MISSISSAUGA, Ontario, Aug. 10, 2023 (GLOBE NEWSWIRE) -- KP Tissue Inc. (KPT) (TSX: KPT) reports the Q2 2023 financial and operational results of KPT and Kruger Products Inc. (Kruger Products). Kruger Products is Canada's leading manufacturer of quality tissue products for the Consumer market (Cashmere®, Purex®, SpongeTowels®, Scotties®, White Swan® and BonterraTM) 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 13.3% interest in Kruger Products. Kruger Products Q2 2023 Business and Financial Highlights Revenue was $466.3 million in Q2 2023 compared to $397.5 million in Q2 2022, an increase of $68.8 million or 17.3%.Adjusted EBITDA1 was $55.0 million in Q2 2023, compared to $11.8 million in Q2 2022, an increase of 365.8%.Net income was $14.5 million in Q2 2023 compared to a net loss of $35.5 million in Q2 2022, an increase of $50.0 million.Declared a quarterly dividend of $0.18 per share to be paid on October 16, 2023. “We are pleased that margin recovery, along with improved sales volume and a better mix in our Consumer business, generated strong Adjusted EBITDA of $55.0 million in the second quarter of 2023,” stated KP Tissue’s Chief Executive Officer, Dino Bianco. “Ongoing cost management initiatives, including productivity gains and cost controls, also contributed to increasing profitability. In addition, our Away-From-Home segment delivered a fourth consecutive quarter of positive Adjusted EBITDA to maintain its growth momentum. As a result, our financial performance in the second quarter normalized versus a more challenging market and operating environment in the same period last year. On a sequential basis, revenue and Adjusted EBITDA continued to improve, rising 3.4% and 10.2% in the quarter, respectively.” “Looking ahead to the second half of 2023, we anticipate a more favourable landscape as input costs trend downwards, TAD Sherbrooke and the Sherbrooke Expansion Project continue to ramp up production capacity to meet customer demand, and margins are restored to their pre-pandemic levels,” Mr. Bianco added. Outlook for Q3 2023 For the third quarter of 2023, as commodity and other input costs begin to decline, we will focus on maintaining our margins while also continuing to reinvest in the business to drive long-term value. Accordingly, Adjusted EBITDA1 in Q3 2023 is expected to be in the range of Q2 2023. Kruger Products Q2 2023 Financial Results Revenue was $466.3 million in Q2 2023 compared to $397.5 million in Q2 2022, an increase of $68.8 million or 17.3%. The increase in revenue was primarily due to the favourable impact of selling price increases implemented across all segments and regions during 2022, along with favourable sales mix and higher sales volume in the Consumer business. Revenue was also favourably impacted by foreign exchange fluctuations on U.S. dollar sales. Cost of sales was $395.8 million in Q2 2023 compared to $372.5 million in Q2 2022, an increase of $23.3 million or 6.2%. Higher sales volumes increased cost of sales, along with the unfavourable impact of foreign exchange fluctuations on U.S. dollar costs, partially offset by improvements in Memphis operations. While the significant inflation experienced during 2022 has moderated in the second quarter of 2023, manufacturing input costs remain higher than the year ago quarter. Freight rates were lower compared to Q2 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 84.9% in Q2 2023 compared to 93.7% in Q2 2022. Selling, general and administrative (SG&A) expenses were $40.6 million in Q2 2023 compared to $35.1 million in Q2 2022, an increase of $5.5 million or 15.7%. The increase was primarily due to higher personnel costs, foreign exchange losses related to foreign denominated working capital and a loss on disposal of fixed assets, partially offset by lower advertising spend in the quarter. As a percentage of revenue, SG&A expenses were 8.7% in Q2 2023 compared to 8.8% in Q2 2022. Adjusted EBITDA1 was $55.0 million in Q2 2023 compared to $11.8 million in Q2 2022, an increase of $43.2 million or 365.8%. The significant increase was primarily due to a combination of factors: selling price increases in 2022, favourable sales mix along with higher sales volumes, improvements in Memphis operations and lower freight rates. These factors were partially offset by inflation on input costs compared to Q2 2022, higher warehousing and SG&A expenses and the unfavourable impact of foreign exchange fluctuations. Net income was $14.5 million in Q2 2023 compared to a loss of $35.5 million in Q2 2022, an increase of $50.0 million. The increase was primarily due to higher Adjusted EBITDA1 and higher foreign exchange gains, partially offset by higher income tax and depreciation expenses, higher interest expense and other finance costs and a loss on sale of fixed assets. 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 Kruger Products Q2 2023 Liquidity Total liquidity, representing cash and availability under the revolving credit agreements, was $181.5 million as of June 30, 2023. In addition, $13.8 million of cash was held by Kruger Products for the Sherbrooke Expansion Project. KPT Q2 2023 Financial Results KPT had net income of $2.0 million in Q2 2023. Included in net income was $2.1 million representing KPT’s share of Kruger Products’ net income, a dilution gain of $0.2 million and depreciation expense of $0.3 million related to adjustments to carrying amounts on acquisition. Dividends on Common Shares The Board of Directors of KPT declared a quarterly dividend of $0.18 per share to be paid on October 16, 2023 to shareholders of record at the close of business on October 2, 2023. Additional Information For additional information please refer to Management’s Discussion and Analysis (MD&A) of KPT and Kruger Products for the second quarter ended June 30, 2023 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 10, 2023 at 8:30 a.m. Eastern Time. Via telephone: 1-800-319-4610 or 604-638-5340 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 17, 2023 by dialing 1-855-669-9658 or 604-674-8052 and entering passcode 0272. The replay of the webcast will remain available on the website until midnight, August 17, 2023. About KP Tissue Inc. (KPT) 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. KPT currently holds a 13.3% interest in Kruger Products. For more information visit www.kptissueinc.com. About Kruger Products Kruger Products is Canada's leading manufacturer of quality tissue products for household, industrial and commercial use. Kruger Products serves the Canadian consumer market with such well-known brands as Cashmere®, Purex®, SpongeTowels®, Scotties®, White Swan® and BonterraTM. In the U.S., Kruger Products 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. Kruger Products 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 Kruger Products believes provide useful information to management of Kruger Products and the readers of the financial information in measuring the financial performance and financial condition of Kruger Products. 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 Kruger Products 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 Kruger Products' 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 continued growth in the U.S. Consumer tissue business with the White Cloud® brand and premium private label products, the expected impact of our Sherbrooke Expansion Project, the expected start-up dates of the facial tissue line and paper machine of the Sherbrooke Expansion Project, expected growth and profitability in 2023 and our expectation that Adjusted EBITDA1 in Q3 2023 will be in the range of Q2 2023. 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 Kruger Products, including that inflationary pressure has stabilized. Although KPT and Kruger Products 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 EBITDA1 for Q3 2023 and expected growth and profitability in 2023 is forward-looking information and is based on the assumptions and 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 Kruger Products’ future financial performance. Readers are cautioned that this information may not be appropriate for other purposes. Many factors could cause Kruger Products’ 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 Kruger Products), 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 Kruger Products’ Business” section of the KPT Annual Information Form dated March 9, 2023 available on SEDAR at www.sedar.com; Kruger Inc.’s influence over Kruger Products; Kruger Products’ 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; Kruger Products’ inability to innovate effectively; adverse economic conditions; dependence on key retail trade customers; damage to the reputation of Kruger Products or Kruger Products’ brands; Kruger Products’ sales being less than anticipated; Kruger Products’ failure to implement its business and operating strategies; Kruger Products’ obligation to make regular capital expenditures; Kruger Products’ entering into unsuccessful acquisitions; Kruger Products’ dependence on key personnel; Kruger Products’ inability to retain its existing customers or obtain new customers; Kruger Products’ loss of key suppliers; Kruger Products’ failure to adequately protect its intellectual property rights; Kruger Products’ reliance on third party intellectual property licenses; adverse litigation and other claims affecting Kruger Products; material expenditures due to comprehensive environmental regulation affecting Kruger Products’ cash flow; Kruger Products’ pension obligations are significant and can be materially higher than predicted if Kruger Products Management’s underlying assumptions are incorrect; labour disputes adversely affecting Kruger Products’ cost structure and Kruger Products’ ability to run its plants; exchange rate and U.S. competitors; Kruger Products’ 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 [email protected] INVESTORS: Mike Baldesarra Director of Investor Relations KP Tissue Inc. Tel.: 905.812.6962 [email protected] Kruger Products Inc. Unaudited Condensed Consolidated Statements of Financial Position (thousands of Canadian dollars) June 30, 2023 December 31, 2022 $ $ Assets Current assets Cash and cash equivalents88,245 71,261 Restricted cash9,702 7,145 Trade and other receivables118,777 119,681 Receivables from related parties245 223 Inventories262,509 286,566 Income tax recoverable4,119 1,306 Prepaid expenses14,301 5,640 497,898 491,822 Non-current assets Property, plant and equipment1,321,358 1,294,838 Right-of-use assets78,066 81,715 Other long-term assets13,843 27,554 Pensions80,264 83,080 Goodwill152,021 152,021 Intangible assets28,374 30,027 Deferred income taxes29,375 95,711 Total assets2,201,199 2,256,768 Liabilities Current liabilities Trade and other payables277,667 279,425 Payables to related parties9,633 11,363 Dividends payable13,261 - Distributions payable- 12,866 Current portion of long-term debt34,134 34,411 Current portion of lease liabilities28,313 28,349 Current portion of long-term payable to related party5,800 5,800 Current portion of provisions2,737 3,252 371,545 375,466 Non-current liabilities Long-term debt1,077,746 1,077,297 Long-term lease liabilities65,253 70,579 Long-term payable to related party34,460 39,042 Long-term provisions2,863 3,076 Pensions20,555 20,847 Post-retirement benefits46,244 43,739 Liabilities to non-equityholders1,618,666 1,630,046 Long-term portion of Partnership units liability- 133,551 Total Partnership units liability - 133,551 Total liabilities1,618,666 1,763,597 Equity Share capital650,469 - Partnership units- 494,459 Deficit(158,661) (87,835) Accumulated other comprehensive income81,295 86,547 Equity attributable to Kruger Products573,103 493,171 Non-controlling interest9,430 - Total equity582,533 493,171 Total equity and liabilities2,201,199 2,256,768 Kruger Products Inc.Unaudited Condensed Consolidated Statements of Income (Loss)(thousands of Canadian dollars) 3-month period ended June 30, 2023 3-month period ended June 30, 2022 6-month period ended June 30, 2023 6-month period ended June 30, 2022 $ $ $ $ Revenue 466,302 397,499 917,294 796,238 Expenses Cost of sales395,712 372,489 784,736 736,344 Selling, general and administrative expenses40,640 35,111 76,901 63,966 Loss on sale of non-financial assets13 5 16 10 Restructuring costs, net84 352 1,223 868 Operating income (loss)29,853 (10,458) 54,418 (4,950) Interest expense and other finance costs18,539 17,369 35,063 34,903 Other (income) expense(8,849) 12,599 (9,265) 8,284 Income (loss) before income taxes20,163 (40,426) 28,620 (48,137) Income tax expense (recovery)5,162 (4,913) 63,735 (14,061) Net income (loss) including non-controlling interest15,001 (35,513) (35,115) (34,076) Net income (loss) attributable to non-controlling interest517 - (338) - Net income (loss) attributable to Kruger Products14,484 (35,513) (34,777) (34,076) Kruger Products Inc.Unaudited Condensed Consolidated Statements of Comprehensive Income (Loss)(thousands of Canadian dollars) 3-month period ended June 30, 2023 3-month period ended June 30, 2022 6-month period ended June 30, 2023 6-month period ended June 30, 2022 $ $ $ $ Net income (loss) including non-controlling interest15,001 (35,513) (35,115) (34,076) Other comprehensive income (loss) Items that will not be reclassified to net income (loss): Remeasurements of pensions(4,037) 89,304 (19,881) 194,925 Remeasurements of post-retirement benefits(452) 6,190 10,190 14,051 Items that may be subsequently reclassified to net income (loss): Cumulative translation adjustment(5,040) 8,422 (5,252) 4,385 Other comprehensive income (loss) (9,529) 103,916 (14,943) 213,361 Total comprehensive income (loss) including non-controlling interest5,472 68,403 (50,058) 179,285 Total comprehensive income (loss) attributable to non-controlling interest517 - (338) - Total comprehensive income (loss) attriutable to Kruger Products4,955 68,403 (49,720) 179,285 Kruger Products Inc.Unaudited Condensed Consolidated Statements of Cash Flows(thousands of Canadian dollars) 3-month period ended June 30, 2023 3-month period ended June 30, 2022 6-month period ended June 30, 2023 6-month period ended June 30, 2022 $$ $ $Cash flows from (used in) operating activities Net income (loss) including non-controlling interest15,001 (35,513) (35,115) (34,076)Items not affecting cash Depreciation22,889 20,778 46,078 42,760 Amortization1,096 1,125 2,161 2,169 Loss on sale of property, plant and equipment1,114 18 1,109 18 Gain on disposal of leased assets- - (488) - Foreign exchange (gain) loss(8,849) 12,599 (9,265) 8,284 Interest expense and other finance costs18,539 17,369 35,063 34,903 Pension and post-retirement benefits2,224 3,576 4,112 7,270 Provisions508 733 1,939 494 Income tax expense (recovery)5,162 (4,913) 63,735 (14,061)Loss on sale of non-financial assets13 5 16 10 Total items not affecting cash42,696 51,290 144,460 81,847 Net change in non-cash working capital68,307 (20,031) 16,858 (66,521)Contributions to pension and post-retirement benefit plans(2,680) (4,157) (5,198) (8,340)Provisions paid(2,585) (3,733) (3,274) (3,915)Income tax payments, net(1,621) (1,168) (1,458) (1,488)Net cash from (used in) operating activities119,118 (13,312) 116,273 (32,493) Cash flows from (used in) investing activities Purchases of property, plant and equipment(4,669) (18,431) (8,680) (18,930)Purchases of property, plant and equipment and software related to the TAD Sherbrooke Project(743) (5,598) (743) (10,929)Purchases of property, plant and equipment related to the Sherbrooke Expansion Project(36,798) (14,704) (68,460) (20,748)Interest paid on credit facilities related to the Sherbrooke Expansion Project(119) (306) (216) (306)Government assistance received- - 1,250 - Purchases of software(437) (304) (508) (4,759)Proceeds on sale of property, plant and equipment2,443 1 2,448 1 Net cash used in investing activities(40,323) (39,342) (74,909) (55,671) Cash flows from (used in) financing activities Proceeds from long-term debt21,281 75,550 56,782 217,506 Repayment of long-term debt(14,874) (6,907) (23,569) (125,446)Payment of deferred financing fees(134) 823 (380) (1,312)Payment of lease liabilities(7,046) (7,426) (13,796) (14,411)Change in Restricted cash(1,332) (1,166) (2,557) (2,312)Interest paid on long-term debt(17,641) (16,094) (31,360) (24,987)Payment to related party(5,700) - (5,700) - Dividends paid, net(1,761) - (3,504) - Distributions and advances paid, net- (7,046) - (14,021)Net cash from (used in) financing activities(27,207) 37,734 (24,084) 35,017 Effect of exchange rate changes on cash and cash equivalents held in foreign currency(259) 426 (296) 160 Increase (decrease) in cash and cash equivalents during the period51,329 (14,494) 16,984 (52,987) Cash and cash equivalents - Beginning of period36,916 110,026 71,261 148,519 Cash and cash equivalents - End of period88,245 95,532 88,245 95,532 Kruger Products Inc.Segment and Geographic Results(thousands of Canadian dollars) 3-month period ended June 30, 2023 3-month period ended June 30, 2022 6-month period ended June 30, 2023 6-month period ended June 30, 2022 $ $ $ $ Segment Information Segment Revenue Consumer 383,477 326,333 759,997 669,175 AFH 82,825 71,166 157,297 127,063 Total segment revenue 466,302 397,499 917,294 796,238 Adjusted EBITDA Consumer 53,308 14,298 104,642 49,681 AFH 5,834 (451) 6,718 (3,672)Corporate and other costs (4,093) (2,027) (6,355) (5,134) Total Adjusted EBITDA 55,049 11,820 105,005 40,875 Reconciliation to net income (loss): Depreciation and amortization 23,985 21,903 48,239 44,929 Interest expense and other finance costs 18,539 17,369 35,063 34,903 Loss on sale of property, plant and equipment 1,114 18 1,109 18 Loss on sale of non-financial assets 13 5 16 10 Restructuring costs, net 84 352 1,223 868 Foreign exchange (gain) loss (8,849) 12,599 (9,265) 8,284 Income (loss) before income taxes 20,163 (40,426) 28,620 (48,137) Income tax recovery 5,162 (4,913) 63,735 (14,061) Net income (loss) 15,001 (35,513) (35,115) (34,076) Geographic Revenue Canada 265,165 239,286 525,945 482,206 US 201,137 158,213 391,349 314,032 Total revenue 466,302 397,499 917,294 796,238 KP Tissue Inc.Unaudited Condensed Statements of Financial Position(thousands of Canadian dollars) June 30, 2023 December 31, 2022 $ $ Assets Current assets Dividends receivable1,791 - Distributions receivable- 1,790 Income tax recoverable580 580 2,371 2,370 Non-current assets Investment in associate68,785 79,338 Total assets71,156 81,708 Liabilities Current liabilities Dividend payable1,791 1,790 Payable to investee170 - Payable to Partnership- 170 1,961 1,960 Non-current liabilities Deferred income taxes- 5,718 Total liabilities1,961 7,678 Equity Common shares22,458 22,379 Contributed surplus144,819 144,819 Deficit(114,188) (108,008)Accumulated other comprehensive income16,106 14,840 Total equity69,195 74,030 Total liabilities and equity71,156 81,708 KP Tissue Inc.Unaudited Condensed Statements of Income (Loss) and Comprehensive Income (Loss)(thousands of Canadian dollars, except share and per share amounts) 3-month period ended June 30, 2023 3-month period ended June 30, 2022 6-month period ended June 30, 2023 6-month period ended June 30, 2022 $ $ $ $ Equity income (loss)1,761 (6,423) (5,298) (7,531)Dilution gain252 127 525 200 Income (loss) before income taxes2,013 (6,296) (4,773) (7,331) Income tax expense (recovery)- (2,348) 3,892 (4,361) Net income (loss) 2,013 (3,948) (8,665) (2,970) Other comprehensive income (loss) net of tax expense (recovery) Items that will not be reclassified to net income (loss): Remeasurements of pensions(514) 7,884 4,209 18,132 Remeasurements of post-retirement benefits(82) 729 1,859 1,399 Items that may be subsequently reclassified to net income (loss): Cumulative translation adjustment(817) 1,186 1,266 591 Other comprehensive income (loss) (1,413) 9,799 7,334 20,122 Total comprehensive income (loss) 600 5,851 (1,331) 17,152 Basic earnings (loss) per share0.20 (0.40) (0.87) (0.30) Weighted average number of shares outstanding9,953,131 9,935,108 9,951,513 9,930,492 KP Tissue Inc.Unaudited Condensed Statements of Cash Flows(thousands of Canadian dollars) 3-month period ended June 30, 2023 3-month period ended June 30, 2022 6-month period ended June 30, 2023 6-month period ended June 30, 2022 $ $ $ $Cash flows from (used in) operating activities Net income (loss)2,013 (3,948) (8,665) (2,970)Items not affecting cash Equity loss (income)(1,761) 6,423 5,298 7,531 Dilution gain(252) (127) (525) (200)Income tax expense (recovery)- (2,348) 3,892 (4,361)Total items not affecting cash(2,013) 3,948 8,665 2,970 Net change in non-cash working capital- (169) - (169)Tax payments, net- 169 - 131 Tax Distribution received, net- - - 38 Net cash from (used in) operating activities- - - - Cash flows from investing activities Dividends received1,761 - 3,503 - Partnership unit distributions received- 1,741 - 3,144 Net cash from investing activities1,761 1,741 3,503 3,144 Cash flows used in financing activities Dividends paid, net(1,761) (1,741) (3,503) (3,144) Net cash used in financing activities(1,761) (1,741) (3,503) (3,144) Increase (decrease) in cash and cash equivalents during the period- - - - Cash and cash equivalents - Beginning of period- - - - Cash and cash equivalents - End of period- - - -
KP Tissue Releases Second Quarter 2023 Financial Results
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