Back Cover
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2 0 2 3 A N N U A L R E P O R T
140 Otter Street
Winnipeg, Manitoba R3T 0M8
(204) 474 - 2323
www.pollardbanknote.com
2 0 2 3 A N N U A L R E P O R T
Inside Front Page
Inside Back Page
Inside Pages
Investor
Relations
Robert Rose
140 Otter Street
t: 204-474-2323
e: winnipeg@pollardbanknote.com
Stock
Exchange Listing
The Toronto Stock Exchange - PBL
Independent
Auditors
KPMG LLP,
Winnipeg, Manitoba
Transfer
Agent
Computershare Trust Company of Canada,
Toronto, Ontario
Toronto-Dominion Bank,
Winnipeg, Manitoba
Bank of Montreal,
Calgary, Alberta
Bankers
Canadian Western Bank,
Edmonton, Alberta
The Board
of Directors
of Pollard
Banknote
Limited
Gordon Pollard EXECUTIVE CHAIR
Dave Brown 1
Lee Meagher1
Carmele Peter1
John Pollard
Douglas Pollard
Letter to Shareholders
Board of Directors
Management's Discussion and Analysis
Pollard Banknote Limited
Consolidated Financial Statements
of Pollard Banknote Limited
CONTENTS
Corporate Information
1 Member of the Audit Committee, Compensation Committee
and the Governance and Nominating Committee
Head Office
John Pollard
CO-CHIEF EXECUTIVE OFFICER
Douglas Pollard
CO-CHIEF EXECUTIVE OFFICER
Steven Fingold
EXECUTIVE VICE PRESIDENT, CHARITABLE GAMING
Paul Franzmann
EXECUTIVE VICE PRESIDENT, CORPORATE DEVELOPMENT
Pedro Melo
EXECUTIVE VICE PRESIDENT, INFORMATION TECHNOLOGY
Margaret Proven
EXECUTIVE VICE PRESIDENT, HUMAN RESOURCES
Riva Richard
GENERAL COUNSEL AND EXECUTIVE VICE PRESIDENT,
LEGAL AFFAIRS
Robert Rose
EXECUTIVE VICE PRESIDENT, FINANCE AND CHIEF
FINANCIAL OFFICER
Jennifer Westbury
EXECUTIVE VICE PRESIDENT, SALES AND CUSTOMER
DEVELOPMENT
Robert Young
EXECUTIVE VICE PRESIDENT, OPERATIONS
Manufacturing
Facilities
Senior
Management
140 Otter Street
Winnipeg, Manitoba, R3T 0M8
t: 204-474-2323
f: 204-453-1375
Winnipeg, Manitoba, Canada
1499 Buffalo Place, R3T 1L7
140 Otter Street, R3T 0M8
Barrhead, Alberta, Canada
6203 46th Street, T7N 1A1
Sault Ste. Marie, Ontario, Canada
300-45 White Oak Drive East, P6B 4J7
Ypsilanti, Michigan, USA
775 James L. Hart Parkway, 48197
Council Bluffs, Iowa, USA
504 34th Avenue, 51501
Chatsworth, California, USA
9340 Penfield Avenue, 91311
Adair, Iowa, USA
1000 Flag Road, 50002
Omaha, Nebraska, USA
9335 48th Street, 68152
Macclesfield, U.K.
Calamine Street, SK11 7HU
LETTER TO SHAREHOLDERS
Enclosed please find our 2023 Annual Report. 2023 was a successful year in
many areas of our business as demand remained strong across our product and
solution portfolio, leading to record revenue and Adjusted EBITDA(1). These
achievements were attained despite the significant negative margin pressures in
our instant ticket business due to the impact of extreme input cost inflation from
2022. Fortunately our instant ticket challenges were more than offset by
significant growth in our eGaming and iLottery operations as well as solid
contributions from the other areas of our business.
In 2023 Pollard Banknote achieved record revenue of $520.4 million, up 7.6%
from 2022. Combined sales(1) in the year, including our share of our NeoPollard
Interactive LLC joint venture sales, attained $600.7 million, up 11.5% from
$538.8 million in 2022. Net Income of $31.4 million was 63.0% higher than 2022
Net Income of $19.3 million. Our Adjusted EBITDA(1) attained a new annual
record of $91.3 million, up 13.4% from 2022. Cash flow from operating activities
generated $64.6 million compared to $54.2 million in 2022.
Our instant ticket contract repricing strategy has been very successful. Since the
beginning of 2022 we have repriced a majority of our instant ticket contracts.
The positive impact on our revenue started to be recognized modestly during
2023 but the larger impact of higher revenue won’t be reflected until the end of
2024. We have also seen some small decreases in our input costs going into
2024 and we are hopeful this trend may continue.
Our investment in our state-of-the-art iLottery platform and game content library
has progressed well and we are in active discussions promoting our capabilities
with lotteries around the world.
As partner of choice for lotteries and charitable organizations, we take great pride
in helping these organizations generate funds to support their various good
causes. By expanding our product and solutions and focusing on excellence in
everything we do, our over 2,300 employees continually create successful
outcomes for our clients. We thank all of our team members for carrying on the
vision of helping others, first articulated at the founding of our company 117
years ago.
(1) See Non-GAAP measures for explanation
In addition to our great employees, we have a number of other stakeholder
groups without whose support achieving our objectives would be very difficult.
We consider our customers, lottery and charitable organizations, true partners,
with their desire to expand and improve gaming in a responsible way a
cornerstone of our vision. Many of our shareholders have been with us since our
initial public offering back in 2005 and their continuing unwavering support allows
us the luxury of focusing on our long-term growth objectives. Last, but certainly
not least, our Board of Directors, in particular our three independent Directors,
are always available to provide advice, direction and leadership as we execute
our strategy. We would particularly like to welcome our new independent
Director to the Pollard Banknote Limited Board, Carmele Peter, who joined on
May 12, 2023.
We thank all of our supporters for your backing, and we are excitedly looking
forward to the opportunities ahead of us in 2024.
Douglas Pollard
Co-Chief Executive Officer
John Pollard
Co-Chief Executive Officer
March 31, 2024
DIRECTORS OF POLLARD BANKNOTE LIMITED
Gordon Pollard Executive Chair
Gordon Pollard joined Pollard Banknote in 1989 as Vice President, Marketing. He became
Co–Chief Executive Officer in 1997 and on May 1, 2011, was appointed Executive Chair of
the Board of Directors and is a former Director of the Manitoba Hydro Electric Board. Prior
to 1989, he practiced law with a major Manitoba firm specializing in corporate and securities
law. Mr. Pollard has an LL.B. from the University of Manitoba and a B.A. from the
University of Winnipeg.
Dave Brown
Dave Brown is an Executive Vice-President of Richardson Financial Group Limited and a
Managing Director of RBM Capital Limited (a private investment firm). Previously, he was
Chief Executive Officer of Richardson Capital Limited, the private equity arm of James
Richardson & Sons, Limited, the Corporate Secretary of James Richardson & Sons, Limited,
and a partner in the independent law and accounting firm of Gray & Brown. He also serves
as Independent Chair of the Board of Directors of Boyd Group Services Inc., Director of RF
Capital Group Inc. and is a former Director of the Manitoba Hydro Electric Board. He has
served various Manitoba charities including acting as Director of the Misericordia Hospital
and Pavilion Gallery Museum Inc. and as Co-chair of Major Donors for the Children’s
Hospital Foundation Capital Campaign. He graduated from the University of Manitoba law
school and is a Chartered Professional Accountant.
Lee Meagher
Lee Meagher founded Scootaround, Inc. in 1997, an international personal transportation
solutions company providing rentals, sales and service to the travelling public. She served as
its Chief Executive Officer from inception to 2019, when Scootaround merged its operations
with Whill Inc., a Tokyo based mobility device company. She currently serves as a Director
of Scootaround Mobility Holdings Inc. Ms. Meagher is the current Chair of the Board of
CancerCare Manitoba Foundation. She also serves as a Director of the Pan Am Clinic
Foundation, sits on the Advisory Committee of The Co-Habit Project and is past Chair of the
St. Boniface Hospital Research Foundation. She holds a B.A. from the University of
Manitoba.
Carmele Peter
Carmele Peter is currently President of Exchange Income Corporation, where she joined in
November 2012 as Chief Administrative Officer. Prior to joining Exchange Income
Corporation, she practiced law for 23 years at the law firm of Aikins, MacAulay &
Thorvaldson LLP, where she specialized in transactional and tax work. Ms. Peter was
appointed K.C. in 2019. Ms. Peter also currently serves as a Director of James Richardson &
Sons, Limited, Chair of the Manitoba Civil Service Superannuation Fund and is a member of
the International Women’s Forum.
Douglas Pollard
Douglas Pollard joined Pollard Banknote in 1997 as Vice President, Lottery Management
Services and on May 1, 2011, was appointed Co–Chief Executive Officer. From 1997 to
1999 he was a Director and the General Manager of Imprimerie Spéciale de Banque, a
subsidiary of Pollard Banknote based in Paris, France. Prior to 1997 Mr. Pollard was a Senior
Consultant with PricewaterhouseCoopers. Mr. Pollard has an M.B.A. from The Richard Ivey
School of Business at the University of Western Ontario and a B.A. from the University of
Manitoba and is Chair of the Board of Directors of the Assiniboine Park Conservancy.
John Pollard
John Pollard joined Pollard Banknote in 1986 as Vice President, Finance. He became Co–
Chief Executive Officer in 1997. Prior to 1986, he was an associate with the accounting firm
Deloitte & Touche LLP. Mr. Pollard has a B.Comm. (Honours) from the University of
Manitoba and is a former member of the Institute of Chartered Accountants of Manitoba. He
serves as a Director of The Winnipeg Foundation and as President and Director of Pulford
Community Living Services Inc.
December 31, 2023
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2023
March 5, 2024
This management’s discussion and analysis (“MD&A”) of Pollard Banknote Limited (“Pollard”) for the year
ended December 31, 2023, is prepared as at March 5, 2024, and should be read in conjunction with the
accompanying audited consolidated financial statements of Pollard and the notes therein as at December
31, 2023. Results are reported in Canadian dollars and have been prepared in accordance with IFRS
Accounting Standards (“GAAP” or “IFRS”).
Forward-Looking Statements
Certain statements in this report may constitute “forward-looking” statements which involve known and
unknown risks, uncertainties and other factors which may cause actual results, performance or
achievements to be materially different from any future results, performance or achievements expressed
or implied by such forward looking statements. When used in this document, such statements include
such words as “may,” “will,” “expect,” “believe,” “plan” and other similar terminology. These statements
reflect management’s current expectations regarding future events and operating performance and speak
only as of the date of this document. There should not be an expectation that such information will in all
circumstances be updated, supplemented or revised whether as a result of new information, changing
circumstances, future events or otherwise.
Use of Non-GAAP Financial Measures
Reference to “EBITDA” is to earnings before interest, income taxes, depreciation, amortization and
purchase accounting amortization. Reference to “Adjusted EBITDA” is to EBITDA before unrealized
foreign exchange gains and losses, and certain non-recurring items including acquisition costs, litigation
settlement costs, contingent consideration fair value adjustments and net insurance proceeds. Adjusted
EBITDA is an important metric used by many investors to compare issuers on the basis of the ability to
generate cash from operations and management believes that, in addition to net income, Adjusted
EBITDA is a useful supplementary measure.
Reference to “Combined sales” is to sales recognized under GAAP plus Pollard’s 50% proportionate share
of NeoPollard Interactive LLC’s (“NPi”) sales, its iLottery joint venture operation. Reference to “Combined
iLottery sales” is to sales recognized under GAAP for Pollard’s 50% proportionate share of its Michigan
Lottery joint iLottery operation plus Pollard’s 50% proportionate share of NPi’s sales, its iLottery joint
venture operation.
EBITDA, Adjusted EBITDA, Combined sales and Combined iLottery sales are measures not recognized
under GAAP and do not have a standardized meaning prescribed by GAAP. Therefore, these measures
may not be comparable to similar measures presented by other entities. Investors are cautioned that
EBITDA, Adjusted EBITDA, Combined sales and Combined iLottery sales should not be construed as
alternatives to net income or sales as determined in accordance with GAAP as an indicator of Pollard’s
performance or to cash flows from operating, investing and financing activities as measures of liquidity
and cash flows.
Basis of Presentation
The results of operations in the following discussions encompass the consolidated results of Pollard for
the years ended December 31, 2023 and 2022. All figures are in millions except for per share amounts.
2
POLLARD BANKNOTE LIMITED
Overview
Pollard is one of the leading providers of products and solutions to lottery and charitable gaming industries
throughout the world. Management believes Pollard is the largest provider of instant-win scratch tickets
(“instant tickets”) based in Canada and the second largest producer of instant tickets in the world. In
addition, management believes Pollard is also the second largest bingo paper and pull-tab supplier to the
charitable gaming industry in North America and, through its 50% joint venture, the largest supplier of
iLottery solutions to the U.S. lottery market.
Pollard produces and provides a comprehensive line of instant tickets and lottery products and services
including: licensed products, distribution, SureTrack® lottery management system, marketing, iLottery
platform, eInstant game content, interactive digital gaming, including mkodo’s world class game apps
and GeoLocs, PlayOnTM loyalty programs, retail management services, ScanACTIVTM, EasyVENDTM, lottery
ticket dispensers and play stations, vending machines and eGaming systems marketed under the
Diamond Game and Compliant Gaming trade names. In addition, Pollard’s charitable gaming product line
includes pull-tab (or break-open) tickets, bingo paper, pull-tab vending machines and ancillary products
such as pull-tab counting machines.
Pollard’s lottery products are sold extensively throughout Canada, the United States and the rest of the
world, wherever applicable laws and regulations authorize their use. Pollard serves over 60 instant ticket
lotteries including a number of the largest lotteries throughout the world. Charitable gaming products are
mostly sold in the United States and Canada where permitted by gaming regulatory authorities. Pollard
serves a highly diversified customer base in the charitable gaming market of over 150 independent and
wholly-owned distributors with the majority of revenue generated from repeat business.
3
The following financial information should be read in conjunction with the accompanying financial
statements of Pollard and the notes therein as at and for the year ended December 31, 2023.
SELECTED FINANCIAL INFORMATION
(millions of dollars, except per share information)
Year ended
December 31,
2023
Year ended
December 31,
2022(1)
Year ended
December 31,
2021(1)
Sales
Cost of sales
$520.4
$483.7
$460.2
434.6
400.3
366.4
Gross profit
Gross profit as a % of sales
Administration expenses
Administration expenses as a % of sales
Selling expenses
Selling expenses as a % of sales
85.8
16.5%
58.3
11.2%
20.7
4.0%
83.4
17.2%
50.0
10.3%
17.4
3.6%
93.8
20.4%
48.7
10.6%
17.5
3.8%
NPi equity investment income
(39.1)
(22.3)
(11.1)
NPi equity investment income as a % of
sales
(7.5%)
(4.6%)
(2.4%)
Other (income) expenses
Other (income) expenses as a % of sales
Unrealized foreign exchange (gain) loss
Unrealized foreign exchange (gain) loss
as a % of sales
(0.1)
(0.0%)
(2.0)
4.1
0.8%
4.4
5.2
1.1%
0.3
(0.4%)
0.9%
0.1%
Net income
Net income as a % of sales
Adjusted EBITDA
Adjusted EBITDA as a % of sales
Net income per share (basic)
Net income per share (diluted)
31.4
6.0%
91.3
17.5%
$1.17
$1.15
19.3
4.0%
80.5
16.6%
$0.72
$0.71
19.7
4.3%
84.0
18.3%
$0.74
$0.73
December 31,
2023
December 31,
2022(1)
December 31,
2021
Total Assets
Total Non-Current Liabilities
$515.7
$139.5
$506.7
$142.7
$461.4
$163.5
(1) Certain comparative figures have been reclassified to conform to the presentation adopted in the current period.
4
RECONCILIATION OF NET INCOME TO ADJUSTED EBITDA
(millions of dollars)
Year ended
December 31,
2023
Year ended
December 31,
2022
Year ended
December 31,
2021
Net income
$31.4
$19.3
$19.7
Adjustments:
Amortization and depreciation
Interest
Income taxes
EBITDA
Unrealized foreign exchange
(gain) loss
Contingent consideration fair
value adjustment
Net insurance proceeds
Acquisition costs
Litigation settlement cost
45.0
10.5
6.1
93.0
(2.0)
0.5
(0.2)
–
–
41.0
8.3
2.9
71.5
4.4
4.6
–
–
–
39.5
5.0
7.4
71.6
0.3
9.6
(1.0)
1.0
2.5
Adjusted EBITDA
$91.3
$80.5
$84.0
PRODUCT LINE BREAKDOWN OF REVENUE
Year ended
December 31,
2023
Year ended
December 31,
2022
76.1%
13.3%
10.6%
76.4%
13.7%
9.9%
Lottery
Charitable
eGaming systems
5
REVIEW OF OPERATIONS
Financial and operating information has been derived from, and should be read in conjunction with, the
consolidated financial statements of Pollard and the selected financial information disclosed in this MD&A.
ANALYSIS OF RESULTS FOR THE YEAR ENDED DECEMBER 31, 2023
Sales
Product Line Sales
Fiscal 2023
(in millions of dollars)
Lottery,
$395.9
Product Line Sales
Fiscal 2022
(in millions of dollars)
Charitable,
$69.3
eGaming
Systems,
$55.2
Lottery,
$369.6
Charitable,
$66.5
eGaming
Systems,
$47.6
During the year ended December 31, 2023 (“Fiscal 2023” or “2023”), Pollard achieved sales of $520.4
million, compared to $483.7 million in the year ended December 31, 2022 (“Fiscal 2022” or “2022”).
Factors impacting the $36.7 million sales increase were:
The higher instant ticket average selling price in Fiscal 2023 increased sales by $24.2 million as compared
to 2022, as a result of the change in customer mix in part due to Pollard declining to accept certain
discretionary lower margin work, the initial impact of repriced contracts and higher proprietary product
sales. However, this increase was largely offset by the decrease in instant ticket sales volumes of $22.1
million as compared to 2022, primarily as a result of Pollard declining lower margin work.
Higher sales of ancillary lottery products and services increased revenue by $11.4 million. This growth
was largely due to increased sales of digital and loyalty products, distribution services and retail
merchandising products.
Higher eGaming systems revenue increased sales by $5.7 million due primarily to a higher number of
eGaming machines placed at bars, bingo halls and fraternal organizations as compared to 2022.
The higher average selling price of charitable games in 2023 also increased sales by $3.9 million as
compared to 2022. However, this increase was offset by lower charitable gaming volumes, which
decreased sales by $3.8 million, largely as a result of certain production inefficiencies.
Higher Michigan iLottery sales further increased revenue in 2023 by $0.4 million as compared to 2022.
6
Geographical Sales
Fiscal 2023
Geographical Sales
Fiscal 2022
United States
63%
International
20%
United States
63%
Canada
17%
International
19%
Canada
18%
During Fiscal 2023, Pollard generated approximately 70.5% (2022 – 71.5%) of its revenue in U.S. dollars
including a portion of international sales which are priced in U.S. dollars. During Fiscal 2023, the actual
U.S. dollar value was converted to Canadian dollars at $1.352, compared to a rate of $1.298 in Fiscal
2022. This 4.1% increase in the U.S. dollar value resulted in an approximate increase of $14.4 million in
revenue relative to Fiscal 2022. In addition, during 2023, the value of the Euro strengthened against the
Canadian dollar resulting in an approximate increase of $2.7 million in revenue relative to 2022.
Cost of sales and gross profit
Cost of sales was $434.6 million in Fiscal 2023 compared to $400.3 million in Fiscal 2022. The increase
of $34.3 million in cost of sales was primarily the result of the accumulated impact of significant
inflationary cost increases incurred throughout 2022 on raw materials and other manufacturing inputs.
In addition, higher exchange rates on U.S. dollar denominated expenses, increases in manufacturing
overhead costs and higher expenses related to increased sales of ancillary lottery products and services
further contributed to the increase in cost of sales as compared to 2022. Partially offsetting these
increases in cost of sales were the lower costs related to the decrease in instant ticket sales volumes as
compared to 2022.
Gross profit increased to $85.8 million (16.5% of sales) in Fiscal 2023 compared to $83.4 million (17.2%
of sales) in Fiscal 2022. This increase of $2.4 million in gross profit was primarily the result of increased
sales of eGaming systems, digital and loyalty products, retail merchandising products, licensed products
and distribution services as compared to 2022. These increases were partially offset by lower instant
ticket sales margins, and lower charitable gaming sales margins mainly due to certain production
inefficiencies. Despite the positive impact of higher instant ticket average selling price compared to 2022,
lower instant ticket sales volumes and higher manufacturing costs caused by the impact of accumulated
inflation on the costs of inputs to our instant ticket production led to lower instant ticket sales margins
as compared to 2022. While we have been successful in raising our selling prices for a number of
customer contracts that were renewed in 2022 and 2023, contract terms are generally negotiated well in
advance of their start date. Gross profit percentage decreased as a result of the lower instant ticket and
charitable gaming sales margins, partially offset by higher eGaming systems, licensed products, and
digital and loyalty products gross profit.
Administration expenses
Administration expenses increased to $58.3 million in Fiscal 2023 compared to $50.0 million in Fiscal
2022. The increase of $8.3 million was largely a result of increased compensation expenses, software
licensing costs and travel related costs.
7
Selling expenses
Selling expenses increased to $20.7 million in Fiscal 2023 compared to $17.4 million in Fiscal 2022. The
increase of $3.3 million compared to 2022 was primarily due to higher compensation and travel related
expenses.
Equity investment income
Pollard’s share of income from NPi increased to $39.1 million in Fiscal 2023 from the $22.3 million
achieved in Fiscal 2022. This $16.8 million increase was primarily due to organic growth achieved on
contracts held by NPi which generated greater gaming activity, further increasing NPi’s income. In
addition, higher revenues from several substantial Mega Millions® and Powerball® jackpots awarded
throughout the year further increased NPi’s income.
Other (income) expenses
Other income was $0.1 million in Fiscal 2023 compared to other expenses of $4.1 million in Fiscal 2022.
This change of $4.2 million was primarily due to the decrease in the contingent consideration fair value
adjustment expense, as part of previous acquisitions, of $4.1 million as compared to 2022.
Foreign exchange
The net foreign exchange gain was $2.0 million in Fiscal 2023 compared to a net foreign exchange loss
of $3.7 million in Fiscal 2022. The 2023 net foreign exchange gain of $2.0 million resulted from a net
unrealized foreign exchange gain of $2.0 million, primarily due to the decreased Canadian equivalent
value of U.S. dollar denominated accounts payable and long-term debt due to the strengthening of the
Canadian dollar relative to the U.S. dollar, partially offset by the unrealized loss on U.S. dollar
denominated accounts receivable. In addition, Pollard experienced a realized foreign exchange gain
primarily due to foreign currency denominated accounts receivable being converted into Canadian dollars
at favorable foreign exchange rates, which was offset by a realized foreign exchange loss mainly due to
foreign currency denominated accounts payable paid at unfavorable exchange rates.
The 2022 net foreign exchange loss of $3.7 million resulted from a net unrealized foreign exchange loss
of $4.4 million, comprised predominately of an unrealized loss on U.S. dollar denominated accounts
payable and long-term debt due to the weakening of the Canadian dollar, which was partially offset by
an unrealized gain on U.S. dollar denominated cash and accounts receivable. Partially offsetting the
unrealized foreign exchange loss was a realized foreign exchange gain of $0.7 million, which was primarily
due to foreign currency denominated accounts receivable being converted into Canadian dollars at
favorable foreign exchange rates, partially offset by foreign currency denominated accounts payable paid
at unfavorable exchange rates.
Adjusted EBITDA
Adjusted EBITDA increased to $91.3 million in Fiscal 2023 compared to $80.5 million in Fiscal 2022. The
primary reasons for the increase of $10.8 million were the increase in equity investment income of $16.8
million and the increase in gross profit (net of amortization and depreciation) of $6.4 million. Partially
offsetting these increases were the increase in administration expenses of $8.3 million, the increase in
selling expenses of $3.3 million and the reduction in realized foreign exchange gain of $0.7 million.
8
Interest expense
Interest expense increased to $10.5 million in Fiscal 2023 from $8.3 million in Fiscal 2022, primarily as a
result of higher interest rates in 2023 and the increase in average long-term debt outstanding which
increased interest expense by $4.0 million as compared to 2022. Partially offsetting these increases to
interest expense was the decrease in interest accretion of $1.8 million on the discounted contingent
consideration liability relating to a previous acquisition.
Amortization and depreciation
Amortization and depreciation totaled $45.0 million during Fiscal 2023 which increased from $41.0 million
during Fiscal 2022. The increase of $4.0 million was primarily the result of amortization and depreciation
taken on newly acquired intangible assets and property, plant and equipment.
Income taxes
Income tax expense was $6.1 million in Fiscal 2023, an effective rate of 16.3%, which was lower than
our domestic rate of 27.0% due primarily to the effect of lower income tax rates in foreign jurisdictions.
Income tax expense was $2.9 million in Fiscal 2022, an effective rate of 13.2%, which was lower than
our domestic rate of 27.0% due primarily to the effect of the lower income tax rates in foreign
jurisdictions.
Net income
Net income increased to $31.4 million in Fiscal 2023 compared to net income of $19.3 million in Fiscal
2022. The main reasons for the increase of $12.1 million include the increase in equity investment income
of $16.8 million, the increase in net foreign exchange gain of $5.7 million, the increase in other income
of $4.2 million and the increase in gross profit of $2.4 million. Partially offsetting these increases to net
income were the increase in administration expenses of $8.3 million, the increase in selling expenses of
$3.3 million, the increase in income tax expense of $3.2 million and the increase in interest expense of
$2.2 million.
Net income per share (basic and diluted) increased to $1.17 and $1.15 per share, respectively, in Fiscal
2023 from $0.72 and $0.71 per share, respectively, in Fiscal 2022.
9
iLottery
Pollard and its iLottery partner, NeoGames US LLP (“NeoGames”), provide iLottery services to the North
American Lottery market. In 2013, Pollard was awarded an iLottery contract from the Michigan Lottery.
As a result, Pollard entered into a contract with NeoGames to provide its technology in return for a 50%
financial interest in the operation. Under IFRS, Pollard recognizes its 50% share in the Michigan Lottery
contract in its consolidated statements of income in sales and cost of sales.
In 2014 Pollard, in conjunction with NeoGames, established NeoPollard Interactive LLC (“NPi”). Under
IFRS, Pollard accounts for its investment in its joint venture, NPi, as an equity investment. Under the
equity method of accounting, Pollard recognizes its share of the income and expenses of NPi separately
as equity investment income.
SELECT iLOTTERY RELATED FINANCIAL INFORMATION
(millions of dollars)
Q4
2023
Q3
2023
Q2
2023
Q1
2023
Q4
2022
Q3
2022
Q2
2022
Q1
2022
Q4
2021
Sales – Pollard’s share
Michigan iLottery
NPi
$7.0
$7.2
21.8 21.5
$6.5
18.5
$7.3
18.5
$7.9
17.7
$6.5
13.7
$6.2
12.4
$5.9
11.3
$5.6
10.5
Combined iLottery sales
$28.8 $28.7 $25.0 $25.8 $25.6 $20.2 $18.6 $17.2
$16.1
Income before income taxes – Pollard’s share(1)
Michigan iLottery
NPi
$2.5
11.0
$2.8
11.1
$1.8
8.8
$2.9
8.2
$2.9
8.3
$2.2
5.7
$2.4 $2.0
3.6
4.7
$1.8
3.0
Combined income before
income taxes – Pollard’s
share
$13.5 $13.9 $10.6 $11.1 $11.2
$7.9
$7.1
$5.6
$4.8
Throughout 2022 and 2023, NPi’s contracts achieved strong organic growth, adding to sales and income
before taxes. In addition, quarterly sales and income before taxes are positively impacted during quarters
where substantial draw-based game (Powerball® and Mega Millions®) jackpots are awarded.
(1) Certain comparative figures have been reclassified to conform to the presentation adopted in the current period.
10
Liquidity and Capital Resources
Cash provided by operating activities
For the year ended December 31, 2023, cash flow provided by operating activities was $64.6 million
compared to cash flow provided by operating activities of $54.2 million in Fiscal 2022. Changes in the
non-cash working capital provided $9.7 million in cash in 2023 compared to $15.4 million of cash used
in 2022. In Fiscal 2023, changes in the non-cash working capital increased cash flow from operations
due primarily to a decrease in inventory and an increase to accounts payable and accrued liabilities,
partially offset by an increase to prepaids. In Fiscal 2022, changes in the non-cash working capital
decreased cash flow from operations due primarily to increases to inventory and accounts receivable,
partially offset by an increase to accounts payable and accrued liabilities.
Cash used for interest payments increased to $9.7 million in 2023 as compared to $5.9 million in 2022.
Cash used for pension plan contributions decreased to $4.7 million in 2023 as compared to $7.1 million
used in 2022. Cash used for income tax payments increased to $24.2 million in 2023 from $7.5 million in
2022. Income tax payments in 2023 included the final installments for the 2022 tax year and installments
for 2023. Offsetting these uses of cash, Pollard received $39.1 million from our investment in our iLottery
joint venture in 2023 as compared to $22.3 million received in 2022.
Cash used for investing activities
For the year ended December 31, 2023, cash used for investing activities was $52.1 million compared to
$48.4 million used in the year ended December 31, 2022. In Fiscal 2023, Pollard used $23.5 million on
additions to intangible assets, $14.6 million on capital expenditures and $14.0 million for acquisitions,
primarily relating to contingent consideration paid for a previous acquisition.
In Fiscal 2022, Pollard used $18.9 million on additions to intangible assets, $15.1 million for acquisitions,
primarily relating to contingent consideration paid for a previous acquisition and $14.3 million on capital
expenditures.
Cash used for financing activities
Cash used for financing activities was $10.9 million for the year ended December 31, 2023, compared to
cash used for financing activities of $7.7 million for the year ended December 31, 2022. During Fiscal
2023, lease principal payments of $6.7 million, dividend payments of $4.3 million and repayments of
long-term debt of $0.9 million were made during the period. During Fiscal 2022, Pollard made lease
principal payments of $6.6 million and dividend payments of $4.3 million. These cash outflows were
partially offset by net proceeds from long-term debt received of $3.2 million.
As at December 31, 2023, Pollard had unused credit facility of $113.5 million and $3.3 million in available
cash resources. These amounts, in addition to cash flow provided by operating activities, are available to
be used for future working capital requirements, contractual obligations, capital expenditures, dividends
and to assist in financing future acquisitions.
11
RESULTS FOR THE THREE MONTHS ENDED DECEMBER 31, 2023
SELECTED FINANCIAL INFORMATION
(millions of dollars, except per share amounts)
Three months ended Three months ended
December 31, 2023 December 31, 2022(1)
(unaudited)
(unaudited)
Sales
Cost of sales
Gross profit
Administration expenses
Selling expenses
Equity investment income
Other expenses
Income from operations
Foreign exchange gain
Interest expense
Income before income taxes
Income taxes:
Current
Deferred reduction
Net income
Adjustments:
Amortization and depreciation
Interest
Income taxes
EBITDA
Unrealized foreign exchange gain
Contingent consideration fair value adjustment
Adjusted EBITDA
Net income per share (basic)
Net income per share (diluted)
$135.5
111.0
24.5
15.6
5.6
(11.0)
0.3
14.0
(2.9)
2.6
14.3
5.1
(2.1)
3.0
$11.3
11.5
2.6
3.0
$127.3
108.5
18.8
12.8
4.5
(8.3)
0.4
9.4
(3.1)
2.3
10.2
1.2
(1.5)
(0.3)
$10.5
11.6
2.3
(0.3)
$28.4
$24.1
(2.7)
–
$25.7
$0.42
$0.41
(2.2)
0.5
$22.4
$0.39
$0.39
(1) Certain comparative figures have been reclassified to conform to the presentation adopted in the current period.
12
Sales
During the three months ended December 31, 2023, Pollard achieved sales of $135.5 million, compared
to $127.3 million in the three months ended December 31, 2022. Factors impacting the $8.2 million sales
increase were:
The higher instant ticket average selling price in the fourth quarter of 2023 increased sales by $16.3
million as compared to 2022, primarily due to higher proprietary product sales, the growing impact of
repriced contracts and the change in customer mix, in part as a result of not accepting certain
discretionary lower margin work. However, this increase was partially offset by the decrease in instant
ticket sales volumes of $6.2 million as compared to 2022, primarily as a result of Pollard declining lower
margin work.
Higher eGaming systems revenue increased sales by $1.6 million due primarily to a higher number of
eGaming machines placed at bars, bingo halls and fraternal organizations as compared to 2022.
The higher average selling price of charitable games in the fourth quarter of 2023 also increased sales
by $0.6 million as compared to 2022. However, this increase was offset by lower charitable gaming
volumes, which decreased sales by $2.0 million, largely as a result of certain production inefficiencies.
Also partially offsetting the increases to sales were lower sales of ancillary lottery products and services
in the quarter, which further decreased revenue by $2.5 million as compared to 2022, largely due to
decreased sales of licensed products and retail merchandising products.
Lower Michigan iLottery sales also decreased revenue in the fourth quarter of 2023 by $0.9 million as
compared to the fourth quarter of 2022, partially due to a substantial Powerball® jackpot awarded in the
fourth quarter of 2022.
During the three months ended December 31, 2023, Pollard generated approximately 64.9% (2022 –
71.5%) of its revenue in U.S. dollars including a portion of international sales which were priced in U.S.
dollars. During the fourth quarter of 2023, the actual U.S. dollar value was converted to Canadian dollars
at $1.370, compared to a rate of $1.361 during the fourth quarter of 2022. This 0.7% increase in the
U.S. dollar value resulted in an approximate increase of $0.6 million in revenue relative to 2022. In
addition, during the fourth quarter of 2023, the value of the Euro strengthened against the Canadian
dollar resulting in an approximate increase of $0.7 million in revenue relative to 2022.
Cost of sales and gross profit
Cost of sales was $111.0 million in the fourth quarter of 2023 compared to $108.5 million in the fourth
quarter of 2022. The increase of $2.5 million was primarily the result of the accumulated impact of
significant inflationary cost increases incurred throughout 2022 on raw materials and other manufacturing
inputs. Partially offsetting this increase in cost of sales were the lower costs related to the decreases in
instant ticket sales volumes and manufacturing overhead costs as compared to 2022.
Gross profit was $24.5 million (18.1% of sales) in the fourth quarter of 2023 compared to $18.8 million
(14.8% of sales) in the fourth quarter of 2022. This increase of $5.7 million in gross profit and the
increase in gross profit percentage were primarily due to higher instant ticket sales margins, largely
caused by the higher instant ticket average selling price as a result of higher proprietary product sales,
the growing impact of repriced contracts and the change in customer mix as compared to 2022. Higher
sales of eGaming systems also contributed to the increase in gross profit in 2023. Partially offsetting
13
these increases were lower charitable gaming sales margins, primarily due to certain production
inefficiencies, and lower digital and loyalty product sales margins as compared to 2022.
Administration expenses
Administration expenses increased to $15.6 million in the fourth quarter of 2023 compared to $12.8
million in the fourth quarter of 2022. The increase of $2.8 million was largely a result of increased
compensation expenses, consulting costs and travel related costs.
Selling expenses
Selling expenses increased to $5.6 million in the fourth quarter of 2023 compared to $4.5 million in the
fourth quarter of 2022. The increase was primarily due to higher compensation expenses as compared
to 2022.
Equity investment income
Pollard’s share of income from NPi increased to $11.0 million in the fourth quarter of 2023 from the $8.3
million achieved in the fourth quarter of 2022. This $2.7 million increase was primarily due to organic
growth achieved on contracts held by NPi which generated greater gaming activity, further increasing
NPi’s income.
Other expenses
Other expenses were $0.3 million in the fourth quarter of 2023 similar to $0.4 million in the fourth quarter
of 2022.
Foreign exchange
The net foreign exchange gain was $2.9 million in the fourth quarter of 2023 compared to a net foreign
exchange gain of $3.1 million in the fourth quarter of 2022. The 2023 net foreign exchange gain of $2.9
million resulted from a net unrealized foreign exchange gain of $2.7 million, primarily due to the
decreased Canadian equivalent value of U.S. dollar denominated accounts payable and long-term debt
due to the strengthening of the Canadian dollar relative to the U.S. dollar, partially offset by the unrealized
loss on U.S. dollar denominated accounts receivable. In addition, Pollard experienced a realized foreign
exchange gain of $0.2 million, which was primarily due to foreign currency denominated accounts
receivable being converted into Canadian dollars at favorable foreign exchange rates, partially offset by
foreign currency denominated accounts payable paid at unfavorable exchange rates.
The 2022 net foreign exchange gain of $3.1 million consisted of a net unrealized foreign exchange gain
of $2.2 million, primarily a result of the decreased Canadian equivalent value of U.S. dollar denominated
accounts payable and long-term debt due to the strengthening of the Canadian dollar relative to the U.S.
dollar, which was partially offset by an unrealized loss on U.S. dollar denominated cash and accounts
receivable. Also contributing to the 2022 net foreign exchange gain was a realized foreign exchange gain
of $0.9 million, primarily due to foreign currency denominated accounts receivable being converted into
Canadian dollars at favorable foreign exchange rates.
14
Adjusted EBITDA
Adjusted EBITDA increased to $25.7 million in the fourth quarter of 2023 compared to $22.4 million in
the fourth quarter of 2022. The primary reasons for the increase of $3.3 million were the increase in
gross profit (net of amortization and depreciation) of $5.6 million and the increase in equity investment
income of $2.7 million. Partially offsetting these increases to Adjusted EBITDA were the increase in
administration expenses of $2.8 million, the increase in selling expenses of $1.1 million, the reduction in
realized foreign exchange gain of $0.7 million and the increase in other expenses (net of contingent
consideration) of $0.4 million.
Interest expense
Interest expense increased to $2.6 million in the fourth quarter of 2023 from $2.3 million in the fourth
quarter of 2022, primarily as a result of higher interest rates in 2023 which increased interest expense
by $0.6 million as compared to 2022. Partially offsetting this increase to interest expense was the
decrease in interest accretion of $0.3 million on the discounted contingent consideration liability relating
to a previous acquisition.
Amortization and depreciation
Amortization and depreciation totaled $11.5 million during the fourth quarter of 2023 similar to $11.6
million during the fourth quarter of 2022.
Income taxes
Income tax expense was $3.0 million in the fourth quarter of 2023, an effective rate of 21.0%, which
was lower than our domestic rate of 27.0% due primarily to the effect of lower income tax rates in foreign
jurisdictions and the impact of the capital gains rate.
Income tax recovery was $0.3 million in the fourth quarter of 2022, an effective rate of (3.3%), which
differed from our domestic rate of 27.0% due primarily to the effect of non-taxable amounts, the effect
of non-taxable items related to foreign exchange and the effect of lower income tax rates in foreign
jurisdictions.
Net income
Net income increased to $11.3 million in the fourth quarter of 2023 compared to net income of $10.5
million in the fourth quarter of 2022. The main reasons for the increase of $0.8 million include the increase
in gross profit of $5.7 million and the increase in equity investment income of $2.7 million. Partially
offsetting these increases to net income were the increase in income tax expense of $3.3 million, the
increase in administration expenses of $2.8 million, the increase in selling expenses of $1.1 million, the
increase in interest expense of $0.3 million and the decrease in net foreign exchange gain of $0.2 million.
Net income per share (basic and diluted) increased to $0.42 and $0.41 per share, respectively, in the
fourth quarter of 2023 from $0.39 per share (basic and diluted) in the fourth quarter of 2022.
15
Quarterly Information
(unaudited)
(millions of dollars, except for per share amounts)
Q4
2023
Q3
2023
Q2
2023
Q1
2023
Q4
2022
Q3
2022
Q2
2022
Q1
2022
Q4
2021
Sales(1)
$135.5
$129.1 $130.8 $125.0
$127.3
$125.9 $116.3 $114.2
$116.8
Adjusted EBITDA
25.7
24.8
22.1
18.6
22.4
20.2
18.9
19.0
18.7
Net income (loss)
11.3
7.7
7.5
4.8
10.5
(0.2)
2.5
6.4
5.2
Net income (loss)
per share - basic
0.42
0.29
0.28
0.18
0.39
(0.01)
0.09
0.24
0.19
(1) Certain comparative figures have been reclassified to conform to the presentation adopted in the current period.
Working Capital
Net non-cash working capital varies throughout the year based on the timing of individual sales
transactions and other investments. The nature of the lottery industry is few individual customers who
generally order large dollar value transactions. As such, the change in timing of a few individual orders
can significantly impact the amount required to be invested in inventory or receivables at a particular
period end. The high value, low volume of transactions results in some significant volatility in non-cash
working capital, particularly during a period of changing volumes. Similarly, the timing of the completion
of the sales cycle through collection can significantly impact non-cash working capital.
Instant tickets are produced specifically for individual clients resulting in a limited investment in finished
goods inventory. Customers are predominantly government agencies, which result in regular payments.
There are a limited number of individual customers, and therefore the net investment in working capital
is managed on an individual customer by customer basis, without the need for company-wide
benchmarks.
The overall impact of seasonality does not have a material impact on the carrying amounts in working
capital.
As at December 31, 2023, Pollard’s investment in non-cash working capital decreased $9.7 million
compared to December 31, 2022, primarily as a result of a decrease in inventory and an increase to
accounts payable and accrued liabilities, partially offset by an increase to prepaids.
December 31, December 31,
2023
2022(1)
Working Capital
Total Assets
Total Non-Current Liabilities
$81.8
$515.7
$139.5
$77.8
$506.7
$142.7
(1) Certain comparative figures have been reclassified to conform to the presentation adopted in the current period.
16
Credit Facility
Pollard’s credit facility was renewed effective December 31, 2021. The credit facility provides loans of up
to $215.0 million for its Canadian operations and US$14.0 million for its U.S. subsidiaries. The credit
facility also includes an accordion feature which can increase the facility by $50.0 million. The borrowings
for the Canadian operations can be denominated in Canadian or U.S. dollars, to a maximum of $215.0
million Canadian equivalent. Borrowings under the credit facility bear interest at fixed and floating rates
based on Canadian and U.S. prime bank rates, banker’s acceptances or Secured Overnight Financing
Rate (“SOFR”). At December 31, 2023, the outstanding letters of guarantee drawn under the credit facility
were $0.1 million. The remaining balance available for drawdown under the credit facility was $113.5
million.
Under the terms and conditions of the credit facility agreement Pollard is required to maintain certain
financial covenants including our debt service coverage ratio and debt to income before interest, income
taxes, amortization, depreciation and certain other items ratio. As at December 31, 2023, Pollard was in
compliance with all financial covenants.
Pollard’s credit facility is secured by a first security interest in all of the present and after acquired property
of Pollard. Under the terms of the agreement the facility is committed for a four-year period, renewable
December 31, 2025. Principal payments are not required until maturity. The facility can be prepaid
without penalties.
Pollard believes that its credit facility and ongoing cash flow from operations will be sufficient to allow it
to meet ongoing requirements for investment in capital expenditures, working capital, dividends and
acquisitions.
Economic Development Canada (“EDC”) Facility
Effective November 29, 2023, Pollard renewed its annual agreement with EDC. This agreement provides
a €15.0 million facility whereby Pollard can issue qualifying letters of credit against the EDC facility. The
facility is guaranteed by a general indemnity from Pollard. As of December 31, 2023, the outstanding
letters of credit drawn on this facility were $14.7 million (€10.1 million). As of December 31, 2022, the
outstanding letters of credit drawn on this facility were $13.5 million (€9.3 million).
Outstanding Share Data
As at December 31, 2023 and March 5, 2024, outstanding share data was as follows:
Common shares
26,972,669
Share Options
Under the Pollard Banknote Limited Stock Option Plan the Board of Directors has the authority to grant
options to purchase common shares to eligible persons and to determine the applicable terms. The
aggregate maximum number of common shares available for issuance from Pollard’s treasury under the
Option Plan is 2,354,315 common shares. As at December 31, 2023, the total share options issued and
outstanding were 470,000.
17
Dividends
On March 5, 2024, the Board of Directors increased the rate of dividend from $0.04 per quarter per
common share to $0.05 per quarter per common share, declaring a dividend of $0.05 per common share
payable on April 15, 2024, for the quarter ending March 31, 2024.
Contractual Obligations
The following table outlines a schedule by year of contractual obligations outstanding, including related
interest payments:
(millions of dollars)
Total
2024
2025
2026
2027
2028 &
thereafter
Long-term debt
Leases
$136.5
19.9
$8.3
5.5
$128.2
4.7
$ –
3.8
$ –
2.9
$ –
2.9
Total
$156.4
$13.8
$132.9
$3.8
$2.9
$2.9
Pension Obligations
Pollard sponsors four non-contributory defined benefit pension plans, of which three are final pay plans
and one is a flat benefit plan. As of December 31, 2023, the aggregate fair value of the assets of Pollard’s
defined benefit pension plans was $91.6 million and the accrued benefit plan obligations were $94.2
million. Pollard’s total annual funding contribution for its defined pension plans in 2024 is expected to be
approximately $3.6 million, compared to $3.0 million in 2023.
Off-Balance Sheet Arrangements
Aside from our short-term and low value leases, Pollard has no other off-balance sheet arrangements.
Related Party Transactions
The Control Group and affiliates
Effective December 29, 2023, Pollard Equities Limited, which was jointly controlled by John Pollard,
Douglas Pollard and Gordon Pollard, transferred 5,768,386 common shares of Pollard, representing
approximately 21.4% of the issued and outstanding common shares of Pollard, equally each to JSP
Equities Limited, which is controlled by John Pollard, Park Equities Limited, which is controlled by Gordon
Pollard, and Oak Equities Limited, which is controlled by Douglas Pollard (collectively, the “Common Share
Transfers”). The purpose of the Common Share Transfers was to reorganize the holdings of common
shares by the Pollard family. Prior to giving effect to the Common Share Transfers, Pollard Equities Limited
held 17,305,158 common shares representing approximately 64.2% of the issued and outstanding
common shares.
In connection with the Common Share Transfers, each of John Pollard, Gordon Pollard, Douglas Pollard,
JSP Equities Limited, Park Equities Limited and Oak Equities Limited and their respective shareholders
(collectively, the “Control Group”), entered into a shareholders’ agreement regarding the common shares
of Pollard. Pursuant to the shareholders’ agreement, the parties agreed to vote their common shares in
the same manner, collectively, as a single block.
18
During the year ended December 31, 2023, Pollard paid property rent of $3.0 million (2022 - $3.3 million)
and $0.5 million (2022 - $0.2 million) in plane charter costs to affiliates of the Control Group.
During the year ended December 31, 2023, the Control Group paid Pollard $0.07 million (2022 - $0.07
million) for accounting and administration fees.
At December 31, 2023, Pollard owed the Control Group and its affiliates $0.1 million (2022 - $0.5 million)
for rent, expenses and other items. Included within property, plant and equipment and lease liabilities
on the consolidated statement of financial position are right-of-use assets and corresponding liabilities
for premises leased to Pollard from the Control Group. As at December 31, 2023, the net book value of
the right-of-use assets was $5.5 million (2022 - $3.5 million) and the present value of the lease liabilities
was $5.5 million (2022 - $3.7 million).
NeoGames US, LLP and affiliates
During the year ended December 31, 2023, Pollard reimbursed operating costs and paid software
royalties of $16.7 million (2022 - $13.8 million) to its iLottery partner. These costs have been recorded
in cost of sales and equity investment income.
At December 31, 2023, included in accounts payable and accrued liabilities is a net amount owing to
Pollard’s iLottery partner of $4.4 million (2022 - $3.1 million) for its share of profits and reimbursement
of operating costs, net of capital investments.
At December 31, 2023, included in restricted cash and accounts payable and accrued liabilities is an
amount owing to Pollard’s iLottery partner of $5.1 million (2022 - $5.1 million) for funds relating to
contractual performance guarantees.
Material Accounting Policies and Estimates
Described in the notes to Pollard’s 2023 audited consolidated financial statements are the accounting
policies and estimates that Pollard believes are critical to its business. Please refer to note 2 (c) to the
audited consolidated financial statements for the year ended December 31, 2023, for a discussion of the
significant accounting estimates and judgements.
Future Changes in Accounting Policies
Described in the notes to Pollard’s 2023 audited consolidated financial statements are the future
accounting standards that Pollard believes are potentially applicable to its business. Please refer to note
4 in the audited consolidated financial statements for the year ended December 31, 2023 for a summary.
Industry Risks and Uncertainties
Pollard is exposed to numerous risks and uncertainties which are described in this MD&A and Pollard’s most
recent Annual Information Form dated March 5, 2024, which is available under Pollard’s profile on SEDAR+
(www.sedarplus.ca).
19
Financial Instruments
Pollard has exposure to the following risks from its use of financial instruments:
Credit risk
Liquidity risk
Currency risk
Interest rate risk
Pollard’s risk management policies are established to identify and analyze the risks, to set appropriate risk
limits and controls to monitor risks and adherence to limits. The Audit Committee oversees how
management monitors compliance with Pollard’s risk management policies and procedures. The Audit
Committee is assisted in its oversight role by Internal Audit, who undertakes regular reviews of risk
management controls and utilizes the annual risk assessment process as the basis for the annual internal
audit plan.
Risk Exposure
Currency risk
Pollard sells a significant portion of its products and services to customers in the United States and to
some international customers where sales are denominated in U.S. dollars. In addition, a significant
portion of its cost inputs are denominated in U.S. dollars. Pollard also generates revenue in currencies
other than the Canadian and U.S. dollar, primarily in Euros.
Translation differences arise when foreign currency monetary assets and liabilities are translated at
foreign exchange rates that change over time.
Interest rate risk
Pollard is exposed to interest rate risk relating to its fixed and floating rate instruments. Fluctuation in
interest rates will have an effect on the valuation and repayment of these instruments.
Credit risk
Credit risk is the risk of financial loss if a customer or counterpart to a financial instrument fails to meet its
financial obligations.
Liquidity risk
Liquidity risk is the risk that Pollard will not be able to meet its financial obligations as they fall due.
Risk Management
Currency risk
Pollard utilizes a number of strategies to mitigate its exposure to currency risk. Five manufacturing
facilities are located in the U.S. and a significant amount of cost inputs for all production facilities are
denominated in U.S. dollars, offsetting a large portion of the U.S. dollar revenue in a natural hedge.
20
Translation differences arise when foreign currency monetary assets and liabilities are translated at
foreign exchange rates that change over time. As at December 31, 2023, the amount of financial liabilities
denominated in U.S. dollars exceeded the amount of financial assets denominated in U.S. dollars by
approximately $86.1 million (2022 - $71.9 million). A 50 basis point weakening/strengthening in the value
of the Canadian dollar relative to the U.S. dollar would result in a decrease/increase in income before
taxes of approximately $0.4 million (2022 - $0.4 million) for the year ended December 31, 2023.
Pollard also uses financial hedges, including foreign currency contracts, to help manage foreign currency
risk. At December 31, 2023, and at December 31, 2022, Pollard had no outstanding foreign currency
contracts.
Interest rate risk
A 50 basis point decrease/increase in interest rates would result in an increase/decrease in income before
income taxes of approximately $0.6 million for the year ended December 31, 2023 (2022 - $0.6 million).
Credit risk
Credit risk on Pollard’s accounts receivable is minimized as accounts receivable are mainly from
governments and their agencies. They are generally collected in a relatively short period of time. Credit
risk on foreign currency contracts is minimized since the counterparties are restricted to Schedule 1
Canadian financial institutions.
Liquidity risk
Pollard’s approach is to ensure, as far as possible, that it will always have sufficient liquidity to meet its
liabilities when due. The estimated 2024 requirements for capital expenditures, working capital and
dividends are expected to be financed from cash flow provided by operating activities and the unused
portion of Pollard’s credit facility. Pollard enters into contractual obligations in the normal course of
business operations.
Outlook
Retail dollar sales of instant tickets in 2023 were steady compared to the sales achieved in 2022,
remaining at the high levels attained following the significant growth experienced during 2020-2021.
Based on early 2024 data we would expect similar levels of retail sales to be attained in 2024. We continue
to see strong underlying consumer demand for these products, particularly in some of the higher value
proprietary products and tickets with higher retail price points. Demand for products and services
supporting the sale of instant tickets, such as retail dispensers and digital solutions including second
chance draws and loyalty programs, are all seeing increased demand as lotteries look to grow the funds
they generate for good causes.
The charitable gaming market, including printed products as well as eGaming machines, also experienced
positive demand throughout the past year and we anticipate this will continue in 2024, in particular as
charities and regulators look to expand digital offerings in these markets. Future opportunities include
jurisdictions approving tablet and kiosk-based gaming in social settings to complement the traditional
pull tabs and bingo games. Initiatives are under way in our manufacturing group to leverage new
equipment and additional staff to increase our production to meet the growing demand.
21
The iLottery market experienced significant growth during 2023 as product expansion (North Carolina
adding eInstants), a number of record jackpots in draw-based games and ongoing organic growth were
all factors driving record North American iLottery results. Large Powerball® and Mega Millions® jackpot
buildups led to higher sales as well as exposure to and retention of new players for the lotteries. The
West Virginia Lottery will add to the market growth in 2024 with the recent award of a new iLottery
contract to NPi.
We continue to see more interest from lotteries about iLottery in both greenfield opportunities as well as
existing lotteries looking for refreshed solutions, including in the international marketplace. This has led
to a number of opportunities to demonstrate our new state-of-the-art omnichannel platform and our
game content library. Our internally developed Pollard iLottery solution provides an important
complement to the ongoing success of our 50% owned iLottery joint venture. The sales cycle associated
with iLottery opportunities is long, however we continue to believe that long term this business will
become an increasingly critical important area for more lotteries.
The large inflationary increases to our instant ticket inputs were fully absorbed during 2023. We
experienced no further inflationary cost increases during this past year and saw some small decreases in
costs toward the end 2023. We are hopeful we will continue to see cost decreases going forward in 2024
and beyond as supply chains have largely returned to pre-pandemic levels of efficiencies.
Our strategy of aggressively repricing our instant ticket contract selling prices began in 2022 and has
been very successful over the past two years. We have repriced a majority of our current volumes,
however these contracts are negotiated well in advance of their start date resulting in the financial impact
being delayed, with the higher prices not fully impacting our revenue until later in 2024.
Our instant ticket volumes are expected to be at similar levels to 2023, lower than the levels of 2021 and
2022. This is due to our continued strategy of not pursuing work which has unacceptable margins due
to the higher input costs and selling prices not yet repriced, where our contracts allow us discretion
relative to accepting work.
Identifying appropriate acquisition targets continues to be an important strategic initiative. Opportunities
to continue to expand our portfolio of products and solutions targeted for lotteries, further enhancing our
charitable gaming product offering and distribution channels, and increasing our expertise in digital
solutions including additional game content are all being pursued.
Our business continues to generate strong cashflow, which supports our ongoing investment in CAPEX,
development of new products like our iLottery platform and the ability to increase our dividend in the
first quarter of 2024. Strong cash flow coupled with a conservative approach to our debt levels provides
us with significant available resources to pursue our strategic objectives in a sustainable, capital efficient
manner.
Our successes in 2023 have laid the foundation for continued financial growth in 2024 including
supporting a 25% increase in our dividend. Strong demand continues across all of our main product lines
and both the lottery and charitable gaming markets provide us opportunities to profitably grow our
business. Our repricing of instant ticket contracts starting in 2022 has been successful and we will
continue to see greater positive impacts throughout 2024. Higher selling prices coupled with emerging
cost reductions of our inputs should provide improving margins. Opportunities exist throughout the lottery
and charitable gaming markets for innovative solutions to support the objective of raising funds for good
causes and we are excited about our prospects for growth in 2024.
22
Disclosure Controls and Procedures
Under National Instrument 52-109, “Certification of Disclosure in Issuers’ Annual and Interim Filings,”
issuers are required to document the conclusions of the Chief Executive Officer and Chief Financial Officer
(the “Certifying Officers”) regarding the design of the disclosure controls and procedures. Pollard’s
management, with the participation of the Certifying Officers of Pollard, has concluded that the design
of the disclosure controls and procedures as defined in National Instrument 52-109 are designed
appropriately and are effective at providing reasonable assurance of achieving the disclosure objectives.
Internal Controls over Financial Reporting
Under National Instrument 52-109, “Certification of Disclosure in Issuers’ Annual and Interim Filings,”
issuers are required to document the conclusions of the Certifying Officers regarding the design of the
internal controls over financial reporting. Management used the Internal Control – Integrated Framework
published by the Committee of Sponsoring Organizations of the Treadway Commission (COSO 2013) as
the control framework in designing its internal controls over financial reporting. Pollard’s management,
with the participation of the Certifying Officers of Pollard, has concluded that the design of the internal
controls over financial reporting as defined in National Instrument 52-109 are designed appropriately and
are effective at providing reasonable assurance of achieving the financial reporting objectives.
No changes were made in Pollard’s internal control over financial reporting during the year ended
December 31, 2023, that have materially affected, or are reasonably likely to materially affect, Pollard’s
internal control over financial reporting.
Additional Information
Shares of Pollard Banknote Limited are traded on the Toronto Stock Exchange under the symbol PBL.
Additional information relating to Pollard, including the Audited Consolidated Financial Statements and
the Annual Information Form for the year ended December 31, 2023, is available on SEDAR+ at
www.sedarplus.ca.
Pollard Banknote Limited
140 Otter Street
Winnipeg, Manitoba R3T 0M8
(204) 474-2323
www.Pollardbanknote.com
23
Management’s Report
The accompanying consolidated financial statements and all the information contained in the annual report
of Pollard Banknote Limited (“Pollard”) are the responsibility of management and have been approved by
the Board of Directors of Pollard. Financial and operating data elsewhere in the annual report is consistent
with the information contained in the financial statements. The financial statements and all other
information have been prepared by management in accordance with Canadian generally accepted
accounting principles. The financial statements include some amounts and assumptions based on
management’s best estimates which have been derived with careful judgment.
In fulfilling its responsibilities, management of Pollard has developed and maintains a system of internal
accounting controls. These controls are designed to ensure that the financial records are reliable for
preparing the financial statements. The Board of Directors of Pollard carries out its responsibility for the
financial statements through the Audit Committee. The Audit Committee reviews Pollard’s annual
consolidated financial statements and recommends their approval by the Board of Directors. The auditors
have full access to the Audit Committee with and without management present.
The consolidated financial statements have been audited by KPMG LLP Chartered Accountants, whose
opinion is contained in this annual report.
“John Pollard”
“Robert Rose”
JOHN POLLARD
Co-Chief Executive Officer
March 5, 2024
ROBERT ROSE
Chief Financial Officer
Consolidated Financial Statements of
POLLARD BANKNOTE
LIMITED
Years ended December 31, 2023 and 2022
KPMG LLP
1900 - 360 Main Street
Winnipeg MB
R3C 3Z3
Telephone (204) 957-1770
Fax (204) 957-0808
www.kpmg.ca
INDEPENDENT AUDITOR’S REPORT
To the Shareholders of Pollard Banknote Limited
Opinion
We have audited the consolidated financial statements of Pollard Banknote Limited (the “Entity”),
which comprise the consolidated statements of financial position as at December 31, 2023 and
December 31, 2022, the consolidated statements of income, comprehensive income, changes in
equity and cash flows for the years then ended, and notes to the financial statements, including a
summary of material accounting policy information (hereinafter referred to as the “financial
statements”).
In our opinion, the accompanying financial statements present fairly, in all material respects, the
consolidated financial position of the Entity as of December 31, 2023 and December 31, 2022, and
its consolidated financial performance and its consolidated cash flows for the years then ended in
accordance with IFRS Accounting 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 Financial Statements” section of our auditor’s report.
We are independent of the Entity in accordance with the ethical requirements that are relevant to our
audit of the 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 judgement, were of most significance
in our audit of the financial statements for the year ended December 31, 2023. These matters were
addressed in the context of our audit of the financial statements as a whole, and in forming our
opinion thereon, and we do not provide a separate opinion on these matters.
We have determined the matters described below to be the key audit matters to be communicated
in our auditor’s report.
KPMG LLP, an Ontario limited liability partnership and member firm of the KPMG global organization of independent member firms affiliated with KPMG International Limited, a
private English company limited by guarantee. KPMG Canada provides services to KPMG LLP.
Evaluation of the goodwill impairment analysis for cash generating units
Description of the matter
We draw attention to Notes 2(c), 3(l) and 10 to the financial statements. The goodwill balance as of
December 31, 2023, was $110,982 thousand related to the Lotteries, Charitable gaming, eGaming
systems and Retail cash generating units and groups of cash generating units (CGUs). The Entity
performs goodwill impairment testing at least on an annual basis. This requires an estimation of the
recoverable amount of each CGU based on the greater of the “value in use” or “fair value less costs
to sell” of the CGU. The determination of each of these amounts require the Entity to make significant
estimates and assumptions which include projected revenue and discount rates.
Why the matter is a key audit matter
We identified the evaluation of the goodwill impairment analysis for the CGUs as a key audit matter.
This matter represented an area of significant risk of misstatement given the magnitude of the
goodwill balance. This matter required significant auditor judgment in evaluating the results of our
audit procedures due to the high degree of estimation uncertainty involved in the Entity’s estimates
and assumptions.
How the matter was addressed in the audit
The primary procedures we performed to address this key audit matter included the following:
We compared the Entity’s historical revenue estimates to actual results to assess the Entity’s ability
to accurately project revenue assumptions.
We evaluated the Entity’s projected revenue assumptions by comparing those assumptions to the
Entity’s expected growth rates. We took into account changes in conditions and events affecting
each CGU to assess the adjustments or lack of adjustments made in arriving at projected revenue.
We involved valuation professionals with specialized skills and knowledge to assist in assessing the
discount rates used in the estimated recoverable amounts, by comparing them to discount rate
ranges that were independently developed using publicly available information for comparable
entities.
Other Information
Management is responsible for the other information. Other information comprises:
the information included in Management’s Discussion and Analysis filed with the
relevant Canadian Securities Commissions.
the information, other than the financial statements and the auditor’s report thereon,
included in a document likely to be entitled “2023 Annual Report”.
Our opinion on the financial statements does not cover the other information and we do not and will
not express any form of assurance conclusion thereon.
In connection with our audit of the financial statements, our responsibility is to read the other
information identified above and, in doing so, consider whether the other information is materially
inconsistent with the financial statements, or our knowledge obtained in the audit, or otherwise
appears to be materially misstated.
We obtained the information included in Management’s Discussion and Analysis filed with the
relevant Canadian Securities Commissions as at the date of this auditor’s report. If, based on the
work we have performed on this other information, we conclude that there is a material misstatement
of this other information, we are required to report that fact in the auditor’s report.
We have nothing to report in this regard.
The information, other than the financial statements and the auditor’s report thereon, included in a
document likely to be entitled “2023 Annual Report” is expected to be made available to us after the
date of this auditor’s report. If, based on the work we will perform on this other information, we
conclude that there is a material misstatement of this other information, we are required to report that
fact to those charged with governance.
Responsibilities of Management and Those Charged with Governance for the
Financial Statements
Management is responsible for the preparation and fair presentation of the financial statements in
accordance with IFRS, and for such internal control as management determines is necessary to
enable the preparation of financial statements that are free from material misstatement, whether due
to fraud or error.
In preparing the financial statements, management is responsible for assessing the Entity’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 Entity or to
cease operations, or has no realistic alternative but to do so.
Those charged with governance are responsible for overseeing the Entity’s financial reporting
process.
Auditor’s Responsibilities for the Audit of the Financial Statements
Our objectives are to obtain reasonable assurance about whether the financial statements 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 the financial statements.
As part of an audit in accordance with Canadian generally accepted auditing standards, we exercise
professional judgment and maintain professional skepticism throughout the audit.
We also:
Identify and assess the risks of material misstatement of the 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 Entity’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 Entity’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 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 Entity to cease to
continue as a going concern.
Evaluate the overall presentation, structure and content of the financial statements, including the
disclosures, and whether the financial statements represent the underlying transactions and
events in a manner that achieves fair presentation.
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.
Provide those charged with governance with a statement that we have complied with relevant
ethical requirements regarding independence, and communicate with them all relationships and
other matters that may reasonably be thought to bear on our independence, and where
applicable, related safeguards.
Obtain sufficient appropriate audit evidence regarding the financial information of the entities or
business activities within the group Entity to express an opinion on the financial statements. We
are responsible for the direction, supervision and performance of the group audit. We remain
solely responsible for our audit opinion.
Determine, from the matters communicated with those charged with governance, those matters
that were of most significance in the audit of the 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 auditor’s report
because the adverse consequences of doing so would reasonably be expected to outweigh the
public interest benefits of such communication.
Chartered Professional Accountants
The engagement partner on the audit resulting in this auditor’s report is Austin Abas.
Winnipeg, Canada
March 5, 2024
Pollard Banknote Limited
Consolidated Statements of Financial Position
(In thousands of Canadian dollars)
Assets
Current assets
Cash
Restricted cash
Accounts receivable
Inventories (note 6)
Prepaid expenses and deposits
Income taxes receivable
Total current assets
Non-current assets
Long-term assets
Property, plant and equipment (note 7)
Equity investment (note 9)
Goodwill (note 10)
Intangible assets (note 11)
Deferred income taxes (note 12)
Pension asset (note 14)
Total non-current assets
Total assets
December 31,
2023
December 31,
2022
$
$
3,331
25,985
82,835
60,509
8,142
2,401
183,203
7,783
100,530
518
110,982
103,931
8,766
–
332,510
1,479
25,030
84,247
62,132
6,917
10,065
189,870
3,018
100,620
549
111,156
99,462
1,070
988
316,863
$
515,713
$
506,733
Pollard Banknote Limited
Consolidated Statements of Financial Position
(In thousands of Canadian dollars)
Liabilities and Shareholders’ Equity
Current liabilities
Accounts payable and accrued liabilities
Dividends payable
Income taxes payable
Current portion lease liabilities (note 8)
Current portion contract liabilities (note 17)
$
Total current liabilities
Non-current liabilities
Lease liabilities (note 8)
Deferred income taxes (note 12)
Long-term debt (note 13)
Contract liabilities (note 17)
Other non-current liabilities
Pension liability (note 14)
Total non-current liabilities
Shareholders’ equity
Share capital (note 15)
Reserves
Retained earnings
Total shareholders’ equity
Commitments and contingencies (note 16)
December 31,
2023
December 31,
2022
$
92,231
1,079
52
4,675
3,372
101,409
12,872
2,701
119,687
881
767
2,592
139,500
150,711
4,450
119,643
274,804
94,460
1,077
8,719
6,081
1,738
112,075
7,539
12,623
121,655
421
486
–
142,724
149,849
8,913
93,172
251,934
Total liabilities and shareholders’ equity
$
515,713
$
506,733
See accompanying notes to consolidated financial statements.
On behalf of the Board:
“Dave Brown” Director
“John Pollard” Director
Pollard Banknote Limited
Consolidated Statements of Income
(In thousands of Canadian dollars, except for share amounts)
Years ended December 31
Sales (note 17)
Cost of sales
Gross profit
Administration
Selling
Equity investment income (note 9)
Other (income) expenses (note 18)
Income from operations
Finance costs (note 19)
Finance income (note 19)
Income before income taxes
Income taxes (note 12)
Current
Deferred reduction
2023
2022
$
520,441
$
483,721
434,624
85,817
58,296
20,678
(39,055)
(118)
46,016
13,404
(4,930)
37,542
23,135
(17,011)
6,124
400,338
83,383
49,976
17,393
(22,277)
4,097
34,194
15,579
(3,600)
22,215
9,584
(6,646)
2,938
Net income
Net income per share – basic (note 20)
Net income per share – diluted (note 20)
$
$
$
31,418
$
19,277
1.17 $
1.15
$
0.72
0.71
See accompanying notes to consolidated financial statements.
Pollard Banknote Limited
Consolidated Statements of Comprehensive Income
(In thousands of Canadian dollars)
Years ended December 31
2023
2022
Net income
$
31,418
$
19,277
Other comprehensive income (loss):
Items that are or may be reclassified to profit and loss:
Foreign currency translation differences – foreign
operations
(4,463)
10,492
Items that will never be reclassified to profit and loss:
Defined benefit plans remeasurements, net of
income taxes (note 12 & note 14)
Other comprehensive income (loss)
(1,392)
(5,855)
19,171
29,663
Comprehensive income
$
25,563
$
48,940
See accompanying notes to consolidated financial statements.
Pollard Banknote Limited
Consolidated Statements of Changes in Equity
(In thousands of Canadian dollars)
Year ended December 31, 2023
Share
capital
Translation
reserve
Retained
earnings
Balance at December 31, 2022
$
149,849
8,913
Net income
Other comprehensive loss
Foreign currency translation differences –
foreign operations
Defined benefit plans remeasurements, net
of income taxes (note 12 & note 14)
Total other comprehensive loss
Total comprehensive income (loss)
Issue of common shares (note 15)
$
$
$
Share based compensation
Dividends (note 15)
–
–
–
–
–
862
–
–
93,172
31,418
–
Total
equity
251,934
31,418
(4,463)
–
(4,463)
–
(1,392)
(1,392)
(4,463)
(4,463)
–
–
–
(1,392)
30,026
(172)
927
(5,855)
25,563
690
927
(4,310)
(4,310)
Balance at December 31, 2023
$
150,711
4,450
119,643
274,804
Year ended December 31, 2022
Share
capital
Translation
reserve
Retained
earnings
Balance at December 31, 2021
$
149,849
(1,579)
58,687
19,277
–
Total
equity
206,957
19,277
Net income
Other comprehensive income
Foreign currency translation differences –
foreign operations
Defined benefit plans remeasurements, net
of income taxes
Total other comprehensive income
Total comprehensive income
Share based compensation
Dividends
Balance at December 31, 2022
$
$
$
$
–
–
–
–
–
–
–
See accompanying notes to consolidated financial statements.
10,492
–
10,492
–
19,171
19,171
10,492
10,492
–
–
19,171
38,448
344
29,663
48,940
344
(4,307)
(4,307)
149,849
8,913
93,172
251,934
Pollard Banknote Limited
Consolidated Statements of Cash Flows
(In thousands of Canadian dollars)
Years ended December 31
Cash increase (decrease)
Operating activities
Net income
Adjustments
Income taxes expense
Amortization and depreciation
Interest expense
Unrealized foreign exchange (gain) loss
Equity investment income (note 9)
Pension expense (note 14)
Contingent consideration fair value adjustment (note 18)
Interest paid
Income taxes paid
Equity investment distribution (note 9)
Pension contributions
Change in contract liabilities
Change in long-term assets
Change in non-cash operating working capital
(note 22)
Investing activities
Additions to property, plant and equipment (note 7)
Acquisitions (note 5)
Additions to intangible assets (note 11)
Financing activities
Net proceeds from issue of share capital
Net borrowings (repayments) of long-term debt (note 13)
Change in other non-current liabilities
Lease principal payments
Deferred financing charges paid (note 13)
Dividends paid
Foreign exchange gain (loss) on cash held in foreign currency
Change in cash position
Cash position, beginning of year
2023
2022(1)
$
31,418
$
19,277
6,124
44,990
10,517
(1,974)
(39,055)
6,347
440
(9,708)
(24,195)
39,068
(4,681)
460
(4,785)
9,665
64,631
(14,581)
(13,991)
(23,519)
(52,091)
690
(875)
298
(6,688)
(50)
(4,310)
(10,935)
247
1,852
1,479
2,938
40,982
8,259
4,465
(22,277)
9,453
4,559
(5,855)
(7,489)
22,349
(7,083)
421
(388)
(15,415)
54,196
(14,318)
(15,144)
(18,902)
(48,364)
–
3,174
108
(6,551)
(152)
(4,307)
(7,728)
(142)
(2,038)
3,517
Cash position, end of year
$
3,331
$
1,479
(1) Certain comparative figures have been reclassified to conform to the presentation adopted in the current period.
See accompanying notes to consolidated financial statements.
Pollard Banknote Limited
Notes to Consolidated Financial Statements
(In thousands of Canadian dollars, except for share amounts)
Years ended December 31, 2023 and 2022
1.
Reporting entity:
Pollard Banknote Limited (“Pollard”) was incorporated under the laws of Canada on March 26, 2010.
The address of Pollard’s registered office is 140 Otter Street, Winnipeg, Manitoba, Canada, R3T 0M8.
The consolidated financial statements of Pollard as at and for the year ended December 31, 2023,
comprise Pollard, Pollard’s subsidiaries and its interest in other entities. Pollard is primarily involved
in the manufacture and sale of lottery and charitable gaming products and solutions.
Effective December 29, 2023, Pollard Equities Limited, which was jointly controlled by John Pollard,
Douglas Pollard and Gordon Pollard, transferred 5,768,386 common shares of Pollard, representing
approximately 21.4% of the issued and outstanding common shares of Pollard, equally each to JSP
Equities Limited, which is controlled by John Pollard, Park Equities Limited, which is controlled by
Gordon Pollard, and Oak Equities Limited, which is controlled by Douglas Pollard (collectively, the
“Common Share Transfers”). The purpose of the Common Share Transfers was to reorganize the
holdings of common shares by the Pollard family. Prior to giving effect to the Common Share
Transfers, Pollard Equities Limited held 17,305,158 common shares representing approximately
64.2% of the issued and outstanding common shares.
In connection with the Common Share Transfers, each of John Pollard, Gordon Pollard, Douglas
Pollard, JSP Equities Limited, Park Equities Limited and Oak Equities Limited and their respective
shareholders (collectively, the “Control Group”), entered into a shareholders’ agreement regarding
the common shares of Pollard. Pursuant to the shareholders’ agreement, the parties agreed to vote
their common shares in the same manner, collectively, as a single block.
2. Basis of preparation:
(a) Statement of compliance:
These consolidated financial statements have been prepared in accordance with IFRS Accounting
Standards (“IFRS”).
On March 5, 2024, Pollard’s Board of Directors approved these consolidated financial statements.
Pollard Banknote Limited
Notes to Consolidated Financial Statements (continued)
(In thousands of Canadian dollars, except for share amounts)
Years ended December 31, 2023 and 2022
2. Basis of preparation (continued):
(b) Basis of preparation:
These consolidated financial statements have been prepared on a historical cost basis, except
for the following material items in the statement of financial position:
The pension liability is recognized as the net total of the fair value of plan assets less the
present value of the defined benefit obligation determined using acceptable actuarial
practices.
The contingent consideration liability is recognized at the present value of the expected
payments to be made under the agreement.
These statements are presented in Canadian dollars, Pollard’s functional currency, and all values
are rounded to the nearest thousand (except share and per share amounts) unless otherwise
indicated.
Certain comparative figures for the prior period have been reclassified to conform to the
presentation adopted in the current period.
(c) Use of estimates and judgments:
The preparation of the consolidated financial statements in conformity with IFRS requires
management to make judgments, estimates and assumptions that affect the application of
accounting policies and the reported amounts of assets, liabilities, income and expenses.
Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to estimates
are recognized prospectively. Actual results may differ from these estimates.
Information about judgments, assumptions and estimation uncertainties that have a significant
risk of resulting in a material adjustment within the next period are as follows:
Pollard Banknote Limited
Notes to Consolidated Financial Statements (continued)
(In thousands of Canadian dollars, except for share amounts)
Years ended December 31, 2023 and 2022
2. Basis of preparation (continued):
Impairment of goodwill:
Pollard determines whether goodwill is impaired at least on an annual basis. This requires an
estimation of the “value in use” or “fair value less costs to sell” of the cash-generating units
(“CGUs”), or groups of CGUs, to which goodwill is allocated. Estimating value in use requires
Pollard to make estimates of the expected future cash flows from the CGUs, or groups of CGUs,
to which goodwill is allocated. Pollard also chooses suitable discount rates in order to calculate
the present value of those cash flows. Judgment is required in determining the level at which
to test goodwill, including the grouping of CGUs that generate cash inflows. Further details are
provided in note 10.
Employee future benefits:
Accounting for defined benefit plans requires Pollard to use actuarial assumptions. These
assumptions include the discount rate and the rate of compensation increases. These
assumptions depend on underlying factors such as economic conditions, government
regulations, investment performance, employee demographics and mortality rates. Further
details are provided in note 14.
Income taxes:
Pollard is required to evaluate the recoverability of deferred income tax assets. This requires
an estimate of Pollard’s ability to utilize the underlying future income tax deductions against
future taxable income before they expire. In order to evaluate the recoverability of these
deferred income tax assets, Pollard must estimate future taxable income. Further details are
provided in note 12.
Leases:
Upon inception of all leases, Pollard assesses whether it is reasonably certain that lease
extension options will be exercised. Pollard also makes assumptions as to the discount rate
applied to the lease liability upon recognition. If there is a significant event or change in
circumstances within Pollard’s control, these judgments and assumptions could change and
may result in material adjustments to right-of-use assets and corresponding lease liabilities.
Further details are provided in note 8.
Pollard Banknote Limited
Notes to Consolidated Financial Statements (continued)
(In thousands of Canadian dollars, except for share amounts)
Years ended December 31, 2023 and 2022
2. Basis of preparation (continued):
Acquisition accounting:
For acquisition accounting purposes, all identifiable assets and liabilities acquired in a business
combination are recognized at fair value at the date of acquisition. Estimates and assumptions
are used to calculate the fair value of these assets and liabilities. Changes to assumptions could
significantly impact the fair values of certain assets, such as intangible assets. Pollard’s
significant assumptions used in determining the acquisition date fair value of intangible assets
include projected revenue and related gross profit, discount rates and projected revenue
growth rates.
3. Material accounting policies:
The following accounting standard came into effect in 2023:
Amendments to International Accounting Standard (“IAS”) 12 – Deferred Tax Related to Assets
and Liabilities Arising from a Single Transaction:
In May 2021, the International Accounting Standards Board (“IASB”) issued Deferred Tax
Related to Assets and Liabilities Arising from a Single Transaction (Amendments to IAS 12). The
amendments narrow the scope of the initial recognition exemption (“IRE”) so that it does not
apply to transactions that give rise to equal and offsetting temporary differences. As a result,
companies will need to recognize a deferred tax asset and a deferred tax liability for temporary
differences arising on initial recognition of a lease and a decommissioning provision. The
amendments were implemented on January 1, 2023. Pollard has determined that the
amendments have not had a material impact on its consolidated financial statements.
During 2023 Pollard made an election to change its following accounting policy:
Presentation of Equity Investment Distribution in the Consolidated Statements of Cash Flows
(IAS 7):
Effective January 1, 2023, Pollard made an election to change its accounting policy regarding the
presentation of distributions received from its equity investment in NeoPollard Interactive, LLC
(“NPi”) in its consolidated statements of cash flows.
The impact of this change is an increase in cash flows from operating activities of $39,068 for
the year ended December 31, 2023 (2022 – $22,349), and an offsetting increase in cash flows
used for investing activities. This change in presentation in the consolidated statements of cash
flows provides more relevant information to the user as it more appropriately classifies these
distributions based on the nature of Pollard’s investment in NPi. The comparative figures for the
prior period have been reclassified to conform to the presentation adopted in the current period.
Pollard Banknote Limited
Notes to Consolidated Financial Statements (continued)
(In thousands of Canadian dollars, except for share amounts)
Years ended December 31, 2023 and 2022
3. Material accounting policies (continued):
The accounting policies set out below have been applied consistently to all periods presented in
these consolidated financial statements.
(a) Principles of consolidation:
These consolidated financial statements include the accounts of Pollard and all its subsidiaries.
Subsidiaries are entities which are under Pollard’s control, where control is defined as the power
to govern financial and operating policies of an entity so as to obtain benefits from its activities.
Pollard holds 100% of the voting rights in, and therefore controls, its subsidiaries.
Significant subsidiaries:
Percent Ownership Interest
December 31, 2023
December 31, 2022
Pollard Holdings, Inc.
Pollard (U.S.) Ltd.
Pollard Games, Inc.
Pollard iLottery Inc.
Diamond Game Enterprises
Diamond Game Enterprises Canada ULC
Schafer Systems (2018) Inc.
Schafer Systems (UK) Limited
mkodo Limited
Compliant Gaming, LLC
Pollard Digital Solutions GmbH
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
All inter-company balances and transactions, and any unrealized income and expenses arising
from inter-company transactions, have been eliminated.
(b) Business combinations:
Business combinations are accounted for using the acquisition method. The cost of an acquisition
is measured as the fair value of the assets and equity instruments given, and liabilities incurred
or assumed at the date of exchange.
Acquisition costs for business combinations are expensed as incurred and included in
administration expenses. Identifiable assets acquired and liabilities assumed are measured at
their fair value at the acquisition date.
The excess of the fair value of consideration transferred over the fair value of the identifiable net
assets acquired is recorded as goodwill.
Pollard Banknote Limited
Notes to Consolidated Financial Statements (continued)
(In thousands of Canadian dollars, except for share amounts)
Years ended December 31, 2023 and 2022
3. Material accounting policies (continued):
Pollard performs a concentration test to clarify whether a transaction results in an asset or a
business acquisition. This is a simplified assessment that results in an asset acquisition if
substantially all of the fair value of the gross assets is concentrated in a single identifiable asset
or a group of similar identifiable assets.
(c) Restricted cash:
Pollard, under certain contractual arrangements, controls cash that is restricted in use. Pollard
records an equal liability classified within accounts payable and accrued liabilities. Restricted cash
includes player deposits held for the benefit of one of Pollard’s iLottery customers, in addition to
funds held for security purposes and certain contractual liabilities. Pollard has excluded changes
in the restricted cash and related liability from its calculation of the change in cash position in
the statements of cash flows.
(d) Revenue recognition:
Revenue is recognized when a customer obtains control of the goods or services. Pollard
determines revenue recognition through the following steps: a) identification of the contract with
a customer, b) identification of the performance obligations in the contract, c) determination of
the transaction price, d) allocation of the transaction price to the performance obligations in the
contract and e) recognition of revenue when Pollard satisfies a performance obligation.
Many of Pollard’s contracts have a single performance obligation, including the sale of instant
tickets and related products, pull-tab (or break-open) tickets, bingo paper, pull-tab vending
machines and gaming machines. The single performance obligation in these contracts is the
promise to transfer the individual goods. Revenue is recognized at a point in time when the
customer obtains control of a product, which typically takes place when legal title and physical
possession of the product is transferred to the customer. These conditions are usually fulfilled
upon delivery. However, under certain contracts, Pollard is compensated for its products based
on its customers’ sales of those products at retail. Pollard has concluded that control transfers to
its customers at delivery of the product to the customer. As such, recognition of sales under
these contracts occurs upon receipt of shipment. Pollard’s sales under these contracts could vary
year over year depending on the timing of shipments.
Pollard applies bill and hold sales accounting when products are held on behalf of customers
provided all of the following conditions are met as of the reporting date: a) there is a substantive
reason for the arrangement, b) the goods are separately identified as belonging to the customer,
c) Pollard is no longer able to use the goods or direct the goods to another customer, and d) the
goods are currently ready for physical transfer to the customer.
Pollard Banknote Limited
Notes to Consolidated Financial Statements (continued)
(In thousands of Canadian dollars, except for share amounts)
Years ended December 31, 2023 and 2022
3. Material accounting policies (continued):
Certain Pollard contracts include multiple performance obligations, including license and royalty
sales, iLottery services, loyalty programs, digital and lottery management services, training and
consulting. Where such arrangements exist, the transaction price is allocated to the performance
obligations based upon the relative fair value of the various elements. The fair values of each
element are determined based on the current market price of each of the elements when sold
separately. Revenue is then recognized upon satisfaction of each performance obligation.
Where Pollard provides software and related infrastructure, revenue is recognized over time
based on the relevant measure of progress of the asset being transferred to the customer. Any
amounts recognized as revenue, but not yet billed to the customer, are recorded as contract
assets and included within accounts receivable.
Pollard earns revenue from gaming machines and other equipment, and capitalizes the costs of
installing gaming equipment. Revenue from the provision of gaming services is generally
recognized as a daily fee or as a percentage of revenue generated by the gaming machines.
Product support services, maintenance and periodic upgrades revenue is recognized over time
as the related services are performed. Labour costs associated with performing routine
maintenance on participating gaming machines is expensed as incurred and included in cost of
sales.
Contract liabilities consist of customer advances for products or services to be rendered in the
future and is recognized as income in future periods.
Volume rebates are accrued and recorded as a reduction to sales based on historical experience
and management’s expectations regarding future sales volumes.
(e) Inventories:
Raw materials, work-in-process and finished goods are valued at the lower of cost and net
realizable value. The cost of raw material inventory is based on its weighted average cost and
includes all costs incurred to acquire the materials. In addition to the direct costs of conversion,
the cost of work-in-process and finished goods, which Pollard manufactures, also includes an
appropriate share of production overheads based on normal operating capacity.
Net realizable value is the estimated selling price in the ordinary course of business, less the
estimated costs of completion.
Pollard Banknote Limited
Notes to Consolidated Financial Statements (continued)
(In thousands of Canadian dollars, except for share amounts)
Years ended December 31, 2023 and 2022
3. Material accounting policies (continued):
(f) Goodwill:
Goodwill is comprised of the excess sale price over the underlying carrying amount of the net
assets sold as at August 5, 2005, as part of the 26.7% of Pollard sold in conjunction with the
Initial Public Offering (“IPO”) and the excess fair value of the consideration transferred over the
fair value of the identifiable net assets acquired of Pollard’s subsidiaries.
(g) Intangible assets:
Expenditures related to internally generated intangible assets are recognized as intangible assets
only if Pollard can demonstrate that the costs can be measured reliably, the product is technically
and commercially feasible, future economic benefits are probable and Pollard has sufficient
resources to complete development and to use or sell the asset. Amortization of internally
generated intangible assets begins when the development is complete and the asset is available
for use.
Deferred development
Deferred development consists of the cost of materials, direct labour and related employee
benefits that are directly attributable to preparing the asset for its intended use and applicable
borrowing costs incurred in respect of qualifying assets. Other development expenditures are
expensed as incurred.
Capitalized development expenditures are measured at cost less investment tax credits (including
scientific research and experimental development (“SR&ED”) credits), accumulated amortization
and accumulated impairment losses.
Computer software and licenses
Computer software consists of the cost of acquiring, developing and implementing these systems.
Development and implementation costs include third party costs as well as direct labour and
related employee benefits attributable to the asset. Minimum license fees, incurred in connection
with our licensing agreements for our use of third-party brands, are capitalized and amortized
over the estimated life of the asset.
Capitalized computer software costs and licenses are measured at cost less investment tax credits
(including SR&ED credits), accumulated amortization and accumulated impairment losses.
Pollard Banknote Limited
Notes to Consolidated Financial Statements (continued)
(In thousands of Canadian dollars, except for share amounts)
Years ended December 31, 2023 and 2022
3. Material accounting policies (continued):
Customer assets and patents
Customer assets and patents that have finite useful lives are measured at cost less accumulated
amortization and accumulated impairment losses.
Intangible assets, with finite useful lives, are amortized, on a straight-line basis, over their
estimated useful lives as follows:
Asset
Customer assets
Patents
Computer software and licenses
Deferred development
Rate
3.5 to 20 years
Term of patent
2 to 15 years or term of license
5 years
Amortization methods, estimated useful lives and residual values are reviewed each annual
reporting date and adjusted prospectively, if appropriate.
The carrying value of finite useful life intangibles are reviewed for impairment whenever events
or changes in circumstances indicate that the carrying amount of an asset may not be
recoverable.
Trademarks, trade names and brands
Trademarks, trade names and brands have been deemed to have an indefinite life and are not
amortized. Pollard expects to maintain these assets indefinitely and therefore finite useful lives
cannot be determined. For purposes of impairment testing, the fair value of the trademarks,
trade names and brands are tested for impairment on an annual basis.
(h) Property, plant and equipment:
Property, plant and equipment (“PP&E”) are stated at cost less investment tax credits (including
SR&ED credits), accumulated depreciation and accumulated impairment losses. Cost includes
expenditures that are directly attributable to the acquisition of the asset. The cost of self-
constructed assets includes the cost of materials, direct labour and related employee benefits,
other costs directly attributable to bringing the assets to working condition for their intended use
and borrowing costs incurred in respect to qualifying assets.
Pollard Banknote Limited
Notes to Consolidated Financial Statements (continued)
(In thousands of Canadian dollars, except for share amounts)
Years ended December 31, 2023 and 2022
3. Material accounting policies (continued):
Major spare parts are treated as PP&E when they have a useful life greater than a year. Once
major spare parts are put in service, they are transferred into equipment and amortized
accordingly.
An item of PP&E is derecognized upon disposal or when no future economic benefits are expected
from its use or disposal. The gain or loss on disposal of an item of PP&E is determined by
comparing the proceeds from disposal with the carrying value of the PP&E and is recognized in
the statement of income on a net basis.
The cost of each component of an item of PP&E is depreciated over its estimated useful life on
a straight-line basis, commencing the date it is ready for use. Land is not depreciated. The
estimated useful lives for the current and comparative periods are as follows:
Asset
Buildings
Leasehold improvements
Equipment
Furniture, fixtures and computers
Rate
10 to 39 years
Term of lease
2 to 11 years
3 to 9 years
Depreciation methods, useful lives and residual values are reviewed each annual reporting date
and adjusted prospectively, if appropriate.
The carrying value of property, plant and equipment are reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of an asset may not be
recoverable.
(i) Investment in joint venture:
A joint venture is a joint arrangement whereby the parties that have joint control of the
arrangement have rights to the net assets of the arrangement, rather than rights to the assets
and obligations for the liabilities. Joint control is the agreed sharing of control of an arrangement,
which exists only when decisions about the relevant activities require consent of both parties.
The consolidated financial statements include Pollard’s 50% share of the income and expenses
and equity movements of the entity accounted for under the equity method of accounting.
Further details are provided in note 9.
Pollard Banknote Limited
Notes to Consolidated Financial Statements (continued)
(In thousands of Canadian dollars, except for share amounts)
Years ended December 31, 2023 and 2022
3. Material accounting policies (continued):
(j) Investment in joint operation:
A joint operation is a joint arrangement whereby the parties that have joint control of the
arrangement have rights to the assets, and obligations for the liabilities, relating to the
arrangement. Joint control is the contractually agreed sharing of control of an arrangement,
which exists only when decisions about the relevant activities require consent of both parties.
The consolidated financial statements include Pollard’s interest in the Michigan Lottery iLottery
joint operations: its assets, including its 50% share of any assets held jointly; its liabilities,
including its 50% share of any liabilities incurred jointly and its 50% share of revenue and
expenses.
(k) Financial instruments:
Financial assets are initially measured at fair value. On initial recognition, Pollard classifies its
financial assets at either amortized cost, fair value through other comprehensive income
(“FVOCI”) or fair value through profit or loss (“FVTPL”), depending on its business model for
managing the financial assets and the contractual cash flow characteristics of the financial assets.
Financial assets are not reclassified subsequent to their initial recognition, unless Pollard changes
its business model for managing financial assets. Financial liabilities are classified at amortized
cost or FVTPL.
A financial asset is classified as measured at amortized cost if it meets both of the following
conditions: a) the asset is held within a business model whose objective is to hold assets to
collect contractual cash flows and b) the contractual terms of the financial asset give rise on
specified dates to cash flows that are solely payments of principal and interest on the principal
outstanding.
A financial asset is classified as measured at FVOCI if it meets both of the following conditions:
a) it is held within a business model whose objective is achieved by both collecting contractual
cash flows and selling financial assets and b) its contractual terms give rise on specified dates to
cash flows that are solely payments of principal and interest on the principal amount outstanding.
All financial assets not classified as measured at amortized cost or FVOCI are measured at FVTPL.
This includes all derivative financial assets. On initial recognition, Pollard may irrevocably
designate a financial asset that otherwise meets the requirements to be measured at amortized
cost or at FVOCI as FVTPL, if doing so eliminates or significantly reduces an accounting mismatch
that would otherwise arise.
A financial liability is classified as measured at FVTPL if it is classified as held-for-trading, a
derivative, contingent consideration or it is designated as such on initial recognition.
Pollard Banknote Limited
Notes to Consolidated Financial Statements (continued)
(In thousands of Canadian dollars, except for share amounts)
Years ended December 31, 2023 and 2022
3. Material accounting policies (continued):
All financial liabilities not measured at FVTPL are classified as measured at amortized cost.
Hedge accounting
Pollard sells a significant portion of its products and services to customers in the United States
and to some international customers where sales are denominated in U.S. dollars. In addition, a
significant portion of its cost inputs are denominated in U.S. dollars. Pollard also generates
revenue in currencies other than the Canadian and U.S. dollar, primarily in Euros.
From time to time, Pollard enters into hedging arrangements in order to mitigate this exposure
to foreign exchange fluctuations. Pollard determines the existence of an economic relationship
between the hedging instrument and hedged item based on the currency, amount and timing of
their respective cash flows. An assessment is made whether the derivative designated in each
hedging relationship is expected to be and has been effective in offsetting changes in cash flows
of the hedged item using the hypothetical derivative method.
The fair value of each contract is included on the consolidated statement of financial position as
either a financial asset or liability. Changes in fair value are recorded in either other
comprehensive income or the consolidated statement of income, depending on the nature of the
hedged item.
If the hedge no longer meets the criteria for hedge accounting or the hedging instrument is sold,
expires, is terminated or is exercised, then hedge accounting is discontinued prospectively. When
hedge accounting for cash flow hedges is discontinued, the amount that has been accumulated
in the hedging reserve remains in equity until, for a hedge of a transaction resulting in recognition
of a non-financial item, it is included in the non-financial item’s cost on its initial recognition or,
for other cash flow hedges, it is reclassified to the consolidated statement of income in the same
period or periods as the hedged expected future cash flows affects income or loss. If the hedged
future cash flows are no longer expected to occur, the amounts that have been accumulated in
the hedging reserve are immediately reclassified to the consolidated statement of income.
Pollard Banknote Limited
Notes to Consolidated Financial Statements (continued)
(In thousands of Canadian dollars, except for share amounts)
Years ended December 31, 2023 and 2022
3. Material accounting policies (continued):
(l) Impairment:
Financial assets
Pollard applies the simplified approach to providing for expected credit losses, which requires the
use of the lifetime expected credit loss provision for all accounts receivable. Expected credit
losses are measured as the difference in the present value of the contractual cash flows that are
due under the contract and the cash flows that Pollard expects to receive. The expected cash
flows reflect all available information, including Pollard’s historical experience, the past due
status, and forward-looking macroeconomic factors. Further details are provided in note 26 and
note 27.
Non-financial assets
The carrying amount of Pollard’s non-financial assets, other than inventories and deferred income
tax assets, are reviewed at each reporting date to determine whether there is an indication that
an asset may be impaired. If any such indication exists, or when the annual impairment testing
for an asset is required, Pollard estimates the asset’s recoverable amount. For goodwill the
recoverable amount is estimated as of December 31 each year. An impairment loss is recognized
if the carrying amount of an asset, or its related CGU, or group of CGUs, exceeds its estimated
recoverable amount.
The recoverable amount of an asset, CGU, or group of CGUs is the greater of its value in use and
its fair value less costs to sell. In assessing value in use, the 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, CGU, or group of
CGUs. Pollard calculates fair values using appropriate valuation techniques, which are generally
based on a forecast of expected future cash flows for intangible assets, and on a replacement
cost approach, an income-based approach and/or a market-based approach for property, plant
and equipment. These valuations are closely related to the assumptions made by management
about the future return on the related assets and the discount rate applied.
For the purpose of impairment testing, assets that cannot be tested individually are grouped
together into the smallest group of assets that generates cash inflows from continuing use that
are largely independent of cash inflows of other assets or CGUs.
Impairment losses are recognized in net income. Impairment losses recognized in respect to
CGUs or groups of CGUs are allocated first to reduce the carrying amount of any goodwill
allocated, and then to reduce the carrying amounts of the other assets in the CGU or group of
CGUs on a pro rata basis. An impairment loss in respect to goodwill is not reversed.
Pollard Banknote Limited
Notes to Consolidated Financial Statements (continued)
(In thousands of Canadian dollars, except for share amounts)
Years ended December 31, 2023 and 2022
3. Material accounting policies (continued):
In respect to other assets, impairment losses recognized in prior periods are assessed at each
reporting date for any indications 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. An impairment loss can only be reversed to the extent that the asset’s carrying value
that would have been determined, net of amortization, if no impairment had been recognized.
(m) Share capital:
Common shares are classified as equity. Incremental costs directly attributable to the issue of
common shares are recognized as a deduction from equity, net of any tax effects.
(n) Translation of foreign currencies:
The functional currency for each of Pollard’s subsidiaries is the currency of the primary economic
environment in which the entity operates. Transactions in foreign currencies are translated to
the respective functional currencies of each entity within the consolidated group using the
exchange rates in effect at the date of the transactions. Monetary assets and liabilities
denominated in foreign currencies at the reporting date are translated to the functional currency
at the exchange rates prevailing at the end of the reporting period. Non-monetary items
measured at historical cost in a foreign currency are translated to the functional currency using
the exchange rate prevalent at the date of acquisition. Non-monetary items denominated in
foreign currencies that are measured at fair value are translated to the functional currency at the
exchange rate prevalent at the date that the fair value was determined.
Foreign currency differences arising from translation are recognized in net income, except for
exchange differences arising on the translation of financial instruments qualifying as a cash flow
hedge, which are recognized directly in other comprehensive income (“OCI”).
The results and financial position of entities within the consolidated group that have a functional
currency different from the presentation currency are translated into Canadian dollars as follows:
assets and liabilities are translated at the exchange rate prevailing at the end of the reporting
period; income and expenses are translated at the average rate for the reporting period; all
resulting exchange differences are recognized in OCI.
On disposal of a foreign operation, the deferred cumulative amount recognized in OCI relating
to that particular foreign operation is recognized in net income.
Pollard Banknote Limited
Notes to Consolidated Financial Statements (continued)
(In thousands of Canadian dollars, except for share amounts)
Years ended December 31, 2023 and 2022
3. Material accounting policies (continued):
(o) Employee benefits:
Share based compensation
The grant date fair value of stock options granted to employees is recognized as an expense,
with a corresponding increase in equity, over the vesting period of the awards.
Deferred director compensation
Deferred director compensation is comprised of cash-settled share-based payments. Deferred
share units (“DSU”) are granted to eligible directors at the fair value of the common shares at
the grant date. The DSUs earn notional dividends, equivalent to actual dividends declared on
Pollard’s shares. Right to payment of the outstanding DSUs is deferred until termination,
retirement or death. The liability associated with the DSUs is recalculated at each reporting date
and at settlement. Any change in the fair value of the liability is recognized as an expense within
administration expenses in the consolidated statements of income.
Defined contribution plans
Pollard maintains four defined contribution plans. The obligation to contribute to these plans is
recognized as an employee benefit expense as incurred.
Defined benefit plans
Pollard maintains four non-contributory defined benefit pension plans in Canada and the United
States, three being final pay plans and one being a flat benefit plan. None of the plans have
indexation features.
The costs of Pollard’s defined benefit plans are recognized over the period in which employees
render service to Pollard in return for the benefits. The defined benefit obligations associated
with the plans are actuarially determined using the projected unit credit method pro-rated on
service and management’s best estimate of salary escalation and retirement ages of employees.
The present value of the defined benefit obligations are determined by discounting the estimated
future cash outflows using interest rates of high quality corporate bonds that have maturity terms
approximating the maturity terms of the related obligation and that are denominated in the
currency in which the benefits will be paid. The expected return on pension plan assets is
calculated utilizing the discount rate used to measure the defined benefit obligation at the
beginning of the annual period.
Pollard Banknote Limited
Notes to Consolidated Financial Statements (continued)
(In thousands of Canadian dollars, except for share amounts)
Years ended December 31, 2023 and 2022
3. Material accounting policies (continued):
Past service costs are recognized as an expense on a straight line basis over the average period
until the benefits becomes vested. If the benefits have vested, past service costs are recognized
in net income immediately.
Remeasurements that arise in calculating the present value of the defined benefit obligation and
the fair value of plan assets are recognized immediately in OCI.
Pollard’s pension asset is limited to the total of any unrecognized past services costs and the
present value of economic benefits available in the form of any future refunds from the plan or
reductions in future contributions to the plan. In order to calculate the present value of economic
benefits, consideration is given to any minimum funding requirements that apply to Pollard’s
plans. An economic benefit is available to Pollard if it is realizable during the life of the plan, or
on settlement of the plan liabilities.
(p) Income taxes:
Current income tax and deferred income tax are recognized in the statement of income except
to the extent that the tax relates to items recognized directly in equity or in OCI. Current income
tax is the expected tax payable or receivable on the taxable income or loss for the period and
any adjustment to tax payable in respect to previous years. Current income tax expense includes
withholding taxes and U.S. state franchise taxes.
Deferred income tax is recorded to reflect the expected future tax consequences of temporary
differences between the carrying amounts of assets and liabilities and their tax basis. Deferred
income tax assets and liabilities are determined based on the enacted or substantively enacted
tax rates, which are expected to be in effect when the underlying items of income and expense
are expected to be realized.
Deferred income tax is not recognized for: temporary differences related to investments in
subsidiaries to the extent that it is probable that they will not reverse in the foreseeable future,
taxable temporary differences arising on the initial recognition of goodwill or temporary
differences on the initial recognition of assets or liabilities in a transaction that is not a business
combination and that affects neither accounting nor taxable profit or loss.
Deferred income tax assets are reviewed at each reporting date and are reduced to the extent
that it is no longer probable that the related tax benefit will be realized.
The effect on deferred income tax assets and liabilities of a change in tax rates is recognized in
income in the period that includes the date of enactment or substantive enactment, except if it
relates to an item previously recognized in equity, in which case the adjustment is made to
equity.
Pollard Banknote Limited
Notes to Consolidated Financial Statements (continued)
(In thousands of Canadian dollars, except for share amounts)
Years ended December 31, 2023 and 2022
3. Material accounting policies (continued):
Deferred income tax assets and liabilities are offset when there is a legally enforceable right to
offset current income tax liabilities and assets, and they are levied by the same taxation authority
on the same taxable entity, or on different tax entities which intend to settle their current income
tax assets and liabilities on a net basis.
(q) Provisions:
Provisions are recognized when Pollard has a present legal or constructive obligation as a result
of a past event that can be estimated reliably and it is probable that an outflow of economic
benefits will be required to settle the obligation.
An onerous contract is a contract in which the unavoidable costs of meeting the obligations under
the contract exceed the economic benefits expected to be received under it. If Pollard has a
contract that is onerous, the present obligation under the contract shall be recognized and
measured as a provision.
If the effect of the time value of money is material, provisions are discounted using a current
pre-tax rate that reflects, where appropriate, the risks specific to the liability. Where discounting
is used, the increase in the provision due to the passage of time is recognized as a finance cost.
(r) Finance costs and finance income:
Finance costs comprises interest expense on borrowings including amortization of deferred
financing costs, interest expense on lease liabilities, accretion of contingent consideration, mark-
to-market losses on foreign exchange contracts and net foreign exchange losses.
Borrowing costs that are not directly attributable to the acquisition, construction or production
of an asset, that necessarily takes a substantial period of time to get ready for its intended use
or sale, are expensed in the period incurred using the effective interest method.
Finance income comprises mark-to-market gains on foreign exchange contracts and net foreign
exchange gains.
(s) Leases:
At inception of a contract, Pollard assesses whether a contract is, or contains, a lease. 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.
Pollard Banknote Limited
Notes to Consolidated Financial Statements (continued)
(In thousands of Canadian dollars, except for share amounts)
Years ended December 31, 2023 and 2022
3. Material accounting policies (continued):
Pollard recognizes a right-of-use asset and a lease liability at the lease commencement date. 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
direct costs incurred and an estimate of costs to dismantle and remove the underlying asset or
to restore the underlying asset or the site on which it is located, less any lease incentives
received.
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. The right-of-use asset is subsequently measured at cost less any
accumulated depreciation and impairment losses.
The lease liability is initially measured at the present value of the lease payments that are not
paid at the commencement date, discounted using the interest rate implicit in the lease or, if
that rate cannot be readily determined, Pollard’s incremental borrowing rate. Generally, Pollard
uses its incremental borrowing rate as the discount rate.
The lease liability is measured at amortized cost using the effective interest method. It is
remeasured when there is a change in future lease payments arising from a change in an index
or rate, a change in Pollard’s estimate of the amount expected to be payable under a residual
value guarantee, or as appropriate, changes in the assessment of whether a purchase or
extension option is reasonably certain to be exercised or a termination option is reasonably
certain not to be exercised.
Pollard presents right-of-use assets in “property, plant and equipment” on the statement of
financial position.
Pollard accounts for short-term and low value leases by applying the recognition exemption
available under IFRS 16.
Pollard’s leases are for offices, manufacturing facilities, production equipment and office
equipment.
Pollard Banknote Limited
Notes to Consolidated Financial Statements (continued)
(In thousands of Canadian dollars, except for share amounts)
Years ended December 31, 2023 and 2022
4.
Future accounting standards:
(a) Amendments to IAS 1 – Classification of Liabilities as Current or Non-current:
In January 2020, the IASB issued amendments to IAS 1 Presentation of Financial Statements to
clarify the classification of liabilities as current or non-current. For the purposes of non-current
classification, the amendments removed the requirement for a right to defer settlement or roll
over of a liability for at least twelve months to be unconditional. The 2020 amendments also
clarify how a company classifies a liability that includes a counterparty conversion option.
In October 2022, the IASB issued Non-current Liabilities with Covenants (Amendments to IAS 1),
to improve the information a company provides about long-term debt with covenants. The
Amendments reconfirmed that only covenants with which a company must comply on or before
the reporting date affect the classification of a liability as current or non-current. Covenants with
which a company must comply after the reporting date do not affect liability classification as at
that date.
The amendments are effective for annual periods beginning on or after January 1, 2024. Pollard
does not expect the amendments to have a significant impact on the consolidated financial
statements upon adoption.
(b) Amendments to IFRS 16 – Lease Liability in a Sale and Leaseback:
In September 2022, the IASB issued Lease Liability in a Sale and Leaseback (Amendments to
IFRS 16). The amendments introduce a new accounting model which impacts how a seller-lessee
accounts for variable lease payments that arise in a sale-and-leaseback transaction. The
amendments clarify that on initial recognition, the seller-lessee includes variable lease payments
when it measures a lease liability arising from a sale-and-leaseback transaction and after initial
recognition, the seller-lessee applies the general requirements for subsequent accounting of the
lease liability such that it recognizes no gain or loss relating to the right of use it retains. The
amendments need to be applied retrospectively.
The amendments are effective for annual periods beginning on or after January 1, 2024. Pollard
does not expect the amendments to have a significant impact on the consolidated financial
statements upon adoption.
(c) Amendments to IAS 21 – The Effects of Changes in Foreign Exchange Rates:
In August 2023, the IASB issued Lack of Exchangeability (Amendments to IAS 21), to clarify
when a currency is exchangeable into another currency and how a company estimates a spot
rate when a currency lacks exchangeability. The amendments clarify that a currency is
exchangeable into another currency when a company is able to exchange that currency for the
other currency at the measurement date and for a specified purpose.
Pollard Banknote Limited
Notes to Consolidated Financial Statements (continued)
(In thousands of Canadian dollars, except for share amounts)
Years ended December 31, 2023 and 2022
4.
Future accounting standards (continued):
The amendments also clarify that when a currency is not exchangeable, a company needs to
estimate a spot rate. A company’s objective when estimating a spot rate is only that it reflects
the rate at which an orderly exchange transaction would take place at the measurement date
between market participants under prevailing economic conditions. When estimating a spot rate
a company can use an observable exchange rate without adjustment, or another estimation
technique.
The amendments are effective for annual periods beginning on or after January 1, 2025. Pollard
is currently assessing the impact of the amendments on the consolidated financial statements.
5.
Acquisitions:
On August 1, 2023, Pollard acquired 100% of the equity of a distributor of charitable gaming
products. The acquisition has been accounted for using the acquisition method. The total purchase
price including the estimated amount of contingent consideration is $1,508, of which $1,017 was
paid in 2023. Included in the net assets acquired is $548 of intangible assets related to customer
assets and $729 of goodwill. As at December 31, 2023, Pollard had accrued $248 within current
liabilities and $229 within non-current liabilities related to the contingent consideration.
At December 31, 2023, the acquisition accounting was finalized.
During 2023, Pollard paid contingent consideration related to previous acquisitions of $12,974.
Pollard Banknote Limited
Notes to Consolidated Financial Statements (continued)
(In thousands of Canadian dollars, except for share amounts)
Years ended December 31, 2023 and 2022
6.
Inventories:
Raw materials
Work-in-process
Finished goods
December 31,
2023
December 31,
2022
$
$
$
28,315
2,812
29,382
28,261
1,601
32,270
60,509
$
62,132
During 2023, Pollard recorded inventory write-downs of $2,116 representing an increase in the
obsolescence reserves and write-downs of $531 due to changes in foreign exchange rates.
During 2022, Pollard recorded inventory write-downs of $1,055 representing an increase in the
obsolescence reserves, and reversals of previous write-downs of $414 due to changes in foreign
exchange rates.
The cost of sales reflects the costs of inventory including direct material, direct labour and
manufacturing overheads.
Pollard Banknote Limited
Notes to Consolidated Financial Statements (continued)
(In thousands of Canadian dollars, except for share amounts)
Years ended December 31, 2023 and 2022
7.
Property, plant and equipment:
Cost
Land Buildings
Leasehold
improve-
ments
Furniture,
fixtures and
computers
Assets in
progress &
spare parts Total
Equipment
Balance at January 1, 2022
$ 2,129
50,118
6,296
213,749
10,372
16,944 299,608
Additions/net transfers
Disposals
Effect of movements in
exchange rates
Balance at December 31,
2022
Acquisitions
Additions/net transfers
Disposals
Effect of movements in
exchange rates
Balance at December 31,
–
–
1,777
(1,083)
56
1,143
45
–
98
16,190
(849)
379
(20)
(812) 17,579
–
(1,952)
2,674
83
274
4,328
$ 2,185
51,955
6,439
231,764
10,814
16,406 319,563
–
–
–
74
–
–
–
–
74
10,397
174
15,197
1,011
(1,599) 25,180
(10,551)
–
(8,762)
(7)
–
(19,320)
(24)
(388)
(33)
(1,138)
(18)
(145)
(1,746)
2023
$ 2,161
51,487
6,580
237,061
11,800
14,662 323,751
Accumulated
depreciation
Land Buildings
Leasehold
improve-
ments
Furniture,
fixtures and
computers
Assets in
progress &
spare parts Total
Equipment
Balance at January 1, 2022
$
Depreciation for the year
Disposals
Effect of movements in
exchange rates
Balance at December 31,
2022
Depreciation for the year
Disposals
Effect of movements in
exchange rates
Balance at December 31,
2023
$
$
–
–
–
–
–
–
–
–
–
22,032
3,761
163,138
6,087 –
195,018
6,896
(1,083)
519
439
15,403
868 –
23,606
–
66
(849)
(20) –
(1,952)
1,635
51 –
2,271
28,364
4,266
179,327
6,986 –
218,943
6,861
439
16,357
873
(10,551)
–
(8,762)
(210)
(22)
(696)
(7)
(4)
24,464
4,683
186,226
7,848
–
–
–
–
24,530
(19,320)
(932)
223,221
Carrying amounts
Land Buildings
Leasehold
improve-
ments
Equipment
Furniture,
fixture and
computers
Assets in
progress &
spare parts Total
At December 31, 2022
$ 2,185
23,591
At December 31, 2023
$ 2,161
27,023
2,173
1,897
52,437
50,835
3,828
16,406
100,620
3,952
14,662
100,530
During 2023, Pollard disposed of a fully depreciated right-of-use asset relating to a leased building in
the amount of $10,551.
Pollard Banknote Limited
Notes to Consolidated Financial Statements (continued)
(In thousands of Canadian dollars, except for share amounts)
Years ended December 31, 2023 and 2022
8.
Leases:
Pollard’s leases are for offices, manufacturing facilities, production equipment and office equipment.
Pollard presents right-of-use assets in “property, plant and equipment” on the consolidated statement
of financial position. The following tables present continuity schedules of Pollard’s right-of-use assets
by asset class:
Buildings
Equipment
Total
Balance at January 1, 2022
$
14,537
1,191
15,728
Additions
Depreciation
Effect of movements in exchange rates
2,414
(5,891)
218
847
(723)
(1)
Balance at December 31, 2022
$
11,278
1,314
Acquisitions
Additions
Depreciation
Effect of movements in exchange rates
74
10,359
(5,884)
(25)
Balance at December 31, 2023
$
15,802
–
240
(598)
(1)
955
3,261
(6,614)
217
12,592
74
10,599
(6,482)
(26)
16,757
Pollard’s total cash outflows, principal and interest relating to its lease obligations classified under
IFRS 16 Leases for the year ended December 31, 2023 were $7,239 (2022 – $6,946).
Pollard’s interest expenses incurred relating to its lease obligations classified under IFRS 16 Leases
for the year ended December 31, 2023 were $551 (2022 – $395).
The following is a schedule of lease payment commitments outstanding relating to lease obligations
classified under IFRS 16:
2024
2025
2026
2027
2028 and thereafter
Total undiscounted cash flows
Discounting
Total discounted cash flows
Less: current portion lease liabilities
Lease liabilities
$
$
$
$
5,502
4,735
3,849
2,901
2,946
19,933
(2,386)
17,547
(4,675)
12,872
Pollard Banknote Limited
Notes to Consolidated Financial Statements (continued)
(In thousands of Canadian dollars, except for share amounts)
Years ended December 31, 2023 and 2022
9. Equity investment:
NeoPollard Interactive, LLC
Pollard, in conjunction with NeoGames US, LLP, operates NPi. The entity was established to provide
iLottery services in the United States and Canada, excluding the Michigan Lottery.
Investment in equity accounted entity
Balance, beginning of year
Investment distribution
Equity income
Effects of movements in exchange rates
Balance, end of year
Net Assets
Current assets
Non-current assets
Total
Current liabilities
Non-current liabilities
Total
Net assets – 100%
Attributable to Pollard – 50%
December 31,
2023
December 31,
2022
$
549
(39,068)
39,055
(18)
585
(22,349)
22,277
36
518
$
549
December 31,
2023
December 31,
2022
51,677
1,282
52,959
51,923
–
51,923
1,036
518
$
$
$
$
$
$
34,872
1,762
36,634
35,400
137
35,537
1,097
549
$
$
$
$
$
$
$
$
At December 31, 2023, included in the current assets of NPi is restricted cash relating to amounts
held on behalf of iLottery customers of $26,238 (2022 – $16,040). There is an offsetting liability
included in current liabilities.
Interest in equity accounted entity
Revenue – 100%
Revenue – attributable to Pollard – 50%
Comprehensive income – 100%
Comprehensive income – attributable to Pollard – 50%
2023
160,454
80,227
78,110
39,055
$
$
$
$
2022
110,162
55,081
44,554
22,277
$
$
$
$
At December 31, 2023, included in the accounts receivable in the statement of financial position is a
net amount owed from NPi of $6,285 (2022 – $4,936).
Pollard Banknote Limited
Notes to Consolidated Financial Statements (continued)
(In thousands of Canadian dollars, except for share amounts)
Years ended December 31, 2023 and 2022
9. Equity investment (continued):
Michigan iLottery
Pollard and NeoGames US, LLP operate the iLottery operation for the Michigan Lottery under a
separate joint operating agreement. Pollard recognizes its interest in the joint operation by including
its assets, including its 50% share of any assets held jointly, its liabilities, including its 50% share of
any liabilities incurred jointly and its 50% share of revenue and expenses.
10. Goodwill:
Balance, beginning of year
Acquisitions (note 5)
Effects of movements in exchange rates
Balance, end of year
Impairment assessment methodology
December 31,
2023
December 31,
2022
$
$
111,156 $
729
(903)
108,175
–
2,981
110,982 $
111,156
Pollard performs its annual goodwill impairment tests as at December 31. Goodwill has been allocated
as follows to Pollard’s CGUs and groups of CGUs:
Lotteries
Charitable gaming
eGaming systems
Retail
Total
December 31,
2023
December 31,
2022
57,928 $
13,097
28,566
11,391
57,563
13,444
28,575
11,574
110,982 $
111,156
$
$
For each acquisition an assessment is performed to determine if the acquired entity should be its
own CGU or become part of an existing CGU.
For each CGU, or group of CGUs, the recoverable amounts have been determined based on a value
in use calculation using cash flow projections from financial forecasts approved by senior
management. These forecasts cover a period of five years and reflect an estimate of a terminal value.
Included in these forecasts is an assumption of certain growth rates which was based on historical
trends and expected future performance.
Pollard Banknote Limited
Notes to Consolidated Financial Statements (continued)
(In thousands of Canadian dollars, except for share amounts)
Years ended December 31, 2023 and 2022
10. Goodwill (continued):
The calculation of value in use for the CGUs, or groups of CGUs described above are most sensitive
to the following key assumptions on which management has based its cash flow projections to
undertake impairment testing of goodwill:
Revenue and related gross profit
Foreign exchange rates
Discount rates
Growth rates
Revenue and related gross profit
Projected cash flows from revenue assumes the continuation of recent historical trends adjusted for
expected new contract wins, anticipated contract renewal pricing changes and the expected impact
of sales initiatives in conjunction with certain production efficiencies that are being developed or are
expected to be developed.
Foreign exchange rates
A significant portion of revenue is denominated in U.S. dollars and Euros, partially offset by U.S.
dollar denominated costs. In addition, certain financial assets and liabilities are denominated in U.S.
currency. Projected cash flows assume an estimated exchange rate between Canadian dollars to U.S.
dollars and Euros based on expected exchange rates during the forecast period.
Discount rates
Discount rates were calculated based on the estimated cost of equity capital and debt capital
considering data and factors relevant to the economy, the industry and the CGUs, and groups of
CGUs. These costs were then weighted in terms of a typical industry capital structure to arrive at an
estimated weighted average cost of capital. The after-tax discount rates applied to the cash flow
projections for the CGUs and groups of CGUs described above were as follows:
Lotteries
Charitable gaming
eGaming systems
Retail
Growth rates
12.0%
12.0%
21.0%
14.7%
Growth rates are based on estimated sustainable long-term growth rates of the CGUs and groups of
CGUs. A terminal value growth rate of 2% was applied in the value in use calculations for all of the
above CGUs and groups of CGUs.
Pollard Banknote Limited
Notes to Consolidated Financial Statements (continued)
(In thousands of Canadian dollars, except for share amounts)
Years ended December 31, 2023 and 2022
10. Goodwill (continued):
Management believes that any reasonable possible change in any of the key assumptions on which
the recoverable amounts of the CGUs, or groups of CGUs, are based would not cause the unit’s
carrying amounts to exceed its recoverable amount.
11. Intangible assets:
Cost
Customer
assets
Patents
Trademarks
and brands
Deferred
development
Computer
software
and
licenses
Total
Balance at January 1, 2022
$
65,691
6,970
5,597
1,793
75,217
155,268
Additions (net of investment tax
credits)
Additions – internally developed
(net of investment tax
credits)
Disposals
Effect of movements in
exchange rates
–
–
–
80
10
–
–
–
–
2,292
29
232
–
–
–
–
231
321
18,581
18,581
(53)
(53)
2,368
4,921
Balance at December 31, 2022
$
67,983
7,079
5,839
1,793
96,344
179,038
Acquisitions (note 5)
548
–
Additions (net of investment tax
credits)
Additions – internally developed
(net of investment tax
credits)
Effect of movements in
exchange rates
–
–
82
–
–
–
–
(826)
(7)
(76)
–
–
–
–
–
–
548
82
23,437
23,437
(510)
(1,419)
Balance at December 31, 2023
$
67,705
7,154
5,763
1,793
119,271
201,686
Pollard Banknote Limited
Notes to Consolidated Financial Statements (continued)
(In thousands of Canadian dollars, except for share amounts)
Years ended December 31, 2023 and 2022
11. Intangible assets (continued):
Accumulated amortization
Customer
assets
Patents
Trademarks
and brands
Deferred
development
Computer
software
and
licenses
Total
Balance at January 1, 2022
$
33,162
5,556
Amortization for the year
5,689
180
–
–
1,588
20,657
60,963
120
10,722
16,711
Disposals
–
–
–
–
(53)
(53)
Effect of movements in
exchange rates
969
25
–
–
961
1,955
Balance at December 31, 2022
$
39,820
5,761
–
1,708
32,287
79,576
Amortization for the year
6,216
184
–
85
12,527
19,012
Effect of movements in
exchange rates
(446)
(11)
–
–
(376)
(833)
Balance at December 31, 2023
$
45,590
5,934
–
1,793
44,438
97,755
Carrying amounts
Customer
assets
Patents
Trademarks
and brands
Deferred
development
Computer
software
and
licenses
Total
At December 31, 2022
At December 31, 2023
$
$
28,163
22,115
1,318
1,220
5,839
5,763
85
–
99,462
64,057
74,833 103,931
Amortization of intangible assets in 2023 of $19,012 (2022 – $16,711), was included in cost of sales.
As at December 31, 2023, the weighted average remaining useful life of customer assets was 6.0
years and the weighted average remaining useful life of computer software and licenses was 4.6
years for those assets being amortized.
Pollard Banknote Limited
Notes to Consolidated Financial Statements (continued)
(In thousands of Canadian dollars, except for share amounts)
Years ended December 31, 2023 and 2022
12. Income taxes:
Income tax expense
Current
Deferred reduction
Total
2023
23,135
(17,011)
6,124
$
$
$
$
2022
9,584
(6,646)
2,938
Income tax recognized in other comprehensive income (loss)
Amount
before
tax
Tax
expense
2023
Amount
net of tax
Amount
before
tax
Tax
benefit
2022
Amount
net of tax
Defined benefit plans
remeasurements
gain (loss)
$
(1,930)
538
(1,392) $
26,054
(6,883)
19,171
Reconciliation of effective tax rate
2023
2023
2022
2022
Net income for the year
Total income tax expense
Income before income taxes
$
$
31,418
6,124
37,542
$
$
Income tax using Pollard's domestic tax rate
27.0% $
10,137
27.0% $
Effect of tax rates in foreign jurisdictions
Non-taxable amounts
Non-deductible items relating to
acquisitions
Change in enacted United Kingdom
corporate tax rates
Other items
Effect of non-taxable items related to
foreign exchange
(7.7%)
(1.6%)
(2,908)
(7.9%)
(602)
(2.8%)
0.3%
127
0.0%
–
0.0%
(1.8%)
–
2.5%
(667)
(5.5%)
549
(1,209)
0.1%
37
(0.1%)
(21)
16.3%
$
6,124
13.2% $
2,938
19,277
2,938
22,215
5,998
(1,759)
(620)
Pollard Banknote Limited
Notes to Consolidated Financial Statements (continued)
(In thousands of Canadian dollars, except for share amounts)
Years ended December 31, 2023 and 2022
12. Income taxes (continued):
Deferred income tax assets and liabilities
Recognized deferred income tax assets and liabilities
Deferred income tax assets and liabilities are attributable to the following:
Assets
Liabilities
Net
2023
2022
2023
2022
2023
2022
$
Property, plant and
equipment
Intangible assets
Inventories
Employee benefits
Unrealized foreign
exchange (gains)
and losses
Unused tax losses
Contract liabilities
Other
228
8,337
844
1,796
497
16,264
555
688
$
–
5,981
715
1,419
(17,176)
(4,975)
–
–
(16,395) $
(7,069)
–
(783)
(16,948)
3,362
844
1,796
(16,395)
(1,088)
715
636
778
3,365
178
777
(365)
–
(434)
(194)
(106)
–
(386)
(27)
132
16,264
121
494
672
3,365
(208)
750
Tax assets (liabilities)
$
29,209
13,213 $
(23,144)
(24,766) $
6,065
(11,553)
Movement in temporary differences during the year
January 1,
2023
Recognized
in net income
Recognized in other
comprehensive
income (loss)
Balance
December 31,
2023
$
Property, plant and equipment
Intangible assets
Inventories
Employee benefits
Unrealized foreign exchange
(gains) and losses
Unused tax losses
Contract liabilities
Other
(16,395)
(1,088)
715
636
672
3,365
(208)
750
(553)
4,450
129
622
(540)
12,899
329
(256)
–
–
–
538
–
–
–
–
Tax assets (liabilities)
$
(11,553)
17,080
538
(16,948)
3,362
844
1,796
132
16,264
121
494
6,065
Pollard Banknote Limited
Notes to Consolidated Financial Statements (continued)
(In thousands of Canadian dollars, except for share amounts)
Years ended December 31, 2023 and 2022
12. Income taxes (continued):
January 1,
2022
Recognized
in net income
Recognized in other
comprehensive
income (loss)
Balance
December 31,
2022
$
Property, plant and equipment
Intangible assets
Inventories
Employee benefits
Unrealized foreign exchange
(gains) and losses
Unused tax losses
Contract liabilities
Other
(14,935)
(6,968)
466
6,631
(380)
3,696
(270)
648
Tax assets (liabilities)
$
(11,112)
(1,460)
5,880
249
888
1,052
(331)
62
102
6,442
–
–
–
(6,883)
–
–
–
–
(16,395)
(1,088)
715
636
672
3,365
(208)
750
(6,883)
(11,553)
Recognized in the consolidated statements of comprehensive income as follows:
Deferred reduction
Finance income (costs)
2023
(17,011)
(69)
(17,080)
$
$
$
$
2022
(6,646)
204
(6,442)
Amounts included in finance income relate to unrealized foreign exchange.
During 2023, Pollard recognized the tax effect of $61,497 of tax losses available for carryforward,
resulting in deferred tax assets of $16,264. Based on management’s estimates of future taxable
profits and available tax planning strategies, management has assessed it is probable that future
taxable profits will be available against which these deferred tax assets can be utilized.
As at December 31, 2023, Pollard had $97,588 in unused tax losses for which no deferred tax asset
has been recognized, arising from the acquisition of Pollard Digital Solutions GmbH.
Pollard Banknote Limited
Notes to Consolidated Financial Statements (continued)
(In thousands of Canadian dollars, except for share amounts)
Years ended December 31, 2023 and 2022
13. Long-term debt:
Credit facility, interest of 6.8% to 8.7% payable
monthly, maturing 2025
Deferred financing charges, net of amortization
December 31,
2023
December 31,
2022
$
$
119,944
$
122,058
(257)
(403)
119,687
$
121,655
Credit facility Deferred financing
Total
Balance at January 1, 2023
$
122,058
Net repayments
Deferred financing charges
paid
Total changes from financing
cash flows
Effect of movements in
exchange rates
Amortization of deferred
financing charges
Total other changes
(875)
–
(875)
(1,239)
–
(1,239)
(403)
–
(50)
(50)
–
196
196
121,655
(875)
(50)
(925)
(1,239)
196
(1,043)
Balance at December 31, 2023
$
119,944
(257)
119,687
Credit facility Deferred financing
Total
Balance at January 1, 2022
$
Net proceeds
Deferred financing charges
paid
Total changes from financing
cash flows
Effect of movements in
exchange rates
Amortization of deferred
financing charges
Total other changes
115,804
3,174
–
3,174
3,080
–
3,080
(674)
–
(152)
(152)
–
423
423
115,130
3,174
(152)
3,022
3,080
423
3,503
Balance at December 31, 2022
$
122,058
(403)
121,655
Pollard Banknote Limited
Notes to Consolidated Financial Statements (continued)
(In thousands of Canadian dollars, except for share amounts)
Years ended December 31, 2023 and 2022
13. Long-term debt (continued):
(a) Credit facility:
Effective December 31, 2021, Pollard renewed its credit facility. The credit facility provides loans of
up to $215,000 for its Canadian operations and US$14,000 for its U.S. subsidiaries. The credit facility
also includes an accordion feature which can increase the facility by $50,000. The borrowings for the
Canadian operations can be denominated in Canadian or U.S. dollars, to a maximum of $215,000
Canadian equivalent. Borrowings under the credit facility bear interest at fixed and floating rates
based on Canadian and U.S. prime bank rates, banker’s acceptances or Secure Overnight Financing
Rate (“SOFR”). At December 31, 2023, the outstanding letters of guarantee drawn under the credit
facility were $73 (2022 – $88).
Included in the total credit facility balance is a U.S. dollar denominated balance of US$35,400 (2022
– US$35,400). As of December 31, 2023, Pollard had unused credit facility available of $113,464
(2022 – $111,824).
Under the terms and conditions of the credit facility agreement Pollard is required to maintain certain
financial covenants including our debt service coverage ratio and debt to income before interest,
income taxes, amortization, depreciation and certain other items ratio. As at December 31, 2023,
Pollard is in compliance with all financial covenants.
Pollard’s credit facility is secured by a first security interest in all of the present and after acquired
property of Pollard. Under the terms of the agreement the facility is committed for a four-year period,
renewable December 31, 2025. Principal payments are not required until maturity. The facility can
be prepaid without penalties.
(b) Economic Development Canada (“EDC”) facility:
Effective November 29, 2023, Pollard renewed its annual agreement with EDC. This agreement
provides a €15,000 facility whereby Pollard can issue qualifying letters of credit against the EDC
facility. The facility is guaranteed by a general indemnity from Pollard. As of December 31, 2023, the
outstanding letters of credit drawn on this facility were $14,726 (€10,086). As of December 31, 2022,
the outstanding letters of credit drawn on this facility were $13,549 (€9,344).
Pollard Banknote Limited
Notes to Consolidated Financial Statements (continued)
(In thousands of Canadian dollars, except for share amounts)
Years ended December 31, 2023 and 2022
14. Pension asset (liability):
December 31,
2023
December 31,
2022
Fair value of benefit plan assets
Present value of benefit plan obligations
Net pension asset (liability)
$
$
91,573 $
(94,165)
79,526
(78,538)
(2,592) $
988
Pollard sponsors non-contributory defined benefit plans providing pension benefits to its employees.
Pollard has four defined benefit pension plans of which three are final pay plans and one is a flat
benefit plan. None of the plans have indexation features. The measurement date for all the plans is
December 31. Two of the plans of the U.S. subsidiaries require valuations annually with the last
valuations being as of January 1, 2023. One of the Canadian plans of Pollard currently requires
valuation every three years with the last valuation as of December 31, 2022. Pollard’s other Canadian
plan’s valuation was as of January 1, 2021. Pollard’s subsidiaries also maintain four defined
contribution plans. The pension expense for these defined contribution plans is the annual funding
contribution by the subsidiaries.
Pollard expects to contribute approximately $3,649 to its defined benefit plans in 2024.
The benefit plan assets are held in trust and are invested as follows:
Equities
Bonds
Cash and cash equivalents
December 31,
2023
December 31,
2022
65.3%
33.1%
1.6%
100.0%
65.0%
33.4%
1.6%
100.0%
Information about Pollard’s defined benefit plans, in aggregate, is as follows:
Benefit plan assets
Fair value, beginning of year
Expected return on plan assets
Employer contributions
Benefits paid
Remeasurement gains (losses)
Effect of movements in exchange rates
Fair value, end of year
2023
2022
$
$
$
79,526
4,098
3,046
(1,836)
7,194
(455)
88,324
2,665
5,497
(4,571)
(13,292)
903
91,573
$
79,526
Pollard Banknote Limited
Notes to Consolidated Financial Statements (continued)
(In thousands of Canadian dollars, except for share amounts)
Years ended December 31, 2023 and 2022
14. Pension asset (liability) (continued):
Accrued benefit plan obligations
Balance, beginning of year
Current service cost
Interest cost
Benefits paid
Remeasurement losses (gains)
Effect of movements in exchange rates
Balance, end of year
Net pension asset (liability)
Net defined benefit plans expense
Current service cost
Interest on plan obligations
Actual return (gain) loss on plan assets
Difference between expected return and actual
return on plan assets
Net defined benefit plans expense
Defined contribution plans expense
$
$
$
$
2023
2022
$
78,538
4,662
3,997
(1,836)
9,124
(320)
110,865
7,266
3,269
(4,571)
(39,346)
1,055
94,165
$
78,538
(2,592) $
988
2023
2022
$
4,662
3,997
(11,292)
7,707
5,074
1,273
7,266
3,269
10,627
(12,810)
8,352
1,101
9,453
Net pension plans expense
$
6,347
$
Actuarial assumptions
The principal actuarial assumptions used in measuring at the reporting date are as follows:
Discount rate
Rate of compensation increase
2023
2022
4.6% to 5.3%
0.0% to 3.0%
5.1% to 5.6%
0.0% to 3.0%
Assumptions regarding future mortality have been based on published statistics and mortality tables.
As of December 31, 2023 and December 31, 2022, Pollard used CPM2014 Private Sector projected
CPM-B mortality table for its Canadian subsidiary’s pension plans and the Pri-2012 mortality tables
using scale MP-2021 for its U.S. subsidiary’s pension plans.
Pollard Banknote Limited
Notes to Consolidated Financial Statements (continued)
(In thousands of Canadian dollars, except for share amounts)
Years ended December 31, 2023 and 2022
14. Pension asset (liability) (continued):
Sensitivity analysis
Reasonably possible changes at the reporting date to one of the relevant actuarial assumptions,
holding other assumptions constant, would have affected the defined benefit obligation by the
amounts show below:
Discount rate (1% movement)
Rate of compensation (1% movement)
Future mortality (one year)
$
$
$
(14,854) $
$
$
1,986
1,138
19,278
(1,886)
(1,151)
Increase
Decrease
Remeasurements
Remeasurement gains (losses) arising on plan assets
$
7,194
$
(13,292)
Remeasurement gains (losses) arising on plan liabilities
2023
2022
from:
Demographic assumptions
Financial assumptions
Experience adjustments
$
$
8
(7,600)
(1,532)
(28)
39,470
(96)
Remeasurement gains (losses) arising on plan liabilities
$
(9,124) $
39,346
Net remeasurement gains (losses) on defined benefit
plans
$
(1,930) $
26,054
Remeasurements recognized in other comprehensive income (loss)
2023
2022
Gains (losses) accumulated in retained earnings,
beginning of year
$
1,551
$
(17,620)
Remeasurement gain (loss) recognized during the
year, net of income taxes
(1,392)
19,171
Gains accumulated in retained earnings, end of year
$
159
$
1,551
Pollard Banknote Limited
Notes to Consolidated Financial Statements (continued)
(In thousands of Canadian dollars, except for share amounts)
Years ended December 31, 2023 and 2022
15. Share capital:
Authorized
Unlimited common shares
Unlimited preferred shares
Issued
Balance at January 1, 2022 and December 31, 2022
Stock options exercised
Balance at December 31, 2023
Dividends:
Shares
Amount
26,917,669
55,000
26,972,669
$
$
149,849
862
150,711
Dividends are paid on the common shares within 15 days of the end of each quarter and are fully
discretionary, as determined by the Board of Directors of Pollard.
On November 7, 2023, a dividend of $0.04 per share was declared, paid on January 15, 2024, to the
shareholders of record on December 31, 2023.
Ownership restrictions:
The holders of the common shares are entitled to one vote in respect to each common share held,
subject to the Board of Directors ability to take constraint actions when a person, or group of persons
acting in concert acquires, agrees to acquire, holds, beneficially owns or controls, either directly or
indirectly, a number of shares equal to or in excess of 5% of the common shares (on a non-diluted
basis) issued and outstanding (“Ownership Threshold”). The Board of Directors, in its sole discretion,
can take the following constraint actions:
place a stop transfer on all or any of the common shares believed to be in excess of the
Ownership Threshold;
suspend all voting and/or dividend rights on all or any of common share held believed to be
in excess of the Ownership Threshold;
apply to a court seeking an injunction to prevent a person from acquiring, holding, owning,
controlling and/or directing, directly or indirectly, common shares in excess of the Ownership
Threshold; and/or
make application to the relevant securities commission to effect a cease trading order or
such similar restriction, until the person no longer controls common shares equal to or in
excess of the Ownership Threshold.
Pollard Banknote Limited
Notes to Consolidated Financial Statements (continued)
(In thousands of Canadian dollars, except for share amounts)
Years ended December 31, 2023 and 2022
15. Share capital (continued):
In addition, if a Gaming Regulatory Authority has determined that ownership by a holder of common
shares is inconsistent with its declared policies, the Board of Directors is entitled to take constraint
action against such shareholder. Any person who controls common shares equal to or in excess of
the Ownership Threshold, may be required to file an application, be investigated and have suitability
as a shareholder determined by a Gaming Regulatory Authority, if such Gaming Regulatory Authority
has reason to believe such ownership would otherwise be inconsistent with its declared policies.
The shareholder must pay all the costs of the investigation incurred by any such Gaming Regulatory
Authority.
Capital management:
Pollard’s objectives in managing capital are to preserve a strong capital base so as to maintain
investor, creditor and market confidence and to sustain future development of the business. Pollard
also strives to keep an optimal capital structure to reduce the overall cost of capital.
In the management of capital, Pollard includes long-term debt, share capital and retained earnings,
but excludes reserves. The Board of Directors regularly monitors the levels of debt, equity and
dividends.
Pollard monitors capital on the basis of funded debt to income before interest, income taxes,
amortization, depreciation and certain other items ratio, working capital ratio and debt service
coverage. Pollard has externally imposed capital requirements as determined through its bank credit
facility. As at December 31, 2023, Pollard is in compliance with all financial covenants.
There were no changes in Pollard’s approach to capital management during the current period.
Share based compensation:
Under the Pollard Banknote Limited Stock Option Plan the Board of Directors has the authority to
grant options to purchase common shares to eligible persons and to determine the applicable terms.
The aggregate maximum number of common shares available for issuance from Pollard’s treasury
under the Option Plan is 2,354,315 common shares.
Pollard Banknote Limited
Notes to Consolidated Financial Statements (continued)
(In thousands of Canadian dollars, except for share amounts)
Years ended December 31, 2023 and 2022
15. Share capital (continued):
Changes in the number of options outstanding during the years ended December 31, 2023, and 2022
were as follows:
2023
2022
Number
Weighted
average
exercise price
Number
Weighted
average
exercise price
Balance, beginning of year
Granted
Forfeited
Exercised
312,500 $
225,000 $
(12,500) $
(55,000) $
19.98
21.33
21.33
12.55
312,500 $
$
–
$
–
$
–
Balance, end of year
470,000 $
21.46
312,500 $
19.98
–
–
–
19.98
As of December 31, 2023, no share options had expired. Options outstanding have been granted on
six grant dates, with the exercise price being the common share price on the exercise price
determination date. All of the outstanding options have seven year terms, vesting 25% per year over
the first four years.
Exercise
price
Number
outstanding
$ 8.12
$ 10.00
$ 20.70
$ 18.31
$ 23.65
$ 61.13
$ 21.33
–
75,000
107,500
25,000
25,000
25,000
212,500
470,000
2023
Remaining
time to
exercise
–
0.32 years
2.86 years
3.21 years
3.87 years
4.42 years
6.19 years
Number
exercisable
Number
outstanding
–
75,000
107,500
18,750
18,750
12,500
–
25,000
87,500
125,000
25,000
25,000
25,000
–
2022
Remaining
time to
exercise
0.76 years
1.32 years
3.86 years
4.21 years
4.87 years
5.42 years
–
Number
exercisable
25,000
87,500
93,750
12,500
12,500
6,250
–
232,500
312,500
237,500
Pollard Banknote Limited
Notes to Consolidated Financial Statements (continued)
(In thousands of Canadian dollars, except for share amounts)
Years ended December 31, 2023 and 2022
16. Commitments and contingencies:
The following table outlines Pollard’s maturity analysis of the undiscounted cash flow commitments
outstanding relating to certain financial liabilities and leases to which Pollard has applied the
recognition exemption available under IFRS 16 Leases as of December 31, 2023:
2024
2025
2026
2027
2028 and thereafter
$
7,698
5,927
5,131
4,480
2,894
Pollard is contingently liable for outstanding letters of guarantee in the amount of $14,799 at
December 31, 2023 (2022 – $13,637). These letters of guarantee are secured as disclosed in note
13.
Pollard is involved in litigation and claims associated with operations, the aggregate amounts of which
are not determinable. While it is not possible to estimate the outcome of the proceedings,
management is of the opinion that any resulting settlements would not materially affect the financial
position of Pollard. Should a loss occur on resolution of these claims, such loss would be accounted
for as a charge to income in the period in which the settlement occurs.
Pollard has agreed to indemnify Pollard’s current and former directors and officers from and against
liability and costs in respect of any action or suit against them in connection with the execution of
their duties of office, subject to certain usual limitations. No claims with respect to such occurrences
have been made and, as such, no amount has been recorded in these financial statements with
respect to these indemnifications.
Pollard Banknote Limited
Notes to Consolidated Financial Statements (continued)
(In thousands of Canadian dollars, except for share amounts)
Years ended December 31, 2023 and 2022
17. Revenue and contract balances:
In the following tables, revenue from contracts with customers is disaggregated by geographical
segment and product line:
Revenue – geographical segment
Canada
United States
International
Total
Revenue – product lines
Lottery
Charitable
eGaming systems
Total
2023
90,553 $
325,409
104,479
2022
87,716
305,012
90,993
520,441 $
483,721
2023
395,952 $
69,322
55,167
2022
369,584
66,512
47,625
520,441 $
483,721
$
$
$
$
The following tables provide information about receivables, contract assets and contract liabilities
from contracts with customers:
Contract balances
December 31,
2023
December 31,
2022
Trade receivables, which are included in accounts
receivable
$
64,146
$
71,570
Contract assets, which are included in accounts
receivable
Contract liabilities
7,159
4,253
4,994
2,159
Pollard Banknote Limited
Notes to Consolidated Financial Statements (continued)
(In thousands of Canadian dollars, except for share amounts)
Years ended December 31, 2023 and 2022
17. Revenue and contract balances (continued):
Contract liabilities
Balance, beginning of year
Increases due to cash received
Revenue recognized
Effect of movement in exchange rates
Balance, end of year
Less: current portion
18. Other (income) expenses:
Contingent consideration fair value adjustment
Net insurance proceeds
Other income
19. Finance costs and finance income:
Finance costs
Interest
Foreign exchange loss
Finance income
Foreign exchange gain
Year ended
December 31,
2023
Year ended
December 31,
2022
$
2,159
6,997
(4,917)
14
4,253
(3,372)
2,242
6,074
(6,145)
(12)
2,159
(1,738)
881
$
421
2023
440
(242)
(316)
$
2022
4,559
–
(462)
(118)
$
4,097
2023
10,517
2,887
$
2022
8,259
7,320
13,404
$
15,579
2023
4,930
4,930
$
$
2022
3,600
3,600
$
$
$
$
$
$
$
$
Pollard Banknote Limited
Notes to Consolidated Financial Statements (continued)
(In thousands of Canadian dollars, except for share amounts)
Years ended December 31, 2023 and 2022
20. Net income per share:
2023
2022
Net income attributable to shareholders
$
31,418
$
19,277
Weighted average number of shares – basic
Weighted average impact of share options
26,937,727
475,408
26,917,669
312,500
Weighted average number of shares – diluted
27,413,135
27,230,169
Net income per share – basic
Net income per share – diluted
21. Personnel expenses:
Wages and salaries
Benefits and government payroll remittances
Profit share
Expenses related to defined benefit pension plans
Expenses related to defined contribution pension
plans
Share based compensation
22. Supplementary cash flow information:
Change in non-cash operating working capital:
Accounts receivable
Inventories
Prepaid expenses and deposits
Income taxes receivable (payable)
Accounts payable and accrued liabilities
Current portion contract liabilities
$
$
$
1.17
1.15
$
$
0.72
0.71
$
2023
167,341
29,640
5,560
5,074
1,273
1,155
2022
151,519
25,345
4,755
8,352
1,101
398
$
210,043
$
191,470
2023
2022
$
(343) $
1,142
(1,811)
28
9,029
1,620
(3,250)
(15,691)
505
(1,016)
4,529
(492)
$
9,665
$
(15,415)
Pollard Banknote Limited
Notes to Consolidated Financial Statements (continued)
(In thousands of Canadian dollars, except for share amounts)
Years ended December 31, 2023 and 2022
23. Related party transactions:
The Control Group and affiliates
During 2019, Pollard entered into a lease with an affiliate of the Control Group for land and building
in Council Bluffs, Iowa. The lease covers the period from January 2019 to December 2023. The
annual base rental rate is approximately US$375, which was based on the current market value at
the time of the lease as determined through an independent appraisal. The lease includes a five year
extension option which has been exercised. Terms, including annual rent amount, are being finalized.
During 2021, Pollard entered into a lease with an affiliate of the Control Group for land and building
in Winnipeg, Manitoba for a five year term (with an option to renew for an additional five year term)
for annual rent of $404 per year. The rental rates charged were based on current market value at
the time of the leases as determined through an independent appraisal.
During 2023, Pollard entered into a lease with an affiliate of the Control Group for a manufacturing
facility and office space in Winnipeg, Manitoba for a five year term (with an option to extend for an
additional five year term) for annual rent of $1,116. The rental rates charged were based on current
market value at the time of the leases as determined through an independent appraisal.
During the year ended December 31, 2023, Pollard paid property rent of $3,035 (2022 – $3,319) and
$473 (2022 – $227) in plane charter costs to affiliates of the Control Group.
During the year, the Control Group paid Pollard $72 (2022 – $72) for accounting and administration
fees.
At December 31, 2023, included in accounts payable and accrued liabilities is an amount owing to
the Control Group and its affiliates for rent, expenses and other items of $117 (2022 – $505).
Included within property, plant and equipment and lease liabilities on the consolidated statement of
financial position are right-of-use assets and corresponding liabilities for premises leased to Pollard
from the Control Group. As at December 31, 2023, the net book value of the right-of-use assets was
$5,472 (2022 – $3,545) and the present value of the lease liabilities was $5,501 (2022 – $3,681).
NeoGames US, LLP and affiliates
During the year ended December 31, 2023, Pollard reimbursed operating costs and paid software
royalties of $16,651 (2022 – $13,798) to its iLottery partner, which are recorded in cost of sales and
equity investment income.
Pollard Banknote Limited
Notes to Consolidated Financial Statements (continued)
(In thousands of Canadian dollars, except for share amounts)
Years ended December 31, 2023 and 2022
23. Related party transactions (continued):
At December 31, 2023, included in accounts payable and accrued liabilities is a net amount owing to
Pollard’s iLottery partner of $4,436 (2022 – $3,097) for its share of profits and reimbursement of
operating costs, net of capital investments.
At December 31, 2023, included in restricted cash and accounts payable and accrued liabilities is an
amount owing to Pollard’s iLottery partner of $5,079 (2022 – $5,112) for funds relating to contractual
performance guarantees.
Key management personnel
Key management personnel are those having authority and responsibility for planning, directing and
controlling the activities of the company. The Board of Directors and the Executive Committee are
considered key management personnel.
Key management personnel compensation comprised:
Salaries, incentives and benefits
Share based compensation
Expenses related to defined benefit pension plans
2023
5,425
1,155
654
$
7,234
$
2022
4,362
398
828
5,588
$
$
As at December 31, 2023, key management personnel of Pollard, as a group, beneficially owned or
exercised control or direction over 17,362,588 common shares of Pollard.
24. Sales to major customers:
For the year ended December 31, 2023, sales to one customer amounted to 12.9 percent of
consolidated sales. In 2022, sales to one customer amounted to 13.5 percent of consolidated sales.
25. Segmented information:
Pollard has one reportable segment, which comprises its four operating segments, Lotteries,
Charitable gaming, eGaming systems and Retail. These operating segments have been aggregated
together as they have similar economic characteristics, including similar customers and distribution
methods. All operate in the highly regulated lottery and gaming industry.
Pollard’s Co–CEO’s review internal management reports of the combined reportable segment on a
monthly basis.
Pollard Banknote Limited
Notes to Consolidated Financial Statements (continued)
(In thousands of Canadian dollars, except for share amounts)
Years ended December 31, 2023 and 2022
25. Segmented information (continued):
The following table provides information on the property, plant and equipment, intangibles and
goodwill by geographical location:
Property, plant and equipment, intangibles and
goodwill:
Canada
United States
International
26. Financial instruments:
December 31,
2023
December 31,
2022
$
$
$
104,485
130,647
80,311
96,011
141,948
73,279
315,443
$
311,238
The fair value of a financial instrument is the estimated amount that Pollard would receive or pay to
terminate the instrument agreement at the reporting date.
The following methods and assumptions were used to estimate the fair value of each type of financial
instrument by reference to various market value data and other valuation techniques as appropriate.
The fair values of accounts receivable, accounts payable and accrued liabilities and dividends payable
approximate their carrying values given their short-term maturities.
The fair value of the long-term debt approximates the carrying value due to the variable interest rate
of the debt.
The fair value of the other non-current liabilities approximates the carrying value based on the
expected settlement amount of these liabilities.
Certain financial instruments recorded at fair value on the statements of financial position are
classified using a fair value hierarchy that reflects the significance of the inputs used in making the
measurements. The fair value hierarchy has the following levels:
Level 1 – valuation based on the quoted prices observed in active markets for identical assets or
liabilities
Pollard Banknote Limited
Notes to Consolidated Financial Statements (continued)
(In thousands of Canadian dollars, except for share amounts)
Years ended December 31, 2023 and 2022
26. Financial instruments (continued):
Level 2 – valuation techniques based on inputs that are quoted prices of similar instruments in
active markets; quoted prices for identical or similar instruments in markets that are not active;
other than quoted prices used in a valuation model that are observable for that instrument; and
inputs that are derived principally from or corroborated by observable market data by correlation
or other means
Level 3 – valuation techniques with significant unobservable market inputs
A financial instrument is classified to the lowest level of the hierarchy for which a significant input
has been considered in measuring fair value.
As at December 31, 2023, the cash and restricted cash recorded at fair value was classified as level
one of the fair value hierarchy and the contingent consideration liability recorded at fair value was
classified as level three of the fair value hierarchy. The fair value of the contingent consideration
liability is calculated as the present value of the expected future payments, discounted using a risk-
adjusted discount rate. A change to the expected future payments or discount rate would impact the
fair value of the contingent consideration.
27. Financial risk management:
Pollard has exposure to the following risks from its use of financial instruments:
Credit risk
Liquidity risk
Currency risk
Interest rate risk
Pollard’s risk management policies are established to identify and analyze the risks, to set appropriate
risk limits and controls and to monitor risks and adherence to limits. The Audit Committee oversees
how management monitors compliance with Pollard’s risk management policies and procedures. The
Audit Committee is assisted in its oversight role by Internal Audit, who undertakes regular reviews
of risk management controls and utilizes the annual risk assessment process as the basis for the
annual internal audit plan.
Pollard Banknote Limited
Notes to Consolidated Financial Statements (continued)
(In thousands of Canadian dollars, except for share amounts)
Years ended December 31, 2023 and 2022
27. Financial risk management (continued):
Credit risk
The following table outlines the details of the aging of Pollard’s receivables and the related allowance
for losses:
Current
Past due for 1 to 60 days
Past due for more than 60 days
Less: allowance for losses
December 31,
2023
December 31,
2022
$
$
$
76,956
4,437
1,889
(447)
82,835
$
79,996
2,715
1,947
(411)
84,247
Pollard has applied the expected credit loss model in evaluating the credit risk associated with its
accounts receivable. As part of this analysis, Pollard has grouped its customers into two tranches:
government lottery organizations and charitable gaming distribution networks. For sales to
government lottery organizations, Pollard has assessed the loss allowance at zero based on the
nature of the customer organizations, and no history of losses, collection issues, or significantly
overdue receivables, as well as other customer-specific and forward-looking macroeconomic factors.
Pollard has performed the same assessment for charitable gaming distribution network customers,
resulting in the provision of a loss allowance, as shown in the table above.
Liquidity risk
Liquidity risk is the risk that Pollard will not be able to meet its financial obligations as they fall due.
The following table outlines Pollard’s maturity analysis of the undiscounted cash flows, including
related interest payments, of certain financial liabilities and leases as of December 31, 2023:
Total
2024
2025
2026
2027
2028 &
thereafter
Long-term debt
Leases
$
$
136,472
19,933
8,264
5,502
128,208
4,735
–
3,849
–
2,901
–
2,946
156,405
13,766
132,943
3,849
2,901
2,946
Pollard Banknote Limited
Notes to Consolidated Financial Statements (continued)
(In thousands of Canadian dollars, except for share amounts)
Years ended December 31, 2023 and 2022
27. Financial risk management (continued):
Pollard’s approach is to ensure, as far as possible, that it will always have sufficient liquidity to meet
its liabilities when due. The estimated 2024 requirements for capital expenditures, working capital
and dividends are expected to be financed from cash flow provided by operating activities and the
unused portion of Pollard’s credit facility. Pollard enters into contractual obligations in the normal
course of business operations.
Currency risk
Pollard sells a significant portion of its products and services to customers in the United States and
to some international customers where sales are denominated in U.S. dollars. In addition, a significant
portion of its cost inputs are denominated in U.S. dollars. Pollard also generates revenue in currencies
other than the Canadian and U.S. dollar, primarily in Euros.
Translation differences arise when foreign currency monetary assets and liabilities are translated at
foreign exchange rates that change over time. As at December 31, 2023, the amount of financial
liabilities denominated in U.S. dollars exceeded the amount of financial assets denominated in U.S.
dollars by approximately $86,141 (2022 – $71,930). A 50 basis point weakening/strengthening in the
value of the Canadian dollar relative to the U.S. dollar would result in a decrease/increase in income
before taxes of approximately $431 for the year ended December 31, 2023 (2022 – $360).
Pollard utilizes a number of strategies to mitigate its exposure to currency risk. Five manufacturing
facilities are located in the U.S. and a significant amount of cost inputs for all production facilities are
denominated in U.S. dollars, offsetting a large portion of the U.S. dollar revenue in a natural hedge.
Pollard also uses financial hedges, including foreign currency contracts, to help manage foreign
currency risk. At December 31, 2023, and at December 31, 2022, Pollard had no outstanding foreign
currency contracts.
Interest rate risk
Pollard is exposed to interest rate risk relating to its fixed and floating rate instruments. Fluctuation
in interest rates will have an effect on the valuation and repayment of these instruments.
A 50 basis point decrease/increase in interest rates would result in an increase/decrease in income
before income taxes of approximately $600 for the year ended December 31, 2023 (2022 – $610).
Inside Front Page
Inside Back Page
Inside Pages
Investor
Relations
Robert Rose
140 Otter Street
t: 204-474-2323
e: winnipeg@pollardbanknote.com
Stock
Exchange Listing
The Toronto Stock Exchange - PBL
Independent
Auditors
KPMG LLP,
Winnipeg, Manitoba
Transfer
Agent
Computershare Trust Company of Canada,
Toronto, Ontario
Toronto-Dominion Bank,
Winnipeg, Manitoba
Bank of Montreal,
Calgary, Alberta
Bankers
Canadian Western Bank,
Edmonton, Alberta
The Board
of Directors
of Pollard
Banknote
Limited
Gordon Pollard EXECUTIVE CHAIR
Dave Brown 1
Lee Meagher1
Carmele Peter1
John Pollard
Douglas Pollard
Letter to Shareholders
Board of Directors
Management's Discussion and Analysis
Pollard Banknote Limited
Consolidated Financial Statements
of Pollard Banknote Limited
CONTENTS
Corporate Information
1 Member of the Audit Committee, Compensation Committee
and the Governance and Nominating Committee
Head Office
John Pollard
CO-CHIEF EXECUTIVE OFFICER
Douglas Pollard
CO-CHIEF EXECUTIVE OFFICER
Steven Fingold
EXECUTIVE VICE PRESIDENT, CHARITABLE GAMING
Paul Franzmann
EXECUTIVE VICE PRESIDENT, CORPORATE DEVELOPMENT
Pedro Melo
EXECUTIVE VICE PRESIDENT, INFORMATION TECHNOLOGY
Margaret Proven
EXECUTIVE VICE PRESIDENT, HUMAN RESOURCES
Riva Richard
GENERAL COUNSEL AND EXECUTIVE VICE PRESIDENT,
LEGAL AFFAIRS
Robert Rose
EXECUTIVE VICE PRESIDENT, FINANCE AND CHIEF
FINANCIAL OFFICER
Jennifer Westbury
EXECUTIVE VICE PRESIDENT, SALES AND CUSTOMER
DEVELOPMENT
Robert Young
EXECUTIVE VICE PRESIDENT, OPERATIONS
Manufacturing
Facilities
Senior
Management
140 Otter Street
Winnipeg, Manitoba, R3T 0M8
t: 204-474-2323
f: 204-453-1375
Winnipeg, Manitoba, Canada
1499 Buffalo Place, R3T 1L7
140 Otter Street, R3T 0M8
Barrhead, Alberta, Canada
6203 46th Street, T7N 1A1
Sault Ste. Marie, Ontario, Canada
300-45 White Oak Drive East, P6B 4J7
Ypsilanti, Michigan, USA
775 James L. Hart Parkway, 48197
Council Bluffs, Iowa, USA
504 34th Avenue, 51501
Chatsworth, California, USA
9340 Penfield Avenue, 91311
Adair, Iowa, USA
1000 Flag Road, 50002
Omaha, Nebraska, USA
9335 48th Street, 68152
Macclesfield, U.K.
Calamine Street, SK11 7HU
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2 0 2 3 A N N U A L R E P O R T
140 Otter Street
Winnipeg, Manitoba R3T 0M8
(204) 474 - 2323
www.pollardbanknote.com
2 0 2 3 A N N U A L R E P O R T