K-BRO REPORTS RECORD Q4 AND FULL-YEAR RESULTS AND POSITIVE OUTLOOK
(TSX:KBL)
EDMONTON, AB, March 20, 2025 /CNW/ - K-Bro Linen Inc. ("K-Bro" or the "Corporation") today announces its 2024 financial and operating results.
2024 Financial and Operating Highlights
Revenue
Revenue increased by 16.4% in 2024 to $373.6 million compared to $320.9 million in 2023.
Healthcare revenue for 2024 increased to $195.8 million compared to $184.3 million in 2023, or by 6.2%.
Hospitality revenue for 2024 increased to $177.8 million compared to $136.6 million in 2023, or by 30.3%.
Adjusted EBITDA1, Adjusted EBITDA Margin1 & Adjusted Net Earnings1
Adjusted EBITDA increased for 2024 to $72.1 million compared to $58.0 million in 2023.
Adjusted EBITDA margin increased to 19.3% in 2024 from 18.1% in 2023.
Adjusted net earnings for the year increased by $2.9 million to $21.7 million in 2024 from $18.8 million in 2023.
EBITDA, EBITDA Margin & Net Earnings
EBITDA increased for 2024 to $69.0 million compared to $56.8 million in 2023.
EBITDA margin for the year increased to 19.3% in 2024 from 18.1% in 2023
Net earnings for the year increased by $1.1 million to $18.7 million in 2024 from $17.6 million in 2023, and as a percentage of revenue decreased by 0.5% to 5.0% in 2024 from 5.5% in 2023.
For fiscal 2024, K-Bro declared dividends of $1.20 per common share.
Long-term debt at the end of fiscal 2024 was $123.8 million compared to $70.2 million at the end of fiscal 2023 due to the acquisitions of Shortridge and C.M.
K-Bro entered into a three-year, $175 million committed, syndicated revolving credit facility on March 26, 2024. The facility includes access to a further $75 million accordion.
Linda McCurdy, President & CEO of K-Bro, commented that "I'm delighted with our record fourth quarter and full year results. As always, we are focused on delivering industry-leading service and we're proud of our growing diverse workforce that operates with our customers in mind. We've worked hard over the past years to meet the changing needs of our new and existing customers, while managing the impact of inflation, volatile energy prices and labour market disruptions, and have restored Adjusted EBITDA margins to 2019 levels.
As we start 2025, we see a positive outlook for our business. Both of K-Bro's healthcare and hospitality segments continue to experience steady volume trends. In our healthcare segment, we expect steady increases to activity levels supported by a continued focus on reducing wait times and enhancing patient care. In our hospitality segment, we expect solid activity levels from both business and leisure travel. We continue to monitor the evolving geopolitical and trade landscape.
We're pleased with the early contributions of our recent acquisitions and are excited about our organic growth prospects and potential future M&A. We have an active M&A pipeline and will look to leverage our strong liquidity position, balance sheet and access to the capital markets to execute on these opportunities, should they arise.
(1) Adjusted EBITDA, Adjusted EBITDA margin and Adjusted Net Earnings are non-GAAP measures. See "Terminology" for further information on the definition and composition of these measures.
Highlights and Significant Events for Q4 2024
Business Acquisition - Villeray
On November 1, 2023, the Corporation completed the acquisition of 100% of the share capital of Buanderie Villeray and its affiliate Buanderie La Relance (the "Villeray Acquisition"), a private laundry and linen services company incorporated in Canada and operating in Montréal, Quebec. The Villeray Acquisition was completed through a share purchase agreement consisting of existing working capital, fixed assets, customer relationships and an employee base. Villeray operates in the hospitality and healthcare sector, which complements the existing business of the Corporation. As part of the transaction, the Corporation closed its Granby facility and consolidated existing volumes into Villeray. Based on the Corporation's evaluation of the Villeray Acquisition and the criteria in the identification of a business combination established in IFRS 3, the Villeray Acquisition has been accounted for using the acquisition method, whereby the purchase consideration is allocated to the fair values of the net assets acquired.
The Corporation financed the Villeray Acquisition and transaction costs from existing loan facilities.
The purchase price allocated to the net assets acquired, based on their estimated fair values, is as follows:
Cash consideration
$ 11,204
Contingent consideration
$ 500
Total purchase price
$ 11,704
The assets and liabilities recognized as a result of the Villeray Acquisition are as follows:
Net Assets Acquired:
Accounts receivable
907
Prepaid expenses and deposits
187
Income tax receivable
69
Accounts payable and accrued liabilities (2)
(807)
Lease liabilities
(2,706)
Deferred income taxes
(1,416)
Property, plant and equipment(1,2)
7,161
Intangible assets
2,530
Net identifiable assets acquired
5,925
Goodwill
5,779
Net assets acquired
$ 11,704
1) Includes ROUA from the Canadian Division of $2,706 related to buildings2) Includes provision of $97 for asset retirement obligation
The intangible assets acquired are made up of $2,530 related to customer relationships. The goodwill is attributable to the workforce, and the efficiencies and synergies created between the existing business of the Corporation and the acquired business. Goodwill will not be deductible for tax purposes.
Contingent consideration
In the event that a certain EBITDA target was achieved by Villeray for the twelve month period ended October 31, 2024, additional undiscounted consideration ranging from $500 to $1,000 would have been payable in cash during the first quarter of 2025. At the end of September 2024, the former owner-operator of Villeray retired from the business and was replaced by a new Montreal General Manager. Although ongoing employment of the former owner-operator was not a condition required for payment of contingent consideration, amid the leadership transition, the Corporation determined that the target was not achieved. Therefore, no payment will be made.
During the first two quarters of 2024, the estimated fair value of the possible payment was classified as contingent consideration. The fair value of the contingent consideration was estimated by considering the probability-adjusted future expected cash flows in regards to Villeray achieving the target that would result in consideration being paid. The impact of discounting these future cash flows was not considered because the impact would be nominal. Given that the EBITDA target was not achieved for the twelve month period ended October 31, 2024, the contingent consideration amount of $500 has been derecognized and a gain on settlement of contingent consideration has been recorded in Consolidated Statement of Earnings and Comprehensive Income for the year ended December 31, 2024.
Acquisition related costs
For the year ended December 31, 2024, $108 in professional fees associated with the Villeray Acquisition has been included in Corporate expenses.
Business Acquisition - Shortridge
On April 30, 2024 the Corporation completed the acquisition of 100% of the share capital of Shortridge Ltd. ("Shortridge Acquisition"), a private hospitality laundry provider based in the North West of England, expanding K-Bro's geographic footprint in the UK. The Shortridge Acquisition was completed through a share purchase agreement consisting of existing working capital, fixed assets, contracts and an employee base. The contracts acquired are in the hospitality sector in England and Scotland, which complements the existing business of the Corporation. Based on the Corporation's evaluation of the Shortridge Acquisition and the criteria in the identification of a business combination established in IFRS 3, the Shortridge Acquisition has been accounted for using the acquisition method, whereby the purchase consideration is allocated to the fair values of the net assets acquired.
At the time the financial statements were authorized for issue, and due to the timing of the Acquisition, the Corporation has not yet completed the accounting for the Shortridge Acquisition. This includes the accounting for the amounts attributable to property, plant and equipment, intangible assets and the associated goodwill.
The Corporation financed the Shortridge Acquisition and transaction costs from the syndicated revolving credit facility.
The preliminary purchase price allocated to the net assets acquired, based on their estimated fair values, is as follows:
Cash consideration
35,788
Contingent consideration
9,275
Total purchase price (1)
45,063
1) This is presented net of cash acquired. Cash acquired was $3,878.
The assets and liabilities recognized as a result of the Shortridge Acquisition are as follows:
Net Assets Acquired:
Accounts receivable
2,698
Prepaid expenses and deposits
912
Linen in service
1,943
Accounts payable and accrued liabilities
(5,134)
Lease liabilities
(57)
Deferred income tax asset
8
Property, plant and equipment (1)
8,986
Intangible assets
15,181
Net identifiable assets acquired
24,537
Goodwill
20,526
Net assets acquired
$ 45,063
1) Includes ROUA from the UK Division of $57 related to buildings
The intangible assets acquired are made up of $13,149 related to customer relationships and $2,032 related to the brand. The goodwill is attributable to the workforce, and the efficiencies and synergies created between the existing business of the Corporation and the acquired business. Goodwill will not be deductible for tax purposes.
Contingent consideration
The contingent consideration consists of amounts related to achieving certain profitability and operational targets.
The estimated fair value of the payments has been classified as contingent consideration by exercising significant judgment as to whether it should be classified as such, or as remuneration to the former owners, who will be employed subsequent to the close of the transaction. The Corporation has determined by considering all relevant factors included in the agreements as it pertains to employment terms, valuation of the business, and other relevant terms that the additional consideration is most appropriately reflected as contingent consideration.
An amount of $7,684 was initially funded in cash on April 30, 2024 to be held in trust with a third party escrow agent until certain conditions were met. For the contingent consideration, it was determined that the profitability target was met at September 30, 2024. As such, $3,415 of contingent consideration was released from escrow in Q4 2024. In the event that certain operational targets are achieved by Shortridge, the additional undiscounted consideration will be released from escrow or paid in cash before December 31, 2025. The remaining $1,591 will be payable in cash.
The fair value of the contingent consideration of $9,275 was estimated by considering the probability-adjusted future expected cash flows in regards to Shortridge achieving the targets that would result in consideration being paid.
Acquisition related costs
For the year ended December 31, 2024, $508 in professional fees associated with the Shortridge Acquisition has been included in Corporate expenses.
Revenue and profit information
The acquired business contributed revenues of $17,471 to the Corporation for the period from April 30, 2024 to December 31, 2024. If the Acquisition had occurred on January 1, 2024, consolidated pro-forma revenue for the year ended December 31, 2024 would have been $379,591.
The acquired business contributed net earnings of $1,999 to the Corporation for the period from April 30, 2024 to December 31, 2024. If the Acquisition had occurred on January 1, 2024, consolidated pro-forma net earnings for the year ended December 31, 2024 would have been $19,145.
Business Acquisition - Buanderie C.M.
On June 21, 2024 the Corporation completed the acquisition of 100% of the share capital of Buanderie C.M. Inc. ("C.M. Acquisition"), a private laundry and linen operator located in Montréal serving the healthcare market. The acquisition will enable K-Bro to operate with two facilities in Montreal to service its growing healthcare and hospitality business. Based on the Corporation's evaluation of the C.M. Acquisition and the criteria in the identification of a business combination established in IFRS 3, the C.M. Acquisition has been accounted for using the acquisition method, whereby the purchase consideration is allocated to the fair values of the net assets acquired.
At the time the financial statements were authorized for issue, and due to the timing of the Acquisition, the Corporation has not yet completed the accounting for the C.M. Acquisition. This includes the accounting for the amounts attributable to property, plant and equipment, intangible assets and the associated goodwill.
The Corporation financed the C.M. Acquisition and transaction costs from the syndicated revolving credit facility.
The preliminary purchase price allocated to the net assets acquired, based on their estimated fair values, is as follows:
Cash consideration
$ 11,795
Total purchase price
$ 11,795
1) This is presented net of cash acquired. Cash acquired was $224.
The assets and liabilities recognized as a result of the C.M. Acquisition are as follows:
Net Assets Acquired:
Accounts receivable
742
Prepaid expenses and deposits
20
Linen in service
201
Accounts payable and accrued liabilities
(377)
Deferred income taxes
(851)
Property, plant and equipment
7,055
Intangible assets
1,800
Net identifiable assets acquired
8,590
Goodwill
3,205
Net assets acquired
$ 11,795
The intangible assets acquired are made up of $1,800 related to customer relationships. The goodwill is attributable to the workforce, and the efficiencies and synergies created between the existing business of the Corporation and the acquired business. Goodwill will not be deductible for tax purposes.
Acquisition related costs
For the year ended December 31, 2024, $683 in professional fees associated with the C.M. Acquisition has been included in Corporate expenses.
Revenue and profit information
The acquired business contributed revenues of $3,967 to the Corporation for the period from June 21, 2024 to December 31, 2024. If the Acquisition had occurred on January 1, 2024, consolidated pro-forma revenue for the year ended December 31, 2024 would have been $377,223.
The acquired business contributed net earnings of $226 to the Corporation for the period from June 21, 2024 to December 31, 2024. If the Acquisition had occurred on January 1, 2024, consolidated pro-forma net earnings for the year ended December 31, 2024 would have been $18,525.
Revolving Credit Facility
On August 31, 2023, the Corporation completed an amendment to its existing revolving credit facility to extend the agreement from July 31, 2026 to July 31, 2027, as previously amended on July 18, 2022. In addition, the agreement expanded the revolving credit facility from $100,000 to $125,000 plus a $25,000 accordion.
On March 26, 2024, the Corporation entered into a three-year committed Syndicated Credit Facility Agreement from March 26, 2024 to March 25, 2027. The agreement consists of a $175,000 revolving credit facility plus a $75,000 accordion.
The Corporation's incremental borrowing rate under its existing credit facility is determined by the Canadian prime rate plus an applicable margin based on the ratio of Funded Debt to EBITDA as defined in the credit agreement.
Capital Investment Plan
For fiscal 2025, the Corporation's planned capital spending is expected to be in the range of $10.0 to $12.0 million on a consolidated basis. This guidance includes both strategic and maintenance capital requirements to support existing base business in both Canada and the UK. We will continue to assess capital needs within our facilities and prioritize projects that have shorter term paybacks as well as those that are required to maintain efficient and reliable operations.
Economic Conditions
The Corporation's Credit Facility is subject to floating interest rates and, therefore, is subject to fluctuations in interest rates which are beyond the Corporation's control. Increases in interest rates, both domestically and internationally, could negatively affect the Corporation's cost of financing its operations and investments.
Evolving global and Canadian foreign policies, geopolitical events and economic conditions may impact inflation, energy pricing, labour availability, supply chain efficiency, trade policies, tariffs and/or other items, which may have a direct or indirect impact on the Corporation's business.
Uncertainty about judgments, estimates and assumptions made by management during the preparation of the Corporation's consolidated financial statements related to potential impacts of geopolitical events and rising interest rates on revenue, expenses, assets, liabilities, and note disclosures could result in a material adjustment to the carrying value of the asset or liability affected.
Impairment of Assets
The Corporation performed its annual impairment assessment for goodwill for the Canadian division and for the UK division as at December 31, 2024 and December 31, 2023 in accordance with its policy described in Note 2(k) and Note 2(h). The Corporation also performed impairment indicator assessments where there was no goodwill allocated to the CGU.
For both periods, the recoverable amount for the CGUs was assessed using an earnings multiple or discounted cash flow approach. The earnings multiple approach was used in the case of CGUs that exhibited stable operations. A discounted cash flow approach was used in the case of CGUs that were recently acquired and were undergoing significant integration related activities.
Testing Methodology
The calculation of the recoverable amount was based on the following key assumptions:
Testing Methodology
Pre-tax Discount Rate
Terminal Value Growth Rate
December 312024
December 312024
December 312024
Calgary
FVLCD
n/a
n/a
Edmonton
FVLCD
n/a
n/a
Vancouver 2
FVLCD
n/a
n/a
Vancouver 1
FVLCD
n/a
n/a
Victoria
FVLCD
n/a
n/a
Québec City
VIU
12.7 %
3.0 %
Montreal 1
VIU
12.2 %
3.0 %
Montreal 2
FVLCD
n/a
n/a
UK 1
FVLCD
n/a
n/a
UK 2
FVLCD
n/a
n/a
Earnings multiple approach (Fair value less costs to dispose, "FVLCD")
For the years ended December 31, 2024 and 2023, the key assumption utilized was the implied multiple. The implied multiple is calculated by utilizing the average multiples of comparable public companies. The Corporation used an implied average forward multiple of 8.40 (2023, 9.70) to calculate the recoverable amounts. The implied multiple was applied to the trailing twelve month EBITDA to determine the recoverable amount of the CGU and compare it to the carrying value of the CGU.
Discounted cash flow (Value-in-use, "VIU")
The key assumptions used in the model reflect past experience and expectations for these CGUs and those with similar characteristics. The terminal value growth rate is based on management's best estimate of the long-term growth rate for its CGUs after the forecast period, considering historic performance and future economic forecasts for the next five years with a terminal value assigned to the fifth year based on the Company's plans to operate the CGUs.
Conclusion
a)
Based on testing performed at December 31, 2024 and December 31, 2023, no impairment was determined to exist.
b)
The recoverable amount of each CGU is sensitive to changes in market conditions which could result in material changes. For the year ended December 31, 2024, where discounted cash flow testing was used, the sensitivity of key assumptions to a reasonable change was assessed. The Corporation does not believe there is a reasonable change in the key assumptions that would cause the carrying value of the CGU to exceed its recoverable amount. The table below summarizes the results of the impact on key assumptions to a reasonable change.
Recoverable Amount
Change in Pre-tax Discount Rateincrease of 1%
Change in Terminal Value Growth Rate decrease of 1%
December 312024
December 312024
December 312024
Calgary
n/a
n/a
n/a
Edmonton
n/a
n/a
n/a
Vancouver 2
n/a
n/a
n/a
Vancouver 1
n/a
n/a
n/a
Victoria
n/a
n/a
n/a
Québec City
$23,486
-$2,715
-$2,174
Montreal 1
$18,849
-$2,600
-$2,084
Montreal 2
n/a
n/a
n/a
UK 1
n/a
n/a
n/a
UK 2
n/a
n/a
n/a
Financial Results
For The Three Months Ended December 31,
(thousands, except per share amountsand percentages)
CanadianDivision2024
UKDivision2024
2024
CanadianDivision2023
UKDivision2023
2023
$ Change
% Change
Revenue
$ 67,443
$ 28,003
$ 95,446
$ 63,090
$ 19,374
$ 82,464
12,982
15.7 %
Expenses included in EBITDA
54,739
22,708
77,447
51,378
16,807
68,185
9,262
13.6 %
EBITDA(1)
12,704
5,295
17,999
11,712
2,567
14,279
3,720
26.1 %
EBITDA as a % of revenue
18.8 %
18.9 %
18.9 %
18.6 %
13.2 %
17.3 %
1.6 %
9.2 %
Adjusted EBITDA(1)
12,110
5,295
17,405
11,913
3,010
14,923
2,482
16.6 %
Adjusted EBITDA as a % of revenue
18.0 %
18.9 %
18.2 %
18.9 %
15.5 %
18.1 %
0.1 %
0.6 %
Net earnings
2,380
1,858
4,238
3,341
908
4,249
(11)
-0.3 %
Basic earnings per share
$ 0.225
$ 0.176
$ 0.401
$ 0.314
$ 0.085
$ 0.399
$ 0.002
0.5 %
Diluted earnings per share
$ 0.224
$ 0.174
$ 0.398
$ 0.311
$ 0.085
$ 0.396
$ 0.002
0.5 %
Dividends declared per diluted share
$ 0.300
$ 0.300
$ -
0.0 %
Adjusted net earnings (1)
1,786
1,858
3,644
3,542
1,351
4,893
(1,249)
-25.5 %
Adjusted basic earnings per share (1)
$ 0.168
$ 0.176
$ 0.344
$ 0.337
$ 0.129
$ 0.466
$ (0.122)
-26.2 %
Adjusted diluted earnings per share (1)
$ 0.166
$ 0.174
$ 0.340
$ 0.335
$ 0.128
$ 0.463
$ (0.123)
-26.6 %
Total assets
438,150
