It is now my pleasure to introduce the management of Rayonier Advanced Materials, who this year is able to attend in person. Joining us is De Lyle Bloomquist, the company's President and CEO. De Lyle became CEO in May 2023 after serving on Rayonier's board since 2014. He has decades of experience in the chemicals industry, including as CEO of General Chemical Industrial Products, which was acquired by Tata Chemicals, where he then served as president. Based in Jacksonville, Florida, Rayonier Advanced Materials' main focus is on cellulose-based technology used in the production of natural polymers. These include specialty chemicals such as liquid crystal displays, filters, textiles, and performance additives for pharmaceutical, food, and other industrial applications. In addition, it makes high-purity cellulose paper pulp products used for a variety of specialty products, including lightweight multi-ply paperboard, among others.
The company also focuses on strategic investments targeting renewable energy projects and biodegradable ingredients. Rayonier Advanced Materials has 65.7 million shares outstanding, stock closed at $5.50, more or less last night, for a $361 million market cap, net debt of $605 million, and a $966 million enterprise value. I will now let De Lyle bring us up to date on the company's projects and their progress.
Thank you, Rosemarie. Good afternoon, everybody. I am thrilled to have the opportunity to talk to you about the business. As Rosemarie mentioned, I've been with the business in one form and the others for a little over a decade now, most of it sitting on the board of directors in the last couple of years as the CEO. Just to give you a quick high-level view of the company, the business has been around for about 100 years. I know it's a business you haven't heard of, but it's been around for quite a while. If you look at where we focus our energies on, it's really in three segments. Our core business is what we call high-purity cellulose, or HPC, and represents roughly 75% of our revenues.
It's produced in three plants around the world, two of them here in the U.S., down in the Southeast, and one plant in France. In that business, we have what we call our specialty business, our CS business, cellulose specialty business, and then we also have our commodity business. Our cellulose specialty business, by far our largest business within the company, is roughly 54% of our total revenues. It goes into a myriad of different applications, which I'll talk to on the next slide. Commodities business is actually a business that we're trying to move away from. It's a business that historically we've had negative EBITDA on these products. We've taken a number of actions in the recent past to start mitigating and reducing our exposure to that business.
Again, great businesses in the sense that they've got great organic growth, particularly around the viscose business, which is a natural fiber for textiles. It's just that the preferred product is produced out of low-cost countries, and it's just a product that we can't compete on on a cost basis. It's a business that we deem as something that we need to mitigate. The next business is a paperboard business, which is produced in Quebec. This is a business, its comparative advantages around what we call a three-ply paperboard. It has a center ply that is produced at a very lightweight, high-yield pulp. So it has a surface area to weight ratio that's advantageous versus, call it a more standard SBS board, which you find here in the States. As a consequence, because of the lower weight, it has certain advantages that have allowed that business to grow.
The big mega trend behind that business is that it is sustainable packaging. We believe that going forward, that business has 4%-5% inherent growth per annum. We do not consider it non-core, given that the vast majority of our assets and our expertise is really in the HPC business. Finally, high-yield pulp. High-yield pulp is a commodity business. This is a business that the only reason we are really in it is because it is a key raw material into the paperboard business. We produce the high-yield pulp to be able to feed the paperboard plant to produce that particular specialized product for the company. Like the slide says, four plants.
With respect to the future, we're working on and executing a strategy to build out what we call our biomaterials business, a number of synergies that we can strongly leverage off of that to grow profitability and expand margins. This is a business that will have strong co-product economics. We'll be taking waste streams from our cellulose specialty business, converting those waste streams into value-added products. You get a strong byproduct economic credit from it, as well as the strong co-op economies of scale that come from siting those plants at our existing cellulose business plants. We're looking at 40% plus EBITDA margins in that particular business as we grow that out. Our products are in those things you consume every day. You wouldn't know it, but you eat wood every day. It's really quite surprising where you'll find our products.
If you look at the first three categories there, the ethers, acetate, and other CS, this is our specialty products that we produce. They go into a number of different applications. In fact, many of the products we produce are actually designed and customized to specific customer applications. In fact, we almost have one SKU per customer. That's how customized the products are. In terms of substitution risk, relatively low. Qualification processes are very, very long. As a consequence, very sticky in terms of our market position in these market applications. Again, even your phone that you got in front of you or the computer screen that you have in front of you, that has likely the acetate layer in there that came from our product and produced in the computer screen that you're looking at.
I mentioned viscose and lyocell, a textile product, commodity product. Fluff, we consider it core. Strong growth applications around this. This is around the aging demographics around the world. It's really tied to adult incontinence and adult incontinence diapers, but it's also tied historically to feminine napkins as well as to baby diapers. It provides the absorptive material you find in those products. Paperboard, the big driver, as I mentioned earlier, is sustainable packaging. On high-yield pulp, really commodity business. The reason why we're in that business is because, as you can see the center line there, it becomes an input into the paperboard business. Quick business overview, $1.6-$1.7 billion in revenue.
You can see that on the revenue line, not real sexy in terms of growth, but that flat growth that we've seen over the past couple of years masks some, I would say, fairly dramatic changes within the industry. In 2022, that's when we had the whole supply chain constipation throughout the world where logistics was being tied up at ports and ocean carrier vessels were somewhat limited. A lot of customers were pre-buying material to make sure that they had the supply they needed to buy the product. 2023 was a snapback. Once the ocean carriers got their act together, our customers found that they had far more inventory than they needed. We saw orders decline. You can see that on the right side, upper right side, you see the orange segments on that. That represents the commodity production at our facilities.
This is the production we don't want to do. Because of the lower demand on the CS production in 2023, we actually had to expand our production of our commodity business to keep the production lines at full capacity. What happened, though, as we were in 2023, late 2023, one of our competitors shut down one of their plants in Florida. We would take proactive action in the middle of 2024 to shut down another plant. When that happened, a total of 10% of capacity was mothballed and taken offline. You can see that in 2024, revenue didn't go anywhere because we essentially walked away from a good chunk of revenue. The orange segment of that stacked bar chart, you see it gets squeezed down to a total of 6%. That's exceptionally important.
You can see that in the bottom left, you see that the EBITDA margins grew 60% from 2023 to 2024. A large part of that is being driven by the fact that we walked away from that commodity sales that you see in the orange up in the upper right. Why that happens is that that business actually has a negative EBITDA. Walking away from that business, closing that capacity allowed us to focus all of our assets primarily on the CS business where the margins are very, very healthy. A large change that you see in the 2024 number from the 2023 number is being driven by that action. Last thing I'd point out on this chart is just the pie chart on the bottom right. We are an exporter. We export a lot of our materials around the world.
Obviously, in this uncertain world as it revolves around tariffs and all that, there's a potential risk there. I have a slide that will talk about that in some detail. Initiatives, a lot of words on this slide. I'm going to go through everything on here. Just wanted to highlight the priorities as I see it for 2025. Since I've been in the CEO seat, I've been focused on reducing debt. Not leverage, but debt. I think the total debt level, the quantum of debt is too high to go through the full cycle of the business. We have been focusing on reducing debt. Last year, we took down debt roughly $72 million. This year, we will be somewhat limited because of our new credit agreement. We will be stuck to the level of amortization, which will be roughly around $20 million.
Our focus will be to use free cash flow to pay down debt to a point by which we feel comfortable that even in a down cycle, we should be fine with respect to operating the business. Optimizing the assets. I already talked a little bit about what we're trying to do there about changing the mix of sales and the mix of production away from commodities and towards specialties. The shutdown of Temiscaming last year was a big part of that. We believe that growth in the ethers business and in the other CS segment will offset any decline that we may experience in the acetate. Acetate, a good chunk of that is tied to tow, which goes into cigarettes. So there's going to be a natural secular decline in that business.
We believe the growth in the other two segments will more than offset the decline we expect to see in acetate. As those businesses grow, we should see less commodity production going forward. In terms of our growth, biomaterials, again, I've already talked about what we're trying to do there. Our first plant came up and running in April of 2024, a bioethanol plant we built in France. It's up and running. EBITDA last year, $3 million EBITDA, not much because we're going through the startup phase. This year, we expected that business to generate $8-$10 million of EBITDA. We are seeing good growth on a relatively small plant. We've also got a number of other opportunities there. In fact, we've been able to get access to very low cost of capital.
Because we have an operation in the EU, because we have an operation in France, we're able to get access to very low cost, I'll call it green capital, where we can get this capital to build these plants. In fact, the plant we built in France, we got at an interest rate less than 2% to build this plant out. In fact, the total capital from an equity perspective that we invested is right into that plant, a $40 million project. I think we spent seven to build this thing. If you look at it from a return on equity perspective, very, very, very good. We expect that going forward, as we build out these plants, we'll be able to have we will have the access to such capital to build these plants out and therefore drive significant value for equity.
The last point I want to make on this slide is we're changing our segment reporting this year to be more in line with our actual strategy. It should provide transparency to our equity and our investors. You'll have a segment just on our core business of cellulose specialties. You'll be able to see the profitability. You'll be able to see the revenue growth. We have a segment on the commodities, which we're trying to get out of. You see whether we're having any success there in terms of mitigating and reducing our exposure. The growth of the biomaterials will be shown in its own segment. High-yield and paperboard will have their own segments. One of the big questions I'm sure that a lot of people are asking is, what is our exposure to tariffs? We are a big exporter.
In fact, I think we're the largest exporter out of the Port of Savannah in Georgia. We are material. Therefore, the exposure to potential retaliatory tariffs is fairly high. I would say that when you look at our core business, our cellulose specialties, and even our cellulose commodity business, because of the structure of the industry, our ability to pass on the cost of those tariffs to our customers is really high because the industry is operating at a very high capacity utilization rate. As a consequence, there really is no option for our customers to seek substitutes. Our mitigation strategy there is really to pass on those tariffs to our customers. Where we are exposed is our paperboard business.
In my call last week with the analysts, as we gave out earnings, the worst-case scenario was about $42 million impact if the full 25% tariff on Canadian imports was effected. That would, given that we sell 70% of our volume of paperboard from Canada into the U.S., be material. We have launched the effort to mitigate that. The guidance that we have given, the $215-$235 million of EBITDA, includes the worst-case scenario of tariffs on the paperboard business, but also our mitigation plans. Remember, our year for 2024, our EBITDA was $222 million. Even with the threat of the tariffs, we believe with high confidence that we will be able to exceed our EBITDA for last year, even with the threat of tariffs on the paperboard business.
One of our key strategies that drove our decision to shut down the Temiscaming HPC plant was a strategy that we've employed called value over volume, trying to get value for our specialty products instead of trying to grab market share. This graph shows you how we're able to do that. Before 2023, you see that the excess capacity was around, let's say, 300,000 tons per year in the industry. After the shutdown of Foley, after the shutdown of Temiscaming, it's now down to 0.1. Over two-thirds of the excess capacity was taken out. The capacity utilization of the industry is now in the 90s. The other important point to make here is that since we're the only one with multiple production lines, all of our competition has a single production line. We're the only one with multiple. We own 66% of the market share.
We own all of that excess capacity, which means we are the ones that own the pricing power. Our intent is to continue to push value. We'll get to 0.1 in time as ethers and as other CS demand grow and we're able to move away from the commodity business as we talked about earlier. Important chart here. This talks about our capital allocation. The important point to make on this is that we strictly adhere to, I would say, a very high investment threshold. Our projects, when we spend our discretionary capital, is that it has to provide a 30% ROE and a two-year payback. If it doesn't, the project doesn't get funded and it's put on the shelf for future consideration. We've got a bunch of projects that are lined up to be invested in that we believe achieve this threshold.
We've got on this chart, you see a couple of categories. One is biomaterials. Our biggest investment, again, huge leverage off of co-product economics or byproduct economics as well as economies of scale. Total investment over the course of the next four years, about $100 million plus. We believe that that's going to generate roughly $55 million in EBITDA for the business in terms of growth. The other segment called cellulose specialties is really around cost reduction, focusing on our existing facilities by applying new technologies around automation, AI, and labor productivity. The plan is to spend roughly $39 million and get $31 million of EBITDA out of it. We have a backlog of projects that we can get after. If some of these projects do not meet that investment hurdle, we'll put that on the shelf, bring one forward, and continue forward.
I'm highly confident we'll be able to achieve, by the time we get to 2029, a growth of EBITDA of roughly $80 plus million with very, very high return potential. Last slide. Leverage has gotten down to, I'd say, a very manageable level. We're below 3 now, roughly 2.7 when we came out of 2024. What I'm really focused on is that margin line, which is that dark line going up to the right. Last year, we went to increase by 500 basis points. We expect that that will be somewhat muted over the next couple of years, but it will grow because, again, we have the ability, due to the tight supply situation in our core business, to push value over volume. We believe that ethers and other CS demand growth will offset any kind of decline we'll see in cigarette consumption.
We'll actually see the benefit of reducing our commodity exposure as a result of that. The growth of the biomaterials business, given the 40+% EBITDA margins on that, will have an impact on the overall enterprise margins. Oops, kind of panicked. You're not going to see the rest of it. That's it.
Thank you, De Lyle That was very informative. I was wondering, first of all, if there is, to start off, any questions in the audience. Yes, there is one before I start.
What plans do you have if a recession occurs? What would be your strategy then?
Couple of points I want to make on that. You're going to find that many of our products are recession resistant. They'll be consumed whether or not GDP goes down as a result of lower economic activity. You can see that in the end uses that our products go into: food, pharma, some applications around personal hygiene, and so forth. It does not mean that we would not see some exposures. If that were to happen, of course, and CS demand were to come down, we would fill up the capacity of the facilities with some of the commodity to keep the plants running at full capacity. We would continue to keep pricing where it is at.
We would not chase share. Instead of chasing share, we would keep our competition sold out, and we would fill up the freed-up capacity with commodity production. That would cause, obviously, EBITDA to come down a little bit. To offset that, we would go through the efforts of reducing our cost of production by either accelerating some of the high-return investments that I've kind of alluded to already, as well as possibly reducing cost on a more dramatic basis if we had to. Because we have multiple sites, we have the ability to swing capacity between our production between the sites. If it really got severe, there's a potential of, again, constraining supply if needed to maintain the value of our business.
Here is another question in the audience.
Yeah, hi. You mentioned biomaterials opportunities specifically. The paper mentions a biodegradable demand. Can you dive a little deeper into that? What either consumer or commercial demand particulars are driving the biomaterials? If it's not just the desire for biodegradable substitutes for legacy-type things from the past, or is it something else specifically driving your particular opportunity in that marketplace, in that niche?
Yeah, that's a great question. It's an exciting opportunity for us in that the biomaterials business is really, just to give you the basis of it, we're pulling out and using as a feedstock the material that was freed up from the cellulose process. This is the sugars. This is the lignins. This is the bark. This is whatever else is left over, the hemicellulose. We'll separate those out and make products out of them. Initially, those products are going to be focused on what we'll call biofuels. For example, we take the sugars out and we ferment those sugars, just like you would find in a brewery.
Same process with yeast and the whole thing, and create ethanol. It is a bioethanol. It has a circular economy to it. Because it is not a food source in the EU, they consider that a generation two bioethanol. There is a premium for that product. We built a plant in France. We are planning to build a plant in Florida of similar size. That would have the bioethanol end up in the fuel streams of primarily autos initially, but it could become a feedstock for more sustainable fuels like SAF or sustainable aviation fuel in the future. There are other products that we can make, for example, a CTO product or a crude tall oil product from some of the extracts we get from the process. That would go into things like biodiesel as a feedstock for biodiesel.
We also are going to strip out the hemicellulose out of the waste stream and make a prebiotic animal feed out of it. Those are the things that some of the innovation and some of the work that we believe will help us. An important point to make about these are markets that exist today. I don't have to create a market. We're going to be a drop in the bucket with respect to our size relative to the market itself. We believe our entry into the market will be relatively seamless.
There is another question in the back
Yeah, you talked about reducing debt. Do you have a target? Your ratings have been dropped to, I think, B minus at this point.
Actually, it was raised to B minus.
I'm sorry?
It was raised to B minus, De Lyle. Right.
I mean, it used to be much higher. Let's years back. Can you talk about what the target is and are you planning and what, if any, leverage level do you feel comfortable with?
Yeah. Leverage, I think I'm comfortable with already. The 2.7, our goal is to get down to 2.5. It's really not a leverage question. It's really a quantum of debt, which is really an issue around fixed charges. Our fixed charges right now sit around 160, something like that. A large part of that is our interest expense. I want to get our debt down to a point where that interest expense is still being around $80 million is closer to 50 or less in terms of the use of cash.
In terms of long term, the goal is that I would love to get our total debt down below $500 million. One, to free up our fixed charges, but also to make sure that our leverage never becomes a problem throughout the cycle of the business.
Do you think you can get to that $500 million without selling the paperboard and high-yield pulp business?
It would take time, of course, because we do generate free cash flow. The quick solution is to sell the non-core assets. If I were successful in doing that, that would take care of the problem.
Do you see any interest out there for those assets?
Certainly, we did before the whole tariff discussions began. The uncertainty around the tariffs has essentially put those discussions on ice for the moment. Once we get past and get some certainty back in the business, I think those discussions can begin again.
Still following up on that, do you see that those tariffs, which may hurt you, probably will, not may, but could they also hurt the imports from the Chinese cheap material and therefore help in that other category?
Yeah, we really do not have a threat from China with respect to paperboard or any of our products into North America. Our threat is European. It is primarily the Scandinavian products coming into the East Coast of the United States. If there was a tariff, obviously, put on imports from Europe, then that would be helpful. We are planning that that is not going to happen.
What our strategy really is around is to buy some time in terms of covering off the cost of the tariffs until we get the qualification process to its conclusion in Canada and then swap out U.S. share for Canadian share in the next year, 18 months is really the long-term strategy, and I'd say the permanent strategy for dealing with the tariffs.
In Canada, you have a facility which mostly exports into the U.S., if I understood properly.
That's correct.
How difficult would it be for you to actually sell those products into the Canadian market, or is there just too much competition there and it is unlikely?
With respect to our particular product, which is called FBB, folding boxboard, we're the only producer in North America of that product. Our competition is from SBS, which is primarily from U.S. producers. The barrier we want to, and we've been successful to date, is convincing the Canadian government to put out a retaliatory tariff of 25% on anything in from the U.S., both on substitutes as well as direct product, to essentially protect the Canadian market. That would buy us the time and give us the opportunity to make the share swap.
Looking at innovations on the cellulose business, what type of materials can it replace and how will they add value and make your customers' products more efficient?
One of the things we target, and it's really a mega trend, and we talked a little bit about that in paperboard, is that there is a strong push for more sustainable packaging, more sustainable products. What we focus on in terms of innovation is attacking those products that are out there today that are made from fossil fuels or made synthetically. That is one of the areas we see as rich with opportunity, something that certainly is available in paperboard as well as in cellulose. A couple of ideas that we're pushing hard, that we're pushing to the market now. One is an odor control fluff that goes into, as I said, into personal hygiene applications.
When the product is insulted, that gives off a similar to Febreze and essentially captures the odor and keeps the smell at a low level. Those types of applications where we're enhancing the already inherent advantage, sustainable advantage of the product is something, one of the things we're doing with our products. Other applications just continue to be around how can we provide a product that performs better than some of the synthetic products out there.
De Lyle, thank you very much. Once again, I am over time and will continue on, but we really appreciate your joining us, and it was a very informative presentation. Thank you.