KP Tissue Inc.

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the KP Tissue 4th Quarter 2020 Results Conference Call. At this time, all participants are in a listen-only mode, and following the presentation, we will conduct a question-and-answer session. Instructions will be provided at that time for you to queue up for questions. If anyone has difficulties hearing the conference, please press star followed by zero for operator assistance at any time. Before turning the meeting over to management, I'd like to remind everyone that this conference is being recorded on Thursday, March 11, 2021. I'd now like to turn the conference over to Mike Baldessara, Director, Investor Relations. Please go ahead.

Thank you, Operator, and good morning, ladies and gentlemen. My name is Mike Baldessara. I'm the Director of Investor Relations at KP Tissue Inc. The purpose of this conference call is to review the financial results of the fourth quarter of 2020 for Kruger Products LP, which I'll refer to as KPLP going forward. With me this morning is Dino Bianco, the Chief Executive Officer of KP Tissue and Kruger Products LP, and Mark Holbrook, the Chief Financial Officer of KP Tissue and Kruger Products LP. The following discussions and responses to questions contain forward-looking statements concerning the company's activities. Forward-looking statements involve known and unknown risks and uncertainties, which could cause the company's actual results to differ materially from those in the forward-looking statements. Investors are cautioned not to rely on these forward-looking statements. The company does not undertake to update these forward-looking statements except if required by applicable laws. There is a page at the beginning of the written presentation which contains the usual legal cautions, including as to forward-looking information, which you should be aware of. I'd like to point out that today all the figures expressed in today's call are in Canadian dollars unless otherwise stated. The press release of reporting our Q4 2020 results was published this morning and will be accessible from our website at kptissueinc.com. Please be aware that our MD&A will be posted on our website and will also be available on CVAR. Finally, I would ask that you during the call to refer to the presentation we prepared to accompany these discussions, which is also available on our website. We would appreciate also that during the Q&A for you to limit your questions to two. Thank you for your collaboration. Ladies and gentlemen, I'll now turn the call over to Dino Bianco, our CEO. Dino?

Thank you, Mike. Good morning, everyone, and thanks for joining us on today's call. One year ago today, the world changed for all of us in ways none of us could have imagined. We have all had our lives disrupted, and the impact of businesses and the economy has been great. I trust everyone has remained safe and looking forward to moving quickly to a better time. The pandemic has had a significant impact to how we work, how we connect, and the performance of our business. We have been fortunate at Kruger Products to be a leader in a category that people need with brands they want, and our business has performed well while our people remain safe and motivated to build our business. 2020 brought more than its share of challenges along with unprecedented market conditions, which our team tackled with dedication and determination. Given this unprecedented year, I am very pleased on how our company responded and the results we delivered. Strong demand across all our consumer product categories combined with operational excellence translated into record high adjusted EBITDA. This solid performance was achieved despite the fact that away from home remained under pressure from the impact of COVID-19. Throughout the year, our execution and ability to supply customers in times of high and volatile demand were clearly enhanced by the benefits of our OpEx program. Combined with continued investments and innovation in our brands, these led to strong market share gains over the previous year. In response to COVID-19, we implemented and maintained a comprehensive program to keep our people safe and avoid major disruptions to our business. This was only possible thanks to the dedication of more than 2,700 employees across North America who displayed care and professionalism in keeping each other safe and making sure that we supply tissue products to our customers and consumers. Today, I want to personally thank you for your hard work and passion for our business. Now for a review of the numbers, starting with the year. Excluding the divested Mexico business, year-over-year revenue increased by 11.7% to reach $1.5 billion. Adjusted EBITDA was up 36.4% to $197.8 million. By geography, Canadian sales increased by 8.9%, while U.S. sales grew by 16.2%. We are quite happy with these results, especially when you consider all the reinvestments we made in our business for the future. In the fourth quarter, revenue increased by 10.6% to $385 million. Volumes remained strong in the Canadian and U.S. consumer segment, while AFH remained under pressure. By geography, Canadian sales increased by 9.9%, while U.S. sales grew by 11.8%. Adjusted EBITDA was $36.2 million, a decrease of 21.3% over last year. These results reflect our decision to reinvest in our business with a greater commitment to marketing, startup costs at Tad Sherbrooke, more outsourcing, and a one-time bonus to all our hourly workers. Moving on to market pulp prices, Q4 NBSK and eucalyptus prices in Canadian dollars remained relatively stable year over year. On a sequential basis, the declines were 1.7% and 1.8% respectively. In U.S. dollars, NBSK prices increased slightly while eucalyptus prices remained relatively stable when compared to Q3. As indicated last quarter, we did expect NBSK and BEK prices to increase moving into 2021, but certainly not as much as we saw in the past few months. Given this unprecedented increase, we are looking at all options to offset these costs, including potentially pricing. For the remainder of 2021, we fully expect the upward trend in pulp prices to continue. With regards to our COVID-19 safety protocols, we remain highly focused on employee safety and business continuity. To date, we've suffered no major disruptions to our business or supply chains, allowing us to maximize our production and distribution. As we continue to manage the pandemic's impact, we are also preparing for a post-pandemic recovery. we want to continue to carry forward some of the benefits brought to our business by COVID, such as having fewer SKUs, increased brand distribution, new advertising direction, and increased focus on e-commerce. We believe that post-pandemic consumer behaviors, such as working from home, increased focus on hygiene, and a greater shift to e-commerce will benefit consumer tissue. The past few quarters has showcased the high level of consumer trust in our brands, a fact that has helped us reinforce our leadership position in these uncertain times. We remain committed to continue to invest to support our brands for the future. Finally, in recognition of our employees who had to work differently during COVID-19 while meeting unprecedented increased tissue demand, we chose to pay a one-time bonus of $1,000 to all our hourly workers across North America in December. Let me give you a quick update now on Tad Sherbrooke. Despite the COVID-19 protocols and challenges, we were able to start up our facility on time and on budget. Our team there has done an amazing job, and we thank them for their hard work and success. As a result, our converting lines and paper machine are now tracking ahead of our projected ramp-up curves. As expected, during the fourth quarter, we incurred $4.5 million in startup costs, and additional amounts are expected in Q1 2021. What's more, we're starting our Tad Sherbrooke facility as an OpEx and AI-ready greenfield. At maturity, this Tad tissue machine will increase our annual output by approximately 70,000 metric tons of bathroom tissue and paper towels for the North American market. This new tissue capacity will allow us to build our presence in the premium tissue segment. To further support our long-term growth strategy, a few weeks ago we announced the $240 million investment in Sherbrooke. This new project calls for the addition of a bathroom paper towel tissue converting line at the existing facility and the construction of a new facility to have an LDC tissue machine as well as a facial tissue converting line. Construction will start in the summer of 2022, and the LDC machine is expected to start up in 2024. The bathroom tissue and facial lines will be commissioned in 2022 and 2023 respectfully. The project is being financed with debt and is non-dilutive. At maturity, the annual tissue output will exceed 30,000 metric tons. With this new investment, Sherbrooke will become a major tissue production hub that will work with our existing facilities to reach our North American markets. The new investment will provide us with greater product flexibility in both conventional and premium products. Let me now turn to our OpEx program. I'm pleased to say that we completed the initial two-year phase of our OpEx program ahead of our annual cost savings targets. The program also made it possible to drive more capacity and asset reliability. As previously mentioned, this program was instrumental in helping us to more effectively address the strong market demand and volatility caused by the pandemic. As we completed the first phase, our OpEx program has matured with measurable progress at all sites. We remain focused on investing more in enhanced maintenance to drive stronger and more reliable asset performance. Moving into 2021 and the future, the program will be expanded to include other assets and focus on reducing waste. Among the longer term benefits and most important aspects, this program fosters a cultural shift with a higher level of employee engagement and empowerment to drive operational excellence. Moving to our trademarks, we continue to focus on investing to build our brand and that's reflected in our financial results. As planned, we carried out more marketing investments in the second half of 2020 as we shifted spending from the first half. Spending in Q4 exceeded Q3, 2020 full year spending exceeded 2019, and 2021 spending is projected to increase versus 2020. Our unapologetically human media campaign employing purpose-driven messaging was a bold move and a huge success with consumers from coast to coast. The campaign marked a strong departure from typical and traditional tissue campaigns. We were able to run this advertising for English, French, South Asian, and Chinese consumers. We strongly believe in the power of multicultural marketing, which allows our brands to better resonate and connect emotionally with the evolving demographics of Canadian consumers. Canada wouldn't be Canada without hockey. We fully recognize that the past year has been challenging financially for many Canadian families, especially when it comes to the cost of keeping their children involved in minor hockey. As the official tissue partner of the NHL, we launched the Big Assist program with the objective of donating over $100,000 to families in need in order to help them offset hockey registration fees. As a Canadian company and true hockey fans, we felt compelled to assist Canadian hockey families during this difficult time. We are also very excited to announce that we improved the quality of our cashmere bathroom tissue to make it even softer. This new product launched in Q4 with full marketing support and is now in full distribution. Throughout 2020, we saw our White Cloud brand gain strength in the U.S. thanks to expanded distribution and new listings. To further support our brand, for the first time ever, we provided TV support with our unapologetically human campaign adapted for the U.S. market. The data presented on slides 13 and 14 is from Nielsen. It shows dollar market share and represents the 52-week period ending December 26, 2020. We delivered strong market share growth that actually began in late 2019. These gains were driven by an improving supply position, strong customer partnerships, and continued strong marketing support. Our cashmere and Purex brands are undisputed market leaders and end of 2020 with a combined share of 36.9%, up from 33.2% the previous year. Our market leading share in facial tissue remains stable at 31.5%. Our Scotties is the clear number one with the brand being synonymous with facial tissue for many Canadian consumers. We see significant growth potential in the paper towel category and made good share progress in 2020 with a 21.8 share. With tax share book gradually coming on stream, adding incremental premium paper towel capacity, we are strongly excited about the opportunity to grow in 2021. Finally, COVID-driven demand has presented us with the opportunity to further expand our distribution and sales of white cloud in the U.S., Clearly, we want to build on the 2020 sales momentum by making strong marketplace investments where we have distribution. We are working to build the brand for today and for the future. The away-from-home category continued to be challenged in Q4 given COVID-19 safety protocols. We continue to prepare the business for improved market conditions. We have implemented OpEx in away from home. We have modified our product and customer offering to take advantage of consumer-like markets. And we have implemented temporary layoffs in response software volumes where necessary. At this stage, future success of AFH depends on recovery of end markets. On a sequential basis, AFH reported a smaller EBITDA loss on slightly higher sales. We continue to buy more paper from the market for AFH as strong sales in our consumer business absorb most of our internal paper capacity. COVID-19 restrictions will continue to significantly impact sales volume in the near term. We continue to do the right things in AFH and now have a recovery plan for an expected back half turnaround in this sector. With that, I will now turn the call over to Mark who will review our quarterly results.