KP Tissue Releases its Financial Results and those of Kruger Products L.P. for the Fourth Quarter and Full Year 2012 and Declares First Dividend

MISSISSAUGA, ON, March 27, 2013 /CNW Telbec/ - KP Tissue Inc. ("KPT") (TSX: KPT), which holds a limited partnership interest in Kruger Products L.P. ("KPLP"), releases the financial results for KPT and KPLP for the fourth quarter and full year 2012. KPLP is Canada's leading manufacturer of quality tissue products for household, industrial and commercial use. In connection with KPT's undertaking with the Ontario Securities Commission to treat KPLP as a subsidiary and to allow the reader to fully understand the financial results of KPT, the following provides discussion and analysis of KPLP's consolidated financial results.

KP Tissue Inc. and Kruger Products L.P.
KPT was created to acquire, and its business is limited to holding, a limited partnership interest in KPLP. On December 13, 2012, KPT completed an initial public offering of 8 million common shares and used the proceeds to acquire a 15.7% interest in KPLP. On January 10, 2013, KPT completed the issuance of an additional 750,000 common shares pursuant to the Over-Allotment Option and used the proceeds to subscribe for 750,000 additional units of KPLP which, together with the units of KPLP that it already held, resulted in KPT having a 16.9% interest in KPLP on that date. However, as of December 31, 2012, KPT continued to hold a 15.7% interest in KPLP, accounted for as an investment on the equity basis. The financial results presented for KPT represent its holding in KPLP of 15.7% only for the period from December 13, 2012 to December 31, 2012. The following discussion and analysis, unless identified specifically as representing the financial results of only KPT, relates entirely to the financial results of KPLP. Accordingly, the results of KPLP apply to KPT only to the extent of its holding in KPLP.

KP Tissue Inc. Highlights

• Net income of $0.2 million in Q4 2012 and fiscal 2012 for the period from the initial public offering on December 13, 2012 to December 31, 2012
• Earnings per share of $0.02 in Q4 2012 and fiscal 2012
• Declaration of first dividend of $0.217 per share, consisting of $0.18 per share pertaining to the first quarter of 2013 and $0.037 per share for the period from December 13, 2012 to December 31, 2012

KPLP Highlights

Q4 2012 Highlights

• Revenue of $242.9 million in Q4 2012, compared to $241.1 million in Q4 2011, an increase of 0.8 percent year over year
• EBITDA of $22.9 million in Q4 2012 (including approximately $3.9 million of expenses related to initial public offering, reorganization and TAD Project start-up) compared to $24.3 million in Q4 2011, a decrease of 5.6 percent year over year
• Net income of $6.9 million in Q4 2012 compared to $5.8 million in Q4 2011, an increase of 19.3 percent year over year
• Cash balance of $121.5 million as of December 31, 2012 compared to $28.7 million as of September 23, 2012 (end of the third quarter)

Full Year Highlights

• Revenue of $922.9 million in fiscal 2012, compared to $892.6 million in fiscal 2011, an increase of 3.4 percent year over year
• EBITDA of $111.3 million in fiscal 2012 (including approximately $7.3 million of expenses related to initial public offering, reorganization and TAD Project start-up), compared to $81.9 million in fiscal 2011, an increase of 35.9 percent year over year
• Net income of $46.6 million in fiscal 2012 compared to $28.6 million in fiscal 2011, an increase of 62.7 percent year over year
• Announced and substantially completed the Business Rationalization Project primarily to cease production of parent rolls for sale resulting in recurring annual savings of $11.9 million, of which $6.4 million of savings were achieved during fiscal 2012 and $5.5 million are expected to be achieved in 2013
• Announced on February 22, 2013, the completion of the construction phase of the Through-Air-Dried (TAD) tissue machine in Memphis

"The year 2012 marked an important juncture in the evolution of KPLP. We became a public company, we undertook an important business rationalization program and we successfully carried out the critical construction phase of our TAD Project," said Mario Gosselin, CEO of KP Tissue and KPLP.

"Revenue for 2012 was $922.9 million, up 3.4% over 2011. Of note is the growth in EBITDA, which increased by 35.9% to $111.3 million. This reflects higher volumes and lower cost of sales and is partially offset by higher operating expenses.

"Our full range of brands gained market share in Canada and our private label business made solid progress in the U.S. Our White Cloud Ultra brand, exclusive to Walmart, was ranked as the number one bathroom tissue by a leading U.S. consumer magazine.

"In February 2013 we announced the completion of the construction phase of the TAD Project on time and on budget, which represents an important milestone considering the scale of this project.  As expected, the start-up phase of the TAD Project will have a negative impact on EBITDA in the first half of 2013 and we anticipate a modest positive contribution for the year as a whole," Mr. Gosselin said.

"Our EBITDA in the first quarter of 2013 will continue to benefit from the business rationalization program implemented last year along with reduced management fees," said Mark Holbrook, CFO of KP Tissue and KPLP. "However these gains will be more than offset by the start-up costs of the TAD Project. Customer orders for TAD products commenced during the quarter and we have been filling the inventory pipeline."

KPLP Q4 2012 Financial Results
Revenue in Q4 2012 was $242.9 million, an increase of 0.8 percent compared to Q4 2011. Compared to Q4 2011, revenue was positively impacted by volume and mix changes, partially offset by a decline in average selling prices primarily as a result of the decline in pulp prices during fiscal 2012. The increases in revenue compared to Q4 2011 were driven primarily by increases in Consumer segment revenue, partially offset by declines in Other segment revenue primarily as a result of the decision to cease production of parent rolls for sale.

Cost of sales was $172.5 million in Q4 2012, compared to $175.9 million in Q4 2011. As a percentage of revenue, compared to Q4 2011, cost of sales decreased to 71.0% from 73.0% primarily due to lower fibre and energy costs, partially offset by higher plant maintenance expenses.

Operating expenses were $59.8 million in Q4 2012, compared to $49.3 million in Q4 2011. Compared to Q4 2011, operating expenses increased primarily due to higher sales and marketing related expenses and costs associated with transitioning to a public entity along with start-up costs related to the TAD Project.

EBITDA in Q4 2012 was $22.9 million, compared to $24.3 million in Q4 2011. EBITDA in Q4 2012 included $3.9 million of expenses related to the initial public offering, reorganization and TAD Project start-up. Compared to Q4 2011, EBITDA decreased primarily due to an increase in operating expenses, partially offset by higher sales volumes and lower fibre and energy costs. Cost increases within cost of sales and operating expenses in Q4 2012 were driven by seasonally higher advertising and promotion and plant maintenance expenses.

Net income in Q4 2012 was $6.9 million, compared to $5.8 million in Q4 2011. Compared to Q4 2011, net income increased primarily due to a deferred tax credit related to the U.S. operations in Q4 2012, while EBITDA declined slightly.

The cash balance as of December 31, 2012 was $121.5 million, up from $28.7 million as of September 23, 2012. On a sequential basis, the increase in cash was primarily driven by net cash of $113.6 million generated from the initial public offering and debt proceeds related to the TAD Project, and cash from operations of $44.1 million driven by EBITDA and improvements in working capital. The increase was partially offset by capital expenditures of $64.6 million, of which $58.4 million related to the TAD Project and $6.2 million related to existing sites. This compared to capital expenditures in Q4 2011 of $62.2 million, of which $51.5 million related to the TAD Project and $10.7 million related to existing sites.

The remaining capital expenditures related to the TAD Project are intended to be funded primarily from cash on hand in order to limit the use of the TAD Credit Facility to U.S$125 million.

KPLP Full Year Financial Results
Revenue was $922.9 million in fiscal 2012 compared to $892.6 million in fiscal 2011. The increase in revenue was primarily due to the positive impacts of volume and mix changes and an increase in average selling prices.

EBITDA was $111.3 million in fiscal 2012 compared to $81.9 million in fiscal 2011. The increase in EBITDA was primarily driven by the increase in revenue and lower cost of sales primarily due to reduced fibre and energy costs, partially offset by an increase in operating expenses primarily due to higher sales and marketing related expenses and costs associated with transitioning to a public entity along with start-up costs related to the TAD Project. EBITDA in fiscal 2012 included $3.6 million related to TAD Project start-up costs, $0.7 million of non-recurring public company costs, and a management fee of $9.2 million (to be reduced to $4.0 million in 2013). EBITDA in fiscal 2012 was also impacted by $6.4 million of the expected $11.9 savings from the Business Rationalization Project.

Net income was $46.6 million in fiscal 2012 compared to $28.6 million in fiscal 2011. The increase in net income was primarily due to higher EBITDA and a deferred tax credit recorded in fiscal 2012 compared to income tax expense in fiscal 2011, partially offset by an increase in interest expense and charges related to the Business Rationalization Project.

Partnership Units
KPLP has a contractual obligation which has been publicly disclosed to make partnership distributions sufficient to pay KPT's Canadian federal and provincial income taxes.  KPLP has reclassified a portion of its equity as a liability in respect of this obligation for accounting purposes, which does not change the rights of or obligations owed to the partners of KPLP or change the financial statements of KPT. Refer to KPT's Management Discussion and Analysis to be filed on SEDAR at www.sedar.com for additional details.

Dividends on Common Shares
The Board of Directors of KP Tissue Inc. declared a dividend of $0.217 per share to be paid on April 15, 2013 to shareholders of record at the close of business on April 8, 2013. The dividend relates to the period from the initial public offering on December 13, 2012 to March 31, 2013.

Conference Call Information
KPT will hold its conference call on Wednesday, March 27, 2013 at 8:30 a.m. Eastern Time.

Details of conference call:
Via telephone:  [phone] 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, April 27, 2013 by dialing 1-855-859-2056 or 416-849-0833 and entering passcode 20621182.

The replay of the webcast will remain available on the web site until midnight, April 27, 2013.

About KP Tissue Inc.
KPT was created to acquire, and its business is limited to holding, a limited partnership interest in KPLP. For more information visit www.kptissueinc.com.

About Kruger Products L.P.
Kruger Products L.P. is Canada's leading manufacturer of quality tissue products for household, industrial and commercial use. Kruger Products L.P. serves the Canadian consumer market with such well-known brands as Cashmere®, Purex®, SpongeTowels®, Scotties®' and White Swan®. In the U.S., Kruger Products L.P. manufactures the White Cloud® brand, as well as many private label products. Kruger Products L.P. has approximately 2,300 employees across North America and operates five FSC® CoC- certified mills, 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), and (viii) one-time costs related to the Business Rationalization Project. A reconciliation of EBITDA to the relevant reported results can be found in the Management's Discussion and Analysis of KPT and KPLP for the fourth quarter and fiscal year ended December 31, 2012 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 start-up of the TAD Project on EBITDA, the benefits of the business rationalization program and the funding of remaining capital expenditures relating to the TAD Project. 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 final prospectus dated December 5, 2012: 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; actual results achieved may differ from financial outlook; 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.
Condensed Consolidated Statements of Financial Position
(thousands of Canadian dollars)
		December 31, 2012		December 31, 2011
		$		$
Assets
Current assets
	Cash and cash equivalents	121,489		31,797
	Trade and other receivables	94,308		88,948
	Receivables from related parties	668		730
	Inventories	116,873		139,728
	Income tax recoverable	2,872		447
	Prepaid expenses	4,413		5,422
		340,623		267,072
Non-current assets
	Property, plant & equipment	580,814		424,194
	Other long-term assets	6,236		10,959
	Goodwill	152,021		152,021
	Intangible assets	13,828		14,307
	Deferred income taxes	1,178		-
Total assets		1,094,700		868,553
Liabilities
Current liabilities
	Trade and other payables	186,309		151,746
	Payables to related parties	9,057		9,407
	Current portion of provisions	3,719		1,644
	Current portion of long-term debt	3,802		-
		202,887		162,797
Non-current liabilities
	Long-term debt	323,885		251,748
	Other long-term liabilities	544		1,320
	Provisions	5,506		3,562
	Pensions	148,989		123,090
	Post-retirement benefits	48,302		46,497
	Deferred income taxes	-		1,618
Liabilities to non-unitholders		730,113		590,632
	Partnership units	118,562		-
Total Liabilities		848,675		590,632
Equity
	Partnership units	257,516		-
	Equity	-		279,209
	Accumulated deficit	(14,736)		-
	Accumulated other comprehensive loss	3,245		(1,288)
Total equity		246,025		277,921
Total equity and liabilities		1,094,700		868,553

Kruger Products L.P.
Condensed Consolidated Statements of Comprehensive Loss
(thousands of Canadian dollars)
		Quarter ended				Year ended
		December 31, 2012		December 31, 2011		December 31, 2012		December 31, 2011
		$		$		$		$
Revenue		242,903		241,071		922,874		892,582
Expenses
	Cost of sales	172,549		175,904		645,826		658,453
	Operating expenses	59,759		49,306		194,898		182,429
	Impairment of non-financial assets	(1,292)		2,662		4,608		2,662
	Restructuring costs	791		-		9,391		-
Operating income		11,096		13,199		68,151		49,038
Interest expense		6,580		7,024		23,027		19,166
Income before income taxes		4,516		6,175		45,124		29,872
Income taxes		(2,380)		397		(1,428)		1,253
Net income for the period		6,896		5,778		46,552		28,619
Other comprehensive income (loss)
	Actuarial gains (losses) on pensions	11,675		(6,644)		(44,496)		(56,782)
	Actuarial gains (losses) on post-retirement benefits	4,693		(4,240)		(102)		(5,432)
	Cumulative translation adjustment	3,245		(1,607)		(3,969)		2,461
Total other comprehensive income (loss) for the period		19,613		(12,491)		(48,567)		(59,753)
Comprehensive income (loss) for the period		26,509		(6,713)		(2,015)		(31,134)
Kruger Products L.P.
Condensed Consolidated Statements of Cash Flows
(thousands of Canadian dollars)
		Quarter ended				Year ended
		December 31, 2012		December 31, 2011		December 31, 2012		December 31, 2011
		$		$		$		$
Cash flows from operating activities
Net income for the period		6,896		5,778		46,552		28,619
Items not affecting cash
	Depreciation	10,755		8,478		28,331		30,439
	Amortization	146		273		530		413
	Loss on sale of property, plant and equipment	622		123		1,060		123
	Unrealized foreign exchange (gain) loss	773		(493)		(777)		(811)
	Interest expense	6,580		7,024		23,027		19,166
	Pension and post retirement benefits	2,338		1,814		9,041		7,272
	Provisions	154		5		9,613		703
	Deferred income taxes	(3,084)		185		(2,772)		648
	Current income taxes	704		212		1,344		605
	Impairment of non-financial assets	(1,292)		2,662		4,608		2,662
	Total items not affecting cash	17,696		20,283		74,005		61,220
Net change in non-cash working capital		29,606		50,799		39,906		18,513
Contributions to pension and post-retirement benefit plans		(7,569)		(9,392)		(29,707)		(33,418)
Provisions and other liabilities		(2,336)		(2,083)		(7,245)		(2,083)
Income tax payments		367		(325)		(360)		(678)
Net cash from operating activities		44,660		65,060		123,151		72,173
Cash flows used in investing activities
Purchase of property, plant & equipment		(6,157)		(8,458)		(17,652)		(22,994)
Purchases of through-air-dried (TAD) expansion		(54,056)		(51,473)		(161,155)		(84,124)
Purchases of software		(51)		(2,277)		(51)		(2,277)
Interest paid on TAD expansion		(4,320)		-		(6,125)		-
Proceeds on sale of property, plant and equipment		16		-		199		-
Net cash used in investing activities		(64,568)		(62,208)		(184,784)		(109,395)
Cash flows from financing activities
Proceeds from credit facilities		51,830		34,566		145,957		209,566
Repayment of credit facilities		(27,096)		(10,408)		(65,000)		(132,483)
Transfer of assets to related parties		2,000		(2,868)		(209)		(547)
Payment of deferred financing fees		(26)		(9,027)		(26)		(16,611)
Interest paid on credit facilities		(3,290)		(3,357)		(17,720)		(12,584)
Proceeds from issuing partnership units		128,890		-		128,890		-
Distributions paid		(40,000)		-		(40,000)		-
Settlement of interest rate swap contract		-		-		(413)		-
Net cash from financing activities		112,308		8,906		151,479		47,341
Effect of exchange rate changes on cash and cash equivalents held in foreign currency		342		(310)		(154)		193
Decrease in cash and cash equivalents during the period		92,742		11,448		89,692		10,312
Cash and cash equivalents - Beginning of period		28,747		20,349		31,797		21,485
Cash and cash equivalents - End of period		121,489		31,797		121,489		31,797
Kruger Products L.P.
Segment and Geographic Results
(thousands of Canadian dollars)
		Quarter ended				Year ended
		December 31, 2012		December 31, 2011		December 31, 2012		December 31, 2011
		$		$		$		$
Segment Information
Segment Revenue
	Consumer	199,099		187,533		745,548		705,287
	AFH	41,708		42,398		156,632		151,268
	Other	2,096		11,140		20,694		36,027
Total segment revenue		242,903		241,071		922,874		892,582
Segment EBITDA
	Consumer	24,504		25,835		114,003		87,581
	AFH	(1,795)		142		3,073		1,985
	Other	182		(1,735)		(5,782)		(7,702)
Total segment EBITDA		22,891		24,242		111,294		81,864
Reconciliation to Net Income:
Interest expense		6,580		7,024		23,027		19,166
Depreciation and amortization		10,901		8,751		28,861		30,852
Unrealized foreign exchange gain		773		(493)		(777)		(811)
One-time costs related to the Business Rationalization Project		791		-		9,391		-
Impairment of non-financial assets		(1,292)		2,662		4,608		2,662
Loss on disposal of property, plant and equipment		622		123		1,060		123
Income before income taxes		4,516		6,175		45,124		29,872
Income taxes		(2,380)		397		(1,428)		1,253
Net income for the period		6,896		5,778		46,552		28,619
Geographic Revenue
Canada		176,903		170,917		662,952		641,669
U.S.		58,135		63,179		231,532		233,045
Mexico		7,865		6,975		28,390		17,868
Total Revenue		242,903		241,071		922,874		892,582

KP Tissue Inc.
Condensed Statement of Financial Position
(thousands of Canadian dollars)
		December 31, 2012
		$
Assets
Non-current assets
	Investment in associate	140,774
Total Assets		140,774
Liabilities
Non-current liabilities
	Deferred income taxes	52
Total liabilities		52
Equity
	Common shares	140,000
	Accumulated other comprehensive loss	627
	Retained earnings	95
Total equity		140,722
Total liabilities and equity		140,774
KP Tissue Inc.
Condensed Statement of Comprenhensive Income
(thousands of Canadian dollars)
		2012
		$
Equity income		201
Income before income taxes		201
Income taxes
	Deferred	52
Net income for the period		149
Other comprehensive income
	Actuarial gains on pensions	341
	Actuarial gains on post-retirement benefits	137
	Cumulative translation adjustment	95
Total other comprehensive income for the period		573
Comprehensive income for the period		722
Basic earnings per share		0.02
KP Tissue Inc.
Condensed Statement of Cash Flows
(thousands of Canadian dollars)
		2012
		$
Cash flows from operating activities
Net income for the period		149
Items not affecting cash
	Equity income	(201)
	Deferred income taxes	52
Net cash from operating activities		-
Cash flows used in investing activites
Investment in associate		(140,000)
Net cash used in investing activities		(140,000)
Cash flows from financing activities
Issuance of common shares		140,000
Net cash from financing activities		140,000
Decrease in cash and cash equivalents during the period		-
Cash and cash equivalents - Beginning of period		-
Cash and cash equivalents - End of period		-

 

 

 

 

SOURCE: KP Tissue Inc.

INFORMATION:
Wendy Kelley
General Counsel and Corporate Secretary
KP Tissue Inc.
Tel.: [phone]
[email protected]

INVESTORS: 
Mike Baldesarra
Director of Investor Relations
KP Tissue Inc.
Tel.: [phone]
[email protected]