– 2013 Highlighted by Steady Progress on New Management's Strategic Priorities/Company Achieves Seventh Consecutive Quarter of Positive Cash Flow from Operations –

TORONTO, March 31, 2014 /CNW/ - Centric Health Corporation ("Centric Health" or "the Company") (TSX: CHH), Canada's leading diversified healthcare services company, today announced financial results for the fourth quarter and the year ended December 31, 2013.

Financial and Operating Highlights for the Fourth Quarter and 2013 Year
(All comparative figures are for the corresponding period of the prior year)

• Revenue for the fourth quarter was $109.8 million compared with $110.9 million and for the year increased to $455.9 million from $436.7 million;
• Adjusted EBITDA¹ for the fourth quarter was $6.2 million compared with $9.6 million and for the year was $33.6 million compared with $42.8 million, with the fourth quarter and year end reflecting approximately $1.9 million and $7.8 million non-cash, non-recurring inventory adjustments in the Retail and Home Medical Equipment segment, respectively;
• Excluding the impact of the non-cash, non-recurring inventory adjustment, Adjusted EBITDA¹ for the fourth quarter and year end were $8.1 million and $41.4 million, respectively;
• Achieved seventh consecutive quarter of positive cash flow from operations as a result of the Company's continued focus on cash management;
• Strengthened the senior management team with the appointments of Daniel Gagnon as Chief Financial Officer (February), Chris Dennis as Chief Operating Officer (April) and Jim Black as Chief Information Officer (April);
• Strengthened the Board of Directors with the addition of two new Independent Directors, Yazdi Bharucha (Chair of the Audit Committee) and Camillo di Prata;
• Strengthened balance sheet and added financial flexibility through:
  • $200 million public offering of second lien senior secured notes which was used to repay the Term Loan, Revolving Facility and $10 million of preferred partnership unit;
  • Amended and restated $50 million credit agreement with senior lenders;
  • Redeemed a total of $30 million of the $65.5 million of preferred partnership units;
  • Renegotiated a $5 million related party convertible debt arrangement whereby the maturity date was extended to April 30, 2018;
  • Subsequent to year end, finalized a suite of amendments to the financial performance covenants for the $50 million Revolving Facility for 2014 and beyond;
• Amended consulting agreement with Global Healthcare Investments and Solutions, eliminating completion fees, removing consulting fees for 2013, and reducing consulting fees for 2014 and 2015 until termination of the agreement in June 2015;
• Implemented multiple cost savings initiatives across the corporate level, reducing corporate costs as a proportion of revenue for 2013 to 3.5% from 3.7% for 2012;
• Launched multiple initiatives to drive capacity utilization in the Surgical and Medical Centre segment, including a five-year strategic alliance with Vancouver Imaging, two specialized Centres of Excellence for Sinus and Nasal and Women's Urology, Extended Patient Choice Network, and the first Triage Assessment Program (TAP) at the Rouge Valley Health System;
• Acquired a 75% interest in SmartShape Weight Loss Centres, a leader in state-of-the-art bariatric (weight loss) surgical procedures and initiated expansion of Bariatric Centres of Excellence into the surgical facilities in Vancouver, Calgary, Winnipeg, Toronto and Sarnia.

Financial and Operating Highlights Subsequent to Year End

• Appointed Chris Dennis as permanent President of the Retail and Home Medical Equipment segment in March in the place of his role as Chief Operating Officer of the Company, following his appointment on an interim basis in January; and,
• To address a perceived conflict of interest, entered into a definitive agreement to sell its Home Care business to an arm's length third party purchaser (subject to certain healthcare regulatory consents and customary closing conditions) and is pursuing the sale of its Seniors Wellness operations.

"2013 was a year of steady progress on senior management's top priorities," said David Cutler, President and Chief Executive Officer, Centric Health Corporation.  "We have the management team in place to execute on our plan, are better integrated to fully leverage the platform and have multiple new revenue opportunities to drive long-term growth.  Our Pharmacy, Physiotherapy clinic network and Assessments segments are performing well, while our efforts to improve performance at our Surgical Centres are yielding results.  We met several regulatory and operational challenges head on - particularly in our Seniors Wellness and Retail/Home Medical Equipment businesses - taking decisive action to address these."

"Senior management has now had the opportunity to fully understand, analyze and evaluate the Company's businesses, individually and in aggregate, as well as the evolving environments in which they operate.  We have taken into consideration the relevant factors to the long-term success of Canadian health care services businesses - geography, payers, working capital requirements and regulatory frameworks.  We have also identified our core strengths and best opportunities, which reside in our ability to deliver the highest quality health care services that result the best possible patient outcomes.  With this in mind, and in the context of the fluidity of the regulatory environments in which we operate, we will continue to focus on optimization of the platform for to minimize working capital requirements, generate strong cash flows, limit regulatory risk and maximize long-term upside potential - with overriding goal of generating long-term value for shareholders."

"We also made steady progress on our financial priorities in 2013," said Daniel Gagnon, Chief Financial Officer.  "Most importantly, we took a number of meaningful steps with respect to improving our balance sheet, most recently amending our Revolving Credit Facility.  All of this provides additional financial flexibility as management continues to focus on realizing the growth potential of the platform, as well as its ability to generate cash flow."

FINANCIAL RESULTS

(All amounts below are in thousands except per share, shares outstanding, and percentage data)

Selected Financial Information

¹See "Non-IFRS Measures" below.
²Excludes contingent escrowed shares and restricted shares.

Consolidated Results

Consolidated revenue for the three month period ended December 31, 2013 decreased marginally to $109.8 million from $110.9 million for the three month period ended December 31, 2012. This decrease was primarily attributable to:

• Physiotherapy - A decrease of $8.1 million, due to funding changes for seniors physiotherapy services implemented in Ontario in August 2013; and

Partially offsetting this decrease was:

• Organic growth - Same store revenue growth of $6.8 million in the Pharmacy, Retail and Home Medical Equipment, Physiotherapy and Assessments segments.

Consolidated revenue for the year ended December 31, 2013 increased by 4.4% to $455.9 million from $436.7 million for 2012. This increase was primarily attributable to:

• Organic growth - Same store revenue growth of $22.2 million in the Pharmacy, Retail and Home Medical Equipment, Physiotherapy and Assessments segments; and
• Acquisitions - A full-year of contribution in 2013 from Motion Specialties (acquired February 2012), Physiotherapy clinics (acquired in the first quarter of 2012) and Retail and Home Medical Equipment stores (acquired in the fourth quarter of 2012 and first quarter of 2013) collectively increased revenue by $13.3 million.

Partially offsetting these increases were:

• Pharmacy - A decrease of $5.1 million due to certain high volume drugs becoming generic;
• Physiotherapy - A decrease in seniors physiotherapy revenue of $10.2 million due to funding changes for seniors physiotherapy services implemented in Ontario in August 2013; and
• Surgical and Medical Centres - A decrease of $2.8 million primarily due to management changes at the Sarnia location.

Adjusted EBITDA¹, which excludes transaction and restructuring costs, the change in fair value of derivative financial instruments, non-cash impairments and the non-cash change in the fair value of the contingent consideration liability, for the three month period ended December 31, 2013 was $6.2 million from $9.6 million for the corresponding period in 2012 and included the fourth quarter impact of $1.9 million for a non-cash, non-recurring inventory adjustment arising from year-end physical inventory count and valuation for the Motion Specialties retail stores in the Retail and Home Medical Equipment segment.  Excluding this adjustment, organic growth in the Pharmacy and Assessments segments were more than offset by decreases in the Physiotherapy and Surgical and Medical Centres, consistent with revenue for these segments.

Adjusted EBITDA¹ margin for the three month period ended December 31, 2013 decreased to 5.6% from 8.6% for the corresponding period in 2012. 

Adjusted EBITDA¹ for 2013 was $33.6 million compared with $42.8 million for 2012 and included the $7.8 million non-cash, non-recurring inventory adjustment arising from year-end physical inventory count and valuation for the Motion Specialties retail stores in the Retail and Home Medical Equipment segment.  Excluding this adjustment, organic growth in the Pharmacy and Assessments segments were more than offset by decreases in the Physiotherapy and Surgical and Medical Centres segments, consistent with revenue for these segments.

Adjusted EBITDA¹ margin for the year ended December 31, 2013 decreased to 7.4% from 9.8% for the corresponding period in 2012.

Segment Results

SHARES OUTSTANDING

As at December 31, 2013 and the date of this press release (March 31, 2014), the Company had total shares outstanding of 152,995,764 and 152,995,766 respectively.  The outstanding shares include 19,632,470 shares which are restricted or held in escrow and will be released to certain vendors of acquired businesses based on the achievement of certain performance targets. Accordingly, for financial reporting purposes, the Company reported 133,363,294 common shares outstanding as at December 31, 2013 and 121,389,445 shares outstanding at December 31, 2012. The number of options outstanding is 8,806,000 at December 31, 2013 and 8,266,000 at March 31, 2014. The number of restricted share units outstanding is 1,583,548 at December 31, 2013 and 1,550,269 at March 31, 2014. The number of warrants outstanding is 33,177,310 at December 31, 2013 and at March 31, 2014.  Should all outstanding options and warrants that were exercisable at December 31, 2013 be exercised, the Company would receive proceeds of $29.7 million.

FINANCING

During 2013, the Company repaid $184.5 million for its Term Loan and original Revolving Facility from the net proceeds of $194.0 million which were received from the issuance of second lien senior secured notes in April 2013. During 2013, the Company borrowed an additional $23.0 million from its Revolving Facility. The Company utilized $30.0 million of proceeds from the second lien senior secured notes and the restated and amended Revolving Facility to redeem preferred partnership units whose interest rate was higher than the Company's senior debt facilities.  During the fourth quarter, the Company renegotiated its $5.0 million convertible debt arrangement with Jamon Investments LLC ("Jamon"), a related party, whereby this convertible debt will now have a maturity date of April 30, 2018. This renegotiation preserves $5.0 million in cash flow which otherwise would have been payable to Jamon in the fourth quarter of 2013.  The Company paid $12.1 million and $23.4 million in cash interest on its borrowings for the fourth quarter and year ended December 31, 2013.

Subsequent to year end, in March 2014 the Company finalized a suite of amendments to the covenants for its $50 million Revolving Credit Facility for 2014 and beyond.  The amendments resulted from the funding reductions in Ontario from the Ministry of Health and Long Term Care for seniors physiotherapy services and a perceived conflict of interest matter which impacts the profitability of Motion Specialties and the Seniors Wellness operations. These factors may impact the Company's ability to meet future forecasted results.  Based on its 2014 operating budget and cash flow management initiatives, the Company believes it will be in compliance with the new financial performance covenants for the Revolving Facility at each quarterly measurement date through to the end of 2014.

OUTLOOK

Centric Health remains well positioned to capitalize on its unparalleled national healthcare platform.  Under the leadership of its new senior management team - President and Chief Executive Officer, David Cutler, appointed September 2012, and Daniel Gagnon, Chief Financial Officer, Chris Dennis, previously Chief Operating Officer and now President of the Retail and Home Medical Equipment Segment, and Jim Black, Chief Information Officer, appointed in the first half of 2013 - the Company made solid progress on management's strategic and financial objectives for 2013.

The senior leadership team has now been in place for a sufficient time period to fully understand, analyze and evaluate the Company's businesses individually and as a group.  It has evaluated the businesses in the context of the key factors relevant to the success of a Canadian healthcare services company, its core competencies and best opportunities, as well as the evolving nature of the regulatory environments within which it operates.  Going forward, senior leadership will continue to focus on optimization of the platform to minimize working capital requirements, generate strong cash flows, limit regulatory risk and maximize long-term potential, with the objective of generating long-term value for shareholders.

In addition, the Company will continue to focus on restoring profitability of the Retail and Home Medical Equipment segment, which continues to generate strong top-line growth and have excellent long-term potential based on the underlying demographics, and will continue to assess how it will best contribute to the Company going forward.

Physiotherapy Segment

The Company continues to focus on growth in its rehabilitative clinic network through organic expansion initiatives. It is expanding its preferred provider relationships with employers and other organizations. Growth through the acquisition of additional rehabilitation clinics will only occur if the acquisition will be accretive to income and complementary to the Company's national network.

The Seniors Wellness operations of the Physiotherapy segment has been impacted by funding model changes announced by the Ontario Ministry of Health and Long Term Care enacted in August 2013 related to physiotherapy services for seniors. The Company has taken proactive steps through existing and new revenue streams to mitigate the impact to its business resulting from changes to the funding model. In addition, the Company is pursuing opportunities through private pay services of rehabilitation and other ancillary services to retirement homes, and publicly funded physiotherapy services. It is expected that the average number of annual treatments per resident will be significantly reduced but reimbursed at a higher tariff. Other reimbursement alternatives are being explored. In addition, the Company has implemented a cost containment program to restore the division's profit margins while focusing on the delivery of high quality patient care.

In order to address a perceived conflict of interest, Centric Health entered into a definitive agreement to sell 100% of the common shares of its Home Care business, CAR, to an arm's length third party purchaser for proceeds of $2.5 million, subject to certain adjustments.  The purchase price will be satisfied by the issuance of an eight-year note.  The note is expected to bear interest at 12% per annum, subject to adjustment, payable monthly.  Completion of the purchase and sale transaction is subject to certain healthcare regulatory consents, as well as customary closing conditions.

Pharmacy Segment

The Company's pharmacies are all currently located in Ontario and expansion of its pharmacy operations into other provinces is part of the Company's strategy. Revenues for the Company's pharmacy operations are expected to increase in 2014 due to organic growth through tenders for contracts, retail initiatives, bundled service offerings, and maximizing the utilization of existing infrastructure.  Adjusted EBITDA margins have returned to historical levels and are expected to be maintained in upcoming quarters as the non-recurring costs to implement Electronic Medical Administrative Records ("EMAR") for existing long-term care home contracts have mainly been incurred.

Surgical and Medical Centres

Following a decline in the second half of 2012 and first half of 2013, the financial results of the Surgical and Medical Centres segment have shown signs of stability in the second half of 2013. The Company continues to rebuild the surgical operations at its Sarnia facility but the recovery at this facility has been at a slower pace than planned. Efforts to expand the roster of physicians to utilize excess operating room capacity are ongoing at all centres. In addition, in the second half of 2013, the Company launched multiple initiatives to drive capacity utilization in the Surgical and Medical Centre segment, including a five-year strategic alliance with Vancouver Imaging, two specialized Centres of Excellence for Sinus and Nasal and Women's Urology, Extended Patient Choice Network, and the first Triage Assessment Program (TAP) at the Rouge Valley Health System.

The Company also continues to assess potential strategic acquisitions that will bolster its existing national platform, however any such acquisitions must provide an appropriate return relative to any debt which the Company incurs to complete the acquisition and the return is expected to be in excess of the Company's risk adjusted weighted average cost of capital including cross platform pollination benefits.  In the fourth quarter of 2013, the Company completed the strategic acquisition of Surgical Weight Loss Centres, which will expand the Company's bariatric footprint across its surgical locations.

Assessments Segment

Through substantial efforts in 2011 and 2012 to reduce fixed costs and "right size" the business in response to the Ontario legislative changes related to automobile insurance coverage announced in fall 2010, the Assessments segment has rebounded with a strong 2013. Referrals are increasing and margins are stabilizing. The Company continues to focus on increasing its market share in this industry through successful RFPs. The Company's growth initiatives include increased brand awareness in the industry, enhanced bookings through technology and providing insurers and adjusters with value added reporting enhancements to assist in tracking outcomes.

Retail and Home Medical Equipment Segment

The Company's Retail and Home Medical Equipment segment has experienced revenue growth in 2013 and while this growth is expected to continue in 2014, it will be at a lower rate until the Company's perceived conflict of interest matter is resolved. The Company's new leadership team has reviewed the operations of Motion Specialties and has validated the long-term strength of this business, however the extent of addressing short-term challenges will take longer than originally anticipated.  These challenges include integration within the Motion Specialties network of retail stores and with the Centric Health's core operating and financial systems, reducing discretionary spending through bulk-purchasing initiatives and spending caps and implementation of operational best practices across the network of retail stores.

In the first quarter of 2014, the Company took major steps to upgrade the leadership of Retail and Home Medical Equipment segment by replacing several of this segment's previous leaders including the appointment of the Company's COO, Chris Dennis, as the President of the Segment.  Under the direction of Mr. Dennis decisive action has been taken including a strategic review of the in-process IT integration, staffing changes, organizational structure changes, cost rationalization initiatives and a continuous improvement project designed to standardize and streamline business processes.  A major system integration of Motion Specialties is in progress with successful pilot launches in September 2013 and February 2014.  However, the process re-engineering of day-to-day activities and the automation of inventory is taking longer than management had expected.  By the end of the current fiscal year the Company expects to have an effective implementation of new processes in conjunction with the new system to cover approximately half of the aggregated inventory value of all Motion and MEDIchair corporate stores.  The Company has also brought on personnel with experience in process re-engineering and supply chain management in order to assist Mr. Dennis with his strategic plans for this segment.

The Company has invested in revenue generating personnel for initiatives with a longer sales cycle which are expected to be realized in 2014. Motion Specialties is expanding its respiratory sales which are expected to enhance this segment's Adjusted EBITDA in 2014.

This impact of the broad actions the Company has taken are expected to restore adjusted EBITDA margins to mid-single digits in 2014, with additional upside longer-term.

Financial

The efforts senior management undertook to improve its balance sheet in 2013 and the beginning of 2014 have provided the Company with additional financial flexibility as it focuses on executing its strategy and further strengthening the balance sheet remains a priority.  In 2013, the Company completed a $200 million second lien senior secured notes offering, renegotiated its Revolving Credit Facility to more favourable terms and repaid $30 million of its $65.5 million in preferred partnership units, which, in aggregate, is expected to generate more than $10 million in free cash flow on an annualized basis.  Subsequent to the end of the third quarter, the Company renegotiated $5 million in related-party debt, extending the maturity date to April 2018.  Subsequent to year end, the Company finalized a suite of amendments to the covenants for its Revolving Credit Facility.  The Company has no debt principal repayment obligations until June 2015 and, with the exception of the recently renegotiated related party debt, all of the Company's convertible debt offerings can be settled in common shares at the discretion of the Company.

¹Non-IFRS Measures

This press release includes certain measures which have not been prepared in accordance with IFRS such as EBITDA, Adjusted EBITDA, Adjusted EBITDA margin and Adjusted EBITDA per share.  These non-IFRS measures are not recognized under IFRS and, accordingly, shareholders are cautioned that these measures should not be construed as alternatives to net income determined in accordance with IFRS.  The non-IFRS measures presented are unlikely to be comparable to similar measures presented by other issuers.

The Company defines EBITDA as earnings before depreciation and amortization, interest expense, amortization of lease incentives, and income tax recovery. Adjusted EBITDA is defined as EBITDA before transaction and restructuring costs, changes in the fair value of the contingent consideration liability, impairments, stock based compensation expense, change in fair value of derivative financial instruments and (gain) loss on disposal of property and equipment recognized in the statement of income.  Adjusted EBITDA margin is defined as Adjusted EBITDA divided by revenue.  Adjusted EBITDA per share is defined as Adjusted EBITDA divided by the weighted outstanding shares on both a basic and diluted basis.   The Company believes that Adjusted EBITDA is a meaningful financial metric as it assists in the ability to measure cash generated from operations.  The Company's agreements with senior lenders are structured with certain financial performance covenants which includes Adjusted EBITDA as a key component of the covenant calculations. EBITDA and Adjusted EBITDA are not recognized measures under IFRS.

Reconciliation of Non-IFRS Measures

CONFERENCE CALL

Centric Health will host a conference call, including a slide presentation, to discuss its fourth quarter and year end 2013 financial results tomorrow, Tuesday, April 1, 2014, at 8:30 a.m. (ET).

Telephone Dial-In Access Information

To access the conference call by telephone, dial 647-427-7450 or 1-888-231-8191.  Please connect approximately 10 minutes prior to the beginning of the call to ensure participation.  Those participating in the conference call by telephone can view the slide presentation by accessing the online webcast (see instructions below) and choosing the Non-Streaming Audio option.

Webcast Access Information

A live webcast of the conference call, including the slide presentation, will be available on the Events and Presentations page of the Investors section of the Company's web site (http://www.centrichealth.ca/events-presentations.php).  Please connect at least 15 minutes prior to the conference call to ensure adequate time for any software download that may be required to join the webcast. To view the webcast presentation with slides, please choose either the Real Streaming Audio or Windows Streaming Audio option.

Archive Access Information

The conference call will be archived for replay by telephone until Tuesday, April 8, 2014 at midnight.  To access the archived conference call, dial 1-855-859-2056 and enter the reservation number 8448777.

The webcast with slide presentation will be archived for 90 days on the Events and Presentations page of the Investors section of the Company's web site (http://www.centrichealth.ca/events-presentations.php).

For further information please refer to the Company's complete filings at www.sedar.com.

About Centric Health

Centric Health is Canada's leading diversified healthcare company and dedicated to building on the strengths of Canada's healthcare system through innovative solutions.  Through a series of strategic acquisitions, the Company has amassed a national platform for delivery of a broad range of services through more than 3,600 staff and consultants at almost 1,000 locations and has preferred provider contracts with over 50 corporations, government agencies and employers, and over 600 contracts with Long Term Care and Retirement Homes.  This platform provides compelling growth prospects through synergies, rationalization and cross-pollination opportunities to create meaningful value for all stakeholders.  Above all, Centric Health has an unwavering commitment to employ the highest service and ethical standards and deliver a superior quality of care with the best possible clinical outcomes.  For more information, visit www.centrichealth.ca.

This press release contains statements that may constitute "forward-looking statements" within the meaning of applicable Canadian securities legislation.  These forward-looking statements include, among others, statements regarding business strategy, plans and other expectations, beliefs, goals, objectives, information and statements about possible future events. Readers are cautioned not to place undue reliance on such forward-looking statements. Forward-looking statements are based on current expectations, estimates and assumptions that involve a number of risks, which could cause actual results to vary and in some instances to differ materially from those anticipated by Centric Health and described in the forward-looking statements contained in this press release. No assurance can be given that any of the events anticipated by the forward-looking statements will transpire or occur or, if any of them do so, what benefits Centric Health will derive there-from.

SOURCE Centric Health Corporation