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MarketScreener Homepage  >  Equities  >  Toronto Stock Exchange  >  K-Bro Linen Inc.    KBL   CA48243M1077

K-BRO LINEN INC.

(KBL)
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Delayed Quote. Delayed Toronto Stock Exchange - 07/03 04:00:00 pm
27.63 CAD   +3.41%
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K Bro Linen : Financial Statements Q1 2020

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05/08/2020 | 03:49am EDT

www.k-brolinen.com|inquiries@k-brolinen.com

Interim Condensed Consolidated Statements of Financial Position

(unaudited, thousands of Canadian dollars)

March 31,

2020

ASSETS

Current assets

Cash and cash equivalents

$

1,319

Accounts receivable

31,558

Income tax receivable

110

Prepaid expenses and deposits

4,537

Linen in service

27,132

64,656

Property, plant and equipment (note 4)

219,713

Intangible assets

13,023

Goodwill (note 12)

38,735

$

336,127

LIABILITIES

Current liabilities

Accounts payable and accrued liabilities

$

28,528

Lease liabilities

7,926

Income taxes payable

503

Dividends payable to shareholders

1,060

38,017

Long-term debt (note 5)

54,693

Lease liabilities

37,525

Provisions

3,000

Deferred income taxes

11,403

$

144,638

SHAREHOLDERS' EQUITY

Share capital

203,110

Contributed surplus

2,748

Deficit

(16,667)

Accumulated other comprehensive income

2,298

December 31,

2019

$ 5,301 34,900

-

4,334

26,039

70,574

226,332

13,699

41,454

$ 352,059

$ 28,689

8,297

1,507

1,060

39,553

62,494

38,531

2,838

12,592

$ 156,008

203,110

2,241

(10,078)

778

$

191,489

$

196,051

Contingencies and commitments (note 6)

$

336,127

$

352,059

The accompanying notes are an integral part of these interim condensed consolidated financial statements.

Interim Condensed Consolidated Statements of Earnings & Comprehensive Income

(unaudited, thousands of Canadian dollars, except share and per share amounts)

Three Months Ended

March 31,

20202019

Revenue

$

57,275

Expenses

22,682

Wages and benefits

Linen

6,678

Utilities

3,576

Delivery

7,018

Occupancy costs

1,163

Materials and supplies

2,129

Repairs and maintenance

2,150

Corporate

2,625

Gain on disposal of property, plant and equipment

(5)

Impairment of assets (note 12)

5,516

53,532

EBITDA (note 12)

3,743

Other expenses

6,115

Depreciation of property, plant and equipment (note 4)

Amortization of intangible assets

966

Finance expense

1,193

8,274

(Loss) earnings before income taxes

(4,531)

Current income tax expense

136

Deferred income tax (recovery) expense

(1,259)

Income tax (recovery) expense

(1,123)

Net (loss) earnings

$

(3,408)

Other comprehensive income (loss)

Items that may be subsequently reclassified to earnings:

Foreign currency translation differences on foreign operations

1,520

Total comprehensive (loss) income

$

(1,888)

Net (loss) earnings per share:

Basic

$

(0.32)

Diluted

$

(0.32)

Weighted average number of shares outstanding:

Basic

10,539,458

Diluted

10,590,526

$ 57,783

23,380

6,447

4,343

6,981

1,094

1,760

2,057

2,606

-

-

48,668

9,115

6,135

781

1,513

8,429

686

23

168

191

$ 495

(78)

$ 417

$ 0.05

$ 0.05

10,496,590

10,545,970

The accompanying notes are an integral part of these interim condensed consolidated financial statements.

Interim Condensed Consolidated Statements of Changes in Equity

(unaudited, thousands of Canadian dollars)

Accumulated

Total Share

other

Contributed

comprehensive

Total

Capital

surplus

Deficit

income

equity

As at December 31, 2019

$

203,110

$

2,241

$

(10,078)

$

778

$

196,051

Total comprehensive income (loss)

-

-

(3,408)

1,520

(1,888)

Dividends declared (note 7)

-

-

(3,181)

-

(3,181)

Employee share based compensation expense

-

507

-

-

507

As at March 31, 2020

$

203,110

$

2,748

$

(16,667)

$

2,298

$

191,489

Accumulated

Total Share

other

Contributed

comprehensive

Total

Capital

surplus

Deficit

income

equity

As at December 31, 2018

$

201,429

$

2,112

$

(6,547)

$

1,666

$

198,660

Change in accounting policy

-

-

(1,730)

-

(1,730)

Restated total equity at January 1, 2019

201,429

2,112

(8,277)

1,666

196,930

Total comprehensive income (loss)

-

-

495

(78)

417

Dividends declared (note 7)

-

-

(3,168)

-

(3,168)

Employee share based compensation expense

-

540

-

-

540

As at March 31, 2019

$

201,429

$

2,652

$

(10,950)

$

1,588

$

194,719

The accompanying notes are an integral part of these interim condensed consolidated financial statements.

Interim Condensed Consolidated Statements of Cash Flow

(unaudited, thousands of Canadian dollars)

Three Months Ended

March 31,

2020

OPERATING ACTIVITIES

Net (loss) earnings

$

(3,408)

Depreciation of property, plant and equipment (note 4)

6,115

Amortization of intangible assets

966

Accretion expense

145

Employee share based compensation expense

507

Gain on disposal of property, plant and equipment

(5)

Impairment of assets (note 12)

5,516

Deferred income taxes

(1,259)

8,577

Change in non-cash working capital items (note 8)

3,011

Cash provided by operating activities

11,588

FINANCING ACTIVITIES

Net repayment of revolving debt

(7,801)

Principal elements of lease payments

(1,666)

Dividends paid to shareholders

(3,181)

Cash used in financing activities

(12,648)

INVESTING ACTIVITIES

Purchase of property, plant and equipment

(2,879)

Cash used in investing activities

(2,879)

Change in cash and cash equivalents during the period

(3,939)

Effect of exchange rate changes on cash and cash equivalents

(43)

Cash and cash equivalents, beginning of period

5,301

Cash and cash equivalents, end of period

$

1,319

Supplementary cash flow information

Interest paid

$

1,108

Income taxes paid

$

1,273

2019

$ 495 6,135 781 67 540

-

-

168

8,186

1,484

9,670

(2,759)

(1,648)

(3,168)

(7,575)

(2,372)

(2,372)

(277)

(2)

2,827

$ 2,548

$

1,384

$

-

The accompanying notes are an integral part of these interim condensed consolidated financial statements.

Notes to the Interim Condensed Consolidated Financial Statements

(unaudited, thousands of Canadian dollars except share and per share amounts, three months ended March 31, 2020 and 2019)

K-Bro Linen Inc. (the "Corporation" or "K-Bro") is incorporated in Canada under the Business Corporations Act (Alberta). K-Bro is the largest owner and operator of laundry and linen processing facilities in Canada and a market leader for laundry and textile services in Scotland and the North East of England. K-Bro and its wholly owned subsidiaries, operate across Canada and the United Kingdom ("UK"), provide a range of linen services to healthcare institutions, hotels and other commercial organizations that include the processing, management and distribution of general linen and operating room linen.

The Corporation's operations in Canada include nine processing facilities and two distribution centres under three distinctive brands, including K-Bro Linen Systems Inc., Buanderie HMR and Les Buanderies Dextraze, 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 Topco Ltd. ("Fishers") which was acquired by K-Bro on November 27, 2017. Fishers was established in 1900 and is an 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. Fishers' client base includes major hotel chains and prestigious venues across Scotland and the North East of England. The company operates in five cities, in Scotland and the North East of England with facilities in Cupar, Perth, Newcastle, Livingston and Coatbridge.

The Corporation's common shares are traded on the Toronto Stock Exchange under the symbol "KBL". The address of the Corporation's registered head office is 14903 - 137 Avenue, Edmonton, Alberta, Canada.

These unaudited Interim Condensed Consolidated Financial Statements were approved and authorized for issuance by the Board of Directors ("the Board") on May 7, 2020.

1 Basis of Presentation

These unaudited Interim Condensed Consolidated Financial Statements have been prepared in accordance with International Financial Reporting Standards as published in the CPA Canada Handbook (IFRS), as applicable to interim financial reports including IAS 34, Interim Financial Reporting, and should be read in conjunction with the annual consolidated audited financial statements for the year ended December 31, 2019 which have been prepared in accordance with IFRS, as issued by the International Accounting Standards Board, and GAAP as issued by CPA Canada. The accounting policies followed in these unaudited Interim Condensed Consolidated Financial Statements are consistent with those of the previous year, except as described below.

Use of Estimates, Judgements and Assumptions

The timely preparation of the consolidated interim financial statements, in conformity with IFRS, requires management of the Corporation to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reported period. Actual results could differ from those estimates.

The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgments about carrying values of assets and liabilities that are not readily apparent from other sources. These estimates and judgments have been applied in a manner consistent with prior periods.

Notes to the Interim Condensed Consolidated Financial Statements

(unaudited, thousands of Canadian dollars except share and per share amounts, three months ended March 31, 2020 and 2019)

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, a significant adverse impact on the Corporation's hospitality business, the duration of which we are unable to predict with any degree of accuracy.

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 will continue to be particularly affected if we continue to experience further reductions in travel and reduced hospitality occupancy rates. Additionally, our suppliers or other third parties we rely upon may experience delays or shortages, which could have an adverse effect on our business prospects and results of operations.

As an ongoing risk, the duration and full financial effect of the COVID-19 pandemic is unknown at this time, and continues to be offset through the Corporation's business continuity plan and other mitigating measures. Any estimate of the length and severity of these developments is therefore subject to significant uncertainty, and accordingly estimates of the extent to which the COVID-19 pandemic may materially and adversely affect the Corporation's operations, financial results and condition in future periods are also subject to significant uncertainty. Based off impairment indicators that existed at March 31, 2020 as a result of the COVID-19 pandemic, management has assessed the impairment of assets based off facts and circumstances which suggest that the carrying amount in certain CGUs may exceed its recoverable amount, refer to note 12 for further detail.

Uncertainty about judgments, estimates and assumptions made by management during the preparation of the Corporation's interim condensed consolidated financial statements related to potential impacts of the COVID-19 outbreak on revenue, expenses, assets, liabilities, and note disclosures could result in a material adjustment to the carrying value of the asset or liability affected.

2 Significant accounting policies adopted January 1, 2020

As at January 1, 2020 the Corporation had no changes to significant accounting policies, and had not adopted any new standards, interpretations or amendments.

3 New Standards and interpretations not yet adopted

New standards, interpretations, or amendments that have been issued but are not yet effective, have not been early adopted by the Corporation, and no material impact is expected on the Corporation's consolidated financial statements.

Notes to the Interim Condensed Consolidated Financial Statements

(unaudited, thousands of Canadian dollars except share and per share amounts, three months ended March 31, 2020 and 2019)

4

Property, plant and equipment

Land

Buildings

Laundry

Office

Delivery

Computer

Leasehold

Spare Parts

Total

Year ended, December 31, 2019

Equipment(1)

Equipment

Equipment

Equipment

Improvements

Opening net book amount

$

4,067

$

19,109

$

124,252

$

387

$

324

$

958

$

43,918

$

1,233

$

194,248

Adjustment for change in accounting policy

-

38,141

-

-

8,129

-

-

-

46,270

Restated opening net book amount

$

4,067

$

57,250

$

124,252

$

387

$

8,453

$

958

$

43,918

$

1,233

$

240,518

Additions (2)(3)

-

580

7,283

69

1,551

328

423

623

10,857

Disposals

-

-

(5)

-

(38)

-

-

-

(43)

Transfers

-

-

-

-

-

-

-

-

-

Depreciation charge

-

(5,251)

(11,635)

(146)

(3,366)

(578)

(3,729)

-

(24,705)

Effect of movement in exchange rates

(24)

(55)

(191)

(1)

(22)

-

(2)

-

(295)

Closing net book amount

$

4,043

$

52,524

$

119,704

$

309

$

6,578

$

708

$

40,610

$

1,856

$

226,332

At December 31, 2019

Cost

$

4,043

$

61,656

$

186,714

$

1,043

$

10,513

$

3,083

$

60,099

$

1,856

$

329,007

Accumulated depreciation

-

(9,132)

(67,010)

(734)

(3,935)

(2,375)

(19,489)

-

(102,675)

Net book amount

$

4,043

$

52,524

$

119,704

$

309

$

6,578

$

708

$

40,610

$

1,856

$

226,332

Period ended, March 31, 2020

Opening net book amount

$

4,043

$

52,524

$

119,704

$

309

$

6,578

$

708

$

40,610

$

1,856

$

226,332

Additions (2)(3)

-

1

713

-

25

90

195

-

1,024

Disposals

-

-

(3)

-

-

-

-

(7)

(10)

Depreciation charge

-

(1,323)

(2,866)

(36)

(758)

(145)

(987)

-

(6,115)

Impairment of assets (note 12)

-

(207)

(2,113)

-

(5)

(14)

-

-

(2,339)

Effect of movement in exchange rates

39

280

420

3

69

-

10

-

821

Closing net book amount

$

4,082

$

51,275

$

115,855

$

276

$

5,909

$

639

$

39,828

$

1,849

$

219,713

At March 31, 2020

Cost

$

4,082

$

61,976

$

187,976

$

1,048

$

10,665

$

3,173

$

60,301

$

1,849

$

331,070

Accumulated depreciation

-

(10,701)

(72,121)

(772)

(4,756)

(2,534)

(20,473)

-

(111,357)

Net book amount

$

4,082

$

51,275

$

115,855

$

276

$

5,909

$

639

$

39,828

$

1,849

$

219,713

  1. Included in laundry equipment are assets under development in the amount of $643 (2019 - $103). These assets are not available for service and accordingly are not presently being depreciated.
  2. Total property, plant and equipment additions include amounts in accounts payable of $151 (2019 - $2,037).
  3. Additions include amounts from the Canadian Division of $481 (2019 - $5,461) and from the UK Division of $543 (2019 - $5,396).

5 Long-term debt

Prime Rate

Loan(1)

At January 1, 2019

$

70,203

Net repayment of debt

(7,709)

Closing balance at December 31, 2019

$

62,494

At January 1, 2020

$

62,494

Net repayment of debt

(7,801)

Closing balance at March 31, 2020

$

54,693

  1. Prime rate loan, collateralized by a general security agreement, bears interest at prime plus an interest margin dependent on certain financial ratios, with a monthly repayment of interest only, maturing on July 31, 2022 (December 31, 2019 - July 31, 2022). The additional interest margin can range between 0.0% to 1.25% dependent upon the calculated Funded Debt / Credit Facility EBITDA financial ratio, with a range between 0 to 3.5x. As at March 31, 2020 the combined interest rate was 2.7% (December 31, 2019 - 4.5%)

Under the credit facility, the Corporation is required, among other conditions, to respect certain covenants on a consolidated basis. The main covenants are in regard to its Funded Debt to Credit Facility EBITDA ratio and Total Fixed Charge Coverage ratio. Management reviews compliance with these covenants on a quarterly basis in conjunction with filing requirements under its credit facility. All covenants have been met as at March 31, 2020 and December 31, 2019.

Notes to the Interim Condensed Consolidated Financial Statements

(unaudited, thousands of Canadian dollars except share and per share amounts, three months ended March 31, 2020 and 2019)

The Corporation has a revolving credit facility of up to $100,000 plus a $25,000 accordion of which $55,843 is utilized (including letters of credit totaling $1,150) as at March 31, 2020. Interest payments only are due during the term of the facility.

Drawings under the revolving credit facility are available by way of Bankers' Acceptances, Canadian prime rate loans, Libor of UK pounds based loans, letters of credit or standby letters of guarantee. Drawings under the revolving credit facility bear interest at a floating rate, plus an applicable margin based on certain financial performance ratios.

A general security agreement over all assets, a mortgage against all leasehold interests and real property, insurance policies and an assignment of material agreements have been pledged as collateral.

The carrying value of borrowings approximate their fair value as the debt is based on a floating rate, the interest rate risk has not changed, and the impact of discounting is not significant.

The Corporation has incurred no events of default under the terms of its credit facility agreement.

6 Contingencies and commitments

  1. Contingencies
    The Corporation has standby letters of credit issued as part of normal business operations in the amount of $1,150 (December 31, 2019 - $1,150) which will remain outstanding for an indefinite period of time.
    Grievances for unspecified damages were lodged against the Corporation in relation to labour matters. The Corporation has disclaimed liability and is defending the actions. It is not practical to estimate the potential effect of these grievances but legal advice indicates that it is not probable that a significant liability will arise.
  2. Commitments and contractual obligations
  1. Utility commitments
    The Corporation was committed to estimated natural gas and electricity commitments for the next five calendar years and thereafter as follows:

Utility commitments

Remainder of 2020

$

4,768

2021

4,296

2022

-

2023

-

2024

-

Subsequent

-

$

9,064

Notes to the Interim Condensed Consolidated Financial Statements

(unaudited, thousands of Canadian dollars except share and per share amounts, three months ended March 31, 2020 and 2019)

  1. Linen purchase commitments
    At March 31, 2020, the Corporation was committed to linen expenditure obligations in the amount of $10,760 (December 31, 2019 - $9,821) to be incurred within the next year.
  2. Property, plant and equipment commitments
    At March 31, 2020, the Corporation was committed to capital expenditure obligations in the amount of $1,664 (December 31, 2019 - $641) to be incurred within the next year.

7 Dividends to shareholders

During the three months ended March 31, 2020, the Corporation declared total dividends to shareholders of $3,181 or $0.300 per share (2019 - $3,168 or $0.300 per share).

8 Net change in non-cash working capital items

Three Months Ended

March 31,

2020

Accounts receivable

$

3,598

Linen in service

(838)

Prepaid expenses and deposits

(147)

Accounts payable and accrued liabilities (1)

1,511

Income taxes payable / receivable

(1,113)

$

3,011

2019

$

3,519

(229)

(832)

(1,240)

266

$

1,484

  1. Accounts payable and accrued liabilities exclude the net change innon-cash amounts related to the acquisition of property, plant and equipment that have been committed to but not yet paid of $-1,886 (2019 - $-547).

9 Financial instruments

The Corporation's financial instruments at March 31, 2020 and December 31, 2019 consist of cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities, lease liabilities, dividends payable to shareholders, and long term debt. The carrying value of accounts receivable, accounts payable and accrued liabilities, lease liabilities, and dividends payable to shareholders approximate fair value due to the immediate or short-term maturity of these financial instruments. The fair value of the Corporation's interest-bearing debt approximates the respective carrying amount due to the floating rate nature of the debt.

10 Related party transactions

The Corporation incurred expenses in the normal course of business for advisory consulting services provided by a Director. The amounts charged are recorded at their exchange amounts and are subject to normal trade terms. For the three months ended March 31, 2020, the Corporation incurred such fees totaling $35 (2019- $35).

Notes to the Interim Condensed Consolidated Financial Statements

(unaudited, thousands of Canadian dollars except share and per share amounts, three months ended March 31, 2020 and 2019)

11 Segmented information

The Chief Executive Officer ("CEO") is the Corporation's chief operating decision-maker. The Chief Executive Officer examines the Corporation's performance and allocation of resources both from geographic perspective and service type, and has identified two reportable segments of its business:

  1. Canadian division - provides laundry and linen services to the healthcare and hospitality sectors through nine operating divisions located in Vancouver, Victoria, Calgary, Edmonton, Regina, Toronto, Montréal, and Québec City. Management has assessed that the services offered and the economic characteristics associated with these divisions are similar, and therefore they have been aggregated into one reportable segment which operates exclusively in Canada.
  2. UK division - provides laundry and linen services primarily to the hospitality sector, with other sectors including healthcare, manufacturing and pharmaceutical, through six sites which are located in Cupar, Perth, Newcastle, Livingston and Coatbridge.

The aggregation assessment requires significant judgment by management. Economic indicators used by management to assess the economic characteristics are the gross margin and the growth rate of each division.

The CEO primarily uses a measure of EBITDA to assess the performance of the operating segments. In addition, the CEO also receives information about the segments' revenue and assets on a monthly basis.

  1. Segment revenue
    The Corporation disaggregates revenue from contracts with customers by geographic location and customer-type for each of our segments, as we believe it best depicts how the nature, amount, timing and uncertainty of our revenue and cash flows are affected by economic factors.
    Sales between segments are carried out at arm's length and are eliminated on consolidation. The revenue from external parties is measured in the same manner as in the consolidated statements of earnings & comprehensive income.
    In Edmonton, the Corporation is the significant supplier of laundry and linen services to the entity which manages all major healthcare facilities in the region and this contract expires on March 31, 2023. In Calgary, the major customer is contractually committed to February 28, 2021, in Vancouver the major customer is contractually committed to March 1, 2027, and in Saskatchewan the major customer is contractually committed to June 1, 2025. For the three months ended March 31, 2020, from these four major customers the Corporation has recorded revenue of $25,639 (2019 - $25,091), representing 44.8% (2019 - 43.4%) of total revenue.

Notes to the Interim Condensed Consolidated Financial Statements

(unaudited, thousands of Canadian dollars except share and per share amounts, three months ended March 31, 2020 and 2019)

Three Months Ended

March 31, 2020

Healthcare

$

33,395

58.3%

Hospitality (note 12)

10,316

18.0%

Canadian division

$

43,711

76.3%

Three Months Ended

March 31, 2019

$

32,435

56.2%

12,098

20.9%

$

44,533

77.1%

Healthcare

$

1,653

2.9%

Hospitality

11,911

20.8%

UK division

$

13,564

23.7%

Total segment revenue

$

57,275

100.0%

$

1,668

2.9%

11,582

20.0%

$

13,250

22.9%

$

57,783

100.0%

  1. Segment net earnings and EBITDA
    Segment net earnings and EBITDA are calculated consistent with the presentation in the financial statements. The net earnings and EBITDA is allocated based on the operations of the segment, and where the earnings and costs are generated from.

Canadian

Three Months Ended March 31, 2020

division

UK division

Total

Net loss

$

(2,472)

$

(936)

$

(3,408)

EBITDA

$

2,794

$

949

$

3,743

Canadian

Three Months Ended March 31, 2019

division

UK division

Total

Net earnings (loss)

$

731

$

(236)

$

495

EBITDA

$

7,384

$

1,731

$

9,115

The Canadian division net earnings includes non-cash employee share based compensation expense of $507 (2019 - $540).

  1. Segment assets
    Segment assets are measured in the same way as in the financial statements. These assets are allocated based on the operations of the segment and the physical location of the asset.
    The Corporation's cash and cash equivalents are not considered to be segment assets, but are managed by the treasury function.

Notes to the Interim Condensed Consolidated Financial Statements

(unaudited, thousands of Canadian dollars except share and per share amounts, three months ended March 31, 2020 and 2019)

Canadian

At March 31, 2020

division

UK division

Total

Total assets

$

247,416

$

88,711

$

336,127

Other:

(1,319)

Cash and cash equivalents

-

(1,319)

Total segment assets

$

247,416

$

87,392

$

334,808

Canadian

At December 31, 2019

division

UK division

Total

Total assets

$

260,560

$

91,499

$

352,059

Other:

(5,301)

Cash and cash equivalents

-

(5,301)

Total segment assets

$

260,560

$

86,198

$

346,758

  1. Segment liabilities
    Segment liabilities are measured in the same way as in the financial statements. These liabilities are allocated based on the operations of the segment. The Corporation's borrowings are not considered to be segment liabilities, but are managed by the treasury function.

Canadian

At March 31, 2020

division

UK division

Total

Total liabilities

$

121,042

$

23,596

$

144,638

Other:

(54,693)

Long-term debt (note 5)

(54,693)

-

Total segment liabilities

$

66,349

$

23,596

$

89,945

Canadian

At December 31, 2019

division

UK division

Total

Total liabilities

$

132,156

$

23,852

$

156,008

Other:

(62,494)

Long-term debt (note 5)

(62,494)

-

Total segment liabilities

$

69,662

$

23,852

$

93,514

Notes to the Interim Condensed Consolidated Financial Statements

(unaudited, thousands of Canadian dollars except share and per share amounts, three months ended March 31, 2020 and 2019)

12 Impairment of assets

Significant estimates

Management has assessed the impairment indicators that existed at March 31, 2020 in certain CGUs. Specifically, five CGUs that rely primarily on hospitality revenues due to the significant impact that COVID-19 has had to the hospitality industry. The recoverable amounts of these specific CGUs were recalculated using the value in use method by applying probability weightings to capture the increased risk and uncertainty arising from COVID-19.

Our probability weighted approach has been evaluated based off an equally weighted probability of a one year downturn in sales to the worst case of a two year downturn in sales. The scenarios estimated a decline of 70% for year 1 and 50% for year 2, with sales returning to normalized levels thereafter with sales growth estimates used between 2% to 3%. An impairment loss of $5,516 was recognized for three CGUs in the Canadian division, of which $3,177 was allocated to goodwill and $2,339 was allocated to PP&E.

EBITDA before impairment and gain/loss on disposal of PP&E was $9,254 (2019 - $9,115).

Total

Allocated to

Allocated to

impairment

Recoverable

CGU

Goodwill

PP&E

recorded

Amount

Montreal

$

823

$

-

$

823

$

2,485

Quebec

654

2,339

2,993

1,917

Victoria

1,700

-

1,700

5,433

$

3,177

$

2,339

$

5,516

$

9,835

The recoverable amount of the UK Division and Vancouver 2 CGUs was estimated to be £67,234 and $24,008 as at March 31, 2020 which exceeded the carrying amount of both of the CGUs. No impairment was therefore required for either of these CGUs.

The key assumptions in calculating the recoverable amount of the five CGU's where impairment calculations were updated as at March 31, 2020 were as follows:

March 31, 2020

Long-term growth rate %

2.0% to 3.0%

Pre-tax discount rate %

10.5% to 12.5%

For Vancouver 2 and the UK Division, in addition to the key assumptions noted above, management has also evaluated other reasonable changes in estimates and assumptions, and did not identify any other instances at March 31, 2020, that could cause the carrying amount of these CGUs to exceed the recoverable amount.

There were no other CGUs that were showing signs of impairment as at March 31, 2020 and as such we have not updated any of the other impairment calculations. The Corporation will continue to carefully monitor the situation as it pertains to COVID-19 and further consider if there are new, or additional indicators, that exist during the year.

Notes to the Interim Condensed Consolidated Financial Statements

(unaudited, thousands of Canadian dollars except share and per share amounts, three months ended March 31, 2020 and 2019)

With the ongoing development of the COVID-19 pandemic, the length and severity of these developments is therefore subject to significant uncertainty, and accordingly may materially and adversely affect assumptions used in the consideration of the impairment of assets, impact whether a CGU has been impaired, and may change prior recorded impairment amounts.

13 Subsequent events

  1. Dividends
    On April 17, 2020, the Board declared an eligible dividend of $0.1000 per common share of the Corporation payable on May 15, 2020 to shareholders of record on April 30, 2020.
    On May 7, 2020, the Board declared an eligible dividend of $0.1000 per common share of the Corporation payable on June 15, 2020 to shareholders of record on May 31, 2020.

Disclaimer

K-Bro Linen Inc. published this content on 07 May 2020 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 08 May 2020 07:48:02 UTC

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Sales 2020 187 M 138 M 138 M
Net income 2020 -10,3 M -7,57 M -7,57 M
Net Debt 2020 59,4 M 43,8 M 43,8 M
P/E ratio 2020 -33,0x
Yield 2020 4,34%
Capitalization 293 M 216 M 216 M
EV / Sales 2019
EV / Sales 2020 1,89x
Nbr of Employees 2 700
Free-Float 98,6%
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Average target price 33,50 CAD
Last Close Price 27,63 CAD
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Spread / Lowest Target -2,28%
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NameTitle
Linda McCurdy President, Chief Executive Officer & Director
Ross S. Smith Chairman
Sean P. Curtis Chief Operating Officer & Senior Vice President
Kristie L. Plaquin Chief Financial Officer
Steven Emanuel Matyas Independent Director
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