KP Tissue Inc. — Interim / Quarterly Report 2022

Nov 9, 2022

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NEWS RELEASE For immediate release

KP Tissue Releases Third Quarter 2022 Financial Results

Strong revenue with profitability recovering

Mississauga (ON), November 9, 2022 - KP Tissue Inc. (KPT) (TSX: KPT) reports the Q3 2022 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®, White Swan® and Bonterra™) 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 13.9% interest in KPLP.

KPLP Q3 2022 Business and Financial Highlights

• Revenue was $427.0 million in Q3 2022 compared to $391.4 million in Q3 2021, an increase of $35.6 million or 9.1%.

• Adjusted EBITDA[1] was $30.7 million in Q3 2022, compared to $40.3 million in Q3 2021, a decrease of $9.6 million.

• Net loss was $38.8 million in Q3 2022 compared to $9.3 million in Q3 2021, a decrease of $29.5 million.

• Declared a quarterly dividend of $0.18 per share to be paid on January 16, 2023.

“We continued to deliver solid top-line growth in the third quarter of 2022 with revenue increasing 9.1% year-over-year, while profitability significantly improved from the previous quarter based on the disciplined execution of a multi-faceted strategy. This included price increases across all segments as well as productivity gains, along with prudent cash management through reductions in working capital and discretionary spending,” stated KP Tissue’s Chief Executive Officer, Dino Bianco.

“I’m very pleased with the strong performance of our AFH segment in the third quarter with sales growth of 37.3% year-overyear and Adjusted EBITDA[1] of $5.4 million, signaling a market recovery in Canada and the U.S. post-COVID. For the Consumer segment, revenue growth was 4.1%, as we are seeing slower consumer purchases as they adjust to higher price points. We plan to maintain targeted investments in our consumer brands, including recently launched Bonterra™, SpongeTowels UltraPRO®, UltraLuxe® and White Cloud®, while watching post-pricing price gaps.”

“Although inflationary upward pressure appears to be easing, higher price points for products have created sales volatility with some consumers trading down during these uncertain times. The recovery of our Memphis operations is also taking a little longer than anticipated, but we believe this situation will be largely resolved by early 2023. Despite the volatile business environment, we are moving in the right direction and fully expect to generate profitable growth in the fourth quarter and beyond,” Mr. Bianco concluded.

Outlook for Q4 2022

Looking ahead to the fourth quarter of 2022, we believe that inflationary pressure has stabilized, price increases are in place, cost-cutting programs have been implemented, discretionary spending has been restricted and operating efficiency is gaining traction. As a result, Adjusted EBITDA[1] in Q4 2022 is expected to exceed last year’s fourth quarter level.

KPLP Q3 2022 Financial Results

Revenue was $427.0 million in Q3 2022 compared to $391.4 million in Q3 2021, an increase of $35.6 million or 9.1%. The increase in revenue was due to selling price increases in all segments and regions along with higher sales volume in the AFH segment as the business continues to recover from the impact of COVID-19, partially offset by lower sales volume in the Consumer segment and unfavourable mix. Revenue was also favourably impacted by foreign exchange fluctuations on U.S. dollar sales.

1 Adjusted EBITDA is a non-GAAP financial measure. Refer to the Non-GAAP Financial Measures section of this news release for more information on these measures

Cost of sales was $394.6 million in Q3 2022 compared to $345.6 million in Q3 2021, an increase of $49.0 million or 14.2%. Manufacturing costs increased primarily due to significantly increased pulp costs and high inflation on other input costs, along with the impact of labour shortages and productivity in Memphis manufacturing, plant overhead increases primarily in maintenance and the unfavourable impact of foreign exchange fluctuations on U.S. dollar costs, partially offset by lower sales volumes. Freight costs increased significantly compared to Q3 2021 primarily due to increased freight rates resulting from cost inflation. As a percentage of revenue, cost of sales was 92.4% in Q3 2022 compared to 88.3% in Q3 2021.

Selling, general and administrative (SG&A) expenses were $30.1 million in Q3 2022 compared to $29.0 million in Q3 2021, an increase of $1.1 million or 3.5%. The increase was primarily due to higher advertising and promotion expenses, the release of a COVID-19 related AFH accounts receivable provision in the comparative period and a return to more normal travel levels, partially offset by lower personnel costs and management fees. As a percentage of revenue, SG&A expenses were 7.0% in Q3 2022 compared to 7.4% in Q3 2021.

Adjusted EBITDA[1] was $30.7 million in Q3 2022 compared to $40.3 million in Q3 2021, a decrease of $9.6 million or 23.8%. The decrease was primarily due to significant inflation on pulp, manufacturing costs and freight as described above, and also lower sales volume, which were only partially offset by higher selling prices.

Net loss was $38.8 million in Q3 2022 compared to $9.3 million in Q3 2021, a decrease of $29.5 million. The decrease was primarily due to lower Adjusted EBITDA[1] of $9.6 million as discussed above, higher other expense related to unrealized foreign exchange losses on U.S. denominated debt and consulting costs related to operational transformation initiatives, partially offset by a lower change in the amortized costs of the Partnership units liability.

KPLP Q3 2022 Liquidity

Total liquidity, representing cash and availability under the revolving credit agreements, was $112.4 million as of September 30, 2022. In addition, $50.6 million of cash was held by KPLP for the TAD Sherbrooke and Sherbrooke Expansion Projects.

KPT Q3 2022 Financial Results

KPT had a net loss of $6.3 million in Q3 2022. Included in the net loss was $5.5 million representing KPT’s share of KPLP’s net loss, and a dilution gain of $0.2 million, depreciation expense of $1.3 million related to adjustments to carrying amounts on acquisition and an income tax recovery 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 January 16, 2023 to shareholders of record at the close of business on December 31, 2022.

Additional Information

For additional information please refer to Management’s Discussion and Analysis (MD&A) of KPT and KPLP for the third quarter ended September 30, 2022 available on SEDAR at www.sedar.com or our website at www.kptissueinc.com.

Third Quarter Results Conference Call Information

KPT will hold its third quarter conference call on Wednesday, November 9, 2022 at 8:30 a.m. Eastern Time.

Via telephone: 1-888-396-8049 or 416-764-8646

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, November 16, 2022 by dialing 1-877-674-7070 or 416-7648692 and entering passcode 883805.

The replay of the webcast will remain available on the website until midnight, November 16, 2022.

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 13.9% 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®, White Swan® and Bonterra™. In the U.S., KPLP 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. 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-GAAP Financial Measures

This press release uses certain non-GAAP 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 GAAP and therefore may not be comparable to similarly titled measures presented by other companies. An example of such a measure is Adjusted EBITDA. Adjusted EBITDA is not a measurement of operating performance computed in accordance with GAAP and should not be considered as a substitute for operating income, net income or cash flows from operating activities computed in accordance with GAAP. “Adjusted EBITDA” is calculated by KPLP as net income (loss) before (i) interest expense and other finance costs, (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 Segment and Geographic Results table of this news release.

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, expected revenue growth, continued growth in the U.S. Consumer tissue business with the White Cloud® brand and premium private label products, the anticipated timing of the recovery of our Memphis operations, our expectation to generate profitable growth in Q4 of 2022, our expectation that Adjusted EBITDA will exceed the Adjusted EBITDA of Q4 2021 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 Q4 2022 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 10, 2022 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; risks associated with the Sherbrooke Expansion 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; and risks relating to information technology; cyber-security; insurance; internal controls; trade; and risks 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 Statement of Financial Position

(thousands of Canadian dollars)

Assets Current assets Cash and cash equivalents 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 Pensions 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 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

September 30, 2022 December 31, 2021 $ $ 82,123 148,519 5,978 2,506 122,417 88,802 223 271 - 13,752 295,790 251,071 1,012 1,171 10,299 5,455 517,842 511,547 1,282,153 1,224,698 86,197 91,626 30,535 37,456 133,441 - 152,021 152,021 30,986 29,222 101,135 75,742 2,334,310 2,122,312 269,093 258,626 8,559 11,485 96 300 12,674 12,300 2,198 3,705 34,559 48,550 28,949 30,170 356,128 365,136 1,095,047 920,331 75,025 82,354 44,233 42,454 5,954 6,929 - 58,481 44,401 57,331 1,620,788 1,533,016 - 14,064 159,137 159,137 159,137 173,201 1,779,925 1,706,217 483,292 461,536 (22,084) (117,123) 93,177 71,682 554,385 416,095 2,334,310 2,122,312

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 (loss) Interest expense and other finance costs Other expense Loss before income taxes Income tax recovery Net loss for the period Other comprehensive income (loss) Items that will not be reclassified to net loss: Remeasurements of pensions Remeasurements of post-retirement benefits Items that may be subsequently reclassified to net loss: Cumulative translation adjustment Total other comprehensive income for the period Comprehensive income (loss) for the period	3-month period ended September 30, 2022 $ 427,026 394,596 30,059 1 139 2,231 18,907 26,045 (42,721) (3,919) (38,802) (3,184) (293) 17,110 13,633 (25,169)	3-month period ended September 30, 2021 $ 391,392 345,577 29,055 2 166 16,592 18,740 11,728 (13,876) (4,618) (9,258) 44,377 1,670 7,441 53,488 44,230	9-month period ended September 30, 2022 9-month period ended September 30, 2021 $ $ 1,223,264 1,041,132 1,130,940 903,885 94,025 86,404 11 5 1,007 207 (2,719) 50,631 53,810 47,925 34,329 10,781 (90,858) (8,075) (17,980) (7,823) (72,878) (252) 191,741 138,418 13,758 6,019 21,495 69 226,994 144,506 154,116 144,254

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

3-month period ended September 30, 2022 Cash flows from (used in) operating activities Net loss for the period (38,802) Items not affecting cash Depreciation 23,684 Amortization 1,108 Loss on sale of property, plant and equipment - Change in amortized cost of Partnership units liability - Foreign exchange loss 26,045 Interest expense and other finance costs 18,907 Pension and post-retirement benefits 3,706 Provisions 773 Income tax recovery (3,919) Loss on sale of non-financial assets 1 Total items not affecting cash 70,305 Net change in non-cash working capital (18,724) Contributions to pension and post-retirement benefit plans (4,214) Provisions paid (88) Income tax payments (269) Net cash from (used in) operating activities 8,208 Cash flows from (used in) investing activities Purchases of property, plant and equipment (8,381) Purchases of property, plant and equipment and software related to the TAD Sherbrooke Project (4,256) Purchases of property, plant and equipment related to the Sherbrooke Expansion Project (9,196) Interest paid on credit facilities related to the TAD Sherbrooke Project - Interest paid on credit facilities related to the Sherbrooke Expansion Project, net 17 Government assistance received 1,023 Purchases of software (180) Proceeds on sale of property, plant and equipment - Net cash used in investing activities (20,973) Cash flows from (used in) financing activities Proceeds from long-term debt, net 30,820 Repayment of long-term debt (10,272) Payment of deferred financing fees (1,506) Payment of lease liabilities (6,852) Change in Restricted cash (1,160) Interest paid on long-term debt (11,211) Distributions and advances paid, net (1,743) Net cash from (used in) financing activities (1,924) Effect of exchange rate changes on cash and cash equivalents held in foreign currency 1,280 Decrease in cash and cash equivalents during the period (13,409) Cash and cash equivalents - Beginning of period 95,532 Cash and cash equivalents - End of period 82,123	3-month period ended September 30, 2021 (9,258) 22,557 907 62 3,427 8,301 18,740 4,343 906 (4,618) 2 54,627 11,082 (3,829) (269) (1,013) 51,340 (8,190) (9,333) - - - - - - (17,523) (1,278) (18,640) (665) (6,239) (1,087) (8,227) (10,499) (46,635) 659 (12,159) 129,360 117,201	9-month period ended September 30, 2022 9-month period ended September 30, 2021 $ $ (72,878) (252) 66,444 61,292 3,277 2,539 18 326 - 10,283 34,329 498 53,810 47,925 10,976 12,486 1,267 1,547 (17,980) (7,823) 11 5 152,152 129,078 (85,245) (120,743) (12,554) (11,451) (4,003) (4,173) (1,757) (2,019) (24,285) (9,560) (27,311) (19,438) (15,185) (88,273) (29,944) - - (608) (289) - 1,023 - (4,939) (774) 1 8 (76,644) (109,085) 248,326 225,197 (135,718) (21,913) (2,818) (8,935) (21,263) (18,954) (3,472) (1,438) (36,198) (24,753) (15,764) (41,360) 33,093 107,844 1,440 (737) (66,396) (11,538) 148,519 128,739 82,123 117,201

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 loss: Depreciation and amortization Interest expense and other finance costs Change in amortized cost of Partnership units liability Loss on sale of property, plant and equipment Loss on sale of non-financial assets Restructuring costs, net Foreign exchange loss Consulting costs related to operational transformation initiatives Corporate development related costs Loss before income taxes Income tax recovery Net loss Geographic Revenue Canada US Total revenue		3-month period ended September 30, 2022 $ 346,063 80,963 427,026 25,038 5,357 315 30,710 24,792 18,907 - - 1 139 26,045 3,547 - (42,721) (3,919) (38,802) 249,827 177,199 427,026	3-month period ended September 30, 2021 $ 332,416 58,976 391,392 39,092 2,162 (941) 40,313 23,464 18,740 3,427 62 2 166 8,301 - 27 (13,876) (4,618) (9,258) 233,529 157,863 391,392	9-month period ended September 30, 2022 9-month period ended September 30, 2021 $ $ 1,015,238 896,144 208,026 144,988 1,223,264 1,041,132 74,719 123,563 1,685 (3,174) (4,819) (5,296) 71,585 115,093 69,721 63,831 53,810 47,925 - 10,283 18 326 11 5 1,007 207 34,329 498 3,547 - - 93 (90,858) (8,075) (17,980) (7,823) (72,878) (252) 732,033 647,516 491,231 393,616 1,223,264 1,041,132

KP Tissue Inc.

Unaudited Condensed Statement of Financial Position (thousands of Canadian dollars)

Assets Current assets Distributions receivable Income tax recoverable Non-current assets Investment in associate Total Assets Liabilities Current liabilities Dividend payable Payable to Partnership Current portion of advances from Partnership Non-current liabilities Deferred income taxes Total liabilities Equity Common shares Contributed surplus Deficit Accumulated other comprehensive income Total equity Total liabilities and equity	September 30, 2022 $ 1,789 618 2,407 90,720 93,127 1,789 170 - 1,959 7,368 9,327 22,319 144,819 (99,086) 15,748 83,800 93,127	December 31, 2021 $
		1,781 208
		1,989 78,727 80,716 1,781 246 2,014
		4,041 806
		4,847
		21,844 144,819 (103,561) 12,767
		75,869
		80,716

KP Tissue Inc.

Unaudited Condensed Statements of Comprehensive Income (Loss)

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

Equity loss Dilution gain Loss before income taxes Income tax recovery Net loss for the period Other comprehensive income (loss) net of tax expense (recovery) Items that will not be reclassified to net loss: Remeasurements of pensions Remeasurements of post-retirement benefits Items that may be subsequently reclassified to net loss: Cumulative translation adjustment Total other comprehensive income for the period Comprehensive income (loss) for the period Basic loss per share Weighted average number of shares outstanding	3-month period ended September 30, 2022 $ (6,836) 283 (6,553) (264) (6,289) (383) (45) 2,390 1,962 (4,327) (0.63) 9,939,529	3-month period ended September 30, 2021 $ (2,686) 81 (2,605) (382) (2,223) 5,600 147 1,092 6,839 4,616 (0.23) 9,853,722	9-month period ended September 30, 2022 $ (14,367) 483 (13,884) (4,625) (9,259) 17,749 1,354 2,981 22,084 12,825 (0.93) 9,933,537	9-month period ended September 30, 2021 $ (4,033) 243 (3,790) (1,542) (2,248) 17,152 536 (42)
				17,646
				15,398
				(0.23)
				9,817,280

KP Tissue Inc.

Unaudited Condensed Statement of Cash Flows (thousands of Canadian dollars)

Cash flows from (used in) operating activities Net loss for the period Items not affecting cash Equity loss Dilution gain Income tax recovery Total items not affecting cash Net change in non-cash working capital Tax refunds (payments) Tax Distribution received, net 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 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	3-month period ended September 30, 2022 $ (6,289) 6,836 (283) (264) 6,289 93 (93) - - - 1,742 1,742 (1,742) (1,742) - - -	3-month period ended September 30, 2021 $ (2,223) 2,686 (81) (382) 2,223 98 (679) - 581 - 1,403 1,403 (1,403) (1,403) - - -	9-month period ended September 30, 2022 $ (9,259) 14,367 (483) (4,625) 9,259 (76) 38 38 - - 4,886 4,886 (4,886) (4,886) - - -	9-month period ended September 30, 2021 $
				(2,248) 4,033 (243) (1,542)
				2,248 95 (3,311) 1,738 1,478
				-
				4,158
				4,158
				(4,158)
				(4,158)
				- -
				-