KP Tissue Inc. reports the Q2 2021 financial and operational results of KPT and Kruger Products L.P.. 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 (AFH) 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 14.5% interest in KPLP.
KPLP Q2 2021 BUSINESS AND FINANCIAL HIGHLIGHTS
- Revenue decreased by $47.5 million or 12.3% to $339.3 million in Q2 2021 compared to $386.8 million in Q2 2020.
- Adjusted EBITDA was $37.3 million in Q2 2021 compared to $64.4 million in Q2 2020, a decrease of 42.1%, and similar sequentially to the $37.5 million in Q1 2021.
- TAD Sherbrooke continues to run above the expected start-up curve.
- Completed financing for the Sherbrooke Expansion Project.
- Declared a quarterly dividend of $0.18 per share to be paid on October 15, 2021.
“Given continued soft demand resulting from COVID-19 related de-stocking by retailers and consumers, headwinds from high pulp prices and a gradual market recovery in the Away-From-Home segment, results for the quarter were largely in line with our expectations. Consequently, revenues were under pressure and Adjusted EBITDA for the quarter was down significantly compared to last year’s record level, but was stable when compared to the first quarter of this year,” stated KP Tissue’s Chief Executive Officer, Dino Bianco.
“Our share position remains strong in all tissue product categories and the launch of SpongeTowels UltraProTM continues to exceed our expectations and led to important share gains in the category. TAD Sherbrooke’s start-up curve remains ahead of schedule and provides the paper tissue capacity required to meet our long-term growth plans.
“After several quarters of depressed end-user demand in Away-From-Home, volume has gradually picked-up with the easing of COVID-19 restrictions, particularly in the U.S. This combined with the benefits of production efficiencies and less paper outsourcing, has resulted in an improved AFH Adjusted EBITDA position for the quarter, providing a near-term path to a turnaround.
“With the situation gradually improving month-after-month in Consumer Tissue, we anticipate a return to more normal buying patterns and demand from retailers and consumers in the second half of the year. We have also worked hard to position AFH for a market recovery and expect improving sales as end-markets recover. High pulp prices and cost inflation will remain prevalent for the remainder of the year. We expect that, despite these factors, the pricing actions announced and a more favorable sales market should translate into a stronger performance in the second half of 2021,” concluded Mr. Bianco.
We are beginning to see the risks and uncertainties associated with COVID-19 subside and expect to see activities and behavior start to return to more pre-COVID levels in the second half of 2021, in both the Consumer and Away-From-Home segments. Despite higher pulp prices, we expect Q3 2021 Adjusted EBITDA to be in a range which is higher than Q2 2021 and lower than Q3 2020.
KPLP Q2 2021 FINANCIAL RESULTS
Revenue was $339.3 million in Q2 2021 compared to $386.8 million in Q2 2020, a decrease of $47.5 million or 12.3%. The decrease in revenue was primarily due to a significant sales volume decrease in the Consumer Segment resulting primarily from the comparison to high COVID-19 buying activity in the year ago quarter, while sales volume in the AFH segment was slightly lower compared to Q2 2020 as COVID-19 impacted both quarters. Revenue was also unfavorably impacted by foreign exchange fluctuations on U.S. dollar sales.
Cost of sales was $295.0 million in Q2 2021 compared to $310.0 million in Q2 2020, a decrease of $15.0 million or 4.8%. Manufacturing costs decreased primarily due to significantly lower sales volumes and the favorable impact of foreign exchange fluctuations on U.S. dollar costs, partially offset by increased pulp costs, higher freight rates and warehousing costs. As a percentage of revenue, cost of sales was 86.9% in Q2 2021 compared to 80.2% in Q2 2020.
Selling, general and administrative (SG&A) expenses were $29.6 million in Q2 2021 compared to $30.5 million in Q2 2020, a decrease of $0.9 million or 3.0%. The decrease was primarily due to a reduction in compensation related costs, foreign exchange gains and lower selling expenses, almost offset by higher advertising expenses. As a percentage of revenue, SG&A expenses were 8.7% in Q2 2021 compared to 7.9% in Q2 2020.
Adjusted EBITDA was $37.3 million in Q2 2021 compared to $64.4 million in Q2 2020, a decrease of $27.1 million or 42.1%. The decrease was primarily due to the impact of lower sales volumes, along with the unfavorable impact of higher pulp prices and higher freight rates and warehousing costs, partially offset by the net favorable impact of foreign exchange fluctuations and slightly lower SG&A expenses.
Net income was $2.2 million in Q2 2021 compared to $28.9 million in Q2 2020, a decrease of $26.7 million. The decrease was primarily due to lower Adjusted EBITDA, higher depreciation and interest expense and a decrease in other income, partially offset by lower income taxes.
KPLP Q2 2021 FINANCING ACTIVITY
On May 21, 2021, KPLP announced the closing of financing arrangements to fund the Sherbrooke Expansion Project, which was originally announced on February 26, 2021. The financing includes a $75 million convertible debenture with Investissement Quebec of which $27 million has now been issued by Kruger Products SB Inc.
Total liquidity, representing cash and availability under the revolving credit agreements, was $284.2 million as of June 30, 2021. In addition, $36.5 million of cash was available for the TAD Sherbrooke Project.
KPT Q2 2021 FINANCIAL RESULTS
KPT had a net loss of $1.2 million in Q2 2021. Included in net loss was $0.3 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 income tax expense of $0.3 million.
DIVIDENDS ON COMMON SHARES
The Board of Directors of KPT declared a quarterly dividend of $0.18 per share to be paid on October 15, 2021 to shareholders of record at the close of business on September 30, 2021.