Q3 2021 Sylvamo Corp Earnings Call
Good morning, and thank you for standing by.
Speaker 1: Good morning and thank you for standing by. Welcome to today's Silvamo's third quarter 2021 earnings review conference call. All lines have been placed on mute to prevent any background noise.
Welcome to today's so vamos third quarter 2021 earnings review conference call all lines have been placed on mute to prevent any background noise.
Speaker 1: After the speaker's remarks, you will have the opportunity to ask questions.
After the Speakers' remarks, you will have the opportunity to ask questions.
Speaker 1: To ask a question, please press star 1 on your telephone keypad. To withdraw your question, press the pound key.
To ask a question. Please press star one on your telephone keypad.
To withdraw your question press the pound key.
Speaker 1: I'd now like to turn today's conference over to Hans Bjorkman, Vice President, Investor Relations. Please go ahead, sir.
I'd now like to turn today's conference over to Hans Bjorkman, Vice President Investor Relations. Please go ahead Sir.
Thanks, Angie good morning, and thank you for joining our call today are.
Speaker 2: Thanks, Angie. Good morning, and thank you for joining our call today. Our speakers this morning are Jean-Michel Ribeiras, Chairman and Chief Executive Officer, and John Simms, Senior Vice President and Chief Financial Officer.
Our speakers. This morning are John Michel Ruby Arris, Chairman, and Chief Executive Officer, and John <unk>, Senior Vice President and Chief Financial Officer.
Speaker 2: Slides two and three contain important information, including certain legal disclaimers.
<unk>, two and three contain important information, including certain legal disclaimers.
Speaker 2: For example, during this call, we will make forward-looking statements that are subject to risks and uncertainties, including the impact of COVID-19. We will also present certain non-US GAAP financial information.
For example, during this call we will make forward looking statements that are subject to risks and uncertainties, including the impact of COVID-19.
We will also present certain non U S GAAP financial information.
Speaker 2: Reconciliations of those figures to US GAAP financial measures are available in the appendix.
Reconciliations of those figures to U S. GAAP financial measures are available in the appendix.
Speaker 2: Our website also contains copies of the third quarter 2021 earnings press release, as well as today's presentation. I will now turn the call over to Jean-Michel. Thanks, Hans. Good morning, everyone, and thank you for joining us today. I'm on slide 4. Our vision is to be the world's paper company.
Our website also contains copies of the third quarter 2021 earnings press release as well as today's presentation I will now turn the call over to John Michelle.
Thanks, and good morning, everyone and thank you for joining us today.
I'm on slide four.
Our vision is to be the world's paper company.
Speaker 3: the employer, supplier and investment of choice.
Oh, yeah supplier and investment of choice.
Speaker 3: We are a new corporation with roots that go back more than 120 years.
We are a new cooperation with roots that go back more than 120 years.
Speaker 3: We are committed to transforming renewable resources into papers that people depend on for education, communication, and entertainment.
We are committed to transforming renewable resources into papers that people are depends on for education.
Vacation and entertainment.
Moving to slide five.
Speaker 3: As we discussed on investor day, while we have a strong North American business, we generate more than 70% of our profit in Europe and Latin America.
As we discussed on Investor Day, why do we have a strong north American business.
We generate more than 70% of our profit in Europe, and Latin America.
Speaker 3: Over the last 12 months, we generate itself of 3.3 billion and 535 million in adjusted data.
Over the last 12 months, we generated sales of $3 3 billion.
535 million in adjusted EBITDA.
Speaker 3: As of the end of the third quarter, our growth depth adjusted a bit. The ratio was 2.8.
At the end of the third quarter, our gross debt adjusted EBITDA ratio was two eight.
Speaker 3: On a net-tech basis, we handed the quarter with a ratio of 2.6 times adjusted a bit.
The net debt basis, we ended the quarter with a ratio of two six times adjusted EBITDA.
Slide six show, we built momentum from the first launch.
Speaker 3: Slide six shows we built Momentum for the October 1st launch.
Third quarter net sales increased 8% to $908 million.
Speaker 3: Third-quarter NAIT sales increased 8% to $908 million.
Speaker 3: We delivered a JESSE DE BITTA of 177 million.
We delivered adjusted EBITDA of 177 million.
Speaker 3: and an ingested beta margin of 19.5%, above the high end of our target range of 15 to 18%.
And then adjusted EBITDA margin of 19, 5% above.
Above the high end of our target.
Target range of 15% to 18%.
Speaker 3: Adjusted operating earnings were $2.27 per share.
Adjusted operating earnings were $2 27 per share.
Speaker 3: remain focused on generating cash and strengthening of balance.
We remain focused on generating cash and strengthening our balance sheet.
Speaker 3: They start to smack seven to review a third quarter results in greater detail.
Turn to slide seven to review, our third quarter results in greater detail.
Speaker 3: As we continue to realize the benefit of prior price increases, price and mix up-paced increasing input costs.
As we continue to realize the benefits of prior price increases price and mix.
<unk> increasing input costs.
Speaker 3: Global demand for uncutted free sheets continued to gain momentum as schools and offices reopened.
Global demand for uncoated freesheet continued to gain momentum our schools and offices reopened.
Speaker 3: Our volumes remain strong and we continue to run full in all three regions.
Our volumes remained strong and we continue to rent food in all three regions.
Speaker 3: We tend to avoid conducting planned maintenance outages during the hardest months of the year. So the third quarter was a low maintenance outage quarter. However, if we had normalized maintenance outage expenses, our third quarter adjusted a bit of margin, we still have been a strong 17.6%
We tend to avoid congesting planned maintenance outages during the August months of the year. So the third quarter was a new maintenance outage quarter.
However, if we had normalized outage expenses.
Our third quarter adjusted EBITDA margin would still have been a strong 17, 6%.
Speaker 3: Our customer value proposition has strengthened as our channel partners and customers value a supplier committed to the uncutted free sheet segment.
Our customer value proposition, our strengthen as our channel partners and customers value of supply are committed to the uncoated free sheet segment.
Strong commercial and operational performance.
Speaker 3: Strong commercial and operational performances during the spin-off period drove our above-target financial results.
Performances during the spin out there yet.
But target financial results.
Speaker 3: Now, John seems to provide more detail about our third quarter performance. John ?
Now John seems will provide more details about a third quarter performance John.
Speaker 4: Thank you, John . Good morning, everyone. It certainly is exciting to be part of the first earning.
Thank you gentlemen, and good morning, everyone and it certainly is exciting deposits of almost first earning call.
Speaker 4: On a daily basis, we all hear and read about increasing input costs and supply chain bottlenecks.
On a daily basis, we all hear and read about increasing input costs and supply chain bottlenecks and Soma was not immune to those challenges are input costs have increased by 26 million in the third quarter.
Speaker 4: And Sivamo is not immune to those challenges. Our input costs have increased by $26 million in the third quarter.
However, our price and mix improvements outpaced increased input cost by $4 million.
Speaker 4: However, our price and mix improvements outpace increased input costs by 4 million.
Speaker 4: year to date, our improvement in price and mix was 23 million more than input cost inflation.
Year to date, our improvement in price and mix was 23 million more than input cost inflation.
An important takeaway from this slide is the advantage we have in our global footprint.
Speaker 4: An important takeaway from this slide is the advantage we have in our global footprint.
Speaker 4: As you can see on a per ton basis, increasing costs impacted our region's difference.
As you can see on a per ton basis, increasing cost impacted our regions differently.
Speaker 4: I want to point out that 3 million of the increase in fiber costs that you see in Latin America is related to the pulp we purchased for our non-integrated trace Lagos milk.
I want to point out that $3 million of the increase in fiber costs that you'd see in Latin America.
Is it related to the pulp we purchased four non integrated Tres Lagos mill.
Speaker 4: 70% of this increase is naturally hedged by pulp sales on Latin America.
70% of this increase is naturally hedged by our pulp sales in Latin America. So if you take that into account, you'll see that our Latin America costs on a per ton basis would be somewhere to Europe.
Speaker 4: So if you take that into account, you'll see that our Latin America cost on a per ton basis would be similar to Europe . So most of the cost impact that we're seeing globally is in our North America business.
Most of the cost impact that we're seeing globally is in our North American business.
Moving to slide nine.
Global Uncoated freesheet demand continues to recover from the impact of Covid pandemic, and we continue to run full and improve our mix as our commercial teams maximize opportunities across geographies segments and channels.
Speaker 4: Global uncoded free sheet demand continues to recover from the impact of COVID pandemic. And we continue to run full and improve our mix as our commercial teams maximize opportunities across geographies.
Let's talk a little bit about global demand third quarter year to date global uncoated freesheet demand was up five 3%.
Speaker 4: Let's talk a little bit about global demand. Third quarter year to date, global uncoded free sheet demand was up 5.3%
Industry demand in Latin America was up 11% and in Eastern Europe demand was up nearly 8%.
Speaker 4: Industry demand in Latin America was up 11 percent, and in Eastern Europe demand was up nearly 8 percent.
Speaker 4: In Western Europe and North America, demand was up three and a half...
In Western Europe, and North America demand was up three and a half with them.
So the recovery of coffee paper demand continues to lag other uncoated freesheet segment, because a significant number of office workers still have not returned to the office in North America, and Europe and schools still remain close on Latin America point yourself.
Speaker 4: So the recovery of copy paper demand continues to lag other uncutted free sheet segments because a significant number of authors work
Speaker 4: still have not returned to the office in North America and Europe , and schools still remain closed in Latin America. I point this out because there's still more recovery to be had.
Theres still more recovery to be heard as people return back to the offices and schools begin to open this should be supportive of global operating rates and particularly to operate in the regions we operate in.
Speaker 4: people return back to the offices and schools begin to open. This should be supportive of global operating rates and particularly operating rates in the regions we operate.
Currently global copy paper demand was only up two 6% during the third quarter.
Speaker 4: Currently, global copy paper demand was only up 2.6% through the third quarter.
Year to date, our uncoated freesheet shipments were up 14% versus last year, and our third quarter shipments were up 11% versus 2020.
Speaker 4: Year to date, our uncoded free sheet shipments were up 14% versus last year, and our third quarter shipments were up 11% versus 2020.
Speaker 4: So we're continuing to outperform industry growth rates due to our strong commercial team's brand and our focus on commercial excellence.
So we're continuing to outperform industry growth rates due to a strong commercial team brand and our focus on commercial excellence.
Let's go to slide 10.
We generated $177 million and adjusted EBITDA in the third quarter up from $124 million in the second quarter.
Speaker 4: We generated 177 million in adjusted EBITDA in the third quarter, up from 124 million in the second quarter.
Speaker 4: We achieved $30 million in price and mix improvements and $12 million in volume.
We achieved $30 million in price and mix improvements and $12 million in volume.
Speaker 4: Operations improved by 10 million reflecting a foreign exchange benefit in Brazil and good operations as we prepared for the spinoff.
Operations improved by $10 million, reflecting a foreign exchange benefit in Brazil, and good operations as we prepared for the spin off.
Speaker 4: As Elmer's Hill mentioned, we conducted fewer planned maintenance outages and spent $27 million less than in the third quarter.
As <unk> mentioned, we conducted fewer planned maintenance outages and spent $27 million less than in the third quarter.
Speaker 4: This benefit though was largely offset by $26 million in increased costs and fiber energy chemicals and..
This benefit was largely offset by $26 million, an increase cost and fiber energy chemicals and distribution.
Speaker 4: We feel good about the performance of our regional and staff teams during the third quarter. They work extremely hard to meet customer needs, manage global supply chain challenges, and prepare to execute the spinoff.
We feel good about the performance of our regional staff teams during the third quarter as they worked extremely hard to meet customer needs manage global supply chain challenges.
And prepared to execute the spin off let's turn to slide 11.
We regard commercial excellence and operational excellence as key different differentiators of the Mama.
Speaker 4: We regard commercial excellence and operational excellence as key differentiators of savama.
Speaker 4: We're gaining new business and improving our mix with key customers who are eager to expand their positions with a supplier committed to uncoding.
We're gaining new business and improving our mix with key customers, who are eager to expand their positions with a supplier committed to uncoated free sheet.
Speaker 4: We have best-in-class commercial teams working tirelessly to deliver value to our customers and land new business that improves our mix and increases our positions with key channel partners and customers that are winning in their sector.
We have best in class commercial teams working tirelessly to deliver value to our customers and land new business with that improves our mix and increases our positions with key channel partners and customers that are winning in their segment.
Speaker 4: For example, in the third quarter, our North America teams landed an incremental 12,000 tons of accent opaque business.
For example, in the third quarter, our North America team landed an incremental 12000 tons of X and opaque business.
Several new customers.
Speaker 4: Accent Opaque is one of our premium commercial printing grades. We also expanded our channel.
<unk> taken one of our premium commercial printing grades.
We also expanded our channels to market in Latin America, We recently added <unk> copy paper, our branded copy paper into 46, new Brazilian retail outlets.
Speaker 4: We recently added Shonmex copy paper, our branded copy paper, into 46 new Brazilian retail outlets that previously did not sell copy paper in their outlets.
<unk> did not sell copy paper in their outlook.
In addition, we are leveraging product development to expand beyond traditional end use applications. For example in Brazil, we are expanding our position in medicine in server applications.
Speaker 4: In addition, we are leveraging product development to expand beyond traditional end use applications.
Speaker 4: For example, in Brazil, we're expanding our position in medicine insert app.
Our best in class operations team demonstrated their commitment to operational excellence in the third quarter. They successfully completed extremely extremely challenging operating system cutover during a very difficult supply chain environment.
Speaker 4: Our best in class operations team demonstrated their commitment to operational excellence in the third quarter. They successfully completed an extremely challenging operating system cut over during a very difficult supply chain environment.
Let's take a second and look at our regional results on slide 12, each of our regions performed well in the quarter strong earnings and margins reflected the utilization of prior prior price increases improving volume in Europe and continued strong volume in Latin America, and North America.
Speaker 4: take a second and look at our regional results on slide 12. Each of our regions performed well in the quarter. Strong earnings and margins reflected realization of prior, prior price increases, improving volume in Europe and continued strong volume in Latin America.
Speaker 4: Europe and North America had no planned maintenance outages and Latin America executed two outages as well.
Europe, and North America had no planned maintenance outages in Latin America executed two outage as well.
Speaker 4: As we discussed earlier, input cost increases were significant.
As we discussed earlier input cost increases were significant.
Speaker 4: Although supply chains have been disrupted, some customers have shifted incremental business to us and in fact we have customers that would like to shift more of their business to us if we could accommodate.
Although supply chains have been disrupted some covenants have shifted incremental business to us and in fact, we have customers that would like to shift more of their business to us if we could accommodate them.
Speaker 4: The appendix in the back provides more detail on our regional performance. Let's turn to slide 13 to discuss our outlook for the fourth quarter.
The appendix in the back provides more detail on our regional performance. So, let's turn to slide 13 to discuss our outlook for the fourth quarter.
Yeah.
Speaker 4: We expect to deliver an EBITDA of $140 to $150 million in the fourth quarter.
We expect to deliver an EBITDA of $140 million to $150 million in the fourth quarter as adjusted EBITDA.
Price and mix is expected to improve by 30% to $35 million as we continued to realize.
Speaker 4: Price and mix is expected to improve by 30 to 35 million as we continue to realize
Speaker 4: price increases that have been communicated to our customers and all we
Price increases that have been communicated to our customers in all regions.
Speaker 4: We expect seemingly strong volume in Latin America, contributing to overall volume improvements of 10 to 15 million.
We expect seasonally strong volume in Latin America, contributing to overall volume improvements of $10 million to $15 million.
Operating costs are expected to increase by $15 million and that's reflecting seasonally high energy use in Europe, and North America as we transition into the colder timeframe.
Speaker 4: Operating costs are expected to increase by 15 million and that's reflecting seasonally high energy use in Europe and North America as we transition into the colder time.
Speaker 4: We expect input costs and distribution to increase $35 to $40 million. Most of this is driven by energy, wood, and chemicals.
We expect input costs and distribution to increased 35 to 40 million. Most of this is driven by energy wood and chemicals.
Speaker 4: I'll speak a little bit about that. In the energy area, particularly in the gas prices, particularly in Europe is where we're seeing most of the...
And I'll speak a little bit about that in the energy area, particularly in the gas prices.
Particularly in Europe is where we're seeing most of the increase gas prices in Europe are up almost 300% versus last year.
Speaker 4: Gas prices in Europe were up almost 300% versus last year.
Speaker 4: and would, we're seeing increases in North America, primarily weather related.
And what we're seeing increases in North America, primarily weather related.
This has driven our inventories low because of low harvesting we.
Speaker 4: This has driven our inventory low because of low harvest.
Speaker 4: We do expect that we will replenish our inventory and our wood costs will return back to normal sometime around March next year.
We do expect that we will replenish our inventories and our wood costs will return back to normal sometime around March next year.
Speaker 4: Maintenance outages expenses will increase by $24 million as we conduct two extended planned maintenance outages at our SIOT and Eastover...
Maintenance outages expenses will increase by $24 million as we conduct two extended planned maintenance outages at our site in eastern with milk.
Speaker 4: or adjusted EBITDA outlook does not include one-time costs for transition service agreements.
Our adjusted EBITDA outlook does not include one time costs for transition service agreements.
Slide 27 in the appendix contains fourth quarter estimates for corporate items.
Speaker 4: Slide 27 in the appendix contains fourth quarter estimates for corporate items. Let's turn to slide 14 to discuss...
Let's turn to slide 14 to discuss free cash flow.
As <unk> discussed.
Speaker 4: We are focused on generating free cash flow to drive share owner value.
We are focused on generating free cash flow to drive shareholder value.
Speaker 4: We expect we will generate strong freecast flow in the third quarter. We generate strong freecast flow in the third quarter and we expect strong freecast flow in 2022.
We expect we will generate strong free cash flow in the third quarter, we generated strong free cash flow in the third quarter and we expect strong free cash flow in 2022.
Speaker 4: Please recognize that our 2021 free cash flow is not representative of the free cash flow we will generate in the future.
Please recognize that our 2021 free cash flow is not representative of the free cash flow, we will generate in the future.
Speaker 4: primarily because it doesn't reflect $130 to $150 million of annual capital spending for maintenance, regulatory, and reforestation.
Primarily because it doesn't reflect the $130 million to $150 million of annual capital spending for maintenance regulatory and reforestation.
Speaker 4: which is going to be above the 90 million that's forecasted for this year.
Which is going to be above the $90 million is forecasted for this year.
Speaker 4: and also does not include our projected interests.
And also does not include our projected interest expense.
Even with our interest expense and normalized capital spending we expect our 2022 cash flow to be more than sufficient enough to allow us to reduce debt.
Speaker 4: Even with our interest expense and normalized capital spending, we expect our 2022 cash flow to be more than sufficient enough to allow us to reduce debt.
Speaker 4: fund $145 million of maintenance, regulatory, and reforestation capital, plus the $15 million of engineering that will spend for the
The $145 million of maintenance regulatory and reforestation capital plus the $15 million of engineering.
We'll spend for that of course recovery boiler.
Speaker 4: and position the company to begin to return cash to serial.
And position the company to begin to return cash to shareowners.
I will conclude my comments on slide 15, with a review of our current debt structure.
Speaker 4: I will conclude my comments on slide 15 with a review of our current debt structure.
On Investor Day, we showed that we launched the malmo with just over $1 5 billion in gross debt.
Speaker 4: On Investors Day, we showed that we launched the momo with just over $1.5 billion in gross debt.
Speaker 4: We ended the third quarter at 2.8 times gross death to adjusted EBITDA, which is equivalent to 2.6 on a net dead base
We ended the third quarter at two eight times gross debt to adjusted EBITDA.
Which is equivalent to $2 six on a net debt basis.
Speaker 4: On October 29th, we repaid $30 million of the outstanding balance of our revolving credit facility, bringing the outstanding balance down to $70 million.
On October 29th we repaid $30 million of the outstanding balance of our revolving credit facility, bringing the outstanding balance down to $70 million.
Speaker 4: And as you can see, we have favorable debt maturity profile.
And as you can see we have a favorable debt maturity profile.
Speaker 4: Over the next four years, on average, less than $50 million of debt will amortize each year.
Over the next four years on average less than $50 million of debt will amortize each year.
So with that I'm going to turn it back over to use all Michelle.
Speaker 3: Thanks, John . I'll wrap up our comments on slide 16.
Thanks, John I'll wrap up our comments on slide 16.
Speaker 3: Even with the continued uncertainty of the COVID-19 pandemic and supply chain disruptions, we are well positioned for continued success.
Even with the continued uncertainty of the COVID-19, pandemic and supply chain disruptions, we are well positioned for continued success.
Speaker 3: Our commercial and operation excellence will continue to drive strong business results and our financial discipline will create value for share owners.
Our commercial and operational excellence will continue to drive strong business results.
Our financial discipline will create value for shareholders.
The cash flow generation, John outlined would position us to improve shareholder value by reducing debt and beginning discussions with our board, but returning cash to shareholders.
Speaker 3: The cash flow generation John outline would position us to improve share owner value by reducing debt and beginning discussion with our board about returning cash to share owner.
Speaker 3: I couldn't be more proud of how employees have performed throughout 2021.
I couldnt be more proud of how our employees have performed.
'twenty one.
Speaker 3: We appreciate the commitment to working safely during the pandemic and taking care of our customers.
We appreciate the commitment to working safely during the pandemic and taking care of our customers.
Speaker 3: We are passionate about our employees, customers, and our shareholders.
We are passionate about our employees.
And our shareowners.
Speaker 3: Sylvain Moore is off to a great start. We really like our position in paper and have a great deal of momentum to close up the year on an high note. With that, I will turn the...
<unk> is off to a great start with <unk>.
Really like our position in paper and have a great deal of momentum to close out the year I note with that I will turn the call back to Hana.
Thanks, John Michelle and thank you John Okay, Angie with that we're ready to take questions.
Speaker 2: Thanks, Jean-Michel, and thank you, John . OK, Angie, with that, we're ready to take questions.
Speaker 1: Absolutely. If you would like to ask an audio question, please press star 1 on your telephone keypad. We ask that you do limit your question to one and one follow-up. Please hold for your first question.
Absolutely if you would like to ask an audio question. Please press star one on your telephone keypad.
I ask that you do limit your questions to one and one follow up please hold for your first question.
Speaker 1: Your first question comes from the line of George Stapos with Bank of America. Please state your question.
Your first question comes from the line of George Staphos with Bank of America. Please state your question.
Speaker 5: Good morning, there's actually a John Babcock on the line for George. I guess just the first question Can you talk about how demand trends have held up so far in 4q across your different markets? It sounds like overall was pretty strong in 3q and then also if you could talk about You know what impact you're seeing from the supply chain You know, we have particularly in North America. That would be helpful a good morning, John and
Hey, Good morning. This is actually John Babcock on the line for George.
The first question can you talk about how demand trends have held up so far in <unk> across your different markets. It sounds like overall was pretty strong in <unk> and then also if you could talk about what.
What impact you're seeing from the supply chain.
Particularly in North America that would be helpful.
Good morning, John and thank you for joining our call.
Speaker 3: First of all, I will answer the question around demand. Demand continues to be really strong globally.
First of all I will answer the question around demand demand continues to be really strong globally.
Speaker 3: As I mentioned, we are full everywhere.
As I mentioned, we are food everywhere.
Speaker 3: and the trend continues to be very good.
And the trend continues to be very good and we even have some regions like Latin America, which are kind of getting out of the pandemic. So you have back to schools, which are studying a return to office, we should stop soon and they haven't been studied in some regions of Brazil.
Speaker 3: And we even have some regions like Latin America, which are kind of getting out of the pandemic. So you have back to schools, which are starting, return to office, which should start soon, and have even started in some regions of Brazil.
Speaker 3: So we expect to have a continuous strong demand in the fourth quarter.
So we expect to have a continued strong demand in the fourth quarter.
Speaker 3: Concerning supply chain, we've been, like everybody, I mean, we're not today on transportation, on supply chain issues impacted with what's going on.
Concerning supply chain a.
We've been like.
Like everybody I mean, we are not today on transportation on supply chain issues impacted with what's going on in.
Speaker 3: In the U.S., I would say for us it's mostly trapped.
In the U S I would say for us it's mostly truck.
Speaker 3: We are looking at more chiefs to more rail and looking at different options and have good partners, but truck is where we put a lot of attention. In Latin America, I would say it's mostly from Brazil, vessels for exports. It's difficult to get export and if you miss one, getting a new one is really very difficult.
Well, we are looking at mood shifts to morale and look at different options and have good partners, but our track is where we put a lot of attention.
In Latin America, I would say, it's mostly from Brazil vessels for exports, it's difficult to get export and if you Miss one getting a new one is really very difficult so are making.
Speaker 3: Making sure we comply with the planning timing of vessels is essential. In Europe , we had some issues in third quarter, a little bit in rail in Russia. But it's been taken care. It's managed by the government. And they actually did a good job to put it back to a smoother relation. And we have some truck in some specific regions of Europe , like UK. I think everybody has seen that on media. So North America, a lot.
Making sure we comply with the planning timing of vessel is essential.
In Europe, we had some issues in the third quarter, a little bit in rally in Russia, but it is being taken care of so many.
Managed by the government and they actually did a good job too.
For the back to smooth relate.
Relation and we have some tracking some specific region of Europe like <unk> I think everybody has seen that on media.
North America specific to.
Speaker 6: Try.
Correct.
Speaker 3: Latin America vessels, Europe mostly tracks off.
In America vessels.
Most of the trucks off too.
Got it thanks for that color and then moving on I guess like my next question before I turn it over.
Speaker 5: Thanks for that color. And then, you know, moving on, I guess like my next question before I turn it over, you know, on maintenance, it seems like that can be up a decent bit in 4Q. I thought you mentioned, you know, some projects that say correct me if I'm wrong there. And then also, how should we think directionally about maintenance in 2022?
On maintenance it seems like that's going to be up a decent bid in the <unk>.
Cost you mentioned.
Some projects pay off correct.
Correct me if I'm wrong, there and then also how should we think directionally about maintenance in 2022.
Hey, John John Sims.
Speaker 4: John , this is John Sims. You think for the fourth quarter, we have two major outages, extended outages, both at Sci-Yacht and the East River Mill. So those are, the Sci-Yacht Mill is actually a 21-day outage. It's a 10-year outage that we have to do every 10 years. And East River was called out.
Do you think for the fourth quarter, we have two major outages extended outages both at a site in the east to nil.
The <unk> mill is actually a 21 day outage at a 10 year outage that we have to do every 10 years and Easter was cold outage, so that will drive up the cost of those outages, we do provide.
Speaker 4: that will you know drive up the cost of those outages. We do provide guidance in the appendix back there in terms of what 2022 we estimate that to be 62 million dollars for the algae expense. It's slightly less than what we did this year.
Guidance in the appendix and in terms of what 2022, we estimate that to be $62 million for the algae expenses slightly less than what we did this year.
Okay. Thanks for the color.
Okay kind of ticked back up again.
Speaker 1: If you would like to ask a question, please press star 1 on your telephone keypad.
If you would like to ask a question. Please press star one on your telephone keypad.
Your next question comes from the line of Ross Everman with Aro <unk> investment. Please state your question.
Speaker 1: Your next question comes from the line of Russ Everman with ROH Investment. Please state your question. Good morning gentlemen. Thank you for taking my call. Could you talk about the capital expenditures you're going to use on your European plans? I think I saw something from your original deck that you needed to upgrade. I think it's your Russian operation. Could you address that in, I guess, for 2022?
Good morning, gentlemen, thank you for taking my call could you talk about the capital expenditures you are going to use on your European plants, I think I saw something from your original deck that you needed to upgrade I think it's your Russian operation could you could.
Could you address that.
I guess for 'twenty two.
Yes.
Speaker 4: Yes Russ, we did discuss that also in our Form 10 and Investor Day. So we have two recovery boilers that are reaching their end of life at our Svetogorov's Mill in Russia. And we've been looking at options either to rebuild those two boilers or to replace them at our Svetogorov's Mill in Russia.
We did.
That also in our form 10 in Investor day. So we have two recovery boilers or extend reaching their end of life, a better rewards mill in Russia, and we've been looking at options either to rebuild those two boilers or to replace them.
Speaker 4: We haven't made a final determination on that. We'll be bringing that to our board of directors.
We haven't made a final determination on that we'll be bringing that to our board of directors.
Speaker 4: But where we put in our projections, if you will, and we talked about it in investors day, the higher capital option, which is to rebuild the recovery boiler, which estimated somewhere around $220 million.
But where we put in.
Projections, if you will and when we talked about an investors day, the higher capital option, which is do we build the recovery boiler, which estimated somewhere around $220 million.
Speaker 4: This is a lower capital but less operationally impacting option because if you rebuild it, you have to shut the mill down and so you lose the production of that. But when you install a new one, you have to shut the mill down and so you lose the production
This is a lower capital, but less operationally.
Impacting option because if you rebuild that you have to shut the mill down and so you lose that.
Production of that when you install a new one you don't do that you don't have that impact.
Speaker 4: don't lose that, you don't have that impact. So next year we have 15 million dollars in our capital spend that's around the engineering of the recovery boiler and then we're projecting that we'll have in 2023 approximately 75 million dollars
So next year, we have $15 million and our capital spin that's around the engineering of the recovery boiler and then we're projecting that we'll have in 2023 approximately $75 million.
Speaker 4: um, and related to the Svetogorz boiler. And in 2024, we'll have a hundred million. And then we...
And related to this letter boards boiler and in 2024 will have $100 million and then we install it and completed with $30 million in 2025.
Speaker 4: install it and complete it with 30 million in 2025.
Speaker 7: So, if you do go the new route, how much cash flow will that take off, operating cash flow will that take out of your number in 22 and 23 if you go the new boiler route?
So if you do go the new route how much how much cash flow without takeoff.
Cash flow without take out of your.
Hi.
Number in 'twenty, two and 'twenty three if you go with the new boiler rep.
Speaker 4: So we go the new boiler route, we will not impact the production at our Saaveda Gorse mill. We will go the new boiler route, we will not impact the production at our Saaveda Gorse
So if we go to the new boiler well, we will not impact production.
So that of course, the mill, so fun and.
Speaker 4: operating cash flow, we'll be able to continue to run that mill and that won't be impacted.
Operating cash flow will be able to continue to run that mill net.
That won't be impacted.
Okay. Thank you guys. Thank you very much sir.
Speaker 1: If you would like to ask a question, please press star 1 on your telephone keypad.
If you would like to ask a question. Please press star one on your telephone keypad.
Yeah.
You do have a follow up question from the line of George Staphos with Bank of America. Please state your question.
Speaker 1: You do have a follow up question from the line of George Stapos with Bank of America. Please state your question. Thanks for taking my questions again. I did want to ask actually, can you just remind us what price hikes you have in the market and also how much is left to be realized from the hikes that you've announced?
Thanks for taking my questions again.
I did want to ask actually can you just remind us what price hikes do you have in the market and then also how much is left to be realized from the hikes that you've announced.
Hey, John.
Speaker 4: So what we've what we have price increases actually in all regions. So and we've had some price increases that we announced since the investor to our customers. You know we announced.
So what we have.
What we have price increases absolutely in all regions. So and we've had some price increases that we announced since the investor to our customers, we announced since the Investor meeting. So we have price increases that will be going through in Russia, Europe, and Latin American export markets and in north.
Speaker 4: So we have price increases that will be going through in Russia, Europe , and Latin America in the U.S., in the U.S. and in the U.S.
America. So you saw that we project that we have.
Speaker 4: So you saw that we project that we have 30 to 35 million in terms of price and mix in the fourth quarter. And how you can think about that, there will be further implementation and realization of those price increases.
30% to $35 million in terms of price and mix in the fourth quarter and how you can think about that.
It will be a further implementation and realization of those price increases in the first quarter, because essentially that 30% and 35.
Speaker 4: in the first quarter because essentially that 30 to 35 million probably represents about a half a month of implementation of those prices.
$30 million to $35 million.
Probably represents about a half a month of implementation of these price increases.
Okay. Thanks for that and then can you also just remind us how mix tends to shift across the region. So is it more of a positive impact or negative impact.
Speaker 5: Okay, thanks for that. And then can you also just remind us how mix tends to shift across the region? So is it more of a positive impact or negative impacts, you know, across different regions?
Different regions.
Speaker 4: Yeah, from a mix perspective, we're always looking for opportunities to improve the mix. And particularly in the demand environment that we have today, there is a lot of opportunity to do that. And so when you think about mix, we have the flexibility, ability to improve our mix from a product perspective. We also have it from a customer perspective domestically in each of our regions and also export wise.
It's also very important.
Yeah from a mixed perspective, we're always looking at opportunities to improve the mix and in particularly in the demand environment.
<unk> that we have today there is a lot of opportunity to do that and so when you think about mix.
The flexibility the ability to improve our mix from a product perspective, we also have it from a customer perspective domestically in each of our regions and also export wise.
Speaker 4: And that means taking opportunities to be able to export to the markets that we generate the most profit.
And that means taking the opportunity to be able to export to the markets that we generate the most.
And so when you think about.
Speaker 4: So when you think about mixes, we're trying to pull those levers and all our...
Mixes, we're trying to pull those levers and in all our markets.
Okay isn't there a seasonal impact though to mix at least from what I remember, maybe I'm completely wrong here.
Speaker 5: Isn't there a seasonal impact though to mix, at least from what I remember? Maybe I'm completely wrong here. But that's really what I was getting at.
Because that's really what I was getting at.
Speaker 3: You're correct, John . There is a small regional impact, but because we are in the three regions, it's a little bit different. But usually, the first quarter is especially in Latin America and in the compensation.
You're correct John there is a small regional impact, but because we have this three regions. So there'll be different but usually the first quarter is especially in Latin America and in.
Yeah.
Speaker 3: Russia the lowest one because of the holidays and the vacation.
In Russia, the lowest one because of the holidays and vacations.
Speaker 3: and then you have the third quarter which is average. So we do have some seasonings but because we have the third region they kind of balance each other.
And then you have the third quarter, which is average so we do have some seasoning, but because we as I said, we generally kind of balance each other.
Speaker 5: Okay, thanks for that. And then just last question, you know, just on cash flow, are there any notable items we should be mindful of in the fourth quarter here, whether it's working capital or otherwise.
Okay. All right. Thanks for that and then just last question.
Just on cash flow are there any notable items, we should be mindful of in the fourth quarter here, whether it's working capital or otherwise.
Speaker 4: No, we did share with you that, well, we got, you know, the TSA expense, so that'll show up in the fourth quarter, which we hadn't, you know, had previously, of course, because of the spin. But, you know, we did share with you that, well, we got, you know, the TSA expense, which we hadn't, you know, had previously, of course, of the spin.
No we did share with you that we got the TSA expense, so that'll that'll show up in the fourth quarter, which we hadn't had previously of course because of the spin and also we had some one time items.
Okay alright, thank you.
Thank you.
Speaker 1: Your next question comes from the line of Brian Lally. Please state your company name followed by your question.
Your next question comes from the line of Brian Lally. Please state your company name followed by your question.
Hey, guys, Yeah, it's Brian Lalli from PJM. Thanks for the time this morning.
Speaker 8: Hey guys. Yeah, it's Brian Lawley from PGIM. Thanks for the time this morning. If I could maybe just follow on John's question there, you know, not to get too far ahead of ourselves with 2022, you know, guidance, et cetera, but if you were to sum up all of the price actions you've taken relative to...
If I could maybe just following on John's question. There you know not to get too far ahead of ourselves with.
2022 guidance et cetera, but if you were to sum.
All of the price actions you've taken relative to.
Speaker 8: the inflation that you're dealing with, is there an amount for 2021 that you'd say you're, you know, you're still not fully caught up on yet and obviously all things being equal, which isn't fair, you know, you'd say 2022 has additional tailwinds from the pricing you've already enacted. I'm just curious kind of what that number might be as we move into next.
The inflation that youre dealing with is there an amount.
For 2021 that you'd say, you're you're still not fully caught up on yet and obviously, all things being equal which isn't fair.
Say 2022 has additional tailwind from the pricing you've you've already.
Enacted I'm, just curious kind of what that number might be as we as we move into next year.
Yes, I think if you looked at a full year basis.
Speaker 4: I think if you looked at a four year basis because we still have some of these price increases that we're implementing in the fourth quarter and we've had some significant
Because we still have some of these price increases that were implemented in the fourth quarter and we've had some significant cost increases.
Speaker 4: And some of these, I think, that may not go forward, right? So we think that the gas prices in Europe as more gas is coming in from Russia and Russia.
And some of these I think that May not go forward right. So we think that the gas prices in Europe.
More gas is being coming in from Russia and hopefully.
Speaker 4: The wind will blow stronger in Europe that we may actually see some of the gas prices back off.
The wind will blow stronger in Europe that we made as we see some of the gas pricing back off and like I mentioned.
Speaker 4: earlier the wood cost in North America, we expect that it's elevated now because of weather but that will come off. But in general, I think that when you look at our price increases relative to cost increases, we're just staying ahead of it by that time we exit a year. However, when you look at the first quarter because of price increases, we're just staying ahead
Earlier, the wood cost in North America.
We expect that it's elevated now because of weather, but that will come off but in general I think that when you look at our price increases relative to cost.
We're just staying ahead of it but at that time, we exit the year. However, when you look at the first quarter because of prices.
Speaker 4: that we have already announced to our customers that we're in and feel very strong and confident that these will be implemented, we're going to see the benefit that in the first quarter, it's in the first quarter that we'll start to really show that we're outpacing the cost.
We have already announced to our customers that we're in and feel very strong.
Confident that these will be implemented we are going to see the benefit the first quarter. It's in the first quarter that will start to really show that.
We're outpacing the cost inflation.
Speaker 8: Is there a number that we should be thinking about on that, John ? I'm just curious, again, to your point, the run rate as we exit the year maybe isn't as high as you think.
Is there a number that we should be thinking about on that John I'm. Just I'm just curious again to your point the run rate as we exit the year, maybe isn't as high.
Hi, as you think youll get to again with the prices that you.
Speaker 8: announced and feel confident in with your customer.
Announced in and feel confident in what's your customers.
Speaker 8: just so we size it up correctly in our... yeah, right now, I'm not gonna...
Just let me size it up correctly.
Brian I'm, not going out and getting it.
Speaker 4: I'm not going to give you a number right now for projections for 2022.
I'm not going to give you a number right now for protection for 2022.
We don't give forward looking in terms of place details so.
Speaker 8: Okay, no, that's fine. Again, I just wanted to ask the question, not a big deal.
Okay. No. That's fine again I just wanted to I wanted to ask a question not a great deal.
And then I guess my second one would just be.
Speaker 8: you know, again, as you as you the Brazil, you know, tax liability, I'm just curious if there's any update on that. I know there's some limitations around, you know, restricted payments and stuff until you get that figured out. So I figured out just see if there was an update on that front as you talk about shareholder returns.
You know again as he is the Brazil tax liability I'm, just curious if theres any update on that I know, there's some limitations around restricted payments and stuff until you get that figured out so I figured out just to see if there was an update on that front as you talk about shareholder returns.
Yeah, Brian.
Speaker 4: Good question in terms of the, there's still a bill pending in the Brazilian legislation about it.
Good question in terms of the <unk>.
Bill.
A bill pending in Brazilian legislation about potential tax Amnesty program.
Speaker 4: tax amnesty program, but that still hasn't worked its way through yet. And just to remind everybody on the call that it's really international.
But that still hasn't worked its way through yet and just.
To remind everybody on the call that it's really international paper's decision.
Speaker 4: they control the decision of whether they want to pursue that amnesty or not.
They control the decision of whether they want to pursue that MSC or not.
Speaker 4: but it still hasn't worked through so it doesn't appear that it kind of comes through in November .
But it still hasnt worked through so it doesn't appear that it's kind of come through in November.
Speaker 4: There's a lot going on in terms of the Brazilian government right now. It may come out in December or it may sometime in next year.
There's a lot going on in terms of the Brazilian government right now it may come out in December or made some time in next year.
We don't got it alright.
No I appreciate the appreciate they have done that Johnson alright, guys. Thanks, so much for the time I appreciate it best of luck the rest of the year. Thank.
Thank you.
At this time there are no further questions I would now like to turn the floor back to Mr. <unk> for any additional or closing remarks.
Speaker 1: At this time, there are no further questions. I would now like to turn the floor back to Mr. Bjorkman for any additional or closing remarks.
Thank you for joining us today, we do greatly appreciate your interest in <unk> and we look forward to the continued conversations in the months and quarters to come and have a great rest of your day and a great week.
Speaker 2: Thank you for joining us today. We do greatly appreciate your interest in SELVAMO, and we look forward to the continued conversations in the months and quarters to come. Have a great rest of your day and a great week.
Thank you for participating in today's conference call. You May now disconnect your lines at this time.
Speaker 1: Thank you for participating in today's conference call. You may now disconnect your lines at this time.
Okay.
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