Rayonier Advanced Materials at Gabelli Symposium: Strategic Shift to Biomaterials

On Thursday, 20 March 2025, Rayonier Advanced Materials (NYSE: RYAM) presented at Gabelli Funds’ 16th Annual Specialty Chemicals Symposium. The company outlined its strategic shift away from commodity production towards higher-margin cellular specialties and biomaterials. While the focus was on growth and efficiency, challenges such as tariff risks and debt reduction were also addressed.

Key Takeaways

• Rayonier Advanced Materials is focusing on high-margin biomaterials and cellular specialties.
• The company achieved a 60% growth in EBITDA margins from 2023 to 2024.
• Debt reduction is a priority, with a target to lower total debt below $500 million.
• Tariff mitigation strategies are in place, including cost pass-throughs and sales shifts.
• Biomaterials expansion is supported by access to low-cost green capital in the EU.

Financial Results

Rayonier reported flat revenue growth between $1.6 billion and $1.7 billion, despite industry changes. The company achieved a significant 60% growth in EBITDA margins, attributed to the shutdown of the Temiscaming HPC plant and a focus on high-margin products.

• Debt reduction: $72 million reduced last year; $20 million expected this year.
• Biomaterials EBITDA: $3 million in 2024, with expectations of $8 million in 2025.
• Capital allocation: Projects require a 30% ROE and a two-year payback period.
• Leverage target: Reduce to 2.5 by the end of 2024.

Operational Updates

Rayonier’s High Purity Cellulose business accounts for about 75% of revenues, while Cellular Specialties represents 54% of total revenues. The company is moving away from commodity sales due to negative EBITDA.

• Biomaterials business targets 40%+ EBITDA margins.
• Temiscaming plant shutdown aligns with a "value over volume" strategy.
• First biomaterials plant in France operational since April 2024.
• Industry capacity utilization is high, with Rayonier owning most excess capacity.

Future Outlook

Rayonier plans to reduce its total debt below $500 million and expand its biomaterials business, including a second bioethanol plant in Florida. The company is also focusing on sustainable packaging innovations.

• Growth in ethers and other CS segments to offset acetate declines.
• Tariff mitigation includes passing costs to customers and shifting sales to Canada.

Q&A Highlights

During the Q&A, CEO Dolly Blomquist addressed recession preparedness, emphasizing a focus on recession-resistant products and cost reduction. She highlighted the demand for biodegradable substitutes in the biomaterials sector, which require no new market creation.

• Debt target: Reduce total debt to below $500 million.
• Paperboard tariffs: Worst-case $42 million impact, with mitigation strategies in place.

Rayonier Advanced Materials’ strategic initiatives and financial performance signal a strong focus on growth and adaptation. For more detailed insights, readers are encouraged to refer to the full transcript.

Full transcript - Gabelli Funds’ 16th Annual Specialty Chemicals Symposium:

Rosemary, Host: So it is now my pleasure to introduce the management of Rayoneer Advanced Material, who this year is able to attend by in person. Joining us is Dolly Blomquist, the company’s President and CEO. Dolly became key CEO in May 2023 after serving on Reunion’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, Reonea 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 has 65,700,000.0 shares outstanding. STOXX closed at $5.50 more or less last night for a 36,000,000 market $361,000,000 market cap, net debt of $6.00 $5,000,000 and $966,000,000 enterprise value.

I will now let July bring us up to date on the company’s projects and their progress.

Dolly Blomquist, President and CEO, Rayoneer Advanced Material: Well, thank you, Rosemary. Good afternoon, everybody. I am thrilled to have the opportunity to talk to you about the business. As Rosemary 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 one hundred years.

I know it’s a business you haven’t heard of, but it’s been around for quite a while. And if you look at where we focus our energies on is really in three segments. Our core business is which 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 States down in the Southeast and one plant in France. And in that business, we have what we call specialty business, our CS business, cellular specialty business and then we also have our commodity business.

Our cellular specialty business by far our largest business within the company, roughly 54 of our total revenues. And it goes in a myriad of different applications, which I’ll talk to on the next slide. Commodities business is actually business that we’re trying to move away from. It’s a business that historically we’ve had negative EBITDA on these products. And we’ve taken a number of actions in the recent past to start mitigating and reducing our exposure to that business.

But 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 a cost basis as 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 as compare of advantages around the 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 is advantageous versus call it a more standard SBS board, which you find here in The States. And as a consequence, because of the lower weight has certain advantages that has allowed that business to grow. The big megatrend behind that business is that it is sustainable packaging. And we believe that going forward that that business has 4% to 5% inherent growth per annum. We don’t consider it non core given that the vast majority of our assets and our expertise is really in the HPC business.

And then finally, high yield pulp. High yield pulp is a commodity business. This is a business that, the only reason we’re really in it is because this 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, and then with respect to the future, we’re working on and executing a strategy to build out what we call our Biomaterials business.

Number of synergies that are strongly 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. So you get a strong byproduct economic credit from it as well as the strong co op economies of scale that come from site in those plants at our existing cellulose business plant. So 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. And it’s really quite surprising where you’ll find our products. So if you look at the first three categories there, the ethers, acetate and other CS, this is our specialty products that we produce. And they go into a number of different applications and in fact many of the products we produce are actually designed and customized to specific customer applications.

And in fact, we almost have one SKU per customer. That’s how customized the products are. So in terms of substitution risk, relatively low qualification processes are very, very long, and as a consequence very sticky in terms of our market position in these market applications. But 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. Mention viscose and lyocell textile product, commodity product, fluff, we consider 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 absorbent material you find in those products. Paperboard, the big driver as I mentioned earlier is sustainable packaging. And then on high yield pulp, really commodity business, and again, 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, $1,600,000,000 1 point 7 billion dollars in revenue. And 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 year past couple of years, mass some, I would say, fairly dramatic changes within the industry. In ’twenty two, 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. ’23 was the snapback.

Once the carriers got their ocean carriers got their act together, our customers has found that they had more far more inventory than they needed and so we saw orders decline. And 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. And because of the lower demand on the CS production in 2023, we actually had to expand in our production of our commodity business to keep the production lines at full capacity.

What happened though, as we were in 2023, late ’20 ’20 ’3, ’1 of our competitors shut down one of their plants in Florida. And then we would take proactive action in middle of twenty twenty four to shut down another plant. And when that happened, capacity, a total of 10% of capacity was mothballed and taken offline. And you can see that in 2024, revenue didn’t go anywhere because we essentially walked away from a good chunk of revenue, but the orange segment of that stacked bar chart, you see it gets squeezed down to a total of 6%. And that’s exceptionally important.

And 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 the commodity sales that you see in the orange up in the upper right. And that was and why that happens is that that business actually has a negative EBITDA. So 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. And a large change that you see in the ’24 number from the ’23 number is being driven by that action.

Lastly, 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. And obviously, in this uncertain world with, as it revolves around tariffs and all that, there’s a potential risk there. And I’ve got a slide that’ll talk about that in some detail.

Initiatives, a lot of words on this slide. I’m gonna 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.

So we’ve been focusing on reducing debt. Last year, we took down debt roughly 72,000,000 This year, we’ll be somewhat limited because of our new credit agreement. So we’ll be stuck to the level of amortization, which will be roughly around $20,000,000 But 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 toe, which goes into cigarettes. So there’s gonna be a natural secular decline in that business, but we believe the growth in the other two segments will more than offset the decline we expect to see in acetate. So we 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 was up came up and running in April of twenty twenty four, a bioethanol plant we built in France. It’s up and running. EBITDA last year, dollars 3,000,000 EBITDA not much because we’re going through the startup phase. This year, we expected that business to generate dollars 8,000,000 of EBITDA. So we’re seeing good growth on a relatively small plant.

But we’ve also got a number of other opportunities there. And 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. And in fact, the plant we built in France, we got at an interest rate less than 2% to build this plant down. In fact, the total capital from an equity perspective that we invested is Rime into that plant, a $40,000,000 project and I think we spent 7 to build this thing. So if you look at it from a return on equity perspective, very, very, very good.

And we expect that going forward as we build out these plants, we’ll be able to we will have the access to such capital to build these plants out and therefore drive significant value for equity. And 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, to provide transparency to our equity and our investors. So you’ll have a segment just on our core business of Cellular 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. So you see whether we’re having any success there in terms of mitigating and reducing our exposure.

The growth of the bio materials will be shown in its own segment and then 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. So we’re material.

And therefore, the exposure to potential retaliatory tariffs is fairly high. But I would say that when you look at our core business, our cellular specialties and even our spent cellular’s 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. And as a consequence, there really is no option for our customers to seek, substitutes. So our mitigation strategy there is really to pass on those tariffs to our customers. Where we are exposed is our paperboard business.

And in my call last week with the analysts, as we gave out earnings was that, the worst case scenario was about $42,000,000 impact if the full 25% tariff on Canadian imports was real affected. That would given that we sell 70% of our volume of paperboard from Canada into The US, that could be material. So we’ve launched the effort to mitigate that and the guidance that we’ve given the $215,000,000 to $235,000,000 of EBITDA includes the worst case scenario of tariffs on the paperboard business, but also our mitigation plans. And remember, our year for 2024, our EBITDA was $2.22 So even with the threat of the tariffs, we believe very with high confidence that we’ll 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.

And this graph shows you how we’re able to do that. So before 2023, you see that the excess capacity was around zero point 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. So over two thirds of the excess capacity was taken out. So the capacity utilization in 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, and we own 66% of the market share. We own one all of that excess capacity, which means we are the ones that owns the pricing power. So our intent is to continue to push value. We’ll get the 0.1 in time as ethers and as other CES 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 call 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. And 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. So we 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 by product economics as well as economies of scale. Total investment over the course of the next four years is about $100 plus million. And, but we believe that that’s gonna generate roughly $55,000,000 in EBITDA for the business in terms of growth. The other segment called cellular specialties is really around cost reduction, focusing on our existing facilities by applying new technologies around automation, AI and labor productivity.

And our the plan is that spend roughly $39,000,000 and get $31,000,000 of EBITDA out of it. We have a backlog of projects that we can get after. So if we if some of these projects don’t meet that investment hurdle, we’ll put that on the shelf, bring one forward and continue forward. So 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, you know, has gotten down to, I’d say, a very manageable level. We’re below three 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 increased 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 anything any kind of decline we’ll see in cigarette consumption. And so we’ll actually see the benefit of reducing our commodity exposure as a result of that. And then the growth of the Biomaterials business given the 40 plus percentage 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.

So that’s it.

Rosemary, Host: Thank you, Lyle. That was very informative. And I was wondering, first of all, if there is to start off any questions in the audience. Yes, there is one before I start.

Unidentified speaker: What plans do you have if a recession occurs? What would be your strategy then?

Dolly Blomquist, President and CEO, Rayoneer Advanced Material: Couple of points I want to make on that. You’re going to find that many of our products are recession resistant. They will 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. But it doesn’t mean that we wouldn’t see some exposure.

So 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’s at. We wouldn’t chase share. Instead of chasing share, we would keep our competition sold out and, we would fill up our, 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. But we have, because we have multiple sites, we have the ability to swing capacity between or production between the sites. And if it really got severe, there’s a potential of, again, constraining supply if needed, to maintain the value of our business.

Rosemary, Host: Here is another question in the audience.

Mike: Yes. Hi. You mentioned biomaterials opportunities specifically, and the paper mentions a biodegradable demand. So can you dive a little deeper into that? Like what is what can 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?

Dolly Blomquist, President and CEO, Rayoneer Advanced Material: That’s a great question. It’s an exciting opportunity for us. And the biomaterials business is really, just to give you the basis of it is 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 lignans, this is the bark, this is whatever else is left over, the hemicellulose, and we are we’ll separate those out and make make products out of them. Initially, those products are gonna be focused on what we call biofuels.

So let’s 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. And it’s a bioethanol. It’s got a circular economy to it. And because it’s not a food source in the EU, they consider that, a generation two bioethanol, and there’s a premium for that product. So we built a plant in France.

We’re planning to build a plant in Florida of similar size, and that would have go the bioethanol will end up in the fuel streams, primarily autos initially, but could become a feedstock for more sustainable fuels like SAF or sustainable aviation fuel in the future. There’s other products that we can make, for example, a CTO product or a crude oil product from some of the extracts we get from the process, and that would go into things like biodiesel, as a feedstock for biodiesel. We also are gonna strip out the cellulose, the heavy cellulose out of the out of the, waste stream and make a prebiotic animal feed out of it. So those are the things that, some of the innovation and some of the work that we believe will help us. And an important point, Mike, about it, these are markets that exist today.

I don’t have to create a market. We’re gonna be a drop in the bucket with respect to our size relative to the market itself. So we believe we’re gonna our entry into the market will be relatively seamless.

Rosemary, Host: There is another question in the bank.

Unidentified speaker: Yes. You talked about reducing debt. Do you have a target? Your ratings have been dropped to, I think, B minus at this point.

Mike: It actually

Dolly Blomquist, President and CEO, Rayoneer Advanced Material: was raised to B minus. I’m sorry?

Rosemary, Host: It was raised to B minus in July.

Unidentified speaker: Right. So it but I mean, it used to be much higher. So let’s years back. So can you talk about what the target is? And are you planning and what, if any, leverage level do you feel comfortable with?

Dolly Blomquist, President and CEO, Rayoneer Advanced Material: Yes. Well, 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 a leverage question. It’s really a quantum of debt, which is really an issue around fixed charges.

Our fixed charges right now sits around 160, something like that. A large part of that is our interest expense. I wanna get our debt down to a point where, that interest expense is set up being around $80,000,000 is closer to 50 or or less in terms of, the the use of cash. So in terms of long term, the goal is that I would love to get our total debt down below $500,000,000.01, to free up our fixed charges, but also to make sure that our leverage never becomes a problem throughout the cycle of the business.

Rosemary, Host: Do you think you can get to that 500,000,000 without selling the paperboard and high yield pulp business?

Dolly Blomquist, President and CEO, Rayoneer Advanced Material: It would take time, of course, because we do generate free cash flow. But the quick solution is to sell the non core assets. And if I were successful in doing that, that would take care of the take care of the problem.

Rosemary, Host: Do you see any interest out there for those assets, sir? Or

Dolly Blomquist, President and CEO, Rayoneer Advanced Material: Certainly, we did before the whole tariff discussions began. And the uncertainty around the tariffs have, essentially put those discussions on ice for the for the moment. Once we get past, get some certainty back in the business, I think those discussions can begin again.

Rosemary, Host: And 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?

Dolly Blomquist, President and CEO, Rayoneer Advanced Material: Yes, we really don’t have a threat from China with respect to paperboard or any of our products into North America. Our threat is European, and it’s primarily the Scandinavian products coming into the East Coast Of The United States. If the if there was a tariff obviously put on imports from Europe, then that would be helpful. We’re planning that that’s not gonna happen. And so what our strategy really is around is to buy some time in terms of covering off the cost of the tariffs until we get some qualification the qualification process to its conclusion in Canada and then swap out U.

S. Share for Canadian share in the next year or eighteen months is really the long term strategy, or and I’d say the permanent strategy for dealing with the tariffs.

Rosemary, Host: So in Canada, you have a facility which mostly exports into The U. S, if I understood properly. 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?

Dolly Blomquist, President and CEO, Rayoneer Advanced Material: With respect to our particular product, which is called FBB, Folding Box Board, we’re the only producer in North America of that product. Our competition is from SBS, which is primarily from The 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 then give us the opportunity to make the share swap.

Rosemary, Host: So 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?

Dolly Blomquist, President and CEO, Rayoneer Advanced Material: One of the things we target is really a megatrend and we talked a little bit about that in paperboard is that there is a strong push for more sustainable packaging, more sustainable products. So 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. And so that’s one of the areas we see is rich with opportunities, something that certainly is available in paperboard as well in cellulose. Couple of ideas that we’re pushing hard that we’re pushing to the market now. One is a order control fluff that goes into, as I said, into personal hygiene applications.

When the product is insulted, that gives off a similar to Fabrice, and essentially captures the odor and keeps the, the spell at a low level. So those type 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.

Rosemary, Host: Delisle, thank you very much. Once again, I am over time and it and we’ll continue on. But I we really appreciate you joining us, and it was a very

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