Mr. Dino Bianco reports

KP TISSUE RELEASES FIRST QUARTER 2023 FINANCIAL RESULTS

KP Tissue Inc. (KPT) reports the Q1 2023 financial and operational results of KP Tissue and Kruger Products Inc. 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 United States consumer tissue business with the White Cloud brand and premium private-label products. KP Tissue currently holds a 13.5-per-cent interest in Kruger Products.

Kruger Products Q1 2023 business and financial highlights:

• Revenue was $451-million in Q1 2023 compared with $398.7-million in Q1 2022, an increase of $52.3-million or 13.1 per cent.
• Adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) was $50-million in Q1 2023 compared with $29.1-million in Q1 2022, an increase of 71.9 per cent.
• Net loss was $49.3-million in Q1 2023 compared with net income of $1.4-million in Q1 2022, a decrease of $50.7-million.
• Declared a quarterly dividend of 18 cents per share to be paid on July 17, 2023.

"We are pleased that our multifaceted strategy to counter inflation is gaining traction as reflected by our strong first-quarter performance in 2023," stated Dino Bianco, KP Tissue's chief executive officer. "Adjusted EBITDA increased nearly 72 per cent year-over-year to $50-million on improved revenue of $451-million in the first quarter. These results were achieved mainly due to higher selling prices across all segments and regions, favourable sales mix, cost management initiatives implemented company-wide, as well as ongoing productivity gains and our Memphis plant cost recovery.

"Although we are still coping with volatile pulp prices and a weakened Canadian dollar, profitable growth remains our goal for 2023 and beyond. As the business strengthens, we intend to reinvest in our brands to drive share gains and take advantage of incremental manufacturing capacity from our Sherbrooke expansion project. The ramp-up of our bathroom tissue line exceeded expectations in the first quarter, while the start-up of our facial tissue and paper machine lines are scheduled for the fourth quarter of 2023 and end of 2024, respectively. As a result, we are steadily progressing along the road to recovery, while investing for the long-term," Mr. Bianco added.

Outlook for Q2 2023

Looking ahead to the second quarter of 2023, while the company believes inflationary pressure has stabilized and its operating efficiency continues to improve, Kruger Products will be reinvesting in the business to drive long-term value. Accordingly, adjusted EBITDA in Q2 2023 is expected to be in the range of Q1 2023.

Kruger Products Q1 2023 financial results

Revenue was $451-million in Q1 2023 compared with $398.7-million in Q1 2022, an increase of $52.3-million or 13.1 per cent. The increase in revenue was primarily due to the favourable impact of selling price increases implemented across all segments and regions during 2022, along with favourable sales mix and higher sales volume in the AFH business, partially offset by lower sales volume in the consumer segment. Revenue was also favourably impacted by foreign exchange fluctuations on U.S. dollar sales.

Cost of sales was $389-million in Q1 2023 compared with $363.8-million in Q1 2022, an increase of $25.2-million or 6.9 per cent. While the significant inflation experienced during 2022 appears to be moderating on a sequential basis, manufacturing costs increased year-over-year, despite the favourable impact of lower sales volumes and reductions in Memphis plant costs, primarily due to significantly higher pulp and other input costs compared with Q1 2022, along with the unfavourable impact of foreign exchange fluctuations on U.S. dollar costs. Warehousing costs increased as a result of additional logistics network costs while freight rates declined compared with historically high rates in Q1 2022. As a percentage of revenue, cost of sales was 86.3 per cent in Q1 2023 compared with 91.3 per cent in Q1 2022.

Selling, general and administrative (SG&A) expenses were $36.3-million in Q1 2023 compared with $28.9-million in Q1 2022, an increase of $7.4-million or 25.7 per cent. The increase was primarily due to higher personnel costs. As a percentage of revenue, SG&A expenses were 8 per cent in Q1 2023 compared with 7.2 per cent in Q1 2022.

Adjusted EBITDA was $50-million in Q1 2023 compared with $29.1-million in Q1 2022, an increase of $20.9-million or 71.9 per cent. The increase was primarily due to a combination of factors: selling price increases in 2022, favourable sales mix, Memphis plant manufacturing cost recovery and lower freight rates, which were partially offset by higher pulp prices and other input cost inflation compared with Q1 2022, lower sales volume, and higher warehousing and SG&A expenses, along with the unfavourable impact of foreign exchange fluctuations.

Net loss was $49.3-million in Q1 2023 compared with net income of $1.4-million in Q1 2022, a decrease of $50.7-million. The decrease was primarily due to higher income tax expense resulting from the recording of a significant deferred tax liability related to the reorganization, lower foreign exchange gains and higher depreciation expense, partially offset by higher adjusted EBITDA, and lower interest expense and other finance costs.

Kruger Products Q1 2023 liquidity

Total liquidity, representing cash and availability under the revolving credit agreements, was $101.3-million as of March 31, 2023. In addition, $10.7-million of cash was held by Kruger Products for the Sherbrooke expansion project.

Reorganization of KPLP

As previously announced, on Jan. 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 KP Tissue. More specifically, KPLP sold and assigned to its wholly owned subsidiary, 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 KP Tissue previously held in KPLP is now held in Kruger Products, and, through a shareholders' agreement dated Jan. 1, 2023, entered into with Kruger Inc., KP Tissue 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 KP Tissue.

The shareholders' agreement, and certain other agreements with Kruger Inc. that were amended and restated to reflect the reorganization, are described in KP Tissue's annual information form dated March 9, 2023, and copies of those agreements are available under KP Tissue's profile on SEDAR.

Information for KPLP noteholders

As previously announced, in connection with the reorganization, Kruger Products assumed all of KPLP's obligations under its 6 per cent senior unsecured notes due April 24, 2025, and its 5.375 per cent senior unsecured notes due April 9, 2029, and related trust indentures, and KPLP was released and discharged from its obligations thereunder, in accordance with the terms of the trust indentures. KP Tissue encourages any noteholders to seek advice from a financial and/or legal adviser in respect of any tax implications of Kruger Products' assumption of the notes.

KP Tissue Q1 2023 financial results

KP Tissue had a net loss of $10.7-million in Q1 2023. Included in the net loss was $6.8-million representing KP Tissue's share of Kruger Products' net loss, and a dilution gain of $300,000, depreciation expense of $300,000 related to adjustments to carrying amounts on acquisition and income tax expense of $3.9-million.

Dividends on common shares

The board of directors of KP Tissue declared a quarterly dividend of 18 cents per share to be paid on July 17, 2023, to shareholders of record at the close of business on June 30, 2023.

Additional information

For additional information please refer to the management's discussion and analysis (MD&A) of KP Tissue and Kruger Products for the first quarter ended March 31, 2023, available on SEDAR or the company's website.

First quarter results conference call information

KP Tissue will hold its first quarter conference call on Thursday, May 11, 2023, at 8:30 a.m. ET.

By telephone:  1-888-396-8049 or 416-764-8646

Through the internet at:  the company's website

Presentation material referenced during the conference call will be available at the company's website.

A rebroadcast of the conference call will be available until midnight, May 18, 2023, by dialling 1-877-674-7070 or 416-764-8692 and entering passcode 181690.

The replay of the webcast will remain available on the website until midnight, May 18, 2023.

About KP Tissue Inc.

KP Tissue was created to acquire, and its business is limited to holding a limited equity interest in Kruger Products, which is accounted for as an investment on the equity basis. KP Tissue currently holds a 13.5-per-cent interest in Kruger Products.

About Kruger Products Inc.

Kruger Products is Canada's leading manufacturer of quality tissue products for household, industrial and commercial use. Kruger Products serves the Canadian consumer market with such well-known brands as Cashmere, Purex, SpongeTowels, Scotties, White Swan and Bonterra. In the U.S., Kruger Products 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. Kruger Products has approximately 2,700 employees and operates nine FSC COC-certified (FSC C-104904) production facilities in North America.

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