KP Tissue Releases Fourth Quarter and Full Year 2021 Financial Results

MISSISSAUGA, Ontario, March 10, 2022 (GLOBE NEWSWIRE) -- KP Tissue Inc. (KPT) (TSX: KPT) reports the Q4 2021 and full year 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, White Swan and Bonterra) 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 14.4% interest in KPLP.

KPLP Q4 2021 Business and Financial Highlights

• Revenue was $424.1 million in Q4 2021 compared to $385.0 million in Q4 2020, an increase of $39.1 million or 10.2%.
• Adjusted EBITDA¹ was $38.3 million in Q4 2021, compared to $36.2 million in Q4 2020, an increase of 5.8%.
• Net income was $42.3 million in Q4 2021, compared to a loss of $28.5 million in Q4 2020, an increase of $70.8 million.
• Announced additional investment of $111.5 million in the Sherbrooke Expansion Project, for a total investment of $351.5 million.
• Declared a quarterly dividend of $0.18 per share to be paid on April 15, 2022.
  

KPLP Full Year 2021 Financial Highlights  

• Revenue was $1,465.2 million in 2021 compared to $1,516.0 million in 2020, a decrease of $50.8 million or 3.4%.
• Adjusted EBITDA¹ was $153.4 million in 2021, down from $197.8 million in 2020, a decrease of 22.4%.
• Net income was $42.0 million in 2021, up from $27.3 million in 2020, an increase of $14.7 million.
  

“We are pleased by our performance in the face of volatile market conditions and unprecedented headwinds in 2021 and contrasted against an extraordinary market environment in 2020. The first half of 2021 was marked by destocking challenges due to the COVID-19 pandemic, while mounting supply chain and inflationary pressures affected both our Consumer and Away-From-Home segments in the latter part of the year. We did regain sales momentum in the second half of 2021 and closed the fourth quarter on a high note with more than 10% revenue growth and improved adjusted EBITDA,” stated KP Tissue’s Chief Executive Officer, Dino Bianco.

“Against this backdrop, we continued to invest in the future through market-driven innovations. The successful launch of SpongeTowels Ultra Pro^TM in 2021 delivered significant share gains in the paper towel category. This year we have introduced a new sustainably focused brand, Bonterra^TM, to offer consumers a more environmentally conscious option with unique features addressing packaging, recycled fibre, a neutral carbon footprint and partnerships with 4Ocean and One Tree Planted. In addition, we have upgraded Cashmere and Purex UltraLuxe to offer our softest and most luxurious bathroom tissue ever.”

“In terms of network modernization, Year 1 of TAD Sherbrooke proved to be a major success with a ramp-up curve well above our expectations. We also announced the Sherbrooke expansion project early into 2021 and followed up with an incremental investment at the end of the year to double production capacity to over 60,000 metric tonnes by 2024. The project’s total value of approximately $350 million will effectively create a tissue hub in Canada using both TAD and conventional technologies.”

“Looking ahead to 2022, we intend to leverage our ongoing investments, innovations and share gains to drive revenue growth, while pricing the business and managing costs to offset inflation,” Mr. Bianco concluded.

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

Outlook for Q1 2022
We anticipate Q1 sales momentum to continue in both AFH and Consumer as customer and consumer behaviour returns to more pre-COVID levels. However, cost inflation across the supply chain is expected to continue impacting results in the near-term, therefore Q1 2022 Adjusted EBITDA is expected to be in the range of $30-$35 million.

KPLP Q4 2021 Financial Results

Revenue was $424.1 million in Q4 2021 compared to $385.0 million in Q4 2020, an increase of $39.1 million or 10.2%. The increase in revenue was due to a selling price increase in Consumer Canada and higher sales volume in the Consumer segment compared to the year ago quarter, partially offset by the unfavourable impact of foreign exchange fluctuations on U.S. dollar sales.

Cost of sales was $376.0 million in Q4 2021 compared to $332.2 million in Q4 2020, an increase of $43.8 million or 13.2%. Manufacturing costs increased primarily due to higher sales volumes, increased pulp costs, and the unfavourable impact of labour shortages in Memphis manufacturing, along with higher depreciation expense, overhead absorption resulting from reduced inventory levels during the quarter, and inflation. These increases were partially offset by the favourable impact of more in-house production in AFH and favourable foreign exchange fluctuations on U.S. dollar costs. Freight costs and warehousing expenses also increased compared to Q4 2020. As a percentage of revenue, cost of sales was 88.7% in Q4 2021 compared to 86.3% in Q4 2020.

Selling, general and administrative (SG&A) expenses were $31.7 million in Q4 2021 compared to $36.7 million in Q4 2020, a decrease of $5.0 million or 13.6%. The decrease was primarily due to lower advertising and promotion expenses, a lower foreign exchange loss in Q4 2021 compared to the year ago quarter and lower Information Technology spending in the fourth quarter. As a percentage of revenue, SG&A expenses were 7.5% in Q4 2021 compared to 9.5% in Q4 2020.

Adjusted EBITDA was $38.3 million in Q4 2021 compared to $36.2 million in Q4 2020, an increase of $2.1 million or 5.8%. The increase was primarily due to higher sales volume and the Consumer selling price increase in Canada, lower SG&A expenses, and the net favourable impact of foreign exchange fluctuations, partially offset by the unfavourable impact of sales mix, higher pulp prices and other inflation, labour shortages in Memphis manufacturing and higher freight rates and warehousing costs.

Net income was $42.3 million in Q4 2021 compared to a loss of $28.5 million in Q4 2020, an increase of $70.8 million. The increase was primarily due to higher income tax recovery, lower other expense, an impairment charge in Fiscal 2020 and higher Adjusted EBITDA as discussed above, partially offset by higher interest expense and other finance costs and higher depreciation and amortization.

KPLP Q4 2021 Liquidity
Total liquidity, representing cash and availability under the revolving credit agreements, was $263.8 million as of December 31, 2021. In addition, $86.5 million of cash was held by KPLP for the TAD Sherbrooke and Sherbrooke Expansion Projects.

KPLP 2021 Financial Results
Revenue was $1,465.2 million in Fiscal 2021 compared to $1,516.0 million in Fiscal 2020, a decrease of $50.8 million or 3.4%. The decrease in revenue was primarily due to a significant sales volume decrease in Canada resulting from the following: the comparison to high COVID-19 buying activity during the first half of 2020; the de-stocking of tissue inventories by both retailers and consumers in the Consumer segment during the first half of 2021; the unfavourable impact of COVID-19 related restrictions in the AFH segment that continued through the first half of 2021; and the unfavourable impact of foreign exchange fluctuations on U.S. dollar sales. The decrease was partially offset by a Consumer selling price increase in Canada in the second half of 2021 and an AFH selling price increase.

Adjusted EBITDA was $153.4 million in Fiscal 2021 compared to $197.8 million in Fiscal 2020, a decrease of $44.4 million or 22.4%. The decrease was primarily due to the impact of lower sales volumes net of overhead absorption, along with the unfavourable impact of higher pulp prices and higher freight rates and warehousing costs, partially offset by a selling price increase in Consumer Canada, lower SG&A expenses, and the favourable impact of foreign exchange fluctuations.

Net income was $42.0 million in Fiscal 2021 compared to $27.3 million in Fiscal 2020, an increase of $14.7 million. The increase was primarily due to higher income tax recovery, lower other expense and an impairment charge in Fiscal 2020, partially offset by lower Adjusted EBITDA as discussed above, higher interest expense and other finance costs and higher depreciation and amortization

KPT Q4 2021 Financial Results
KPT had a net income of $3.4 million in Q4 2021. Included in the net income was $6.1 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 expense of $1.5 million.

KPT 2021 Financial Results
KPT had a net income of $1.2 million in 2021. Included in net income was $6.1 million representing KPT’s share of KPLP’s net income, a dilution gain of $0.3 million, depreciation expense of $5.3 million related to adjustments to carrying amounts on acquisition and income tax recovery of $0.1 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, 2022 to shareholders of record at the close of business on April 1, 2022.

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, 2021 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 10, 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, March 17, 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, March 17, 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 14.4% 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, (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 Q1 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 9, 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