K-Bro Reports Q3 Results with Record Revenue

(TSX: KBL)

Q3, 2016 Financial Highlights

• Revenue for the three months ended September 30, 2016 was $41.6 million, an increase of 10.2% over the comparable 2015 period.

• EBITDA for the third quarter decreased by $0.1 million or 0.5% to $7.5 million compared to $7.6 million in Q3, 2015.

• EBITDA margin decreased on a quarter over quarter basis to 18.1% in Q3, 2016 compared to 20.1% in Q3, 2015.

• EBITDA and EBITDA margins were impacted primarily by one-time and transition costs related to significant amounts of new business.

• Net earnings after taxes for the third quarter decreased by $0.5 million to $3.4 million compared to $3.9 million in Q3, 2015.

(thousands, except per share amounts			For the three months ended September 30,
and percentages)		2016		2015	$ Change	% Change
Revenue	$	41,557	$	37,700	3,857	10.2%
Operating expenses		34,019		30,123	3,896	12.9%
EBITDA^(1)		7,538		7,577	(39)	-0.5%
EBITDA^(1)as a % of revenue		18.1%		20.1%	-	-2.0%
Earnings before income taxes		4,801		5,375	(574)	-10.7%
Income tax expense		1,387		1,523	(136)	-8.9%
Net earnings		3,414		3,852	(438)	-11.4%
Basic earnings per Share	$	0.43	$	0.49	(0.06)	-12.2%
Diluted earnings per Share	$	0.43	$	0.48	(0.05)	-10.4%
Dividends declared per diluted share	$	0.30	$	0.30	-	0.0%
Total assets		153,923		145,106	8,817	6.1%
Long-term debt, end of period		10,338		-	10,338	100.0%
Cash provided by operating activities		7,581		5,733	1,848	32.2%
Net change in non-cash working capital items		1,102		(1,193)	2,295	-192.4%
Share-based compensation expense^(1)		337		329	8	2.4%
Maintenance capital expenditures		289		226	63	27.9%
Distributable cash flow^(1)		5,853		6,371	(518)	-8.1%
Dividends declared		2,407		2,396	11	0.5%
Payout ratio^(1)		41.1%		37.6%	-	3.5%
^(1)Refer to the Terminology section for further details

(thousands, except per share amounts			For the nine months ended September 30,
and percentages)		2016		2015	$ Change	% Change
Revenue	$	119,838	$	106,857	12,981	12.1%
Operating expenses		98,009		85,890	12,119	14.1%
EBITDA^(1)		21,829		20,967	862	4.1%
EBITDA^(1)as a % of revenue		18.2%		19.6%	-	-1.4%
Earnings before income taxes		13,159		14,275	(1,116)	-7.8%
Income tax expense		3,829		4,365	(536)	-12.3%
Net earnings		9,330		9,910	(580)	-5.9%
Basic earnings per Share	$	1.17	$	1.25	(0.08)	-6.4%
Diluted earnings per Share	$	1.17	$	1.25	(0.08)	-6.4%
Dividends declared per diluted share	$	0.90	$	0.90	-	0.0%
Total assets		153,923		145,106	8,817	6.1%
Long-term debt, end of period		10,338		-	10,338	100.0%
				-
Cash provided by operating activities		18,449		13,720	4,729	34.5%
Net change in non-cash working capital items		(858)		(4,934)	4,076	-82.6%
Share-based compensation expense^(1)		1,150		1,042	108	10.4%
Maintenance capital expenditures		1,852		859	993	115.6%
Distributable cash flow^(1)		16,305		16,753	(448)	-2.7%
Dividends declared		7,206		7,175	31	0.4%
Payout ratio^(1)		44.2%		42.8%	-	1.4%
^(1)Refer to the Terminology section for further details.

EDMONTON, Nov. 10, 2016 /CNW/ - K-Bro Linen Inc. ("K-Bro" or the "Corporation") today announced revenue of $41.6 million and EBITDA of $7.5 million for the three-months ended September 30, 2016.  Net earnings after tax were $3.4 million, earnings of  $0.43 per share, and distributable cash of $0.732 per diluted share for the quarter.

In the third quarter of 2016, revenue was $41.6 million which was 10.2% higher than the $37.7 million generated in the comparable period in 2015. This year-over-year increase was mainly due to the addition of the 3sHealth volume, additional volume from the Vancouver Lower Mainland contract won through a competitive RFP process, organic growth at existing customers, and new customers in existing markets, offset by price concessions on the renewal of a 10 year contract. EBITDA decreased from $7.6 million in Q3, 2015 to $7.5 million in Q3, 2016.  Increases in revenue partially offset certain transition costs required to support the new 3sHealth volume and additional volume from the Vancouver Lower Mainland contract won.  In addition, the Corporation incurred significant overtime and one-time costs to support new business, strong volumes and temporary capacity constraints in certain of our markets.  

DIVIDEND

The Board of Directors has declared a monthly dividend of $0.10 per common share for the period from November  1 to 30, 2016, to be paid on December 15, 2016 to shareholders of record on November 30, 2016.  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 are pleased with the solid growth for the quarter which is being driven by additional volume from the Vancouver lower mainland and 3sHealth contracts and customers secured in existing markets." said Linda McCurdy, President & Chief Executive Officer.  "We have made significant progress in achieving our targeted operating efficiencies in our Regina operations and expect to continue this momentum for the remainder of the year.  In terms of our previously announced plant builds, we have commenced the development for our new Toronto facility, and are on track to complete the transition into this new facility by the end of the first quarter of 2017. We continue to make progress in the planning and design of our new Vancouver facility with a targeted completion date of 2018.  The new facilities will enable us to realize additional efficiencies and increase capacity and growth potential. We remain excited about our future and confident in our ability to continue 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. 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 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.

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.

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", "distributable cash" and "payout ratio". These terms do not have any standardized meaning under International Financial Reporting Standards ("IFRS") as set out in the CPA Handbook. Therefore, "EBITDA", "distributable cash" and "payout ratio" may not be comparable to similar measures presented by other issuers.  Specifically, the terms "EBITDA", "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 September 30,			Nine Months Ended September 30,
(thousands)			2016		2015		2016	2015
Net earnings		$	3,414	$	3,852	$	9,330	$        9,910
Add:
	Income tax expense		1,387		1,523		3,829	4,365
	Depreciation of property, plant and equipment		2,320		1,819		6,797	5,220
	Amortization of intangible assets		428		507		1,362	1,503
	Finance (recovery) expense		(11)		(128)		492	(49)
	Loss on disposal of property, plant and equipment		-		4		19	18
EBITDA		$	7,538	$	7,577	$	21,829	$       20,967

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 September 30,			Nine Months Ended September 30,
(thousands)			2016		2015		2016	2015
Cash provided by operating activities		$	7,581	$	5,733	$	18,449	$       13,720
Deduct (add):
	Net changes in non-cash working capital items		1,102		(1,193)		(858)	(4,934)
	Share-based compensation expense		337		329		1,150	1,042
	Maintenance capital expenditures		289		226		1,852	859
Distributable cash flow		$	5,853	$	6,371	$	16,305	$       16,753

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 September 30,			Nine Months Ended September 30,
(thousands)			2016	2015		2016	2015
	Cash dividends		2,407	2,396		7,206	7,175
	Distributable cash		5,853	6,371		16,305	16,753
Payout ratio			41.1%	37.6%		44.2%	42.8%

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; (iv) foreign exchange rates; and (v) 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, Chief Financial Officer, K-Bro Linen Inc. (TSX: KBL), Phone: [phone], Email: [email protected], Web: www.k-brolinen.com