KP Tissue Releases its First Quarter 2014 Financial Results

MISSISSAUGA, ON, May 9, 2014 /CNW Telbec/ - KP Tissue Inc. ("KPT") (TSX: KPT) reports the Q1 2014 Financial and Operational Results of Kruger Products: 

• Revenue increased by 5.8% to $234.6 million in Q1 2014 compared to $221.8 million in Q1 2013
• EBITDA result of $24.2 million in Q1 2014 compared to $25.1 million in Q1 2013
• TAD Project continued to progress well, with EBITDA contribution of $3.5 million in Q1 2014
• Maintained number one overall market share in Canada

"EBITDA of $24.2 million for the first quarter of 2014 continued to reflect high input costs and extreme weather conditions, which impacted margins. Despite a challenging market environment, we maintained our number one overall market share in Canada. The TAD Project was in line with expectations and contributed $3.5 million to EBITDA," said Mario Gosselin, CEO of KP Tissue and KPLP.

"During the quarter, we completed the consolidation of our Eastern distribution activities with expected annual savings of approximately $1.6 million. We also undertook an optimization program at the corporate level which should represent annual savings of approximately $2.4 million, once finalized.

"Going forward, we continue to see headwinds related to pulp and energy costs for the second quarter, and then a gradual decrease in pulp prices in the back half of 2014. This should alleviate some of the pressure on our margins. EBITDA for the second quarter of 2014 is expected to be higher compared to the first quarter of 2014 and moderately lower compared to the second quarter of 2013. For the TAD Project, some significant promotional activities are planned in the second quarter which should contribute to a higher EBITDA contribution when compared to the first quarter of 2014," concluded Mr. Gosselin.

KP Tissue Inc.
KPT holds a 16.6% interest in Kruger Products L.P. ("KPLP"), Canada's leading manufacturer of quality tissue products for household and commercial use. 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.

Q1 2014 Financial Results
Revenue in Q1 2014 was $234.6 million, compared to $221.8 in Q1 2013, an increase of $12.8 million driven by improved Consumer segment revenue in both Canada and the U.S. resulting from new business related to the TAD Project and the favourable impact of foreign exchange on U.S. based sales.

Cost of sales in Q1 2014 was $198.9 million, compared to $183.2 million in Q1 2013 due to the impact of increases in commodity prices, particularly pulp fibre and natural gas, the unfavourable impact of foreign exchange, and an increase in freight and warehousing expenses related primarily to higher sales volume. As a percentage of revenue, cost of sales increased to 84.8 percent in Q1 2014 from 82.6 percent in Q1 2013.

Selling, general and administrative expenses in Q1 2014 were $20.5 million, compared to $20.8 million in Q1 2013 due to a slight decrease in advertising and promotion expenses.

EBITDA in Q1 2014 was $24.2 million (included TAD Project EBITDA of $3.5 million), compared to $25.1 million in Q1 2013 (included TAD Project EBITDA loss of $2.9 million). EBITDA was impacted by lower margins as a result of higher cost of sales.

There was a Net loss in Q1 2014 of $3.2 million, compared to net income of $11.7 million in Q1 2013. The net loss was driven by a number of non-operational charges in Q1 2014 including charges related to restructuring of $2.8 million, the change in the amortized cost of the partnership unit liability of $3.3 million and a decrease in the deferred tax recovery of $4.6 million.

The cash balance as of March 30, 2014 was $52.7 million compared to $87.7 million as December 31, 2013. Cash was used in operating activities to support additional working capital requirements, consistent with the year ago quarter and with the seasonal nature of our business, and cash was also used in investing and financing activities.

KPT Results

Q1 2014 Results

• Net loss of $1.7 million in Q1 2014
• Loss per share of $0.19 in Q1 2014

KPLP Distribution
KPLP will pay a distribution of $0.18 per KPLP unit to its partners on or prior to July 15, 2014.

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 July 15, 2014 to shareholders of record at the close of business on June 30, 2014.

Conference Call Information
KPT will hold its first quarter conference call on Friday, May 9, 2014 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, June 6, 2014 by dialing 1-855-859-2056 or 416-849-0833 and entering passcode 24880769.

The replay of the webcast will remain available on the web site until midnight, June 6, 2014.

About KP Tissue Inc. (KPT)
KPT was created to acquire, and its business is limited to holding, a limited partnership interest in KPLP. As of March 30, 2014, KPT held a 16.7% interest in KPLP, accounted for as an investment on the equity basis. On April 15, 2014, KPLP paid a distribution to its partners. Following the reinvestment by the partners of KPLP of a portion of such distribution pursuant to KPLP's distribution reinvestment plan, KPT held a 16.6% 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 2,300 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 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 first quarter ended March 30, 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)
		March 30, 2014		December 31, 2013
		$		$
Assets
Current assets
	Cash and cash equivalents	52,736		87,674
	Trade and other receivables	106,998		94,789
	Receivables from related parties	592		1,429
	Advances to partners	347		-
	Inventories	156,940		151,505
	Current portion of income tax recoverable	474		630
	Prepaid expenses	6,180		4,777
		324,267		340,804
Non-current assets
	Property, plant & equipment	625,993		616,687
	Other long-term assets	10,389		10,268
	Income tax recoverable	14,857		14,132
	Goodwill	152,021		152,021
	Intangible assets	13,348		13,483
	Deferred income taxes	15,727		14,141
Total assets		1,156,602		1,161,536
Liabilities
Current liabilities
	Trade and other payables	169,406		188,470
	Payables to related parties	6,084		5,134
	Distributions payable	9,500		9,455
	Current portion of provisions	2,528		999
	Current portion of long-term debt	11,547		8,276
		199,065		212,334
Non-current liabilities
	Long-term debt	351,239		342,013
	Other long-term liabilities	276		323
	Provisions	7,181		6,615
	Pensions	75,232		80,380
	Post-retirement benefits	50,004		48,746
	Liabilities to non-unitholders	682,997		690,411
	Current portion of Partnership units liability	3,475		3,475
	Long-term portion of Partnership units liability	114,364		114,364
	Total Partnership units liability	117,839		117,839
Total liabilities		800,836		808,250
Equity
	Partnership units	286,860		282,672
	Retained earnings	38,456		50,945
	Accumulated other comprehensive income	30,450		19,669
Total equity		355,766		353,286
Total equity and liabilities		1,156,602		1,161,536

Kruger Products L.P.
Unaudited Condensed Consolidated Statement of Comprehensive Income
(thousands of Canadian dollars)
		13-week period ended March 30, 2014		13-week period ended March 31, 2013
		$		$
Revenue		234,608		221,785
Expenses
	Cost of sales	198,871		183,171
	Selling, general and administrative expenses	20,526		20,785
	Restructuring costs	2,784		-
Operating income		12,427		17,829
	Interest expense	10,908		9,890
	Other expense	5,028		1,076
Income (loss) before income taxes		(3,509)		6,863
Income taxes		(286)		(4,853)
Net income (loss) for the period		(3,223)		11,716
Other comprehensive income (loss)
	Items that will not be reclassified to net income:
	Remeasurements of pensions	1,081		12,495
	Remeasurements of post-retirement benefits	(847)		-
	Items that may be subsequently reclassified to net income:
	Available-for-sale investment	(25)		-
	Cumulative translation adjustment	10,806		4,539
Total other comprehensive income for the period		11,015		17,034
Comprehensive income for the period		7,792		28,750

Kruger Products L.P.
Unaudited Condensed Consolidated Statement of Cash Flows
(thousands of Canadian dollars)
		13-week period ended March 30, 2014		13-week period ended March 31, 2013
		$		$
Cash flows from (used in) operating activities
Net income (loss) for the period		(3,223)		11,716
Items not affecting cash
	Depreciation	8,807		7,333
	Amortization	144		132
	Gain on sale of fixed assets	-		(4)
	Change in amortized cost of Partnership units liability	3,350		-
	Unrealized foreign exchange loss	1,679		855
	Interest expense	10,908		9,890
	Pension and post retirement benefits	2,696		2,708
	Provisions	2,184		262
	Income taxes	(286)		(4,853)
	Total items not affecting cash	29,482		16,323
Net change in non-cash working capital		(27,002)		(34,442)
Contributions to pension and post-retirement benefit plans		(7,850)		(7,328)
Provisions paid		(501)		(1,490)
Income tax payments		(373)		(994)
Net cash used in operating activities		(9,467)		(16,215)
Cash flows from (used in) investing activities
Purchase of property, plant & equipment		(4,135)		(3,017)
Purchases of through-air-dried (TAD) expansion		(6,221)		(19,661)
Purchases of software		(9)		(3)
Proceeds on sale of property, plant and equipment		-		4
Net cash used in investing activities		(10,365)		(22,677)
Cash flows from (used in) financing activities
Proceeds from credit facilities		-		4,571
Repayment of credit facilities		(204)		(76)
Interest paid on credit facilities		(7,164)		(7,216)
Distributions paid		(12,805)		-
Equity issuance costs		-		(835)
Proceeds from issuing partnership units		4,188		13,125
Net cash from (used in) financing activities		(15,985)		9,569
Effect of exchange rate changes on cash and cash equivalents held in foreign currency		879		255
Decrease in cash and cash equivalents during the period		(34,938)		(29,068)
Cash and cash equivalents - Beginning of period		87,674		121,489
Cash and cash equivalents - End of period		52,736		92,421

Kruger Products L.P.
Segment and Geographic Results
(thousands of Canadian dollars)
		13-week period ended March 30, 2014		13-week period ended March 31, 2013
		$		$
Segment Information
Segment Revenue
	Consumer	198,378		184,403
	AFH	33,482		35,281
	Other	2,748		2,101
Total segment revenue		234,608		221,785
Segment EBITDA
	Consumer	24,949		23,923
	AFH	(524)		1,463
	Other	(262)		(317)
Total segment EBITDA		24,163		25,069
Reconciliation to Net Income:
Depreciation and amortization		8,951		7,465
Interest expense		10,908		9,890
Change in amortized cost of Partnership units liability		3,350		-
Gain on sale of fixed assets		-		(4)
Restructuring costs		2,784		-
Unrealized foreign exchange loss		1,679		855
Income before income taxes		(3,509)		6,863
Income taxes		(286)		(4,853)
Net income (loss) for the period		(3,223)		11,716
Geographic Revenue
Canada		161,160		157,562
U.S.		66,758		57,134
Mexico		6,690		7,089
Total Revenue		234,608		221,785

KP Tissue Inc.
Unaudited Condensed Statement of Financial Position
(thousands of Canadian dollars)
		March 30, 2014		December 31, 2013
		$		$
Assets
Current assets
	Distributions receivable	1,585		1,583
	Income taxes receivable	125		-
Non-current assets
	Investment in associate	160,143		161,584
Total Assets		161,853		163,167
Liabilities
Current liabilities
	Dividend payable	1,585		1,583
	Payables to related party	210		-
	Income taxes payable	-		580
		1,795		2,163
Non-current liabilities
	Deferred income taxes	3,022		3,033
Total liabilities		4,817		5,196
Equity
	Common shares	9,321		9,068
	Contributed surplus	144,819		144,819
	Retained earnings (deficit)	(2,524)		709
	Accumulated other comprehensive income	5,420		3,375
Total equity		157,036		157,971
Total liabilities and equity		161,853		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 March 30, 2014		13-week period ended March 31, 2013
		$		$
Equity loss		(2,083)		(747)
Gain on remeasurement of over allotment option		-		375
Dilution gain		44		-
Loss before income taxes		(2,039)		(372)
Income tax expense (recovery)
Current		(35)		213
Deferred		(322)		106
		(357)		319
Net loss for the period		(1,682)		(691)
Other comprehensive income (loss)
	Items that will not be reclassified to net loss:
	Remeasurements of pensions - net of tax expense of $23 and $272	157		1,823
	Remeasurements of post-retirement benefits - net of tax recovery of $18	(123)		-
	Items that may be subsequently reclassified to net loss:
	Available-for-sale investment - net of tax recovery of $1	(4)		-
	Cumulative translation adjustment - net of tax expense of $307 and $99	2,049		662
Total other comprehensive income for the period		2,079		2,485
Comprehensive income for the period		397		1,794
Basic loss per share		(0.19)		(0.08)
Weighted average number of shares outstanding		8,805,820		8,667,583

KP Tissue Inc.
Unaudited Condensed Statement of Cash Flows
(thousands of Canadian dollars)
		13-week period ended March 30, 2014		13-week period ended March 31, 2013
		$		$
Cash flows from (used in) operating activities
Net loss for the period		(1,682)		(691)
Items not affecting cash
	Equity loss	2,083		747
	Gain on remeasurement of overallotment option	-		(375)
	Dilution gain	(44)		-
	Current income taxes	(35)		213
	Deferred income taxes	(322)		106
	Total items not affecting cash	1,682		691
Tax payments		(460)		-
Net cash from (used in) operating activities		(460)		-
Cash flows from (used in) investing activites
Investment in associate		(253)		(13,125)
Distributions received		1,583		-
Tax distribution received		460		-
Net cash from (used in) investing activities		1,790		(13,125)
Cash flows from (used in) financing activities
Issuance of common shares		253		13,125
Dividends paid		(1,583)		-
Net cash from (used in) financing activities		(1,330)		13,125
Increase (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.

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]