounting estimate. Deferred acquisition costs are derecognized when the related contracts are either settled or disposed of.

Sale of gift cards
Revenue from the sale of gift cards is recognized when the gift cards are redeemed (i.e., the customer purchases merchandise). Revenue
from unredeemed gift cards is deferred and included in trade and other payables.

Rental income on investment properties
Rental income arising on investment properties is accounted for on a straight-line basis over the lease term and is presented within revenue.

Store pre-opening costs

Store pre-opening costs are expensed as incurred.

Borrowing costs

Borrowing costs are expensed in the period in which they occur. Borrowing costs consist of interest and other costs that the Company incurs
in connection with the borrowing of funds.

Earnings per share

Basic earnings per share have been calculated using the weighted average number of common shares outstanding during the year. Diluted
earnings per share are calculated using the “if converted” method. The dividends declared on the redeemable share liability under the
Company’s Management Share Purchase Plan (“MSPP”) are included in net income for the year. The redeemable shares convertible under
the Plan are included in the calculation of diluted number of common shares to the extent the redemption price was less than the average
annual market price of the Company’s common shares.

4 9

LEON’S FURNITURE LIMITED ANNUAL REPORT 2023NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSJoint arrangements

Under IFRS 11, Joint Arrangements (“IFRS 11”), a joint arrangement is a contractual arrangement wherein two or more parties have joint
control. Joint control is the contractually agreed sharing of control of an arrangement when the strategic, financial and operating decisions
relating to the arrangement require the unanimous consent of the parties sharing control. Investments in joint arrangements are classified
as either joint operations or joint ventures depending on the contractual rights and obligations of each party. Refer to Note 2 for significant
judgments affecting the classification of joint arrangements as either joint operations or joint ventures. The parties to a joint operation have
rights to the assets, and obligations for the liabilities, relating to the arrangement whereas joint ventures have rights to the net assets of the
arrangement.

In accordance with IFRS 11, the Company accounts for joint operations by recognizing its share of any assets held jointly and any liabilities
incurred jointly, along with its share of the revenue from the sale of the output by the joint operation, and its expenses, including its share
of any expenses incurred jointly. Joint ventures are accounted for using the equity method of accounting in accordance with IAS 28,
Investments in Associates and Joint Ventures (“IAS 28”). Under the equity method of accounting, the Company’s investments in joint ventures
and associates are carried at cost and adjusted for post-acquisition changes in the net assets of the investment. Profit or loss reflects the
Company’s share of the results of these investments. Distributions received from an investee reduce the carrying amount of the investment.
The consolidated statements of comprehensive income also include the Company’s share of any amounts recognized by joint ventures and
associates in other comprehensive income (OCI). Where there has been a change recognized directly in the equity of the joint venture or
associate, the Company recognizes its share of that change in equity.

The financial statements of the joint ventures and associates are generally prepared for the same reporting period as the Company, using
consistent accounting policies. Adjustments are made to bring into line any dissimilar accounting policies that may exist in the underlying
records of the joint venture and/or associate. Adjustments are made in the consolidated financial statements to eliminate the Company’s
share of unrealized gains and losses on transactions between the Company and its joint ventures and associates. In transactions with joint
operations where the Company contributes or sells assets to a joint operation, the Company recognizes only that portion of the gain or loss
that is attributable to the interests of the other parties. Where the Company purchases assets from a joint operation, the Company does
not recognize its share of the profit or loss of the joint operation from the transaction until it resells the assets to an independent party. The
Company adjusts joint operation financial statement amounts, if required, to reflect consistent accounting policies.

Associates

Entities in which the Company has significant influence, and which are neither subsidiaries, nor joint arrangements, are accounted for
using the equity method of accounting in accordance with IAS 28. This method of accounting is described in the previous section Joint
Arrangements. The Company discontinues the use of the equity method from the date on which it ceases to have significant influence, and
from that date accounts for the investment in accordance with IFRS 9, (its initial costs are the carrying amount of the associate on that date),
provided the investment does not then qualify as a subsidiary or a joint arrangement.

Government grants

The Company recognizes government grants when there is reasonable assurance that it will comply with the conditions of the grant and the
grant will be received. Government grants receivable are recorded in prepaid expenses and other assets on the consolidated statements
of financial position. The Company recognizes government grants in the consolidated statements of income in the same period as the
expenses for which the grant is intended to compensate. In cases where a government grant becomes receivable as compensation for
expenses already incurred in prior periods, the grant is recognized in profit or loss in the period in which it becomes receivable.

5 0

LEON’S FURNITURE LIMITED ANNUAL REPORT 2023NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS4. Adoption of Accounting Standards and Amendments

Adoption of new accounting standards

• A specific adaptation for contracts with direct participation features (the variable fee approach); and

• A simplified approach (the premium allocation approach) mainly for short-duration contracts.

In June 2020, the IASB issued amendments to IFRS 17 partly aimed at helping companies implement the standard. IFRS 17, incorporating the
amendments, is effective for annual reporting periods beginning on or after January 1, 2023. Retrospective application is required. Under
IFRS 17, the Company’s insurance contracts are all eligible to be measured by applying the PAA. This approach simplifies the measurement
of insurance contracts in comparison with the general model.

On transition date, the Company:

• Has identified, recognized and measured each group of insurance contracts as if IFRS 17 had always applied; and

• Has identified, recognized and measured assets for insurance acquisition cash flows as if IFRS 17 has always applied.

The Company has not restated comparative information as the impacts of IFRS 17 are not material.

5 1

LEON’S FURNITURE LIMITED ANNUAL REPORT 2023NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSAccounting standards and amendments issued but not yet adopted

5. Cash and Cash Equivalents

As at

(C$ in thousands)

Cash and cash equivalents

December 31, 2023

December 31, 2022

82,744

115,127

6. Inventories
The amount of inventory recognized as an expense for the year ended December 31, 2023 was $1,311,170 (2022 – $1,363,358), which is presented
within cost of sales in the consolidated statements of income.

There were $744 in inventory write-down reversals recognized for the year ended December 31, 2023 (inventory write downs recognized
for the year ended December 31, 2022 – $1,746). As at December 31, 2023, the inventory markdown provision totaled $6,829 (2022 – $7,573).

7. Deferred Acquisition Costs

(C$ in thousands)

Balance as at January 1

Costs of new policies sold

Policy sales costs recognized

Balance as at December 31

Reported as:

Current

Non-current

Balance as at December 31

December 31, 2023

December 31, 2022

34,287

14,712

(13,014)

35,985

13,353

22,632

35,985

31,190

14,781

(11,684)

34,287

12,347

21,940

34,287

5 2

LEON’S FURNITURE LIMITED ANNUAL REPORT 2023NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS8. Property, Plant and Equipment and Right-Of-Use Assets

(C$ in thousands)

Cost
Balance as at

Land

Buildings Equipment

Vehicles

Building
improvements

Leased
property

Leased
equipment

Total

December 31, 2022

111,304

292,365

187,814

65,664

249,753

581,316

2,292 1,490,508

Additions

Disposals
Balance as at

–

21,293

–

9,260

(6,554)

6,735

(590)

6,138

106,265

–

149,691

(6,315)

(1,385)

(60)

(14,904)

December 31, 2023

111,304

313,658

190,520

71,809

249,576

686,196

2,232 1,625,295

Accumulated depreciation
Balance as at

December 31, 2022

Depreciation

Disposals
Balance as at

December 31, 2023
Net book value as at
December 31, 2023

(C$ in thousands)

Cost
Balance as at

–

174,870

144,874

45,990

215,770

299,338

1,201

882,043

7,961

–

7,978

(6,526)

4,868

(589)

9,078

76,150

324

106,359

(6,311)

(1,385)

(60)

(14,871)

182,831

146,326

50,269

218,537

374,103

1,465

973,531

111,304

130,827

44,194

21,540

31,039

312,093

767

651,764

Land

Buildings Equipment

Vehicles

Building
improvements

Leased
property

Leased
equipment

Total

December 31, 2021

104,112

287,555

184,131

Additions

Disposals
Balance as at

7,192

4,810

–

8,069

(4,386)

61,846

4,399

249,439

574,069

2,138 1,463,290

4,130

30,516

(581)

(3,816)

(23,269)

154

–

59,270

(32,052)

December 31, 2022

111,304

292,365

187,814

65,664

249,753

581,316

2,292 1,490,508

Accumulated depreciation
Balance as at

December 31, 2021

Depreciation

Disposals
Balance as at

December 31, 2022
Net book value as at
December 31, 2022

–

167,599

141,121

7,271

–

7,947

(4,194)

41,082

5,468

210,034

244,762

9,478

77,635

(560)

(3,742)

(23,059)

883

318

–

805,481

108,117

(31,555)

174,870

144,874

45,990

215,770

299,338

1,201

882,043

111,304

117,495

42,940

19,674

33,983

281,978

1,091

608,465

Included in the above balances as at December 31, 2023, are assets not being amortized with a net book value of approximately $27,558
(2022 – $3,119) being construction in progress. Depreciation of property, plant and equipment is included within selling, general and
administration expenses on the consolidated statements of income.

5 3

LEON’S FURNITURE LIMITED ANNUAL REPORT 2023NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS9. Investment Properties

(C$ in thousands)

Cost

Balance as at December 31, 2022

Balance as at December 31, 2023

Accumulated depreciation

Balance as at December 31, 2022

Depreciation

Balance as at December 31, 2023

Net book value as at December 31, 2023

(C$ in thousands)

Cost

Balance as at December 31, 2021

Balance as at December 31, 2022

Accumulated depreciation

Balance as at December 31, 2021

Depreciation

Balance as at December 31, 2022

Net book value as at December 31, 2022

Land

Buildings

Building
improvements

10,646

15,396

–

10,646

11,924

330

12,254

3,142

953

601

651

302

Land

Buildings

Building
improvements

10,646

15,396

–

10,646

11,594

330

11,924

3,472

953

551

601

352

Total

26,995

12,525

380

12,905

14,090

Total

26,995

12,145

380

12,525

14,470

The estimated fair value of the investment properties portfolio as at December 31, 2023, was approximately $40,500 (2022 – $42,000). This
recurring fair value disclosure is categorized within Level 3 of the fair value hierarchy (Note 23 for definition of levels). This was compiled
internally by management based on available market evidence.

5 4

LEON’S FURNITURE LIMITED ANNUAL REPORT 2023NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS10. Intangible Assets and Goodwill

(C$ in thousands)

Cost
Balance as at December 31, 2022

Additions

Balance as at December 31, 2023

Accumulated amortization
Balance as at December 31, 2022

Amortization

Balance as at December 31, 2023

Net book value as at December 31, 2023

(C$ in thousands)

Cost
Balance as at December 31, 2021

Additions

Disposals

Balance as at December 31, 2022

Accumulated amortization
Balance as at December 31, 2021

Amortization

Disposals

Balance as at December 31, 2022

Net book value as at December 31, 2022

Customer relationships,
brand name and
franchise agreements

Computer
software

275,500

–

275,500

9,500

–

9,500

266,000

18,348

2,524

20,872

14,607

1,052

15,659

5,213

Customer relationships,
brand name and
franchise agreements

Computer
software

275,500

–

275,500

9,500

–

9,500

266,000

22,088

1,038

(4,778)

18,348

17,915

1,470

(4,778)

14,607

3,741

Total

293,848

2,524

296,372

24,107

1,052

25,159

271,213

Total

297,588

1,038

(4,778)

293,848

27,415

1,470

(4,778)

24,107

269,741

Amortization of intangible assets is included within selling, general and administrative expenses on the consolidated statements of income.
The following table presents the details of the Company’s indefinite-life intangible assets:

As at

(C$ in thousands)

The Brick brand name (allocated to The Brick division)

The Brick franchise agreements (allocated to The Brick division)

Total

December 31, 2023 December 31, 2022
245,000

245,000

21,000

266,000

21,000

266,000

The Company currently has no plans to change The Brick store banners and expects these assets to generate cash flows over an indefinite
future period. Therefore, these intangible assets are considered to have indefinite useful lives for accounting purposes. The Brick franchise
agreements have expiry dates with options to renew. The Company’s intention is to renew these agreements at each renewal date indefinitely.
The Company expects the franchise agreements and franchise locations will generate cash flows over an indefinite future period. Therefore,
these assets are also considered to have indefinite useful lives.

The following table presents the details of the Company’s finite-life intangible assets:

As at

(C$ in thousands)

Computer software

Total

December 31, 2023 December 31, 2022
3,741

5,213

3,741

For the purpose of the annual impairment testing, goodwill is allocated to the following CGU groups, which are the groups expected to
benefit from the synergies of the business combinations and to which the goodwill is monitored by the Company:

As at

(C$ in thousands)

Appliance Canada (included within Leon’s division)
The Brick division

Total

December 31, 2023 December 31, 2022
11,282
378,838

378,838

11,282

390,120

5 5

LEON’S FURNITURE LIMITED ANNUAL REPORT 2023NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSImpairment tests

The Company performed impairment tests of goodwill, brand and franchise agreements intangible assets as at December 31, 2023 and 2022
in accordance with the accounting policy as described in Note 3. The recoverable amount of the CGUs was determined based on value-in-
use calculations. These calculations used cash flow projections based on financial budgets approved by management covering a one-year
period. Cash flows beyond the one-year period are extrapolated using the estimated growth rates stated below. The key assumptions used
for the value-in-use calculation as at December 31, 2023 and 2022 were as follows:

As at

Growth rate

Pre-tax discount rate

December 31, 2023 December 31, 2022

2.0%

11.9%

2.0%

10.0%

The impairment tests performed resulted in no impairment of the goodwill and indefinite-life intangible assets as at December 31, 2023 and
December 31, 2022.

11. Trade and Other Payables

As at

(C$ in thousands)

Trade payables

Other payables

Total

December 31, 2023 December 31, 2022

151,648

131,289

282,937

141,199

108,654

249,853

Included in the other payables balance above as at December 31, 2023, is an obligation to repurchase shares of $2,000 under an automatic
share purchase plan (“ASPP”), (2022 – $2,000). The ASPP is further discussed in Note 16.

12. Provisions

(C$ in thousands)

Balance as at January 1, 2023

Provisions made during the year

Provisions used during the year

Unused provisions reversed

Balance as at December 31, 2023

Liability for incurred claims

Unpaid insurance claims

Warranties

553

450

(425)

–

578

22,395

7,677

(4,120)

(195)

25,757

Other

3,546

808

(593)

–

3,761

Total

26,494

8,935

(5,138)

(195)

30,096

The Company estimates the liability for incurred claims as the fulfilment cash flows related to incurred claims, both reported and unreported,
that have occurred on or before the statement of financial position date. These fulfilment cash flows include adjustment expenses and an
estimate of the future settlement of claims. The liability for incurred claims is actuarially determined on an annual basis using assumptions of
loss emergence, payment rates, interest, and expected expenses associated with the adjustment and payment of such claims. The fulfilment
cash flows incorporate, in an unbiased way, all reasonable and supportable information available without undue cost or effort about the
amount, timing and uncertainty of those future cash flows, they reflect current estimates from the perspective of the Company and include
an explicit adjustment for non-financial risk (the risk adjustment). The Company does not adjust the future cash flows for the time value of
money or the effect of financial risk on the measurement of the liability for incurred claims which are expected to be paid within one year
of being incurred. As this liability for incurred claims is an estimate, the amount of actual claims may differ from the recorded amount. The
liability for incurred claims is derecognized when the obligation to pay a claim no longer exists.

Warranties

The provision for warranties represents the Company’s estimate of amounts the Company expects to incur regarding its warranty
protection plans. The Company’s warranty protection plans allow customers that did not make a claim during the term of their warranty
the opportunity to obtain merchandise credit in an amount equal to the price paid for the plan. The provision recognized represents the
estimated amounts necessary to settle future warranty redemption amounts subject to the terms of the plan, historical information and
management judgment.

5 6

LEON’S FURNITURE LIMITED ANNUAL REPORT 2023NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS13. Leases

Company as a lessee

Leasing arrangements
The Company leases various items of real estate property, vehicles and equipment used in its operations. The lease terms are generally
between 5 and 15 years. There are some leases with renewal options that are included when management is reasonably certain they will be
exercised. Management uses significant judgment in determining whether these extensions are reasonably certain to be exercised.

Lease liabilities
Carrying amounts of lease liabilities are as follows:

(C$ in thousands)

Balance, beginning of year

Additions

Disposals

Interest

Payments

Balance, end of year

Reported as:

Current

Non-current

Total

December 31, 2023 December 31, 2022

322,855

107,588

–

16,669

(93,187)

353,925

75,127

278,798

353,925

366,254

32,472

(210)

17,739

(93,400)

322,855

74,389

248,466

322,855

For the year ended December 31, 2023, the Company recognized rent expenses from short-term leases, leases of low-value assets and
variable lease payments of $3,476, $2,801, and $40,946, respectively (2022 – $2,587, $1,581, and $37,087, respectively).

Company as a lessor

Lease revenue receivable
The Company has entered into operating leases on its investment property portfolio consisting of certain land and building properties. These
leases generally have terms between 5 and 15 years.

Future minimum rentals receivable under non-cancellable operating leases are as follows:

(C$ in thousands)

No later than 1 year

Later than 1 year and no later than 5 years

Later than 5 years

Total

1,916

6,711

3,524

12,151

5 7

LEON’S FURNITURE LIMITED ANNUAL REPORT 2023NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS14. Long-term Debt

Bank indebtedness

On August 8, 2023, the Company completed an amendment to its existing Senior Secured Credit Agreement (“SSCA”). Under this amendment,
the Company’s total credit facility was adjusted to $340,000. Out of the total amount, $90,000 was related to its term loan and the remaining
$250,000 is attributable to the Company’s revolving credit facility. The amount borrowed under this amendment must be repaid in full by
May 31, 2025. During the year, the company repaid a total of $134,375 towards its total credit facility. The Company has drawn $13,750 under
the revolving credit facility and has $86,250 outstanding for its term loan as at December 31, 2023.

Bank indebtedness bears interest based on Canadian prime rate, Secured Overnight Financing Rate (“SOFR”) and Bankers’ Acceptance
(“BA”) rates plus an applicable standby fee on undrawn amounts. The Company has the ability to choose the type of advance required.
Interest is based on the market rate plus an applicable margin. The term credit facility is repayable in the annual amounts of $7,500, with the
remainder due on maturity. Currently, the Company has entered into a 32-day BA with a cost of borrowing of 6.31% that was renewed on
December 29, 2023.

The Company can prepay without penalty amounts outstanding under the facilities at any time. The agreement includes a general security
agreement which constitutes a lien on all property of the Company. In addition to this, there are financial covenants related to the credit
facility. As at December 31, 2023, the Company is in full compliance of these financial and non-financial covenants.

15. Management Share Purchase Plan

Employee benefit plan

Members of senior management participate in the Company’s Management Share Purchase Plan (“MSPP”). Under the terms of the MSPP,
the Company advanced non-interest bearing loans to certain of its employees in 2018 to allow them to acquire common shares of the
Company. Participation in the MSPP is voluntary. The common shares purchased under the MSPP are held in trust by a trustee for the benefit
of the employee until the later of three years from the date of issue and the date the related loan to acquire the shares is repaid in full. While
such shares are held in trust, any dividends paid on these common shares are credited against the related loan.

During 2018, a total of 1,188,873 of the 2018 series of common shares were issued under the 2018 MSPP to senior management employees at
$15.30 per share. The Company recognized a loan receivable in the amount of $13,191 (recognized at fair value) and a deferred compensation
expense receivable of $2,315. The common shares issued of $15,506 are shown within common shares on the consolidated statements of
financial position.

During 2022, a total of 903,013 of the 2022 series of common shares were issued under the 2022 MSPP to senior management employees at
$17.29 per share. The Company recognized a loan receivable in the amount of $11,274 (recognized at fair value) and a deferred compensation
expense of $1,517. The common shares issued of $12,791 are shown within common shares on the consolidated statements of financial position.

Loan receivable

As at

(C$ in thousands)

Balance, beginning of year

Issuance of 2022 series

Fair value adjustment

Dividends paid

Loan repayment

Balance, end of year

Deferred compensation expense

Balance, beginning of year

Recognition of 2022 series

Compensation expense

Balance, end of year

5 8

December 31, 2023 December 31, 2022

20,348

–

1,067

(1,045)

(701)

19,669

10,039

11,275

638

(742)

(862)

20,348

December 31, 2023 December 31, 2022

2,811

–

(376)

2,435

1,569

1,517

(275)

2,811

LEON’S FURNITURE LIMITED ANNUAL REPORT 2023NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSRedeemable share liability

As at

(C$ in thousands)

Authorized

306,500 convertible, non-voting, series 2012 shares

1,485,000 convertible, non-voting, series 2013 shares

740,000 convertible, non-voting, series 2014 shares

880,000 convertible, non-voting, series 2015 shares

Issued and fully paid

46,113 series 2012 shares (December 31, 2022 – 55,972)

232,081 series 2013 shares (December 31, 2022 – 287,973)

132,887 series 2014 shares (December 31, 2022 – 175,186)

203,762 series 2015 shares (December 31, 2022 – 266,451)

Less employee share purchase loans

Total

December 31, 2023 December 31, 2022

572

2,644

2,000

2,743

(7,952)

695

3,280

2,637

3,586

(10,191)

Under the terms of the Plan, the Company advanced non-interest bearing loans to certain of its employees in 2012, 2013, 2014 and 2015 to
allow them to acquire convertible, non-voting series 2012 shares, series 2013 shares, series 2014 shares and series 2015 shares, respectively, of
the Company. These loans are repayable through the application against the loans of any dividends on the shares with any remaining balance
repayable on the date the shares are converted to common shares. Each issued and fully paid for series 2012 shares may be converted into
one common share at any time after the fifth anniversary date of the issue of these shares and prior to the thirteenth anniversary of such
issue. Each issued and fully paid for series 2013, series 2014 and series 2015 shares may be converted into one common share at any time
after the third anniversary date of the issue of these shares and prior to the thirteenth anniversary of such issue. The series 2012, series 2013,
series 2014 and series 2015 shares are redeemable at the option of the holder for a period of one business day following the date of issue
of such shares. The Company has the option to redeem the series 2012 shares at any time after the fifth anniversary date of the issue of
these shares and must redeem them prior to the thirteenth anniversary of such issue. The Company has the option to redeem the series
2013, series 2014 and series 2015 shares at any time after the third anniversary date of the issue of these shares and must redeem them prior
to the thirteenth anniversary of such issue. The redemption price is equal to the original issue price of the shares adjusted for subsequent
subdivisions of shares plus accrued and unpaid dividends. The purchase prices of the shares are $12.41 per series 2012 share, $11.39 per series
2013 share, $15.05 per series 2014 share and $13.46 per series 2015 share. Dividends paid to holders of series 2012, 2013, 2014 and 2015 shares
of approximately $197 (2022 – $251) have been used to reduce the respective shareholder loans. The preferred dividends are paid once a year
during the first quarter.

During the year ended December 31, 2023, 9,859 series 2012 shares, 55,892 series 2013 shares, 42,299 series 2014 shares and 62,689 series
2015 shares (year ended December 31, 2022 – 4,295 series 2009 shares, 14,756 series 2012 shares, 22,118 series 2013 shares, 3,804 series 2014
shares and 6,483 series 2015 shares) were converted into common shares with a stated value of approximately $122, $637, $636 and $844,
respectively (year ended December 31, 2022 – $38, $183, $252, $57 and $87, respectively).

During the year ended December 31, 2023, the Company did not cancel any shares from any of the series of shares (year ended December 31,
2022 – no shares were cancelled in any of the series of shares).

Employee share purchase loans have been netted against the redeemable share liability, as the Company has the legally enforceable right
of set-off and the positive intent to settle on a net basis. This balance is included under trade and other payables on the consolidated
statements of financial position.

5 9

LEON’S FURNITURE LIMITED ANNUAL REPORT 2023NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
16. Common Shares

As at

(C$ in thousands)

Authorized – Unlimited common shares

Issued

68,032,028 common shares (2022 – 67,861,289)

December 31, 2023 December 31, 2022

164,875

162,636

For MSPP shares converted into common shares during the year, please see Note 15.

Normal course issuer bid

On September 15, 2023, the Company received Toronto Stock Exchange (TSX) approval of its notice of intention to renew its common share
repurchase program. The Company intends to repurchase for cancellation a maximum of 3,394,691 common shares representing 4.99% of
the total number of its 68,029,894 issued and outstanding common shares as at September 1, 2023. The average daily trading volume for
the six months ending August 31, 2023, was 16,383 common shares. Therefore, other than block purchase exemptions, daily purchases will be
limited to 4,095 common shares on the TSX. The bid commenced on September 15, 2023, and will terminate on the earliest of the purchase
of 3,394,691 common shares, the issuer providing a notice of termination, and September 14, 2024. Purchases will be executed through the
facilities of the TSX at market price under the normal course issuer bid rules of the TSX.

On September 30, 2023, the Company entered into an automatic share purchase plan (“ASPP”) with the Company’s broker in order to facilitate
the repurchase of its common shares under the normal course issuer bid during self-imposed blackout periods. During the year ended
December 31, 2023, the Company did not repurchase or cancel any common shares under the ASPP. During the year ended December 31, 2022
the Company repurchased and cancelled 1,594,300 common shares under the ASPP for a total cost of $39,384, of which $3,562 represents
a reduction in share capital and the remaining $35,822 was charged to retained earnings. As at December 31, 2023, an obligation of $2,000
was recognized for the repurchase of common shares under the ASPP. As at December 31, 2022, an obligation for the repurchase of shares of
$2,000 was recognized under the ASPP, as this was not utilized this amount was reversed during the first quarter of 2023.

During the year ended December 31, 2023, and excluding the common shares repurchased under the ASPP, no common shares were
purchased or cancelled. During the year ended December 31, 2022, the Company repurchased 299,200 shares of its common shares on the
open market pursuant to the terms and conditions of normal course issuer bid at a net cost of $4,890. The repurchase of common shares
resulted in a reduction of share capital in the amount of $669. The excess net cost over the average carrying value of the shares of $4,221 has
been recorded as a reduction in retained earnings. As at December 31, 2022, the Company had cancelled all of these repurchased shares.

As at December 31, 2023 and 2022, dividends payable were $12,246 ($0.18 per share) and $10,858 ($0.16 per share), respectively.

17. Revenue
a) Disaggregation of revenue

For the

(C$ in thousands)

Sales of goods by corporate stores

Income from franchise operations

Extended warranty revenue

Insurance sales revenue

Rental income from investment property

Total

b) Customers’ deposits

For the

(C$ in thousands)
Opening balance as at January 1
Revenue recognized that was included in the customers’ deposit balance at the beginning of

the year

6 0

Year ended

December 31, 2023 December 31, 2022

2,332,273

2,405,986

33,061

63,333

24,408

1,714

34,736

58,359

17,016

1,562

2,454,789

2,517,659

Year ended
December 31, 2023 December 31, 2022
362,099

175,847

(153,428)

(322,682)

LEON’S FURNITURE LIMITED ANNUAL REPORT 2023NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSc) Deferred warranty plan and insurance revenue

For the

(C$ in thousands)

Opening balance as at January 1
Revenue recognized that was included in the deferred warranty and insurance balance at the

beginning of the year

Recognition of deferred warranty and insurance during the year

Total

Reported as:

Current

Non-current

Total

18. Expenses by Nature

For the

(C$ in thousands)

Salaries and benefits

Depreciation of property, plant and equipment, right-of-use assets and investment properties

Amortization of intangible assets

Occupancy expenses

19. Net Finance Costs

For the

(C$ in thousands)

Interest expense on lease obligations

Interest expense on term credit facilities and revolving credit facilities

Finance income

Total

20. Other Income

For the

(C$ in thousands)

Gain on settlement of warrant (1)

Change in fair value of derivative instruments

Total

Year ended

December 31, 2023 December 31, 2022

171,421

157,627

(87,741)

95,727

179,407

68,229

111,178

179,407

(75,375)

89,169

171,421

62,894

108,527

171,421

Year ended

December 31, 2023 December 31, 2022

432,937

106,739

1,052

102,408

425,579

108,497

1,470

100,030

Year ended

December 31, 2023 December 31, 2022

16,669

11,511

(8,722)

19,458

17,739

8,276

(4,486)

21,529

Year ended

December 31, 2023 December 31, 2022

(20,000)

3,533

(16,467)

–

(3,010)

During 2023, point of sale financing partner FLX Holding Corp (“Flexiti”) was acquired by Questrade Financial Group Inc. from CURO Intermediate Holdings (“CURO”).
Leon’s Furniture Limited entered into an amended agreement with Flexiti, and the Company received a $20 million one-time payment to settle the value of warrant
rights negotiated as part of the original agreement with CURO.

6 1

LEON’S FURNITURE LIMITED ANNUAL REPORT 2023NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS21. Income Tax Expense
(a) The major components of income tax expense are as follows:

For the

(C$ in thousands)

Consolidated statements of income

Current income tax expense:

Based on taxable income of the current year

Deferred income tax expense:

Origination and reversal of temporary differences

Income tax expense reported in the consolidated statements of income

(b) Reconciliation of the effective tax rates are as follows:

For the

(C$ in thousands, except %)

Income before income taxes

Income tax expense based on statutory tax rate

Increase (decrease) in income taxes resulting from non-taxable items or

adjustments of prior year taxes:

Non-deductible items

Remeasurement of deferred income tax asset for rate changes

Income exempt from tax

Prior year adjustments

Other

Income tax expense reported in the consolidated statements of income

(i) Deferred income tax relates to the following:

As at

(C$ in thousands)

Deferred income tax assets (liabilities)

Deferred tax income assets

Deferred tax income liabilities

Total deferred income tax liabilities

(ii) Deferred income tax movements are as follows:

As at

(C$ in thousands)

Deferred warranty plan

Deferred financing fees

Deferred acquisition costs

Property, plant and equipment

Intangible assets

Lease liabilities

Other

Mark to market

Total deferred income tax expense (benefit)

6 2

Year ended

December 31, 2023 December 31, 2022

46,652

58,644

(3,029)

43,623

(1,852)

56,792

Year ended

December 31, 2023

December 31, 2022

182,478

47,919

26.26%

236,221

61,725

26.13%

250

(24)

(124)

(61)

(4,337)

43,623

0.14%

(0.01%)

(0.07%)

(0.03%)

(2.38%)

244

147

(128)

(1,183)

(4,013)

0.10%

0.06%

(0.05%)

(0.50%)

(1.70%)

23.91%

56,792

24.04%

December 31, 2023 December 31, 2022

17,296

(68,399)

(51,103)

16,647

(70,648)

(54,001)

Balance,
beginning of
year

(98)

(39)

(321)

(67,877)

(76,462)

63,855

27,204

(263)

(54,001)

December 31, 2023

Other

Expense
(benefit)

Balance, end
of year

–

(131)

–

(131)

–

(3)

(7,374)

(148)

8,278

1,342

928

3,029

(98)

(42)

(315)

(75,251)

(76,610)

72,133

28,415

665

(51,103)

LEON’S FURNITURE LIMITED ANNUAL REPORT 2023NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

As at

(C$ in thousands)

Deferred warranty plan

Deferred financing fees

Deferred acquisition costs

Property, plant and equipment

Intangible assets

Lease liabilities

Other

Mark to market

Total deferred income tax expense (benefit)

Balance,
beginning of
year

(98)

(33)

(323)

(79,909)

(76,474)

75,130

25,135

520

(56,052)

December 31, 2022

Other

Expense
(benefit)

Balance, end
of year

–

199

–

199

–

(6)

12,032

(11,275)

1,870

(783)

1,852

(98)

(39)

(321)

(67,877)

(76,462)

63,855

27,204

(263)

(54,001)

22. Earnings Per Share
Earnings per share are calculated using the weighted average number of common shares outstanding. The following table reconciles the net
income for the period and the number of shares for the basic and diluted earnings per share calculations:

For the

(C$ in thousands except share and per share amounts)

Net income for the period for basic earnings per share

Net income for the period for diluted earnings per share

Weighted average number of common shares outstanding

Dilutive effect

Dilutive weighted average number of common shares outstanding

Basic earnings per share

Diluted earnings per share

23. Financial Instruments

Classification of financial instruments and fair value

Year ended

December 31, 2023 December 31, 2022

138,855

139,004

67,962,903

691,419

68,654,322

$2.04

$2.02

179,429

179,619

67,512,284

652,653

68,164,937

$2.66

$2.64

The classification of the Company’s financial instruments, as well as their carrying amounts and fair values, are disclosed in the tables below.

As at

(C$ in thousands)

Financial assets

Cash and cash equivalents

Trade receivables

Restricted marketable securities

Equity securities

Debt securities

Loan receivable

Financial liabilities

Trade and other payables

Long-term debt

Derivative liabilities

December 31, 2023

Classification and
measurement

Total
carrying
amount

Fair value

Fair value
hierarchy

Amortized cost

82,744

Amortized cost

197,759

FVOCI

FVTPL

414

30,685

73,618

100

19,669

Amortized cost

282,937

Amortized cost

100,000

FVTPL

2,265

Level 1

Level 2

Level 1

Level 2

6 3

LEON’S FURNITURE LIMITED ANNUAL REPORT 2023NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSAs at

(C$ in thousands)

Financial assets

Cash and cash equivalents

Trade receivables

Restricted marketable securities

Equity securities

Debt securities

Loan receivable

Derivative assets

Financial liabilities

Trade and other payables

Long-term debt

December 31, 2022

Classification and
measurement

Total
carrying
amount

Fair value

Fair value
hierarchy

Amortized cost

115,127

Amortized cost

180,482

FVOCI

FVTPL

413

31,804

78,925

100

413

31,804

78,925

100

20,348

1,268

Level 1

Level 2

Level 1

Level 2

Amortized cost

249,853

Amortized cost

234,375

Level 2

The fair value hierarchy of financial instruments measured at fair value, as at December 31, 2023 includes financial assets of $187,461, $217,528
and $nil for Levels 1, 2 and 3 respectively, and financial liabilities of $nil, $385,202 and $nil for Levels 1, 2 and 3, respectively.

The carrying amounts of the Company’s trade receivables, and trade and other payables approximate their fair values due to their
short-term nature.

The carrying amounts of the Company’s long-term debt approximate their fair values since they bear interest at rates comparable to market
rates at the end of the reporting period.

The fair values of debt and equity instruments that are traded in active markets are determined by reference to their quoted closing price or
dealer price quotations at the reporting date. For financial instruments that are not traded in active markets, the Company determines fair
values using a combination of discounted cash flow models and comparison to similar instruments for which market observable prices exist.

The fair values of derivative assets and liabilities are estimated using industry standard valuation models. Where applicable, these models
project future cash flows and discount the future amounts to a present value using market-based observable inputs including interest rate
curves, foreign exchange rates and forward and spot prices for currencies.

The Company maintains financial derivatives, which comprise of foreign exchange forwards, with maturities that do not exceed past
December 2025. As at December 31, 2023, the fair value of derivative liabilities is $2,265 (2022 – $1,268 derivative assets).

Fair values of financial instruments reflect the credit risk of the Company and counterparties when appropriate.

Fair value hierarchy

The Company uses a fair value hierarchy to categorize the inputs used to measure the fair value of financial assets and financial liabilities, the
levels of which are as follows:

Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities.

Level 2:

Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (that is, as prices)
or indirectly (that is, derived from prices).

Level 3:

Inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs).

6 4

LEON’S FURNITURE LIMITED ANNUAL REPORT 2023NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFinancial risk management

The Company’s activities expose it to a variety of financial risks: credit risk, liquidity risk and market risk (including interest rate risk, currency
risk and other price risk). Risk management is carried out by the Company by identifying and evaluating the financial risks inherent
within its operations. The Company’s overall risk management activities seek to minimize potential adverse effects on the Company’s
financial performance.

Credit risk

Credit risk is the risk of financial loss to the Company if a customer or counterparty to a financial instrument fails to meet its contractual
obligations. The Company limits its exposure to counterparty credit risk by transacting only with highly rated financial institutions and other
counterparties and by managing within specific limits for credit exposure and term to maturity. The Company’s financial instrument portfolio
is spread across financial institutions, provincial and federal governments and, to a lesser extent, corporate issuers that are dual rated and
have a credit rating in the “A” category or better.

The following table summarizes the Company’s maximum exposure to credit risk related to financial instruments. The maximum credit
exposure is the carrying value of the asset, net of any allowances for impairment.

As at

(C$ in thousands)

Cash and cash equivalents

Restricted marketable securities

Debt securities

Trade receivables

Total

Carrying amount

December 31, 2023 December 31, 2022

82,744

414

73,718

197,759

354,635

115,127

413

79,025

180,482

375,047

Generally, the carrying amount on the consolidated statements of financial position of the Company’s financial assets exposed to credit risk
represents the Company’s maximum exposure to credit risk. No additional credit risk disclosure is provided, unless the maximum potential
loss exposure to credit risk for certain financial assets differs significantly from their carrying amount. The Company’s main credit risk
exposure is from its trade receivables. For the Company, trade receivables are comprised principally of amounts related to its commercial
sales, to its franchise operations and to its vendor rebate programs.

For commercial trade and other receivables, credit risk is mitigated through customer agreements specifying payment terms and credit
limits. For franchise trade receivables, personal guarantees are obtained. As well, liens are placed against the goods and the Company may
repossess goods for non-payment. Credit risk is also limited due to the large number of customers and their dispersion across geographic
areas and market sectors (i.e., retail, commercial and franchise). Accordingly, the Company believes it has no significant concentrations of
credit risk related to trade receivables. The Company’s trade receivables totalled $197,759 as at December 31, 2023, (2022 – $180,482). The
amount of trade receivables that the Company has determined to be past due (which is defined as a balance that is more than 90 days past
due) is $8,865 as at December 31, 2023 (2022 – $11,515). IFRS 9 requires that a forward-looking ECL model be followed. The guidance allows
for a simplified approach for assets, including trade receivables, that do not contain a significant financing component. This does not require
the tracking of changes in credit risk but requires recognition of lifetime ECLs at all times. The Company’s ECL based on the total receivables,
past due invoices, historical data and future analysis was $1,334 as at December 31, 2023 (2022 – $1,292).

IFRS 9 provides a low credit risk simplified approach for certain financial instruments if they are deemed to be a low credit risk. Based on the
Company’s portfolio, historical trends and future looking analyst predictions, it was concluded that the low credit risk simplification could
be used as debt investments have a low risk of default and the Company has a strong capacity to meet its contractual cash flow obligations
in the near future.

The majority of the Company’s retail sales are funded through cash, traditional credit cards and private label credit cards carried on a non-
recourse basis by third parties. Accordingly, fluctuations in the availability and cost of credit may have an impact on the Company’s retail
sales and profitability.

The Company manages credit risk for its cash and cash equivalents by maintaining bank accounts with major Canadian banks and investing
only in highly rated Canadian and U.S. securities that are traded on active markets and are capable of prompt liquidation.

6 5

LEON’S FURNITURE LIMITED ANNUAL REPORT 2023NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSLiquidity risk

Liquidity risk is the risk that an entity will encounter difficulty in meeting obligations associated with financial liabilities. The purpose of
liquidity risk management is to maintain sufficient amounts of cash and cash equivalents and authorized credit facilities, to fulfill obligations
associated with financial liabilities. To manage liquidity risk, the Company prepares budgets and cash forecasts and monitors its performance
against these. Management also monitors cash and working capital efficiency given current sales levels and seasonal variability. The
Company measures and monitors liquidity risk by regularly evaluating its cash inflows and outflows under expected conditions through
cash flow reporting such that it anticipates certain funding mismatches and ensures the cash management of the business is within certain
tolerable levels. These cash flow forecasts are reviewed on a weekly basis by management. The Company mitigates liquidity risk through
continuous monitoring of its credit facilities and the diversification of its funding sources, both in the short term as well as the long term. As at
December 31, 2023, unrestricted liquidity was $416,454, comprising cash and cash equivalents, debt and equity instruments and its undrawn
revolving credit facility.

The following tables summarize the Company’s contractual maturity for its financial liabilities and includes both principal and interest
payments for the Company’s long-term debt:

(C$ in thousands)

As at December 31, 2023

Carrying
amount

Contractual
cash flows

2024

2025

2026

2027

2028

2029 &
beyond

Payments due by period

Trade and other payables

282,937

353,925

408,582

100,000

108,858

91,201

12,402

–

64,742

96,456

–

63,395

62,029

59,412

67,803

–

736,862

800,377

386,540

161,198

63,395

62,029

59,412

67,803

Carrying
amount

Contractual
cash flows

2023

2024

2025

2026

2027

2028 &
beyond

Payments due by period

Lease liabilities

Long-term debt

Total

(C$ in thousands)

As at December 31, 2022

Trade and other payables

249,853

249,846

–

Lease liabilities

Long-term debt

Total

322,855

373,395

234,375

252,578

89,185

20,439

55,693

55,179

53,773

52,315

67,250

232,139

–

807,083

875,826

359,470

287,832

55,179

53,773

52,315

67,257

The contractual cash flows have been included in the tables above based on the contractual arrangements that exist at the reporting
date and do not factor in any assumptions for early repayment. The amount and timing of actual payments may be materially different.
Contractual cash flows presented in the above maturity analysis table for lease liabilities and long-term debt include principal repayments,
interest payments, and other related cash payments. As the carrying amounts of these liabilities are measured at amortized cost, the future
contractual cash flows do not agree to the carrying amounts.

The Company’s credit facilities are further discussed in Note 14.

Market risk

Market risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market prices.
Market risk comprises three types of risk: interest rate risk, currency risk and other price risk.

(a) Interest rate risk

Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market
interest rates.

6 6

LEON’S FURNITURE LIMITED ANNUAL REPORT 2023NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSThe Company is exposed to cash flow risk on the term credit facility and the revolving credit facility, and to fair value risk on the lease
liabilities due to fluctuations in interest rates. Fair value risk related to the lease liabilities impacts disclosure only as these items are carried at
amortized cost on the consolidated statements of financial position.

As well, the Company’s revenues depend, in part, on supplying financing alternatives to its customers through third-party credit providers.
The terms of these financing alternatives are affected by changes in interest rates. Therefore, interest rate fluctuations may impact the
Company’s financing costs for retail sales financed using these alternatives and may also impact the Company’s revenue where customers’
buying decisions are impacted by their ability or desire to use these financing alternatives.

(i)

Interest rate sensitivity analysis

The Company’s net income is sensitive to the impact of a change in interest rates on the average indebtedness under the term credit
facility and the revolving credit facility during the year. For the year ended December 31, 2023, the Company’s long-term debt was
$100,000 (2022 – $234,375). Accordingly, a change during the year ended December 31, 2023 of a one percentage point increase or
decrease in the applicable interest rate would have impacted the Company’s net income by approximately $740 (2022 – $1,734).

(b) Currency risk

The Company is exposed to foreign currency fluctuations since certain merchandise is paid for in U.S. dollars. This risk is offset to the extent
that foreign currency costs are included in product costs when setting retail prices. Accordingly, the Company does not believe it has
significant foreign currency risk with respect to its inventory purchases made in U.S. dollars.

The Company is exposed to fluctuations in the market prices of its portfolio of debt securities. Changes in the fair value of these financial
assets are recorded, net of income taxes, in accumulated other comprehensive income as it relates to unrecognized gains and losses. The risk
is managed by the Company and its investment managers by ensuring a conservative asset allocation.

24. Insurance Contract Risk
Certain subsidiaries of the Company are responsible for the insurance business and monitoring and managing the financial risks related to the
Company’s insurance operations. This is done through internal risk assessment reporting and by compliance with regulatory requirements.
TGLI provides group insurance coverage for life, accident and sickness covering personal credit card debt; and group coverage for life,
accident and sickness covering other personal short-term debt. TGI provides group coverage for loss of income and property covering
personal credit card debt; group coverage for loss of income and property covering other personal short-term debt, and four and five-year
term commercial property coverage. The principal risks faced under insurance contracts are that (i) the actual claims and benefit payments
or the timing thereof, differ from expectations. This risk is influenced by the frequency of claims, severity of claims, actual benefits paid and
subsequent development of claims; (ii) the risk of loss arising from expense experience being different than expected; and (iii) the risk arising
due to policyholder experiences (lapses) being different than expected. The Company’s objective with respect to this risk is to ensure that
sufficient reserves are available to cover these liabilities.

The overall risk of the insurance operations is managed by diversifying across a large portfolio of insurance contracts and establishing
maximum benefit limits per claim types that the policy holder is entitled to. The Company, therefore, has a defined maximum exposure,
which enables it to effectively manage the overall risk.

6 7

LEON’S FURNITURE LIMITED ANNUAL REPORT 2023NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

25. Capital Management
The Company’s objectives when managing capital are to:

• Ensure sufficient liquidity to support its financial obligations and execute its operating and strategic plans; and

• Utilize working capital to negotiate favourable supplier agreements both in respect of early payment discounts and overall payment terms.

The capital structure currently includes debt and equity securities, lease liabilities, term credit facility and borrowing capacity available under
the revolving credit facilities (Note 14). As at December 31, 2023, $229,307 is available to draw on under our $250,000 revolving credit facility,
as the borrowing capacity is reduced by ordinary letters of credit of $6,943 (2022 – $6974) and utilizing $13,750 of the revolving credit facility.

As at

(C$ in thousands)

Current portion of lease liabilities

Current portion of long-term debt

Lease liabilities

Long-term debt

Total shareholders’ equity

Total capital under management

December 31, 2023 December 31, 2022

75,127

7,500

278,798

92,500

1,028,524

1,482,449

74,389

7,500

248,466

226,875

928,885

1,486,115

The Board of Directors reviews and approves any material transactions out of the ordinary course of business, including proposals on
acquisitions or other major investments or divestitures, as well as annual operating budgets. Based on the Company’s borrowing capacity
available and expected cash flow from operating activities, management believes that the Company has sufficient funds available to meet
its liquidity requirements at any point in time. However, if cash from operating activities is lower than expected or capital costs for projects
exceed current estimates or if the Company incurs major unanticipated expenses, it may be required to seek additional capital.

The Company is not subject to any externally imposed capital requirements, other than with respect to its insurance subsidiaries.

Restriction on the distribution of capital from Trans Global Insurance Company and Trans Global Life Insurance Company

For purposes of regulatory requirements for TGI and TGLI, capital is considered to be equivalent to their respective statement of financial
position equity. Regulatory requirements stipulate that TGI must maintain minimum capital of at least $3,000 and TGLI must maintain
minimum capital of at least $5,000.

In addition, the Company is subject to the regulatory capital requirements defined by The Office of the Superintendent of Insurance of
Alberta and the Insurance Act of Alberta (the “Insurance Act”). Notwithstanding that a company may meet the supervisory target standard,
The Office of the Superintendent of Insurance of Alberta may direct a company to increase its capital under the Insurance Act. As at
December 31, 2023, TGI’s Minimum Capital Test ratio was 388% (2022 – 456%), which is in compliance with the requirements of The Office of
the Superintendent of Insurance of Alberta and the Insurance Act.

For TGLI, the Life Insurance Capital Adequacy Test (“LICAT”) replaced the Minimum Continuing Capital and Surplus Requirements (“MCCSR”)
effective January 1, 2018. As at December 31, 2023, TGLI’s LICAT ratio was 388% (2022 – LICAT 367%), which is in compliance with the
requirements of The Office of the Superintendent of Insurance of Alberta and the Insurance Act.

26. Commitments and Contingencies
a) Pursuant to a reinsurance agreement relating to the extended warranty sales, the Company has pledged debt instruments amounting to

$414 (2022 – $413).

b) In the normal course of operations, the Company is party to a number of lawsuits, claims and contingencies. Accruals are made in instances
where it is probable that liabilities have been incurred and where such liabilities can be reasonably estimated. Although it is possible that
liabilities may be incurred in instances for which no accruals have been made, the Company does not believe that the ultimate outcome
of these matters will have a material impact on its financial position.

6 8

LEON’S FURNITURE LIMITED ANNUAL REPORT 2023NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS27. Consolidated Statements of Cash Flows
a) The net change in operating working capital balances consist of the following:

For the

(C$ in thousands)

Trade receivables

Inventories

Prepaid expenses and other assets

Trade and other payables

Customers’ deposits

Derivative assets and liabilities

Provisions

Deferred acquisition costs

Total

b) Changes in liabilities arising from financing activities comprise the following:

(C$ in thousands)

Balance as at January 1, 2023

Cash changes:

Lease obligation repayment

Long-term debt repayment

Non-cash changes:

Additions

Interest

Balance as at December 31, 2023

(C$ in thousands)

Balance as at January 1, 2022

Cash changes:

Long-term debt issuance

Lease obligation repayment

Long-term debt repayment

Non-cash changes:

Additions

Disposals

Interest

Balance as at December 31, 2022

Year ended

December 31, 2023 December 31, 2022

(17,277)

(5,984)

(5)

34,233

(15,501)

3,533

3,602

(1,698)

903

(20,388)

(14,966)

4,508

(51,192)

(186,252)

(3,010)

1,845

(3,097)

(272,552)

Leases

Long-term debt

322,855

234,375

(93,187)

–

(134,375)

107,588

16,669

353,925

–

100,000

Leases

Long-term debt

366,254

90,000

–

(93,400)

–

32,472

(210)

17,739

322,855

150,000

–

(5,625)

–

234,375

6 9

LEON’S FURNITURE LIMITED ANNUAL REPORT 2023NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS28. Related Party Transactions
Balances and transactions between the Company and its subsidiaries, which are related parties of the Company, have been eliminated
on consolidation.

The Company has a 50% ownership interest in a joint operation “Beedie/Leon’s Delta-Link Joint Venture.” This joint operation developed land
into a 432,000 square foot distribution centre, which the Company occupies in Delta, British Columbia.

Key management compensation

Key management includes the five senior executives of the Company. The compensation expense paid to key management for employee
services during each year is shown below:

For the

(C$ in thousands)

Salaries and other employee benefits

Year ended

December 31, 2023 December 31, 2022

5,828

6,376

29. Comparative Financial Information
The comparative consolidated financial statements have been reclassified from statements previously presented to conform to the
presentation of the December 31, 2023 consolidated financial statements.

7 0

LEON’S FURNITURE LIMITED ANNUAL REPORT 2023NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSCorporate & Shareholder
Information

BOARD OF DIRECTORS

OFFICERS

AUDITORS

Mark J. Leon1
Chairman of the Board

Terrence T. Leon1
Vice Chairman

Michael J. Walsh
President and CEO

Constantine Pefanis
CFO

John A. Cooney
Vice President, Legal and
Corporate Secretary

CORPORATE OFFICE

45 Gordon Mackay Road
Toronto, Ontario M9N 3X3
(416) 243-7880

Ernst & Young LLP Toronto

REGISTRAR AND
TRANSFER AGENT

TSX Trust Company (Canada)

LISTING

Leon’s Furniture Limited
common shares are listed
on the Toronto Stock Exchange
Ticker Symbol is LNF

ANNUAL MEETING

Wednesday, May 8, 2024, 2:00pm
Fairmont Royal York
100 Front Street West
Toronto, Ontario

Mark J. Leon
Toronto, ON

Terrence T. Leon
Toronto, ON

Edward F. Leon1
King City, ON

Joseph M. Leon II
Ridgeway, ON

Alan J. Lenczner
Founding Partner in
Lenczner Slaght
Toronto, ON

Mary Ann Leon
Financial Executive
Toronto, ON

Frank Gagliano
Vice Chairman,
St. Joseph Communications,
Toronto, ON

Hon. Lisa Raitt
Vice Chair, CIBC Global
Investment Banking
Milton, ON

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1. On January 1, 2024, Terrence Leon succeeded Mark J. Leon as Chairman of the Board of Directors, and Edward Leon became Vice Chairman.

Mark J. Leon has assumed the title of Chairman Emeritus and continues to serve as a Director of LFL Group.

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