Q2 2020 Rayonier Advanced Materials Inc Earnings Call
Ladies and gentlemen, thank you for standing by our conference will begin momentarily once again, ladies and gentlemen, thank you for standing by our conference will begin momentarily.
[music].
Good morning, and welcome to the Randy or advanced materials second quarter 2020 earnings conference call. During today's presentation, all parties will be and they listen only mode. Following the presentation. The conference will be open for questions with instructions to follow at that time.
As a reminder, this conference is being recorded I would now like to turn the call over to your host Mr., Mickey Walsh Treasurer, and Vice President of Investor Relations for Rayonier advanced materials. Thank you Mr. all she may begin.
You operator, and good morning, everyone. Welcome again to Rayonier advanced materials second quarter 2020 earnings conference call and webcast joining me on todays call, our Paul Boynton, Our President and Chief Executive Officer, Marcus molten, our Chief Financial Officer, and senior Vice President.
Finance and Frank refer to our executive Vice President of high purity and high yield cellulose businesses. Our earnings release in presentation materials were issued last evening and are available on our web site at Rainier A.M. Dot com I'd like to remind you that in todays presentation. We will include forward looking state.
It's made pursuant to the safe Harbor provisions of Federal Securities laws, our earnings release as both our filings with the FCC lists some of the factors, which could cause actual results could differ materially from the forward looking statements we may make.
They are also referenced on slide two and three of our presentation material today's presentation, well also reference certain non-GAAP financial measures as noted on slide four of our presentation. We believe non-GAAP financial measures provide useful information for management and investors, but non-GAAP measures should not be considered.
An alternative to GAAP measures a reconciliation of these measures to their most directly comparable GAAP financial measures are included on slide 17 through 20 of our presentation now I'll turn the call over to fall.
Thank you Mickey and good morning, everyone.
Let me first start by saying how proud I am of away. The team has operated <unk> over the past six months and safely supporting our customers.
Managing our complex assets in a normal off normal environment is challenging.
The global Kobe pandemic has added a whole new level to this complexity and our teams have responded admirably.
Throughout the pandemic, we've kept pace with the demand for all of our products, serving as a reliable source of supply to our customers and enabling them to continued right and interrupted support to their critical end markets.
In product markets, where we've seen demand weakness, we've been able to flex down our production to appropriate levels.
In June we successfully executed a significant planned maintenance shutdown at our Jesup facility.
Safely, bringing in over a thousand contractors under adherence a very strict protocols.
We are planning similar maintenance outages and fernandina into Misc means in the coming months.
Financially results were pressured by the pandemic and did not meet our expectations compared to guidance.
But we are seeing some signs of improvements in certain areas, which I will discuss later.
Let me first provide some highlights for the second quarter as laid out on page five.
Overall, we delivered $19 million of adjusted EBITDA for the quarter compared to $21 million last year.
Our ongoing efforts to reduce costs helped offset pressure brought on by the Covis pandemic [noise].
We saw significant price decline in commodity high purity Cellulaze products. This goes and fluff pulp.
As well as in both high yield pulp and newsprint compared to prior year.
So who is specialties enforced products volumes were impacted by reduced demand stemming from the pandemic.
[noise] corporate costs, well improve from prior year contributed to a missing guidance primarily from noncash charges.
We generated $16 million, a free cash flow in the quarter as the team did a good job of minimizing capex and reducing working capital.
I'll now ask Mark is to go into more detail on the quarter's results. Then I'll provide you with an update on key actions. We're taking response to covert 19 and provided perspective on our markets before opening up the call two questions Marcus Thank.
Thank you Paul.
Starting with high purity cellulose on slide six second quarter sales decreased by $14 million driven by 22% decline in commodity pricing.
Primarily from viscose pulp and a 16% decline in CS volumes compared to the previous guidance of an 11% to 12% decline.
The accelerated volume decline was driven by reduced demand for automotive industrial and construction ethers grades.
Plus an additional 2% due to logistic issues, both of which are colvin related.
Declines in CS volumes were offset by a 72% increase in commodity sales volumes due to improved productivity and mix shifts from prior year.
EBITDA for the segment was $31 million down 3 million from a year ago.
Price declines were significantly offset by improved costs, driven by lower would chemical and energy input costs as well as improved operational reliability.
Compared to the first quarter of 2020.
EBITDA improved by 5 million, primarily from higher commodity product sales prices and volumes as well as lower costs.
Turning to slide seven sales in our forest products segment declined $11 million from the second quarter of 2019.
Driven by 21% decline in lumber volumes as we took proactive measures to curtail operations for several weeks in the beginning of the corridor as demand for lumber dissipated at the height of the pandemic.
Volume declines were partially offset by a 5% increase in sales as we were able to improve our sales mix with the reduced volumes even.
EBITDA for the segment improved $13 million from prior year.
Driven by reduced costs for wood labor energy and duties.
Additionally.
Prior year results included a 4 million dollar inventory valuation adjustment, which did not repeat in 2020.
As a reminder.
EBITDA results include $6 million for lumber duties paid in the quarter.
Since the start of softwood lumber duties on shipments into the U.S. in 2017.
We have deposited a total of $72 million of duties and accumulated approximately $3 million of interest on the deposits.
In prior trade disputes Canadian producers have historically recovered all or a vast majority of these duties upon resolution.
The next step in the process will come later this year or early next year as the tariffs are expected to decline from 20% to 8%.
Once the preliminary determination is finalized.
Turning to slide eight.
Paperboard segment sales declined $7 million as sales volumes fell 12% from prior year, primarily due to the timing of sales in the you.
Meanwhile, EBITDA for this segment.
Improved $5 million, driven by lower raw material costs and reduced transportation costs.
Turning to our pulp in newsprint segment on slide nine sales declined $22 million from prior year due to a 9% decline in high yield pulp prices any 19% decline in newsprint prices.
Additionally results were impacted by 17% decline in high yield pulp volumes due to sales timing and a 43% decline in newsprint volumes as the company elected to take market downtime due to reduced demand caused by covert 19.
EBITDA for the segment decreased by $12 million to a 4 million dollar loss driven by the lower sales, partially offset by reduced costs.
Turning to slide 10 on a consolidated basis operating income was flat to prior year.
At a 15 million dollar loss.
Impacts from market price and volume declines were offset by significant cost improvements from prior year.
Lower input costs and the benefits of continuous improvement efforts helped offset the market headwinds.
I'd be early signs of the global pandemic in the first quarter, we approached our banking partners proactively to seek more operating room.
In the face of the significant uncertainty in the global industrial and consumer markets.
In June we finalized an amendment to our senior secured credit agreement.
Key terms or the amendment are laid out on slide 11.
In addition to improve liquidity, we obtained a larger cushion against our covenants.
We also amended the definition of covenant EBITDA to carve out the noncash gain and losses associated with long term currency fluctuations in.
In return, we increased the LIBOR floor on our borrowings to 1% from zero.
We also agreed to limit the amount of cash that we hold on our balance sheet and the amount of standby letters of credit that we can issue.
In addition, we agreed to incremental reporting obligations and paid a consent fee.
Overall, the amendment provides us with the increased covenant headroom and added liquidity.
Needed to manage through uncertain market conditions spurred on by the covert 19 pandemic.
Turning to slide 12 total debt remained at $1.1 billion, we have moved to a gross leverage test as part of our recent amendment.
Based on our LTM Covenant EBITDA of 122 million, our gross secured leverage ratio finished at 4.8 times compared to a covenant requirement of not more than 6.2 times.
While the interest coverage ratio ended the quarter at 2.0 times compared to a covenant of 1.6 times, a 20% cushion to the covenant.
We ended the quarter with 166 million of liquidity, including $49 million of cash $98 million available on our revolving credit facility and 19 million from our factoring facility in France.
Liquidity improved $21 million from the prior quarter, driven by 16 million of free cash flow in the quarter and the amendment to our credit agreement.
With that I'd now like to turn the call back over to Paul.
Hey, Thanks, Mark is turning to page 13 as noted we've taken decisive action in response to the covert 19.
First and foremost safety has been and we'll continue to be our overriding priority. We have implemented exacting protocols in all our facilities to protect our employees and our operations.
Our teams strict adherence to protocol has helped mitigate the spread of the virus and its impact on our employees and operations.
Office and support staff continued work remotely in most areas, including our Jacksonville, Florida headquarters and other global offices.
Second to control costs, and minimize pandemic driven losses, we have taken certain curtailment measures with respect to both our newsprint and lumber facilities.
While our lumber assets are back to operating near capacity. We are currently addressing weakness in the newsprint market by matching our production to market demand.
We will continue to monitor these and other assets to assess whether business conditions warrant implementation of additional measures.
Third we are focused on maximizing cash flow in liquidity.
As Mark has highlighted our credit agreement Amendment provides us with further financial flexibility and improved liquidity.
We are executing against our cost savings and niche initiatives and remain on track to reduce costs by 20% 25 million.
In 2020, excluding the benefits of market Tailwinds for raw materials.
Additionally, we remain intensely focused on free cash flow generation.
Including prudent deployment of essential Capex and rigorous management of inventory levels.
Finally, we expect to receive a significant cash benefit later in the year in the form a 31 million dollar tax refund largely attributable to cures Act features passed earlier this year.
Wrapping up on page 14, the Kobin 19 pandemic has kept our earnings well below our potential.
We are taking the necessary actions to manage through its impact to benefit the economic recovery on the backend.
As the industry leader and owner a five of the eight global manufacturing lines dedicated to cellulose specialties.
We are uniquely positioned to benefit from the term.
We've been encouraged that our go to market strategy implemented in 2019 has helped stabilize cellulose specialty prices in 2020.
Our HPC assets also produce approximately 500000 tons of commodity viscose fluff and other pulp products.
These products have been significantly impacted by current market conditions in our trading roughly 135 to $250 per tonne below the five year historical average prices.
Normalizing for these sales prices would generate $80 million to $95 million of incremental EBITDA through price improvement alone.
In our forest products segment, we are seeing significant market improvement.
I re bust repair and remodel market has held foster recovery in the early second quarter and rebounding housing start levels have allowed us this momentum to continue.
As a result prices for lumber.
We're up considerably in July compared to the second quarter.
Our order file remains strong with bookings out over six weeks.
Additionally, we expect duties on sales to the United States from our Canadian mills to be reduced 8% from 20%.
Later this year or early next year.
Given that half our lumber sales come.
Some come from the United States. This could provide a welcome benefit to earnings.
In paperboard, we continue to experience stable sales volumes.
Paperboard margins may experienced some pressure as pulp prices are expected to rise based on the forecast of many analysts.
However, we would expect this pressure to be more than offset by rising prices for our high yield pulp products.
And as noted earlier newsprint remains under pressure.
And we are constraining, our newsprint production to meet demand and minimize losses in this product category.
Irrespective of the market environment, we remain focused on taking costs out of the business through our continuous improvement program.
Our commitment is to remove costs out of the business each year at a level sufficient to offset inflationary pressure.
As mentioned previously.
We are focused on maximizing free cash flow through minimizing working capital and efficiently allocating capital to maintain our assets.
Lastly, we are continuing to evaluate our portfolio and monitor capital markets for opportunities to increase liquidity and extend maturities.
We are confident that we will emerge a stronger more resilient company.
With that operator, please open up the call to questions.
Thank you will now be conducting a question and answer session. If he would like to ask a question. Please press star one on your telephone keypad confirmation tonal indicate your line is in the question Q. You May proceed start to if you'd like some of your question from the Q.
Participants using speaker equipment may be necessary to pick up your handset before passing the Starkey is one moment. Please only pull for your questions.
Our first question comes from the line of John Babcock with Bank of America. Please proceed with your question.
Hey, good morning, and thanks for taking my questions just wanted to start out here I mean, as we think about earnings.
And the potential to improve from here to opportunities Thats why im happy to increase EBITDA beyond the cyclical improvements in its various commodities I mean, I know you talked about hitting $80 million to $95 million from permanent commodity products pricing and then also.
That kind of $20 million to $25 million in cost reductions for this year, but wanted to see what else you might have the arsenal here.
Yeah, Hey, good morning, John Thanks, Thanks for the question John If you remember at the beginning of the year. We kicked off a program. We are calling internally Act Act now right and so that was real big question and with that for different key elements right operating cost improvement, we talked about $15 million target a corporate cost elimination.
10 to 15 million both of those were on a strong target to achieve if not exceed.
We also talked about Capex reduction of 10 to 15 million and again I think are on pace to to improve upon that and then finally on working capital improvement, we talked as an opportunity out there 25 million I think thats, one area or a bit behind on and that largely related to coded and moving towards around.
But I think Dave the proven in the back half the year is there and we're going to continue the target that so I think good success on things that we're controlling in the immediate future as we look beyond that right. You mentioned right just restoring commodity markets will improve pricing significantly.
And therefore EBITDA alone we continue to have a lot of focus on new product efforts and we've got some.
Opportunities out there and again, it's going to be somewhat coded related as these opportunities come around for these new products just as the markets return.
And of course as Youve heard in the past John We've worked hard and we continue to work hard to stabilize or cellulose specialty business and improved pricing there, which this year.
We're doing a stabilized it should be slightly up for the years, we indicated if not flat.
And again, we hope we can continue down that path as well. So I think we had a lot of frontier, both internally and externally with but the markets to improve EBITDA going forward and if you keep in mind, just 24 months ago were well above 300 million dollar EBITDA. So we are certainly under significant pressure at the current time, but I think we're doing a good job at managing through it and we do see an opportune.
Due to improved upon that is the years combined in the near future.
Okay. That's helpful.
And then kind of with regards to Threeq, you I guess, particularly diamond seems like you did pretty well and the cost side.
Would you be able to parse out how much was from lower raw material cost versus the continuous improvement efforts.
Yeah, Let me ask Mark is to give you a little flavor on on that Mark as you would.
Yeah, Good morning gone.
On page 10, you saw the bridge that we set out so costs quarter over quarter.
In the year 19 versus 20.
Around 46 million in savings.
And.
The synergy piece is probably the smaller side of that 46 call. It maybe 5 million for for that quarter, we continue to see.
Gains on wood chemicals, and some energy inputs.
And and remember we're anniversarying higher costs on would last year that we had down in the U.S. So.
And also the productivity impact.
That we had up north intimacy.
Is it possible to get a break down across kind of would chemicals in the energy inputs.
The.
Like to give you some perspective say for ER.
For the high purity, a set a little segment in the bridge there.
I would was losing arrangement to energy about one and then some chemicals, but we can certainly give you that after the call that detail.
Okay all right.
And then I also wanted just check did why have experienced any disruption in operations at its mills from the corner virus both into Q and also hasn't had any issues in July.
Yes so.
For the most part no no disruptions in HPC at all in a high purity business or paperboard or high yield pulp we had some.
Disruption on transportation.
On on the all those actually but not in the actual assets itself. When it comes the actual assets itself in disruption is really around the curtailments that we talked about in newsprint as well as the sole mills, we took a.
Those assets actually down significantly in the early in the quarter, taking out maybe up to a third of our volume capacity as a result of the coded and then the balance again is really disruption based on either transportation or as we talked about just overall demand in the.
Hi, purity area and you saw that impact our volumes for the quarter.
Okay, and so that that volume I assume that's that's kind of that 2% in HPC. There was from logistics it logistics issues and on that I mean will you'll get that volume back or is that volume. That's I guess last for now.
Okay.
On the logistics side that would have rolled from one quarter to the next quarter, that's really shipping delays I think the broader.
Decrease from the the 11 to 12 that we've put out last quarter to the 16, the other half of that really is.
What we're seeing reduce forecasts from our customers as they've seen some.
Demand weakness in their end markets specifically.
In the construction.
And the industrial.
Automotive sectors. The one thing I would say though is.
That it feels like most of that reduction was communicated kind of in the second half of Q2 and things feel a bit more stable now as we're looking out through the rest of the year that being said the one thing that we continue to see as you know uncertainty and customers.
Concerns about uncertainty on how quickly economies recover and where governments put money to work to drive up those economic recoveries.
Okay. Thank you and then just wanted just last question apologies probably is but just just quickly I guess I want to.
Confirm here so what are your peers ultimately took.
Pretty significant downtime or I guess, that's curtailed production.
One of the Mills I'm sure you're right about that I want to see if there are any sort of commercial opportunities here for Ryan how you're kind of reading that situation.
Yeah, let's give to two answers that I'll start and let Frank continue and first of all yes, you've talked about some HPC high purity capacity going out of the market and.
Certainly we're prepared for all scenarios as well and however, I think we've been very fortunate with the quality of our profits strength our customer relations. We've continued to see volume come in even at the commodity level, where a lot of the volume, particularly in the disco Siri has actually evaporated disappeared. We continue to have good steady orders come across so that's been health one I think it.
It supports.
Our overall cellulose specialties business when our customers see the stability of our assets now taking advantage of these opportunities. Let me just turned over to Frank and maybe you can comment on that yeah, I think John the closures have been relatively recent and it's a bit early to call any real change in the market.
Remember that most of its facilities that tend to close or take downtime as it happens after inventory has been built.
Or are they keep some key supply lines are that that supply important customers relatively hall that said, we have seen some modest opportunity to step into supply chain disruptions that the closures have caused.
And believed that we will benefit in the future to what extent it still to be seen.
We've kept all of our lines open as Paul said, given our ability to place all of our tons due to quality.
Of the these commodity grades in the long term relations we have.
I would tell you that security of supply has become more important than many of our customer size.
And that we believe that customers should be putting a premium on the ability to have a stable and secure supply source. So I think that will help us going forward I. It's just too early to tell how long some of these assets will be down.
And the inventory work throughs and the real recovery from the demand side, how that will impact more broadly, but obviously, it's it it should be a positive off for Ross. The magnitude is really the question.
Okay. Thank you.
Thanks, John.
Thank you. Our next question comes from the line of Steve Chercover with D.A. Davidson. Please proceed with your question.
Thanks, Good morning, everyone.
Steve.
So I'm just.
Just a couple of questions on lumber to start in Qubec I believe the whole province, basically takes two we call. It is in August.
So when lumber is going to parabolic like it is currently can you convince the guys and I guess guys and gals to stay on the job like how much production, we you lose its.
In fact, if I'm correct about this.
Kind of global vacation.
Yeah, the you're correct Youre correct about that obviously your Canadian background you know the.
It's a big time to take take off at the July timeframe and.
Right now that time has passed so we got all our assets up and running full we did take our normal downtime, we tried to keep as many assets up and running as we could.
Steve.
If you look at what we're expecting we'd we took substantial downtime and April right. So we took over 50000 board feet out of the market at that time and if you look at the balance of the year, we'll have a stronger back half the year than the first half as a result extra tailwind, but we won't quite come up to last year volume levels. So just to kind of put that in person.
Effective, but obviously, we're running well now and we'll try and do everything we tend to take advantage of it.
As discussed we were out there in our order order files are significantly.
Typically be a couple of weeks out right now we're out.
To mid September if not later and so we're trying to take advantage of the strength of the market and continue to place orders out there, but a significant change in volume in the back half the year.
Outside of normal capacity just.
Happened.
Yeah, it'd be more in normal lines, but we've seen in the past years.
Well I mean, if you did 180 million board feet Q2 of last year, and 134, Q3, I mean could we kind of.
Not flip flop it because of the.
The holiday, but you know.
Be.
Kind of north of 150 million board feet.
And the good news is.
You are running as the prices have gone up maybe just give us help us with the sensitivity like <unk>.
So Steve the leverage that you have.
Steve If you look at our disclosures, we quote a rated capacity of 755 million feet.
For our lumber mills.
Ah two of those mills are on on three shifts so if I if I state those on.
All of them at a to shift basis, you're around 640 million feet of annualized volume as and as Paul mentioned, we took close to a month.
With the 50 me, but I'm not I don't I'm not talking about Q2, I'm talking about Q3 when prices are good.
So you, let's say you get a 150 million board feet Q3 prices are up on.
Quarter over quarter.
100 Bucks hundred 50 Bucks a thousand.
If you looked at the quoted print right now they're up over that but yeah. There's a good numbers good numbers.
All right.
Yes, so Steve look I.
I think your numbers are in there and the right ballpark right. So if you put out there on a $150 million a quarter I think that that's right, we'll try and push it up and above beyond that we've got very low inventories coming into the quarter, but.
We'll do everything we tend to do to take advantage of the market. As you said, we you get a strike where they are in time right. So we're we're trying to do that.
Okay, and then one of the chances that you will recover the duties within the next 12 months I mean, the duties going down.
They are.
Imminently from 20% to 8% is kind of an acknowledgement duties should have been down in the first place.
Can you handicap.
The potential over recovery.
Steve we've been monitoring right. The preliminary determination that was supposed to be confirmed a into September October and Washington's two successive delays now so again, that's why we're messaging back into this year, possibly early next year to have those rate to confirmed at which time, we would then.
Then depositing at the lower rate.
And the cash deposits, we continue to to accrue, but as you know it's going to take some time to have.
Resolution on the file a right.
Yes.
So whether that's 12 months only four months it should be in that timeframe, Steve but to say that is going to be in a certain time is going to is difficult, but it continues to grow right, Steve 72 million now that weve deposit so.
Yeah, I mean, the precedent is that.
Ultimately get it back that would be nice fee guys. Okay, we'll switching gears a wee bit.
The cares act in the tax refund that you're anticipating this year just wanted to confirm that's your money right that is not a cold it loan or anything.
Steve the.
The Genesis of that program is obviously give assistance to industry. So that's related to 2019 non operating losses that can be carried back to 2014. So that is that is clearly cash that's a cash refund.
For the company.
Okay, and then you know my last question.
I think it was March 2019, when you read you know you did your analyst days, you talked about your reconfigured mill system.
Thanks to this gain was taken out of high purity cellulose for instance, so have you seen the anticipated cost and or commercial benefits. The hopes for <unk> does that show in the 46 million cost benefit because I thought that was mainly just would manage et cetera chemicals.
I'll touch on the commercial side I'll, let mark is touch on the cost side Steve.
On the commercial side, we have started to see commercial benefits of that as we've.
Started to move some of the specialties out of the to Miss could mean Mel.
Weve clearly seen a benefit to having capacity to run into other new product opportunities as well as just run.
The viscose pulp on a more stable basis over that time, and you've seen a better reliability of operations in that facility. This year, which has been helpful with less grade changes in the life. So that's been a positive I'd also say that a major part of that realignment was moved our C line and Jeff.
Up to fluff pulp and spread Oh profitability on fluff over viscous this year given how weak business has been has been meaningful for us and so that has been a very positive.
Move of that that as well and we've had some some other smaller moves that have helped us free up capacity to pursue.
Opportunities as we move forward in the future on high Ivy ethers, and and other areas. So overall, it's been it's been working while it takes some time to move grades around but we've seen tangible benefits this year to date.
Okay. Thanks, Thanks comments right as we.
Simplify the production wheel for these facilities, obviously efficiencies.
For the mail. So if you look at the bridge that we set out for HPC.
You can see the 24 million in cost improvement.
Year over year of that.
7 million was would chemicals was about 10 and maybe two of energy the balance of that is kind of that.
Operational improvement as you stabilize an operation with a more predictable grade run right less less grade changes, so that's where that shows up then.
Okay. Thanks, guys stay safe.
Thank you. Our next question comes from the line of Paul Quinn with RBC capital markets. Please proceed with your question.
Yeah.
It's very much good and good morning.
Let's start with lumber you mentioned.
Turning to capacity 755.
Yeah, I understand that that includes the two mills in the three shifts and and which most of those.
Yeah, So no Saar and shop flow or on three shifts in that 755 or Paul.
Okay, and then you are confirming that you're running right now your run rate in August is basically go along right. It said that close to that 55.
Hello.
No at the lower level.
The two shift configuration is call it.
The 640 that we mentioned.
Okay. So okay right now the star in Chappelow are running three shifts are ready to ship.
Correct.
Okay got it is there any intention for those deals given that you know were at record lumber prices to move to three ships.
Yes look Paul we would like to God I, probably the biggest constraint in both those communities is just labor, we're competing against or a really strong labor mark with mining.
So we get run these assets safely and so we've decided most optimal right now running two shifts as soon as we think we became with the right personnel will try and switching back to three right now we're running at the to shift level.
And and Paul as you know we deployed some strategic capital at our saw saw lines. So we got a couple of new Salling shop, low end Cochrane, so year over year, which should pick up those benefits on volume.
Okay and.
And then on the news print you're running it too I guess your cloud cap, but what is running as ran like 50% is around 75, what's running.
No. It's just look at that so.
We've got we've got two lines. There we took a again is a pretty substantial curtailment in the second quarter, probably taking out.
Percent wise Marcus you took about a equivalent to one and a half months 20000, so about 50% in the second quarter of this this quarter as well.
We've come back on one line also running a second line for little bit so it's going to be in between that again as we kind of commented several times, we're just going to have to keep flexing to the market to make sure that we stay optimal we think we can.
Shift that facility to make sure it's in the black the way we run it. So that's that's obviously as our goal, but as you know the newsprint Mark has been severely hit and so we've just adjusted our our output of that so that we're producing the profitable grades and serving the customers that are in the.
And the delivery radios that makes sense to us and we'll continue to do that so that we stay again in the black.
There'll be some times would probably flex up run both lines flex back down to run one line and maybe what taking both back down again, if the markets don't improve but so we're we're running it as flexible as we can to optimize our cash and Paul the the cap operation has its summer shutdown always budgeted in July.
Which we pursued.
Okay, that's helpful and I suspect he's got a.
Lumber mills in the area the supply chips due to cap is there any risk it so those mills up to shut it gets caps not rainfall.
No I don't I don't see that issue, we're very well balanced when it comes to chips going in different directions, and got good relationships out there if we need to move more out of this facility. We we've been able to do that so far and I don't see those issue going forward. Obviously, it's it's one of the constraints will will continue to watch and to monitor and flex too but.
We don't have that is an issue in our and our plans going forward.
Okay, and then just sunny adjusted EBITDA that corporate line ballooned debt again at 16 million its or anything negative is there anything notable in the quarter or what should we expect going forward.
Paul its Marcus the.
As you know we've got certain liabilities in Canada that are not hedged pension.
Lease obligations and as the dollar strengthened.
We had around four and a half million on Remeasurement that came back.
On that.
Okay.
And then going forward I guess, we got to worry about that line.
I appreciate in Canadian dollars, right, which is exactly what we're seeing right now.
Yep.
So we caught up the lions share of what happened in the first quarter.
But as Paul mentioned, one of the key areas of focus was to pursue the $10 million reduction on our corporate costs. So we still feel good about that 50 million dollar number on an annual basis.
Okay.
Well I think about it on the lumber side, you mentioned that two satellites coming in any other major capital that's coming in the lumber operations over the next to six clubs.
No and then that investment that was referenced there's a projects that we initiated quite some time ago to really improve the operational cost of those facilities and take advantage of some things, but so those are projects that have been in in the works here for a while now Paul there's nothing else that we had put in place for this for this year at all.
So these are continuing from past year.
All right that's all that thanks, so much.
Thanks, Paul.
Thank you. Our next question comes from the line of Paretosh Misra, what they're in bars. Please proceed with your question.
Thank you.
Well first of all piece can you give us an update on your joint venture lignite Tech how has that performing gag what's the at capacity utilization and if you think a any.
Any difference in performance second half versus fast tap that are that we should think off.
Yeah. Thanks Paretosh.
Look the.
Program as a whole as you know we've talked about in the past is probably underperformed our expectations there weve.
Probably take up a million loss on it in a quarter.
If theres some positive news out there and there is is that there's some of the capacity in.
In the lignin Uri has come out of the market, particularly I'm referencing of South African or asset that is not running now we've seen that tighten up the supply a bit and with that we're starting to see the volume a corresponding volume roll into the looking at TEP, Florida facility. So that's been again the positive here in recent times.
And I think it'd be a little bit more time for that the pricing to catch up to where we.
Expected to be but right now we are now seeing volumes closer to.
Kind of planned levels than a and that was missing the past is as the products has been kind of slowly.
Ramping into the market and mainly because an oversight supplied market and so without tightening up.
I think you're going to see some improved volumes and I think after that now we see kind of the elevated pricing that comes with improved volumes.
Got it a Dutch it's good to hear a and then on the maintenance outage Hi, how are your plans for the second half, particularly in the high purity business.
Is there more I guess in the second half or a then plus tap or I shouldn't think of that.
Yes, so we know do we've taken.
Some downtime for maintenance already adjusted.
We've got a planned outage in our freedom facility I guess it starts the this coming weekend two weeks down and then in September will taking to just coming down. So we have two more outages coming up fernandina into Miskin mean, and the next two consecutive month.
Got it I guess just last one are you seeing any yeah.
Incremental new opportunities for cellulose into the packaging side of the business like any new packaging applications.
I would say not substantially as far as silly listen to packaging. There's a you know there are some products of cellulaze going into that is the real small amount.
But I don't see that is significant opportunity for us our parents offshore for anybody into any kind of volume per se.
Understood. Thanks, guys. Good luck with everything else.
Sure. Thank you.
Thank you once again as a reminder, if he would like to ask a question. Please press star one on your telephone keypad. Our next question comes from the line of Roger Spitz with Bank of America. Please proceed with your question.
Thanks, Good morning.
Hi.
First off.
Maybe I missed it.
What does your 2020 Capex guidance right now.
The.
Roger It's Marcus you know, we previously said that we would target 90 million for the year.
But you know as Paul mentioned were being quite prudent in the deployment of our capital.
And you know year to date, our Capex is obviously at a lower run rate, but as you know it has some correlation to maintenance outages and we just completed jesup and as Paul mentioned, we've got Fernandina intimacy mean coming on so you should look at it as up from the first part of this huh.
Half year, but certainly we're being prudent on the amount that we deployed.
Okay.
And in terms of.
Working capital.
It sounds like you probably don't want to give Oh 2020 working capital.
Guidance of inflow and outflow, but.
If you do please please provide but oh.
I guess, what I was interested in was.
Working capital there wasn't an inflow.
In the second.
The second quarter, given all your volumes are down I would've expected and generally raw materials down I would expect.
Oh working capital inflow.
So again, Roger it's Marcus the.
We focused on.
Drawing down our inventories so effectively moved a lot of that inventory into receivable.
And then we hope to bring that receivable down now and continue our progress towards the working capital target that we mentioned that Paul alluded to.
So again, we're focused on that it's more difficult in this cobot environment, but a lot of it moved into a receivable.
Okay and.
And then lastly.
Just sort of curious is there any ability to use this is great Zion what Paul.
And any Isa grade she has end markets and I don't mean to just completely go from one to the other but like you know mix and a few person or up to 10% or something like that.
And and end market or you know that customers might might elect to do or how can they do that or is it is does it just not work, it's too hard to specify that and for their their customer your customers customers.
Yeah for the I Love Frankie spent on this well take a shot as I say for the most part it doesn't move very well into the high end it can a little bit here in there and different applications, but for the most part of the viscose pulp or the lower purity pumps that are out there are being made in for that for the textile the markets right and so it did 10.
Just to stay focus there.
So I don't think we see a lot of migration back and forth you know what at the cellulose specialties is certainly one of things our customers will try to do is do everything kind of figure out how to optimize their cost. So they're always looking at opportunities like that but I'm not aware of any a major breakthrough in that regard I don't expect any frankly, I know I I agree I think you know customers were always looking.
Find ways to lower overall input cost, but but product quality and performance issues, you know tend to pop up on lower lower quality lower grade pulps.
What we do see more often know is CLP caitlyn pulp is often used in ethers applications, because there's very high alpha.
And has good brightness and the like in a lot of our focus has been on developing products that can go after that market.
Two benefits to that one is obviously it can expand our volumes in the CMS arena significantly second is it doesn't impact the competitive landscape because we're not pulling share from other other DWP producers were focused more on pulling share from.
Lent.
And that is something that is a key focus of ours as we move forward, especially out of our TARDIS who's who have developed some very very high.
Viscosity products, there as well as I'm trying to work with Fernandina do similar things so we.
We are seeing some of some of that as as an opportunity but on the first question now, it's it's minor and and its typically I'm not not all that productive.
Got it thanks for that.
Thank you we have reached the end of our question and answer session I'd like to turn the call back over to Mr. Boynton for any closing remarks.
Yeah. Thank you everybody for your time do appreciate it these are challenged our but we just want I'm sure our investment communities, where theyre, taking action to ensure our our successful company I think were.
Again, thank you for your time today.
Thank you. This concludes today's teleconference. You may disconnect. Your lines at this time. Thank you for your participation and have a wonderful day.