K Bro Linen : Q1 2020

www.k-brolinen.com|[e-mail]

MANAGEMENT'S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following Management's Discussion and Analysis ("MD&A") is supplemental to, and should be read in conjunction with, the unaudited interim Condensed Consolidated Financial Statements of K-Bro Linen Inc. ("the Corporation") for the three months ended March 31, 2020 and the audited Consolidated Financial Statements, as well as the MD&A, for the year ended December 31, 2019. The Corporation and its wholly-owned subsidiaries, including K-Bro Linen Systems Inc., are collectively referred to as "K-Bro" in this MD&A.

Management is responsible for the information contained in this MD&A and its consistency with information presented to the Audit Committee and Board of Directors. All information in this document has been reviewed and approved by the Audit Committee and Board of Directors. This review was performed by management with information available as of May 7, 2020.

In the interest of providing current holders ("Shareholders") of common shares of K-Bro Linen Inc. and potential investors with information regarding current results and future prospects, our public communications often include written or verbal forward-looking statements. Forward-looking statements are disclosures regarding possible events, conditions, or results of operations that are based on assumptions about future economic conditions and courses of action, and include future-oriented financial information.

This MD&A contains forward-looking information that represents internal expectations, estimates or beliefs concerning, among other things, future activities or future operating results and various components thereof. The use of any of the words "anticipate", "continue", "expect", "may", "will", "project", "should", "believe", and similar expressions suggesting future outcomes or events are intended to identify forward-looking information. Statements regarding such forward-looking information reflect management's current beliefs and are based on information currently available to management.

These statements are not guarantees of future performance and are based on management's estimates and assumptions that are subject to risks and uncertainties, which could cause K-Bro's actual performance and financial results in future periods to differ materially from the forward-looking information contained in this MD&A. These risks and uncertainties include, among other things: (i) risks associated with acquisitions, including the possibility of undisclosed material liabilities; (ii) K-Bro's competitive environment; (iii) utility costs, minimum wage legislation and labour costs; (iv) K-Bro's dependence on long-term contracts with the associated renewal risk; (v) increased capital expenditure requirements; (vi) reliance on key personnel; (vii) changing trends in government outsourcing; (viii) changes or proposed changes to minimum wage laws in Ontario, British Columbia, Alberta, Quebec, Saskatchewan and the United Kingdom (the "UK"); (ix) the availability of future financing; (x) textile demand; (xi) the adverse impact of the COVID-19 pandemic on the Corporation, which has been significant to date and which we believe will continue to be significant for the near-to- medium term; and (xii) foreign currency risk. Material factors or assumptions that were applied in drawing a conclusion or making an estimate set out in the forward-looking information include: (i) volumes and pricing assumptions; (ii) expected impact of labour cost initiatives; (iii) frequency of one-time costs impacting quarterly and annual financial results; (iv) foreign exchange rates; and (v) the level of capital expenditures. Although the forward-looking information contained in this MD&A is based upon what management believes are reasonable assumptions, there can be no assurance that actual results will be consistent with these forward-looking statements. Certain statements regarding forward-looking information included in this MD&A may be considered "financial outlook" for purposes of applicable securities laws, and such financial outlook may not be appropriate for purposes other than this MD&A. Forward looking information included in this MD&A includes the expected annual healthcare revenues to be generated from the Corporation's contracts with new customers, the anticipated capital costs for the Corporation's Toronto and Vancouver facilities, calculation of costs, including one-time costs impacting the quarterly financial results, anticipated future capital spending and statements with respect to future expectations on margins and volume growth, as well as statements related to the impact of the COVID-19 pandemic on the Corporation.

All forward-looking information in this MD&A is qualified by these cautionary statements. Forward-looking information in this MD&A is presented only as of the date made. Except as required by law, K-Bro does not undertake any obligation to publicly revise these forward-looking statements to reflect subsequent events or circumstances.

This MD&A also makes reference to certain measures in this document that do not have any standardized meaning as prescribed by IFRS and, therefore, are considered non-GAAP measures. These measures may not be comparable to similar measures presented by other issuers. Please see "Terminology" for further discussion.

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TABLE OF CONTENTS

Introduction	2	Dividends	15	Adoption of New Accounting	21
				Standards
Selected Quarterly Financial Info	4	Distributable Cash Flow	17	Critical Risks and Uncertainties	22
Summary of Results and Key Events	4	Outstanding Shares	18	Controls and Procedures	22
Outlook	5	Related Party Transaction	18
Results of Operations	8	Critical Accounting Estimates	18
Liquidity and Capital Resources	14	Terminology	19

INTRODUCTION

Core Business

The Corporation is the largest owner and operator of laundry and linen processing facilities in Canada and a market leader for laundry and textile rental services in Scotland and the North East of England. K-Bro and its wholly owned subsidiaries operate across Canada and the UK, providing a range of linen services to healthcare institutions, hotels and other commercial accounts that include the processing, management and distribution of general linen and operating room linen.

The Corporation's operations in Canada include nine processing facilities and two distribution centres under three distinctive brands: K-Bro Linen Systems Inc., Buanderie HMR and Les Buanderies Dextraze. The Corporation operates in ten Canadian cities: Québec City, Montréal, Toronto, Regina, Saskatoon, Prince Albert, Edmonton, Calgary, Vancouver and Victoria.

The Corporation's operations in the UK include Fishers Topco Ltd. ("Fishers"), which was acquired by K-Bro on November 27, 2017. Fishers was established in 1900 and is a leading operator of laundry and linen processing facilities in Scotland, providing linen rental, workwear hire and cleanroom garment services to the hospitality, healthcare, manufacturing and pharmaceutical sectors. The Corporation operates six UK sites located in Cupar, Perth, Newcastle, Livingston and Coatbridge.

Industry and Market

In Canada, K Bro provides laundry and linen services to healthcare, hospitality and other commercial customers. Typical services offered by K Bro include the processing, management and distribution of general and operating room linens, including sheets, blankets, towels, surgical gowns and drapes and other linen. Other types of processors in K Bro's industry include independent privately-owned facilities (i.e., typically small, single facility companies), public sector central laundries and public and private sector on premise laundries (known as "OPLs"). Participants in other sectors of the Canadian laundry and linen services industry, such as uniform rental companies (which own and launder uniforms worn by their customers' employees) typically do not offer services that significantly overlap with those offered by K Bro.

In the UK, Fishers provides laundry and linen services to healthcare, hospitality and other commercial customers. Typical services offered by Fishers include the processing, management and distribution of general linen, workwear and clean room garment services. Other types of processors in Fishers' industry in the UK include publicly traded companies, independent privately-owned facilities (i.e., typically, small single facility companies), public sector central laundries and public and private sector OPLs.

Our partnerships with healthcare institutions and hospitality clients across Canada and the UK

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demonstrate K-Bro's commitment to building relationships that foster continuous improvement, providing flexibility to adjust to changing circumstances as required and which incorporate incentives, penalties and the sharing of risks and rewards as circumstances warrant.

In this competitive industry, K-Bro is distinctive in its ability to deliver products and services that provide value to our customers. Management believes that the healthcare and hospitality sectors of the laundry and linen services industry represent a stable base of annual recurring business with opportunities for growth as additional healthcare beds and funds are made available to meet the needs of an aging demographic.

Industry Characteristics and Trends

Management believes that the industry in which K-Bro operates has historically exhibited the following characteristics and trends:

Stable Industry with Moderate Cyclicality -As evidenced by the stability in the number of approved hospital beds in the healthcare system and hotel rooms in the hospitality industry. The potential for step-changes in volumes and revenues that align with contractual arrangements exists within this industry. Service relationships are generally formalized through contracts in the healthcare sector that are typically long term (from five to ten years), while contracts in the hospitality sector usually range from two to five years. We note that the ongoing COVID-19 pandemic has introduced atypical instability in both the healthcare and the hospitality sectors which is inconsistent with the historical characteristics of and trends in K-Bro's industry. The continued spread of COVID-19 throughout Canada and the UK, at least in the short-term, is expected to have a significant negative impact on the Corporation's business.

Outsourcing and Privatization- In Canada, healthcare institutions and regional authorities are facing funding pressures and must continually evaluate the allocation of scarce resources. Consequently, there are often advantages to healthcare institutions in outsourcing the processing of healthcare linen to private sector laundry companies such as K-Bro because of the economies of scale and significant management expertise that can be provided on a more comprehensive and cost-effective basis than customers can achieve in operating their own laundry facilities.

Fragmentation- Most cities have at least one and sometimes several private sector competitors operating in the healthcare and hospitality sectors of the laundry and linen services industry. Management believes that the presence of these operators provides consolidation opportunities for larger industry participants with the financial means to complete acquisitions.

Customers and Product Mix

K-Bro's Canadian customers include some of the largest healthcare institutions and hospitality providers in Canada. In the UK, Fishers' customers include some of the largest hotel chains operating in Scotland. Healthcare customers include acute care hospitals and long-term care facilities, primarily in Canada. Most of K-Bro's hospitality customers (typically greater than 250 rooms) have historically generated between 0.5 million and 3 million pounds of linen per year. Most healthcare customers have historically generated between 0.5 million pounds of linen per year for a hospital and up to approximately 40 million pounds of linen per year for a Canadian healthcare region. We note that the ongoing COVID-19 pandemic has introduced atypical instability in both the healthcare and the hospitality sectors which is inconsistent with such historical linen generation trends. As COVID-19 continues to spread throughout Canada and the UK, at least in the short term, we expect significant reductions in linen volume generation by our customers in the hospitality segment, primarily as a result of decreased willingness and ability of the general population to travel to and within Canada and the UK during the course of the

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outbreak. In addition, as hospitals have prepared for potential surges in COVID-19-related occupancy, we have seen a decline in healthcare volumes as a result of cancelled elective surgeries and decreased occupancy rates.

SELECTED QUARTERLY FINANCIAL INFORMATION

(In reporting currency $ Canadian)

									Three Months Ended March 31,
	Canadian		UK				Canadian		UK			Canadian		UK
		Division		Division					Division		Division				Division		Division
(thousands, except percentages and per share amounts)		2020		2020		2020 (5)			2019		2019		2019 (4)		2018		2018		2018
Revenue					$	57,275						$	57,783	$	43,292	$	12,092	$	55,384
$	43,711	$	13,564		$	44,533	$	13,250
EBITDA (1)						3,743							9,115		5,518		682		6,200
	2,794		949				7,384		1,731
Adjusted EBITDA without adoption of IFRS 16 (2)		6,848		261		7,109			5,960		843		6,803		5,518		682		6,200
Net earnings (loss)		(2,472)		(936)		(3,408)			731		(236)		495		1,048		(401)		647
Adjusted net earnings (loss) without adoption of IFRS 16(3)		1,863		(878)		985			787		(229)		558		1,048		(401)		647
Net earnings (loss) per share:
Basic	$	(0.235)	$	(0.089)	$	(0.323)	$	0.070	$	(0.022)	$	0.047	$	0.100	$	(0.038)	$	0.062
Diluted	$	(0.233)	$	(0.088)	$	(0.322)	$	0.069	$	(0.022)	$	0.047	$	0.100	$	(0.038)	$	0.062
Adjusted net earnings (loss) without adoption of IFRS 16 per share:
Basic	$	0.177	$	(0.083)	$	0.093	$	0.075	$	(0.022)	$	0.053	$	0.100	$	(0.038)	$	0.062
Diluted	$	0.176	$	(0.083)	$	0.093	$	0.075	$	(0.022)	$	0.053	$	0.100	$	(0.038)	$	0.062
Total assets					$	336,127						$	360,563					$	312,193
Long-term debt						54,693						$	67,444						56,356
Weighted average number of shares outstanding:
Basic					10,539,458						10,496,590						10,453,623
Diluted					10,590,526							10,545,970						10,491,425

1. EBITDA is defined as revenue less operating expenses (which equates to net earnings before income tax, finance expense (recovery) and depreciation and amortization). See "Terminology".
2. Adjusted EBITDA without adoption of IFRS 16 (as defined below) is defined as EBITDA (defined above) with the exclusion of IFRS 16, and certain material items that are unusual in nature, infrequently occurring or not considered part of our core operations. See "Terminology" for a complete description of the adjusted items.
3. Adjusted net earnings without adoption of IFRS 16 is defined as net earnings with the exclusion of IFRS 16, and certain material items that are unusual in nature, infrequently occurring or not considered part of our core operations. See "Terminology" for a complete description of the adjusted items.
4. Effective January 1, 2019, the Corporation has adopted IFRS 16 Leases ("IFRS 16") using the modified retrospective method but has not restated comparatives for the prior periods, as permitted under the specific transitional provisions of IFRS 16. To enable the comparability of previous periods, the Corporation has provided the 2020 and 2019 figures for both EBITDA and net earnings without adoption of IFRS 16 as separate line items.
5. Q1 2020 includes an adjustment of $5.5 million for an impairment related charge to the Canadian Division, and is excluded in adjusted EBITDA and adjusted net earnings (loss).

SUMMARY OF INTERIM RESULTS, AND KEY EVENTS

Financial Growth

Net loss for the first quarter was $3.4 million or $0.32 per share (basic). Cash generated by operating activities for the quarter was $11.6 million and distributable cash flow was $6.1 million. Revenue decreased in the first quarter of 2020 to $57.3 million or by 0.9% compared to 2019. This decrease was primarily related to the reduction in hospitality revenue resulting from the COVID-19 pandemic, partially offset by the acquisition of an Aberdeen laundry, organic growth at existing customers and new customers secured in existing markets. Revenue remained strong until the last three weeks of the quarter with year-over-year revenue increasing 5.2% for the first two months of 2020. However, as of March 11, 2020 (the day on which the World Health Organization declaration the COVID-19 outbreak to be a pandemic) COVID-19 began to have an immediate effect on the Corporation, with many of the Corporation's hospitality customers experiencing significantly reduced occupancies or closures. As a result, for the month of March, consolidated revenue decreased by 11.5% compared to the same period in 2019.

EBITDA (see "Terminology") decreased in the first quarter to $3.7 million from $9.1 million in 2019, which is a decrease of 58.9%. This was substantially a result of an impairment to assets recorded for

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the Corporation's smaller Canadian hospitality plants, which were significantly impacted by the COVID- 19 pandemic. On a consolidated basis, the Corporation's EBITDA margin decreased from 15.8% in 2019 to 6.5% in 2020. For the Canadian division, EBITDA margin decreased to 6.4% from 16.6% for the comparative quarter of 2020. For the UK division, EBITDA margin decreased to 7.0% from 13.1% for the comparative quarter of 2020. The changes in EBITDA and EBITDA margin relate primarily to effects of COVID-19 and the impairment of assets of $5.5 million due to certain cash generating units ("CGUs") within the Canadian division. On a consolidated basis, EBITDA without the adoption of IFRS 16 and the impairment of assets in the first quarter was $7.1 million compared to $6.8 million in the comparative period of 2019. Consolidated Adjusted EBITDA margin was 12.4% in the first quarter 2020 compared to 11.8% in the comparative period of 2019. On a consolidated basis, Adjusted EBITDA without the adoption of IFRS 16 and the impairment of assets for the first two months of 2020 increased $1.8 million compared to the comparative period of 2019. Consolidated Adjusted EBITDA margin was 12.7% for the first two months of 2020 compared to 8.5% in the comparative period of 2019.

Near-Term and Long-Term Growth and Margin Impact

In 2019, management completed its strategy in its Toronto and Vancouver markets that it believes will position K-Bro for long-term growth in its healthcare and hospitality businesses. The strategy included capital investments to build large, efficient, state-of-the-art facilities with meaningful additional capacity in Toronto and Vancouver. In addition, K-Bro has made investments to upgrade one of its existing Vancouver plants to create a more efficient facility with meaningful additional capacity.

The construction and/or upgrade of three of our large facilities enables us to bid on a significant amount of additional business, but created margin pressure through 2017, 2018 and Q1 2019 as K-Bro incurred significant one-time and transition costs associated with these large investments. Management believes that the one-time and transition costs incurred will position K-Bro to achieve more long-term growth and a lower cost structure in the future and that K-Bro will ultimately return to normalized margins upon resolution of the COVID-19 pandemic, as more specifically discussed below.

As disclosed above, the continued spread of COVID-19 throughout Canada and the UK, at least in the short-term, is expected to have a significant negative impact on the amount of volume processed by the Corporation. Management believes that, depending on the duration of the pandemic, the Corporation's capital investments in Vancouver and Toronto could position us to profitably grow our business as, for example, hotel occupancy rates rebound upon resolution of the public health crisis.

Key events in our markets are summarized below.

Revolving Credit Facility

During 2019 K-Bro completed amendments to its existing $100 million revolving credit facility, which extended the agreement to July 31, 2022 and made changes to the definitions within the agreement to clarify that all financial covenants would be tested on a pre-IFRS 16 basis.

UK Acquisition

On July 19, 2019, the Corporation signed a share purchase agreement to acquire all the assets of a Scotland-incorporated private laundry and linen services company operating in Aberdeen. This acquisition closed in September 2019 for a total consideration of £775k plus a working capital adjustment. For accounting purposes, the transaction has been treated as an asset acquisition, whereby the net working capital was recorded at closing, and the customer contracts acquired have been recorded as an intangible asset for £883k representing the total purchase price of £775k and associated transaction costs of £88k.

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Capital Investment Plan

For fiscal 2020, K-Bro had previously anticipated capital spending to be approximately $5.0 million on a consolidated basis. However, in light of the current public health crisis, the Corporation's planned capital spending for fiscal 2020 is expected to be approximately $3.0 million, as a result of the deferral of the Corporation's plan to implement an enterprise-wide operating system. This guidance includes both strategic and maintenance capital requirements to support existing base business in both Canada and the UK.

Alberta Contract Award

On March 1, 2020, the Corporation was awarded a one-year extension to provide laundry and linen services to Alberta Health Services Calgary. The contract extends the existing relationship between the Corporation and Alberta Health Services Calgary.

Loss of Whitbread Group Contract

Subsequent to the 2019 fiscal year, the Corporation was unsuccessful in renewing its UK contract with the Whitbread Group. The associated volume will be phased out of the relevant plant over the first two quarters of 2020. For the year ended December 31, 2019, this contract accounted for approximately 14% of Fishers' overall revenue.

COVID-19 Pandemic

The ongoing COVID-19 pandemic has caused world governments to institute travel restrictions both in and out of and within Canada and the UK, which has had, and is expected to continue to have, a significant adverse impact on the Corporation's hospitality business, the duration of which we are unable to predict with any degree of accuracy. Since mid-March, we have seen significantly reduced hotel occupancy rates compared to historical levels. Demand for both business and leisure airline travel has declined significantly on a global basis, and airlines are responding by cancelling international and domestic flights. Accordingly, hospitality volumes in all of our Canadian and UK markets have slowed to historically low levels. In addition to this, more recently we have seen decreases in our healthcare business as a result of hospitals and health authorities taking measures to prepare for anticipated surges in COVID-19-related occupancy (i.e., cancellation of elective surgeries). Consolidated revenue for April 2020 decreased by approximately 45% with a decrease in consolidated healthcare revenue of approximately 10% and a decrease in consolidated hospitality revenue of approximately 90% compared to the same period last year with both the Canadian and UK divisions seeing hospitality revenues drop by the same percentages.

Although the Corporation has developed and implemented measures to mitigate the effects of the COVID-19 pandemic, including consolidating operations, reducing headcount, reducing non critical capital expenditures and accessing available government assistance programs, earnings will continue to be particularly affected if we continue to experience reductions in travel and reduced hospitality and healthcare occupancy rates. The extent of such negative effects on our business and our financial and operational performance will depend on future developments, including the duration, spread and severity of the outbreak, the duration and geographic scope of related travel advisories and restrictions and the extent of the impact of the COVID-19 pandemic on overall demand for personal and business travel, all of which are highly uncertain and cannot be predicted with any degree of accuracy. If hotels and hospitals continue to experience significantly reduced occupancy rates for an extended period, our 2020 consolidated results of operations will be significantly impacted. Additionally, our suppliers or other third parties we rely upon may experience delays or shortages, which could have an adverse effect on

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our business prospects and results of operations.

As an ongoing risk, the duration and full financial effect of the COVID-19 pandemic is unknown at this time, and continues to be offset through the Corporation's business continuity plan and other mitigating measures. Any estimate of the length and severity of these developments is therefore subject to significant uncertainty, and, accordingly, estimates of the extent to which the COVID-19 pandemic may materially and adversely affect the Corporation's operations, financial results and condition in future periods are also subject to significant uncertainty.

Therefore, uncertainty about judgments, estimates and assumptions made by management during the preparation of the Corporation's interim condensed consolidated financial statements related to potential impacts of the COVID-19 pandemic on revenue, expenses, assets, liabilities, and note disclosures could result in a material adjustment to the carrying value of the asset or liability affected.

Impairment of Assets

Management has assessed the impairment indicators that existed as at March 31, 2020 in certain CGUs. Specifically, we assessed five CGUs that rely primarily on hospitality revenues due to the significant impact that the COVID-19 pandemic has had on the hospitality industry. The recoverable amounts of these specific CGUs were recalculated using the value in use method by applying probability weightings to capture the increased risk and uncertainty arising from the COVID-19 pandemic.

Our probability-weighted approach has been evaluated based on an equally weighted probability of a one-year downturn in sales to the worst case of a two-year downturn in sales. The scenarios estimated a decline of 70% for year 1 and 50% for year 2, with sales returning to normalized levels thereafter with sales growth estimates used between 2% to 3%. An impairment loss of $5,516 was recognized for three CGUs in the Canadian division, of which $3,177 was allocated to goodwill and $2,339 was allocated to PP&E.

EBITDA before impairment and gain/loss on disposal of PP&E was $9,254 (2019 - $9,115).

						Total
		Allocated to		Allocated to		impairment		Recoverable
CGU		Goodwill		PP&E		recorded		Amount
Montreal	$	823	$	-	$	823	$	2,485
Quebec		654		2,339		2,993		1,917
Victoria		1,700		-		1,700		5,433
	$	3,177	$	2,339	$	5,516	$	9,835

The recoverable amounts in respect of the UK division and Vancouver 2 CGUs were estimated to be £67,234 and $24,008, respectively, as at March 31, 2020, which exceeded the carrying amount of both of the CGUs. No impairment was therefore required for either of these CGUs.

The key assumptions in calculating the recoverable amount of the five CGUs where impairment calculations were updated as at March 31, 2020 were as follows:

	March 31, 2020
Long-term growth rate %	2.0% to 3.0%
Pre-tax discount rate %	10.5% to 12.5%

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For Vancouver 2 and the UK division, in addition to the key assumptions noted above, management has also evaluated other reasonable changes in estimates and assumptions and did not identify any other instances as at March 31, 2020 that could cause the carrying amount of these CGUs to exceed the recoverable amount.

There were no other CGUs that were showing signs of impairment as at March 31, 2020 and as such we have not updated any of the other impairment calculations. The Corporation will continue to carefully monitor the situation as it pertains to COVID-19 and further consider if there are new or additional indicators that exist during fiscal 2020.

With the ongoing evolution of the COVID-19 pandemic, the length and severity of these developments is subject to significant uncertainty. Accordingly, new developments may materially and adversely affect assumptions used in the consideration of the impairment of assets, impact whether a CGU has been impaired and may change prior recorded impairment amounts.

OUTLOOK

While the COVID-19 pandemic will have a significant negative impact on our hospitality revenue, management believes the prospects for the Corporation's healthcare business remains strong in the medium-to-long-term. By providing integral laundry and linen processing services to the hospitality and healthcare sectors, the Corporation has been designated an "essential" service in the jurisdictions in which it operates, which has allowed the Corporation's facilities to remain open and continue "normal" operations. This has mitigated some of the more dramatic financial and operational impacts experienced by many other businesses in other industries. In addition, management believes that the financial flexibility provided by our strong balance sheet will enable us to operate without disruption to our business model while maintaining our ability to service the healthcare and hospitality sectors in our Canadian and UK markets. For further information about the impact of the COVID-19 pandemic on our business, see the "Summary of Interim Results, and Key Events".

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RESULTS OF OPERATIONS

Key Performance Drivers

K-Bro's key performance drivers focus on growth, profitability, stability and cost containment in order to maintain dividends and maximize Shareholder value in the long term. The following outlines our results on a period-to-period comparative basis in each of these areas:

			Canadian		UK		(6)		Canadian		UK		Q1(5)
(thousands, except percentages and per share amounts)		Division		Division		Q1		Division		Division
Category	Indicator		Q1 2020		Q1 2020		2020		Q1 2019		Q1 2019		2019
Growth	EBITDA(1)		-62.2%		-45.2%		-58.9%		33.8%		153.8%		47.0%
	Adjusted EBITDA without adoption of IFRS 16 (2)		14.9%		-69.0%		4.5%		8.0%		23.6%		9.7%
	Revenue		-1.8%		2.4%		-0.9%		2.9%		9.6%		4.3%
	Distributable cash flow (4)						8.0%						8.2%
Profitability	EBITDA (1)	$	2,794	$	949	$	3,743	$	7,384	$	1,731	$	9,115
	EBITDA margin		6.4%		7.0%		6.5%		16.6%		13.1%		15.8%
	Adjusted EBITDA without adoption of IFRS 16(2)	$	6,848	$	261	$	7,109	$	5,960	$	843	$	6,803
	Adjusted EBITDA margin without adoption of IFRS 16		15.7%		1.9%		12.4%		13.4%		6.4%		11.8%
	Net earnings	$	(2,472)	$	(936)	$	(3,408)	$	731	$	(236)	$	495
	Adjusted net earnings (loss) without adoption of IFRS 16(3)	$	1,863	$	(878)	$	985	$	787	$	(229)	$	558
Stability	Debt to total capital						22.3%						26.0%
	Unutilized line of credit					$	44,157					$	31,406
	Cash on hand					$	1,319					$	2,548
	Payout ratio						52.4%						56.3%
	Dividends declared per share					$	0.300					$	0.300
Cost containment	Wages and benefits		39.9%		38.7%		39.6%		41.3%		37.6%		40.5%
	Utilities		5.6%		8.3%		6.2%		6.9%		9.5%		7.5%
	Expenses included in EBITDA		93.6%		93.0%		93.5%		83.4%		86.9%		84.2%

1. EBITDA is defined as revenue less operating expenses (which equates to net earnings before income tax, finance expense (recovery) and depreciation and amortization). See "Terminology".
2. Adjusted EBITDA without adoption of IFRS 16 is defined as EBITDA (defined above) with the exclusion of IFRS 16, and certain material items that are unusual in nature, infrequently occurring or not considered part of our core operations. See "Terminology" for a complete description of the adjusted items.
3. Adjusted net earnings without adoption of IFRS 16 is defined as net earnings with the exclusion of IFRS 16, and certain material items that are unusual in nature, infrequently occurring or not considered part of our core operations. See "Terminology" for a complete description of the adjusted items.
4. Effective January 1, 2019, distributable cash flow includes the addition of principal elements of lease payments. This accounts for the change in accounting policies and the adoption of IFRS 16, where now the principal elements of lease payments flow through financing outflows opposed to operating cash flows.
5. Effective January 1, 2019, the Corporation has adopted IFRS 16 using the modified retrospective method but has not restated comparatives for the prior periods, as permitted under the specific transitional provisions of IFRS 16. To enable the comparability of previous periods, the Corporation has provided the 2020 and 2019 figures for both EBITDA and net earnings without adoption of IFRS 16 as separate line items.
6. Q1 2020 includes an adjustment of $5.5 million for an impairment related charge to the Canadian Division, and is excluded in adjusted EBITDA and adjusted net earnings (loss).

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Quarterly Financial Information - Consolidated

Historically, the Corporation's financial and operating results, particularly in respect of Fishers, are stronger in the second and third quarters as a result of seasonality and the associated higher hospitality volumes. Other fluctuations in net income from quarter-to-quarter can also be attributed to hiring and labour cost trends, timing of linen purchases, utility costs, timing of repairs and maintenance expenditures, business development, capital spending patterns and changes in corporate tax rates and income tax expenses.

The following table provides certain selected consolidated financial and operating data prepared by management for the preceding eight quarters:

Quarterly Financial Information - Consolidated	2020 (5)		2019 (4)			2018
(thousands, except percentages and per share amounts)	Q1	Q4	Q3	Q2	Q1	Q4	Q3	Q2
Healthcare revenue	35,048
35,482	34,710	34,729	34,103	34,469	33,378	33,868
Hospitality revenue	22,227	27,410	33,132	29,164	23,680	24,971	30,594	26,870
Total revenue	57,275
62,892	67,842	63,893	57,783	59,440	63,972	60,738
Expenses included in EBITDA	53,532	51,790	53,225	51,154	48,668	52,821	55,662	52,286
EBITDA(1)	3,743	11,102	14,617	12,739	9,115	6,619	8,310	8,452
EBITDA as a % of revenue (EBITDA margin)	6.5%	17.7%	21.5%	19.9%	15.8%	11.1%	13.0%	13.9%
Adjusted EBITDA without adoption of IFRS 16(2)	7,109	9,116	12,286	10,488	6,803	6,619	8,310	8,452
Adjusted EBITDA without adoption of IFRS 16 as a % of revenue	12.4%	14.5%	18.1%	16.4%	11.8%	11.1%	13.0%	13.9%
Depreciation and amortization	7,081	7,011	7,059	6,979	6,916	5,252	5,069	4,271
Finance expense	1,193	1,213	1,510	1,566	1,513	866	857	716
Earnings (loss) before income taxes	(4,531)	2,878	6,048	4,194	686	501	2,384	3,465
Income tax expense (recovery)	(1,123)	683	1,379	647	191	(551)	498	881
Net earnings (loss)	(3,408)	2,195	4,669	3,547	495	1,052	1,886	2,584
Net earnings (loss) as a % of revenue	-6.0%	3.5%	6.9%	5.6%	0.9%	1.8%	2.9%	4.3%
Basic earnings (loss) per share	(0.323)	0.209	0.444	0.338	0.047	0.100	0.180	0.247
Diluted earnings (loss) per share	(0.322)	0.207	0.441	0.336	0.047	0.100	0.179	0.246
Adjusted net earnings without adoption of IFRS 16(3)	985	2,408	4,736	3,637	558	1,052	1,886	2,584
Basic adjusted earnings without adoption of IFRS 16 per share	0.093	0.229	0.451	0.346	0.053	0.100	0.180	0.247
Diluted adjusted earnings without adoption of IFRS 16 per share	0.093	0.227	0.447	0.344	0.053	0.100	0.179	0.246
Total assets	336,127	352,059	353,021	361,018	360,563	322,229	316,968	317,051
Total long-term financial liabilities	106,621	116,455	119,102	129,862	123,049	87,831	84,436	86,675
Funds provided by (used in) operations	11,588	11,555	19,816	2,875	9,670	7,799	9,759	(4,629)
Long-term debt	54,693	62,494	66,070	75,952	67,444	70,203	67,045	70,505
Dividends declared per share	0.300	0.300	0.300	0.300	0.300	0.300	0.300	0.300

1. EBITDA is defined as revenue less operating expenses (which equates to net earnings before income tax, finance expense (recovery) and depreciation and amortization). See "Terminology".
2. Adjusted EBITDA without adoption of IFRS 16 is defined as EBITDA (defined above) with the exclusion of IFRS 16, and certain material items that are unusual in nature, infrequently occurring or not considered part of our core operations. See "Terminology" for a complete description of the adjusted items.
3. Adjusted net earnings without adoption of IFRS 16 is defined as net earnings with the exclusion of IFRS 16, and certain material items that are unusual in nature, infrequently occurring or not considered part of our core operations. See "Terminology" for a complete description of the adjusted items.
4. Effective January 1, 2019, the Corporation has adopted IFRS 16 using the modified retrospective method but has not restated comparatives for the prior periods, as permitted under the specific transitional provisions of IFRS 16. To enable the comparability of previous periods, the Corporation has provided the 2020 and 2019 figures for both EBITDA and net earnings without adoption of IFRS 16 as separate line items.
5. Q1 2020 includes an adjustment of $5.5 million for an impairment related charge to the Canadian Division, and is excluded in adjusted EBITDA and adjusted net earnings (loss).

Page 10 of 23

Quarterly Financial Information - Canadian Division

The following table provides certain selected consolidated financial and operating data prepared by management for the preceding eight quarters:

Quarterly Financial Information - Canadian Division	2020 (5)		2019 (4)			2018
(thousands, except percentages and per share amounts)	Q1	Q4	Q3	Q2	Q1	Q4	Q3	Q2
Healthcare revenue	33,395
33,839	33,224	33,122	32,435	32,912	31,818	32,193
Hospitality revenue	10,316	12,162	16,267	13,477	12,098	12,155	15,054	12,465
Total revenue	43,711
46,001	49,491	46,599	44,533	45,067	46,872	44,658
Expenses included in EBITDA	40,917	37,264	39,068	37,300	37,149	40,229	41,758	38,758
EBITDA(1)	2,794	8,737	10,423	9,299	7,384	4,838	5,114	5,900
EBITDA as a % of revenue (EBITDA margin)	6.4%	19.0%	21.1%	20.0%	16.6%	10.7%	10.9%	13.2%
Adjusted EBITDA without adoption of IFRS 16(2)	6,848	7,283	8,925	7,884	5,960	4,838	5,114	5,900
Adjusted EBITDA without adoption of IFRS 16 as a % of revenue	15.7%	15.8%	18.0%	16.9%	13.4%	10.7%	10.9%	13.2%
Net earnings (loss)	(2,472)	1,760	2,893	2,403	731	32	200	1,421
Net earnings (loss) as a % of revenue	-5.7%	3.8%	5.8%	5.2%	1.6%	0.1%	0.4%	3.2%
Basic earnings (loss) per share	(0.235)	0.167	0.275	0.229	0.070	0.003	0.019	0.136
Diluted earnings (loss) per share	(0.233)	0.166	0.273	0.228	0.069	0.003	0.019	0.135
Adjusted net earnings without adoption of IFRS 16(3)	1,863	1,835	2,919	2,456	787	32	200	1,421
Basic adjusted earnings without adoption of IFRS 16 per share	0.177	0.174	0.278	0.234	0.075	0.003	0.019	0.136
Diluted adjusted earnings without adoption of IFRS 16 per share	0.176	0.173	0.276	0.233	0.075	0.003	0.019	0.135

1. EBITDA is defined as revenue less operating expenses (which equates to net earnings before income tax, finance expense (recovery) and depreciation and amortization). See "Terminology".
2. Adjusted EBITDA without adoption of IFRS 16 is defined as EBITDA (defined above) with the exclusion of IFRS 16, and certain material items that are unusual in nature, infrequently occurring or not considered part of our core operations. See "Terminology" for a complete description of the adjusted items.
3. Adjusted net earnings without adoption of IFRS 16 is defined as net earnings with the exclusion of IFRS 16, and certain material items that are unusual in nature, infrequently occurring or not considered part of our core operations. See "Terminology" for a complete description of the adjusted items.
4. Effective January 1, 2019, the Corporation has adopted IFRS 16 using the modified retrospective method but has not restated comparatives for the prior periods, as permitted under the specific transitional provisions of IFRS 16. To enable the comparability of previous periods, the Corporation has provided the 2020 and 2019 figures for both EBITDA and net earnings without adoption of IFRS 16 as separate line items.
5. Q1 2020 includes an adjustment of $5.5 million for an impairment related charge to the Canadian Division, and is excluded in adjusted EBITDA and adjusted net earnings (loss).

Page 11 of 23

Quarterly Financial Information - UK Division

The following table provides certain selected consolidated financial and operating data prepared by management for the preceding eight quarters:

Quarterly Financial Information - UK Division	2020		2019(4)				2018
(in reporting currency Canadian $)
(thousands, except percentages and per share amounts)	Q1	Q4	Q3	Q2	Q1	Q4	Q3	Q2
Healthcare revenue	1,653
1,643	1,486	1,607	1,668	1,557	1,560	1,675
Hospitality revenue	11,911	15,248	16,865	15,687	11,582	12,816	15,540	14,405
Total revenue	13,564
16,891	18,351	17,294	13,250	14,373	17,100	16,080
Expenses included in EBITDA	12,615	14,526	14,157	13,854	11,519	12,592	13,904	13,528
EBITDA(1)	949	2,365	4,194	3,440	1,731	1,781	3,196	2,552
EBITDA as a % of revenue (EBITDA margin)	7.0%	14.0%	22.9%	19.9%	13.1%	12.4%	18.6%	15.9%
Adjusted EBITDA without adoption of IFRS 16(2)	261	1,833	3,361	2,604	843	1,781	3,196	2,552
Adjusted EBITDA without adoption of IFRS 16 as a % of revenue	1.9%	10.9%	18.3%	15.1%	6.4%	12.4%	18.6%	15.9%
Net earnings (loss)	(936)	435	1,776	1,144	(236)	1,020	1,686	1,163
Net earnings (loss) as a % of revenue	-6.9%	2.6%	9.7%	6.6%	-1.8%	7.1%	9.9%	7.2%
Basic earnings (loss) per share	(0.089)	0.041	0.169	0.109	(0.022)	0.097	0.161	0.111
Diluted earnings (loss) per share	(0.088)	0.041	0.168	0.108	(0.022)	0.097	0.160	0.111
Adjusted net earnings (loss) without adoption of IFRS 16(3)	(878)	573	1,817	1,181	(229)	1,020	1,686	1,163
Basic adjusted earnings (loss) without adoption of IFRS 16 per share	(0.083)	0.054	0.173	0.112	(0.022)	0.097	0.161	0.111
Diluted adjusted earnings (loss) without adoption of IFRS 16 per share	(0.083)	0.054	0.172	0.112	(0.022)	0.097	0.160	0.111
Quarterly Financial Information - UK Division	2020		2019(4)				2018
(in local currency Sterling £)
(thousands, except percentages and per share amounts)	Q1	Q4	Q3	Q2	Q1	Q4	Q3	Q2
Healthcare revenue	962
966	913	935	963	917	916	952
Hospitality revenue	6,931	8,967	10,359	9,126	6,689	7,550	9,077	8,201
Total revenue	7,893
9,933	11,272	10,061	7,652	8,467	9,993	9,153
Expenses included in EBITDA	7,343	8,543	8,696	8,058	6,654	7,413	8,139	7,700
EBITDA(1)	550	1,390	2,576	2,003	998	1,054	1,854	1,453
EBITDA as a % of revenue (EBITDA margin)	7.0%	14.0%	22.9%	19.9%	13.1%	12.4%	18.6%	15.9%
Adjusted EBITDA without adoption of IFRS 16(2)	150	1,077	2,065	1,517	485	1,054	1,854	1,453
Adjusted EBITDA without adoption of IFRS 16 as a % of revenue	1.9%	10.9%	18.3%	15.1%	6.4%	12.4%	18.6%	15.9%
Net earnings (loss)	(546)	254	1,091	668	(138)	600	972	662
Net earnings (loss) as a % of revenue	-6.9%	2.6%	9.7%	6.6%	-1.8%	7.1%	9.7%	7.2%
Basic earnings (loss) per share	(0.052)	0.024	0.104	0.064	(0.013)	0.057	0.093	0.063
Diluted earnings (loss) per share	(0.052)	0.024	0.103	0.063	(0.013)	0.057	0.092	0.063
Adjusted net earnings (loss) without adoption of IFRS 16(3)	(512)	336	1,115	690	(134)	600	972	662
Basic adjusted earnings (loss) without adoption of IFRS 16 per share	(0.049)	0.032	0.106	0.066	(0.013)	0.057	0.093	0.063
Diluted adjusted earnings (loss) without adoption of IFRS 16 per share	(0.048)	0.032	0.105	0.065	(0.013)	0.057	0.092	0.063

1. EBITDA is defined as revenue less operating expenses (which equates to net earnings before income tax, finance expense (recovery) and depreciation and amortization). See "Terminology".
2. Adjusted EBITDA without adoption of IFRS 16 is defined as EBITDA (defined above) with the exclusion of IFRS 16, and certain material items that are unusual in nature, infrequently occurring or not considered part of our core operations. See "Terminology" for a complete description of the adjusted items.
3. Adjusted net earnings without adoption of IFRS 16 is defined as net earnings with the exclusion of IFRS 16, and certain material items that are unusual in nature, infrequently occurring or not considered part of our core operations. See "Terminology" for a complete description of the adjusted items.
4. Effective January 1, 2019, the Corporation has adopted IFRS 16 using the modified retrospective method but has not restated comparatives for the prior periods, as permitted under the specific transitional provisions of IFRS 16. To enable the comparability of previous periods, the Corporation has provided the 2020 and 2019 figures for both EBITDA and net earnings without adoption of IFRS 16 as separate line items.

Page 12 of 23

Revenue, Earnings and EBITDA

For the three months ended March 31, 2020, K-Bro's consolidated revenue decreased by 0.9% to $57.3 million from $57.8 million in the comparative period. This decrease was primarily due to the significant reduction in hospitality revenue related to the COVID-19 pandemic and partially offset by the acquisition of an Aberdeen laundry, organic growth at existing customers and new customers secured in existing markets. In 2020, approximately 61.2% of K-Bro's consolidated revenue was generated from healthcare institutions, which is higher compared to 59.1% in 2019. This was primarily related to the COVID-19 pandemic's effect on the hospitality segment, as described above, offset by the Corporation's most recent acquisitions being concentrated within the hospitality sector.

Consolidated EBITDA decreased in the year to $3.7 million from $9.1 million in 2019, which is a decrease of 58.9%. The consolidated EBITDA margin decreased to 6.5% in 2020 compared to 15.8% in 2019. The impairment of assets represents $5.5 million and accounts for 9.6% of the decrease in EBITDA margin. On an adjusted basis without the adoption of IFRS 16 and impairment of assets, EBITDA increased by 4.5% to $7.1 million with an Adjusted EBITDA margin of 12.4%.

Net earnings decreased by $3.9 million or 788.5% from $0.5 million in 2019 to $-3.4 million in 2020, and net earnings as a percentage of revenue decreased by 6.9% to -6.0% in 2020 from 0.9% in 2019. The change in net earnings is primarily related to the flow through items in EBITDA discussed above, offset by lower depreciation associated with new plant builds and acquisitions, lower finance costs related to the revolving credit facility, and offset by a lower income tax expense.

Operating Expenses

Wages and benefits in the first quarter of 2020 decreased by $0.7 million to $22.7 million compared to $23.4 million in the comparative period of 2019, and as a percentage of revenue decreased by 0.9% to 39.6%. The decrease as a percentage of revenue is primarily related to improvements in labour efficiencies and offset by escalating minimum wage rates.

Linen in the first quarter of 2020 increased by $0.3 million to $6.7 million compared to $6.4 million in the comparative period of 2019, and as a percentage of revenue increased by 0.5% to 11.7%. The increase as a percentage of revenue is primarily related to the higher proportion of healthcare revenue, and flow through of customer setup costs from prior periods.

Utilities in the first quarter of 2020 decreased by $0.7 million to $3.6 million compared to $4.3 million in the comparative period of 2019, and as a percentage of revenue decreased by 1.3% to 6.2%. The decrease as a percentage of revenue is primarily related to lower utility costs in British Columbia as a result of a temporary natural gas supply shortage during the first quarter of 2019, and lower commodity costs.

Delivery in the first quarter of 2020 remained constant at $7.0 million compared to the comparative period of 2019, and as a percentage of revenue increased by 0.2% to 12.3%. The increase as a percentage of revenue is primarily related to fixed costs that remain constant regardless of the reduction in volume resulting from the COVID-19 pandemic and price increases from renewals of outsourced freight contracts, offset by lower cost of diesel and external freight charges tied to diesel price.

Occupancy costs in the first quarter of 2020 increased by $0.1 million to $1.2 million compared to $1.1 million in the comparative period of 2019, and as a percentage of revenue increased by 0.1% to 2.0%. The increase as a percentage of revenue is primarily related to fixed costs that remain constant regardless of the reduction in volume resulting from the COVID-19 pandemic.

Materials and supplies in the first quarter of 2020 increased by $0.3 million to $2.1 million compared to $1.8 million in the comparative period of 2019, and as a percentage of revenue increased by 0.7% to 3.7%.

Page 13 of 23

The increase as a percentage of revenue is primarily related to fixed costs that remain constant regardless of the reduction in volume resulting from the COVID-19 pandemic and one-time cost recoveries in 2019.

Repairs and maintenance in the first quarter of 2020 increased by $0.1 million to $2.2 million compared to $2.1 million in the comparative period of 2019, and as a percentage of revenue increased by 0.2% to 3.8%. The increase as a percentage of revenue is primarily related to fixed costs that remain constant regardless of the reduction in volume resulting from the COVID-19 pandemic and timing of maintenance activities.

Corporate costs in the first quarter of 2020 remained constant at $2.6 million compared to the comparative period of 2019, and as a percentage of revenue increased by 0.1% to 4.6%. The increase as a percentage of revenue is primarily related to the COVID-19 pandemic and the timing of initiatives to support the Corporation's growth and business strategies across the plants.

Depreciation of property, plant and equipment and amortization of intangible assets represents the expense related to the appropriate matching of the Corporation's long-term assets to the estimated useful life and period of economic benefit of those assets.

Income tax includes current and future income taxes based on taxable income and the temporary timing differences between the tax and accounting bases of assets and liabilities. Income tax reflects the provision on the earnings of the Corporation.

LIQUIDITY AND CAPITAL RESOURCES

During Q1 2020, cash generated by operating activities was $11.6 million compared to $9.7 million in Q1 2019. The change in cash from operations is primarily due to the change in working capital items driven mainly from the timing of business activity. Management believes the unutilized balance of $44.2 million with respect to its revolving credit facility is sufficient for the Corporation's operations in the foreseeable future. However, management intends to continually assess its opportunities to maintain a conservative amount of leverage and balance sheet flexibility in the short and long-term basis in order to ensure that sufficient capital is available for future growth needs.

During Q1 2020, cash used in financing activities was $12.6 million compared to $7.6 million in Q1 2019. Financing activities consisted of net repayment of the revolving credit facility, offset by dividends paid to Shareholders and principal elements of lease payments.

During Q1 2020, cash used in investing activities was $2.9 million compared to $2.4 million in Q1 2019.

Page 14 of 23

Contractual Obligations

Payments due under contractual obligations for the next five years and thereafter are as follows:

(thousands)			Payments due by Period
	Total	< 1 Year	1 - 3 Years	4 - 5 Years	> 5 Years
Long-term debt	$	54,693	-	54,693	-	-
Lease liabilities	$	59,654	5,648	13,806	10,501	29,699
Utility commitments	$	9,064	4,768	4,296	-	-
Linen purchase obligations	$	10,760	10,760	-	-	-
Property, plant and equipment	$	1,664	1,664	-	-	-
commitments

The lease liabilities are secured by automotive equipment and plants and are more fully described in the Corporation's audited annual consolidated financial statements for the year ended December 31, 2019. The source of funds for these commitments will be from operating cash flow and, if necessary, the undrawn portion of the revolving credit facility.

Financial Position

		Three Months
		Ended		Years Ended
		March 31,		December 31,
(thousands, except percentages)		2020		2019
Cash and cash equivalents	$	(1,319)	$	(5,301)
Long-term debt (excludes lease liabilities)		54,693		62,494
Shareholders' equity		191,489		196,051
Total capital	$	244,863	$	253,244
Debt to total capital (see Terminologyfor definition)		22.3%		24.7%

For the quarter ended March 31, 2020, the Corporation had a debt to total capital of 22.3%, unused revolving credit facility of $44.2 million and has not incurred any events of default under the terms of its credit facility.

As at March 31, 2020, the Corporation had net working capital of $26.6 million compared to its working capital position of $31.0 million at December 31, 2019. The decrease in working capital is primarily attributable to a decrease in cash and cash equivalents, timing differences related to cash settlement of new plant equipment, income tax payments, deposits related to the acquisition of equipment related across the plants, and cash receipts from customers.

Management believes that K-Bro has the capital resources and liquidity necessary to meet its commitments, support its operations and finance its growth strategies. In addition to K-Bro's ability to generate cash from operations and its revolving credit facility, K-Bro believes it is also able to raise capital through equity issuances in the market or increase its borrowing capacity, if necessary, to provide for capital spending and to sustain its property, plant and equipment.

Page 15 of 23

DIVIDENDS

					2020				2019
			# of Shares	Amount per	Total Amount	Amount per	Total Amount
Fiscal Period	Payment Date	outstanding		Share		(1)		Share		(2)
	January	February 14	10,604,029	$	0.10000	$	1,060	$	0.10000	$	1,056
	February	March 13	10,604,029		0.10000		1,060		0.10000		1,056
	March	April 15	10,604,029		0.10000		1,060		0.10000		1,056
	Q1			$	0.30000	$	3,181	$	0.30000	$	3,168
	YTD			$	0.30000	$	3,181	$	0.30000	$	3,168

1. The total amount of dividends declared was $0.10000 per share for a total of $1,060,438 per month for January - March 2020; when rounded in thousands, $3,181 of dividends were declared in Q1 2020.
2. The total amount of dividends declared was $0.10000 per share for a total of $1,055,994 per month for January - March 2019; when rounded in thousands, $3,168 of dividends were declared in Q1 2019.

For the three months ended March 31, 2020, the Corporation declared a $0.300 per Common Share dividend compared to $0.574 per Common Share of Distributable Cash Flow (see "Terminology"). The actual payout ratio was 52.4%.

The Corporation's policy is to pay dividends to Shareholders from its available distributable cash flow while considering requirements for capital expenditures, working capital, growth capital and other reserves considered advisable by the Board of Directors. All such dividends are discretionary. Dividends are declared payable each month in equal amounts to Shareholders on the last business day of each month and are paid by the 15thof the following month.

The Corporation designates all dividends paid or deemed to be paid as Eligible Dividends for purposes of subsection 89(14) of the Income Tax Act(Canada), and similar provincial and territorial legislation, unless indicated otherwise.

Page 16 of 23

DISTRIBUTABLE CASH FLOW (see "Terminology")

(all amounts in this section in $000s except per share amounts and percentages)

The Corporation's source of cash for dividends is distributable cash flow provided by operating activities. Distributable cash flow, reconciled to cash provided by operating activities as calculated under IFRS, is presented as follows:

(thousands, except percentages and per share		2020				2019 (4)						2018
amounts)
		Q1		Q4		Q3		Q2		Q1		Q4		Q3		Q2
	$	11,588
Cash provided by (used in) operating activities	$	11,555	$	19,816	$	2,875	$	9,670	$	7,799	$	9,759	$	(4,629)
Deduct (add):
Net changes in non-cash working capital items(1)		3,011		1,534		7,463		(8,615)		1,484		1,082		1,176		(12,167)
Share-based compensation expense		507		404		427		439		540		380		403		625
Maintenance capital expenditures(2)		328		1,072		1,352		1,143		374		526		908		430
Principal elements of lease payments(5)		1,666		1,501		1,806		1,736		1,648		-		-		-
Distributable cash flow (5)	$	6,076
$	7,044	$	8,768	$	8,172	$	5,624	$	5,811	$	7,272	$	6,483
Dividends declared		3,181		3,181		3,181		3,177		3,168		3,168		3,168		3,163
Dividends declared per share		0.300		0.300		0.300		0.300		0.300		0.300		0.300		0.300
Payout ratio(3)		52.4%		45.2%		36.3%		38.9%		56.3%		54.5%		43.6%		48.8%
Weighted average shares outstanding
during the period, basic		10,539		10,521		10,511		10,504		10,497		10,479		10,470		10,462
Weighted average shares outstanding
during the period, diluted		10,591		10,588		10,584		10,558		10,546		10,525		10,540		10,509
Trailing-twelve months ("TTM")
Distributable cash flow		30,060		29,608		28,375		26,879		25,190		24,765		21,725		21,690
Dividends		12,720		12,707		12,694		12,681		12,667		12,651		12,452		12,159
Payout ratio(3)		42.3%		42.9%		44.7%		47.2%		50.3%		51.1%		57.3%		56.1%

1. Net changes innon-cash working capital is excluded from the calculation as management believes it would introduce significant cash flow variability and affect underlying cash flow from operating activities. Significant variability can be caused by such things as the timing of receipts (which individually are large because of the nature of K-Bro's customer base and timing may vary due to the timing of customer approval, vacations of customer personnel, etc.) and the timing of disbursements (such as the payment of large volume rebates done once annually). As well, large increases in working capital are generally required when contracts with new customers are signed as linen is purchased and accounts receivable increase. Management feels that this amount should be excluded from the distributable cash flow calculation.
2. Maintenance capital expenditures include costs required to maintain or replace assets which do not have a discrete return on investment.
3. The ratio of dividends paid compared to distributable cash flow is periodically reviewed by the Board of Directors to take into account the current and prospective performance of the business and other items considered to be prudent. Payout ratio is calculated on the dividends declared divided by the distributable cash flow.
4. Effective January 1, 2019, the Corporation has adopted IFRS 16 using the modified retrospective method but has not restated comparatives for the prior periods, as permitted under the specific transitional provisions of IFRS 16.
5. Effective January 1, 2019, distributable cash flow includes the addition of principal elements of lease payments. This accounts for the change in accounting policies and the adoption of IFRS 16, where now the principal elements of lease payments flow through financing outflows opposed to operating cash flows.

Page 17 of 23

OUTSTANDING SHARES

As at March 31, and May 7, 2020, the Corporation had 10,604,382 Common Shares outstanding. Basic and diluted weighted average number of Common Shares outstanding for the three months ended March 31, 2020 were 10,539,458 and 10,590,526, respectively (10,496,590 and 10,545,970, respectively, for the comparative 2019 interim periods).

In accordance with the Corporation's Long Term Incentive ("LTI") plan and in conjunction with the performance of the Corporation in the 2019 fiscal year, on April 24, 2020 the Compensation, Nominating and Corporate Governance Committee approved LTI compensation of $1.7 million (2019 - $1.7 million) to be paid as Common Shares issued from treasury. As at March 31, 2020, the value of the Common Shares held by the LTI custodian was $1.8 million (December 31, 2019 - $2.7 million) which was comprised of 64,924 in unvested Common Shares (December 31, 2019 - 64,924) with a nil aggregate cost (December 31, 2019 - $nil).

As at May 7, 2020 there were 10,604,382 Common Shares issued and outstanding including 64,924 Common Shares issued but held as unvested treasury shares.

RELATED PARTY TRANSACTIONS

The Corporation incurred expenses in the normal course of business for advisory consulting services provided by Mr. Matthew Hills, a member of the Board of Directors. The amounts charged are recorded at their exchange amounts and are on arm's length terms. For the three month period ended March 31, 2020, the Corporation incurred fees totaling $34,500 compared to $34,500 for the same period of fiscal 2019.

CRITICAL ACCOUNTING ESTIMATES

The preparation of the financial statements, in conformity with IFRS, requires K-Bro to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reported period. Management regularly evaluates these estimates and assumptions which are based on past experience and other factors that are deemed reasonable under the circumstances. This involves varying degrees of judgment and uncertainty and, therefore, amounts currently reported in the financial statements could differ in the future. Further to those areas discussed in the Corporation's 2019 audited financial statements and annual MD&A, determining the lease term and incremental borrowing rates under IFRS 16 requires critical judgments.

The ongoing COVID-19 pandemic has caused world governments to institute travel restrictions both in and out of and within Canada and the UK, which has had, and is expected to continue to have, a significant adverse impact on the Corporation's hospitality business, the duration of which we are unable to predict with any degree of accuracy.

The extent of such negative effects on our hospitality business and our financial and operational performance will depend on future developments, including the duration, spread and severity of the outbreak, the duration and geographic scope of related travel advisories and restrictions and the extent of the impact of COVID-19 on overall demand for personal and business travel, all of which are highly uncertain and cannot be predicted with any degree of accuracy. If hotels continue to experience significantly reduced occupancy rates for an extended period, our 2020 consolidated results of operations will be significantly impacted. The extent to which the pandemic affects our earnings will depend in part on our ability to implement various measures intended to reduce expenses, including consolidating production capacity and laying off additional workers. Earnings will continue to be

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particularly affected if we continue to experience further reductions in travel and reduced hospitality occupancy rates. Additionally, our suppliers or other third parties we rely upon may experience delays or shortages, which could have an adverse effect on our business prospects and results of operations.

As an ongoing risk, the duration and full financial effect of the COVID-19 pandemic is unknown at this time, and continues to be offset through the Corporation's business continuity plan and other mitigating measures. Any estimate of the length and severity of these developments is therefore subject to significant uncertainty, and, accordingly, estimates of the extent to which the COVID-19 pandemic may materially and adversely affect the Corporation's operations, financial results and condition in future periods are also subject to significant uncertainty. Based off impairment indicators that existed at March 31, 2020 as a result of the COVID-19 pandemic, management has assessed the impairment of assets based off facts and circumstances which suggest that the carrying amount in certain CGUs may exceed its recoverable amount. Refer to note 12 in the accompanying unaudited condensed consolidated interim financial statements for further detail.

Uncertainty about judgments, estimates and assumptions made by management during the preparation of the Corporation's unaudited condensed consolidated interim financial statements related to potential impacts of the COVID-19 pandemic on revenue, expenses, assets, liabilities, and note disclosures could result in a material adjustment to the carrying value of the asset or liability affected.

TERMINOLOGY

EBITDA

K-Bro reports EBITDA (Earnings before interest, taxes, depreciation and amortization) as a key measure used by management to evaluate performance. EBITDA is utilized to measure compliance with debt covenants and to make decisions related to dividends to Shareholders. We believe EBITDA assists investors to assess our performance on a consistent basis as it is an indication of our capacity to generate income from operations before taking into account management's financing decisions and costs of consuming tangible and intangible capital assets, which vary according to their vintage, technological currency and management's estimate of their useful life. Accordingly, EBITDA comprises revenues less operating costs before financing costs, capital asset and intangible asset amortization, and income taxes.

EBITDA is a sub-total presented within the statement of earnings in accordance with the amendments made to IAS 1 which became effective January 1, 2016. EBITDA is not considered an alternative to net earnings in measuring K-Bro's performance. EBITDA should not be used as an exclusive measure of cash flow since it does not account for the impact of working capital changes, capital expenditures, debt changes and other sources and uses of cash, which are disclosed in the consolidated statements of cash flows.

Three Months Ended

March 31,

(thousands)		2020 (1)
Net earnings (loss)	$	(3,408)
Add:
Income tax (recovery) expense		(1,123)
Finance expense		1,193
Depreciation of property, plant and equipment		6,115
Amortization of intangible assets		966
EBITDA	$	3,743

2019

$ 495

191

1,513

6,135

781

$ 9,115

1. Q1 2020 includes an adjustment of $5.5 million for an impairment related charge to the Canadian Division.

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Non-GAAP Measures

Adjusted EBITDA without adoption of IFRS 16

Adjusted EBITDA without adoption of IFRS 16 is a measure which has been reported in order to assist in the comparison of historical EBITDA to current results. "Adjusted EBITDA" without adoption of IFRS 16 is defined as EBITDA (defined above) with the exclusion of IFRS 16, and certain material items that are unusual in nature, infrequently occurring or not considered part of our core operations.

						Three Months Ended March 31,
			Canadian		UK				Canadian		UK
(thousands)		Division		Division				Division		Division
	2020		2020		2020		2019		2019		2019
EBITDA	$	2,794	$	949	$	3,743	$	7,384	$	1,731	$	9,115
Add back IFRS 16 Adjustments:						(755)
Delivery		(358)		(397)			(326)		(562)		(888)
Occupancy costs		(1,104)		(291)		(1,395)		(1,098)		(326)		(1,424)
EBITDA without adoption of IFRS 16	$	1,332	$	261	$	1,593	$	5,960	$	843	$	6,803
Add back non-reoccuring items:						5,516
Impairment of assets		5,516		-			-		-		-
									-		-		-
Adjusted EBITDA without adoption of IFRS 16	$	6,848	$	261	$	7,109	$	5,960	$	843	$	6,803

Adjusted net earnings without adoption of IFRS 16 and adjusted net earnings without adoption of IFRS 16 per Share

Adjusted net earnings and adjusted net earnings per share are measures which have been reported in order to assist in the comparison of historical net earnings to current results. "Adjusted net earnings" is defined as net earnings with the exclusion of IFRS 16, and certain material items that are unusual in nature, infrequently occurring or not considered part of our core operations.

						Three Months Ended March 31,
			Canadian		UK				Canadian		UK
			Division		Division				Division		Division
(thousands)		2020		2020		2020		2019		2019		2019
Net earnings (loss)	$	(2,472)	$	(936)	$	(3,408)	$	731	$	(236)	$	495
Add back IFRS 16 Adjustments:						(755)
Delivery		(358)		(397)			(326)		(562)		(888)
Occupancy costs		(1,104)		(291)		(1,395)		(1,098)		(326)		(1,424)
Depreciation of property, plant and equipment		1,113		657		1,770		1,087		773		1,860
Finance expense		384		101		485		413		124		537
Income tax		(9)		(12)		(21)		(20)		(2)		(22)
Net earnings (loss) without adoption of IFRS 16	$	(2,446)	$	(878)	$	(3,324)	$	787	$	(229)	$	558
Add back non-reoccuring items (net of income taxes):						4,309
Impairment of assets		4,309		-			-		-		-
									-		-		-
Adjusted net earnings (loss) without adoption of IFRS 16	$	1,863	$	(878)	$	985	$	787	$	(229)	$	558
Weighted average number of shares outstanding:						10,539,458
Basic		10,539,458		10,539,458			10,496,590		10,496,590		10,496,590
Diluted		10,590,526		10,590,526		10,590,526		10,545,970		10,545,970		10,545,970
Adjusted net earnings (loss) without adoption of IFRS 16 per share:						$0.093
Basic		$0.177		($0.083)			$0.070		($0.022)		$0.053
Diluted		$0.176		($0.083)		$0.093		$0.069		($0.022)		$0.053

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Distributable Cash Flow

Distributable cash flow is a measure used by management to evaluate the Corporation's performance. While the closest IFRS measure is cash provided by operating activities, distributable cash flow is considered relevant because it provides an indication of how much cash generated by operations is available after capital expenditures. It should be noted that although we consider this measure to be distributable cash flow, financial and non-financial covenants in our credit facilities and dealer agreements may restrict cash from being available for dividends, re-investment in the Corporation, potential acquisitions, or other purposes. Investors should be cautioned that distributable cash flow may not actually be available for growth or distribution from the Corporation. Management refers to "Distributable cash flow" as to cash provided by (used in) operating activities with the addition of net changes in non-cash working capital items, less share-based compensation, maintenance capital expenditures and principal elements of lease payments.

Payout Ratio

"Payout ratio" is defined by management as the actual cash dividend divided by distributable cash. This is a key measure used by investors to value K-Bro, assess its performance and provide an indication of the sustainability of dividends. The payout ratio depends on the distributable cash and the Corporation's dividend policy.

Debt to Total Capital

"Debt to Total Capital" is defined by management as the total long-term debt divided by the Corporation's total capital. This is a measure used by investors to assess the Corporation's financial structure.

Distributable Cash Flow, Payout Ratio, Debt to Total Capital Adjusted EBITDA, Adjusted net earnings, and Adjusted net earnings per share are not calculations based on IFRS and are not considered an alternative to IFRS measures in measuring K-Bro's performance. Distributable Cash Flow, Payout Ratio, Adjusted EBITDA, Adjusted net earnings, and Adjusted net earnings per share do not have standardized meanings in IFRS and are therefore not likely to be comparable with similar measures used by other issuers.

Off Balance Sheet Arrangements

As at March 31, 2020, the Corporation has not entered into any off balance sheet arrangements.

ADOPTION OF NEW ACCOUNTING STANDARDS

As at January 1, 2020, the Corporation had no changes to significant accounting policies and had not adopted any new standards, interpretations or amendments.

RECENT ACCOUNTING PRONOUNCEMENTS

New standards, interpretations, or amendments that have been issued but are not yet effective, have not been early adopted by the Corporation, and no material impact therefrom are expected on the Corporation's consolidated financial statements.

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CRITICAL RISKS AND UNCERTAINTIES

As at March 31, 2020 there are no material changes in the Corporation's risks or risk management activities since December 31, 2019, other than in respect of the impact of the COVID-19 pandemic which is discussed in detail in this MD&A and accompanying unaudited consolidated interim financial statements. The Corporation's results of operations, business prospects, financial condition, cash dividends to Shareholders and the trading price of the Common Shares are subject to a number of risks. These risk factors include: dependence on long-term contracts and the associated renewal risk thereof; the effects of market volatility and uncertainty; potential future tax changes; the competitive environment; our ability to acquire and successfully integrate and operate additional businesses; utility costs; the labour markets; the fact that our credit facility imposes numerous covenants and encumbers assets; and environmental matters.

For a discussion of these risks and other risks associated with an investment in Common Shares, see "Risk Factors - Risks Related to K-Bro and the Laundry and Linen Industry" detailed in the Corporation's Annual Information Form that is available at www.sedar.com.

CONTROLS AND PROCEDURES

In order to ensure that information with regard to reports filed or submitted under securities legislation present fairly in all material respects the financial information of K-Bro, management, including the President and Chief Executive Officer ("CEO") and the Chief Financial Officer ("CFO"), are responsible for establishing and maintaining disclosure controls and procedures, as well as internal control over financial reporting.

Disclosure Controls and Procedures

The Corporation has established disclosure controls and procedures to ensure that information disclosed in this MD&A and the related financial statements of K-Bro was properly recorded, processed, summarized and reported to the Board of Directors and the Audit Committee.

Internal Controls over Financial Reporting

There were no changes in internal controls over financial reporting ("ICFR") during the three month period ended March 31, 2020 that materially affected, or are reasonably likely to materially affect, the Corporation's ICFR.

The Corporation's CEO and CFO have determined that there is not a material weakness in the design of disclosure controls and procedures and internal controls over financial reporting which existed as at March 31, 2020.

A discussion of the internal controls over financial reporting can be found under the MD&A that accompany the audited consolidated financial statements for the year ended December 31, 2019.

A control system, no matter how well conceived and operated, can provide only reasonable, and not absolute, assurance that the objectives of the control system are met. As a result of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues, including instance of fraud, if any, have been detected. These inherent limitations include, amongst other items: (i) that managements' assumptions and judgments could ultimately prove to be incorrect under varying conditions and circumstances; or, (ii) the impact of isolated errors.

Additionally, controls may be circumvented by the unauthorized acts of individuals, by collusion of two or more people, or by management override. The design of any system of controls is also based, in part, upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential (future) conditions.

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Additional information regarding K-Bro including required securities filings are available on our website at www.k-brolinen.comand on the Canadian Securities Administrators' website at www.sedar.com; the System for Electronic Document Analysis and Retrieval ("SEDAR").

Vous pouvez obtenir des renseignements supplémentaires sur la Société, y compris les documents déposés auprès des autorités de réglementation, sur notre site Web, au www.k-brolinen.comet sur le site Web des autorités canadiennes en valeurs mobilières au www.sedar.com, le site Web du Système électronique de données, d'analyse et de recherche (« SEDAR »).

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