KP Tissue Inc.
TSX : KPT

KP Tissue Inc.

August 12, 2015 07:00 ET

KP Tissue Releases Second Quarter 2015 Financial Results

MISSISSAUGA, ONTARIO--(Marketwired - Aug. 12, 2015) - KP Tissue Inc. ("KPT") (TSX:KPT) reports the Q2 2015 Financial and Operational Results of KPT and Kruger Products L.P. (KPLP):

  • Revenue increased by 5.3% to $279.3 million in Q2 2015 compared to $265.3 million in Q2 2014
  • EBITDA increased by 4.1% to $30.2 million in Q2 2015 from $29.0 million in Q2 2014
  • Maintained number one overall consumer market share in Canada
  • Achieved TAD Product EBITDA contribution of $11.2 million in Q2 2015 compared to $7.8 million in Q2 2014

"We are pleased with EBITDA of $30.2 million for the quarter, considering the persistent negative impact of foreign exchange, high commodity prices and the competitive environment in the North American tissue market. Despite these challenges, we remained the clear overall market leader in the Canadian Consumer tissue market. We achieved higher EBITDA contribution from our TAD products, and from the Away-From-Home segment with the integration of the Metro Paper acquisition. Further, our incremental cost reduction initiatives are partially offsetting the impact of the adverse market conditions," said Mario Gosselin, CEO of KP Tissue and KPLP.

"The EBITDA outlook for the third quarter is for a slight improvement over the second quarter of 2015. When compared with Q3 last year, we expect that Q3 2015 EBITDA will be lower primarily due to the negative impact of foreign exchange," concluded Mr. Gosselin.

KP Tissue Inc.

KPT currently holds a 16.4% 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 2015 Financial Results

Revenue in Q2 2015 was $279.3 million, compared to $265.3 million in Q2 2014, an increase of $14.0 million or 5.3%. The increase in revenue was due to additional sales volume in the Consumer segment in Canada and Mexico, and a significant increase in AFH segment revenue resulting from the acquisition of Metro Paper. In the Consumer U.S. business, sales volume declined due to comparatively higher promotional activities in Q2 2014, which was partially offset by the favourable impact of foreign exchange on U.S. dollar sales.

Cost of sales in Q2 2015 was $240.4 million, compared to $226.3 million in Q2 2014 primarily due to the negative impact of foreign exchange fluctuations. Pulp market prices (NBSK) decreased while Eucalyptus (BEK) was up compared to the same period in 2014. Cost of sales was also negatively impacted in the quarter by a $3.4 million pension revaluation for past service costs. Cost reduction initiatives and lower natural gas prices and freight costs partially offset the above increases in cost of sales. As a percentage of revenue, cost of sales was 86.1% in Q2 2015 compared to 85.3% in Q2 2014.

Selling, general and administrative (SG&A) expenses in Q2 2015 were $21.3 million, compared to $19.9 million in Q2 2014 primarily due to higher selling expenses as a result of increased sales volume and the unfavourable impact of foreign exchange. As a percentage of revenue, SG&A expenses were 7.6% in Q2 2015 compared to 7.5% in Q2 2014.

EBITDA in Q2 2015 was $30.2 million compared to $29.0 million in Q2 2014 as the positive impact of increased sales was partially offset by higher SG&A and the net negative impact of foreign exchange in Q2 2015 compared to Q2 2014. TAD Product EBITDA increased to $11.2 million in Q2 2015 from $7.8 million in Q2 2014 due to improved sales mix, favourable foreign exchange on U.S. sales and the continued ramp-up in manufacturing operational efficiencies.

Net income in Q2 2015 was $3.2 million compared to $8.1 million in Q2 2014. The decrease was primarily due to a pension revaluation related to past service costs of $3.4 million, a change in the tax expense of $1.1 million, an increase in interest expense of $1.1 million and a decrease in the unrealized foreign exchange gain of $0.7 million, partially offset by higher EBITDA of $1.2 million.

The cash balance as of June 28, 2015 was $35.3 million compared to $32.0 million as of March 29, 2015. Cash generated from operating activities resulting from EBITDA in Q2 2015, was partially offset by higher working capital requirements, as well as capital spending and interest payments in the quarter.

KPT Q2 2015 Financial Results

KPT incurred a net loss of $0.9 million in Q2 2015. Included in the net loss was $0.5 million representing KPT's share of KPLP's income. The income was reduced by the net of depreciation expense of $1.4 million related to adjustments to carrying amounts on acquisition, and an income tax expense of $0.1 million.

KPLP Distribution

KPLP will pay a distribution of $0.18 per KPLP unit to its partners on or prior to October 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 October 15, 2015 to shareholders of record at the close of business on September 30, 2015.

Additional Information

For additional information please refer to Management's Discussion and Analysis ("MD&A") of KPT and KPLP for the second quarter ended June 28, 2015 available on SEDAR at www.sedar.com or our website at www.kptissueinc.com.

Conference Call Information

KPT will hold its second quarter conference call on Wednesday, August 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: 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 11, 2015 by dialing 800-585-8367 or 416-621-4642 and entering passcode 82096316.

The replay of the webcast will remain available on the web site until midnight, September 11, 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 16.4% 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, (ix) change in the amortized cost of the Partnership unit liability, and (x) one-time costs due to pension revaluations related to past service. 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 28, 2015 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 input costs; 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 28, 2015 December 31, 2014
$ $
Assets
Current assets
Cash and cash equivalents35,273 51,788
Trade and other receivables105,819 107,092
Receivables from related parties221 301
Advances to partners3,162 3,474
Inventories161,961 150,328
Current portion of income tax recoverable1,151 1,302
Prepaid expenses and other current assets11,395 7,351
318,982 321,636
Non-current assets
Property, plant & equipment672,950 652,762
Other long-term assets7,780 7,738
Income tax recoverable16,252 15,309
Goodwill160,939 160,939
Intangible assets13,919 14,052
Deferred income taxes20,808 19,565
Total assets1,211,630 1,192,001
Liabilities
Current liabilities
Trade and other payables158,899 173,228
Payables to related parties3,637 4,387
Distributions payable9,750 9,781
Current portion of provisions3,602 2,967
Current portion of long-term debt9,351 8,879
185,239 199,242
Non-current liabilities
Long-term debt377,314 358,646
Other long-term liabilities94 156
Provisions6,913 6,441
Pensions108,382 98,533
Post-retirement benefits56,173 53,357
Liabilities to non-unitholders734,115 716,375
Current portion of Partnership units liability6,949 6,949
Long-term portion of Partnership units liability117,387 121,174
Total Partnership units liability124,336 128,123
Total liabilities858,451 844,498
Equity
Partnership units308,584 299,616
Retained earnings (deficit)(15,503)4,424
Accumulated other comprehensive income60,098 43,463
Total equity353,179 347,503
Total equity and liabilities1,211,630 1,192,001
Kruger Products L.P.
Unaudited Condensed Consolidated Statement of Comprehensive Income (Loss)
(thousands of Canadian dollars)
13-week 13-week 26-week 26-week
period ended period ended period ended period ended
June 28, 2015 June 29, 2014 June 28, 2015 June 29, 2014
$ $ $ $
Revenue279,337 265,284 544,713 499,892
Expenses
Cost of sales240,413 226,352 462,953 425,223
Selling, general and administrative expenses21,277 19,882 42,896 40,408
Restructuring costs- 51 1,054 2,835
Operating income17,647 18,999 37,810 31,426
Interest expense12,473 11,393 22,815 22,301
Other (income) expense1,167 (158)5,949 4,870
Income before income taxes4,007 7,764 9,046 4,255
Income taxes832 (355)1,161 (641)
Net income for the period3,175 8,119 7,885 4,896
Other comprehensive income (loss)
Items that will not be reclassified to net income:
Remeasurements of pensions11,368 (30,593)(6,038)(29,512)
Remeasurements of post-retirement benefits1,503 (2,646)(2,149)(3,493)
Items that may be subsequently reclassified to net income:
Available-for-sale investment222 (113)(29)(138)
Cumulative translation adjustment(7,213)(10,027)16,664 779
Total other comprehensive income (loss) for the period5,880 (43,379)8,448 (32,364)
Comprehensive income (loss) for the period9,055 (35,260)16,333 (27,468)
Kruger Products L.P.
Unaudited Condensed Consolidated Statement of Cash Flows
(thousands of Canadian dollars)
13-week 13-week 26-week 26-week
period ended period ended period ended period ended
June 28, 2015 June 29, 2014 June 28, 2015 June 29, 2014
$ $ $ $
Cash flows from (used in) operating activities
Net income for the period3,175 8,119 7,885 4,896
Items not affecting cash
Depreciation9,234 9,387 18,978 18,194
Amortization174 187 337 331
Loss (gain) on sale of fixed assets(26)298 139 298
Change in amortized cost of Partnership units liability1,850 1,514 3,162 4,864
Unrealized foreign exchange (gain) loss(946)(1,596)2,352 83
Interest expense12,473 11,393 22,815 22,301
Pension and post retirement benefits6,096 2,308 8,776 5,004
Provisions358 237 1,691 2,421
Income taxes832 (355)1,161 (641)
Total items not affecting cash30,045 23,373 59,411 52,855
Net change in non-cash working capital(6,075)9,734 (29,484)(17,268)
Contributions to pension and post-retirement benefit plans(3,768)(8,366)(7,402)(16,216)
Provisions paid(442)(336)(707)(837)
Income tax payments(451)(513)(1,006)(886)
Net cash from operating activities22,484 32,011 28,697 22,544
Cash flows from (used in) investing activities
Purchases of property, plant & equipment(8,192)(9,222)(17,654)(19,578)
Purchases of software(39)(759)(204)(768)
Proceeds on sale of property, plant and equipment96 1 282 1
Acqusition of business- (23,360)- (23,360)
Net cash used in investing activities(8,135)(33,340)(17,576)(43,705)
Cash flows from (used in) financing activities
Repayment of credit facilities(306)(306)(510)(510)
Interest paid on credit facilities(3,324)(3,233)(10,539)(10,397)
Distributions and advances paid(7,111)(6,934)(17,522)(15,804)
Proceeds from issuing partnership units- 321 195 574
Net cash used in financing activities(10,741)(10,152)(28,376)(26,137)
Effect of exchange rate changes on cash and cash equivalents held in foreign currency
(292

)

(771

)

740

108
Increase (decrease) in cash and cash equivalents during the period3,316 (12,252)(16,515)(47,190)
Cash and cash equivalents - Beginning of period31,957 52,736 51,788 87,674
Cash and cash equivalents - End of period35,273 40,484 35,273 40,484
Kruger Products L.P.
Segment and Geographic Results
(thousands of Canadian dollars)
13-week 13-week 26-week 26-week
period ended period ended period ended period ended
June 28, 2015 June 29, 2014 June 28, 2015 June 29, 2014
$ $ $ $
Segment Information
Segment Revenue
Consumer217,045 216,900 427,195 415,278
AFH57,438 44,264 105,997 77,746
Other4,854 4,120 11,521 6,868
Total segment revenue279,337 265,284 544,713 499,892
Segment EBITDA
Consumer29,122 29,541 59,419 54,490
AFH2,055 137 3,023 (387)
Other(995)(680)(1,143)(942)
Total segment EBITDA30,182 28,998 61,299 53,161
Reconciliation to Net Income:
Depreciation and amortization9,408 9,574 19,315 18,525
Interest expense12,473 11,393 22,815 22,301
Change in amortized cost of Partnership units liability1,850 1,514 3,162 4,864
Gain (loss) on sale of fixed assets(26)298 139 298
Pension revaluation - past service cost3,416 - 3,416 -
Restructuring costs- 51 1,054 2,835
Unrealized foreign exchange (gain) loss(946)(1,596)2,352 83
Income before income taxes4,007 7,764 9,046 4,255
Income taxes832 (355)1,161 (641)
Net income for the period3,175 8,119 7,885 4,896
Geographic Revenue
Canada180,809 172,981 344,202 334,141
U.S.90,427 86,310 183,805 153,068
Mexico8,101 5,993 16,706 12,683
Total Revenue279,337 265,284 544,713 499,892
KP Tissue Inc.
Unaudited Condensed Statement of Financial Position
(thousands of Canadian dollars)
June 28, 2015 December 31, 2014
$ $
Assets
Current assets
Distributions receivable1,602 1,601
Receivable from Partnership30 -
1,632 1,601
Non-current assets
Investment in associate150,751 153,732
Total Assets152,383 155,333
Liabilities
Current liabilities
Dividend payable1,602 1,601
Payable to Partnership- 53
Advances from Partnership526 584
Income taxes payable89 495
2,217 2,733
Non-current liabilities
Deferred income taxes1,734 2,005
Total liabilities3,951 4,738
Equity
Common shares10,740 10,138
Contributed surplus144,819 144,819
Deficit(18,096)(12,220)
Accumulated other comprehensive income10,969 7,858
Total equity148,432 150,595
Total liabilities and equity152,383 155,333
KP Tissue Inc.
Unaudited Condensed Statement of Comprehensive Income (Loss)
(thousands of Canadian dollars, except share and per share amounts)
13-week 13-week 26-week 26-week
period ended period ended period ended period ended
June 28, 2015 June 29, 2014 June 28, 2015 June 29, 2014
$ $ $ $
Equity loss(909)(96)(1,567)(2,179)
Dilution gain37 14 122 58
Loss before income taxes(872)(82)(1,445)(2,121)
Income taxes75 190 139 (167)
Net loss for the period(947)(272)(1,584)(1,954)
Other comprehensive income (loss)
net of tax expense (recovery)
Items that will not be reclassified to net loss:
Remeasurements of pensions1,631 (4,437)(864)(4,280)
Remeasurements of post-retirement benefits151 (232)(216)(355)
Items that may be subsequently reclassified to net loss:
Available-for-sale investment32 (17)(4)(21)
Cumulative translation adjustment(296)(1,897)3,115 152
Total other comprehensive income (loss) for the period1,518 (6,583)2,031 (4,504)
Comprehensive income (loss) for the period571 (6,855)447 (6,458)
Basic loss per share(0.11)(0.03)(0.18)(0.22)
Weighted average number of shares outstanding8,894,391 8,825,516 8,883,295 8,815,777
KP Tissue Inc.
Unaudited Condensed Statement of Cash Flows
(thousands of Canadian dollars)
13-week 13-week 26-week 26-week
period ended period ended period ended period ended
June 28, 2015 June 29, 2014 June 28, 2015 June 29, 2014
$ $ $ $
Cash flows from (used in) operating activities
Net loss for the period(947)(272)(1,584)(1,954)
Items not affecting cash
Equity loss909 96 1,567 2,179
Dilution gain(37)(14)(122)(58)
Income taxes75 190 139 (167)
Total items not affecting cash947 272 1,584 1,954
Tax payments(307)(234)(1,097)(693)
Tax distribution received- - 571 459
Advances received307 234 526 234
Net cash from (used in) operating activities- - - -
Cash flows from (used in) investing activites
Investment in associate- (321)(195)(574)
Partnership unit distributions received1,209 1,585 2,804 3,168
Net cash from investing activities1,209 1,264 2,609 2,594
Cash flows from (used in) financing activities
Issuance of common shares- 321 195 574
Dividends paid(1,209)(1,585)(2,804)(3,168)
Net cash used in financing activities(1,209)(1,264)(2,609)(2,594)
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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