K Bro Linen : Third Quarter 2024 Q3 2024

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Interim Condensed Consolidated Statements of Financial Position

(unaudited, thousands of Canadian dollars)

September 30,		December 31,
2024		2023

ASSETS

Current assets

Cash and cash equivalents	$	20,805
Accounts receivable		55,127
Prepaid expenses and deposits		6,993
Linen in service		40,231
		123,156
Assets classified as held for sale (note 4)		1,109
		124,265
Property, plant and equipment (note 4)		227,568
Intangible assets		25,805
Goodwill		74,439
	$	452,077
LIABILITIES
Current liabilities
Accounts payable and accrued liabilities	$	44,918
Provisions		206
Share repurchase liability (note 16)		-
Lease liabilities		11,915
Income taxes payable		1,764
Dividends payable to shareholders		1,058
		59,861
Long-term debt (note 5)		135,875
Lease liabilities		44,766
Provisions		3,093
Deferred income taxes		20,129
	$	263,724
SHAREHOLDERS' EQUITY

$ 5,857 50,306 7,443 35,288

98,894

718

99,612

206,798

9,406

48,900

$ 364,716

$	38,166
	206
	3,967
	12,023
	2,086
	1,064
	57,512
	70,247
	41,275
	2,964
	18,287
$	190,285

Share capital	204,854			206,453
Share repurchase deficit	(4,356)			(6,586)
Contributed surplus	3,135			2,252
Deficit	(22,571)			(27,521)
Accumulated other comprehensive income (loss)	7,291			(167)
$	188,353	$	174,431
Contingencies and commitments (note 6)
$	452,077		$	364,716

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

Interim Condensed Consolidated Statements of Earnings & Comprehensive Income

(unaudited, thousands of Canadian dollars, except share and per share amounts)

		Three Months Ended		Nine Months Ended
		September 30,		September 30,
		2024							2023			2024				2023
Revenue	$	104,469			$	86,892		$	278,163		$	238,420
Expenses		39,169										105,916
Wages and benefits								32,942						91,604
Delivery		12,163							10,007			33,046				28,535
Linen		9,977							8,783			26,835				24,484
Utilities		7,360							6,601			20,682				18,899
Corporate		4,161							3,251			14,221				9,978
Materials and supplies		3,626							3,021			10,514				9,264
Repairs and maintenance		3,917							3,220			11,536				9,122
Occupancy costs		1,624							1,386			4,749				4,019
Gain on settlement of contingent consideration (note 13)		(500)							-			(500)				-
Remeasurement expense (recovery)		129							(12)			143				(12)
		81,626							69,199			227,142				195,893
EBITDA		22,843							17,693			51,021				42,527
Other expenses		7,823										22,110
Depreciation of property, plant and equipment (note 4)								6,719						19,626
Amortization of intangible assets		1,088							153			2,137				370
Finance expense		3,322							1,860			8,129				4,917
		12,233							8,732			32,376				24,913
Earnings before income taxes		10,610							8,961			18,645				17,614
Current income tax expense		1,757							1,891			2,819				3,202
Deferred income tax expense		724							403			1,356				1,054
Income tax expense		2,481							2,294			4,175				4,256
Net earnings	$	8,129	$	6,667		$	14,470	$	13,358
Other comprehensive income
Items that may be subsequently reclassified to earnings:
Foreign currency translation differences on foreign operations		5,156							(1,107)			7,458				354
Total comprehensive income	$	13,285	$	5,560		$	21,928	$	13,712
Net earnings per share:
Basic	$	0.78			$	0.63		$	1.38			$	1.25
Diluted	$	0.77	$	0.62		$	1.37	$	1.24
Weighted average number of shares outstanding:
Basic		10,446,055							10,645,029			10,523,759				10,689,006
Diluted		10,538,560							10,729,425			10,596,625				10,750,178

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

Interim Condensed Consolidated Statements of Changes in Equity

(unaudited, thousands of Canadian dollars)

				Share						Accumulated
		Total Share			Contributed				other		Total
			repurchase			Deficit	comprehensive
		Capital		deficit		surplus			income (loss)		equity
As at December 31, 2023	$	206,453	$	(6,586)	$	2,252	$	(27,521)	$	(167)	$	174,431
Total comprehensive income		-		-		-		14,470		7,458		21,928
Dividends declared (note 7)		-		-		-		(9,520)		-		(9,520)
Employee share based compensation expense (note 11)		-		-		1,497		-		-		1,497
Repurchase of shares (note 16)		(2,213)		(1,737)		-		-		-		(3,950)
Change in share repurchase liability (note 16)		-		3,967		-		-		-		3,967
Shares vested during the period		614		-		(614)		-		-		-
As at September 30, 2024	$	204,854	$	(4,356)	$	3,135	$	(22,571)	$	7,291	$	188,353

				Share						Accumulated
		Total Share			Contributed				other		Total
			repurchase			Deficit	comprehensive
		Capital		deficit		surplus			income (loss)		equity
As at December 31, 2022	$	208,463	$	-	$	2,323	$	(32,232)	$	(2,012)	$	176,542
Total comprehensive income		-		-		-		13,358		354		13,712
Dividends declared (note 7)		-		-		-		(9,696)		-		(9,696)
Employee share based compensation expense (note 11)		-		-		1,386		-		-		1,386
Repurchase of shares (note 16)		(2,003)		-		(1,320)		-		-		(3,323)
Share repurchase liability (note 16)		-		-		(1,984)		-		-		(1,984)
Shares vested during the period		579		-		(579)		-		-		-
As at September 30, 2023	$	207,039	$	-	$	(174)	$	(28,570)	$	(1,658)	$	176,637

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

Interim Condensed Consolidated Statements of Cash Flow

(unaudited, thousands of Canadian dollars)

				Three Months Ended		Nine Months Ended
				September 30,		September 30,
				2024						2023				2024				2023
OPERATING ACTIVITIES
Net earnings	$	8,129	$	6,667			$	14,470	$	13,358
Depreciation of property, plant and equipment (note 4)		7,823						6,719				22,110				19,626
Amortization of intangible assets		1,088						153				2,137				370
Accretion (recovery) expense		(55)						46				24				71
Employee share based compensation expense		443						438				1,497				1,386
Remeasurement expense (recovery)		129						(12)				143				(12)
Gain on settlement of contingent consideration (note 13)		(500)						-				(500)				-
Deferred income tax expense		724						403				1,356				1,054
				17,781						14,414				41,237				35,853
Change in non-cash working capital items (note 8)		603						8,344				(2,298)				(2,665)
Cash provided by operating activities		18,384						22,758				38,939				33,188
FINANCING ACTIVITIES
Net proceeds (repayments) from revolving debt (note 5)		1,086						(8,436)				65,628				9,996
Repurchase of shares (note 16)		-						(1,663)				(3,950)				(3,323)
Principal elements of lease payments		(2,670)						(2,360)				(7,969)				(6,844)
Dividends paid to shareholders		(3,173)						(3,233)				(9,525)				(9,701)
Cash (used in) provided by financing activities		(4,757)						(15,692)				44,184				(9,872)
INVESTING ACTIVITIES
Purchase of property, plant and equipment		(2,262)						(4,017)				(13,597)				(9,779)
Proceeds from disposal of property, plant and equipment		12						-				12				1
Purchase of intangible assets		(242)						(51)				(386)				(162)
Acquisition of businesses, net of cash (note 12, 13, 14, 15)		-						-				(54,905)				(11,248)
Cash used in investing activities		(2,492)						(4,068)				(68,876)				(21,188)
Change in cash and cash equivalents during the period			11,135						2,998				14,247				2,128
Effect of exchange rate changes on cash and cash equivalents			509						(90)				701				(233)
Cash and cash equivalents, beginning of period			9,161						1,623				5,857				2,636
Cash and cash equivalents, end of period			$	20,805	$	4,531			$	20,805	$	4,531
Supplementary cash flow information
Interest paid			$	3,313	$	1,624			$	7,966	$	4,653
Income taxes paid			$	4,286			$	-			$	4,286		$	-

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

Notes to the Interim Condensed Consolidated Financial Statements

(unaudited, thousands of Canadian dollars except share and per share amounts, three and nine months ended September 30, 2024 and 2023)

K-Bro Linen Inc. (the "Corporation" or "K-Bro") is incorporated in Canada under the Business Corporations Act (Alberta). K-Bro is the largest owner and operator of laundry and linen processing facilities in Canada and a market leader for laundry and textile services in Scotland and the North of England. K-Bro and its wholly owned subsidiaries, operate across Canada and the United Kingdom ("UK"), provide a range of linen services to healthcare institutions, hotels and other commercial organizations that include the processing, management and distribution of general linen and operating room linen.

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

The Corporation's operations in the UK include Fishers Topco Ltd. ("Fishers") which was acquired by K-Bro on November 27, 2017 and Shortridge Ltd. ("Shortridge"), which was acquired by K-Bro on April 30, 2024.

Fishers was established in 1900 and is an operator of laundry and linen processing facilities in Scotland, providing linen rental, workwear hire and cleanroom garment services to the hospitality, healthcare, manufacturing and pharmaceutical sectors. Fishers' client base includes major hotel chains and prestigious venues across Scotland and the North of England. The company operates in five cities, in Scotland and the North of England with facilities in Cupar, Perth, Newcastle, Livingston and Coatbridge.

Shortridge is headquartered in North West England, with laundry processing sites in Lillyhall and Dumfries and a distribution centre in Darlington. Since the early 1990's, Shortridge has operated as a family run laundry business. Shortridge specialises in providing high quality laundry services to local independent hospitality businesses, including hotels, B&Bs, self-catering units and restaurants.

The Corporation's common shares are traded on the Toronto Stock Exchange under the symbol "KBL". The address of the Corporation's registered head office is 14903 - 137 Avenue, Edmonton, Alberta, Canada.

These unaudited Interim Condensed Consolidated Financial Statements were approved and authorized for issuance by the Board of Directors ("the Board") on November 13, 2024.

1 Basis of Presentation

These unaudited Interim Condensed Consolidated Financial Statements have been prepared in accordance with IFRS Accounting Standards (as issued by the International Accounting Standards Board) applicable to preparation of interim financial statements under IAS 34, Interim Financial Reporting, and should be read in conjunction with the annual consolidated audited financial statements for the year ended December 31, 2023 which have been prepared in accordance with IFRS Accounting Standards. The accounting policies followed in these unaudited Interim Condensed Consolidated Financial Statements are consistent with those of the previous year, except as described below.

Recent Developments and Impact on Estimation Uncertainty

The timely preparation of the consolidated interim financial statements, in conformity with IFRS Accounting Standards, requires management of the Corporation to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reported period. Actual results could differ from those estimates.

The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of

Notes to the Interim Condensed Consolidated Financial Statements

(unaudited, thousands of Canadian dollars except share and per share amounts, three and nine months ended September 30, 2024 and 2023)

making the judgments about carrying values of assets and liabilities that are not readily apparent from other sources. These estimates and judgments have been applied in a manner consistent with prior periods.

Economic Conditions

The Corporation's Credit Facility is subject to floating interest rates and, therefore, is subject to fluctuations in interest rates which are beyond the Corporation's control. Changes in interest rates, both domestically and internationally, could affect the Corporation's cost of financing its operations and investments.

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

2 New Accounting Pronouncements Adopted

The Corporation adopted the following accounting standards and amendments that were effective for our interim and annual consolidated financial statements commencing January 1, 2024. These changes did not have a material impact on our financial results and are not expected to have a material impact in the future.

• Amendments to IAS 1, Presentation of Financial Statements - Classification of Liabilities as Current or Noncurrent, clarifying requirements for the classification of liabilities as non-current.
• Amendments to IFRS 16, Lease Liability in a Sale and Leaseback, clarifying the measurement of a lease liability by the seller in a sale and leaseback transaction.

3 New standards and interpretations not yet adopted

New standards, interpretations, or amendments that have been issued, or are not yet effective, have not been further described or early adopted, where no material impact is expected on the Corporation's consolidated financial statements.

The IASB has issued the following new standard and amendments to existing standards that will become effective in future years.

• Amendments to IAS 21, Lack of Exchangeability, including guidance about the determination of the exchange rate and disclosure when a currency is not exchangeable.
• Introduction of IFRS 18, Presentation and Disclosure in Financial Statements, specifying new presentation requirements for subtotals and totals within the Statement of Profit or Loss.
• IFRIC agenda decision on IFRS 8, Disclosure of Revenues and Expenses for Reportable Segments, clarifying the requirements to disclose certain specified items of profit or loss reviewed by the Chief Operating Decision Maker (CODM).

The Corporation has not adopted any standard, interpretation or amendment that has been issued but is not yet effective and no material impact is expected on the Corporation's consolidated financial statements. The Corporation will continue to assess the impacts, if any, the amendments to existing

Notes to the Interim Condensed Consolidated Financial Statements

(unaudited, thousands of Canadian dollars except share and per share amounts, three and nine months ended September 30, 2024 and 2023)

standards will have on our consolidated financial statements, but we currently do not expect any material impacts.

4	Property, plant and equipment
			Land		Buildings		Laundry		Office		Delivery		Computer		Leasehold	Spare Parts		Total
Year ended, December 31, 2023			Equipment(1)	Equipment	Equipment	Equipment	Improvements
Opening net book amount	$	3,312	$	51,718	$	106,885	$	220	$	9,618	$	323	$	29,246	$	1,863	$	203,185
Additions (2)(3)(4)		-		549		10,371		63		4,561		320		9		230		16,103
Change in asset retirement obligation		-		-		-		-		-		-		171		-		171
Acquisition of businesses (note 12, 13)		-		3,671		8,432		24		333		42		801		-		13,303
Disposals		-		-		(41)		-		(204)		-		-		-		(245)
Depreciation charge		-		(6,573)		(11,838)		(100)		(4,289)		(380)		(3,489)		-		(26,669)
Effect of movement in exchange rates		26		284		419		5		202		-		14		-		950
Closing net book amount	$	3,338	$	49,649	$	114,228	$	212	$	10,221	$	305	$	26,752	$	2,093	$	206,798
At December 31, 2023
Cost		$	3,338	$	82,314	$	226,667	$	1,381	$	27,268	$	3,969	$	60,866	$	2,093	$	407,896
Accumulated impairment losses		-		(207)		(2,113)		-		(5)		(14)		-		-		(2,339)
Accumulated depreciation		-		(32,458)		(110,326)		(1,169)		(17,042)		(3,650)		(34,114)		-		(198,759)
Net book amount	$	3,338	$	49,649	$	114,228	$	212	$	10,221	$	305	$	26,752	$	2,093	$	206,798
Period ended, September 30, 2024
Opening net book amount	$	3,338	$	49,649	$	114,228	$	212	$	10,221	$	305	$	26,752	$	2,093	$	206,798
Additions (2)(3)(4)		-		5,696		12,493		57		5,603		571		346		164		24,930
Change in asset retirement obligation		-		-		-		-		-		-		73		-		73
Acquisition of businesses (note 14, 15)		1,216		5,809		7,556		51		1,377		32		-		-		16,041
Disposals		-		-		(114)		-		(555)		-		-		(41)		(710)
Assets classified as held for sale(5)		(55)		(283)		-		-		-		-		-		-		(338)
Depreciation charge		-		(5,531)		(9,952)		(72)		(3,646)		(313)		(2,596)		-		(22,110)
Effect of movement in exchange rates		78		729		1,409		10		631		1		26		-		2,884
Closing net book amount	$	4,577	$	56,069	$	125,620	$	258	$	13,631	$	596	$	24,601	$	2,216	$	227,568
At September 30, 2024
Cost		$	4,577	$	94,741	$	247,263	$	1,473	$	35,102	$	4,573	$	61,313	$	2,216	$	451,258
Accumulated impairment losses		-		(207)		(2,113)		-		(5)		(14)		-		-		(2,339)
Accumulated depreciation		-		(38,465)		(119,530)		(1,215)		(21,466)		(3,963)		(36,712)		-		(221,351)
Net book amount	$	4,577	$	56,069	$	125,620	$	258	$	13,631	$	596	$	24,601	$	2,216	$	227,568

1. Included in laundry equipment are assets under development in the amount of $849 (2023 - $651). These assets are not available for service and accordingly are not presently being depreciated.
2. Total property, plant and equipment additions are inclusive of amounts incurred in the period that are yet be paid, with amounts remaining in accounts payable and accrued liabilities of $846 (2023 - $356).
3. Additions include amounts from the Canadian Division of $15,329 (2023 - $11,060) and from the UK Division of $9,601 (2023 - $5,043).
4. Includes ROUA additions from the Canadian Division of $5,835 (2023 - $2,012), comprised of buildings of $5,105 (2023 - $0) and vehicles of $730 (2023 - $2,012). From the UK Division, ROUA additions were $5,008 (2023 - $2,963), comprised of buildings of $591 (2023 - $551) and vehicles of $4,417 (2023 - $2,412). This has resulted in corresponding increases to the lease liabilities in the amount of $5,835 (2023 - $2,012) for the Canadian Division and $5,008 (2023 - $2,963) for the UK Division.
5. Assets classified as held for sale are comprised of land and a building in Granby, Quebec. The sale is expected to be completed in Q4.

Notes to the Interim Condensed Consolidated Financial Statements

(unaudited, thousands of Canadian dollars except share and per share amounts, three and nine months ended September 30, 2024 and 2023)

5 Long-term debt

		Prime Rate
		Loan(1)
At January 1, 2023	$	45,166
Net proceeds from debt		25,081
Closing balance at December 31, 2023	$	70,247
At January 1, 2024
$	70,247
Net proceeds from debt		65,628
Closing balance at September 30, 2024	$	135,875

1. The revolving credit facility is collateralized by a general security agreement, bears interest at prime or the applicable banker's acceptance rate, plus an interest margin dependent on certain financial ratios, with a monthly repayment of interest only, maturing on March 25, 2027. The additional interest margin can range between 0.25% to 1.75% dependent upon the calculated Funded Debt / Credit Facility EBITDA financial ratio, with a range between 0 to 3.50x. The required calculated Funded Debt / Credit Facility EBITDA financial ratio is subject to change based off certain terms and conditions. As at September 30, 2024 the combined interest rate was 7.45% (December 31, 2023 -7.70%).

On August 31, 2023, the Corporation completed an amendment to its existing revolving credit facility to extend the agreement from July 31, 2026 to July 31, 2027, as previously amended on July 18, 2022. In addition, the agreement expanded the revolving credit facility from $100,000 to $125,000 plus a $25,000 accordion.

On March 26, 2024, the Corporation entered into a three-year committed Syndicated Credit Facility Agreement from March 26, 2024 to March 25, 2027. The new agreement consists of a $175,000 revolving credit facility plus a $75,000 accordion.

Under the credit facility, the Corporation is required, among other conditions, to respect certain covenants on a consolidated basis. The main covenants are in regard to its Funded Debt to Credit Facility EBITDA ratio and Total Fixed Charge Coverage ratio. Management reviews compliance with these covenants on a quarterly basis in conjunction with filing requirements under its credit facility. All covenants have been met as at September 30, 2024 and December 31, 2023.

The Corporation has a revolving credit facility of up to $175,000 plus a $75,000 accordion of which $141,401 is utilized (including letters of credit totaling $5,526) as at September 30, 2024. Interest payments only are due during the term of the facility.

Drawings under the revolving credit facility are available by way of Bankers' Acceptances, Canadian prime rate loans, SOFR and CORRA pounds based loans, letters of credit or standby letters of guarantee. Drawings under the revolving credit facility bear interest at a floating rate, plus an applicable margin based on certain financial performance ratios.

A general security agreement over all assets, a mortgage against all leasehold interests and real property, insurance policies and an assignment of material agreements have been pledged as collateral.

The carrying value of borrowings approximate their fair value as the debt is based on a floating rate and the impact of discounting is not significant.

Notes to the Interim Condensed Consolidated Financial Statements

(unaudited, thousands of Canadian dollars except share and per share amounts, three and nine months ended September 30, 2024 and 2023)

The Corporation has incurred no events of default under the terms of its credit facility agreement.

6 Contingencies and commitments

1. Contingencies
   The Corporation has standby letters of credit issued as part of normal business operations in the amount of $5,526 (December 31, 2023 - $1,869) which will remain outstanding for an indefinite period of time.
   Grievances for unspecified damages were lodged against the Corporation in relation to labour matters. The Corporation has disclaimed liability and is defending the actions. It is not practical to estimate the potential effect of these grievances but legal advice indicates that it is not probable that a significant liability will arise.
2. Commitments and contractual obligations
3. 1. Utility commitments
      The Corporation was committed to estimated natural gas and electricity commitments for the next five calendar years and thereafter as follows:

Remainder of 2024	$	2,246
2025		11,495
2026		5,523
2027		-
2028		-
Subsequent		-
	$	19,264

1. Linen purchase commitments
   At September 30, 2024, the Corporation was committed to linen expenditure obligations in the amount of $5,314 (December 31, 2023 - $9,434) to be incurred within the next year.
2. Property, plant and equipment commitments
   At September 30, 2024, the Corporation was committed to capital expenditure obligations in the amount of $3,394 (December 31, 2023 - $9,396) to be incurred within the next year.
3. Trust funds on deposit
   The Corporation maintains funds in trust for a customer to facilitate both parties in achieving their shared objectives. These funds are not available for the Corporation's general operating activities and as such have not been recorded in the accompanying Consolidated Statements of Financial Position. As at September 30, 2024, the Corporation held trust funds on deposit in the amount of $1,079 (December 31, 2023 - $966).

7 Dividends to shareholders

During the three months ended September 30, 2024, the Corporation declared total dividends to shareholders of $3,174 or $0.300 per share (September 30, 2023 - $3,228 or $0.300 per share). During the