K-Bro Reports Record Q3 2017 Results with Continued Efficiencies in New Toronto Plant
(TSX: KBL)
Q3, 2017 Financial Highlights
- Revenue for the three months ended September 30, 2017 was $43.6 million, an increase of 4.9% over the comparable 2016 period.
- EBITDA for the third quarter increased by $0.6 million or 7.6% to $8.1 million compared to $7.5 million in Q3, 2016.
- EBITDA margin increased on a quarter over quarter basis to 18.6% in Q3, 2017 compared to 18.1% in Q3, 2016.
- For the quarter, the improved EBITDA and margin was primarily associated with the relocation of our new Toronto facility, and the efficiencies gained from moving into the new Toronto facility. Although significant progress has been made from previous quarters, management estimates one-time and transition costs incurred in Q3, 2017 to be approximately $0.5 million. After adjusting for the one-time costs EBITDA would have been $8.6 million and EBITDA margin would have been 19.7%.
- Net earnings after taxes for the third quarter remained consistent at $3.4 million compared to $3.4 million in Q3, 2016.
| (thousands, except per share amounts |
For the three months ended September 30, |
|||||
| and percentages) |
2017 |
2016 |
$ Change |
% Change |
||
| Revenue |
$ |
43,598 |
$ |
41,557 |
2,041 |
4.9% |
| Operating expenses |
35,487 |
34,019 |
1,468 |
4.3% |
||
| EBITDA |
8,111 |
7,538 |
573 |
7.6% |
||
| EBITDA as a % of revenue |
18.6% |
18.1% |
- |
0.5% |
||
| Earnings before income taxes |
4,797 |
4,801 |
(4) |
-0.1% |
||
| Income tax expense |
1,379 |
1,387 |
(8) |
-0.6% |
||
| Net earnings |
3,418 |
3,414 |
4 |
0.1% |
||
| Basic earnings per Share |
$ |
0.36 |
$ |
0.43 |
(0.07) |
-16.3% |
| Diluted earnings per Share |
$ |
0.36 |
$ |
0.43 |
(0.07) |
-16.3% |
| Dividends declared per diluted share |
$ |
0.30 |
$ |
0.30 |
- |
0.0% |
| Total assets |
199,452 |
153,923 |
45,529 |
29.6% |
||
| Long-term debt, end of period |
- |
10,338 |
(10,338) |
-100.0% |
||
| - |
||||||
| Cash provided by operating activities |
3,788 |
7,581 |
(3,793) |
-50.0% |
||
| Net change in non-cash working capital items |
(3,917) |
1,102 |
(5,019) |
-455.4% |
||
| Share-based compensation expense |
276 |
337 |
(61) |
-18.1% |
||
| Maintenance capital expenditures |
192 |
289 |
(97) |
-33.6% |
||
| Distributable cash flow |
7,237 |
5,853 |
1,384 |
23.6% |
||
| Dividends declared |
2,875 |
2,407 |
468 |
19.4% |
||
| Payout ratio |
39.7% |
41.1% |
- |
-1.4% |
||
| (1) Refer to the Terminology section for further details |
||||||
| (thousands, except per share amounts |
For the nine months ended September 30, |
|||||
| and percentages) |
2017 |
2016 |
$ Change |
% Change |
||
| Revenue |
$ |
123,050 |
$ |
119,838 |
3,212 |
2.7% |
| Operating expenses |
103,482 |
98,009 |
5,473 |
5.6% |
||
| EBITDA |
19,568 |
21,829 |
(2,261) |
-10.4% |
||
| EBITDA as a % of revenue |
15.9% |
18.2% |
- |
-2.3% |
||
| Earnings before income taxes |
9,917 |
13,159 |
(3,242) |
-24.6% |
||
| Income tax expense |
2,912 |
3,829 |
(917) |
-23.9% |
||
| Net earnings |
7,005 |
9,330 |
(2,325) |
-24.9% |
||
| Basic earnings per Share |
$ |
0.79 |
$ |
1.17 |
(0.38) |
-32.5% |
| Diluted earnings per Share |
$ |
0.79 |
$ |
1.17 |
(0.38) |
-32.5% |
| Dividends declared per diluted share |
$ |
0.90 |
$ |
0.90 |
- |
0.0% |
| Total assets |
199,452 |
153,923 |
45,529 |
29.6% |
||
| Long-term debt, end of period |
- |
10,338 |
(10,338) |
-100.0% |
||
| - |
||||||
| Cash provided by operating activities |
12,385 |
18,449 |
(6,064) |
-32.9% |
||
| Net change in non-cash working capital items |
(6,864) |
(858) |
(6,006) |
700.0% |
||
| Share-based compensation expense |
1,175 |
1,150 |
25 |
2.2% |
||
| Maintenance capital expenditures |
798 |
1,851 |
(1,053) |
-56.9% |
||
| Distributable cash flow |
17,276 |
16,306 |
970 |
5.9% |
||
| Dividends declared |
8,153 |
7,206 |
947 |
13.1% |
||
| Payout ratio |
47.2% |
44.2% |
- |
3.0% |
||
| (1) Refer to the Terminology section for further details |
||||||
EDMONTON, Nov. 9, 2017 /CNW/ - K-Bro Linen Inc. ("K-Bro" or the "Corporation") today announced revenue of $43.6 million and EBITDA of $8.1 million for the three-months ended September 30, 2017. Net earnings after tax were $3.4 million, diluted earnings of $0.36 per share, and distributable cash of $0.758 per diluted common share for the quarter.
In the third quarter of 2017, revenue increased by 4.9% to $43.6 million from $41.6 million in the comparative period. This increase was due to the additional awarded healthcare volume from the Vancouver lower mainland contract, William Osler Health System volume, Trillium Health Partners volume, organic growth at existing customers, and new customers secured in existing markets. EBITDA increased to $8.1 million for the three months ended September 30, 2017, compared to $7.5 million in the comparative period of 2016. The change in EBITDA was primarily associated with increase in revenue, the relocation of our new Toronto facility, and the efficiencies gained as a result of the capital expenditures made in Toronto. Although significant progress has been made from previous quarters, management still estimates one-time and transition costs incurred in Q3, 2017 to be approximately $0.5 million and on year-to-date basis to be approximately $4.1 million.
DIVIDEND
The Board of Directors has declared a monthly dividend of $0.10 per common share for the period from November 1 to November 30, 2017, to be paid on December 15, 2017 to shareholders of record on November 30, 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
"The increased efficiencies from the new Toronto plant are progressing as expected and we are excited about the new opportunities that will be available as we leverage this new state-of-art facility." said Linda McCurdy, President & Chief Executive Officer. "During the beginning of the fourth quarter we have successfully completed the transition of our second new Toronto healthcare contract of 2017. 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 transition 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").
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 finance expense, 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 |
Nine Months Ended |
|||||||||
| (thousands) |
2017 |
2016 |
2017 |
2016 |
||||||
| Net earnings |
$ |
3,418 |
$ |
3,414 |
$ |
7,005 |
$ |
9,330 |
||
| Add: |
||||||||||
| Income tax expense |
1,379 |
1,387 |
2,912 |
3,829 |
||||||
| Depreciation of property, plant and equipment |
2,840 |
2,320 |
8,063 |
6,797 |
||||||
| Amortization of intangible assets |
373 |
428 |
1,205 |
1,362 |
||||||
| Finance expense (recovery) |
101 |
(11) |
347 |
492 |
||||||
| Loss on disposal of property, plant and equipment |
- |
- |
36 |
19 |
||||||
| EBITDA |
$ |
8,111 |
$ |
7,538 |
$ |
19,568 |
$ |
21,829 |
||
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 |
Nine Months Ended |
|||||||||
| (thousands) |
2017 |
2016 |
2017 |
2016 |
||||||
| Cash provided by operating activities |
$ |
3,788 |
$ |
7,581 |
$ |
12,385 |
$ |
18,449 |
||
| Deduct (add): |
||||||||||
| Net changes in non-cash working capital items |
(3,917) |
1,102 |
(6,864) |
(858) |
||||||
| Share-based compensation expense |
276 |
337 |
1,175 |
1,150 |
||||||
| Maintenance capital expenditures |
192 |
289 |
798 |
1,851 |
||||||
| Distributable cash flow |
$ |
7,237 |
$ |
5,853 |
$ |
17,276 |
$ |
16,306 |
||
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 |
Nine Months Ended |
|||||
| (thousands) |
2017 |
2016 |
2017 |
2016 |
||
| Cash dividends |
2,875 |
2,407 |
8,153 |
7,206 |
||
| Distributable cash flow |
7,237 |
5,853 |
17,276 |
16,306 |
||
| Payout ratio |
39.7% |
41.1% |
47.2% |
44.2% |
||
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 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 costs, minimum wage legislation 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; (vii) changing trends in government outsourcing; (viii) changes or proposed changes to minimum wage laws in Ontario, British Columbia and Alberta, which could have an adverse effect on expenses in respect of employees situated in those provinces. While a portion of such expenses may be passed on to or be recoverable from customers, there can be no assurances that that will occur and (ix) 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) expected impact of labour cost initiatives; and (iii) frequency of one-time costs impacting quarterly and annual financial results; 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. Forward looking information included in this news release includes the expected annual healthcare revenues to be generated from the Corporation's contracts with the William Osler Health System and Trillium Health Partners and other new customers, the anticipated capital costs for the Toronto and Vancouver facilities, calculation of one-time costs impacting the quarterly financial results, and statements with respect to future expectations on margins and volume growth.
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: 780.453.5218, Email: [email protected], Web: www.k-brolinen.com
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