KP Tissue Inc. — Interim / Quarterly Report 2021

Aug 12, 2021

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NEWS RELEASE For immediate release

KP Tissue Releases Second Quarter 2021 Financial Results

Q2 results reflect strong prior year comps and industry headwinds

Mississauga (ON), August 12, 2021 - KP Tissue Inc. (KPT) (TSX: KPT) reports the Q2 2021 financial and operational results of KPT and Kruger Products L.P. (KPLP). Kruger Products is Canada's leading manufacturer of quality tissue products for the Consumer market (Cashmere, Purex, SpongeTowels, Scotties, and White Swan) and the Away-From-Home (AFH) market and continues to grow in the U.S. Consumer tissue business with the White Cloud® brand and premium private label products. KPT currently holds a 14.5% interest in KPLP.

KPLP Q2 2021 Business and Financial Highlights

• Revenue decreased by $47.5 million or 12.3% to $339.3 million in Q2 2021 compared to $386.8 million in Q2 2020.

• Adjusted EBITDA was $37.3 million in Q2 2021 compared to $64.4 million in Q2 2020, a decrease of 42.1%, and similar sequentially to the $37.5 million in Q1 2021.

• TAD Sherbrooke continues to run above the expected start-up curve.

• Completed financing for the Sherbrooke Expansion Project.

• Declared a quarterly dividend of $0.18 per share to be paid on October 15, 2021.

"Given continued soft demand resulting from COVID-19 related de-stocking by retailers and consumers, headwinds from high pulp prices and a gradual market recovery in the Away-From-Home segment, results for the quarter were largely in line with our expectations. Consequently, revenues were under pressure and Adjusted EBITDA for the quarter was down significantly compared to last year's record level, but was stable when compared to the first quarter of this year," stated KP Tissue’s Chief Executive Officer, Dino Bianco.

"Our share position remains strong in all tissue product categories and the launch of SpongeTowels UltraPro[TM ] continues to exceed our expectations and led to important share gains in the category. TAD Sherbrooke’s start-up curve remains ahead of schedule and provides the paper tissue capacity required to meet our long-term growth plans.

"After several quarters of depressed end-user demand in Away-From-Home, volume has gradually picked-up with the easing of COVID-19 restrictions, particularly in the U.S. This combined with the benefits of production efficiencies and less paper outsourcing, has resulted in an improved AFH Adjusted EBITDA position for the quarter, providing a near-term path to a turnaround.

"With the situation gradually improving month-after-month in Consumer Tissue, we anticipate a return to more normal buying patterns and demand from retailers and consumers in the second half of the year. We have also worked hard to position AFH for a market recovery and expect improving sales as end-markets recover. High pulp prices and cost inflation will remain prevalent for the remainder of the year. We expect that, despite these factors, the pricing actions announced and a more favourable sales market should translate into a stronger performance in the second half of 2021," concluded Mr. Bianco.

Outlook

We are beginning to see the risks and uncertainties associated with COVID-19 subside and expect to see activities and behaviour start to return to more pre-COVID levels in the second half of 2021, in both the Consumer and Away-From-Home segments. Despite higher pulp prices, we expect Q3 2021 Adjusted EBITDA to be in a range which is higher than Q2 2021 and lower than Q3 2020.

KPLP Q2 2021 Financial Results

Revenue was $339.3 million in Q2 2021 compared to $386.8 million in Q2 2020, a decrease of $47.5 million or 12.3%. The decrease in revenue was primarily due to a significant sales volume decrease in the Consumer Segment resulting primarily from the comparison to high COVID-19 buying activity in the year ago quarter, while sales volume in the AFH segment was slightly lower compared to Q2 2020 as COVID-19 impacted both quarters. Revenue was also unfavourably impacted by foreign exchange fluctuations on U.S. dollar sales.

Cost of sales was $295.0 million in Q2 2021 compared to $310.0 million in Q2 2020, a decrease of $15.0 million or 4.8%. Manufacturing costs decreased primarily due to significantly lower sales volumes and the favourable impact of foreign exchange fluctuations on U.S. dollar costs, partially offset by increased pulp costs, higher freight rates and warehousing costs. As a percentage of revenue, cost of sales was 86.9% in Q2 2021 compared to 80.2% in Q2 2020.

Selling, general and administrative (SG&A) expenses were $29.6 million in Q2 2021 compared to $30.5 million in Q2 2020, a decrease of $0.9 million or 3.0%. The decrease was primarily due to a reduction in compensation related costs, foreign exchange gains and lower selling expenses, almost offset by higher advertising expenses. As a percentage of revenue, SG&A expenses were 8.7% in Q2 2021 compared to 7.9% in Q2 2020.

Adjusted EBITDA was $37.3 million in Q2 2021 compared to $64.4 million in Q2 2020, a decrease of $27.1 million or 42.1%. The decrease was primarily due to the impact of lower sales volumes, along with the unfavourable impact of higher pulp prices and higher freight rates and warehousing costs, partially offset by the net favourable impact of foreign exchange fluctuations and slightly lower SG&A expenses.

Net income was $2.2 million in Q2 2021 compared to $28.9 million in Q2 2020, a decrease of $26.7 million. The decrease was primarily due to lower Adjusted EBITDA, higher depreciation and interest expense and a decrease in other income, partially offset by lower income taxes.

KPLP Q2 2021 Financing Activity

On May 21, 2021, KPLP announced the closing of financing arrangements to fund the Sherbrooke Expansion Project, which was originally announced on February 26, 2021. The financing includes a $75 million convertible debenture with Investissement Quebec of which $27 million has now been issued by Kruger Products SB Inc.

Total liquidity, representing cash and availability under the revolving credit agreements, was $284.2 million as of June 30, 2021. In addition, $36.5 million of cash was available for the TAD Sherbrooke Project.

KPT Q2 2021 Financial Results

KPT had a net loss of $1.2 million in Q2 2021. Included in net loss was $0.3 million representing KPT’s share of KPLP’s net income, depreciation expense of $1.3 million related to adjustments to carrying amounts on acquisition and income tax expense of $0.3 million.

Dividends on Common Shares

The Board of Directors of KPT declared a quarterly dividend of $0.18 per share to be paid on October 15, 2021 to shareholders of record at the close of business on September 30, 2021.

Additional Information

For additional information please refer to Management’s Discussion and Analysis (MD&A) of KPT and KPLP for the second quarter ended June 30, 2021 available on SEDAR at www.sedar.com or our website at www.kptissueinc.com.

Second Quarter Results Conference Call Information

KPT will hold its second quarter conference call on Thursday, August 12, 2021 at 8:30 a.m. Eastern Time.

Via telephone: 1-800-599-5188 or 647-365-5897

Via the internet at: www.kptissueinc.com

Presentation material referenced during the conference call will be available at www.kptissueinc.com.

A rebroadcast of the conference call will be available until midnight, August 19, 2021 by dialing 1-800-770-2030 or 647-3629199 and entering passcode 9884406.

The replay of the webcast will remain available on the website until midnight, August 19, 2021.

About KP Tissue Inc. (KPT)

KPT was created to acquire, and its business is limited to holding, a limited partnership interest in KPLP, which is accounted for as an investment on the equity basis. KPT currently holds a 14.5% interest in KPLP. For more information visit www.kptissueinc.com.

About Kruger Products L.P. (KPLP)

KPLP is Canada's leading manufacturer of quality tissue products for household, industrial and commercial use. KPLP serves the Canadian consumer market with such well-known brands as Cashmere®, Purex®, SpongeTowels®, Scotties® and White Swan®. In the U.S., KPLP manufactures the White Cloud® brand, as well as many private label products. The Away-FromHome division manufactures and distributes high-quality, cost-effective product solutions to a wide range of commercial and public entities. KPLP has approximately 2,700 employees and operates nine FSC® COC-certified (FSC® C-104904) production facilities in North America. For more information visit www.krugerproducts.ca.

Non-IFRS Measures

This press release uses certain non-IFRS financial measures which KPLP believes provide useful information to management of KPLP and the readers of the financial information in measuring the financial performance and financial condition of KPLP. These measures do not have a standardized meaning prescribed by IFRS and therefore may not be comparable to similarly titled measures presented by other companies. An example of such a measure is Adjusted EBITDA. Beginning with Q4 2015 in accordance with Canadian Securities Administrators Staff Notice 52-306 (Revised), we have referenced Adjusted EBITDA as a non-IFRS financial measure. This term replaces the previously referenced non-IFRS financial measure EBITDA. Adjusted EBITDA is not a measurement of operating performance computed in accordance with IFRS and should not be considered as a substitute for operating income, net income or cash flows from operating activities computed in accordance with IFRS. “Adjusted EBITDA” is calculated by KPLP as net income (loss) before (i) interest expense, (ii) income taxes, (iii) depreciation, (iv) amortization, (v) impairment (gain on sale) of non-financial assets, (vi) loss (gain) on disposal of property, plant and equipment, (vii) foreign exchange loss (gain), (viii) costs related to restructuring activities, (ix) changes in amortized cost of Partnership units liability, (x) change in fair value of derivatives, (xi) consulting costs related to operational transformation initiatives, (xii) corporate development related costs and (xiii) loss (gain) on sale of shares. A reconciliation of Adjusted EBITDA to the relevant reported results can be found in the MD&A of KPT and KPLP for the quarter ended June 30, 2021, available on SEDAR at www.sedar.com.

COVID-19

In March 2020, the World Health Organization characterized the outbreak of the novel strain of coronavirus, specifically identified as “COVID-19” as a global pandemic. This has resulted in the local governments enacting emergency measures to combat the spread of the virus. These measures, which include the implementation of travel bans, self-imposed quarantine periods and social distancing, have caused material disruption to businesses in the United States of America and Canada resulting in an economic slowdown. Equity markets have experienced significant volatility and the local governments and central banks have reacted with significant monetary and fiscal interventions designed to stabilize economic conditions. There is significant uncertainty as to the likely effects of this outbreak. The duration and impact of the COVID-19 outbreak is unknown at this time, as is the efficacy of the government and central bank interventions. It is not possible to reliably estimate the length and severity of these developments to quantify the impact this pandemic may have on the financial results and condition of KPLP in future periods.

Forward-Looking Statements

Certain statements in this press release about KPT’s and KPLP's 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. Forward-looking statements in this press release include, but are not limited to, statements regarding the projected capacity of the TAD Sherbrooke Project and the Sherbrooke Expansion Project, the anticipated benefits of the TAD Sherbrooke Project and the Sherbrooke Expansion Project and the expected dates for commencement of construction and production of the Sherbrooke Expansion Project; KPLP’s expansion efforts in U.S. premium private label; and KPLP’s future business strategy. 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 statements are based on certain key expectations and assumptions made by KPT or KPLP. Although KPT 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 statements since no assurance can be given that such expectations and assumptions will prove to be correct.

The outlook provided in respect of Adjusted EBITDA for Q3 2021 is forward-looking information and is subject to the risk and uncertainties referred to below. The purpose of the outlook is to provide the reader with an indication of management’s expectations, at the date of this press release, regarding KPLP’s future financial performance. Readers are cautioned that this information may not be appropriate for other purposes.

Many factors could cause KPLP’s actual results, level of activity, performance or achievements or future events or developments (which could in turn affect the economic benefits derived from KPT’s economic interest in KPLP) to differ materially from those expressed or implied by the forward-looking statements, including, without limitation, the following factors, which are discussed in greater detail in the “Risk Factors – Risks Related to KPLP’s Business” section of the KPT Annual Information Form dated March 11, 2021 available on SEDAR at www.sedar.com (the Annual Information Form), except for the risks associated with the Sherbrooke Expansion Project, which are discussed in greater detail in Risk Factors in the MD&A of KPT and KPLP for the 3- month and 6-month periods ended June 30, 2021 available on SEDAR at www.sedar.com: Kruger Inc.’s influence over KPLP; KPLP’s reliance on Kruger Inc.; consequences of an event of insolvency relating to Kruger Inc.; risks associated with the TAD Sherbrooke Project; operational risks; significant increases in input costs; reduction in supply of fibre; increased pricing pressure and intense competition; KPLP’s inability to innovate effectively; adverse economic conditions; dependence on key retail trade customers; damage to the reputation of KPLP or KPLP’s brands; KPLP’s sales being less than anticipated; KPLP’s failure to implement its business and operating strategies; KPLP’s obligation to make regular capital expenditures; KPLP’s entering into unsuccessful acquisitions; KPLP’s dependence on key personnel; KPLP’s inability to retain its existing customers or obtain new customers; KPLP’s loss of key suppliers; KPLP’s failure to adequately protect its intellectual property rights; KPLP’s reliance on third party intellectual property licenses; adverse litigation and other claims affecting KPLP; material expenditures due to comprehensive environmental regulation affecting KPLP’s cash flow; KPLP’s pension obligations are significant and can be materially higher than predicted if KPLP Management’s underlying assumptions are incorrect; labour disputes adversely affecting KPLP’s cost structure and KPLP’s ability to run its plants; exchange rate and U.S. competitors; KPLP’s inability to service all of its indebtedness; exposure to potential consumer product liability; covenant compliance; interest rate and refinancing risk; information technology; cyber-security; insurance; internal controls; trade related; and risk related to COVID-19.

Readers should not place undue reliance on forward-looking statements made herein. The forward-looking information contained herein is expressly qualified in its entirety by this cautionary statement. The forward-looking information contained herein is made as of the date of press release and KPT undertakes no obligation to publicly update such forward-looking information to reflect new information, subsequent or otherwise, unless required by applicable securities laws.

INFORMATION:

Francois Paroyan General Counsel and Corporate Secretary KP Tissue Inc. Tel.: 905.812.6936 francois.paroyan@krugerproducts.ca

INVESTORS:

Mike Baldesarra Director of Investor Relations KP Tissue Inc. Tel.: 905.812.6962 IR@KPTissueinc.com

Kruger Products L.P. Unaudited Condensed Consolidated Statements of Financial Position

(thousands of Canadian dollars)

Assets Current assets Cash, cash equivalents and restricted cash Trade and other receivables Receivables from related parties Advances to partners Inventories Income tax recoverable Prepaid expenses Non-current assets Property, plant and equipment Right-of-use assets Other long-term assets Goodwill Intangible assets Deferred income taxes Total assets Liabilities Current liabilities Trade and other payables Payables to related parties Income tax payable Distributions payable Current portion of provisions Current portion of long-term debt Current portion of lease liabilities Non-current liabilities Long-term debt Long-term lease liabilities Long-term payable to related party Long-term provisions Other long-term liabilities Pensions Post-retirement benefits Liabilities to non-unitholders Current portion of Partnership units liability Long-term portion of Partnership units liability Total Partnership units liability Total liabilities Equity Partnership units Deficit Accumulated other comprehensive income Total equity Total equity and liabilities

June 30, 2021 December 31, 2020 $ $ 129,711 128,739 82,943 88,041 12 13 6,011 5,647 282,810 215,934 189 358 12,623 8,315 514,299 447,047 1,201,195 1,194,191 106,586 107,633 37,824 10 152,021 152,021 29,852 26,205 27,659 24,217 2,069,436 1,951,324 227,775 332,072 10,758 9,097 617 554 12,106 11,919 2,365 4,913 22,108 9,495 28,345 25,341 304,074 393,391 935,190 743,978 101,369 105,634 40,959 - 8,992 9,549 - 575 69,636 161,333 59,194 63,038 1,519,414 1,477,498 14,554 31,244 160,191 154,180 174,745 185,424 1,694,159 1,662,922 450,400 439,571 (141,085) (224,503) 65,962 73,334 375,277 288,402 2,069,436 1,951,324

Kruger Products L.P.

Unaudited Condensed Consolidated Statements of Comprehensive Income (Loss) (thousands of Canadian dollars)

Revenue Expenses Cost of sales Selling, general and administrative expenses Loss on sale of non-financial assets Restructuring costs, net Operating income Interest expense Other (income) expense Income (loss) before income taxes Income taxes Net income for the period Other comprehensive income (loss) Items that will not be reclassified to net income: Remeasurements of pensions Remeasurements of post-retirement benefits Items that may be subsequently reclassified to net income: Cumulative translation adjustment Total other comprehensive income (loss) for the period Comprehensive income (loss) for the period	3-month period ended June 30, 2021 $ 339,361 294,977 29,584 2 (15) 14,813 16,263 (631) (819) (3,066) 2,247 (3,406) (1,420) (3,927) (8,753) (6,506)	3-month period ended June 30, 2020 $ 386,763 310,009 30,492 - 483 45,779 11,333 (3,269) 37,715 8,811 28,904 (103,032) (9,896) (12,480) (125,408) (96,504)	6-month period ended June 30, 2021 6-month period ended June 30, 2020 $ $ 649,740 761,909 558,308 624,522 57,349 60,126 3 1 41 1,221 34,039 76,039 29,185 21,913 (947) 8,152 5,801 45,974 (3,205) 8,682 9,006 37,292 94,041 (36,655) 4,349 (3,388) (7,372) 14,227 91,018 (25,816) 100,024 11,476

Kruger Products L.P. Unaudited Condensed Consolidated Statements of Cash Flows (thousands of Canadian dollars)

Cash flows from (used in) operating activities Net income for the period Items not affecting cash Depreciation Amortization Loss on sale of property, plant and equipment Change in amortized cost of Partnership units liability Foreign exchange (gain) loss Change in fair value of derivatives Interest expense Pension and post-retirement benefits Provisions Income taxes Loss on sale of non-financial assets Total items not affecting cash Net change in non-cash working capital Contributions to pension and post-retirement benefit plans Provisions paid Income tax payments Net cash from (used in) operating activities Cash flows from (used in) investing activities Purchases of property, plant and equipment Purchases of property, plant and equipment related to the TAD Sherbrooke Project Interest paid on credit facilities related to the TAD Sherbrooke Project Purchases of software Proceeds on sale of shares Proceeds on sale of property, plant and equipment Net cash used in investing activities Cash flows from (used in) financing activities Proceeds from long-term debt Repayment of long-term debt Payment of deferred financing fees Payment of lease liabilities Interest paid on long-term debt Distributions and advances paid, net Net cash from financing activities Effect of exchange rate changes on cash and cash equivalents held in foreign currency Increase in cash, cash equivalents and restricted cash during the period Cash, cash equivalents and restricted cash - Beginning of period Cash, cash equivalents and restricted cash - End of period

6-month period ended June 30, 2021 6-month period ended June 30, 2020 $ $ 9,006 37,292 38,735 32,960 1,632 773 264 49 6,856 5,040 (7,803) 3,472 - (360) 29,185 21,913 8,143 7,474 641 3,599 (3,205) 8,682 3 1 74,451 83,603 (131,825) 26,035 (7,622) (7,938) (3,904) (1,871) (1,006) (13) (60,900) 137,108 (11,248) (7,451) (78,940) (132,013) (608) (4,204) (774) (1,593) - 992 8 - (91,562) (144,269) 226,475 132,327 (3,273) (33,701) (8,270) (493) (12,715) (9,917) (16,526) (21,622) (30,861) (10,221) 154,830 56,373 (1,396) 1,835 972 51,047 128,739 93,141 129,711 144,188

Kruger Products L.P. Segment and Geographic Results (thousands of Canadian dollars)

Segment Information Segment Revenue Consumer AFH Total segment revenue Adjusted EBITDA Consumer AFH Corporate and other costs Total Adjusted EBITDA Reconciliation to Net Income: Depreciation and amortization Interest expense Change in amortized cost of Partnership units liability Change in fair value of derivatives Loss on sale of property, plant and equipment Loss on sale of non-financial assets Restructuring costs, net Foreign exchange (gain) loss Corporate development related costs Consulting costs related to operational transformation initiatives Income (loss) before income taxes Income taxes Net income Geographic Revenue Canada US Total revenue		3-month period ended June 30, 2021 $ 292,361 47,000 339,361 40,292 (426) (2,551) 37,315 22,201 16,263 3,428 - 264 2 (15) (4,059) 50 - (819) (3,066) 2,247 219,384 119,977 339,361	3-month period ended June 30, 2020 $ 338,242 48,521 386,763 69,580 (2,145) (3,012) 64,423 16,914 11,333 2,520 - 49 - 483 (5,789) - 1,198 37,715 8,811 28,904 218,438 168,325 386,763	6-month period ended June 30, 2021 6-month period ended June 30, 2020 $ $ 563,728 651,531 86,012 110,378 649,740 761,909 84,471 123,929 (5,336) (3,166) (4,355) (5,389) 74,780 115,374 40,367 33,733 29,185 21,913 6,856 5,040 - (360) 264 49 3 1 41 1,221 (7,803) 3,472 66 - - 4,331 5,801 45,974 (3,205) 8,682 9,006 37,292 413,987 448,533 235,753 313,376 649,740 761,909

KP Tissue Inc. Unaudited Condensed Statements of Financial Position (thousands of Canadian dollars)

Assets Current assets Distributions receivable Receivable from Partnership Income tax recoverable Non-current assets Investment in associate Total Assets Liabilities Current liabilities Dividend payable Current portion of advances from Partnership Income tax payable Non-current liabilities Deferred income taxes Total liabilities Equity Common shares Contributed surplus Deficit Accumulated other comprehensive income Total equity Total liabilities and equity

June 30, 2021 December 31, 2020 $ $ 1,768 1,755 24 21 136 - 1,928 1,776 76,078 69,537 78,006 71,313 1,768 1,755 897 874 - 1,722 2,665 4,351 999 634 3,664 4,985 21,106 20,355 144,819 144,819 (103,510) (111,907) 11,927 13,061 74,342 66,328 78,006 71,313

KP Tissue Inc.

Unaudited Condensed Statements of Comprehensive Income (Loss)

(thousands of Canadian dollars, except share and per share amounts)

3-month period ended June 30, 2021 $ Equity income (loss) (1,002) Dilution gain 82 Income (loss) before income taxes (920) Income taxes 313 Net income (loss) for the period (1,233) Other comprehensive income (loss) net of tax expense (recovery) Items that will not be reclassified to net income (loss): Remeasurements of pensions (443) Remeasurements of post-retirement benefits (127) Items that may be subsequently reclassified to net income (loss): Cumulative translation adjustment (589) Total other comprehensive income (loss) for the period (1,159) Comprehensive income (loss) for the period (2,392) Basic earnings (loss) per share (0.13) Weighted average number of shares outstanding 9,817,731	3-month period ended June 30, 2020 $ 2,925 231 3,156 3,279 (123) (12,347) (906) (1,950) (15,203) (15,326) (0.01) 9,689,578	6-month period ended June 30, 2021 6-month period ended June 30, 2020 $ $ (1,347) 2,800 162 451 (1,185) 3,251 (1,160) 1,673 (25) 1,578 11,552 (3,655) 389 (309) (1,134) 2,131 10,807 (1,833) 10,782 (255) - 0.16 9,798,757 9,672,481

KP Tissue Inc. Unaudited Condensed Statement of Cash Flows

(thousands of Canadian dollars)

Cash flows from (used in) operating activities Net income (loss) for the period Items not affecting cash Equity (income) loss Dilution gain Income taxes Total items not affecting cash Net change in non-cash working capital Tax payments Tax Distribution received Advances received Net cash from (used in) operating activities Cash flows from investing activites Partnership unit distributions received Net cash from investing activities Cash flows used in financing activities Dividends paid Net cash used in financing activities Increase (decrease) in cash and cash equivalents during the period Cash and cash equivalents - Beginning of period Cash and cash equivalents - End of period

6-month period ended June 30, 2021 6-month period ended June 30, 2020 $ $ (25) 1,578 1,347 (2,800) (162) (451) (1,160) 1,673 25 (1,578) (3) 94 (2,632) (1,235) 1,738 781 897 360 - - 2,755 2,793 2,755 2,793 (2,755) (2,793) (2,755) (2,793) - - - - - -