K-Bro Reports Q1 2017 Results In Line with Expectations and Transitions into its New Toronto Facility

(TSX: KBL)

Q1, 2017 Financial Highlights

• Revenue for the three months ended March 31, 2017 was $39.0 million, an increase of 0.4% over the comparable 2016 period.
  
  
• As anticipated, EBITDA for the first quarter decreased by $2.0 million or 29.7% to $4.8 million compared to $6.8 million in Q1, 2016.
  
  
• EBITDA margin decreased on a quarter over quarter basis to 12.2% in Q1, 2017 compared to 17.5% in Q1, 2016. 
  
  
• EBITDA and EBITDA margins were impacted primarily by one-time and transition costs related to the transition to the Corporation's new Toronto facility. Management estimates these one-time costs to be $2.3 million for the quarter.
  
  
• Net earnings after taxes for the first quarter decreased by $1.2 million to $1.3 million compared to $2.5 million in Q1, 2016.
  
  
• The decrease in net earnings is primarily due to the flow through items in EBITDA discussed above and, higher depreciation of property, plant and equipment, offset by a lower income tax expense.
• Management views 2017 and 2018 as investment years as we construct and/or upgrade three large facilities to enable us to bid on significant amount of additional business, but also will create margin pressure through 2017 and 2018 as the company incurs one-time and transition costs associated with these large investments. While the margin pressure may vary by quarter through 2017 and 2018, management believes that the one-time and transition costs incurred in 2017 and 2018 will position the company to achieve more growth and a lower cost structure into the future and that the company will return to normalized margins as it enters 2019.

(thousands, except per share amounts	For the three months ended March 31,
and percentages)	2017		2016		$ Change	% Change
Revenue	$	38,958	$	38,812	146	0.4%
Operating expenses	34,194		32,036		2,158	6.7%
EBITDA	4,764		6,776		(2,012)	-29.7%
EBITDA as a % of revenue	12.2%		17.5%		-	-5.3%
Earnings before income taxes	1,770		3,646		(1,876)	-51.5%
Income tax expense	520		1,114		(594)	-53.3%
Net earnings	1,250		2,532		(1,282)	-50.6%
Basic earnings per Share	$	0.16	$	0.32	(0.16)	-50.0%
Diluted earnings per Share	$	0.16	$	0.32	(0.16)	-50.0%
Dividends declared per diluted share	$	0.30	$	0.30	-	0.0%
Total assets	180,583		146,816		33,767	23.0%
Long-term debt, end of period	32,363		5,970		26,393	442.1%
Cash provided by operating activities	6,300		6,726		(426)	-6.3%
Net change in non-cash working capital items	1,214		665		549	82.6%
Share-based compensation expense	405		483		(78)	-16.1%
Maintenance capital expenditures	179		293		(114)	-38.9%
Distributable cash flow	4,502		5,285		(783)	-14.8%
Dividends declared	2,407		2,396		11	0.5%
Payout ratio	53.5%		45.3%		-	8.2%
^(1) Refer to the Terminology section for further details

EDMONTON, May 12, 2017 /CNW/ - K-Bro Linen Inc. ("K-Bro" or the "Corporation") today announced revenue of $39.0 million and EBITDA of $4.8 million for the three-months ended March 31, 2017.  Net earnings after tax were $1.3 million, diluted earnings of  $0.16 per share, and distributable cash of $0.563 per diluted common share for the quarter.

In the first quarter of 2017, revenue increased by 0.4% to $39.0 million from $38.8 million in the comparative period. This increase was due to the additional awarded healthcare volume from the recently signed Vancouver lower mainland contract, organic growth at existing customers, and new customers secured in existing markets, offset by price concessions in Vancouver as a result of contractual terms related to a new ten year contract.  EBITDA decreased to $4.8 million for the three months ended March 31, 2017, compared to $6.8 million in the comparative period of 2016.  Increases in revenue were offset by transition costs related to the transition to our new Toronto facility, significant overtime costs in relation to the temporary operations of both plants, significant training costs related to new staff, support costs to facilitate staff in the move to the new plant, costs incurred to vacate our old facility and costs related to mitigating the effect related to the lock-out of the unionized delivery drivers in Toronto during the quarter. In addition, the company incurred significant overtime and one-time costs to support new business, strong volumes and temporary capacity constraints in certain of our markets. Management estimates these costs to be $2.3 million for the quarter.

DIVIDEND

The Board of Directors has declared a monthly dividend of $0.10 per common share for the period from May 1 to May 31, 2017, to be paid on June 15, 2017 to shareholders of record on May 31, 2017.  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 excited with the significant milestone in the successful transition to our new Toronto facility." said Linda McCurdy, President & Chief Executive Officer.  "We look forward to 2017, especially in light of securing two new Toronto healthcare contracts starting in 2017, one which will be commencing shortly in the current quarter in our new state-of-the-art facility. We continue to make progress in the planning and design of our new Vancouver facility with a targeted completion date of 2018.  We view 2017 and 2018 as investment years that will impact our margins but once complete will enable us to realize additional efficiencies, increase capacity and increase market share. We remain excited about our growth plans and are 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 March 31,
(thousands)		2017		2016
Net earnings		$	1,250	$	2,532
Add:
	Income tax expense	520		1,114
	Depreciation of property, plant and equipment	2,381		2,231
	Amortization of intangible assets	428		506
	Finance expense	185		393
EBITDA		$	4,764	$	6,776

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 March 31,
(thousands)		2017		2016
Cash provided by operating activities		$	6,300	$	6,726
Deduct (add):
	Net changes in non-cash working capital items	1,214		665
	Share-based compensation expense	405		483
	Maintenance capital expenditures	179		293
Distributable cash flow		$	4,502	$	5,285

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 March 31,
(thousands)		2017	2016
	Cash dividends	2,407	2,396
	Distributable cash flow	4,502	5,285
Payout ratio		53.5%	45.3%

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.

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

Related Links

http://www.k-brolinen.com