Kp Tissue, Inc. · TSX:KPT
Kp Tissue — Q3 2022 Earnings Presentation
24 slides from Kp Tissue's earnings presentation, Nov 9, 2022
Slide 1: Q3 2022 Financial Results
Q 3 2 0 2 2 F I N A N C I A L R E S U LT S November 9, 2022
Slide 2: Forward-Looking and Cautionary Statements
F O RWAR D - L O O K I N G AN D C AU T I O N ARY S TAT E M E N T S 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
Slide 3: Corporate Structure
C O R P O R AT E S T R U C T U R E 100% 86.1% 13.9% *As of November 8, 2022 (14.1% as of September 30, 2022). 3
Slide 4: 5 Underlying Strategies
5 U N D E R LY I N G S T R AT E G I E S Drive Strong Revenue, Profit and Shareholder Value in a Sustainable Manner 1 2 3 4 5 Consumer As Our Expand Our End-to-End Supply Deliver Winning Team Compass Business Footprint Chain Excellence Sustainability and Culture 4
Slide 5: Q3 2022 Highlights
Q3 2022 HIGHLIGHTS Revenue Adjusted EBITDA1 Net Loss $427.0 M $30.7 M ($38.8 M) 9.1% (23.8%) ($29.5 M) over Q3 2021 over Q3 2021 over Q3 2021 +7.0% +12.2% Revenue Canada Revenue U.S. 1 Non-GAAP measure – see MD&A for the definition and reconciliation of the most comparable GAAP measure. 5
Slide 6: Pulp Input Prices
PULP INPUT PRICES Q3 2022 NBSK average prices1 in CAD increased 5.8%, while BEK average prices1 increased 9.3% from Q2 2022. Q3 2022 NBSK average prices1 in CAD increased 21.3% and BEK average prices1 increased 25.3% year-over-year. Based on industry forecasts for 2022, NBSK and BEK prices are expec
Slide 7: High Inflationary Pressure
H I G H I N F L AT I O N ARY P R E S S U R E Q3 2022 vs. Q3 2021 21-25% 25-30% FIBRE FREIGHT 4-6% 10-12% LABOUR PACKAGING +$45 Million Impact 50-55% 15% NATURAL GAS OTHER Source: Industry and internal estimates. 7
Slide 8: All Pricing Actions Implemented for 2022
AL L P R I C I N G AC T I O N S I M P L E M E N T E D F O R 2 0 2 2 Pricing Actions in 2022 Consumer Canada • Price increases in July and October Consumer U.S. • Price increases in Jan/Feb., July and 10-12% October Average Price Increase AFH • Price increases in January, May and in Q3 2022 (YoY) Aug
Slide 9: Network Modernization
NETWORK MODERNIZATION TAD Sherbrooke • Continuing to exceed ramp-up plans • Phase 2 of AI implementation progressing according to plan Sherbrooke Expansion • Increased total investment to ~$350 million • Start-up for bathroom tissue line expected in Q1 2023 with hiring and training phase on track •
Slide 10: Memphis Operations
MEMPHIS OPERATIONS Memphis Performance • Made improvements to TAD operations (less output variability) • Re-ignition of efforts on OpEx underway using third-party partner • Optimizing staff numbers and continuing to train at all levels • Operational recovery benefit expected in early 2023 • Currentl
Slide 11: Focused Brand Support
FOCUSED BRAND SUPPORT • Q3 and Q4 marketing spend dedicated to in-store and shopper marketing initiatives to drive sales and mitigate price increase impact • Focusing on managing price gaps following price increases • Continued awareness and trial-building activities behind Cashmere and Purex UltraL
Slide 12: Brand Leadership Position
B R AN D L E AD E R S H I P P O S I T I O N Bathroom Tissue Facial Tissue Paper Towel #1 #1 #2 33.7% 36.6% 23.3% 15.6% 17.5% 11.1% 11.2% 0.7% 34.3% 1.3% 16.2% 0.2% 35.7% 36.6% 34.6% 33.2% 36.9% 34.6% 33.7% 31.6% 31.5% 31.5% 21.9% 20.6% 21.8% 24.0% 23.3% 2018 2019 2020 2021 2022 2018 2019 2020 2021 2
Slide 13: AFH Segment
AFH SEGMENT RECOVERY ONGOING IN COMMERCIAL SECTOR • Volume remains strong, 12% higher than Q3 2021 • Growth in U.S. exceeding market • EBITDA margin is now positive • Pricing activity undertaken in 2022 is offsetting inflation • Commercial tissue capacity remains highly utilized in North America 13
Slide 14: Quarterly Financial Summary
Q U AR T E R LY F I N AN C I AL S U M M ARY % Change (Million CAD$, unless otherwise noted) Q3 2022 Q2 2022 Q3 2021 Y/Y Q/Q Revenue 427.0 397.5 391.4 9.1% 7.4% Cost of Sales 394.6 372.5 345.6 14.2% 5.9% Gross Profit 32.4 25.0 45.8 (29.2%) 29.7% Gross Margin 7.6% 6.3% 11.7% Adjusted EBITDA1 30.7 11.8
Slide 15: Quarterly Segmented Results
Q U AR T E R LY S E G M E N T E D R E S U LT S % Change (Million CAD$, unless otherwise noted) Q3 2022 Q2 2022 Q3 2021 Y/Y Q/Q Segmented Revenue Consumer 346.0 326.3 332.4 4.1% 6.0% AFH 81.0 71.2 59.0 37.3% 13.8% Total Segment Revenue 427.0 397.5 391.4 9.1% 7.4% Segment Adjusted EBITDA1 Consumer 25.
Slide 16: Q3 2022 Revenue Compared to Q3 2021
Q 3 2 0 2 2 R E V E N U E C O M PAR E D TO Q 3 2 0 2 1 Increase due to the following factors: $35.6 M • Selling price increases across all segments and regions Q3 Revenue increase • Higher sales volume in AFH segment 9.1% • Positive FX impact on U.S. dollar sales over Q3 2021 • Partially offset by l
Slide 17: Q3 2022 Adjusted EBITDA Compared to Q3 2021
Q 3 2 0 2 2 AD J U S T E D E B I T D A 1 C O M PAR E D TO Q 3 2 0 2 1 ($9.6 M) Decrease primarily due to the following factors: Q3 Adjusted EBITDA1 decrease • Significant inflation on pulp, manufacturing costs and freight 23.8% • Labour shortages and productivity issues in Memphis over Q3 2021 • Low
Slide 18: Q3 2022 Revenue Compared to Q2 2022
Q 3 2 0 2 2 R E V E N U E C O M PAR E D TO Q 2 2 0 2 2 Sequential increase in revenue due to: $29.5 M • Price increases in all segments and regions Q3 Revenue increase • Volume up slightly in Consumer and AFH segments 7.4% • Positive FX impact on U.S. dollar sales over Q2 2022 $10.5 M $19.0 M +4.4%
Slide 19: Q3 2022 Adjusted EBITDA Compared to Q2 2022
Q 3 2 0 2 2 AD J U S T E D E B I T D A 1 C O M PAR E D TO Q 2 2 0 2 2 Variance due to: $18.9 M • Price increases in all segments and regions Q3 Adjusted EBITDA1 increase • Slight increase in volume 159.8% • Lower freight and warehousing costs over Q2 2022 • Increased productivity • Significantly red
Slide 20: Balance Sheet
B AL AN C E S H E E T (Million CAD$, unless otherwise noted) Q3 2022 Q2 2022 Cash 82.1 100.3 Current Portion of Long-term Debt 34.6 33.8 Long-term Debt 1,095.0 1,039.5 Net Debt 1,047.7 973.0 LTM Adjusted EBITDA1 109.9 119.5 Net Debt/LTM Adjusted EBITDA1 9.5x 8.1x • Net debt increased by $74.7 millio
Slide 21: Lowered CAPEX
L O W E R E D C AP E X CAPEX $350 • YTD 2022 CAPEX reached $76.6 million, $300 including $15.2 million related to TAD Sherbrooke Project and $30.2 million $250 related to Sherbrooke Expansion Project $200 Millions • Projected 2022 CAPEX of $130-$140 $150 million, including Sherbrooke Expansion Proje
Slide 22: The Next 10 Years
The Next 10 Years PILLAR: PRODUCTS EMPOWER OUR 2030 TARGETS + FIBRE & FORESTS * PACKAGING T INNOVATION To utilize To reduce 100% Scopes 1+ 2 third-party GHG emissions by REIMAGINE certified fibres 25% 2 OS 62) PILLAR: EMPLOYEE IMPACT TRANSFORMATIVE GROWTH * HEALTH & SAFETY To reduce water To reduce
Slide 23: Growing Business Long-Term While Managing Inflationary Pressure
GROWING BUSINESS LONG-TERM WHILE M AN A G I N G I N F L AT I O N A RY P R E S S U R E • Continuing to deliver strong top-line growth • Price increases and cost efficiencies mitigated inflationary pressure in third quarter with further improvement in profitability expected in fourth quarter • Prudent
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