Q4 2020 Rayonier Advanced Materials Inc Earnings Call
Yeah.
[music].
Yeah.
Good morning, and welcome to the Rayonier advanced materials fourth quarter, and full year 'twenty and 'twenty earnings conference call. During today's presentation, all parties will be and I'll listen only mode. Following the presentation. The conference will be opened for questions with instructions will 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.
And Mr Walsh and maybe again.
Thank you operator, and good morning, everyone and welcome again to Rayonier advanced materials fourth quarter and full year 2020 earnings conference call and webcast. Joining me on today's call are Paul Boynton, Our President and Chief Executive Officer, and Marcus Molnar, Our Chief Financial Officer, and senior Vice President and define.
Net.
Our earnings release and presentation materials were issued last evening and are available on our website at rayonier a M dot com.
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 SEC and lists some of the factors, which may cause actual results to differ materially from the forward looking statements we may make.
And there are also referenced on slide two and three of our presentation materials today.
Today's presentation will also reference certain non-GAAP financial measure measures and 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 and alternative to GAAP measures. A reconciliation of these measures to their most directly comparable GAAP.
GAAP financial measures are included on slides 19 through 23 of our presentation I'll now turn the call over to Paul.
Hey, Thanks, Mickey and good morning, everyone.
As we shared with you a year ago, given the state of many of our end markets.
And prepared for a very challenging year and we received one with the addition of a global pandemic on top.
Today 12 months later I'm very proud of what our team has been able to accomplish despite the difficulties we strengthened our business improved our financials and further solidified our status as a global leader and converting renewable resources into remarkable and the materials.
Starting on slide five.
Financial commitment to you for the year was to focus on reducing operating and corporate costs.
Lowering capital expenditures and optimizing working capital.
Paul with the goal to improve cash flow.
And then with.
With the global COVID-19 pandemic, our team added incremental measures to meet those challenges head on and including establishing a COVID-19 task force to help us effectively navigate the pandemic and its varied and ever changing impacts on and disruptions to our global business and operations.
Securing our central operations status for each of our manufacturing facilities spread across the U S, Canada and France.
Incorporating strict social distancing seen standardization and other new safety protocols into our manufacturing operations and processes.
Shifting our office workforce to home.
And finally <unk>.
<unk> quickly to significant shifts and demand for our many products, including at times, producing incremental volume to protect key customer supplies, while also taking downtime and facilities, where price and demand were insufficient to meet financial hurdles.
By year and lumber markets have more than recovered and commodity pulp markets. We are beginning to show signs of a strong recovery.
Once again, we adapted quickly adjusting our production to capitalize and these favorable shifts.
These results are reflected in our financials.
And all we never lost sight of our needs of our customers.
And ultimately we exceeded our financial commitment delivering $84 million of improvement compared to the original goal of $60 million to $70 million.
On page six we have the drivers of our improved financial results overall, adjusted EBITDA of $153 million more than double the prior year results.
And our high purity cellulose segment, despite significant headwinds on demand for commodity viscose and fluff products. Initially from the Chinese tariffs and then magnified by COVID-19, we were able to manage EBITDA to only 5% down from 2019.
Now we did this with a keen focus on improving reliability through our continuous improvement processes and reducing costs.
And forest products lumber prices were a significant contributor to the positive results.
In 2019, this segment was $22 million of EBITDA.
While in a gradual return to profitability and early 2020 Covid concerns force the market into a tailspin in April we significantly reduced production across our lumber assets for four to eight weeks.
However demand quickly return.
Let it first by repair and remodeling segment for our Homebound population and then followed by an increased housing starts as consumers look for open spaces.
As the market recovered our team did a great job of returning operations to budgeted production levels, and then exceeded them to take advantage of record pricing ultimately delivering a positive $71 million of EBITDA for the year nearly all of which came in the back half of 2020.
Paperboard EBITDA grew considerably from the prior year.
Foster demand due to COVID-19 was more than benefited by lower raw material pulp costs.
And while we saw ongoing weakness and our pulp and newsprint segment, we managed operations and our newsprint facility to mitigate.
These losses to the extent possible.
The result of our efforts was $73 million of free cash flow, which we will use to invest and our business and reduce net debt.
Marcus will now go into more detail on the fiscal results and then I'll come back and provide you with an updated perspective on the near term opportunities key objectives and longer term focus before opening up the call for questions.
Marcus Thank you Paul.
Starting with high purity cellulose on slide seven.
<unk> decreased by $76 million on the year, driven by an 8% average price decline.
As a slight increase to cellulose specialties pricing was offset by significant declines in commodity pricing.
Results were also impacted by a weaker mix with specialty volume is down 12% from prior year and in line with our expectations.
Despite the significant decline in sales and EBITDA for the segment was $121 million.
Down only $6 million per prior year as cost reductions driven by our continuous improvement program better reliability and lower wood and chemical costs helped offset the sales impacts.
Looking ahead commodity viscose prices have improved significantly from the fourth quarter and although lagging we're now seeing increases for commodity flow.
Negotiations for cellulose specialties for 2021.
Resulted in slight pricing decreases for the category with stable volume demand.
As Paul shared we are focused on improving reliability across our assets as.
As part of our regular maintenance and reliability programs. We are planning for an extended maintenance outage at our Jesup, Georgia facility and the second quarter.
Overall sales volumes for the segment are expected to remain flat as this extended downtime is expected to offset productivity gains.
Turning to slide eight.
Sales and our forest products segment increased $93 million from 2019, driven by a 40% increase and lumber prices, primarily and the second half of 2020.
We took advantage of the recent strong market conditions and increased sales volumes by 11% and the back half of 2020 compared to the same time period and 2019.
EBITDA for this segment improved $93 million from prior year to $71 million, primarily driven by the higher sales prices.
As a reminder, EBITDA.
Results include expenses for lumber duties.
Since the 2017 start of softwood lumber duties on shipments from Canada into the U S.
The company has deposited a total of $91 million of duties.
And accumulated $4 million of interest on these deposits.
In December the U S Department of Commerce announced that it had lowered the tariff rate on softwood lumber from Canada from 20% to 9%.
As a result, we reversed $21 million of duties previously Expensed and 2017 and 18, but did not include this gain and our definition of adjusted EBITDA.
The timing of when the cash will be returned to lumber producers remains unknown.
However in prior trade disputes Canadian producers have historically recovered all or a vast majority of these duties upon resolution.
Looking forward lumber prices reached another all time high this week driven by strong demand for U S housing starts and increased repair and remodel activities as homeowners continue to invest in their homes.
We are witnessing a very strong start to 2021 with higher demand and production levels. Overall, we expect a 7% increase and sales volumes for 2021, as we do not plan on market downtime and we will look to capitalize on prior investments to improve reliability and productivity.
Turning to slide nine.
Paperboard segment sales price and volumes fell approximately 3%.
Due to increased competition and COVID-19 related softer demand in some end markets, most notably commercial print however.
However, EBITDA for other segment grew by $11 million to $33 million.
And as lower raw material costs offset the decline in sales.
Looking ahead, we expect slightly higher prices and early 2021, given good demand for packaging grades and announced price increases EBITDA. Further segment is expected to remain flat as sales increases are expected to be offset by raw material cost increases specifically market Paul.
As a reminder, our paperboard segment does purchase approximately 85000 metric tons of Paul on the open market to produce our paperboard.
As pulp price increases the paperboard segment is negatively impacted but the overall company results were more than benefit from the higher pulp prices and our other segments.
Turning to our pulp and newsprint segment on slide 10.
Sales declined $43 million from prior year due to a 20% decline and newsprint prices and a 33% decline and newsprint volumes driven by a steep reduction in demand related to COVID-19 impacts on the hospitality and travel sectors, the talk to newsprint and market segments.
As a result EBITDA for this segment.
Decreased to a $17 million loss driven by the weakness and newsprint sales, partially offset by lower costs as we curtailed and restarted operations several times during the year to match market demand and support the company's key customers.
Looking forward, we are seeing high yield pulp price is beginning to recover and new sprint. We are driving this business to a breakeven financial position as we optimize production and just one of two lines in an effort to high grade sales mix and take out costs.
Further we are benefiting from recent price increases pushed into the market.
Turning to slide 11 on a consolidated basis operating income was $27 million per the year up and an impressive $110 million from prior year. The significant improvements in the lumber markets drove the majority of the pricing benefits with offsets due to a negative sales mix and high tech.
<unk> cellulose and reduced newsprint sales volumes and cost improvements were captured across each operating segment with.
And with notable improvements and would purchase pulp and chemicals, along with lower costs from improved reliability.
SG&A and other costs improved $27 million primarily.
Really from the reversal of the duties previously Expensed and our forest products segment, and lower environmental reserves and corporate.
Finally, turning to slide 12, we completed a significant refinancing transaction late in the year as we refinanced our term loans with the senior secured notes and our maturing cash flow revolver with and ABL.
The refinance and extended our nearest significant debt maturity from 2022 to 2024 and removed financial maintenance covenants to provide Ryan with the financial flexibility to operate the business, while maintaining a solid level of liquidity.
Net debt remained at $1 billion.
While our net leverage ratio based on our credit agreement definitions of EBITDA declined to five eight times.
Supported by the strong operating results and cash flow generation and the year liquidity increased to $215 million, including $94 million of cash of $102 million available on our new ABL credit facility and $19 million from our factoring facility in France.
I will note that availability on our new ABL credit facility will fluctuate more than the prior cash flow revolver based on eligible accounts receivable and inventory levels and the business.
Also these cash and liquidity numbers exclude $55 million of cash expected from tax refunds, which we now expect to receive and 2021.
With that I will turn the call back over to Paul.
Hey, Thanks Marcus.
In 2020, we once again solicited investor engagement with outreach to approximately 60% of our largest shareholders.
And one consistent theme, we heard was the demand for more disclosure regarding the company's environmental safety and governance.
Our ESG initiatives.
While we believe our 90 plus year history, and pioneering natural cellulosic and is indicative of our commitment to sustainability, we recognize the need to keep our shareholders adequately informed regarding our progress achievements and future goals.
Turning to page 13, we highlight various initiatives and accomplishments that demonstrate our commitment.
Beginning with environmental our products, most significant raw material input our trees grown using an industry best practices.
We apply internationally recognized force certification standards with third party verification across our operations.
In Canada, we directly manage over 25 million acres of FSC certified wood.
And globally half off.
Of our wood is sourced from third party certified forest lands.
Inside our manufacturing processes, we conserve resources recycle processing materials and utilized virtually every part of the tree to help ensure a reliable and cost efficient process.
Recently, we began publishing metrics on our greenhouse gas and air emissions as well as water usage the usage metrics in line with SaaS B disclosure recommendations for our industry.
Our products are deployed as natural polymers that serve as essential cellulose building blocks used to make and enhanced many products, we all use and everyday life.
Often our cellulose polymer serve as renewable substitutes for non renewable petroleum based products.
For example, our viscose grade pulp is used by our customers to make a natural textile with performance characteristics that can replace petroleum based polyesters.
The same is the case for high strength tire cord for automobiles films.
Films for LCD screens, and plastic handles for screwdrivers and the list goes on.
As such innovation is a core feature of our commitment to sustainable growth. We are constantly investing in innovation and both new product development and new processes and I'll cover some key highlights on innovation and just a minute.
On the social side respect for people has always been one of our core values and reflects our belief that our success is tied to how we value employees and their diverse backgrounds and experiences.
For us and our employees this starts with safety.
Our vision is to make sure that all of our employees go home safe every day.
We employ five leading safety metrics to help drive us towards this goal and have seen the benefit of our efforts with another year of improved safety incident rates and 2020.
We also recognize that we are key employers and our communities, we engage actively and closely with these communities, including through formal community advisory committees and charitable foundations.
We expect each of our employees to act with the utmost integrity and in line with our current code of conduct.
We also have established a diversity and inclusion advisory group comprised of approximately a dozen employees that represent a diverse cross section of the organization to help the company improve and build upon our culture of inclusion and diversity.
In the area of governance, our corporate structure allows our board and management to focus on creating long term value for our shareholders.
Within the past year. The company has taken steps to further align its governance structure with shareholder interest, including separation of the chairperson and CEO roles and refreshing the board with two new highly qualified directors.
Who have enhanced the breadth of skill and diversity, so vital to our boards continued effectiveness.
Three of our nine directors are women.
And one of the six other as a duration minority.
Our management compensation programs are designed to align pay with the shareholder experience.
Short term programs are focused on EBITDA and cash flow, while long term programs are focused on ROIC.
Margin growth and shareholder returns.
This ties each of our major success to the financials of the company, which further aligns their experience with yours.
And speaking of alignment and I'm proud to be a significant individual shareholder holding over 1% of Ryan shares.
With the completion of our refinancing and late 2020.
We are able to pivot our attention to investing in and growing the business for the long term.
Turning to slide 14, and I want to highlight some of our recent strategic investments and product innovations.
Reliability has been a key focus for the organization for the past few years, we've made significant strides on improving our operating efficiency and we continued to invest and targeted areas to capture even further gains.
Two projects that I want to highlight are listed on the top of this slide.
The first is and investment in the second phase of and energy projects.
And our tests, France facility.
In collaboration with National Utilities in January we commissioned a significant investment and green energy to improve the energy efficiencies and.
And cost and reduce cost at this facility.
While supplying more green energy into the national grid under a long term contract.
This is a similar investment to the cogeneration energy project at our <unk> facility, which made that facility and much more competitive and reliable.
We expect to make more of these types of strategic investments and our bio refinery assets as demand for more natural solutions growth, including a potential for non food source ethanol Nunez second generation fuels.
Further since we purchased <unk> in late 2017, we've made investments into improving efficiencies and reliability and our forest products operations.
And we benefited from much more reliable operations and 2020.
So the second and Thats, what I want to highlight is the installation of a new large log saw line.
At our <unk>, Quebec saw mill.
This investment is expected to be operational later this year and will provide increased throughput and reliability, while reducing overall cost to create a second quartile assets.
And then downstream increasing the amount of third party certified wood chip fiber to.
To be used and our high purity cellulose facility.
And so these are just two examples green energy and <unk> and the large log line in La <unk> that we've recently invested in to improve our operations and provide benefits for the communities and which we operate.
Another way, we drive value for shareholders is through our product innovation, we have a long history of innovating cellulose materials from our early days pioneering the viscose rayon industry to developing a high and wood based polymer used and optical clarity LCD screens.
We continue to leverage our past, while working with our customers to develop the future.
We have recently shared with you our new innovation and our <unk> products, our <unk> ex V 20 grade, which we believe will grow and take market share from cotton lint pulp overtime.
And last quarter, we spoke about <unk>, the new quick service bag grade that we developed and our newsprint facility.
Today, I'm going to highlight our newest products Tim Silk. This is a unique products that is now customer qualified debt that we are producing and to Miss <unk>, Quebec for the use of production of wire cell, a green textile fiber with rapidly growing demand.
<unk> produced and a closed loop system, which is far more environmentally friendly and lower cost and most other textile fibers, while providing a higher and silky textile fabric.
There are only a few producers and the world capable of making a pulp that works and this process and we have quickly positioned ourselves to become a leading supplier in this growing market.
We are also directly involved and the development of more advanced cellulose building blocks and will be sharing these initiatives with you through the course of the year.
These strategic and targeted investments will help drive a sustainable business for years to come.
More immediately we see the upward cycle of commodity pulp and lumber markets that gives us a reason to be very excited.
Flipping to slide 15, I want to give you a sense of what the industry forecasters are saying and each of our end markets and what it can mean for our business.
First as Marcus discussed.
And we expect cellular, especially as demand to remain stable for 2021 with a slight decline and pricing.
This goes and fluff prices on the other hand and are expected to rise considerably.
From 2020 levels.
Time will tell the shape and extent of this cycle, but the current pricing trajectory low inventory levels and a bounce back of the global economy are certainly reasons dropped invisible.
Moving to lumber prices, we have been pleasantly surprised at the resilience of this rally.
When we spoke in November the industry believe that pricing and peaked in September.
Just this week, we saw pricing set at another high.
While forecast is don't expect these prices to remain at these levels beyond the near term they do expect market dynamics to remain above trend for the foreseeable future.
Paperboard has remained a steady performer throughout the pandemic and.
While we see price increases for packaging grades. We are also seeing raw material cost increases for the 85000 metric tons of pulp that we purchase on the open market.
Fortunately for US we have a natural hedge against role.
Pulp raw material purchases with sales of our high yield pulp products.
The increased demand for pulp specifically from China has driven prices for commodity pulp significantly higher.
And we're beginning to capture this value now and analysts believe this rally will extend through the year.
Lastly, and newsprint forecasters are expecting a small price increase from 2020 levels. However, with our optimize operations of a single production line.
We also expect to improve profitability from a very deep lows in 2020.
Through improved sales mix and the addition of the virus smart foodservice bag.
So wrapping up on slide 16, and Theres a lot of reasons to be optimistic about our investment and rayonier advanced materials.
As the industry leader and cellulose specialties, we are uniquely positioned to service our customers with product diversity technical knowledge, including two world class research facilities, and the U S and and France, and unmatched security of supply.
Further we have strong assets based on renewable sustainable natural inputs with the capability of producing far more natural biomaterials and we are leveraging today.
We plan to capture stronger cash flows to reduce debt and invest in our business to improve our cost structures and drive new natural based products for a market demanding a sustainable future.
So with that operator, let's open up the call for questions.
Thank you we will now be conducting a question and answer session and if he would like to ask a question. Please press star one on your telephone keypad and confirmation tone will indicate that your line is and the question queue. You May press star two and if you would like to remove your question from the queue.
Participants using speaker equipment, and they have been necessary to pick up your handset before pressing in this zone.
One moment, please while we poll for questions.
Okay.
Thank you. Our first question comes from John Babcock with Bank of America. Please proceed with your question.
Good morning, and thanks for taking my questions starting out.
And there was some really tough winter weather that made its way through the U S South.
And it was recognized and your facilities aren't.
Particularly located and that area I was wondering what impact that might have had to your supply chain or any of your customers.
Hey, John Good morning. Thanks for the question you are right the large.
Swath of the U S. Southeast was was impacted but I would say for the most part fairly minimal impact on on Ryan and general we've probably had a couple of customers that had to slowdown our orders.
For a week or two just as they had to get their facilities a little bit back in line, but didn't see any change and and net demand for the near term or for the year as a result.
And I will say, though.
And it makes me think debt we are experiences of everybody has some congestion and the ports and mainly.
Availability of equipment and there's a lot of containers have been pulled back into to China. So we are seeing a bit of delay and some of our shipments, but not really related to the latest weather issue, but just an issue in general and I think everybody has been impacted by.
Got you and that's helpful and then.
And the release, there was mentioned about some inflation and chemical and raw material costs.
Adding to that I was wondering if you are seeing in place and any other areas such as freight and you just touched on that a little bit and labor and or any other areas debt.
And maybe we should be mindful of and then also if you could just generally talk about what your overall expectations for the year are from an inflationary standpoint.
Hi, John and good morning, it's Marcus.
I would certainly highlight a couple of themes on on material inputs.
As you mentioned chemicals, certainly the sulfur type.
Type products and ammonia are showing some signs of because they are linked to two <unk>.
Fuel and such the other theme is diesel fuel as oil has picked up certainly on our forest products operation supporting the hauling activities and the harvesting activities there is that risk.
And another theme that you've probably seen the Canadian dollar continues to strengthen.
Certainly that currency theme.
You should be aware of and your modeling for next year.
Alright.
And then cellular specialties I mean overall it seems like the contract negotiations.
And it might've occurred and a rather unfortunate time before the commodity and starting to rally.
And on that point, I mean are there any levers and the contracts that allow for inflation or other adjustments or rye and multiple you have to wait until 2022.
To get some of that back.
Yes, John as most of our contracts are pricing for the year. There's a few that may have some some outlets here and there on cost but for the most part.
And we get the benefit or we experienced the negative of it we tend to as you noted we'll stay the course for the year and and then look for the next year for and opportunity to change that.
Gotcha and.
And just last question before I turn it over I was just wondering if you could provide an update on.
Total specialty businesses and how they're performing and also how the overall competitive environment is that day.
Yes, I think as we noticed the demand for cellular specialties is solid.
And we're seeing a year that we think.
It looks looks strong for us and as noted the pricing down a little but as we talked about pricing up a little bit the year before so on balance it's pretty steady on both price and and demand we are seeing a pick up and orders here and the first quarter.
And hard to determine if thats, just some restocking and some of our customers get ready for a more robust set of demand themselves.
Or if it's just again just maybe it's just the inventory variations and we're just not really a real demand pull through but overall I would say that the tone is very positive on our customer front.
And with a couple of shutdowns that we actually have and the first half of the year, it's created a pretty tight and it comes to our manufacturing processes are are pretty well loaded up for the first half of the year here.
And with that we should note that as typical John and you know this well for us our first half the cellular specialties.
B.
Lighter than our second half hour and I should say the second half will be much stronger and certainly this year with two shutdowns.
<unk> happening and the first half, we'll see a strong second half of the year and.
And a more consistent first half of the year to where we are.
Okay, great. Thanks for the color.
Yes, Thanks John.
Yeah.
Thank you. Our next question comes from Paul Quinn with RBC capital markets. Please proceed with your question.
Yes, thanks, very much solid results just maybe back on.
And especially pricing and especially the guide I would've expected.
Expected to be flat or up.
Given some of the swing capacity that moved out of especially just wondering what youre seeing and each of the end markets in terms of demand or are we still seeing growth and need theirs and.
And what's the decline and appetite at this point.
Yes.
And I think Paul even back to John's comment there a lot of the pressure and the market that we're seeing today didn't really happen and rise until late in the fourth quarter there.
And so certainly a lot of pressure sitting here today, what's the strength that we're seeing we're seeing good growth and interest out of the ethers.
We're seeing certainly the automotive sector sector very very strong.
So that's our engine filtration and tire cord and.
The heavy demand for that beyond what we had and our forecasts.
<unk>.
And acetate is actually ended up last year as we looked at the market and what some of the.
Cigarette producers are saying actually turned out a bit more flat than the typical that we've expected a few percent down we'll see if that continues into this year or not.
So overall I think the tone is healthy certainly some sectors coming back more quickly than the others, and particularly and that the automotive area.
Okay, and then maybe you could.
Describe why you stopped sort of.
Given its information on.
Specialty pricing and as opposed to commodity price and it's now a blended price.
So Paul.
Are you, referring to page 15, and our notes out there.
I guess it does also slide seven yes.
Yes, so look we are.
And are putting these together we just gave you guidance really on cellulose specialties, and where we thought pricing is going to be we gave you guidance on where we think the volume is going to be so hopefully you've got that pretty well locked into your model, so slightly down and steady. So hopefully then you can take you guys tracked just as well as we do whats happening out in the commodity side, it's really.
And obviously very dynamic right now hard for us to say exactly where it's going other than it's really strong and we expect it to be strong.
For the entire year keep in mind, we're going to see the benefit and viscose more quickly and we're going to see and fluff fluff.
Our contracts like a lot of contracts with our competitors out there tied to MBS K and some some often lag MBS K and so we won't see that surge or arise and the first quarter as much as you can see and this goes.
I guess, our view is we guided a bit on affiliated specialties and you've got plenty of market data on the other half and we give you the kind of the rough volumes, which again is roughly split somewhat evenly between the two.
So hopefully that's enough to build your models there.
Okay.
And then maybe you could just outlined debt cost of the extended shut at Jessup and in Q2.
And Paul it's Marcus.
So the.
The extended shut usually as you know traditionally these these mills go down for 2014 to 15 days.
So that's a normal shut we're extending that to do some additional work.
On our boiler as we as we mentioned, it's all about reliability and making sure the integrity of our assets here.
So it will be extended a portion of the mill for that extra boiler work, but we have the flexibility given the three lines there too.
To run kind of semi full has that other work gets done.
And so then how material is the shut in terms of the costs and there are the costs hit and the core dividend.
Again were.
U S GAAP.
Border, we are amortizing those costs as part of the shutdown.
So and so really.
Leading into the shutdown will will build our inventories to support our customer service levels with our normal customers.
And really it's assistant and amortization of those costs.
Okay, and then just maybe lastly on the.
I guess newsprint.
And we've seen others with a hike and net.
Hi, Curt there just wondering if.
Ram has joined that and then how material is the environmental and viral and smart product and in terms of production volume.
Yes, sure. So certainly we've been right and they're then following the bigger players and newsprint and announcing our price increase and seem to be capturing those as you indicated are alluding to maybe Paul.
A couple more price increase notifications went out and the industry and we again follow that for the next couple of months as well. So we've got those out there.
And then by our smart bag look that's gone.
<unk> gone very well, we've probably got 20 different trials happening out there we're starting to see some early orders.
And whether that's going to be a significant swing and the year or not is really early I think it's always going to be a bit smaller I don't think we expected to load up our line and and.
And a large percentage on that but it could be a really nice contributor to the line once that gets up and going so I'd say.
<unk> right now Paul and let's see how that develops but early indication with the trials and orders. Good. Good response, and we're very pleased with what we're seeing out in the market.
Alright, that's all I had and best of luck.
Thanks, Paul.
Okay.
As a reminder, if you would like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate that your line is and the question queue.
Okay.
Our next question comes from Paul <unk> with Darren Baird. Please proceed with your question.
Thank you good morning.
And just cancel product on slide 14 can you just elaborate what exactly are you selling is that some type of cellulose pulp products.
Yes, so its a its cellulose pulp it's out of our <unk> facility. So it's another fiber just like all of our other fibers per <unk>.
But designed and specifically for the <unk> application.
We're selling it like you would whether it's going into acetate textiles are viscose textiles, and this is going into <unk> textiles, which is again, a very green fiber made and kind of a closed loop chemical system, so and so it makes it free.
And also gives it a very low cost of manufacturer relative to other textile fibers. So our fiber is a pulp that goes into that application.
And there is as far as we know only a handful of folks that can do that we're really pleased that we've now been qualified where.
And we're selling products to added to Ms <unk> into that application right now.
As you can imagine like most textiles, it was pretty soft in 2020.
Just with Covid.
And change and purchase patterns.
And at time, but our customers are very robust and the growth opportunity and lifestyle.
And Theyre talking over the next five years.
Upwards of 300 to 500000 tons of <unk>.
Demand for our type of product going into that application. So we're excited to be part of that going forward.
Got it very interesting.
Maybe if you could provide some context here.
And the cellulose business.
To date, you made last year and.
And I guess, you probably are expecting debt remains flattish this year and how much of that is textiles force syndrich.
So per Josh we haven't disclosed the breakdown and our different segments within cellulose specialties.
I'd say overall, though our mix is going to be fairly consistent year.
Year to year.
And just to your specific question of around.
Total versus textiles, and acetate again, we don't have that out there, but as you know the vast majority of our product is going into into <unk> at this point with some going into textiles.
Got it thanks, and the last one and.
And I don't know if you've covered that and prepared remarks, but if you could just go through some of the cash flow items for this year Marcus.
Cash tax Capex and I guess interest.
Sure.
So the as you mentioned the book.
Key focus it is bringing in those tax refunds so.
So it's $55 million that are classified as short term and we expect those this year.
Secondly.
For Capex.
Think of a number $85 million to $90 million on a net basis.
And with a higher weighting towards custodial spending this year.
We highlighted that we had a couple of high return strategic projects that we had this year so 85% to 90 net.
That would be another key fixed charge and then on the interest side.
And our LTM interest is around $61 million with the refi.
That will increase into the low to mid 70 range.
With the higher interest costs, but I should highlight on a cash basis.
Because of the timing of our interest payments related to the last refi.
And the cash interest this year will be below $60 million.
And just because of that timing and then think of that higher number on a forward basis.
We have very little as far as additional amortization payments, we have some up and Canada related to the Colo co Gen loan.
And in France, and that's in the range of call it $10 million to $12 million.
So those would be your key fixed charges and.
And cash flow items to really consider and your and your modeling.
Okay got it. Thank you that's all I had.
Okay. Thanks, Paul.
Yes.
Thank you. Our next question comes from John Babcock with Bank of America. Please proceed with your questions and thanks for taking my second round. So I just wanted to jump on a couple of questions Ive necessarily are.
And just in the past, Brian and I talked about a potential asset sales and I was wondering if there any update there and also if market conditions have changed your thinking around this.
So look when we and thanks, John for question and on.
Our portfolio and look we are always mindful of and looking at our portfolio and whats the optimal strategic path for us so.
It continues to be something that we evaluate John.
As you know we've been working on that looking at that over the last couple of years and if we find an opportunity for the right value at the right time.
We will we will transact on things that we think provides more value to our shareholders.
If it belongs to somebody else than to us.
And the present timeframe and real strong cycling and particularly as you see lumber and does that change our thinking.
Look I think we'll always have to think through the cycle. When we look at our assets and we would ask anybody who is looking at them to do the same obviously, we're happy to have the cash generation and are getting out of the lumber assets right. Now so it's a very positive or greater and pleased that our investment and reliability over the last few years has paid out well.
They ran very steady last year, when we had them up and running and outside of the kind of the shutdowns and early earlier part of the year and they continue to do that and as we noted we're making investments and net Lasalle log line to even improve our efficiencies even further.
Having said that again, if someone wants to come to us and talk about value for those or anything else.
And just in.
Good stewards of our assets and our company and our shareholders. We would obviously have dialogue and discussions about that so.
Long long way of saying that look we're always focus on are the right portfolio. We're always looking at how do we continue to strengthen our HPLC assets.
And we believe that those are strategic and were going be looking at the product mix and each of those product innovation. The global competitive cost structure of these and of course, how do we continue to leverage ourselves and took a more green and sustainable opportunities out there. So that's where we got a lot of focus right now John but we're going to continue to own and run.
And all our assets for the long term and if anybody wants to step in the middle of that will obviously talk about value.
Alright.
And then.
Kind of curious to my next question just on capital allocation I mean overall it seems like you're set up for at least a pretty decent year and cash flow, particularly if prices hold up across several of your market share. So how are you thinking about capital allocation and I know, you're talking about debt pay down and investment and business.
What are kind of the other priorities there and also and just from a debt pay down and standpoint, and again just kind of talk about obviously with the refinancing and I think that put some limits on your ability to do that and so you know the extent to which you can pay down debt.
Yeah.
And it's Marcus.
We would continue to take a balanced approach.
Little allocation with a strong focus on debt repayment.
And with a with a lens to that long term target of two and a half times.
Leverage.
In addition, though I would say that will as I mentioned, we will focus on maintaining our assets and optimizing cash flow. So we've got that reliability.
Checked off and in addition.
Wood wood rigorously look at any high return projects in our core business and the HBC business.
And if that can drive a change.
Okay, great, Great Mark and John and again, just a reminder of that a good example of that is that Tar tests bioenergy project really great Southern Green energy back into the grid and France. Good return project for us.
And of a one plus year payback kind of return and we will continue to look for those type of opportunities as we leverage really kind of these bio refinery assets. We have we think theres a lot more we can do out there and whether it gets bioethanol our bioenergy, our bio materials. So we're going to continue to look at high return opportunities like that for capital and we'll share those with you as we haven't.
Going forward.
Okay, Great and then just last question.
This is more of a modeling question and I was just wondering if you might be able to parse out the quarter over quarter impact.
Earnings from the reduced tariff levels and <unk> and the force products segment.
Yes, so John.
The reduced rate of.
8% versus the 'twenty just kicked in in December. So it was really only one month, where we were we had the.
The impact of that lower rate.
So youre looking for and be a 55% reduction.
And based on those duty rates.
And so I'm not sure what periods Youre trying to bridge.
Oh, just <unk> possible.
We were at and we're on a run rate of $20 million and duties.
Based on those new rates.
Alright, thank you.
That's right.
Okay.
Thank you there are no further questions at this time I would like to turn the floor back over to bolt Paul Boynton for closing comments.
Thanks, operator, and again, thanks to everybody for your time today, we're very excited about the recent market developments and of course all of our other initiatives to create value for our shareholders and look forward to updating you on our progress and the near future. So again. Thank you.
Okay.
This concludes today's conference you may disconnect. Your lines at this time. Thank you for your participation and have a great day.