Q4 2024 Rayonier Advanced Materials Inc Earnings Call
Speaker Change: Ladies and gentlemen, thank you for standing by. The conference will begin shortly. Once again, please continue to hold.
Speaker Change: We thank you for your patience, and there I am conference will begin shortly.
Speaker Change: Good morning, and welcome to the Ryan 4th quarter, 2024 earnings conference call. During today's presentation, all parties will be in the listen only mode. Following the presentation, the conference will be opened to questions with instructions to follow at that time. As a reminder, this conference is being recorded. I would now like to turn the call over to your host, Mr. Mickey Walsh, Treasure and Vice President of Investrelations. Thank you, Mr. Walsh, you may begin.
Speaker Change: Good morning and welcome to Ryan's fourth quarter, 2024 earnings conference call. Joining me today are Lyle Bloomquist, our President and CEO and Marcus Moeltner, our CFO and Senior Vice President of Finance.
Speaker Change: Last evening, we released our earnings report in accompanying presentation materials which are available on our website at ryam.com These materials provide key insights into our financial performance and strategic direction.
Speaker Change: Today's discussion, we may make forward-looking statements subject to risks and uncertainties that could cause actual results to differ materially. These risks are outlined in our earnings released, SEC filings, and on slide 2 of the presentation.
Speaker Change: We'll also reference certain non-GAAP financial measures to offer an additional perspective on our operational performance. Reconciliation to the most comparable GAAP measures can be found in our presentation on slides 21 to 27.
Speaker Change: Appreciate your participation in today's call and your ongoing interest in Rhyam. I will now turn the call over to the Lyle. All right, thank you, Mickey, and good morning. I'll begin with the recap of our financial institute's achievements in 2024 before handing it over to Marcus.
Marcus Moeltner: to walk through the details of our business segments, capital structure and liquidity. After his remarks, I'll return to discuss our ongoing initiatives and I'll look for 2025.
Marcus Moeltner: We made significant strides in improving profitability strengthening our balance sheet and position the company for long term value creation.
Marcus Moeltner: We achieved meaningful EBITDA growth improved our free cash flow and advanced key strategic initiatives aimed at reducing earnings volatility and increasing shareholder return.
Marcus Moeltner: Let's review our key financial results for 2024.
Marcus Moeltner: Revenue for 2024 came in at $1.63 billion.
Marcus Moeltner: A slight $13 million decline compared to 2023.
Marcus Moeltner: Operating income significantly improved to $39 million, an increase of $104 million over the prior year.
Marcus Moeltner: Adjusted EBITDA, adjusted EBITDA reached $222 million marketing and $83 million or 60% year over year increase driven.
Marcus Moeltner: Driven by strong cellulose specialty pricing and volumes as well as cost reductions, resulting from Artemis can mean high purity cellulose indefinite suspension.
Marcus Moeltner: EBITDA margins expanded to 13, 6% from eight 5%.
Marcus Moeltner: 2024, adjusted free cash flow stood at $128 million, an improvement of $75 million or 142% from 2023.
Marcus Moeltner: Yeah.
Marcus Moeltner: Our net secured debt decreased by $73 million and our net secured leverage ratio improved to two seven times Covenant EBITDA. We are firmly on track to meet our long term 2.5 X target.
Marcus Moeltner: High purity cellulose was the primary driver of EBITDA growth, delivering a $93 million or 65% increase year over year.
Marcus Moeltner: Higher cellulose specialty pricing and volumes and improved sales mix towards cellulose specialties.
Marcus Moeltner: <unk> benefits from strategic capital investments.
Marcus Moeltner: Lower costs due to the Smiths can be an indefinite suspension.
Marcus Moeltner: The Canadian emergency wage subsidy or soon as benefits supported this growth.
Marcus Moeltner: However.
Marcus Moeltner: We paid some offsetting impacts from the adjusted fire repair costs.
Marcus Moeltner: In the absence of a prior year payroll tax benefit.
Okay.
Marcus Moeltner: Paper door paperboard EBITDA declined by $4 million.
Marcus Moeltner: Primarily due to lower sales prices higher labor costs and the impact of custodial site costs for me. However.
Marcus Moeltner: Higher volumes improved productivity and as soon as benefits partially offset these headwinds.
A little more detail on the noted custodial site cost at Smiths can be the site continues to encourage site costs to support our growing energy needs for the paperboard in high yield pulp businesses.
Speaker Change: Beginning in the fourth quarter, you used custodial site costs are they all being netted with the benefit of electricity sales.
Marcus Moeltner: It will largely be allocated to the paperboard in high yield pulp results during the period.
Marcus Moeltner: The Tamils, you mean high purity cellulose indefinite suspension.
Marcus Moeltner: How your pulp EBITDA also declined by $4 million due to lower sales prices higher labor cost and a larger allocation of the Smiths can mean custodial site costs.
Marcus Moeltner: That said.
Marcus Moeltner: Laura logistics and input cost improved productivity.
Marcus Moeltner: And as soon as benefits helped mitigate these challenges.
Marcus Moeltner: Corporate expenses increased by $2 million.
Marcus Moeltner: Driven by higher variable costs.
Marcus Moeltner: Often station.
Marcus Moeltner: Discounting in financing fees and ERP transformation costs.
This was partially offset by favorable foreign exchange rates.
Marcus Moeltner: In short our strong operating execution and disciplined cost management helped drive significant EBITDA and free cash flow growth despite revenue pressure in certain segments.
Marcus Moeltner: Looking ahead to 2025, we are currently projecting EBITDA in the range of $215 million to $235 million.
Marcus Moeltner: This guidance includes our estimate of the impact of the 25% tariffs on U S sales of paperboard.
However, this guidance is subject to any additional tariffs while these tariffs.
Marcus Moeltner: Supply and paperboard in the absence of certain one time net benefits of approximately $15 million that were realized in 'twenty 'twenty four will present headwinds.
Marcus Moeltner: We will build on last year's achievements by prioritizing value over volume in our quarters cellulose specialty business.
Marcus Moeltner: Executing our biomaterial strategy and realizing operational efficiencies derived from our strategic capital investments made in 2024.
Marcus Moeltner: If we exclude the impact of these one time benefits that were realized in 2024, we are on track to achieve our target of 10% annual EBITDA growth.
Marcus Moeltner: Even with the headwinds of the paperboard tariffs and new supply.
Marcus Moeltner: Al will provide more color on these drivers later with that I'll.
Marcus Moeltner: I'll turn it over to Marcus to go through our financials.
Marcus Moeltner: Thank you Doyle.
Marcus Moeltner: Annual 2020 for sales for the H P. C segment declined by $11 million to $1 3 billion as summarized on slide five.
Marcus Moeltner: Despite a 5% net increase in overall H P C pricing driven by a higher mix of cellulose specialties products total sales volumes fell by 5%.
Marcus Moeltner: This was due to a 10% rise in C. S sales offset by a 19% decline in commodity sales the.
Marcus Moeltner: The increase in C. S volumes were supported by several factors, including a competitor plant closure in late 2023.
Marcus Moeltner: Accelerated sales volumes from the two misgiving HBC indefinite suspension.
Marcus Moeltner: Gradual recovery in ethers demand.
Marcus Moeltner: And the absence of a prior year, one time benefit from a change in customer contract terms.
Marcus Moeltner: EBITDA rose by 93 million to 237 million.
Marcus Moeltner: Reflective of the improved sales mix cost improvements due to the indefinite suspension of the <unk> plant.
Marcus Moeltner: And the benefits of strategic capital investment.
Marcus Moeltner: EBITDA margins improved from 11% to 18, 2%.
Marcus Moeltner: Turning to slide six.
Marcus Moeltner: Paperboard sales grew by $9 million, reaching $228 million driven.
Marcus Moeltner: Driven by higher volumes as customer Destocking eased.
Marcus Moeltner: EBITDA declined by 4 million to 48 million, mainly due to lower pricing influenced by higher European imports and cost increases related to higher labor and to Michigan me custodial site costs.
Marcus Moeltner: These impacts were partially offset by improved productivity.
Marcus Moeltner: EBITDA margins for the segment declined to 21, 1% as compared to 2023.
Marcus Moeltner: High yield pulp sales I've set out on slide seven declined by $9 million to $127 million, primarily due to a 9% drop in external sales prices, reflecting oversupply in China and lower demand.
Marcus Moeltner: Cost improvements as a result of higher productivity and lower cost inputs were partially offset by increased labor and to mescaline custodial site costs.
Marcus Moeltner: Segment, EBITDA declined by $4 million to a $5 million loss compared to a $1 million loss in the prior year.
Marcus Moeltner: Transitioning to slide eight.
Marcus Moeltner: Consolidated operating income improved significantly to 39 million reversing the prior year's $65 million loss.
Marcus Moeltner: So, yes pricing was partially offset by lower prices in H P C commodities high yield pulp and paperboard.
Marcus Moeltner: In addition, the favorable sales mix from increased C. S volumes more than offset the impact of lower H P C commodity volumes.
Marcus Moeltner: Cost improvements were mainly driven by the commissioning H P C indefinite suspension activities.
Marcus Moeltner: And previous strategic capital investments.
Marcus Moeltner: SG&A and other costs increased due to higher variable compensation, but were more than offset by the impact of favorable foreign exchange rates and soon as benefits.
Marcus Moeltner: Highlights on the company's capital structure and liquidity profile are set out on slide nine now.
Marcus Moeltner: Net debt fell to 653 million a $68 million reduction from 2023.
Marcus Moeltner: Net secured debt as reflected in our financial covenant ratio associated with the term loan was $625 million.
Marcus Moeltner: Reducing net secured leverage to two seven times covenant EBITDA.
Marcus Moeltner: Liquidity remains strong at $276 million.
Marcus Moeltner: Reflecting a $125 million in cash 141 million under the Undrawn ABL facility and $10 million from the French factoring facility.
Marcus Moeltner: Turning to capital allocation.
Marcus Moeltner: Total 2020 for capital expenditures reached $108 million with $33 million allocated to high return strategic progress projects focused on enhancing plant efficiency.
Marcus Moeltner: France, bio ethanol plant and completing ERP upgrades to support enhanced segment reporting in 2025.
Marcus Moeltner: Net of financing strategic capital amounted to $15 million.
Marcus Moeltner: Overall, the completed refinancing in Q4 of 2024.
Marcus Moeltner: Strengthens the company's capital structure, and enhances Ryan financial flexibility to execute the Companys long term business strategy.
Jill: With that I'd like to turn the call back over to Jill.
Jill: Alright, Thank you Marcus.
Jill: Let's now turn our attention to slide 10, where I'll provide an overview of our key initiatives for 2025.
Jill: We will be implementing new segment reporting beginning in Q1 of 2025, which will better reflect our evolving business and strategic direction.
Jill: The new segments will include cellulose specialties cellulose commodities.
Jill: Our materials paperboard and high yield pulp.
Jill: We believe that these reporting segments will provide investors with a clearer picture of the resilient earnings power of our cellulose specialty business.
Jill: Progress in the execution of our biomaterials strategy.
Jill: The steps, we are taking to reduce exposure to non fluff commodity markets.
Jill: Next we remain committed to debt reduction, we will continue to prioritize debt reduction to strengthen our financial flexibility.
Jill: However, our debt reduction of 2025 will likely be limited to the scheduled amortization of $20 million permitted under our credit agreements as discussed with potential buyers of our paperboard in high yield pulp businesses have stalled due to the market uncertainty introduced by the U S tariffs.
Jill: Optimizing assets and operational efficiency is a huge opportunity for I am yeah.
Jill: Successfully reduced our exposure to non fluff H B C commodities from 15% in 2023.
Jill: To just 6% in 2024.
Jill: And we believe that this commodity exposure will continue to decline as ethers demand recovers to historical levels.
Jill: And we successfully requalify that to Mr means cellulose specialty production at our other H B C facilities.
Jill: Such qualifications for and remain on track.
Jill: In 2024, we invested $10 million with stitch, each capital into cost efficiency projects that when added to an additional $5 million investment to be made in 2020 five.
Jill: Projected to generate $10 million in EBITDA in 2025.
Jill: Significant opportunities remain and we will continue to invest in such high return strategic capital projects to reduce unit production cost B.
Jill: The increase labor productivity improved reliability and input efficiencies.
Jill: Finally, growing our biomaterials business remains a key initiative, we continue to believe that demand for sustainable solutions is accelerating and that we are well positioned to capture highly profitable growth in this space.
Jill: The biomaterial products, we plan to advance in 2025 include built.
Jill: Built a Mohawk green energy or H E project.
Jill: Which was what are the purchase power agreement by Georgia power in 2024.
Jill: We're currently working on a permitting negotiating the EPC contract and arranging the project's financing.
Jill: We expect a final investment decisions. We've made on this project in late 2025.
Jill: The various bio Nova initiatives, such as bio ethanol crude tall oil in prebiotics.
We have secured funding for these near term projects.
Jill: These investments leverage co product economics, driving strong investment returns and profitability.
Final investment decisions are also expected to be made on these projects in 2025.
Jill: I want to emphasize that we remain committed to advancing the bio ethanol project at our Fernandina Beach site.
Jill: We believe that the city at Fernandina Beach aired and rejecting or a site plan application for this project and we are pursuing all available remedies.
Jill: In anticipation of a favorable outcome, we are continuing to advance engineering plans and explore potential commercial agreements.
Jill: Turning to slide 11.
Jill: We are committed to realizing high investment returns on our discretionary strategic capital investments and.
Jill: In 2025, we are evaluating $39 million of strategic capital investments toward biomaterials.
Jill: And see us cost efficiency projects that will meet our mandatory investment criteria of a.
Jill: ROE greater than 30% and a payback period of less than two years.
Jill: As noted.
Jill: In biomaterials, we were advancing the bio Nova initiatives as well as the a G E project.
Jill: With substantial external financing Ryan's net 2025 strategic capital investment for Biomaterials project is just $1 million.
Jill: Total investment for these projects is expected to be around $140 million of which 50% will be funded by ray them equity.
Jill: These investments in biomaterials are expected to generate $55 million in EBITDA once full production is achieved.
Jill: In cellulose specialties, we're evaluating investments of $19 million and $14 million in 2025 and 2026, respectively.
Jill: Automation plant efficiencies and other cost reduction projects.
Jill: We believe these initiatives will generate $31 million in annualized EBITDA, which will build on the success of the $15 million recently invested in similar projects that is expected to deliver $10 million in cost reductions this year.
Jill: We're also completing the final phase of our ERP system upgrade with a 4 million dollar investment to enhance segment reporting and operational oversight.
Jill: Supporting our new segment reporting structure launch in Q1 2025.
Jill: Turning to slide 12.
Jill: We outlined our 2025, EBITDA and free cash flow guidance.
Jill: We expect EBITDA to be in the range of $215 million to $235 million driven by the continued strength of our core cellulose specialty business.
Jill: Sequentially and year over year.
Jill: We expect EBITDA to decline moderately in the first half 2025 with a stronger back half of the year.
Jill: Selecting the impact of extended planned maintenance outages outages at all three H B C facilities in the first half of 2025.
Jill: Though this guidance includes an estimated impact of the recent 25% U S tariffs on paperboard.
Jill: This guidance remains subject to the impact of any additional tariffs.
Jill: Cash interest expense for 2025 is projected at $93 million.
Jill: Which reflects the timing of our debt refinancing.
Jill: This includes a $12 million interest payment for the last quarter of 2024.
Jill: On a normalized basis.
Jill: Annual cash interest expense will be just over $82 million.
Jill: Maintenance capital is projected at $85 million, reflecting the noted planned maintenance outages across all three H B C facilities compared to only one in 2024 as well as incremental calorie repairs related to the Jesup fire.
Jill: Working capital is expected to provide a modest $5 million benefit as we continue optimizing our cash conversion cycle.
Jill: We realized a total of nearly $100 million of working capital reduction over the two year period of 2023 and 2024.
Jill: Thus the opportunities to monetize working capital or getting more challenging.
Jill: Additionally, we will likely be required to pay the full $14 million of deferred energy payments in France from 2023.
Jill: As a result, we expect adjusted free cash flow for 2025 to be in the range of $25 million to $45 million subject to the same caveat as I mentioned earlier regarding tariffs.
Jill: As in prior years, we will continue allocating these funds toward debt reduction.
Jill: High return strategic capital investments.
Jill: So that we can maximize long term equity value creation.
Jill: On slide 13.
Jill: I will provide a deeper and deeper look into our 2025 market outlook across each of our business segments.
Jill: In cellulose specialties, we expect mid digit.
Jill: Mid single digit percentage price increases.
Jill: Driven by our value over volume strategy.
Jill: Sales volumes are projected to decline slightly reflecting the 'twenty 'twenty four bridge volume uplift from the indefinite to Mr means suspension.
Jill: Acetate demand continues to be afflicted by supply chain Destocking, while ethers demand is expected to improve.
Jill: And the demand for the other specialty grades remained strong.
Jill: We anticipate moderate inflation in raw materials and logistics costs.
Jill: For the year, we project EBITDA between 255 and $265 million.
Jill: So subject to any future tariffs.
Jill: In cellulose commodities were also anticipate mid single digit percentage price increases.
Jill: Fluff demand remains strong while our non fluff exposure continues to decline.
Jill: Moderate inflation in raw materials and logistics costs as expected.
Jill: EBITDA is projected to range from $3 million to $8 million subject to potential tariffs.
Yeah.
Jill: In biomaterials, we are advancing the key initiatives as noted.
Jill: Check biomaterials EBITDA of $8 million to $10 million in 2025.
Jill: And paperboard at 25% U S tariff will be applied on our U S sales of paperboard effective March 4th.
As I will discuss on the next page we are confident that we can mitigate much of the impact of these tariffs to the enterprise EBITDA.
Paperboard prices are expected to decline in 2025 do the start up of new capacity.
Jill: Those sales volumes are expected to increase.
Jill: Yeah.
Jill: Higher purchased pulp costs and the increased burden of to Mr. Mean, custodial site costs will also put pressure on margins.
Jill: For 2025, we expect paperboard EBITDA of $15 million subject to any additional tariffs.
Jill: In high yield pulp, we anticipate lower prices they'll sales volumes are expected to rise as we returned to normal operating levels. Following the Q4 2024 market related production downtime.
Jill: EBITDA is projected at a negative $15 million, reflecting ongoing pricing pressure.
Speaker Change: And it's $10 million impact optimistically mean custodial site costs.
Speaker Change: And corporate costs are expected to decline driven by the completion of our ERP project, we anticipate corporate EBITDA of negative $50 million subject to currency changes.
I outlined the potential impacts of tariffs and our mitigation strategies on slide 14.
Speaker Change: Given the evolving trade environment, we are actively assessing the potential financial and operational effects across our businesses business segments.
Speaker Change: And we will adjust our mitigation strategies as needed.
Speaker Change: In cellulose specialties. The primary the primary tariff risks relates to potential totalitarian measures from China on our acetate products.
Well no specific retaliatory tariffs against our products have been announced.
Speaker Change: Similar past actions suggested potential exposure of up to 5% on approximately $160 million in revenue.
Speaker Change: However, given the industry is largely sold out our approach to mitigating this risk includes customers absorbing the tariff.
Speaker Change: Protecting the U S domestic market.
In cellulose commodities exposure is primary related to fluff pulp with a potential for Chinese retaliatory tariffs of up to 5% on approximately $110 million of revenue.
Speaker Change: Oh, no specific retaliatory tariff has been announced.
Speaker Change: Mitigation efforts will focus on passing through the tariffs to customers where possible.
Speaker Change: Testing U S market share and pursuing market share in geographies outside of the impacted regions.
Speaker Change: As already mentioned, a 25% U S tariff will be applied on our U S. Paperboard sales of approximately $175 million in annualized sales.
Speaker Change: Worst case scenario is an annualized EBITDA impact at $42 million per year and $35 million in 2035.
Speaker Change: We will of course attempt to pass on as much of this impact with customers as we can.
Speaker Change: Our key mitigation actions, though will be to replace our 105000 metric tons of paperboard U S exports, but can can Canadian domestic sales.
Speaker Change: We believe that this can be done to the trade balance between the U S and Canada for paperboard is significant and balanced.
Speaker Change: 400000 metric tons is imported by either concentrates from the other.
Speaker Change: We believe that most of the 400000 metric tons of U S paperboard imports into Canada will be available.
Speaker Change: For domestic suppliers given the strong.
Speaker Change: Bike can't Canadian segment sediment.
Speaker Change: In the upcoming retaliatory tariffs at 25% <unk> tariff on U S sourced.
Speaker Change: P S and F. P B paperboard effective March 25th 2025.
Speaker Change: We are also in frequent discussions with Canadian federal in Quebec Provincial policymakers regarding short term government support including the funding of the up to one year qualification process to convert these Canadian S. P S customers to our paperboard product.
Speaker Change: Yeah.
Speaker Change: Through a myriad of mitigation actions, including the notice short term government support the favorable change in foreign exchange a hold on discretionary spending and a quick Canadian customer conversions of at least 30000 metric tons of 2025.
Speaker Change: We believe we can mitigate much of the EBITDA impact of these tariffs.
Speaker Change: We will continue to monitor your U S. We will continue to monitor trade developments closely and will take necessary actions to address risks as more details become available.
Speaker Change: Turning to slide 15, we anticipate margins in the 13% to 14% range in 2025 supported by our continued shift toward higher value specialty products.
And the realization of cost efficiencies at our manufacturing facilities from strategic investments.
Speaker Change: Net secured leverage is projected to be.
Speaker Change: 2.7 times Covenant EBITDA at year end, and we remain confident in our ability to reach two and a half times target well ahead of 2027.
Speaker Change: With that operator, please open the call to questions.
Speaker Change: Thank you at this time, we'll be conducting a question and answer session. If you'd like to ask a question. Please press star one on your telephone keypad.
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Speaker Change: Our first question comes from the line of Daniel Herman with Sidoti and company. Please proceed with your question.
Daniel Herman: Hey, guys. Good morning. Thank you so much for taking my questions and congrats on a really wonderful year of execution.
Daniel Herman: Just a couple of quick ones from me today, the first when we look at capital.
Daniel Herman: Capital allocation, both on a strategic and a maintenance level for 2025 can we expect that to kind of follow the same cadence as 'twenty 'twenty four in terms of quarterly spend.
Speaker Change: And then I hate to bring this up but just wanted to ask about the sale of the paperboard in high yield pulp as I had said to Mr. Ming and wondering if maybe youre seeing a better market are more conducive market. Thus far into 2025, and if investors are hung up on the oversupply of high yield pulp from China and the upcoming paperboard capacity.
Daniel Herman: He adds in that market. Thank you so much.
Speaker Change: Hey, good morning, Daniel this is double aisle.
Speaker Change: So on your capital allocation question, which is specifically around I think calendar as Asian, though the spend throughout the year I would say that with respect to the maintenance capex.
Speaker Change: It'll be a little heavier in the first half and it will be the second half because again our outages at the three facilities will happen in March and April of this year, so you'll see a heavier weighting in the in the first half of the year with respect to the strategic capital, there's probably a little bit the opposite.
Speaker Change: Because we're still going through the evaluation up various projects and so forth that the spend on that tends to happen.
Speaker Change: In the second half the later part of the year after justification as had been validated and.
Speaker Change: Projects have been approved and that's and then obviously the execution of invitation actually doesn't happen until after all that happened so.
Speaker Change:
Speaker Change: But the other day, given the size of the maintenance Capex real it relative to the strategic Capex.
Speaker Change: Probably see data on.
Speaker Change: On a combined consolidated level, a little heavier in the first half.
Speaker Change: And a little lighter in the second half.
Speaker Change: And then with respect to the potential sale or the Oh, the paperboard in high yield pulp again, obviously, we're very interested in and.
Speaker Change: I'm, making this happen.
Speaker Change: Sometime in the near future.
Speaker Change: I think you hit on a couple of points about why this.
Speaker Change: This has been dragging out the you know the excess capacity of high yield pulp in China is weighing down on prices for high yield pulp not just in China, but around the world.
Speaker Change: The the issues with respect to the new capacity on paperboard coming online later this year and the impact it will have on prices.
Speaker Change: It certainly has has weighed on our interest, but I would say that you know the uncertainty that surrounds the surrounding there that this tariffs.
Speaker Change: The tariff news that have been going out.
Speaker Change: The uncertainty with respect to the flip flops, we're seeing between it is not helping us.
Speaker Change: And until all that settles out until things become much more certain.
Speaker Change: And we can put together a a longterm coherent strategy to deal with that I think we're going to we're going to be in a situation where we're.
Speaker Change: Most of those potential suitors will will be will sit on the sidelines until all that settles out.
Speaker Change: Okay. Thanks to while I appreciate it.
Speaker Change: Yep.
Speaker Change: Okay.
Speaker Change: Thank you. Our next question comes from the line of Matthew Mcconnell with RBC capital markets. Please proceed with your question.
Matthew Mcconnell: Good morning, Thanks for taking my questions.
Matthew Mcconnell: First I'd like to ask about the outlook for CFS volumes this year.
Matthew Mcconnell: Is there any more color you can provide particularly around the destocking trend in acetate as he noted maybe around what kind of Destocking youre seeing now and how you expect the impacts of destocking to affect demand.
Matthew Mcconnell: Through the year and then.
Just around what's driving continued improvement in ethers. Both in terms of the end uses and then the impacts of a restocking versus improvements in underlying demand you might be expecting.
Matthew Mcconnell: Okay.
Speaker Change: Well good morning, Matthew.
Speaker Change: About the just stocking of acetate.
Speaker Change: And in China, and actually I would say, it's probably global.
Speaker Change: This is really I think taken or our own direct customers a little bit by surprise themselves.
Speaker Change: If you look at the supply chain from our product all the way up into the actual cigarette sticks, there's seems to be in.
Speaker Change: Overstocking throughout the throughout the supply chain.
Speaker Change: With respect to ourselves.
Speaker Change: The order book for 25 was was reduced by the large consumers of the acetate product that we make.
Speaker Change: And as a consequence.
Speaker Change: Although we were able to maintain share.
Speaker Change: Our volumes did come down.
Speaker Change: And but we were able to raise price.
Speaker Change: Again, continuing to push the value over volume there.
Speaker Change: In terms of percentages in terms of a decline in demand.
Speaker Change: It's I would say it's in the single digits roughly.
Speaker Change: Certainly, let's say mid single digit impact.
Speaker Change: Relative to last year and the expectation of how long. This is going to last I mean, it's lasted longer than we thought it would we thought this would be well over well well behind us going into 'twenty five.
Speaker Change: But you know right now we really don't have any clear sight of when when this is when this is going to and so we'll just keep keep our ear to the ear to the rail so to speak and Doe will inform investors as we get new information.
Speaker Change: With respect to ethers.
Speaker Change: Ethers band, we're seeing improvement in 'twenty four some of that improvement was due to restocking, but also an increase in demand from a few and uses principally food and pharma.
Speaker Change: Construction continues to be a little weak, but again, where we expected those demand the demand continuing to increase in ethers in those two segments that we saw improvements in 'twenty four.
Speaker Change: And there may be some upside on construction activity, particularly around you know if the wars in Gaza and Ukraine, and construction activity may pick up and that obviously will then drive our construction related ethers demand.
Speaker Change: Yeah.
Speaker Change: That's great. Thanks, very much for that color and then.
Just on other C S grades.
Speaker Change: <unk> demand there remains fairly robust just looking underneath the surface level any.
Speaker Change: I guess specific end uses that you'd call out as being stronger or weaker here.
Speaker Change: Maybe either around kind of what's happening with defense spending with respect to nitrocellulose seller.
Speaker Change: Auto is with respect to tire cord and filtration applications.
Speaker Change: Yeah.
Speaker Change: I would say that our filtration has been a strong a growth market force. The business also Nitro, obviously, you know the sad commentary about the various geopolitical activities going on in the world is actually I'm driving.
Munitions.
Speaker Change: That's that's been supportive for us.
Speaker Change: Autos I would say is.
Speaker Change: If you think look at the auto build rate for autos, it's weak.
But given the Oh, the mix mix change to electric vehicles.
Speaker Change: And the impact of the heavier cars electric cars have on tires, we're actually seeing an uplift in the premium tires that go into E D.
Speaker Change: Tastings as a relatively flat, we're not seeing a growth there M. C C, which again is primarily tied to food and pharma, we're seeing improvements in <unk>.
Speaker Change:
Speaker Change: So that's the other day three markets are up MCC, Nitro filtration casings and tire quarter or relatively flat right now.
Speaker Change: Okay.
Speaker Change: That's great. Thanks, very much for that color and then last question for me just around tariffs and your paperboard business.
Speaker Change: Assuming this 25% tariff level is sustained how quickly would you expect to capture more business within Canada.
Speaker Change: <unk> business, you might expect to lose out on in the U S. You've called out I think one of your qualification periods are a consideration here is that pretty universal across the business you would expect the targets or how do you just think about that kind of relative relationship between that's great well. That's that's that's a great question and you know hum, but what.
Speaker Change: And getting down to specifics would probably be I'm, probably a little premature on our part right now but.
Speaker Change: If I look at our paperboard you know there really two big segments that we'd be looking at and converting a candidate would be commercial writing.
Speaker Change: Commercial print.
Speaker Change: And then packaging.
Speaker Change: We think packaging is going to have the the much longer qualification period.
Speaker Change: And so that'll be the one where we will need to seek.
Speaker Change: Seek a little bit of government support and so forth to make it a two to make those conversions, but where we think we can get quick wins.
Speaker Change: As on the commercial the commercial print side.
Speaker Change: And its the qualifications that are much much shorter.
Speaker Change: And in that space.
Speaker Change: So with the you know what's the retaliatory tariffs expected to go into go in effect at the end of March given the strong Canadian sentiment to buy Canada our products.
Speaker Change: We believe that we'll be able to converts fairly quickly.
Speaker Change: Upwards of 30000 tons of production.
Speaker Change: Away from U S exports to Canadian mix Canadian domestic business and in 2025, obviously, we will continue during that period going through the qualification on the packaging grades and we'll start to see we would start to expect to start seeing those conversions in 2026.
Speaker Change:
Speaker Change: So that that's that's our that's our strategy. That's that's our our our action plan right now with respect to that.
Speaker Change: Great. Thanks, very much I'll turn it back.
Speaker Change: Thank you, ladies and gentlemen, as a reminder, if you'd like to ask a question. Please press star one on your telephone keypad.
Speaker Change: Our next question comes from line of Dmitry Silverstein with water Tower Research. Please proceed with your question.
Speaker Change: Good morning, gentlemen, and congratulations on a strong end to the year and a very good 2020 for a couple of questions. If I may one you talked about a one time benefits that helped.
Speaker Change: Helped with the profitability.
Speaker Change: I believe with your high purity cellulose business in 2024 can you just go through them.
Speaker Change: Remind us what those one time benefits worth so we know how to adjust our 2025 expectations.
Dmitry Silverstein: Yeah, Dmitry Oh by the way good morning.
Dmitry Silverstein: With respect to our 'twenty 'twenty four let's say there was probably roughly $15 million of one time benefits in 2024 that we would not see a continuing in 2025 one of them as soon as you know those Canadian employment wage subsidy.
Dmitry Silverstein: Benefits that we were able to recognize in 2024 that totaled about $10 million.
Dmitry Silverstein: There was a benefit that came from the <unk> indefinite suspension, you know that pull forward of demand by our customers to have inventory on the floor, while they went through a qualification process.
Dmitry Silverstein: That would probably another $17 million of benefit last year. So those two together is 27, and then offsetting that would be the fire.
Dmitry Silverstein: And so when you take that out which was roughly a 9 million dollar hit that gets you down to roughly that $15 million impact for last year.
Speaker Change: Okay. That's helpful. Thank you that's what I thought it was I just want to make sure I wasn't missing anything.
Speaker Change: And then switching quickly to the tariff impact and obviously paperboard is the one that's in the crosshairs immediately here starting in April So your guidance I'm.
Speaker Change: I'm presuming is based on three quarters of tariff impact because in the first quarter it looks like it.
Speaker Change:
Speaker Change: Do you sort of back to the board in the first quarter impact. So is this basically a nine months kind of worst case scenario, a guidance that youre, giving us a 35 million.
Speaker Change: Hi.
Speaker Change: Yeah, No we're actually assuming a 10 10 months yet because it was effective as of March 4th.
Speaker Change: So and Ah Yeah, if you look at an unmitigated exposure its roughly a $35 million potential impact now.
As I said, we expect to pass on as much of that terrorists as we can to our U S customers, but that being said.
Speaker Change: We will retain our share in in the U S. While we work through the qualification processing in Canada with them our customers potential customers in Canada.
Speaker Change: So.
Speaker Change: There's a lot of puts and takes you're one of the immediate benefits that we got was foreign exchange.
Speaker Change: Foreign exchange a works works in our favor.
Speaker Change: And that alone.
Speaker Change: <unk> will provide us benefits of five five and a half million dollars all by itself.
Speaker Change: So and then you look at the conversions and some of the things we're doing on.
Speaker Change: Putting holds on some discretionary spend at the enterprise level, we believe that will largely been a gate.
Speaker Change: That $35 million potential exposure due to these tariffs and 25.
Speaker Change: Yeah.
Speaker Change: Okay, that's encouraging and then I just want to make sure I understand this correctly you know biomaterials guidance.
Speaker Change: Talked about.
Speaker Change: Having a reaching a $55 million.
Speaker Change: EBITDA run rate when these projects come in I think last time, you were mentioning something in the neighborhood of $40 million in.
Speaker Change: And EBITDA.
These projects come up so are.
Speaker Change: Are you, adding more projects in your line of sight to get to that $55 million or do you expect what you've told us before it can be more profitable Oh.
Speaker Change: On a run rate basis, when you when you get the production will be up.
Speaker Change: Yeah, and that's sort of that's a great question because it really it is a little confusing. This $55 billion is related to projects that were going to spend strategic capital starting in 2025 through 2028.
Speaker Change: So one of the thing is it doesn't include it doesn't include the the bioethanol plant that we've already invested in in France. So just for easy math, let's just assume that you would add another $10 million EBITDA to the tune of 55, you get to the potential that would get to at the end of 'twenty eight.
Speaker Change: So you've got this increase of roughly.
Speaker Change: 18 million plus.
That versus what we've what we've mentioned in the past and really that the difference is are the.
Speaker Change: He is the a G E project.
Speaker Change: So the AG project is advancing pretty quickly since we received the purchase power agreement from Georgia Power law.
Speaker Change: Asked year, we will be making a final investment decision on that later this year with the pence potential EBITDA impact of that is $25 million to $30 million per year.
Speaker Change: And so by the time that we get that plant up and running in 2028.
Speaker Change: Which is if it would come on in the later half of 2028, because it takes about three years to build.
Speaker Change: Because so you get some of the benefit in 28, and then you get a full year impact in 29. So we can get to 29, you, possibly looking at the $70 million.
Speaker Change: EBITDA number for biomaterials.
Speaker Change: Oh, Okay. So if I am to think about this over the next couple of years kind of going back to your original 2020 guidance about $40 million EBITDA expectation is still valid.
Speaker Change: Well.
Speaker Change: Theres been delays principally around the bio ethanol plant in Fernandina Beach them as we go through the public participation process on the on the permitting.
Speaker Change: So achieving $42 million at the end of 'twenty 'twenty or for the for the year of 'twenty 'twenty seven is probably not likely you will probably see that in 2028.
Speaker Change: I mean, yeah 2020.
Speaker Change: So that delay.
Speaker Change: Okay got it. Thank you very much that's all the questions I had.
Speaker Change: Thank you, ladies and gentlemen that concludes our question and answer session I'll turn the floor back to Mr. Chris <unk> for any final comments.
Speaker Change: Okay well.
Speaker Change: Once again, thank you for taking the time today to listen to our earnings call and for your continued interest continued interest in ROI am.
Speaker Change: 2024 year was a great year for us and them.
Speaker Change: Perfect.
Speaker Change: Credibly proud of all the hard work and effort and progress we made in 'twenty 'twenty four.
Speaker Change: As we move forward, we will continue our focus on executing our strategy around you know round and enhancing our profitability.
Speaker Change: Our high return investments.
Speaker Change: Continuing to maintain our financial discipline to drive long term value of the business. So we appreciate your support.
Speaker Change: And we will continue to strengthen our business and position ourselves for sustained growth going forward. So were committed to transparency and open communication. So please don't hesitate to reach out to us. If you have any further questions. So thank you again and look forward to talking to you in the future.
Speaker Change: Thank you. This concludes today's conference call you may disconnect. Your lines at this time. Thank you for your participation.