KP Tissue Reports Second Quarter 2013 Results

Aug. 13, 2013 - 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 second quarter of 2013. KPLP is Canada's leading manufacturer of quality tissue products for household and commercial use.

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. As of June 30, 2013, KPT held a 16.9% interest in KPLP, accounted for as an investment on the equity basis. The financial results presented for KPT represent its holding in KPLP during the second quarter of 2013. 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.

On July 15, 2013, 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 16.8% interest in KPLP.

KPLP Highlights

Q2 2013 Highlights

  • Revenue of $246.8 million in Q2 2013, compared to $231.3 million in Q2 2012, an increase of 6.7 percent year over year
  • EBITDA of $31.7 million in Q2 2013 (including $2.4 million of TAD Project start-up costs) compared to $29.3 million in Q2 2012 (including $0.9 million of TAD Project start-up costs), an increase of 8.1 percent year over year
  • Net income of $15.4 million in Q2 2013 compared to $15.6 million in Q2 2012, a decrease of $0.2 million year over year
  • Cash balance of $78.4 million as of June 30, 2013 compared to $92.4 million as of March 31, 2013

"Our results for the second quarter were very solid, and we are particularly pleased that our EBITDA reached $31.7 million. Moreover, as we expected, our Canadian branded businesses reported higher sales when compared to the first quarter of 2013 due to a shift in promotional activities. Our market share increased in all consumer product categories. The market's acceptance of our TAD products is as we have anticipated, and the start-up phase of our TAD facility is progressing as planned. Margins have been somewhat impacted by rising commodity prices, fibre in particular, but these were not unforeseen," said Mario Gosselin, CEO and of KP Tissue and KPLP.

"Demand for our TAD products in the Private Label market in the U.S. is strong, and interest continues to build. From the TAD project, we continue to expect a modest positive contribution to EBITDA for the year as whole. "Looking forward, we anticipate the higher commodity prices for pulp and energy to further impact our third quarter results and we are currently working on various initiatives to mitigate the effect," concluded Mr. Gosselin.

KPLP Q2 2013 Financial Results
Revenue in Q2 2013 was $246.8 million, an increase of 6.7 percent compared to Q2 2012. Compared to Q2 2012, revenue was positively impacted by an increase in sales volume resulting primarily from additional promotional activities in Q2 2013 compared to Q2 2012 and new business related to the TAD Project. The increase in revenue compared to Q2 2012 was driven by an increase in Consumer segment revenue, partially offset by a slight decrease in AFH segment revenue and a decline in Other segment revenue as a result of the decision to cease production of parent rolls for sale at the New Westminster plant in 2012.

Cost of sales in Q2 2013 was $173.3 million, compared to $161.3 million in Q2 2012. As a percentage of revenue, cost of sales increased to 70.2 percent in Q2 2013 from 69.7 percent in Q2 2012 primarily due to increases in commodity prices, particularly pulp fibre.

Operating expenses in Q2 2013 were $52.4 million, compared to $47.5 million in Q2 2012. Compared to Q2 2012, operating expenses increased primarily due to higher sales, logistics and marketing related expenses, and public company costs paid on behalf of KPT.

EBITDA in Q2 2013 was $31.7 million, compared to $29.3 million in Q2 2012. EBITDA in Q2 2013 included $2.4 million of TAD Project start-up costs compared to $0.9 million in Q2 2012. Compared to Q2 2012, EBITDA increased primarily due to an increase in revenue, partially offset by higher cost of sales resulting primarily from increased fibre costs and higher operating expenses.

Net income in Q2 2013 was $15.4 million, compared to $15.6 million in Q2 2012. Compared to Q2 2012, net income decreased primarily due to increases in interest and depreciation expenses related to the TAD Project, almost offset by an increase in EBITDA and a deferred tax credit in Q2 2013 related to U.S. operations.

The cash balance as of June 30, 2013 was $78.4 million, down from $92.4 million as of March 31, 2013. The decrease in cash was primarily driven by capital expenditures of $9.1 million related to the TAD Project and an increase in working capital as inventories returned to more normalized levels and accounts payable decreased due to timing.

KPT Highlights

  • Net income of $0.6 million in Q2 2013
  • Earnings per share of $0.07 in Q2 2013
  • Declared quarterly dividend of $0.18 per share, payable October 15, 2013

KPT Q2 2013 Financial Results
Included in the net income of $0.6 million in Q2 2013 was $2.6 million representing KPT's share of KPLP's profit. The profit was partially offset by depreciation of $1.3 million related to adjustments to carrying amounts on acquisition, and income tax expense of $0.7 million.

KPLP Distribution
KPLP will pay a distribution of $0.18 per KPLP unit to its partners on or prior to October 15, 2013.

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, 2013 to shareholders of record at the close of business on September 30, 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.
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.

SOURCE: KP Tissue Inc.