KP Tissue Releases Second Quarter 2014 Financial Results

MISSISSAUGA, ON, Aug. 13, 2014 /CNW Telbec/ - KP Tissue Inc. ("KPT") (TSX: KPT) reports the Q2 2014 Financial and Operational Results of KPT and Kruger Products L.P. (KPLP):

  • Revenue increased by 7.5% to $265.3 million in Q2 2014 compared to $246.8 million in Q2 2013
  • EBITDA of $29.0 million in Q2 2014 compared to $31.7 million in Q2 2013
  • TAD product sales continued to progress well, with EBITDA contribution of $7.8 million in Q2 2014
  • Maintained number one overall consumer market share in Canada
  • Acquired Metro Paper Canadian converting assets and North American customer base for cash consideration of $23.4 million
  • Solid balance sheet with $40.5 million of cash at the end of the quarter

"TAD Product EBITDA of $7.8 million was an important contributor to second quarter EBITDA of $29.0 million. Our consumer and AFH businesses continued to face the challenge of high input costs and competitive environments during the quarter," said Mario Gosselin, CEO of KP Tissue and KPLP.

TAD product sales continued to ramp-up as planned and we expect fiscal 2014 TAD Product EBITDA to be in the previously provided range. Furthermore, we are now engaged in a study to evaluate capacity expansion and use of TAD technology.

"In the Canadian consumer market, our brands are maintaining their overall market share leadership. We are continuing our capital investment program as planned, to improve our profitability and reduce our manufacturing costs in Canada. We are currently realizing the benefits of two previously announced cost optimization projects and are planning to implement additional cost reduction initiatives in the back half of the year.

We expect EBITDA for the third quarter of 2014 to be higher than Q2 2014 and similar to or slightly higher than the third quarter of 2013. On a sequential basis, we anticipate an improvement in our Canadian consumer business reflecting normal seasonality," concluded Mr. Gosselin.

KP Tissue Inc.
KPT holds a 16.6% interest in KPLP. 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.

KPLP Q2 2014 Financial Results
Revenue in Q2 2014 was $265.3 million, compared to $246.8 in Q2 2013, an increase of $18.5 million. The increase was driven by improved Consumer segment revenue resulting from TAD product promotional activities in the U.S. and the favourable impact of foreign exchange on U.S. based sales. AFH segment revenue was positively impacted by the acquisition of Metro Paper on June 3rd. Revenue in Canada decreased as a result of lower promotional activity compared to Q2 2013.

Cost of sales in Q2 2014 was $226.5 million, compared to $201.7 million in Q2 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 85.3 percent in Q2 2014 from 81.7 percent in Q2 2013.

Selling, general and administrative expenses in Q2 2014 were $19.6 million, compared to $22.4 million in Q2 2013 due to decreases in departmental spending and advertising and promotion expenses.

EBITDA in Q2 2014 was $29.0 million compared to $31.7 million in Q2 2013 as EBITDA was impacted by lower margins due to higher cost of sales. TAD Product EBITDA was $7.8 million in Q2 2014 compared to an EBITDA loss of $1.9 million, including start-up costs, in Q2 2013.

Net income in Q2 2014 was $8.1 million, compared to $15.4 million in Q2 2013. The decrease was due to lower EBITDA of $2.7 million, a decrease in the deferred tax recovery of $3.2 million, and a change of $1.5 million in the amortized cost of the Partnership unit liability.

The cash balance as of June 29, 2014 was $40.5 million compared to $52.7 million as of March 30, 2014. Cash generated from operating activities and a reduction in working capital requirements, was partially offset by cash used to acquire Metro Paper ($23.4 million) and to pay distributions.

KPT Q2 2014 Financial Results

  • Net loss of $0.3 million in Q2 2014
  • Loss per share of $0.03 in Q2 2014

Included in the net loss of $0.3 million in Q2 2014 was $1.4 million representing KPT's share of KPLP's profit. The profit was offset by depreciation expense of $1.5 million related to adjustments to carrying amounts on acquisition, and income tax expense of $0.2 million.

KPLP Distribution
KPLP will pay a distribution of $0.18 per KPLP unit to its partners on or prior to October 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 October 15, 2014 to shareholders of record at the close of business on September 30, 2014.

Conference Call Information
KPT will hold its second quarter conference call on Wednesday, August 13, 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, September 12, 2014 by dialing 1-855-859-2056 or 416-849-0833 and entering passcode 73141456.

The replay of the webcast will remain available on the web site until midnight, September 12, 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 June 29, 2014, KPT held a 16.6% interest in KPLP, accounted for as an investment on the equity basis. On July 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 2,500 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 the 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 second quarter ended June 29, 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)
         
    June 29, 2014   December 31, 2013
    $   $
Assets        
Current assets        
  Cash and cash equivalents   40,484   87,674
  Trade and other receivables   101,487   94,789
  Receivables from related parties   325   1,429
  Advances to partners   1,390   -
  Inventories   153,855   151,505
  Current portion of income tax recoverable   545   630
  Prepaid expenses   9,265   4,777
    307,351   340,804
Non-current assets        
  Property, plant & equipment   622,434   616,687
  Other long-term assets   10,786   10,268
  Income tax recoverable   14,481   14,132
  Goodwill   160,842   152,021
  Intangible assets   13,920   13,483
  Deferred income taxes   16,015   14,141
Total assets   1,145,829   1,161,536
         
Liabilities        
Current liabilities        
  Trade and other payables   169,777   188,470
  Payables to related parties   9,325   5,134
  Distributions payable   9,550   9,455
  Current portion of provisions   2,192   999
  Current portion of long-term debt   11,121   8,276
    201,965   212,334
Non-current liabilities        
  Long-term debt   347,799   342,013
  Other long-term liabilities   232   323
  Provisions   7,478   6,615
  Pensions   100,956   80,380
  Post-retirement benefits   52,937   48,746
  Liabilities to non-unitholders   711,367   690,411
  Current portion of Partnership units liability   3,475   3,475
  Long-term portion of Partnership units liability   115,754   114,364
  Total Partnership units liability   119,229   117,839
Total liabilities   830,596   808,250
         
Equity        
  Partnership units   291,137   282,672
  Retained earnings   3,786   50,945
  Accumulated other comprehensive income   20,310   19,669
Total equity   315,233   353,286
Total equity and liabilities   1,145,829   1,161,536

Kruger Products L.P.
Unaudited Condensed Consolidated Statement of Comprehensive Income
(thousands of Canadian dollars)
               
  13-week period ended
June 29, 2014
  13-week period ended
June 30, 2013
  26-week period ended
June 29, 2014
  26-week period ended
June 30, 2013
  $   $   $   $
               
Revenue 265,284   246,769   499,892   468,554
               
Expenses              
  Cost of sales 226,352   201,629   425,223   384,800
  Selling, general and administrative expenses 19,882   22,383   40,408   43,168
  Recovery of non-financial assets -   (1,789)   -   (1,789)
  Restructuring costs 51   -   2,835   -
               
Operating income 18,999   24,546   31,426   42,375
               
  Interest expense 11,393   11,007   22,301   20,897
  Other (income) expense (158)   1,647   4,870   2,723
               
Income before income taxes 7,764   11,892   4,255   18,755
               
Income taxes (355)   (3,485)   (641)   (8,338)
               
Net income for the period 8,119   15,377   4,896   27,093
               
Other comprehensive income (loss)              
  Items that will not be reclassified to net income:              
  Remeasurements of pensions (30,593)   21,203   (29,512)   33,698
  Remeasurements of post-retirement benefits (2,646)   1,504   (3,493)   1,504
  Items that may be subsequently reclassified to net income:              
  Available-for-sale investment (113)   -   (138)   -
  Cumulative translation adjustment (10,027)   8,835   779   13,374
               
Total other comprehensive income (loss) for the period (43,379)   31,542   (32,364)   48,576
               
Comprehensive income (loss) for the period (35,260)   46,919   (27,468)   75,669

Kruger Products L.P.
Unaudited Condensed Consolidated Statement of Cash Flows
(thousands of Canadian dollars)
               
  13-week period ended
June 29, 2014
  13-week period ended
June 30, 2013
  26-week period ended
June 29, 2014
  26-week period ended
June 30, 2013
  $   $   $   $
Cash flows from (used in) operating activities              
Net income for the period 8,119   15,377   4,896   27,093
Items not affecting cash              
  Depreciation 9,387   8,856   18,194   16,189
  Amortization 187   144   331   276
  Loss (gain) on sale of fixed assets 298   -   298   (4)
  Change in amortized cost of Partnership units liability 1,514   -   4,864   -
  Unrealized foreign exchange loss (1,596)   1,638   83   2,493
  Interest expense 11,393   11,007   22,301   20,897
  Pension and post retirement benefits 2,308   2,456   5,004   5,164
  Provisions 237   223   2,421   485
  Income taxes (355)   (3,485)   (641)   (8,338)
  Recovery of non-financial assets -   (1,789)   -   (1,789)
  Total items not affecting cash 23,373   19,050   52,855   35,373
               
Net change in non-cash working capital  9,734   (9,774)   (17,268)   (44,216)
Contributions to pension and post-retirement benefit plans (8,366)   (7,389)   (16,216)   (14,717)
Provisions paid (336)   (312)   (837)   (1,802)
Income tax payments (513)   (743)   (886)   (1,737)
               
Net cash from (used in) operating activities 32,011   16,209   22,544   (6)
               
Cash flows from (used in) investing activities              
Purchase of property, plant & equipment (9,231)   (4,573)   (13,366)   (7,590)
Purchases of through-air-dried (TAD) expansion 9   (9,112)   (6,212)   (28,773)
Purchases of software (759)   (87)   (768)   (90)
Proceeds on sale of property, plant and equipment 1   -   1   4
Acqusition of business (net) (23,360)   -   (23,360)   -
               
Net cash used in investing activities (33,340)   (13,772)   (43,705)   (36,449)
               
Cash flows from (used in) financing activities              
Proceeds from credit facilities -   -   -   4,571
Repayment of credit facilities (306)   (3,654)   (510)   (3,730)
Payment of deferred financing fees -   (453)   -   (453)
Interest paid on credit facilities (3,233)   (6,755)   (10,397)   (13,971)
Distributions and advances (10,890)   (11,232)   (23,695)   (11,232)
Proceeds from issuing partnership units 4,277   5,093   8,465   17,383
               
Net cash used in financing activities (10,152)   (17,001)   (26,137)   (7,432)
               
Effect of exchange rate changes on cash and cash equivalents held in foreign currency (771)   507   108   762
               
Decrease in cash and cash equivalents during the period (12,252)   (14,057)   (47,190)   (43,125)
               
Cash and cash equivalents - Beginning of period 52,736   92,421   87,674   121,489
               
Cash and cash equivalents - End of period 40,484   78,364   40,484   78,364

Kruger Products L.P.
Segment and Geographic Results
(thousands of Canadian dollars)
               
  13-week period ended
June 29, 2014
  13-week period ended
June 30, 2013
  26-week period ended
June 29, 2014
  26-week period ended
June 30, 2013
  $   $   $   $
               
Segment Information              
               
Segment Revenue              
  Consumer 216,900   205,358   415,278   389,761
  AFH 44,264   40,004   77,746   75,285
  Other 4,120   1,407   6,868   3,508
               
Total segment revenue 265,284   246,769   499,892   468,554
               
Segment EBITDA              
  Consumer 29,541   29,104   54,490   53,027
  AFH 137   2,677   (387)   4,140
  Other (680)   (33)   (942)   (350)
               
Total segment EBITDA 28,998   31,748   53,161   56,817
               
Reconciliation to Net Income:              
               
Depreciation and amortization 9,574   9,000   18,525   16,465
Interest expense 11,393   11,007   22,301   20,897
Change in amortized cost of Partnership units liability 1,514   -   4,864   -
Gain (loss) on sale of fixed assets 298   -   298   (4)
Recovery of non-financial assets     (1,789)   -   (1,789)
Restructuring costs 51   -   2,835   -
Unrealized foreign exchange loss (1,596)   1,638   83   2,493
               
Income before income taxes 7,764   11,892   4,255   18,755
               
Income taxes (355)   (3,485)   (641)   (8,338)
               
Net income for the period 8,119   15,377   4,896   27,093
               
Geographic Revenue              
               
Canada 172,981   183,087   334,141   340,649
U.S. 86,310   56,331   153,068   113,465
Mexico 5,993   7,351   12,683   14,440
               
Total Revenue 265,284   246,769   499,892   468,554

KP Tissue Inc.
Unaudited Condensed Statement of Financial Position
(thousands of Canadian dollars)
       
  June 29, 2014   December 31, 2013
  $   $
Assets      
       
Current assets      
  Distributions receivable 1,589   1,583
  Income taxes receivable 182   -
  1,771   1,583
       
Non-current assets      
  Investment in associate 150,927   161,584
       
Total Assets 152,698   163,167
       
Liabilities      
       
Current liabilities      
  Dividend payable 1,589   1,583
  Advances from partnership 234   -
  Payables to partnership 25   -
  Income taxes payable -   580
  1,848   2,163
Non-current liabilities      
  Deferred income taxes 1,937   3,033
       
Total liabilities 3,785   5,196
       
Equity      
       
  Common shares 9,642   9,068
  Contributed surplus 144,819   144,819
  Retained earnings (deficit) (9,054)   709
  Accumulated other comprehensive income 3,506   3,375
       
Total equity 148,913   157,971
       
Total liabilities and equity 152,698   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
June 29, 2014
  13-week period ended
June 30, 2013
  26-week period ended
June 29, 2014
  26-week period ended
June 30, 2013
  $   $   $   $
               
Equity income (loss) (96)   1,228   (2,179)   481
               
Gain on remeasurement of over allotment option -   -   -   375
Dilution gain 14   112   58   112
               
Loss before income taxes (82)   1,340   (2,121)   968
               
Income tax expense (recovery)              
  Current 116   386   81   599
  Deferred 74   354   (248)   460
               
  190   740   (167)   1,059
               
Net income (loss) for the period (272)   600   (1,954)   (91)
               
Other comprehensive income (loss)              
  Items that will not be reclassified to net loss:              
  Remeasurements of pensions - net of tax recovery (4,437)   3,109   (4,280)   4,932
  Remeasurements of post-retirement benefits - net of tax recovery (232)   220   (355)   220
  Items that may be subsequently reclassified to net loss:              
  Available-for-sale investment - net of tax recovery (17)   -   (21)   -
  Cumulative translation adjustment - net of tax expense (1,897)   1,295   152   1,957
               
Total other comprehensive income (loss) for the period (6,583)   4,624   (4,504)   7,109
               
Comprehensive income (loss) for the period (6,855)   5,224   (6,458)   7,018
               
Basic earnings (loss) per share (0.03)   0.07   (0.22)   (0.01)
               
Weighted average number of shares outstanding 8,825,516   8,770,427   8,815,777   8,718,721

KP Tissue Inc.
Unaudited Condensed Statement of Cash Flows
(thousands of Canadian dollars)
               
  13-week period ended
June 29, 2014
  13-week period ended
June 30, 2013
  26-week period ended
June 29, 2014
  26-week period ended
June 30, 2013
  $   $   $   $
Cash flows from (used in) operating activities              
Net income (loss) for the period (272)   600   (1,954)   (91)
Items not affecting cash              
  Equity loss (income) 96   (1,228)   2,179   (481)
  Gain on remeasurement of overallotment option     -   -   (375)
  Dilution gain (14)   (112)   (58)   (112)
  Current income taxes 116   386   81   599
  Deferred income taxes 74   354   (248)   460
  Total items not affecting cash 272   (600)   1,954   91
               
Income tax payments (233)   -   (693)   -
               
Net cash from (used in) operating activities (233)   -   (693)   -
               
Cash flows from (used in) investing activites              
Investment in associate (321)   (444)   (574)   (13,569)
Partnership unit distributions received 1,585   1,898   3,168   1,898
Tax distributions received -   -   459   -
Advances received 233   -   234   -
               
Net cash from (used in) investing activities 1,497   1,454   3,287   (11,671)
               
Cash flows from (used in) financing activities              
Issuance of common shares 321   444   574   13,569
Dividends paid (1,585)   (1,898)   (3,168)   (1,898)
               
Net cash from (used in) financing activities (1,264)   (1,454)   (2,594)   11,671
               
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