K-BRO LINEN INC. (TSX: KBL)
2019 Financial and Operating Highlights
- Revenue for the three and twelve months ended
December 31, 2019 , was$62.9 million and$252.4 million , and respectively increased by 5.8% and 5.4% over the comparable 2018 periods. - EBITDA increased in the fourth quarter to
$11.1 million , compared to$6.6 million for the fourth quarter last year. On an annual basis, 2019 EBITDA increased to$47.6 million compared to$29.6 million in 2018. - EBITDA without the adoption of IFRS 16 in the fourth quarter increased to
$9.1 million , compared to$6.6 million for the fourth quarter last year. On an annual basis, 2019 EBITDA increased to$38.7 million compared to$29.6 million in 2018. - EBITDA margin for the fourth quarter increased to 17.7% from 11.1% for the same period in 2018. Annual EBITDA margin for 2019 increased to 18.8% from 12.3% for the same period in 2018.
- EBITDA without the adoption of IFRS 16 margin for the fourth quarter increased to 14.5% from 11.1% for the same period in 2018. Annual EBITDA margin for 2019 increased to 15.3% from 12.3% for the same period in 2018.
- Net earnings in the fourth quarter of 2019 increased by
$1.1 million to$2.2 million compared to$1.1 million in the same comparative period of 2018, and as a percentage of revenue increased by 1.7% to 3.5%. On an annual basis, net earnings increased by$4.7 million to$10.9 million compared to$6.2 million in the same comparative period of 2018, and as a percentage of revenue increased by 1.7% to 4.3%. - During the quarter, K-Bro declared dividends of
$0.300 per common share and distributable cash was$0.665 per common share on a fully diluted basis. On an annual basis, K-Bro declared dividends of$1.200 per common share and distributable cash was$2.801 per common share on a fully diluted basis
"We were very pleased with our results in 2019, which set records in both revenue and EBITDA and with the progress we have made in the last several quarters to return to historical EBITDA margins", said
Highlights and Significant Events for Fiscal 2019
K‑Bro has now completed the development of a new state‑of‑the‑art facility located in
In addition to investing in this new facility, K‑Bro has upgraded and replaced equipment at one of its existing Vancouver‑area facilities, which is being used to process the consolidated hospitality volume. During the third quarter of 2018, K‑Bro completed the decommissioning of the third Vancouver‑area facility, with related assets and volume transitioned to the existing upgraded Vancouver K‑Bro facility.
Business Acquisition
On
National Contract Award
Effective
Revolving Credit Facility
During 2019 K-Bro completed amendments to its existing
On
Capital Investment Plan
For fiscal 2020, K-Bro had previously anticipated capital spending to be approximately
Alberta Contract Award
On
Loss of Whitbread Group Contract
Subsequent to the 2019 fiscal year, the Corporation was unsuccessful in renewing its
Coronavirus ("COVID-19") Pandemic
The ongoing COVID-19 pandemic has caused world governments to institute travel restrictions both in and out of and within
We have adjusted operations at many of our plants that have experienced significant declines in hospitality volume, including by reducing the size of the workforce. We anticipate implementing further adjustments as circumstances develop.
Management believes that liquidity remains strong, with cash flow generation and access to significant undrawn credit line capacity being sufficient throughout 2020.
The extent of such negative effects on our hospitality business and our financial and operational performance will depend on future developments, including the duration, spread and severity of the outbreak, the duration and geographic scope of related travel advisories and restrictions and the extent of the impact of COVID-19 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 for an extended period, our 2020 consolidated results of operations will be significantly impacted. The extent to which the outbreak affects our earnings will depend in part on our ability to implement various measures intended to reduce expenses, including consolidating production capacity and laying off additional workers. Earnings in the hospitality segment will continue to be particularly affected if we continue to experience further reductions in travel. 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.
Financial Impact of the adoption of new accounting standards
As discussed in Note 3 – Changes in accounting policies to the 2019 Audited Financial Statements, the Corporation has adopted IFRS 16 retrospectively from
The tables below provide a reconciliation of actual Q4 2019 financial results compared with what would have occurred had we not adopted this new accounting policy.
EBITDA without adoption of IFRS 16 Leases
Segment | Adjustments | EBITDA | ||||||
For the three months ended | 2019 | 2019 | 2019 | 2018 | ||||
Canadian Division | $ | 8,737 | $ | (1,454) | $ | 7,283 | $ | 4,838 |
2,365 | (532) | 1,833 | 1,781 | |||||
$ | 11,102 | $ | (1,986) | $ | 9,116 | $ | 6,619 | |
Segment | Adjustments | EBITDA | ||||||
For the years ended | 2019 | 2019 | 2019 | 2018 | ||||
Canadian Division | $ | 35,843 | $ | (5,791) | $ | 30,052 | $ | 21,370 |
11,730 | (3,089) | 8,641 | 8,211 | |||||
$ | 47,573 | $ | (8,880) | $ | 38,693 | $ | 29,581 | |
Net earnings without adoption of IFRS 16 Leases
Segment 2019 | Adjustments | Net | ||||||
For the three months ended | 2019 | 2019 | 2018 | |||||
Canadian Division | $ | 1,760 | $ | 75 | $ | 1,835 | $ | 32 |
435 | 138 | 573 | 1,020 | |||||
$ | 2,195 | $ | 213 | $ | 2,408 | $ | 1,052 | |
Segment | Adjustments | Net | ||||||
For the years ended | 2019 | 2019 | 2019 | 2018 | ||||
Canadian Division | $ | 7,787 | $ | 210 | $ | 7,997 | $ | 2,701 |
3,119 | 223 | 3,342 | 3,468 | |||||
$ | 10,906 | $ | 433 | $ | 11,339 | $ | 6,169 | |
For the three months ended | ||||||||||||||||
(thousands, except per share amounts | Canadian |
| 2019(3) | Canadian |
| 2018 | $ Change | %Change | ||||||||
Revenue | $ | 46,001 | $ | 16,891 | $ | 62,892 | $ | 45,067 | $ | 14,373 | $ | 59,440 | 3,452 | 5.8% | ||
Expenses included in EBITDA | 37,264 | 14,526 | 51,790 | 40,229 | 12,592 | 52,821 | (1,031) | -2.0% | ||||||||
EBITDA | 8,737 | 2,365 | 11,102 | 4,838 | 1,781 | 6,619 | 4,483 | 67.7% | ||||||||
EBITDA as a % of revenue | 19.0% | 14.0% | 17.7% | 10.7% | 12.4% | 11.1% | 6.6% | 59.5% | ||||||||
EBITDA without adoption of IFRS 16 | 7,283 | 1,833 | 9,116 | 4,838 | 1,781 | 6,619 | 2,497 | 37.7% | ||||||||
EBITDA without adoption of IFRS 16 as % of revenue | 15.8% | 10.9% | 14.5% | 10.7% | 12.4% | 11.1% | 3.4% | 30.6% | ||||||||
Net earnings | 1,760 | 435 | 2,195 | 32 | 1,020 | 1,052 | 1,143 | 108.7% | ||||||||
Basic earnings per share | $ | 0.167 | $ | 0.041 | $ | 0.209 | $ | 0.003 | $ | 0.097 | $ | 0.100 | $ | 0.109 | 109.0% | |
Diluted earnings per share | $ | 0.166 | $ | 0.041 | $ | 0.207 | $ | 0.003 | $ | 0.097 | $ | 0.100 | $ | 0.107 | 107.0% | |
Dividends declared per diluted share | $ | 0.30 | $ | 0.30 | $ | - | 0.0% | |||||||||
Net earnings without adoption of IFRS 16 | 1,835 | 573 | 2,408 | 32 | 1,020 | 1,052 | 1,356 | 128.9% | ||||||||
Basic earnings per share without adoption of IFRS 16 | $ | 0.174 | $ | 0.054 | $ | 0.229 | $ | 0.003 | $ | 0.097 | $ | 0.100 | $ | 0.129 | 129.0% | |
Diluted earnings per share without adoption of IFRS 16 | $ | 0.173 | $ | 0.054 | $ | 0.227 | $ | 0.003 | $ | 0.097 | $ | 0.100 | $ | 0.127 | 127.0% | |
Total assets | 352,059 | 322,229 | 29,830 | 9.3% | ||||||||||||
Long-term debt, end of period | 62,494 | 70,203 | (7,709) | -11.0% | ||||||||||||
Cash provided by operating activities | 11,555 | 7,799 | 3,756 | 48.2% | ||||||||||||
Net change in non-cash working capital items | 1,534 | 1,082 | 452 | 41.8% | ||||||||||||
Share-based compensation expense(4) | 404 | 380 | 24 | 6.3% | ||||||||||||
Maintenance capital expenditures | 1,072 | 526 | 546 | 103.8% | ||||||||||||
Principal elements of lease payments(4) | 1,501 | - | 1,501 | 100.0% | ||||||||||||
Distributable cash flow | 7,044 | 5,811 | 1,233 | 21.2% | ||||||||||||
Dividends declared | 3,181 | 3,168 | 13 | 0.4% | ||||||||||||
Payout ratio | 45.2% | 54.5% | -9.3% | -17.1% | ||||||||||||
Years Ended | ||||||||||||||||
(thousands, except per share amounts | Canadian |
| 2019(3) | Canadian |
| 2018 | $ Change | % Change | ||||||||
Revenue | $ | 186,624 | $ | 65,786 | $ | 252,410 | $ | 179,889 | $ | 59,645 | $ | 239,534 | 12,876 | 5.4% | ||
Expenses included in EBITDA | 150,781 | 54,056 | 204,837 | 158,519 | 51,434 | 209,953 | (5,116) | -2.4% | ||||||||
EBITDA | 35,843 | 11,730 | 47,573 | 21,370 | 8,211 | 29,581 | 17,992 | 60.8% | ||||||||
EBITDA as a % of revenue | 19.2% | 17.8% | 18.8% | 11.9% | 13.8% | 12.3% | 6.5% | 52.8% | ||||||||
EBITDA without adoption of IFRS 16 | 30,052 | 8,641 | 38,693 | 21,370 | 8,211 | 29,581 | 9,112 | 30.8% | ||||||||
EBITDA without adoption of IFRS 16 as % of revenue | 16.1% | 13.1% | 15.3% | 11.9% | 13.8% | 12.3% | 3.0% | 24.4% | ||||||||
Net earnings | 7,787 | 3,119 | 10,906 | 2,701 | 3,468 | 6,169 | 4,737 | 76.8% | ||||||||
Basic earnings per share | $ | 0.741 | $ | 0.297 | $ | 1.038 | $ | 0.258 | $ | 0.331 | $ | 0.589 | $ | 0.449 | 76.2% | |
Diluted earnings per share | $ | 0.737 | $ | 0.295 | $ | 1.032 | $ | 0.257 | $ | 0.330 | $ | 0.588 | $ | 0.444 | 75.5% | |
Dividends declared per diluted share | $ | 1.20 | $ | 1.20 | $ | - | 0.0% | |||||||||
Net earnings without adoption of IFRS 16 | 7,997 | 3,342 | 11,339 | 2,701 | 3,468 | 6,169 | 5,170 | 83.8% | ||||||||
Basic earnings per share without adoption of IFRS 16 | $ | 0.761 | $ | 0.318 | $ | 1.079 | $ | 0.258 | $ | 0.331 | $ | 0.589 | $ | 0.490 | 83.2% | |
Diluted earnings per share without adoption of IFRS 16 | $ | 0.756 | $ | 0.316 | $ | 1.072 | $ | 0.257 | $ | 0.330 | $ | 0.588 | $ | 0.484 | 82.3% | |
Total assets | 352,059 | 322,229 | 29,830 | 9.3% | ||||||||||||
Long-term debt, end of period | 62,494 | 70,203 | (7,709) | -11.0% | ||||||||||||
Cash provided by operating activities | 43,916 | 17,554 | 26,362 | 150.2% | ||||||||||||
Net change in non-cash working capital items | 1,866 | (11,380) | 13,246 | 116.4% | ||||||||||||
Share-based compensation expense(4) | 1,810 | 1,817 | (7) | -0.4% | ||||||||||||
Maintenance capital expenditures | 3,941 | 2,352 | 1,589 | 67.6% | ||||||||||||
Principal elements of lease payments(4) | 6,691 | - | 6,691 | 100.0% | ||||||||||||
Distributable cash flow | 29,608 | 24,765 | 4,843 | 19.6% | ||||||||||||
Dividends declared | 12,707 | 12,651 | 56 | 0.4% | ||||||||||||
Payout ratio | 42.9% | 51.1% | -8.2% | -16.0% | ||||||||||||
(1) | Refer to the Terminology section for further details |
(2) | Prior to the acquisition of Fishers on |
(3) | Effective |
(4) | Effective |
Dividend
The Board of Directors has declared a monthly dividend of
Outlook
While COVID-19 will have a significant negative impact on our hospitality revenue, management believes the prospects for the Corporation's healthcare business remains strong in the medium to long-term. In addition, management believes that the financial flexibility provided by our strong balance sheet will enable us to operate without disruption to our business model while maintaining our ability to service the healthcare and hospitality sectors in our Canadian and
CORPORATE PROFILE
K-Bro is the largest owner and operator of laundry and linen processing facilities in
The Corporation's operations in
The Corporation's operations in the
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, 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:
EBITDA is defined as earnings before finance expense, income taxes, depreciation, and amortization. EBITDA is not a recognized measure for financial statement presentation under IFRS. EBITDA is not intended to represent cash flow from operations, as defined by IFRS, and it should not be considered as an alternative to net earnings, cash flow from operations, or any other measure of performance prescribed by IFRS. The Corporation's EBITDA may also not be comparable to EBITDA used by other corporations, which may be calculated differently. The Corporation considers EBITDA to be a meaningful measure to assess its operating performance in addition to standardized IFRS measures. It is included because the Corporation believes it can be useful in measuring its ability to service debt, fund capital expenditures, and expand its business.
Three Months Ended | Years Ended | ||||||||||
(thousands) | 2019 | 2018 | 2019 | 2018 | |||||||
Net earnings | $ | 2,195 | $ | 1,052 | $ | 10,906 | $ | 6,169 | |||
Add: | |||||||||||
Income tax expense | 683 | (551) | 2,900 | 1,222 | |||||||
Finance expense | 1,213 | 866 | 5,802 | 3,315 | |||||||
Depreciation of property, plant and equipment | 6,053 | 4,484 | 24,705 | 15,871 | |||||||
Amortization of intangible assets | 958 | 768 | 3,260 | 3,004 | |||||||
EBITDA | $ | 11,102 | $ | 6,619 | $ | 47,573 | $ | 29,581 | |||
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.
Adjusted net earnings and adjusted net earnings per share are measures which have been reported in order to assist in the comparison of historical net earnings to current results. Adjusted net earnings is defined as net earnings with the exclusion of certain material items that are unusual in nature, infrequently occurring or not considered part of our core operations. The calculation of adjusted net earnings normalizes the impact of the transaction costs related to the acquisition of Fishers, and the related impact on net earnings and net earnings per share. The normalization of this net expense in the calculation of adjusted net earnings and adjusted net earnings per share is considered by management to be a more accurate representation of the net earnings from core operations.
Distributable cash flow is a measure used by management to evaluate its 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 shall be noted that although we consider this measure to be distributable cash flow, financial and non-financial covenants in our credit facilities and dealer agreements may restrict cash from being available for dividends, re-investment in the Corporation, potential acquisitions, or other purposes. Investors should be cautioned that distributable cash flow may not actually be available for growth or distribution from the Corporation. Management refers to "Distributable cash flow" as to cash provided by (used in) operating activities with the addition of net changes in non-cash working capital items, less share-based compensation, maintenance capital expenditures and principal elements of lease payments.
Three Months Ended | Years Ended | ||||||||||
(thousands) | 2019(1) | 2018 | 2019(1) | 2018 | |||||||
Cash provided by operating activities | $ | 11,555 | $ | 7,799 | $ | 43,916 | $ | 17,554 | |||
Deduct (add): | |||||||||||
Net changes in non-cash working capital items | 1,534 | 1,082 | 1,866 | (11,380) | |||||||
Share-based compensation expense | 404 | 380 | 1,810 | 1,817 | |||||||
Maintenance capital expenditures | 1,072 | 526 | 3,941 | 2,352 | |||||||
Principal elements of lease payments(2) | 1,501 | - | 6,691 | - | |||||||
Distributable cash flow(2) | $ | 7,044 | $ | 5,811 | $ | 29,608 | $ | 24,765 | |||
(1) | Effective |
(2) | Effective |
Payout ratio is defined by management as the actual cash dividend divided by distributable cash. This is a key measure used by investors to value K-Bro, assess its performance and provide an indication of the sustainability of dividends. The payout ratio depends on the distributable cash and the Corporation's dividend policy.
Three Months Ended | Years Ended | ||||
(thousands) | 2019 | 2018 | 2019 | 2018 | |
Cash dividends | 3,181 | 3,168 | 12,707 | 12,651 | |
Distributable cash flow | 7,044 | 5,811 | 29,608 | 24,765 | |
Payout ratio | 45.2% | 54.5% | 42.9% | 51.1% | |
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; (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
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.
SOURCE
© Canada Newswire, source
