Koppers Q2 2023 Earnings Call Transcript

Quartr
Provided by Quartr
August 3, 2023

Key Takeaways

  • Koppers delivered a record Q2 with consolidated sales of $577 million (7th consecutive quarterly high), adjusted EBITDA of $70 million, and adjusted EPS of $1.26.
  • The Performance Chemicals segment drove margin recovery to 18% by enacting global price increases totaling $21 million and capturing an 8% volume gain.
  • Rail Products & Services margins remain under pressure, with the segment’s standalone railroad business posting its lowest Q2 adjusted EBITDA margin since 2009 amid ongoing challenges recouping creosote cost increases.
  • The Zero Harm 2.0 safety program achieved a 25% reduction in recordable injuries and a 75% drop in the UIP division’s recordable injury rate year-over-year, with 27 facilities reporting accident-free quarters.
  • Management reaffirmed its 2023 adjusted EBITDA guidance of $250 million and outlined targets of $275 million in 2024 and $300 million in 2025, supported by growth projects like the Leesville kiln and North Little Rock expansion.
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Earnings Conference Call
Koppers Q2 2023
00:00 / 00:00

There are 5 speakers on the call.

Operator

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to Koppers Second Quarter 2023 Earnings Conference Call and Webcast. At this time, all participants are in listen only mode. Following the presentation, instructions will be given for the question and answer session.

Operator

Please note that this event is being recorded. I will now turn the call over to Quinn McGuire. Please go ahead.

Speaker 1

Thanks and good morning. I'm Quinn McGuire, Vice President of Investor Relations. Welcome to our Q2 2023 earnings conference call. We issued our press release earlier today. You may access it via our website at www.koppers.com.

Speaker 1

As indicated in our announcement, we've also posted materials to the Investor Relations page of our website that will be referenced in today's call. Consistent with our practice and prior quarterly conference calls, this is being broadcast live on our website and a recording of this call will be available our website for replay through November 3, 2023. At this time, I would like to direct your attention to our forward looking disclosure statements seen on Slide 2. Certain comments made on this conference call may be characterized as forward looking statements as defined under the Private Securities Litigation Reform Act of 1995. These forward looking statements involve a number of assumptions, risks and uncertainties, including risks described in the cautionary statement included in our press release and in the company's filings with the Securities and Exchange Commission.

Speaker 1

In light of the significant uncertainties inherent in the forward looking You should not regard the inclusion of such information as a representation that its objectives, plans and projected results will be achieved. The company's actual results, performance or achievements may differ materially from those expressed in or implied by such forward looking statements.

Speaker 2

The

Speaker 1

Financial Measures. Joining me for our call today are Leroy Ball, President and CEO of Koppers and Jimmy Sue Smith, Chief Financial Officer. I'll now turn the discussion over to Leroy.

Speaker 2

Thank you, Quinn. Good morning, everyone. Thanks for joining us today. We have a lot of great stuff to cover. It was a great quarter and a lot I want to cover in terms of things to come.

Speaker 2

But why don't we just kick things off by starting on Slide 3 I want to remind everybody that Koppers is going to be hosting an Investor Day scheduled for Thursday, September 14, 2023 at the InterContinental Hotel in Chicago. And also we have some activities planned for Wednesday, September 13, which will include a baseball game that evening to allow for some additional interaction between the attendees and our senior management team. I very much hope that you'll be able to join us for as many of these events as possible. The Investor Day presentation will also be available virtually with a live webcast. And for those attending virtually, you'll have the opportunity to participate in real time in the question and answer session following the presentation.

Speaker 2

And we'll provide a replay of the Investor Day event on our website as well. We look forward to providing further insights on our business, sharing updates on our strategic priorities and our longer term outlook, while emphasizing our focus on driving shareholder value. So let's turn to reviewing the Q2. There's a lot of good things happening at Koppers both in Q2 And 2023 in general. Now before I rattle off some of the highlights, I want to start by saying that even under challenging market conditions, we continue to validate our unique Vertically integrated business model which serves a diversified mix of infrastructure and related markets that need our products and services.

Speaker 2

More or less the same blueprint we've been using to drive transformational improvement over the past 9 years. And by continuing to strategically expand and optimize our business model, We're capitalizing on new business opportunities as well as upgrading our operations network to increase capacity, improve efficiencies and reduce costs. So let's move to some of the highlights for the Q2 on Slide 5. We achieved consolidated sales of $577,000,000 an all time record quarter and the 7th consecutive record for current quarter sales. We generated adjusted EBITDA of $70,000,000 a record quarter in profitability.

Speaker 2

And from a GAAP accounting standpoint, the 2nd quarter was the 2nd straight quarter that we reached a new quarterly high for operating profit. Adjusted EBITDA margin was 12.2 percent, a nice improvement from the 10.9% margin in the prior year period. Diluted earnings per share were $1.15 compared with $0.55 from the prior year and adjusted earnings per share were $1.26 exceeding the $0.97 in the prior year quarter. And although not on the slide, to date through June 30, we used $2,100,000 of cash from operations, which is a little behind where we would typically be through the 1st 6 months of the year. Higher cash interest and higher working capital kept operating cash flow below historical norms, But I still believe that we'll finish the year over the $100,000,000 mark and be somewhere close to our capital spend total for the year.

Speaker 2

Speaking of capital deployment, we $71,000,000 of cash in the first half with $37,000,000 going to required maintenance and 0 harm capital expenditures $34,000,000 going to discretionary spend items such as on share repurchases. Sincere thanks go out to our conference team across the globe for continuously exceeding expectations no matter the challenges faced and at the same time maintaining their unrelenting focus on safety, service, quality and reliability, which provides an ongoing formula for our success. Next, let's take a look at the progress being made with our Zero Harm 2.0 platform. Slide 7 shows that 27 out of our 45 operating facilities worked accident free in the quarter along with a 25% reduction in recordable injuries. 0 Harm 2.0 represents a reenergizing of engagement among our frontline employees in Our UIP leadership team has now completed their training in 0 Harm foundations and observations and year to date through June 30, The recordable injury rate for UIP has dropped an impressive 75% year over year.

Speaker 2

Congratulations to the entire UIP organization for living our 0 harm culture. Our managers and frontline supervisors are starting to receive training on incident investigation and reporting, which are important in identifying and preventing unsafe situations and reducing risk of And as of June 30, every Frontline employee has completed training of peer to peer safety observations. This training reinforces the idea that colleagues who care about each other's safety can be one of the most powerful influences in strengthening the Zero Harm culture. As a result, our leading activities year to date through June 30 increased by 38% compared with the prior year, which helps to decrease serious safety incidents. 0 Harm topics are discussed globally during monthly toolbox talks, which deliver brief trainings to by their direct supervisors at our facilities.

Speaker 2

The ideal atmosphere for these discussions is small groups where people feel comfortable asking questions or bringing Our safety focused culture with Joe Dowd, our Vice President of 0 Harm. As always, the safety and well-being of our employees and our communities remain a core principle of our 0 Harm culture. I'll now turn the discussion over to our Chief Financial Officer, Jimmy Sue Smith. Jimmy Sue?

Speaker 3

Thanks, Leroy. The press release issued earlier today detailed our Q2 2023 results. My comments this morning are based on that information. So starting on Slide 9, 2nd quarter consolidated sales were a record $577,000,000 up $75,000,000 or 15% over Q2 of 2022. By segment, RUPS sales increased $30,000,000 or 15% from the prior year quarter.

Speaker 3

PC sales increased $31,000,000 or 21 percent and Centimeters and C sales increased $13,000,000 or 9%. On slide 10, adjusted EBITDA was also a quarterly record of $70,000,000 with a 12% margin. By segment, REPS generated EBITDA of $22,000,000 a 9.5 percent margin, PC had EBITDA of 32,000,000 And Centimeters and Z had EBITDA of $16,000,000 with a 9.7% margin. Moving on to Slide 11. Our RUPS business generated record sales of $234,000,000 compared with $204,000,000 in the prior year quarter.

Speaker 3

Sales growth was primarily driven by $20,300,000 of price increases across multiple markets, particularly for crosstie and utility poles in the United States. Higher volumes for cross tie and utility poles also contributed to the sales increase. From a procurement perspective, Market prices for untreated crossties remain relatively high, but they are stabilizing. And as a result, crosstie procurement was higher by 46 percent compared to the Q2 of last year, while cost tied treatment increased by 3% versus the prior year quarter. Adjusted EBITDA for RUPS was $22,000,000 up from $13,000,000 in the prior year, driven by It's worth noting that the domestic utility and industrial products division of this business achieved record quarter sales and record adjusted EBITDA and margin, contributing significantly to the overall performance for RUPS.

Speaker 3

On Slide 12, our Performance Chemicals business was a result of global price increases of $21,000,000 particularly in the Americas for our copper based preservatives. In addition, we saw an 8% increase in volumes globally, driven by the Americas, partly offset by volume decreases in Europe and Australasia. Adjusted EBITDA for PC in the second quarter was $32,000,000 up from $20,000,000 in the prior year quarter. Year over year, profitability increased as a result of our renegotiated customer contract, which allowed for increased pricing in order to recapture prior year cost increases. Our profitability also benefited from higher overall volume, partly offset by higher raw material costs.

Speaker 3

Our team at PC has worked hard to successfully return that business normalized levels of EBITDA margin at 18%

Speaker 2

both for

Speaker 3

the quarter and the first half of twenty twenty three. Slide 13 shows Centimeters and C's 2nd quarter sales of $162,000,000 compared with $149,000,000 in the prior Sales were higher as a result of $7,200,000 in price increases as well as higher volumes of refined tar in North America. This was partly offset by decreases for certain other products and volume decreases for phthalic anhydride in North America. Adjusted EBITDA for Centimeters and C in the 2nd quarter was $16,000,000 compared with $21,000,000 in the prior year quarter. The year over year decrease in profitability reflects higher raw material cost of $17,200,000 particularly in Europe and North America.

Speaker 3

This was partly offset by higher pricing as higher volumes in North America driving improved plant utilization. Compared with the Q1 of 2023, The average pricing of major products decreased 4% and average coal tar costs were higher by 7%. Compared with the prior year quarter, The average pricing of major products increased by 4%, while average coal tar costs were up by 24%. Slide 15 outlines our continued commitment to a balanced capital allocation approach that includes investment in the business, returning capital to shareholders through dividends and share repurchases and reducing leverage as appropriate. At June 30, 2023, We had $858,000,000 of net debt and $300,000,000 in available borrowing capacity.

Speaker 3

Our net leverage ratio at June 30 was 3.4x. Long term, we continue to target a 2 to 3 times net leverage ratio. On Slide 16, Total capital expenditures through the Q2 of 2023 were approximately $63,000,000 or $61,000,000 net of cash proceeds. By category, we spent $27,000,000 on maintenance, dollars 10,000,000 on Zero Harm and $26,000,000 on growth and productivity projects. By segment, we spent $29,000,000 on RUPS, dollars 4,500,000 on PC, dollars 28,500,000 on Centimeters and C and $1,000,000 on corporate initiatives.

Speaker 3

Finally, on Slide 18, as previously announced, Our Board of Directors declared a quarterly cash dividend of $0.06 per share of copper's common stock to be paid on September 11, 2023 to shareholders of record as of the close of trading on August 25, 2023. At this quarterly dividend rate, subject to the review by the Board of Directors, the annual dividend will be $0.24 per share for 2023. And with that, I will turn it back over to Leroy.

Speaker 2

Thanks, Jimmi Sue. Moving on to the notable happenings at Koppers, Slide 20 provides highlights from our recent trip to Newport, Denmark. I was last there in 2019 and boy has a lot changed. I really enjoy being at the plant and getting valuable feedback from our employees who love to show me all they've been up to since I was there last. Their pride in their performance Our new board facility is an impressive operation and represents a model to which all our facilities should aspire to be.

Speaker 2

It was exciting to see the progress on our enhanced carton product plant, which is and create a higher value product to be sold at a much higher price point. Longer term, we have the ability to make even higher value products, including some that would have applications as a high We've already received several patents for our enhanced carbon products portfolio and have others in the pipeline. It's a testament to the ingenuity of our Centimeters and C technical team and a broad based commercial team that continues to move the ball forward quietly and methodically in this area. It will be exciting when the new facility is officially in production at the beginning of next year. Thanks again to all the Newborn crew for the planning and work that went into making MyTimeThere an amazing meaningful visit.

Speaker 2

Slide 21 shows our 2022 Corporate Sustainability Report, which was issued in June. The report details our pursuit of goals supporting our company's values of people, planet and performance. Some of the 2022 highlights included in the report are Reducing our total recordable rate of reportable injuries by 5%, expanding our investment in career growth and continuing education opportunities for employees at all levels of the organization, Increasing the diversity of our leadership team and reducing our scope 1 and 2 emissions by almost half from our 2,007 baseline. Those are just a few of the many accomplishments that supported our financial performance, which also grew in 2022, once again showing the profitability and In addition, last week we released the inaugural Koppers Task Force on Climate Related Financial Disclosures Report, a globally recognized reporting structure developed by the Financial Stability Board. The report discloses climate related risks and opportunities across 4 primary categories: governance, strategy, risk management and metrics and targets and provides a common framework that's intended to make climate related disclosures And opportunities for improvement.

Speaker 2

With each successive year, our culture of sustainability becomes more fully rooted in all aspects of our business as it should be. And as we continue in graining sustainable operations into our DNA, we are gaining even greater recognition for our progress. Turn to page 22 and you can see what I'm talking about. In addition to making Newsweek's list of most responsible companies for the 3rd straight year, which we announced earlier this year, We were recently named to USA Today's 1st ever list of America's Climate Leaders. We also learned in July that Coppers Australia moved up to silver status in the sustainability advantage program run by the New South Wales EPA due to measurable improvements in areas of sustainability such as energy efficiency, Greenhouse Gas Reduction and Resource Efficiency.

Speaker 2

Koppers also recently moved up the charts of 2 third party sustainability raters. MSCI moved us up to AA rating from an A rating, which puts us in the top 8% of commodity chemical companies and our score with Ecovadis improved from the 56 percentile to the 75th percentile also moving us up to silver status from bronze in their rating system. At conference, we know that running a sustainable organization in all aspects is critical and can also be a competitive advantage as more customers are seeking companies like ours to be their business partner. Keeping our values of people, planet and performance at the forefront of all we do, make sure we never lose sight of what's important. Moving on, in February, I outlined what I felt the keys to success in reaching our 2023 adjusted EBITDA goal of $250,000,000 we're going to be.

Speaker 2

In May, I gave an update on our progress through March and will now provide a current update on where we stand through June. The bottom line is that while everything hasn't gone perfect in each of the key areas, The net result has been more positive than negative, which keeps us on a confident path to not only reaching our $250,000,000 in adjusted EBITDA goal for this year, but also $275,000,000 in 2024 $300,000,000 or better in 2025. Starting on Slide 24 with Performance Chemicals. The first and most important key to success this year was realizing price without a major loss of share. In February, I mentioned that we had enacted major price increases Effective as of the first of the year, it should net us over $60,000,000 of top line improvement and recapture the cost that we had absorbed throughout much of 2022.

Speaker 2

Now through 6 months, we continue to track better than original expectations as we realized $46,000,000 of price increases across our global sales network correlating to a 16% increase over our first half twenty twenty two sales. In addition, our volume losses have been manageable as we've also picked up some new business helps to slightly derisk our customer concentration risk across a broader customer base. This is an area where we're scoring ahead of expectations and should see the benefits continue to The 2nd key to success for PC in 2023 is residential demand not declining greater than 10% due to a downturn in the economy. Coming into the year, we modeled a 5% to 10% decline in year over year base volumes and that excludes any net gains or losses in share, which to date have been flat to slightly negative. Now through the 1st 6 months, overall volumes were up 6.5% over the same period last year.

Speaker 2

And factoring out a small net market share loss We'd actually have organic volumes up between 6.5% to 10%. And while we feel good about those numbers, we expect things to cool off a bit in the back half of the year and volumes overall for the year coming closer to flat compared to 2022. The leading indicators for this business have not really improved since last quarter as The leading indicator of remodeling activity continues to project the deceleration in spending that began in the Q3 of 2022 to continue at least through the Q2 of 2020 for which is as far out as they project. Even worse, LIRA has spending for the 1st and second quarter of next year actually contracting compared to the similar 2023 periods, which marks the first time that's happened in 10 years. Yet against that backdrop, volumes continue to remain solid.

Speaker 2

Why? Well, there are a couple of positive things to point to that might hold some of the answer. The first is that while higher interest rates in an uncertain economy have had a negative impact on existing home sales, The rapid change in rates has had many people forego the thoughts of upgrading to a new home and instead put money into their current home, accepting that they may be there for several more years. Another positive making it easier to decide to improve current homes comes in the cost of treated wood, which has subsided considerably since peaking at different In 2021 2022, treated lumber which our preservatives protect and extend the life of has emerged as one of the most reasonably priced products today versus a year ago. Now the final key to success for PC in 2023 is that copper's preservatives such as CCA In DCOI, we are replacing the non conference produced industrial chemical Penta, which is currently being phased out after losing its U.

Speaker 2

S. EPA and Canadian registrations. In 2022, we experienced a 33% increase in our industrial sales volumes. And through the 1st 6 months of this year, we've seen a volume bump of 13% over prior year. Even with that kind of growth, we're tracking a little below our internal projections for the year, but the overall story remains positive.

Speaker 2

We expect this trend to continue as industrial demand looks to remain strong from increased infrastructure spending also benefiting our utility and industrial products business. Speaking of UIP, which is a division of our RUPS segment, as seen on slide 25, we continue to enjoy strong demand across the board as already mentioned. And that's why it's important for our facilities to run uninterrupted to serve customer demand which has happened for the most part. I mentioned back in May how we lost one of our dry kilns to a fire our supply of dry wood while driving up costs somewhat by replacing internal supply with third party materials. So far, We've managed to work through that challenge better than anticipated and even posted our most profitable quarter for UIP since it became part of Koppers.

Speaker 2

I give credit to our entire UIP team led by Jim Healy who came together to produce one of the strongest performing quarters with efficiency at each of the facilities at or near their peak, while operating more safely than ever. In the meantime, we continue to work to not just replace the damaged kiln, but also another end of life inefficient It's hard to believe, but through June, we've already exceeded the full year 2022 profitability of this business, which at the time represented an all time best year for UIP. Back in February, I highlighted bringing the Leesville, Louisiana facility online as the second key to And as I sit here today, this now represents a key to the improvement that we expect to generate in 2024. Losing a kiln like we did in April caused us to rethink things. We already had a kiln constructed for Leesville awaiting site prep work prior to installation And knowing the unintended delays that can occur, we felt our best option was to take the kiln constructed for Leesville and divert it to our other site.

Speaker 2

As a result, we've pushed the completion date for the Leesville project to January 2024, meaning the site won't have an impact on the results for this year. Despite the delay, it will not affect our ability to exceed expectations for this year due to the overall strength of the market, the execution of our ops team and the skills of our sales team to recoup cost increases from our customer base. The good news, the market for poles in Texas remains strong, which is what the Leesville site will feed. This project still represents a crucial piece to our ability to grow adjusted EBITDA to $275,000,000 in 2024. In the Railroad Products and Services division of RUPS on slide 26, our first key to success for 2023 remains rebuilding our dry inventory as soon as possible.

Speaker 2

And we're still on pace to procure over 7,000,000 ties representing our highest procurement year since 2015. And while we've made up Ground on building our dry inventory this year. Most of the increase occurred during Q1 with little progress made in Q2 as we fight to keep up with demand. For the year, dry inventory is up 20%, but we need at least another 20% to 25% of improvement to get to greater efficiency in the plants. We'll continue to chip away at this, but it may be a little longer than we had anticipated to get to the inventory levels we want.

Speaker 2

The The second key for RPS is recouping the value of our creosote preservative in the market. We continue to work with our customer base on potential price adjustments I continue to say that for the rail industry to maintain a healthy supply chain across ties, it needs to pay fair price for its preservative. After all, it is Through 6 months, we've realized $24,000,000 in price increases across all of RPS, not just for Creosote. We need at least another $30,000,000 or more price to business. And while 2nd quarter adjusted EBITDA margins for the total RUPS segment represents the 2nd best Q2 margin we posted in the past 6 years, If you carve out just the rail portion, Q2 2023 adjusted EBITDA margins represent the worst Q2 margin that our standalone rail businesses Going back to 2,009 and that has us on track for what would be a new low annual margin realized for that business as we're tracking below the prior year low realized just last year.

Speaker 2

That said, I remain confident we can work something out on the pricing front that gets us to market As I've mentioned before, the alternative is that we will not remain in this business, which I don't think is good for the industry. We've been leaders on the sustainability front, which I've spoken to earlier in this presentation and we've been responsive to helping to solve the industry's desire to find a more sustainable lifecycle for end of life crossties, Investing $65,000,000 in our recovery business, which has demonstrated its value. It's time we begin getting compensated fairly we'll have to recoup our investments in a different way. The final key outline for RPS success in 2023 is getting the North Little Rock expansion finished by mid year. It's now August and although we didn't meet the goal, we're not far off.

Speaker 2

1 of our 3 new cylinders has been commissioned with the other 2 cylinders in the process in the 3rd quarter. We're currently working through some of the bugs one would expect when bringing up a facility of this scale. And once fully operational, we'll be the most efficient cross facility in North America when running at full capacity. Now we're also close to formalizing a commitment for the remaining capacity at And have already begun buying untreated ties to be ready to treat for this customer next year. While this project will end up having little impact on 2023 results at It remains a key component of reaching our target of $300,000,000 in adjusted EBITDA in 2025.

Speaker 2

Slide 27 features our Card Materials and Chemicals business. The first key to success in 2023 for CMC as it is in almost every year is managing through a Challenging raw material market. These markets seem to be in a state of perpetual flux, but as I mention often, I don't think there's anyone better than our people staying ahead of where markets are moving and capturing maximum value on the margin spread between our supply and the end markets. The drop in aluminum production in Europe due to curtailments has outpaced the pullback in steel and this has caused a significant drop in both raw material cost and end market pricing in Europe. How long that dynamic remains in place remains to be seen, but it will cause pressure on results in our European business in the short term as we write down inventory to current market levels.

Speaker 2

In the U. S. And Australasia, current market dynamics are better to varying degrees and we expect to be able to offset most of Europe's challenge over the remainder of the year. 2nd key for CMSE comes in continuing to push acceptance of petroleum blended products, which mitigates reductions in coal tar volumes. While we've had pretty good success in the acceptance of our hybrid pitch products, the adoption rate has been slower in the pavement sealer markets.

Speaker 2

In the U. S, there has been no shortage of coal tar based pavement sealer product, so customers have not felt the pressure to bring in a new product. We The final key for Centimeters and C this year is seeing a demand environment not negatively impacted by recession and that's somewhat interdependent of the challenging raw material environment I spoke about earlier. As we entered 2023, we modeled similar year over year demand. Through 6 months, our volumes are down But industry volumes particularly in Europe are down much more than copper's demand.

Speaker 2

This is due to the fact that much of the aluminum capacity curtailed in the last year is based Central and Southern Europe, which is an area primarily served by competitors and that impact has created the mismatch in supply I mentioned earlier resulting in dropping raw material costs and end market Pricing for Europe, which will have an impact on that region's profitability. Our other regions find themselves currently in a better balance. So overall, we We can mitigate most of the impact we might see in Europe's results. Moving to our 2023 guidance on Slide 29. Our sales forecast for 'twenty three is approximately $2,100,000,000 compared with $1,980,000,000 in 2022 with RUPS and PC expected to see top line increases.

Speaker 2

For RUPS, it will be a combination of price and volume. For PC, it will be price and industrial volume growth. For CMC, it's Our 2023 EBITDA projection remains at $250,000,000 which is where we currently stand on a trailing 12 month basis as of the midpoint of this year. On a comparable basis, this will be our 9th consecutive year of EBITDA growth and will be the largest year over year increase since 2015. While our forecast for consolidated adjusted EBITDA remains the same since May, we believe we'll get there due to stronger performance from our utility business, driving rough results higher than what we thought a few months ago and that will serve to offset some additional weakness that we potentially see in our Centimeters and C segment.

Speaker 2

On Slide 31, our adjusted EPS guidance for 2023 is approximately $4.40 the same as our forecast at the beginning of the year, which compares favorably with $4.14 that we earned in 2022. Higher average interest costs will take a significant bite out of earnings growth generated through operations, Despite that, 2023 is expected to finish at our highest adjusted EPS in company history, surpassing the $4.21 achieved in 2021. On Slide 32, we anticipate that our capital spending will be approximately $110,000,000 to $120,000,000 in 2023, $5,000,000 to $15,000,000 higher than 20 22 levels. Required spending on maintenance and zero harm will approximate $8,000,000 with approximately $42,000,000 to $52,000,000 dedicated to finishing our significant growth and productivity projects that will enable us to achieve the ambitious growth projections that we have for next couple of years. And as I stated previously, by the end of this year, we will have spent all that will be required to achieve our 2025 adjusted EBITDA goal of $300,000,000 and at an overall cost much lower than what was communicated at our 2021 Investor Day.

Speaker 2

Moving to slide 33, you can see our expected path to $300,000,000 of EBITDA from our 2020 base. The majority of that improvement will be realized over the last three years of the The investments we made in the first part of the planning period begin paying off in the later years. We are seeing exactly that play out this year and we are primed to keep it going for several years With our continued focus on expanding and optimizing our core business, I remain confident in our ability to not just meet, but possibly exceed our $250,000,000 adjusted EBITDA forecast for this year. I'm also confident in our targets of $75,000,000 in 2024 $300,000,000 in 2025 with significant cash generation occurring over this period that will enable us to increase Cash back to shareholders while still reducing leverage back between the 2 to 3 times range that we've been talking about and also investing to continue to grow the business. I'm excited about the future and I can't wait to tell you more about it at our upcoming Investor Day in Chicago in September.

Speaker 2

But for now, I would like to open it up for questions.

Operator

We will now begin the question and answer session. The first question is from Liam Burke with B. Riley FBR. Please go ahead.

Speaker 4

Products and services and material raw materials cost and how it's affecting margins in that business segment. What are you doing outside of rail that is delivered such a nice number?

Speaker 2

So I'd say that the pole business certainly has Then helping to keep the margins up or pull the margins up in that business. Demand is strong in the U. S. And it's created a good pricing environment. We had a lot of price a lot of cost increase come through in the back half of 'twenty one heading into early 'twenty two that we And some of the projects quite frankly that we put into place to help improve efficiency, reduce some bottlenecking within our facilities, Improving efficiency, reducing costs.

Speaker 2

It's been a number of different factors, Liam, that's come in, but it always helps to have a healthy market for sure. And so That business has performed well and our Australian business is in a pretty strong position as well. They always have been. They're just a smaller piece of the overall But the utility business has absolutely been the leader on the RUP side and we have work to do when it comes to the rail piece of things. We costs have gone up significantly over the past couple of years and we're trying to recoup that In the form of price increases and we're continuing to work down that path and I do have confidence we'll be successful because we need to have a healthy supply chain.

Speaker 4

All things aside, I mean, is this 9.5% presuming you do get some price increases on Rupp, is that a Sustainable number?

Speaker 2

Well, the expectation is that we get this business back into the double digits. I mean, this business It should absolutely be in the 12% to 16% margin range is where it should be overall and That's what we've been aiming to get back into. A lot of the projects we've been undertaking are geared towards doing that. We've been asked the question before, why spend money on a business that is generating 6% margins, which it was before and are there returns there? We believe there are And we believe we're starting to see some of the impact of that.

Speaker 2

A lot of the benefits there have been overshadowed by costs So just escalating that up to this point in time, we've had a little more trouble actually getting back, but we'll figure that one out.

Speaker 4

Okay, great. And really quick, Jimmi Sue, operating cash flow was slightly negative for the 1st 6 months Timing issues can affect that number, but was there anything in the second quarter cash flows that created or Did not get you over the positive operating cash number.

Speaker 2

So I think you hit on the biggest thing there, Liam, which was the operating the Working capital kind of not flipping as early as it normally does, but I will say we saw a strong acceleration in cash flows In the month of June, and are continuing to see that. So we think we're seeing sort of our normal pattern just maybe on a month or 6 Weak delay from when it has normally started.

Speaker 4

Great. Thank you, Leroy. Thank you, Jimmy.

Speaker 2

So Thanks, Liam.

Operator

The next question is from Gary Prestopino with Barrington Please go ahead.

Speaker 2

Hey, good morning all. Hi Gary. General question in terms of with the infrastructure build, Federal spending and all, are you starting to see more money being released there for your business for specifically what you do Money, they're having a downstream impact on our the purchase of our goods and services, yes. Certainly, we're seeing that in the poll side. The demand there has always been relatively healthy, But it has amped up with infrastructure dollars being let out.

Speaker 2

And we're seeing it on the rail side as well. So, yes, dollars are out there being spent, and it is having an impact. Okay. And then in terms of what you're talking about getting, I guess, pricing further price increases for the creosote, Is that with entities that have not given you any price increases or you're going to have or you have to go back Some of the other some of the ones you already negotiated and try and pass on higher price increases. Yes.

Speaker 2

So it's a little bit Okay, right. And when I I mentioned Creosote, but to be totally blunt, right, it's across the board. We've had significant increases. Obviously, we know what's going on in the labor front, goods and services, you name it And the costs have gone up, right? And so we have contractually with the long term contracts we have in place, we do have an ability to Some of that and we have up to a certain limit.

Speaker 2

It's just not been enough. And so we're trying to work within the bounds of the contract to ensure that we can get back fair value for the items that have exceeded Our ability contractually to get the price increases for and as I continue to beat the drum, right, I mean, It does not serve the rail industry to have unhealthy supply chain. And so we'll continue to work. Well, I think I can tell you, we believe we have bottomed out from that standpoint and there's nowhere to go but up. But We're going to be fighting as much as we can to try and get ourselves back to where we need to be.

Speaker 2

Thank you.

Operator

This concludes our question and answer session. I would like to turn the conference back over to CEO, Leroy Ball for any closing remarks.

Speaker 2

Thank you. I just want to again thank everybody for your interest in Koppers, for your participation on today's conference call. Hope you can make it out

Operator

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.

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