K-Bro Linen Inc
TSX:KBL

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K-Bro Linen Inc
TSX:KBL
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Price: 38.14 CAD -0.94% Market Closed
Market Cap: 399.1m CAD
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Earnings Call Transcript

Earnings Call Transcript
2020-Q2

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Operator

Ladies and gentlemen, thank you for standing by, and welcome to the K-Bro Linen, Inc. Second Quarter 2020 Results Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. [Operator Instructions] I would now like to turn the call over to Kristie Plaquin, CFO. Please go ahead.

K
Kristie L. Plaquin
Chief Financial Officer

Thank you, operator, and good morning, everyone. Thank you for joining us today, and welcome to our 2020 second quarter and half year results conference call. On the line with me today is Linda McCurdy, President and Chief Executive Officer. Following our remarks today, we will open it up for questions. I'd like to remind everyone that statements made during our prepared remarks or in the Q&A portion of the conference call with reference to management's expectations or our predictions of the future are forward-looking statements. All statements made today, which are not statements of historical facts, are considered to be forward-looking statements. Certain material factors or assumptions were applied in drawing a conclusion or making a forecast or projection as reflected in the forward-looking information. Investors are also cautioned not to place undue reliance on these statements. Actual results could differ materially from those anticipated. Risk factors that could affect the results are detailed in the corporation's public filings. I'll now turn the call over to Linda, who will provide her insights and remarks on the quarter. Linda?

L
Linda Jane McCurdy
President, CEO & Director

Thank you, Kristie, and good morning, everyone, and thank you very much for joining us today for a review of the quarter. On today's call, I'll comment on how we are navigating during this challenging time, Kristie will then detail our financial performance for the second quarter, and I'll come back to provide an outlook for the remainder of the year. As anticipated, the second quarter was one of unprecedented uncertainty as the result of COVID-19. I want to start by acknowledging the thousands of dedicated K-Bro employees who have demonstrated tremendous courage and adaptability in their essential role of ensuring that our health care customers receive identically clean linen. Our employees play a critical role in the protection of frontline health care workers and patients, and we are dedicated to ensuring both their safety and their family safety, which is our top priority. In terms of highlights for Q2, I'm pleased with our second quarter results with adjusted EBITDA of $7.6 million and improvements in adjusted EBITDA margin despite operating in an extremely challenging environment. Our teams moved very quickly to safely meet the changing needs of our customers, all while eliminating costs and adjusting to reduced customer activity. This performance reflects the resilience of our business model and responsiveness of our team. From a revenue perspective, COVID-19 has had a significant impact on our top line revenues, down 41.3% for the quarter and down 21.1% year-to-date. Hospitality revenue declined approximately 90% for the quarter and just over 50% year-to-date. However, our health care segment has experienced growth of approximately 1.1% in the quarter and 2% year-to-date over the same period last year, which is primarily due to changes in linen requirements related to COVID-19, contractual rate increases and temporary service for several potential customers. While COVID-19 continues to impact us, we continue to believe in our existing strategy as supported through our past performance.As a backdrop, which I mentioned in the last quarter, the last 2 months of 2019 and the first 2 months of 2020 showed that our underlying operations and financial performance has returned to historic historical levels, especially with respect to margins. That's important as we execute on our plans to meet new customer demands as economies reopen. As evidence of a solid start to the year, revenues remain strong until the last 2 weeks of the first quarter, with year-over-year revenue increasing 5.2% for the first 2 months of 2020. However, starting March 11, 2020, COVID-19, began to have an immediate effect with many of the company's hospitality customers experiencing significantly reduced occupancies or closures as the result of the implementation of lockdown and confinement measures.As a result, for the month of March, consolidated revenue decreased by 11.5% compared to the same period in 2019, with April's revenues down 45% from prior year. In response to the dramatic decrease in customer activity, we immediately acted to manage and scale our operations as COVID-19 continued to progress, with significant changes to headcount volume consolidation through both a temporary reduction in the number of plants being operated as well as the hours of operation for some of our plants and optimization of distribution routes. What we've qualified -- where we've qualified, we have accessed government programs that have assisted us in retaining a significant number of jobs and has also enabled us to seamlessly ramp up as economies have begun to reopen. Kristie will provide more details on this later in our presentation. We've reduced CapEx as discussed during our last quarterly call and are confident that the changes will not impact our plans going forward with the only significant CapEx deferral being an enterprise system installation that we are not able to proceed with given COVID-related work restrictions. For the year, we expect CapEx to be in the $3 million range. We remain well positioned from a balance sheet and liquidity perspective with $42.4 million of additional borrowing capacity on our revolving line of credit with an additional $25 million accordion for growth purposes. As a precautionary measure, we've completed an amendment of our credit facility that provides greater financial flexibility during this challenging period, although we do not expect we will need this change. Our funded debt to EBITDA at the end of Q2 remained conservative at 1.45x, with the decline in our funded debt of close to $20 million as compared to the prior year. I'll now turn it over to Kristie to discuss our detailed financial results for the quarter, after which I'll return to talk about the remainder of the year, and then we'll have a question-and-answer period. Go ahead, Kristie.

K
Kristie L. Plaquin
Chief Financial Officer

Thank you, Linda. The information we are discussing today is also highlighted in our second quarter and 2020 earnings press release issued yesterday. And detailed supplemental financial information can be found on our Investor Relations website, under the heading, Financial Documents. In Q2 2020, approximately 94% of K-Bro's consolidated revenue was generated from health care institutions, which is significantly higher compared to 54.4% in 2019. This is primarily related to the significant falloff in hospitality volume due to COVID-19 in both Canada and the U.K. For the quarter, EBITDA on an adjusted basis without the adoption of IFRS 16, decreased by 27.9% to $7.6 million, with an adjusted EBITDA margin of 20.1%, which was 28.7% in Canada and negative in the U.K. For the Canadian division, the corporation for the months of April and May was eligible for the Canadian Emergency Wage Subsidy or CEWS, that was announced by the federal government in response to the COVID-19 pandemic on March 27, 2020. The CEWS program, which subsidizes 75% of employee wages subject to certain caps, is designed for eligible Canadian employers whose businesses had an impact by COVID-19, and is intended to help employers rehire previously laid off workers, retain existing employees and assist Canadian businesses throughout this pandemic. The CEWS program allowed the corporation to preserve a significant number of jobs. As a result, the corporation recognized $5.6 million of wage subsidy in Q2 2020, which has been netted against the specific expense to which it relates. This includes an allocation to wages and benefits of $4.8 million, delivery of $0.5 million and corporate costs of $0.3 million. Without the benefit of this wage subsidy, the Canadian operations would have taken additional actions to reduce costs. For the balance of the year, we will continue to monitor the program and our eligibility to receive funding. For the U.K. division, the corporation was eligible for the Coronavirus Job Retention Scheme, which was introduced by the U.K. Government on March 20, 2020, to pay approximately 80% of salaries for employees, subject to certain caps, who are furloughed. For the quarter ended June 30, 2020, a total of GBP 2 million or CAD 3.5 million was received or receivable and has been netted against the specific expense to which it relates. This includes an allocation to wages and benefits of GBP 1.1 million or $2 million, delivery costs of GBP 0.6 million or $1 million and corporate costs of GBP 0.3 million or $0.5 million. For greater clarity, the U.K. division received an equivalent amount from the government that was then paid to furloughed employees, netting to no impact on EBITDA. The benefit of the CEWS is partially offset by an accrual for restructuring costs in the amount of $1.6 million that was recorded in the quarter of which $1 million related to the Canadian division and $0.6 million related to the U.K. division and an allowance for bad debt expense in the amount of $500,000. Wages and benefits in the second quarter of 2020 decreased by $13.8 to $11.1 million compared to $24.9 million in the comparative period of 2019 and as a percentage of revenue, decreased by 9.4% to 29.5%. On a year-to-date basis, wages and benefits decreased by $14.5 million to $33.8 million compared to $48.3 million in the comparative period of 2019 and as a percentage of revenue, decreased by 4.1% to 35.6%. The decrease as a percentage of revenue is primarily related to government assistance received in the Canadian division as well as improvements in labor efficiencies, which is offset by escalating minimum wage rates and restructuring costs related to COVID-19.Linen in the second quarter of 2020 decreased by $1.7 million to $5.2 million compared to $6.9 million in the comparative period of 2019 and as a percentage of revenue, increased by 3.1% to 13.9%. On a year-to-date basis, linen decreased by $1.5 million to $11.9 million compared to $13.4 million in the comparative period of 2019 and as a percentage of revenue, increased by 1.6% to 12.6%. The increase as a percentage of revenue is primarily related to the higher proportion of health care revenues in the quarter. Utilities in the second quarter of 2020 decreased by $1.9 million to $2.1 million compared to $4 million in the comparative period of 2019 and as a percentage of revenue, decreased by 0.7% to 5.6%. On a year-to-date basis, utilities decreased by $2.7 million to $5.7 million compared to $8.4 million in the comparative period of 2019 and as a percentage of revenue, decreased by 0.9% to 6%. The decrease as a percentage of revenue in the quarter is primarily related to utility costs in British Columbia that were realized after an unexpected increase in Q1 of 2019 as a result of a temporary natural gas supply shortage, lower commodity costs and operational measures to offset the impact of COVID-19. Delivery in the second quarter of 2020 decreased by $3.7 million to $3.5 million compared to $7.2 million in the comparative period of 2019 and as a percentage of revenue, decreased by 1.8% to 9.4%. On a year-to-date basis, delivery decreased by $3.7 million to $10.5 million compared to $14.2 million in the comparative period of 2019 and as a percentage of revenue, decreased by 0.5% to 11.1%. The decrease as a percentage of revenue is primarily related to government assistance received in addition to management's efforts to offset the impact of COVID-19 in the delivery operations of each plant through temporary reductions in the delivery labor force, logistic and delivery route optimization, and offset by fixed costs, which remain constant regardless of the reduction in volume, and price increases from renewal of outsourced freight contracts. Occupancy costs in the second quarter of 2020 decreased by $0.6 million to $0.5 million compared to $1.1 million in the comparative period of 2019 and as a percentage of revenue, decreased by 0.5% to 1.3%. On a year-to-date basis, occupancy costs decreased by $0.5 million to $1.7 million compared to $2.2 million in the comparative period of 2019 and as a percentage of revenue, remained constant at 1.8%. This includes fixed costs that remain constant regardless of the reduction in the volume resulting from the COVID-19 pandemic, which is offset by rent concessions received in certain plants in the U.K. in the amount of $0.5 million. Materials and supplies in the second quarter of 2020 decreased by $0.7 million to $1.2 million compared to $1.9 million in the comparative period of 2019 and as a percentage of revenue, increased by 0.3% to 3.3%. On a year-to-date basis, materials and supplies decreased by $0.3 million to $3.4 million compared to $3.7 million in the comparative period of 2019 and as a percentage of revenue, increased by 0.5% to 3.5%. The increase as a percentage of revenue is primarily related to additional personal protective equipment required as a result of the COVID-19 pandemic and onetime cost recoveries in 2019. Repairs and maintenance in the second quarter of 2020 decreased by $0.8 million to $1.4 million compared to $2.2 million in the comparative period of 2019 and as a percentage of revenue, increased 5.3% to 3.8%. On a year-to-date basis, repairs and maintenance decreased $5.7 million to $3.6 million compared to $4.3 million in the comparative period of 2019 and as a percentage of revenue, increased by 0.3% to 3.8%. The increase as a percentage of revenue is primarily related to fixed costs that remain constant regardless of the reduction in volume from the COVID-19 pandemic as well as timing of maintenance activities. Corporate costs in the second quarter of 2020 decreased by $0.5 million to $2.4 million compared to $2.9 million in the comparative period of 2019 and as a percentage of revenue, increased by 1.8% to 6.3%. On a year-to-date basis, corporate costs decreased by $0.5 million to $5 million compared to $5.5 million in the comparative period of 2019 and as a percentage of revenue, increased by 0.8% to 5.3%. Overall, the reduction to corporate costs reflects government assistance received as a result of CEWS, decreases to executive compensation and benefits, which are offset by restructuring costs and a provision for bad debts. Depreciation of property, plant and equipment and amortization of intangible assets represents the expense related to the appropriate matching of the corporation's long-term assets to the estimated useful life in period of economic benefit of those assets. Income tax includes current and future income taxes based on taxable income and temporary timing differences between the tax and accounting basis of assets and liabilities. Income tax reflects the provision on the earnings of the corporation. Now looking at our capital resources. Distributable cash flow for the second quarter of 2020 was $7.3 million, and our payout ratio was 44%. In addition, the company paid out $0.3 per share in dividends during the quarter for total consideration of $3.2 million. The corporation had net working capital of $31.5 million at June 30, 2020, compared to its working capital position of $31 million at December 31, 2019. The increase in working capital is primarily related to the timing differences related to cash receipts from customers, cash settlement for new plant equipment, deposits related to plant equipment, income tax payments and a decrease in cash and cash equivalents. At June 30, 2020, total assets decreased to $330.4 million compared to $352.1 million at December 31, 2019. And total liabilities decreased to $143 million -- $143.1 million from $156 million. Shareholders' equity decreased at June 30, 2020, from December 31, 2019, to $187.3 million from $196.1 million. As far as our debt is concerned, we have sufficient room in our credit facilities with an operating line of $100 million and a further $25 million accordion for growth purposes. As of the end of Q2, we had an undrawn balance of about $42 million, reinforcing our strong liquidity. During the second quarter of 2020, we completed an amendment to our existing revolving credit facilities which made changes to certain terms and conditions within the agreement in consideration of the ongoing COVID-19 pandemic and the impact to our operations. These included an increased funded debt-to-EBITDA covenant for the period of September 30, 2020 to June 30, 2021, which gradually allows for a maximum funded debt-to-EBITDA ratio of 4.5x for Q4 2020 and Q1 2021. This includes certain onetime add backs to EBITDA. As Linda mentioned earlier, our current debt-to-EBITDA ratio was 1.45x. The amendment also included a reduction to the fixed charge covenant for the period of September 30, 2020 to June 30, 2021, which reduces to a maximum of 1.1x. Our current ratio was approximately 9.3x. A restriction on any further dividend increases during the covenant relief period of July 1, 2020 to June 30, 2021, was also a change. As we mentioned previously, we did this for cautionary reasons, and we don't anticipate to need this change. Debt to total capitalization for the quarter ended June 30, 2020, was 23.5% and the corporation's unused revolving credit facility was $42.4 million, and the corporation had not incurred any events of default under the terms of its credit facility agreement. Total debt increased in the quarter to $56.4 million from $54.7 million. We continue to monitor and aggressively pursue accounts receivable collections. At this point, we do not anticipate that there will be material receivables, which are uncollectible, which has not already been provided for. I'll now turn things back over to Linda for additional commentary. Linda?

L
Linda Jane McCurdy
President, CEO & Director

Thank you, Kristie. As I noted last quarter, we began 2020 in a position of strength with consolidated adjusted EBITDA without the adoption of IFRS 16 for the first 2 months of 2020, increasing $1.8 million compared to the same period of 2019, and revenues up 5.6% for the same period. However, by mid-March, we saw an immediate rapid decline in volumes, with March revenues dropping 11.5% on a year-over-year basis. In order to address the adverse effects from the COVID-19 pandemic, we had to react quickly to implement plans to mitigate the effects, including consolidating operations, reducing headcount and accessing available government assistance programs. 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. These actions have resulted in results for Q2 that we are quite pleased with given the circumstances. In terms of trends for July, we saw consolidated revenue decrease by approximately 30% with an increase in consolidated health care revenue of approximately 10% and a decrease in consolidated hospitality revenues of approximately 75% relative to the prior year. While our hospitality revenue has improved significantly in resort and country areas in Scotland, in particular, revenue remains very low from almost all of our customers located in cities. For the first few weeks of August, we've seen consolidated revenue decrease approximately 25% from prior year, with most of the increase over July coming from the U.K. While client activity on the hospitality front is still well below historical norms, the increases we have experienced have resulted in the reopening of all of our operations with the exception of our Perth plant in Scotland as well as we have increased the days and hours of operations in all of our plants. We've successfully recalled employees to meet these increased demands and will continue to adjust production schedules as demand warrants. While it's very difficult to predict revenue, what revenue will look like for the balance of the year given the uncertainty, I am comfortable saying that consolidated adjusted EBITDA margin before the adoption of IFRS 16 for the year will be in the range of 12% to 16%. We remain well positioned from the balance sheet and liquidity perspective that Kristie discussed, in addition, the strong concentration of our Canadian revenues from the health care sector at approximately 70%. We're 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 in a stronger market position. We continue to evaluate other tuck-in acquisitions in both the U.K. and Canada as we execute on our growth strategy and to grow our market share. And this will continue as we move forward in 2020 when current market conditions may lead to opportunistic situations for us. With respect to our dividend, we've determined that the best policy is to maintain our dividend at $0.10 per share. As we stated last quarter, we do not have a single metric that will determine our dividend policy. But given our expectations for Q3 and our outlook for the remainder of the year, we do not believe it's necessary or prudent to change the dividend. Obviously, the situation is very fluid with both health care and, especially hospitality volumes much more uncertain than usual. And as such, we regularly reexamine our dividend policy and if our performance on our outlook changes, then we'll reconsider whether any changes need to be made. And finally, we're committed to the safety of our employees, customers and communities and we have put in place strict policies to do our part to minimize the potential spread of the virus. This is of utmost importance, and we will continue to ensure that all measures are in place to protect their safety and we'll continue to exceed all health -- public health recommendations. I'll now turn it over for any questions that you may have with regards to the quarter.

Operator

[Operator Instructions] Your first question comes from Michael Glen with Raymond James.

M
Michael W. Glen
Equity Research Analyst

Linda, just -- sorry, for the U.K. part, you were discussing some metrics, you were breaking up quite a bit there. Just wondering if you can repeat some of those. And then as we look at the EBITDA profile for that U.K. business, you are -- it sounds like you have reopened some plants. So should we think about -- and those would be coming in, I guess, at lower -- low volumes. Should we think about an improving EBITDA profile on the U.K. business through the balance of the year?

L
Linda Jane McCurdy
President, CEO & Director

Yes. Absolutely, Michael. We are seeing significant improvement in August. We saw improvement in July and more improvement in August. Again, we only have one plant, which is Perth that is not open. And I think it's fair to assume for the balance of the year that there will be an improved margin profile. I will say there is one caveat to that. And we expect strong volumes in August and September. And likely into October, I think there remains significant uncertainty in November and December. As I mentioned, what we are seeing in both the U.K. and Canada is resort and holiday properties have very, very strong volumes. City properties are still extremely weak. But overall, I would definitely say we expect improvement in the U.K.

M
Michael W. Glen
Equity Research Analyst

Okay. And sorry to make you do this, but I think you gave some percentages. You were just really breaking up there for volumes in hospitality?

L
Linda Jane McCurdy
President, CEO & Director

Sure. So I guess what I would say, I don't know that we specifically broke it out for the U.K., but in terms of improvements and trends in July, what we've seen is a decrease of approximately 30% overall for July, but health care is up 10% and hospitality is down 75%. For the first few weeks of August, overall, we are seeing a decline year-over-year of 25% and most of the improvement from July is coming from increased revenue in the U.K.

M
Michael W. Glen
Equity Research Analyst

Okay. Perfect. That's the part that I missed. And then for the Canadian -- or for the health care growth, can you just maybe indicate where exactly some of that is coming from? And where you're seeing some of the pockets of strength there?

L
Linda Jane McCurdy
President, CEO & Director

Yes, absolutely. I'd say it comes from a number of areas. Part of it is catch-up of elective surgeries that were delayed from the previous quarter and the shutdown, obviously, to -- of beds and reduced occupancies to clear out beds for COVID patients. That would be one area. And it's very difficult to say where it all come from, but there are a few buckets. Second of all, it would be conversion of disposable products to reusable products. It would be an increase in demand as practices have changed and more PPE is being used. We are providing some emergency services for a number of in-house laundries. And those would be -- and part of it would be price increases as well, a smaller part of it, but that would be the buckets that make up the 10% increase.

Operator

Your next question comes from Justin Keywood with Stifel GMP.

J
Justin Keywood
Director of Equity Research

For the adjusted EBITDA reported in the quarter, quite strong. I'm just trying to understand the impact of the pandemic-related programs. If I were to play it back to you, is it fair to assume that the benefits offset the costs? Is that how to interpret it?

L
Linda Jane McCurdy
President, CEO & Director

So I would break it down in this way. The CEWS program contributed $5.6 million. We had a severance accrual of approximately $1.6 million and bad debt of $0.5 million. So while there is a pickup, I would make one caveat. The CEWS program, obviously, was designed to -- for organizations and companies to retain employees, which, of course, we did to the largest extent possible. So the $5.6 million isn't a bottom line pickup as other actions would have been taken, and we would have furloughed a number of employees had the program not been in place. I don't have an exact number on what that would look like. But in broad terms, that's what how I would break down the impact of the government subsidies and onetime costs. In -- I will make one other point. In the U.K., the government subsidy program is very different. So I would say that there is no impact on EBITDA as a result of the U.K. Coronavirus Job Retention Scheme. It's a straight flow through. Whatever money we received from the government in the U.K., it was paid to furloughed employees.

J
Justin Keywood
Director of Equity Research

Understood. And that's quite strong to see, especially in the context of the decline on the hotel segment. And just on the hospitality volume. I was hoping just to get additional color. So you mentioned July being down 30%. Is that a function of hotel -- of your hotel customers still being closed? Or are hotels open and the capacity is just at very depressed levels?

L
Linda Jane McCurdy
President, CEO & Director

For the most part, Justin, most of our hotels are open. I would say about 90% of them. Again, resort properties, 100%, city properties, with the exception of a few, Edmonton is obviously strong with being an NHL hub, Québec City, very strong, Victoria, stronger. Outside of those cities, occupancies remain extremely low.

J
Justin Keywood
Director of Equity Research

Okay. And I think Toronto is another NHL hub city so interesting to see that as well. And then I just have one final question related to the long-term care opportunity. Are these increased contracts or volume, is that sustainable? Or do you see that as largely onetime in nature?

L
Linda Jane McCurdy
President, CEO & Director

I think in the short term, it's onetime, but I do believe that is a segue or a runway for medium- to longer-term outsourcing opportunities. So I guess what I mean by that is we still continue to do a number of facilities that have in-house laundries or -- in-house laundries that may, for a short period of time, go back. But I do believe that is just a timing before they ultimately make a longer-term decision.

J
Justin Keywood
Director of Equity Research

And if I just may ask one more question. There's been some announcements by the Ontario government for new long-term care facilities. Would that be an opportunity? Or is that do you anticipate would be an in-house situation?

L
Linda Jane McCurdy
President, CEO & Director

It would be surprising to me if it was in-house. So definitely, we would look at that as an opportunity, 100%. I will make one other point, actually, on your question with regards to hospitality in the U.K. They did lag the -- their opening only started on July 15, which is why we are seeing much stronger volumes in August. Just to point that out.

Operator

[Operator Instructions] Your next question comes from Endri Leno with National Bank.

E
Endri Leno
Associate

I'll first -- one, I'll just take it back a little bit to the health care strength. And Linda, you mentioned there is some conversion or some of the volumes conversion of disposable to reusable. I was wondering if you can talk a little bit how permanent do you think is this increase in demand or this shift to more usable one? Is it more onetime thing? Or do you see it continuing?

L
Linda Jane McCurdy
President, CEO & Director

I definitely see those conversions more permanent, Endri, it has -- most of that has been reusable isolation gowns. So I do believe that is a permanent shift. And I do believe there's future opportunity for more of that.

E
Endri Leno
Associate

Okay. Great. And similarly, on the -- I mean -- or to a certain extent, similarly, I guess, but on the pent-up demand for cases that were postponed, have you had any discussions with your hospital partners of how do they see them developing over Q3, over the balance of the year? Or how long they might even take to clear out the backlog?

L
Linda Jane McCurdy
President, CEO & Director

That's a tough one. And I think the answer to that is a bit unknown for everyone, i.e., what does the second wave look like? I mean, this is my own commentary. This isn't necessarily coming from intelligence through the health authorities. But I certainly don't think we will see what we saw in April on health care going forward. Even if there is a second wave, which is likely to be more pockets of outbreaks, I don't think we'll see anything like we saw in April and May, yes, April, more so April. But really, a lot is still unknown.

E
Endri Leno
Associate

Okay. And you just mentioned as you talked before about opportunities for acquisitions of smaller players on the hospitality side. Are you seeing any opportunities at all, something coming across your desk? Or how has the competitive landscape changed that during this period?

L
Linda Jane McCurdy
President, CEO & Director

I would say that we know that a number of our smaller competitors are -- it is very difficult for those in hospitality and solely hospitality. We've seen the revenue declined from our perspective. We know that it is the same for others. And for a 100% hospitality player, it's very difficult. I will say that the government subsidy programs are helpful. But it doesn't solve all of the problems. I would still say it is a bit premature, but I am confident that as this continues, that opportunities will present themselves.

E
Endri Leno
Associate

Okay. Great. And keeping it on the hospitality, but more on the U.K. side, the one facility that remains closed in the U.K., would you open it if volumes were to pick up? Or is there a rationalization on the table and you consolidate those volumes?

L
Linda Jane McCurdy
President, CEO & Director

It is very dependent on client activity and volumes. We don't -- it's just hard to know what the long-term picture will look for our Perth plant.

E
Endri Leno
Associate

Okay. And very last one, then I'll get back on the queue. But just more housekeeping. Do you expect any more from fund from CEWS or any other restructuring costs in Q3?

L
Linda Jane McCurdy
President, CEO & Director

We don't expect any additional restructuring costs. I would say that in terms of CEWS, the program has changed quite substantially going forward. We do believe that we will be eligible, but it's quite complex. And I will say that it will not be anywhere near the magnitude of what we saw in Q2.

Operator

Your next question comes from Michael Glen with Raymond James.

M
Michael W. Glen
Equity Research Analyst

Linda, for the long-term care, are you able to just frame the size of that opportunity relative to what you currently process from a long-term care perspective?

L
Linda Jane McCurdy
President, CEO & Director

I'd say, it's -- well, it's both long-term care as well as some acute care. I would say it's about annualized a couple -- at this point, a couple of million dollars' worth of revenue.

M
Michael W. Glen
Equity Research Analyst

Within K-Bro would then -- I mean, is there -- do you have any data on like what the market size is for that in Canada?

L
Linda Jane McCurdy
President, CEO & Director

Sorry. Yes, you bet. Sorry about that. I misunderstood. We estimate the size of the long-term care market anywhere between $50 million and $70 million of revenue.

M
Michael W. Glen
Equity Research Analyst

Okay. So quite a substantial amount of it remains in-sourced?

L
Linda Jane McCurdy
President, CEO & Director

Yes, it does. That's right.

M
Michael W. Glen
Equity Research Analyst

Okay. And then can you just provide -- and for the U.K. program that you described, is that program -- has that program come off then? And that's gone away for subsequent quarters, so you won't receive any of that flow through in subsequent results?

L
Linda Jane McCurdy
President, CEO & Director

No. The U.K. program is in place until November. And at this point, however, we have a significantly reduced number of employees furloughed. And again, because it is a flow through, there is no impact, but even outside of that, we have far fewer employees furloughed. So it will just, by definition, go down, the Coronavirus Job Retention Scheme funding.

M
Michael W. Glen
Equity Research Analyst

Okay. And then tax rate maybe through the rest of the year?

K
Kristie L. Plaquin
Chief Financial Officer

I would say fairly consistent, Michael, with historical. It looks a little bit odd for the current quarter just announced and it has to do with the earnings mix. So when you look at both Canada and the U.K. divisions individually, their tax rates are in line with historical norms. But because the net earnings from the U.K. division were negative in a disproportionate amount to the Canadian division, it is a bit skewed on a consolidated basis, but if you use historical for each division. I think you'd be pretty much in line.

Operator

There are no further questions queued up at this time. I'll turn the call back over to the presenters.

L
Linda Jane McCurdy
President, CEO & Director

So thank you very much, everyone, for joining today. If there's any follow-up questions, Kristie and I are available, and we look forward to getting back for Q3 later in the year. Thank you so much, everyone.

Operator

This concludes today's conference call. You may now disconnect.