(TSX: KBL)
2020 Financial and Operating Highlights
- Revenue for the three months ended
March 31, 2020 was$57.3 million and decreased by 0.9% over the comparable 2019 period. This reflects a period of significant growth through the end of February, with a significant decline in March after the COVID-19 restrictions began inCanada and theUK . - EBITDA decreased in the first quarter to
$3.7 million compared to$9.1 million over the comparable 2019 period. This includes a non-cash impairment to goodwill of$5.5 million related to three smaller hospitality cash generating units within the Canadian Division, without which EBITDA would have been$9.2 million . - EBITDA margin for the first quarter including the impairment decreased to 6.5% from 15.8% for the comparative period of 2019. Excluding the non-cash impairment charge, EBITDA margin increased to 16.2% from 15.8%.
- On a consolidated basis excluding IFRS 16 Leases ("IFRS 16") and the impairment of assets, the Corporation recorded adjusted EBITDA of
$7.1 million , adjusted EBITDA margin of 12.4%, and adjusted net earnings of$1.0 million in the first quarter of 2020. This is an increase over the comparable 2019 period where adjusted EBITDA was$6.8 million , adjusted EBITDA margin was 11.8% and adjusted net earnings was$0.6 million . - Net earnings in the first quarter of 2020 decreased by
$3.9 million to$-3.4 million compared to$0.5 million in the comparative period of 2019, and as a percentage of revenue decreased by 6.9% to 6.0% this includes the non-cash impairment charge of$5.5 million . - During the first quarter, K-Bro declared dividends of
$0.300 per common share and distributable cash was$0.574 per common share on a fully diluted basis.
"Although we came into 2020 in a position of strength, we are entering unprecedented times as the COVID-19 pandemic rapidly develops. We have seen many adverse effects from the pandemic, though we have developed and implemented plans to mitigate the effects of COVID-19 including consolidating operations, reducing headcount, and accessing available government assistance. We have a highly experienced team that has been crucial in managing the situation and in combination with our proven operating model, we will continue to leverage our experience for the challenges ahead," continued McCurdy.
"We remain well-positioned from a balance sheet and liquidity perspective, in addition to having a strong concentration of our Canadian revenue being from the healthcare sector, at approximately 70%. We are continuing to monitor our situation carefully and will consider any and all actions, including any opportunities that will allow us to come out of this downturn with a stronger market position," concluded McCurdy.
Highlights and Significant Events for Fiscal 2020
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
COVID-19 Pandemic
The ongoing COVID-19 pandemic has caused world governments to institute travel restrictions both in and out of and within
Although the Corporation has developed and implemented measures to mitigate the effects of the COVID-19 pandemic, including consolidating operations, reducing headcount, reducing non critical capital expenditures and accessing available government assistance programs, earnings will continue to be particularly affected if we continue to experience reductions in travel and reduced hospitality and healthcare occupancy rates. The extent of such negative effects on our business and our financial and operational performance will depend on future developments, including the duration, spread and severity of the outbreak, the duration and geographic scope of related travel advisories and restrictions and the extent of the impact of the COVID-19 pandemic on overall demand for personal and business travel, all of which are highly uncertain and cannot be predicted with any degree of accuracy. If hotels and hospitals continue to experience significantly reduced occupancy rates for an extended period, our 2020 consolidated results of operations will be significantly impacted. Additionally, our suppliers or other third parties we rely upon may experience delays or shortages, which could have an adverse effect on our business prospects and results of operations.
As an ongoing risk, the duration and full financial effect of the COVID-19 pandemic is unknown at this time, and continues to be offset through the Corporation's business continuity plan and other mitigating measures. Any estimate of the length and severity of these developments is therefore subject to significant uncertainty, and, accordingly, estimates of the extent to which the COVID-19 pandemic may materially and adversely affect the Corporation's operations, financial results and condition in future periods are also subject to significant uncertainty.
Therefore, uncertainty about judgments, estimates and assumptions made by management during the preparation of the Corporation's interim condensed consolidated financial statements related to potential impacts of the COVID-19 pandemic on revenue, expenses, assets, liabilities, and note disclosures could result in a material adjustment to the carrying value of the asset or liability affected.
Impairment of Assets
Management has assessed the impairment indicators that existed as at
Our probability-weighted approach has been evaluated based on an equally weighted probability of a one-year downturn in sales to the worst case of a two-year downturn in sales. The scenarios estimated a decline of 70% for 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
EBITDA before impairment and gain/loss on disposal of PP&E was
CGU | Allocated to | Allocated to | Total | Recoverable | ||||
$ | 823 | $ | - | $ | 823 | $ | 2,485 | |
654 | 2,339 | 2,993 | 1,917 | |||||
1,700 | - | 1,700 | 5,433 | |||||
$ | 3,177 | $ | 2,339 | $ | 5,516 | $ | 9,835 |
The recoverable amounts in respect of the
The key assumptions in calculating the recoverable amount of the five CGUs where impairment calculations were updated as at
Long-term growth rate % | 2.0% to 3.0% |
Pre-tax discount rate % | 10.5% to 12.5% |
For
There were no other CGUs that were showing signs of impairment as at
With the ongoing evolution of the COVID-19 pandemic, the length and severity of these developments is subject to significant uncertainty. Accordingly, new developments may materially and adversely affect assumptions used in the consideration of the impairment of assets, impact whether a CGU has been impaired and may change prior recorded impairment amounts.
Financial Results
For the three months ended | |||||||||||||||
(thousands, except per share amounts | Canadian |
| (2)(4) | Canadian |
| 2019 | $ Change | % Change | |||||||
Revenue | $ | 43,711 | $ | 13,564 | $ | 57,275 | $ | 44,533 | $ | 13,250 | $ | 57,783 | (508) | -0.9% | |
Expenses included in EBITDA | 40,917 | 12,615 | 53,532 | 37,149 | 11,519 | 48,668 | 4,864 | 10.0% | |||||||
EBITDA | 2,794 | 949 | 3,743 | 7,384 | 1,731 | 9,115 | (5,372) | -58.9% | |||||||
EBITDA as a % of revenue | 6.4% | 7.0% | 6.5% | 16.6% | 13.1% | 16.6% | -10.1% | -60.8% | |||||||
Adjusted EBITDA without adoption of IFRS 16 | 6,848 | 261 | 7,109 | 5,960 | 843 | 6,803 | 306 | 4.5% | |||||||
Adjusted EBITDA without adoption of IFRS 16as a % of revenue | 15.7% | 1.9% | 12.4% | 13.4% | 6.4% | 13.4% | - | 100.0% | |||||||
Net earnings (loss) | (2,472) | (936) | (3,408) | 731 | (236) | 495 | (3,903) | -788.5% | |||||||
Basic earnings (loss) per share | $ | (0.235) | $ | (0.089) | $ | (0.323) | $ | 0.070 | $ | (0.022) | $ | 0.047 | $ | (0.370) | -787.2% |
Diluted earnings (loss) per share | $ | (0.233) | $ | (0.088) | $ | (0.322) | $ | 0.069 | $ | (0.022) | $ | 0.047 | $ | (0.369) | -785.1% |
Dividends declared per diluted share | $ | 0.30 | $ | 0.300 | $ | - | 0.0% | ||||||||
Adjusted net earnings without adoption of IFRS 16 | 1,863 | (878) | 985 | 787 | (229) | 558 | 427 | 76.5% | |||||||
Basic adjusted net earnings without adoption of IFRS 16 per share | $ | 0.177 | $ | (0.083) | $ | 0.093 | $ | 0.075 | $ | (0.022) | $ | 0.053 | $ | 0.040 | 100.0% |
Diluted adjusted net earnings without adoption of IFRS 16 per share | $ | 0.176 | $ | (0.083) | $ | 0.093 | $ | 0.075 | $ | (0.022) | $ | 0.053 | $ | 0.040 | 100.0% |
Total assets | 336,127 | 360,563 | (24,436) | -6.8% | |||||||||||
Long-term debt, end of period | 54,693 | 67,444 | (12,751) | -18.9% | |||||||||||
Cash provided by operating activities | 11,588 | 9,670 | 1,918 | 19.8% | |||||||||||
Net change in non-cash working capital items | 3,011 | 1,484 | 1,527 | 102.9% | |||||||||||
Share-based compensation expense | 507 | 540 | (33) | -6.1% | |||||||||||
Maintenance capital expenditures | 328 | 374 | (46) | -12.3% | |||||||||||
Principal elements of lease payments | 1,666 | 1,648 | 18 | 1.1% | |||||||||||
Distributable cash flow | 6,076 | 5,624 | 452 | 8.0% | |||||||||||
Dividends declared | 3,181 | 3,168 | 13 | 0.4% | |||||||||||
Payout ratio | 52.4% | 56.3% | -3.9% | -6.9% |
(1) | See "Terminology" for further details |
(2) | Effective |
(3) | Effective |
(4) | Q1 2020 includes an adjustment of |
Dividends
The Board of Directors has declared a monthly dividend of
Outlook
While the COVID-19 pandemic will have a significant negative impact on our hospitality revenue, management believes the prospects for the Corporation's healthcare business remain strong in the medium-to-long-term. By providing integral laundry and linen processing services to the hospitality and healthcare sectors, the Corporation has been designated an "essential" service in the jurisdictions in which it operates, which has allowed the Corporation's facilities to remain open and continue "normal" operations. This has mitigated some of the more dramatic financial and operational impacts experienced by many other businesses in other industries. 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 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" 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 | ||||||
(thousands) | 2020 | 2019 | ||||
Net earnings (loss) | $ | (3,408) | $ | 495 | ||
Add: | ||||||
Income tax (recovery) expense | (1,123) | 191 | ||||
Finance expense | 1,193 | 1,513 | ||||
Depreciation of property, plant and equipment | 6,115 | 6,135 | ||||
Amortization of intangible assets | 966 | 781 | ||||
EBITDA | $ | 3,743 | $ | 9,115 |
Adjusted EBITDA without adoption of IFRS 16 is a measure which has been reported in order to assist in the comparison of historical EBITDA to current results. "Adjusted EBITDA" without adoption of IFRS 16 is defined as EBITDA (defined above) with the exclusion of IFRS 16 and certain material items that are unusual in nature, infrequently occurring or not considered part of our core operations.
Three Months Ended | |||||||||||||
Canadian |
| Canadian |
| ||||||||||
(thousands) | 2020 | 2020 | 2020 | 2019 | 2019 | 2019 | |||||||
EBITDA | $ | 2,794 | $ | 949 | $ | 3,743 | $ | 7,384 | $ | 1,731 | $ | 9,115 | |
Add back IFRS 16 Adjustments: | |||||||||||||
Delivery | (358) | (397) | (755) | (326) | (562) | (888) | |||||||
Occupancy costs | (1,104) | (291) | (1,395) | (1,098) | (326) | (1,424) | |||||||
EBITDA without adoption of IFRS 16 | $ | 1,332 | $ | 261 | $ | 1,593 | $ | 5,960 | $ | 843 | $ | 6,803 | |
Add back non-reoccuring items: | |||||||||||||
Impairment of assets | 5,516 | - | 5,516 | - | - | - | |||||||
- | - | - | |||||||||||
Adjusted EBITDA without adoption of IFRS 16 | $ | 6,848 | $ | 261 | $ | 7,109 | $ | 5,960 | $ | 843 | $ | 6,803 |
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 IFRS 16 and 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.
Three Months Ended | |||||||||||||
Canadian |
| Canadian |
| ||||||||||
(thousands) | 2020 | 2020 | 2020 | 2019 | 2019 | 2019 | |||||||
Net earnings (loss) | $ | (2,472) | $ | (936) | $ | (3,408) | $ | 731 | $ | (236) | $ | 495 | |
Add back IFRS 16 Adjustments: | |||||||||||||
Delivery | (358) | (397) | (755) | (326) | (562) | (888) | |||||||
Occupancy costs | (1,104) | (291) | (1,395) | (1,098) | (326) | (1,424) | |||||||
Depreciation of property, plant and equipment | 1,113 | 657 | 1,770 | 1,087 | 773 | 1,860 | |||||||
Finance expense | 384 | 101 | 485 | 413 | 124 | 537 | |||||||
Income tax | (9) | (12) | (21) | (20) | (2) | (22) | |||||||
- | - | ||||||||||||
Net earnings (loss) without adoption of IFRS 16 | $ | (2,446) | $ | (878) | $ | (3,324) | $ | 787 | $ | (229) | $ | 558 | |
Add back non-reoccuring items (net of income taxes): | |||||||||||||
Impairment of assets | 4,309 | - | 4,309 | - | - | - | |||||||
- | - | - | |||||||||||
- | - | ||||||||||||
Adjusted net earnings (loss) without adoption of IFRS 16 | $ | 1,863 | $ | (878) | $ | 985 | $ | 787 | $ | (229) | $ | 558 | |
Weighted average number of shares outstanding: | |||||||||||||
Basic | 10,539,458 | 10,539,458 | 10,539,458 | 10,496,590 | 10,496,590 | 10,496,590 | |||||||
Diluted | 10,590,526 | 10,590,526 | 10,590,526 | 10,545,970 | 10,545,970 | 10,545,970 | |||||||
Adjusted net earnings (loss) without adoption of IFRS 16 per share: | |||||||||||||
Basic | $ | 0.177 | ( | $ | 0.093 | $ | 0.070 | ( | $ | 0.053 | |||
Diluted | $ | 0.176 | ( | $ | 0.093 | $ | 0.069 | ( | $ | 0.053 |
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 | ||||||
(thousands) | 2020(1) | 2019 | ||||
Cash provided by operating activities | $ | 11,588 | $ | 9,670 | ||
Deduct (add): | ||||||
Net changes in non-cash working capital items | 3,011 | 1,484 | ||||
Share-based compensation expense | 507 | 540 | ||||
Maintenance capital expenditures | 328 | 374 | ||||
Principal elements of lease payments | 1,666 | 1,648 | ||||
Distributable cash flow(2) | $ | 6,076 | $ | 5,624 |
(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 | |||
(thousands) | 2020 | 2019 | |
Cash dividends | 3,181 | 3,168 | |
Distributable cash flow | 6,076 | 5,624 | |
Payout ratio | 52.4% | 56.3% |
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.
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
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