K-Bro Reports 2021 Q1 Results With Record Healthcare Revenue and EBITDA
(TSX: KBL)
EDMONTON, AB, May 12, 2021 /CNW/ - K-Bro Linen Inc. ("K-Bro" or the "Corporation") today announces its 2021 Q1 financial and operating results.
2021 Financial and Operating Highlights
- Consolidated healthcare revenue for Q1 2021 increased 22.9% compared to Q1 2020.
- Consolidated hospitality revenue for Q1 2021 decreased by 79.5% compared to Q1 2020 which was only impacted by COVID-19 in the last two weeks of March 2020.
- EBITDA increased in the first quarter to $10.1 million compared to $3.7 million over the comparable 2020 period.
- On a consolidated basis excluding IFRS 16 Leases ("IFRS 16") for the three months ended March 31, 2021 the Corporation recorded adjusted EBITDA of $7.8 million and adjusted net earnings of $1.7 million in the first quarter of 2021. This is an increase over the comparable 2020 period where adjusted EBITDA was $7.1 million and adjusted net earnings was $1.0 million.
- Net earnings (loss) in the first quarter of 2021 increased by $5.0 million to $1.6 million compared to $(3.4) million in the comparative period of 2020, and as a percentage of revenue increased by 9.4% to 3.4%.
- Adjusted EBITDA margin increased to 16.4% in the current year from 12.4% over the comparable 2019 period.
- During the first quarter, K-Bro declared dividends of $0.300 per common share and distributable cash was $0.505 per common share on a fully diluted basis.
Linda McCurdy, President & CEO of K-Bro commented, "The COVID-19 pandemic continues to be a challenge to navigate, however I am pleased with our first quarter results of 2021, with adjusted EBITDA of $7.8 million and improvements in the adjusted EBITDA margin despite operating in an environment of unprecedented uncertainty as a result the COVID-19 pandemic. Healthcare revenues for Q1 2021 saw increases of approximately 22.9% on a year-over-year basis due to increased customer demand, conversion to reusable products, new and short-term customers and price increases. Hospitality remained subdued compared to previous years, but we remain optimistic that customer activity will improve throughout 2021 as the vaccine rolls-out in our markets."
"In other developments, we are very pleased to have the opportunity to expand our long-term relationship with Alberta Health Services. We began processing healthcare volume in Alberta in the 1980s, and we have worked closely and collaboratively with AHS over the past 30 years to earn their confidence and trust. We are happy that we will continue to provide service for all of our existing customers in Alberta while also being awarded new healthcare volume." concluded McCurdy.
Highlights and Significant Events for Fiscal 2021
Alberta Contract Award
On March 1, 2021, the Corporation was awarded a one-year extension to provide laundry and linen services to Alberta Health Services Calgary. The contract extends the existing relationship between the Corporation and Alberta Health Services Calgary.
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 are 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. As part of the award, it is anticipated that volumes will increase through the addition of new sites however everything remains subject to settlement of definitive documentation.
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. The terms of the new contract remain subject to negotiation and additional details will be provided once the new contract is entered into.
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.
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
During the second quarter of 2020, the Corporation completed an amendment to its existing revolving credit facility which made changes to certain terms and conditions within the agreement in consideration of the ongoing COVID-19 pandemic and the impact to the Corporation's operations. Key changes included:
- 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.
Capital Investment Plan
For fiscal 2021, 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 2020 that will be paid in 2021. 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 has caused world governments to institute travel restrictions, impacting travel both in and out of Canada and the UK. This has had and is expected to continue to have a significant adverse impact on the Corporation's hospitality business, the duration of which we are unable to predict with any degree of accuracy.
Since mid-March 2020, we have seen significantly reduced hotel occupancy rates compared to historical levels. Demand for both business and leisure airline travel has declined significantly on a global basis, and airlines are responding by cancelling international and domestic flights. Accordingly, hospitality volumes in all of our Canadian and UK markets have slowed to historically low levels. While we saw improvement in the Corporation's hospitality business in Q3 2020 resulting from increased domestic tourism, volumes in Q4 2020 and Q1 2021 have decreased, primarily a result of the additional waves of COVID-19 and reinstatement of previous restrictions.
In addition to this, in late Q1 2020 and into Q2 2020 we 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). As Q2 2020 progressed, we saw a return to more normal healthcare levels with subsequent quarters increasing above historical levels due to increased demand however we cannot predict with certainty how the progression of COVID-19 will impact overall volumes.
The following table depicts the impact on the Corporation's revenue for 2020 and 2021.
Month |
Healthcare |
Hospitality |
Consolidated Revenue |
Month |
Healthcare |
Hospitality |
Consolidated |
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% |
||||
May |
2% |
-92% |
-39% |
||||
June |
9% |
-90% |
-40% |
||||
Q2 2020 compared to Q2 2019 |
1% |
-92% |
-41% |
||||
July |
13% |
-76% |
-29% |
||||
August |
12% |
-59% |
-23% |
||||
September |
12% |
-53% |
-20% |
||||
Q3 2020 compared to Q3 2019 |
12% |
-63% |
-24% |
||||
October |
12% |
-61% |
-20% |
||||
November |
19% |
-69% |
-18% |
||||
December |
24% |
-78% |
-22% |
||||
Q4 2020 compared to Q4 2019 |
18% |
-69% |
-20% |
||||
YTD |
9% |
-60% |
-22% |
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. As hotels are continuing to experience significantly reduced occupancy rates, our 2021 consolidated results of operations will continue to 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 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:
CGU |
Allocated to |
Allocated to |
Total |
Recoverable |
||||
Montreal |
$ |
823 |
$ |
- |
$ |
823 |
$ |
2,485 |
Quebec |
654 |
2,339 |
2,993 |
(1,917) |
||||
Victoria |
1,700 |
- |
1,700 |
5,433 |
||||
$ |
3,177 |
$ |
2,339 |
$ |
5,516 |
$ |
6,001 |
|
Based on management's review, there were no other CGUs as at March 31, 2021 showing further signs of impairment that were not already considered at March 31, 2020 and updated as required at December 31, 2020. The Corporation will continue to carefully monitor the situation as it pertains to COVID-19 and further consider if there are new, or additional indicators, that exist during the year.
With the ongoing development of the COVID-19 pandemic, the length and severity of these developments is therefore subject to significant uncertainty, and accordingly 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.
Financial Results
For The Three Months Ended March 31, |
|||||||||||||||
(thousands, except per share amounts |
Canadian |
UK |
2021 |
Canadian |
UK |
2020 |
$ Change |
% Change |
|||||||
Revenue |
$ |
44,702 |
$ |
2,912 |
$ |
47,614 |
$ |
43,711 |
$ |
13,564 |
$ |
57,275 |
(9,661) |
-16.9% |
|
Expenses included in EBITDA |
33,744 |
3,809 |
37,553 |
40,917 |
12,615 |
53,532 |
(15,979) |
-29.8% |
|||||||
EBITDA |
10,958 |
(897) |
10,061 |
2,794 |
949 |
3,743 |
6,318 |
168.8% |
|||||||
EBITDA as a % of revenue |
24.5% |
-30.8% |
21.1% |
6.4% |
7.0% |
6.5% |
14.6% |
224.6% |
|||||||
Adjusted EBITDA without adoption of IFRS 16 |
9,508 |
(1,689) |
7,819 |
6,848 |
261 |
7,109 |
710 |
10.0% |
|||||||
Adjusted EBITDA without adoption of IFRS 16as a % of revenue |
21.3% |
-58.0% |
16.4% |
15.7% |
1.9% |
12.4% |
4.0% |
32.3% |
|||||||
Net earnings (loss) |
4,157 |
(2,523) |
1,634 |
(2,472) |
(936) |
(3,408) |
5,042 |
147.9% |
|||||||
Basic earnings (loss) per share |
$ |
0.392 |
$ |
(0.238) |
$ |
0.154 |
$ |
(0.235) |
$ |
(0.089) |
$ |
(0.323) |
$ |
0.477 |
147.7% |
Diluted earnings (loss) per share |
$ |
0.390 |
$ |
(0.237) |
$ |
0.153 |
$ |
(0.233) |
$ |
(0.088) |
$ |
(0.322) |
$ |
0.475 |
147.5% |
Dividends declared per diluted share |
$ |
0.30 |
$ |
0.300 |
$ |
- |
0.0% |
||||||||
Adjusted net earnings (loss) without adoption of IFRS 16 |
4,152 |
(2,475) |
1,677 |
1,863 |
(878) |
985 |
692 |
70.3% |
|||||||
Basic adjusted net earnings (loss) without adoption of IFRS 16 per share |
$ |
0.392 |
$ |
(0.234) |
$ |
0.158 |
$ |
0.177 |
$ |
(0.083) |
$ |
0.093 |
$ |
0.065 |
69.9% |
Diluted adjusted net earnings (loss) without adoption of IFRS 16 per share |
$ |
0.389 |
$ |
(0.232) |
$ |
0.157 |
$ |
0.176 |
$ |
(0.083) |
$ |
0.093 |
$ |
0.064 |
68.8% |
Total assets |
316,101 |
336,127 |
(20,026) |
-6.0% |
|||||||||||
Long-term debt (excludes lease liabilities) |
36,811 |
54,693 |
(17,882) |
-32.7% |
|||||||||||
- |
|||||||||||||||
Cash provided by operating activities |
8,542 |
11,588 |
(3,046) |
-26.3% |
|||||||||||
Net change in non-cash working capital items |
692 |
3,011 |
(2,319) |
-77.0% |
|||||||||||
Share-based compensation expense |
506 |
507 |
(1) |
-0.2% |
|||||||||||
Maintenance capital expenditures |
112 |
328 |
(216) |
-65.9% |
|||||||||||
Principal elements of lease payments |
1,852 |
1,666 |
186 |
11.2% |
|||||||||||
Distributable cash flow |
5,380 |
6,076 |
(696) |
-11.5% |
|||||||||||
Dividends declared |
3,203 |
3,181 |
22 |
0.7% |
|||||||||||
Payout ratio |
59.5% |
52.4% |
7.1% |
13.5% |
|||||||||||
(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 May 1 to May 31, 2021, to be paid on June 15, 2021 to shareholders of record on May 31, 2021. 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
While the COVID-19 pandemic will have a continued significant negative impact on our hospitality revenue, management believes the prospects for the Corporation's healthcare business remains strong in the medium-to-long-term. By providing integral laundry and linen processing services to the hospitality and healthcare sectors, the Corporation has been designated an "essential" service in the jurisdictions in which it operates, which has allowed the Corporation's facilities to remain open and continue "normal" operations. This has mitigated some of the more dramatic financial and operational impacts experienced by many other businesses in other industries. In addition, management believes that the financial flexibility provided by our strong balance sheet will enable us to operate without disruption to our business model while maintaining our ability to service the healthcare and hospitality sectors in our Canadian and UK markets. For further information about the impact of the COVID-19 pandemic on our business, see the "Summary of Interim Results, and Key Events".
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 |
||||||
(thousands) |
2021 |
2020 |
||||
Net earnings (loss) |
$ |
1,634 |
$ |
(3,408) |
||
Add: |
||||||
Income tax expense |
822 |
(1,123) |
||||
Finance expense |
865 |
1,193 |
||||
Depreciation of property, plant and equipment |
5,878 |
6,115 |
||||
Amortization of intangible assets |
862 |
966 |
||||
EBITDA |
$ |
10,061 |
$ |
3,743 |
||
(1) |
Q1 2020 includes an adjustment of $5.5 million for an impairment related charge to the Canadian Division. |
Non-GAAP Measures
Adjusted EBITDA without adoption of IFRS 16
Adjusted EBITDA without adoption of IFRS 16 is a measure which has been reported in order to assist in the comparison of historical EBITDA to current results. "Adjusted EBITDA" without adoption of IFRS 16 is defined as EBITDA (defined above) with the exclusion of IFRS 16, and certain material items that are unusual in nature, infrequently occurring or not considered part of our core operations.
Three Months Ended March 31, |
|||||||||||||
Canadian |
UK |
Canadian |
UK |
||||||||||
(thousands) |
2021 |
2021 |
2021 |
2020 |
2020 |
2020 |
|||||||
EBITDA |
$ |
10,958 |
$ |
(897) |
$ |
10,061 |
$ |
2,794 |
$ |
949 |
$ |
3,743 |
|
Add back IFRS 16 Adjustments: |
|||||||||||||
Delivery |
(343) |
(474) |
(817) |
(358) |
(397) |
(755) |
|||||||
Occupancy costs |
(1,107) |
(318) |
(1,425) |
(1,104) |
(291) |
(1,395) |
|||||||
- |
- |
- |
|||||||||||
EBITDA without adoption of IFRS 16 |
$ |
9,508 |
$ |
(1,689) |
$ |
7,819 |
$ |
1,332 |
$ |
261 |
$ |
1,593 |
|
Add back non-reoccuring items: |
|||||||||||||
Impairment of assets |
- |
- |
- |
5,516 |
- |
5,516 |
|||||||
- |
- |
- |
|||||||||||
Adjusted EBITDA without adoption of IFRS 16 |
$ |
9,508 |
$ |
(1,689) |
$ |
7,819 |
$ |
6,848 |
$ |
261 |
$ |
7,109 |
|
Adjusted net earnings without adoption of IFRS 16 and adjusted net earnings without adoption of IFRS 16 per Share
Adjusted net earnings and adjusted net earnings per share are measures which have been reported in order to assist in the comparison of historical net earnings to current results. "Adjusted net earnings" is defined as net earnings with the exclusion of IFRS 16, and certain material items that are unusual in nature, infrequently occurring or not considered part of our core operations.
Three Months Ended March 31, |
|||||||||||||
Canadian |
UK |
Canadian |
UK |
||||||||||
(thousands) |
2021 |
2021 |
2021 |
2020 |
2020 |
2020 |
|||||||
Net earnings (loss) |
$ |
4,157 |
$ |
(2,523) |
$ |
1,634 |
$ |
(2,472) |
$ |
(936) |
$ |
(3,408) |
|
Add back IFRS 16 Adjustments: |
|||||||||||||
Delivery |
(343) |
(474) |
(817) |
(358) |
(397) |
(755) |
|||||||
Occupancy costs |
(1,107) |
(318) |
(1,425) |
(1,104) |
(291) |
(1,395) |
|||||||
Depreciation of property, plant and equipment |
1,094 |
700 |
1,794 |
1,113 |
657 |
1,770 |
|||||||
Finance expense |
349 |
150 |
499 |
384 |
101 |
485 |
|||||||
Income tax expense |
2 |
(10) |
(8) |
(9) |
(12) |
(21) |
|||||||
Net earnings (loss) without adoption of IFRS 16 |
$ |
4,152 |
$ |
(2,475) |
$ |
1,677 |
$ |
(2,446) |
$ |
(878) |
$ |
(3,324) |
|
Add back non-reoccuring items (net of income taxes): |
|||||||||||||
Impairment of assets |
- |
- |
- |
4,309 |
- |
4,309 |
|||||||
Adjusted net earnings (loss) without adoption of IFRS 16 |
$ |
4,152 |
$ |
(2,475) |
$ |
1,677 |
$ |
1,863 |
$ |
(878) |
$ |
985 |
|
Weighted average number of shares outstanding: |
|||||||||||||
Basic |
10,597,466 |
10,597,466 |
10,597,466 |
10,539,458 |
10,539,458 |
10,539,458 |
|||||||
Diluted |
10,662,966 |
10,662,966 |
10,662,966 |
10,590,526 |
10,590,526 |
10,590,526 |
|||||||
Adjusted net earnings (loss) without adoption of IFRS 16 per share: |
|||||||||||||
Basic |
$0.392 |
($0.234) |
$0.158 |
$0.177 |
($0.083) |
$0.093 |
|||||||
Diluted |
$0.389 |
($0.232) |
$0.157 |
$0.176 |
($0.083) |
$0.093 |
|||||||
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 |
|||||
(thousands) |
2021 |
2020 |
|||
Cash provided by operating activities |
$ |
8,542 |
$ |
11,588 |
|
Deduct (add): |
|||||
Net changes in non-cash working capital items |
692 |
3,011 |
|||
Share-based compensation expense |
506 |
507 |
|||
Maintenance capital expenditures |
112 |
328 |
|||
Principal elements of lease payments |
1,852 |
1,666 |
|||
Distributable cash flow |
$ |
5,380 |
$ |
6,076 |
|
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 |
||||
(thousands) |
2021 |
2020 |
||
Cash dividends |
3,203 |
3,181 |
||
Distributable cash flow |
5,380 |
6,076 |
||
Payout ratio |
59.5% |
52.4% |
||
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; and (xii) foreign currency risk. Material factors or assumptions that were applied in drawing a conclusion or making an estimate set out in the forward-looking information include: (i) volumes and pricing assumptions; (ii) expected impact of labour cost initiatives; (iii) frequency of one-time costs impacting quarterly and annual financial results; (iv) foreign exchange rates; (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 MD&A is based upon what management believes are reasonable assumptions, there can be no assurance that actual results will be consistent with these forward-looking statements. Certain statements regarding forward-looking information included in this MD&A may be considered "financial outlook" for purposes of applicable securities laws, and such financial outlook may not be appropriate for purposes other than this MD&A. Forward looking information included in this MD&A includes the expected annual healthcare revenues to be generated from the Corporation's contracts with new customers, 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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