KP Tissue Releases Second Quarter 2019 Financial Results

MISSISSAUGA, Ontario, Aug. 08, 2019 (GLOBE NEWSWIRE) -- KP Tissue Inc. (KPT) (TSX: KPT) reports the Q2 2019 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 15.4% interest in KPLP.

KPLP Q2 2019 Business and Financial Highlights

• Revenue increased by 7.9% to $365.7 million in Q2 2019 compared to Q2 2018
• Adjusted EBITDA increased sequentially to $31.5 million from $23.6 million in Q1 2019, or 33.5%, and increased by $0.9 million from $30.6 million in Q2 2018
• Pulp costs moderated and were similar to the prior year quarter
• TAD Sherbrooke Project progressing on time and on budget
• Declared a quarterly dividend of $0.18 per share to be paid on October 15, 2019         

“We had a solid second quarter with significant progress over the first quarter in both the Consumer and Away-from-Home segments. The benefits of our Operational Excellence program started to take effect and there was a year-over-year benefit from our pricing actions. We are encouraged by the sequential improvement in the performance of our Away-from-Home business as the initiatives we have put in place are starting to create a positive impact,” indicated Dino Bianco, KP Tissue CEO.

“The TAD Sherbrooke project is progressing according to plan, on-time and on-budget. With our Operational Excellence program, we are improving operating efficiencies and creating a common culture for developing standard approaches across the supply chain. As for our trademark products, we are committed to enhancing our leadership position in Canada and will intensify our marketing programs and innovations going forward. 

Looking ahead, we anticipate a stabilization of input costs and incremental benefits from the Operational Excellence initiatives as we continue to invest in the business to reinforce our long-term position,” concluded Mr. Bianco.

Outlook
KPLP will continue to benefit from the Consumer Canada price increase implemented in Q4 2018, along with the Consumer US and Away-From-Home price increases announced in 2019. These price increases combined with cost reduction initiatives and more moderate input costs are expected to more than offset the unfavourable impacts of foreign exchange fluctuations and capacity related challenges. For Q3 2019, Adjusted EBITDA is forecast to show improvement compared to both Q2 2019 and Q3 2018.

KPLP Q2 2019 Financial Results
Revenue was $365.7 million in Q2 2019 compared to $338.8 million in Q2 2018, an increase of $26.9 million or 7.9%. The increase in revenue was primarily due to the Consumer Canada price increase implemented in Q4 2018, price increases in the AFH segment and the benefit of foreign exchange fluctuations on U.S. sales.

Cost of sales was $325.8 million in Q2 2019 compared to $303.6 million in Q2 2018, an increase of $22.2 million or 7.3%. Manufacturing costs increased primarily due to the unfavourable impact of foreign exchange fluctuations, increased costs resulting from capacity related challenges and maintenance, while pulp costs were relatively neutral and the operational transformation initiatives had a favourable impact in the quarter. Freight costs increased primarily due to the geographic mix of sales, partially offset by lower carrier rates. Warehousing costs increased related primarily to additional warehousing space. As a percentage of revenue, cost of sales were 89.1% in Q2 2019 compared to 89.6% in Q2 2018.

Selling, general and administrative (SG&A) expenses were $25.4 million in Q2 2019 compared to $20.1 million in Q2 2018, an increase of $5.3 million or 26.3%. The increase was primarily due to increased costs in selling and administration including compensation, higher advertising and promotion expenses, and the unfavourable impact of foreign exchange fluctuations. As a percentage of revenue, SG&A expenses were 6.9% in Q2 2019 compared to 5.9% in Q2 2018.

Adjusted EBITDA was $31.5 million in Q2 2019 compared to $30.6 million in Q2 2018, an increase of $0.9 million. The higher Adjusted EBITDA resulted primarily from the Consumer Canada and AFH price increases, partially offset by unfavourable sales mix, higher cost of sales as discussed above and higher SG&A costs.

Net income was $0.9 million in Q2 2019 compared to $1.6 million in Q2 2018, a decrease of $0.7 million. The decrease was primarily due to an unfavourable change in amortized cost of Partnership units liability of $3.5 million, lower operating income of $0.8 million, and higher income tax expense of $0.6 million partially offset by a decrease in interest expense of $2.4 million, and a positive foreign exchange difference of $1.9 million.

Total liquidity, representing cash and cash equivalents and availability under the credit line within covenant limitations, was $115.5 million as of June 30, 2019, compared to $167.5 million as of March 31, 2019. The June 30, 2019 balance includes $86.1 million of cash and cash equivalents held by KPSI and committed to the TAD Sherbrooke Project.

KPLP has concluded a new land lease with the National Capital Commission for its Gatineau tissue plant that commences in March, 2028 and permits KPLP to secure the site until March, 2053.

KPT Q2 2019 Financial Results
KPT had a net loss of $2.6 million in Q2 2019. Included in the net loss was $0.1 million representing KPT’s share of KPLP’s net income, depreciation expense of $1.4 million related to adjustments to carrying amounts on acquisition and an income tax expense of $1.4 million.

Dividends on Common Shares                                                     
The Board of Directors of KPT declared a quarterly dividend of $0.18 per share to be paid on October 15, 2019 to shareholders of record at the close of business on September 30, 2019.

Additional Information
For additional information please refer to Management’s Discussion and Analysis (MD&A) of KPT and KPLP for the second quarter ended June 30, 2019 available on SEDAR at www.sedar.com or our website at www.kptissueinc.com.

Second Quarter Results Conference Call Information
KPT will hold its second quarter conference call on Thursday, August 8, 2019 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, August 15, 2019 by dialing 1-800-585-8367 or 416-621-4642 and entering passcode 2578938.

The replay of the webcast will remain available on the website until midnight, August 15, 2019.

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 15.4% 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 have referenced Adjusted EBITDA as a non-IFRS financial measure. This term replaces the previously referenced non-IFRS financial measure EBITDA. 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, (x) change in fair value of derivatives, (xi) one-time consulting costs related to operational transformation initiatives, and (xii) M&A related costs. A reconciliation of Adjusted EBITDA to the relevant reported results can be found in the MD&A of KPT and KPLP for the second quarter ended June 30, 2019 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. Forward-looking statements in this press release include, but are not limited to, statements regarding the projected capacity of the TAD Sherbrooke Project, the anticipated benefits of the TAD Sherbrooke Project and the expected dates for commencement of construction and production of the TAD Sherbrooke Project. 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 statements are based on certain key expectations and assumptions made by KPT or KPLP. Although KPT and KPLP believe 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 statements 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 Q3 2019 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 KPT’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 8, 2019 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 Sherbrooke 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; covenant compliance; interest rate and refinancing risk; and risks relating to information technology; cyber-security; insurance; internal controls; and trade.

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.

INFORMATION:

Francois Paroyan
General Counsel and Corporate Secretary
KP Tissue Inc.
Tel.: 905.812.6936
francois.paroyan@krugerproducts.ca

INVESTORS:

Mike Baldesarra
Director of Investor Relations
KP Tissue Inc.
Tel.: 905.812.6962
IR@KPTissueinc.com