K-Bro Announces Record 2014 Annual Results and Declares March Dividend

(TSX: KBL)

2014 Annual Financial Results

  • Revenue for the three and twelve months ended December 31, 2014 was $33.8 million and $136.4 million, respectively, increases of 4.5% and 4.0% over the comparable 2013 periods.
  • EBITDA for the fourth quarter increased by $0.9 million to $6.3 million from 2013; for the 2014 year, EBITDA increased by $2.9 million to $26.2 million compared to the 2013 fiscal year. Adjusted EBITDA increased by $2.2 million to $26.2 million compared to the 2013 fiscal year. The increase in EBITDA was primarily as the result of increased efficiencies as a result of the move to the new Edmonton facility, organic growth from existing customers across the plants, and additional services provided to the Saskatoon Health Region.
  • EBITDA margin increased in the fourth quarter to 18.7% from 16.8% in the comparative period of 2013 predominantly a result of increased efficiencies as a result of the move to the new Edmonton facility and organic growth from existing customers across the plants.  For the year, the EBITDA margin increased to 19.2% in 2014 from 17.8% in 2013, and adjusted EBITDA margin increased to 19.2% in 2014 from 18.3% in 2013. The increase is a result of the move to the new Edmonton facility, organic growth from existing customers across the plants, and additional services provided to the Saskatoon Health Region.
  • K-Bro declared dividends of $1.18 per common share and distributable cash was $2.85 per common share on a fully diluted basis. This amounted to annual dividends of $8.5 million compared to distributable cash of $20.2 million for an overall payout ratio of 42.0%.
  • Net earnings after taxes increased by $1.9 million to $12.2 million from fiscal 2013. The increase is due to a flow through effect of the increase in the EBITDA.

Highlights and Significant Items for Fiscal 2014

  • Commenced construction of the new Regina facility.  Management estimates that the costs to commission a new facility in Regina are expected to be approximately $35.6 million for equipment, land and building.  The expected costs to commission the facility have increased from that previously disclosed as a result of the weakening Canadian dollar. Costs associated with the new facility began to be incurred in Q2, 2014 and will continue to be incurred until Q3, 2015.  As at December 31, 2014, K-Bro has incurred $11.2 million of the total expected capital cost.  Management expects the new facility to commence processing in late Q3, 2015. 
  • Issued 839,500 common shares (10.5% of total share capital issued) as a part of an equity offering on December 9, 2014. The common shares issued have the same rights as the other shares in issue. The fair market value of the shares issued amounted to $34.8 million. The related transaction costs amounting to $1.3 million have been netted against the deemed proceeds.

EDMONTON, March 11, 2015 /CNW/ - K-Bro Linen Inc. ("K-Bro" or the "Corporation") today announced revenue of $136.4 million and EBITDA of $26.2 million for the year ended December 31, 2014.  Net earnings after tax were $12.2 million, diluted earnings per common share were $1.72, and distributable cash was $2.85 per diluted common share for the year.

(thousands, except per share amounts

For the three months ended December 31

and percentages)

2014

2013

$ Change

% Change






Revenue

$

33,793

$

32,344


1,449

4.5%

Operating expenses


27,460


26,923


537

2.0%

EBITDA(1)


6,333


5,421


912

16.8%

EBITDA(1)as a % of revenue


18.7%


16.8%


-

1.9%

Adjusted EBITDA(1)


6,333


5,421


912

16.8%

Adjusted EBITDA(1)as a % of revenue


18.7%


16.8%


-

1.9%

Earnings before income taxes


4,005


2,916


1,089

37.3%

Income tax expense


922


799


123

15.4%

Net earnings


3,083


2,117


966

45.6%

Basic earnings per Share

$

0.43

$

0.30


0.13

43.3%

Diluted earnings per Share

$

0.43

$

0.30


0.13

43.3%









Adjusted net earnings(1)


3,083


2,117


966

45.6%

Basic adjusted net earnings per share(1)

$

0.43

$

0.30


0.13

43.3%

Diluted adjusted net earnings per share(1)

$

0.43

$

0.30


0.13

43.3%









Total assets


132,638


112,330


20,308

18.1%

Long-term debt, end of period


-


19,640


(19,640)

-100.0%









Cash provided by operating activities


9,401


6,399


3,002

46.9%

Net change in non-cash working capital items


3,878


1,201


2,677

222.9%

Share-based compensation expense(1)


306


261


45

17.2%

Maintenance capital expenditures


309


180


129

71.7%

Distributable cash flow(1)


4,908


4,757


151

3.2%

Dividends declared


2,220


2,039


181

8.9%

Payout ratio(1)


45.2%


42.8%


-

2.4%

(1) Refer to the Terminology section for further details






(thousands, except per share amounts

For the year ended December 31

and percentages)

2014

2013

$ Change

% Change






Revenue

$

136,440

$

131,202

5,238

4.0%

Operating expenses


110,199


107,885

2,314

2.1%

EBITDA(1)


26,241


23,317

2,924

12.5%

EBITDA(1)as a % of revenue


19.2%


17.8%

-

1.4%

Adjusted EBITDA(1)


26,241


24,030

2,211

9.2%

Adjusted EBITDA(1)as a % of revenue


19.2%


18.3%

-

0.9%

Earnings before income taxes


16,663


14,509

2,154

14.8%

Income tax expense


4,465


4,173

292

7.0%

Net earnings


12,198


10,336

1,862

18.0%

Basic earnings per Share

$

1.72

$

1.47

0.25

17.0%

Diluted earnings per Share

$

1.72

$

1.47

0.25

17.0%








Adjusted net earnings(1)


12,198


10,835

1,363

12.6%

Basic adjusted net earnings per share(1)

$

1.72

$

1.54

0.18

11.7%

Diluted adjusted net earnings per share(1)

$

1.72

$

1.54

0.18

11.7%








Total assets


132,638


112,330

20,308

18.1%

Long-term debt, end of period


-


19,640

(19,640)

-100.0%








Cash provided by operating activities


23,909


19,186

4,723

24.6%

Net change in non-cash working capital items


1,340


(1,374)

2,714

-197.5%

Share-based compensation expense(1)


1,099


1,237

(138)

-11.2%

Maintenance capital expenditures


1,242


886

356

40.2%

Distributable cash flow(1)


20,228


18,437

1,791

9.7%

Dividends declared


8,498


8,142

356

4.4%

Payout ratio(1)


42.0%


44.2%

-

-2.2%

(1) Refer to the Terminology section for further details.

In the fourth quarter of 2014, revenue was $33.8 million which was 4.5% higher than the $32.3 million generated in the comparative quarter of 2013.  This year-over-year increase was due to a combination of additional services provided to the Saskatoon Health Region and organic growth from existing customers across the plants.  EBITDA increased from $5.4 million in Q4, 2013 to $6.3 million in Q4, 2014, this increase was a result of increased efficiencies resulting from the move to the new Edmonton facility, additional services provided to the Saskatoon Health Region and organic growth from existing customers across the plants

DIVIDEND

K-Bro also announces a dividend of $0.10 per common share of the Corporation payable on April 15, 2015 to Shareholders of record on March 31, 2015.  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

"During 2014 we enjoyed considerable successes – we once again achieved new records in revenue and EBITDA." said Linda McCurdy, President & Chief Executive Officer.  "Looking forward, fiscal 2015 will bring additional changes and growth to K-Bro as we finalize the development of a state-of-the-art facility in Regina, Saskatchewan to serve the provincial linen processing requirements.  This year marked the ninth consecutive year of stable growth and reliable dividends to our shareholders."

CORPORATE PROFILE

K-Bro is the largest owner and operator of laundry and linen processing facilities in Canada. K-Bro provides a comprehensive range of general linen and operating room linen processing, management and distribution services to healthcare institutions, hotels and other commercial accounts.  K-Bro currently operates eight processing facilities and one distribution centre under three distinctive brands, including K-Bro Linen Systems Inc., Buanderie HMR and Les Buanderies Dextraze, in eight Canadian cities: Québec City, Montréal, Toronto, Saskatoon, Edmonton, Calgary, Vancouver and Victoria.

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 huit usines sous trois marques distinctives, incluant K-Bro Linen Systems Inc., Buanderie HMR et Les Buanderies Dextraze, dans sept villes canadiennes: Québec, Montréal, Toronto, Edmonton, Calgary, Vancouver et Victoria.

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, le site Web du 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 interest, 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
December 31,


Year Ended
December 31,



2014

2013


2014

2013












Net Earnings



3,083


2,117


$

12,198

$

10,336

Add:












Income tax expense



922


799



4,465


4,173


Financial charges



103


176



593


595


Depreciation of property, plant and equipment



1,725


1,774



6,817


5,965


Amortization of intangible assets



530


530



2,121


2,140


Loss on disposal of property, plant and equipment



(30)


25



47


108



$

6,333

$

5,421


$

26,241

$

23,317

Adjusted EBITDA is a measure which has been reported in order to assist in the comparison of historical EBITDA to current results.  The calculation of Adjusted EBITDA normalizes the impact of non-recurring infrequent and/or unusual transactions which did not occur during the preceding two years and are not expected to recur within the next two years, and the related impact on EBITDA (as defined above).  During the third quarter ended September 30, 2013, a charge equivalent to the remaining lease payments for decommissioned facilities was recognized as occupancy costs. The normalization of these expenses from the calculation of EBITDA is considered by Management to be a more accurate representation of continuing operations.




Three Months Ended
December 31,


Year Ended
December 31,

(thousands)


2014

2013


2014

2013

EBITDA


$            6,333

$             5,421


$         26,241

$           23,317

Add:








Occupancy expense of decommissioned facilities


-

-


-

713

Adjusted EBITDA


$            6,333

$             5,421


$         26,241

$           24,030

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.  The calculation of Adjusted net earnings normalizes the impact of non-recurring infrequent and/or unusual transactions net of corporate income taxes which did not occur during the preceding two years and are not expected to recur within the next two years, and the related impact on net earnings and net earnings per share.  The normalization of these net expenses 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 continuing operations.




Three Months Ended
December 31,


Year Ended
December 31,

(thousands)


2014

2013


2014

2013

Net earnings


$            3,083

$             2,117


$         12,198

$           10,336

Add/(deduct), net of corporate income taxes:








Occupancy expense of decommissioned facilities


-

-


-

499

Adjusted net earnings


$            3,083

$             2,117


$         12,198

$           10,835










Adjusted net earnings, per share:








Basic


$              0.43

$               0.30


$              1.72

$               1.54


Diluted


$              0.43

$               0.30


$              1.72

$               1.54

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 non-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
December 31,


Year Ended
December 31,

(thousands)


2014

2013


2014

2013

Cash provided by operating activities


$            9,401

$             6,399


$         23,909

$           19,186

Deduct:








Net changes in non-cash working capital items


3,878

1,201


1,340

(1,374)


Share-based compensation expense


306

261


1,099

1,237


Maintenance capital expenditures


309

180


1,242

886

Distributable cash flow


$            4,908

$             4,757


$         20,228

$           18,437

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.




Three Months Ended
December 31,


Year Ended
December 31,

(thousands)


2014

2013


2014

2013


Cash dividends


2,220

2,039


8,498

8,142


Distributable cash


4,908

4,757


20,228

18,437









Payout ratio


45.2%

42.8%


42.0%

44.2%

Figures expressed in percentages are calculated from amounts rounded in thousands of dollars.

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 inherent 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 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; and (vii) the availability of future financing. 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) utility costs; (iii) expected impact of labour cost initiatives; and (iv) the level of capital expenditures. Although the forward-looking information contained in this news release 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 news release may be considered "financial outlook" for purposes of applicable securities laws, and such financial outlook may not be appropriate for purposes other than this news release.

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.

For further information: Linda McCurdy, President & Chief Executive Officer; Kristie Plaquin, Interim Chief Financial Officer; K-Bro Linen Inc. (TSX: KBL), Phone: 780.453.5218, Email: inquiries@k-brolinen.com, Web: www.k-brolinen.com

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