KP Tissue Inc.

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to KP Tissue Second Quarter 2021 Results Conference Call. At this time, all participants are in a listen-only mode. 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 any difficulties hearing the conference, Please press star followed by zero for operator assistance at any time. Before turning the meeting over to management, I would like to remind everyone that this conference call is being recorded on Thursday, August 12, 2021. I will now 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 Baldester. I'm the Director of Investor Relations for KP Tissue Inc. The purpose of this conference call is to review the financial results for the second quarter of 2021 for Kruger Products LP, which I'll refer to as KP LP going forward. With me this morning is Dino Bianco, 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 all figures expressed in today's call are in Canadian dollars unless otherwise stated. The press release reporting our Q2 2021 results were 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 CDAR. Finally, I would ask that during the call you refer to the presentation we prepared to accompany these discussions, which is also available on our website. We'd also appreciate that during the Q&A period 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 thank you for joining us for our second quarter earnings call. Despite the volatility of a COVID recovery marketplace, our results for the quarter were largely in line with our expectations. Our results reflect soft demand related to continued destocking by retailers and consumers, strong headwinds from pulp prices and other cost inflation, and a gradual market recovery in the away-from-home segment. Recapping some of the quarter's highlights, we are pleased to report that our share position across the portfolio remains strong. and the launch of our new Sponge Towels Ultra Pro continues to exceed our expectations. Furthermore, Tad Sherbrooke's startup curve remains ahead of schedule, providing the paper tissue capacity required to meet our long-term growth plans. In late June, we also announced an exciting artificial intelligence, or AI, project of $25 million for the facility, and I will be discussing that in greater detail later. Our legacy assets continue to perform well, driven by our OpEx program, and after several quarters of depressed end-user demand in AFH, volume has gradually picked up with the easing of COVID-19 restrictions across North America. Let's now turn our attention to the numbers on slide five. Q2 2021 revenues declined 12.3%, while adjusted EBITDA in the quarter declined 42.1% versus a very strong previous year. Specifically, revenues came in at $339.3 million, while adjusted EBITDA was $37.3 million, which is very similar to our Q1 2021 numbers. Canadian revenues remained relatively stable compared to last year, while the U.S. decreased by 28.7%. We had some negative Forex impact on U.S. sales, and actually in constant currency, the decline was 19.4% in the U.S., and minus 6.6% on a total basis. EBITDA was not only affected by lower sales volume, but by higher pulp prices and increased other costs. These were partially offset by a favorable Forex impact and lower SG&A expenses. Pulp and BEK have remained at historically high levels, and their rise has been quite dramatic, as you can see on the charts on page six. Second quarter NBSK average prices in Canadian dollars increased 18.7%, while BEK average prices rose over 20% compared to Q1. Average NBSK prices in U.S. dollars were up almost 23% and average BEK prices were up over 24% quarter over quarter. For the balance of the year, we expect NBSK and BEK prices to remain elevated. As you know, in an effort to counter these significant cost increases, we have taken pricing actions in both the consumer and away from home segments. In terms of our network on pages 7 and 8, the paper machine and converting ramp up at tax Sherbrooke are tracking well ahead of plan. In June, we announced additional investments of $25 million in Sherbrooke for an AI project with $6.7 million to be contributed by both levels of government. This will bring our total investments there to over $600 million. The project consists of creating and implementing a digital twin of the entire plant supply chain. The virtual model of the supply chain will be using real-time data augmented with predictive and prescriptive AI capabilities to improve the plant's overall performance and help us serve our customers and consumers more efficiently than ever. This will elevate the capability of the state-of-the-art facility and provide us with great learnings to roll out AI to our other facilities. As for our Sherbrooke expansion, we are currently finalizing the project scope with engineering, environmental, and geotechnical studies underway. We have also secured the $240 million in financing for the project. Moving on to the next slide. In Memphis, we are investing almost $22 million in a new facial tissue line that will allow us to produce both TAD and LDC products. Our existing lines are at capacity, and this line will allow us to grow with key customers while carrying a Made in the USA label. This investment, along with our new Sherbrooke facial line, will elevate our North American capacity in the facial category. Startup of the Memphis line is expected in the second quarter of 2022. On the OpEx program, now into year four, we've initiated a number of improvements related to waste reduction and equipment reliability at all our sites. We also increased our training and coaching of our workforce on a structured problem-solving methodology through Lean Six Sigma certifications. As you can see, we are making the necessary investments to support our long-term growth and to provide us with improved product capacity, capability, and cost in both conventional and premium tissue products in North America. With regards to our trademarks, we continue to focus on building our brands with increased marketing investment. Over the past 52-week period, we continue to register overall share gain and maintain momentum from late 2019. More recently, the successful launch of Sponge Towels Ultra Pro has allowed us to make further inroads in the paper towel category. At this stage, this brand is ahead of our plan on both revenue and share expectations. Our unapologetically human media campaign, employing purpose-driven messaging, continued to distinguish itself and win several awards, including a bronze Leon at the International Cannes Advertising Festival, one of the most prestigious distinctions in the advertising world and a first for our company. As a Canadian company and true hockey fans, We also felt compelled to support Canadian hockey families during difficult times, and that was the purpose of our Kruger Big Assist program. This program is a huge success with consumers and hockey associations across Canada, and 15 associations received $10,000 each to help hockey families in need. We have some of the most trusted and loved brands, and it's important for our marketing message to resonate emotionally with Canadian consumers. Consequently, we've been leveraging and promoting our proudly made in Canada message, as this is an important factor for Canadian consumers and Canadian customers. We also have new media campaigns on sponge towels and Scotties, and we continue to increase our investment in digital and social media. The data presented on slides 10 and 11 is from Nielsen. It shows solid market share performance over a 52-week period ending on June 19, 2021. Over the past year or so, our stable supply position, strong customer partnerships, and continued marketing support have allowed us to post strong share gains. With a combined 36.1 share, our cashmere and Purex brands are the clear leaders in the bathroom tissue category. We achieved notable growth in facial tissue, reporting a 34% share this quarter compared to 30.9 for the corresponding period last year. Scotty is a strength in its position and is the clear number one with many Canadian consumers who consider the brand to be synonymous with facial tissue. As previously noted, we posted good share gains in the paper towel category, growing from 21.5% last year to 22.6% this quarter. We're excited about our growth prospects for the remainder of 2021 and beyond. On page 12, We began to see improved revenue and profit performance in our AFH segment. This improvement was driven by strengthening end market demand as a result of post-COVID recovery in the U.S. and Canada. We are also seeing the benefits in AFH as we have increased in-source paper and lowering our outsourcing costs. And combined with operations that continue to perform well, we are well positioned to benefit from the market recovery. To offset higher fiber costs and other inflation, we have also implemented a price increase in AFH that will flow through to the P&L with contract renewals over the next 12 months. I will now turn the call over to Mark.