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Rayonier Advanced Materials Inc (NYSE:RYAM)
Q4 2019 Earnings Call
Feb 26, 2020, 9:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good morning and welcome to the Rayonier Advanced Materials Fourth Quarter 2019 Earnings Conference Call. During today's presentation, all parties will be in a listen-only mode. Following the presentation the conference will be opened for questions and instructions to follow at that time. As a reminder, this conference is being recorded. I would now like to turn the call over to your host, Mr. Mickey Walsh, Treasurer and Vice President of Investor Relations for Rayonier Advanced Materials. Thank you. Mr. Walsh, you may begin.

Mickey Walsh -- Treasurer & Vice President of Investor Relations

Thank you, operator and good morning everyone. Welcome again to Rayonier Advanced Materials fourth quarter 2019 earnings conference call and webcast. Joining me on today's call are Paul Boynton, our Chairman, President and Chief Executive Officer; Marcus Moeltner, our Chief Financial Officer and Senior Vice President of Finance; and Frank Ruperto, our Executive Vice President of High Purity Cellulose and High Yield Cellulose Businesses.

Our earnings release and presentation materials were issued last evening and are available on our website at rayonieram.com. I'd like to remind you that in today's presentation, we will include forward-looking statements made pursuant to the Safe Harbor provisions of federal securities laws. Our earnings release, as well as our filings with the SEC, list some of the factors, which may cause actual results to differ materially from the forward-looking statements we may make. They are also referenced on slide 2 of our presentation material. Today's presentation will also reference certain non-GAAP financial measures as noted on slide 3 of our presentation.

We believe non-GAAP financial measures provide useful information for management and investors but non-GAAP measures should not be considered an alternative to GAAP measures. A reconciliation of these measures to their most directly comparable GAAP financial measures are included on slide 16 through 19 of our presentation. I'll now turn the call over to Paul.

Paul G. Boynton -- Chairman, President and Chief Executive Officer

Thank you, Mickey, and good morning everyone. 2019 was a very challenging year for Rayonier Advanced Materials. As noted on slide 4, we delivered $76 million of EBITDA for the year, which was an unacceptable result. We faced a number of challenges as the impact of global trade disputes and tariffs led to a general collapse in the pricing for our commodity products, including high yield pulp, lumber, fluff and viscose. As a result, year-over-year price declines accumulated to a $162 million EBITDA impact.

We also managed through some difficult operational issues in the first half of the year and these challenges resulted in underwhelming financial performance and it reflected severely on our stock price. While I'm disappointed in our 2019 results, I am proud of the team and how they managed these very difficult business conditions and acted decisively to respond to them.

We commenced the portfolio evaluation process that ultimately resulted in the sale of our Matane high yield pulp facility for net proceeds of $158 million, representing more than 10 times valuation for our commodity mill through the cycle. We also reduced capital spending by $26 million or 20% below plan by focusing primarily on asset maintenance and reducing strategic capital. Knowing the challenges might worsen before they improve, we engaged with our lenders and renegotiated covenant relief to provide us with the financial flexibility necessary to manage through the cycle. Concurrently, we also unfortunately had to suspend the common stock dividend, saving $18 million of cash per year on a go-forward basis.

Today, we announced additional actions that will further reduce costs and improve cash flow, which I will discuss in more detail later. Now I want to provide you with an update on some recent events as noted on page 5. First of all, we see challenges in China related to the trade disputes and ongoing health crisis. There are also many positive signs in the region. On the trade dispute, the Chinese government recently announced it will allow purchasers for certain products, including cellulose specialties, viscose and fluff pulp, to apply for exemptions from the tariffs. We are working with our customers and expect to receive the exemptions later in the first quarter or early in the second quarter. And as a reminder, we sold about $230 million of product from the U.S. to China and the removal of these tariffs would yield a significant benefit to our results.

In light of the ongoing health crisis in China, we are pleased to report that to date, cellulose specialties sales orders, shipments and cash collections from our key Chinese customers continue to flow at normal levels. We are beginning to see some slowing of orders in high yield pulp, which are being offset with sales into other geographies. We are continuing to monitor this dynamic situation in and outside of China.

Lumber prices have increased $45 per thousand board feet or 11% since the start of the year, supported by two months of very strong housing starts, the highest housing starts we've seen in over a decade. Recently, we've also seen progress in softwood lumber duties as the U.S. announced a preliminary determination to reduce our rate from 20% to 8% beginning in August, an annual benefit of approximately $10 million.

Closer to home, in Canada, please note that we've recently been managing around blockades through various rail lines in the country. We are working to mitigate the impact by developing alternative shipping methods to ensure that sales orders are completed. We are hopeful for a speedy end to these blockades and avoid other higher logistics costs.

Lastly, in high yield pulp, we have pushed through modest price increases in January and February, marking a potential turn at the bottom of the cycle for this business. With a renewed focus on operational excellence, we have run our assets more reliably over the last several months. We expect increased volumes in our high purity cellulose segments which will drive down our fixed cost per ton, and increase overall profitability for 2020.

I am confident in our ability to drive significant improvements to our businesses and I'm optimistic that markets will support a much stronger results in 2020. Now I'm going to ask Marcus to review our 2019 financial results and outlook for 2020. Marcus?

Marcus J. Moeltner -- Chief Financial Officer and Senior Vice President of Finance

Thank you, Paul. Starting with slide 6, on a consolidated basis, operating income declined $231 million with price declines, accounting for $162 million or 70% of the decline. Additionally, volumes and sales mix impacted results a further $37 million or 16%, driven by weaker high purity cellulose markets and softness in newsprint markets. Operational issues, primarily in the first half of the year, were also a significant contributor to the $83 million loss from operations. It is worth noting that corporate costs include $4 million of expense related to our loan amendment and a $17 million non-cash environment reserve charge.

Turning to high purity cellulose on slide 7, full year 2019 sales decreased by $65 million, driven by a 2% decline in CS sales price and a 6% decline in CS volumes, both of which were in line with our previous guidance. Additionally, commodity prices declined from prior year as price declines accelerated in the fourth quarter, including a 25% reduction in the quarter due to weaker demand.

EBITDA for the segment was $127 million compared to $233 million a year ago. The change was largely driven by price declines for commodity products and increased volumes. Lastly, increased costs from the reliability issues, from earlier in 2019, had a meaningful impact on operating results.

Turning to slide 8, sales in our Forest Products segment declined by $57 million from 2018, driven by a 21% decline for lumber products. EBITDA for the segment fell $53 million to a $22 million loss, driven by lower sales pricing, partially offset by improved costs, including favorable wood yield, lower duties and the reversal of an inventory writedown. Also keep in mind that the EBITDA loss includes $22 million of duties in 2019. Since the start of the softwood lumber duties on shipments into the U.S. in 2017, we have deposited a total of $59 million of duties and we have accrued interest of $3 million on the deposits. Based on the results of prior trade disputes, Canadian producers have historically recovered all or a vast majority of these duties upon resolution. Earlier this month, we saw that the U.S. Department of Commerce has taken steps that should have a beneficial impact in 2020.

Turning to slide 9, Paperboard has been broken out into its own segment. Paperboard segment sales increased $3 million as volume improvements offset a slight decline in pricing. EBITDA for the segment was flat at $22 million as lower raw material costs were partially offset by higher transportation and logistics costs. Sequentially this segment improved throughout 2019, primarily due to lower raw material costs.

Turning to our new Pulp and Newsprint segment on slide 10, sales decreased $67 million primarily due to a 25% decline in high yield pulp prices and a 11% reduction in Newsprint prices as demand for these products declined. Additionally, Newsprint volumes decreased 13% due to market downtime and reliability issues. High yield pulp volumes also declined 3%. EBITDA for the segment decreased by $72 million to $12 million driven by lower sales prices and market downtime in 2019.

Turning to slide 11, total debt decreased to $1.1 billion, as we applied approximately $150 million of cash from our fourth quarter Matane asset sale toward repaying term loans and our revolver. Our net secured leverage ratio ended the year at 4.1 times compared to a covenant requirement of not more than 5.6 times based on the most recent amendment. We ended the year with $151 million of liquidity, including $64 million of cash and $87 million available on our revolving credit facilities.

Looking forward to 2020, on slide 12, we expect commodity markets to recover while we are focused on controlling costs and preserving cash. In high purity cellulose, for the first time in seven years, we expect CS prices to increased modestly at 2% on a contractual basis before any impact for FX and sales timing driven by our decision to enhance product margins. CS volumes are expected to decline due to a ramp down in certain contractual volumes and driven by our decisions not to pursue lower margin CS business.

In addition, we expect a negative impact from sales timing and forecasted volume weakness in automotive end markets. Commodity prices are expected to increase from recent lows throughout 2020. Total sales volumes for the segment are expected to increase by mid single-digits, with about half the volume coming from commodities. This mix shift toward more commodities is driven by the lower CS volumes plus improved operational productivity.

Overall, we anticipate positive EBITDA growth in 2020, the amount of which is largely dependent on the pace of the improvement in commodity fluff and viscose pricing, as well as the near-term impacts of the current health crisis in China.

In Forest Products, the positive housing data and reduced supply are leading to improved pricing and volumes. For the segment EBITDA to be breakeven, it requires realized pricing of approximately $400 per thousand board feet net of duties. Based on current conditions, we expect positive EBITDA for the segment, which is a significant change from the $22 million loss in 2019.

Paperboard sales are expected to remain stable in 2020 while margins are expected to improve from lower raw material costs. We expect high yield pulp prices to gradually improve from the current bottom of the cycle. We have successfully achieved price increases in January and February and are mitigating minor impacts related to the health crisis in China with sales to other geographic regions.

Meanwhile Newsprint prices will remain challenged due to demand weakness but volumes are expected to increase with improved productivity. With that I'd like to turn the call back over to Paul.

Paul G. Boynton -- Chairman, President and Chief Executive Officer

Hey, thanks. Marcus. Look, we know our business is in the midst of a down cycle. We also know that cycles turn. I am proud of how our team is managing the business to ensure survival in the downturn, while being well-positioned to capture value on the upswing. Our primary goal is to ensure that we remain in compliance with our financial covenants regardless of what market conditions we face.

To that end, we are announcing a number of actions, as noted on slide 13, that we have identified to reduce costs and improve cash flow in 2020. In total, we are targeting $60 million to $70 million of benefits from these programs. These actions include, first, reducing our operational cost by $15 million, primarily through improved efficiencies in the supply chain and continuous improvements in our operations.

Second, we expect to reduce corporate costs by $10 million to $15 million from the 2019 levels. These cost reductions will come from a combination of headcount reductions implemented in late 2019 and reduction of external services.

Next, we will further reduce capex from $103 million in 2019 by an additional $10 million to $15 million. This is in addition to the $26 million reduction that we put in place in 2019. capex will primarily focus on maintaining our high purity cellulose assets plus some very selective strategic capital projects with near term or certain paybacks.

Lastly, we are targeting an additional $25 million reduction in working capital, primarily from reducing inventory levels and improving upon our payment terms, both with vendors and customers.

Additionally, we are identifying incremental opportunities to help drive further improvements. These include asset sales, which as we've discussed previously, we will execute opportunistically at the right price and structure. We also look at additional workforce reductions, curtailment of production or even permanent site closures if we don't see market conditions improve.

Down market cycles always return to the positive and we have some signs recently that we may be close to a recovery. We are taking the necessary action to reduce cost, preserve cash and improve reliability, that will allow us to both manage the business through the cycle and to capture value as the market cycle improves. We will emerge stronger and more resilient as a company. With that, operator, please open up the call to questions.

Questions and Answers:

Operator

Thank you. At this time we will be conducting a question and answer session. [Operator Instructions] Our first question comes from the line of Paul Quinn of RBC Capital Markets. Please proceed with your question.

Paul Quinn -- RBC Capital Markets -- Analyst

Yeah, thanks very much. Good morning, guys.

Paul G. Boynton -- Chairman, President and Chief Executive Officer

Good morning, Paul.

Paul Quinn -- RBC Capital Markets -- Analyst

Just a question on the guidance going forward, the 2% increase in high purity cellulose. I mean one of the things you're doing is getting rid of the lower volume -- lower margin business and that mix improvement should cut because your prices should move up along. So I'm just wondering is it -- is that 2% just all the effect of mix or is there actually a price increase in there as well?

Frank A. Ruperto -- Executive Vice President, High Purity and High Yield Cellulose Business

Yeah, Paul, there is actually a material price increase in some of our segments within the CS sales piece of this. And as you know, the focus of our strategy going forward from last first quarter 2019 was, we need to stabilize this market and we need to start putting it on a firmer ground going forward. So that was the goal of that and so we pushed very hard to get those price increases throughout the year. We were able to do so in the face of an incredibly difficult viscose market, which I think was a very positive outcome. And I think that signals a better market dynamic going forward.

Paul Quinn -- RBC Capital Markets -- Analyst

Okay. And then I guess moving on to lumber, just so I understand this, the $400 [Phonetic] net breakeven sort of brings you up including duties with that 20% right now, somewhere around, I guess it'd be $475 to be able to breakeven in current prices well above that. So 2020 is looking reasonable?

Paul G. Boynton -- Chairman, President and Chief Executive Officer

Yeah, let me take the first part of that, Paul, just on what we just commented. If you look at today's prices, yeah, we should be on positive EBITDA ground and of course, last year I think we posted a $23 million loss -- EBITDA loss in that business, so we're expecting at least that improvement that's not including the duty that we think should be reduced from 20% to 8% in the August timeframe. And that will contribute another $45 million, I think, Marcus, for the balance of the year. So yeah, we were anticipating a good improvement there just based on today's prices. I think you've got even more positive prices going forward in your models.

Paul Quinn -- RBC Capital Markets -- Analyst

Great, OK. And then just lastly, just I guess back to high 30 markets. Just on the volumes between specialty and viscose, I'm kind of confused, it sounds like there'll be equal volumes, maybe that equation and then just also, what are you seeing in the viscose market right now? Because I've not seen very much price recovery, so maybe you guys are -- you obviously are a lot closer to the market than I am.

Frank A. Ruperto -- Executive Vice President, High Purity and High Yield Cellulose Business

Yeah, Paul. So when you think about the volumes, think about two things, right? We said, we're about 50-50 here. We said that we're going to have a -- CS volumes will be down, will be down roughly 7% to 8% on a contracted basis, two- thirds of that was anticipated as we went into the strategy to better align our product mix with the overall market and get out of some of those lower margin businesses and in fact some of the historical Tembec contracts, which we did not think were very attractive[Indecipherable] About one-third of the volume loss in CS really was about weaker markets, particularly in the automotive end markets, which we talked about throughout the second half of last year. So we're looking at that. But what we really have is operational improvements as well.

And so if you think about it, there is two things going on from a volume perspective on the commodities. One is, we've got the shift from some of these lower CS volumes going into commodity volumes. And then we've got the improved operations, if you recall, operations in the first quarter of last year and the second quarter were pretty weak. And so we've got a significant increase just in productivity of our mill assets and as we switch to the strategy of making fluff pulp on C-line as well, that's just has better machine productivity as well. So that's what's really driving the 50-50 split between the two. If for not the CS mix, that's about 50% of the increased commodity production and the other 50% is roughly the improved efficiencies on our facilities. All right. That was helpful?

Paul Quinn -- RBC Capital Markets -- Analyst

Thanks very much, guys. Best of luck.

Frank A. Ruperto -- Executive Vice President, High Purity and High Yield Cellulose Business

Okay and Paul, I think you also asked about viscose prices?

Paul Quinn -- RBC Capital Markets -- Analyst

Yeah.

Frank A. Ruperto -- Executive Vice President, High Purity and High Yield Cellulose Business

And what we're seeing in that market? So what we're seeing in the viscose market is, the viscose market is heavily influenced by China and it's just been very quiet over there. So we haven't seen any material improvements in pricing on the viscose market just because the market has been more quiet. Our volumes have held up very well in the viscose market specifically going into China. I think that's in part because our customers tend to be some of the larger, better funded businesses over there, so that's gone very well. The -- so that's been a positive. We're keeping our eye on though, given some of the coronavirus issues, etc, what's going on downstream from our customers with the spinners too tend to be a little bit smaller and more labor intensive. So we haven't seen that started back up yet, but we're keeping a close eye on that piece of it.

But again on the viscose side, we haven't seen pricing move plus or minus. The tariffs going away in March. Our customers are applying for those to go away and if they do, then we'll see the benefit of that pricing increase in viscose as they no longer need to pay the tariff to some extent. I'd also reference the fluff pulp market, where we actually have seen some modest price increases going into March, I think, driven in part by some of the big guys making price announcements and pushing for higher prices in those markets.

Paul Quinn -- RBC Capital Markets -- Analyst

All right. Thanks again.

Paul G. Boynton -- Chairman, President and Chief Executive Officer

Thanks, Paul.

Operator

Our next question is from Steve Chercover from D.A. Davidson. Please proceed with your questions.

Steve Chercover -- D. A. Davidson & Co. -- Analyst

Thanks. Good morning, everyone. So yeah, my first couple of questions are I suppose a follow on to Paul Quinn. On the high purity cellulose, the 2% price hike, which is the first in seven years, is that -- the 6% hike that you announced last fall, I recognize there is some contractual elements to it. So, will there be more trickle in from the fall '19 price hike into 2021?

Frank A. Ruperto -- Executive Vice President, High Purity and High Yield Cellulose Business

So, Steve, let me back it up a little bit. So the 2% hike and I think you pointed out something that's important. We did have certain contracts which had pricing set between '19 and '20 at relatively flat levels. So the 2% takes that into account when we look at some of those issues. The 6% was a price increase that we announced there. I think the way to think about is, we realized roughly 2% of it. We realized it stronger in certain markets and not as strong in others. So if you think about how weak the automotive and filtration sectors were last year, we found that more difficult to push pricing through. In some of the more stable and growing sectors, we saw a better pricing improvement.

Steve Chercover -- D. A. Davidson & Co. -- Analyst

So there is still struggle or you'll be pushing on that. Okay. And then secondly, again, I hope it's not redundant, but the segment EBITDA up slightly for cellulose specialties. Does that explicitly include the non-repeat of the Temiscaming boiler in the Southern wood price spike?

Frank A. Ruperto -- Executive Vice President, High Purity and High Yield Cellulose Business

Yes.

Steve Chercover -- D. A. Davidson & Co. -- Analyst

Okay, so, got it. And then in Paperboard, does your flat guidance reflect the $30 per ton SBIFs [Phonetic] price decline that RISI printed last Friday?

Paul G. Boynton -- Chairman, President and Chief Executive Officer

Yeah. That guidance just came out, like you said, last Friday and I would not say that, that number is fully baked into our number, but keep in mind, a couple of things. One, a lot of our pricing isn't directly hinged to any kind of RISI index out there, so I'd say it's not fully connected in that way. I think it will be a pull on the EBITDA for that business in a negative way, Steve. At the same time, I also know the team is working hard on increasing volumes as well. So, right now, I'd say, if it has an impact, it's not a very significant one. And I'm pretty confident the team has got some plans already in place to offset that with some positive mix and volume. So I think our overall EBITDA guidance is still good, although the pricing, as you said, maybe is a little bit pulled down but not by that $30 in our case. Marcus, anything you'd add to that?

Marcus J. Moeltner -- Chief Financial Officer and Senior Vice President of Finance

No, that's a good characterization of our sales portfolio.

Steve Chercover -- D. A. Davidson & Co. -- Analyst

Great, thanks. And then with respect to the Canadian rail blockades, obviously lumber is the most impacted. But is it also impacting your ability to ship high yield pulp and Paperboard and Newsprint?

Paul G. Boynton -- Chairman, President and Chief Executive Officer

Yeah, I think a lot of our products out of Canada get kind of caught up into this recent issue and that's why we thought we should mention it. Just for everybody's benefit, rail lines in the country are being blockaded in different spots, set up by the First Nations people in protest of British Columbia LNG pipeline construction project. So that's kind of the underlying issue. Our major concern is just the rail line between Toronto and Montreal. We move a lot of product in that corridor and if there is some positive news, we saw that the Ontario Provincial Police took some aggressive action this week and started opening that up. And so we're seeing some product flow. But it's tenuous and it needs to be a permanently opened pathway and not just a temporary.

So we see some positive developments. But again it's a concern and we're monitoring it a simple -- we're working on other pathways through trucking and everything else, but we do need to have, like most companies in China, the railways open and just even in passenger flow, back and forth needs to be open. So I think we'll continue to see a lot of focus on that from all governments in Canada to make sure that, that happens, but we're monitoring it, Steve.

Steve Chercover -- D. A. Davidson & Co. -- Analyst

Yeah, I know it's an interesting situation. And then Marcus articulated, I guess the historical precedents, with respect to the lumber duties and the 60% reduction in duties that we're expecting this August. It's fair to interpret that as a partial admission that the U.S. was wrong on these duties, right? And by extension that the Canadian case, once again should prevail. Is that how you interpret it?

Marcus J. Moeltner -- Chief Financial Officer and Senior Vice President of Finance

Yeah, Steve. I think you're correct. Like past lumber files, over time you see these preliminary determinations come out into the market. And they tend to confirm lower rates and then as the file evolves further, you might see an adjustment, but this is a good sign. And it's very much aligned with prior lumber files.

Steve Chercover -- D. A. Davidson & Co. -- Analyst

Okay. And then, I'm still going to call it NAFTA, I don't care what they call it. Now that, that's signed, to your knowledge, are they working on the lumber file between Washington and Ottawa?

Paul G. Boynton -- Chairman, President and Chief Executive Officer

Well, I think it certainly opens and shift the focus to that, but you do need to have cooperative parties to be a part of that discussion. So everybody has got to say, hey, I'm in to talk about it. I do know the focus has shifted to that, Steve. I don't know that any progress has been made.

Steve Chercover -- D. A. Davidson & Co. -- Analyst

Okay. And one last one, with all the moving parts, you do expect free cash flow to be better. Do you want to hazard a guess on where that might land or what your minimum -- I guess your minimum that you'll be satisfied with and then your stretch goal might be?

Marcus J. Moeltner -- Chief Financial Officer and Senior Vice President of Finance

Steve, maybe I'll just cover some of the cash flow items. Obviously, you can see from our filing that capex was around $103 million and in our slide deck on page 13, you can see we're targeting a reduction of $10 million to $15 million. So certainly those fixed charges will be lower in the business and should help our cash flow. In addition, another important lever is the working capital improvement of $25 million and it's very targeted on finished products, inventories and some on payment terms. So as you can see there was another $25 million there and then Paul mentioned it in his comments, we continue to see operationally, we've got the boiler issue in Temiscaming and the hardwood fiber issues we saw this year are behind us. And in addition, we are further -- making further strides on our three-year synergy target as far as our global improvement team goes. So those things together should help us in this market to keep our cash flow in the right direction.

Steve Chercover -- D. A. Davidson & Co. -- Analyst

Yeah, I mean, sorry, I promised it was my last comment. Between the hardwood in Temiscaming boiler, that was like $30 million, wasn't it? And now you're going for $50 million in savings, but that sure doesn't sound like it's going to be a $45 million benefit to the specialty cellulose business.

Paul G. Boynton -- Chairman, President and Chief Executive Officer

The other thing -- OK, the specialty cellulose business as well in the context of global GDP chemical pricing is another favorable theme within our business caustic pricing. We use a lot of caustic throughout our HPC operations, that's obviously another element that's going to show up year-over-year as an improvement.

Frank A. Ruperto -- Executive Vice President, High Purity and High Yield Cellulose Business

The one thing I'd also point out, Steve is, remember that viscose prices dropped dramatically in the fourth quarter, second half and really in the fourth quarter. And so we're starting the year off on viscose and fluff below -- well below where the average prices were last year. So that's a bit of a headwind that we're going to have to fight through and see how those markets develop.

Steve Chercover -- D. A. Davidson & Co. -- Analyst

All right. Thanks, Frank. Thanks, everyone.

Paul G. Boynton -- Chairman, President and Chief Executive Officer

Thanks, Steve.

Operator

[Operator Instructions] Our next question come from the line of Sandy Burns of Stifel. Please proceed with your question.

Sandy Burns -- Stifel -- Analyst

Good morning, everyone.

Paul G. Boynton -- Chairman, President and Chief Executive Officer

Good morning, Sandy.

Sandy Burns -- Stifel -- Analyst

Just discussing on the commodity cellulose side, given how weak pricing was in 4Q, would you be able to comment, I mean, is it below cost of production for a small segment of the industry, a large segment of the industry, has pricing gotten that bad or is it still cash flow positive -- EBITDA positive for the company and/or most in the industry?

Frank A. Ruperto -- Executive Vice President, High Purity and High Yield Cellulose Business

So, what we've heard and specifically in China is that these viscose prices and the viscose staple fiber prices, so the downstream prices are at levels that are not conducive for all of the capacity to stay online, specifically in China. So either those prices will rise or we will see some facility closures and a tightening of the supply side, as we look at that. In regards to our own business, we can look at that, we are positive, contributing positively to our fixed costs, but we're not making EBITDA at these levels, which is not -- should not be surprising.

Sandy Burns -- Stifel -- Analyst

Right. So the expectation for higher prices in 2020 sounds like it's more just driven by capacity coming out over prices rising to start improving profitability for the industry as a whole, not so much on that end but...

Frank A. Ruperto -- Executive Vice President, High Purity and High Yield Cellulose Business

That'll be one factor of it. I think the other piece of this -- and what's really impacted the viscose cycle and the supply has been the 25% tariff of textiles from China into the U.S. So any relief there would see a better demand pickup. From our perspective, we did see some demand growth even in the weak market. But it's the supply side that's been the biggest issue and that's where we'd expect to see some of the recovery earlier, rather than later.

Sandy Burns -- Stifel -- Analyst

Okay. And then on the cellulose specialty side, could you comment how much of your volume on that side is under contract versus how much, if any, is sold under more spot business?

Frank A. Ruperto -- Executive Vice President, High Purity and High Yield Cellulose Business

Yeah. We typically don't sell under spot business. So we -- we will have predominantly most of our volumes under either contract or arrangements for the year. And so, we're pretty good plus or minus depending on market demand with being at those guidance levels that we typically give on volumes there. So you don't really see very much of a spot business in the cellulose specialty side because it is a critical raw material and people want to make sure that they're covered going into it.

Sandy Burns -- Stifel -- Analyst

Okay, great.

Paul G. Boynton -- Chairman, President and Chief Executive Officer

And Sandy, so I would add that we probably have, Sandy, one, two, three, four-year type contracts in that cellulose specialty business.

Sandy Burns -- Stifel -- Analyst

Yeah. Got you. Thanks. And last question from me on the corporate expense side. It did spike up a bit in 4Q versus kind of where you had been running in the first three quarters of the year. It looks like $4 million of that was the costs of the bank amendment. Any other one-time costs in there that we should think about that won't be repeated in 2020?

Marcus J. Moeltner -- Chief Financial Officer and Senior Vice President of Finance

Yeah, it's Marcus here. Just to put it in context, our corporate segment includes one-time items, as you mentioned, the loan amendment, we had some other professional fees to support our portfolio work, gains and losses on our FX hedging program run through there as well. But one of the larger charges is obviously the environmental charge on our reserves that we mentioned in our disclosure, that goes through there as well. And the other key item that's in there is variable compensation. So that can change, obviously year-to-year and that's why if you look at the $63 million this year, we said, we're targeting $50 million. It's taking all those items altogether in balance, they'll be trade-offs. But we're targeting that $50 million target.

Sandy Burns -- Stifel -- Analyst

Okay, great. Thank you and good luck with everything.

Paul G. Boynton -- Chairman, President and Chief Executive Officer

Sandy, I'm just going to add and maybe it goes to some other folks with the same question. I think as you look at our disappointing results and coming in with a $76 million EBITDA for 2019 and then we said, look, our primary goal is to ensure to remain in compliance with our financial covenants regardless of these markets. The question has got to be, what we guys -- is that all manageable and we are throwing out a lot of different numbers here on the positive and some on the negative and I thought it is probably just worthwhile and maybe Marcus, you can just kind of tick along with me here on these numbers, but I do want to kind of help build the numbers up a little bit, so that you have them. Because, again I think you'll see it's a very straightforward path to compliance in 2020, but let's just start and just kind of recap on some of these, right?

One, we have some market help, right? We talked about the forest products, right? That's like at current pricing will be EBITDA positive. We've got some cost benefit, right? So we got reduced chemicals and as well as fiber costs, certainly in our Paperboard business that is significantly a benefit to us. We also have, as we mentioned, duties in two different areas, right? We just -- and Frank talked about it. China tariff's coming off on March 2, we should get the benefit of it end of this quarter or beginning of next quarter and that's a substantial benefit to us if, again, if you consider we got $230 million of product coming from the U.S. going to China. And the other duties that we talked about and we talked about with Steve there, 20% forest products, lumber duties going down to 8% in August, annualized, that's at least a $10 million benefit for us.

So you got the market elements, you got some duties and then we've got actions that we've talked about that we're taking. And number one is just recovering from really poor operations last year particularly in the HPC business, right? So we're going to have lower cost and higher volumes. Two, we've talked about the continuous improvement and kind of pushing forward with our third year of synergies. That's also a significant benefit for us. Three, we just talked about the corporate cost and targeting a $50 million corporate cost versus $65 million in 2019. And then finally, we haven't talked about this, but we also have a new product that will be launched out here in April, and I think in the back half of the year, it will also give us some nice EBITDA benefit.

And so, really, I think, positive opportunities for us in 2020 that leads us to a very straightforward pathway to compliance in 2020 and I think that's got to be a question on folks mind but we did say there's potential offsets to that. Frank mentioned that fluff and viscose pricing are at levels that are below 2019. So that's going to be a negative offset. We've got a Newsprint market that's very challenged, right?t And it will be challenged, I think, to be breakeven EBITDA for the year. So that's an offset as well. And then you got the coronavirus, which is an overlay on all of it. So -- but that's why we said, look, those things, we're going to have additional actions that we are going to take and look at, to go ahead and make sure that, regardless of what economics come our way, that we will be positive in it for the balance of the year. And so, went through a lot there, Marcus and I saw you taking notes here, maybe you can run through and just kind of put some dollars to those benefits.

Marcus J. Moeltner -- Chief Financial Officer and Senior Vice President of Finance

Yeah. Thanks, Paul. As you mentioned, perhaps to put some context on the various moving parts that Paul mentioned. If I look at our forest products segment, the loss of $22 million last year and our comments regarding pricing in the current marketplace, given that pricing, that could be a $20 million swing. On the chemical and fiber cost side is -- our Paperboard operation is benefiting from lower pulp prices and our HPC and high yield business are getting some favorable chemical pricing. So that could be another $20 million there. So those two together, call it $40 million.

We mentioned the duties, we are estimating that the drop to 8% versus the 20% rate for our lumber business is around a $5 million impact in the back end of this year and the China tariffs that we have been covering in the pricing is the equivalent of around $8 million for 2020, given the new exemption process that Frank mentioned in his comments. We mentioned the poor performance in our HPC business, the boiler and the wood cost issues in the U.S. South, if you recall, we mentioned that was around $25 million last year through our various disclosures.

We continue to make progress on our three-year synergy targets. And we are hoping to achieve another $15 million this year in that area. We mentioned our corporate cost. We're really focused on reducing that to the $50 million range, that would be approximately $15 million in reduction, and Paul mentioned, in the back end of the year, we're targeting to realize the benefits of a new product introduction and that's in the range of $4 million.

If you take all those, call them, positive opportunities, you quickly get in the range of $110 million that you could normalize the $76 million performance for this year, Paul mentioned and we're conscious of these things. There are negatives in the world and we're looking to mitigate those but certainly fluff and viscose prices with Newsprint prices back together could be in the range of $30 million negative and we messaged that, perhaps in the supply chain, given the rail blockades and the slowdown with corona, that could be perhaps in the range of $5 million to $10 million there. So again you all have your view of the world, but all those moving parts could net to approximately $70 million and would certainly lend to show a picture where the EBITDA performance of our business should improve versus where we were this year.

And I think, I'll also, perhaps, put in context in rough numbers, what that means to our covenants. If you look at our net secured debt at approximately $600 million and we know that our covenants tighten up as we go into the back end of the year and it's around 4.5 times the covenant ratio limit. That equates to around $133 million of EBITDA to remain compliant and I should note that our covenant loan amendment does allow for certain non-cash and non-recurring charges to be adjusted, such as stock compensation and other pension and environmental costs. So with that math, you can see that with an EBITDA range of $120 million to $125 million, we feel confident that we can maneuver through this.

Paul G. Boynton -- Chairman, President and Chief Executive Officer

Yeah, thanks, Marcus, and again we've tried to just add a lot more transparency to these numbers because I know you guys are sitting there looking at your model, you're looking at a starting point of $76 million and you say, OK, how does all this math work? And again I want you to be confident as we are, that we'll manage through this, well, $76 million. Marcus tallied up about $110 million of improvement and then you got some offsets with viscose and fluff pulp pricing and Newsprint taking that back down a bit. And then any further actions we have that we hope will provide additional buffer there gives us confidence that we're in a good position.

So if there's no more questions, I appreciate that. I want to thank everybody for their time today. These are challenging markets, but we're confident that our aggressive actions will see us through the cycle and emerge a much stronger company. So thank you for your time this morning.

Operator

[Operator Closing Remarks]

Duration: 46 minutes

Call participants:

Mickey Walsh -- Treasurer & Vice President of Investor Relations

Paul G. Boynton -- Chairman, President and Chief Executive Officer

Marcus J. Moeltner -- Chief Financial Officer and Senior Vice President of Finance

Frank A. Ruperto -- Executive Vice President, High Purity and High Yield Cellulose Business

Paul Quinn -- RBC Capital Markets -- Analyst

Steve Chercover -- D. A. Davidson & Co. -- Analyst

Sandy Burns -- Stifel -- Analyst

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