KP Tissue Inc.
TSX : KPT

KP Tissue Inc.

November 08, 2017 07:00 ET

KP Tissue Releases Third Quarter 2017 Financial Results

Revenue Growth and Continuing Pulp Price Headwinds

MISSISSAUGA, ONTARIO--(Marketwired - Nov. 8, 2017) - KP Tissue Inc. (KPT) (TSX:KPT) reports the Q3 2017 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 16.0% interest in KPLP.

KPLP Q3 2017 Business and Financial Highlights

  • Revenue increased by 7.5% to $336.3 million in Q3 2017 compared to Q3 2016
  • Adjusted EBITDA was $39.4 million in Q3 2017 compared to $45.6 million in Q3 2016
  • TAD Products sales and Adjusted EBITDA contribution continued to be strong, in line with previously set targets
  • Successful start-up of new Paper Machine #8 and a new converting line in Crabtree, Quebec site
  • Declared a quarterly dividend of $0.18 per share to be paid on January 15, 2018

"Third quarter results were in-line with our expectations, however they reflect the continued negative impact of rising pulp prices which have reached record levels, and also higher freight costs driven by the recent hurricanes in the southern U.S., said Mario Gosselin, CEO of KP Tissue and KPLP.

"Our new paper machine in Quebec started production during the third quarter, and as planned we incurred start-up costs. The project was completed on time and on budget, and we anticipate that it will positively contribute to our Away-from-Home business starting in the first quarter of Fiscal 2018.

"The selling price increase announced in the Canadian market in July has started to take effect in the fourth quarter. Given the further escalation in pulp prices, Adjusted EBITDA for Q4 2017 is expected to decrease compared to Q4 2016 Adjusted EBITDA of $42.9 million," concluded Mr. Gosselin.

KPLP Q3 2017 Financial Results

Revenue in Q3 2017 was $336.3 million, compared to $312.8 million in Q3 2016, an increase of $23.5 million or 7.5%. The increase in revenue was primarily due to higher sales volume, partially offset by the unfavourable impact of foreign exchange on U.S. dollar sales.

Cost of sales in Q3 2017 increased to $290.8 million from $256.8 million in Q3 2016, primarily due to higher sales volumes, a significant increase in fibre costs, as well as higher freight costs and PM#8 project start-up costs, partially offset by the favourable impact of foreign exchange on U.S. dollar denominated costs. As a percentage of revenue, cost of sales were 86.5% in Q3 2017 compared to 82.1% in Q3 2016.

Selling, general and administrative (SG&A) expenses in Q3 2017 were $20.7 million, compared to $22.7 million in Q3 2016. The decrease was primarily due to the timing of spend and cost reduction initiatives. As a percentage of revenue, SG&A expenses were 6.2% in Q3 2017, compared to 7.3% in Q3 2016.

Adjusted EBITDA in Q3 2017 was $39.4 million, compared to $45.6 million in Q3 2016, lower by $6.2 million or 13.6%, primarily due to significantly higher fibre costs, increased freight costs, and start-up costs, partially offset by increased sales volume and lower SG&A costs.

Net income in Q3 2017 was $16.5 million, compared to $21.6 million in Q3 2016, primarily due to lower Adjusted EBITDA of $6.2 million and higher depreciation expense of $2.3 million. These items were partially offset by a change in foreign exchange gain of $2.0 million.

Total liquidity, representing cash and cash equivalents and availability under the credit line within covenant limitations, was $76.0 million as of September 24, 2017, compared to $80.3 million as of June 25, 2017.

KPT Q3 2017 Financial Results

KPT incurred a net loss of $0.1 million in Q3 2017. Included in the net loss was $2.6 million representing KPT's share of KPLP's income. The income was reduced by depreciation expense of $1.4 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 15, 2018 to shareholders of record at the close of business on December 29, 2017.

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 24, 2017 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 Wednesday, November 8, 2017 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, November 15, 2017 by dialing 800-585-8367 or 416-621-4642 and entering passcode 84517935.

The replay of the webcast will remain available on the website until midnight, November 15, 2017.

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 16.0% 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 eight FSC® COC-certified (FSC® C-104904) production facilities in North America. 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 (gain on sale) of non-financial assets, (vi) loss (gain) on disposal of property, plant and equipment, (vii) foreign exchange loss (gain), (viii) costs related to restructuring activities, (ix) changes in amortized cost of 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 24, 2017 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.; a successful ramp-up of the Crabtree paper machine; improved performance of the Away-From-Home business; and expanded distribution of White Cloud to select U.S. retailers. 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 2017 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 9, 2017 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; cyber-security; insurance; internal controls; and trade related risk.

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 24, 2017 December 31, 2016
$ $
Assets
Current assets
Cash and cash equivalents 26,997 36,511
Trade and other receivables 126,591 123,095
Receivables from related parties 69 185
Advances to partners 6,417 5,465
Inventories 174,003 179,543
Income tax recoverable 293 423
Prepaid expenses 10,503 7,286
344,873 352,508
Non-current assets
Property, plant and equipment 748,458 762,270
Other long-term assets 6,150 6,075
Goodwill 160,939 160,939
Intangible assets 14,955 15,270
Deferred income taxes 33,359 39,913
Total assets 1,308,734 1,336,975
Liabilities
Current liabilities
Bank indebtedness - 9,007
Trade and other payables 196,459 201,477
Payables to related parties 5,089 3,606
Income tax payable 592 1,779
Distributions payable 10,324 10,148
Current portion of provisions 757 1,885
Current portion of long-term debt 186,695 8,859
399,916 236,761
Non-current liabilities
Long-term debt 238,487 415,379
Provisions 6,969 6,487
Pensions 112,671 92,646
Post-retirement benefits 57,881 57,162
Liabilities to non-unitholders 815,924 808,435
Current portion of Partnership units liability 5,571 8,611
Long-term portion of Partnership units liability 135,903 137,296
Total Partnership units liability 141,474 145,907
Total liabilities 957,398 954,342
Equity
Partnership units 351,381 336,576
Deficit (61,775 ) (42,792 )
Accumulated other comprehensive income 61,730 88,849
Total equity 351,336 382,633
Total equity and liabilities 1,308,734 1,336,975
Kruger Products L.P.
Unaudited Condensed Consolidated Statement of Comprehensive Income (Loss)
(thousands of Canadian dollars)
3-month
period ended
September 24, 2017
3-month
period ended
September 25, 2016
9-month
period ended
September 24, 2017
9-month
period ended
September 25, 2016
$ $ $ $
Revenue 336,284 312,823 939,943 888,270
Expenses
Cost of sales 290,777 256,823 802,108 747,348
Selling, general and administrative expenses 20,726 22,645 66,467 66,283
Gain on sale of non-financial assets (12 ) (395 ) (80 ) (395 )
Restructuring costs, net (245 ) 25 (234 ) 418
Operating income 25,038 33,725 71,682 74,616
Interest expense 10,533 11,192 31,554 33,327
Other (income) expense (2,103 ) 813 1,860 (307 )
Income before income taxes 16,608 21,720 38,268 41,596
Income taxes 158 162 4,922 1,612
Net income for the period 16,450 21,558 33,346 39,984
Other comprehensive loss
Items that will not be reclassified to net income:
Remeasurements of pensions (5,424 ) (20,097 ) (20,647 ) (63,986 )
Remeasurements of post-retirement benefits 2,929 (2,885 ) (272 ) (4,519 )
Items that may be subsequently reclassified to net income:
Available-for-sale investment - - - (290 )
Cumulative translation adjustment (23,774 ) 3,969 (27,119 ) (16,858 )
Total other comprehensive loss for the period (26,269 ) (19,013 ) (48,038 ) (85,653 )
Comprehensive income (loss) for the period (9,819 ) 2,545 (14,692 ) (45,669 )
Kruger Products L.P.
Unaudited Condensed Consolidated Statement of Cash Flows
(thousands of Canadian dollars)
3-month
period ended
September 24, 2017
3-month
period ended
September 25, 2016
9-month
period ended
September 24, 2017
9-month
period ended
September 25, 2016
$ $ $ $
Cash flows from (used in) operating activities
Net income for the period 16,450 21,558 33,346 39,984
Items not affecting cash
Depreciation 14,350 12,007 38,414 33,775
Amortization 286 296 775 876
Gain on sale of property, plant and equipment - - (2 ) (3 )
Change in amortized cost of Partnership units liability (882 ) - 4,178 1,234
Gain on sale of investment - - - (324 )
Foreign exchange (gain) loss (1,221 ) 813 (2,318 ) (1,217 )
Interest expense 10,533 11,192 31,554 33,327
Pension and post retirement benefits 2,513 2,487 7,539 7,805
Provisions (127 ) 392 211 1,191
Income taxes 158 162 4,922 1,612
Gain on sale of non-financial assets (12 ) (395 ) (80 ) (395 )
Total items not affecting cash 25,598 26,954 85,193 77,881
Net change in non-cash working capital 5,130 (6,009 ) (25,959 ) (10,471 )
Contributions to pension and post-retirement benefit plans (3,735 ) (2,613 ) (11,406 ) (13,918 )
Provisions paid (565 ) (334 ) (1,015 ) (1,452 )
Income tax payments (115 ) (514 ) (3,169 ) (1,887 )
Net cash from operating activities 42,763 39,042 76,990 90,137
Cash flows from (used in) investing activities
Purchases of property, plant and equipment (12,033 ) (19,965 ) (50,278 ) (58,666 )
Capitalized interest paid (116 ) - (497 ) -
Proceeds on sale of investment - - - 1,439
Government assistance received 923 - 3,872 1,209
Purchases of software (460 ) - (460 ) (71 )
Proceeds on sale of property, plant and equipment 14 535 1,184 539
Net cash used in investing activities (11,672 ) (19,430 ) (46,179 ) (55,550 )
Cash flows from (used in) financing activities
Proceeds from long-term debt (5,893 ) 4,204 20,877 4,995
Repayment of long-term debt (4,749 ) (596 ) (5,250 ) (8,106 )
Payment of deferred financing fees - (376 ) (12 ) (711 )
Interest paid on long-term debt (7,819 ) (8,538 ) (18,930 ) (18,294 )
Distributions and advances paid, net (8,263 ) (4,806 ) (25,992 ) (16,883 )
Net cash used in financing activities (26,724 ) (10,112 ) (29,307 ) (38,999 )
Effect of exchange rate changes on cash and cash equivalents held in foreign currency (1,924 ) (80 ) (2,011 ) (1,519 )
Increase (decrease) in cash and cash equivalents during the period 2,443 9,420 (507 ) (5,931 )
Cash and cash equivalents - Beginning of period 24,554 10,104 27,504 25,455
Cash and cash equivalents - End of period 26,997 19,524 26,997 19,524
Kruger Products L.P.
Segment and Geographic Results
(thousands of Canadian dollars)
3-month
period ended
September 24, 2017
3-month
period ended
September 25, 2016
9-month
period ended
September 24, 2017
9-month
period ended
September 25, 2016
$ $ $ $
Segment Information
Segment Revenue
Consumer 272,917 248,792 763,996 708,868
AFH 62,497 59,411 171,090 167,513
Other 870 4,620 4,857 11,889
Total segment revenue 336,284 312,823 939,943 888,270
Segment Adjusted EBITDA
Consumer 38,077 42,907 105,951 104,433
AFH 1,852 2,425 4,840 4,230
Other (512 ) 326 (236 ) 948
Total segment Adjusted EBITDA 39,417 45,658 110,555 109,611
Reconciliation to Net Income:
Depreciation and amortization 14,636 12,303 39,189 34,651
Interest expense 10,533 11,192 31,554 33,327
Change in amortized cost of Partnership units liability (882 ) - 4,178 1,234
Gain on sale of property, plant and equipment - - (2 ) (3 )
Gain on sale of non-financial assets (12 ) (395 ) (80 ) (395 )
Restructuring costs, net (245 ) 25 (234 ) 418
Foreign exchange (gain) loss (1,221 ) 813 (2,318 ) (1,217 )
Income before income taxes 16,608 21,720 38,268 41,596
Income taxes 158 162 4,922 1,612
Net income 16,450 21,558 33,346 39,984
Geographic Revenue
Canada 209,289 195,186 570,949 539,221
U.S. 113,157 105,114 332,710 311,517
Mexico 13,838 12,523 36,284 37,532
Total revenue 336,284 312,823 939,943 888,270
KP Tissue Inc.
Unaudited Condensed Statement of Financial Position
(thousands of Canadian dollars)
September 24, 2017 December 31, 2016
$ $
Assets
Current assets
Distributions receivable 1,653 1,636
Receivable from Partnership - 426
Income tax recoverable 1,031 -
2,684 2,062
Non-current assets
Investment in associate 104,650 117,349
Total Assets 107,334 119,411
Liabilities
Current liabilities
Dividend payable 1,653 1,636
Payable to Partnership 52 -
Advances from Partnership 1,040 914
Income tax payable - 884
2,745 3,434
Non-current liabilities
Deferred income taxes 1,946 893
Total liabilities 4,691 4,327
Equity
Common shares 14,573 13,176
Contributed surplus 144,819 144,819
Deficit (67,862 ) (58,729 )
Accumulated other comprehensive income 11,113 15,818
Total equity 102,643 115,084
Total liabilities and equity 107,334 119,411
KP Tissue Inc.
Unaudited Condensed Statement of Comprehensive Loss
(thousands of Canadian dollars, except share and per share amounts)
3-month
period ended
September 24, 2017
3-month
period ended
September 25, 2016
9-month
period ended
September 24, 2017
9-month
period ended
September 25, 2016
$ $ $ $
Equity income 1,179 2,010 931 2,101
Dilution gain 39 58 136 142
Income before income taxes 1,218 2,068 1,067 2,243
Income taxes 1,288 1,299 2,288 3,557
Net income (loss) for the period (70 ) 769 (1,221 ) (1,314 )
Other comprehensive loss
net of tax expense (recovery)
Items that will not be reclassified to net income (loss):
Remeasurements of pensions (755 ) (2,825 ) (2,885 ) (9,034 )
Remeasurements of post-retirement benefits 287 (285 ) (27 ) (447 )
Items that may be subsequently reclassified to net income (loss):
Available-for-sale investment - - - (41 )
Cumulative translation adjustment (4,086 ) 711 (4,705 ) (3,495 )
Total other comprehensive loss for the period (4,554 ) (2,399 ) (7,617 ) (13,017 )
Comprehensive loss for the period (4,624 ) (1,630 ) (8,838 ) (14,331 )
Basic earnings (loss) per share (0.01 ) 0.08 (0.13 ) (0.15 )
Weighted average number of shares outstanding 9,176,138 9,051,321 9,146,312 9,021,008
KP Tissue Inc.
Unaudited Condensed Statement of Cash Flows
(thousands of Canadian dollars)
3-month
period ended
September 24, 2017
3-month
period ended
September 25, 2016
9-month
period ended
September 24, 2017
9-month
period ended
September 25, 2016
$ $ $ $
Cash flows from (used in) operating activities
Net income (loss) for the period (70 ) 769 (1,221 ) (1,314 )
Items not affecting cash
Equity income (1,179 ) (2,010 ) (931 ) (2,101 )
Dilution gain (39 ) (58 ) (136 ) (142 )
Income taxes 1,288 1,299 2,288 3,557
Total items not affecting cash 70 (769 ) 1,221 1,314
Net change in non-cash working capital (219 ) - 478 -
Tax payments (225 ) - (1,999 ) (205 )
Tax Distribution received - - 481 -
Advances received 444 - 1,040 205
Net cash from (used in) operating activities - - - -
Cash flows from investing activites
Partnership unit distributions received 1,218 1,180 3,586 3,728
Net cash from investing activities 1,218 1,180 3,586 3,728
Cash flows used in financing activities
Dividends paid (1,218 ) (1,180 ) (3,586 ) (3,728 )
Net cash used in financing activities (1,218 ) (1,180 ) (3,586 ) (3,728 )
Increase (decrease) in cash and cash equivalents during the period - - - -
Cash and cash equivalents - Beginning of period - - - -
Cash and cash equivalents - End of period - - - -

Contact Information