K-Bro announces 2018 Q1 results and maintains position for long term growth
(TSX: KBL)
2018 Q1 Financial Highlights
- Revenue for the three months ended March 31, 2018 was $55.4 million, an increase of 42.2% over the comparable 2017 period.
- EBITDA increased to $6.2 million for Q1, 2018 compared to $4.8 million in Q1, 2017. This increase was due to the acquisition of Fishers, additional awarded healthcare volume from the Vancouver lower mainland contract, Trillium Health Partners volume, William Osler Health System volume, organic growth at existing customers, and new customers secured in existing markets.
- EBITDA margin decreased in the first quarter to 11.2% from 12.2% in the comparative period of 2017. The change in the consolidated EBITDA margin is primarily associated with the seasonality of hospitality volume related to the acquisition of Fishers whereby Q2 and Q3 tend to be stronger quarters due to increased tourism. The change in the Canadian EBITDA margin, relates to capacity constraints related with the Vancouver transition, costs associated with the Vancouver plant transitions, as well as rising minimum wage rates in advance of future revenue price escalators, offset with the efficiencies gained as a result of the capital expenditures made in Toronto. Management estimates the one-time costs incurred related to the Vancouver transition and capacity constraints at certain plants for the quarter were approximately $1.0 million. After adjusting for the one-time costs consolidated EBITDA would have been $7.2 million and consolidated EBITDA margin would have been 13.0%.
- K-Bro declared dividends of $0.300 per common share and distributable cash was $0.50 per common share on a fully diluted basis.
- Net earnings for the first quarter was $0.6 million compared to net earnings of $1.3 million in Q1, 2017.
Highlights and Significant Items for Fiscal 2018
Vancouver Facility Development
As announced on March 2, 2016, K-Bro has commenced the development of a new state-of-the-art facility with a projected investment of up to $55 million. As at March 31, 2018, K-Bro has incurred $44.9 million of the total expected capital costs. The new Vancouver plant will be located in Burnaby, and K-Bro began transitioning to the new facility during the second quarter of 2018. The new facility will enable K-Bro to expand current capacity, to accommodate the additional awarded volume, and to provide the opportunity to consolidate the healthcare volume from its existing two Vancouver-area facilities. In addition to investing in the new facility, K-Bro will upgrade and replace equipment at one of its existing Vancouver-area facilities, which will be used to process the consolidated hospitality volume. K-Bro will not be renewing the lease for the remaining Vancouver-area facility and related assets will be transferred to the other K-Bro facilities. K-Bro believes it will achieve significant operating efficiencies at its new plant. It is anticipated that transition costs associated with the new Vancouver plant will negatively impact EBITDA margins over the second and third quarters of 2018 while the plant becomes operational.
Toronto Facility Development
Management estimated that the cost to commission the new leased facility is $37 million for new efficiency enhancing equipment, and leaseholds. As at March 31, 2018, K-Bro has incurred $37 million of the total expected capital cost. K-Bro's strategy includes significant growth in its healthcare and hospitality volumes, and the additional capacity and the long-term lease enables K-Bro to grow into the additional capacity as opportunities emerge.
Business Acquisition
On May 9, 2018, the Corporation signed an asset purchase agreement to acquire all the assets of a private laundry and linen services company incorporated in Canada and operating in Calgary, Alberta. The acquisition is expected to close on October 1, 2018 for total consideration of $4.7 million. The acquisition will be accounted for using the acquisition method, whereby the purchase consideration will be allocated to the net assets acquired. The acquisition is expected to add incremental revenue and EBITDA of $3.5 million and $0.6 million respectively on an annual basis.
|
(thousands, except per share amounts and percentages) |
Canadian |
UK |
For the three months ended March 31, |
||||||||
| 2018 |
2017 (2) |
$ Change |
% Change |
||||||||
| Revenue |
$ |
43,292 |
$ |
12,092 |
$ |
55,384 |
$ |
38,958 |
16,426 |
42.2% |
|
| Operating expenses |
37,774 |
11,410 |
49,184 |
34,194 |
14,990 |
43.8% |
|||||
| EBITDA |
5,518 |
682 |
6,200 |
4,764 |
1,436 |
30.1% |
|||||
| EBITDA as a % of revenue |
12.7% |
5.6% |
11.2% |
12.2% |
-1.0% |
||||||
| Earnings before income taxes |
1,589 |
(548) |
1,041 |
1,770 |
(729) |
-41.2% |
|||||
| Income tax expense (recovery) |
541 |
(147) |
394 |
520 |
(126) |
-24.2% |
|||||
| Net earnings |
1,048 |
(401) |
647 |
1,250 |
(603) |
-48.2% |
|||||
| Basic earnings per Share |
$ |
0.10 |
$ |
(0.04) |
$ |
0.06 |
$ |
0.16 |
$ |
(0.10) |
-62.5% |
| Diluted earnings per Share |
$ |
0.10 |
$ |
(0.04) |
$ |
0.06 |
$ |
0.16 |
$ |
(0.10) |
-62.5% |
| Dividends declared per diluted share |
$ |
0.30 |
$ |
0.30 |
- |
0.0% |
|||||
| Total assets |
312,193 |
180,583 |
131,610 |
72.9% |
|||||||
| Long-term debt, end of period |
56,356 |
32,363 |
23,993 |
74.1% |
|||||||
| Cash provided by operating activities |
4,625 |
6,300 |
(1,675) |
-26.6% |
|||||||
| Net change in non-cash working capital items |
(1,471) |
1,214 |
(2,685) |
-221.2% |
|||||||
| Share-based compensation expense |
409 |
405 |
4 |
1.0% |
|||||||
| Maintenance capital expenditures |
488 |
179 |
309 |
172.6% |
|||||||
| Distributable cash flow |
5,199 |
4,502 |
697 |
15.5% |
|||||||
| Dividends declared |
3,153 |
2,407 |
746 |
31.0% |
|||||||
| Payout ratio |
60.6% |
53.5% |
7.1% |
||||||||
| (1) |
Refer to the Terminology section for further details |
| (2) |
Prior to the acquisition of Fishers on November 27, 2017, K-Bro was reporting and operating as a single Canadian division. |
EDMONTON, May 9, 2018 /CNW/ - K-Bro Linen Inc. ("K-Bro" or the "Corporation") today announced revenue of $55.4 million and EBITDA of $6.2 million for the three months ended March 31, 2018. Net earnings after tax were $0.6 million, diluted earnings per common share were $0.06 and distributable cash was $0.50 per diluted common share for the year.
DIVIDEND
The Board of Directors has declared a monthly dividend of $0.10 per common share for the period from May 1 to May 31, 2018, to be paid on June 15, 2018 to shareholders of record on May 31, 2018. The Corporation's policy is for shareholders of record on the last business day of a calendar month to receive dividends during the fifteen days following the end of such month. K-Bro designates this dividend as an eligible dividend pursuant to subsection 89(14) of the Income Tax Act (Canada) and similar provincial and territorial legislation.
OUTLOOK
"We have embarked on the transition into our new state-of-the-art Vancouver facility and once complete will commence with the transition of our second Vancouver plant to our newly renovated facility. The anticipated completion date of these transitions is mid-2018. We view 2018 as a transition year that will impact our margins but once complete will enable us to realize additional efficiencies, increase capacity and increase market share." said Linda McCurdy, President & Chief Executive Officer of K-Bro.
"We are pleased with the continuing integration of Fishers and are focused on using the strong Fishers platform to increase our market share in the UK. We are also excited about expanding our footprint in the Calgary market through the acquisition of all of the assets of a private laundry and linen services company. We continue to execute on our overall growth strategy and are confident in our ability to provide value to our customers and our shareholders."
CORPORATE PROFILE
K-Bro is the largest owner and operator of laundry and linen processing facilities in Canada and a market leader for laundry and textile rental services in Scotland and the North East of England. K-Bro and its wholly owned subsidiaries, operate across Canada and the United Kingdom ("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.
K-Bro'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.
K-Bro's operations in the UK include Fishers Topco Ltd. ("Fishers") which was acquired by K-Bro on November 27, 2017. Fisher's is a leading commercial laundry business in Scotland and the North East of England providing linen and garments primarily to the hospitality sector. 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 seven cities, including one distribution center, in Scotland and the North East of England with facilities in Cupar, Perth, Newcastle, Livingston, Inverness and Coatbridge.
Additional information regarding the Corporation including required securities filings are available on our website at www.k-brolinen.com and on the Canadian Securities Administrators' website at www.sedar.com; the System for Electronic Document Analysis and Retrieval ("SEDAR").
K-Bro est le plus important propriétaire et exploitant de buanderies au Canada. K-Bro fournit une gamme étendue de services de buanderie aux établissements de soins de santé, hôtels et autres clients commerciaux. K-Bro exploite actuellement neuf usines et deux centres de distribution sous trois entités distinctes, incluant K-Bro Linen Systems Inc., Buanderie HMR et Les Buanderies Dextraze, dans dix villes canadiennes: Québec, Montréal, Toronto, Regina, Saskatoon, Prince Albert, Edmonton, Calgary, Vancouver et Victoria.
Les activités de K-Bro Linen Systems s'étendent maintenant au Royaume-Uni avec l'entreprise Fishers Topco Ltd. («Fishers») qui a été acquise par K-Bro le 27 novembre 2017. Fisher's est une importante entreprise de buanderie commerciale en Écosse et au nord-est de l'Angleterre qui traite en premier lieu la literie et les vêtements du secteur de l'hôtellerie. Fishers fut fondée en 1900, et elle exploite des installations de buanderie et de traitement du linge en Écosse, fournissant des services de location de linge, de location de vêtements de travail, de vêtements pour salle blanche du secteur hospitalier, et de vêtements pour les secteurs de l'hôtellerie, de la santé, de la fabrication et du pharmaceutique. La clientèle de Fishers comprend de grandes chaînes hôtelières et des sites prestigieux à travers l'Écosse et le nord-est de l'Angleterre. La société opère dans sept villes, dont une, en Écosse et dans le nord-est de l'Angleterre, avec des installations à Cupar, Perth, Newcastle, Livingston, Inverness et Coatbridge.
Vous pouvez obtenir des renseignements supplémentaires sur la Société, y compris les documents déposés auprès des autorités de réglementation, sur notre site Web, au www.k-brolinen.com et sur le site Web des autorités canadiennes en valeurs mobilières au www.sedar.com, via le Système électronique de données, d'analyse et de recherche (« 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 capitalization", "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 |
||||||
| (thousands) |
2018 |
2017 |
||||
| Net earnings (loss) |
$ |
647 |
$ |
1,250 |
||
| Add: |
||||||
| Income tax expense |
394 |
520 |
||||
| Finance (recovery) expense |
876 |
185 |
||||
| Depreciation of property, plant and equipment |
3,451 |
2,381 |
||||
| Amortization of intangible assets |
832 |
428 |
||||
| EBITDA |
$ |
6,200 |
$ |
4,764 |
||
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.
Distributable cash flow is defined by management as cash provided by operating activities, plus or minus the net change in non-cash working capital items, less maintenance capital expenditures and less cash taxes. Management believes this measure reflects the cash generated from the ongoing operation of the business. Distributable cash is an additional GAAP measure generally used by dividend paying corporations as an indicator of financial performance and it should not be seen as a measurement of liquidity or a substitute for comparable metrics prepared in accordance with IFRS.
| Three Months Ended |
||||||
| (thousands) |
2018 |
2017 |
||||
| Cash provided by operating activities |
$ |
4,625 |
$ |
6,300 |
||
| Deduct (add): |
||||||
| Net changes in non-cash working capital items |
(1,471) |
1,214 |
||||
| Share-based compensation expense |
409 |
405 |
||||
| Maintenance capital expenditures |
488 |
179 |
||||
| Distributable cash flow |
$ |
5,199 |
$ |
4,502 |
||
Payout ratio is defined by management as the actual cash 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.
Figures expressed in percentages are calculated from amounts rounded in thousands of dollars.
| Three Months Ended |
||||
| (thousands) |
2018 |
2017 |
||
| Cash dividends |
3,153 |
2,407 |
||
| Distributable cash flow |
5,199 |
4,502 |
||
| Payout ratio |
60.6% |
53.5% |
||
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 MD&A. 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 Ontario, British Columbia, Alberta and the United Kingdom (the "UK"), which could have an adverse effect on expenses in respect of employees situated in those jurisdictions and while a portion of such expenses may be passed on to or be recoverable from customers, there can be no assurances that that will occur; (ix) the availability of future financing and * foreign exchange rates. 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; and (iv) the level of capital expenditures. Although the forward-looking information contained in this MD&A 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 MD&A may be considered "financial outlook" for purposes of applicable securities laws, and such financial outlook may not be appropriate for purposes other than this MD&A. Forward looking information included in this MD&A includes the expected annual healthcare revenues to be generated from the Corporation's contracts with new customers, the anticipated capital costs for the Toronto and Vancouver facilities, calculation of costs, including one-time costs impacting the quarterly financial results, and statements with respect to future expectations on margins and volume growth.
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, the Corporation disclaims any intention or obligation to update or revise any forward-looking statements to reflect subsequent events or circumstances.
SOURCE K-Bro Linen Inc.
Linda McCurdy, President & Chief Executive Officer; Kristie Plaquin, Chief Financial Officer; K-Bro Linen Inc. (TSX: KBL), Email: [email protected], Web: www.k-brolinen.com
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