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Press release from PR Newswire

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, 2013 MISSISSAUGA, ON, March 27, 2013 /PRNewswire/ - 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. Highlights Net 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, 2012 Earnings per share of $0.02 in Q4 2012 and fiscal 2012 Declaration 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, 2012 KPLP Highlights Q4 2012 Highlights Revenue of $242.9 million in Q4 2012, compared to $241.1 million in Q4 2011, an increase of 0.8 percent year over year EBITDA 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 year Net income of $6.9 million in Q4 2012 compared to $5.8 million in Q4 2011, an increase of 19.3 percent year over year Cash 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 Highlights Revenue of $922.9 million in fiscal 2012, compared to $892.6 million in fiscal 2011, an increase of 3.4 percent year over year EBITDA 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 year Net income of $46.6 million in fiscal 2012 compared to $28.6 million in fiscal 2011, an increase of 62.7 percent year over year Announced 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 2013 Announced 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 Results Revenue 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 Results Revenue 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 Units KPLP 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 Shares The 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 Information KPT 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 647-427-7450 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, 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 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), 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 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 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 equivalents 121,489   31,797   Trade and other receivables 94,308   88,948   Receivables from related parties 668   730   Inventories 116,873   139,728   Income tax recoverable 2,872   447   Prepaid expenses 4,413   5,422   340,623   267,072         Non-current assets         Property, plant & equipment 580,814   424,194   Other long-term assets 6,236   10,959   Goodwill 152,021   152,021   Intangible assets 13,828   14,307   Deferred income taxes 1,178   - Total assets 1,094,700   868,553         Liabilities               Current liabilities         Trade and other payables 186,309   151,746   Payables to related parties 9,057   9,407   Current portion of provisions 3,719   1,644   Current portion of long-term debt 3,802   -   202,887   162,797         Non-current liabilities         Long-term debt 323,885   251,748   Other long-term liabilities 544   1,320   Provisions 5,506   3,562   Pensions 148,989   123,090   Post-retirement benefits 48,302   46,497   Deferred income taxes -   1,618 Liabilities to non-unitholders 730,113   590,632   Partnership units 118,562   - Total Liabilities 848,675   590,632                 Equity         Partnership units 257,516   -   Equity -   279,209   Accumulated deficit (14,736)   -   Accumulated other comprehensive loss 3,245   (1,288) Total equity 246,025   277,921         Total equity and liabilities 1,094,700   868,553 Kruger 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   $   $   $   $                 Revenue 242,903   241,071   922,874   892,582                 Expenses                 Cost of sales 172,549   175,904   645,826   658,453   Operating expenses 59,759   49,306   194,898   182,429   Impairment of non-financial assets (1,292)   2,662   4,608   2,662   Restructuring costs 791   -   9,391   - Operating income 11,096   13,199   68,151   49,038 Interest expense 6,580   7,024   23,027   19,166 Income before income taxes 4,516   6,175   45,124   29,872 Income taxes (2,380)   397   (1,428)   1,253 Net income for the period 6,896   5,778   46,552   28,619 Other comprehensive income (loss)                 Actuarial gains (losses) on pensions 11,675   (6,644)   (44,496)   (56,782)   Actuarial gains (losses) on post-retirement benefits 4,693   (4,240)   (102)   (5,432)   Cumulative translation adjustment 3,245   (1,607)   (3,969)   2,461 Total other comprehensive income (loss) for the period 19,613   (12,491)   (48,567)   (59,753) Comprehensive income (loss) for the period 26,509   (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 period 6,896   5,778   46,552   28,619 Items not affecting cash                 Depreciation 10,755   8,478   28,331   30,439   Amortization 146   273   530   413   Loss on sale of property, plant and equipment 622   123   1,060   123   Unrealized foreign exchange (gain) loss 773   (493)   (777)   (811)   Interest expense 6,580   7,024   23,027   19,166   Pension and post retirement benefits 2,338   1,814   9,041   7,272   Provisions 154   5   9,613   703   Deferred income taxes (3,084)   185   (2,772)   648   Current income taxes 704   212   1,344   605   Impairment of non-financial assets (1,292)   2,662   4,608   2,662   Total items not affecting cash 17,696   20,283   74,005   61,220 Net change in non-cash working capital 29,606   50,799   39,906   18,513 Contributions 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 payments 367   (325)   (360)   (678) Net cash from operating activities 44,660   65,060   123,151   72,173 Cash 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 equipment 16   -   199   - Net cash used in investing activities (64,568)   (62,208)   (184,784)   (109,395) Cash flows from financing activities               Proceeds from credit facilities 51,830   34,566   145,957   209,566 Repayment of credit facilities (27,096)   (10,408)   (65,000)   (132,483) Transfer of assets to related parties 2,000   (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 units 128,890   -   128,890   - Distributions paid (40,000)   -   (40,000)   - Settlement of interest rate swap contract -   -   (413)   - Net cash from financing activities 112,308   8,906   151,479   47,341 Effect of exchange rate changes on cash and cash equivalents held in foreign currency 342   (310)   (154)   193 Decrease in cash and cash equivalents during the period 92,742   11,448   89,692   10,312 Cash and cash equivalents - Beginning of period 28,747   20,349   31,797   21,485 Cash and cash equivalents - End of period 121,489   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                 Consumer 199,099   187,533   745,548   705,287   AFH 41,708   42,398   156,632   151,268   Other 2,096   11,140   20,694   36,027 Total segment revenue 242,903   241,071   922,874   892,582                 Segment EBITDA                 Consumer 24,504   25,835   114,003   87,581   AFH (1,795)   142   3,073   1,985   Other 182   (1,735)   (5,782)   (7,702) Total segment EBITDA 22,891   24,242   111,294   81,864                 Reconciliation to Net Income:                               Interest expense 6,580   7,024   23,027   19,166 Depreciation and amortization 10,901   8,751   28,861   30,852 Unrealized foreign exchange gain 773   (493)   (777)   (811) One-time costs related to the Business Rationalization Project 791   -   9,391   - Impairment of non-financial assets (1,292)   2,662   4,608   2,662 Loss on disposal of property, plant and equipment 622   123   1,060   123 Income before income taxes 4,516   6,175   45,124   29,872 Income taxes (2,380)   397   (1,428)   1,253 Net income for the period 6,896   5,778   46,552   28,619                 Geographic Revenue                               Canada 176,903   170,917   662,952   641,669 U.S. 58,135   63,179   231,532   233,045 Mexico 7,865   6,975   28,390   17,868 Total Revenue 242,903   241,071   922,874   892,582 KP Tissue Inc. Condensed Statement of Financial Position (thousands of Canadian dollars)       December 31, 2012   $       Assets   Non-current assets     Investment in associate 140,774 Total Assets 140,774     Liabilities   Non-current liabilities     Deferred income taxes 52 Total liabilities 52     Equity     Common shares 140,000   Accumulated other comprehensive loss 627   Retained earnings 95 Total equity 140,722 Total liabilities and equity 140,774     KP Tissue Inc. Condensed Statement of Comprenhensive Income (thousands of Canadian dollars)       2012   $     Equity income 201 Income before income taxes 201 Income taxes     Deferred 52 Net income for the period 149 Other comprehensive income     Actuarial gains on pensions 341   Actuarial gains on post-retirement benefits 137   Cumulative translation adjustment 95 Total other comprehensive income for the period 573 Comprehensive income for the period 722 Basic earnings per share 0.02     KP Tissue Inc. Condensed Statement of Cash Flows (thousands of Canadian dollars)       2012   $ Cash flows from operating activities   Net income for the period 149 Items not affecting cash     Equity income (201)   Deferred income taxes 52 Net 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 shares 140,000 Net cash from financing activities 140,000 Decrease 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: <p> </p> <p> <b>INFORMATION:</b><br/> Wendy Kelley<br/> General Counsel and Corporate Secretary<br/> KP Tissue Inc.<br/> Tel.: 905.812.6936<br/> <a href="mailto:wendy.kelley@krugerproducts.ca">wendy.kelley@krugerproducts.ca</a> </p> <p> <b>INVESTORS: </b><br/> Mike Baldesarra<br/> Director of Investor Relations<br/> KP Tissue Inc.<br/> Tel.: 905.812.6962<br/> <a href="mailto:IR@KPTissueinc.com">IR@KPTissueinc.com</a> </p>