KP Tissue Releases Fourth Quarter and Full Year 2019 Financial Results

MISSISSAUGA, Ontario, March 12, 2020 (GLOBE NEWSWIRE) -- KP Tissue Inc. (KPT) (TSX: KPT) reports the Q4 2019 and full year 2019 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 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 15.0% interest in KPLP.

KPLP Q4 2019 Business and Financial Highlights

• Revenue decreased by $11.2 million or 3.1% to $348.1 million in Q4 2019 compared to $359.3 million in Q4 2018. 
• Excluding the divested Mexico business, Q4 2019 revenue increased by $13.1 million or 3.9%.
• Adjusted EBITDA was $46.0 million in Q4 2019 compared to $24.5 million in Q4 2018, an increase of 87.5%.
• TAD Sherbrooke facility progressing on time and on budget.
• Declared a quarterly dividend of $0.18 per share to be paid on April 15, 2020.         

KPLP Full Year 2019 Business and Financial Highlights

• Revenue increased by 4.6% to $1,434.1 million in 2019 compared to $1,370.4 million in 2018.
• Adjusted EBITDA was $145.0 million in 2019, up from $118.3 million in 2018, an increase of 22.6%.
• Amended Senior Credit Facility to increase overall borrowing capacity by $50 million.

“Our fourth quarter Adjusted EBITDA increased by a strong 87.5% to $46.0 million compared to a weak Q4 last year. We are very pleased with Fiscal 2019’s performance, particularly with the strong second half, reflecting volume growth and the benefit of previous pricing actions in all business segments and a favourable cost environment,” said Dino Bianco, CEO of KP Tissue and KPLP.

“TAD Sherbrooke is progressing on all fronts as planned and on budget. The launch of commercial production remains on target for early 2021, which will allow us to continue to grow our business in North America with our brands and customers.

“Our operational transformation initiatives including the Operational Excellence (OpEx) program are yielding the anticipated cost savings and will continue into 2020 with a goal of $15 - $20 million on a run-rate basis by the end of this year.  More importantly, the OpEx program is a significant component of KP’s transformational journey and will be an integral part of our culture going forward.

“We enter 2020 with great confidence in our vision and strategic plan to move KP forward as a North American tissue leader. This would not be possible without the initiative of our exceptional and dedicated team,” concluded Mr. Bianco.

Outlook
With favourable input costs compared to Q1 2019 along with the benefits of our operational transformation initiatives, partially offset by incremental spending, Q1 2020 Adjusted EBITDA is expected to be higher than the year ago quarter, while being sequentially lower than Q4 2019 due to seasonally lower sales volume. We continue to monitor the risks associated with the coronavirus Covid-19 and the uncertainty that it represents. 

KPLP Q4 2019 Financial Results
Revenue was $348.1 million in Q4 2019 compared to $359.3 million in Q4 2018, a decrease of $11.2 million or 3.1%. The decrease in revenue was primarily the result of no Mexico sales volume in Q4 2019 due to the sale of shares at the end of the third quarter, partially offset by the benefit of previous price increases and higher volume. Revenue in Mexico decreased $24.3 million compared to the year ago quarter. Excluding the Mexico business, revenue increased by $13.1 million or 3.9%.

Cost of sales was $294.1 million in Q4 2019 compared to $327.0 million in Q4 2018, a decrease of $32.9 million or 10.1%. Manufacturing costs decreased primarily due to no Mexico sales volume and lower pulp costs compared to Q4 2018. These were partially offset by the cost of outsourced manufacturing, additional maintenance costs, increased warehousing costs and inflation. As a percentage of revenue, cost of sales were 84.5% in Q4 2019 compared to 91.0% in Q4 2018.

Selling, general and administrative (SG&A) expenses were $26.4 million in Q4 2019 compared to $24.1 million in Q4 2018, an increase of $2.3 million or 9.9%. As a percentage of revenue, SG&A expenses were 7.6% in Q4 2019 compared to 6.7% in Q4 2018.

Adjusted EBITDA was $46.0 million in Q4 2019 compared to $24.5 million in Q4 2018, an increase of $21.5 million or 87.5%. The higher Adjusted EBITDA resulted primarily from lower pulp costs, the benefit of previous price increases across all business segments and favourable sales mix, and the benefit from operational transformation initiatives, partially offset by the cost of outsourced manufacturing and maintenance costs, and higher SG&A costs.

Net loss was $6.1 million in Q4 2019 compared to net income of $38.0 million in Q4 2018, a decrease of $44.1 million. The decrease was primarily due to a change in other expense resulting primarily from a swing in the change in amortized cost of partnership units liability, higher income tax expense and consulting costs related to operational transformation initiatives, partially offset by higher Adjusted EBITDA and a decrease in interest expense.

Total liquidity, representing cash and cash equivalents and availability under the credit line within covenant limitations, was $233.2 million as of December 31, 2019, including $16.4 million of cash and cash equivalents held by KPSI and committed to the TAD Sherbrooke Project, compared to $186.4 million as of September 30, 2019.

KPLP 2019 Financial Results
Revenue was $1,434.1 million in Fiscal 2019 compared to $1,370.4 million in Fiscal 2018, an increase of $63.7 million or 4.6%. The increase in revenue was primarily due to price increases across all business segments, volume increases in Canada and the U.S. and the benefit of foreign exchange fluctuations on U.S. sales, partially offset by lower sales volume in Mexico resulting from the sale of shares at the end of the third quarter. Fiscal 2019 revenue in Mexico decreased $10.6 million, or 12.1%. Excluding the Mexico business, revenue increased by $74.3 million or 5.8% in 2019.

Adjusted EBITDA was $145.0 million in Fiscal 2019 compared to $118.3 million in Fiscal 2018, an increase of $26.7 million or 22.6%. The increase was primarily due to price increases across all business segments and favourable sales mix, the impact of lower pulp prices in the second half of 2019, and the favourable impact of operational transformation initiatives, partially offset by the cost of outsourced manufacturing, higher maintenance and SG&A costs and the unfavourable impact of foreign exchange fluctuations. 

Net income was $2.1 million in Fiscal 2019 compared to $45.4 million in Fiscal 2018, a decrease of $43.3 million. The decrease was primarily due to a change in other expense resulting primarily from a swing in the change in amortized cost of partnership units liability, consulting costs related to operational transformation initiatives, and higher income tax expense, partially offset by higher Adjusted EBITDA as discussed above, and a decrease in interest expense.

KPT Q4 2019 Financial Results
KPT had a net loss of $1.6 million in Q4 2019. Included in the net loss was $1.0 million representing KPT’s share of KPLP’s net loss, depreciation expense of $1.4 million related to adjustments to carrying amounts on acquisition and an income tax recovery of $0.6 million.

KPT 2019 Financial Results
KPT had a net loss of $6.5 million in 2019. Included in the net loss was $0.3 million representing KPT’s share of KPLP’s net income, depreciation expense of $5.7 million related to adjustments to carrying amounts on acquisition, income tax expense of $1.7 million and a dilution gain of $0.6 million.

Dividends on Common Shares                                                     
The Board of Directors of KPT declared a quarterly dividend of $0.18 per share to be paid on April 15, 2020 to shareholders of record at the close of business on April 1, 2020.

Additional Information
For additional information please refer to Management’s Discussion and Analysis (MD&A) of KPT and KPLP for the fourth quarter and fiscal year ended December 31, 2019 available on SEDAR at www.sedar.com or our website at www.kptissueinc.com.

Fourth Quarter Results Conference Call Information
KPT will hold its fourth quarter conference call on Thursday, March 12, 2020 at 8:30 a.m. Eastern Time.

Via telephone:  1-877-223-4471 or 647-788-4922

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, March 19, 2020 by dialing 1-800-585-8367 or 416-621-4642 and entering passcode 6459278.

The replay of the webcast will remain available on the website until midnight, March 19, 2020.

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 15.0% 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 and operates eight 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 year ended December 31, 2019 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. Forward-looking statements in this press release include, but are not limited to, statements regarding the projected capacity of the TAD Sherbrooke Project, the anticipated benefits of the TAD Sherbrooke Project and the expected dates for commencement of construction and production of the TAD Sherbrooke Project. 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 Q1 2020 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 13, 2020 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; and risks relating to information technology; cyber-security; insurance; internal controls; trade; and 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