KP Tissue Releases Second Quarter 2014 Financial Results

MISSISSAUGA, ON, Aug. 13, 2014 /CNW Telbec/ - KP Tissue Inc. ("KPT") (TSX: KPT) reports the Q2 2014 Financial and Operational Results of KPT and Kruger Products L.P. (KPLP):

• Revenue increased by 7.5% to $265.3 million in Q2 2014 compared to $246.8 million in Q2 2013
• EBITDA of $29.0 million in Q2 2014 compared to $31.7 million in Q2 2013
• TAD product sales continued to progress well, with EBITDA contribution of $7.8 million in Q2 2014
• Maintained number one overall consumer market share in Canada
• Acquired Metro Paper Canadian converting assets and North American customer base for cash consideration of $23.4 million
• Solid balance sheet with $40.5 million of cash at the end of the quarter

"TAD Product EBITDA of $7.8 million was an important contributor to second quarter EBITDA of $29.0 million. Our consumer and AFH businesses continued to face the challenge of high input costs and competitive environments during the quarter," said Mario Gosselin, CEO of KP Tissue and KPLP.

TAD product sales continued to ramp-up as planned and we expect fiscal 2014 TAD Product EBITDA to be in the previously provided range. Furthermore, we are now engaged in a study to evaluate capacity expansion and use of TAD technology.

"In the Canadian consumer market, our brands are maintaining their overall market share leadership. We are continuing our capital investment program as planned, to improve our profitability and reduce our manufacturing costs in Canada. We are currently realizing the benefits of two previously announced cost optimization projects and are planning to implement additional cost reduction initiatives in the back half of the year.

We expect EBITDA for the third quarter of 2014 to be higher than Q2 2014 and similar to or slightly higher than the third quarter of 2013. On a sequential basis, we anticipate an improvement in our Canadian consumer business reflecting normal seasonality," concluded Mr. Gosselin.

KP Tissue Inc.
KPT holds a 16.6% 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 Q2 2014 Financial Results
Revenue in Q2 2014 was $265.3 million, compared to $246.8 in Q2 2013, an increase of $18.5 million. The increase was driven by improved Consumer segment revenue resulting from TAD product promotional activities in the U.S. and the favourable impact of foreign exchange on U.S. based sales. AFH segment revenue was positively impacted by the acquisition of Metro Paper on June 3^rd. Revenue in Canada decreased as a result of lower promotional activity compared to Q2 2013.

Cost of sales in Q2 2014 was $226.5 million, compared to $201.7 million in Q2 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 85.3 percent in Q2 2014 from 81.7 percent in Q2 2013.

Selling, general and administrative expenses in Q2 2014 were $19.6 million, compared to $22.4 million in Q2 2013 due to decreases in departmental spending and advertising and promotion expenses.

EBITDA in Q2 2014 was $29.0 million compared to $31.7 million in Q2 2013 as EBITDA was impacted by lower margins due to higher cost of sales. TAD Product EBITDA was $7.8 million in Q2 2014 compared to an EBITDA loss of $1.9 million, including start-up costs, in Q2 2013.

Net income in Q2 2014 was $8.1 million, compared to $15.4 million in Q2 2013. The decrease was due to lower EBITDA of $2.7 million, a decrease in the deferred tax recovery of $3.2 million, and a change of $1.5 million in the amortized cost of the Partnership unit liability.

The cash balance as of June 29, 2014 was $40.5 million compared to $52.7 million as of March 30, 2014. Cash generated from operating activities and a reduction in working capital requirements, was partially offset by cash used to acquire Metro Paper ($23.4 million) and to pay distributions.

KPT Q2 2014 Financial Results

• Net loss of $0.3 million in Q2 2014
• Loss per share of $0.03 in Q2 2014

Included in the net loss of $0.3 million in Q2 2014 was $1.4 million representing KPT's share of KPLP's profit. The profit was offset by depreciation expense of $1.5 million related to adjustments to carrying amounts on acquisition, and income tax expense of $0.2 million.

KPLP Distribution
KPLP will pay a distribution of $0.18 per KPLP unit to its partners on or prior to October 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 October 15, 2014 to shareholders of record at the close of business on September 30, 2014.

Conference Call Information
KPT will hold its second quarter conference call on Wednesday, August 13, 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, September 12, 2014 by dialing 1-855-859-2056 or 416-849-0833 and entering passcode 73141456.

The replay of the webcast will remain available on the web site until midnight, September 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. As of June 29, 2014, KPT held a 16.6% interest in KPLP, accounted for as an investment on the equity basis. On July 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 2,500 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 second quarter ended June 29, 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)
			June 29, 2014		December 31, 2013
			$		$
Assets
Current assets
	Cash and cash equivalents		40,484		87,674
	Trade and other receivables		101,487		94,789
	Receivables from related parties		325		1,429
	Advances to partners		1,390		-
	Inventories		153,855		151,505
	Current portion of income tax recoverable		545		630
	Prepaid expenses		9,265		4,777
			307,351		340,804
Non-current assets
	Property, plant & equipment		622,434		616,687
	Other long-term assets		10,786		10,268
	Income tax recoverable		14,481		14,132
	Goodwill		160,842		152,021
	Intangible assets		13,920		13,483
	Deferred income taxes		16,015		14,141
Total assets			1,145,829		1,161,536
Liabilities
Current liabilities
	Trade and other payables		169,777		188,470
	Payables to related parties		9,325		5,134
	Distributions payable		9,550		9,455
	Current portion of provisions		2,192		999
	Current portion of long-term debt		11,121		8,276
			201,965		212,334
Non-current liabilities
	Long-term debt		347,799		342,013
	Other long-term liabilities		232		323
	Provisions		7,478		6,615
	Pensions		100,956		80,380
	Post-retirement benefits		52,937		48,746
	Liabilities to non-unitholders		711,367		690,411
	Current portion of Partnership units liability		3,475		3,475
	Long-term portion of Partnership units liability		115,754		114,364
	Total Partnership units liability		119,229		117,839
Total liabilities			830,596		808,250
Equity
	Partnership units		291,137		282,672
	Retained earnings		3,786		50,945
	Accumulated other comprehensive income		20,310		19,669
Total equity			315,233		353,286
Total equity and liabilities			1,145,829		1,161,536

Kruger Products L.P.
Unaudited Condensed Consolidated Statement of Comprehensive Income
(thousands of Canadian dollars)
		13-week period ended June 29, 2014		13-week period ended June 30, 2013		26-week period ended June 29, 2014		26-week period ended June 30, 2013
		$		$		$		$
Revenue		265,284		246,769		499,892		468,554
Expenses
	Cost of sales	226,352		201,629		425,223		384,800
	Selling, general and administrative expenses	19,882		22,383		40,408		43,168
	Recovery of non-financial assets	-		(1,789)		-		(1,789)
	Restructuring costs	51		-		2,835		-
Operating income		18,999		24,546		31,426		42,375
	Interest expense	11,393		11,007		22,301		20,897
	Other (income) expense	(158)		1,647		4,870		2,723
Income before income taxes		7,764		11,892		4,255		18,755
Income taxes		(355)		(3,485)		(641)		(8,338)
Net income for the period		8,119		15,377		4,896		27,093
Other comprehensive income (loss)
	Items that will not be reclassified to net income:
	Remeasurements of pensions	(30,593)		21,203		(29,512)		33,698
	Remeasurements of post-retirement benefits	(2,646)		1,504		(3,493)		1,504
	Items that may be subsequently reclassified to net income:
	Available-for-sale investment	(113)		-		(138)		-
	Cumulative translation adjustment	(10,027)		8,835		779		13,374
Total other comprehensive income (loss) for the period		(43,379)		31,542		(32,364)		48,576
Comprehensive income (loss) for the period		(35,260)		46,919		(27,468)		75,669

Kruger Products L.P.
Unaudited Condensed Consolidated Statement of Cash Flows
(thousands of Canadian dollars)
		13-week period ended June 29, 2014		13-week period ended June 30, 2013		26-week period ended June 29, 2014		26-week period ended June 30, 2013
		$		$		$		$
Cash flows from (used in) operating activities
Net income for the period		8,119		15,377		4,896		27,093
Items not affecting cash
	Depreciation	9,387		8,856		18,194		16,189
	Amortization	187		144		331		276
	Loss (gain) on sale of fixed assets	298		-		298		(4)
	Change in amortized cost of Partnership units liability	1,514		-		4,864		-
	Unrealized foreign exchange loss	(1,596)		1,638		83		2,493
	Interest expense	11,393		11,007		22,301		20,897
	Pension and post retirement benefits	2,308		2,456		5,004		5,164
	Provisions	237		223		2,421		485
	Income taxes	(355)		(3,485)		(641)		(8,338)
	Recovery of non-financial assets	-		(1,789)		-		(1,789)
	Total items not affecting cash	23,373		19,050		52,855		35,373
Net change in non-cash working capital		9,734		(9,774)		(17,268)		(44,216)
Contributions to pension and post-retirement benefit plans		(8,366)		(7,389)		(16,216)		(14,717)
Provisions paid		(336)		(312)		(837)		(1,802)
Income tax payments		(513)		(743)		(886)		(1,737)
Net cash from (used in) operating activities		32,011		16,209		22,544		(6)
Cash flows from (used in) investing activities
Purchase of property, plant & equipment		(9,231)		(4,573)		(13,366)		(7,590)
Purchases of through-air-dried (TAD) expansion		9		(9,112)		(6,212)		(28,773)
Purchases of software		(759)		(87)		(768)		(90)
Proceeds on sale of property, plant and equipment		1		-		1		4
Acqusition of business (net)		(23,360)		-		(23,360)		-
Net cash used in investing activities		(33,340)		(13,772)		(43,705)		(36,449)
Cash flows from (used in) financing activities
Proceeds from credit facilities		-		-		-		4,571
Repayment of credit facilities		(306)		(3,654)		(510)		(3,730)
Payment of deferred financing fees		-		(453)		-		(453)
Interest paid on credit facilities		(3,233)		(6,755)		(10,397)		(13,971)
Distributions and advances		(10,890)		(11,232)		(23,695)		(11,232)
Proceeds from issuing partnership units		4,277		5,093		8,465		17,383
Net cash used in financing activities		(10,152)		(17,001)		(26,137)		(7,432)
Effect of exchange rate changes on cash and cash equivalents held in foreign currency		(771)		507		108		762
Decrease in cash and cash equivalents during the period		(12,252)		(14,057)		(47,190)		(43,125)
Cash and cash equivalents - Beginning of period		52,736		92,421		87,674		121,489
Cash and cash equivalents - End of period		40,484		78,364		40,484		78,364

Kruger Products L.P.
Segment and Geographic Results
(thousands of Canadian dollars)
		13-week period ended June 29, 2014		13-week period ended June 30, 2013		26-week period ended June 29, 2014		26-week period ended June 30, 2013
		$		$		$		$
Segment Information
Segment Revenue
	Consumer	216,900		205,358		415,278		389,761
	AFH	44,264		40,004		77,746		75,285
	Other	4,120		1,407		6,868		3,508
Total segment revenue		265,284		246,769		499,892		468,554
Segment EBITDA
	Consumer	29,541		29,104		54,490		53,027
	AFH	137		2,677		(387)		4,140
	Other	(680)		(33)		(942)		(350)
Total segment EBITDA		28,998		31,748		53,161		56,817
Reconciliation to Net Income:
Depreciation and amortization		9,574		9,000		18,525		16,465
Interest expense		11,393		11,007		22,301		20,897
Change in amortized cost of Partnership units liability		1,514		-		4,864		-
Gain (loss) on sale of fixed assets		298		-		298		(4)
Recovery of non-financial assets				(1,789)		-		(1,789)
Restructuring costs		51		-		2,835		-
Unrealized foreign exchange loss		(1,596)		1,638		83		2,493
Income before income taxes		7,764		11,892		4,255		18,755
Income taxes		(355)		(3,485)		(641)		(8,338)
Net income for the period		8,119		15,377		4,896		27,093
Geographic Revenue
Canada		172,981		183,087		334,141		340,649
U.S.		86,310		56,331		153,068		113,465
Mexico		5,993		7,351		12,683		14,440
Total Revenue		265,284		246,769		499,892		468,554

KP Tissue Inc.
Unaudited Condensed Statement of Financial Position
(thousands of Canadian dollars)
		June 29, 2014		December 31, 2013
		$		$
Assets
Current assets
	Distributions receivable	1,589		1,583
	Income taxes receivable	182		-
		1,771		1,583
Non-current assets
	Investment in associate	150,927		161,584
Total Assets		152,698		163,167
Liabilities
Current liabilities
	Dividend payable	1,589		1,583
	Advances from partnership	234		-
	Payables to partnership	25		-
	Income taxes payable	-		580
		1,848		2,163
Non-current liabilities
	Deferred income taxes	1,937		3,033
Total liabilities		3,785		5,196
Equity
	Common shares	9,642		9,068
	Contributed surplus	144,819		144,819
	Retained earnings (deficit)	(9,054)		709
	Accumulated other comprehensive income	3,506		3,375
Total equity		148,913		157,971
Total liabilities and equity		152,698		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 June 29, 2014		13-week period ended June 30, 2013		26-week period ended June 29, 2014		26-week period ended June 30, 2013
		$		$		$		$
Equity income (loss)		(96)		1,228		(2,179)		481
Gain on remeasurement of over allotment option		-		-		-		375
Dilution gain		14		112		58		112
Loss before income taxes		(82)		1,340		(2,121)		968
Income tax expense (recovery)
	Current	116		386		81		599
	Deferred	74		354		(248)		460
		190		740		(167)		1,059
Net income (loss) for the period		(272)		600		(1,954)		(91)
Other comprehensive income (loss)
	Items that will not be reclassified to net loss:
	Remeasurements of pensions - net of tax recovery	(4,437)		3,109		(4,280)		4,932
	Remeasurements of post-retirement benefits - net of tax recovery	(232)		220		(355)		220
	Items that may be subsequently reclassified to net loss:
	Available-for-sale investment - net of tax recovery	(17)		-		(21)		-
	Cumulative translation adjustment - net of tax expense	(1,897)		1,295		152		1,957
Total other comprehensive income (loss) for the period		(6,583)		4,624		(4,504)		7,109
Comprehensive income (loss) for the period		(6,855)		5,224		(6,458)		7,018
Basic earnings (loss) per share		(0.03)		0.07		(0.22)		(0.01)
Weighted average number of shares outstanding		8,825,516		8,770,427		8,815,777		8,718,721

KP Tissue Inc.
Unaudited Condensed Statement of Cash Flows
(thousands of Canadian dollars)
		13-week period ended June 29, 2014		13-week period ended June 30, 2013		26-week period ended June 29, 2014		26-week period ended June 30, 2013
		$		$		$		$
Cash flows from (used in) operating activities
Net income (loss) for the period		(272)		600		(1,954)		(91)
Items not affecting cash
	Equity loss (income)	96		(1,228)		2,179		(481)
	Gain on remeasurement of overallotment option			-		-		(375)
	Dilution gain	(14)		(112)		(58)		(112)
	Current income taxes	116		386		81		599
	Deferred income taxes	74		354		(248)		460
	Total items not affecting cash	272		(600)		1,954		91
Income tax payments		(233)		-		(693)		-
Net cash from (used in) operating activities		(233)		-		(693)		-
Cash flows from (used in) investing activites
Investment in associate		(321)		(444)		(574)		(13,569)
Partnership unit distributions received		1,585		1,898		3,168		1,898
Tax distributions received		-		-		459		-
Advances received		233		-		234		-
Net cash from (used in) investing activities		1,497		1,454		3,287		(11,671)
Cash flows from (used in) financing activities
Issuance of common shares		321		444		574		13,569
Dividends paid		(1,585)		(1,898)		(3,168)		(1,898)
Net cash from (used in) financing activities		(1,264)		(1,454)		(2,594)		11,671
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]