At Koppers, our performance and the long-term, sustainable value we create for all stakeholders are central to our Purpose of “Protecting What Matters. Preserving the Future.” Together, our global team fosters positive financial performance and generates positive global economic impacts. Our innovative spirit is central to our success in creating essential products for our modern world, while our product stewardship focus ensures our products are safe for both people and planet. We expect our key partners to share our commitment to Sustainability, and we work hard to responsibly manage impacts throughout our supply chain to ensure our commitment is realized.
Our three Performance-focused FAST Teams work to drive value for shareholders and protect stakeholders through product stewardship and chemical management, responsible supply chain management and road safety initiatives.
Team Summary: Identify opportunity areas to reduce chemical exposure and improve our chemical safety information and disclosures.
“The Hazardous Chemicals FAST Team pursues two primary goals. Our first goal is to formalize how we publicly disclose hazard information on our products and services. We will also define how we manage hazards internally and for our external stakeholders, how we manage associated hazard risks and our overall risk management processes. Our second goal is to update Koppers chemical risk strategy. Specifically, we will develop a global strategy to address potential long-term health risks to our stakeholders resulting from exposure to facility materials, raw materials and products possessing components with known and generally accepted hazardous properties. The two goals together enhance Koppers social license to operate and ensure we remain prosperous in a rapidly changing regulatory environment.”
— Heath Huschak, Hazardous Chemicals FAST Team Leader
Team Summary: Identify opportunity areas in our supply chain to support social issues, sustainable forestry practices and sustainable supply chain practices.
“The Supply Chain FAST Team focuses on evaluating the Environmental, Social and Governance (ESG) health of our supply chain through data metrics. For example, we are working to expand our use of renewable raw materials within our wood sourcing functions by partnering with suppliers who have sustainable forestry initiatives focused on replanting programs and maintaining ecosystems. We strive to foster accountability as it relates to ESG and to maintain the highest standards for our suppliers to ensure we provide for today without compromising the ability of future generations to meet their needs.”
— Marion Malus, Supply Chain FAST Team Leader
Team Summary: Develop, implement and promote measures to minimize or eliminate deaths and injuries from road traffic accidents.
“The Zero Harm FAST Team is setting goals that will further reduce exposure to our people and planet by reducing road and rail incidents, improving behavioral safety, increasing employee and contractor competency, and expanding our Process Safety processes.”
— Beau VanDyke, Zero Harm FAST Team Leader
Essential to our world
At Koppers, we pursue a value creation strategy centered on enhancing our product portfolio, pursuing cradle-to-cradle solutions, optimizing our network, expanding our wood-treatment capacity, realigning our business portfolio and strengthening our balance sheet. Our business manufactures products and provides services essential to our world. Our products help transport goods, provide electricity and support infrastructure, keeping the world moving. With the COVID-19 pandemic affecting almost every facet of society, 2020 was a challenging year for people and businesses alike. While the past year was not easy, the determined efforts of our employees ensured our 2020 financial performance was record-setting.
For further details of our financial performance in 2020, please see our annual report.This report refers to our 2020 adjusted EBITDA, adjusted EBITDA margin and adjusted EPS results. Adjusted EBITDA, adjusted EBITDA margin and adjusted EPS are non-GAAP measures, which provide information useful to investors in understanding the underlying operational performance of our company, its business and performance trends and facilitate comparisons between periods. The exclusion of certain items permits evaluation and a comparison of results for ongoing business operations, and it is on this basis that our management internally assesses the Company’s performance. In addition, our Board of Directors and executive management team use adjusted EBITDA as a performance measure under the Company’s annual incentive plan. As announced, the divestiture of Koppers (Jiangsu) Carbon Chemical Company Limited (KJCC) was completed on September 30, 2020. Beginning in 2020, KJCC results are classified as held for sale and as discontinued operations for the current year as well as the comparable prior year period. The adjustments to EBITDA, EBITDA margin and EPS, as well as reconciliations to the most directly comparable GAAP measures, are available here.These reconciliations also reflect how adjusted EBITDA is calculated for purposes of compensation.
The increasing stock ownership among our Board of Directors and Executives reflects our financial success. During the period of 2016-2020, stock ownership among these two groups increased by 116 percent, demonstrating the confidence people at Koppers place in our continued success.
Supporting what matters
Our business continued to positively impact people and communities around the world in 2020. Through employee wages, taxes paid and employee taxes withheld, Koppers supports local tax bases in the areas in which we operate and our employees and their families live. In addition to our direct economic impact, we support causes important to Koppers and our employees.
Global Economic Impact ($ in Millions)
Creating Sustainable Value
At Koppers, we know building a sustainable company and future is dependent on innovation and renewal. From the development of market-leading products to the refinement of operating procedures to improve safety, innovation guides how we grow our business. Our competitive edge as a company comes from our ability to innovate and position ourselves as a leader in an increasingly Sustainability-focused economy.
Our innovative pursuits are driven by two primary research and development (R&D) facilities. In R&D labs in Griffin, Georgia, a dedicated team of wood science professionals leads our wood technology development efforts and pioneers wood protection and enhancement chemistries.
The Koppers Global Technology Center, near our global headquarters in Pittsburgh, Pennsylvania, is the applied research facility supporting our carbon materials and commercial wood-treating operations with analytical testing services and enhanced carbon products development.
Innovation is ultimately overseen by our Operating Council, led by our Chief Operating Officer. Bringing together expertise from our operating, strategy, engineering, sourcing and R&D functions, the Council manages innovation across our four business units. Our two R&D facility leads inform the Council of innovation developments through their review of potential projects. The Sustainability Leadership Team’s involvement ensures our R&D efforts focus on business opportunities that support our Sustainability strategy.
At the center of our R&D projects is our work to create wood-preservative solutions that extend the life of wood products, while minimizing environmental impacts. By developing treated wood-based products that will capture carbon for decades, our R&D work is inherently circular. When preserved wood’s lifecycle comes to an end, it can be recovered and converted to biomass for fuel. Outside wood preservatives, our R&D facilities are also pursuing carbon material products that extend the life of electric vehicle batteries.
We encourage our employees to play an active role in innovation through our iShare portal, where ideas can be submitted by anyone at Koppers. Ideas can fall into three groups: ideas that further our commitment to Zero Harm, ideas for growth opportunities and ideas for process improvements/operational excellence. As our virtual innovation laboratory, iShare empowers our employees to proactively seek out areas where we can create sustainable value. When employees identify an opportunity area, they submit their idea through the portal, where it is evaluated by a dedicated, cross-functional team for their region. Promising ideas evaluated by the team are approved for implementation and allocated resources for realization.
The iShare program also includes a challenge feature, which allows management to engage with employees and solicit focused ideas on a particular topic. We utilized the challenge feature in 2020 to solicit employee ideas to reduce the COVID-19 infection rate. Koppers saw an overwhelming employee response, with ideas being submitted from every business unit and from around the globe. The top ideas included:
We created the Koppers Idea Summit in 2019 to expand innovation at Koppers by utilizing the principles of human-centered design thinking to brainstorm and prioritize new ideas in real time. The Idea Summit was virtual in 2020 and saw 10 employees from across Koppers business units meet and discuss ideas related to starting a new business unit. Over the course of three half-day sessions, participants brainstormed 88 unique ideas, which then were narrowed to three key suggestions for gaining a competitive advantage and differentiating Koppers through this new business opportunity.
Outside collaboration is also essential to successful innovation at Koppers. We partner with various research universities with expertise in areas aligned with our product and Sustainability goals to drive forward-looking solutions. Primarily focused on creating high-value environmentally friendly products, our external projects come about through long-term relationships, outreach and networking.
Koppers recently joined the Repurposing Carbon Consortium, a five-year collaborative effort between railroad companies and Purdue University’s Center for the Environment (C4E). The consortium is focused on repurposing the upward of 6 million tons of wood waste produced from the retirement of railroad ties and utility poles each year in the United States.
One potential solution examined by Purdue’s C4E is the conversion of retired ties and poles into biochar, a charcoal-like substance created when wood is burned using a low-oxygen process called pyrolysis. Biochar can then be used to create materials for applications like water purification, polymer additives, soil amendments and chemical feedstocks. The pyrolysis transformation of railroad ties and utility poles into biochar also locks in the wood’s carbon.
Koppers is dedicated to supporting universities educating the next generation of wood scientists. We recently agreed to support a graduate student at Michigan Technological University pursuing innovative solutions to address used railroad ties. At Penn State University, Koppers team members participated in a USDA Wood Innovation Grant focused on end-of-life solutions for used railroad ties. Koppers team members are also supporting various U.S. Department of Energy grants involving enhanced carbon products research from the University of Kentucky and the University of Wyoming. Additionally, Koppers is engaging Mississippi State University, Michigan Technological University, Louisiana State University and Canada’s FPInnovation to test the next generation wood protection technology.
Product stewardship is central to Koppers Sustainability efforts given its connection to People, Planet, Performance. Across all of our product lines, we strive to sustainably manage each product from inception to end-of-life, while continuing to meet product demand. By making our products safer for both people and the planet, we in turn drive business performance and build customer and public confidence in our business.
Given its interrelated nature, we manage product stewardship through a multi-disciplinary program. Led by our Strategy and Risk team, the program integrates expertise across multiple functions, including our Legal, Product Safety, Research and Development, and Zero Harm departments, among others. In addition to leveraging internal expertise, we partner with external organizations, including law firms, testing laboratories, toxicologists and trade associations, to further the program.
Our product stewardship program includes a defined governance structure led by our Product Stewardship Steering Committee, which meets bimonthly. Program experts report product stewardship developments to the Board on a quarterly basis. Topics discussed in the quarterly updates include pending regulatory requirements, key product registration and product stewardship-related incidents.
Our recently created Hazardous Chemicals FAST Team will work together with our product stewardship program experts to further their efforts and enhance the chemical-risk strategy associated with our products. The Team’s work centers on the United Nations Sustainable Development Goal 3, Good Health and Well-being, specifically Target 3.9, which aims to substantially reduce the number of deaths and illnesses from hazardous chemicals.
Three key areas — compliance, risk mitigation and Sustainability — define our approach to product stewardship and are interwoven across our products’ lifecycles. Compliance forms the foundation of our approach and our Safety Data Sheets (SDS) are central to our compliance efforts. Many of the SDSs are publicly available documents that detail health, safety and environmental information on our products and are frequently updated as regulatory requirements change. Our disclosure of Product Stewardship Summaries is a part of our commitment to the American Chemistry Council Responsible Care® code. The public summaries outline product safety and stewardship information for our major product categories of coal tar pitch, creosote and phthalic anhydride. Outside our product stewardship disclosures, we comply with all applicable chemical safety regulations, provide labels with safe handling instructions and conduct product safety testing.
Building from compliance, our risk mitigation efforts ensure we proactively address potential product stewardship risks. We conduct product risk assessments to identify where risks might exist within our product lines. With risks identified, we prioritize products based on their potential magnitude of impact and develop mitigation plans for prioritized risks followed by other identified risks. Externally, we engage with our customers to better understand how they use our products and we use this information to enhance our risk mitigation plans. We also work with our customers on product take-back and recycling programs to limit improper disposal risks, where possible.
Our efforts to effectively manage product stewardship at Koppers follow a structured process from product design through phase-out to minimize ultimate impact. Throughout the process, we monitor regulatory and legislative developments, along with emerging science trends that could impact our product stewardship.
Beginning with product design, we review a product’s chemical ingredients, physical properties and other inputs to ascertain safety before development begins. Next, we evaluate safety issues that might arise during product use. With industrial-focused products, we collaborate with end-use customers to evaluate how a product is employed in their operations and determine what kinds of risks might arise as a result.
After we evaluate the safety of a product’s design and inputs, it enters development where we further test and validate it before launch. Our stewardship efforts continue after launch as industrial customers conduct pilot assessments. During the pilot assessments, customers assess how products perform under working conditions. We then incorporate our customers’ pilot assessment results into our Product Stewardship program initiatives.
After a product reaches its maturity phase, we conduct periodic customer assessments and update our safety disclosures as circumstances require. When a product’s end-of-life nears, we begin devising a plan for a safe and sustainable phase-out and retirement.
Responsible supply chain management at Koppers means partnering with suppliers who share our values and dedication to Sustainability to drive our collective success. We are committed to responsibly managing impacts across the supply networks through which we source our raw materials. The limited number of suppliers who provide certain key raw materials for our business heightens the importance of our responsible sourcing.
We expect our suppliers to hold comparable values to Koppers and to accept and follow the principles set forth in our Code of Conduct when performing on our behalf. We require our purchasing decisions to be made on the basis of the suppliers’ ability to meet our needs and provide value. Koppers employees involved in purchasing decisions must avoid conflicts of interest and disclose and discuss any potential concerns with their supervisor to ensure our standards are upheld.
When purchasing raw materials for our business units, we evaluate direct suppliers on various key performance indicators (KPIs) such as delivery performance, reliability, material quality and issue responsiveness as required under their ISO 9001 quality management system certifications. Our evaluations occur on a quarterly basis to ensure we identify issues as they arise. When we identify an issue, we develop an action plan with the supplier to quickly resolve it.
As part of our implementation of the American Chemistry Council RC14001 Technical Specification under Responsible CareŽ, Koppers has developed compliant policies, processes and procedures to drive and support our Zero Harm efforts, starting with the premise that full compliance with all applicable legal requirements is the minimum level of performance. This standard requires us to develop systems to qualify and periodically review commercial partners (carriers, suppliers, distributors, customers, contractors and third-party providers) based on their Safety, Health and Environmental (SHE) performance.
Qualification of our commercial partners provides us with a method to evaluate their commitments to SHE performance and improvement. During our evaluation, we review a commercial partner’s processes, systems and/or performance metrics to gauge their overall SHE performance. Examples of criteria reviewed include, but are not limited to, management systems implemented, workers compensation loss history, illness and injury rates, job-related fatalities, chemical spills, and training programs. We also review regulatory-related matters, including permits or authorizations to transport or use our products. We require commercial partners to certify they are compliant with all regulatory requirements and to agree to audits to verify accuracy of the information provided upon Koppers request.
Commercial partners who do not meet the minimum qualifications or those who are found to perform below our standards may be conditionally qualified under the condition they work with us to improve their performance to attain or maintain their qualification status.
In 2020, we established our Supply Chain FAST Team to support our responsible supply chain efforts. The Team’s work centers on UN SDG 8 Decent Work and Economic Growth, 12 Responsible Consumption and Production and 15 Life on Land.
The responsible transportation of the raw materials we purchase and our products is an essential aspect of our supply chain management program. We work with our transportation operators to ensure they act safely and responsibly on our behalf.
In 2020, we made strong progress in the protection of our employees operating our commercial vehicles and the public with whom we share the road. The equipment we operate ranges from tractor trailers delivering utility poles and chemicals to boom trucks removing railroad ties for recovery to industrial cranes used in remote bridge repairs.
We recently formed our Zero Harm FAST Team to drive performance improvements across our own fleet and our third-party partners through a focus on UN SDG 3 Good Health and Well-Being’s Target 3.6, which aims to reduce road traffic deaths and injuries. The Team created an internal Commercial Fleet Zero Harm Council to govern our work to minimize and eliminate potential risks in our road transportation operations. Composed of business unit leaders and our corporate Fleet Safety manager, the Council meets quarterly to devise strategies to improve road transportation, which it disseminates across the Company for implementation. The Council also developed our corporate Fleet Safety policy, outlining road transportation management guidelines for our business units to apply to their individual circumstances. Outside the Council, our corporate Fleet Safety Manager monitors and tracks our internal fleet performance metrics and compliance with applicable regulations.
The FAST Team also standardized our approach to Electronic Logging Devices (ELDs), which we use to monitor fleet performance through data collected from vehicle cameras and GPS systems. Data collected by the ELDs includes driving hours, driver working hours (includes hours on the job not driving), speeding and other at-risk behaviors, such as hard braking and accelerations. In 2020, the Team coordinated the installation of ELDs in all of our commercial vehicles, with plans to install ELDs in all Koppers vehicles moving forward. We compile all ELD-collected data in our fleet safety dashboard, where our Fleet Safety Council and other senior leaders can track regulatory compliance and performance trends. When we identify an area for improvement on the dashboard, we develop improvement strategies to change behaviors and adapt to regulations, thereby enhancing safety. Overall, the ELDs are a strong coaching tool for managers to help drivers be safer while they serve our business on our public roads. In addition to installing ELDs, we installed GPS-enabled monitoring devices with forward-facing cameras on all vehicles to further increase fleet safety.