KP Tissue Releases its First Quarter 2014 Financial Results

MISSISSAUGA, ON, May 9, 2014 /PRNewswire/ - KP Tissue Inc. ("KPT") (TSX: KPT) reports the Q1 2014 Financial and Operational Results of Kruger Products: 

• Revenue increased by 5.8% to $234.6 million in Q1 2014 compared to $221.8 million in Q1 2013
• EBITDA result of $24.2 million in Q1 2014 compared to $25.1 million in Q1 2013
• TAD Project continued to progress well, with EBITDA contribution of $3.5 million in Q1 2014
• Maintained number one overall market share in Canada

"EBITDA of $24.2 million for the first quarter of 2014 continued to reflect high input costs and extreme weather conditions, which impacted margins. Despite a challenging market environment, we maintained our number one overall market share in Canada. The TAD Project was in line with expectations and contributed $3.5 million to EBITDA," said Mario Gosselin, CEO of KP Tissue and KPLP.

"During the quarter, we completed the consolidation of our Eastern distribution activities with expected annual savings of approximately $1.6 million. We also undertook an optimization program at the corporate level which should represent annual savings of approximately $2.4 million, once finalized.

"Going forward, we continue to see headwinds related to pulp and energy costs for the second quarter, and then a gradual decrease in pulp prices in the back half of 2014. This should alleviate some of the pressure on our margins. EBITDA for the second quarter of 2014 is expected to be higher compared to the first quarter of 2014 and moderately lower compared to the second quarter of 2013. For the TAD Project, some significant promotional activities are planned in the second quarter which should contribute to a higher EBITDA contribution when compared to the first quarter of 2014," concluded Mr. Gosselin.

KP Tissue Inc.
KPT holds a 16.6% interest in Kruger Products L.P. ("KPLP"), Canada's leading manufacturer of quality tissue products for household and commercial use. The highlights, discussion and analysis in this earnings release, unless identified specifically as representing the financial results of only KPT, relates entirely to the financial results of KPLP.

Q1 2014 Financial Results
Revenue in Q1 2014 was $234.6 million, compared to $221.8 in Q1 2013, an increase of $12.8 million driven by improved Consumer segment revenue in both Canada and the U.S. resulting from new business related to the TAD Project and the favourable impact of foreign exchange on U.S. based sales.

Cost of sales in Q1 2014 was $198.9 million, compared to $183.2 million in Q1 2013 due to the impact of increases in commodity prices, particularly pulp fibre and natural gas, the unfavourable impact of foreign exchange, and an increase in freight and warehousing expenses related primarily to higher sales volume. As a percentage of revenue, cost of sales increased to 84.8 percent in Q1 2014 from 82.6 percent in Q1 2013.

Selling, general and administrative expenses in Q1 2014 were $20.5 million, compared to $20.8 million in Q1 2013 due to a slight decrease in advertising and promotion expenses.

EBITDA in Q1 2014 was $24.2 million (included TAD Project EBITDA of $3.5 million), compared to $25.1 million in Q1 2013 (included TAD Project EBITDA loss of $2.9 million). EBITDA was impacted by lower margins as a result of higher cost of sales.

There was a Net loss in Q1 2014 of $3.2 million, compared to net income of $11.7 million in Q1 2013. The net loss was driven by a number of non-operational charges in Q1 2014 including charges related to restructuring of $2.8 million, the change in the amortized cost of the partnership unit liability of $3.3 million and a decrease in the deferred tax recovery of $4.6 million.

The cash balance as of March 30, 2014 was $52.7 million compared to $87.7 million as December 31, 2013. Cash was used in operating activities to support additional working capital requirements, consistent with the year ago quarter and with the seasonal nature of our business, and cash was also used in investing and financing activities.

KPT Results

Q1 2014 Results

• Net loss of $1.7 million in Q1 2014
• Loss per share of $0.19 in Q1 2014

KPLP Distribution
KPLP will pay a distribution of $0.18 per KPLP unit to its partners on or prior to July 15, 2014.

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 July 15, 2014 to shareholders of record at the close of business on June 30, 2014.

Conference Call Information
KPT will hold its first quarter conference call on Friday, May 9, 2014 at 8:30 a.m. Eastern Time.

Details of conference call:
Via telephone:  1-888-231-8191 or 647-427-7450
Via the internet at: www.kptissueinc.com

Presentation material referenced during the conference call will be available at www.kptissueinc.com.

Conference Call Rebroadcast
A rebroadcast of the conference call will be available until midnight, June 6, 2014 by dialing 1-855-859-2056 or 416-849-0833 and entering passcode 24880769.

The replay of the webcast will remain available on the web site until midnight, June 6, 2014.

About KP Tissue Inc. (KPT)
KPT was created to acquire, and its business is limited to holding, a limited partnership interest in KPLP. As of March 30, 2014, KPT held a 16.7% interest in KPLP, accounted for as an investment on the equity basis. On April 15, 2014, 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 16.6% 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 2,300 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.

Non-IFRS Measures
This press release uses certain non-IFRS financial measures and ratios which KPLP believes provide useful information to both 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 measures is EBITDA. 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. "EBITDA" is calculated by KPLP as net income (loss) before (i) interest expense, (ii) income taxes, (iii) depreciation, (iv) amortization, (v) impairment of non-financial assets, (vi) loss (gain) on disposal of property, plant and equipment, (vii) unrealized foreign exchange loss (gain), (viii) one-time costs related to restructuring activities, and (ix) change in amortized cost of the Partnership unit liability. A reconciliation of EBITDA to the relevant reported results can be found in the Management's Discussion and Analysis ("MD&A") of KPT and KPLP for the first quarter ended March 30, 2014 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. 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 information is based on certain key expectations and assumptions made by KPT, including expectations and assumptions concerning the impact of the TAD Project on EBITDA. Although KPT believes 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 information since no assurance can be given that such expectations and assumptions will prove to be correct.

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 the Corporation'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 19, 2014 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 Project; operational risks; Gatineau Plant land lease; significant increases in prices; 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, restrictive covenants; interest rate and refinancing risk; information technology and innovation; insurance; and internal controls.

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.

SOURCE KP Tissue Inc.