KP Tissue Releases Third Quarter 2015 Financial Results

MISSISSAUGA, ONTARIO--(Marketwired - Nov. 11, 2015) - KP Tissue Inc. ("KPT") (TSX:KPT) reports the Q3 2015 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 16.3% interest in KPLP.

KPLP Business and Financial Highlights

• Revenue increased by 9.7% to $293.6 million in Q3 2015 compared to Q3 2014
• EBITDA was $34.8 million in Q3 2015, higher than Q2 2015 by $4.6 million and lower than Q3 2014 by $3.2 million.
• TAD Product Q3 EBITDA increased by $4.7 million year-over-year to $11.2 million
• Strong brands supporting overall consumer market share leadership in Canada
• Redeemed $175 million of senior notes by increasing existing credit facility to $300 million, resulting in interest expense savings of approximately $9 million annually at current interest rates
• Declared a quarterly dividend of $0.18 per share to be paid on January 15, 2016

"I am pleased with our financial results for the third quarter, considering the ongoing negative impact of foreign exchange and the timing of our marketing expenses. In particular, the Canadian Consumer and Away-From-Home segments continue to be unfavourably impacted by the purchase of pulp in U.S. dollars. We continue to see good progress in the U.S. Consumer business with our TAD products. The Away-From-Home segment registered solid organic growth and its EBITDA contribution remained stable over last year. Finally, interest expense savings of $9 million from the senior note redemption can be dedicated to strategic capital projects to reduce our manufacturing costs and improve our bottom line," said Mario Gosselin, CEO of KP Tissue and KPLP.

"Our EBITDA outlook for Q4 2015 is expected to be similar to Q4 2014 despite the ongoing negative impact of foreign exchange. While we continue to mitigate this foreign exchange impact through various cost reduction programs, we remain optimistic about our solid market position in the Canadian consumer market, our expansion in the U.S. premium private label business, and the ability to build a North American platform in the Away-From-Home segment," concluded Mr. Gosselin.

KPLP Q3 2015 Financial Results

Revenue in Q3 2015 was $293.6 million, compared to $267.6 million in Q3 2014, an increase of $26.0 million or 9.7%. The increase in revenue was primarily due to additional sales volume in the U.S consumer business from our TAD products and organic growth in the Away-From-Home business. In addition, U.S. sales were favourably impacted by foreign exchange.

Cost of sales in Q3 2015 increased to $248.0 million compared to $219.9 million in Q3 2014 primarily due to the negative impact of foreign exchange, slightly offset by a decline in natural gas prices. Freight and warehousing costs increased due to higher sales volumes and inventory levels. Cost reduction initiatives partially offset the above increases in cost of sales. As a percentage of revenue, cost of sales was 84.5% in Q3 2015 compared to 82.2% in Q3 2014.

Selling, general and administrative (SG&A) expenses in Q3 2015 were $21.6 million, compared to $17.7 million in Q3 2014 primarily due to higher advertising & promotion and selling expenses, and the unfavourable impact of foreign exchange. As a percentage of revenue, SG&A expenses were 7.4% in Q3 2015 compared to 6.6% in Q3 2014.

EBITDA in Q3 2015 was $34.8 million compared to $38.0 million in Q3 2014 as the positive impact of increased sales was more than offset by the net negative impact of foreign exchange. As indicated above, SG&A, freight and warehousing costs increased over the same period last year. TAD Product EBITDA increased to $11.2 million in Q3 2015 from $6.5 million in Q3 2014 due to increased sales volume, favourable foreign exchange and the continued ramp-up in manufacturing efficiencies.

The net loss in Q3 2015 was $5.9 million, compared to net income of $16.1 million in Q3 2014. The decrease was primarily due to an increase in interest expense of $12.7 million resulting mainly from additional charges related to the redemption of the $175 million senior notes, lower EBITDA of $3.2 million, higher depreciation expense of $2.2 million, a change in the tax expense of $1.6 million, and an increase in the unrealized foreign exchange loss of $1.2 million.

The cash balance as of September 27, 2015 was $38.5 million compared to $35.3 million as of June 28, 2015. Cash generated from operating activities resulting from EBITDA in Q3 2015 and lower working capital was partially offset by capital spending and interest payments in the quarter.

KPT Q3 2015 Financial Results

KPT incurred a net loss of $2.0 million in Q3 2015. Included in the net loss was $1.0 million representing KPT's share of KPLP's loss. The loss was reduced by the net of depreciation expense of $1.4 million related to adjustments to carrying amounts on acquisition, partially offset by an income tax recovery of $0.4 million.

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, 2016 to shareholders of record at the close of business on December 31, 2015.

Additional Information

For additional information please refer to Management's Discussion and Analysis ("MD&A") of KPT and KPLP for the third quarter ended September 27, 2015 available on SEDAR at www.sedar.com or our website at www.kptissueinc.com.

Third Quarter Result Conference Call Information

KPT will hold its third quarter conference call on Thursday, November 12, 2015 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, December 11, 2015 by dialing 800-585-8367 or 416-621-4642 and entering passcode 56759656. The replay of the webcast will remain available on the web site until midnight, December 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 16.3% 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. Examples of such measures are EBITDA and TAD Product EBITDA. EBITDA and TAD Product EBITDA are not measurements 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 third quarter ended September 27, 2015 available on SEDAR at www.sedar.com. "TAD Product EBITDA" represents the portion of KTG EBITDA generated by the sale of TAD products.

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 and the expectation of continued growth in sales of TAD products in the U.S. 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 EBITDA for Q4 2015 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 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)
		September 27, 2015		December 31, 2014
		$		$
Assets
Current assets
	Cash and cash equivalents	38,547		51,788
	Trade and other receivables	118,636		107,092
	Receivables from related parties	49		301
	Advances to partners	5,013		3,474
	Inventories	175,656		150,328
	Current portion of income tax recoverable	1,212		1,302
	Prepaid expenses and other current assets	7,784		7,351
		346,897		321,636
Non-current assets
	Property, plant & equipment	708,065		652,762
	Other long-term assets	7,587		7,738
	Income tax recoverable	19,100		15,309
	Goodwill	160,939		160,939
	Intangible assets	15,449		14,052
	Deferred income taxes	22,653		19,565
Total assets		1,280,690		1,192,001
Liabilities
Current liabilities
	Trade and other payables	187,365		173,228
	Payables to related parties	4,289		4,387
	Distributions payable	9,806		9,781
	Current portion of provisions	4,255		2,967
	Current portion of long-term debt	10,011		8,879
		215,726		199,242
Non-current liabilities
	Long-term debt	398,949		358,646
	Other long-term liabilities	69		156
	Provisions	7,167		6,441
	Pensions	106,238		98,533
	Post-retirement benefits	55,065		53,357
	Liabilities to non-unitholders	783,214		716,375
	Current portion of Partnership units liability	6,949		6,949
	Long-term portion of Partnership units liability	119,238		121,174
	Total Partnership units liability	126,187		128,123
Total liabilities		909,401		844,498
Equity
	Partnership units	313,236		299,616
	Retained earnings (deficit)	(27,997	)	4,424
	Accumulated other comprehensive income	86,050		43,463
Total equity		371,289		347,503
Total equity and liabilities		1,280,690		1,192,001

Kruger Products L.P.
Unaudited Condensed Consolidated Statement of Comprehensive Income (Loss)
(thousands of Canadian dollars)
		13-week		13-week		39-week		39-week
		period ended		period ended		period ended		period ended
		September 27, 2015		September 28, 2014		September 27, 2015		September 28, 2014
		$		$		$		$
Revenue		293,574		267,629		838,287		767,521
Expenses
	Cost of sales	247,964		219,914		710,917		645,137
	Selling, general and administrative expenses	21,630		17,717		64,526		58,125
	Recovery of non-financial assets	(1,131	)	-		(1,131	)	-
	Restructuring costs	781		-		1,835		2,835
Operating income		24,330		29,998		62,140		61,424
	Interest expense	25,254		12,622		48,069		34,923
	Other expense	4,821		2,752		10,770		7,622
Income (loss) before income taxes		(5,745	)	14,624		3,301		18,879
Income taxes		121		(1,477	)	1,282		(2,118	)
Net income (loss) for the period		(5,866	)	16,101		2,019		20,997
Other comprehensive income (loss)
	Items that will not be reclassified to net income:
	Remeasurements of pensions	1,915		(1,999	)	(4,123	)	(31,511	)
	Remeasurements of post-retirement benefits	1,447		(18	)	(702	)	(3,511	)
	Items that may be subsequently reclassified to net income:
	Available-for-sale investment	(277	)	(183	)	(306	)	(321	)
	Cumulative translation adjustment	26,229		12,260		42,893		13,039
Total other comprehensive income (loss) for the period		29,314		10,060		37,762		(22,304	)
Comprehensive income (loss) for the period		23,448		26,161		39,781		(1,307	)

Kruger Products L.P.
Unaudited Condensed Consolidated Statement of Cash Flows
(thousands of Canadian dollars)
		13-week		13-week		39-week		39-week
		period ended		period ended		period ended		period ended
		September 27, 2015		September 28, 2014		September 27, 2015		September 28, 2014
		$		$		$		$
Cash flows from (used in) operating activities
Net income (loss) for the period		(5,866	)	16,101		2,019		20,997
Items not affecting cash
	Depreciation	10,476		8,380		29,454		26,574
	Amortization	226		148		563		479
	Loss (gain) on sale of fixed assets	145		(577	)	284		(279	)
	Change in amortized cost of Partnership units liability	1,851		1,043		5,013		5,907
	Unrealized foreign exchange loss	2,976		1,796		5,328		1,879
	Interest expense	25,254		12,622		48,069		34,923
	Pension and post retirement benefits	2,685		2,435		11,461		7,439
	Provisions	1,114		245		2,805		2,666
	Income taxes	121		(1,477	)	1,282		(2,118	)
	Recovery of non-financial assets	(1,131	)	-		(1,131	)	-
	Total items not affecting cash	43,717		24,615		103,128		77,470
Net change in non-cash working capital		9,326		(12,395	)	(20,158	)	(29,663	)
Contributions to pension and post-retirement benefit plans		(4,129	)	(4,044	)	(11,531	)	(20,260	)
Provisions paid		(271	)	(247	)	(978	)	(1,084	)
Income tax payments		(544	)	(736	)	(1,550	)	(1,622	)
Net cash from operating activities		42,233		23,294		70,930		45,838
Cash flows from (used in) investing activities
Purchases of property, plant & equipment		(15,495	)	(7,606	)	(33,149	)	(27,184	)
Purchases of software		(1,756	)	(221	)	(1,960	)	(989	)
Proceeds on sale of property, plant and equipment		454		577		736		578
Acqusition of business		-		-		-		(23,360	)
Net cash used in investing activities		(16,797	)	(7,250	)	(34,373	)	(50,955	)
Cash flows from (used in) financing activities
Repayment of credit facilities		(4,370	)	(3,824	)	(4,880	)	(4,334	)
Payment of deferred financing fees		(140	)	-		(140	)	-
Interest paid on credit facilities		(11,836	)	(10,799	)	(22,375	)	(21,196	)
Distributions and advances paid		(7,133	)	(6,611	)	(24,655	)	(22,415	)
Proceeds from issuing partnership units		-		304		195		878
Net cash used in financing activities		(23,479	)	(20,930	)	(51,855	)	(47,067	)
Effect of exchange rate changes on cash and cash equivalents held in foreign currency		1,317		741		2,057		849
Increase (decrease) in cash and cash equivalents during the period		3,274		(4,145	)	(13,241	)	(51,335	)
Cash and cash equivalents - Beginning of period		35,273		40,484		51,788		87,674
Cash and cash equivalents - End of period		38,547		36,339		38,547		36,339

Kruger Products L.P.
Segment and Geographic Results
(thousands of Canadian dollars)
		13-week		13-week		39-week		39-week
		period ended		period ended		period ended		period ended
		September 27, 2015		September 28, 2014		September 27, 2015		September 28, 2014
		$		$		$		$
Segment Information
Segment Revenue
	Consumer	230,181		209,495		657,376		624,773
	AFH	59,524		52,613		165,521		130,359
	Other	3,869		5,521		15,390		12,389
Total segment revenue		293,574		267,629		838,287		767,521
Segment EBITDA
	Consumer	32,338		37,745		91,757		92,235
	AFH	1,763		1,767		4,786		1,380
	Other	732		(1,476	)	(411	)	(2,418	)
Total segment EBITDA		34,833		38,036		96,132		91,197
Reconciliation to Net Income (Loss):
Depreciation and amortization		10,702		8,528		30,017		27,053
Interest expense		25,254		12,622		48,069		34,923
Change in amortized cost of Partnership units liability		1,851		1,043		5,013		5,907
Gain (loss) on sale of fixed assets		145		(577	)	284		(279	)
Recovery of non-financial assets		(1,131	)	-		(1,131	)	-
Restructuring costs		781		-		1,835		2,835
Pension revaluation - past service cost		-		-		3,416		-
Unrealized foreign exchange loss		2,976		1,796		5,328		1,879
Income (loss) before income taxes		(5,745	)	14,624		3,301		18,879
Income taxes		121		(1,477	)	1,282		(2,118	)
Net income (loss) for the period		(5,866	)	16,101		2,019		20,997
Geographic Revenue
Canada		183,167		182,260		527,369		516,401
U.S.		101,965		77,758		285,770		230,826
Mexico		8,442		7,611		25,148		20,294
Total Revenue		293,574		267,629		838,287		767,521

KP Tissue Inc.
Unaudited Condensed Statement of Financial Position
(thousands of Canadian dollars)
		September 27, 2015		December 31, 2014
		$		$
Assets
Current assets
	Distributions receivable	1,607		1,601
	Receivable from Partnership	31		-
		1,638		1,601
Non-current assets
	Investment in associate	153,096		153,732
Total Assets		154,734		155,333
Liabilities
Current liabilities
	Dividend payable	1,607		1,601
	Payable to Partnership	-		53
	Advances from Partnership	834		584
	Income taxes payable	81		495
		2,522		2,733
Non-current liabilities
	Deferred income taxes	1,861		2,005
Total liabilities		4,383		4,738
Equity
	Common shares	11,151		10,138
	Contributed surplus	144,819		144,819
	Deficit	(21,281	)	(12,220	)
	Accumulated other comprehensive income	15,662		7,858
Total equity		150,351		150,595
Total liabilities and equity		154,734		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		39-week		39-week
		period ended		period ended		period ended		period ended
		September 27, 2015		September 28, 2014		September 27, 2015		September 28, 2014
		$		$		$		$
Equity income (loss)		(2,397	)	1,235		(3,964	)	(944	)
Dilution gain		7		37		129		95
Income (loss) before income taxes		(2,390	)	1,272		(3,835	)	(849	)
Income taxes		(409	)	585		(270	)	418
Net income (loss) for the period		(1,981	)	687		(3,565	)	(1,267	)
Other comprehensive income (loss)
	net of tax expense (recovery)
	Items that will not be reclassified to net income (loss):
	Remeasurements of pensions	274		(284	)	(590	)	(4,564	)
	Remeasurements of post-retirement benefits	145		(1	)	(71	)	(356	)
	Items that may be subsequently reclassified to net income (loss):
	Available-for-sale investment	(39	)	(26	)	(43	)	(47	)
	Cumulative translation adjustment	4,732		2,309		7,847		2,461
Total other comprehensive income (loss) for the period		5,112		1,998		7,143		(2,506	)
Comprehensive income (loss) for the period		3,131		2,685		3,578		(3,773	)
Basic earnings (loss) per share		(0.22	)	0.08		(0.40	)	(0.14	)
Weighted average number of shares outstanding		8,921,501		8,845,503		8,896,215		8,825,759

KP Tissue Inc.
Unaudited Condensed Statement of Cash Flows
(thousands of Canadian dollars)
		13-week		13-week		39-week		39-week
		period ended		period ended		period ended		period ended
		September 27, 2015		September 28, 2014		September 27, 2015		September 28, 2014
		$		$		$		$
Cash flows from (used in) operating activities
Net income (loss) for the period		(1,981	)	687		(3,565	)	(1,267	)
Items not affecting cash
	Equity income (loss)	2,397		(1,235	)	3,964		944
	Dilution gain	(7	)	(37	)	(129	)	(95	)
	Income taxes	(409	)	585		(270	)	418
	Total items not affecting cash	1,981		(687	)	3,565		1,267
Tax payments		(308	)	(175	)	(1,405	)	(868	)
Tax distribution received		-		-		571		459
Advances received		308		175		834		409
Net cash from (used in) operating activities		-		-		-		-
Cash flows from (used in) investing activites
Investment in associate		-		(303	)	(195	)	(877	)
Partnership unit distributions received		1,208		1,589		4,012		4,757
Net cash from investing activities		1,208		1,286		3,817		3,880
Cash flows from (used in) financing activities
Issuance of common shares		-		303		195		877
Dividends paid		(1,208	)	(1,589	)	(4,012	)	(4,757	)
Net cash used in financing activities		(1,208	)	(1,286	)	(3,817	)	(3,880	)
Increase (decrease) in cash and cash equivalents during the period		-		-		-		-
Cash and cash equivalents - Beginning of period		-		-		-		-
Cash and cash equivalents - End of period		-		-		-		-