Q2 results reflect strong prior year comps and industry headwinds

MISSISSAUGA, Ontario, Aug. 12, 2021 (GLOBE NEWSWIRE) -- KP Tissue Inc. (KPT) (TSX: KPT) reports the Q2 2021 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 (AFH) 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 14.5% interest in KPLP.

KPLP Q2 2021 Business and Financial Highlights

"Given continued soft demand resulting from COVID-19 related de-stocking by retailers and consumers, headwinds from high pulp prices and a gradual market recovery in the Away-From-Home segment, results for the quarter were largely in line with our expectations. Consequently, revenues were under pressure and Adjusted EBITDA for the quarter was down significantly compared to last year's record level, but was stable when compared to the first quarter of this year," stated KP Tissue’s Chief Executive Officer, Dino Bianco.

"Our share position remains strong in all tissue product categories and the launch of SpongeTowels UltraProTM continues to exceed our expectations and led to important share gains in the category. TAD Sherbrooke’s start-up curve remains ahead of schedule and provides the paper tissue capacity required to meet our long-term growth plans.

"After several quarters of depressed end-user demand in Away-From-Home, volume has gradually picked-up with the easing of COVID-19 restrictions, particularly in the U.S. This combined with the benefits of production efficiencies and less paper outsourcing, has resulted in an improved AFH Adjusted EBITDA position for the quarter, providing a near-term path to a turnaround.

"With the situation gradually improving month-after-month in Consumer Tissue, we anticipate a return to more normal buying patterns and demand from retailers and consumers in the second half of the year. We have also worked hard to position AFH for a market recovery and expect improving sales as end-markets recover. High pulp prices and cost inflation will remain prevalent for the remainder of the year. We expect that, despite these factors, the pricing actions announced and a more favourable sales market should translate into a stronger performance in the second half of 2021," concluded Mr. Bianco.

Outlook
We are beginning to see the risks and uncertainties associated with COVID-19 subside and expect to see activities and behaviour start to return to more pre-COVID levels in the second half of 2021, in both the Consumer and Away-From-Home segments. Despite higher pulp prices, we expect Q3 2021 Adjusted EBITDA to be in a range which is higher than Q2 2021 and lower than Q3 2020.

KPLP Q2 2021 Financial Results
Revenue was $339.3 million in Q2 2021 compared to $386.8 million in Q2 2020, a decrease of $47.5 million or 12.3%. The decrease in revenue was primarily due to a significant sales volume decrease in the Consumer Segment resulting primarily from the comparison to high COVID-19 buying activity in the year ago quarter, while sales volume in the AFH segment was slightly lower compared to Q2 2020 as COVID-19 impacted both quarters. Revenue was also unfavourably impacted by foreign exchange fluctuations on U.S. dollar sales.

Cost of sales was $295.0 million in Q2 2021 compared to $310.0 million in Q2 2020, a decrease of $15.0 million or 4.8%. Manufacturing costs decreased primarily due to significantly lower sales volumes and the favourable impact of foreign exchange fluctuations on U.S. dollar costs, partially offset by increased pulp costs, higher freight rates and warehousing costs. As a percentage of revenue, cost of sales was 86.9% in Q2 2021 compared to 80.2% in Q2 2020.

Selling, general and administrative (SG&A) expenses were $29.6 million in Q2 2021 compared to $30.5 million in Q2 2020, a decrease of $0.9 million or 3.0%. The decrease was primarily due to a reduction in compensation related costs, foreign exchange gains and lower selling expenses, almost offset by higher advertising expenses. As a percentage of revenue, SG&A expenses were 8.7% in Q2 2021 compared to 7.9% in Q2 2020.

Adjusted EBITDA was $37.3 million in Q2 2021 compared to $64.4 million in Q2 2020, a decrease of $27.1 million or 42.1%. The decrease was primarily due to the impact of lower sales volumes, along with the unfavourable impact of higher pulp prices and higher freight rates and warehousing costs, partially offset by the net favourable impact of foreign exchange fluctuations and slightly lower SG&A expenses.

Net income was $2.2 million in Q2 2021 compared to $28.9 million in Q2 2020, a decrease of $26.7 million. The decrease was primarily due to lower Adjusted EBITDA, higher depreciation and interest expense and a decrease in other income, partially offset by lower income taxes.

KPLP Q2 2021 Financing Activity
On May 21, 2021, KPLP announced the closing of financing arrangements to fund the Sherbrooke Expansion Project, which was originally announced on February 26, 2021. The financing includes a $75 million convertible debenture with Investissement Quebec of which $27 million has now been issued by Kruger Products SB Inc.  

Total liquidity, representing cash and availability under the revolving credit agreements, was $284.2 million as of June 30, 2021. In addition, $36.5 million of cash was available for the TAD Sherbrooke Project.

KPT Q2 2021 Financial Results
KPT had a net loss of $1.2 million in Q2 2021. Included in net loss was $0.3 million representing KPT’s share of KPLP’s net income, depreciation expense of $1.3 million related to adjustments to carrying amounts on acquisition and income tax expense of $0.3 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, 2021 to shareholders of record at the close of business on September 30, 2021.

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, 2021 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 12, 2021 at 8:30 a.m. Eastern Time.

Via telephone: 1-800-599-5188 or 647-365-5897

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 19, 2021 by dialing 1-800-770-2030 or 647-362-9199 and entering passcode 9884406.

The replay of the webcast will remain available on the website until midnight, August 19, 2021.

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 14.5% 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 2,700 employees and operates nine 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) consulting costs related to operational transformation initiatives, (xii) corporate development related costs and (xiii) loss (gain) on sale of shares. A reconciliation of Adjusted EBITDA to the relevant reported results can be found in the MD&A of KPT and KPLP for the quarter ended June 30, 2021, available on SEDAR at www.sedar.com.

COVID-19
In March 2020, the World Health Organization characterized the outbreak of the novel strain of coronavirus, specifically identified as “COVID-19” as a global pandemic. This has resulted in the local governments enacting emergency measures to combat the spread of the virus. These measures, which include the implementation of travel bans, self-imposed quarantine periods and social distancing, have caused material disruption to businesses in the United States of America and Canada resulting in an economic slowdown. Equity markets have experienced significant volatility and the local governments and central banks have reacted with significant monetary and fiscal interventions designed to stabilize economic conditions. There is significant uncertainty as to the likely effects of this outbreak. The duration and impact of the COVID-19 outbreak is unknown at this time, as is the efficacy of the government and central bank interventions. It is not possible to reliably estimate the length and severity of these developments to quantify the impact this pandemic may have on the financial results and condition of KPLP in future periods.

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 and the Sherbrooke Expansion Project, the anticipated benefits of the TAD Sherbrooke Project and the Sherbrooke Expansion Project and the expected dates for commencement of construction and production of the Sherbrooke Expansion Project; KPLP’s expansion efforts in U.S. premium private label; and KPLP’s future business strategy. 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 2021 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 11, 2021 available on SEDAR at www.sedar.com (the Annual Information Form), except for the risks associated with the Sherbrooke Expansion Project, which are discussed in greater detail in Risk Factors in the MD&A of KPT and KPLP for the 3-month and 6-month periods ended June 30, 2021 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; 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; information technology; cyber-security; insurance; internal controls; trade related; and risk related to COVID-19.

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

 
Kruger Products L.P.
Unaudited Condensed Consolidated Statements of Financial Position
(thousands of Canadian dollars)
    
    
 June 30, 2021  December 31, 2020 
 $  $ 
Assets   
Current assets   
Cash, cash equivalents and restricted cash129,711  128,739 
Trade and other receivables82,943  88,041 
Receivables from related parties12  13 
Advances to partners6,011  5,647 
Inventories282,810  215,934 
Income tax recoverable189  358 
Prepaid expenses12,623  8,315 
 514,299  447,047 
Non-current assets   
Property, plant and equipment1,201,195  1,194,191 
Right-of-use assets106,586  107,633 
Other long-term assets37,824  10 
Goodwill152,021  152,021 
Intangible assets29,852  26,205 
Deferred income taxes27,659  24,217 
Total assets2,069,436  1,951,324 
    
Liabilities   
Current liabilities   
Trade and other payables227,775  332,072 
Payables to related parties10,758  9,097 
Income tax payable617  554 
Distributions payable12,106  11,919 
Current portion of provisions2,365  4,913 
Current portion of long-term debt22,108  9,495 
Current portion of lease liabilities28,345  25,341 
 304,074  393,391 
Non-current liabilities   
Long-term debt935,190  743,978 
Long-term lease liabilities101,369  105,634 
Long-term payable to related party40,959  - 
Long-term provisions8,992  9,549 
Other long-term liabilities-  575 
Pensions69,636  161,333 
Post-retirement benefits59,194  63,038 
Liabilities to non-unitholders1,519,414  1,477,498 
Current portion of Partnership units liability14,554  31,244 
Long-term portion of Partnership units liability160,191  154,180 
Total Partnership units liability 174,745  185,424 
Total liabilities1,694,159  1,662,922 
    
Equity   
Partnership units450,400  439,571 
Deficit(141,085) (224,503)
Accumulated other comprehensive income65,962  73,334 
Total equity375,277  288,402 
Total equity and liabilities2,069,436  1,951,324 
    



Kruger Products L.P.
Unaudited Condensed Consolidated Statements of Comprehensive Income (Loss)
(thousands of Canadian dollars)
            
            
 3-month
period ended
June 30, 2021		  3-month
period ended
June 30, 2020		  6-month
period ended
June 30, 2021		  6-month
period ended
June 30, 2020		 
 $  $  $  $ 
        
Revenue 339,361  386,763  649,740  761,909 
        
Expenses       
Cost of sales294,977  310,009  558,308  624,522 
Selling, general and administrative expenses29,584  30,492  57,349  60,126 
Loss on sale of non-financial assets2  -  3  1 
Restructuring costs, net(15) 483  41  1,221 
        
Operating income14,813  45,779  34,039  76,039 
        
Interest expense16,263  11,333  29,185  21,913 
Other (income) expense(631) (3,269) (947) 8,152 
        
Income (loss) before income taxes(819) 37,715  5,801  45,974 
        
Income taxes (3,066) 8,811  (3,205) 8,682 
        
Net income for the period2,247  28,904  9,006  37,292 
        
Other comprehensive income (loss)       
Items that will not be reclassified to net income:       
Remeasurements of pensions(3,406) (103,032) 94,041  (36,655)
Remeasurements of post-retirement benefits(1,420) (9,896) 4,349  (3,388)
Items that may be subsequently reclassified to net income:      
Cumulative translation adjustment(3,927) (12,480) (7,372) 14,227 
        
Total other comprehensive income (loss) for the period(8,753) (125,408) 91,018  (25,816)
        
Comprehensive income (loss) for the period(6,506) (96,504) 100,024  11,476 
        



Kruger Products L.P.
Unaudited Condensed Consolidated Statements of Cash Flows
(thousands of Canadian dollars)
    
      
      
 6-month
period ended
June 30, 2021		  6-month
period ended
June 30, 2020		 
 $  $ 
Cash flows from (used in) operating activities   
Net income for the period9,006  37,292 
Items not affecting cash   
Depreciation38,735  32,960 
Amortization1,632  773 
Loss on sale of property, plant and equipment264  49 
Change in amortized cost of Partnership units liability6,856  5,040 
Foreign exchange (gain) loss(7,803) 3,472 
Change in fair value of derivatives-  (360)
Interest expense29,185  21,913 
Pension and post-retirement benefits8,143  7,474 
Provisions641  3,599 
Income taxes(3,205) 8,682 
Loss on sale of non-financial assets3  1 
Total items not affecting cash74,451  83,603 
    
Net change in non-cash working capital(131,825) 26,035 
Contributions to pension and post-retirement benefit plans(7,622) (7,938)
Provisions paid(3,904) (1,871)
Income tax payments(1,006) (13)
Net cash from (used in) operating activities(60,900) 137,108 
    
Cash flows from (used in) investing activities   
Purchases of property, plant and equipment(11,248) (7,451)
Purchases of property, plant and equipment related to the TAD Sherbrooke Project(78,940) (132,013)
Interest paid on credit facilities related to the TAD Sherbrooke Project(608) (4,204)
Purchases of software(774) (1,593)
Proceeds on sale of shares-  992 
Proceeds on sale of property, plant and equipment8  - 
Net cash used in investing activities(91,562) (144,269)
    
Cash flows from (used in) financing activities   
Proceeds from long-term debt226,475  132,327 
Repayment of long-term debt(3,273) (33,701)
Payment of deferred financing fees(8,270) (493)
Payment of lease liabilities(12,715) (9,917)
Interest paid on long-term debt(16,526) (21,622)
Distributions and advances paid, net(30,861) (10,221)
Net cash from financing activities154,830  56,373 
    
Effect of exchange rate changes on cash and cash    
equivalents held in foreign currency(1,396) 1,835 
    
Increase in cash, cash equivalents and restricted cash during the period972  51,047 
    
Cash, cash equivalents and restricted cash - Beginning of period128,739  93,141 
    
Cash, cash equivalents and restricted cash - End of period129,711  144,188 
    



Kruger Products L.P.
Segment and Geographic Results
(thousands of Canadian dollars)
            
            
 3-month
period ended
June 30, 2021		  3-month
period ended
June 30, 2020		  6-month
period ended
June 30, 2021		  6-month
period ended
June 30, 2020		 
 $  $  $  $ 
        
Segment Information       
        
Segment Revenue       
Consumer292,361  338,242  563,728  651,531 
AFH47,000  48,521  86,012  110,378 
        
Total segment revenue339,361  386,763  649,740  761,909 
        
Adjusted EBITDA       
Consumer40,292  69,580  84,471  123,929 
AFH(426) (2,145) (5,336) (3,166)
Corporate and other costs(2,551) (3,012) (4,355) (5,389)
        
Total Adjusted EBITDA37,315  64,423  74,780  115,374 
        
Reconciliation to Net Income:       
        
Depreciation and amortization22,201  16,914  40,367  33,733 
Interest expense16,263  11,333  29,185  21,913 
Change in amortized cost of Partnership units liability3,428  2,520  6,856  5,040 
Change in fair value of derivatives-  -  -  (360)
Loss on sale of property, plant and equipment264  49  264  49 
Loss on sale of non-financial assets2  -  3  1 
Restructuring costs, net(15) 483  41  1,221 
Foreign exchange (gain) loss(4,059) (5,789) (7,803) 3,472 
Corporate development related costs50  -  66  - 
Consulting costs related to operational transformation initiatives-  1,198  -  4,331 
        
Income (loss) before income taxes(819) 37,715  5,801  45,974 
        
Income taxes(3,066) 8,811  (3,205) 8,682 
        
Net income2,247  28,904  9,006  37,292 
        
Geographic Revenue       
        
Canada219,384  218,438  413,987  448,533 
US119,977  168,325  235,753  313,376 
        
Total revenue339,361  386,763  649,740  761,909 
        


KP Tissue Inc.
Unaudited Condensed Statements of Financial Position
(thousands of Canadian dollars)
      
      
 June 30, 2021  December 31, 2020 
 $  $ 
Assets   
    
Current assets   
Distributions receivable1,768  1,755 
Receivable from Partnership24  21 
Income tax recoverable136  - 
 1,928  1,776 
    
Non-current assets   
Investment in associate76,078  69,537 
    
Total Assets78,006  71,313 
    
Liabilities   
    
Current liabilities   
Dividend payable1,768  1,755 
Current portion of advances from Partnership897  874 
Income tax payable-  1,722 
 2,665  4,351 
Non-current liabilities   
Deferred income taxes999  634 
    
Total liabilities3,664  4,985 
    
Equity   
    
Common shares21,106  20,355 
Contributed surplus144,819  144,819 
Deficit(103,510) (111,907)
Accumulated other comprehensive income11,927  13,061 
    
Total equity74,342  66,328 
    
Total liabilities and equity78,006  71,313 
      


KP Tissue Inc.
Unaudited Condensed Statements of Comprehensive Income (Loss)
(thousands of Canadian dollars, except share and per share amounts)
            
            
 3-month
period ended
June 30, 2021		  3-month
period ended
June 30, 2020		  6-month
period ended
June 30, 2021		  6-month
period ended
June 30, 2020		 
 $  $  $  $ 
        
Equity income (loss)(1,002) 2,925  (1,347) 2,800 
Dilution gain82  231  162  451 
        
Income (loss) before income taxes(920) 3,156  (1,185) 3,251 
        
Income taxes313  3,279  (1,160) 1,673 
        
Net income (loss) for the period(1,233) (123) (25) 1,578 
        
Other comprehensive income (loss)       
net of tax expense (recovery)       
Items that will not be reclassified to net income (loss):       
Remeasurements of pensions(443) (12,347) 11,552  (3,655)
Remeasurements of post-retirement benefits(127) (906) 389  (309)
Items that may be subsequently reclassified to net income (loss):        
        
Cumulative translation adjustment(589) (1,950) (1,134) 2,131 
        
Total other comprehensive income (loss) for the period(1,159) (15,203) 10,807  (1,833)
        
Comprehensive income (loss) for the period(2,392) (15,326) 10,782  (255)
        
Basic earnings (loss) per share(0.13) (0.01) -  0.16 
        
Weighted average number of shares outstanding9,817,731  9,689,578  9,798,757  9,672,481 
        



KP Tissue Inc.
Unaudited Condensed Statement of Cash Flows
(thousands of Canadian dollars)
      
      
 6-month
period ended
June 30, 2021		  6-month
period ended
June 30, 2020		 
 $  $ 
Cash flows from (used in) operating activities   
Net income (loss) for the period(25) 1,578 
Items not affecting cash   
Equity (income) loss1,347  (2,800)
Dilution gain(162) (451)
Income taxes(1,160) 1,673 
Total items not affecting cash25  (1,578)
    
Net change in non-cash working capital(3) 94 
Tax payments(2,632) (1,235)
Tax Distribution received1,738  781 
Advances received897  360 
    
Net cash from (used in) operating activities-  - 
    
Cash flows from investing activites   
Partnership unit distributions received2,755  2,793 
    
Net cash from investing activities2,755  2,793 
    
Cash flows used in financing activities   
Dividends paid(2,755) (2,793)
    
Net cash used in financing activities(2,755) (2,793)
    
Increase (decrease) in cash and cash equivalents during the period-  - 
    
Cash and cash equivalents - Beginning of period-  - 
    
Cash and cash equivalents - End of period-  -