Mr. Dino Bianco reports

KP TISSUE RELEASES THIRD QUARTER 2023 FINANCIAL RESULTS

KP Tissue Inc. has released the Q3 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 13.1-per-cent interest in Kruger Products.

Kruger Products Q3 2023 business and financial highlights:

• Revenue was $473.4-million in Q3 2023 compared with $427-million in Q3 2022, an increase of $46.4-million or 10.9 per cent.
• Adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) was $72.4-million in Q3 2023, compared with $30.7-million in Q3 2022, an increase of 135.7 per cent.
• Net income was $12.9-million in Q3 2023 compared with a net loss of $38.8-million in Q3 2022, an increase of $51.7-million.
• Declared a quarterly dividend of 18 cents per share to be paid on Jan. 15, 2024.

"We are very pleased with our adjusted EBITDA of $72.4-million in the third quarter of 2023, highlighted by robust sales volume in our consumer segment and improved productivity from our network assets," stated KP Tissue's chief executive officer, Dino Bianco. "We also benefited from a seasonally strong quarter, lower pulp and other input costs, as well as 2022 pricing carryover. As a result, we outperformed expectations despite an uncertain economic environment.

"Looking ahead to the fourth quarter, we are seeing some moderation in input costs but continued inflationary pressure on our SG&A as labour, marketing and IT costs, amongst others, continue to rise. We believe volume will continue to be strong and with our previously announced pricing, our margins will be stable."

Outlook for Q4 2023

For the fourth quarter of 2023, KP Tissue expects margins to stabilize, and it will continue to reinvest in the business to drive long-term value. Accordingly, adjusted EBITDA in Q4 2023 is expected to be in the $60-million to $65-million range.

Kruger Products Q3 2023 financial results

Revenue was $473.4-million in Q3 2023 compared with $427-million in Q3 2022, an increase of $46.4-million or 10.9 per cent. The increase in revenue was primarily due to higher sales volume and favourable sales mix in the consumer segment, along with the favourable impact of selling price increases implemented across all segments and regions during 2022. Revenue was also favourably impacted by foreign exchange fluctuations on U.S.-dollar sales.

Cost of sales was $386.3-million in Q3 2023 compared with $394.6-million in Q3 2022, a decrease of $8.3-million or 2.1 per cent. Manufacturing costs decreased as lower pulp and other input costs, along with productivity improvements in plant operations, were only partially offset by higher sales volumes and the unfavourable impact of foreign exchange fluctuations on U.S.-dollar costs. Freight costs were lower compared with Q3 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 81.6 per cent in Q3 2023 compared with 92.4 per cent in Q3 2022.

Selling, general and administrative (SG&A) expenses were $40-million in Q3 2023 compared with $30.1-million in Q3 2022, an increase of $9.9-million or 33 per cent. The increase was primarily due to higher advertising spend in the quarter, higher personnel costs, higher consulting costs, lower foreign exchange gains compared with the year-ago quarter and higher related party management fees. As a percentage of revenue, SG&A expenses were 8.4 per cent in Q3 2023 compared with 7 per cent in Q3 2022.

Adjusted EBITDA1 was $72.4-million in Q3 2023 compared with $30.7-million in Q3 2022, an increase of $41.7-million or 135.7 per cent. The significant increase was primarily due to a combination of factors: higher sales volumes and favourable sales mix, selling price increases in 2022, lower pulp and other input costs, productivity improvements in plant operations, and lower freight costs. These factors were partially offset by higher warehousing and SG&A expenses and the unfavourable impact of foreign exchange fluctuations.

Net income was $12.9-million in Q3 2023 compared with a loss of $38.8-million in Q3 2022, an increase of $51.7-million. The increase was primarily due to higher adjusted EBITDA and lower unrealized foreign exchange losses, partially offset by higher income tax expense.

Kruger Products Q3 2023 liquidity

Total liquidity, representing cash and availability under the revolving credit agreements, was $277.6-million as of Sept. 30, 2023. In addition, $22.5-million of cash was held by Kruger Products for the Sherbrooke expansion project.

Sherbrooke expansion project

As a result of significant inflation across the supply chain and interest rate increases during construction, the capital cost of the Sherbrooke expansion project is now forecast to increase to $377.5-million from $351.5-million. The additional costs are being financed by investments from Kruger Products and an $8.2-million increase in the construction facility. Management continues to monitor the project closely to minimize the impact of any further inflation.

KP Tissue Q3 2023 financial results

KP Tissue had net income of $1.8-million in Q3 2023. Included in net income was $1.8-million representing KP Tissue's share of Kruger Products' net income, a dilution gain of $300,000 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 Jan. 15, 2024, to shareholders of record at the close of business on Jan. 2, 2024.

Additional information

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

Third quarter results conference call information

KP Tissue will hold its third quarter conference call on Wednesday, Nov. 8, 2023, at 8:30 a.m. Eastern Time.

Via telephone: 1-888-664-6383 or 416-764-8650

Via the Internet: KP Tissue website

Presentation material referenced during the conference call will be available on KP Tissue's website.

A rebroadcast of the conference call will be available until midnight, Nov. 15, 2023, by dialling 1-888-390-0541 or 416-764-8677 and entering passcode 991958.

The replay of the webcast will remain available on the website until midnight, Nov. 15, 2023.

About KP Tissue Inc.

KPT 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 13.1-per-cent interest in Kruger Products.

We seek Safe Harbor.