KP Tissue Releases Third Quarter 2014 Financial Results

News provided by

Nov 12, 2014, 07:00 ET

MISSISSAUGA, ON, Nov. 12, 2014 /PRNewswire/ - KP Tissue Inc. ("KPT") (TSX: KPT) reports the Q3 2014 Financial and Operational Results of KPT and Kruger Products L.P. (KPLP):

Revenue increased by 9.8% to $267.6 million in Q3 2014 compared to $243.8 million in Q3 2013
EBITDA of $38.0 million in Q3 2014, up from $31.1 million in Q3 2013
Maintained number one overall consumer market share in Canada

"We are pleased by our solid EBITDA performance of $38.0 million in the third quarter, an increase of over 22% compared to last year. The EBITDA increase primarily reflects higher sales volume in Canada and greater TAD Product contribution in the U.S.," said Mario Gosselin, CEO of KP Tissue and KPLP.

"The recent Metro Paper acquisition also improved the results in the Away-from-Home (AFH) segment. TAD Products contributed $6.5 million during the third quarter and we have updated the expected EBITDA contribution for fiscal 2014 to between $23 million to $25 million, raising the bottom end of the range.

"Our EBITDA outlook for the fourth quarter is for year-over-year improvement. Compared to Q3 2014, we expect that Q4 EBITDA will be reduced due to seasonally higher advertising expenditures and plant maintenance costs," Mr. Gosselin concluded.

KP Tissue Inc.
KPT currently holds a 16.5% interest in KPLP. The highlights, discussion and analysis in this earnings release, unless identified specifically as representing the financial results of only KPT, relates entirely to the financial results of KPLP.

KPLP Q3 2014 Financial Results
Revenue in Q3 2014 was $267.6 million, compared to $243.8 in Q3 2013, an increase of $23.8 million. Revenue increased across all segments and geographies and was primarily due to the acquisition of Metro Paper on June 3^rd in the AFH segment. Revenue also increased as a result of higher sales volume in the Consumer segment in Canada, an increase in TAD Product sales in the U.S., and the favourable impact of foreign exchange on U.S. dollar sales.

Cost of sales in Q3 2014 was $219.9 million, compared to $200.7 million in Q3 2013 due to increases in commodity prices, particularly pulp fibre and natural gas, the unfavourable impact of foreign exchange, and an increase in freight expenses related primarily to higher sales volume. These cost increases were offset somewhat by the favourable mix of products sold, cost reduction initiatives and timing of maintenance spending. As a percentage of revenue, cost of sales were 82.2 percent in Q3 2014 compared to 82.4 percent in Q3 2013.

Selling, general and administrative (SG&A) expenses in Q3 2014 were $17.7 million, compared to $19.7 million in Q3 2013 due to lower advertising and promotion expenses, partially offset by the impact of a realized loss on foreign exchange.

EBITDA in Q3 2014 was $38.0 million compared to $31.1 million in Q3 2013, driven by favourable sales volume and mix resulting from increased sales in the Canadian Consumer business and in the U.S. for TAD Products and lower SG&A, as well as incremental EBITDA from the AFH Metro Paper acquisition. TAD Product EBITDA was $6.5 million in Q3 2014 compared to EBITDA of $1.8 million in Q3 2013.

Net income in Q3 2014 was $16.1 million, compared to $14.2 million in Q3 2013. The increase was primarily due to the increase in EBITDA of $6.9 million, partially offset by a change in the amortized cost of the Partnership unit liability of $1.1 million, an unrealized foreign exchange loss of $2.7 million and higher depreciation expense as a result of the TAD Project.

The cash balance as of September 28, 2014 was $36.3 million compared to $40.5 million as of June 29, 2014. Cash generated from operating activities resulting from EBITDA in Q3 2014 and a reduction in pension funding was more than offset by additional working capital requirements and interest and debt payments in the quarter.

KPT Q3 2014 Financial Results

Net income of $0.6 million in Q3 2014
Earnings per share of $0.08 in Q3 2014

Included in the net income of $0.6 million in Q3 2014 was $2.7 million representing KPT's share of KPLP's profit. The profit was offset somewhat by depreciation expense of $1.4 million related to adjustments to carrying amounts on acquisition, and income tax expense of $0.8 million.

KPLP Distribution
KPLP will pay a distribution of $0.18 per KPLP unit to its partners on or prior to January 15, 2015.

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, 2015 to shareholders of record at the close of business on December 31, 2014.

Conference Call Information
KPT will hold its third quarter conference call on Wednesday, November 12, 2014 at 8:30 a.m. Eastern Time.

Details of conference call:
Via telephone: 1-888-231-8191 or 647-427-7450
Via the internet at: www.kptissueinc.com

Presentation material referenced during the conference call will be available at www.kptissueinc.com.

Conference Call Rebroadcast
A rebroadcast of the conference call will be available until midnight, December 12, 2014 by dialing 1-855-859-2056 or 416-849-0833 and entering passcode 2719340.

The replay of the webcast will remain available on the web site until midnight, December 12, 2014.

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 16.5% 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. An example of such measures is EBITDA. 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. "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, and (ix) change in the amortized cost of the Partnership unit liability. 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 28, 2014 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 EBITDA. 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.

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 19, 2014 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 prices; 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 28, 2014 $	December 31, 2013 $
Assets
Current assets
	Cash and cash equivalents	36,339	87,674
	Trade and other receivables	108,386	94,789
	Receivables from related parties	789	1,429
	Advances to partners	2,432	-
	Inventories	152,479	151,505
	Current portion of income tax recoverable	745	630
	Prepaid expenses	7,644	4,777
		308,814	340,804
Non-current assets
	Property, plant & equipment	635,903	616,687
	Other long-term assets	9,621	10,268
	Income tax recoverable	15,078	14,132
	Goodwill	160,842	152,021
	Intangible assets	13,993	13,483
	Deferred income taxes	18,732	14,141
Total assets		1,162,983	1,161,536

Liabilities
Current liabilities
	Trade and other payables	159,236	188,470
	Payables to related parties	5,397	5,134
	Distributions payable	9,600	9,455
	Current portion of provisions	1,946	999
	Current portion of long-term debt	11,650	8,276
		187,829	212,334
Non-current liabilities
	Long-term debt	354,941	342,013
	Other long-term liabilities	192	323
	Provisions	7,782	6,615
	Pensions	102,577	80,380
	Post-retirement benefits	53,312	48,746
	Liabilities to non-unitholders	706,633	690,411
	Current portion of Partnership units liability	3,475	3,475
	Long-term portion of Partnership units liability	116,796	114,364
	Total Partnership units liability	120,271	117,839
Total liabilities		826,904	808,250

Equity
	Partnership units	295,422	282,672
	Retained earnings	8,270	50,945
	Accumulated other comprehensive income	32,387	19,669
Total equity		336,079	353,286
Total equity and liabilities		1,162,983	1,161,536

Kruger Products L.P. Unaudited Condensed Consolidated Statement of Comprehensive Income (thousands of Canadian dollars)

		13-week period ended September 28, 2014 $	13-week period ended September 29, 2013 $	39-week period ended September 28, 2014 $	39-week period ended September 29, 2013 $

Revenue		267,629	243,848	767,521	712,402

Expenses
	Cost of sales	219,914	200,811	645,137	585,611
	Selling, general and administrative expenses	17,717	19,685	58,125	62,853
	Recovery of non-financial assets	-	-	-	(1,789)
	Restructuring costs	-	-	2,835	-

Operating income		29,998	23,352	61,424	65,727

	Interest expense	12,622	11,403	34,923	32,300
	Other (income) expense	2,752	(899)	7,622	1,824

Income before income taxes		14,624	12,848	18,879	31,603

Income taxes		(1,477)	(1,315)	(2,118)	(9,653)

Net income for the period		16,101	14,163	20,997	41,256

Other comprehensive income (loss)
	Items that will not be reclassified to net income:
	Remeasurements of pensions	(1,999)	8,580	(31,511)	42,278
	Remeasurements of post-retirement benefits	(18)	5	(3,511)	1,509
	Items that may be subsequently reclassified to net income:
	Available-for-sale investment	(183)	78	(321)	78
	Cumulative translation adjustment	12,260	(5,506)	13,039	7,868

Total other comprehensive income (loss) for the period		10,060	3,157	(22,304)	51,733

Comprehensive income (loss) for the period		26,161	17,320	(1,307)	92,989

Kruger Products L.P. Unaudited Condensed Consolidated Statement of Cash Flows (thousands of Canadian dollars)

		13-week period ended September 28, 2014 $	13-week period ended September 29, 2013 $	39-week period ended September 28, 2014 $	39-week period ended September 29, 2013 $
Cash flows from (used in) operating activities
Net income for the period		16,101	14,163	20,997	41,256
Items not affecting cash
	Depreciation	8,380	7,675	26,574	23,864
	Amortization	148	139	479	415
	Loss (gain) on sale of fixed assets	(577)	-	(279)	(4)
	Change in amortized cost of Partnership units liability	1,043	-	5,907	-
	Unrealized foreign exchange loss	1,796	(927)	1,879	1,566
	Interest expense	12,622	11,403	34,923	32,300
	Pension and post retirement benefits	2,435	2,422	7,439	7,586
	Provisions	245	212	2,666	697
	Income taxes	(1,477)	(1,315)	(2,118)	(9,653)
	Recovery of non-financial assets	-	-	-	(1,789)
	Total items not affecting cash	24,615	19,609	77,470	54,982

Net change in non-cash working capital		(12,395)	(885)	(29,663)	(45,101)
Contributions to pension and post-retirement benefit plans		(4,043)	(7,251)	(20,260)	(21,968)
Provisions paid		(247)	(207)	(1,084)	(2,009)
Income tax payments		(736)	(382)	(1,622)	(2,119)
Net cash from (used in) operating activities		23,295	25,047	45,838	25,041

Cash flows from (used in) investing activities
Purchase of property, plant & equipment		(6,628)	(3,964)	(19,994)	(11,554)
Purchases of through-air-dried (TAD) expansion		(978)	(4,294)	(7,190)	(33,067)
Available-for-sale investment		-	(836)	-	(836)
Government grants received		-	1,078	-	1,078
Purchases of software		(221)	(3)	(989)	(93)
Proceeds on sale of property, plant and equipment		577	-	578	4
Acqusition of business (net)		-	-	(23,360)	-
Net cash used in investing activities		(7,250)	(8,019)	(50,955)	(44,468)
Cash flows from (used in) financing activities
Proceeds from credit facilities		-	6,242	-	10,813
Repayment of credit facilities		(3,824)	(366)	(4,334)	(4,096)
Payment of deferred financing fees		-	(159)	-	(612)
Interest paid on credit facilities		(10,799)	(7,210)	(21,196)	(21,181)
Distributions and advances		(10,592)	(9,367)	(34,287)	(20,599)
Equity issuance costs		-	(1,206)	-	(1,206)
Proceeds from issuing partnership units		4,284	4,897	12,750	22,280
Net cash used in financing activities		(20,931)	(7,169)	(47,067)	(14,601)
Effect of exchange rate changes on cash and cash equivalents held in foreign currency		741	(409)	849	353
Decrease in cash and cash equivalents during the period		(4,145)	9,450	(51,335)	(33,675)
Cash and cash equivalents - Beginning of period		40,484	78,364	87,674	121,489
Cash and cash equivalents - End of period		36,339	87,814	36,339	87,814

Kruger Products L.P. Segment and Geographic Results (thousands of Canadian dollars)

		13-week period ended September 28, 2014 $	13-week period ended September 29, 2013 $	39-week period ended September 28, 2014 $	39-week period ended September 29, 2013 $

*Segment Information*

Segment Revenue
	Consumer	209,495	200,802	624,773	590,563
	AFH	52,613	40,321	130,359	115,606
	Other	5,521	2,725	12,389	6,233
Total segment revenue		267,629	243,848	767,521	712,402

Segment EBITDA
	Consumer	37,745	30,087	92,235	83,116
	AFH	1,767	1,193	1,380	5,333
	Other	(1,476)	(142)	(2,418)	(494)
Total segment EBITDA		38,036	31,138	91,197	87,955

Reconciliation to Net Income:
Depreciation and amortization		8,528	7,814	27,053	24,279
Interest expense		12,622	11,403	34,923	32,300
Change in amortized cost of Partnership units liability		1,043	-	5,907	-
Gain (loss) on sale of fixed assets		(577)	-	(279)	(4)
Recovery of non-financial assets		-	-	-	(1,789)
Restructuring costs		-	-	2,835	-
Unrealized foreign exchange loss		1,796	(927)	1,879	1,566
Income before income taxes		14,624	12,848	18,879	31,603
Income taxes		(1,477)	(1,315)	(2,118)	(9,653)
Net income for the period		16,101	14,163	20,997	41,256

*Geographic Revenue*
Canada		182,260	175,290	516,401	515,939
U.S.		77,758	62,170	230,826	175,635
Mexico		7,611	6,388	20,294	20,828
Total Revenue		267,629	243,848	767,521	712,402

KP Tissue Inc. Unaudited Condensed Statement of Financial Position (thousands of Canadian dollars)

		September 28, 2014 $	December 31, 2013 $
Assets

Current assets
	Distributions receivable	1,593	1,583
	Receivable from Partnership	127	-
		1,720	1,583
Non-current assets
	Investment in associate	153,206	161,584
Total Assets		154,926	163,167

Liabilities

Current liabilities
	Dividend payable	1,593	1,583
	Payables to Partnership	153	-
	Advances from Partnership	409	-
	Income taxes payable	433	580
		2,588	2,163
Non-current liabilities
	Deferred income taxes	2,030	3,033

Total liabilities		4,618	5,196

Equity

	Common shares	9,945	9,068
	Contributed surplus	144,819	144,819
	Retained earnings (deficit)	(10,245)	709
	Accumulated other comprehensive income	5,789	3,375
Total equity		150,308	157,971
Total liabilities and equity		154,926	163,167

KP Tissue Inc. Unaudited Condensed Statement of Comprehensive Income (thousands of Canadian dollars, except share and per share amounts)

		13-week period ended September 28, 2014 $	13-week period ended September 29, 2013 $	39-week period ended September 28, 2014 $	39-week period ended September 29, 2013 $

Equity income (loss)		1,235	1,016	(944)	1,497

Gain on remeasurement of over allotment option		-	-	-	375
Dilution gain		37	69	95	181
Loss before income taxes		1,272	1,085	(849)	2,053

Income tax expense (recovery)
Current		791	293	872	892
Deferred		(206)	277	(454)	737
		585	570	418	1,629
Net income (loss) for the period		687	515	(1,267)	424

Other comprehensive income (loss)
	Items that will not be reclassified to net loss:
	Remeasurements of pensions - net of tax recovery	(284)	1,254	(4,564)	6,186
	Remeasurements of post-retirement benefits - net of tax recovery	(1)	1	(356)	221
	Items that may be subsequently reclassified to net loss:
	Available-for-sale investment - net of tax recovery	(26)	-	(47)	-
	Cumulative translation adjustment - net of tax expense	2,309	(807)	2,461	1,150
Total other comprehensive income (loss) for the period		1,998	448	(2,506)	7,557
Comprehensive income (loss) for the period		2,685	963	(3,773)	7,981
Basic earnings (loss) per share		0.08	0.06	(0.14)	0.05
Weighted average number of shares outstanding		8,845,503	8,781,433	8,825,759	8,739,702

KP Tissue Inc. Unaudited Condensed Statement of Cash Flows (thousands of Canadian dollars)

		13-week period ended September 28, 2014 $	13-week period ended September 29, 2013 $	39-week period ended September 28, 2014 $	39-week period ended September 29, 2013 $
Cash flows from (used in) operating activities
Net income (loss) for the period		687	515	(1,267)	424
Items not affecting cash
	Equity loss (income)	(1,235)	(1,016)	944	(1,497)
	Gain on remeasurement of overallotment option	-	-	-	(375)
	Dilution gain	(37)	(69)	(95)	(181)
	Income taxes	585	570	418	1,629
	Total items not affecting cash	(687)	(515)	1,267	(424)
Income tax payments		(175)	-	(868)	-
Net cash from (used in) operating activities		(175)	-	(868)	-

Cash flows from (used in) investing activites
Investment in associate		(303)	(150)	(877)	(13,719)
Partnership unit distributions received		1,589	1,579	4,757	3,477
Tax distributions received		-	-	459	-
Advances received		175	-	409	-
Net cash from (used in) investing activities		1,461	1,429	4,748	(10,242)

Cash flows from (used in) financing activities
Issuance of common shares		303	150	877	13,719
Dividends paid		(1,589)	(1,579)	(4,757)	(3,477)
Net cash from (used in) financing activities		(1,286)	(1,429)	(3,880)	10,242
Increase (decrease) in cash and cash equivalents during the period		-	-	-	-
Cash and cash equivalents - Beginning of period		-	-	-	-
Cash and cash equivalents - End of period		-	-	-	-