KP Tissue Releases its Financial Results and those of Kruger Products L.P. for the Third Quarter of 2013 and Declares Quarterly Dividend

/NOT FOR DISTRIBUTION IN THE U.S.A. OR OVER U.S. WIRE SERVICES/

MISSISSAUGA, ON, Nov. 13, 2013 /CNW Telbec/ - KP Tissue Inc. ("KPT") (TSX: KPT), which holds a limited partnership interest in Kruger Products L.P. ("KPLP"), releases the financial results for KPT and KPLP for the third quarter of 2013. KPLP is Canada's leading manufacturer of quality tissue products for household and commercial use.

KP Tissue Inc. and Kruger Products L.P.
KPT was created to acquire, and its business is limited to holding, a limited partnership interest in KPLP. As of September 29, 2013, KPT held a 16.8% interest in KPLP, accounted for as an investment on the equity basis. The financial results presented for KPT represent its holding in KPLP during the third quarter of 2013. The following discussion and analysis, unless identified specifically as representing the financial results of only KPT, relates entirely to the financial results of KPLP. Accordingly, the results of KPLP apply to KPT only to the extent of its holding in KPLP.

On October 15, 2013, 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 16.7% interest in KPLP.

KPLP Highlights

Q3 2013 Highlights

  • Continued to expand overall market share in Canada and maintained our number one position
  • TAD Project progressing well, EBITDA contribution of $1.7 million in the quarter
  • Revenue of $243.8 million in Q3 2013, compared to $232.4 million in Q3 2012, an increase of 4.9 percent year over year
  • EBITDA of $31.1 million in Q3 2013 compared to $31.3 million in Q3 2012, a decrease of 0.6 percent year over year

"Third quarter results were solid, highlighted by EBITDA of $31.1 million. We were able to build on the momentum we generated with the successful promotional activities we undertook in the Canadian consumer market during the second quarter of 2013 and to further increase our overall market share," said Mario Gosselin, CEO of KP Tissue and KPLP.

"The TAD project is progressing well, with capacity ramp-up and product quality meeting or exceeding expectations. After two quarters of full TAD operations, we are happy to report positive EBITDA of $1.7 million in the third quarter with no additional start-up costs incurred. We remain on our game plan and continue to expect a low single digit contribution to EBITDA for the year as a whole.

"Finally, the Company is continuing to execute on its plan to mitigate higher commodity and energy prices. This started in the fourth quarter, and we expect to see the full effect of this ongoing strategy in the first quarter of 2014," concluded Mr. Gosselin.

KPLP Q3 2013 Financial Results
Revenue in Q3 2013 was $243.8 million, an increase of 4.9 percent compared to Q3 2012. Revenue was positively impacted by an increase in sales volume resulting primarily from the Consumer segment, which included new business related to the TAD Project. This increase was partially offset by a decline in Other segment revenue as a result of the decision to cease production of parent rolls for sale at the New Westminster plant in 2012.

Cost of sales in Q3 2013 was $172.2 million, compared to $160.8 million in Q3 2012. As a percentage of revenue, cost of sales increased to 70.6 percent in Q3 2013 from 69.2 percent in Q3 2012 primarily due to increases in commodity prices, particularly pulp fibre and natural gas.

Operating expenses in Q3 2013 were $47.4 million, compared to $44.7 million in Q3 2012. Operating expenses increased primarily due to higher sales, logistics and marketing related expenses, and costs related to KPT being a public company.

EBITDA in Q3 2013 was $31.1 million, compared to $31.3 million in Q3 2012. There were no TAD Project start-up costs in EBITDA in Q3 2013, compared to $0.1 million in Q3 2012. The slight decrease in EBITDA was due to lower margins as a result of increased commodity costs and higher operating expenses. TAD Project EBITDA was $1.7 million in Q3 2013.

Net income in Q3 2013 was $14.2 million, compared to $20.0 million in Q3 2012. Net income decreased primarily due to increases in interest and depreciation expenses related to the TAD Project, partially offset by a deferred tax credit in Q3 2013 related to U.S. operations.

The cash balance as of September 29, 2013 was $87.8 million, compared to $78.4 million as of June 30, 2013. The increase in cash was primarily driven by cash from operating activities, partially offset by capital expenditures and financing activities.

KPT Highlights

  • Net income of $0.5 million in Q3 2013
  • Earnings per share of $0.06 in Q3 2013
  • Declared quarterly dividend of $0.18 per share, payable January 15, 2014

KPT Q3 2013 Financial Results
Included in the net income of $0.5 million in Q3 2013 was $2.4 million representing KPT's share of KPLP's profit. The profit was partially offset by depreciation of $1.3 million related to adjustments to carrying amounts on acquisition, and income tax expense of $0.6 million.

KPLP Distribution
KPLP will pay a distribution of $0.18 per KPLP unit to its partners on or prior to January 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 January 15, 2014 to shareholders of record at the close of business on December 31, 2013.

Conference Call Information
KPT will hold its third quarter conference call on Wednesday, November 13, 2013 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, December 13, 2013 by dialing 1-855-859-2056 or 416-849-0833 and entering passcode 75016579.

The replay of the webcast will remain available on the web site until midnight, December 13, 2013.

About KP Tissue Inc.
KPT was created to acquire, and its business is limited to holding, a limited partnership interest in KPLP. For more information visit www.kptissueinc.com.

About Kruger Products L.P.
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), and (viii) one-time costs related to restructuring activities. 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 13-week and 39-week periods ended September 29, 2013 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 start-up of the TAD Project on EBITDA, the benefits of the business rationalization program and the funding of remaining capital expenditures relating to the TAD Project. 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 28, 2013 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 Statements of Financial Position
(thousands of Canadian dollars)
 
  September 29, 2013   December 31, 2012
  $   $
Assets      
       
Current assets      
  Cash and cash equivalents 87,814   121,489
  Trade and other receivables 95,083   94,308
  Receivables from related parties 896   668
  Inventories 137,555   116,873
  Current portion of income tax recoverable 710   2,872
  Prepaid expenses 7,140   4,413
  329,198   340,623
       
Non-current assets      
  Property, plant & equipment 598,657   580,814
  Other long-term assets 9,072   6,236
  Income tax recoverable 11,537   -
  Goodwill 152,021   152,021
  Intangible assets 13,506   13,828
  Deferred income taxes 12,210   1,178
       
Total assets 1,126,201   1,094,700
       
Liabilities      
       
Current liabilities      
  Trade and other payables 159,524   186,309
  Payables to related parties 5,059   9,057
  Distribution payable 9,411   -
  Current portion of provisions 1,882   3,719
  Current portion of long-term debt 10,834   3,802
  186,710   202,887
       
Non-current liabilities        
  Long-term debt 338,152   323,885
  Other long-term liabilities 427   544
  Provisions 6,769   5,506
  Pensions 97,803   148,989
  Post-retirement benefits 47,700   48,302
  Liabilities to non-unitholders 677,561   730,113
       
  Partnership units 118,562   118,562
       
Total liabilities 796,123   848,675
       
Equity      
       
  Partnership units 278,590   257,516
  Retained earnings (deficit) 40,297   (14,736)
  Accumulated other comprehensive income 11,191   3,245
Total equity 330,078   246,025
       
Total equity and liabilities 1,126,201   1,094,700
       
       

 
Kruger Products L.P.
Unaudited Condensed Consolidated Statements of Comprehensive Income (Loss)
(thousands of Canadian dollars)
 
  13-week
period ended
September 29, 2013
  13-week
period ended
September 23, 2012
  39-week
period ended
September 29, 2013
  38-week
period ended
September 23, 2012
  $   $   $   $
               
Revenue 243,848   232,389   712,402   679,971
               
Expenses              
     Cost of sales 172,184   160,788   502,653   473,689
     Operating expenses 47,413   44,694   147,635   135,277
    Impairment (recovery) of non-financial assets -   -   (1,789)   5,900
  Restructuring costs -   -   -   8,600
               
Operating income 24,251   26,907   63,903   56,505
               
Interest expense 11,403   6,381   32,300   19,556
               
Income before income taxes 12,848   20,526   31,603   36,949
               
Income taxes (1,315)   520   (9,653)   952
               
Net income for the period 14,163   20,006   41,256   35,997
               
Other comprehensive income (loss)              
     Items that will not be reclassified to net income:              
    Remeasurements of pensions 8,580   (21,446)   42,278   (52,512)
    Remeasurements of post-retirement benefits 5   (3,185)   1,509   (4,795)
  Items that may be subsequently reclassified to net income:              
    Available-for-sale investment 78   -   78   -
    Cumulative translation adjustment (5,506)   (8,587)   7,868   (7,214)
               
Total other comprehensive income (loss) for the period 3,157   (33,218)   51,733   (64,521)
               
Comprehensive income (loss) for the period 17,320   (13,212)   92,989   (28,524)

 
Kruger Products L.P.
Unaudited Condensed Consolidated Statements of Cash Flows
(thousands of Canadian dollars)
 
  13-week
period ended
September 29, 2013
  13-week
period ended
September 23, 2012
  39-week
period ended
September 29, 2013
  38-week
period ended
September 23, 2012
  $   $   $   $
Cash flows from operating activities              
Net income for the period 14,163   20,006   41,256   35,997
Items not affecting cash              
  Depreciation 7,675   5,953   23,864   17,576
  Amortization 139   75   415   384
  Loss (gain) on sale of fixed assets -   368   (4)   438
  Unrealized foreign exchange (gain) loss (927)   (2,011)   1,566   (1,550)
  Interest expense 11,403   6,381   32,300   19,556
  Pension and post retirement benefits 2,422   2,377   7,586   7,253
  Provisions 212   311   697   9,459
  Income taxes (1,315)   520   (9,653)   952
  Impairment (recovery) of non-financial assets  -   -   (1,789)   5,900
  Total items not affecting cash 19,609   13,974   54,982   59,968
               
Net change in non-cash working capital  (885)   16,239   (45,101)   10,300
Contributions to pension and post-retirement benefit plans (7,251)   (5,820)   (21,968)   (22,138)
Provisions paid (207)   (3,286)   (2,009)   (4,909)
Income tax payments (382)   (149)   (2,119)   (727)
Net cash from operating activities 25,047   40,964   25,041   78,491
               
Cash flows used in investing activities              
Purchase of property, plant & equipment (3,964)   (561)   (11,554)   (11,495)
Purchases of through-air-dried (TAD) expansion (4,294)   (36,702)   (33,067)   (107,099)
Interest paid on credit facilities related to TAD -   (1,805)   -   (1,805)
Available-for-sale investment (836)   -   (836)   -
Government grants received 1,078   -   1,078   -
Purchases of software (3)   -   (93)   -
Proceeds on sale of property, plant and equipment -   183   4   183
               
Net cash used in investing activities (8,019)   (38,885)   (44,468)   (120,216)
               
Cash flows from (used in) financing activities              
Proceeds from credit facilities 6,242   28,484   10,813   94,127
Repayment of credit facilities (366)   (10,041)   (4,096)   (37,904)
Payment of deferred financing fees (159)   -   (612)   -
Transfer of assets to related parties -   (1,503)   -   (2,209)
Interest paid on credit facilities (7,210)   (4,995)   (21,181)   (14,430)
Settlement of interest rate swap contract -   (413)   -   (413)
Distribution paid (9,367)   -   (20,599)   -
Equity issuance costs (1,206)   -   (1,206)   -
Proceeds from issuing partnership units 4,897   -   22,280   -
               
Net cash from (used in) financing activities (7,169)   11,532   (14,601)   39,171
               
Effect of exchange rate changes on cash and cash equivalents held in foreign currency (409)   (578)   353   (496)
               
Decrease in cash and cash equivalents during the period 9,450   13,033   (33,675)   (3,050)
               
Cash and cash equivalents - Beginning of period 78,364   15,714   121,489   31,797
               
Cash and cash equivalents - End of period 87,814   28,747   87,814   28,747

 
Kruger Products L.P.
Segment and Geographic Results
(thousands of Canadian dollars)
  
  13-week   13-week   39-week   38-week
  period ended   period ended   period ended   period ended
  September 29, 2013   September 23, 2012   September 29, 2013   September 23, 2012
  $   $   $   $
               
Segment Information              
               
Segment Revenue              
  Consumer 200,802   187,242   590,563   546,449
  AFH 40,321   40,445   115,606   114,924
  Other 2,725   4,702   6,233   18,598
               
Total segment revenue 243,848   232,389   712,402   679,971
               
Segment EBITDA              
  Consumer 30,087   31,027   83,116   89,052
  AFH 1,193   1,624   5,333   4,765
  Other (142)   (1,359)   (494)   (5,964)
               
Total segment EBITDA 31,138   31,292   87,955   87,853
               
Reconciliation to Net Income:              
               
Depreciation and amortization 7,814   6,028   24,279   17,960
Interest expense 11,403   6,381   32,300   19,556
Loss (gain) on sale of fixed assets -   368   (4)   438
Restructuring costs -   -   -   8,600
Impairment (recovery) of non-financial assets -   -   (1,789)   5,900
Unrealized foreign exchange loss (gain) (927)   (2,011)   1,566   (1,550)
               
Income before income taxes 12,848   20,526   31,603   36,949
               
Income taxes (1,315)   520   (9,653)   952
               
Net income for the period 14,163   20,006   41,256   35,997
               
               
Geographic Revenue              
               
Canada 175,290   166,050   515,939   486,049
U.S. 62,170   59,817   175,635   173,397
Mexico 6,388   6,522   20,828   20,525
               
Total Revenue 243,848   232,389   712,402   679,971
               

 
KP Tissue Inc.
Unaudited Condensed Statement of Financial Position
(thousands of Canadian dollars)
 
       
  September 29, 2013   December 31, 2012
  $   $
Assets      
       
Current assets      
  Distribution receivable 1,581   -
       
Non-current assets      
  Deferred income taxes -   123
  Investment in associate 158,765   139,364
       
Total Assets 160,346   139,487
       
Liabilities      
       
Current liabilities      
  Dividend payable 1,581   -
  Income taxes payable 892   -
       
  2,473   -
       
Non-current liabilities      
  Deferred income taxes 1,744   -
       
Total liabilities 4,217   -
       
Equity      
       
  Common shares 8,900   140,000
  Contributed surplus 144,819   -
  Retained earnings (deficit) 1,190   (583)
  Accumulated other comprehensive income 1,220   70
       
Total equity 156,129   139,487
       
Total liabilities and equity 160,346   139,487

 
KP Tissue Inc.
Unaudited Condensed Statement of Comprenhensive Income
(thousands of Canadian dollars, except share and per share amounts)
 
  13-week   39-week
  period ended   period ended
  September 29, 2013   September 29, 2013
  $   $
       
Equity income 1,016   1,497
       
Gain on remeasurement of over allotment option -   375
Dilution gain 69   181
       
Earnings before income taxes 1,085   2,053
       
Income taxes      
  Current 293   892
  Deferred 277   737
       
  570   1,629
       
Net income for the period 515   424
       
Other comprehensive income      
  Items that will not be reclassified to net income:      
  Remeasurements of pensions (net of tax of $187 and $924) 1,254   6,186
  Remeasurements of post-retirement benefits (net of tax of nil and $33) 1   221
  Items that may be subsequently reclassified to net income:      
  Cumulative translation adjustment (net of tax of $(120) and $173) (807)   1,150
       
Total other comprehensive income for the period 448   7,557
       
Comprehensive income for the period 963   7,981
       
Basic earnings per share 0.06   0.05
       
Weighted average number of shares outstanding 8,781,433   8,739,702

 
KP Tissue Inc.
Unaudited Condensed Statement of Cash Flows
(thousands of Canadian dollars)
 
  13-week   39-week
  period ended   period ended
  September 29, 2013   September 29, 2013
  $   $
Cash flows from (used in) operating activities      
Net income for the period 515   424
Items not affecting cash      
  Equity income (1,016)   (1,497)
  Gain on remeasurement of over-allotment option -   (375)
  Dilution gain (69)   (181)
  Current income taxes 293   892
  Deferred income taxes 277   737
       
Net cash from (used in) operating activities -   -
       
Cash flows from (used in) investing activites      
Investment in associate (150)   (13,719)
Distribution received 1,579   3,477
       
Net cash from (used in) investing activities 1,429   (10,242)
       
Cash flows from (used in) financing activities      
Issuance of common shares 150   13,719
Dividend paid (1,579)   (3,477)
       
Net cash from (used in) financing activities (1,429)   10,242
       
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:

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

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KP Tissue Inc.

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