Q4 2019 Earnings Call
[music].
Good morning, and welcome to the Rayonier advanced materials fourth quarter 2019 earnings Conference call.
During today's presentation, all parties will be in listen only mode.
Following the presentation the conference will be open for questions and instructions to follow at that time.
As a reminder, this conference is being recorded.
I would now like to turn the call Liberty Your host Mr., Mickey Walsh, Treasurer, and Vice President of Investor Relations for Rayonier advanced materials. Thank you Mr. Walsh you may begin.
Thank you operator, and good morning, everyone. Welcome again to Rayonier advanced materials fourth quarter 2019 earnings conference call and webcast.
Joining me on todays call or Paul Boynton, Our chairman, President and Chief Executive Officer, Marcus Miller, Our Chief Financial Officer, and Senior Vice President Finance and Frank Rippert, All our executive Vice President of high purity cellulose and high yield cellulose is businesses.
Our earnings release and presentation materials were issued last evening and are available on our website.
Rainier am dot com I'd like to remind you that in today's presentation. We will include forward looking statements made pursuant to the safe Harbor provisions of Federal Securities laws, our earnings release as well as our filings with the FCC list. Some of the factors, which may cause actual results to differ materially from the forward looking statements we make.
There are also referenced on slide two of our presentation material. Today's presentation will also reference certain non-GAAP financial measures as noted on slide three of our presentation. We believe nongaap financial measures provide useful information for management in investors, but non-GAAP measures should not be considered an alternative to GAAP measures are reconciled.
In addition of these measures to their most directly comparable GAAP financial measures are included on slide 16 through 19 of our presentation well now turn the call over double.
Thank you Mickey and good morning, everyone.
2019 was a very challenging year for Rainier asked materials.
As noted on slide four we delivered $76 million of EBITDA for the year, which was an unacceptable results.
We faced a number of challenges as the impact of global trade disputes and tariffs led to a general collapse in the pricing for our commodity products.
Including high yield pulp.
Lumber fluff and this goes.
As a result year over year price declines accumulated to 862 million dollar EBITDA impact.
We also managed through some difficult operational issues in the first half the year.
And these challenges resulted in underwhelming financial performance and it reflected severely on our stock price.
Well I'm disappointed to our 2019 results.
I'm proud of the team and how they managed these very difficult business conditions and acted decisively to respond to them.
We commenced a portfolio evaluation process that ultimately resulted in the sale of our Metanor high yield Pope facility for net proceeds of $158 million, representing more than 10 times valuation for commodity mill through the cycle.
We also reduced capital spending by 26 million or 20% below plan by focusing primarily on asset maintenance and reducing strategic capital.
Knowing the challenges might worsened before they improve we engaged with our lenders and the renegotiated covenant relief to provide us with the financial flexibility necessary to manage through the cycle.
Concurrently we also unfortunately had to suspend the common stock dividend saving $18 million a cash per year on a go forward basis.
Today, we announced additional actions that will further reduce costs and improved cash flow, which I will discuss in more detail later.
Now I want to provide you with an update on some recent events as noted on page five.
First why we see challenges in China related to the trade disputes and ongoing health crisis. There are also many positive signs in the region.
On the trade dispute the Chinese government recently announced it will allow purchasers for certain products, including cellulose specialties. This goes and fluff pulp to apply for exemptions from the from the tariffs.
We are working with our customers and expect to receive the exemptions later in the first quarter or early in the second quarter.
And as a reminder, we saw about $230 million a product from the U.S. to China and the removal of these tariffs would yield a significant benefit to our results.
In light of the ongoing health crisis in China. We are pleased to report that to date cellulose specialty sales orders shipments in cash collections for key Chinese customers continue to flow at normal levels.
We are beginning to see some slowing of orders in high yield pulp, which are being offset with sales into other geographies.
We are continuing to monitor this dynamic situation in and outside of China.
Lumber prices have increased $45 per thousand board feet or 11% since the start of the year supported by two months a very strong housing starts.
Yes, hi, when things start to be seen it over a decade.
Recently, we've also seen progress in softwood lumber duties as the U.S. announced a preliminary determination to reduce our rate from 20% to 8% beginning in August and annual benefit of approximately $10 million.
Closer to home in Canada. Please note that we have recently been managing around blockades to various real winds in the country.
We are working to mitigate the impact by developing alternative shipping methods to ensure that sales orders are completed.
We are hopeful for a speedy into these blockade and avoid other higher logistics costs.
Lastly in high yield pulp we have pushed through modest price increases in January and February marking a potential turn at the bottom of the cycle for this business.
With a renewed focus on operational excellence excellence, we have run our assets more reliably over the last several months, we expect increased volumes in our high purity cellular segments, which would drive down our fixed cost per ton and increase overall profitability for 2020.
I'm confident in our ability to drive significant improvements to our businesses and I'm optimistic that markets will support a much stronger result in 2020.
Now let me ask Mark just review, our 2019 financial results and outlook for 2020 Marcus.
Thank you Paul.
Starting with slide six on a consolidated basis operating income declined $231 million with price declines accounting for $162 million or 70% of the decline.
Additionally, volumes and sales mix impacted results further $37 million or 16%.
Driven by weaker high purity cellulose markets and softness in newsprint markets.
Operationally issues, primarily in the first half of the year. We're also a significant contributor to the 83 million dollar loss from operations.
It is worth noting that corporate costs include $4 million of expense related to our loan amendment.
And a 17 million dollar noncash environment Environmental reserve charge.
Turning to high purity cellulose on slide seven full year 2019 sales decreased by $65 million driven by a 2% decline in C. S sales price any 6% decline in CS volumes, both of which were inline with our previous guidance.
Additionally, commodity prices declined from prior year as price declines accelerated in the fourth quarter, including a 25% reduction in the quarter due to weaker demand.
EBITDA for this segment was $127 million compared to $233 million a year ago.
Change was largely driven by price declines for commodity products out increased volumes.
Lastly increased costs from the reliability issues from earlier in 2019.
Had a meaningful impact on operating results.
Turning to slide eight sales in our forest product segment declined by $57 million from 2018, driven by 21% decline for lumber products.
EBITDA for the segment fell $53 million to a 22 million dollar loss.
Driven by lower sales pricing, partially offset by improved costs.
Including favorable would yield lower duties and the reversal of an inventory write down.
Also keep in mind that the EBITDA loss includes $22 million of duties in 2019.
Since the start of the softwood lumber duties on shipments into the U.S. in 2017, we have deposited a total of $59 billion of duties and we have accrued interest of $3 million on the deposits.
Based on the result of prior trade disputes Canadian producers have historically recovered all or a vast majority of these duties upon resolution.
Earlier. This month, we saw that the U.S. Department of Commerce has taken steps that should have a beneficial impact in 2020.
Turning to slide nine.
Paperboard has been broken out into its own segment.
Paperboard segment sales increased $3 million as volume volume improvements offset a slight decline in pricing.
EBITDA for this segment was flat at $22 million as lower raw material costs were partially offset by higher transportation and logistics costs.
Sequentially. This segment improved throughout 2019, primarily due to lower raw material costs.
Turning to our new pulp and newsprint segment on slide 10 sales decreased $67 million, primarily due to a 25% decline in high yield pulp prices and a 11% reduction in newsprint prices as demand for these products declined.
Additionally, newsprint volumes decreased 13% due to market downtime and reliability issues.
Hi yield pulp volumes also declined 3%.
EBITDA for this segment decreased by $72 million to $12 million, driven by lower sales prices and market downtime in 2019.
Turning to slide 11.
Total debt decreased to 1.1 billion as we applied approximately 150 million of cash from our fourth quarter Metanor asset sale towards repaying term loans and our revolver.
Our net secured leverage ratio ended the year at 4.1 times compared to a covenant requirement of not more than 5.6 times based on the most recent amendment.
We ended the year with 151 million of liquidity, including $64 million of cash and $87 million available on our revolving credit facilities.
Looking forward to 2020 on slide 12, we expect commodity markets to recover while we are focused on controlling costs and preserving cash.
In high purity cellulose for the first time in seven years, we expect CS prices to increased modestly at 2% on a contractual basis before any impact for FX and sales timing driven by our decision to enhance product margins.
Volumes are expected to decline due to a ramp down in certain contractual volumes and driven by our decisions not to pursue lower margin see us business.
In addition, we expect a negative impact from sales timing and forecasted volume weakness in automotive end markets.
Commodity prices are expected to increase from recent lows throughout 2020.
Total sales volumes for this segment are expected to increase by mid single digits with about half the volume coming from commodities.
This mix shift towards more commodities is driven by the lower CS volumes plus improved operational productivity.
Overall, we anticipate positive EBITDA growth in 2020.
The amount of which is largely dependent on the pace over the improvement in commodity fluff and viscose pricing as well as a near term impacts of the current health crisis in China.
In forest products, the positive housing data and roost reduced supply, our leading to improved pricing and volumes.
For the segment EBITDA to be breakeven it requires realized pricing of approximately $400 per thousand board feet net of duties.
Based on current conditions, we expect positive EBITDA for this segment, which is a significant change from the 22 million dollar loss in 2019.
Paperboard sales are expected to remain stable in 2020, while margins are expected to improve from lower raw material costs.
We expect high yield pulp prices to gradually improved from the current bottom other cycle. We have successfully achieved price increases in January and February and are mitigating minor impacts related to the health crisis in China with with sales to other geographic regions.
Meanwhile, newsprint prices will remain challenged due to demand weakness, but volumes are expected to increase with improved product separately.
With that I'd like to turn the call back over to Paul.
Hey, Thanks, Mark is look we know our businesses in the midst of a down cycle. We also know that cycles turn.
I'm proud of how our team is managing the business to ensure a survival in the downturn, while being well positioned to capture value on the upswing.
Our primary goal is to ensure that we remain in compliance with our financial covenants, regardless of what market conditions, we face.
To that end, we're announcing a number of actions as noted on slide 13 that we have identified to reduce costs and improve cash flow in 2020.
In total we are targeting $60 million to $70 million a benefits from these programs.
These actions include first reducing our operational cost by $15 million.
Primarily through improved efficiencies on the supply chain and continuous improvements in our operations.
Second we expect to reduce corporate cost by $10 million to $15 million from the 2019 levels.
These cost reductions will come from a combination of head count reductions implemented in late 2019 and reduction of external services.
Next we will further reduce capex from $103 million in 2019.
By an additional $10 million to $15 million.
This is in addition to the 26 million dollar reduction that we put in place in 2019.
Capex will primarily focus on maintaining our high purity cellulose assets.
Yes, so I'm, a very selective strategic capital projects with near term or certain paybacks.
Lastly, we're targeting an additional 25 million dollar reduction in working capital, primarily from reducing inventory levels and improving upon our payment terms, both with vendors and customers.
Additionally, we're identifying incremental opportunities to help drive further improvements.
These include asset sales, which as we've discussed previously we will execute opportunistically at the right price and structure.
We also look at additional workforce reductions curtailment of production or even permanent site closures, if we don't see market conditions improve.
Dale market cycles always return to the positive and we have some signs recently that we maybe close to recovery.
We are taking the necessary action to reduce cost preserve cash and improve reliability that will allow us to both manage the business through the cycle and the capture value as the market cycle improves.
We will emerge stronger and more resilient as a company.
With that operator, please open up the call to questions.
Thank you at this time, we will be conducting a question and answer session.
I would like to ask your question. Please press star one on your telephone keypad.
For participants using speaker equipment and may be necessary to pick up your handset before pressing the star Keith.
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A press star too if you would like to remove yourself from the Q.
One moment, please while we poll for questions.
[noise]. Our first question comes from the line of Paul Quinn of RBC Capital markets. Please proceed with your question.
Yeah, Thanks, very much morning, guys.
Wonderful.
Just just a question on the guidance going forward, the 2% increase in factory cellulose I mean, one of the things you're doing is getting rid of the lower volume lower margin.
Jason.
That mix improvement should should cut because you're at your prices move up alone. So just wondering.
It is like you present, just all the the effective mix or is there were actually a price increase in there as well.
Yeah, Paul there's actually a material price increase in some of our segments within the CS sales piece of this and as you know the focus of our our strategy going forward from last.
First quarter 2019 was we need to stabilize this market and we need to start putting it on a firmer ground going forward. So that was the goal of that and so we pushed very hard to get those price increases throughout the year.
We were able to do so in the face of an incredibly difficult that skus market.
I think was a very positive outcome and I think that signals a better market dynamic going forward.
Okay, and then I.
I guess.
Moving on to let me just so I understand that $400 debt Breakevens brings you up including duties with that 20% right now so we're on.
Like I said before 75 to be able to breakeven in current prices are well above that so 2020 is looking reasonable.
Yeah, Let me take the first part of that Paul just on what we just commented to me said look at today's prices Yeah, we should be in positive EBITDA ground and of course last year I think we posted a 23 million dollar.
Lost EBITDA loss in that business. So we're expecting at least that improvement that's not including.
The duty that we think should be reduced from 20% to 8% and they always timeframe and that will contribute another four to 5 million I think Marcus.
For the balance of the year. So yeah, we were anticipating a good improvement there just based on today's prices I think you've got even more positive prices going forward and your models.
Right, Okay, and then just lastly, just.
Its backlog dirty much it's not just on the volumes between specialty and this goes kind of confused it sounds like it they'll be equal volumes.
Maybe that question and then just also what do you seem to discuss market right now because not seeing very much price recovery. So maybe you guys are you, obviously, a lot closer to them as well.
Yes, Paul So when you think about the volumes think about two things rightly said, we're about 50 50 here, we said that there were going to have a.
CS volumes will be down there will be down roughly 7% to 8% on a contracted basis.
Two thirds of that was anticipated as we went into the strategy to better align our product mix what the overall market.
And get out of some of those lower lower margin businesses and in fact, some of the historical contracts, which we did not think we're very attractive and probably [laughter].
Got a third of the volume loss and see us really less about weaker markets, particularly in the automotive end markets, which we talked about throughout the second half of last year.
So we're looking at that but what we really have is operational improvements as well and so if you think about it theres theres two things going on from a volume perspective on the commodities. One is we've got the ship from some of these lower CS volumes going into commodity volumes.
And then we've got the improved operations. If you recall operations in the first quarter of last year in second quarter were pretty weak and so we've got a significant increase just in productivity of our mill assets.
And as we switched to the strategy of making fluff pulp on C line as well, that's just has better machine productivity as well. So that's what's really driving the 50 50 split between the two if we're not the up the C. S mix that's about 50%.
Of the increased commodity production and the other 50% is roughly the that they improved efficiencies on our facilities.
All right that was helpful.
Thanks, much guys best of luck.
Okay, and Paul I think you also asked about discos prices Yep, and what we're seeing in that market. So what we're seeing into viscous market is the viscous market is heavily influenced by China and it's just been very quiet over there. So we haven't seen.
Any material improvements in pricing on the viscose market, just because the market spend more quiet our volumes have held up very well in the viscous market specifically going into China.
I think that's in part because our customers tend to be some of the larger better funded businesses.
Over there so thats gone very well.
The.
So that's been a positive we're keeping our eye on though given some of the corona virus issues et cetera, what's going on downstream from our customers with the spinners to tend to be a little bit smaller and more labor intensive. So we haven't seen that started back up yet, but we're keeping a close eye on that piece of it but again on the viscous.
Side, we haven't seen pricing move plus or minus the tariff.
Going away in March our customers are applying for those to go away and if they do then we'll see the benefit of that pricing increase invesco says they no longer need to pay the tariff to some extent I'd also referenced the fluff pulp market where we.
We actually have seen some modest price increases going into March I think driven impart by some of the big guys, making price announcements and pushing for higher prices in those markets.
Alright, Thanks again.
Thanks, Paul.
Our next question is from Steve Shark over from D.A. Davidson. Please proceed with your questions.
Thanks, Good morning, everyone.
And so.
Yeah, My first couple of questions or I suppose a follow on to Paul Quinn.
On a high purity cellulose.
The 2% price hike, which is the first in seven years.
Is that just 6% hike you announced last fall I recognize there some contractual elements to it so there will be more trickle in from that from the fall 19 price hike into 2021.
So so Steve let me back it up a little bit said, the 2% hike and I think you pointed out something that's important we did have certain contracts, which had pricing set between 19 and 20 at relatively flat level. So the 2% takes that into account when we look when we look at some of those issues.
The 6% was a price increase that we announced there I think the way to think about as we realize roughly.
2% event, we realized it stronger in certain markets and not as strong and others. So if you think about how weak the automotive and filtration sectors, where last year, we found that more difficult to push pricing through in some of the more stable and growing sectors, we saw better pricing improvement.
So there's still.
Struggle or you don't you'll you'll be pushing on that okay. And then secondly, again I hope, it's not redundant but.
Segment EBITDA up slightly for cellulose specialties does that explicitly include the non repeatable to miss coming boiler in the southern would price spike.
Yes.
Okay.
So I.
Got it.
And then in Paperboard does your flat guidance.
Reflects the $30 per ton Sps price decline that receive printed last Friday.
Yeah that guidance just a came out like you said last last Friday and.
I would not say that that number is fully baked into our number but keep in mind a couple of things one a lot of our pricing isn't directly hinged to to any kind of refi index out there. So I'd say, it's not fully.
Hi conducted in that way I think it will be a pull on the EBITDA for that business and the negative way Steve.
At the same time I also know the team is working hard on increasing volumes as well so right now I'd say if it has an impact it's not a very significant one and I'm pretty confident teams got some plans already in place to offset that with some positive.
Mix and volume so.
I think our overall EBITDA guidance is still good although the pricing as you said, maybe a little bit pulled down but not by that that $30 in our case Marcus anything you'd add that that's that's a good characterization of our sales portfolio.
Great. Thanks, and then with respect to the Canadian Railed blockades RBC lumber is the most impacted but is it also impacting your ability to ship high yield pulp and paperboard newsprint.
Yeah, I think a whole lot of our products out of Canada again kind of caught up into this recent issue and that's why we thought we should mention it just for everybody's benefit.
Realigned so in the country or are being blockaded and different spots of set up by the first nations people in protest of a British Columbia LNG pipeline construction projects. So that's kind of the underlying issue. Our major concern is just to realign between travato in Montreal, we move a lot of product in that corridor.
And if theres some positive news, we saw that the Ontario Provincial police took some aggressive action this weekend.
Started opening that up and so we're seeing some product flow, but it's a it's tenuous and it needs to be a permanently opened pathway and not just a temporary so.
We see some positive developments, but again, it's a concern and monitoring it miscible, we're working on other pathways from trucking and everything else, but we do need to have like most companies in China. The railways opened and just even in passenger flow back and forth needs to be opened so I think we'll continue to see a lot of focused on that from a from Pall mall governments.
In Canada to make sure that that happens, but we're monitoring Steve.
No it's.
Interesting situation.
And then.
Then Marcus articulated I guess the historical.
Precedents with respect to lumber duties.
And.
The the 60% reduction in duties that we're expecting.
Yes.
This August it's fair to.
To interpret that as you know a partial admission that the U.S. was wrong on these duties right.
And by extension in the Canadian case, once again should prevail is that how you interpret it.
Yes, Steve I think you're correct you know like like past lumber files overtime, you see these preliminary determinations come out into the market and they tend to confirm lower rates and then a as the file evolves further you might see an adjustment, but this is a good sign and it's very much aligned with.
Higher lumber files.
Okay, and then I'm still going to call. It NAFTA I don't care, what they call it.
Now that that signed.
To your knowledge are they working on the lumber file.
We Washington in Ottawa.
Well I think it's certainly opens and shifted the focus to that but you do need to have a cooperative parties to be a part of that discussion. So everybody has got to say hey, I'm into talk about it I do know the focus has shifted to that Steve I don't know the any progress has been made.
Okay, and one last one you know with all the moving parts. So you do expect free cash flow to be better you want to hazard, a guess on where that might land or what your.
Sure.
Your minimum.
Well you are I guess your minimum that you'll be satisfied with and then the your stretch goal might be.
Lets Steve maybe I'll just cover some of the cash flow items, obviously, you could see from our filing that capex.
Was it was around 103 million.
And in in our slide deck on page 13, you can see we're targeting a reduction of 10 to 15 million. So certainly those fixed charges will be lower in the business and should help our cash flow. In addition, a another important lever is the working capital improvement of 25 million and it's very.
Your targeted on finished products inventories and and some on payment terms. So as you can see there was another 25, there and then Paul mentioned in his comments, we continue to see operationally. We've we've got the boiler issue a into mr. coming and the hard wood fiber issues we saw.
This year.
Our are behind US and in addition, we're further making further strides on our three year synergy targets as far as our global improvement team goes.
So those things together should help us in this market to keep our cash flow.
In the right direction.
Yeah, I mean, sorry, I promise if my last comment.
Between the hardwood into Miskin boiler that was like 30 million Bucks wasn't it now you're going for 50 million in savings, but that's true doesn't sound like it's going to be a $45 million benefit too.
To the specialty cellulose business.
The other thing, okay, especially some of those business as well in the context of global GDP chemical pricing is another a favorable theme within our business caustic pricing, we used a lot of caustic throughout our HPC operations. That's that's obviously another element that's going to show up.
Year over year as an improvement.
The one thing I'd also point out Steve is remember that viscose prices dropped dramatically in the fourth quarter second half and really in the fourth quarter and so we're starting the year off on VESCO send fluff below well below where the average prices where last year. So that's a bit of a headwind.
We're gonna have to fight through and see how those markets develop.
Alright, Thanks, Frank Thanks, everyone.
Thanks, Steve.
As a reminder, if you would like to ask a question. Please press star one on your telephone keypad.
Our next questions come from the line of Sandy Burns of Stifel. Please proceed with your question Oh, Good morning, everyone.
Yes, just discussing on the commodity cellulose side given how.
Weak pricing wasn't for Q.
When you gave a comment I mean is it below cost of production for.
A small segment of the industry, a large segment of the industry.
<unk> is pricing gotten that bad or is it still.
Cash flow positive EBITDA positive for for the company and or most in the industry.
Yeah. So so what we've heard in and specifically in China as Steve discussed prices and the viscous stapled fiber prices out the downstream prices are at levels that are not.
Conducive for all of the capacity to stay online space, specifically in China. So either those prices will rise or we will see some facility closures and a tightening of the supply side as we look at at that in regards to our own business.
We can we can look at that we are.
Positive contributing positively to our fixed costs.
But we're not making EBIT da at these levels, which is not should not be surprising.
Right. So the expectation for higher prices in 2020 sounds like it's more just driven by capacity coming out or prices rising to start improving profitability for the industry as a whole.
Not so much on that side.
That that'll be one factor of it I think the other piece of this and what's really impacted the viscous cycle.
The supply has been the 25% tariff of.
Textiles from China into the U.S., So any relief there would see a a better demand pick up from our perspective, we did see some demand growth even in the weak market, but it's the supply side the spend the biggest issue and that's where we'd expect to see some of the recovery earlier rather than later.
Okay, and then on the cellulose specialty side.
How much of your volume in that and that's on that side is under contract versus how much if any is sold under more spot business.
Yes, we typically don't sell under spot business. So we.
We will have.
Predominantly most of our volumes under either contract or arrangements for the year end, so were pretty good plus or minus depending on market demand.
With being the EPS guidance levels that we typically give on volumes. There. So you don't really see very much of a spot business in the cellulose specialty side because it is a critical raw material and people want to make sure that they're covered.
Covered up going into it.
Okay. So I would add though that we probably have.
Sandy 1234 year type contracts in that so in specialty business, yes.
Gotcha, Thanks, and last question for me on the corporate expense side I. It did spike up a bit in Fourq, you versus kind of where you had been running in the first three quarters of the year. It looks like 4 million of that was the costs of the bank amendment any other.
Onetime cost in there that we should think about that wont wont be repeated in 2020.
Yeah, its market share in and just to put it in clients that context, our corporate segment includes a onetime items as we mentioned the loan amendment, we had some other professional fees to support our portfolio work.
Gains and losses on our FX, a hedging program run through there as well, but one of the larger charges is obviously the environmental a charge on our reserves that we mentioned in our disclosure that goes through there as well and.
The other key item that's in there is variable compensation, so that can change obviously year to year and that's why.
If you looked at the 63 million this year.
We said, we're targeting a 50 million, it's it's taking all those items.
All together imbalance there will be tradeoffs, but we're targeting that 50 million.
Target.
Okay, great. Thank you and good luck with everything.
Hey, Sandy I'm, just going to add to maybe goes to some other folks within the same question I think as you look at our disappointing results and coming in with the $76 million EBITDA for 2019, and then we said look our primary goal is to ensure that remain in compliance with our financial covenants, regardless of these markets the questions got to be.
Hi, guys.
Is that all manageable and we've thrown out a lot of different numbers here on the positive and some on the negative and I thought was problems was worthwhile and maybe mark as you can just trying to take along with me here on these numbers, but I do want to kind of help build the numbers up a little bit so the have them.
Because again I think you'll see it's a very straightforward path to compliance in 2020, but let's just start and just kind of recap on some of these write one we have some market help right. We talked about the horse products right. That's like at current pricing will be EBITDA positive.
We've got some cost benefit right. So we got reduce chemicals and as wells fiber costs certainly in our paperboard business that is significantly benefit to us.
We also have as we mentioned duties in two different areas right. We just a frank talked about it trying to tears coming off a march 2nd she gets the benefit of into this quarter beginning of next quarter.
And that's a substantial benefit to us if again, if you consider we've got $230 million a product coming from the U.S. going to China.
And the other duties, we talked about when we talked about with Steve there, 20% forest products lumber duties going down to 8% in August annualized.
That's at least the $10 million benefit for us.
So you got the market elements you got some duties and then we've got actions that we've talked about that we're taking a number one is just.
Recovering from really poor operations last year, particularly in HPC business right. So we're going have lower cost and higher volumes.
Two we've talked about the continuous improvement and kind of pushing forward with our third year of synergies. That's also significant benefit for us.
Three we just talked about the corporate cost and targeting a $50 million corporate cost versus 65 and 2019.
And then finally, we haven't talked about this but we also have a new product that will be launched out here in April and I think in the back half of your will also give us some some nice EBITDA benefit.
And so really I think positive opportunities for us in 2020 that leads us to our very straightforward pathway to compliance in 2020, and I think thats got to be a question on folks mine, but we did said there's potential offsets to that Frank mentioned that fluff AMD disclose pricing are at levels that are below 2019. So that's good.
To be a negative offset.
We've got to newsprint market Thats very challenged right and it will be challenged I think the breakeven EBITDA for the year. So that that's an offset as well and then you've got to Corona virus, which is an overlay on all of it so but that's why we said look those things. We're gonna have additional actions are going to take and we look at the go ahead and make sure that regardless of what economics come our way.
That we will be positive in it for the balance of the year and so went through a lot there markets and I saw you taking notes here, maybe you can run through and and just kind of put some dollars to those benefits yeah. Thanks Paul.
As you mentioned, perhaps to put some context, a under various moving parts that Paul mentioned.
If I if I look at our forest products segment of the loss of 22 million last year and our comments regarding pricing in the current marketplace.
Given that pricing that could be a $20 million swing.
On the chemical and fiber cost side is our paperboard operation is better benefiting from lower pulp prices, Ana and our HPC and high yield business or are getting some favorable chemical pricing so that could be another 20 million. There. So those two together call. It 40 million we mentioned.
Duties were estimating that the the dropped to 8% versus the 20% rate for our lumber business is around a 5 million dollar impact in the back into this year.
And the China tariffs that we have been covering in the pricing is the equivalent of around 8 million for 2020.
Given the new exemption process that Frank mentioned in his comments.
We mentioned the the poor performance in our HPC business or the boiler and the.
Would cost issues in the U.S. so.
If you recall, we mentioned that was around 25 million last year through our various disclosures.
We continue to make progress on our a three year synergy targets and we're hoping to achieve another 15 million this year in that area.
We mentioned our corporate cost were really focused on on reducing that to the $50 million range that would be approximately $15 million in reduction and Paul mentioned in the back into the year, we're targeting targeting to realize the benefits of a new product introduction and that's in the range of $4 million.
There's if you take all those.
You know call them positive.
Opportunities you quickly get in the range of $110 million that you could.
Normalize the 76 million dollar or performance for this year, Paul mentioned, a and we're conscious of these things there are negatives in the world and we're looking to mitigate those.
But certainly fluff and viscose prices with newsprint prices that together could be in the range of $30 million negative and and we message that perhaps in the supply chain given to the rail blockades.
And the slowdown with Corona there could perhaps in the range of five to 10 million there.
So again you all have your view of the world but.
All those moving parts could net to approximately 70 million and.
Well certainly lend to show a picture, where the EBITDA performance of our business should should improve a versus where we were this year.
And I think I'll also perhaps putting context in rough numbers, what that means to our covenants.
If you look at our.
Our net secured debt at approximately 60 600 million.
And we know that our covenants tightened up as we go into the back into the year and it's around four and a half times the covenant ratio limit that equation equates to around 133 million of EBITDA to remain compliant.
And I should note that our covenant, a low and amendment does that allow for certain noncash and nonrecurring charges to be adjusted such as stock compensation and and other pension and environmental costs.
So with that Matt you can see that with with an EBITDA range of 120 to 125 million.
We feel confident that we can maneuver through this no.
Thanks markets and again I've tried to this data a lot more transparency to these numbers because I know you guys are sitting there looking at your model and looking at a starting point of 76 million and you say away. How does all this math work and again when when should be confident as we are that well managed through this well 76 million Marcus tallied up about $110 million of improvement.
And then you've got some offsets with of this goes from fluff pulp pricing in newsprint, taking that back down a bit.
And then any further actions we have that we hope will provide additional buffer there.
Gives us confidence that though.
We're in good position.
So if there's no more questions appreciate that I want to thank everybody for their time today. These are challenging markets, but we're confident that our aggressive actions.
We will see us through the cycle and merger a much stronger comp company. So thank you for your time this morning.
This concludes todays conference you may disconnect. Your lines at this time. Thank you for your participation have a great day.