KP Tissue Releases its First Quarter 2014 Financial Results

MISSISSAUGA, ON, May 9, 2014 /CNW Telbec/ - KP Tissue Inc. ("KPT") (TSX: KPT) reports the Q1 2014 Financial and Operational Results of Kruger Products: 

  • Revenue increased by 5.8% to $234.6 million in Q1 2014 compared to $221.8 million in Q1 2013
  • EBITDA result of $24.2 million in Q1 2014 compared to $25.1 million in Q1 2013
  • TAD Project continued to progress well, with EBITDA contribution of $3.5 million in Q1 2014
  • Maintained number one overall market share in Canada

"EBITDA of $24.2 million for the first quarter of 2014 continued to reflect high input costs and extreme weather conditions, which impacted margins. Despite a challenging market environment, we maintained our number one overall market share in Canada. The TAD Project was in line with expectations and contributed $3.5 million to EBITDA," said Mario Gosselin, CEO of KP Tissue and KPLP.

"During the quarter, we completed the consolidation of our Eastern distribution activities with expected annual savings of approximately $1.6 million. We also undertook an optimization program at the corporate level which should represent annual savings of approximately $2.4 million, once finalized.

"Going forward, we continue to see headwinds related to pulp and energy costs for the second quarter, and then a gradual decrease in pulp prices in the back half of 2014. This should alleviate some of the pressure on our margins. EBITDA for the second quarter of 2014 is expected to be higher compared to the first quarter of 2014 and moderately lower compared to the second quarter of 2013. For the TAD Project, some significant promotional activities are planned in the second quarter which should contribute to a higher EBITDA contribution when compared to the first quarter of 2014," concluded Mr. Gosselin.

KP Tissue Inc.
KPT holds a 16.6% interest in Kruger Products L.P. ("KPLP"), Canada's leading manufacturer of quality tissue products for household and commercial use. The highlights, discussion and analysis in this earnings release, unless identified specifically as representing the financial results of only KPT, relates entirely to the financial results of KPLP.

Q1 2014 Financial Results
Revenue in Q1 2014 was $234.6 million, compared to $221.8 in Q1 2013, an increase of $12.8 million driven by improved Consumer segment revenue in both Canada and the U.S. resulting from new business related to the TAD Project and the favourable impact of foreign exchange on U.S. based sales.

Cost of sales in Q1 2014 was $198.9 million, compared to $183.2 million in Q1 2013 due to the impact of increases in commodity prices, particularly pulp fibre and natural gas, the unfavourable impact of foreign exchange, and an increase in freight and warehousing expenses related primarily to higher sales volume. As a percentage of revenue, cost of sales increased to 84.8 percent in Q1 2014 from 82.6 percent in Q1 2013.

Selling, general and administrative expenses in Q1 2014 were $20.5 million, compared to $20.8 million in Q1 2013 due to a slight decrease in advertising and promotion expenses.

EBITDA in Q1 2014 was $24.2 million (included TAD Project EBITDA of $3.5 million), compared to $25.1 million in Q1 2013 (included TAD Project EBITDA loss of $2.9 million). EBITDA was impacted by lower margins as a result of higher cost of sales.

There was a Net loss in Q1 2014 of $3.2 million, compared to net income of $11.7 million in Q1 2013. The net loss was driven by a number of non-operational charges in Q1 2014 including charges related to restructuring of $2.8 million, the change in the amortized cost of the partnership unit liability of $3.3 million and a decrease in the deferred tax recovery of $4.6 million.

The cash balance as of March 30, 2014 was $52.7 million compared to $87.7 million as December 31, 2013. Cash was used in operating activities to support additional working capital requirements, consistent with the year ago quarter and with the seasonal nature of our business, and cash was also used in investing and financing activities.

KPT Results

Q1 2014 Results

  • Net loss of $1.7 million in Q1 2014
  • Loss per share of $0.19 in Q1 2014

KPLP Distribution
KPLP will pay a distribution of $0.18 per KPLP unit to its partners on or prior to July 15, 2014.

Dividends on Common Shares
The Board of Directors of KP Tissue Inc. declared a quarterly dividend of $0.18 per share to be paid on July 15, 2014 to shareholders of record at the close of business on June 30, 2014.

Conference Call Information
KPT will hold its first quarter conference call on Friday, May 9, 2014 at 8:30 a.m. Eastern Time.

Details of conference call:
Via telephone:  1-888-231-8191 or 647-427-7450
Via the internet at: www.kptissueinc.com

Presentation material referenced during the conference call will be available at www.kptissueinc.com.

Conference Call Rebroadcast
A rebroadcast of the conference call will be available until midnight, June 6, 2014 by dialing 1-855-859-2056 or 416-849-0833 and entering passcode 24880769.

The replay of the webcast will remain available on the web site until midnight, June 6, 2014.

About KP Tissue Inc. (KPT)
KPT was created to acquire, and its business is limited to holding, a limited partnership interest in KPLP. As of March 30, 2014, KPT held a 16.7% interest in KPLP, accounted for as an investment on the equity basis. On April 15, 2014, KPLP paid a distribution to its partners. Following the reinvestment by the partners of KPLP of a portion of such distribution pursuant to KPLP's distribution reinvestment plan, KPT held a 16.6% interest in KPLP.  For more information visit www.kptissueinc.com.

About Kruger Products L.P. (KPLP)
KPLP is Canada's leading manufacturer of quality tissue products for household, industrial and commercial use. KPLP serves the Canadian consumer market with such well-known brands as Cashmere®, Purex®, SpongeTowels®, Scotties®' and White Swan®. In the U.S., KPLP manufactures the White Cloud® brand, as well as many private label products. The Away-From-Home division manufactures and distributes high-quality, cost-effective product solutions to a wide range of commercial and public entities. KPLP has approximately 2,300 employees across North America and operates five FSC® CoC- certified mills (FSC® C104904), four of which are located in Canada and one in the US. For more information visit www.krugerproducts.ca.

Non-IFRS Measures
This press release uses certain non-IFRS financial measures and ratios which KPLP believes provide useful information to both management of KPLP and the readers of the financial information in measuring the financial performance and financial condition of KPLP. These measures do not have a standardized meaning prescribed by IFRS and therefore may not be comparable to similarly titled measures presented by other companies. An example of such measures is EBITDA. EBITDA is not a measurement of operating performance computed in accordance with IFRS and should not be considered as a substitute for operating income, net income or cash flows from operating activities computed in accordance with IFRS. "EBITDA" is calculated by KPLP as net income (loss) before (i) interest expense, (ii) income taxes, (iii) depreciation, (iv) amortization, (v) impairment of non-financial assets, (vi) loss (gain) on disposal of property, plant and equipment, (vii) unrealized foreign exchange loss (gain), (viii) one-time costs related to restructuring activities, and (ix) change in amortized cost of the Partnership unit liability. A reconciliation of EBITDA to the relevant reported results can be found in the Management's Discussion and Analysis ("MD&A") of KPT and KPLP for the first quarter ended March 30, 2014 available on SEDAR at www.sedar.com.

Forward-Looking Statements
Certain statements in this press release about KPT's and KPLP's current and future plans, expectations and intentions, results, levels of activity, performance, goals or achievements or any other future events or developments constitute forward-looking statements. The words "may", "will", "would", "should", "could", "expects", "plans", "intends", "trends", "indications", "anticipates", "believes", "estimates", "predicts", "likely" or "potential" or the negative or other variations of these words or other comparable words or phrases, are intended to identify forward-looking statements. The forward-looking information is based on certain key expectations and assumptions made by KPT, including expectations and assumptions concerning the impact of the TAD Project on EBITDA. Although KPT believes that the expectations and assumptions on which such forward-looking information is based are reasonable, undue reliance should not be placed on the forward-looking information since no assurance can be given that such expectations and assumptions will prove to be correct.

Many factors could cause KPLP's actual results, level of activity, performance or achievements or future events or developments (which could in turn affect the economic benefits derived from the Corporation's economic interest in KPLP) to differ materially from those expressed or implied by the forward-looking statements, including, without limitation, the following factors, which are discussed in greater detail in the "Risk Factors - Risks Related to KPLP's Business" section of the KPT Annual Information Form dated March 19, 2014 available on SEDAR at www.sedar.com: Kruger Inc.'s influence over KPLP; KPLP's reliance on Kruger Inc.; consequences of an event of insolvency relating to Kruger Inc.; risks associated with the TAD Project; operational risks; Gatineau Plant land lease; significant increases in prices; reduction in supply of fibre; increased pricing pressure and intense competition; KPLP's inability to innovate effectively; adverse economic conditions; dependence on key retail trade customers; damage to the reputation of KPLP or KPLP's brands; KPLP's sales being less than anticipated; KPLP's failure to implement its business and operating strategies; KPLP's obligation to make regular capital expenditures; KPLP's entering into unsuccessful acquisitions; KPLP's dependence on key personnel; KPLP's inability to retain its existing customers or obtain new customers; KPLP's loss of key suppliers; KPLP's failure to adequately protect its intellectual property rights; KPLP's reliance on third party intellectual property licenses; adverse litigation and other claims affecting KPLP; material expenditures due to comprehensive environmental regulation affecting KPLP's cash flow; KPLP's pension obligations are significant and can be materially higher than predicted if KPLP Management's underlying assumptions are incorrect; labour disputes adversely affecting KPLP's cost structure and KPLP's ability to run its plants; exchange rate and U.S. competitors; KPLP's inability to service all of its indebtedness; exposure to potential consumer product liability, restrictive covenants; interest rate and refinancing risk; information technology and innovation; insurance; and internal controls.

Readers should not place undue reliance on forward-looking statements made herein. The forward-looking information contained herein is expressly qualified in its entirety by this cautionary statement. The forward-looking information contained herein is made as of the date of press release and KPT undertakes no obligation to publicly update such forward-looking information to reflect new information, subsequent or otherwise, unless required by applicable securities laws.

Kruger Products L.P.
Unaudited Condensed Consolidated Statement of Financial Position
(thousands of Canadian dollars)
         
    March 30, 2014   December 31, 2013
    $   $
Assets        
Current assets        
  Cash and cash equivalents 52,736   87,674
  Trade and other receivables 106,998   94,789
  Receivables from related parties 592   1,429
  Advances to partners 347   -
  Inventories 156,940   151,505
  Current portion of income tax recoverable 474   630
  Prepaid expenses 6,180   4,777
    324,267   340,804
Non-current assets        
  Property, plant & equipment 625,993   616,687
  Other long-term assets 10,389   10,268
  Income tax recoverable 14,857   14,132
  Goodwill 152,021   152,021
  Intangible assets 13,348   13,483
  Deferred income taxes 15,727   14,141
Total assets   1,156,602   1,161,536
         
Liabilities        
Current liabilities        
  Trade and other payables 169,406   188,470
  Payables to related parties 6,084   5,134
  Distributions payable 9,500   9,455
  Current portion of provisions 2,528   999
  Current portion of long-term debt 11,547   8,276
    199,065   212,334
Non-current liabilities        
  Long-term debt 351,239   342,013
  Other long-term liabilities 276   323
  Provisions 7,181   6,615
  Pensions 75,232   80,380
  Post-retirement benefits 50,004   48,746
  Liabilities to non-unitholders 682,997   690,411
  Current portion of Partnership units liability 3,475   3,475
  Long-term portion of Partnership units liability 114,364   114,364
  Total Partnership units liability 117,839   117,839
Total liabilities   800,836   808,250
         
Equity        
  Partnership units 286,860   282,672
  Retained earnings 38,456   50,945
  Accumulated other comprehensive income 30,450   19,669
Total equity   355,766   353,286
Total equity and liabilities   1,156,602   1,161,536



Kruger Products L.P.
Unaudited Condensed Consolidated Statement of Comprehensive Income
(thousands of Canadian dollars)
       
  13-week
period ended
March 30, 2014
  13-week
period ended
March 31, 2013
  $   $
       
Revenue 234,608   221,785
       
Expenses      
  Cost of sales 198,871   183,171
  Selling, general and administrative expenses 20,526   20,785
  Restructuring costs 2,784   -
       
Operating income 12,427   17,829
       
  Interest expense 10,908   9,890
  Other expense 5,028   1,076
       
Income (loss) before income taxes (3,509)   6,863
       
Income taxes (286)   (4,853)
       
Net income (loss) for the period (3,223)   11,716
       
Other comprehensive income (loss)      
  Items that will not be reclassified to net income:      
  Remeasurements of pensions 1,081   12,495
  Remeasurements of post-retirement benefits (847)   -
  Items that may be subsequently reclassified to net income:      
  Available-for-sale investment (25)   -
  Cumulative translation adjustment 10,806   4,539
       
Total other comprehensive income for the period 11,015   17,034
       
Comprehensive income for the period 7,792   28,750



Kruger Products L.P.
Unaudited Condensed Consolidated Statement of Cash Flows
(thousands of Canadian dollars)
  
  13-week
period ended
March 30, 2014
  13-week
period ended
March 31, 2013
  $   $
Cash flows from (used in) operating activities      
Net income (loss) for the period (3,223)   11,716
Items not affecting cash      
  Depreciation 8,807   7,333
  Amortization 144   132
  Gain on sale of fixed assets -   (4)
  Change in amortized cost of Partnership units liability 3,350   -
  Unrealized foreign exchange loss 1,679   855
  Interest expense 10,908   9,890
  Pension and post retirement benefits 2,696   2,708
  Provisions 2,184   262
  Income taxes (286)   (4,853)
  Total items not affecting cash 29,482   16,323
       
Net change in non-cash working capital  (27,002)   (34,442)
Contributions to pension and post-retirement benefit plans (7,850)   (7,328)
Provisions paid (501)   (1,490)
Income tax payments (373)   (994)
       
Net cash used in operating activities (9,467)   (16,215)
       
Cash flows from (used in) investing activities      
Purchase of property, plant & equipment (4,135)   (3,017)
Purchases of through-air-dried (TAD) expansion (6,221)   (19,661)
Purchases of software (9)   (3)
Proceeds on sale of property, plant and equipment -   4
       
Net cash used in investing activities (10,365)   (22,677)
       
Cash flows from (used in) financing activities      
Proceeds from credit facilities   4,571
Repayment of credit facilities (204)   (76)
Interest paid on credit facilities (7,164)   (7,216)
Distributions paid (12,805)   -
Equity issuance costs -   (835)
Proceeds from issuing partnership units 4,188   13,125
       
Net cash from (used in) financing activities (15,985)   9,569
       
Effect of exchange rate changes on cash and cash equivalents held in foreign currency 879   255
       
Decrease in cash and cash equivalents during the period (34,938)   (29,068)
       
Cash and cash equivalents - Beginning of period 87,674   121,489
       
Cash and cash equivalents - End of period 52,736   92,421



Kruger Products L.P.
Segment and Geographic Results
(thousands of Canadian dollars)
       
  13-week
period ended
March 30, 2014
  13-week
period ended
March 31, 2013
  $   $
       
Segment Information      
       
Segment Revenue      
  Consumer 198,378   184,403
  AFH 33,482   35,281
  Other 2,748   2,101
       
Total segment revenue 234,608   221,785
       
Segment EBITDA      
  Consumer 24,949   23,923
  AFH (524)   1,463
  Other (262)   (317)
       
Total segment EBITDA 24,163   25,069
       
Reconciliation to Net Income:      
       
Depreciation and amortization 8,951   7,465
Interest expense 10,908   9,890
Change in amortized cost of Partnership units liability 3,350   -
Gain on sale of fixed assets -   (4)
Restructuring costs 2,784   -
Unrealized foreign exchange loss 1,679   855
       
Income before income taxes (3,509)   6,863
       
Income taxes (286)   (4,853)
       
Net income (loss) for the period (3,223)   11,716
       
Geographic Revenue      
       
Canada 161,160   157,562
U.S. 66,758   57,134
Mexico 6,690   7,089
       
Total Revenue 234,608   221,785



KP Tissue Inc.
Unaudited Condensed Statement of Financial Position
(thousands of Canadian dollars)
       
  March 30, 2014   December 31, 2013
  $   $
Assets      
       
Current assets      
  Distributions receivable 1,585   1,583
  Income taxes receivable 125   -
       
Non-current assets      
  Investment in associate 160,143   161,584
       
Total Assets 161,853   163,167
       
Liabilities      
       
Current liabilities      
  Dividend payable 1,585   1,583
  Payables to related party 210   -
  Income taxes payable -   580
  1,795   2,163
Non-current liabilities      
  Deferred income taxes 3,022   3,033
       
Total liabilities 4,817   5,196
       
Equity      
       
  Common shares 9,321   9,068
  Contributed surplus 144,819   144,819
  Retained earnings (deficit) (2,524)   709
  Accumulated other comprehensive income 5,420   3,375
       
Total equity 157,036   157,971
       
Total liabilities and equity 161,853   163,167



KP Tissue Inc.
Unaudited Condensed Statement of Comprehensive Income
(thousands of Canadian dollars, except share and per share amounts)
       
  13-week
period ended
March 30, 2014
  13-week
period ended
March 31, 2013
  $   $
       
       
Equity loss (2,083)   (747)
       
Gain on remeasurement of over allotment option -   375
Dilution gain 44   -
       
Loss before income taxes (2,039)   (372)
       
Income tax expense (recovery)      
Current (35)   213
Deferred (322)   106
       
  (357)   319
       
Net loss for the period (1,682)   (691)
       
Other comprehensive income (loss)      
  Items that will not be reclassified to net loss:      
  Remeasurements of pensions - net of tax expense of $23 and $272 157   1,823
  Remeasurements of post-retirement benefits - net of tax recovery of $18 (123)   -
  Items that may be subsequently reclassified to net loss:      
  Available-for-sale investment - net of tax recovery of $1 (4)   -
  Cumulative translation adjustment - net of tax expense of $307 and $99 2,049   662
       
Total other comprehensive income for the period 2,079   2,485
       
Comprehensive income for the period 397   1,794
       
Basic loss per share (0.19)   (0.08)
       
Weighted average number of shares outstanding 8,805,820   8,667,583



KP Tissue Inc.
Unaudited Condensed Statement of Cash Flows
(thousands of Canadian dollars)
       
  13-week
period ended
March 30, 2014
  13-week
period ended
March 31, 2013
  $   $
Cash flows from (used in) operating activities      
Net loss for the period (1,682)   (691)
Items not affecting cash      
  Equity loss 2,083   747
  Gain on remeasurement of overallotment option -   (375)
  Dilution gain (44)   -
  Current income taxes (35)   213
  Deferred income taxes (322)   106
  Total items not affecting cash 1,682   691
       
Tax payments (460)   -
       
Net cash from (used in) operating activities (460)   -
       
Cash flows from (used in) investing activites      
Investment in associate (253)   (13,125)
Distributions received 1,583   -
Tax distribution received 460   -
       
Net cash from (used in) investing activities 1,790   (13,125)
       
Cash flows from (used in) financing activities      
Issuance of common shares 253   13,125
Dividends paid (1,583)   -
       
Net cash from (used in) financing activities (1,330)   13,125
       
Increase (decrease) in cash and cash equivalents during the period -   -
       
Cash and cash equivalents - Beginning of period -   -
       
Cash and cash equivalents - End of period -   -

SOURCE KP Tissue Inc.

For further information:

Wendy Kelley
General Counsel and Corporate Secretary
KP Tissue Inc.
Tel.: 905.812.6936
wendy.kelley@krugerproducts.ca

INVESTORS: 
Mike Baldesarra
Director of Investor Relations
KP Tissue Inc.
Tel.: 905.812.6962
IR@KPTissueinc.com