Corporate development activities and was supporting portfolio optimization and the eventual sale of the company. My formative years I spent with Kimberly-Clark in consumer products and other manufacturing sites in Canada originally, then in Europe and in the U.S. Maybe before we get into the specifics on the new segment reporting, I wanted to quickly touch on a couple of items. The company's updating reporting that we're going to socialize today reflects how we manage the business today, and it really not how it was operated historically. It really looks to separate our high-margin cellulose specialties business from the company's lower-margin commodity exposure. In addition, provide visibility to our emerging biomaterials operating platform that we'll speak about later. This shift really is a milestone, and it's transformational for the company.
It's really an important element for the company in changing the narrative for the company and really putting a spotlight on the value drivers of the company. We will get into the details of that later. I also wanted to just briefly comment and lend some perspective on our most recent quarter that we socialized during our last earnings call. More importantly, I wanted to express my confidence in Rayonier Advanced Materials' long-term strategy and value creation plan, which remains unchanged. The quarter did have plenty of noise in it. It had the theme of pending tariffs at 125% that have now subsequently been reduced to 10%. We had a challenging quarter at the plant level with higher input costs, operational challenges as we went into our major outages. We had some higher energy.
In the U.S. South, we actually had snow at one of our facilities, which is rarely seen. We also had some timing and mix across our CS sales volume, where we had some customers accelerated volumes in quarter four because they were anxious about a pending port strike and wanted to shore up their supply chains. Lastly, we had a non-cash remediation reserve charge for our legacy sites on the environmental side. Suffice it to say, with all those items and some currency impacts, there was a lot of noise. Really, none of those aforementioned items that I highlighted changed the long-term fundamentals for the company. The strategy remains intact. In fact, our conviction on that is stronger than ever. Our CS business outlook remains strong. Really, our strategy to focus on value over volume is really paying dividends.
As we shared in our earnings call, we have secured a mid-single-digit price increase again for 2025 while maintaining our market share and within the context of a market that remains tight from a supply capacity constraint dynamic. We also, for those not familiar with Rayonier Advanced Materials, we're the global leader. Think of a 40% share roughly in these CS grades. We're the only producer that produces hardwoods and softwoods. That redundancy of supply, as well as possessing kraft and sulfite production capabilities, is really an advantage. I would highlight on the cost side, we have now completed all our major maintenance shutdowns at our cellulose plants. We've actually chosen to reset the schedule for Fernandina to put it back on a 12-month cycle rather than an 18-month cycle. We're taking steps to address some of the capability gaps at Tartess that remain.
We are really thrilled with some of the strategic capital that we deployed on our HPC franchise, where we are going to see some margin expansion related to these strategic projects in the range of $10 million. Those efficiency gains will pay off handsomely. Our biomaterials platform is well positioned to benefit from the mega trends in the economy. The demand for these renewable materials continues to grow. We remain on track for key investment decisions across that operating portfolio that we will get into the details later. Those investments are supported by secured green financing. We are going to leverage strategic structures like Bionova to help scale up these projects efficiently. As we head into the discussion with Dmitry on segments and capital allocation today, I just wanted to leave you with a message that Rayonier Advanced Materials' core business is resilient.
Our cost and investment discipline is intact. Our line of sight on the long-term EBITDA target that we socialized at our last investor day of $325 million on an annual basis is well within reach. Really, now the drivers are in place, the strategy is in place. Now it is all about execution.
Thank you, Marcus. That was a very good overview. You have touched on a lot of things that happened in the quarter and will continue to drive your business in 2025. Obviously, there were some, let's say, call them period headwinds or confluence of events that resulted in a slower start to the year. Now, let's dive into a little bit more detail around some of the things that you brought up. Let's start with the new segment reporting structure that you debuted in the first quarter earnings call and the press release. What does a decision to change how you view, operate, and report the company at this time signal about where you are in transforming Rayonier Advanced Materials into a higher value add, more economically resilient, higher margin enterprise?
Yeah. So I think as we listened to feedback from our investors and stakeholders, we quickly came to the conclusion, Dmitry, that our business is somewhat misunderstood in that we have four or five operating segments, but our previous segments for HPC had a very profitable CS franchise embedded in the sum of the parts. And we had that emerging biomaterials business. So really, we chose to invest in an ERP system to get everybody on a common platform. Think of a common maintenance planning system, a common order entry system. We've got now a cost control system in place to accurately now segment our results. And it's really going to be transformational because we can clearly now segment our results and put a spotlight on the profitable and value drivers of the business.
If you looked at our last disclosure for the last quarter, if you look at last year's EBITDA for the company, we generated $222 million on $1.6 billion of sales. Think of close to a 14% EBITDA margin. That is the sum of the parts. Now, when we reported our first quarter, we shone the light on the CS, on the cellulose specialties part of the business. In the first quarter, a nice handsome 23% EBITDA margin. The emerging biomaterials, a 29% EBITDA margin. Really, margin profiles akin to a specialty producer and really stable flows of cash flow that come from that. We really wanted to make sure we start to change the narrative, shine the light on those value drivers.
I think you're going to see over the next two, three years, you can expect Rayonier to be a more focused company on this specialty margin profile while supporting the growth of this biomaterials segment. Ultimately, through the execution, we should see multiple expansion and drive value for our shareholders as we report our results publicly each quarter.
People should be patient in terms of getting through 2025. We will talk later about what to expect for the year. The important takeaway here, I think, Marcus, is that the company has changed. The ERP system that you put in place allows you much better visibility and granularity to really drive your business. The time was right to make sure that investors understood what the company's business constituents are, where the cash is coming from, where it may be leaking, and try to plug those leaks in the quarters and years ahead.
Right. Supporting that business system is a business process and a structure. We have aligned to an SBU model where we have SBUs that are charged with the day-to-day responsibility with managing these businesses that we are segmenting now, which, it is just a lot of focus and rigor now on these results, and we are going to report on that.
Understood. Marcus, can you discuss what the current competitive landscape is like for each of the new segments that you're now reporting within what used to be the high-purity cellulose business? And talk about the market exposure for these segments in 2025, what your expectations are, and how does it relate to the guidance that you've provided earlier this month on your first quarter earnings call?
Yeah, sure. Yeah. Maybe I'll start with cellulose specialties, right? Because that is our, it's central to our value over volume strategy. It accounts for 56% of our sales volumes in Q1. It's a key part of our franchise. This business, again, I mentioned because of the supply-demand dynamic, right, mid-single-digit price increase for 2025 without losing share. This business, for those not familiar with it, competes on performance and has a long-term qualification process to it, right? Often two to three years to qualify our product. It's a real value proposition that you're selling. Our key end markets, again, would include acetate, ethers, other specialty applications. Think of filtration, tire cord, nitration, sausage casings. In a lot of these categories, we are the leader. I will say I mentioned price. Think of mid-single-digit price increase on CS.
Volumes, if I were to bridge 2024, Dmitry, as you know, we made the difficult decision to idle Temiskaming indefinitely, the lineup there. The year-over-year comparisons will be more difficult, right? We'll be down on volume because of that. Again, driving better price and better margin across that because Temiskaming did have CS, but it had a high weighting of commodity products, right? That is another part of our strategy, reducing those losses. As far as guidance that we shared for 2025, in a range of $237 million-$245 million for that business, subject to tariff impacts. Earnings will be back-end loaded for that business. We obviously acknowledging the difficult start in Q1. In Q2, we had Jesup kind of straddle into April on its major maintenance outage.
Getting those operational challenges behind us, recovering for the pause while we had the uncertainty on tariffs, we should see sequential improvement on that business. The other part of what used to be HPC was cellulose commodities. That includes fluff that goes into incontinence and diaper care and other non-specialty grades. Think of viscose into textile applications. We can pivot to make paper pulp as well at Jesup. In those markets, fluff demand remains resilient. That business is very concentrated with a few producers. We see a good pricing environment for that product. It is currently subject to a 10% tariff based on the new regime that has been introduced. At that level, you can certainly have a discussion to pass that on or arrive at some commercial arrangement.
Our strategic focus on that segment, again, is minimizing earnings volatility and running the assets only when the markets support it. Our guidance there is approximately a negative $5 million, again, subject to those tariffs on fluff. Remember, this was a business where on commodities, we were losing at one time $50 million, reduced it to $30 million, $20 million, and have been reducing that exposure through our focus here. Biomaterials, again, Rayonier's growth platform, right, which includes now would include bioethanol. We got the French operation running. We are looking to grow into crude tall oil applications, prebiotics. We have got a line of sight on an interesting biomass energy project here in Georgia. Long term, we are evaluating the merits of SAF and ESAF.
That AGE project would be an equity-type investment for us where we would partner, again, with a final investment decision later, probably Q3 and the Q3 this year. In Fernandina, we continue to advance permitting and commercial planning to support that bioethanol plant, which would be a sister plant to the one in France, making second-generation bioethanol where we ferment the sugar stream from our process. It is a co-product from the cellulose process. Again, a decision there later in 2025, again, pending the legal timelines that we have to maneuver through here and navigate. Even a guidance in that business. Again, it is a growing business, $8 million-$10 million, but with those nice handsome margins of 39%. With the upside that we socialized, if you recall the last investor day, this was a business without AGE that we were saying could get over $40 million of EBITDA.
Back by 2017, if I remember correctly.
That's right. Right. Our overall guidance, we did refresh that guidance because of the tough Q1 start and mainly the tariffs. We have a range of $175 million-$185 million, which incorporates the headwinds for our non-core paperboard and high-yield pulp business. High-yield pulp is an oversupplied business in China. Paperboard, we're seeing a lot of European imports. We're also including the disruptions on tariff-related items that are out there right now. Again, CS will be the core to this business plan with this improved pricing and mix dynamic. I will say, Dmitry, as we've talked about during our earnings call, EBITDA is expected to be back-end weighted. A theme that's going on is, we mentioned this on our call, is acetate destocking in Asia.
That supply chain in the CTO area had a lot of extra inventory where they were looking to protect on strikes at the ports. They are working those levels down. We have ethers that is kind of on that muted recovery and other CS that is probably the best position given the closure of a competitor's plant, as we all know. Again, looking to a strong back end of the year as we have the maintenance behind us and well-positioned to participate in the upside here that we see.
If the tariff situation gets straightened out in the second half of the year, or if your European competitors are still under a tariff for importing, that'll give you some upside in the back end of the year. That's not part of your guidance, but it can certainly materialize.
Yeah, well said.
Okay. That's a very good overview of what happened in the first quarter and what your outlook is for the rest of the year. Earlier this year, you've created a joint venture that you referenced before with a European partner. The joint venture is called Bionova. Can you discuss how Bionova fits in your strategic vision of the company? What are some of the synergies between Bionova and biomaterials and the rest of your businesses? How will this entity or how can this entity accelerate your transformation into a higher value, higher value add, higher valued company?
Yeah. Yeah, Dmitry, as we update our strategic plans ongoing, and as we looked at the opportunities ahead of us, we quickly realized that if we could find the right partner and the right structure, we could really accelerate growth and enhance our capital efficiency within biomaterials. That is why we kind of scoured Europe and North America for opportunities and partners. We found a good fit with Swen Capital Partners to endeavor into this Bionova structure. It allows us to raise project-specific funding with a strategic partner who really likes the green space. Our portfolio resonates well. What was key as well is accelerate growth while avoiding dilution for our shareholders because we see great upside and value for this. What we have arrived at is we would be funding portfolio one projects that we laid out in investor day, right?
Bioethanol at Fernandina, CTO, prebiotics with this funding. It is comprised of two tranches of equity of EUR 15 million each, so EUR 30 million of equity contribution by Swen. Then debt funding. These are green loans at attractive green rates sourced in Europe. It is a $37 million term tranche, which is undrawn right now. We really see this business, great synergies exist with our feedstock sourcing, right? Because these investments are within our ring fence. They are using the feedstock stream from our cellulose production and really great alignment with our current business. What it is going to do, Dmitry, we can move faster, we can scale faster, and really move quicker and secure these high-return projects.
Understood. It sounds like it was somewhat opportunistic or maybe longer-term strategic that just came to fruition. It was EUR 67 million, I believe.
Yeah, correct.
That can certainly go a long way in ramping up these products much faster.
We found it beneficial to kind of let's go fund that separately because we know our existing CS business is quite capital-intensive. Let's fund that with the cash flow from that business and let's grow this other leg of the stool with the structure.
Understood. So it's a good segue into my next question that you mentioned the capital intensity of your business or at least growing the businesses. The transformation you've undertaken requires substantial capital commitment, I imagine. So can you talk about the company's capital allocation priorities? How much of the expected funds can be generated internally or you've already gotten? And how and where may you be looking for external funding?
Yeah. So again, I mentioned based on our guidance, we see a line of sight for free cash from internal free cash flow of about in a range of $5 million-$15 million for 2025. That's kind of earmarked for strategic investments that meet our hurdle rates, right? We have hurdle rates that have a lot of rigor behind them, less than a two-year payback and greater than a 30% ROE. That's the filter they have to go through. We are very committed to that hurdle rate. I would say there's projects in the funnel that are there, and we're still seeing projects that meet that hurdle. That's very encouraging. That's number one. I mentioned key projects like the bioethanol for portfolio one roadmap. That's through the structure we just socialized, right, between the Swen and the green loans in France.
We'll continue to evaluate additional external project-level financing in Europe. We find that a nice haven to secure this green type of financing where there's strong alignment with sustainability goals. Again, we'll continue from a capital allocation standpoint. We're still focused on our balance sheet. It remains in a healthier spot after the refi. We're on track to reach our leverage target of 2.5 times, right? We ended the year at 2.7 times and around 2.9 in Q1. Through our natural amortization that is on our term debt, we'll continue to pay down debt around $22 million a year here. Focused on free cash flow from operations to cover our fixed charges, right? For those not familiar with us, think of on a normalized basis around $82 million of interest.
This year, it'll be higher, right, by $12 million because of the timing of the payments related to last year's refi. And normalized custodial CapEx of around $85 million. So we have fixed charges, $165 million-$170 million range. So we're focused on free cash flow from our operations to cover that and be very disciplined on any further strategic capital and then take advantage of the structure that we arrived at, which I feel is a really good one for Bionova to move forward with that strategy.
Thank you, Marcus. That was very helpful. Clearly, it sounds like there are more opportunities out there for you to chase if you have access to more capital. The Bionova JV seems like or other asset-level financing seems like the way to do it without diluting the shareholders.
It is a good point, right, Dmitry? Before the tariffs really came in, right, when we thought we might have them on paperboard, our guidance for the year at the outset was $215 million-$235 million, right? We had to drop it by $45 million to the midpoint versus what I just shared. That was a $25 million-$45 million free cash flow number. That is where we would like to get that business and keep having it above that $200 million mark where we can really cover our fixed charges, pay down debt, and pursue these strategic projects that can add value to the company.
Got it. So let's put this all together for our audience as we get ready to finish this fireside chat. What are the macro trends investors and other stakeholders should watch for in 2025 as they monitor your progress? What are some of the puts and takes that you're watching for as you consider 2025?
Yeah. Maybe if I break them down. Tailwinds, I'd say strong and growing demand for sustainable materials, right? We see it every day, right? The acceleration and global push to reduce plastics and fossil fuel dependency. This really benefits our CS franchise, our biomaterials franchise, our paperboard. We did not talk a lot about paperboard today, but it is well placed for packaging. The favorable green funding environment, particularly in Europe, I mentioned. I think we continue to leverage that and look for partnerships there. I would say the tightened supply within CS is something to watch. That is good to see. That just supports our value over volume strategy to drive fair value for these products, which certainly we know with our production capabilities and redundancy of supply, we are seen as the leader and they see our value.
Turning to the risks, certainly every day we all wake up every day and wonder what's next on trade. Again, that trade policy uncertainty is something that keeps me awake. I'm hoping that we soon see the end to acetate, that accelerated destocking would be nice to kind of get through that destocking and get to a more normalized level there as well. Inflation, I'm always concerned about inflation in raw materials and logistics, right? I think we're all reading the same news on the logistics side. I think there's this rush to fill warehouses and get product across the ocean. I hope that doesn't result in another issue on the supply chain and tighten the container market up. We're always mindful of that along with energy inputs. In balance, the updated guidance, we feel strong about it. We feel strong about the strategic investments.
We are really looking to gain from the major maintenance activities that we completed in the first quarter and run efficiently, effectively, and drive further profitability.
Thank you, Marcus, for that summary. That was really good capping this conversation. Just a couple of questions that came in. One on the green loans that you mentioned, will those funds be used for European theater of operations only, so to speak, or are they available regardless of geography where you're going to be investing?
The structure there under Bionova, we have a Bionova holdco, so to speak, with two opcos, a U.S. and a French opco. Those funds are earmarked for investments within the envelope that could be in the U.S. or in France.
Okay. Understood. One other question. Is there any delineation between Bionova and biomaterials? Is Bionova part of biomaterials? Is it a separate entity? How do they interact?
Very good question. Bionova is a subset of biomaterials, right, where there will be a minority interest deduction from there for Swen's participation. In the current context, anything that we do on lignin, so say further lignin sales from Jesup or we do think of turpentine sales, those are outside. AGE would be outside of that currently the way the current envelope was derived. There are other sources of product that we get from our assets that are part of biomaterials that would be part of that. To be clear, Bionova is just what is confirmed in that envelope of investments, which is the bioethanol, France, and Fernandina, pending permitting and approval. CTO, again, would be part of Bionova and prebiotics.
Understood. That's actually very helpful. Thank you. Thank you, Marcus. And thanks everyone for joining us today for this episode of Fireside Chat at Water Tower Research. Again, you can access this episode as well as others and the rest of our research by visiting www.watertowerresearch.com. Thank you very much, everybody. Goodbye.