K-Bro Linen Income Fund Announces Its 2010 First Quarter Results

EDMONTON, May 5 /CNW/ - K-Bro Linen Income Fund ("K-Bro") (TSX - KBL.UN) today announced its financial results for the quarter ended March 31, 2010.

Highlights

    
    -  Revenue for the three months ended March 31, 2010 was $23.9 million,
       an increase of 11.3% over the comparable 2009 period.
    -  EBITDA for the first quarter of 2010 increased by $0.4 million to
       $3.9 million from the first quarter of 2009, an increase of 11.9%.
    -  Net earnings after taxes increased in the first quarter of 2010 to
       $1.8 million from $1.6 million in the first quarter of 2009, an
       increase of 11.4%.
    -  For the period, K-Bro made distributions of $0.275 per unit and
       distributable cash was $0.48 per unit. This amounted to distributions
       of $1.9 million for the period compared to distributable cash of
       $3.3 million for a payout ratio of 57.7%.
    -  The acquisition of a second plant in Vancouver was completed on
       January 29, 2010 with its results reflected in the quarter from
       thereon.
    

Financial Highlights (in $000's except percentages and per unit amounts)

The following table provides certain selected consolidated financial and operating data prepared by K-Bro management for the periods indicated:

    
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    Fiscal year                                            2010         2009
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                                                            Q1           Q1
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    Revenue                                              23,932       21,493
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    Operating expenses                                   20,024       18,001
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    EBITDA(1)                                             3,908        3,492
    -------------------------------------------------------------------------
    EBITDA as a % of revenue                               16.3%        16.2%
    -------------------------------------------------------------------------
    Earnings before income taxes                          1,748        1,506
    -------------------------------------------------------------------------
    Income tax recovery                                      24           85
    -------------------------------------------------------------------------
    Net earnings                                          1,772        1,591
    -------------------------------------------------------------------------
    Diluted earnings per Unit                              0.25         0.23
    -------------------------------------------------------------------------

    -------------------------------------------------------------------------
    Total assets                                         95,103       86,344
    -------------------------------------------------------------------------
    Long-term debt, end of period                        15,912        7,210
    -------------------------------------------------------------------------

    -------------------------------------------------------------------------
    Cash provided (used) by operating activities          3,830         (796)
    -------------------------------------------------------------------------
    Net change in non-cash working capital items            (63)       4,183
    -------------------------------------------------------------------------
    Maintenance capital expenditures                       (430)        (133)
    -------------------------------------------------------------------------
    Distributable cash(1)                                 3,337        3,254
    -------------------------------------------------------------------------
    Distributions declared                                1,926        1,926
    -------------------------------------------------------------------------
    Payout ratio(1)                                        57.7%        59.2%
    -------------------------------------------------------------------------

    (1) Non-GAAP Measures:

        In order to provide a better understanding of the results, K-Bro uses
        the terms EBITDA, distributable cash and payout ratio. These are not
        earnings or cashflow measures recognized by GAAP and have no
        standardized meaning prescribed by GAAP. Therefore, EBITDA,
        distributable cash and payout ratio may not be comparable to similar
        measures presented by other issuers. EBITDA is defined by management
        as revenue less operating expenses which represents income from
        operations before amortization. Distributable cash 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 a non-GAAP measure generally used by
        Canadian income trusts 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 GAAP. This measure
        is commonly used by investors, management and other stakeholders to
        evaluate the ongoing performance of K-Bro. K-Bro reports on its
        payout ratio (actual cash distribution divided by distributable cash)
        because this is a key measure used by investors to value K-Bro,
        assess its performance and provide an indication of the
        sustainability of distributions. The payout ratio depends on the
        distributable cash and the Fund's distribution policy.
    

The revenue increase in the first quarter of 2010 was primarily the result of the acquisition of the second plant in Vancouver on January 29, 2010.

EBITDA increased by $0.4 million for the quarter compared to 2009 as a result of the increased revenue and lower labour costs.

Cash provided by operating activities in the first quarter of 2010 was $3.8 million compared to cash used by operating activities of $0.8 million in the first quarter of 2009. This is as a result of the $0.4 million of increased EBITDA augmented by a decrease in working capital requirement of $4.2 million due to the timing of various receipts and disbursements.

Outlook

"We're pleased with the acquisition completed in January, 2010 which we believe will assist with revenue and EBITDA growth in 2010. Although our revenues were otherwise flat, our major costs are under control and this contributed to our increased earnings in Q1" said Linda McCurdy, President and Chief Executive Officer. "With the majority of our business based on healthcare contracts and the continuance of a low payout ratio, a strong balance sheet, low debt levels and effective control over our cost profile, we are cautiously optimistic about the remainder of 2010. However, we remain acutely aware of the pressures caused by a still recovering economy and provincial deficits but also believe that additional growth opportunities exist even under these circumstances."

Further information can be found in the disclosure documents filed by K-Bro Linen Income Fund with the securities regulatory authorities, available at www.sedar.com.

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 has seven processing plants in six Canadian cities: Toronto, Edmonton, Calgary, Vancouver, Victoria and Quebec City.

Financial Results

Figures expressed in percentages are calculated from actual unrounded amounts.

Notice to Readers

This news release contains forward-looking information within the meaning of applicable securities laws. 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 press release. These risks and uncertainties include, among other things, (i) K-Bro's competitive environment; (ii) utility costs; (iii) K-Bro's dependence on long-term contracts with the attendant renewal risk, (iv) increased capital expenditure requirements; (v) reliance on key personnel; and (vi) 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 contribution from the newly acquired Vancouver plant; (iv) expected impact of labour cost initiatives; 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, K-Bro does not undertake any obligation to publicly revise these forward-looking statements to reflect subsequent events or circumstances.

%SEDAR: 00021539E

For further information: Linda McCurdy, President & CEO, K-Bro Linen Income Fund, Phone: [phone]; Doug Thomson, FCA, Vice-President & CFO, K-Bro Linen Income Fund, Phone: [phone]