Good morning. Thank you for standing by. Welcome to Sylvamo's Fourth Quarter 2022 Earnings Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, you will have the opportunity to ask questions. To ask, please press one then zero on your telephone keypad. To withdraw a question, press one then zero again. As a reminder, your call is being recorded. I'd now like to turn the call over to Hans Bjorkman, Vice President, Investor Relations. Sir, the floor is yours.
Thanks, Amy. Good morning, and thank you for joining our call today. Our speakers this morning are Jean-Michel Ribiéras, Chairman and Chief Executive Officer, and John Sims, Senior Vice President and Chief Financial Officer. Slides two and three contain important information, including certain legal disclaimers. For example, during this call, we will make forward-looking statements that are subject to risks and uncertainties. We will also present certain non-U.S. GAAP financial information. Reconciliations of those figures to U.S. GAAP financial measures are available in the appendix. Our website also contains copies of the fourth quarter 2022 earnings press release, as well as today's presentation. With that, let's hear from Jean-Michel.
Thanks, Hans. Good morning, and thank you for joining our call. I'll begin my comments on slide 4. In 2022, we delivered significant accomplishment as we executed our three-pronged strategy of commercial excellence, operational excellence, and financial discipline. We worked hard to be the uncoated freesheet supplier of choice, which resulted in our outperforming industry shipments in all three regions. We improved our safety performance and defined our ideal culture, which would help us become a company in which employees care, trust, and grow and succeed together. We delivered strong earnings and free cash flow despite global supply chain challenges and unprecedented input cost inflation. We reduced our geopolitical risk and uncertainty by divesting our Russian business and agreeing to acquire the Nymolla mill in Sweden.
We achieved a 30% return on invested capital, strengthened our balance sheet by repaying more than $370 million in debt, and returned $90 million in cash to share owners. I'm proud of our team and their accomplishment over the last year. Slide five highlights our 2022 full key performance metrics. We increased net sales by 28% to $3.6 billion. We achieved an adjusted EBITDA of $721 million, a 62% increase over 2021, and our adjusted EBITDA margin was 20%. We generated $269 million in free cash flow, which was more than $6 per share. I would like to point out that our 2021 free cash flow only included one quarter worth of cash taxes and interest. Our adjusted operating earnings increased by 72% to $7.84 per share.
As we enter 2023, we are confident in our ability to continue to create value for our customers and shareowners. Slide six highlights our key performance metrics for the fourth quarter. Net sales were $927 million, a 19% increase versus the fourth quarter of 2021. Adjusted EBITDA was $170 million, up 38% versus 2021 with a margin of 18%. We generated $84 million in free cash flow and adjusted operating earnings of $1.97 per share, which was more than double the adjusted EPS in the fourth quarter of 2021. These strong performances demonstrate our ability to continue to deliver on our investment thesis. Now, John will discuss our fourth quarter performance in more detail. John?
Thank you, Jean-Michel. Good morning, everyone. Let's turn to slide seven. Let's review our fourth quarter adjusted EBITDA versus the third quarter. In the fourth quarter, price and mix improved by $31 million as we realized prior price increases in all regions. This improvement was in line with our outlook. Volume decreased by $20 million. In addition to the usual seasonal slowdowns in Europe and North America, volume in North America was also impacted by channel destocking in the commercial printing segment, which I will discuss in more detail later. Operations and costs increased by $42 million, which was near the high end of our outlook. 25% of this was in operations. This was largely due to seasonally higher costs in Europe and North America. The remaining 75% was in other costs.
These included incremental incentive compensation accruals, unfavorable Brazilian foreign exchange, and unfavorable year-end LIFO. As expected, we spent $21 million more on planned maintenance outages as this was our highest outage quarter in 2022. Input and transportation costs improved by $6 million with favorable energy and distribution costs. Even after unfavorable impact of $5 million due to the winter storms in the Southeast U.S. in December. Let's look at the 2022 uncoated freesheet industry fundamentals on slide eight. Demand in Latin America and North America continued to rebound from pandemic levels, while demand in Western Europe declined slightly. In the first half of 2022, customers in Europe and North America could not get enough paper from domestic suppliers, so they turned to importers, primarily Indonesian mills. The deliveries of these imports began to show up in the third quarter and during the fourth quarter.
They caused channel inventories to build, especially in the North America commercial printing segment. At this point, commercial printers began to reduce their paper orders to rebalance inventories. It is important to note that the underlying demand for commercial printing in North America has declined slightly, but in line with the slowdown of economic activity. With the reopening of the Chinese economy, we expect increasing paper demand in China, which should absorb some of the Indonesian mills production that has been imported into our regions. Importantly, uncoated freesheet industry capacity in our region is down 10%-20% relative to pre-pandemic levels, which will continue to help the supply and demand balance. In summary, demand is up in our largest regions. Capacity is down in all regions, and we are confident in our positions with key customers.
I'll turn it back to Jean-Michel to talk more about our newly acquired Nymolla mill.
Thanks, John. I'm on slide nine. At the beginning of January, we welcome our Nymolla colleagues to Sylvamo. This photo is from our day one celebration. The Nymolla mill fits well with our three-prong strategy of commercial and operational excellence and financial discipline. It is one of Europe's largest integrated uncoated freesheet facilities and generates 85% of its energy from carbon-neutral renewable biomass residuals. The majority of its purchased energy is produced without fossil fuels. The mill has a strong customer-focused culture and shares many of our values. The Nymolla team maintains strategic channel partnership in a complementary geographic mix. It also has an excellent environmental position and is aligned with our environmental stewardship and social responsibility strategies.
On slide 10, you can see Nymolla new oxygen delignification plant, which was part of the $40 million pulp mill modernization project that was completed and started up prior to our acquisition. The project included a new softwood digester, increasing softwood pulp capacity by 15%, which will allow us to reduce the use of more expensive hardwood. The mill is on its way to realizing the expected annual earnings benefit of $8 million. We are thrilled to have the Nymolla mill and their talented team as part of Sylvamo and have integrated Nymolla into our commercial and operational processes. Okay, let's turn to slide 11 and hear from John on our first quarter outlook.
Okay. Thank you, Jean-Michel. In the first quarter, we expect to deliver adjusted EBITDA of $200 million-$215 million. This table shows the quarter-over-quarter changes without the impact of Nymolla, and we provide a $15 million-$20 million outlook for the Nymolla mill contribution. Price and mix are projected to decrease by $15 million-$20 million, primarily reflecting a seasonal mix shift in Latin America. We expect volume to decrease slightly by $5 million-$10 million, reflecting seasonally weaker volume in Latin America and continued inventory corrections in Europe and North America. Operations and costs are projected to improve by $10 million-$15 million, as the unfavorable fourth quarter items will not repeat. We also expect input and transportation costs to improve by $5 million-$10 million, largely on favorable trends and costs for natural gas and transportation.
Maintenance outage expenses are projected to decrease by $29 million, as we will not conduct any maintenance outages in the first quarter. This would be a good time to point out that while Jean-Michel will provide a full year outlook for free cash flow, we expect the 2023 free cash flow to be weighted more heavily to the second and third quarters of the year. We are confident in our full year free cash flow forecast. Please turn to slide 12. Here you will see the three prongs of our capital allocation framework. This depicts how we think about allocating cash to drive shareowner value. At the time of the spin-off, we prioritized using cash to reduce debt. We also began to return nondiscretionary capital spending to the appropriate level to maintain our low-cost assets.
Now that we have achieved a much stronger financial position with less than $1 billion of gross debt, we are putting greater emphasis on returning cash to shareowners and reinvesting in our business to grow our earnings and generate cash. We remain a cash flow story. We will leverage our strength to drive high return on invested capital and generate free cash flow. We'll use that cash to increase shareowner value by maintaining a strong financial position, returning more cash to shareowners, and in reinvesting our business. Let's move to slide 13 to review our fortified financial position. Since the spin-off, we have reduced our debt by more than $500 million. At the end of January, our gross debt to adjusted EBITDA ratio was 1.4 times, and our net debt to adjusted EBITDA ratio was 1.2 times.
Pension funds remain well-funded at or above 95%. We do not have any significant debt payments due until 2027. Let's move to slide 14. We will continue to reinvest in our business and maintain our low-cost assets, and we'll fund high return projects to increase our earnings and cash flow. Our 2023 capital spending outlook includes $175 million-$190 million for nondiscretionary spending and $35 million-$45 million for high return projects and to integrate Nymolla and achieve the synergies there. Our maintenance and regulatory spending plan includes $18 million for our Nymolla mill, as well as spending plan for 2022 that was delayed due to supply chain challenges. Our maintenance and regulatory plan also includes an incremental $10 million due to inflation.
We will also invest $30 million-$35 million in Brazil forestry, about a 10% year-over-year increase to ensure the long-term availability of sufficient volumes of low-cost wood, which are a critical component of our competitive advantage in Latin America. I'm now on slide 15. We have created substantial shareowner value in the 16 months since the spin-off. We fortified our financial position, reduced debt by more than 35%, and achieved $1 billion gross debt target. Returning cash to shareowners is a core component of our investment thesis. We have returned $111 million in cash to shareowners, with $21 million in dividends and $90 million of share repurchases. Since the spin-off, we have repurchased 1.8 million shares. We more than doubled our quarterly dividend to $0.25 per share, effective this quarter.
We'll continue to reinvest in our business to remain the supplier of choice, to maintain our assets and competitive cost position, and to increase cash flow. I'll turn it back to you, Jean-Michel.
Thanks, John. Let's turn to slide 16 to review our 2023 full-year outlook. In 2023, we expect to generate $760 million-$840 million in adjusted EBITDA and $300 million-$330 million in free cash flow. Our adjusted EBITDA outlook assumes slightly favorable price and mix against input costs and relatively stable volume since we expect channel inventory correction to be resolved in the first half of this year. Our planned maintenance outage expense will be about $20 million higher this year than last, with outages in Saillat and Nymolla. We're expecting favorable trends in energy, input, and transportation costs. Our free cash flow outlook reflects an increase in earnings, reducing interest expenses, and the elimination of foreign tax credits on our Latin American earnings. It also reflects the increase in capital spending that John reviewed.
Let's wrap up our comments on slide 17. We remain committed to our investment thesis. We strive to remain the employer, supplier, investment of choice. We are grateful for our talented and engaged colleagues and their dedication to working safely, delivering on customer commitments, and creating value for our shareowners. We're also grateful for our customers. Without their continued support and partnership, we could not succeed. Executing our three-prong strategy of commercial excellence, operational excellence, and financial discipline will enable us to continue to create long-term value for shareowners. We will continue to leverage our strengths to drive high returns on invested capital and generate cash, and we will allocate capital to maximize shareowner value. Increasing cash returns to shareowners is one of our key objectives. With that in mind, we are considering alternatives regarding the current limits on restricted payments.
We remain committed to creating value for all of our stakeholders as we build our desired culture, one in which we care, we trust, we grow and succeed together. With that, I'll turn the call back over to Hans.
Thanks, Jean-Michel, and thank you, John. Okay, Amy, we're now ready to take questions.
Thank you. If you'd like to ask a question, please press 1 then 0 on your telephone keypad. To withdraw a question, please press 1 then 0 again. We do ask that you limit yourself to 1 question and 1 follow-up question. Thank you. Our first question comes from George Staphos with BofA Securities. You may begin.
Thank you. Hi, everyone. Good morning. Can you hear me okay?
Yes, George. Hi, how are you doing?
Doing well. Thanks for all the details and congratulations on the progress in the year. My first two questions will be around volume. Jean-Michel, I think you said in your prepared remarks at the end that you expect stable volumes. I'm just trying to determine whether that's underlying demand that you're referring to or your own shipments when considering the fact that I think you said channel destocking is still going to be occurring through the first half. Relatedly, my second question. You talked about the impact of imports and what triggered that, and that was very helpful. Recognizing there's a lag on this data, the imports continue to rise at least in North America.
What do you attribute that to the extent that you can comment, and what is embedded in your forecasts, for 23 about the impact of imports, in North America, but certainly anywhere else you care to discuss? Thank you.
Thanks, John, George. Two separate question. I'll start with the volume. I'm talking about our volume. I think, when we look at the full year and what we are winning with customers, I feel comfortable we will have a great year. I, even if you take right now, despite the inventory correction, we're full in Latin America. It's a little less in North America and in Europe, but it really depends on segments already. If you take the commercial printing segment, it is weak, and that's probably where the inventory is highest. If you take the cut size segment, it's quite good. Concerning demand, we're still seeing strong demand growth in Brazil. Brazil in cut size is back to above pre-COVID.
The demand in North America, it's difficult to forecast, but I would say maybe not as strong as last year where imports impacted, but still good. Europe, we have the trending, slight decrease, which is normal. Your question on inventory. Here is my understanding on inventory. It comes mostly from the
Imports.
Imports. Sorry. Where am I? I meant imports. Sorry about that. The question on imports, it comes from a lot of discussion recently, actually, I've personally had with customers. In first half last year, as you remember, there was a little bit of a panic, I would call it, in the markets. This is true in North America and in Europe, where our customers had a lot of work. From a supply standpoint, we were still tight because of demand, and also we were still getting out of the COVID and probably not efficient like in a normal timing. This is when a lot of this import was order. It didn't come on the first half of the year as it would have been expected by this customer.
It mostly came in third quarter and fourth quarter, which by the way, if you look at the statistics in North America, you can see the increase in the import is mostly due third and fourth quarter.
Right.
I think that was the pipeline defect. That's because supply chain was very difficult in first half. The cost of sending paper from Asia to North America or Europe was 10 times what it is today, so it was extremely high. That has created clearly an issue in the inventory that even our customers were not expecting to be so strong. I think that's a long-term big impact. We will still have imports in Europe or in the U.S. I expect it to be like the trends we've had up to now, between 10%-15% maximum, but not between 15%-20%, which we had on fourth quarter. I think this is once the channel destocking would have happened, we will back to more traditional long-term trends.
Jean-Michel, turn over. Those ratios, you mean as a percentage of consumption or year-on-year growth? Just one point of clarification there.
Percentage of demand, of consumption.
Thank you.
Our next question comes from Paul Quinn with RBC Capital Markets. You may begin.
Yeah. Thanks very much. Morning, guys. Just a question on, I understand that the CapEx is up this year because it looks like you missed about $30 million you spent last year. If you could give us some examples of where you're spending the $30 million-$35 million on high return projects, and whether you expect this higher level of CapEx to stay up, at this level in 2024.
Yeah. Hey, Paul. It's John Sims. Our capital spending for this year is higher than last year. As you say, some of that is attributed to carryovers, the things that we had planned to execute in 2022, because of supply chain, got pushed into 2023. The additional spending also is due to the Nymolla mill, which we highlighted here, the $18 million. I think we gave a guidance for the maintenance and regulatory, somewhere between $130-$150 is what we would be spending for maintenance, regulatory, and reforestation. The number is now between $180 and $175 and $190, I think is probably a good number to go forward.
What that does include is the additional Nymolla spending, probably around $15 million-$20 million, and also we have the impact of inflation. We kinda highlighted that, but inflation impacted not just the input costs, but labor as well as capital. We're expecting that to go forward. I think the second part of your question is around the high return, cost reduction capital. Where do we expect to spend that? That's a planning number right now. We do have a pipeline of projects that are gonna be approved. What we do is we make sure that we're spending that money to get high return projects in our most competitive mills, so we can get long-term benefit from that.
We'll be sharing that as those projects get approved going forward.
If I could just switch over to free cash flow. Pretty robust guide at $300 million-$330 million. Just your restrictions, if you could remind us of your restrictions on share buybacks and what you're doing to try to alleviate some of the limits on returning that cash?
We, you know, in the fourth quarter, we were able to increase the restricted payment covenants that we had, you know, from 75 to $90 million, and that's what, you know, we fully utilized that and returned $90 million back to shareholders in either form of a dividend and also in terms of share buybacks, which we did last year, $10 million in dividend and $80 million in share buybacks. We're still limited to the $90 million right now as we speak, and this is one of the things that Jean-Michel alluded to. It is a priority for us. As you rightly say, our free cash flow, we're projecting, we feel very confident about that. It's expected to increase this year versus next year.
We're working on different options that we'll be reviewing with the board. Our intent is to get flexibility so that we can increase what we can return back to shareholders above $90 million.
It's one of our priority. We do want to return more cash to shareholders. This is a key objective.
Well, that's great to hear. That's all I have to say.
Thank you, Paul.
Thank you. Our next question is from Ed Brucker with Barclays. Please go ahead.
Hey, thanks for taking my question, and congrats on the good quarter. My first one was just on some of your comments right to start on what seems like some outperformance in shipments in the quarter versus peers. Just want to get your thoughts on, is that taking share within the market? I guess, just more details on what you're doing to kind of be the go-to uncoated freesheet provider.
Hi, Ed. Thanks for joining the call. you know, we've been a long-term partner in this business, and Sylvamo, especially with his focus to uncoated freesheet, is very well aligned with the key winning customers worldwide. This is true in North America, but this is true in Europe and Latin America also. As a result, we usually grow more than the market, our volume. This is not new. It's been happening for multiple years. We can see it very well today, where it's a very good fit with our customers, they're very aligned with us, and we're growing. we're growing on long-term partnership and with brands, with a complete offering, with the best partners in the channels, and that makes a difference. We want to continue to win in this market.
We think we have the right as the key player.
Got it. My next question, just on M&A. This Swedish mill sounds like a pretty good acquisition. It seems like just in the space that consolidation could be a way to control what seems to be a declining uncoated freesheet market just in general, and control capacity there. Just wanna get your thoughts on more M&A, if you're looking at other looking at other acquisitions and the size you'd be willing to do that, primarily in the context of, you know, your restrictions that you do have on share repurchases and the excess cash that you'll likely have in 2023 with the $300 million free cash flow.
Ed, M&A is not our priority. We are satisfied with our core mills and what we have today. It would be purely opportunistic, but returning more to cash is clearly our priority. This is more what we're going to spend our time than looking at M&A. Nymolla was a unique, very opportunistic, great opportunity, and we're going to continue in allocating our capital more to a strong financial position, the return, as I said, to cash to shareholders and great reinvestment in our business. That's going to be our priority.
Got it.
Yeah, this is John. I'll just add, you know, that the Nymolla was why it was a great opportunity for us is, you know, core to our strategy is a focus on uncoated freesheet, which also is one of the reasons why we tend to outperform the market because customers know that we're in it for the long run. We want assets that are low cost, that have, you know, a competitive advantage in the marketplace so that we can continue to serve the uncoated freesheet, possibly generate a lot of cash for a long time. That's what the Nymolla Mill just really fit right into the wheelhouse that we were looking for. There's not a lot of opportunities for that, but that's what we mean by opportunistic.
It's gotta fit with our strategy. It's gotta be a low cost, strong asset, and that's what Nymolla Mill is.
As a reminder, if you would like to ask a question, please press one then zero on your telephone keypad. To withdraw a question, please press one then zero again. We have another question from George Staphos with BofA Securities. Please begin.
Thanks. Hi, everybody. again, two more questions, more on volume, although I do wanna get to as well, so I'll come back. Jean-Michel and John, so if you assume that imports are going to drop from 15%-20% of consumption to 10%-15% of consumption, and, you know, the market consumption probably is gonna be down because that's the normal trend, that would suggest a fairly sizable drop in imports for this year, in 2023 versus 2022. Am I missing something there in terms of how you're evaluating it and anything that's giving you comfort, any sort of green shoot commentary from DCs or your customers that that's happening? That's question number one. Question number two, again, you know, on volume and trade flow.
Yes, China was locked down last year, but one of the things that that also did, this is more on the freight side, is it prevented exports from China and from Southeast Asia. Now, maybe we're now seeing that, you know, with the reopening, those imports coming into North America, coming into Europe, but could there be further problems, if you will. Really relay what your customers are saying from the opening of supply chains and what it might mean for supply that comes into markets that were, as you pointed out, really tight last year in Europe and North America, which was a good thing for you.
Yeah, George, I'm gonna start off, and then I know Jean-Michel will probably wanna weigh in. When you look at the year, for the full year for 2022, imports into North America represented 13% of demand. Most of that was the increase, as we talked about, in the second half of that year. When we look at our projections, and there's a lot of moving parts on this. I mean, when we're talking about somewhere between the 10%-15%, we're still seeing and projecting a potential increase of imports year over year into North America. Be mindful that it is true that the cost of shipping from Asia into the U.S. has actually backed down to, you know, pre-pandemic levels.
There's still extensive duties that apply to both the Indonesia and the Chinese suppliers. As it backs up, you know, the Chinese market opens back up, you know, when you look at it from a pricing perspective, net pricing perspective, it's still probably more advantageous for them to ship into China. The other thing we didn't talk about a little bit, but some of the imports also came in from Europe. The European freight costs continue to be extremely high. I think when we look at our outlook and how we're thinking about it, we see and we're projecting that we're gonna see some increase, you know, of imports into into the U.S.
Like I think we're trying to allude to, it's not gonna be out of the norm than what we've seen it before, and it's been it's manageable.
Okay. If I could sneak one more in just in terms of your guidance. The first quarter, you know, is well over $200 million in terms of EBITDA. Look, recognizing there's lots of seasonality and certainly maintenance outages, you know, are lumpy, if I just annualize that, I would wind up with an EBITDA outlook that's probably above your full year range. Are you just trying to create or give yourself some cushion against the unknowables that occur in any year, or are there some specific things that you want us to remember in terms of the cadence of your EBITDA, you know, the rest of the year? Thank you, guys.
I think, there's two things on that, George. One is, there's no outages in the first quarter. There's a page in the appendix that shows our outage, and the two highest outage quarters is the second and the fourth quarter.
Got it.
That's you gotta factor that into it. I will say that, you know, there is a lot of economic uncertainty that our outlook we've taken into account. That's why we do have the range. We're confident in it given that what we're projecting both the good and the bad. I mean, there's some things that we think, and we just talked about it, potentially imports, you know, North America could be or in Western Europe. There's the positives where, you know, an example would be China opening up that could have a positive impact on us. The other thing that we didn't mention is Jean-Michel alluded to it, is you know, we're really seeing really strong demand in Brazil.
In fact, Brazil's uncoated freesheet demand is now above pandemic levels. I think their year-over-year increase is almost 19%. We're seeing cut size to be very strong as offices. We're starting to see reports of the U.S. that returning to the office now at 50%. As that continues to increase, that's supportive. Our outlook has both both the positives and the more challenging scenarios incorporated into it.
Thank you, John.
Our next question comes from Paul Quinn with RBC Capital Markets. Please go ahead.
Yeah, thanks. I just wanted to follow up on this new priority of returning cash to shareholders that you've got, and just talk about some of the alternative solutions you've got on trying to remove some of the restrictions from your payment basket to shareholders.
Well, Paul, I would love to be able to share that with you, but I think on because some of these options could involve confidential information, we really can't discuss that right now. We do also need to make sure we've got our board has approved it. Suffice it to say, we're looking at all options. Yeah, we're looking at a high eye level. I would say that we also are confident that we're gonna be able to do something about and increase the $90 million this year.
All right. That's all I have.
Thank you.
Our next question comes from Adam Ritzer, Private Investor. Please go ahead.
Hi. Thanks for taking my call. I just had most of the questions I had were covered. In terms of your debt stack, right now you're about, you know, 1 times levered roughly. Is there any reason why you would need to go below that or would want to in terms of cash deployment?
No, I think the short answer to your question, Adam, is that we're really comfortable with where we are. I mean, we set the target of $1 billion, and that's gross debt, because we wanna be able to have the financial flexibility through the cycle to invest in our business, either in high return projects, or whatnot. That's where we are. Now, could we reduce our debt? We may, but not, you know, because of the payment restrictions that we have. That's not the plan right now.
Right. Until you get the payment restrictions lifted, the cash is gonna build. Ultimately, right, you don't wanna have, you know, you don't wanna have too little debt. Got it. The other question I had.
Yes.
-is, relates to Europe. I know in the past you said about, I think it was 25% of Europe's capacity is not fully integrated. you know, I'm not that close to the markets as you guys are there any other mills in Europe or capacity reductions or potential consolidations that you guys have heard about or rumored, you know, to further consolidate the European markets?
I think we cannot really answer that question. We don't comment on rumors. Your numbers in terms of non-integrated capacity and which mean less competitive for Europe of about 25% is correct.
Okay. Appreciate it. Thanks very much.
Thank you.
Thank you, Adam.
Thank you. Our next question comes from George Staphos with BofA Securities. You may begin.
Hi. Thanks for taking my question. Be my last one, guys, I promise. You know, when we look at the CapEx this year, and you've done a good job of outlining why there's an increase. Nonetheless, when we look back over time, and certainly priorities have changed, the market's changed, your relative positioning has changed, probably for in a good way. You know, it's still a pretty sizable jump up in CapEx. Could you remind us, you know, what you think a more normalized, which suggests that maybe 2023 isn't normalized, so maybe it is. What, you know, what you think a normalized level of CapEx could be for the company, incorporating return projects, you know, making sure everything is functioning at the level you want.
you know, when you do your indexing, do you think you're spending at least as much, if not more, than what you see overall within the industry? Because my view would be you're probably spending at a very healthy level, and it's working out. Your performance has been very good. you know, what do you think normalized is, and do you think you are at least spending as much, if not more, per mill or per ton versus averages in the industry? Thanks, guys, and good luck in the quarter.
Yeah. Thank you, George. I think when we, you know, our focus is we keep saying is to generate cash, we wanna be very judicious in the capital that we spend. Also the engine of our cash, is our low-cost assets as well as our customer relationships and our people, of course. This is a key focus. If you look at the average of our capital when we do this, we can really go back to pre 2016 because it was 2016, after that, 2017, 2018, 2019, capital was pulled back.
We would say that it was under-invested in the paper business in our business during that time period, both in the forest we saw down in Brazil and also, you know, in our facilities. If you look at the period prior to 2016, we're spending essentially pretty much on average what we spent back then on a per facility basis, with the exception of inflation. You have to, you know, in $2016, you have to inflate it, and there was quite a bit of inflation the last two years that we've seen in the maintenance spending. The I guess the short answer to your question is yes.
I think the range we talked about earlier in the $175 million-$190 million for maintenance, regulatory, and forestry is probably what we feel is the appropriate number going forward. You know, we didn't mention this, but I'm sorry, I'm gonna George, I'm gonna take a little extra time, but I think it's good to point out why we are increasing spending in forestry down in Brazil. We are increasing by 10%, and it's really because of what I said earlier. Back in 2019, 2020, and 2021, we under-invested in our forestry in Brazil, we also...
Which means that, you know, we typically have 80% of our wood that we consume is our own forest, and 20%, we have to go out in much more expensive outside market to get the wood. Because we under-invested, not only that, but we also, there were forest fires, there was some insect damage. We are now probably approaching 70%. And that actually 10% is a big deal from a cost perspective for us. We're gonna be investing more in the forestry to replant land that we have, that we own or through our partnerships, that we've been, we hadn't been, you know, adequately sustaining. We're spending that to go forward.
Again, because of the rotations of the wood, six to seven years, we really won't see the benefit of that until out in the future, but that's the other reason why we're increasing our spending.
Yeah, that makes sense and certainly, is consistent with a lot of the things that the LatAm folks, talk about. It's a low-cost source of wood, so you are seeing investing in conversion of that fiber as well. You've got to keep your base. Thank you, John.
Thank you.
Thank you. I'll now turn the call back over to Hans Bjorkman for closing comments.
Thank you for joining us today. We appreciate your interest in Sylvamo. I'm gonna ask Jean-Michel to give a quick summary of the call today.
Thanks to all of you for joining, first of all. I just want to remember maybe what's our key message is. In 2023, we expect to increase our earnings and free cash flow versus 2022. We expect, and it's a clear objective of us, to return more cash to shareholders. In terms of capital allocation, we wanna keep a strong financial position, return cash to shareholders, and reinvest in our business. I'm sure 2023 has a lot of uncertainty, but we've got the right strategy and the right people to execute it, so we feel confident in this outlook. Thank you very much.
Once again, we'd like to thank you for participating in Sylvamo's fourth quarter 2022 earnings call. You may now disconnect.