KP Tissue Inc.
TSX : KPT

KP Tissue Inc.

March 12, 2015 07:00 ET

KP Tissue Releases Fourth Quarter 2014 and Full Year 2014 Financial Results

MISSISSAUGA, ONTARIO--(Marketwired - March 12, 2015) - KP Tissue Inc. ("KPT") (TSX:KPT) reports the Q4 2014 and full year 2014 Financial and Operational Results of KPT and Kruger Products L.P. (KPLP):

Q4 2014 Highlights

  • Revenue increased by 14.7% to $278.6 million in Q4 2014 compared to $242.9 million in Q4 2013
  • EBITDA of $30.4 million in Q4 2014, up from $28.3 million in Q4 2013
  • Maintained number one overall consumer market share in Canada
  • TAD Product EBITDA contribution of $9.1 million

Full Year 2014 Highlights

  • Revenue increased by 9.5% to $1,046.2 million in 2014 compared to $955.3 million in 2013
  • EBITDA of $121.6 million in 2014, up from $116.2 million in 2013
  • TAD Product EBITDA contribution of $26.9 million
  • At year-end, cash & cash equivalents stood at $51.8 million

"In 2014, we reached an important milestone with more than one billion dollars in revenues. Despite a competitive market environment, we remained the clear leader in the Canadian tissue market. In the U.S., TAD Products performed very well and were a significant contributor to consolidated EBITDA. In the Away-From-Home (AFH) business, we extended our North American platform with the acquisition of Metro Paper," said Mario Gosselin, CEO of KP Tissue and KPLP.

"Despite negative pressure from higher pulp and natural gas prices, and from the weaker Canadian dollar, we reported EBITDA for Fiscal 2014 of $121.6 million, an increase of 4.6% over last year. The increase in EBITDA was related to the Consumer segment which was in turn primarily driven by TAD Products.

"Moving into 2015, we face significant headwinds from the decline of the Canadian dollar, particularly accentuated in the past few months. This is combined with the negative impact of pulp prices which remain at relatively high levels, although prices have recently started to trend down. We continue to review all aspects of our operations for cost reductions and to invest in high return CAPEX projects to improve efficiencies and profitability,″ concluded Mr. Gosselin.

KP Tissue Inc.

KPT currently holds a 16.5% 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.

Q4 2014 Financial Results

KPLP Q4 2014 Financial Results

Revenue in Q4 2014 was $278.6 million, compared to $242.9 in Q4 2013, an increase of 14.7% or $35.7 million. Revenue increased across all segments and geographies, and this was primarily due to the acquisition of Metro Paper on June 3rd in the AFH segment. Revenue also increased due to TAD Product sales in the U.S. and the favourable impact of foreign exchange on U.S. dollar sales.

Cost of sales in Q4 2014 was $234.0 million, compared to $201.2 million in Q4 2013 due to increases in commodity prices, particularly pulp fibre, the unfavourable impact of foreign exchange, and an increase in freight expenses related primarily to higher sales volume. As a percentage of revenue, cost of sales were 84.0% in Q4 2014 compared to 82.8% in Q4 2013.

Selling, general and administrative (SG&A) expenses in Q4 2014 were $24.5 million, compared to $23.9 million in Q4 2013 due to higher advertising and promotion expenses, partially offset by the impact of a realized gain on foreign exchange.

EBITDA in Q4 2014 was $30.4 million compared to $28.3 million in Q4 2013, driven by higher sales volume resulting primarily from increased TAD Product sales in the U.S. TAD Product EBITDA was $9.1 million in Q4 2014 compared to EBITDA of $4.1 million in Q4 2013.

Net income in Q4 2014 was $0.1 million, compared to $7.7 million in Q4 2013. The decrease was primarily due to the change in the amortized cost of the Partnership unit liability, a tax expense in Q4 2014 compared to a deferred tax credit in Q4 2013 and higher depreciation expense, partially offset by higher EBITDA.

The cash balance as of December 31, 2014 was $51.8 million compared to $36.3 million as of September 28, 2014. Cash was generated from operating activities resulting from EBITDA in Q4 2014 and also lower working capital. This was partially offset by capital spending and interest and debt payments in the quarter.

KPT Q4 2014 Financial Results

KPT incurred a net loss of $1.3 million in Q4 2014. Included in the net loss was nil representing KPT's share of KPLP's profit. The profit was reduced by the net of depreciation expense of $1.4 million related to adjustments to carrying amounts on acquisition, and an income tax recovery of $0.2 million.

Full Year 2014 Financial Results

KPLP Full Year 2014 Financial Results

Revenue was $1,046.2 million in fiscal 2014 compared to $955.3 million in fiscal 2013, an increase of 9.5% or $90.9 million. The increase in revenue was primarily due to higher sales volumes driven primarily by TAD Product sales in the U.S., the favourable impact of foreign exchange and the acquisition of Metro Paper on June 3rd.

EBITDA was $121.6 million in fiscal 2014 compared to $116.2 million in fiscal 2013. Higher sales were mostly offset by higher cost of sales, including the negative impact of foreign exchange, and therefore the EBITDA increase was due primarily to lower SG&A expenses.

Net income was $21.1 million in fiscal 2014 compared to $48.9 million in fiscal 2013. The decrease in net income was primarily due to non-operational charges related to restructuring and impairment, the change in the amortized cost of the Partnership unit liability, a decrease in the deferred tax recovery and increases in interest and depreciation expense, partially offset by the increase in EBITDA.

KPT Full Year 2014 Financial Results

KPT incurred a net loss of $2.5 million in fiscal 2014. Included in the net loss was $3.5 million representing KPT's share of KPLP's profit. The profit was reduced by depreciation expense of $5.9 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 April 15, 2015.

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 April 15, 2015 to shareholders of record at the close of business on March 31, 2015.

Conference Call Information

KPT will hold its fourth quarter conference call on Thursday, March 12, 2015 at 8:30 a.m. Eastern Time.

Details of Conference Call:
Via telephone: 1-877-223-4471 or 647-788-4922
Via the internet at: http://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, April 12, 2015 by dialing 1-800-585-8367 or 416-621-4642 and entering passcode 69598315.

The replay of the webcast will remain available on the web site until midnight, April 12 2015.

About KP Tissue Inc. (KPT)

KPT was created to acquire, and its business is limited to holding, a limited partnership interest in KPLP, which is accounted for as an investment on the equity basis. KPT currently holds a 16.5% 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 fourth quarter and fiscal year ended December 31, 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 12, 2015 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.
Consolidated Statement of Financial Position
(thousands of Canadian dollars)
December 31, 2014December 31, 2013
$$
Assets
Current assets
Cash and cash equivalents51,78887,674
Trade and other receivables107,09294,789
Receivables from related parties3011,429
Advances to partners3,474-
Inventories150,328151,505
Current portion of income tax recoverable1,302630
Prepaid expenses7,3514,777
321,636340,804
Non-current assets
Property, plant & equipment652,762616,687
Other long-term assets7,73810,268
Income tax recoverable15,30914,132
Goodwill160,939152,021
Intangible assets14,05213,483
Deferred income taxes19,56514,141
Total assets1,192,0011,161,536
Liabilities
Current liabilities
Trade and other payables173,228188,503
Payables to related parties4,3875,134
Distributions payable9,7819,455
Current portion of provisions2,967999
Current portion of long-term debt8,8798,243
199,242212,334
Non-current liabilities
Long-term debt358,646342,013
Other long-term liabilities156323
Provisions6,4416,615
Pensions98,53380,380
Post-retirement benefits53,35748,746
Liabilities to non-unitholders716,375690,411
Current portion of Partnership units liability6,9493,475
Long-term portion of Partnership units liability121,174114,364
Total Partnership units liability128,123117,839
Total liabilities844,498808,250
Equity
Partnership units299,616282,672
Retained earnings4,42450,945
Accumulated other comprehensive income43,46319,669
Total equity347,503353,286
Total equity and liabilities1,192,0011,161,536
Kruger Products L.P.
Consolidated Statement of Comprehensive Income (Loss)
(thousands of Canadian dollars)
Quarter ended Quarter ended Year ended Year ended
December 31, 2014 December 31, 2013 December 31, 2014 December 31, 2013
$ $ $ $
Revenue278,647 242,944 1,046,168 955,346
Expenses
Cost of sales234,002 201,214 879,139 786,825
Selling, general and administrative expenses24,500 23,867 82,625 86,720
Recovery of non-financial assets- - - (1,789)
Restructuring costs- 1,372 2,835 1,372
Operating income20,145 16,491 81,569 82,218
Interest expense9,807 9,951 44,730 42,251
Other (income) expense9,990 155 17,612 1,979
Income before income taxes348 6,385 19,227 37,988
Income taxes278 (1,287)(1,840)(10,940)
Net income for the period70 7,672 21,067 48,928
Other comprehensive income (loss)
Items that will not be reclassified to net income:
Remeasurements of pensions5,822 13,341 (25,689)55,619
Remeasurements of post-retirement benefits45 (910)(3,466)599
Items that may be subsequently reclassified to net income:
Available-for-sale investment336 (9)15 69
Cumulative translation adjustment10,740 8,487 23,779 16,355
Total other comprehensive income (loss) for the period16,943 20,909 (5,361)72,642
Comprehensive income for the period17,013 28,581 15,706 121,570
Kruger Products L.P.
Consolidated Statement of Cash Flows
(thousands of Canadian dollars)
Quarter ended Quarter ended Year ended Year ended
December 31, 2014 December 31, 2013 December 31, 2014 December 31, 2013
$ $ $ $
Cash flows from (used in) operating activities
Net income for the period70 7,672 21,067 48,928
Items not affecting cash
Depreciation10,475 9,697 37,049 33,561
Amortization170 166 649 581
Loss (gain) on sale of fixed assets144 (1)(135)(5)
Change in amortized cost of Partnership units liability7,852 (723)13,759 (723)
Unrealized foreign exchange loss1,643 1,426 3,522 2,992
Interest expense9,807 9,951 44,730 42,251
Pension and post retirement benefits2,435 2,373 9,874 9,959
Provisions271 103 3,762 800
Income taxes278 (1,287)(1,840)(10,940)
Recovery of non-financial assets- - - (1,789)
Total items not affecting cash33,075 21,705 111,370 76,687
Net change in non-cash working capital17,209 10,830 (12,454)(34,271)
Contributions to pension and post-retirement benefit plans(2,154)(8,401)(22,414)(30,369)
Provisions paid(653)(832)(2,562)(2,841)
Income tax payments(480)(556)(2,102)(2,675)
Net cash from operating activities47,067 30,418 92,905 55,459
Cash flows from (used in) investing activities
Purchase of property, plant & equipment(13,302)(8,711)(33,296)(20,265)
Purchases of through-air-dried (TAD) expansion(548)(6,564)(7,738)(39,631)
Available-for-sale investment(277)- (277)(836)
Government grants received- - - 1,078
Purchases of software(229)(143)(1,218)(236)
Proceeds on sale of property, plant and equipment- 1 578 5
Acqusition of business- - (23,360)-
Net cash used in investing activities(14,356)(15,417)(65,311)(59,885)
Cash flows from (used in) financing activities
Proceeds from credit facilities- - - 10,813
Repayment of credit facilities(4,243)(3,903)(8,577)(7,999)
Payment of deferred financing fees- (29)- (641)
Interest paid on credit facilities(7,193)(6,495)(28,389)(27,676)
Distributions and advances paid(6,639)(5,499)(29,054)(17,536)
Equity issuance costs- - - (1,206)
Proceeds from issuing partnership units192 170 1,070 13,888
Net cash used in financing activities(17,883)(15,756)(64,950)(30,357)
Effect of exchange rate changes on cash and cash equivalents held in foreign currency
621


615


1,470


968

Decrease in cash and cash equivalents during the period15,449 (140)(35,886)(33,815)
Cash and cash equivalents - Beginning of period36,339 87,814 87,674 121,489
Cash and cash equivalents - End of period51,788 87,674 51,788 87,674
Kruger Products L.P.
Segment and Geographic Results
(thousands of Canadian dollars)
Quarter ended Quarter ended Year ended Year ended
December 31, 2014 December 31, 2013 December 31, 2014 December 31, 2013
$ $ $ $
Segment Information
Segment Revenue
Consumer217,862 202,107 842,635 792,670
AFH53,904 38,698 184,263 154,304
Other6,881 2,139 19,270 8,372
Total segment revenue278,647 242,944 1,046,168 955,346
Segment EBITDA
Consumer31,371 27,226 123,606 110,342
AFH307 1,275 1,687 6,608
Other(1,239)(228)(3,657)(722)
Total segment EBITDA30,439 28,273 121,636 116,228
Reconciliation to Net Income:
Depreciation and amortization10,645 9,863 37,698 34,142
Interest expense9,807 9,951 44,730 42,251
Change in amortized cost of Partnership units liability7,852 (723)13,759 (723)
Gain (loss) on sale of fixed assets144 (1)(135)(5)
Recovery of non-financial assets- - - (1,789)
Restructuring costs- 1,372 2,835 1,372
Unrealized foreign exchange loss1,643 1,426 3,522 2,992
Income before income taxes348 6,385 19,227 37,988
Income taxes278 (1,287)(1,840)(10,940)
Net income for the period70 7,672 21,067 48,928
Geographic Revenue
Canada183,595 172,234 699,996 688,173
U.S.85,912 63,590 316,738 239,225
Mexico9,140 7,120 29,434 27,948
Total Revenue278,647 242,944 1,046,168 955,346
KP Tissue Inc.
Statement of Financial Position
(thousands of Canadian dollars)
December 31, 2014 December 31, 2013
$ $
Assets
Current assets
Distributions receivable1,601 1,583
Non-current assets
Investment in associate153,732 161,584
Total Assets155,333 163,167
Liabilities
Current liabilities
Dividend payable1,601 1,583
Payables to Partnership53 -
Advances from Partnership584 -
Income taxes payable495 580
2,733 2,163
Non-current liabilities
Deferred income taxes2,005 3,033
Total liabilities4,738 5,196
Equity
Common shares10,138 9,068
Contributed surplus144,819 144,819
Retained earnings (deficit)(12,220)709
Accumulated other comprehensive income7,858 3,375
Total equity150,595 157,971
Total liabilities and equity155,333 163,167
KP Tissue Inc.
Statement of Comprehensive Income (Loss)
(thousands of Canadian dollars, except share and per share amounts)
Quarter ended Quarter ended Year ended Year ended
December 31, 2014 December 31, 2013 December 31, 2014 December 31, 2013
$ $ $ $
Equity income (loss)(1,435)(384)(2,379)1,113
Gain on remeasurement of over allotment option- - - 375
Dilution gain7 59 102 240
Income (loss) before income taxes(1,428)(325)(2,277)1,728
Income tax expense (recovery)
Current264 (312)1,136 580
Deferred(441)696 (895)1,433
(177)384 241 2,013
Net loss for the period(1,251)(709)(2,518)(285)
Other comprehensive income (loss)
Items that will not be reclassified to net income (loss):
Remeasurements of pensions - net of tax recovery872 1,944 (3,692)8,130
Remeasurements of post-retirement benefits - net of tax recovery5 (133)(351)88
Items that may be subsequently reclassified to net income (loss):
Available-for-sale investment - net of tax recovery 49 10 2 10
Cumulative translation adjustment - net of tax expense 2,020 2,028 4,481 3,178
Total other comprehensive income for the period2,946 3,849 440 11,406
Comprehensive income (loss) for the period1,695 3,140 (2,078)11,121
Basic earnings (loss) per share(0.14)(0.08)(0.29)(0.03)
Weighted average number of shares outstanding8,859,731 8,791,225 8,834,508 8,752,830
KP Tissue Inc.
Statement of Cash Flows
(thousands of Canadian dollars)
Quarter ended Quarter ended Year ended Year ended
December 31, 2014 December 31, 2013 December 31, 2014 December 31, 2013
$ $ $ $
Cash flows from (used in) operating activities
Net loss for the period(1,251)(709)(2,518)(285)
Items not affecting cash
Equity loss (income)1,435 384 2,379 (1,113)
Gain on remeasurement of overallotment option- - - (375)
Dilution gain(7)(59)(102)(240)
Income taxes(177)384 241 2,013
Total items not affecting cash1,251 709 2,518 285
Tax payments(175)- (1,043)-
Tax distributions received- - 459 -
Advances received175 - 584 -
Net cash from (used in) operating activities- - - -
Cash flows from (used in) investing activites
Investment in associate(193)(168)(1,070)(13,887)
Partnership unit distributions received1,593 1,581 6,350 5,058
Net cash from (used in) investing activities1,400 1,413 5,280 (8,829)
Cash flows from (used in) financing activities
Issuance of common shares193 168 1,070 13,887
Dividends paid(1,593)(1,581)(6,350)(5,058)
Net cash from (used in) financing activities(1,400)(1,413)(5,280)8,829
Increase (decrease) in cash and cash equivalents during the period- - - -
Cash and cash equivalents - Beginning of period- - - -
Cash and cash equivalents - End of period- - - -

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