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Text: I'm Quynh McGuire, Vice President of Investor Relations.
You may access this announcement via our website at www.
As indicated in our announcement, we've also posted materials to the Investor Relations page of our website that will be referenced in today's call.
References may also be made today to certain non-GAAP financial measures.
Joining me for our call today are Leroy Ball, President and CEO of Koppers; and Mike Zugay, Chief Financial Officer.
I'll now turn over this discussion to Leroy.
As the pandemic continues, I hope that you and those you care about remain safe and healthy.
And I'd also like to wish all of you a happy healthy and prosperous 2021.
Our next call will be on February 24th, to report final 2020 results and provide our view into 2021 at that time.
As the starting point for today is shown on Slide 4, Koppers has continued to retain its designation as an essential business as determined by the U.S. Cybersecurity and Infrastructure Security Agency or CISA within the Department of Homeland Security.
I mean, we've been able to continue operating during the pandemic to transport critical goods, provide power and connectivity to homes and businesses, and keep our infrastructure running reliably.
We at Koppers, take great pride in carrying out this critical responsibility.
In many ways, last year, seemed like a whirlwind of activity as we work to adapt to the many changes brought on by the pandemic while serving our essential customer base with critical products and services.
Through a different lens, there were also periods where it seems the time stood still as many team members adjusted to the different stress points of working virtually.
Collectively, we're all happy to move past 2020 and step closer to seeing return to our new normal.
Same time there is a lot to look back on fondly, as it relates to Koppers' performance last year, and I'd be remiss if I didn't point out some of the highlights.
So let's move to Slide 6.
As I usually do, I'd like to start with an update on a number of achievements related to our Zero Harm culture.
I'm proud to announce that operationally, we finished 2020 with our lowest total recordable rate for any 12-month period in our company's history.
We have been successfully holding firm and emphasizing the importance of leading activities such as hazard identification to driving down exposure in injury rates.
Throughout 2020, we saw a 30% increase in leading activities and a corresponding 20% decrease in recordable cases, which is quite significant.
In November, we held a modified virtual version of our Leadership Forum with key team members worldwide who are responsible for the care and well-being of our team members.
Koppers' primary focus was on aligning the expectations of leadership at Koppers to ensure we are working toward a safer, stronger, and more inclusive workplace.
In December, we held our annual safety, health, and environmental coordinator conference also virtually, providing interactive training on best practices to reduce harm to the environment and better protect our people.
Despite what has been a chaotic year due to the unexpected challenges associated with COVID-19, these accomplishments prove that our team is not slowing down our efforts to ensure safety, but rather figuring out new and innovative ways to keep us pushing down the path to zero.
On the financial side of things, we also expect to finish the year on a positive note in spite of much in our world being turned on its head.
Our consolidated sales for the year at $1.67 billion represents a new high in the fourth consecutive year of growth when we exclude KJCC from prior results.
Now, while not yet final, we do expect to finish the year with a new high for operating profit of approximately $161 million, which would represent a 28% increase from 2019.
2020 will also represent a new-high watermark for adjusted EBITDA excluding KJCC as we expect to finish between $211 million and $212 million.
Now this compares to $201 million earned in 2019 and exceeds both our recent guidance range of $204 million to $210 million and even more incredibly exceeds our original pre-pandemic guidance for the year of $200 million to $210 million of EBITDA.
That level of EBITDA equates to a margin of 12.6% to 12.7%, which will be our highest margin since 2017.
It will also be the fifth straight year with adjusted EBITDA margins between 12% and 14% after seven straight years with margins hovering between 8% and 11%, just another indication of how we have truly transformed our business model.
For the year, we expect adjusted earnings per share to be between $4.10 and $4.20 per share, which again would represent a new high for Koppers beating our previous high of $3.68 per share back in 2017.
2020's expected result would represent an approximate 30% increase over 2019 adjusted earnings per share of $3.18.
Finally, we will have saved approximately $9.5 million in SG&A cost compared to 2019.
That's about $2.5 million shy of our original goal of $12 million, which was primarily due to our better-than-expected performance resulting in higher bonus accruals, and special bonuses paid out to our team members at year-end for their extraordinary efforts in extraordinary times.
Our balance sheet and cash flow perspective is outlined on Slide 7.
In addition to receiving $65 million of net proceeds from selling our KJCC coal tar distillation facility in China at the end of September, we also had one of our strongest cash flow years generating over $120 million of cash, which will go down as our second-best cash flow year ever.
Now, doing so enabled us to reduce net debt by $131.5 million, which represents our largest net-debt reduction in any given year in our public company history.
Finally, the combination of the higher EBITDA generation and strong-debt reduction allowed us to reduce our net leverage ratio to 3.5 as of year-end compared to 4.3 at the end of 2019.
This is the first year-end since 2017 that we finished the year with net leverage below 4 times as we continue to remain focused on reducing leverage to average between 2 and 3 times.
We spent just under $70 million of capital for the year, which was near the high-end of our most recent guidance and was primarily due to the treatment expansion project North Little Rock.
On a final note, the book value per share of our equity has never been higher as we finish out 2020.
It was truly an extraordinary year for Koppers in 2020.
We look forward to providing more insight into what we expect in 2021 on our February call coming up in less than a month.
Until then, I'll update you briefly on a number of other things going on at Koppers before handing it over to Mike to review the quarterly results in more details.
Moving to Slide 9, currently, we have 20 employees or about 1% of our total employee population self-quarantining for the coronavirus.
To date, we have had 232 employees worldwide, or 11%, who'd have tested positive.
And on a cumulative basis, we've seen close to 2,000 occurrences of employees testing positive or having -- of employee testing positive or quarantining, many of them more than once.
Consistent with national worldwide trends, we have seen an increase in cases throughout the last quarter and early part of 2021.
And while we continually reinforce the importance of practicing safe behaviors and are diligent in ensuring the proper safety measures like thoroughly cleaning and disinfecting any affected areas, the virus has proven to be a formidable obstacle to overcome in our operating environment.
Face coverings are required at all North American facilities and we provided these to our employees.
Our strict protocols governing personal protection into processes such as social distancing and diligent hygiene have also continued and includes using rapid self-administered saliva testing kits at our locations in North America.
We also recently began using a pool-testing method to screen all U.S.-based plant employees on a periodic basis as that is the employee base where 99% of our infections have come from.
In the screenings done to date, we've identified multiple asymptomatic employees and we're able to mitigate the potential spread of infection at those plants by keeping the virus outside of our fence lines.
Given the importance of effectively addressing COVID, Koppers has established a new life-saving role that's designed to raise awareness of infection hazards, bind more discipline to our routines and identify job tasks that have higher risk.
For the higher-risk job tasks, we'll require more stringent standards of respiratory protection which include N95 masks and advanced level respirators.
Regarding our communications efforts, we began holding our quarterly all-employee meeting in three time zones to better accommodate our employees in the U.S. and Europe, and in Australia, New Zealand.
The new format has encouraged discussion of topics most relevant to each geographic region.
Beyond that, we continue to hold virtual chat with employees in our plants and those working remotely, and also I continue to provide updates and encouragement to our employees worldwide through weekly videos, which were also posted on Koppers' Facebook and LinkedIn pages.
Looking at our operations continuity on Slide 11, we see that all worldwide Koppers manufacturing facilities remain operational with no furloughs or layoffs.
Travel continues to be restricted to essential business only.
We continue to carefully evaluate potentially holding a limited number of in-person facility visits, but only if necessary in order to reinforce health and safety goals.
Our office employees are strongly encouraged to keep working remotely with a return to the office postponed until April 1st of '21 at the earliest.
Now, of course, anyone working on site is required to follow all face-covering and other COVID-prevention protocols.
And on the vaccines front, we do not plan to require employees to be vaccinated to enter our facilities but we are strongly encouraging it to the extent that we plan to offer financial incentives through our employee-wellness program to those that supply proof of their vaccination.
Getting as many of our employees through the vaccination process is the quickest way for us to move forward without the specter of COVID-19 and its effects hanging over us.
Now, as another example of technology enabling us to run our business even better, we recently implemented a fleet safety dashboard in order to improve the safety and efficiency of our trucking operations.
Also, we're deploying new visitor management system at our facilities to help with keeping our employees and visitor safe.
We also continue to leverage every available technology to conduct meetings, make virtual facility visits, conduct virtual training programs, and conduct virtual ISO audits.
Slide 13 illustrates our continuing efforts to engage employees in meaningful ways.
Three of our female members of Koppers' leadership council were featured in the first installment of an empowerment series for employees, which was held virtually in the fourth quarter.
As we hired our Chief Sustainability Officer, Stephanie Apostolou, our General Counsel and Corporate Secretary, and Quynh McGuire, our Vice President of Investor Relations participated in a panel discussion that covered topics such as carving their path to success, discovering their individual leadership styles, building their support networks, and managing their work-life balance.
Hosted by LINKwomen, one of our employee resource groups, the event was well attended and will serve as a model for similar programs to be held in the future.
In the fourth quarter, we launched our annual global employee engagement survey, which gives everyone the chance to provide me and our leadership team with open, honest, and confidential feedback about what it's like to work at Koppers and how we can further enhance the employee experience.
We've been parsing through the results, and we'll shortly be implementing certain changes to better address areas where we fall short.
It remains a core commitment to create positive change based on employee input.
We strive to differentiate Koppers as an employer of choice and to use that as a competitive advantage in an environment where talent is at a premium.
Slide 15 shows two tangible examples of our employees caring for the environment.
During our 2019 safety, health, and environmental conference, participants traveled to our Newsoms, Virginia facility to create floating wetlands or man-made rafts that float on the water surface and house native wetland plants, providing homes to beneficial water cleaning microorganisms.
A year later, our team checked in during the fourth quarter of 2020, and the wetlands are growing well to successfully do their job.
Our facility in Stickney, Illinois, employees recently planted hardwood to enhance soil quality and create a more attractive green space for the community at a neighboring terminal, where we began a phytoremediation project in 2019.
Photos show the new hardwoods, along with the growth of many other plants since the start of the project.
Going to Slide 17, here are some of the examples of how Koppers' teams are serving our neighbors.
For the fifth year, Koppers Railroad Structures participated in the Leukemia & Lymphoma Society's virtual Light The Night event in Madison, Wisconsin, bringing its cumulative impact to more than $91,000 in donations.
Additionally, Vice President of Railroad Structures, Mike Tweet, a bone marrow recipient, has worked with the University of Wisconsin in Madison to support Be The Match, which brings donors and recipients together.
Our utility and industrial products group continued with deploying its storm response teams in August, restoring power to 25 million utility customers affected by devastating winds sweeping across Iowa.
In November, our UIP team again implemented its 24/7 storm recovery program to help those in Georgia, affected by Hurricane Zeta.
At roughly the same time, our UIP crews also responded to a major ice storm in Oklahoma, supplying more than 3,500 poles and crossties to aid in post-storm recovery.
The feedback that we've received from key municipal and utility customers has been uniformly positive and highly appreciative.
Over the holidays, at year-end, Koppers' employees across our worldwide footprint continue making a difference by reaching out to those in need, as shown on Slide 18.
Those at our Ashcroft, British Columbia facility donated 600 pounds of food to the Ashcroft community food bank, 150 pounds of household items to The Equality Project, and funds to the Jackson House Assisted Living facility.
Our Rock Hill employees donated more than 300 pounds of canned goods to their local food pantry and supported the local Toys for Tots campaign.
And at our Queen City facility, employees donated gently used clothing to a local shelter as part of clean out your closets for the homeless.
Our people and our company have been making headlines over the past quarter, as seen on Slide 20.
In November, our Performance Chemicals business purchased land adjacent to its plant in Rock Hill, South Carolina to be used for future expansion.
The announcement led to local Rock Hill Herald to write a feature on plant manager, Ida Luchey, about the expansion in her career as one of the few female chemical manufacturing plant managers in the industry.
Also, I'm proud to say that Koppers was recently named the Newsweek Magazine's listing of America's Most Responsible Companies for 2021, placing among the top half, number 179 of 400 companies selected and ranking 30th overall in the social category, which scored us on items, including Board diversity, employee engagement, and community giving.
Newsweek and Statista compiled the list based on a rigorous vetting process.
This recognition stands as a testament to the incredible work that our employees have done to exemplify our sustainability mindset and our Zero Harm culture of putting the care of people, environment, and communities first, while providing safe and responsible solutions to our customers.
This financial discussion is based on these preliminary results.
On Slide 22, consolidated sales were $393 million, an increase of $11 million from sales of $382 million in the prior-year quarter.
Sales for RUPS were $168 million, flat as compared to the prior-year quarter.
PC sales rose to $130 million from $105 million, and CM&C sales came in at $95 million, down from $108 million.
On Slide 23, adjusted EBITDA for RUPS was $10 million, which was the same as the prior year.
EBITDA for PC increased to $23 million from $14 million.
CMC EBITDA was $14 million compared with the prior year of $16 million.
Moving on to Slide 24, sales for RUPS were $168 million, relatively flat again year-over-year.
This was primarily due to lower crosstie volumes, offset by higher utility pole demand in the U.S. as well as Australia.
We also saw increased maintenance-of-way projects in the United States.
On Slide 25, adjusted EBITDA for RUPS was $10 million, also flat for the -- from the prior-year quarter, but which is in line, however, with the expected year-end slowdown in crosstie treating demand.
This is reflect -- this reflects our ability to main profitability due to increased pole demand and favorable conditions in our maintenance-of-way businesses.
Sales for the PC segment, as shown on Slide 26, were $130 million compared to sales of $105 million in the prior year.
This reflects continued strong demand for copper-based preservatives in the U.S., also driven by a strong housing market and higher demand in home remodeling and the increased use of discretionary funds for home improvement projects.
Overseas, reopening markets also helped PC sales through increased industrial and agricultural demand.
Adjusted EBITDA for PC on Slide 27 was $23 million compared with $14 million in the prior-year quarter.
Higher sales volumes, a favorable product mix, and better absorption on higher production volumes all contributed to these positive results.
Moving on to Slide 28, as this shows CM&C sales at $95 million compared to sales of $108 million in the prior-year quarter.
Sales were lower in every region, except Europe, but were in line with overall expectations.
The pandemic has meant lower average oil prices and a general market slowdown, which translates into lower pricing for carbon pitch globally and weaker U.S. demand for phthalic anhydride, which was partially offset by improved demand for carbon pitch in Europe and for carbon black feedstock in Australia.
On Slide 29, adjusted EBITDA for CM&C was $14 million compared to $16 million in the prior-year quarter, reflecting an expected decline due to the ongoing weak-end market demand.
However, Q4 performance reflects continued margin recovery, year-to-date adjusted EBITDA margins were only 7.5% at June 30th but as we predicted CM&C margins rebounded strongly in the second half of the year and year-to-date margins for the full year increased to 11.7%, reflecting a very, very strong second half of 2020.
Now let's review our debt and liquidity.
As seen on Slide 31, at the end of December, we had $737 million of net debt, with $346 million in available liquidity.
We reduced net debt by $131.5 million in 2020, which included the proceeds received from the KJCC divestiture.
We also remain in compliance with all debt covenants and do not have any significant debt maturities until 2024, when our revolver matures.
As of December 31, 2020, total debt was at $784 million.
In summary, I'm proud to say that every indication shows that Koppers will meet or exceed all major goals that we had set for 2020 prior to the pandemic.
Due to all the hard work and dedication of our global workforce, we are on track to achieve a new high of profitability post KJCC to surpass the high-end of our initial 2020 earnings target, to exceed our original net-debt reduction objective of $120 million, and to reduce our net leverage to 3.5, below our pre-pandemic 2020 goal of 3.6 to 3.8.
These 2020 achievements are all the more impressive given that our people had to deal with the pandemic and all that came with it and yet they dug deep and persevered.
More than ever, we're confident that placing people first leads to a stronger commitment to our customers, which in turn leads to success in all aspects of our business.
Even with everything that was going on in 2020, we improved our underlying safety rates to an all-time best performance, initiated our sustainability journey, strengthened our inclusion and diversity focus, and supported our team members and communities during a shared crisis.
Taken together, it makes for a truly historical year.
We are also on a curveball in 2020 but faced with such an unusual an unanticipated set of circumstances, at Koppers, we're still able to deliver strong performance while also working on pushing forward several initiatives focused on the future growth and success of the business in 2021 and beyond, which I look forward to sharing with you in a month's time.
With that, I'd like to open it up for any questions.

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expects to invest $105 million to $115 million in capital expenditures in 2021.
in 2021, koppers plans to reduce debt by approximately $30 million.

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