KP Tissue Inc. (KPT) reports the Q1 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, 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 14.6% interest in KPLP.
“Last year, we reported exceptional first quarter results driven by unprecedented consumer demand related to COVID-19. During the first quarter of this year, we observed a reversal of the situation with retailers and consumers de-stocking as supply concerns subsided. The AFH segment continued to face strong headwinds from government restrictions. In these circumstances, revenues and Adjusted EBITDA for the quarter declined by 17.3% and 26.5%, respectively,” stated KP Tissue Chief Executive Officer, Dino Bianco.
“To counter the exceptional and rapid rise in pulp prices, at the beginning of April we announced a price increase for consumer branded and private-label products sold in Canada to be effective in early July. We continue to be very pleased with the successful ramp-up of TAD Sherbrooke where one of the first products commercialized is the new SpongeTowels Ultra ProTM premium paper towel.
“At this stage, we anticipate consumer demand to start stabilizing in the second quarter with a return to more normal buying patterns. While U.S. market conditions for the AFH segment are gradually improving, the Canadian AFH market will remain challenging with ongoing restrictions. More favorable market conditions combined with pricing actions should translate into a stronger performance in the second half of 2021,” concluded Mr. Bianco.
Considering the continued risk and uncertainties associated with the COVID-19 recovery and the impacts it could have on sales volumes, along with significantly higher pulp prices, Q2 2021 Adjusted EBITDA is expected to be in the same range as Q1 2021.
KPLP Q1 2021 FINANCIAL RESULTS
Revenue was $310.4 million in Q1 2021 compared to $375.1 million in Q1 2020, a decrease of $64.7 million or 17.3%. The decrease in revenue was primarily due to significant sales volume decreases in both Canada and the U.S. resulting from high COVID-19 buying activity in the year ago quarter across all business segments; the de-stocking of tissue inventories by both retailers and consumers in Q1 2021; and the unfavourable impact of COVID-19 related restrictions on the AFH segment in Q1 2021. Revenue was also unfavourably impacted by foreign exchange fluctuations on U.S. dollar sales.
Cost of sales was $263.3 million in Q1 2021 compared to $314.5 million in Q1 2020, a decrease of $51.2 million or 16.3%. Manufacturing costs decreased primarily due to significantly lower sales volumes, the favourable impact of foreign exchange fluctuations on U.S. dollar costs and the higher absorption of overhead costs into inventory in Q1 2021 resulting from increased inventory levels, partially offset by unfavourable pulp costs and higher outsourcing costs. Freight costs decreased due to lower volume, partially offset by higher rates and warehousing costs increased compared to Q1 2020. As a percentage of revenue, cost of sales was 84.8% in Q1 2021 compared to 83.8% in Q1 2020.
Selling, general and administrative (SG&A) expenses were $27.8 million in Q1 2021 compared to $29.6 million in Q1 2020, a decrease of $1.8 million or 6.3%. The decrease was primarily due to lower advertising and promotion expenses. As a percentage of revenue, SG&A expenses were 8.9% in Q1 2021 compared to 7.9% in Q1 2020.
Adjusted EBITDA was $37.5 million in Q1 2021 compared to $51.0 million in Q1 2020, a decrease of $13.5 million or 26.5%. 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, outsourcing costs, freight rates and warehousing costs, slightly offset by lower SG&A expenses.
Net income was $6.8 million in Q1 2021 compared to $8.4 million in Q1 2020, a decrease of $1.6 million. The decrease was primarily due to lower Adjusted EBITDA and higher interest and depreciation expense, partially offset by an increase in other income, and no consulting costs related to operational transformation initiatives.
KPLP Q1 2021 FINANCING ACTIVITY
On April 8, 2021, KPLP issued $135 million aggregate principal amount of 5.375% senior unsecured notes due April 9, 2029 by way of private placement in Canada in accordance with applicable Canadian prospectus and registration exemptions. KPLP intends to use the net proceeds from the offering to reduce the outstanding balance under the Senior Credit Facility and for general corporate purposes.
In conjunction with the issuance of the senior unsecured notes on April 8, 2021, capacity under the Senior Credit Facility was reduced from $250 million to $200 million.
Total liquidity, representing cash and availability under the revolving credit agreements, was $202.8 million as of March 31, 2021.
In addition, $22.4 million of cash was held by KPSI and committed to the TAD Sherbrooke Project.
KPT Q1 2021 FINANCIAL RESULTS
KPT had net income of $1.2 million in Q1 2021. Included in net income was $1.0 million representing KPT’s share of KPLP’s net income, depreciation expense of $1.3 million related to adjustments to carrying amounts on acquisition and an income tax recovery of $1.5 million.
DIVIDENDS ON COMMON SHARES
The Board of Directors of KPT declared a quarterly dividend of $0.18 per share to be paid on July 15, 2021 to shareholders of record at the close of business on June 30, 2021.
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