North American Tissue News

KP Tissue Releases Third Quarter 2020 Financial Results

Consumer Business Momentum Continued into Q3

KP Tissue Inc. (KPT) (TSX: KPT) reports the Q3 2020 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 14.7% interest in KPLP.

KPLP Q3 2020 Business and Financial Highlights

  • Revenue was $369.1 million in Q3 2020 compared to $344.0 million in Q3 2019 excluding the divested Mexico business in 2019, an increase of $25.1 million or 7.3%.
  • Adjusted EBITDA was $46.2 million in Q3 2020 compared to $44.0 million in Q3 2019, an increase of 5.1%.
  • TAD Sherbrooke site near completion and remains on time and on budget.
  • Declared a quarterly dividend of $0.18 per share to be paid on January 15, 2021.

“We are pleased with our third quarter results which reflects strong North American sales momentum in our consumer business while reinvesting in key areas for future growth. The Away-From-Home segment continued to face challenging end-market conditions. As we enter the ninth month of Covid-19, our focus has been and continues to be on the safety of our people while ensuring we maintain business continuity during this unprecedented tissue demand. I am pleased with the work we have done in both areas,” stated KP Tissue Chief Executive Officer, Dino Bianco.

“Two years ago, we launched our OpEx Program with the objective to drive more capacity, asset reliability and cost savings. The level of engagement has been exceptional, leading to a shift to a culture of excellence. Clearly, this has allowed us to navigate through the pandemic in a much stronger position. By the end of 2020, we anticipate reaching the top-end of our goal of $15-20 million in cost savings on a run rate basis.

“The new TAD Sherbrooke facility is near completion and remains on time and on budget. As we finalize our commercial plans, we anticipate strong demand for this output across North American customers. This new production facility will alleviate some of the capacity constraints of recent quarters and will enhance our competitive position in the paper towel category, supported by positive consumer trends for the foreseeable future.

I would like to thank the entire Kruger Products team for their continued dedication during these uncertain times as well as managing through the unpredictable and volatile market conditions. We look forward to 2021 as we continue to grow and invest in our business while welcoming our new TAD facility,” concluded Mr. Bianco.

Outlook

Demand for our products is expected to remain healthy in the Consumer segment and a slow recovery in the Away-From-Home segment. For the fourth quarter, we expect Q4 2020 Adjusted EBITDA to be below both Q3 2020 and Q4 2019, as we intend to reinvest in our brands and our business, while incurring extra costs to meet the high demand.

KPLP Q3 2020 Financial Results

Revenue was $369.1 million in Q3 2020 compared to $369.4 million in Q3 2019, a decrease of $0.3 million or 0.1%. Excluding revenue of $25.4 million from the divested Mexico business revenue from Q3 2019, revenue increased by $25.1 million or 7.3%. Revenue was favourably impacted primarily by COVID-19 buying activity, with volume increasing in the Consumer segment in Canada and the U.S. and decreasing in the AFH segment.

Cost of sales was $307.7 million in Q3 2020 compared to $317.0 million in Q3 2019, a decrease of $9.3 million or 2.9%. Excluding the divested Mexico business, Q3 2020 cost of sales increased by $15.2 million or 5.2%. On a volume adjusted basis, manufacturing costs decreased slightly compared to Q3 2019, primarily due to lower pulp costs, operational transformation initiatives (“OpEx”) that increased production efficiency, and the COVID-19 transition to a reduced sku production environment. These cost decreases were partially offset by inflation, increased outsourcing costs compared to Q3 2019 required to meet continuing demand and additional manufacturing overhead costs, in part due to precautions taken in our manufacturing facilities as a result of COVID-19. As a percentage of revenue, cost of sales was 83.4% in Q3 2020 compared to 85.8% in Q3 2019.

Selling, general and administrative (SG&A) expenses were $31.2 million in Q3 2020 compared to $25.8 million in Q3 2019, an increase of $5.4 million or 21.4%. The increase compared to Q3 2019 was primarily due to increased investment in marketing to support the brands, higher compensation and personnel related costs, and increased spending on Information Technology. As a percentage of revenue, SG&A expenses were 8.5% in Q3 2020 compared to 7.0% in Q3 2019.

Adjusted EBITDA was $46.2 million in Q3 2020 compared to $44.0 million in Q3 2019, an increase of $2.2 million or 5.1%. The increase was primarily due to the favourable sales impact and product mix, and slightly lower cost of sales as described above. The increases were partially offset by higher SG&A costs.

Net income was $18.5 million in Q3 2020 compared to $10.5 million in Q3 2019, an increase of $8.0 million. The increase was primarily due to higher Adjusted EBITDA as discussed above and lower consulting costs related to operational transformation initiatives, interest expense, restructuring costs and income taxes, partially offset by higher depreciation expense.

KPLP Q3 2020 Financing Activity

Total liquidity, representing cash and availability under the Senior Credit Facility within covenant limitations, was $298.8 million as of September 30, 2020. In addition, $34.0 million of cash was held by KPSI and committed to the TAD Sherbrooke Project.

KPT Q3 2020 Financial Results

KPT had net income of $0.8 million in Q3 2020. Included in net income was $2.7 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 $0.6 million.

Dividends on Common Shares 

The Board of Directors of KPT declared a quarterly dividend of $0.18 per share to be paid on January 15, 2021 to shareholders of record at the close of business on December 31, 2020.

Additional Information

For additional information please refer to Management’s Discussion and Analysis (MD&A) of KPT and KPLP for the third quarter ended September 30, 2020 available on SEDAR at www.sedar.com or our website at www.kptissueinc.com.

Third Quarter Results Conference Call Information

KPT will hold its third quarter conference call on Thursday, November 5, 2020 at 8:30 a.m. Eastern Time.

Via telephone:  1-877-223-4471 or 647-788-4922

Via the internet at: www.kptissueinc.com

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

A rebroadcast of the conference call will be available until midnight, November 12, 2020 by dialing 1-800-585-8367 or 416-621-4642 and entering passcode 6068964.

The replay of the webcast will remain available on the website until midnight, November 12, 2020.

About KP Tissue Inc. (KPT)

KPT was created to acquire, and its business is limited to holding, a limited partnership interest in KPLP, which is accounted for as an investment on the equity basis. KPT currently holds a 14.7% 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 2,500 employees and operates eight FSC® COC-certified (FSC® C-104904) production facilities in North America.  For more information visit www.krugerproducts.ca.

Source
KP Tissue
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