K-Bro Reports Strong Q2, Results with Record Revenue and EBITDA

(TSX: KBL)

Q2, 2016 Financial Highlights

• Revenue for the three months ended June 30, 2016 was $39.5 million, an increase of 11.7% over the comparable 2015 period.
  
  
• EBITDA for the second quarter increased by $0.4 million or 6.1% to $7.5 million compared to $7.1 million in Q2, 2015.
  
  
• EBITDA margin decreased on a quarter over quarter basis to 19.0% in Q2, 2016 compared to 20.1% in Q2, 2015.
  
  
• Net earnings after taxes for the second quarter increased by $0.3 million to $3.4 million compared to $3.0 million in Q2, 2015.

(thousands, except per share amounts	For the three months ended June 30,
and percentages)	2016		2015		$ Change	% Change
Revenue	$	39,469	$	35,337	4,132	11.7%
Operating expenses		31,954		28,251	3,703	13.1%
EBITDA^(1)		7,515		7,086	429	6.1%
EBITDA^(1)as a % of revenue		19.0%		20.1%	-	-1.1%
Earnings before income taxes		4,712		4,676	36	0.8%
Income tax expense		1,328		1,637	(309)	-18.9%
Net earnings		3,384		3,039	345	11.4%
Basic earnings per Share	$	0.43	$	0.38	0.05	13.2%
Diluted earnings per Share	$	0.42	$	0.38	0.04	10.5%
Dividends declared per diluted share	$	0.30	$	0.30	-	0.0%
Total assets		148,068		135,516	12,552	9.3%
Long-term debt, end of period		7,252		-	7,252	100.0%
Cash provided by operating activities		4,143		3,773	370	9.8%
Net change in non-cash working capital items		(2,625)		(2,302)	(323)	14.0%
Share-based compensation expense^(1)		330		334	(4)	-1.2%
Maintenance capital expenditures		1,270		268	1,002	373.9%
Distributable cash flow^(1)		5,168		5,473	(305)	-5.6%
Dividends declared		2,403		2,391	12	0.5%
Payout ratio^(1)		46.5%		43.7%	-	2.8%
^(1)Refer to the Terminology section for further details

(thousands, except per share amounts	For the six months ended June 30,
and percentages)	2016		2015		$ Change	% Change
Revenue	$	78,281	$	69,157	9,124	13.2%
Operating expenses		63,990		55,767	8,223	14.7%
EBITDA^(1)		14,291		13,390	901	6.7%
EBITDA^(1)as a % of revenue		18.3%		19.4%	-	-1.1%
Earnings before income taxes		8,358		8,900	(542)	-6.1%
Income tax expense		2,442		2,842	(400)	-14.1%
Net earnings		5,916		6,058	(142)	-2.3%
Basic earnings per Share	$	0.74	$	0.77	(0.03)	-3.9%
Diluted earnings per Share	$	0.74	$	0.76	(0.02)	-2.6%
Dividends declared per diluted share	$	0.60	$	0.60	-	0.0%
Total assets		148,068		135,516	12,552	9.3%
Long-term debt, end of period		7,252		-	7,252	100.0%
Cash provided by operating activities		10,868		7,987	2,881	36.1%
Net change in non-cash working capital items		(1,960)		(3,741)	1,781	-47.6%
Share-based compensation expense^(1)		813		713	100	14.0%
Maintenance capital expenditures		1,563		633	930	146.9%
Distributable cash flow^(1)		10,452		10,382	70	0.7%
Dividends declared		4,799		4,779	20	0.4%
Payout ratio^(1)		45.9%		46.0%	-	-0.1%
^(1)Refer to the Terminology section for further details.

EDMONTON, Aug. 11, 2016 /CNW/ - K-Bro Linen Inc. ("K-Bro" or the "Corporation") today announced revenue of $39.5 million and EBITDA of $7.5 million for the three-months ended June 30, 2016.  Net earnings after tax were $3.4 million, earnings of  $0.43 per share, and distributable cash of $0.649 per diluted share for the quarter.

In the second quarter of 2016, revenue was $39.5 million which was 11.7% higher than the $35.3 million generated in the comparable period in 2015. This year-over-year increase was mainly due to the addition of the 3sHealth volume, organic growth at existing customers across the plants in addition to new customers secured in existing markets. EBITDA increased from $7.1 million in Q2, 2015 to $7.5 million in Q2, 2016, predominantly as a result of the aforementioned, offset by transitional costs associated with the new Regina plant and 3sHealth volume.

DIVIDEND

The Board of Directors has declared a monthly dividend of $0.10 per common share for the period from August 1 to 31, 2016, to be paid on September 15, 2016 to shareholders of record on August 31, 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 results for the quarter which is being driven by higher revenues, predominantly as a result of new customers secured in existing markets and additional volume from 3sHealth." 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 commence the transition into this new facility by the end of the year. 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 further leverage the additional efficiencies, 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 June 30,					Six Months Ended June 30,
(thousands)			2016		2015			2016		2015
Net earnings			$	3,384	$	3,039		$	5,916	$	6,058
Add:
	Income tax expense			1,328		1,637			2,442		2,842
	Depreciation of property, plant and equipment			2,246		1,713			4,477		3,401
	Amortization of intangible assets			428		506			934		996
	Finance expense			110		177			503		79
	Loss on disposal of property, plant and equipment			19		14			19		14
EBITDA			$	7,515	$	7,086		$	14,291	$	13,390

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 June 30,					Six Months Ended June 30,
(thousands)			2016		2015			2016		2015
Cash provided by operating activities			$	4,143	$	3,773		$	10,868	$	7,987
Deduct (add):
	Net changes in non-cash working capital items			(2,625)		(2,302)			(1,960)		(3,741)
	Share-based compensation expense			330		334			813		713
	Maintenance capital expenditures			1,270		268			1,563		633
Distributable cash flow			$	5,168	$	5,473		$	10,452	$	10,382

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 June 30,			Six Months Ended June 30,
(thousands)			2016	2015		2016	2015
	Cash dividends		2,403	2,391		4,799	4,779
	Distributable cash		5,168	5,473		10,452	10,382
Payout ratio			46.5%	43.7%		45.9%	46.0%

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; (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