Mr. Dino Bianco reports

KP TISSUE RELEASES SECOND QUARTER 2023 FINANCIAL RESULTS

KP Tissue Inc. has released the Q2 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 13.3-per-cent interest in Kruger Products.

Kruger Products Q2 2023 business and financial highlights:

• Revenue was $466.3-million in Q2 2023 compared with $397.5-million in Q2 2022, an increase of $68.8-million, or 17.3 per cent.
• Adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) was $55-million in Q2 2023, compared with $11.8-million in Q2 2022, an increase of 365.8 per cent.
• Net income was $14.5-million in Q2 2023 compared with a net loss of $35.5-million in Q2 2022, an increase of $50-million.
• Declared a quarterly dividend of 18 cents per share to be paid on Oct. 16, 2023.

"We are pleased that margin recovery, along with improved sales volume and a better mix in our consumer business, generated strong adjusted EBITDA of $55-million in the second quarter of 2023," stated KP Tissue's chief executive officer, Dino Bianco. "Ongoing cost management initiatives, including productivity gains and cost controls, also contributed to increasing profitability. In addition, our away-from-home segment delivered a fourth consecutive quarter of positive adjusted EBITDA to maintain its growth momentum. As a result, our financial performance in the second quarter normalized versus a more challenging market and operating environment in the same period last year. On a sequential basis, revenue and adjusted EBITDA continued to improve, rising 3.4 per cent and 10.2 per cent in the quarter, respectively.

"Looking ahead to the second half of 2023, we anticipate a more favourable landscape as input costs trend downwards, TAD Sherbrooke and the Sherbrooke expansion project continue to ramp up production capacity to meet customer demand, and margins are restored to their prepandemic levels," Mr. Bianco added.

Outlook for Q3 2023

For the third quarter of 2023, as commodity and other input costs begin to decline, the company will focus on maintaining its margins while also continuing to reinvest in the business to drive long-term value. Accordingly, adjusted EBITDA in Q3 2023 is expected to be in the range of Q2 2023.

Kruger Products Q2 2023 financial results

Revenue was $466.3-million in Q2 2023 compared with $397.5-million in Q2 2022, an increase of $68.8-million, or 17.3 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 consumer business. Revenue was also favourably impacted by foreign exchange fluctuations on U.S. dollar sales.

Cost of sales was $395.8-million in Q2 2023 compared with $372.5-million in Q2 2022, an increase of $23.3-million, or 6.2 per cent. Higher sales volumes increased cost of sales, along with the unfavourable impact of foreign exchange fluctuations on U.S. dollar costs, partially offset by improvements in Memphis operations. While the significant inflation experienced during 2022 has moderated in the second quarter of 2023, manufacturing input costs remain higher than the year-ago quarter. Freight rates were lower compared with Q2 2022, as supply constraints and inflation moderated, while warehousing costs increased as a result of additional logistics network costs. As a percentage of revenue, cost of sales was 84.9 per cent in Q2 2023 compared with 93.7 per cent in Q2 2022.

Selling, general and administrative (SG&A) expenses were $40.6-million in Q2 2023 compared with $35.1-million in Q2 2022, an increase of $5.5-million, or 15.7 per cent. The increase was primarily due to higher personnel costs, foreign exchange losses related to foreign-denominated working capital and a loss on disposal of fixed assets, partially offset by lower advertising spend in the quarter. As a percentage of revenue, SG&A expenses were 8.7 per cent in Q2 2023 compared with 8.8 per cent in Q2 2022.

Adjusted EBITDA was $55-million in Q2 2023 compared with $11.8-million in Q2 2022, an increase of $43.2-million, or 365.8 per cent. The significant increase was primarily due to a combination of factors: selling price increases in 2022, favourable sales mix along with higher sales volumes, improvements in Memphis operations and lower freight rates. These factors were partially offset by inflation on input costs compared with Q2 2022, higher warehousing and SG&A expenses, and the unfavourable impact of foreign exchange fluctuations.

Net income was $14.5-million in Q2 2023 compared with a loss of $35.5-million in Q2 2022, an increase of $50-million. The increase was primarily due to higher adjusted EBITDA and higher foreign exchange gains, partially offset by higher income tax and depreciation expenses, higher interest expense and other finance costs, and a loss on sale of fixed assets.

Kruger Products Q2 2023 liquidity

Total liquidity, representing cash and availability under the revolving credit agreements, was $181.5-million as of June 30, 2023. In addition, $13.8-million of cash was held by Kruger Products for the Sherbrooke expansion project.

KP Tissue Q2 2023 financial results

KP Tissue had net income of $2-million in Q2 2023. Included in net income was $2.1-million representing KP Tissue's share of Kruger Products' net income, a dilution gain of $200,000 and depreciation expense of $300,000 related to adjustments to carrying amounts on acquisition.

Dividends on common shares

The board of directors of KP Tissue declared a quarterly dividend of 18 cents per share to be paid on Oct. 16, 2023, to shareholders of record at the close of business on Oct. 2, 2023.

Additional information

For additional information please refer to management's discussion and analysis (MD&A) of KP Tissue and Kruger Products for the second quarter ended June 30, 2023, available on SEDAR+ or on the company's website.

Second quarter results conference call information

KP Tissue will hold its second-quarter conference call on Thursday, Aug. 10, 2023, at 8:30 a.m. ET.

Via telephone:  1-800-319-4610 or 604-638-5340

Via the Internet:  at the KP Tissue'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, Aug. 17, 2023, by dialling 1-855-669-9658 or 604-674-8052 and entering passcode 0272.

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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