(TSX: KBL)
EDMONTON, AB, March 21,
2024 /CNW/ - K-Bro Linen Inc. ("K-Bro" or the
"Corporation") today announces its Q4 2023 financial and
operating results.
Q4 2023 Financial and Operating
Highlights
- Consolidated healthcare revenue for 2023 increased by 6.3%
compared to 2022.
- Consolidated healthcare revenue for Q4 2023 increased by 10.2%
compared to Q4 2022.
- Consolidated hospitality revenue for 2023 increased by 32.3%
compared to 2022.
- Consolidated hospitality revenue for Q4 2023 increased by 27.4%
compared to Q4 2022.
- EBITDA increased for fiscal 2023 to $56.8 million compared to $36.5 million for fiscal 2022.
- EBITDA increased in the fourth quarter to $14.3 million compared to $8.7 million over the comparable 2022
period.
- Adjusted EBITDA increased for fiscal 2023 to $55.9 million compared to $36.5 million for fiscal 2022.
- Adjusted EBITDA increased in the fourth quarter to $13.3 million compared to $8.7 million over the comparable 2022
period.
- Net earnings increased for fiscal 2023 to $17.6 million compared to $3.9 million for fiscal 2022.
- Net earnings in the fourth quarter of 2023 increased by
$3.9 million to $4.2 million compared to $0.3 million in the comparative period of 2022,
and as a percentage of revenue increased by 4.8% to 5.2%
- For fiscal 2023 and during the fourth quarter, K-Bro declared
dividends of $1.20 and $0.300 per common share respectively.
- Long-term debt at the end of fiscal 2023 was $70.2 million compared to $45.2 million at the end of fiscal 2022, with the
normal course issuer bid put in place and the acquisitions of
Paranet and Villeray completed during the year.
- K-Bro has repurchased and cancelled 199,062 shares year-to-date
under the normal course issuer bid announced May 15, 2023.
- December 20, 2023, K-Bro
published its inaugural sustainability report.
Linda McCurdy, President &
CEO of K-Bro, commented that "I'm delighted with our record fourth
quarter and full year results. K-Bro has always focused on
delivering industry leading service and 2023 highlight the
resilience of our business model and responsiveness of our team.
The volatility we encountered from energy prices, local labour
market shortages and cost inflation throughout the last number of
years has stabilized. Going forward, we expect EBITDA margins
to follow historical seasonal trends.
As we start 2024, we see a positive outlook. Both of
K-Bro's healthcare and hospitality segments continue to experience
steady growth trends. In the healthcare segment, we expect
activity levels to remain strong from continued focus on reducing
wait times and enhancing patient care. In the hospitality
segment, we expect solid activity levels from both business and
leisure travel reflecting historical seasonal trends.
On December 20, 2023, we published
our inaugural sustainability report as the latest step in our ESG
program. The report highlights our continuous efforts to grow
our business sustainably and can be found on our new website
<www.k-brolinen.com>. We are proud of our seven-decade
history of responsible, innovative growth. While delivering
industry-leading service, we have embraced our responsibility to
society. We prioritize customer and employee relationships,
environmental stewardship, and creating positive impacts where we
do business.
As we emerge from a challenging number of years, we are excited
about our outlook. On May 15,
2023, we announced a normal course issuer bid and have
repurchased 199,062 shares to date. We have been refocusing on
strategic acquisitions, such as Paranet and Villeray, and have an
active M&A pipeline and remain well positioned from a balance
sheet and liquidity perspective and will continue to be disciplined
as we evaluate acquisitions."
Highlights and Significant Events for Fiscal
2023
Acquisition of Buanderie Paranet
On March 1, 2023 the Corporation
completed the acquisition of 100% of the share capital of Buanderie
Para-Net ("Paranet") operating as Paranet (the "Paranet
Acquisition"), a private laundry and linen services company
operating in Québec City, Quebec.
The Paranet Acquisition was completed through a share purchase
agreement consisting of existing working capital, fixed assets,
contracts and an employee base. The contracts acquired are in the
Quebec healthcare and hospitality sector, which complements
the existing business of the Corporation. Based on the
Corporation's evaluation of the Paranet Acquisition and the
criteria in the identification of a business combination
established in IFRS 3, the Paranet Acquisition has been accounted
for using the acquisition method, whereby the purchase
consideration is allocated to the fair values of the net assets
acquired.
The Corporation financed the Paranet Acquisition and transaction
costs from existing loan facilities.
The purchase price allocated to the net assets acquired, based
on their estimated fair values, is as follows:
|
2023
|
|
|
|
|
Cash
consideration
|
$
11,074
|
Contingent
consideration
|
$
945
|
Total purchase
price
|
$
12,019
|
The assets and liabilities recognized as a result of the Paranet
Acquisition are as follows:
Net Assets
Acquired:
|
|
Accounts
receivable
|
1,317
|
Prepaid expenses and
deposits
|
137
|
Linen in
service
|
970
|
Accounts payable and
accrued liabilities (2)
|
(1,552)
|
Lease
liabilities
|
(1,176)
|
Deferred income
taxes
|
(1,474)
|
Property, plant and
equipment(1,2)
|
6,142
|
Intangible
assets
|
2,450
|
Net identifiable assets
acquired
|
6,814
|
Goodwill
|
5,205
|
Net assets
acquired
|
$
12,019
|
1) Includes ROUA from
the Canadian Division of $1,176 comprised of buildings of $964 and
vehicles of $212
|
2) Includes provision
of $219 for asset retirement obligation
|
The provisional intangible assets acquired are made up of
$2,450 for the customer contracts
along with related relationships and customer lists. The goodwill
is attributable to the workforce, and the efficiencies and
synergies created between the existing business of the Corporation
and the acquired business. Goodwill will not be deductible for tax
purposes.
Contingent consideration
In the event that a certain EBITDA target was achieved by
Paranet for the twelve month period ended August 31, 2023, additional undiscounted
consideration of up to $1,890 would
have been payable in cash during the fourth quarter of 2023. While
performance was in-line with expectations, the target was not
achieved; therefore, no payment was made.
During the first three quarters of 2023, the estimated fair
value of the possible payment was classified as contingent
consideration. The fair value of the contingent consideration was
estimated by considering the probability-adjusted future expected
cash flows in regards to Paranet achieving the target that would
result in consideration being paid. The impact of discounting these
future cash flows was not considered because the impact would be
nominal. Given that the EBITDA target was not achieved for the
twelve month period ended August 31,
2023, the contingent consideration amount of $945 has been derecognized and a gain on
settlement of contingent consideration has been recorded in
Consolidated Statement of Earnings and Comprehensive Income for the
twelve months ended December 31,
2023.
Acquisition related costs
For the twelve months ended December 31,
2023, $274 in professional
fees associated with the Paranet Acquisition has been included in
Corporate expenses.
Revenue and profit information
The acquired business contributed revenues of $7,819 to the Corporation for the period from
March 1, 2023 to December 31, 2023. If the Paranet Acquisition had
occurred on January 1, 2023,
consolidated pro-forma revenue for the period ended December 31, 2023 would have been $322,209.
The acquired business contributed a net deficit of ($316) to the Corporation for the period from
March 1, 2023 to December 31, 2023. If the Paranet Acquisition had
occurred on January 1, 2023,
consolidated pro-forma net income for the period ended December 31, 2023 would have been $17,591.
These amounts have been calculated using Paranet's results and
adjusting them for differences in the accounting policies between
the Corporation and Paranet as it pertains to property, plant and
equipment. The Corporation follows the requirements of IFRS
Accounting Standards whereas Paranet previously reported under
Canadian Accounting Standards for Private Enterprises (ASPE), the
additional depreciation and amortization that would have been
charged assuming the fair value adjustments to property, plant and
equipment and intangible assets had applied from January 1, 2023, together with the consequential
tax effects.
Acquisition of Villeray
On November 1, 2023, the
Corporation completed the acquisition of 100% of the share capital
of Buanderie Villeray and its affiliate Buanderie La Relance (the
"Villeray Acquisition"), a private laundry and linen services
company incorporated in Canada and
operating in Montréal, Quebec. The
Villeray Acquisition was completed through a share purchase
agreement consisting of existing working capital, fixed assets,
customer relationships and an employee base. Villeray operates in
the hospitality and healthcare sector, which complements the
existing business of the Corporation. As part of the transaction,
the Corporation closed its Granby
facility and consolidated existing volumes into Villeray. Based on
the Corporation's evaluation of the Villeray Acquisition and the
criteria in the identification of a business combination
established in IFRS 3, the Villeray Acquisition has been accounted
for using the acquisition method, whereby the purchase
consideration is allocated to the fair values of the net assets
acquired.
The Corporation financed the Villeray Acquisition and
transaction costs from existing loan facilities.
The purchase price allocated to the net assets acquired, based
on their estimated fair values, is as follows:
|
2023
|
|
|
|
|
Cash
consideration
|
$
11,204
|
Contingent
consideration
|
$
500
|
Total purchase
price
|
$
11,704
|
The assets and liabilities recognized as a result of the
Villeray Acquisition are as follows:
Net Assets
Acquired:
|
|
Accounts
receivable
|
907
|
Prepaid expenses and
deposits
|
187
|
Income tax
receivable
|
69
|
Accounts payable and
accrued liabilities (2)
|
(807)
|
Lease
liabilities
|
(2,706)
|
Deferred income
taxes
|
(1,416)
|
Property, plant and
equipment(1,2)
|
7,161
|
Intangible
assets
|
2,530
|
Net identifiable assets
acquired
|
5,925
|
Goodwill
|
5,779
|
Net assets
acquired
|
$
11,704
|
1) Includes ROUA from
the Canadian Division of $2,706 related to buildings
|
2) Includes provision
of $97 for asset retirement obligation
|
The provisional intangible assets acquired are made up of
$2,530 related to customer
relationships. The goodwill is attributable to the workforce, and
the efficiencies and synergies created between the existing
business of the Corporation and the acquired business. Goodwill
will not be deductible for tax purposes.
Contingent consideration
The estimated fair value of payment has been classified as
contingent consideration by exercising significant judgment as to
whether it should be classified as such, or as renumeration to the
former owner, who will be employed subsequent to the close of the
transaction. The Corporation has determined by considering all
relevant factors included in the agreements as it pertains to
employment terms, valuation of the business, and other relevant
terms that the additional consideration is most appropriately
reflected as contingent consideration.
In the event that a certain EBITDA target is achieved by
Villeray for the twelve month period ended October 31, 2024, additional undiscounted
consideration ranging from $500 to
$1,000 will be payable in cash during
the first quarter of 2025. The potential undiscounted amount
payable within the agreement will only be paid should the EBITDA
target be achieved. Should the EBITDA target not be achieved, no
payment will be made.
The fair value of the contingent consideration of $500 was estimated by considering the
probability-adjusted future expected cash flows in regards to
Villeray achieving the target that would result in
consideration being paid. The impact of discounting those future
cash flows was not considered because the impact would be
nominal.
Since the estimated future cash flows and probability of
achieving the EBITDA target are an unobservable input, the fair
value of the contingent consideration is classified as a level 3
fair value measurement.
Acquisition related costs
For the year ended December 31,
2023, $414 in professional
fees associated with the Villeray Acquisition has been included in
Corporate expenses.
Revenue and profit information
The acquired business contributed revenues of $1,602 to the Corporation for the period from
November 1, 2023 to December 31, 2023. If the Villeray Acquisition
had occurred on January 1, 2023,
consolidated pro-forma revenue for the year ended December 31, 2023 would have been $329,021. If both the Paranet Acquisition and
Villeray Acquisition had occurred on January
1, 2023, consolidated pro-forma revenue for the year ended
December 31, 2023 would have been
$330,346.
The acquired business contributed a net deficit of ($201) to the Corporation for the period from
November 1, 2023 to December 31, 2023, inclusive of Granby transition related costs. If the
Villeray Acquisition had occurred on January
1, 2023, consolidated pro-forma net income for the period
ended December 31, 2023 would have
been $17,721.
These amounts have been calculated using Villeray's results and
adjusting them for differences in the accounting policies between
the Corporation and Villeray as it pertains to property, plant and
equipment. The Corporation follows the requirements of IFRS
Accounting Standards whereas Villeray previously reported under
Canadian Accounting Standards for Private Enterprises (ASPE), the
additional depreciation and amortization that would have been
charged assuming the fair value adjustments to property, plant and
equipment and intangible assets had applied from January 1, 2023, together with the consequential
tax effects.
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.
Revolving Credit Facility
On August 31, 2023, the
Corporation completed an amendment to its existing revolving credit
facility to extend the agreement from July
31, 2026 to July 31, 2027, as
previously amended on July 18, 2022.
In addition, the agreement expanded the revolving credit facility
from $100,000 to $125,000 plus a $25,000 accordion. 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. During fiscal 2022 and 2023, the Canadian prime
rate increased from 3.70% in January
2022 to 6.95% in June 2023,
and in July 2023 it increased to
7.20%.
Capital Investment Plan
For fiscal 2024, the Corporation's planned capital spending is
expected to be between $15.0 and
$17.0 million on a consolidated
basis, including the expenditures associated with the Villeray
acquisition. This guidance includes both strategic and maintenance
capital requirements to support existing base business in both
Canada and the UK. 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.
Economic Conditions
Since 2020, due to changing government restrictions to mitigate
the ongoing COVID-19 pandemic, supply chain disruption,
geopolitical events impacting key inputs such as natural gas,
electricity and diesel and inflationary impacts to labour and
materials the Corporation has faced varying degrees of financial
impact within Canada and the
UK. The COVID-19 pandemic has also contributed to unusually
competitive labour markets, causing inefficiencies in attracting,
training and retaining employees. While labour markets have
been stabilizing, certain regional markets continue to experience
constrained labour availability.
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.
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
The Corporation performed its annual impairment assessment for
goodwill for the Canadian division and for the UK division as at
December 31, 2023 and December 31, 2022 in accordance with its policy
described in Note 2(k) and Note 2(h). The Corporation also
performed impairment indicator assessments where there was no
goodwill allocated to the CGU.
For both periods, the recoverable amount for the CGUs was
assessed using an earnings multiple approach. If the results of the
earnings multiple approach indicated a possible impairment, a
further assessment using a discounted cash flow to determine the
value-in use was performed.
Earnings multiple approach (Fair value less costs to dispose,
"FVLCD")
For the years ended December 31,
2023 and 2022, the key assumption utilized was the implied
multiple. The implied multiple is calculated by utilizing the
average multiples of comparable public companies. The Corporation
used an implied average forward multiple of 9.70 (2022 - 10.60) to
calculate the recoverable amounts. The implied multiple was applied
to the trailing twelve month EBITDA to determine the recoverable
amount of the CGU and compare it to the carrying value of the
CGU.
Based on the assessments performed for the year ended
December 31, 2023, no CGU had a
recoverable amount that was less than the carrying value of the
CGU. A further assessment using a discounted cash flow to determine
the value-in-use was not performed due to the headroom from FVLCD
determined using an earnings multiple approach.
Discounted cash flow (Value-in-use, "VIU")
Where the results of the FVLCD approach indicated there was a
possible impairment, a further assessment using a discounted cash
flow was performed to determine the VIU of each VGU identified.
For the year ended December 31,
2022, the Corporation used probability weighted discounted
cash flows and the assumptions for those cash flows were the
Corporation's board approved budgets, cash flow forecasts, trailing
twelve-month EBITDA, the pre-tax discount rate and terminal value
growth rate.
The probability weighted approach used for the year ended
December 31, 2022 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.
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.
The calculation of the recoverable amount 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
|
|
|
|
|
|
|
Calgary
|
FVLCD
|
|
n/a
|
|
n/a
|
Edmonton
|
FVLCD
|
|
n/a
|
|
n/a
|
Vancouver
2
|
FVLCD
|
|
n/a
|
|
n/a
|
Vancouver 1
|
FVLCD
|
|
n/a
|
|
n/a
|
Victoria
|
FVLCD
|
|
n/a
|
|
n/a
|
Paranet
|
n/a
|
|
n/a
|
|
n/a
|
Villeray
|
n/a
|
|
n/a
|
|
n/a
|
UK
|
VIU
|
|
15.4 %
|
|
2.0 %
|
Based on testing performed at December
31, 2023 and December 31,
2022, no impairment was determined to exist.
Recoverable amount
The recoverable amount of each CGU is sensitive to changes in
market conditions which could result in material changes. For the
year ended December 31, 2022, where
further assessment using the probability weighted discounted cash
flows was required the sensitivity of key assumptions to a
reasonable change was assessed. The Corporation does not believe
there is a reasonable change in the key assumptions that would
cause the carrying value of the CGU to exceed its recoverable
amount. The table below summarizes the results of the impact on key
assumptions to a reasonable change.
|
|
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
2022
|
|
December 31
2022
|
|
|
|
|
|
|
|
Calgary
|
|
n/a
|
|
n/a
|
|
n/a
|
Edmonton
|
|
n/a
|
|
n/a
|
|
n/a
|
Vancouver
2
|
|
n/a
|
|
n/a
|
|
n/a
|
Vancouver 1
|
|
n/a
|
|
n/a
|
|
n/a
|
Victoria
|
|
n/a
|
|
n/a
|
|
n/a
|
Paranet
|
|
n/a
|
|
n/a
|
|
n/a
|
Villeray
|
|
n/a
|
|
n/a
|
|
n/a
|
UK
|
|
-£50,261
|
|
-£4,201
|
|
-£4,458
|
Financial Results
|
For The Three
Months Ended December 31,
|
|
|
(thousands,
except per share amounts
and percentages)
|
Canadian
Division
2023
|
UK
Division
2023
|
2023
|
Canadian
Division
2022
|
UK
Division
2022
|
2022
|
$
Change
|
%
Change
|
Revenue
|
$
63,090
|
$
19,374
|
$
82,464
|
$
54,451
|
$
16,220
|
$
70,671
|
11,793
|
16.7 %
|
Expenses included in
EBITDA
|
51,378
|
16,807
|
68,185
|
46,707
|
15,239
|
61,945
|
6,240
|
10.1 %
|
EBITDA(1)
|
11,712
|
2,567
|
14,279
|
7,745
|
981
|
8,726
|
5,553
|
63.6 %
|
EBITDA as a % of
revenue
|
18.6 %
|
13.2 %
|
17.3 %
|
14.2 %
|
6.0 %
|
12.3 %
|
5.0 %
|
40.7 %
|
Adjusted
EBITDA(1)
|
10,767
|
2,567
|
13,334
|
7,745
|
981
|
8,726
|
4,608
|
52.8 %
|
Adjusted EBITDA as a %
of revenue
|
17.1 %
|
13.2 %
|
16.2 %
|
14.2 %
|
6.0 %
|
12.3 %
|
3.9 %
|
31.7 %
|
Net earnings
(loss)
|
3,341
|
908
|
4,249
|
822
|
(542)
|
280
|
3,969
|
1417.5 %
|
Basic earnings (loss)
per share
|
$
0.314
|
$
0.085
|
$
0.399
|
$
0.077
|
$
(0.051)
|
$
0.026
|
$
0.373
|
1434.6 %
|
Diluted earnings (loss)
per share
|
$
0.311
|
$
0.085
|
$
0.396
|
$
0.076
|
$
(0.050)
|
$
0.026
|
$
0.370
|
1423.1 %
|
Dividends declared per
diluted share
|
|
|
$
0.30
|
|
|
$
0.300
|
$
-
|
0.0 %
|
Total assets
|
|
|
364,716
|
|
|
325,760
|
38,956
|
12.0 %
|
Long-term debt
(excludes lease liabilities)
|
|
|
70,247
|
|
|
45,166
|
25,081
|
55.5 %
|
Cash provided by
operating activities
|
|
|
7,817
|
|
|
1,049
|
6,768
|
645.2 %
|
Net change in non-cash
working capital items
|
|
|
(3,448)
|
|
|
(4,994)
|
1,546
|
31.0 %
|
Share-based
compensation expense
|
|
|
410
|
|
|
410
|
-
|
0.0 %
|
Maintenance capital
expenditures
|
|
|
1,103
|
|
|
706
|
397
|
56.2 %
|
Principal elements of
lease payments
|
|
|
2,547
|
|
|
1,908
|
639
|
33.5 %
|
Distributable cash
flow
|
|
|
7,205
|
|
|
3,019
|
4,186
|
138.7 %
|
Dividends
declared
|
|
|
3,200
|
|
|
3,227
|
(27)
|
-0.8 %
|
Payout ratio
|
|
|
44.4 %
|
|
|
106.9 %
|
-62.5 %
|
-58.5 %
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended
December 31,
|
|
|
(thousands,
except per share amounts
and percentages)
|
Canadian
Division
2023
|
UK
Division
2023
|
2023
|
Canadian
Division
2022
|
UK
Division
2022
|
2022
|
$
Change
|
%
Change
|
Revenue
|
$
241,129
|
$
79,755
|
$
320,884
|
$
212,035
|
$
64,588
|
$
276,623
|
44,261
|
16.0 %
|
Expenses included in
EBITDA
|
196,430
|
67,648
|
264,078
|
179,671
|
60,461
|
240,131
|
23,947
|
10.0 %
|
EBITDA(1)
|
44,699
|
12,107
|
56,806
|
32,365
|
4,127
|
36,492
|
20,314
|
55.7 %
|
EBITDA as a % of
revenue
|
18.5 %
|
15.2 %
|
17.7 %
|
15.3 %
|
6.4 %
|
13.2 %
|
4.5 %
|
34.1 %
|
Adjusted
EBITDA(1)
|
43,754
|
12,107
|
55,861
|
32,365
|
4,127
|
36,492
|
19,369
|
53.1 %
|
Adjusted EBITDA as a %
of revenue
|
18.1 %
|
15.2 %
|
17.4 %
|
15.3 %
|
6.4 %
|
13.2 %
|
4.2 %
|
31.8 %
|
Net earnings
(loss)
|
12,584
|
5,023
|
17,607
|
6,042
|
(2,136)
|
3,906
|
13,701
|
350.8 %
|
Basic earnings (loss)
per share
|
$
1.180
|
$
0.471
|
$
1.651
|
$
0.567
|
$
(0.200)
|
$
0.366
|
$
1.285
|
351.1 %
|
Diluted earnings (loss)
per share
|
$
1.172
|
$
0.468
|
$
1.640
|
$
0.563
|
$
(0.199)
|
$
0.364
|
$
1.276
|
350.5 %
|
Dividends declared per
diluted share
|
|
|
$
1.20
|
|
|
$
1.200
|
$
-
|
0.0 %
|
Total assets
|
|
|
364,716
|
|
|
325,760
|
38,956
|
12.0 %
|
Long-term debt
(excludes lease liabilities)
|
|
|
70,247
|
|
|
45,166
|
25,081
|
55.5 %
|
Cash provided by
operating activities
|
|
|
41,005
|
|
|
26,130
|
14,875
|
56.9 %
|
Net change in non-cash
working capital items
|
|
|
(6,113)
|
|
|
(5,621)
|
(492)
|
-8.8 %
|
Share-based
compensation expense
|
|
|
1,796
|
|
|
1,788
|
8
|
0.4 %
|
Maintenance capital
expenditures
|
|
|
3,561
|
|
|
2,994
|
567
|
18.9 %
|
Principal elements of
lease payments
|
|
|
9,391
|
|
|
7,397
|
1,994
|
27.0 %
|
Distributable cash
flow
|
|
|
32,370
|
|
|
19,572
|
12,798
|
65.4 %
|
Dividends
declared
|
|
|
12,896
|
|
|
12,905
|
(9)
|
-0.1 %
|
Payout ratio
|
|
|
39.8 %
|
|
|
65.9 %
|
-26.1 %
|
-39.6 %
|
(1) See
"Terminology" for further details
|
OUTLOOK
The Corporation's healthcare and hospitality segments continues
to experience steady growth trends. For the healthcare segment,
management expects activity levels to remain strong from continued
focus on reducing wait times and enhancing patient care. For
the hospitality segment, management expects solid activity levels
from both business and leisure travel reflecting historical
seasonal trends.
The volatility we encountered from energy prices, local labour
market shortages and cost inflation throughout the pandemic has
stabilized. In early 2022, particularly in the UK, the Corporation
faced significant volatility in energy costs due to geopolitical
issues. In April 2022, to mitigate
this instability, the Corporation locked in natural gas supply
rates in the UK until December 2024.
The Corporation also faced temporary labour inefficiencies from
unusually competitive labour markets. While labour markets
have been stabilizing, certain regional markets continue to
experience constrained labour availability. The Corporation is
managing more challenging regional labour availability with
complementary temporary foreign worker programs and has seen
positive staffing support in this regard.
Throughout 2023, EBITDA margins have benefited from price
increases that we have secured to offset inflation-related costs.
Going forward, management expects EBITDA margins to follow
historical seasonal trends.
With continued momentum in existing operations, management has
refocused attention on strategic acquisitions, such as the
acquisitions of Villeray and 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 other economic factors on our
business, see the "Summary of 2023 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 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 two distinctive brands: K‑Bro
Linen Systems Inc. and Buanderie HMR. 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.sedarplus.ca; 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.
EBITDA
|
|
|
|
|
|
|
|
Three Months Ended
December 31,
|
|
Years Ended
December 31,
|
(thousands)
|
2023
|
|
2022
|
|
2023
|
|
2022
|
|
|
|
|
|
|
|
|
|
Net earnings
|
$
4,249
|
|
$
280
|
|
$
17,607
|
|
$
3,906
|
Add:
|
|
|
|
|
|
|
|
|
Income tax
expense
|
1,000
|
|
302
|
|
5,256
|
|
1,538
|
|
Finance
expense
|
1,732
|
|
1,639
|
|
6,649
|
|
4,980
|
|
Depreciation of
property, plant and equipment
|
7,043
|
|
6,120
|
|
26,669
|
|
23,766
|
|
Amortization of
intangible assets
|
255
|
|
385
|
|
625
|
|
2,302
|
EBITDA
|
$
14,279
|
|
$
8,726
|
|
$
56,806
|
|
$
36,492
|
Non-GAAP Measures
Adjusted EBITDA
Adjusted EBITDA is a measure which has been reported in order to
assist in the comparison of historical EBITDA to current results.
"Adjusted EBITDA" is defined as EBITDA (defined above) with the
exclusion of certain material items that are unusual in nature,
infrequently occurring or not considered part of our core
operations.
|
|
Three Months Ended
December 31,
|
|
|
Canadian
Division
|
UK
Division
|
|
Canadian
Division
|
UK
Division
|
|
(thousands)
|
2023
|
2023
|
2023
|
2022
|
2022
|
2022
|
EBITDA
|
$
11,712
|
$
2,567
|
$
14,279
|
$
7,745
|
$
981
|
$
8,726
|
Deduct non-recurring
items:
|
|
|
|
|
|
|
|
Gain on settlement of
contingent consideration
|
(945)
|
-
|
(945)
|
-
|
-
|
-
|
Adjusted
EBITDA
|
$
10,767
|
$
2,567
|
$
13,334
|
$
7,745
|
$
981
|
$
8,726
|
|
|
Years Ended December
31,
|
|
|
Canadian
Division
|
UK
Division
|
|
Canadian
Division
|
UK
Division
|
|
(thousands)
|
2023
|
2023
|
2023
|
2022
|
2022
|
2022
|
EBITDA
|
$
44,699
|
$
12,107
|
$
56,806
|
$
32,365
|
$
4,127
|
$
36,492
|
Deduct non-recurring
items:
|
|
|
|
|
|
|
|
Gain on settlement of
contingent consideration
|
(945)
|
-
|
(945)
|
-
|
-
|
-
|
Adjusted
EBITDA
|
$
43,754
|
$
12,107
|
$
55,861
|
$
32,365
|
$
4,127
|
$
36,492
|
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)
|
|
2023
|
2022
|
|
2023
|
2022
|
|
|
|
|
|
|
|
|
Cash provided by
operating activities
|
|
$
7,817
|
$
1,049
|
|
$
41,005
|
$
26,130
|
Deduct
(add):
|
|
|
|
|
|
|
|
Net changes in non-cash
working capital items
|
|
(3,448)
|
(4,994)
|
|
(6,113)
|
(5,621)
|
|
Share-based
compensation expense
|
|
410
|
410
|
|
1,796
|
1,788
|
|
Maintenance capital
expenditures
|
|
1,103
|
706
|
|
3,561
|
2,994
|
|
Principal elements of
lease payments
|
|
2,547
|
1,908
|
|
9,391
|
7,397
|
Distributable cash
flow
|
|
$
7,205
|
$
3,019
|
|
$
32,370
|
$
19,572
|
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)
|
|
2023
|
2022
|
|
2023
|
2022
|
|
|
|
|
|
|
|
|
|
Cash
dividends
|
|
3,200
|
3,227
|
|
12,896
|
12,905
|
|
Distributable cash
flow
|
|
7,205
|
3,019
|
|
32,370
|
19,572
|
|
|
|
|
|
|
|
|
Payout ratio
|
|
44.4 %
|
106.9 %
|
|
39.8 %
|
65.9 %
|
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 (a)
the possibility of undisclosed material liabilities, disputes or
contingencies, (b) challenges or delays in achieving synergy and
integration targets, (c) the diversion of management's time and
focus from other business concerns and (d) the use of resources
that may be needed in other parts of our business; (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 and the risks associated
with maintaining short term contracts; (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 and terms 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.