K-BRO DELIVERS SOLID 2021 AND FOURTH QUARTER RESULTS WITH CONTINUED RECOVERY IN HOSPITALITY REVENUE
(TSX: KBL)
EDMONTON, AB, March 15, 2022 /CNW/ - K-Bro Linen Inc. ("K-Bro" or the "Corporation") today announces its 2021 and Q4 2021 financial and operating results.
2021 and Q4 2021 Financial and Operating Highlights
- Consolidated healthcare revenue for 2021 increased by 10.2% compared to 2020.
- Consolidated healthcare revenue for Q4 2021 decreased by 1.0% compared to Q4 2020.
- Consolidated hospitality revenue for 2021 increased by 26.6% compared to 2020.
- Consolidated hospitality revenue for Q4 2021 increased by 146.6% compared to Q4 2020.
- EBITDA increased for fiscal 2021 to $42.8 million compared to $38.2 million for fiscal 2020.
- EBITDA decreased in the fourth quarter to $8.9 million compared to $11.7 million over the comparable 2020. Q4 2021 was lower this year than last year, primarily due to transitory impacts related to temporarily tight labour markets in certain cities in which we operate and transition costs associated with the new AHS business. However, on a full year basis, revenue increased, EBITDA increased, and margins were in line with 2020, reflecting strong recovery and momentum in the business heading into 2022.
- Net earnings increased for fiscal 2021 to $8.7 million compared to $3.8 million for fiscal 2020.
- Net earnings in the fourth quarter of 2021 decreased by $0.6 million to $1.5 million compared to $2.1 million in the comparative period of 2020, and as a percentage of revenue decreased by 1.8% to 2.4%
- For fiscal 2021 and during the fourth quarter, K-Bro declared dividends of $1.20 and $0.300 per common share respectively.
- Long-term debt for fiscal 2021 of $38.0 million compared to $40.7 million for fiscal 2020 reflecting our strong balance sheet.
Linda McCurdy, President & CEO of K-Bro commented, "I am pleased with our fiscal 2021 and fourth quarter results. Hospitality revenues for 2021 saw increases of approximately 26.6% on a year-over-year basis primarily a result of COVID-19 pandemic restrictions being eased. Healthcare revenues for 2021 saw increases of approximately 10.2% due to increased customer demand. Our 11-year contract with AHS commenced on August 1, 2021 and we began the transition of the new rural business in late Q3 2021. As a result of this, during the fourth quarter we incurred certain one-time transition costs as we integrated this new business, the transition of which we anticipate to be completed in mid-2022.
While we experienced a strong recovery of our hospitality business in the quarter, temporary tight labour markets in certain cities in which we operate resulted in additional costs being incurred to process the volumes. Our outlook for the 2022 hospitality business remains positive particularly in light of the recent lifting of government restrictions on international border crossings and increasing business and leisure travel.
We will look to leverage our strong liquidity position, balance sheet and access to the capital markets to execute on M&A opportunities in North America and Europe as they arise," concluded McCurdy.
Highlights and Significant Events for Fiscal 2021
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 is 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. The contract is anticipated to add approximately $10.0 million in incremental annual revenue. The Corporation will continue to incur one-time transition costs and have temporary margin impacts as the new volume is transitioned into the Corporation's two facilities in Edmonton and Calgary. It is anticipated that the Corporation will return to normalized margins once the transition is complete in mid-2022. Capital expenditures are projected in the amount of approximately $10 million for new linen carts and additional equipment to support the additional volumes.
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 will be 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 is anticipated to be completed by mid-2022.
British Columbia Contract Award
On September 1, 2020 the Corporation was awarded a five-year extension to provide healthcare laundry and linen services to part of the Lower Mainland. The contract extends the existing relationship between the Corporation and Business Initiatives & Support Services (BISS) for Vancouver Coastal Health, Fraser Health, Providence Health Care and Provincial Health Services Authority.
Revolving Credit Facility
On June 30, 2021, the Corporation completed amendments to its existing revolving credit facility, which extended the agreement to July 31, 2024 from July 31, 2022.
During 2020, in consideration of the ongoing COVID-19 pandemic, management requested temporary changes to the terms and conditions of the credit facility, which were as follows:
- An increased Funded Debt to EBITDA covenant for the period of September 30, 2020 to June 30, 2021 which gradually allows for a maximum Funded Debt to EBITDA ratio of 4.5x for Q4 2020 and Q1 2021 including certain one-time add backs to EBITDA.
- A reduction to the Fixed Charge Covenant for the period of September 30, 2020 to June 30, 2021 which reduces to a maximum of 1.1x.
- A restriction on any further dividend increases during the covenant relief period of July 1, 2020 to June 30, 2021.
These temporary covenant changes as well as the restriction on dividends expired on June 30, 2021 and the Corporation must now observe a maximum Funded Debt to EBITDA covenant of 3.25x and a maximum Fixed Charge covenant of 1.2x
Capital Investment Plan
For fiscal 2022, the Corporation's planned capital spending is expected to be approximately $5.0 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 2021 that are to be paid in 2022, nor does this account for the projected $10.0 million in additional capital expenditures to support the new AHS business that was announced earlier in 2021 and is discussed above under the Alberta Contract Award. 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 Pandemic
The ongoing COVID-19 pandemic caused world governments to institute travel restrictions, impacting travel both in and out of Canada and the UK. Beginning in mid-March 2020, we saw significantly reduced hotel occupancy rates compared to historical levels. Demand for both business and leisure airline travel declined significantly on a global basis, and airlines responded by cancelling international and domestic flights. Accordingly, hospitality volumes in all of our Canadian and UK markets slowed to historically low levels. However in mid-2021 as government restrictions began to ease the hospitality segment began to show strong recovery which is expected to continue.
In late Q1 2020 and into Q2 2020 we initially saw 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). Since then however, we have continued to see healthcare revenues trend consistently above historical levels due to increased demand. We cannot predict with certainty how the progression of COVID-19 will impact overall volumes going forward.
The following table depicts the impact of the COVID-19 pandemic on the Corporation's revenue for 2020 and 2021.
Month |
Healthcare Revenue Change |
Hospitality Revenue Change |
Consolidated Revenue Change |
Month |
Healthcare Revenue Change |
Hospitality Revenue Change |
Consolidated Revenue Change |
January |
3% |
7% |
5% |
January |
25% |
-80% |
-14% |
February |
5% |
7% |
6% |
February |
26% |
-82% |
-19% |
March |
0% |
-27% |
-12% |
March |
28% |
-80% |
-20% |
Q1 2020 compared to Q1 2019 |
3% |
-6% |
-1% |
Q1 2021 compared to Q1 2019 |
26% |
-81% |
-18% |
April |
-8% |
-94% |
-45% |
April |
24% |
-81% |
-22% |
May |
2% |
-92% |
-39% |
May |
21% |
-69% |
-19% |
June |
9% |
-90% |
-40% |
June |
22% |
-49% |
-13% |
Q2 2020 compared to Q2 2019 (April to June) |
1% |
-92% |
-41% |
Q2 2021 compared to Q2 2019 |
23% |
-66% |
-18% |
July |
13% |
-76% |
-29% |
July |
16% |
-40% |
-11% |
August |
12% |
-59% |
-23% |
August |
11% |
-30% |
-9% |
September |
12% |
-53% |
-20% |
September |
12% |
-28% |
-8% |
Q3 2020 compared to Q3 2019 |
12% |
-63% |
-24% |
Q3 2021 compared to Q3 2019 |
13% |
-33% |
-9% |
October |
12% |
-61% |
-20% |
October |
12% |
-28% |
-5% |
November |
19% |
-69% |
-18% |
November |
19% |
-23% |
1% |
December |
24% |
-78% |
-22% |
December |
20% |
-23% |
1% |
Q4 2020 compared to Q4 2019 (October to December) |
18% |
-69% |
-20% |
Q4 2021 compared to Q4 2019 (October to December) |
17% |
-25% |
-1% |
YTD |
9% |
-60% |
-22% |
YTD |
20% |
-49% |
-11% |
Although the Corporation has developed and implemented measures to mitigate the effects of the COVID-19 pandemic which include, temporary restructuring through consolidating operations, reducing headcount, reducing certain 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 outbreaks, the availability and effectiveness of the vaccine, 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 continue to experience significantly reduced occupancy rates, our 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 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 assets or liabilities affected.
Impairment of Assets
a) Impairment testing at December 31, 2021
The Corporation performed its annual assessment for goodwill impairment for the Canadian division and for the UK division as at December 31, 2021 in accordance with its policy described in Note 2(k).
At December 31, 2021, the recoverable amount for the CGUs was determined using either a probability-weighted discounted cash flow approach (hospitality CGUs) or an earnings multiple approach (healthcare CGUs). The Corporation references Board approved budgets and cash flow forecasts, trailing twelve-month EBITDA, implied multiples and appropriate discount rates in the valuation calculations.
For the healthcare CGUs whereby the earnings multiple approach is used the implied multiple is calculated by utilizing the average multiples of comparable public companies. For the healthcare CGU's, the Corporation used implied average forward multiple of 10.80 to calculate the recoverable amounts. For these CGUs, based on testing performed at December 31, 2021 no impairment was determined to exist.
For the hospitality CGUs the probability weighted discounted cash flow approach was used at both March 31, 2020, December 31, 2020 and December 31, 2021 to capture the increased risk and uncertainty arising from COVID-19.
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%. For the December 31, 2020 impairment test, management's probability weighted approach was evaluated based on an equally weighted probability of a continued two year downturn in sales to the worst case of a three year downturn in sales. The scenarios estimated a decline of 45% for 2021, 30% for 2022, and 5% for 2023 with sales returning to normalized levels thereafter with sales growth estimates used 2%. This contrasts to the March 31, 2020 impairment test which contemplated a decline in 2020 and 2021 revenues only.
As at December 31, 2021 for the goodwill associated with the remaining hospitality CGUs (the UK Division, Vancouver 2 and Victoria) the recoverable amounts was estimated to be £53,083, $31,176 and $8,290 (2020- £41,070, $21,300 and $6,484) respectively which exceeded the carrying amounts of the CGUs. No further impairment was therefore required for any of these CGUs.
The key assumptions in calculating the recoverable amount of the remaining CGU's were as follows:
December 31, 2021 |
December 31, 2020 |
|
Long-term growth rate % |
2.0% |
2.0% |
Pre-tax discount rate % |
13.8% to 16.2% |
11.6% to 12.5% |
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 that could cause the carrying amount of these CGUs to exceed the recoverable amount. The table below summarizes the sensitivity of the key assumptions.
Sensitivity |
|||
Recoverable Amount |
Long-term |
Pre-tax |
|
UK Division |
£53,083 |
-£4,988 |
-£4,915 |
Vancouver 2 Division |
$31,176 |
-$2,818 |
-$3,152 |
Victoria |
$8,290 |
-$834 |
-$770 |
The Corporation will continue to carefully monitor the situation as it pertains to the COVID-19 pandemic and further consider if there are new, or additional indicators, that exist during fiscal 2022.
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.
b) Impairment testing at March 31, 2020
Management assessed that impairment indicators existed at March 31, 2020, specifically for the five CGUs that rely primarily on hospitality revenues as a result of the significant impact that COVID-19 had on the hospitality industry.
For the five CGUs who rely primarily on hospitality revenues an impairment test was completed using a probability-weighted discounted cash flow approach whereby the recoverable amount was based on the higher of an asset's fair value less costs to sell and value in use (being the present value of the expected future cash flows of the relevant asset or CGU).
The key assumptions in calculating the recoverable amount of the five CGU's were as follows:
March 31, 2020 |
|
Long-term growth rate % |
2.0% to 3.0% |
Pre-tax discount rate % |
10.5% to 12.5% |
For the March 31, 2020 impairment test, management's probability weighted approach was 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 2020 and 50% for 2021, with sales returning to normalized levels thereafter with sales growth estimates used between 2% to 3%.
As a result of this testing at March 31, 2020, 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. The table below summarizes the impairment details:
Financial Results
For The Three Months Ended December 31, |
||||||||||||||||
(thousands, except per share amounts |
Canadian |
UK |
2021 |
Canadian |
UK |
2020 |
$ Change |
% Change |
||||||||
Revenue |
$ |
48,046 |
$ |
14,164 |
$ |
62,210 |
$ |
44,573 |
$ |
5,784 |
$ |
50,357 |
11,853 |
23.5% |
||
Expenses included in EBITDA |
40,258 |
13,024 |
53,282 |
32,622 |
6,008 |
38,630 |
14,652 |
37.9% |
||||||||
EBITDA |
7,788 |
1,140 |
8,928 |
11,951 |
(224) |
11,727 |
(2,799) |
-23.9% |
||||||||
EBITDA as a % of revenue |
16.2% |
8.0% |
14.4% |
26.8% |
-3.9% |
23.3% |
-8.9% |
-38.2% |
||||||||
Net earnings (loss) |
2,043 |
(544) |
1,499 |
4,500 |
(2,365) |
2,135 |
(636) |
-29.8% |
||||||||
Basic earnings (loss) per share |
$ |
0.192 |
$ |
(0.051) |
$ |
0.141 |
$ |
0.426 |
$ |
(0.224) |
$ |
0.202 |
$ |
(0.061) |
-30.2% |
|
Diluted earnings (loss) per share |
$ |
0.191 |
$ |
(0.051) |
$ |
0.140 |
$ |
0.422 |
$ |
(0.222) |
$ |
0.200 |
$ |
(0.060) |
-30.0% |
|
Dividends declared per diluted share |
$ |
0.30 |
$ |
0.300 |
$ |
- |
0.0% |
|||||||||
Total assets |
332,519 |
323,811 |
8,708 |
2.7% |
||||||||||||
Long-term debt (excludes lease liabilities) |
37,973 |
40,657 |
(2,684) |
-6.6% |
||||||||||||
Cash provided by operating activities |
7,743 |
25,023 |
(17,280) |
-69.1% |
||||||||||||
Net change in non-cash working capital items |
(1,358) |
16,111 |
(17,469) |
-108.4% |
||||||||||||
Share-based compensation expense |
417 |
410 |
7 |
1.7% |
||||||||||||
Maintenance capital expenditures |
281 |
(11) |
292 |
2654.5% |
||||||||||||
Principal elements of lease payments |
1,808 |
1,627 |
181 |
11.1% |
||||||||||||
Distributable cash flow |
6,595 |
6,886 |
(291) |
-4.2% |
||||||||||||
Dividends declared |
3,216 |
3,203 |
13 |
0.4% |
||||||||||||
Payout ratio |
48.8% |
46.5% |
2.3% |
4.9% |
||||||||||||
Years Ended December 31, |
|||||||||||||||
(thousands, except per share amounts |
Canadian |
UK |
2021 |
Canadian |
UK |
2020 |
$ Change |
% Change |
|||||||
Revenue |
$ |
183,073 |
$ |
40,919 |
$ |
223,992 |
$ |
166,682 |
$ |
29,909 |
$ |
196,591 |
27,401 |
13.9% |
|
Expenses included in EBITDA |
143,395 |
37,806 |
181,201 |
128,317 |
30,030 |
158,347 |
22,854 |
14.4% |
|||||||
EBITDA |
39,678 |
3,113 |
42,791 |
38,365 |
(121) |
38,244 |
4,547 |
11.9% |
|||||||
EBITDA as a % of revenue |
21.7% |
7.6% |
19.1% |
23.0% |
-0.4% |
19.5% |
-0.4% |
-2.1% |
|||||||
Net earnings (loss) |
13,604 |
(4,912) |
8,692 |
10,892 |
(7,110) |
3,782 |
4,910 |
129.8% |
|||||||
Basic earnings (loss) per share |
$ |
1.282 |
$ |
(0.463) |
$ |
0.819 |
$ |
1.032 |
$ |
(0.673) |
$ |
0.358 |
$ |
0.461 |
128.8% |
Diluted earnings (loss) per share |
$ |
1.273 |
$ |
(0.460) |
$ |
0.813 |
$ |
1.025 |
$ |
(0.669) |
$ |
0.356 |
$ |
0.457 |
128.4% |
Dividends declared per diluted share |
$ |
1.20 |
$ |
1.200 |
$ |
- |
0.0% |
||||||||
Total assets |
332,519 |
323,811 |
8,708 |
2.7% |
|||||||||||
Long-term debt (excludes lease liabilities) |
37,973 |
40,657 |
(2,684) |
-6.6% |
|||||||||||
Cash provided by operating activities |
31,875 |
42,396 |
(10,521) |
-24.8% |
|||||||||||
Net change in non-cash working capital items |
(5,710) |
2,472 |
(8,182) |
-331.0% |
|||||||||||
Share-based compensation expense |
1,848 |
1,799 |
49 |
2.7% |
|||||||||||
Maintenance capital expenditures |
1,094 |
632 |
462 |
73.1% |
|||||||||||
Principal elements of lease payments |
7,167 |
6,222 |
945 |
15.2% |
|||||||||||
Distributable cash flow |
27,476 |
31,271 |
(3,795) |
-12.1% |
|||||||||||
Dividends declared |
12,846 |
12,783 |
63 |
0.5% |
|||||||||||
Payout ratio |
46.8% |
40.9% |
5.9% |
14.4% |
|||||||||||
(1) See "Terminology" for further details |
(2) 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). |
Dividends
The Board of Directors has declared a monthly dividend of $0.10 per common share for the period from March 1 to March 31, 2022, to be paid on April 14, 2022 to shareholders of record on March 31, 2022. The Corporation's policy is for shareholders of record on the last business day of a calendar month to receive dividends during the fifteen days following the end of such month. K-Bro designates this dividend as an eligible dividend pursuant to subsection 89(14) of the Income Tax Act (Canada) and similar provincial and territorial legislation.
OUTLOOK
The Corporation's healthcare segment continues to outperform relative to historical levels. For the hospitality segment, management expects that the current trend towards loosening restrictions on international border crossings and increasing business/leisure travel will continue to support the strong recovery momentum in hospitality revenues experienced since mid-2021. For the last few quarters, management has been focused on operational efficiencies and the transition of the new AHS business which is expected to be completed in mid-2022. From an input cost perspective, since early March 2022, particularly in the UK, the Corporation has faced significant volatility in the cost of natural gas due to current geopolitical issues. As a result of this instability, based on current natural gas supply rates, we anticipate natural gas as a percent of revenue to increase 3 percentage points from historical levels for 2022 (assuming average pricing of £0.1190 per kwh in the UK were to remain in effect for the balance of the year). We expect to mitigate these cost increases with price increases to our customers although there could be some lag. Management is confident that the combination of these factors, a relief in the temporarily tight labour markets in certain cities in which K-Bro operates and potential stabilization of natural gas rates will contribute to a strong 2022.
In addition, management continues to evaluate opportunities to accelerate growth through M&A opportunities in both North America and Europe, 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 2021 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 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, 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.
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) |
2021 |
2020 |
2021 |
2020 |
||||||||
Net earnings |
$ |
1,499 |
$ |
2,135 |
$ |
8,692 |
$ |
3,782 |
||||
Add: |
||||||||||||
Income tax expense |
1 |
1,646 |
3,788 |
2,617 |
||||||||
Finance expense |
800 |
836 |
3,449 |
3,961 |
||||||||
Depreciation of property, plant and equipment |
5,958 |
6,157 |
23,625 |
24,048 |
||||||||
Amortization of intangible assets |
670 |
953 |
3,237 |
3,836 |
||||||||
EBITDA |
$ |
8,928 |
$ |
11,727 |
$ |
42,791 |
$ |
38,244 |
||||
(1) Q1 2020 includes an adjustment of $5.5 million for an impairment related charge to the Canadian Division. |
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) |
2021 |
2020 |
2021 |
2020 |
|||||||
Cash provided by operating activities |
$ |
7,743 |
$ |
25,023 |
$ |
31,875 |
$ |
42,396 |
|||
Deduct (add): |
|||||||||||
Net changes in non-cash working capital items |
(1,358) |
16,111 |
(5,710) |
2,472 |
|||||||
Share-based compensation expense |
417 |
410 |
1,848 |
1,799 |
|||||||
Maintenance capital expenditures |
281 |
(11) |
1,094 |
632 |
|||||||
Principal elements of lease payments |
1,808 |
1,627 |
7,167 |
6,222 |
|||||||
Distributable cash flow |
$ |
6,595 |
$ |
6,886 |
$ |
27,476 |
$ |
31,271 |
|||
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) |
2021 |
2020 |
2021 |
2020 |
|||
Cash dividends |
3,216 |
3,203 |
12,846 |
12,783 |
|||
Distributable cash flow |
6,595 |
6,886 |
27,476 |
31,271 |
|||
Payout ratio |
48.8% |
46.5% |
46.8% |
40.9% |
|||
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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