Ms. Linda McCurdy reports

K-BRO ANNOUNCES 2016 ANNUAL RESULTS AND POSITIONS THE COMPANY FOR GROWTH

K-Bro Linen Inc. has released its 2016 annual results.

2016 annual financial results:

• Revenue for the three and 12 months ended Dec. 31, 2016, was $39.3-million and $159.1-million, respectively, increases of 4.2 per cent and 10.1 per cent over the comparable 2015 periods.
• EBITDA (earnings before interest, income taxes, depreciation and amortization) increased to $6.4-million for fourth quarter 2016 compared with $6.2-million in fourth quarter 2015. On an annual basis, 2016 EBITDA increased by $1.1-million to $28.2-million compared with the 2015 fiscal year.
• EBITDA margin decreased in the fourth quarter to 16.3 per cent from 16.4 per cent in the comparative period of 2015. For the year, the EBITDA margin decreased from 18.8 per cent in 2015 to 17.7 per cent in 2016.
• K-Bro declared dividends of $1.20 per common share, and distributable cash was $2.76 per common share on a diluted basis.
• Net earnings after taxes decreased by $500,000 to $11.5-million from fiscal 2015.

Highlights and significant items for fiscal 2016

K-Bro delivered strong financial results in 2016 driven by the operating results from all nine of its processing plants and two distribution centres. Revenue increased in fiscal 2016 to $159.1-million or by 10.1 per cent compared with 2015. This increase was due to additional volume from the 3sHealth region associated with the commissioning of the new facility in Regina, additional awarded health care 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 10-year contract.

EBITDA increased in the year to $28.2-million from $27.1-million in 2015, which is an increase of 4.0 per cent. The EBITDA margin decreased from 18.8 per cent in 2015 compared with 17.7 per cent in 2016. The change in EBITDA and margin was predominantly impacted by one-time and transition costs associated with the relocation of the company's new Toronto facility, one-time and transition costs needed to support new business, and resulting temporary capacity constraints in Toronto and Vancouver. Management estimates these one-time and transition costs incurred primarily in third quarter and fourth quarter to be approximately $900,000.

Near-term and long-term growth and margin impact

Management has embarked on a strategy in its Toronto and Vancouver markets that it believes will position the company for accelerated growth in its health care and hospitality businesses. The strategy includes capital investments to build large efficient state-of-the-art facilities with meaningful additional capacity in Toronto and Vancouver. K-Bro plans to finance the new Toronto and Vancouver facilities with the company's existing $85-million line of credit. However, management intends to continually assess its opportunities to maintain a conservative amount of leverage and balance sheet flexibility in the short- and long-term basis to ensure that sufficient capital is available for future growth needs. In addition, the company will invest to upgrade one of its Vancouver plants to create a more efficient facility with meaningful additional capacity.

These investments are being made because management believes that new opportunities, both current and future, justify the significant additional capacity. The company has already signed new accounts with combined annual revenue of $12.8-million in its Toronto and Vancouver markets during the past year.

The construction and/or upgrade of three large facilities enable the company to bid on a 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 closer to those achieved in 2015 as it enters 2019.

Toronto contract awards

During the first quarter, the corporation was awarded a five-year contract to provide laundry and linen services to St. Michael's Hospital. The contract contains two renewal options for an additional two years. The contract extends the existing relationship between the corporation and St. Michael's Hospital and is a result of a competitive RFP process.

K-Bro also announces today that it has been awarded a contract to provide laundry and linen services to Trillium Health Partners. The new contract is for seven years with renewal options for an additional eight years and is a result of a competitive RFP process, and management anticipates an additional $4-million in revenue as a result of this contract.

 
                  FOURTH QUARTER AND ANNUAL RESULTS
        (thousands, except per-share amounts and percentages)
 
                                       For the three months ended Dec. 31,
                                                      2016           2015

Revenue                                           $ 39,251       $ 37,680
Operating expenses                                  32,844         31,507
EBITDA                                               6,407          6,173
EBITDA as a % of revenue                              16.3%          16.4%
Earnings before income taxes                         3,208          2,986
Income tax expense                                   1,011            828
Net earnings                                         2,197          2,158
Basic earnings per share                            $ 0.28         $ 0.27
Diluted earnings per share                          $ 0.27         $ 0.27
Dividends declared per diluted share                $ 0.30         $ 0.30
Dividends declared                                   2,407          2,396
Payout ratio                                          41.7%          52.1%
                                                 ---------      ---------

                                              For the years ended Dec. 31,
                                                      2016           2015

Revenue                                          $ 159,089      $ 144,537
Operating expenses                                 130,853        117,397
EBITDA                                              28,236         27,140
EBITDA as a % of revenue                              17.7%          18.8%
Earnings before income taxes                        16,367         17,261
Income tax expense                                   4,840          5,193
Net earnings                                        11,527         12,068
Basic earnings per share                            $ 1.45         $ 1.52
Diluted earnings per share                          $ 1.44         $ 1.52
Dividends declared per diluted share                $ 1.20         $ 1.20
Dividends declared                                   9,613          9,570
Payout ratio                                          43.5%          44.8%
                                                 ---------      ---------

K-Bro Linen today announced revenue of $159.1-million and EBITDA of $28.2-million for the year ended Dec. 31, 2016. Net earnings after tax were $11.5-million, diluted earnings per common share were $1.44 and distributable cash was $2.76 per diluted common share for the year.

Outlook

"We are pleased with the solid growth during 2016, driven by additional volume from the Vancouver Lower Mainland, 3sHealth contracts and customers secured in existing markets," said Linda McCurdy, president and chief executive officer. "We look forward to 2017, especially in light of securing two new Toronto health care contracts starting in 2017, and the renewal of an existing Toronto health care contract. In terms of our previously announced plant builds, we have nearly completed the successful transition of the volume to our newly constructed state-of-the-art Toronto facility and are confident that we will secure additional business to fill capacity. 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. While the margin pressure may vary by quarter through 2017 and 2018, we believe 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 closer to those achieved in 2015 as it enters 2019. We remain excited about our growth plans and are confident in our ability to continue to provide value to our customers and our shareholders."

K-Bro also has several proposals pending and has entered into discussions with potential new customers. In addition, K-Bro continues to seek potential acquisition candidates. Neither the timing nor the degree of likelihood of success of any of these proposals or acquisitions can be stated with any degree of accuracy.

About K-Bro Linen Inc.

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 health care 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 10 Canadian cities: Quebec City, Montreal, Toronto, Regina, Saskatoon, Prince Albert, Edmonton, Calgary, Vancouver and Victoria.

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