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Edited Transcript of KBL.TO earnings conference call or presentation 8-Nov-19 2:00pm GMT

Q3 2019 K-Bro Linen Inc Earnings Call

EDMONTON Nov 17, 2019 (Thomson StreetEvents) -- Edited Transcript of K-Bro Linen Inc earnings conference call or presentation Friday, November 8, 2019 at 2:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Kristie L. Plaquin

K-Bro Linen Inc. - CFO

* Linda Jane McCurdy

K-Bro Linen Inc. - President, CEO & Director

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Conference Call Participants

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* Elizabeth Johnston

Laurentian Bank Securities, Inc., Research Division - Analyst

* Endri Leno

National Bank Financial, Inc., Research Division - Associate

* Justin Keywood

GMP Securities L.P., Research Division - Director of Equity Research

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Presentation

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Operator [1]

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Ladies and gentlemen, thank you for standing by, and welcome to the K-Bro Linen Systems Inc. third quarter results conference call. (Operator Instructions) Please be advised that today's conference is being recorded. (Operator Instructions)

I would now like to hand the conference over to your speaker today, Kristie Plaquin. Thank you. Please go ahead.

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Kristie L. Plaquin, K-Bro Linen Inc. - CFO [2]

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Thank you, operator, and good morning, everyone. Thank you for joining us today, and welcome to our third quarter 2019 conference call. On the line with me today is Linda McCurdy, President and Chief Executive Officer.

I would like to remind everyone that statements made during our prepared remarks or in the Q&A portion of the call with reference to management's expectations to our predictions of the future are forward-looking statements. All statements made today, which are not statements of historical fact, are considered to be forward-looking statements. Certain material factors or assumptions were applied in drawing a conclusion or making a forecast or projection as reflected in the forward-looking information. The business prospects of K-Bro Linen Inc. are subject to a number of risks and uncertainties that may cause actual results to differ materially from a conclusion, forecast or projection in the forward-looking information. Actual results could differ materially from those anticipated. Risk factors that could affect the results are detailed in the corporation's public filings.

Please note that K-Bro is under no obligation to update any forward-looking information discussed today. Investors are also cautioned not to place undue reliance on these statements. For more information about these risks, uncertainties and assumptions, please refer to our annual information form and our MD&A, which are available on SEDAR.

I'll now turn the call over to our CEO, Linda McCurdy, who will provide her insights and remarks on the quarter. Linda?

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Linda Jane McCurdy, K-Bro Linen Inc. - President, CEO & Director [3]

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Thank you, Kristie, and good morning to everyone. Thank you very much for joining us today. The third quarter continues on track with strong results, with continued growth and improved operating performance. Overall, we grew revenue by 6% over the same period last year, benefiting from the Linitek acquisition, which closed in October 2018 from organic growth in both of our U.K. and Canadian operations as well, and we've made substantial progress in our return to normalized EBITDA for our Canadian operations.

Before the adoption of IFRS 16, which Kristie will provide further details on shortly, EBITDA increased in the third quarter of 2019 to $12.3 million from $8.3 million for the same period last year, and respectively, EBITDA margin increased to 18.1% from 13%, again, before IFRS 16 despite further increases in our cost structure as a result of significant increases in minimum wage in B.C. With the completion of our Vancouver transition, we have exited our major investment cycle and remained focused on refining and improving operational efficiencies.

During the quarter, we saw EBITDA growth in Canada before the adoption of IFRS 16 of $3.8 million or 74.5%, and we saw margin improvement of 7.1%. As a result of organic growth from new and existing customers in the hospitality space, the relative proportion of hospitality to health care revenue as a percent of total revenue for the quarter continues to evolve. Our consolidated hospitality segment revenue for the third quarter represented 48.9% of overall revenue compared to 47.8% for the same period last year.

We were able to grow hospitality revenue over the same quarter last year by 8.1% in Canada and by 8.5% in the U.K., with consolidated growth of 8.3%. Volumes in hospitality have ramped up in line with seasonal expectations throughout the third quarter, with expectations that seasonal volumes will begin to recede in Q4 and in Q1 -- and into Q1.

Our health care segment has also experienced growth. We've grown revenue by 4% over the same quarter last year, which has been primarily from organic growth and contractual rate increases.

I'll now turn the call over to Kristie to discuss our financial results for the quarter. After which I'll return to talk about the remainder of the year and then open it up for questions. Kristie?

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Kristie L. Plaquin, K-Bro Linen Inc. - CFO [4]

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Thank you, Linda. The information we are discussing today is also highlighted in our third quarter and 2019 earnings press release that was issued yesterday and detailed supplemental financial information can be found under our Investor Relations website under the heading Financial Documents.

Consolidated revenue for the third quarter increased by 6% compared to the third quarter last year and 5.2% on a year-to-date basis. The hospitality segment contributed $33.1 million; and health care, $34.7 million; and respectively, on a year-to-date basis, $86 million and $103.5 million.

For the third quarter, Fishers contributed $18.4 million towards the consolidated revenue of $67.8 million; and on a year-to-date basis, $48.9 million of the consolidated revenue of $189.5 million. The distribution of revenue generated from hospitality compared to health care for the third quarter was 48.9% to 51.1% compared to last year, which is an increase in hospitality revenue compared to the same quarter last year of approximately 8.3%. The adoption of IFRS 16 continues to have an impact on EBITDA. And while we have adopted the new accounting standard retroactive to January 1 of this year, we have not restated the comparative periods for 2018. However, we continue to provide a reconciliation of actual and year-to-date financial results compared to what would have occurred had we not adopted the new policy in the MD&A.

EBITDA for the third quarter before the adoption of IFRS 16 was $12.3 million compared to $8.3 million for the same period last year, an increase of 47.8%; and on a year-to-date basis was $29.6 million compared to $23 million in 2018, an increase of 28.8%. We saw substantial gains in Canada from operating efficiencies gained on a quarter-over-quarter basis as a result of capital investments made in 2018. The remainder of the increase in EBITDA is due to the flow-through of revenue growth as well as higher commodity costs in the U.K., higher costs in British Columbia as a result of temporary natural gas supply shortages during the first quarter, rising minimum wage rates in advance of future revenue price escalators and tight labor markets in B.C. and Québec.

Consolidated EBITDA margin once again before the adoption of IFRS 16 increased for the third quarter compared to the same period last year from 13% to 18.1%, and on a year-to-date basis from 12.8% to 15.6%. Our Canadian EBITDA margin for the third quarter before the adoption of IFRS 16 was 18% compared to 10.9% for the same period last year, and Fishers was 18.3% compared to 18.6% in the prior year. The same figures, respectively, on a year-to-date basis for our Canadian division was 16.2% compared to 12.3% in 2018 and Fishers was 13.9% compared to 14.2% in 2018.

Net earnings in the third quarter of 2019 increased by $2.8 million to $4.7 million compared to $1.9 million in the same comparative period of 2018, and as a percentage of revenue increased by 4% to 6.9%.

On a year-to-date basis, net earnings increased by $3.6 million to $8.7 million compared to $5.1 million in the same comparative period of 2018, and as a percentage of revenue increased by 1.8% to 4.6%. The change in net earnings is primarily related to the flow-through of EBITDA discussed previously, offset by higher depreciation and finance costs due to the adoption of IFRS 16 leases of $7.2 million; higher depreciation associated with new plant builds; the acquisition of Linitek; and higher finance costs related to the revolving credit facility. Wages and benefits in the third quarter of 2019 decreased by $0.6 million to $26.6 million compared to $27.2 million in the same comparative period of 2018, and as a percentage of revenue decreased by 3.3% to 39.2%.

On a year-to-date basis, wages and benefits decreased by $0.4 million to $74.9 million compared to $75.3 million in the same comparative period of 2018, and as a percentage of revenue decreased by 2.3% to 39.5%.

The decrease as a percentage of revenue is primarily related to the elimination of onetime costs related to the Vancouver transition when compared to 2018, improved labor efficiencies and offset by wages and benefits related to incremental labor required to process higher volumes, escalating minimum wage rates and tight labor markets.

Linen in the third quarter of 2019 increased by $0.4 million to $7.1 million compared to $6.7 million in the same comparative period of 2018, and as a percentage of revenue remained constant at 10.5%. On a year-to-date basis, linen increased by $0.5 million to $20.5 million compared to $20 million in the same comparative period of 2018. And as a percentage of revenue decreased by 0.3% to 10.8%. The decrease as a percentage of revenue is primarily related to hospitality revenue in the quarter if it doesn't require linen replacement.

Utilities in the third quarter of 2019 increased by $0.2 million to $4.1 million compared to $3.9 million in the same comparative period of 2018, and as a percentage of revenue increased by 0.1% to 6.1%. On a year-to-date basis, utilities increased by $1.6 million to $12.5 million compared to $10.9 million in the same comparative period of 2018, and as a percentage of revenue increased by 0.6% to 6.6%. The increase as a percentage of revenue is primarily related to higher commodity costs in the U.K. related to the timing of contracts and market conditions; higher utility costs in British Columbia as a result of a temporary natural gas supply outage during the first quarter; and incremental volume processed, offset by improved efficiencies in the new Vancouver facilities.

Delivery in the third quarter of 2019 decreased by $0.9 million to $7.1 million compared to $8 million in the same comparative period of 2018, and as a percentage of revenue decreased by 2% to 10.5%.

On a year-to-date basis, delivery decreased by $1.5 million to $21.3 million compared to $22.8 million in the same comparative period of 2018, and as a percentage of revenue decreased by 1.5% to 11.2%. The decrease as a percentage of revenue is primarily related to the adoption of IFRS 16 leases, which accounts for 1.4% and a decrease to delivery costs of $2.7 million. Diminishing onetime costs related to the Vancouver transitions are offset by increased business activity, price increases from renewals of outsourced freight contracts and higher cost of diesel and external freight charges that are impacted by the price of diesel.

Occupancy costs in the third quarter decreased by $1.6 million to $1.1 million compared to $2.7 million in the same period of 2018, and as a percentage of revenue decreased by 2.6% to 1.6%. On a year-to-date basis, occupancy costs decreased by $4.2 million to $3.3 million compared to $7.5 million in the same comparative period of 2018, and as a percentage of revenue decreased by 2.4% to 1.7%. The decrease as a percentage of revenue is primarily related to the adoption of IFRS 16 leases, which accounts for 2.2% and a decrease to occupancy costs of $4.2 million, and onetime Vancouver transition costs partially offset by costs associated with the acquisition of Linitek.

Materials and supplies in the third quarter of 2019 decreased by $0.1 million to $2.3 million compared to $2.4 million in the same comparative period of 2018, and as a percentage of revenue decreased by 0.4% to 3.4%. On a year-to-date basis, materials and supplies decreased by $0.4 million to $6 million compared to $6.4 million in the same comparative period of 2018, and as a percentage of revenue decreased by 0.4% to 3.2%. The decrease as a percentage of revenue is primarily related to costs related to the transition of our Vancouver facilities.

Repairs and maintenance in the third quarter of 2019 increased by $0.1 million to $2.2 million compared to $2.1 million in the same comparative period of 2018, and as a percentage of revenue decreased by 0.1% to 3.3%.

On a year-to-date basis, repairs and maintenance increased by $0.2 million to $6.5 million compared to $6.3 million in the same period of 2018, and as a percentage of revenue decreased by 0.1% to 3.4%. The decrease as a percentage of revenue is primarily related to onetime Vancouver transition costs, offset by the timing of maintenance activities and nonrecurring costs related to laundry accreditation and health and safety initiatives. Corporate costs to the third quarter of 2019 and year-to-date remained fairly consistent.

Now looking at our capital resources, distributable cash flow for the third quarter of 2019 was $8.8 million, and our payout ratio was 36.3%, and on a year-to-date basis was $22.6 million and 42.2%. In addition, the company paid out $0.3 per share in dividends during the quarter for a total consideration of $3.2 million. Year-to-date, the company has paid out $0.9 per share in dividends for total consideration of $9.5 million.

Debt to total capitalization for the 9 months ended September 30, 2019 was 25.9%, a decrease from 26.4% at December 31, 2018, reflecting the impact of the Vancouver facility. The corporation had net working capital of $30.2 million at September 30, 2019 compared to its working capital position of $34.8 million at December 31, 2018. The decrease in working capital is primarily attributable to the adoption of IFRS 16 leases and timing differences related to the cash settlement of new plant equipment and income tax payments, deposits related to the acquisition of equipment and cash receipts from customers.

At September 30, 2019, total assets increased to $353 million compared to $322.2 million at December 31, 2018, and total liabilities increased to $159.8 million from $123.6 million. Shareholders' equity decreased slightly at September 30, 2019 from December 31, 2018 to $193.2 million from $198.7 million.

I'll now turn things back over to Linda for her concluding remarks.

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Linda Jane McCurdy, K-Bro Linen Inc. - President, CEO & Director [5]

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Thank you, Kristie. Capital costs over the past few years have been significant. What we have as the result is a highly efficient network with capacity to profitably grow our business for the long term. As Kristie touched on in her remarks, now that we've completed this last major investment cycle that saw us commit $200 million towards strategic new builds, acquisitions and upgrades across our network, the focus remains on continued improvement to our margin and increasing our market share.

We are pleased with the progress we made in the quarter with a year-over-year improvement in EBITDA margin of 7.1%, and adjusting for onetime costs, we saw an improvement of 1.4%. This progress has been made despite the fact that we faced headwinds with regards to cost increases in areas such as minimum wage, distribution costs and the impact of tight labor markets. With the completion of the transition into the Vancouver facilities, making the end -- marking the end of our significant investment cycle, capital expenditures on a go-forward basis will decrease significantly, and we've targeted CapEx of approximately $5 million for 2020. As we free up cash flow through a significantly reduced capital spending program, we've increased our ability to self-fund our growth and continue to evaluate various growth opportunities. Our presence in the U.K. with Fishers has provided a good footprint to continue to grow in that geographic area. While new markets in Canada and the U.K. remain a target, we also look to our existing markets for consolidation opportunities similar to the acquisition of Linitek.

Consistent with this strategy, and as noted in our press release and MD&A, in July, we entered into a share purchase agreement in the U.K. to purchase the assets of a small competitor that we have tucked into our existing operations in the U.K.

The acquisition closed on September 13, 2019 for total consideration of GBP 775,000 or CAD 1.3 million. These assets include customer contracts that represent annual revenue in the amount of GBP 1 million or CAD 1.6 million, respectively. This acquisition is a great example of our strategy to grow market share in key regions and to focus on growth opportunities that leverage our existing network of laundry facilities and that are immediately accretive to earnings. I believe the acquisition adds significant and immediate value to shareholders by strengthening our competitive position and growing market share in a new region, where we currently provide limited service.

We continue to evaluate other tuck-in acquisitions in both the U.K. and Canada as we execute on our strategy to grow our market share. Well, our acquisition strategy remains a priority using free cash flow to pay down debt to fund our growth opportunities continues to remain key. We remain committed in the management of our balance sheet and maintaining a strong cash position, allowing us to move quickly on opportunities.

I'd like to take a moment at this time to thank everyone who attended the tour of our new Vancouver facility on October 23. We're very proud of the plants that we have built in the last 5 years. And these tours enable us to show you how we've invested in state-of-the-art laundry technology and have used the many years of experience of our operators to create a [blooming] design and process improvements that enable us to provide the highest quality in linen processing, reduce our operating costs and really set us apart from others in the industry. So thank you to everyone who made the time to come to our Vancouver facility.

At this time, I would like to open it up to any questions that anyone has.

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Questions and Answers

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Operator [1]

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(Operator Instructions) And our first question comes from the line of Justin Keywood from GMP Securities.

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Justin Keywood, GMP Securities L.P., Research Division - Director of Equity Research [2]

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Congrats on the strong results. So with the $5 million in expected CapEx for 2020, this suggests continued strong free cash flow. I'm just wondering what are some of the options that you could deploy that free cash flow. And if there is any priority?

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Linda Jane McCurdy, K-Bro Linen Inc. - President, CEO & Director [3]

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I think Justin, key for us is to being -- is being able to self-fund our acquisition and growth priorities. I think that's opportunity and priority number one. After that, we will look at share buybacks and increases in dividends. But again, the key priority is ensuring that we are able to pursue additional growth in both Canada and the U.K.

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Justin Keywood, GMP Securities L.P., Research Division - Director of Equity Research [4]

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And are you seeing any other markets that you're looking to enter into geography-wise?

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Linda Jane McCurdy, K-Bro Linen Inc. - President, CEO & Director [5]

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I would say we always stay on top of what is happening both in all of North America, U.K. as a priority, but I would -- and those, for sure, remain our key priorities. But we do stay in tune with what is happening in globally, but with key focuses on the markets we're in today.

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Justin Keywood, GMP Securities L.P., Research Division - Director of Equity Research [6]

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Okay. And I didn't see any onetime expenses disclosed, but the opening remarks did speak to some distribution increased costs. I'm wondering if you can quantify any onetime like expenses that may have happened in the quarter.

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Linda Jane McCurdy, K-Bro Linen Inc. - President, CEO & Director [7]

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I think we're pretty much done with onetime expenses in Q2. We didn't see what we would denote. In Q2 and Q3, we've got nothing we've identified as onetime. What I would say, however, is we still have seen increases in our cost structure, i.e., distribution costs from outsourced freight contracts. Year-over-year, we've seen increases. We wouldn't characterize those as onetime. We've seen tightening labor markets, which have increased in certain circumstances overtime costs and associated costs, but we wouldn't characterize them as onetime, which is why we're so pleased with the margin improvement because there have been pressures on cost structures that we've been able to overcome through new business, price increases, and most importantly, optimizing operations.

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Justin Keywood, GMP Securities L.P., Research Division - Director of Equity Research [8]

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Absolutely. And then the U.K. hospitality volume showed strength again. I think it was around 7.5%. I assume most of that's organic with the acquisition closing late in the quarter. Do you anticipate any impacts from Brexit ahead?

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Linda Jane McCurdy, K-Bro Linen Inc. - President, CEO & Director [9]

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I think as we've outlined in previous quarters, the biggest area where we would be concerned in the short-term is supply chain disruption. We feel that we have done as much as we possibly can to shore that up in terms of making an investment in linen. We have linen warehoused for a number of months should that be impacted. We have locked in our natural gas for a several year period. So we won't feel pressure on that cost line. We have also -- we're in the process imminently of locking in our electrical costs for a 2-year period. Outside of that, we have little control over labor. We don't expect that there will be anything -- any immediate implications to our labor force. They -- as much as we have, we rely obviously on domestic labor, but we wouldn't expect a short-term impact on that.

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Operator [10]

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Our next question comes from the line of Endri Leno from National Bank.

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Endri Leno, National Bank Financial, Inc., Research Division - Associate [11]

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I have -- just a few questions. First, how are you seeing the labor markets -- I'm sorry, evolved in Q4, particularly in B.C. and Québec? Has there been any easing? Or does it still continue in the same line as before?

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Linda Jane McCurdy, K-Bro Linen Inc. - President, CEO & Director [12]

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I think we found Victoria slightly better than a year ago. I would say that Québec still remains a difficult market, both Montréal and Québec City. No more difficult necessarily than a year ago, but they are tight labor markets, and our strategy continues to evolve as it relates to how to manage and mitigate that as part of the $5 million spend for next year. Certainly, some of that will be on ways to reduce key positions in Québec, investments made to reduce dependency on labor in those markets. It won't be as significant, obviously, as we've seen in our brand-new builds in Vancouver and Toronto. But there are things we can do to reduce that burden.

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Endri Leno, National Bank Financial, Inc., Research Division - Associate [13]

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Okay. Great. And on that vein of the improving or reducing, I guess, the burden and what we saw with margins in Q3, would we expect a continuation of that at least in Canada into Q4 as well? I mean consider -- are you keeping in mind seasonality and all that?

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Linda Jane McCurdy, K-Bro Linen Inc. - President, CEO & Director [14]

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Yes. Yes. We continue -- very focused on operational efficiencies, progress was made in Q3. We certainly guided early on in the year that we would expect Q3 and Q4 to show continued improvement, and our outlook for that hasn't changed at all, Endri.

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Endri Leno, National Bank Financial, Inc., Research Division - Associate [15]

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Great. And my other question is in terms of energy costs in the U.K., how do you see them evolving, especially as we head into the winter months?

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Linda Jane McCurdy, K-Bro Linen Inc. - President, CEO & Director [16]

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So because we're pursuing a longer-term contract 2 years, on an input cost perspective or a cost per GJ, cost per kilowatt hour, I wouldn't expect anything -- any dramatic year-over-year increases.

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Endri Leno, National Bank Financial, Inc., Research Division - Associate [17]

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Great. And just moving on to acquisitions and you're considering and you're looking especially in the U.K., have you seen any changes in multiples at all in those markets?

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Linda Jane McCurdy, K-Bro Linen Inc. - President, CEO & Director [18]

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I think it's hard to say that every situation is similar. I think it really depends on the assets, the seller, the -- we haven't seen any change from 24 months ago, but again I would come back to every circumstance is different. And some sellers are going to have a propensity to want to deal with someone who may be -- we'll make commitments to keep their workforce. Again each 1 of these things is very unique in its nature.

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Endri Leno, National Bank Financial, Inc., Research Division - Associate [19]

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And last question for me. And since you mentioned and emphasized that you'd like to self-fund growth, and you paid some debt down in Q3, what would be a comfortable run rate of leverage? And how high would you consider going forward the right acquisition opportunity? And that's it for me.

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Linda Jane McCurdy, K-Bro Linen Inc. - President, CEO & Director [20]

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No problem. I mean given the long-term nature of our contracts, given the stability in the business, I think with -- for the right acquisition, we would contemplate leverage levels of beyond 3x for a period of time. I don't think that would be for years that we would want to be at a 3 -- over a 3x debt-to-EBITDA level. Having said that, we would be comfortable in the short term. I would say, generally, if I had to target a range somewhere between 2 and 3x.

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Endri Leno, National Bank Financial, Inc., Research Division - Associate [21]

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Okay. As a run rate?

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Linda Jane McCurdy, K-Bro Linen Inc. - President, CEO & Director [22]

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Yes.

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Operator [23]

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Our next question comes from the line of Elizabeth Johnston from Laurentian Bank.

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Elizabeth Johnston, Laurentian Bank Securities, Inc., Research Division - Analyst [24]

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Wanted to go back to some of the discussion in the U.K. and the strong organic growth. Can you give us any more insight into what's driving the strong growth there, whether it's new customers or more volume from existing customers or somewhere in between those things?

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Linda Jane McCurdy, K-Bro Linen Inc. - President, CEO & Director [25]

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I would characterize it as much more weighted to new business. Then -- I won't break it down by percentage, but it's heavily weighted to new business. Price increases would be next. And I would say, equally, price increases and [D side,] and then we will say -- or sorry -- yes, [D side] will be part of that as well going forward.

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Elizabeth Johnston, Laurentian Bank Securities, Inc., Research Division - Analyst [26]

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And when it comes to this new business, are you being a little more aggressive when it comes to bidding on new work? Was there an exit from a competitor in that market? I'm just trying to understand the dynamic.

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Linda Jane McCurdy, K-Bro Linen Inc. - President, CEO & Director [27]

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So much of it comes down to being able to provide a consistent service and a high-quality service during the very busy summer months. I would say, since we have acquired Fishers, we have provided an exceptional service over the last 2 years and being able to prove we're a premium supplier. And as a result of that, we've been the beneficiary of increased business. We have such a strong network in Scotland, far beyond -- and the northeast of England, far beyond any 1 of our competitors, where we have 4 linen plants in the region, our competitors have 1. That creates an opportunity for us to do a very good job for our customers. I would say that is a large part of it, Elizabeth.

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Elizabeth Johnston, Laurentian Bank Securities, Inc., Research Division - Analyst [28]

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Great. And continuing on the discussion of the U.K. I know at the time of acquisition, you discussed specific CapEx initiatives, new equipment for Fishers. Maybe you can give us a summary of -- since acquisition, whether equipment has been ordered or delivered? And how far you are along with that plan?

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Linda Jane McCurdy, K-Bro Linen Inc. - President, CEO & Director [29]

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Sure. So we certainly made a number of investments in 2019 in Newcastle and Prestonhall. There is some optimization work that we need to do as the result of that. Continuing into 2020, I would say that of the $5 million, there'll be a portion of that, not the largest portion by any stretch that will be dedicated to Fisher as well as being working with the team to continue to improve operations, not only through capital investments, but just through working with the team.

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Elizabeth Johnston, Laurentian Bank Securities, Inc., Research Division - Analyst [30]

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And so when it comes to seeing -- looking ahead and seeing potential for margin improvement in that segment, specifically compared to the time of acquisition, would you say you're 50% the way through what you thought you'd be able to achieve? Or any comment on that?

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Linda Jane McCurdy, K-Bro Linen Inc. - President, CEO & Director [31]

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I'd say we're just starting. I mean as we've seen in all of our plants, putting new equipment in doesn't immediately mean you've optimized it and you're efficient the next day. There is a transition when you put it in, there's a disruption to the business. And I would say during the summer months, we're very focused on providing service to our customer versus optimizing the new investments. So I would say that, that will be a key focus for us starting into 2020.

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Elizabeth Johnston, Laurentian Bank Securities, Inc., Research Division - Analyst [32]

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Okay. Great. And my final question, just a housekeeping item. If you could remind us what [factor] we should be using looking ahead.

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Kristie L. Plaquin, K-Bro Linen Inc. - CFO [33]

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Similar to what we've seen in Q3, kind of in that 27% -- 26% to 28% range.

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Operator [34]

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And we have no further questions in queue. I'll turn the call back to the presenters for closing remarks.

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Linda Jane McCurdy, K-Bro Linen Inc. - President, CEO & Director [35]

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Thank you, everyone, for joining today. And if there's any follow-up questions, Kristie and I will be available. So please don't hesitate to reach out. Thank you very much.

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Operator [36]

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Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.