KP Tissue Inc.
TSX : KPT

KP Tissue Inc.

November 03, 2016 07:00 ET

KP Tissue Releases Third Quarter 2016 Financial Results

Continued Strong Revenue and Adjusted EBITDA Growth

MISSISSAUGA, ONTARIO--(Marketwired - Nov. 3, 2016) - KP Tissue Inc. (KPT) (TSX:KPT) reports the Q3 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 16.1% interest in KPLP.

KPLP Q3 2016 Business and Financial Highlights

  • Revenue increased by 6.5% to $312.8 million in Q3 2016 compared to Q3 2015
  • Adjusted EBITDA was $45.7 million in Q3 2016 compared to $34.8 million in Q3 2015, up 31.3%
  • Continue to be the market share leader in Canada
  • Declared a quarterly dividend of $0.18 per share to be paid on January 16, 2017

"For the third quarter, we recorded very solid seasonal performance with Adjusted EBITDA of $45.7 million. The Consumer segment drove these results with higher volume, improved pricing, and favourable product mix including higher TAD product sales, as well as the benefits from strong manufacturing performance and operating efficiencies, and cost reduction initiatives," said Mario Gosselin, CEO of KP Tissue and KPLP.

"Starting last year, we invested more aggressively in CAPEX for projects dedicated to capacity growth and cost reduction. We are now starting to get the benefits of these strategic investments.

"With regard to our outlook for the fourth quarter of 2016, we anticipate an increase in Adjusted EBITDA over last year and a seasonal decline when compared with the third quarter of 2016," concluded Mr. Gosselin.

KPLP Q3 2016 Financial Results

Revenue in Q3 2016 was $312.8 million, compared to $293.6 million in Q3 2015, an increase of $19.2 million or 6.5%. The increase in revenue was primarily due to higher sales volumes and a selling price increase in Canada.

Cost of sales in Q3 2016 increased to $256.8 million compared to $248.0 million in Q3 2015, primarily due to higher sales volumes and increased warehousing costs, somewhat offset by cost reduction initiatives and the impact of capital projects. As a percentage of revenue, cost of sales were 82.1% in Q3 2016 compared to 84.5% in Q3 2015.

Selling, general and administrative (SG&A) expenses in Q3 2016 were $22.7 million compared to $21.6 million in Q3 2015. The increase was primarily due to higher selling expenses related to higher sales volumes. As a percentage of revenue, SG&A expenses decreased slightly to 7.3% in Q3 2016 from 7.4% in Q3 2015.

Adjusted EBITDA in Q3 2016 was $45.7 million compared to $34.8 million in Q3 2015 primarily due to higher sales volume and better margins from improved pricing, lower overall costs and improved mix of products sold. Adjusted EBITDA attributable to the sale of KTG's TAD products was $12.7 million in Q3 2016 compared to $11.2 million in Q3 2015.

Net income in Q3 2016 was $21.6 million compared to a net loss of $5.9 million in Q3 2015 primarily due to higher Adjusted EBITDA of $10.9 million and a decrease in interest expense of $14.1 million. Also there was a decrease in the unrealized foreign exchange loss, a change in the amortized cost of the Partnership units liability and in restructuring costs, an increase in depreciation expense, and a decrease in the recovery of non-financial assets.

Total liquidity, representing cash and cash equivalents and availability under the credit line within covenant limitations, was $90.6 million as of September 25, 2016 compared to $77.8 million as of June 26, 2016.

KPT Q3 2016 Financial Results

KPT had net income of $0.8 million in Q3 2016. Included in the net income was $3.5 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 January 16, 2017 to shareholders of record at the close of business on December 30, 2016.

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 25, 2016 available on SEDAR at www.sedar.com or our website at www.kptissueinc.com.

Third Quarter Results Conference Call Information

KPT will hold its third quarter conference call on Thursday, November 3, 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, December 2, 2016 by dialing 800-585-8367 or 416-621-4642 and entering passcode 90143905.

The replay of the webcast will remain available on the website until midnight, December 2, 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 16.1% 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 plants (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 third quarter ended September 25, 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 Q4 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)
September 25, 2016 December 31, 2015
$ $
Assets
Current assets
Cash and cash equivalents19,524 25,455
Trade and other receivables112,688 108,720
Receivables from related parties247 185
Current portion of advances to partners4,894 2,630
Inventories184,290 184,985
Income tax recoverable670 772
Prepaid expenses10,577 8,429
332,890 331,176
Non-current assets
Advances to partners- 4,234
Property, plant & equipment744,101 737,708
Other long-term assets6,260 8,107
Goodwill160,939 160,939
Intangible assets15,048 15,853
Deferred income taxes38,416 39,411
Total assets1,297,654 1,297,428
Liabilities
Current liabilities
Trade and other payables189,379 180,329
Payables to related parties3,774 3,775
Distributions payable10,087 9,871
Current portion of provisions2,209 3,096
Current portion of long-term debt8,965 10,183
214,414 207,254
Non-current liabilities
Long-term debt415,659 425,859
Other long-term liabilities7 48
Provisions6,954 6,180
Pensions147,929 87,164
Post-retirement benefits62,617 57,346
Liabilities to non-unitholders847,580 783,851
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 liabilities971,358 909,027
Equity
Partnership units331,727 318,012
Deficit(88,088)(29,416)
Accumulated other comprehensive income82,657 99,805
Total equity326,296 388,401
Total equity and liabilities1,297,654 1,297,428
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 25, 2016 September 27, 2015 September 25, 2016 September 27, 2015
$ $ $ $
Revenue312,823 293,574 888,270 838,287
Expenses
Cost of sales256,823 247,964 747,348 710,917
Selling, general and administrative expenses22,645 21,630 66,283 64,526
Recovery of non-financial assets(395)(1,131)(395)(1,131)
Restructuring costs25 781 418 1,835
Operating income33,725 24,330 74,616 62,140
Interest expense11,192 25,254 33,327 48,069
Other (income) expense813 4,821 (307)10,770
Income (loss) before income taxes21,720 (5,745)41,596 3,301
Income taxes162 121 1,612 1,282
Net income (loss) for the period21,558 (5,866)39,984 2,019
Other comprehensive income (loss)
Items that will not be reclassified to net income (loss):
Remeasurements of pensions(20,097)1,915 (63,986)(4,123)
Remeasurements of post-retirement benefits(2,885)1,447 (4,519)(702)
Items that may be subsequently reclassified to net income (loss):
Available-for-sale investment- (277)(290)(306)
Cumulative translation adjustment3,969 26,229 (16,858)42,893
Total other comprehensiveincome (loss) for the period(19,013)29,314 (85,653)37,762
Comprehensive income(loss) for the period2,545 23,448 (45,669)39,781
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 25, 2016 September 27, 2015 September 25, 2016 September 27, 2015
$ $ $ $
Cash flows from (used in) operating activities
Net income (loss) for the period21,558 (5,866)39,984 2,019
Items not affecting cash
Depreciation12,007 10,476 33,775 29,454
Amortization296 226 876 563
Loss (gain) on sale of fixed assets- 145 (3)284
Change in amortized cost of Partnership units liability- 1,851 1,234 5,013
Gain on sale of investment- - (324)-
Unrealized foreign exchange (gain) loss813 2,976 (1,217)5,328
Interest expense11,192 25,254 33,327 48,069
Pension and post retirement benefits2,487 2,685 7,805 11,461
Provisions392 1,114 1,191 2,805
Income taxes162 121 1,612 1,282
Recovery of non-financial assets(395)(1,131)(395)(1,131)
Total items not affecting cash26,954 43,717 77,881 103,128
Net change in non-cash working capital(6,009)9,326 (10,471)(20,158)
Contributions to pension and post-retirement benefit plans(2,613)(4,129)(13,918)(11,531)
Provisions paid(334)(271)(1,452)(978)
Income tax payments(514)(544)(1,887)(1,550)
Net cash from operating activities39,042 42,233 90,137 70,930
Cash flows from (used in) investing activities
Purchases of property, plant & equipment(19,965)(15,495)(58,666)(33,149)
Proceeds on sale of investment- - 1,439 -
Government assistance received- - 1,209 -
Purchases of software- (1,756)(71)(1,960)
Proceeds on sale of property, plant and equipment535 454 539 736
Net cash used in investing activities(19,430)(16,797)(55,550)(34,373)
Cash flows from (used in) financing activities
Proceeds from long-term debt4,204 - 4,995 -
Repayment of long-term debt(596)(4,370)(8,106)(4,880)
Payment of deferred financing fees(376)(140)(711)(140)
Interest paid on long-term debt(8,538)(11,836)(18,294)(22,375)
Distributions and advances paid (net)(4,806)(7,133)(16,883)(24,655)
Proceeds from issuing partnership units- - - 195
Net cash used in financing activities(10,112)(23,479)(38,999)(51,855)
Effect of exchange rate changes on cash and cash equivalents held in foreign currency
(80

)

1,317

(1,519

)

2,057
Increase (decrease) in cash and cash equivalents during the period9,420 3,274 (5,931)(13,241)
Cash and cash equivalents - Beginning of period10,104 35,273 25,455 51,788
Cash and cash equivalents - End of period19,524 38,547 19,524 38,547
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 25, 2016 September 27, 2015 September 25, 2016 September 27, 2015
$ $ $ $
Segment Information
Segment Revenue
Consumer248,792 230,181 709,338 657,376
AFH59,411 59,524 167,513 165,521
Other4,620 3,869 11,419 15,390
Total segment revenue312,823 293,574 888,270 838,287
Segment Adjusted EBITDA
Consumer43,832 32,338 105,898 91,757
AFH1,500 1,763 2,765 4,786
Other326 732 948 (411)
Total segment Adjusted EBITDA45,658 34,833 109,611 96,132
Reconciliation to Net Income (Loss):
Depreciation and amortization12,303 10,702 34,651 30,017
Interest expense11,192 25,254 33,327 48,069
Change in amortized cost of Partnership units liability- 1,851 1,234 5,013
(Gain) loss on sale of fixed assets- 145 (3)284
Pension revaluation - past service cost- - - 3,416
Recovery of non-financial assets(395)(1,131)(395)(1,131)
Restructuring costs25 781 418 1,835
Unrealized foreign exchange (gain) loss813 2,976 (1,217)5,328
Income (loss) before income taxes21,720 (5,745)41,596 3,301
Income taxes162 121 1,612 1,282
Net income (loss)21,558 (5,866)39,984 2,019
Geographic Revenue
Canada191,019 183,167 536,878 527,369
U.S.109,281 101,965 313,860 285,770
Mexico12,523 8,442 37,532 25,148
Total revenue312,823 293,574 888,270 838,287
KP Tissue Inc.
Unaudited Condensed Statement of Financial Position
(thousands of Canadian dollars)
September 25, 2016 December 31, 2015
$ $
Assets
Current assets
Distributions receivable1,631 1,613
Income tax recoverable- 828
1,631 2,441
Non-current assets
Investment in associate109,527 126,643
Total Assets111,158 129,084
Liabilities
Current liabilities
Dividend payable1,631 1,613
Payable to Partnership222 108
Current portion of advances from Partnership343 432
Income tax payable696 -
2,892 2,153
Non-current liabilities
Advances from Partnership- 709
Deferred income taxes1,128 1,007
Total liabilities4,020 3,869
Equity
Common shares12,708 11,577
Contributed surplus144,819 144,819
Deficit(64,963)(49,291)
Accumulated other comprehensive income14,574 18,110
Total equity107,138 125,215
Total liabilities and equity111,158 129,084

KP Tissue Inc.
Unaudited Condensed Statement of Comprehensive Income (Loss)
(thousands of Canadian dollars, except share and per share amounts)
13-week 13-week 39-week 39-week
period ended period ended period ended period ended
September 25, 2016 September 27, 2015 September 25, 2016 September 27, 2015
$ $ $ $
Equity income (loss)2,010 (2,397)2,101 (3,964)
Dilution gain58 7 142 129
Income (loss) before income taxes2,068 (2,390)2,243 (3,835)
Income taxes1,299 (409)3,557 (270)
Net income (loss) for the period769 (1,981)(1,314)(3,565)
Other comprehensive income (loss) net of tax expense (recovery)
Items that will not be reclassified to net income (loss):
Remeasurements of pensions(2,825)274 (9,034)(590)
Remeasurements of post-retirement benefits(285)145 (447)(71)
Items that may be subsequently reclassified to net income (loss):
Available-for-sale investment- (39)(41)(43)
Cumulative translation adjustment711 4,732 (3,495)7,847
Total other comprehensive income (loss) for the period(2,399)5,112 (13,017)7,143
Comprehensive income (loss) for the period(1,630)3,131 (14,331)3,578
Basic earnings (loss) per share0.08 (0.22)(0.15)(0.40)
Weighted average number of shares outstanding9,051,321 8,921,501 9,021,008 8,896,215
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 25, 2016 September 27, 2015 September 25, 2016 September 27, 2015
$ $ $ $
Cash flows from (used in) operating activities
Net income (loss) for the period769 (1,981)(1,314)(3,565)
Items not affecting cash
Equity (income) loss(2,010)2,397 (2,101)3,964
Dilution gain(58)(7)(142)(129)
Income taxes1,299 (409)3,557 (270)
Total items not affecting cash(769)1,981 1,314 3,565
Tax payments- (308)(205)(1,405)
Tax Distribution received- - - 571
Advances received- 308 205 834
Net cash from (used in) operating activities- - - -
Cash flows from (used in) investing activites
Investment in associate- - - (195)
Partnership unit distributions received1,180 1,208 3,728 4,012
Net cash from investing activities1,180 1,208 3,728 3,817
Cash flows from (used in) financing activities
Issuance of common shares- - - 195
Dividends paid(1,180)(1,208)(3,728)(4,012)
Net cash used in financing activities(1,180)(1,208)(3,728)(3,817)
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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