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Report
Q2 2013 FINANCIAL RESULTS
August 13, 2013
FORWARD-LOOKING AND
CAUTIONARY STATEMENTS
This Presentation on behalf of KP Tissue Inc. (the “Corporation” or “KPT”) does not constitute or form part of any offer for sale or solicitation of any offer to buy or
subscribe for any securities nor shall it or any part of it form the basis of or be relied on in connection with, or act as any inducement to enter into, any contract or
commitment whatsoever.
The information contained in this Presentation does not purport to be all-inclusive. This Presentation is being supplied to you solely for your information and may not be
reproduced, further distributed or published in whole or in part by any other person. Neither this Presentation nor any copy of it may be taken or transmitted into or
distributed any other jurisdiction which prohibits the same except in compliance with applicable securities laws. Any failure to comply with this restriction may constitute a
violation of securities law.
No representation or warranty, express or implied, is made or given by or on behalf of the Company or any of the directors, officers or employees of any such entities as to
the accuracy, completeness or fairness of the information or opinions contained in this Presentation and no responsibility or liability is accepted by any person for such
information or opinions. In furnishing this Presentation, the Company does not undertake or agree to any obligation to provide the attendees with access to any additional
information or to update this Presentation or to correct any inaccuracies in, or omissions from, this Presentation that may become apparent. The information and opinions
contained in this Presentation are provided as at the date of this Presentation. The contents of this Presentation are not to be construed as legal, financial or tax advice.
Each person receiving this Presentation should contact his, her or its own legal adviser, independent financial adviser or tax adviser for legal, financial or tax advice.
Certain statements in this presentation about the Corporation and Kruger Products L.P. (“KPLP”) as it relates to their current and future plans, expectations and intentions,
results, levels of activity, performance, goals or achievements or any other future events or developments constitute forward-looking statements. The words “may”, “will”,
“would”, “should”, “could”, “expects”, “plans”, “intends”, “trends”, “indications”, “anticipates”, “believes”, “estimates”, “predicts”, “likely” or “potential” or the negative or
other variations of these words or other comparable words or phrases, are intended to identify forward-looking statements. The forward-looking information is based on
certain key expectations and assumptions made by the Corporation or KPLP, including the completion of the TAD Project on time and within budget, continued growth of the
U.S. private label market and demand for TAD products in the U.S., orders for the TAD machine’s products, the amount and timing of distributions made by KPLP, Kruger
Inc.’s (“Kruger”) cash requirements and expected savings from the Business Rationalization Project. The financial outlook that KPLP Management provides concerning the
potential incremental EBITDA generated by the TAD Project by 2017 may be considered forward-looking information and is based on additional key expectations and
assumptions, including but not limited to (i) limited incremental overhead relating to the operation of the TAD machine and distribution and sale of products, (ii) the TAD
machine operating at near full capacity and products being sold at prices consistent with current market prices, adjusted for inflation, (iii) a cost of pulp and energy and a
selling price of finished products based on recent prices, adjusted for inflation, (iv) Canadian and United States currencies at parity, and (v) the timely completion of the TAD
Project within budget. Although the Corporation and KPLP believe that the expectations and assumptions on which such forward-looking information is based are
reasonable, undue reliance should not be placed on the forward-looking information since no assurance can be given that such expectations and assumptions will prove to
be correct.
Unless otherwise stated, references in this presentation to market shares or KPT’s market leadership are based on Nielsen dollar market share data and management
estimates.
2
CORPORATE STRUCTURE
PUBLIC INVESTORS
KRUGER INC.
100%
KP TISSUE INC.
83.2%
KRUGER PRODUCTS L.P.
16.8%*
K.T.G. (USA) INC.
Existing Memphis Operations
TAD Project
Kruger Products L.P. is the operating company
KP Tissue Inc. is the publicly traded entity
* Percentage as of July 15, 2013. As of June 30, 2013 was 16.9%
3
KRUGER PRODUCTS L.P.
The following presentation is to review Kruger Products L.P.
Q2 2013 financial results
4
PRESENTERS
MARIO GOSSELIN
MARK HOLBROOK
Chief Executive Officer
KP Tissue Inc. & Kruger
Products L.P.
Chief Financial Officer
KP Tissue Inc. & Kruger
Products L.P.
5
Q2 2013 HIGHLIGHTS
Revenue up 6.7% to $246.8 million
As planned, increased promotional activities during Q2 lead to
higher revenue and increased market share
Market share gains reported in all consumer product
categories in Canada
EBITDA of $31.7 million, the highest level since 2009
TAD Project and customer traction progressing as planned
Cash position stood at $78.4 million
Ranked #1 in Advantage Survey among the largest CPG
companies in Canada
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CANADA’S LEADING TISSUE COMPANY
Bathroom Tissue
Facial Tissue
Paper Towels
#2
(17.4%)
#2
(18.5%)
#5
(3.9%)
#3
(15.2%)
#4
(5.9%)
#1
(36.1%)
#4
(5.4%)
#3
(17.1%)
#4
(4.3%)
(Dollar Market Share
in Parentheses)
Source: Nielsen; dollar market share for the 52-week period ended June 29, 2013.
(Dollar Market Share
in Parentheses)
(Dollar Market Share
in Parentheses)
7
QUARTERLY FINANCIAL SUMMARY
(C$ millions, unless otherwise noted)
Revenue
Gross Profit
Gross Margin
EBITDA
EBITDA Margin
Operating income (EBIT)
EBIT Margin
EBT
EBT Margin
Net Income
Net Income Margin
Change
Y/Y
Q2 2013
Q2 2012
Q1 2013
Q/Q
246.8
231.3
221.8
15.5
6.7%
25.0
11.3%
73.5
70.0
64.6
3.5
8.9
29.8%
30.3%
29.1%
31.7
29.4
25.1
2.3
6.6
12.8%
12.7%
11.3%
22.9
23.0
16.7
(0.1)
6.2
9.3%
9.9%
7.5%
11.9
15.9
6.8
(4.0)
5.1
4.8%
6.9%
3.1%
15.4
15.6
11.7
(0.2)
3.7
6.2%
6.7%
5.3%
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QUARTERLY SEGMENTED RESULTS
% Change
Q2 2013
Q2 2013
Q2 2012
Q2 2012
Q1 2013
Q1 2013
Segmented Revenue
Segmented Revenue
Consumer
Consumer
AFH
AFH
Other
Other
Total segment
revenuerevenue
Total segment
205.4
205.4
40.0
40.0
1.4
1.4
246.8
246.8
182.8
182.8
41.1
41.1
7.4
7.4
231.3
231.3
184.4
184.4
35.3
35.3
2.1
2.1
221.8
221.8
SegmentSegment
EBITDA EBITDA
Consumer
Consumer
AFH AFH
Other Other
Total segment EBITDA
Total segment EBITDA
29.1
29.1
2.7
2.7
(0.1)
(0.1)
31.7
31.7
30.0
3.2
3.2
(3.8)
(3.8)
29.4
29.4
23.9
23.9
1.5
1.5
(0.3)
(0.3)
25.1
25.1
14.2%
14.2%
6.8%
6.8%
(7.1)%
12.8%
(7.1)%
12.8%
16.4%
16.4%
7.8%
7.8%
(51.4)%
12.7%
(51.4)%
12.7%
13.0%
13.0%
4.2%
4.2%
(14.3)%
11.3%
(14.3)%
11.3%
(C$ millions, unless otherwise noted)
(C$ millions, unless otherwise noted)
Segment EBITDA Margin
Segment Consumer
EBITDA Margin
Consumer
AFH
AFH Other
Other Total segment EBITDA Margin
Total segment EBITDA Margin
% Change
Y/Y
Y/Y
12.4%
12.4%
(2.7)%
(2.7)%
(81.1)%
(81.1)%
6.7%
6.7%
Q/Q
Q/Q
11.4%
11.4%
13.3%
13.3%
(33.3)%
(33.3)%
11.3%11.3%
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Q2 2013 REVENUE COMPARED TO Q2 2012
Q2 2013 revenue increased 6.7% (9.5% without impact of
Parent Roll Business) over Q2 2012 based on the combination
of the following factors:
Solid growth in Consumer segment of 12.4% related to increased
promotional activities in Canadian market and from TAD products
Reduced revenue related to rationalization of parent roll business
Revenue from Other segment was $1.4 million in 2013 versus $7.4
million in 2012
Slight revenue decline in AFH segment
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Q2 2013 REVENUE COMPARED TO Q1 2013
Q2 2013 revenue increased 11.3% over Q1 2013 based on the
combination of the following factors:
11.4% increase in Consumer revenue segment
13.3% increase in AFH revenue segment
11
Q2 2013 EBITDA COMPARED TO Q2 2012
Q2 2013 EBITDA increased by $2.3 million over Q2 2012 based on
the combination of the following factors:
Higher revenue of 6.7%
Benefits from Business Rationalization Project
Lower gross margin (29.8% in Q2 2013 versus 30.3% in Q2 2012) primarily
due to higher pulp and energy costs
Start-up costs related to the TAD Project (see page 16 for more details)
Operating expenses of $52.4 million in Q2 2013 compared to $47.5 million
in Q2 2012. Other key factors in the variation are:
Increased freight and warehousing costs related to higher revenue
Higher marketing expenses
Cost of being a public company
Reduction in Kruger Inc. management fees
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Q2 2013 EBITDA COMPARED Q1 2013
Q2 2013 EBITDA increased by $6.6 million over Q1 2013 based
on the combination of the following factors:
Higher revenue of 11.3%
Higher gross margin (29.8% in Q2 2013 versus 29.1% in Q1 2013) due
to improved product mix partially offset by higher commodity prices
Start-up costs related to the TAD Project (see page 16 for more details)
Operating expenses of $52.4 million in Q2 2013 compared to $47.9
million in Q1 2013. Other key factors in the variation are:
Increased freight and warehousing costs related to higher revenue
Higher marketing expenses
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NET DEBT/LTM EBITDA
(C$ millions, unless otherwise noted)
Cash & cash equivalents
Current portion of long-term debt
June 30, 2013
78.4
8.0
Long-term debt
333.5
Net Debt
263.1
Net Debt/LTM EBITDA
2.4
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CAPEX
CAPEX Q2 2013 - $13.7 Million
CAPEX Q2 2012 - $47.9 Million
13%
33%
67%
TAD
Other
87%
TAD
Other
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TAD PROJECT START-UP COSTS
$4.0
3.6
$3.5
$3.0
2.4
$2.5
$MM
$2.0
1.8
$1.5
1.1
0.9
$1.0
$0.5
$0.0
2011
2012
Q2 2012
Q1 2013
Q2 2013
16
TAD PROJECT UPDATE
TAD products currently on the shelves of some major U.S.
retailers
Customers lined up to take full 2013 production capacity and
now working on 2014
Remain on track for gradual TAD product sales ramp-up in
2013
Continue to expect a modest positive contribution to EBITDA
for fiscal year 2013
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CONCLUSION
Short-term pressure expected from higher commodity prices
Brands gained market share in Canada with facial tissue at an all-time
high
Consumer channel revenue up 8.5% year-to-date
Customer traction for TAD products as planned
Significant market opportunities in the premium private label market
segment
Solid balance sheet
More focus on high return CAPEX projects in second half of 2012
Continue to review potential M&A opportunities
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