KP Tissue Inc.

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to KP Tissue first quarter 2022 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, and 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, May 12, 2022. I will now turn the conference over to Mr. Mike Baldessara, Director, Investor Relations. Please go ahead.

Thank you, Operator. Good morning, ladies and gentlemen. My name is Mike Baldessara. I'm the Director of Investor Relations at KP Tissue, Inc. The purpose of the conference call is to review the financial results for the first quarter of 2022 for Kruger Products, which I'll refer to as KP-LP 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 all the figures expressed in today's call are in Canadian dollars unless otherwise stated. The press release reporting our Q1 2022 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 the website and will also be available on CDAR. Finally, I'd like to ask that during the call to refer to the presentation we prepared to accompany these discussions, which is also available on the 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 first quarter earnings call. We continue to deliver strong sales growth in the first quarter of 2022, driven by ongoing market recovery, new Sherbrooke capacity, and price increases affecting all our businesses and regions. Robust top-line growth was tempered by escalating inflation across many parts of our business, which significantly impacted adjusted EBITDA in the first quarter. To counter inflationary pressure, we have adopted a multifaceted strategy, which I will outline a little later in my prepared remarks. Now let's take a look at our financial performance on slide five. Revenue growth of 28.5% in the first quarter of 2022 mainly reflects the Q3 2021 selling price increase in Consumer Canada and pricing in Consumer US and AFH. along with higher sales volume in the consumer segment compared to a relatively soft quarter in 2021. The AFH segment also benefited from higher sales volume in the first quarter of 2022 versus Q1 2021, as the business continues to recover from the impact of COVID-19. From a geographic perspective, revenue in Canada increased 24.8% year-over-year, while the U.S. surged 34.6%. In terms of profitability, adjusted EBITDA decreased to $29.1 million in the first quarter of 2022, mainly due to the unfavorable effect of sales mix and overhead absorption, higher fiber prices, and other inflationary pressure, along with some operational issues in our Memphis facility. These factors were partially offset by the higher sales volume and the selling price increases. Pulp and BEK average prices in Canadian dollars continue to increase. I'll go off script here to say you can look at the chart. We are in uncharted territory as we look at pulp pricing and the impact that has had both on BEK and NBSK. Pulper fiber as a whole is not the only cost item being impacted by inflationary pressure as shown on slide seven. Freight and natural gas prices soared more than 35% and 50% respectively. in the first quarter of 22 compared to the same period in 21. Packaging costs meanwhile increased more than 15% year over year, while labor costs climbed roughly 5% in the first quarter. To counter such inflationary pressure, we have adopted a multifaceted strategy, including additional price increases across all our segments, SG&A cuts, incremental productivity programs, reductions in working capital, and deferring discretionary capital spending. We believe that price increases combined with cost-saving initiatives should begin mitigating inflation in the second half of the year. Moving on to our network modernization slides on page 8 and 9, Tadge Sherbrooke continues to exceed ramp-up expectations. In terms of our Sherbrooke expansion project, we now anticipate that the bathroom tissue line will start up in Q1 2023, while other assets are on track for later in 2023 and 2024. Turning to our network in Memphis, sell-in has been very strong for our new facial tissue line, but the startup has been pushed out to the third quarter due to global supply chain issues affecting our ability to secure equipment. We have committed more than $20 million US to this new facial line, which will provide future growth opportunities in the US market. In terms of our Memphis operations, we anticipate labor challenges will continue affecting productivity in the first half of 2022. Staff availability is improving, but it takes time to train new employees on this equipment. We have also endured some equipment challenges, which has delayed our turnaround. In response, we're increasing maintenance spend on our assets, ramping up employee training, and leveraging more resources from our other facilities. And as demand remains strong, we are utilizing our other plants within our network to offset any production shortfall. In light of price increases in the marketplace, we believe it's vital to continue supporting our brands through targeted innovation in marketing. Accordingly, we're seeing strong distribution across our customer base for newly launched Bonterra, our sustainable product family. Speed to shelf has been very quick for this new brand. Our recently upgraded Purex and Cashmere Ultralux TAD products are also tracking well against expectations. while second year of SpongeTow's UltraPro continues to drive share with consumers. More recently, we expanded the distribution and support of our newly relaunched white cloud portfolio in the US. And finally, on the heels of more than 80% growth for our e-commerce channels in 2021, our internal estimates indicate that we continue to increase share in this channel, reflecting a two-point share increase in e-comm. The data presented on slide 11 is from Nielsen. It shows solid market share performance over a 52-week period ending on March 23rd, 2022. Amidst the market recovery, we continue expanding in the facial tissue and paper towel categories with shares of 36.2% and 24.1% respectively. As for bathroom tissue, we have maintained our share above 34% as we had some competitor recapture post-COVID. On slide 12, the away-from-home market in Canada continued to pick up in Q1-22, while the U.S. market has fully recovered from the COVID-19 pandemic. We estimate volume was approximately 30% better in the first quarter of 22 than Q1-21 levels. Rising inflation for raw materials, transportation, and labor negatively affected AFH profitability in Q1-22 as price increases lagged cost inflation. Further price increases in AFH became effective in May, allowing us to create a better EBITDA profile for this segment in the second half of the year. With that, I will now turn the call over to Mark.