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Driving Specialty Value in a Tightening Market

We recently had the opportunity to speak with Joshua Hicks, Senior Vice President of RYAM’s High Purity Cellulose (HPC) SBU. Joshua provided an overview of HPC, which is RYAM’s largest business unit and makes up 75-80% of revenue and EBITDA, highlighting market dynamics, the company’s strategy to drive value for its specialty offerings, and RYAM’s repositioning as a pure-play specialty producer. This report contains a transcript of the conversation, which can be accessed on demand. The link is accessible in our full report. Value over volume. RYAM’s strategic vision aims to prioritize value over volume, enhancing market fundamentals and leveraging strong R&D capabilities and manifesting in the decision to indefinitely suspend operations at its Temiscaming, Canada plant, which will reduce the commodity cellulose exposure by almost half, stemming the EBITDA losses currently associated with that business. Capacity reductions could result in margin improvement should markets recover. The Cellulose Specialty (CS) market has seen capacity rationalization with competitor GP Foley shutting a facility (estimated to represent ~10% of industry capacity) and RYAM indefinitely idling its HPC line in Temiscaming (~4-5% of industry capacity), leading to a tightening supply/demand dynamic in the market, with most excess industry capacity held by RYAM. Higher margin, steadier business performance anticipated. As commodity exposure is reduced due to the aforementioned plant suspension, acetate demand improves on reduced customer inventory drawdown, and ethers performance stabilizes, albeit at lower levels until the construction markets find their footing, HPC targets 10% Y/Y EBITDA growth through commercial excellence and cost reductions across its plant network, positioning itself to benefit from tightening market conditions, further aided by growth of the Biomaterials SBU. Robust value proposition. HPC’s diversified end-market applications, strong competitive positioning, and sustainable operations contribute to its robust value proposition and future growth potential. HPC, with five production lines (compared to one for its competitors), ensures a secure supply for its customers. Its flexibility to utilize both soft and hardwood inputs, and the ability to manufacture using both sulfite and kraft processes, combined with industry-leading R&D driving the development of customer-specific products, positions RYAM to deliver stronger growth and improved profitability in 2024 and beyond. As company performance and margins improve, the disconnect between its valuation multiples and those of its peer group should become more apparent.