KP Tissue Inc.

Thank you for standing by. Welcome to the KP Tissue fourth quarter 2023 results conference call. At this time, all participants are in 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 difficulty hearing the conference, please press star followed by zero for the 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, March the 7th, 2024. I will now hand the call over to Mike Baldessara, Director of 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 today is to review the financial results of the fourth quarter of 2023. for Kruger Products, which I'll refer to as Kruger Products going forward. With me this morning is Dino Bianco, the Chief Executive Officer of KP Tissue and Kruger Products, and Mark Holbrook, the Chief Financial Officer of KP Tissue and Kruger Products. 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 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's a page at the beginning of the written presentation which contains the usual legal cautions, including as to the 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 Q4 2023 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 to refer the presentation we have 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 fourth quarter and full year 2023 earnings call. We are pleased with our strong financial results in fiscal 2023. We delivered record revenue and record adjusted EBITDA, driven by many positive factors. Overall, our business benefited from robust volume, positive margin management, and strong operational efficiency across our network. In our consumer segment, we gained market share within the facial tissue and paper towel categories, while improving our share trend on bathroom tissue. We also stepped up to support and supply Scotty's facial tissue to consumers and customers given the exit of Kleenex from the Canadian grocery market. Our away-from-home business continued to deliver sustainable results with another strong adjusted EBITDA quarter and year. In the fourth quarter, our underlying results remained solid despite strategically increasing investments in marketing, and operational maintenance to enable us to enter 2024 in a stronger competitive position. Looking ahead, we plan to manage our margins amid rising pulp costs, continue to invest in our brands, grow our official facial tissue position, and implement the successful startup of our Sherbrooke expansion. Now let's review our quarterly numbers on slide six. Revenue growth of 5.3% in the fourth quarter of 2023 can mainly be attributed to higher sales volume, partially offset by increased promotional spending year over year. Canadian revenues increased 4.8% in the fourth quarter, while the U.S. improved 5.9%. Adjusted EBITDA was up 37.9% year over year to $61.2 million in the fourth quarter, mainly driven by higher sales volume and a lower cost base. Mark will provide you with more details in the financial section. Turning to full-year financial results on slide seven, record revenue of $1.9 billion grew 11.4% year over year on the strength of higher sales volume, the positive effect of selling price increases implemented during 2022, and a favorable foreign exchange impact on U.S. dollar sales. Canadian revenues rose 7.4% in 2023, while the US grew at 17.1%. In terms of profitability, adjusted EBITDA more than doubled to $238.6 million in 2023 for the same reasons as revenue growth, along with lower pulp prices and reduced freighted expenses. These factors were partially offset by higher other input cost inflation, increased manufacturing overhead, and higher SG&A expenses compared to the prior year. On slide eight, pulp average prices in Canadian dollars increased single digits in the fourth quarter of 2023 from the previous quarter, while year-over-year prices dropped. NBSK and BEK average prices fell 24.6% and 32.1% year-over-year in Q4 2023. Based on industry forecasts, and we've already witnessed this early in 2024, Cult prices are expected to rise over the course of the year. Let's move on to Sherbrooke operations and our expansion at that site, which is on slide nine. Our TAD operations continue to track above expectations. Construction on our new production facility is progressing well as our facial tissue line began production in early February and our paper machine startup is expected in early Q4 2024. Of note, this extra capacity from these assets will help us supply our increased demand across North America. Turning to the facial market update on slide 10, as the Canadian leading supplier of facial tissue, we are fulfilling consumer demand following the grocery exit of the Kleenex brand in Canada by providing more innovation and expanding our distribution. We are delivering Scotty's facial tissues in different formats, sizes, and quality types to meet the diverse needs and requirements of our consumers. We have also expanded our facial distribution with new customers in the U.S. to serve that market. Scotty's made significant gains in the fourth quarter by achieving a 38.9% share of total facial tissue sales in Canada, which is according to Nielsen's 52-week numbers. These figures are even higher for 4-week and 12-week data, which will be reflected in future 52-week numbers. To meet demand for added capacity, the new facial line within our Sherbrooke expansion has been running since early February, and we also recently announced the acquisition of a new line in our Gatineau, Quebec facility, which will increase capacity by 25% there. This new Gatineau line reflects an additional $14.5 million investment that will deliver much-needed facial supply for us to grow in the North American facial market. Aligned with these new assets, we are increasing marketing efforts to further build brand awareness for Scotties across Canada while expanding our facial presence in the United States. Turning to our Memphis operations on slide 11, we are happy with the progress made on our TAD manufacturing operations. Paper production efficiency has stabilized, and we expect performance to continue to improve. In terms of converting, we're riding a longer learning curve there, but investments are being made in maintenance and technical leadership to improve performance. The deployment of digital twin and AI tools has been successful on the new facial line in Memphis, and we are expanding this capability across our TAD converting assets at the site as well. Finally, we are relaunching our operational excellence program at the site while leveraging best practices from both Sherbrooke and Memphis. As a result of these actions, we should see progressive improvement in output throughout the year. Now let's move on to brand support on slide 12. As mentioned earlier, we made incremental marketing investments in the fourth quarter to drive brand share in a highly competitive environment. Multi-brand activities continued with our unapologetically human Love is Messy campaign, and we unveiled the fourth year of a successful Kruger Big Assist program for young hockey players across the country. In terms of Canadian brands, we increased media support on Scotties, Bonterra, and Ultralux during the quarter to drive awareness and purchase. We also maintained strong shopper marketing and activation behind the sports partnerships, such as our entrenched relationship with hockey and NHL. In the United States, strategic shopper investments behind White Cloud continue to drive trial and awareness across the portfolio. Turning to slide 13, the data presented is taken from Nielsen. It shows market share performance over a 52-week period ending December 30 of 2023. The data validates our investments as share is growing in facial tissue and paper towel after a high inflationary period in the prior year. Share gains are up 2.9 percentage points and 2.1 percentage points year-over-year for these respective categories. As for bathroom tissue, we are improving our share trend in what is a highly competitive category. Looking at away from home on slide 14, sales volume in the fourth quarter increased 6% year-over-year and was stable sequentially. AFH has now delivered six consecutive quarters of positive EBITDA including robust profitability in Q4 2023. I believe that the foundations we have put in place in this business is having a positive impact on profitability. Going forward, asset performance and the startup of our new paper machine will provide strong growth opportunities for AFH. However, we keep monitoring the potential impact of an economic slowdown on the AFH market due to its increased exposure to shifting economic conditions. I will now turn the call over to Mark.