Perfect. So thanks everyone for joining us this afternoon. I'm Vincent Anderson, the materials analyst here at Stifel, and I have DeLyle Bloomquist, President and CEO of Rayonier Advanced Materials. So I'm going to turn it right over to him, for a presentation.
All right, great. I assume everybody can hear me? Thank you all for coming in, seeing our presentation and hearing about our company. Get past all this Safe Harbor stuff and jump right into the presentation real quick. Talk about who we are, very broadly. We're a company that's been around for about 100 years. It goes all the way back to 1939, when we started working with DuPont to make a fiber, textile fiber out of wood. And that textile fiber became known as rayon, and we changed our name of our company to Rayonier, which is obviously a play off of off that development. We are the world's largest producer of what's called dissolving wood pulp, what we call internally high purity cellulose.
We have four operations in that business with five different production lines. What's not stated on the slide is that we're the only producer in our industry that has more than one line. So we're the only one that has redundancy in supply, which is important to many of our customers when it comes to the security of supply for their interest. We're also in a couple of businesses that are non-core, but again, very attractive. Our paperboard business, which is a three-ply product, the only one in North America. About 290,000 tons of capacity. And then a high-yield pulp business that provides a feedstock into our paperboard business and located at the same site in Canada that goes into a number of applications throughout the world.
And then, with respect to our future, one of the things we're focused on in terms of growth and an EBITDA expansion is our biomaterials opportunities, which has strong co-product economics with relative to our core business, that HPC business that I mentioned, that we're going to leverage and go forward, and we'll talk a bit about that in some depth a little later. High-yield pulp, you can see over there on the left, segments. We got it split in two businesses, cellulose specialties, two specialty businesses, acetates, ethers, and other specialties. I'll talk about that a little bit on the next slide. Commodities, this is a business that we essentially are in just to fill out capacity of our CS lines or our specialty lines. It's a business we're trying to minimize going forward.
Again, one of the recent actions we've taken is to start rationalizing our exposure to this business, and I'll talk about that a little later. Paperboard, big exposure in packaging. Declining exposure to, call it, commercial print. But that's a very, very stable business, good margin business, but it is non-core, something that we essentially use as a cash cow to fund other opportunities. Then high-yield pulp is really the only reason we're in that business is because it's a feedstock for the paperboard plant. And we do make more high-yield pulp than we can consume in paperboard, so we do sell separate product into the merchant market for that business. The products we go into.
Many of the things you've used today, it has our product in it. Back to lunch, and those little look like wood boxes, that's paperboard. And so it's likely made out of our paperboard, is what you consume today. Ethers you find in foods, it's a fat substitute. So all those fat-free products out there, is probably using a substitute of ours that's made out of our product. Goes into pharmaceuticals, industrial applications like dry mix cement. You'll find ethers in it. Acetates. The big acetate application is tow. It goes into cigarette filters. Not a growth industry, thank goodness. But it does also see some growth applications in things like acetate plastics, bioplastics.
We're starting to see some push into acetate fibers for textiles, that we're seeing opportunities in. So, overall, not a growth in business right now because of decline in tow applications, but it has a, we believe, a promising future. Other CS, tire cord casings, filtration, MCC, and so forth. A lot of good markets. One of the things that's happened here is, the only other competitor in this business or supplier in this business, shut its operations in October. So in many of these markets, we're now the sole supplier. And we've captured a lot of that stranded demand as a result of that closure. Viscose textiles, very commodity business. Business we're trying to minimize, and I'll talk about that a little later.
Fluff, personal hygiene, feminine products, adult incontinence opportunities. It's the absorbent material you'll find in diapers. Biomaterials, bioethanol is a big opportunity that we're pursuing right now. We started up our first plant in France in March. As I was just mentioning to one of the attendees here, that plant is now running at budgeted levels. So, we're very pleased with that. And then we see further opportunities there than the paperboard and high-yield pulp business. These are two businesses actually. We have put out for sale. We're looking to sell these businesses, so I won't spend a lot of time on these two businesses. But again, relatively stable business, high EBITDA margin, say, in the mid-twenties, low capital intensity, so very attractive businesses. Interesting slide here.
A couple of things I want to point out. Look at the 2023 revenue, $1.6 million, $1.6 billion. Not, not a big time from 2020. I think the CAGR since 2020 is like 5% or 6%. But if you look at our guidance, we're at $1.65 billion. Not a lot of growth from last year. But look what happens to EBITDA in between 2023 to 2024 guidance, $139 million-$190 million. And so the question is: what, what happened? Part of it is the closure of the Foley facility, our competitor, in October. We were able to garner a lot of that stranded demand at very nice pricing, very nice margins.
What that allowed us to do is this. You see the orange, the two orange segments, that's our commodity business in the HPC. We're able to essentially halve the amount of production and sales volumes into those segments as a result of the Foley closure, substituting out the production of commodity business for specialty business and capturing the higher margin as a result of that. But also on top of that, we've announced the closure of our Temiskaming HPC business or our HPC line, which largely was focused also on commodity business. So by closing that line, we're also walking away from negative EBITDA business and therefore strengthening our EBITDA. So you see, the EBITDA growth is largely being generated by that transition away or that enhancement in sales mix in the business. Initiatives.
Top priority for me this year has been around the balance sheet. We have a refi that we've got to get done this year because we have, January 2026 notes that come due, so I need to get those refinanced before they go current. So we're in the middle of that process now. Markets are conducive, and we see an opportunity to, go forward and get that done. Obviously, part of that is, reducing on our debt. So we are committed to moving, paying down $70 million this year from our internally generated cash flow. We have a clear line of sight on doing that. We were successful in selling some passive assets.
Expect to close on that before Q3, but also got some tax refunds and other things to help us to fund this $70 million. The big piece is this one, which is the sale of our non-core paperboard and high-yield pulp business. Roughly $50 million steady cash flow. Low capital intensity, nice, steady EBITDA margins, in that business. We've been running that sales process now for a few months. We have a number of suitors going after that, and we're running this independently of the refinancing. But once we get the sale process done, the plan is to take those proceeds and pay down the quantum of debt, to improve the leverage of the company, going forward.
Talked a little bit about asset optimization, the shutdown of the Temiskaming facility, to improve the sales mix to more specialty and away from commodity. In the next slide, I believe I talk a little more in detail on that. And then, growth through biomaterials investments. Right now, we only use about 40% of a tree when we process a tree to make our fibers. The other 60%, we burn for BTU value, and we take that BTU value and convert it into steam and electricity to run the facility. What biomaterials does is extract out of that 60% that we're currently burning, valuable, what we believe value-added elements of it, and convert that into biomaterials, including bioenergy. And we can do that fairly simply.
So we'll take the sugars, for example, out of that material, hit it with yeast, convert those sugars into ethanol, distill it out, make very pure ethanol, and then sell that as a second-generation bioethanol at a premium price to the more corn-based ethanol market. But there's a number of opportunities we can do. So you get strong co-product economics out of it because you're not bringing in much in terms of additional raw materials to make the product. And since you're locating at the same site as our current facilities, you can get strong economies of scale out of it as well. You don't need two plant managers, don't need two accountants, those type of things, those kind of economies that you would otherwise not get if you were to do a greenfield....
So we announced on April 29, the suspension of operations of our HPC business in Temiskaming. Nominally, it has a capacity of about 150,000 tons. But I would say historically, it's been producing about 120,000 tons, and 30,000 of it was cellulose specialty, and the rest of it was commodity. In 2024, we expect a modest EBITDA benefit as a result of that closure. But going forward, an EBITDA benefit of somewhere to $15 million -$20 million. That's because we were losing $18 million -$20 million a year on the commodity business coming out of that plant. Free cash flow benefit this year, $15 million -$20 million, generated by the monetization of working capital, primarily finished goods.
And going forward, I expect about $30 million of benefit from not only the EBITDA improvement, but also the avoidance of the CapEx for the site. Right, so we believe a strong opportunity for us from a micro perspective. You're getting rid of businesses that we're losing money on, saving some CapEx. From a macro basis, with if you combine that with a closure of Foley, that competitive plant I talked about back in October, it largely brings the supply-demand balance for the industry in line with each other, and that has implications, obviously, around the value, the value you can get for the products you make going forward. A lot of movement here. This is going from our adjusted EBITDA guidance of $180 million-$200 million. Cash interest expense of $85 million.
We're looking at refinancing that, of course. The big move we're gonna try to do there is use our paperboard business to bring the quantum of debt down, so we can drive that bar down, going 2025 and going forward. Maintenance CapEx, each line's roughly $15 million of CapEx a year. So when we got the three left, we could have five left. That'll give us about $75 million of CapEx going forward. Working capital includes $30 million of benefit from the closure of Temiskaming. I talked about the tax refunds briefly, one-time thing. And then, you've got the lumber duty refund rights, which is a passive asset that we sold, announced the sale earlier this quarter, that we'll use to help pay down debt going forward.
So our free cash flow for the year, $80 million -$100 million. Busy slide. I love this slide 'cause it tells a lot good story for us. You can see that we're bringing the quantum of debt down over time. My plan is, and my goal has been to get the net leverage down to 2.5x or less than 2.5 x. I think I'll get there well before 2027. By the end of this year, we currently expect that we'll get our net leverage to covenant EBITDA down to 3x, from where we were at the end of 2024, which is 4.5x.
Again, that's due to a margin expansion on EBITDA, increased profitability of the business, but also reduction in the amount of debt. And then, you're seeing this pop from 9% at the end of 2024 in EBITDA margin to something close to 12%, at the end of this year. And again, it's due to the enhancement of the sales mix, more to specialties. That's driving that business due to the closure of Temiskaming, as well as the gain of the stranded demand that we saw with the closure of our competitor. All right.
That's it. Short and sweet. Okay, question start, or if anybody else wanted to jump in first? All right, perfect. So I'm not gonna ask you to name customers, but I can guess a couple. You talked about tow. I mean, it's well known that tow demand has been declining on the volume front, 1%-3%. But if we look at some of the public tow sellers, they had some pretty incredible contract price resets the last 128 months -18 months, right? +20%-25%, I think it's been reported. They used raw materials as a, as a reason for that with the cigarette companies.
They blame me for the price increase.
So are they being honest, or is there an opportunity for you to take a look at what Eastman's making on that business and go back?
We raised the price fairly significantly in 2022.
Okay.
When you started seeing the pricing of a lot of commodities move up due to the whole supply chain congestion that was going on. We took advantage of that-
Mm-hmm.
and were able to push through a lot of price increases with our competition or with our customers. And since that time, we've held our pricing relatively steady. Actually, we've increased it every year since then as well, but relatively modestly. I would say the last couple of years, we haven't raised it 25%.
Sure.
But we did take the opportunity in 2022 to move the pricing up.
You haven't given it back?
We haven't given it back.
Excellent. Quick question on France. I assume you can't discuss the specific terms of the offtake agreement, but I would hope that at targeted utilization rates, it's cash flow positive. Just curious if there's anything to consider there from a repatriation perspective. Are you planning on keeping the cash there to expand, or is that going to be readily available as it ramps up to the-
We can bring it back if we want. But we're planning on other opportunities in Tartas. We announced earlier this year a partnership with Verso Energy to explore sustainable aviation fuel opportunities for the site. There's some studies we have to do and things like that that we're hoping that the French government will help fund for us. So we're looking at those opportunities as well. So we may keep some money on hand to help fund that. But we can, if needed, repatriate back to the States the cash flow from that. Cash flow or the debt service for that just to remind everybody, we funded that largely with what we call Green Capital that we got from French authorities.
Cost of capital was around 1.5%-2%. So the debt service or the project capital service is relatively modest, so it won't be a real draw on... It's a good 10-year note or something like that. It's got a long, long tail on it. Yeah.
And so, you know, the wood gas, or sorry, the bioethanol, wood gas, traditionally, you know, that was obviously facilitated, and encouraged by RED II. As I recall, RED III hit and actually increased a lot of the mandates. That's always nice, but sometimes when those new policy doctrines come out, it actually creates a little bit of a headache at the individual country level as they digest it and reprioritize. Is that kind of what you've seen as you've looked for next steps in France, or is it just-
No, not in France.
Okay.
One of the things that came out, I think it was with RED III, or at least, tangentially with RED III, was that, the EU agreed, that, nuclear power would be considered green, and France is 70% of its electricity is derived from nuclear power. So I think they're actually sitting in a pretty good spot right now.
Sure. Right. And but that is separate from the vehicle-
Right. Right.
The vehicle isn't, right?
Yeah, yeah. But at the end of the day, it's, we're not seeing that pressure.
Excellent. I think you made an interesting point about, you know, we use 40% of the tree. The other 60% is just an energy conversion. You know, we have something called a corn wet mill, where we figure-
A corn wet mill?
Corn wet mill. You know, we figured out how to use the whole, the whole buffalo. As you look at the opportunity set, maybe more specifically in the U.S., where we don't have the same kind of support for, you know, those next-gen fuels, what would you view as, like, the next one, two, three most interesting derivatives off of that other 60% that you could be looking at for investment?
Well, one of the things that we can take more fully advantage of is lignosulfonates.
Sure.
Right? Which we, particularly at our Fernandina mill. Crude tall oil, both Jesup as well as Fernandina and, at Tartas, are opportunities that we're looking at. There's a prebiotic that we're looking at producing from hemicellulose out of our Jesup facility that we just received GRAS approval-
Mm-hmm
... Generally Recognized as Safe approval for animal feed into chickens and swine. And so we're looking at introducing that animal feed in late 2025, early 2026, as an opportunity. And the... what's the beauty of that is that it doesn't have to be pretreated, or it doesn't have to go through an enzymatic reaction to make it digestible. It gets digestible as is, so it has certain advantages relative to potential substitutes. So, those are opportunities that we're pursuing as part of our phase one on biomaterials.
Okay, excellent. On the CTO side, do you have a CST cut as well? Can you go into turpentine?
CST.
You don't have a turpentine cut?
We do make some turpentine.
Okay.
But not a lot.
Okay.
The focus... I think we can get more value out of the CTO.
Interesting. Okay. Are there any other questions? Maybe if we could talk through the, the asset sale and the decision to shut down the HPC line. Sounds like a little bit of complication between those two because they are co-located. As much as you're able to say, can you kind of walk me through the decision set between the two? Could you not-
Yeah.
Well-
Well, the processes are independent. The decisions were to go down those two paths were reached independently.
Mm-hmm.
But there is the overlap, and there is some complications that were caused by our announcement of the closure of the HPC line. And really, you know, if you put yourself in the shoes of the suitors, you'd find that they would ask the obvious questions. You say, "We're shutting down that line. We share the same site, we share the same utilities, power, steam, water, and we share the same union and the same union contract. So what does that mean to us?" And there are some complications, and I'll raise one that's fairly obvious. The reason why I brought up the union contract is that most union contracts have this, and it's called bumping rights.
A person with a lot of seniority, if their position gets eliminated, because they have seniority, they have the right to go bump someone that has lower seniority than they do in the company and keep a job while that person gets bumped and maybe pushed out of the company. Shutting down a whole line, 275 people, 203 of them are union people. A lot of folks, and there's a lot of folks in there that have got seniority rights. So the question becomes: How many of those folks have rights to move over to paperboard and high-yield pulp?
So one of the questions that suitors would always raise is, "Who am I really getting if I buy the business?" And so we're working with the unions to get that finalized, and then we'll talk to the suitors to make sure they're comfortable that we're not degrading their workforce as a result of this.
Gotcha. And then just looking at the debt stack, I think it's a 7 1/8 coupon on the 2026 notes. The term debt that you put on last year is SOFR plus-
Plus.
+8. Is there an opportunity here where the term debt is... Well, I don't know. Is the term debt pre-payable if you could do a larger package?
Yeah, there was a make whole through July.
Okay.
And then it goes, I think it was a 3% premium, is that right, Cody? To pay it off before term. So yeah, we'll look to pay that down.
Interesting. Okay. Well, that's all from me, unless I, you know, incited any thoughts from the crowd. No? Well, thank you very much. I really appreciate it.
Well, anytime, guys.
Thank you for coming.