(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
(2020 compared to 2019)
|
Hospitality
Revenue Change
(2020 compared to 2019)
|
Consolidated
Revenue Change
(2020 compared to 2019)
|
Month
|
Healthcare
Revenue Change
(2021 compared to 2019)
|
Hospitality
Revenue Change
(2021 compared to 2019)
|
Consolidated
Revenue Change
(2021 compared to 2019)
|
|
|
|
|
|
|
|
|
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
(Jan to March)
|
3%
|
-6%
|
-1%
|
Q1 2021 compared to
Q1 2019
(Jan to March)
|
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
(April to June)
|
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
(July to September)
|
12%
|
-63%
|
-24%
|
Q3 2021 compared to
Q3 2019
(July to September)
|
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
Growth Rate
decrease of 1%
|
Pre-tax
discount rate
increase of 1%
|
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
and percentages)
|
Canadian
Division
2021
|
UK
Division
2021
|
2021
|
Canadian
Division
2020
|
UK
Division
2020
|
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
and percentages)
|
Canadian
Division
2021
|
UK
Division
2021
|
2021
|
Canadian
Division
2020
|
UK
Division
2020
|
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
December 31,
|
|
Years Ended
December 31,
|
(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
December 31,
|
|
Years Ended
December 31,
|
(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
December 31,
|
|
Years Ended
December 31,
|
(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.