(TSX: KBL)
EDMONTON, AB, March 21,
2023 /CNW/ - K-Bro Linen Inc. ("K-Bro" or the
"Corporation") today announces its Q4 2022 financial and
operating results.
Q4 2022 Financial and Operating
Highlights
- Consolidated healthcare revenue for 2022 increased by 4.1%
compared to 2021.
- Consolidated healthcare revenue for Q4 2022 increased by 5.8%
compared to Q4 2021.
- Consolidated hospitality revenue for 2022 increased by 79.7%
compared to 2021.
- Consolidated hospitality revenue for Q4 2022 increased by 29.3%
compared to Q4 2021.
- EBITDA decreased for fiscal 2022 to $36.5 million compared to $42.8 million for fiscal 2021.
- EBITDA remained consistent in the fourth quarter at
$8.7 million compared to $8.9 million over the comparable 2021
period.
- Net earnings decreased for fiscal 2022 to $3.9 million compared to $8.7 million for fiscal 2021.
- Net earnings in the fourth quarter of 2022 decreased by
$1.2 million to $0.3 million compared to $1.5 million in the comparative period of 2021,
and as a percentage of revenue decreased by 2.0% to 0.4%
- For fiscal 2022 and during the fourth quarter, K-Bro declared
dividends of $1.20 and $0.300 per common share respectively.
- Long-term debt for fiscal 2022 of $45.2
million reflecting our strong balance sheet.
Linda McCurdy, President &
CEO of K-Bro, commented that "In the fourth quarter, we saw
continued momentum in both hospitality and healthcare, which
supports a strong outlook ahead. Our consolidated revenue for
the year exceeded pre-COVID levels set in 2019, and we continue to
see robust volumes in our Canadian and UK businesses. The
COVID pandemic and certain geopolitical events have contributed to
temporary labour inefficiencies and higher energy costs. We
are actively managing the impact of energy price increases and
local market labour shortages. We have been successful in
working with many of our Canadian and UK customers to implement
price increases to offset inflation-related costs. In the
fourth quarter, we began to see some benefit from these price
increases, the full impact of which we will see in 2023."
"On March 2, we were delighted to
announce the acquisition of Paranet. Paranet is a
high-quality operator with leading market positions in the
Quebec City healthcare and
hospitality markets. Paranet is our first acquisition
following the COVID pandemic and we have an active M&A
pipeline. Strategic acquisitions have been an important
contributor to K-Bro's overall growth profile and, with continued
momentum in our business, we are refocusing on M&A. We
remain well positioned from a balance sheet and liquidity
perspective and will continue to be disciplined as we evaluate
acquisitions."
"We anticipate returning to historical 2019 margin levels in the
second half of 2023, once we gain efficiencies from the AHS
transition, and margins will be consistent with historical seasonal
trends."
Highlights and Significant Events for Fiscal
2022
Acquisition of Buanderie Paranet
On March 2, 2023, the Corporation
announced the closing of a share purchase agreement to acquire all
the assets of a private laundry and linen services company
incorporated in Canada and
operating in Quebec City, Quebec
for total consideration of $11.5
million and a potential earnout of $1.9 million. The acquisition will be accounted
for using the acquisition method, whereby the purchase
consideration will be allocated to the net assets acquired.
Paranet is a private laundry and linen services company for the
Quebec City healthcare and
hospitality markets. The purchase price will be satisfied by
drawing down on the Corporation's revolving credit facility.
At the time the financial statements were authorized for
issue, and due to the timing of the acquisition, the Corporation
has not yet completed the accounting for the acquisition of
Paranet.
3sHealth Contract Extension
In Q2 2022, the Corporation extended its existing contract with
3sHealth for an additional six years to May
31, 2031 on terms that are consistent with the existing
contract.
Alberta Contract Award
In October 2020, AHS issued a
request for proposal for linen services (the "AHS RFP"). The AHS
RFP encompassed the linen services provided by the Corporation to
AHS under its AHS Calgary contract, as well as the linen services
provided by the Corporation to AHS in Edmonton, for which volumes were under
contract as part of two existing agreements until 2022 and 2023
respectively. The AHS RFP also included new volume for additional
rural and urban locations in Alberta.
On April 27, 2021, the Corporation
was selected to provide laundry services for Alberta Health
Services ("AHS") for the entire province. The award was the result
of a competitive RFP process and extends K-Bro's existing
relationships with AHS.
On July 26, 2021, the Corporation
announced the signing of a new 11-year contract, with renewal
options for up to an additional 9 years, to provide laundry and
linen services for AHS province-wide. In 2022, the Corporation
incurred one-time transition costs and experienced temporary margin
impacts as the new volume was transitioned into the Corporation's
two facilities in Edmonton and
Calgary. Management is confident
in their ability to return to 2019 margin levels, consistent with
historical seasonal trends, once we gain efficiencies from the AHS
transition which is anticipated to occur in the later half of
2023.
The award renews all of K-Bro's existing volume in Edmonton and Calgary and awards additional healthcare
volume for other sites in Alberta.
The new volume is serviced from K-Bro's existing state-of-the-art
facilities in Edmonton and
Calgary. The transition of new
rural business from AHS commenced in late Q3 2021 and was completed
in early April 2022.
Revolving Credit Facility
In Q2 2022, the corporation completed an amendment to its
existing revolving credit facility, which extended the agreement
from July 31, 2024 to July 31, 2026. The Corporation's
incremental borrowing rate under its existing credit facility is
determined by the Canadian prime rate plus an applicable margin
based on the ratio of Funded Debt to EBITDA as defined in the
credit agreement. Throughout fiscal 2022, the Canadian prime
rate has risen from 3.7% in January
2022 to 6.45% in December 2022. As a result of this
increase, total interest rate expense would increase $1.1 million on an annual basis assuming the
December 31, 2022 credit facility
utilization rate of $47,002.
Capital Investment Plan
For fiscal 2023, the Corporation's planned capital spending is
expected to be approximately $7.0
million on a consolidated basis. This guidance includes both
strategic and maintenance capital requirements to support existing
base business in both Canada and
the UK and does not take into account amounts accrued in 2022 that
are to be paid in 2023. We will continue to assess capital needs
within our facilities and prioritize projects that have shorter
term paybacks as well as those that are required to maintain
efficient and reliable operations.
COVID-19 Risk and Geopolitical Stability
The ongoing COVID-19 pandemic has caused world governments to
institute travel restrictions both in and out of and within
Canada and the UK, which has had,
and is expected to continue to have an adverse impact on the
Corporation's hospitality business. While government-imposed
restrictions eased significantly over the course of 2022, and
vaccination rates continued to rise, the uncertainty regarding the
ongoing COVID-19 pandemic remains a threat to the continued
recovery in the Corporation's hospitality business. The
COVID-19 pandemic has also contributed to unusually competitive
labour markets, causing inefficiencies in attracting, training and
retaining employees. While the Corporation anticipates labour
markets will stabilize, the timing remains uncertain.
In addition to this, certain geopolitical events and other
factors have resulted in rising and unstable commodity costs for
key inputs such as natural gas, electricity and diesel. In
the event these cost increases exceed price increase mechanisms
this could have an adverse effect on our business prospects and
results of operations.
The Corporation's Credit Facility is subject to floating
interest rates and, therefore, is subject to fluctuations in
interest rates which are beyond the Corporation's control.
Increases in interest rates, both domestically and internationally,
could negatively affect the Corporation's cost of financing its
operations and investments.
The duration and full financial effects of the COVID-19
pandemic, geopolitical events and rising interest rates, continue
to be uncertain at this time. The Corporation is managing
ongoing risks through the Corporation's business continuity plan
and other mitigating measures. Any estimate of the length and
severity of these developments is therefore subject to significant
uncertainty.
The following table depicts the impact of the COVID-19 pandemic
on the Corporation's revenue for 2022 and 2021.
Month
|
Healthcare
Revenue Change
(2021 compared to
2019)
|
Hospitality
Revenue Change
(2021 compared to
2019)
|
Consolidated
Revenue Change
(2021 compared to
2019)
|
Month
|
Healthcare
Revenue Change
(2022 compared to
2019)
|
Hospitality
Revenue Change
(2022 compared to
2019)
|
Consolidated
Revenue Change
(2022 compared to
2019)
|
January
|
25 %
|
-80 %
|
-14 %
|
January
|
24 %
|
-37 %
|
1 %
|
February
|
26 %
|
-82 %
|
-19 %
|
February
|
28 %
|
-26 %
|
5 %
|
March
|
28 %
|
-80 %
|
-20 %
|
March
|
30 %
|
-10 %
|
12 %
|
Q1 2021 compared to
Q1 2019
(Jan to March)
|
26 %
|
-81 %
|
-18 %
|
Q1 2022 compared to
Q1 2019
(Jan to March)
|
27 %
|
-23 %
|
6 %
|
April
|
24 %
|
-81 %
|
-22 %
|
April
|
24 %
|
-7 %
|
11 %
|
May
|
21 %
|
-69 %
|
-19 %
|
May
|
26 %
|
-3 %
|
13 %
|
June
|
22 %
|
-49 %
|
-13 %
|
June
|
26 %
|
-8 %
|
9 %
|
Q2 2021 compared to
Q2 2019
(April to June)
|
23 %
|
-66 %
|
-18 %
|
Q2 2022 compared to
Q2 2019
(April to June)
|
25 %
|
-6 %
|
11 %
|
July
|
16 %
|
-40 %
|
-11 %
|
July
|
20 %
|
-4 %
|
9 %
|
August
|
11 %
|
-30 %
|
-9 %
|
August
|
27 %
|
-2 %
|
12 %
|
September
|
12 %
|
-28 %
|
-8 %
|
September
|
22 %
|
-13 %
|
5 %
|
Q3 2021 compared to
Q3 2019
(July to September)
|
13 %
|
-33 %
|
-9 %
|
Q3 2022 compared to
Q3 2019
(July to September)
|
23 %
|
-6 %
|
9 %
|
October
|
12 %
|
-28 %
|
-5 %
|
October
|
20 %
|
-1 %
|
11 %
|
November
|
19 %
|
-23 %
|
1 %
|
November
|
26 %
|
2 %
|
16 %
|
December
|
20 %
|
-23 %
|
1 %
|
December
|
25 %
|
-7 %
|
11 %
|
Q4 2021
compared to Q4 2019
(October to December)
|
17 %
|
-25 %
|
-1 %
|
Q4 2022
compared to Q4 2019
(October to December)
|
24 %
|
-3 %
|
12 %
|
YTD
|
20 %
|
-49 %
|
-11 %
|
YTD
|
25 %
|
-11 %
|
9 %
|
Uncertainty about judgments, estimates and assumptions made by
management during the preparation of the Corporation's consolidated
financial statements related to potential impacts of the COVID-19
pandemic, geopolitical events and rising interest rates on revenue,
expenses, assets, liabilities, and note disclosures could result in
a material adjustment to the carrying value of the asset or
liability affected.
Impairment of assets
i) The Corporation performed its annual
assessment for goodwill impairment for the Canadian division and
for the UK division as at December
31, 2022 and December 31,
2021 in accordance with its policy described in Note 2(k)
and Note 2(h). The Corporation also performed impairment
assessments for CGUs where there could be a risk of impairment due
to the presence of potential impairment indicators at the CGU
level.
For both periods, the recoverable amount for the
CGUs was assessed using an earnings multiple approach. If the
result of the earnings multiple approach indicated a higher level
of sensitivity a probability weighted discounted cash flow approach
was performed. The Corporation references Board approved budgets
and cash flow forecasts, trailing twelve-month EBITDA, implied
multiples and discount rates in the valuation
calculations.
Earnings multiple approach (FVLCD)
The assumptions used are based on the
Corporation's board approved budgets, cash flow forecasts, trailing
twelve-month EBITDA and the implied multiples. For both fiscal
years, cash flows were projected based on actual results for the
fiscal year tested as well as business forecasts for the immediate
fiscal year following the testing period and then extrapolated for
revenue growth and expected changes in the general economy and
specific markets within which the CGU operates.
The implied multiple is calculated by utilizing
the average multiples of comparable public companies. The
Corporation used an implied average forward multiple of 10.60 (2021
- 10.80) to calculate the recoverable amounts. Where a CGU has
sufficient headroom a probability weighted discounted cash flow
approach was not performed.
Where a CGU shows sensitivity to the earnings
multiple approach, particularly those CGUS with a strong
hospitality base, higher uncertainty as a result of COVID-19 or
higher uncertainty due to geopolitical events or unusually
competitive labour markets, a secondary test in performed based on
a probability-weighted discounted cash flow approach.
Probability weighted discounted cash flow
(VIU)
The recoverable amounts are determined using the
value-in-use ("VIU") approach which considers the probability
weighted discounted future cash flows specific to each CGU
tested.
The assumptions used are based on the
Corporation's board approved budgets, cash flow forecasts, trailing
twelve-month EBITDA, the pre-tax discount rate and terminal value
growth rate. For both fiscal years, cash flows were projected based
on actual results for the fiscal year tested as well as business
forecasts for the immediate fiscal year following the testing
period and then extrapolated for revenue growth and expected
changes in the general economy and specific market within which the
CGU operates.
The discounted cash flows consider the specifics
environment within which each of the CGUs operate. Estimating the
specific cash flows requires judgements on both past and future
performance as well as overall market expectations. The
calculation of the recoverable amount using the discounted cash
flow was based on the following key assumptions:
|
Testing
Methodology
|
|
Pre-tax Discount
Rate
|
|
Terminal Value
Growth Rate
|
|
December 31
2022
|
|
December 31
2022
|
|
December 31
2022
|
December 31
2021
|
|
|
|
|
|
|
|
Calgary
|
FVLCD
|
|
n/a
|
|
n/a
|
n/a
|
Edmonton
|
FVLCD
|
|
n/a
|
|
n/a
|
n/a
|
Vancouver 2
*
|
FVLCD
|
|
n/a
|
|
n/a
|
2.0 %
|
Vancouver 1
|
FVLCD
|
|
n/a
|
|
n/a
|
n/a
|
Victoria *
|
FVLCD
|
|
n/a
|
|
n/a
|
2.0 %
|
UK
|
VIU
|
|
15.4 %
|
|
2.0 %
|
2.0 %
|
* For the year ended
December 31, 2021, these CGUs were tested using the VIU
methodology
|
For the December 31, 2022 impairment
test, management's probability weighted approach was evaluated
based on an equally weighted probability of a continued one-year
downturn in sales to the worst case scenario of a two year downturn
in sales. The scenarios estimated a decline of 8% to 12 % for
2023, 7% for 2024 with sales returning to normalized levels
thereafter with sales growth estimates used 2%. These represent the
Corporation's best estimate of cash flows over the forecast
period.
For the December 31,
2021 impairment test, management's probability weighted
approach was evaluated based on an equally weighted probability of
a continued one year downturn in sales to the worst case scenario
of a two year downturn in sales. The scenarios estimated a decline
of 5% to 25% for 2022, and 0% to 10% for 2023, with sales returning
to normalized levels thereafter with sales growth estimates used
2%.
The terminal value growth rate is based on
management's best estimate of the long-term growth rate for its
CGUs after the forecast period, considering historic performance
and future economic forecasts.
Based on testing performed at December 31, 2022 and December 31, 2021 no impairment was determined to
exist.
ii) Recoverable Amount
The recoverable amount of each CGU is sensitive
to changes in the market condition and could result in material
changes. Based on the sensitivity analysis performed below no
reasonable change in the key assumptions would cause the
recoverable amount of any CGU to have a significant change from its
current valuation.
|
Recoverable
Amount
|
|
Change in Pre-tax
Discount
Rate
increase of 1%
|
|
Change in Terminal
Value
Growth Rate
decrease of 1%
|
|
December 31
2022
|
December 31
2021
|
|
December 31
2022
|
December 31
2021
|
|
December 31
2022
|
December 31
2021
|
|
|
|
|
|
|
|
|
|
Calgary
|
n/a
|
n/a
|
|
n/a
|
n/a
|
|
n/a
|
n/a
|
Edmonton
|
n/a
|
n/a
|
|
n/a
|
n/a
|
|
n/a
|
n/a
|
Vancouver 2
*
|
n/a
|
$31,176
|
|
n/a
|
-$3,152
|
|
n/a
|
-$2,818
|
Vancouver 1
|
n/a
|
n/a
|
|
n/a
|
n/a
|
|
n/a
|
n/a
|
Victoria *
|
n/a
|
$8,290
|
|
n/a
|
-$770
|
|
n/a
|
-$834
|
UK
|
£50,261
|
£53,083
|
|
-£4,201
|
-£4,915
|
|
-£4,458
|
-£4,988
|
* For the year ended
December 31, 2021, these CGUs were tested using the VIU
methodology
|
Financial Results
|
For The Three
Months Ended December 31,
|
|
|
(thousands,
except per share amounts
and percentages)
|
Canadian
Division
2022
|
UK
Division
2022
|
2022
|
Canadian
Division
2021
|
UK
Division
2021
|
2021
|
$
Change
|
%
Change
|
Revenue
|
$
54,451
|
$
16,220
|
$
70,671
|
$
48,046
|
$
14,164
|
$
62,210
|
8,461
|
13.6 %
|
Expenses included in
EBITDA
|
46,707
|
15,239
|
61,945
|
40,258
|
13,024
|
53,282
|
8,663
|
16.3 %
|
EBITDA
|
7,745
|
981
|
8,726
|
7,788
|
1,140
|
8,928
|
(202)
|
-2.3 %
|
EBITDA as a % of
revenue
|
14.2 %
|
6.0 %
|
12.3 %
|
16.2 %
|
8.0 %
|
14.4 %
|
-2.1 %
|
-14.6 %
|
|
|
|
|
|
|
|
|
|
Net earnings
(loss)
|
822
|
(542)
|
280
|
2,043
|
(544)
|
1,499
|
(1,219)
|
-81.3 %
|
|
|
|
|
|
|
|
|
|
Basic earnings (loss)
per share
|
$
0.077
|
$
(0.051)
|
$
0.026
|
$
0.192
|
$
(0.051)
|
$
0.141
|
$
(0.115)
|
-81.6 %
|
Diluted earnings (loss)
per share
|
$
0.076
|
$
(0.050)
|
$
0.026
|
$
0.191
|
$
(0.051)
|
$
0.140
|
$
(0.114)
|
-81.4 %
|
Dividends declared per
diluted share
|
|
|
$
0.30
|
|
|
$
0.300
|
$
-
|
0.0 %
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
|
325,760
|
|
|
332,519
|
(6,759)
|
-2.0 %
|
Long-term debt
(excludes lease liabilities)
|
|
|
45,166
|
|
|
37,973
|
7,193
|
18.9 %
|
|
|
|
|
|
|
-
|
|
|
Cash provided by
operating activities
|
|
|
1,049
|
|
|
7,743
|
(6,694)
|
-86.5 %
|
Net change in non-cash
working capital items
|
|
|
(4,994)
|
|
|
(1,358)
|
(3,636)
|
-267.7 %
|
Share-based
compensation expense
|
|
|
410
|
|
|
417
|
(7)
|
-1.7 %
|
Maintenance capital
expenditures
|
|
|
706
|
|
|
281
|
425
|
151.2 %
|
Principal elements of
lease payments
|
|
|
1,908
|
|
|
1,808
|
100
|
5.5 %
|
Distributable cash
flow
|
|
|
3,019
|
|
|
6,595
|
(3,576)
|
-54.2 %
|
Dividends
declared
|
|
|
3,227
|
|
|
3,216
|
11
|
0.3 %
|
Payout ratio
|
|
|
106.9 %
|
|
|
48.8 %
|
58.1 %
|
119.1 %
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended
December 31,
|
|
|
(thousands,
except per share amounts
and percentages)
|
Canadian
Division
2022
|
UK
Division
2022
|
2022
|
Canadian
Division
2021
|
UK
Division
2021
|
2021
|
$
Change
|
%
Change
|
Revenue
|
$
212,035
|
$
64,588
|
$
276,623
|
$
183,073
|
$
40,919
|
$
223,992
|
52,631
|
23.5 %
|
Expenses included in
EBITDA
|
179,670
|
60,461
|
240,131
|
143,395
|
37,806
|
181,201
|
58,930
|
32.5 %
|
EBITDA
|
32,365
|
4,127
|
36,492
|
39,678
|
3,113
|
42,791
|
(6,299)
|
-14.7 %
|
EBITDA as a % of
revenue
|
15.3 %
|
6.4 %
|
13.2 %
|
21.7 %
|
7.6 %
|
19.1 %
|
-5.9 %
|
-30.9 %
|
|
|
|
|
|
|
|
|
|
Net earnings
(loss)
|
6,042
|
(2,136)
|
3,906
|
13,604
|
(4,912)
|
8,692
|
(4,786)
|
-55.1 %
|
|
|
|
|
|
|
|
|
|
Basic earnings (loss)
per share
|
$
0.567
|
$
(0.200)
|
$
0.366
|
$
1.282
|
$
(0.463)
|
$
0.819
|
$
(0.453)
|
-55.3 %
|
Diluted earnings (loss)
per share
|
$
0.563
|
$
(0.199)
|
$
0.364
|
$
1.273
|
$
(0.460)
|
$
0.813
|
$
(0.449)
|
-55.2 %
|
Dividends declared per
diluted share
|
|
|
$
1.20
|
|
|
$
1.200
|
$
-
|
0.0 %
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
|
325,760
|
|
|
332,519
|
(6,759)
|
-2.0 %
|
Long-term debt
(excludes lease liabilities)
|
|
|
45,166
|
|
|
37,973
|
7,193
|
18.9 %
|
|
|
|
|
|
|
-
|
|
|
Cash provided by
operating activities
|
|
|
26,130
|
|
|
31,875
|
(5,745)
|
-18.0 %
|
Net change in non-cash
working capital items
|
|
|
(5,621)
|
|
|
(5,710)
|
89
|
1.6 %
|
Share-based
compensation expense
|
|
|
1,788
|
|
|
1,848
|
(60)
|
-3.2 %
|
Maintenance capital
expenditures
|
|
|
2,994
|
|
|
1,094
|
1,900
|
173.7 %
|
Principal elements of
lease payments
|
|
|
7,397
|
|
|
7,167
|
230
|
3.2 %
|
Distributable cash
flow
|
|
|
19,572
|
|
|
27,476
|
(7,904)
|
-28.8 %
|
Dividends
declared
|
|
|
12,905
|
|
|
12,846
|
59
|
0.5 %
|
Payout ratio
|
|
|
65.9 %
|
|
|
46.8 %
|
19.1 %
|
40.8 %
|
(1) See
"Terminology" for further details
|
OUTLOOK
The Corporation's healthcare segment continues to outperform
relative to historical levels, with a steady trend. For the
hospitality segment, management expects a good level of activity
with the easing of government-imposed restrictions on international
border crossings, increasing business/leisure travel, and price
increases will continue to support the strong recovery momentum in
hospitality revenues experienced through 2022. The Corporation
continues to pursue price increases to offset inflation-related
costs and anticipates that 2023 results will reflect the full
impact of price increases secured in the later part of Q4 2022 and
into Q2 2023.
Within 2022, management has been focused on operational
efficiencies and the transition of new AHS business, which was
completed in early April 2022. Into 2023, management will
continue to focus on optimizing plant efficiencies associated with
the transition of new AHS business.
From an input cost perspective, since early March 2022, particularly in the UK, the
Corporation has faced significant volatility in energy costs due to
current geopolitical issues. In April
2022, to mitigate this instability, the Corporation locked
in natural gas supply rates in the UK until December 2024.
Based on these locked in rates natural gas as a percent of revenue
has increased approximately 2.5 percentage points from historical
levels for 2022. As we move into 2023, we expect to mitigate
these cost increases with price increases to our
customers.
The Corporation is also facing temporary labour inefficiencies
from unusually competitive labour markets. Management is
focused on the retention of existing staff, in addition to
implementing strategies to recruit and hire new staff. The
Corporation has achieved some success in certain markets but is
still focusing efforts on other markets. The Corporation is
managing more challenging regional labour availability with
complementary temporary foreign worker programs.
Management is confident in their ability to return to 2019
margin levels, consistent with historical seasonal trends, once we
gain efficiencies from the AHS transition which is anticipated to
occur in the later half of 2023. However, this will also be
dependent on our ability to attract and retain staff in each of the
markets in which we operate. Management anticipates labour
markets will stabilize, but the timing remains uncertain.
With continued momentum in existing operations, management has
refocused attention on strategic acquisitions, such as the recently
announced acquisition of Paranet, to accelerate growth in both
North America and Europe, geographies which remain highly
fragmented. K-Bro will look to leverage its strong liquidity
position, balance sheet and access to the capital markets to
execute on these opportunities, should they arise. For further
information about the impact of the COVID-19 pandemic on our
business, see the "Summary of Interim Results, and Key
Events".
CORPORATE PROFILE
K-Bro is the largest owner and operator of laundry and linen
processing facilities in Canada
and a market leader for laundry and textile rental services in
Scotland and the North East of
England. K–Bro and its
wholly-owned subsidiaries operate across Canada and the UK, providing a range of linen
services to healthcare institutions, hotels and other commercial
accounts that include the processing, management and distribution
of general linen and operating room linen.
The Corporation's operations in Canada include ten processing facilities and
two distribution centres under three distinctive brands:
K–Bro Linen Systems Inc., Buanderie HMR and Les Buanderies
Dextraze. The Corporation operates in ten Canadian cities: Québec
City, Montréal, Toronto,
Regina, Saskatoon, Prince
Albert, Edmonton,
Calgary, Vancouver and Victoria.
The Corporation's operations in the UK include Fishers, which
was acquired by K–Bro on November 27,
2017. Fishers was established in 1900 and is a leading
operator of laundry and linen processing facilities in Scotland, providing linen rental, workwear
hire and cleanroom garment services to the hospitality, healthcare,
manufacturing and pharmaceutical sectors. The Corporation operates
five UK sites located in Cupar,
Perth, Newcastle, Livingston and Coatbridge.
Additional information regarding the Corporation including
required securities filings are available on our website at
www.k-brolinen.com and on the Canadian Securities Administrators'
website at www.sedar.com; the System for Electronic Document
Analysis and Retrieval ("SEDAR").
TERMINOLOGY
Throughout this news release and other documents referred to
herein, and in order to provide a better understanding of the
financial results, K-Bro uses the terms "EBITDA", "adjusted
EBITDA", "adjusted net earnings", "adjusted net earnings per
share", "debt to total capital", "distributable cash" and "payout
ratio". These terms do not have any standardized meaning under
International Financial Reporting Standards ("IFRS") as set out in
the CICA Handbook. Therefore, EBITDA, adjusted EBITDA, adjusted net
earnings, adjusted net earnings per share, distributable cash and
payout ratio may not be comparable to similar measures presented by
other issuers. Specifically, the terms "EBITDA", "adjusted EBITDA",
"adjusted net earnings", "adjusted net earnings per share",
"distributable cash", and "payout ratio" have been defined as
follows:
EBITDA
K–Bro reports EBITDA (Earnings before interest, taxes,
depreciation and amortization) as a key measure used by management
to evaluate performance. EBITDA is utilized to measure compliance
with debt covenants and to make decisions related to dividends to
Shareholders. We believe EBITDA assists investors to assess our
performance on a consistent basis as it is an indication of our
capacity to generate income from operations before taking into
account management's financing decisions and costs of consuming
tangible and intangible capital assets, which vary according to
their vintage, technological currency and management's estimate of
their useful life. Accordingly, EBITDA comprises revenues less
operating costs before financing costs, capital asset and
intangible asset amortization, and income taxes.
EBITDA is a sub–total presented within the statement of earnings
in accordance with the amendments made to IAS 1 which became
effective January 1, 2016. EBITDA is
not considered an alternative to net earnings in measuring K–Bro's
performance. EBITDA should not be used as an exclusive measure of
cash flow since it does not account for the impact of working
capital changes, capital expenditures, debt changes and other
sources and uses of cash, which are disclosed in the consolidated
statements of cash flows.
|
|
Three Months Ended
December 31,
|
|
Years Ended
December 31,
|
(thousands)
|
2022
|
|
2021
|
|
2022
|
|
2021
|
Net earnings
|
$
280
|
|
$
1,499
|
|
$
3,906
|
|
$
8,692
|
Add:
|
|
|
|
|
|
|
|
|
Income tax
expense
|
302
|
|
1
|
|
1,538
|
|
3,788
|
|
Finance
expense
|
1,639
|
|
800
|
|
4,980
|
|
3,449
|
|
Depreciation of
property, plant and equipment
|
6,120
|
|
5,958
|
|
23,766
|
|
23,625
|
|
Amortization of
intangible assets
|
385
|
|
670
|
|
2,302
|
|
3,237
|
EBITDA
|
$
8,726
|
|
$
8,928
|
|
$
36,492
|
|
$
42,791
|
Non-GAAP Measures
Distributable Cash Flow
Distributable cash flow is a measure used by management to
evaluate the Corporation's performance. While the closest IFRS
measure is cash provided by operating activities, distributable
cash flow is considered relevant because it provides an indication
of how much cash generated by operations is available after capital
expenditures. It should be noted that although we consider this
measure to be distributable cash flow, financial and non–financial
covenants in our credit facilities and dealer agreements may
restrict cash from being available for dividends, re–investment in
the Corporation, potential acquisitions, or other purposes.
Investors should be cautioned that distributable cash flow may not
actually be available for growth or distribution from the
Corporation. Management refers to "Distributable cash flow" as to
cash provided by (used in) operating activities with the addition
of net changes in non–cash working capital items, less share–based
compensation, maintenance capital expenditures and principal
elements of lease payments.
|
|
|
Three Months Ended
December 31,
|
|
Years Ended
December 31,
|
(thousands)
|
|
2022
|
2021
|
|
2022
|
2021
|
Cash provided by
operating activities
|
|
$
1,049
|
$
7,743
|
|
$
26,130
|
$
31,875
|
Deduct
(add):
|
|
|
|
|
|
|
|
Net changes in non-cash
working capital items
|
|
(4,994)
|
(1,358)
|
|
(5,621)
|
(5,710)
|
|
Share-based
compensation expense
|
|
410
|
417
|
|
1,788
|
1,848
|
|
Maintenance capital
expenditures
|
|
706
|
281
|
|
2,994
|
1,094
|
|
Principal elements of
lease payments
|
|
1,908
|
1,808
|
|
7,397
|
7,167
|
Distributable cash
flow
|
|
$
3,019
|
$
6,595
|
|
$
19,572
|
$
27,476
|
Payout Ratio
"Payout ratio" is defined by management as the actual cash
dividend divided by distributable cash. This is a key measure used
by investors to value K-Bro, assess its performance and provide an
indication of the sustainability of dividends. The payout ratio
depends on the distributable cash and the Corporation's dividend
policy.
|
|
|
Three Months Ended
December 31,
|
|
Years Ended
December 31,
|
(thousands)
|
|
2022
|
2021
|
|
2022
|
2021
|
|
Cash
dividends
|
|
3,227
|
3,216
|
|
12,905
|
12,846
|
|
Distributable cash
flow
|
|
3,019
|
6,595
|
|
19,572
|
27,476
|
Payout ratio
|
|
106.9 %
|
48.8 %
|
|
65.9 %
|
46.8 %
|
Debt to Total Capital
"Debt to total capital" is defined by management as the
total long–term debt (excludes lease liabilities) divided by the
Corporation's total capital. This is a measure used by investors to
assess the Corporation's financial structure.
Distributable cash flow, payout ratio, debt to total capital
adjusted EBITDA, adjusted net earnings, and adjusted net earnings
per share are not calculations based on IFRS and are not considered
an alternative to IFRS measures in measuring K–Bro's performance.
Distributable cash Flow, payout ratio, adjusted EBITDA, adjusted
net earnings, and adjusted net earnings per share do not have
standardized meanings in IFRS and are therefore not likely to be
comparable with similar measures used by other issuers.
FORWARD LOOKING STATEMENTS
This news release contains forward–looking information that
represents internal expectations, estimates or beliefs concerning,
among other things, future activities or future operating results
and various components thereof. The use of any of the words
"anticipate", "continue", "expect", "may", "will", "project",
"should", "believe", and similar expressions suggesting future
outcomes or events are intended to identify forward–looking
information. Statements regarding such forward–looking information
reflect management's current beliefs and are based on information
currently available to management.
These statements are not guarantees of future performance and
are based on management's estimates and assumptions that are
subject to risks and uncertainties, which could cause K-Bro's
actual performance and financial results in future periods to
differ materially from the forward-looking information contained in
this news release. These risks and uncertainties include, among
other things: (i) risks associated with acquisitions, including the
possibility of undisclosed material liabilities; (ii) K-Bro's
competitive environment; (iii) utility costs, minimum wage
legislation and labour costs; (iv) K-Bro's dependence on long-term
contracts with the associated renewal risk including, without
limitation, in connection with the settlement of definitive
documentation in respect there of; (v) increased capital
expenditure requirements; (vi) reliance on key personnel; (vii)
changing trends in government outsourcing; (viii) changes or
proposed changes to minimum wage laws in Ontario, British
Columbia, Alberta,
Quebec, Saskatchewan and the United Kingdom (the "UK"); (ix) the
availability of future financing; * textile demand; (xi) the
adverse impact of the COVID-19 pandemic on the Corporation, which
has been significant to date and which we believe will continue to
be significant for the short to medium term; (xii) availability and
access to labour; (xiii) rising wage rates in all jurisdictions the
Corporation operates and (ix) foreign currency risk. Material
factors or assumptions that were applied in drawing a conclusion or
making an estimate set out in the forward-looking information
include: (i) volumes and pricing assumptions; (ii) expected impact
of labour cost initiatives; (iii) frequency of one-time costs
impacting quarterly and annual financial results; (iv) foreign
exchange rates; (v) the level of capital expenditures and (vi) the
expected impact of the COVID-19 pandemic on the Corporation.
Although the forward-looking information contained in this news
release is based upon what management believes are reasonable
assumptions, there can be no assurance that actual results will be
consistent with these forward-looking statements. Certain
statements regarding forward-looking information included in this
news release may be considered "financial outlook" for purposes of
applicable securities laws, and such financial outlook may not be
appropriate for purposes other than this news release. Forward
looking information included in this news release includes the
expected annual healthcare revenues to be generated from the
Corporation's contracts with new customers, calculation of costs,
including one-time costs impacting the quarterly financial results,
anticipated future capital spending and statements with respect to
future expectations on margins and volume growth, as well as
statements related to the impact of the COVID-19 pandemic on the
Corporation.
All forward–looking information in this news release is
qualified by these cautionary statements. Forward–looking
information in this news release is presented only as of the date
made. Except as required by law, K–Bro does not undertake any
obligation to publicly revise these forward–looking statements to
reflect subsequent events or circumstances.
This news release also makes reference to certain measures in
this document that do not have any standardized meaning as
prescribed by IFRS and, therefore, are considered non–GAAP
measures. These measures may not be comparable to similar measures
presented by other issuers. Please see "Terminology" for further
discussion.
SOURCE K-Bro Linen Inc.