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Press release from CNW Group

KP Tissue Releases its Financial Results and those of Kruger Products L.P. for the Fourth Quarter and Full Year 2012 and Declares First Dividend

Wednesday, March 27, 2013

KP Tissue Releases its Financial Results and those of Kruger Products L.P. for the Fourth Quarter and Full Year 2012 and Declares First Dividend07:00 EDT Wednesday, March 27, 2013MISSISSAUGA, ON, March 27, 2013 /CNW Telbec/ - KP Tissue Inc. ("KPT") (TSX: KPT), which holds a limited partnership interest in Kruger Products L.P. ("KPLP"), releases the financial results for KPT and KPLP for the fourth quarter and full year 2012. KPLP is Canada's leading manufacturer of quality tissue products for household, industrial and commercial use. In connection with KPT's undertaking with the Ontario Securities Commission to treat KPLP as a subsidiary and to allow the reader to fully understand the financial results of KPT, the following provides discussion and analysis of KPLP's consolidated financial results.KP Tissue Inc. and Kruger Products L.P.KPT was created to acquire, and its business is limited to holding, a limited partnership interest in KPLP. On December 13, 2012, KPT completed an initial public offering of 8 million common shares and used the proceeds to acquire a 15.7% interest in KPLP. On January 10, 2013, KPT completed the issuance of an additional 750,000 common shares pursuant to the Over-Allotment Option and used the proceeds to subscribe for 750,000 additional units of KPLP which, together with the units of KPLP that it already held, resulted in KPT having a 16.9% interest in KPLP on that date. However, as of December 31, 2012, KPT continued to hold a 15.7% interest in KPLP, accounted for as an investment on the equity basis. The financial results presented for KPT represent its holding in KPLP of 15.7% only for the period from December 13, 2012 to December 31, 2012. The following discussion and analysis, unless identified specifically as representing the financial results of only KPT, relates entirely to the financial results of KPLP. Accordingly, the results of KPLP apply to KPT only to the extent of its holding in KPLP.KP Tissue Inc. HighlightsNet income of $0.2 million in Q4 2012 and fiscal 2012 for the period from the initial public offering on December 13, 2012 to December 31, 2012Earnings per share of $0.02 in Q4 2012 and fiscal 2012Declaration of first dividend of $0.217 per share, consisting of $0.18 per share pertaining to the first quarter of 2013 and $0.037 per share for the period from December 13, 2012 to December 31, 2012KPLP HighlightsQ4 2012 HighlightsRevenue of $242.9 million in Q4 2012, compared to $241.1 million in Q4 2011, an increase of 0.8 percent year over yearEBITDA of $22.9 million in Q4 2012 (including approximately $3.9 million of expenses related to initial public offering, reorganization and TAD Project start-up) compared to $24.3 million in Q4 2011, a decrease of 5.6 percent year over yearNet income of $6.9 million in Q4 2012 compared to $5.8 million in Q4 2011, an increase of 19.3 percent year over yearCash balance of $121.5 million as of December 31, 2012 compared to $28.7 million as of September 23, 2012 (end of the third quarter)Full Year HighlightsRevenue of $922.9 million in fiscal 2012, compared to $892.6 million in fiscal 2011, an increase of 3.4 percent year over yearEBITDA of $111.3 million in fiscal 2012 (including approximately $7.3 million of expenses related to initial public offering, reorganization and TAD Project start-up), compared to $81.9 million in fiscal 2011, an increase of 35.9 percent year over yearNet income of $46.6 million in fiscal 2012 compared to $28.6 million in fiscal 2011, an increase of 62.7 percent year over yearAnnounced and substantially completed the Business Rationalization Project primarily to cease production of parent rolls for sale resulting in recurring annual savings of $11.9 million, of which $6.4 million of savings were achieved during fiscal 2012 and $5.5 million are expected to be achieved in 2013Announced on February 22, 2013, the completion of the construction phase of the Through-Air-Dried (TAD) tissue machine in Memphis"The year 2012 marked an important juncture in the evolution of KPLP. We became a public company, we undertook an important business rationalization program and we successfully carried out the critical construction phase of our TAD Project," said Mario Gosselin, CEO of KP Tissue and KPLP."Revenue for 2012 was $922.9 million, up 3.4% over 2011. Of note is the growth in EBITDA, which increased by 35.9% to $111.3 million. This reflects higher volumes and lower cost of sales and is partially offset by higher operating expenses."Our full range of brands gained market share in Canada and our private label business made solid progress in the U.S. Our White Cloud Ultra brand, exclusive to Walmart, was ranked as the number one bathroom tissue by a leading U.S. consumer magazine."In February 2013 we announced the completion of the construction phase of the TAD Project on time and on budget, which represents an important milestone considering the scale of this project.  As expected, the start-up phase of the TAD Project will have a negative impact on EBITDA in the first half of 2013 and we anticipate a modest positive contribution for the year as a whole," Mr. Gosselin said."Our EBITDA in the first quarter of 2013 will continue to benefit from the business rationalization program implemented last year along with reduced management fees," said Mark Holbrook, CFO of KP Tissue and KPLP. "However these gains will be more than offset by the start-up costs of the TAD Project. Customer orders for TAD products commenced during the quarter and we have been filling the inventory pipeline."KPLP Q4 2012 Financial ResultsRevenue in Q4 2012 was $242.9 million, an increase of 0.8 percent compared to Q4 2011. Compared to Q4 2011, revenue was positively impacted by volume and mix changes, partially offset by a decline in average selling prices primarily as a result of the decline in pulp prices during fiscal 2012. The increases in revenue compared to Q4 2011 were driven primarily by increases in Consumer segment revenue, partially offset by declines in Other segment revenue primarily as a result of the decision to cease production of parent rolls for sale.Cost of sales was $172.5 million in Q4 2012, compared to $175.9 million in Q4 2011. As a percentage of revenue, compared to Q4 2011, cost of sales decreased to 71.0% from 73.0% primarily due to lower fibre and energy costs, partially offset by higher plant maintenance expenses.Operating expenses were $59.8 million in Q4 2012, compared to $49.3 million in Q4 2011. Compared to Q4 2011, operating expenses increased primarily due to higher sales and marketing related expenses and costs associated with transitioning to a public entity along with start-up costs related to the TAD Project.EBITDA in Q4 2012 was $22.9 million, compared to $24.3 million in Q4 2011. EBITDA in Q4 2012 included $3.9 million of expenses related to the initial public offering, reorganization and TAD Project start-up. Compared to Q4 2011, EBITDA decreased primarily due to an increase in operating expenses, partially offset by higher sales volumes and lower fibre and energy costs. Cost increases within cost of sales and operating expenses in Q4 2012 were driven by seasonally higher advertising and promotion and plant maintenance expenses.Net income in Q4 2012 was $6.9 million, compared to $5.8 million in Q4 2011. Compared to Q4 2011, net income increased primarily due to a deferred tax credit related to the U.S. operations in Q4 2012, while EBITDA declined slightly.The cash balance as of December 31, 2012 was $121.5 million, up from $28.7 million as of September 23, 2012. On a sequential basis, the increase in cash was primarily driven by net cash of $113.6 million generated from the initial public offering and debt proceeds related to the TAD Project, and cash from operations of $44.1 million driven by EBITDA and improvements in working capital. The increase was partially offset by capital expenditures of $64.6 million, of which $58.4 million related to the TAD Project and $6.2 million related to existing sites. This compared to capital expenditures in Q4 2011 of $62.2 million, of which $51.5 million related to the TAD Project and $10.7 million related to existing sites.The remaining capital expenditures related to the TAD Project are intended to be funded primarily from cash on hand in order to limit the use of the TAD Credit Facility to U.S$125 million.KPLP Full Year Financial ResultsRevenue was $922.9 million in fiscal 2012 compared to $892.6 million in fiscal 2011. The increase in revenue was primarily due to the positive impacts of volume and mix changes and an increase in average selling prices.EBITDA was $111.3 million in fiscal 2012 compared to $81.9 million in fiscal 2011. The increase in EBITDA was primarily driven by the increase in revenue and lower cost of sales primarily due to reduced fibre and energy costs, partially offset by an increase in operating expenses primarily due to higher sales and marketing related expenses and costs associated with transitioning to a public entity along with start-up costs related to the TAD Project. EBITDA in fiscal 2012 included $3.6 million related to TAD Project start-up costs, $0.7 million of non-recurring public company costs, and a management fee of $9.2 million (to be reduced to $4.0 million in 2013). EBITDA in fiscal 2012 was also impacted by $6.4 million of the expected $11.9 savings from the Business Rationalization Project.Net income was $46.6 million in fiscal 2012 compared to $28.6 million in fiscal 2011. The increase in net income was primarily due to higher EBITDA and a deferred tax credit recorded in fiscal 2012 compared to income tax expense in fiscal 2011, partially offset by an increase in interest expense and charges related to the Business Rationalization Project.Partnership UnitsKPLP has a contractual obligation which has been publicly disclosed to make partnership distributions sufficient to pay KPT's Canadian federal and provincial income taxes.  KPLP has reclassified a portion of its equity as a liability in respect of this obligation for accounting purposes, which does not change the rights of or obligations owed to the partners of KPLP or change the financial statements of KPT. Refer to KPT's Management Discussion and Analysis to be filed on SEDAR at www.sedar.com for additional details.Dividends on Common SharesThe Board of Directors of KP Tissue Inc. declared a dividend of $0.217 per share to be paid on April 15, 2013 to shareholders of record at the close of business on April 8, 2013. The dividend relates to the period from the initial public offering on December 13, 2012 to March 31, 2013.Conference Call InformationKPT will hold its conference call on Wednesday, March 27, 2013 at 8:30 a.m. Eastern Time.Details of conference call:Via telephone:  1-888-231-8191 or 647-427-7450Via the internet at: www.kptissueinc.comPresentation material referenced during the conference call will be available at www.kptissueinc.com.Conference Call RebroadcastA rebroadcast of the conference call will be available until midnight, April 27, 2013 by dialing 1-855-859-2056 or 416-849-0833 and entering passcode 20621182.The replay of the webcast will remain available on the web site until midnight, April 27, 2013.About KP Tissue Inc.KPT was created to acquire, and its business is limited to holding, a limited partnership interest in KPLP. For more information visit www.kptissueinc.com.About Kruger Products L.P.Kruger Products L.P. is Canada's leading manufacturer of quality tissue products for household, industrial and commercial use. Kruger Products L.P. serves the Canadian consumer market with such well-known brands as Cashmere®, Purex®, SpongeTowels®, Scotties®' and White Swan®. In the U.S., Kruger Products L.P. manufactures the White Cloud® brand, as well as many private label products. Kruger Products L.P. has approximately 2,300 employees across North America and operates five FSC® CoC- certified mills, four of which are located in Canada and one in the US. For more information visit www.krugerproducts.ca.Non-IFRS MeasuresThis 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), and (viii) one-time costs related to the Business Rationalization Project. A reconciliation of EBITDA to the relevant reported results can be found in the Management's Discussion and Analysis of KPT and KPLP for the fourth quarter and fiscal year ended December 31, 2012 available on SEDAR at www.sedar.com.Forward-Looking StatementsCertain 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 start-up of the TAD Project on EBITDA, the benefits of the business rationalization program and the funding of remaining capital expenditures relating to the TAD Project. 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 final prospectus dated December 5, 2012: 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; actual results achieved may differ from financial outlook; 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.Kruger Products L.P.Condensed Consolidated Statements of Financial Position(thousands of Canadian dollars)     December 31, 2012 December 31, 2011 $ $    Assets       Current assets    Cash and cash equivalents121,489 31,797 Trade and other receivables94,308 88,948 Receivables from related parties668 730 Inventories116,873 139,728 Income tax recoverable2,872 447 Prepaid expenses4,413 5,422 340,623 267,072    Non-current assets    Property, plant & equipment580,814 424,194 Other long-term assets6,236 10,959 Goodwill152,021 152,021 Intangible assets13,828 14,307 Deferred income taxes1,178 -Total assets1,094,700 868,553    Liabilities       Current liabilities    Trade and other payables186,309 151,746 Payables to related parties9,057 9,407 Current portion of provisions3,719 1,644 Current portion of long-term debt3,802 - 202,887 162,797    Non-current liabilities    Long-term debt323,885 251,748 Other long-term liabilities544 1,320 Provisions5,506 3,562 Pensions148,989 123,090 Post-retirement benefits48,302 46,497 Deferred income taxes- 1,618Liabilities to non-unitholders730,113 590,632 Partnership units118,562 -Total Liabilities848,675 590,632        Equity    Partnership units257,516 - Equity- 279,209 Accumulated deficit(14,736) - Accumulated other comprehensive loss3,245 (1,288)Total equity246,025 277,921    Total equity and liabilities1,094,700 868,553Kruger Products L.P.Condensed Consolidated Statements of Comprehensive Loss(thousands of Canadian dollars)         Quarter ended Year ended December 31, 2012 December 31, 2011 December 31, 2012 December 31, 2011 $ $ $ $        Revenue242,903 241,071 922,874 892,582        Expenses        Cost of sales172,549 175,904 645,826 658,453 Operating expenses59,759 49,306 194,898 182,429 Impairment of non-financial assets(1,292) 2,662 4,608 2,662 Restructuring costs791 - 9,391 -Operating income11,096 13,199 68,151 49,038Interest expense6,580 7,024 23,027 19,166Income before income taxes4,516 6,175 45,124 29,872Income taxes(2,380) 397 (1,428) 1,253Net income for the period6,896 5,778 46,552 28,619Other comprehensive income (loss)        Actuarial gains (losses) on pensions11,675 (6,644) (44,496) (56,782) Actuarial gains (losses) on post-retirement benefits4,693 (4,240) (102) (5,432) Cumulative translation adjustment3,245 (1,607) (3,969) 2,461Total other comprehensive income (loss) for the period19,613 (12,491) (48,567) (59,753)Comprehensive income (loss) for the period26,509 (6,713) (2,015) (31,134)  Kruger Products L.P.Condensed Consolidated Statements of Cash Flows(thousands of Canadian dollars)         Quarter ended Year ended December 31, 2012 December 31, 2011 December 31, 2012 December 31, 2011 $ $ $ $        Cash flows from operating activities       Net income for the period6,896 5,778 46,552 28,619Items not affecting cash        Depreciation10,755 8,478 28,331 30,439 Amortization146 273 530 413 Loss on sale of property, plant and equipment622 123 1,060 123 Unrealized foreign exchange (gain) loss773 (493) (777) (811) Interest expense6,580 7,024 23,027 19,166 Pension and post retirement benefits2,338 1,814 9,041 7,272 Provisions154 5 9,613 703 Deferred income taxes(3,084) 185 (2,772) 648 Current income taxes704 212 1,344 605 Impairment of non-financial assets(1,292) 2,662 4,608 2,662 Total items not affecting cash17,696 20,283 74,005 61,220Net change in non-cash working capital29,606 50,799 39,906 18,513Contributions to pension and post-retirement benefit plans(7,569) (9,392) (29,707) (33,418)Provisions and other liabilities(2,336) (2,083) (7,245) (2,083)Income tax payments367 (325) (360) (678)Net cash from operating activities44,660 65,060 123,151 72,173Cash flows used in investing activities       Purchase of property, plant & equipment(6,157) (8,458) (17,652) (22,994)Purchases of through-air-dried (TAD) expansion(54,056) (51,473) (161,155) (84,124)Purchases of software(51) (2,277) (51) (2,277)Interest paid on TAD expansion(4,320) - (6,125) -Proceeds on sale of property, plant and equipment16 - 199 -Net cash used in investing activities(64,568) (62,208) (184,784) (109,395)Cash flows from financing activities       Proceeds from credit facilities51,830 34,566 145,957 209,566Repayment of credit facilities(27,096) (10,408) (65,000) (132,483)Transfer of assets to related parties2,000 (2,868) (209) (547)Payment of deferred financing fees(26) (9,027) (26) (16,611)Interest paid on credit facilities(3,290) (3,357) (17,720) (12,584)Proceeds from issuing partnership units128,890 - 128,890 -Distributions paid(40,000) - (40,000) -Settlement of interest rate swap contract- - (413) -Net cash from financing activities112,308 8,906 151,479 47,341Effect of exchange rate changes on cash and cash equivalents held in foreign currency342 (310) (154) 193Decrease in cash and cash equivalents during the period92,742 11,448 89,692 10,312Cash and cash equivalents - Beginning of period28,747 20,349 31,797 21,485Cash and cash equivalents - End of period121,489 31,797 121,489 31,797  Kruger Products L.P.Segment and Geographic Results(thousands of Canadian dollars)         Quarter ended Year ended December 31, 2012 December 31, 2011 December 31, 2012 December 31, 2011 $ $ $ $        Segment Information               Segment Revenue        Consumer199,099 187,533 745,548 705,287 AFH41,708 42,398 156,632 151,268 Other2,096 11,140 20,694 36,027Total segment revenue242,903 241,071 922,874 892,582        Segment EBITDA        Consumer24,504 25,835 114,003 87,581 AFH(1,795) 142 3,073 1,985 Other182 (1,735) (5,782) (7,702)Total segment EBITDA22,891 24,242 111,294 81,864        Reconciliation to Net Income:               Interest expense6,580 7,024 23,027 19,166Depreciation and amortization10,901 8,751 28,861 30,852Unrealized foreign exchange gain773 (493) (777) (811)One-time costs related to the Business Rationalization Project791 - 9,391 -Impairment of non-financial assets(1,292) 2,662 4,608 2,662Loss on disposal of property, plant and equipment622 123 1,060 123Income before income taxes4,516 6,175 45,124 29,872Income taxes(2,380) 397 (1,428) 1,253Net income for the period6,896 5,778 46,552 28,619        Geographic Revenue               Canada176,903 170,917 662,952 641,669U.S.58,135 63,179 231,532 233,045Mexico7,865 6,975 28,390 17,868Total Revenue242,903 241,071 922,874 892,582KP Tissue Inc.Condensed Statement of Financial Position(thousands of Canadian dollars)   December 31, 2012  $   Assets Non-current assets  Investment in associate140,774Total Assets140,774  Liabilities Non-current liabilities  Deferred income taxes52Total liabilities52  Equity  Common shares140,000 Accumulated other comprehensive loss627 Retained earnings95Total equity140,722Total liabilities and equity140,774  KP Tissue Inc.Condensed Statement of Comprenhensive Income(thousands of Canadian dollars)   2012 $  Equity income201Income before income taxes201Income taxes  Deferred52Net income for the period149Other comprehensive income  Actuarial gains on pensions341 Actuarial gains on post-retirement benefits137 Cumulative translation adjustment95Total other comprehensive income for the period573Comprehensive income for the period722Basic earnings per share0.02  KP Tissue Inc.Condensed Statement of Cash Flows(thousands of Canadian dollars)   2012 $Cash flows from operating activities Net income for the period149Items not affecting cash  Equity income(201) Deferred income taxes52Net cash from operating activities-Cash flows used in investing activites Investment in associate(140,000)Net cash used in investing activities(140,000)Cash flows from financing activities Issuance of common shares140,000Net cash from financing activities140,000Decrease in cash and cash equivalents during the period-Cash and cash equivalents - Beginning of period-Cash and cash equivalents - End of period-    SOURCE: KP Tissue Inc.For further information: INFORMATION: Wendy Kelley General Counsel and Corporate Secretary KP Tissue Inc. Tel.: 905.812.6936 wendy.kelley@krugerproducts.ca INVESTORS:  Mike Baldesarra Director of Investor Relations KP Tissue Inc. Tel.: 905.812.6962 IR@KPTissueinc.com