MISSISSAUGA, Ontario, May 12, 2022 (GLOBE NEWSWIRE) -- KP Tissue Inc. (KPT) (TSX: KPT) reports the Q1 2022 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®, White Swan® and BonterraTM) and the Away-From-Home (AFH) market and continues to expand in the U.S. Consumer market with the White Cloud® brand and premium private label products. KPT currently holds a 14.3% interest in KPLP.

KPLP Q1 2022 Business and Financial Highlights

“We delivered strong sales growth of 28.5% year-over-year in the first quarter of 2022, driven by an ongoing market recovery, increased capacity driven by Sherbrooke and a pricing increase mainly impacting our Canadian operations. Robust top-line growth was tempered by escalating inflation across many essential cost items such as pulp, freight, natural gas, packaging and labour,” stated KP Tissue’s Chief Executive Officer, Dino Bianco.

“To counter inflationary pressure, we have adopted a multi-faceted strategy based on further price increases across all segments, cash management through reductions in working capital and discretionary capital spending, as well as incremental productivity programs. We believe price increases, combined with the aforementioned cost-saving initiatives, should begin catching up with inflation in the second half of the year.”

“In light of price increases in the marketplace, we believe it’s vital to continue supporting our brands through targeted innovation and marketing. Accordingly, we are seeing strong distribution for our new sustainably focused brand, Bonterra. Recently upgraded Purex® and Cashmere UltraLuxe® TAD products are also tracking well against expectations, while SpongeTowels UltraPro® continues to drive share with consumers since its introduction last year. More recently, we expanded the distribution of re-launched White Cloud in the United States as we continue to build that brand,” Mr. Bianco concluded.

Outlook for Q2 2022
We anticipate continued momentum in Q2 sales in both Consumer and AFH. However, cost inflation and supply chain issues are expected to continue to impact the business and as a result Q2 2022 Adjusted EBITDA1 is expected to be well below Q1 2022 until selling price increases can restore margins in the second half of the year.

KPLP Q1 2022 Financial Results
Revenue was $398.7 million in Q1 2022 compared to $310.4 million in Q1 2021, an increase of $88.3 million or 28.5%. The increase in revenue was due to selling price increases in all segments and regions and higher sales volume in the Consumer segment compared to the year ago quarter that saw lower sales as a result of the de-stocking of tissue inventories by both retailers and consumers. The AFH segment also had significantly higher sales volume compared to Q1 2021 as the business continues to recover from the impact of COVID-19.

Cost of sales was $363.8 million in Q1 2022 compared to $263.3 million in Q1 2021, an increase of $100.5 million or 38.2%. Manufacturing costs increased primarily due to higher sales volumes, increased pulp costs, the impact of labour shortages in Memphis manufacturing, the unfavourable impact of overhead absorption as inventory levels were lower than the year ago quarter, along with higher depreciation expense and inflation.

1 Adjusted EBITDA is a non-GAAP financial measure. Refer to the Non-GAAP Financial Measures section of this news release for more information on these measures

These increases were partially offset by more in-house production in AFH. Freight costs increased significantly compared to Q1 2021 primarily due to increased freight rates resulting from cost inflation and supply issues across North America and also higher sales volumes. As a percentage of revenue, cost of sales was 91.3% in Q1 2022 compared to 84.8% in Q1 2021.

Selling, general and administrative (SG&A) expenses were $28.9 million in Q1 2022 compared to $27.8 million in Q1 2021, an increase of $1.1 million or 3.9%. The increase was primarily due to higher advertising and promotion expenses. As a percentage of revenue, SG&A expenses were 7.2% in Q1 2022 compared to 8.9% in Q1 2021.

Adjusted EBITDA1 was $29.1 million in Q1 2022 compared to $37.5 million in Q1 2021, a decrease of $8.4 million or 22.4%. The decrease was primarily due to higher pulp prices and other inflation, overhead absorption, labour shortages in Memphis manufacturing and higher freight rates, partially offset by higher sales volume and selling price increases.

Net income was $1.4 million in Q1 2022 compared to $6.8 million in Q1 2021, a decrease of $5.4 million. The decrease was primarily due to lower Adjusted EBITDA1 of $8.4 million as discussed above, higher interest expense and other finance costs and higher depreciation and amortization, partially offset by higher income tax recovery and higher other income.

KPLP Q1 2022 Liquidity
Total liquidity, representing cash and availability under the revolving credit agreements, was $206.9 million as of March 31, 2022. In addition, $76.4 million of cash was held by KPLP for the TAD Sherbrooke and Sherbrooke Expansion Projects.

KPT Q1 2022 Financial Results
KPT had a net income of $1.0 million in Q1 2022. Included in the net income was $0.2 million representing KPT’s share of KPLP’s net income, and a dilution gain of $0.1 million, depreciation expense of $1.3 million related to adjustments to carrying amounts on acquisition and an income tax recovery of $2.0 million.

Dividends on Common Shares        
The Board of Directors of KPT declared a quarterly dividend of $0.18 per share to be paid on July 15, 2022 to shareholders of record at the close of business on June 30, 2022.

Additional Information
For additional information please refer to Management’s Discussion and Analysis (MD&A) of KPT and KPLP for the first quarter ended March 31, 2022 available on SEDAR at www.sedar.com or our website at www.kptissueinc.com.

First Quarter Results Conference Call Information
KPT will hold its first quarter conference call on Thursday, May 12, 2022 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, May 19, 2022 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, May 19, 2022.

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 14.3% 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®, White Swan® and Bonterra™. 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-GAAP Financial Measures
This press release uses certain non-GAAP 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 GAAP and therefore may not be comparable to similarly titled measures presented by other companies. An example of such a measure is Adjusted EBITDA. Adjusted EBITDA is not a measurement of operating performance computed in accordance with GAAP and should not be considered as a substitute for operating income, net income or cash flows from operating activities computed in accordance with GAAP. “Adjusted EBITDA” is calculated by KPLP as net income (loss) before (i) interest expense and other finance costs, (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 Segment and Geographic Results table of this news release.

COVID-19
COVID-19 has resulted in local governments enacting emergency measures to combat the spread of the virus, with significant monetary and fiscal interventions designed to stabilize economic conditions. Our priorities during the COVID-19 pandemic continue to be to protect the health and safety of our employees, while increasing the availability of our products, which are essential to consumers each and every day. It is difficult to estimate the length and potential severity of the changed behaviours across our business segments or reliably quantify the impact this pandemic could have on 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, expected revenue growth 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 Q2 2022 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 10, 2022 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; risks associated with the Sherbrooke Expansion 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; and risks relating to information technology; cyber-security; insurance; internal controls; trade; and risks 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 Statement of Financial Position
(thousands of Canadian dollars)
     
     
  March 31, 2022 December 31, 2021
  $ $
Assets   
Current assets   
 Cash and cash equivalents110,026  148,519 
 Restricted cash3,652  2,506 
 Trade and other receivables97,447  88,802 
 Receivables from related parties271  271 
 Advances to partners-  13,752 
 Inventories254,633  251,071 
 Income tax recoverable425  1,171 
 Prepaid expenses16,962  5,455 
  483,416  511,547 
Non-current assets   
 Property, plant and equipment1,213,201  1,224,698 
 Right-of-use assets90,899  91,626 
 Other long-term assets34,624  37,456 
 Pensions47,188  - 
 Goodwill152,021  152,021 
 Intangible assets32,742  29,222 
 Deferred income taxes84,493  75,742 
Total assets2,138,584  2,122,312 
     
Liabilities   
Current liabilities   
 Trade and other payables235,220  258,626 
 Payables to related parties12,107  11,485 
 Income tax payable68  300 
 Distributions payable12,397  12,300 
 Current portion of provisions3,504  3,705 
 Current portion of long-term debt33,459  48,550 
 Current portion of lease liabilities29,809  30,170 
  326,564  365,136 
Non-current liabilities   
 Long-term debt952,047  920,331 
 Long-term lease liabilities81,018  82,354 
 Long-term payable to related party43,038  42,454 
 Long-term provisions6,799  6,929 
 Pensions-  58,481 
 Post-retirement benefits49,764  57,331 
 Liabilities to non-unitholders1,459,230  1,533,016 
 Current portion of Partnership units liability-  14,064 
 Long-term portion of Partnership units liability159,137  159,137 
 Total Partnership units liability 159,137  173,201 
Total liabilities1,618,367  1,706,217 
     
Equity   
 Partnership units467,227  461,536 
 Deficit(14,655) (117,123)
 Accumulated other comprehensive income67,645  71,682 
Total equity520,217  416,095 
Total equity and liabilities2,138,584  2,122,312 
     



Kruger Products L.P.
Unaudited Condensed Consolidated Statement of Comprehensive Income
(thousands of Canadian dollars)
    
    
    
 3-month period ended
March 31, 2022		 3-month period ended
March 31, 2021
 $ $
    
Revenue 398,739  310,379 
    
Expenses   
Cost of sales363,855  263,331 
Selling, general and administrative expenses28,855  27,765 
Loss on sale of non-financial assets5  1 
Restructuring costs, net516  56 
    
Operating income5,508  19,226 
    
Interest expense and other finance costs17,534  12,922 
Other income(4,315) (316)
    
Income (loss) before income taxes(7,711) 6,620 
    
Income tax recovery(9,148) (139)
    
Net income for the period1,437  6,759 
    
Other comprehensive income (loss)   
Items that will not be reclassified to net income:   
Remeasurements of pensions105,621  97,447 
Remeasurements of post-retirement benefits7,861  5,769 
Items that may be subsequently reclassified to net income:   
Cumulative translation adjustment(4,037) (3,445)
    
Total other comprehensive income for the period109,445  99,771 
    
Comprehensive income for the period110,882  106,530 
    



Kruger Products L.P.
Unaudited Condensed Consolidated Statement of Cash Flows
(thousands of Canadian dollars)
    
    
    
 3-month period ended
March 31, 2022		 3-month period ended
March 31, 2021
 $ $
Cash flows from (used in) operating activities   
Net income for the period1,437  6,759 
Items not affecting cash   
Depreciation21,982  17,456 
Amortization1,044  710 
Change in amortized cost of Partnership units liability-  3,428 
Foreign exchange gain(4,315) (3,744)
Interest expense and other finance costs17,534  12,922 
Pension and post-retirement benefits3,694  4,002 
Provisions(239) 652 
Income tax recovery(9,148) (139)
Loss on sale of non-financial assets5  1 
Total items not affecting cash30,557  35,288 
    
Net change in non-cash working capital(46,490) (122,455)
Contributions to pension and post-retirement benefit plans(4,183) (3,809)
Provisions paid(182) (185)
Income tax payments(320) (91)
    
Net cash used in operating activities(19,181) (84,493)
    
Cash flows from (used in) investing activities   
Purchases of property, plant and equipment(499) (2,845)
Purchases of property, plant and equipment and software related to the TAD Sherbrooke Project(5,331) (50,479)
Purchases of property, plant and equipment related to the Sherbrooke Expansion Project(6,044) - 
Interest paid on credit facilities related to the TAD Sherbrooke Project-  (608)
Purchases of software(4,455) (738)
Proceeds on sale of property, plant and equipment-  2 
    
Net cash used in investing activities(16,329) (54,668)
    
Cash flows from (used in) financing activities   
Proceeds from long-term debt141,956  104,640 
Repayment of long-term debt(118,539) (1,642)
Payment of deferred financing fees(2,135) (324)
Payment of lease liabilities(6,985) (6,637)
Change in Restricted cash(1,146) - 
Interest paid on long-term debt(8,893) (7,006)
Distributions and advances paid, net(6,975) (20,535)
    
Net cash from (used in) financing activities(2,717) 68,496 
    
Effect of exchange rate changes on cash and cash    
equivalents held in foreign currency(266) (522)
    
Decrease in cash and cash equivalents during the period(38,493) (71,187)
    
Cash and cash equivalents - Beginning of period148,519  128,739 
    
Cash and cash equivalents - End of period110,026  57,552 
    



Kruger Products L.P.
Segment and Geographic Results
(thousands of Canadian dollars)
     
     
 3-month period ended
March 31, 2022		 3-month period ended
March 31, 2021		 
 $ $ 
     
Segment Information    
     
Segment Revenue    
Consumer342,842  271,367  
AFH55,897  39,012  
     
Total segment revenue398,739  310,379  
     
Adjusted EBITDA    
Consumer35,383  44,051  
AFH(3,221) (4,782) 
Corporate and other costs(3,107) (1,804) 
     
Total Adjusted EBITDA29,055  37,465  
     
Reconciliation to Net Income:    
     
Depreciation and amortization23,026  18,166  
Interest expense and other finance costs17,534  12,922  
Change in amortized cost of Partnership units liability-  3,428  
Loss on sale of non-financial assets5  1  
Restructuring costs, net516  56  
Foreign exchange gain(4,315) (3,744) 
Corporate development related costs-  16  
     
Income (loss) before income taxes(7,711) 6,620  
     
Income tax recovery(9,148) (139) 
     
Net income1,437  6,759  
     
Geographic Revenue    
     
Canada242,920  194,603  
US155,819  115,776  
     
Total revenue398,739  310,379  
     



KP Tissue Inc.
Unaudited Condensed Statement of Financial Position
(thousands of Canadian dollars)
    
    
 March 31, 2022 December 31, 2021
 $ $
Assets   
    
Current assets   
Distributions receivable1,788  1,781 
Income tax recoverable277  208 
 2,065  1,989 
    
Non-current assets   
Investment in associate89,923  78,727 
    
Total Assets91,988  80,716 
    
Liabilities   
    
Current liabilities   
Dividend payable1,788  1,781 
Payable to Partnership246  246 
Current portion of advances from Partnership-  2,014 
 2,034  4,041 
Non-current liabilities   
Deferred income taxes4,194  806 
    
Total liabilities6,228  4,847 
    
Equity   
    
Common shares22,226  21,844 
Contributed surplus144,819  144,819 
Deficit(93,457) (103,561)
Accumulated other comprehensive income12,172  12,767 
    
Total equity85,760  75,869 
    
Total liabilities and equity91,988  80,716 
    



KP Tissue Inc.
Unaudited Condensed Statement of Comprehensive Income
(thousands of Canadian dollars, except share and per share amounts)
    
 3-month period ended
March 31, 2022		 3-month period ended
March 31, 2021
 $ $
    
Equity loss(1,108) (345)
Dilution gain73  80 
    
Loss before income taxes(1,035) (265)
    
Income tax recovery(2,013) (1,473)
    
Net income for the period978  1,208 
    
Other comprehensive income (loss)   
net of tax expense (recovery)   
Items that will not be reclassified to net income:   
Remeasurements of pensions10,248  11,995 
Remeasurements of post-retirement benefits670  516 
Items that may be subsequently reclassified to net income:   
Cumulative translation adjustment(595) (545)
    
Total other comprehensive income for the period10,323  11,966 
    
Comprehensive income for the period11,301  13,174 
    
Basic earnings per share0.10  0.12 
    
Weighted average number of shares outstanding9,925,825  9,779,571 
    



KP Tissue Inc.
Unaudited Condensed Statement of Cash Flows
(thousands of Canadian dollars)
    
 3-month period ended
March 31, 2022		 3-month period ended
March 31, 2021
 $ $
Cash flows from (used in) operating activities   
Net income for the period978  1,208 
Items not affecting cash   
Equity loss1,108  345 
Dilution gain(73) (80)
Income tax recovery(2,013) (1,473)
Total items not affecting cash(978) (1,208)
    
Net change in non-cash working capital-  (3)
Tax payments(38) (2,061)
Tax Distribution received, net38  1,738 
Advances received-  326 
    
Net cash from (used in) operating activities-  - 
    
Cash flows from investing activites   
Partnership unit distributions received1,403  1,403 
    
Net cash from investing activities1,403  1,403 
    
Cash flows used in financing activities   
Dividends paid, net(1,403) (1,403)
    
Net cash used in financing activities(1,403) (1,403)
    
Increase (decrease) in cash and cash equivalents during the period-  - 
    
Cash and cash equivalents - Beginning of period-  - 
    
Cash and cash equivalents - End of period-  -