Glatfelter Corporation Q1 2023 Earnings Call
Yeah.
[music].
Please standby were about to begin.
Good day and welcome to the Glatfelter as Q1 2023 earnings release Conference call Today's conference is being recorded.
At this time I would like to turn the conference over to Mr. Rami you shutter Gar. Please go ahead.
Thank you Jennifer good morning, and welcome to Glatfelter as 2023 first quarter earnings Conference call.
This is <unk> <unk>, our senior Vice President and Chief Financial Officer and Treasurer.
On the call to present, our first quarter results as Thomas <unk>, President and Chief Executive Officer of Black filter and myself.
Before we begin our presentation I have a few standard reminders.
During our call. This morning, we will use the term adjusted earnings as well as other non-GAAP financial measures.
Reconciliation of these financial measures to our GAAP based results is included in today's earnings release and in the Investor slides.
We will also make forward looking statements today that are subject to risks and uncertainties.
Our 2022 Form 10-K filed with the SEC and todays release are available on our website disclose factors that could cause our actual results to differ materially from these forward looking statements.
These statements speak only as of today and we undertake no obligation to update them.
I will now turn the call over to Thomas.
Thank you Ramesh Hello, everyone and welcome to <unk> first quarter conference call for 2023.
Real pleasure to be with you today I'll begin today's call by highlighting that we have completed several meaningful actions throughout the quarter to progress our turnaround strategy with a sole focus of improving the long term financial performance of the company.
In the first quarter, we achieved operating income of $6 1 million and improved our adjusted EBITDA by $2 5 million compared to the fourth quarter of 2022, lastly, driven by the strong performance of our <unk> and composite fiber segments.
While we are encouraged by our fourth quarter results. We continue to operate in a very challenging macroeconomic environment and inflationary conditions that we anticipate will create volatility in our markets for the remainder of the year.
Despite these continued headwinds we remain confident in our ability to deliver on our annual guidance of $110 million to $120 million and adjusted EBITDA for 2023.
Before one measure dresses financial highlights.
I want to cover a few of the quarter's key accomplishments that contributed to progressing our turnaround strategy.
First we successfully completed the necessary steps for securing the needed refinancing.
Strongly positions the company to be very well capitalized, while providing the financial flexibility to execute our short and long term strategy.
As a result, no material debt will come due prior to the maturity of the company's revolving credit facility in September of 2026.
The completion of this refinancing was quite timely given the reasons liquidity pressures in the global banking system and was viewed favorably by Moody's, resulting in an upgrade of our credit rating.
Second the performance of the composite fibers and OLED materials segments remains strong as demonstrated by the quarter over quarter growth in profitability. Despite a continued difficult economic environment.
In this bundlers segment volumes increased but we did not see a sequential increase in profitability compared to the fourth quarter due to a less favorable product mix. As a result, we are carefully evaluating ways to address the ongoing demand and profitability dynamic within this segment.
The last action I highlight is one that is a direct result of me having evaluated the needs of the business.
Since leaving the company now for nearly eight months.
As communicated in early April I took several key actions to reorganize the senior leadership team to have a single point of accountability for the performance of the company's global supply chain commercial and innovation functions.
These functions will report into borrowers electrical who will be joining clubs elder around early October as senior Vice President and Chief operating officer.
As part of this change we are also forming a product management function reporting into borrowers, which will be responsible for product profitability and pricing.
Along with a fulsome and integrated marketing distribution and portfolio strategy for each of our product categories.
I am confident this new structure under <unk> leadership will strengthen the integration across the core functions of the business and accelerate effective decision, making as we continue to address the company's near and long term financial performance.
Ramesh will now provide additional details on our first quarter financial performance Ramesh.
Thank you Thomas Slide three of the Investor presentation provides a summary of our first quarter results.
Adjusted EBITDA was $24 $8 million or $1 8 million higher compared to Q1 of 2022, mainly driven by improved profitability in our <unk> materials and composite fiber segments.
On a year over year basis composite fibers and early materials EBITDA was higher by $3 9 million and $1 8 million respectively.
This was mainly due to higher selling prices, resulting from multiple pricing actions taken last year, along with raw material pass through provisions and energy surcharges, helping to offset inflationary pressures.
Spun laced EBITDA was slightly lower versus Q1 of 2022 by $300000 as reduced shipments and lower production to match customer demand were not fully offset by pricing and cost reduction actions.
Adjusted free cash flow, although negative and typical for the first quarter improved significantly year over year, driven primarily by lower working capital.
Our leverage as calculated in accordance with the covenants of our New Bank agreement was three times at the end of the first quarter versus a maximum threshold of four to five times.
Slide five shows a summary of first quarter results for the early materials segment.
Revenues were up 9% on a constant currency basis versus the same period last year, mainly driven by higher selling prices of approximately $21 million stemming.
Stemming from contractual cost pass throughs as well as price increases in energy surcharges initiated for customers without such arrangements.
Volume was lower by 7% year over year, primarily due to weaker shipments in hygiene and tabletop categories, but the earnings impact was mostly offset by favorable mix.
The hygiene category decline was primarily due to certain customers slowing order patterns to manage inventory levels buildup at year end as a precaution for potential energy and supply chain disruptions in the beginning of 2023.
Tabletop decline was primarily in North America, where our assets were constrained in 2022 and unable to serve some of our larger customers.
However, we expect to regain some of this tabletop volume in 2023.
Our price cost gap was favorable as our pricing actions allowed us to offset input cost and energy inflation.
Operations were unfavorable by $1 $3 million versus the prior year, primarily due to lower production to match customer demand and tabletop and hygiene categories.
Foreign exchange and related currency hedging positively impacted earnings by $800000, primarily from weakening of the Canadian dollar.
Slide six shows a summary of first quarter results for the composite fiber segment.
Total revenues were up 2% on a constant currency basis, despite volume being lower by 12% versus the same quarter last year.
The revenue increase was mainly due to higher selling prices of $12 million as we have successfully converted more than half of the segment revenue base to a dynamic pricing model, coupled with multiple pricing actions and energy surcharges taken in 2022 to combat inflation.
Volumes in all product categories were lower compared to the same period last year due to softening demand, resulting from higher prices and challenging market conditions.
Wall cover shipments were additionally impacted by the Russia, Ukraine conflict.
<unk> lower volumes unfavorably impacted results by $1 6 million.
It is worth noting that the net impact of volume loss and pricing actions taken in 2022 were favorable and help to improve the segment's overall profitability.
Higher price of energy key raw materials, and freight lowered earnings by $8 $5 million versus the same quarter last year.
On a sequential basis overall inflation was lower by $3 9 million and we.
This trend to continue in 2023, helping us regain some of the lost volume due to pricing pressures.
Operations and other were favorable by $1 $4 million driven by head count actions related to the turnaround strategy as well as lower energy consumption from reduced production to match customer demand.
Foreign exchange was favorable <unk> $6 million from the weaker British pound, creating a benefit in our U K manufacturing cost footprint.
Slide seven shows a summary of first quarter results for the family segment.
Revenues were down 9% on a constant currency basis, driven by lower shipments of 21%, but partially offset by higher selling prices of approximately $12 million coming from pricing actions taken to address inflation.
Approximately 65% of the volume decline was from lower margin hygiene and wipes within this product category. Most of the decline was in the European market, where our customers have access to lower cost alternatives as well as cheaper imports from Turkey and China.
We are exploring all options to improve our cost competitiveness and asset utilization as these are critical to this segments profitability.
On the branded Antara side, the decline was mainly in the healthcare end market, where we continue to see demand erosion in trips and gowns.
We do not expect this category to return to levels seen during the peak of the pandemic and our goal is to offset that volume from the growing critical cleaning category.
Raw material energy and other inflation was unfavorable $8 $8 million due to continued significant inflationary pressures and pulp based paper and synthetic fibers.
Operations FX and other items were a net $1 $3 million unfavorable mainly driven by lower production to manage inventory levels. However, spending on personnel was lower reflecting the head count actions taken since acquiring this business to manage its cost structure.
Slide eight shows corporate costs and other financial items.
For the first quarter corporate costs were higher by $2 3 million versus the same period last year, driven by higher incentive accruals and spending for professional services, but mostly in line with our historical levels.
Slide nine shows our cash flow summary in the first three months of 2023, our adjusted free cash flow was higher by approximately $47 million versus the same period in 2022.
This was primarily driven by higher working capital usage last year from elevated accounts receivables as selling prices increased.
Slightly higher earnings and lower capital expenditures positively impacted cash flow by a net $5 million.
Cash taxes were lower by $6 5 million, mainly on account of higher Canadian income and withholding tax in Q1, 2022, and a U K tax refund received in Q1 2023.
Cash interest was higher by about $3 million, reflecting elevated interest rates this low.
Further increase next quarter as our new term loan was initiated at the end of Q1.
Slide 10 shows some balance sheet and liquidity metrics.
Recently completed a series of transactions to address our upcoming debt maturity.
As part of this refinancing we executed a six year $250 million senior secured term loan.
That was largely used to repay our existing $220 million Euro term loan maturing in February 2024.
In addition, we also amended our existing revolver to meet the ongoing needs of the company.
This was achieved through a combination of downsizing the revolver total capacity, which was largely unused but gaining more flexible covenants and thereby creating additional liquidity.
Our bank Covenant.
Average ratio as calculated under the new credit agreement was three times as of March 31, and.
And we had available liquidity of approximately $230 million at quarter end.
Slide 11 is a summary of our EBITDA and cash flow guidance for 2023 overall Q1 was in line with our expectations and therefore, we are reaffirming our full year EBITDA guidance of $110 million to $120 million as provided last quarter.
Regarding cash flow items, we expect the following cash interest of approximately $60 million, which includes the latest projection of interest expense from the refinancing completed in the first quarter.
Capital expenditures to be between 35% and $40 million.
We expect 20% to $30 million of cash usage from working capital and cost to achieve our turnaround strategy.
And finally cash taxes are expected to be between 20 and $25 million.
This concludes my prepared remarks, I will now turn the call back to Thomas Thank.
Thank you Ramesh.
The last two quarters I've spoken about the turnaround strategy commissioned shortly after arriving at flat filter and its important and improving our financial performance.
As Ramesh noted we began seeing the early progress of our efforts during the fourth quarter of 2022.
And I'm quite pleased that the team has carried this momentum into 2023.
As is typical with any turnaround the work that remains will become exponentially harder to achieve given the significance of its impact to our bottom line results.
That said I am very pleased to report that each of the six components to our strategy remain on track with a clearly defined plan for generating the results that are fundamental to restoring investor confidence.
Also as a turnaround continues to make progress we are actively assessing clubs are those core products to further strengthen their unique attributes and overall value proposition as we continue to innovate sustainable product solutions are.
I recently had the opportunity to meet with a number of our key customers and suppliers along with a cross functional team of club third of leaders at one of the industry's leading trade shows.
<unk> was particularly meaningful to me as it provided the opportunity to share my vision for the company and hear firsthand from our key stakeholders about but its important to them.
As I reflected on my nearly two weeks of discussions.
With four significant takeaways.
First our customers continue to evaluate the way in which our products differentiate themselves from our competition given the unique high quality product at debuted longstanding customer service and security of supply that comes with the club sell their brand.
Our customers' expectations of us remain very high for managing the ongoing price cost gap as the challenging economic headwinds prevail.
This is particularly important as we face growing competition from regions in the world that may not value with the same level of commitment that <unk> is making to achieve truly sustainable products, while improving our overall operations through targeted capital investments in operational efficiencies.
Third.
My discussions with key stakeholders further reinforce the recent organizational changes we made in April .
Integrating our commercial and supply chain leadership into a single point of Accountability will provide the next natural step in the evolution of our organization and overall financial performance.
And last.
The formation of a product management function for the first time in cluster that history will further expand our capabilities in the areas of product pricing market insights and rigorous financial analytics.
Also as part of the reorganization, we took the opportunity to expand the senior executive team to include a broader base of existing cross functional leaders, who will bring valuable diverse perspectives that are essential to our long term growth.
I am confident that with these actions.
Along with ongoing discussions with our various stakeholders. We will continue to further strengthen <unk> brand and build on our quarter over quarter financial performance as demonstrated by our fourth quarter results.
My team and I remain steadfast in delivering the key priorities included in our turnaround strategy leveraging the perspectives of our newly expanded senior leadership and gaining various insights from our key stakeholders as the year continues.
I will now open the call for questions.
Thank you if you'd like to ask a question. Please signal by pressing star one on your telephone keypad. If you ours may speaker phone. Please make sure your mute function is turned off.
Military equipment again press star one to ask a question, we'll pause for just a moment to allow everyone an opportunity to signal for questions.
We'll go first to Josh wall with Carlson capital.
Thomas <unk> good morning, Thanks for taking my question.
Good morning, Josh Good morning, Josh.
I wanted to start with a few questions around the volume trends you experienced in Q1 specific to the quarter can you help us tease out at least directionally the impact of Destocking from underlying demand and maybe also describe how shipment trends progressed month over the quarter into April .
Okay.
Again, just I think you have to look at our volume trends three fold.
One phenomenon, we're seeing right now is that a lot of customers.
We're really very concerned about.
The supply chain interruptions energy situation in Europe , and therefore actually put on more inventory in 2022 now.
Now that we are seeing that the energy situation in Europe has actually is up and we don't see any curtailments also from a pricing standpoint, I think we are seeing more normal levels now they're destocking from that that's number one number two what we're also seeing is if you look at the overall.
And as far as raw material pricing is concerned and we have really we are seeing an overall softening market. So there's also a certain expectation that prices are coming down so theyre not going up anymore. They are coming down so compared to 2022 when at the end of the quarter people were concerned about price hikes for their kind of order.
More now they are very hesitant and said, let's just wait until the new quarter comps and see what's happening in expectation of lower prices and third overall markets are very weak we have to see I mean, and this has really now materialized and in the beginning to be quite honest social was a little bit difficult for us to see.
That is coming from what but what we are seeing right now and also if you look at now.
Customers.
Z suppliers or competitors coming out with their numbers you see this across the board that the market is extremely challenging right. Now. So these are I would say kind of the three main.
Issues, which are impacting our volume development.
That's helpful. Yes, no and I think so.
All of the customers and your peers.
Afflicted that maybe take a moment to tell us what youre hearing from your largest customers in particular.
Karen.
Why.
Within Airways and spun ways, and then the food and Bev brand owners and composite fibers, how much longer can their growth be tilted to taking price at the expense of volume.
And just kind of what are they telling you about their expectations for 2023.
Okay.
Like I mentioned in my remarks.
The opportunity to spend a lot of time with our customers.
At Index last couple of weeks.
And I think where we are right now where we are and we're pretty confident in areas like <unk> and certain areas in composite fibers.
I think we should be able even to extend our volume as the year progresses. So we are working on a lot of projects with our big Big Blue chip customers.
Again right now the big issue is managing also the pricing I mean, there's a lot of pressure right now that because after the pricing actions. We took in September October which were significant but absolutely necessary.
Now there is an expectation that we're releasing so our strategy is more or less holding on as long as we can and we've talked about this I think three months ago, but we are also already having to do some surgical pricing adjustments in order to preserve volumes I would say overall the market is.
It's a difficult market environment and if you look at Fem hygiene, if you look at the wipes area.
We are seeing right now compared Q1 compared to Q4.
Minus of 1% to one 5% lower demand, but again, it's very difficult still to determine what what is triggering this because the three issues I mentioned before but overall, we are still relatively confident that we are maintaining the volumes, but this actually is just we're just able to do this with.
Our call it retinal surgical price adjustments, which we have to make but at the same time raw material prices are coming down.
Fortunately in certain areas.
Materials are not coming down as fast as we wish.
In other areas they are coming down in one big trigger also here is that there was a higher expectation that after Chinese new year, the Chinese demand, which picked up and this hasn't happened yet I mean, it picked up but not to the extent, which everybody was expecting so if I look at the.
The power market.
Relatively.
Weak at the on the other hand, fluff pulp, which is extremely strategic raw material for us.
GAAP between our call at the regular pulp and fluff pulp is widening but we are putting pressure on our fluff pulp suppliers. Because this also has to be reflected in the fluff pulp price, which we have not seen yet.
Okay. That's helpful. Maybe one more for me and then ill get back in the queue can you provide any update on your work to monetize noncore assets.
If that analysis or framework.
Changed or progressed at all.
Nothing has changed there Josh we are diligently working on going through there.
You know these things.
Sometimes a little bit more complicated, but no we are progressing.
We are I would say, we're making good progress.
You should expect some announcements in the near future.
Josh are you still there.
Hey, guys I was going to go back in the queue I don't wanted to dominate the Q&A.
Okay. Okay. Thanks sure. Thank you Josh.
And just as a reminder to ask a question that is star one on your telephone keypad.
We'll go next to Roger Smith with Bank of America.
Thank you and good morning.
Hey, good morning, Roger how are we doing.
Yes, great. Thank you.
Starting with the cash flow that you laid out.
Are there any other.
Cash flow items, how we should think about just simply taking.
Laid out you're looking at 2023 free cash flow of 20 at the midpoint of the various ranges.
But are there any other cash flow items, we should think about besides the ones you've laid out.
No Roger I would say really the turnaround strategy implementation costs, whether that severance restructuring.
<unk> had a half payments this year for our CEO transition.
We called out last year as well so those.
Some of that is going out here in 2023, but between.
Between the turnaround strategy cash cost the working capital the Capex taxes interest.
Nothing else to report on that would meaningfully affect the free cash flow position this year.
Got it okay, and just to correct myself.
I spoke incorrectly that was our working capital outflows have been negative 30 of Iraq, Iraq. Thanks, Yes, sorry about that yes, you got it right yes.
Yes.
And.
I know you don't give quarterly.
Quarterly EBITDA guidance.
But perhaps you can comment qualitatively on the cadence of the improvement.
EBITDA to get to your full year guidance and the main drivers what are the pieces you see to get there.
Yeah, absolutely so Roger one of the things Thomas instituted after coming here on assessing.
Our businesses are forecasting volatility.
The external communication to investors this is.
For the first time, we went out with annual guidance for 2023 as a as a change in approach. So that we can provide investors with a little bit more visibility around how the business is shaping out what.
What I would say, we intentionally have not broken that number out by quarter because of the volatility that we see in the business and sometimes going from one quarter to the next but I think it's sufficient to demonstrate that with the turnaround strategy being put in place when Thomas.
Arrived and seeing some of the early improvements in the fourth quarter seeing that we continue to build on that and had improvement here in the first quarter. We would expect that this gradual momentum in quarter over quarter increase will easily allow us to get to the full year number of 110 to $1 20, So we feel very.
Confident about that.
Okay.
And as you think about and as you think about and as you think about the pieces that will help us get there. This is.
It's the.
The improvement in the price cost gap.
Whether it is price reductions in raw materials energy, we're starting to see freight come down it's the improvement in SG&A cost reductions in operations that are part of the turnaround strategy and so on those are the kind of building blocks. If you will that gets us from the 2022 EBITDA to the guidance for 2023.
Okay got it.
Also if you wanted to for 2020 for Capex, you may probably don't want to give guidance.
If we wanted to put something in our model what kind of market.
When we look at should we just think about 2023 capex in saying that the same or is there something we should think about.
Take versus that.
Yes, I would say Roger that 2023.
<unk> is a very good proxy for what we anticipate in 2024 I think we are.
Articulated previously that our number one capital allocation priority is going to be paying down debt and we are being very disciplined and diligent about our capital spending we believe that the guidance range. We provided for this year at 35% to 40 is a very very manageable level for the next cup.
All of years, as we think about continuing to maintain our assets continuing to grow and continuing to leave enough free cash flow to be able to pay down debt now.
There could be an opportunity down the road that allows us to grow expand EBITDA look at portfolio decisions and so on that may change that view, but for the time being the Capex picture of 35 to 44, even next year is a pretty good assumption.
Excellent IQ, we will get back in queue. Thank you.
Sounds good.
Okay.
We'll go next to Peter.
<unk> capital.
Okay.
Hi, Ramesh Thomas good morning.
Can you hear me good morning, Hi, Peter Yes, Peter Good evening to you.
Excellent.
Burning the midnight oil.
Yes, one question and then a few others.
Okay.
Slide you mentioned in your corporate expenses were higher by $2 3 million.
Do you envision that being the case going forward the rest of the year, where corporate expenses will continue to be higher.
Year on year.
What I would say for corporate expenses, we still expect to be around that call. It 27 ish million dollars for the full year Peter.
<unk> provided that guidance at.
At the beginning of the year.
It's all part of our EBITDA guidance of 110 to 120, but as you think about the.
Corporate costs on a full year basis, we expect to be around $27 million. So it could be a runway.
A run rate that's slightly comes down relative to where we are in Q1, but I would use that as a full year number.
Okay Super.
Simple helpful.
Yes.
Shifting gears.
Sure.
To what degree can you guys just.
Share with us more about.
<unk> is in terms of profitability margins.
How much of the Sunrise business entire represents.
Sure.
Does that mean, if you look at.
Our <unk> segments, you can and this is where we are right now round about 50% of our unless businesses Sentara and round about 50% is hygiene and wipes.
Let's talk about the Sunpower business.
We are really changing our approach this is a branded product.
Mainly.
Used right now in critical cleaning and we are expanding our volumes. There. If you look at the margin the sunpower products without mentioning now is the specific margin, but you can assume that due to the fact that the branded product price sensitivity at the customer level is not as high.
As in other areas.
We are participating in so sunpower our margins are the highest in our overall product portfolio.
We have built capacity available in.
In the U S as well as in Europe .
With our reorganization, we are forming a group which is.
Solely focused on Fonterra, because marketing and selling a brand is different than selling a commodity or dealing with products. Other products. We have in our portfolio and so we have a clear plan in place right now how we are accelerating the growth of our Ontario business. So I hope that by the end of this year.
The split between hygiene wives Antara is not 50, 50 anymore, but its somewhere more leaning towards us on tower side of the business.
One of the issues and challenges, which we have is if you look at the medical gown business, we have a superior product, which in certain areas to be honest is too good.
<unk> of being too good is also too expensive.
Some other problems during the pandemic because there was just.
You just had to have material and price did not matter, but now it's very difficult for us to be competitive compared to mainly China, Turkey and other other countries, which are important material, but they are also looking here at <unk>.
<unk> being a solution, which is really fitting the customer needs.
And in this area as we have to take a trip with out of the product and make it cheaper.
Simply said, we are working on that as well, but our main focus is really the critical cleaning area. We have a pretty I would say good market position in the U S. We are totally underrepresented in Europe and the rest of the world and this is where our focus is.
That's very helpful.
To declare.
When you say roughly 50 50.
Just on revenue or volume.
Revenue.
Revenue Okay.
And roughly how much of your <unk> revenue.
This is derived from the U S.
The rest of the world.
If you look at our business right now I would say the majority of our Sunpower revenue is generated in the U S. And we are totally underrepresented in the rest of the world. We have a very good asset in Europe .
The last week, so if I can.
It's a modern asset it's a line, which is really great and this is where our focus is so we need to improve our European market position and Thats. Our story has locations in Spain.
And again I mean, this is nothing where we start from scratch, but we know that we can do it in the U S and now we have to kind of adjust this and do it in Europe and the rest of the world.
Okay.
And then in.
Doing it and the rest of the world is that is the.
Challenge more on the manufacturing side or hiring salespeople.
It's just going to.
Some of the product.
No. Good question, because it's not on the operation side.
It's really on the marketing sales side.
And a part of our reorganization, which we announced in April like I said, we have a special group just focusing on Santa our SaaS product management is concerned we will have a specialty sales group.
And.
These are the actions we are taking right now and it's mainly market its sales marketing that's what we've got to do.
One of the things and I would like to manage expectations a little bit.
The success here will not come overnight, but because certain products need qualification at our suppliers I'll give you. One example, and we are supplying Boeing was critical cleaning for the U S. We are not in Airbus, yet, but normally qualification Airbus. It takes round about six months to get there.
And we are already doing all of that but it takes some time, but I'm very very confident that we can increase our market share because our product is superior customers really like it and the price sensitivity in this area is not as high as I mentioned before that in some of the other areas that we.
We're working in.
Excellent and I guess, the longer and more difficult it is to get in when these customers.
The longer you have once once youre in there.
Exactly exactly and the good thing is that we are very very optimistic to get in there because we have a superior product.
Yes.
Okay.
Confirm one thing that you said you said the margins are the highest across the entire portfolio, that's including air laid in composite fibers.
Yes.
Okay.
Thats broken.
As you know, there's always exceptions here and there but in general if you look at this and I think this is really I mean this is a branded product.
And yes in general this statement is right.
Okay.
This is helpful. Thank you guys I mean, because just going through.
I'm still.
Relatively new and learning our business and going through your materials.
It gets kind of swallowed up with them.
<unk>, which is this.
Right on the surface struggle struggling business. So it's yes, it's a.
Good day.
There is a very viable business there.
So again, that's why I think it's extremely important bill if you look at spot rates that you really have to look at some tower and very healthy business with a lot of potential and then we have our hygiene wide business and spun layers, which is challenged no question about this and we are working on this and visa operational issues, which we address.
<unk>.
And the spun less issue is a market issue, we just got to go get.
We need more we need more volume.
Got you okay. Thank you.
Thank you gentlemen.
Thank you. Thank you. Thank you Peter.
Alright. Thank you very much for the follow up I, just wanted to ask and perhaps I didn't even hear correctly during their prepared remarks, Thomas I think I heard you, saying not just with noncore assets that you're actively assessing.
Some of your key products for value creation.
Im paraphrasing there if I heard you correctly, yes.
Yes that was right can you expand on that I mean are you suggesting that.
Youll exit some products.
Our markets.
What youre, saying.
No maybe sorry, maybe there was and then communicate what we're doing is that nothing has to change to when we.
Communicated our turnaround plan, we are looking at our product portfolio. We are looking at certain assets and we have identified certain assets, which are not strategic to us.
Or are not performing the way, we would like them to perform and we also don't see.
With our capabilities right now to get them to the level, where we need to be in deep. These assets and these businesses are under review, but overall what I can tell you is this is really relatively small I mean these are not we're not talking about a total transformation of the company we sell on the.
On the periphery here and there and it's not changing changing the changing lab seller okay.
Okay.
Thanks, very much for that appreciate it.
Sure.
We'll go next to Josh Vogel with Carlson capital.
Hey, guys I just had one follow up on the discussion of spinal <unk> profitability I know, it's been impacted by <unk>.
Many crosscurrents, including energy raw material challenges and then some of the demand issues.
Maybe you can provide just an update on the synergy capture and I know some of this.
You're probably not thinking as much about what that synergy number is relative to just.
Addressing some of the operational challenges and so.
You originally I think had $20 million of synergies expected over 24 months.
Yes.
The number today and kind of what's left to come.
Yes, Thanks, Josh you're right about that when we announced the acquisition. We also announced the synergy number of $20 million and if you recall it was expected to come a third a third a third from SG&A from operations and from procurement right and then obviously.
<unk>.
The the whole macroeconomic situation turned upside down on us with inflation and <unk>.
Energy and so on what I will say is that out of that $20 million, we've at least gotten half and all of that has come from the SG&A, where even though we were expecting to deliver $6 7 million call. It from SG&A, We got a little over $10 million from all of the cost reduction people take out and so on where we have been a bit shy.
And we're continuing to work on it is what Thomas was alluding to in terms of the operational inefficiencies.
Inefficiencies that we're seeing within the <unk> business, if you will specifically.
Specifically on the hygiene and wipe side, whether its waste uptime efficiency.
Throughput and so on those are the areas that our operations team is laser focused on trying to get.
Some of that cost and waste out of the system to help it dropped to the bottom line. So the ops piece is still a work in process. The procurement piece is also still a work in process and that really has to do with <unk>.
Having walked into a highly inflationary environment with energy being a double whammy for us. It's just been a challenge working with suppliers to get better payment terms get better pricing and so on but that is also something that our.
Our strategic sourcing organization is focused on trying to deliver so are we fully there on the $20 million no, but I think we're more than halfway there and continue to work on that.
Okay. Thanks.
Jennifer any other questions.
At this time I'll turn the call back to the speaker.
Okay. Thank you very much so thank you for joining us today, and Ramesh and I, we're really looking forward to updating you on our continued progress in the months ahead.
Thank you.
This does concludes today's conference we thank you for your participation.
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