KP Tissue Inc.
TSX : KPT

KP Tissue Inc.

November 11, 2015 19:56 ET

KP Tissue Releases Third Quarter 2015 Financial Results

Continued Momentum in the U.S. Consumer Business

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 equivalents38,547 51,788
Trade and other receivables118,636 107,092
Receivables from related parties49 301
Advances to partners5,013 3,474
Inventories175,656 150,328
Current portion of income tax recoverable1,212 1,302
Prepaid expenses and other current assets7,784 7,351
346,897 321,636
Non-current assets
Property, plant & equipment708,065 652,762
Other long-term assets7,587 7,738
Income tax recoverable19,100 15,309
Goodwill160,939 160,939
Intangible assets15,449 14,052
Deferred income taxes22,653 19,565
Total assets1,280,690 1,192,001
Liabilities
Current liabilities
Trade and other payables187,365 173,228
Payables to related parties4,289 4,387
Distributions payable9,806 9,781
Current portion of provisions4,255 2,967
Current portion of long-term debt10,011 8,879
215,726 199,242
Non-current liabilities
Long-term debt398,949 358,646
Other long-term liabilities69 156
Provisions7,167 6,441
Pensions106,238 98,533
Post-retirement benefits55,065 53,357
Liabilities to non-unitholders783,214 716,375
Current portion of Partnership units liability6,949 6,949
Long-term portion of Partnership units liability119,238 121,174
Total Partnership units liability126,187 128,123
Total liabilities909,401 844,498
Equity
Partnership units313,236 299,616
Retained earnings (deficit)(27,997)4,424
Accumulated other comprehensive income86,050 43,463
Total equity371,289 347,503
Total equity and liabilities1,280,690 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
$ $ $ $
Revenue293,574 267,629 838,287 767,521
Expenses
Cost of sales247,964 219,914 710,917 645,137
Selling, general and administrative expenses21,630 17,717 64,526 58,125
Recovery of non-financial assets(1,131)- (1,131)-
Restructuring costs781 - 1,835 2,835
Operating income24,330 29,998 62,140 61,424
Interest expense25,254 12,622 48,069 34,923
Other expense4,821 2,752 10,770 7,622
Income (loss) before income taxes(5,745)14,624 3,301 18,879
Income taxes121 (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 pensions1,915 (1,999)(4,123)(31,511)
Remeasurements of post-retirement benefits1,447 (18)(702)(3,511)
Items that may be subsequently reclassified to net income:
Available-for-sale investment(277)(183)(306)(321)
Cumulative translation adjustment26,229 12,260 42,893 13,039
Total other comprehensive income (loss) for the period29,314 10,060 37,762 (22,304)
Comprehensive income (loss) for the period23,448 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
Depreciation10,476 8,380 29,454 26,574
Amortization226 148 563 479
Loss (gain) on sale of fixed assets145 (577)284 (279)
Change in amortized cost of Partnership units liability1,851 1,043 5,013 5,907
Unrealized foreign exchange loss2,976 1,796 5,328 1,879
Interest expense25,254 12,622 48,069 34,923
Pension and post retirement benefits2,685 2,435 11,461 7,439
Provisions1,114 245 2,805 2,666
Income taxes121 (1,477)1,282 (2,118)
Recovery of non-financial assets(1,131)- (1,131)-
Total items not affecting cash43,717 24,615 103,128 77,470
Net change in non-cash working capital9,326 (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 activities42,233 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 equipment454 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 currency1,317 741 2,057 849
Increase (decrease) in cash and cash equivalents during the period3,274 (4,145)(13,241)(51,335)
Cash and cash equivalents - Beginning of period35,273 40,484 51,788 87,674
Cash and cash equivalents - End of period38,547 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
Consumer230,181 209,495 657,376 624,773
AFH59,524 52,613 165,521 130,359
Other3,869 5,521 15,390 12,389
Total segment revenue293,574 267,629 838,287 767,521
Segment EBITDA
Consumer32,338 37,745 91,757 92,235
AFH1,763 1,767 4,786 1,380
Other732 (1,476)(411)(2,418)
Total segment EBITDA34,833 38,036 96,132 91,197
Reconciliation to Net Income (Loss):
Depreciation and amortization10,702 8,528 30,017 27,053
Interest expense25,254 12,622 48,069 34,923
Change in amortized cost of Partnership units liability1,851 1,043 5,013 5,907
Gain (loss) on sale of fixed assets145 (577)284 (279)
Recovery of non-financial assets(1,131)- (1,131)-
Restructuring costs781 - 1,835 2,835
Pension revaluation - past service cost- - 3,416 -
Unrealized foreign exchange loss2,976 1,796 5,328 1,879
Income (loss) before income taxes(5,745)14,624 3,301 18,879
Income taxes121 (1,477)1,282 (2,118)
Net income (loss) for the period(5,866)16,101 2,019 20,997
Geographic Revenue
Canada183,167 182,260 527,369 516,401
U.S.101,965 77,758 285,770 230,826
Mexico8,442 7,611 25,148 20,294
Total Revenue293,574 267,629 838,287 767,521
KP Tissue Inc.
Unaudited Condensed Statement of Financial Position
(thousands of Canadian dollars)
September 27, 2015 December 31, 2014
$ $
Assets
Current assets
Distributions receivable1,607 1,601
Receivable from Partnership31 -
1,638 1,601
Non-current assets
Investment in associate153,096 153,732
Total Assets154,734 155,333
Liabilities
Current liabilities
Dividend payable1,607 1,601
Payable to Partnership- 53
Advances from Partnership834 584
Income taxes payable81 495
2,522 2,733
Non-current liabilities
Deferred income taxes1,861 2,005
Total liabilities4,383 4,738
Equity
Common shares11,151 10,138
Contributed surplus144,819 144,819
Deficit(21,281)(12,220)
Accumulated other comprehensive income15,662 7,858
Total equity150,351 150,595
Total liabilities and equity154,734 155,333
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 gain7 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 pensions274 (284)(590)(4,564)
Remeasurements of post-retirement benefits145 (1)(71)(356)
Items that may be subsequently reclassified to net income (loss):
Available-for-sale investment(39)(26)(43)(47)
Cumulative translation adjustment4,732 2,309 7,847 2,461
Total other comprehensive income (loss) for the period5,112 1,998 7,143 (2,506)
Comprehensive income (loss) for the period3,131 2,685 3,578 (3,773)
Basic earnings (loss) per share(0.22)0.08 (0.40)(0.14)
Weighted average number of shares outstanding8,921,501 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 cash1,981 (687)3,565 1,267
Tax payments(308)(175)(1,405)(868)
Tax distribution received- - 571 459
Advances received308 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 received1,208 1,589 4,012 4,757
Net cash from investing activities1,208 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- - - -

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