K-BRO DELIVERS Q4 2022 RESULTS WITH CONTINUED MOMENTUM IN HEALTHCARE AND HOSPITALITY
(TSX: KBL)
EDMONTON, AB, March 21, 2023 /CNW/ - K-Bro Linen Inc. ("K-Bro" or the "Corporation") today announces its Q4 2022 financial and operating results.
Q4 2022 Financial and Operating Highlights
- Consolidated healthcare revenue for 2022 increased by 4.1% compared to 2021.
- Consolidated healthcare revenue for Q4 2022 increased by 5.8% compared to Q4 2021.
- Consolidated hospitality revenue for 2022 increased by 79.7% compared to 2021.
- Consolidated hospitality revenue for Q4 2022 increased by 29.3% compared to Q4 2021.
- EBITDA decreased for fiscal 2022 to $36.5 million compared to $42.8 million for fiscal 2021.
- EBITDA remained consistent in the fourth quarter at $8.7 million compared to $8.9 million over the comparable 2021 period.
- Net earnings decreased for fiscal 2022 to $3.9 million compared to $8.7 million for fiscal 2021.
- Net earnings in the fourth quarter of 2022 decreased by $1.2 million to $0.3 million compared to $1.5 million in the comparative period of 2021, and as a percentage of revenue decreased by 2.0% to 0.4%
- For fiscal 2022 and during the fourth quarter, K-Bro declared dividends of $1.20 and $0.300 per common share respectively.
- Long-term debt for fiscal 2022 of $45.2 million reflecting our strong balance sheet.
Linda McCurdy, President & CEO of K-Bro, commented that "In the fourth quarter, we saw continued momentum in both hospitality and healthcare, which supports a strong outlook ahead. Our consolidated revenue for the year exceeded pre-COVID levels set in 2019, and we continue to see robust volumes in our Canadian and UK businesses. The COVID pandemic and certain geopolitical events have contributed to temporary labour inefficiencies and higher energy costs. We are actively managing the impact of energy price increases and local market labour shortages. We have been successful in working with many of our Canadian and UK customers to implement price increases to offset inflation-related costs. In the fourth quarter, we began to see some benefit from these price increases, the full impact of which we will see in 2023."
"On March 2, we were delighted to announce the acquisition of Paranet. Paranet is a high-quality operator with leading market positions in the Quebec City healthcare and hospitality markets. Paranet is our first acquisition following the COVID pandemic and we have an active M&A pipeline. Strategic acquisitions have been an important contributor to K-Bro's overall growth profile and, with continued momentum in our business, we are refocusing on M&A. We remain well positioned from a balance sheet and liquidity perspective and will continue to be disciplined as we evaluate acquisitions."
"We anticipate returning to historical 2019 margin levels in the second half of 2023, once we gain efficiencies from the AHS transition, and margins will be consistent with historical seasonal trends."
Highlights and Significant Events for Fiscal 2022
Acquisition of Buanderie Paranet
On March 2, 2023, the Corporation announced the closing of a share purchase agreement to acquire all the assets of a private laundry and linen services company incorporated in Canada and operating in Quebec City, Quebec for total consideration of $11.5 million and a potential earnout of $1.9 million. The acquisition will be accounted for using the acquisition method, whereby the purchase consideration will be allocated to the net assets acquired. Paranet is a private laundry and linen services company for the Quebec City healthcare and hospitality markets. The purchase price will be satisfied by drawing down on the Corporation's revolving credit facility. At the time the financial statements were authorized for issue, and due to the timing of the acquisition, the Corporation has not yet completed the accounting for the acquisition of Paranet.
3sHealth Contract Extension
In Q2 2022, the Corporation extended its existing contract with 3sHealth for an additional six years to May 31, 2031 on terms that are consistent with the existing contract.
Alberta Contract Award
In October 2020, AHS issued a request for proposal for linen services (the "AHS RFP"). The AHS RFP encompassed the linen services provided by the Corporation to AHS under its AHS Calgary contract, as well as the linen services provided by the Corporation to AHS in Edmonton, for which volumes were under contract as part of two existing agreements until 2022 and 2023 respectively. The AHS RFP also included new volume for additional rural and urban locations in Alberta.
On April 27, 2021, the Corporation was selected to provide laundry services for Alberta Health Services ("AHS") for the entire province. The award was the result of a competitive RFP process and extends K-Bro's existing relationships with AHS.
On July 26, 2021, the Corporation announced the signing of a new 11-year contract, with renewal options for up to an additional 9 years, to provide laundry and linen services for AHS province-wide. In 2022, the Corporation incurred one-time transition costs and experienced temporary margin impacts as the new volume was transitioned into the Corporation's two facilities in Edmonton and Calgary. Management is confident in their ability to return to 2019 margin levels, consistent with historical seasonal trends, once we gain efficiencies from the AHS transition which is anticipated to occur in the later half of 2023.
The award renews all of K-Bro's existing volume in Edmonton and Calgary and awards additional healthcare volume for other sites in Alberta. The new volume is serviced from K-Bro's existing state-of-the-art facilities in Edmonton and Calgary. The transition of new rural business from AHS commenced in late Q3 2021 and was completed in early April 2022.
Revolving Credit Facility
In Q2 2022, the corporation completed an amendment to its existing revolving credit facility, which extended the agreement from July 31, 2024 to July 31, 2026. The Corporation's incremental borrowing rate under its existing credit facility is determined by the Canadian prime rate plus an applicable margin based on the ratio of Funded Debt to EBITDA as defined in the credit agreement. Throughout fiscal 2022, the Canadian prime rate has risen from 3.7% in January 2022 to 6.45% in December 2022. As a result of this increase, total interest rate expense would increase $1.1 million on an annual basis assuming the December 31, 2022 credit facility utilization rate of $47,002.
Capital Investment Plan
For fiscal 2023, the Corporation's planned capital spending is expected to be approximately $7.0 million on a consolidated basis. This guidance includes both strategic and maintenance capital requirements to support existing base business in both Canada and the UK and does not take into account amounts accrued in 2022 that are to be paid in 2023. We will continue to assess capital needs within our facilities and prioritize projects that have shorter term paybacks as well as those that are required to maintain efficient and reliable operations.
COVID-19 Risk and Geopolitical Stability
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 an adverse impact on the Corporation's hospitality business. While government-imposed restrictions eased significantly over the course of 2022, and vaccination rates continued to rise, the uncertainty regarding the ongoing COVID-19 pandemic remains a threat to the continued recovery in the Corporation's hospitality business. The COVID-19 pandemic has also contributed to unusually competitive labour markets, causing inefficiencies in attracting, training and retaining employees. While the Corporation anticipates labour markets will stabilize, the timing remains uncertain.
In addition to this, certain geopolitical events and other factors have resulted in rising and unstable commodity costs for key inputs such as natural gas, electricity and diesel. In the event these cost increases exceed price increase mechanisms this could have an adverse effect on our business prospects and results of operations.
The Corporation's Credit Facility is subject to floating interest rates and, therefore, is subject to fluctuations in interest rates which are beyond the Corporation's control. Increases in interest rates, both domestically and internationally, could negatively affect the Corporation's cost of financing its operations and investments.
The duration and full financial effects of the COVID-19 pandemic, geopolitical events and rising interest rates, continue to be uncertain at this time. The Corporation is managing ongoing risks 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.
The following table depicts the impact of the COVID-19 pandemic on the Corporation's revenue for 2022 and 2021.
Month |
Healthcare |
Hospitality |
Consolidated |
Month |
Healthcare |
Hospitality |
Consolidated |
January |
25 % |
-80 % |
-14 % |
January |
24 % |
-37 % |
1 % |
February |
26 % |
-82 % |
-19 % |
February |
28 % |
-26 % |
5 % |
March |
28 % |
-80 % |
-20 % |
March |
30 % |
-10 % |
12 % |
Q1 2021 compared to Q1 2019 |
26 % |
-81 % |
-18 % |
Q1 2022 compared to Q1 2019 |
27 % |
-23 % |
6 % |
April |
24 % |
-81 % |
-22 % |
April |
24 % |
-7 % |
11 % |
May |
21 % |
-69 % |
-19 % |
May |
26 % |
-3 % |
13 % |
June |
22 % |
-49 % |
-13 % |
June |
26 % |
-8 % |
9 % |
Q2 2021 compared to Q2 2019 |
23 % |
-66 % |
-18 % |
Q2 2022 compared to Q2 2019 |
25 % |
-6 % |
11 % |
July |
16 % |
-40 % |
-11 % |
July |
20 % |
-4 % |
9 % |
August |
11 % |
-30 % |
-9 % |
August |
27 % |
-2 % |
12 % |
September |
12 % |
-28 % |
-8 % |
September |
22 % |
-13 % |
5 % |
Q3 2021 compared to Q3 2019 |
13 % |
-33 % |
-9 % |
Q3 2022 compared to Q3 2019 |
23 % |
-6 % |
9 % |
October |
12 % |
-28 % |
-5 % |
October |
20 % |
-1 % |
11 % |
November |
19 % |
-23 % |
1 % |
November |
26 % |
2 % |
16 % |
December |
20 % |
-23 % |
1 % |
December |
25 % |
-7 % |
11 % |
Q4 2021 compared to Q4 2019 |
17 % |
-25 % |
-1 % |
Q4 2022 compared to Q4 2019 |
24 % |
-3 % |
12 % |
YTD |
20 % |
-49 % |
-11 % |
YTD |
25 % |
-11 % |
9 % |
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 rising interest rates on revenue, expenses, assets, liabilities, and note disclosures could result in a material adjustment to the carrying value of the asset or liability affected.
Impairment of assets
i) The Corporation performed its annual assessment for goodwill impairment for the Canadian division and for the UK division as at December 31, 2022 and December 31, 2021 in accordance with its policy described in Note 2(k) and Note 2(h). The Corporation also performed impairment assessments for CGUs where there could be a risk of impairment due to the presence of potential impairment indicators at the CGU level.
For both periods, the recoverable amount for the CGUs was assessed using an earnings multiple approach. If the result of the earnings multiple approach indicated a higher level of sensitivity a probability weighted discounted cash flow approach was performed. The Corporation references Board approved budgets and cash flow forecasts, trailing twelve-month EBITDA, implied multiples and discount rates in the valuation calculations.
Earnings multiple approach (FVLCD)
The assumptions used are based on the Corporation's board approved budgets, cash flow forecasts, trailing twelve-month EBITDA and the implied multiples. For both fiscal years, cash flows were projected based on actual results for the fiscal year tested as well as business forecasts for the immediate fiscal year following the testing period and then extrapolated for revenue growth and expected changes in the general economy and specific markets within which the CGU operates.
The implied multiple is calculated by utilizing the average multiples of comparable public companies. The Corporation used an implied average forward multiple of 10.60 (2021 - 10.80) to calculate the recoverable amounts. Where a CGU has sufficient headroom a probability weighted discounted cash flow approach was not performed.
Where a CGU shows sensitivity to the earnings multiple approach, particularly those CGUS with a strong hospitality base, higher uncertainty as a result of COVID-19 or higher uncertainty due to geopolitical events or unusually competitive labour markets, a secondary test in performed based on a probability-weighted discounted cash flow approach.
Probability weighted discounted cash flow (VIU)
The recoverable amounts are determined using the value-in-use ("VIU") approach which considers the probability weighted discounted future cash flows specific to each CGU tested.
The assumptions used are based on the Corporation's board approved budgets, cash flow forecasts, trailing twelve-month EBITDA, the pre-tax discount rate and terminal value growth rate. For both fiscal years, cash flows were projected based on actual results for the fiscal year tested as well as business forecasts for the immediate fiscal year following the testing period and then extrapolated for revenue growth and expected changes in the general economy and specific market within which the CGU operates.
The discounted cash flows consider the specifics environment within which each of the CGUs operate. Estimating the specific cash flows requires judgements on both past and future performance as well as overall market expectations. The calculation of the recoverable amount using the discounted cash flow was based on the following key assumptions:
Testing Methodology |
Pre-tax Discount Rate |
Terminal Value Growth Rate |
||||
December 31 |
December 31 |
December 31 |
December 31 |
|||
Calgary |
FVLCD |
n/a |
n/a |
n/a |
||
Edmonton |
FVLCD |
n/a |
n/a |
n/a |
||
Vancouver 2 * |
FVLCD |
n/a |
n/a |
2.0 % |
||
Vancouver 1 |
FVLCD |
n/a |
n/a |
n/a |
||
Victoria * |
FVLCD |
n/a |
n/a |
2.0 % |
||
UK |
VIU |
15.4 % |
2.0 % |
2.0 % |
||
* For the year ended December 31, 2021, these CGUs were tested using the VIU methodology |
For the December 31, 2022 impairment test, management's probability weighted approach was evaluated based on an equally weighted probability of a continued one-year downturn in sales to the worst case scenario of a two year downturn in sales. The scenarios estimated a decline of 8% to 12 % for 2023, 7% for 2024 with sales returning to normalized levels thereafter with sales growth estimates used 2%. These represent the Corporation's best estimate of cash flows over the forecast period.
For the December 31, 2021 impairment test, management's probability weighted approach was evaluated based on an equally weighted probability of a continued one year downturn in sales to the worst case scenario of a two year downturn in sales. The scenarios estimated a decline of 5% to 25% for 2022, and 0% to 10% for 2023, with sales returning to normalized levels thereafter with sales growth estimates used 2%.
The terminal value growth rate is based on management's best estimate of the long-term growth rate for its CGUs after the forecast period, considering historic performance and future economic forecasts.
Based on testing performed at December 31, 2022 and December 31, 2021 no impairment was determined to exist.
ii) Recoverable Amount
The recoverable amount of each CGU is sensitive to changes in the market condition and could result in material changes. Based on the sensitivity analysis performed below no reasonable change in the key assumptions would cause the recoverable amount of any CGU to have a significant change from its current valuation.
Recoverable Amount |
Change in Pre-tax Discount |
Change in Terminal Value |
||||||
December 31 |
December 31 |
December 31 |
December 31 |
December 31 |
December 31 |
|||
Calgary |
n/a |
n/a |
n/a |
n/a |
n/a |
n/a |
||
Edmonton |
n/a |
n/a |
n/a |
n/a |
n/a |
n/a |
||
Vancouver 2 * |
n/a |
$31,176 |
n/a |
-$3,152 |
n/a |
-$2,818 |
||
Vancouver 1 |
n/a |
n/a |
n/a |
n/a |
n/a |
n/a |
||
Victoria * |
n/a |
$8,290 |
n/a |
-$770 |
n/a |
-$834 |
||
UK |
£50,261 |
£53,083 |
-£4,201 |
-£4,915 |
-£4,458 |
-£4,988 |
||
* For the year ended December 31, 2021, these CGUs were tested using the VIU methodology |
Financial Results
For The Three Months Ended December 31, |
||||||||
(thousands, except per share amounts |
Canadian |
UK |
2022 |
Canadian |
UK |
2021 |
$ Change |
% Change |
Revenue |
$ 54,451 |
$ 16,220 |
$ 70,671 |
$ 48,046 |
$ 14,164 |
$ 62,210 |
8,461 |
13.6 % |
Expenses included in EBITDA |
46,707 |
15,239 |
61,945 |
40,258 |
13,024 |
53,282 |
8,663 |
16.3 % |
EBITDA |
7,745 |
981 |
8,726 |
7,788 |
1,140 |
8,928 |
(202) |
-2.3 % |
EBITDA as a % of revenue |
14.2 % |
6.0 % |
12.3 % |
16.2 % |
8.0 % |
14.4 % |
-2.1 % |
-14.6 % |
Net earnings (loss) |
822 |
(542) |
280 |
2,043 |
(544) |
1,499 |
(1,219) |
-81.3 % |
Basic earnings (loss) per share |
$ 0.077 |
$ (0.051) |
$ 0.026 |
$ 0.192 |
$ (0.051) |
$ 0.141 |
$ (0.115) |
-81.6 % |
Diluted earnings (loss) per share |
$ 0.076 |
$ (0.050) |
$ 0.026 |
$ 0.191 |
$ (0.051) |
$ 0.140 |
$ (0.114) |
-81.4 % |
Dividends declared per diluted share |
$ 0.30 |
$ 0.300 |
$ - |
0.0 % |
||||
Total assets |
325,760 |
332,519 |
(6,759) |
-2.0 % |
||||
Long-term debt (excludes lease liabilities) |
45,166 |
37,973 |
7,193 |
18.9 % |
||||
- |
||||||||
Cash provided by operating activities |
1,049 |
7,743 |
(6,694) |
-86.5 % |
||||
Net change in non-cash working capital items |
(4,994) |
(1,358) |
(3,636) |
-267.7 % |
||||
Share-based compensation expense |
410 |
417 |
(7) |
-1.7 % |
||||
Maintenance capital expenditures |
706 |
281 |
425 |
151.2 % |
||||
Principal elements of lease payments |
1,908 |
1,808 |
100 |
5.5 % |
||||
Distributable cash flow |
3,019 |
6,595 |
(3,576) |
-54.2 % |
||||
Dividends declared |
3,227 |
3,216 |
11 |
0.3 % |
||||
Payout ratio |
106.9 % |
48.8 % |
58.1 % |
119.1 % |
||||
Years Ended December 31, |
||||||||
(thousands, except per share amounts |
Canadian |
UK |
2022 |
Canadian |
UK |
2021 |
$ Change |
% Change |
Revenue |
$ 212,035 |
$ 64,588 |
$ 276,623 |
$ 183,073 |
$ 40,919 |
$ 223,992 |
52,631 |
23.5 % |
Expenses included in EBITDA |
179,670 |
60,461 |
240,131 |
143,395 |
37,806 |
181,201 |
58,930 |
32.5 % |
EBITDA |
32,365 |
4,127 |
36,492 |
39,678 |
3,113 |
42,791 |
(6,299) |
-14.7 % |
EBITDA as a % of revenue |
15.3 % |
6.4 % |
13.2 % |
21.7 % |
7.6 % |
19.1 % |
-5.9 % |
-30.9 % |
Net earnings (loss) |
6,042 |
(2,136) |
3,906 |
13,604 |
(4,912) |
8,692 |
(4,786) |
-55.1 % |
Basic earnings (loss) per share |
$ 0.567 |
$ (0.200) |
$ 0.366 |
$ 1.282 |
$ (0.463) |
$ 0.819 |
$ (0.453) |
-55.3 % |
Diluted earnings (loss) per share |
$ 0.563 |
$ (0.199) |
$ 0.364 |
$ 1.273 |
$ (0.460) |
$ 0.813 |
$ (0.449) |
-55.2 % |
Dividends declared per diluted share |
$ 1.20 |
$ 1.200 |
$ - |
0.0 % |
||||
Total assets |
325,760 |
332,519 |
(6,759) |
-2.0 % |
||||
Long-term debt (excludes lease liabilities) |
45,166 |
37,973 |
7,193 |
18.9 % |
||||
- |
||||||||
Cash provided by operating activities |
26,130 |
31,875 |
(5,745) |
-18.0 % |
||||
Net change in non-cash working capital items |
(5,621) |
(5,710) |
89 |
1.6 % |
||||
Share-based compensation expense |
1,788 |
1,848 |
(60) |
-3.2 % |
||||
Maintenance capital expenditures |
2,994 |
1,094 |
1,900 |
173.7 % |
||||
Principal elements of lease payments |
7,397 |
7,167 |
230 |
3.2 % |
||||
Distributable cash flow |
19,572 |
27,476 |
(7,904) |
-28.8 % |
||||
Dividends declared |
12,905 |
12,846 |
59 |
0.5 % |
||||
Payout ratio |
65.9 % |
46.8 % |
19.1 % |
40.8 % |
||||
(1) See "Terminology" for further details |
OUTLOOK
The Corporation's healthcare segment continues to outperform relative to historical levels, with a steady trend. For the hospitality segment, management expects a good level of activity with the easing of government-imposed restrictions on international border crossings, increasing business/leisure travel, and price increases will continue to support the strong recovery momentum in hospitality revenues experienced through 2022. The Corporation continues to pursue price increases to offset inflation-related costs and anticipates that 2023 results will reflect the full impact of price increases secured in the later part of Q4 2022 and into Q2 2023.
Within 2022, management has been focused on operational efficiencies and the transition of new AHS business, which was completed in early April 2022. Into 2023, management will continue to focus on optimizing plant efficiencies associated with the transition of new AHS business.
From an input cost perspective, since early March 2022, particularly in the UK, the Corporation has faced significant volatility in energy costs due to current geopolitical issues. In April 2022, to mitigate this instability, the Corporation locked in natural gas supply rates in the UK until December 2024. Based on these locked in rates natural gas as a percent of revenue has increased approximately 2.5 percentage points from historical levels for 2022. As we move into 2023, we expect to mitigate these cost increases with price increases to our customers.
The Corporation is also facing temporary labour inefficiencies from unusually competitive labour markets. Management is focused on the retention of existing staff, in addition to implementing strategies to recruit and hire new staff. The Corporation has achieved some success in certain markets but is still focusing efforts on other markets. The Corporation is managing more challenging regional labour availability with complementary temporary foreign worker programs.
Management is confident in their ability to return to 2019 margin levels, consistent with historical seasonal trends, once we gain efficiencies from the AHS transition which is anticipated to occur in the later half of 2023. However, this will also be dependent on our ability to attract and retain staff in each of the markets in which we operate. Management anticipates labour markets will stabilize, but the timing remains uncertain.
With continued momentum in existing operations, management has refocused attention on strategic acquisitions, such as the recently announced acquisition of Paranet, to accelerate growth in both North America and Europe, geographies which remain highly fragmented. K-Bro will look to leverage its strong liquidity position, balance sheet and access to the capital markets to execute on these opportunities, should they arise. For further information about the impact of the COVID-19 pandemic on our business, see the "Summary of Interim Results, and Key Events".
CORPORATE PROFILE
K-Bro 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 ten 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, 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 five UK sites located in Cupar, Perth, Newcastle, Livingston and Coatbridge.
Additional information regarding the Corporation including required securities filings are available on our website at www.k-brolinen.com and on the Canadian Securities Administrators' website at www.sedar.com; the System for Electronic Document Analysis and Retrieval ("SEDAR").
TERMINOLOGY
Throughout this news release and other documents referred to herein, and in order to provide a better understanding of the financial results, K-Bro uses the terms "EBITDA", "adjusted EBITDA", "adjusted net earnings", "adjusted net earnings per share", "debt to total capital", "distributable cash" and "payout ratio". These terms do not have any standardized meaning under International Financial Reporting Standards ("IFRS") as set out in the CICA Handbook. Therefore, EBITDA, adjusted EBITDA, adjusted net earnings, adjusted net earnings per share, distributable cash and payout ratio may not be comparable to similar measures presented by other issuers. Specifically, the terms "EBITDA", "adjusted EBITDA", "adjusted net earnings", "adjusted net earnings per share", "distributable cash", and "payout ratio" have been defined as follows:
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 |
Years Ended |
|||||||
(thousands) |
2022 |
2021 |
2022 |
2021 |
||||
Net earnings |
$ 280 |
$ 1,499 |
$ 3,906 |
$ 8,692 |
||||
Add: |
||||||||
Income tax expense |
302 |
1 |
1,538 |
3,788 |
||||
Finance expense |
1,639 |
800 |
4,980 |
3,449 |
||||
Depreciation of property, plant and equipment |
6,120 |
5,958 |
23,766 |
23,625 |
||||
Amortization of intangible assets |
385 |
670 |
2,302 |
3,237 |
||||
EBITDA |
$ 8,726 |
$ 8,928 |
$ 36,492 |
$ 42,791 |
||||
Non-GAAP Measures
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.
Three Months Ended |
Years Ended |
||||||
(thousands) |
2022 |
2021 |
2022 |
2021 |
|||
Cash provided by operating activities |
$ 1,049 |
$ 7,743 |
$ 26,130 |
$ 31,875 |
|||
Deduct (add): |
|||||||
Net changes in non-cash working capital items |
(4,994) |
(1,358) |
(5,621) |
(5,710) |
|||
Share-based compensation expense |
410 |
417 |
1,788 |
1,848 |
|||
Maintenance capital expenditures |
706 |
281 |
2,994 |
1,094 |
|||
Principal elements of lease payments |
1,908 |
1,808 |
7,397 |
7,167 |
|||
Distributable cash flow |
$ 3,019 |
$ 6,595 |
$ 19,572 |
$ 27,476 |
|||
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.
Three Months Ended |
Years Ended |
||||||
(thousands) |
2022 |
2021 |
2022 |
2021 |
|||
Cash dividends |
3,227 |
3,216 |
12,905 |
12,846 |
|||
Distributable cash flow |
3,019 |
6,595 |
19,572 |
27,476 |
|||
Payout ratio |
106.9 % |
48.8 % |
65.9 % |
46.8 % |
|||
Debt to Total Capital
"Debt to total capital" is defined by management as the total long–term debt (excludes lease liabilities) divided by the Corporation's total capital. This is a measure used by investors to assess the Corporation's financial structure.
Distributable cash flow, payout ratio, 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.
FORWARD LOOKING STATEMENTS
This news release 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 news release. 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 including, without limitation, in connection with the settlement of definitive documentation in respect there of; (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; * 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 short to medium term; (xii) availability and access to labour; (xiii) rising wage rates in all jurisdictions the Corporation operates and (ix) 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; (v) the level of capital expenditures and (vi) the expected impact of the COVID-19 pandemic on the Corporation. Although the forward-looking information contained in this news release 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 news release may be considered "financial outlook" for purposes of applicable securities laws, and such financial outlook may not be appropriate for purposes other than this news release. Forward looking information included in this news release includes the expected annual healthcare revenues to be generated from the Corporation's contracts with new customers, calculation of costs, including one-time costs impacting the quarterly financial results, anticipated future capital spending and statements with respect to future expectations on margins and volume growth, as well as statements related to the impact of the COVID-19 pandemic on the Corporation.
All forward–looking information in this news release is qualified by these cautionary statements. Forward–looking information in this news release 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 news release 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.
SOURCE K-Bro Linen Inc.
Linda McCurdy, Chief Executive Officer, K-Bro Linen Inc. (TSX: KBL), Phone: 780.453.5218, Email: [email protected], Web: www.k-brolinen.com
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