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KP Tissue Releases Fourth Quarter and Full Year 2022 Financial Results
KP Tissue Inc. reports the Q4 2022 and full year 2022 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®, White Swan® and Bonterra™) 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 13.7 percent interest in Kruger Products. KPLP Q4 2022 Business and Financial Highlights
KPLP Full Year 2022 Financial Highlights
“We are highly encouraged by the ongoing recovery of our financial results in 2022 despite uncertain market conditions and persistent inflationary pressure,” stated KP Tissue’s Chief Executive Officer, Dino Bianco. “Revenue improved 15 percent year-overyear to $1.7 billion mainly due to selling price increases across all segments and regions to counter higher pulp, manufacturing and freight costs. In the Consumer segment, we witnessed lower volume in the latter part of the year as some consumers traded down on purchases given higher market pricing. Away-From-Home had a strong quarter driven by greater volume as the segment continues to recover. “Adjusted EBITDA was lower in 2022 as price increases did not fully catch up to inflation until later into the year, while cost management initiatives helped mitigate the impact. Our solid performance in the fourth quarter reflects that we are headed in the right direction with revenue growing 8 percent to $458 million and Adjusted EBITDA rising 16 percent to $44.4 million vs. Q4 2021. “In January 2023, we further enhanced profitability by shutting down certain legacy assets at our Memphis plant, including a paper machine and six converting lines. The impact on US customers has been negligible as we refocus production capacity on TAD and facial tissue products. In addition, our Sherbrooke expansion project will become a key, long-term catalyst with two new lines starting up this year. “In 2023, we intend to deliver continued topline growth with improved profitability, while prudently investing in our brands to support price increases and manage price gaps,” Mr. Bianco concluded. Outlook for Q1 2023 Looking ahead to the first quarter of 2023, our price increases are in place, and we believe inflationary pressure has stabilized, while our operating efficiency continues to gain traction and we are tightly managing our discretionary spending. As a result, we expect Adjusted EBITDA1 in Q1 2023 to be similar to Q4 2022 and to significantly exceed Q1 2022. KPLP Q4 2022 Financial Results Revenue was $458.1 million in Q4 2022 compared to $424.1 million in Q4 2021, an increase of $34.0 million or 8.0 percent. The increase in revenue was due to selling price increases in all segments and regions partially offset by lower sales volume in the Consumer segment and unfavorable mix. Revenue was also favorably impacted by foreign exchange fluctuations on U.S. dollar sales. Cost of sales was $416.4 million in Q4 2022 compared to $376.0 million in Q4 2021, an increase of $40.4 million or 10.7 percent. Manufacturing costs increased primarily due to significantly increased pulp costs and high inflation on other input costs, along with the unfavourable impact of foreign exchange fluctuations on U.S. dollar costs, partially offset by lower sales volumes. Depreciation expense increased compared to Q4 2021 primarily due to accelerated depreciation related to the shutdown of certain LDC assets at the Memphis plant. Freight costs increased compared to Q4 2021 primarily due to increased freight rates resulting from cost inflation. As a percentage of revenue, cost of sales was 90.9 percent in Q4 2022 compared to 88.7 percent in Q4 2021. Selling, general and administrative (SG&A) expenses were $30.6 million in Q4 2022 compared to $31.7 million in Q4 2021, a decrease of $1.1 million or 3.4 percent. The decrease was primarily due to lower advertising and promotion expenses resulting from cost containment activities partially offset by consulting and legal costs related to the Reorganization and higher personnel costs. As a percentage of revenue, SG&A expenses were 6.7 percent in Q4 2022 compared to 7.5 percent in Q4 2021. Adjusted EBITDA was $44.4 million in Q4 2022 compared to $38.3 million in Q4 2021, an increase of $6.1 million or 15.8 percent. The increase was primarily due to higher selling prices and lower SG&A expenses, partially offset by significant inflation on pulp, manufacturing costs and freight as described above, lower sales volume and the unfavorable impact of foreign exchange fluctuations. Net income was $16.0 million in Q4 2022 compared to net income of $42.3 million in Q4 2021, a decrease of $26.3 million. The decrease was primarily due to a significantly lower income tax recovery, higher depreciation expense and restructuring costs, partially offset by higher Adjusted EBITDA of $6.1 million as discussed above, a higher change in the amortized costs of the Partnership units liability, a higher foreign exchange gain and lower interest expense and other finance costs. KPLP 2022 Financial Results Revenue was $1,681.4 million in Fiscal 2022 compared to $1,465.2 million in Fiscal 2021, an increase of $216.2 million or 14.8 percent. The increase in revenue was due to selling price increases in all segments and regions, and significantly higher sales volume in the AFH segment as the business recovered from the impact of COVID-19. Revenue was also favourably impacted by foreign exchange fluctuations on U.S. dollar sales. Adjusted EBITDA1 was $116.0 million in Fiscal 2022 compared to $153.4 million in Fiscal 2021, a decrease of $37.4 million or 24.4 percent. The decrease was primarily due to significant inflation on pulp and manufacturing and freight costs, higher SG&A expenses and the unfavorable impact of foreign exchange fluctuations, partially offset by selling price increases and higher sales volume. Net loss was $56.9 million in Fiscal 2022 compared to net income of $42.0 million in Fiscal 2021, a decrease of $98.9 million. The decrease was primarily due to lower Adjusted EBITDA of $37.4 million as discussed above, a lower income tax recovery, a higher foreign exchange loss and higher depreciation and interest expense, partially offset by a decrease in the amortized costs of the Partnership units liability. KPLP Q4 2022 Liquidity Total liquidity, representing cash and availability under the revolving credit agreements, was $137.5 million as of December 31, 2022. In addition, $29.7 million of cash was held by KPLP for the TAD Sherbrooke and Sherbrooke Expansion Projects. Reorganization of KPLP On January 1, 2023, KPLP undertook a corporate reorganization (the Reorganization) pursuant to which KPLP, a limited partnership, was essentially replaced by a corporate entity without adversely affecting KPT. More specifically, KPLP sold and assigned to its wholly-owned subsidiary, Kruger Products Inc. (Kruger Products), and Kruger Products purchased and assumed from KPLP, in exchange for common shares, all of the properties, operations, assets and liabilities of KPLP, and KPLP was subsequently dissolved and wound-up into its partners. As a result of the Reorganization, Kruger Products, as the successor corporate entity to KPLP, now operates the business previously operated by KPLP. The interest that KPT previously held in KPLP is now held in Kruger Products, and, through a shareholders’ agreement dated January 1, 2023, entered into with Kruger Inc. (the Shareholders’ Agreement), KPT has substantially equivalent rights in respect of the operation of, and its investment in, Kruger Products, as it had in respect of KPLP. The Reorganization was undertaken to realize certain tax efficiencies for Kruger Products and to simplify Kruger Products’ corporate structure and financial reporting. The Reorganization was approved by the independent directors of KPT. The Shareholders’ Agreement, and certain other agreements with Kruger Inc. that were amended and restated to reflect the Reorganization, are described in KPT’s Annual Information Form dated March 9, 2023, and copies of those agreements are available under KPT’s profile on SEDAR at www.sedar.com. |
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