Stephen Scherger: Yes. And just add on to that. It’s Steve. I think, there’s a couple things in there that Mike was articulating. One is the returns are actually in many ways mechanical. It is fixed cost reduction, variable cost reduction. We can see it, it’s in our control. We know how to execute against it. And echoing the point, a 30-year return profile for besting class cost structure at 11%, 12% returns is quite value creating. But we’re also, with what we’re sharing today, there’s a both end, and we’re investing for the long-term growth, but we’re going to reduce debt again in 2023, probably by another $0.5 billion, leverage is going to drop from 3.2x to 2.5x. And so we are returning very significant cash flows in a balanced way back to all stakeholders in this case by investing for the long-term to build the modes around the mode up around the business while returning value to shareholders in a significant way, driving leverage down to the low end of our targeted range.
Adam Samuelson: Okay. That’s all very helpful. And I am going to ask a follow up. You talked about kind of reoptimizing the mill, the mill network and some of the different kind of products that that can come out of the virgin grade mills. How do you think this positions your footprint to compete against some of the FBB kind of SBS type capacity that’s being put up by others and what kind of how it, how your cost position in those markets are impacted by putting Waco in directing that capacity to CRB?
Stephen Scherger: I think it creates very tough environment for them in many ways. And when you think about it, we’re going to have an optimized six mill system coming out this lowest cost domicile here in the U.S. and the best fiber baskets both on the virgin and on the CRB side. And over time, we’re going to take our tons the 5% growth that we’re talking about and grow organically driving our integration rates up above 90%. So we always have said, Adam, that we want to have the ability to have leverage the full and different optionality and growing our global spend to the point now where we’re buying a $1 million tons of paperboard, creates a situation where we can pull a lot of different levers that allow us to optimize our core and continue to have to buy on the outside as we grow our converting business both organically and with strategic M&A.
So that’s our strategy and I think it positions us well from a moat standpoint. So as those funds come online in 2025 and 2026.
Adam Samuelson: Okay. All right. That’s all. That’s all very helpful. I’ll pass it on. Thank you.
Michael Doss: Thank you.
Operator: Our next question comes from Gabe Hajde from Wells Fargo Securities. Your line is open.
Gabrial Hajde: Mike, Steve, good morning.
Michael Doss: Good morning, Gabe.
Gabrial Hajde: Two, I guess, points of clarification. Thank you. This Tama mill with, I guess a footnote one on there. It sounds like it was required at the end of January. Maybe just a little bit of color there as to what was driving that decision because it seems like it’s not on the map when I look at the right side of Slide 10. And then on the cash flow discussion or guide that you’re giving us, I don’t know if you talked about it much, Steve, the $300 million to $400 million that’s working capital interest, taxes, pension, what do you are trying to tell us there?
Michael Doss: So I’ll take the first part of Gabe and then let Steve handle your second part of the question. But the first part of it is, if you take a step back and remember we had a supply agreement with Greif when we bought their converting business back in February of 2020, that was pretty large, almost a 100,000 tons centrally into that. We’re over half the volume of that mill, so relative to what we’re doing here, we need those tons to make sure that we can run our business over the next few years and ultimately integrate that into our overall business. We’re very committed to CRB as evidenced by the investments that we’re making. So it made sense for us to kind of de-risk that part of our business here going forward.
Stephen Scherger: Yes. Just add that, a couple of context points there as terms of expectations inside of the guide were our expectation for the mill for the Tama mill this year is about $15 million of EBITDA. It’ll get offset a little bit by the exit from Russia that we’ve articulated earlier that we’re continuing to work through. Relative to the other cash items, all we’re really doing there is just providing you with the range of what we expect or the really the other uses of cash for the business this year. And that’s where interest taxes, working capital and pension will fall. Our interest costs are going to be in the low to mid-2s. Our cash taxes will be a 100 plus or minus, and then working capital and pension in a range, probably zero to $75 million.
So all we’re doing there is just putting it into the appropriate category, $300 million to $400 million, that’s really what it costs to operate the business beyond the capital that we’re putting to work. And hence, it’s your walk from the midpoint of our EBITDA less the CapEx, less the $300 million to $400 million get you to the cash flow of $600 million to $800 million. Take the dividend off of that any other small things that we do. And that’s where the debt reduction the benefits to get you down to leverage in two and half range. So we’re just providing you with the walk.
Gabrial Hajde: Understood. It was just the aggregate of those numbers and I think maybe previously you guys had kind of broken those off for us. I appreciate it. Thank you, Steve. And maybe what you’re hearing, the next question is kind of two parts and I guess what you’re hearing from our side of the table is maybe a little bit of surprise on behalf of investors and in terms of the magnitude and timing of this investment. So I’ll start by saying, look, I think you guys have proven a lot of success with Kzoo, so, congrats there. So the two part question is, one, as you look across the existing system, one of the things from a timing perspective that, that may have accelerated this or brought it to the forefront could be, I guess some existing capital requirements of some of the existing footprint.
So, can you talk about whether or not that was part of the decision making? And then the second point, Steve, from a financial standpoint, I think the Middletown mill enabled you to maybe capture some of this incremental 200,000 tons of growth. So in other words, as a part of your original Kzoo project, you guys were going to close that, you kept it open because as you’ve talked about, you’ve seen the growth. If I were to ascribe that kind of $400 million EBITDA per ton figure to that, it would say, well they were already on track to get some $70 million of incremental EBITDA that they weren’t expecting before. And so looking at the project from that perspective, maybe the return potential is really $90 million from the cost saves that you’d be getting because you could have already gotten that growth with Middletown.
I know it’s not that simple, but just maybe flaws in that logic if you will?
Stephen Scherger: Yes. Let take second one first and then Mike can attack the first, no, real clarity. We got first $50 million from K2. We’ll get the next $50 million this year. We’ll get the final $30 million in 2024, and the 160 is incremental to that, 80 and 80. So you’ve got an accumulation here of 130, 160. I mean, this is a very substantial multi nearly decade level improvement of EBITDA from this investment in a very unique and world class, low cost, high quality CRB platform. So there is not, if you’re asking that question, there is not a plus and minus 50, plus 50, plus 30, plus 80, plus 80. That’s what’s common.
Michael Doss: Yes. And so, Gabe the other part of that I think is important. You said it is, three mills that we will look to shut down once Waco is operational. I mean, these are small end of life type assets. To be fair, the folks that run those mills and work in those mills have done an excellent job with what they have for a really long time. And these kind of decisions are always hard. But our ability to attract new talent to work in places like that, it’s diminishing quite frankly, we need to have modern facilities that are well capitalized, control rooms that are digital in nature, you know people will work in those kind of environments. We see it in Kalamazoo in terms of our hiring process. And then the other thing I’ll point out, and this is important, our customers are under increasing pressure because of the public proclamations they’re making and commitments they’re making around sustainability that really we have to have the ability to service them and help them accomplish those objectives that they have over the next five to 10 years.
And when you look at an investment like we did in Kalamazoo and now in Waco, Waco alone is going to reduce our absolute greenhouse gas emissions across our CRB platform by 12%. And if you’re just serious about sustainability and circularity, you’ve got to make those kind of investments because you can’t get there relancing the converting facility with led lights. So these are major moves that we’re making to support our customers and position this company over a multi-decade period of time to really generate ongoing cash flows then margins, that are consistent with our Vision 2025 goals and aspirations that we’ve outlined.
