KP Tissue Inc.
TSX : KPT

KP Tissue Inc.

August 10, 2016 07:00 ET

KP Tissue Releases Second Quarter 2016 Financial Results

Q2 Adjusted EBITDA increased 18.9%

MISSISSAUGA, ONTARIO--(Marketwired - Aug. 10, 2016) - KP Tissue Inc. (KPT) (TSX:KPT) reports the Q2 2016 financial and operational results of KPT and Kruger Products L.P. (KPLP). Kruger Products is Canada's leading manufacturer of quality tissue products for the Consumer market (Cashmere®, Purex®, SpongeTowels®, Scotties®, and White Swan®) and the Away-From-Home market, and continues to grow in the U.S. Consumer tissue business with the White Cloud® brand and premium private label products. KPT currently holds a 16.2% interest in KPLP.

KPLP Q2 2016 Business and Financial Highlights

  • Revenue increased by 5.9% to $295.8 million in Q2 2016 compared to Q2 2015
  • Adjusted EBITDA was $35.9 million in Q2 2016 compared to $30.2 million in Q2 2015, up 18.9%
  • Foreign exchange negative impact of approximately $1 million on Adjusted EBITDA over the previous year
  • Continue to be the market share leader in Canada
  • Declared a quarterly dividend of $0.18 per share to be paid on October 17, 2016
  • Announced on July 25 a new paper machine investment in Quebec of $55 million

"A combination of several favourable factors resulted in a very solid Adjusted EBITDA performance for the quarter, one of our highest levels since going public. The Consumer segment was the main driver of our Adjusted EBITDA growth of 18.9% over last year," said Mario Gosselin, CEO of KPT and KPLP.

"For the quarter, the impact of foreign exchange remained a negative factor on Adjusted EBITDA but was offset by higher sales driven primarily by promotional activities, lower pulp and natural gas costs, and the benefit of higher selling prices in the Canadian consumer market which positively impacted the latter part of the quarter. Adjusted EBITDA from TAD products in the U.S. was slightly higher, while Away-from-Home declined slightly.

"For the third quarter, while we anticipate continued benefits from higher selling prices in Canada, the industry remains quite competitive. Consequently, we expect third quarter 2016 Adjusted EBITDA to be higher than the second quarter of 2016," concluded Mr. Gosselin.

KPLP Q2 2016 Financial Results

Revenue in Q2 2016 was $295.8 million, compared to $279.3 million in Q2 2015, an increase of $16.5 million or 5.9%. The increase in revenue was primarily due to higher sales volumes, the favourable impact of foreign exchange on U.S. dollar sales, and a selling price increase in Canada.

Cost of sales in Q2 2016 increased to $249.9 million compared to $240.4 million in Q2 2015, primarily due to higher sales volumes and the negative impact of foreign exchange fluctuations and increased warehousing costs, partially offset by a decline in USD pulp and natural gas prices. As a percentage of revenue, cost of sales were 84.5% in Q2 2016 compared to 86.1% in Q2 2015.

Selling, general and administrative (SG&A) expenses in Q2 2016 were $22.0 million compared to $21.3 million in Q2 2015. The increase was primarily due to higher sales volumes and the unfavourable impact of foreign exchange. As a percentage of revenue, SG&A expenses decreased to 7.4% in Q2 2016 from 7.6% in Q2 2015.

Adjusted EBITDA in Q2 2016 was $35.9 million compared to $30.2 million in Q2 2015 due to higher sales and lower USD costs for pulp and natural gas, partially offset by higher warehousing and SG&A costs from increased sales, and the net negative impact of foreign exchange. Adjusted EBITDA attributable to the sale of KTG's TAD products was $12.0 million in Q2 2016 compared to $11.2 million in Q2 2015.

Net income in Q2 2016 was $12.0 million compared to $3.2 million in Q2 2015 primarily due to higher Adjusted EBITDA of $5.7 million, a pension revaluation related to past service cost of $3.4 million in Q2 2015, lower amortized cost of the Partnership unit liability of $1.9 million, and a decrease in interest expense of $1.6 million. These items were partially offset by an increase in depreciation expense of $2.7 million, a decrease in the unrealized foreign exchange gain of $0.6 million, and restructuring costs of $0.4 million.

Total liquidity, representing cash and cash equivalents and availability under the credit line within covenant limitations, was $77.8 million as of June 26, 2016 compared to $58.5 million as of March 27, 2016.

KPT Q2 2016 Financial Results

KPT incurred a net loss of $0.6 million in Q2 2016. Included in the net loss was $2.0 million representing KPT's share of KPLP's income. The income was reduced by depreciation expense of $1.5 million related to adjustments to carrying amounts on acquisition and income tax expense of $1.3 million.

Dividends on Common Shares

The Board of Directors of KPT declared a quarterly dividend of $0.18 per share to be paid on October 17, 2016 to shareholders of record at the close of business on September 30, 2016.

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 26, 2016 available on SEDAR at www.sedar.com or our website at www.kptissueinc.com.

Second Quarter Results Conference Call Information

KPT will hold its second quarter conference call on Wednesday, August 10, 2016 at 8:30 a.m. Eastern Time.

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.

A rebroadcast of the conference call will be available until midnight, September 9, 2016 by dialing 800-585-8367 or 416-621-4642 and entering passcode 46381716.

The replay of the webcast will remain available on the website until midnight, September 9, 2016.

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 16.2% 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 and operates seven production facilities in North America, including five FSC® CoC- certified mills (FSC® C104904), four of which are located in Canada and one in the U.S. For more information visit www.krugerproducts.ca.

Non-IFRS Measures

This press release uses certain non-IFRS financial measures which KPLP believes provide useful information to 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 a measure is Adjusted EBITDA. Beginning with Q4 2015 in accordance with Canadian Securities Administrators Staff Notice 52-306 (Revised), we reference Adjusted EBITDA as a non-IFRS financial measure. This term replaces the previously referenced non-IFRS financial measure EBITDA. Our definition of Adjusted EBITDA is unchanged from our former definition of EBITDA. Accordingly, this change in terminology has no impact on our reported financial results for prior periods. Adjusted 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. "Adjusted EBITDA" is calculated by KPLP as net income (loss) before (i) interest expense, (ii) income taxes, (iii) depreciation, (iv) amortization, (v) impairment (recovery) of non-financial assets, (vi) loss (gain) on disposal of property, plant and equipment, (vii) unrealized foreign exchange loss (gain), (viii) costs related to restructuring activities, (ix) changes in the amortized cost of the Partnership units liability, and (x) one-time costs due to pension revaluations related to past service. A reconciliation of Adjusted EBITDA to the relevant reported results can be found in the MD&A of KPT and KPLP for the second quarter ended June 26, 2016 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 Adjusted EBITDA, the expectation of continued growth in sales of TAD products in the U.S., and stable interest rates. 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.

The outlook provided in respect of Adjusted EBITDA for Q3 2016 is forward-looking information and is subject to the risk and uncertainties referred to below. The purpose of the outlook is to provide the reader with an indication of management's expectations, at the date of this press release, regarding KPLP's future financial performance. Readers are cautioned that this information may not be appropriate for other purposes.

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 10, 2016 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 26, 2016 December 31, 2015
$ $
Assets
Current assets
Cash and cash equivalents10,104 25,455
Trade and other receivables108,178 108,720
Receivables from related parties455 185
Current portion of advances to partners5,465 2,630
Inventories183,925 184,985
Income tax recoverable593 772
Prepaid expenses9,752 8,429
318,472 331,176
Non-current assets
Advances to partners- 4,234
Property, plant & equipment729,693 737,708
Other long-term assets6,839 8,107
Goodwill160,939 160,939
Intangible assets15,344 15,853
Deferred income taxes37,906 39,411
Total assets1,269,193 1,297,428
Liabilities
Current liabilities
Trade and other payables188,026 180,329
Payables to related parties5,084 3,775
Distributions payable10,016 9,871
Current portion of provisions2,471 3,096
Current portion of long-term debt9,148 10,183
214,745 207,254
Non-current liabilities
Long-term debt408,420 425,859
Other long-term liabilities16 48
Provisions6,583 6,180
Pensions127,047 87,164
Post-retirement benefits59,405 57,346
Liabilities to non-unitholders816,216 783,851
Current portion of Partnership units liability2,630 2,630
Long-term portion of Partnership units liability121,148 122,546
Total Partnership units liability123,778 125,176
Total liabilities939,994 909,027
Equity
Partnership units327,021 318,012
Deficit(76,510)(29,416)
Accumulated other comprehensive income78,688 99,805
Total equity329,199 388,401
Total equity and liabilities1,269,193 1,297,428
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 26, 2016 June 28, 2015 June 26, 2016 June 28, 2015
$ $ $ $
Revenue295,757 279,337 575,447 544,713
Expenses
Cost of sales249,878 240,413 490,525 462,953
Selling, general and administrative expenses21,986 21,277 43,638 42,896
Restructuring costs393 - 393 1,054
Operating income23,500 17,647 40,891 37,810
Interest expense10,921 12,473 22,135 22,815
Other (income) expense(291)1,167 (1,120)5,949
Income before income taxes12,870 4,007 19,876 9,046
Income taxes834 832 1,450 1,161
Net income for the period12,036 3,175 18,426 7,885
Other comprehensive income (loss)
Items that will not be reclassified to net income:
Remeasurements of pensions(27,120)11,368 (43,889)(6,038)
Remeasurements of post-retirement benefits(1,755)1,503 (1,634)(2,149)
Items that may be subsequently reclassified to net income:
Available-for-sale investment- 222 (290)(29)
Cumulative translation adjustment(6,846)(7,213)(20,827)16,664
Total other comprehensive income (loss) for the period(35,721)5,880 (66,640)8,448
Comprehensive income (loss) for the period(23,685)9,055 (48,214)16,333
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 26, 2016 June 28, 2015 June 26, 2016 June 28, 2015
$ $ $ $
Cash flows from (used in) operating activities
Net income for the period12,036 3,175 18,426 7,885
Items not affecting cash
Depreciation11,681 9,234 21,768 18,978
Amortization296 174 580 337
Loss (gain) on sale of fixed assets(4)(26)(3)139
Change in amortized cost of Partnership units liability- 1,850 1,234 3,162
Gain on sale of investment- - (324)-
Unrealized foreign exchange (gain) loss(291)(946)(2,030)2,352
Interest expense10,921 12,473 22,135 22,815
Pension and post retirement benefits2,659 6,096 5,318 8,776
Provisions658 358 799 1,691
Income taxes834 832 1,450 1,161
Total items not affecting cash26,754 30,045 50,927 59,411
Net change in non-cash working capital12,177 (6,075)(4,462)(29,484)
Contributions to pension and post-retirement benefit plans(5,462)(3,768)(11,305)(7,402)
Provisions paid(642)(442)(1,118)(707)
Income tax payments(508)(451)(1,373)(1,006)
Net cash from operating activities44,355 22,484 51,095 28,697
Cash flows from (used in) investing activities
Purchases of property, plant & equipment(22,512)(8,192)(38,701)(17,654)
Proceeds on sale of investment- - 1,439 -
Government assistance received- - 1,209 -
Purchases of software(2)(39)(71)(204)
Proceeds on sale of property, plant and equipment4 96 4 282
Net cash used in investing activities(22,510)(8,135)(36,120)(17,576)
Cash flows from (used in) financing activities
Proceeds from long-term debt- - 791 -
Repayment of long-term debt(306)(306)(7,510)(510)
Payment of deferred financing fees(5)- (335)-
Interest paid on long-term debt(8,737)(3,324)(9,756)(10,539)
Distributions and advances paid(5,530)(7,111)(12,077)(17,522)
Proceeds from issuing partnership units- - - 195
Net cash used in financing activities(14,578)(10,741)(28,887)(28,376)
Effect of exchange rate changes on cash and cash equivalents held in foreign currency(1,143)(292)(1,439)740
Increase (decrease) in cash and cash equivalents during the period6,124 3,316 (15,351)(16,515)
Cash and cash equivalents - Beginning of period3,980 31,957 25,455 51,788
Cash and cash equivalents - End of period10,104 35,273 10,104 35,273
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 26, 2016 June 28, 2015 June 26, 2016 June 28, 2015
$ $ $ $
Segment Information
Segment Revenue
Consumer232,395 217,045 460,546 427,195
AFH59,051 57,438 108,102 105,997
Other4,311 4,854 6,799 11,521
Total segment revenue295,757 279,337 575,447 544,713
Segment Adjusted EBITDA
Consumer34,063 29,122 62,066 59,419
AFH1,431 2,055 1,265 3,023
Other372 (995)622 (1,143)
Total segment Adjusted EBITDA35,866 30,182 63,953 61,299
Reconciliation to Net Income:
Depreciation and amortization11,977 9,408 22,348 19,315
Interest expense10,921 12,473 22,135 22,815
Change in amortized cost of Partnership units liability- 1,850 1,234 3,162
(Gain) loss on sale of fixed assets(4)(26)(3)139
Pension revaluation - past service cost- 3,416 - 3,416
Restructuring costs393 - 393 1,054
Unrealized foreign exchange (gain) loss(291)(946)(2,030)2,352
Income before income taxes12,870 4,007 19,876 9,046
Income taxes834 832 1,450 1,161
Net income12,036 3,175 18,426 7,885
Geographic Revenue
Canada179,974 180,809 345,859 344,202
U.S.102,906 90,427 204,579 183,805
Mexico12,877 8,101 25,009 16,706
Total revenue295,757 279,337 575,447 544,713
KP Tissue Inc.
Unaudited Condensed Statement of Financial Position
(thousands of Canadian dollars)
June 26, 2016 December 31, 2015
$ $
Assets
Current assets
Distributions receivable1,624 1,613
Income tax recoverable897 828
2,521 2,441
Non-current assets
Investment in associate111,544 126,643
Total Assets114,065 129,084
Liabilities
Current liabilities
Dividend payable1,624 1,613
Payable to Partnership207 108
Current portion of advances from Partnership914 432
2,745 2,153
Non-current liabilities
Advances from Partnership- 709
Deferred income taxes1,365 1,007
Total liabilities4,110 3,869
Equity
Common shares12,258 11,577
Contributed surplus144,819 144,819
Deficit(60,985)(49,291)
Accumulated other comprehensive income13,863 18,110
Total equity109,955 125,215
Total liabilities and equity114,065 129,084
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 26, 2016 June 28, 2015 June 26, 2016 June 28, 2015
$ $ $ $
Equity income (loss)469 (909)91 (1,567)
Dilution gain255 37 84 122
Income (loss) before income taxes724 (872)175 (1,445)
Income taxes1,329 75 2,258 139
Net loss for the period(605)(947)(2,083)(1,584)
Other comprehensive income (loss)
net of tax expense (recovery)
Items that will not be reclassified to net loss:
Remeasurements of pensions(3,829)1,631 (6,209)(864)
Remeasurements of post-retirement benefits(174)151 (162)(216)
Items that may be subsequently reclassified to net loss:
Available-for-sale investment- 32 (41)(4)
Cumulative translation adjustment(1,675)(296)(4,206)3,115
Total other comprehensive income (loss) for the period(5,678)1,518 (10,618)2,031
Comprehensive income (loss) for the period(6,283)571 (12,701)447
Basic loss per share(0.07)(0.11)(0.23)(0.18)
Weighted average number of shares outstanding9,016,939 8,894,391 9,005,511 8,883,295
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 26, 2016 June 28, 2015 June 26, 2016 June 28, 2015
$ $ $ $
Cash flows from (used in) operating activities
Net loss for the period(605)(947)(2,083)(1,584)
Items not affecting cash
Equity (income) loss(469)909 (91)1,567
Dilution gain(255)(37)(84)(122)
Income taxes1,329 75 2,258 139
Total items not affecting cash605 947 2,083 1,584
Tax payments- (307)(205)(1,097)
Tax distribution received- - - 571
Advances received- 307 205 526
Net cash from (used in) operating activities- - - -
Cash flows from (used in) investing activites
Investment in associate- - - (195)
Partnership unit distributions received935 1,209 2,548 2,804
Net cash from investing activities935 1,209 2,548 2,609
Cash flows from (used in) financing activities
Issuance of common shares- - - 195
Dividends paid(935)(1,209)(2,548)(2,804)
Net cash used in financing activities(935)(1,209)(2,548)(2,609)
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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