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Investor Day Highlights "Specialty" in Specialty Cellulose

Portfolio strength and market weakness. At a recently held Investor Day, RYAM management highlighted its cellulose product portfolio, the company’s biomaterials initiative, and the current state of the industry in the wake of the G-P closure announcement. RYAM also provided an update on 2023 guidance and a look at 2024 and 2027 EBITDA bridges. Asset evaluation proceeding to the next round. Following the Investor Day, RYAM announced that it engaged Houlihan Lokey as its financial advisor to explore the potential sale of its paperboard and high-yield pulp (HYP) assets located at its Temiscaming site, as it advances its initiative to expand into higher-growth, higher-margin specialty businesses and reduce its exposure to commodity cellulose markets. Fueling biomaterials growth while reducing debt. During the Investor Day, RYAM highlighted its strategy of growing the biomaterials product portfolio, including the pending 1Q24 start-up of the biodiesel plant in Tartas, and intentions to fund much of the future cost of expanding biomaterials operations with low interest loans designed to support green economy projects, while using current businesses’ FCF to reduce net debt toward the 2027 target of 2.5x adjusted EBITDA. Georgia-Pacific’s exit will help… over time. The pending G-P closure of its Foley cellulose mill is expected to reduce global specialty cellulose capacity by 150 thousand-plus metric tons, with the effect of improving industry utilization rates from sub-80% estimated in 2023 to 90%-plus over the next four years, assuming a modest 2% demand CAGR, levels that were historically amenable to a stronger pricing environment. Furthermore, as the only remaining soft wood kraft specialty cellulose producer, RYAM’s revenue profile may benefit from capturing incremental share in a number of specialty cellulose markets. However, with the closure of the G-P plant yet to be completed and accounting for the time it takes for a new supplier of specialty cellulose to qualify its products with new customers, these benefits are unlikely to be realized before the end of 2023. 2023 guidance update and 2027 outlook. Given ongoing weakness in viscose, fluff, and paper pulp, weaker construction markets, and continuing customer destocking, RYAM’s 3Q23 results are likely to be lower Q/Q, with 4Q23 potentially seeing improved pricing and mix, combined with cost saving measures gaining traction, possibly resulting in sequentially higher EBITDA and EPS. Despite the 2023 challenges, management continues to believe 2027 EBITDA can reach $325 million, representing a 10% EBITDA CAGR.