Sylvamo Q1 2023 Earnings Call Transcript

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May 9, 2023

There are 8 speakers on the call.

Operator

Morning. Thank you for standing by. Welcome to Sylvamo's First Quarter 2023 Earnings Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, you will have an opportunity to ask questions.

Operator

As a reminder, your conference is being recorded. I would now like I'll turn the call over to Hans Bjorkmann, Vice President, Investor Relations. Sir, the floor is yours.

Speaker 1

Thanks, Greg. Good morning and thank you for joining our call today. Our speakers this morning are Jean Michel Rivieras, Chairman and Chief Executive Officer and John Simms, Senior Vice President and Chief Financial Officer. Slides 23 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.

Speaker 1

We will also present certain non U. S. GAAP financial information. Reconciliations of those figures U. S.

Speaker 1

GAAP financial measures are available in the appendix. Our website also contains copies of the Q1 earnings press release as well as today's presentation. With that, I'll turn the call over to you, Ghansham.

Speaker 2

Thanks, Hans. Good morning and thank you for joining our call. I'll begin my comments on Slide 4. Our first quarter results were strong and in line with our expectation. Adjusted operating earnings per share were $2.51 and we achieved $208,000,000 in adjusted EBITDA with a 22% margin.

Speaker 2

We maintain a strong financial position with net debt at 1.1 times adjusted EBITDA. Price and mix as well as input transportation costs were favorable to our outlook. Our volume reflected continued inventory destocking and the worst than expected seasonal demand slowdown in Latin America. Our recently acquired Numola Mill posted a strong quarter. The ramp up of cost savings from the recent pulp mill modernization are on schedule.

Speaker 2

We are also pleased with our progress on other operational and commercial synergies. We returned $21,000,000 in dividends and share repurchases I am now on Slide 5. We remain committed to operating as a sustainable corporation that creates profit for its shareowners while protecting the environment and improving the life of Zoos with whom we interact. With that in mind, since the spin off, we've been pursuing the formal approval For 2,030 goals for greenhouse gas emissions, we are pleased to announce that we received formal approval of our 2,030 mission reduction goals from the ScienceBase Target initiative. SBTI Acknowledge that our commitment to reduce our absolute scope 1, 2 and 3 emissions by about 28% It's consistent with a well below 2 degrees scenario.

Speaker 2

As the slide shows, our own goal is even more ambitious. We're committed to a 35% reduction in total greenhouse gas emissions relative to our 2019 baseline. Slide 6 highlights our key performance metrics for the Q1. We achieved sales of $959,000,000 up 3% versus the 4th quarter. We generated adjusted EBITDA of $208,000,000 up more than 20% versus the 4th quarter.

Speaker 2

As expected, free cash flow was lower than the 4th quarter, reflecting an increase in mill inventories In preparation for our 2nd quarter planned maintenance, allergies and the payments of annual incentive compensation. And we posted adjusted operating earnings of $2.51 per share, an 87% increase over last year's Q1. The strong performances demonstrate our ability to continue to deliver on our investment thesis. Now, John will discuss our Q1 performance in more detail. John?

Speaker 3

Thank you, Jean Michel. Good morning, everyone, and thank you for joining our call. Let's turn to Slide 7 to review our Q1 adjusted EBITDA bridge. As Jean Michel mentioned, we posted a solid quarter generating $208,000,000 in EBITDA, up $38,000,000 versus the 4th quarter and in line with our guidance. Our EBITDA margin was strong also at 22%, 400 basis points better than the 4th quarter.

Speaker 3

Price and mix decreased by $8,000,000 driven by lower market pulp prices in all regions, which accounted for the majority of the decrease. In Europe, we reduced our paper prices as we rolled back Siad's energy surcharge announced in the 4th quarter. Paper price and mix were stable in the Americas. Volume decreased by $34,000,000 In addition to the normal seasonal slowdown in Latin America, orders It continued to be impacted by channel inventory corrections, particularly in the commercial printing segment. Operations and costs improved by $18,000,000 primarily due to lower accruals for the annual incentive compensation and favorable Foreign exchange in Brazil.

Speaker 3

The ops and cost improvements occurred despite taking about 60,000 tons of lack of order downtime In response to our customers' inventory adjustments, about half of the lack of order downtime was taken in Europe and the other half in North America. We did not conduct any planned maintenance outages in the Q1, which resulted in $31,000,000 favorable variance. Input and transportation costs improved by $14,000,000 reflecting favorable energy and distribution cost trends. And lastly, our New Miller mill added $17,000,000 of adjusted EBITDA and is performing very well since we closed on the acquisition at the beginning of the year. Let's move to Slide 8 and talk about the uncoated freesheet industry conditions.

Speaker 3

In the Q1, significant inventory destocking continued in all regions, resulting in lower shipments in Europe And North America, we expect inventory corrections to continue in the second quarter and be completed in the third quarter. With respect to demand, the Q1 is always the seasonally weakest quarter in Latin America. Demand Was also adversely impacted by delay of the annual Brazilian government textbook program. This was a material shift Since the Education segment accounts for about 1 third of Brazil uncoated freesheet demand, these orders have started in the 2nd quarter. The cut size segment, which accounts for about 40% of the uncoated freesheet market in North America, Has been the most resilient segment of uncoated freesheet over the last few quarters as demand has increased with more workers returning to the office.

Speaker 3

The cut size segment didn't see an increase in inventories in North America, so there was no need to destock. As we expected, uncoded freesheet imports receded to more normal levels after peaking last October. We anticipate 2nd quarter imports to return to normal levels driven by the adequate domestic supply and the reopening of the Chinese economy. In the Q1, 2 competitors announced permanent uncoated free seat capacity shutdown. In North America, 240,000 tonne in North America We're shut down and North Carolina was shut down and in Europe, a machine in Austria will be shut down as well.

Speaker 3

We expect these capacity reductions to favorably impact operating rates. And in North America, we have already secured more than 60,000 Incremental tons on an annual basis. Let's go to Slide 9 to look at imports into Europe and North America. Driven by domestic supply shortages in the first half of twenty twenty two and lower Chinese demand due to the COVID lockdown, Indonesian exports were diverted from China into our regions and increased steadily until peaking in October of 2022. As we mentioned last quarter, we expected that imports had already peaked and would return to more normal levels.

Speaker 3

And as you can see from the chart, imports have dropped by about half in Europe and 2 thirds in North America and are back to normal levels. Moving to Slide 10, let's discuss our 2nd quarter outlook. We expect to deliver an adjusted EBITDA of $115,000,000 to $125,000,000 which reflects A $59,000,000 increase in planned maintenance outage expense this quarter. We project price and mix to decrease by $45,000,000 to $50,000,000 reflecting the realization of prior price decreases for pulp in all regions and paper in Europe, as well as less favorable product mix. Keep in mind that pulp accounts for 10% of our sales, on average 100,000 tons per quarter.

Speaker 3

We expect volume to improve by $10,000,000 to $15,000,000 reflecting seasonally stronger volume in Latin America. We project operations and cost to increase by $10,000,000 to $15,000,000 due to unabsorbed fit costs As we continue to match supply to our customers' needs, we expect input and transportation costs to improve by $15,000,000 to 20,000,000 largely on favorable trends in costs for natural gas, chemicals and transportation. Our adjusted operating earnings Should be about $0.90 to $1.10 per share, including about $1 per share Slide 11 shows our planned maintenance outage schedule for the quarter, with 2 thirds of total annual cost scheduled for the 2nd quarter. During this quarter, we'll conduct outages in all three regions. After this quarter, the remaining planned outage expenses will largely occur in the 4th quarter.

Speaker 3

I'm on Slide 12, which shows again our capital allocation framework and how we think about allocating cash to drive shareowner value. As we maintain our much stronger financial position with about $1,000,000,000 of gross debt, we are putting a greater emphasis on Turning cash to shareowners and reinvesting in our business to grow our earnings and generate cash. We remain a cash flow story. We leverage our strength to drive high returns on invested capital and generate free cash flow. And we use that cash to increase shareowner value by maintaining a strong financial position, returning more cash to shareowners And reinvesting in our business.

Speaker 3

Let's flip to Slide 13 to review what we have done to enable us to increase the limits on Cash returns to shareholders. In March, we repurchased $360,000,000 of our outstanding notes in order to eliminate the covenant that limited cash returns to $90,000,000 per year. We replaced these notes with a new $300,000,000 Term Loan A and short term debt. This also allowed us to reduce our interest expense on $300,000,000 of debt from 7% to 6%, And we locked this rate in by executing 5 year interest rate swaps. The last step to increasing the limits on cash return Just to address the credit agreement covenant that restricts annual cash returns to $90,000,000 When we approach that limit later this year, we Expect to deposit $60,000,000 into an escrow account and maintain $225,000,000 in liquidity.

Speaker 3

These actions will enable us to return more than $90,000,000 Returning more cash to our shareowners Remains a priority. I'll wrap up my comments on Slide 14. We are also reinvesting in our assets to strengthen our business. This year, we plan to invest 175 $190,000,000 of non discretionary capital. We are committed to ensuring safe operations and compliance with all laws and regulations, And we need to ensure reliable operations to remain the supplier of choice to our customers.

Speaker 3

In order to remain an investment of choice, We need to maintain our low cost position and ensure availability of low cost fiber in Brazil. We also expect to invest $35,000,000 to $45,000,000 Cost reduction and strategic capital at our flagship mills to improve our low cost position and ensure the long term competitiveness of these mills. This slide shows 2 examples of attractive cost reduction projects. 1 in Eastover to reduce chemical consumption And one at Luis Antonio to increase energy efficiency. Both projects are forecasted to generate internal rate of returns Over 20%.

Speaker 3

So with that Jean Marcio, I'll turn it back to you.

Speaker 2

Thanks, John. I'm now on Slide 15. We have revised our full year outlook. We now project adjusted EBITDA of $720,000,000 to $770,000,000 And free cash flow of $250,000,000 to $280,000,000 This new projections reflect the impact of previously announced pulp price decreases, Our updated views on second half pulp and paper pricing and volume and favorable inputs and transportation costs. Sylvamo remains a cash flow story.

Speaker 2

Our revised outlook indicates continued strong free cash flow of about $6 to $7 per share, which will allow us to return more cash to share owners. Slide 16, please. We remain confident in our ability to create shareowner value and remain committed to our investment thesis. We will continue to leverage our strengths to drive high returns on invested capital and generate cash, And we will use that cash to maximize shareholder value. Our 3 pronged strategy of commercial excellence, operational excellence and financial discipline We will enable us to continue creating long term value for shareowners.

Speaker 2

We are grateful for our talented and engaged colleagues And their dedication to working safely, delivering on customer commitment and creating value for our shareholders. We're also grateful for our customers. Without their continued support and partnership, we could not succeed. With that, I'll turn the call back to Hans.

Speaker 1

Thanks, Jean Michel, and thank you, John. Okay, Greg, we're now ready to take questions.

Speaker 2

Okay.

Operator

We do ask that you limit yourself to one question and one follow-up question. And one moment please for your first question. Your first question comes from the line of George Staphos from Bank of America. Please go ahead.

Speaker 4

Congratulations on the progress. Thanks for all the details. My two questions. One is going to be on the value return and then also just on The outlook. So in terms of the value return and the $60,000,000 in escrow and the $225,000,000 liquidity, John, did you say you will do that or you can do that?

Speaker 4

I just want to make sure that we're clear on expectations over the course of the year, Whether your what your intention is there? And then on the pricing impact in your outlook, You were very explicit in saying that you had reflected in your 2Q guidance the effect of pulp pricing across all regions. Paper in Europe, there was no explicit mention of pricing elsewhere in other regions. You then said That you have incorporated your views on paper pricing in the second half, recognizing that pricing discussion is obviously very Challenging at times on an open mic conversation. What do you want us to take away about your paper pricing expectations, the timing of which Across the other regions, well across all the regions.

Speaker 4

Thanks guys.

Speaker 3

Hey, George. Good morning and thanks for your question. In terms of the value Questions you had, our top priority we had going into this year was increased cash returns to our shareholders. We We turned $90,000,000 last year and we intend to substantially increase that this year. To be able to do that, We do have to address the bank covenants now that we've gotten rid of for let's say we've eliminated The bond.

Speaker 3

So as we approach $90,000,000 the intent would be to put $60,000,000 into an escrow so that we can return more Going forward. Okay. I think the second question was around pricing. Let me give you some color around The outlook. So as we talk about and look at our Q1 pricing, we did roll back energy surcharge in Europe, And that was really just associated with this Syat Mill volume because we of course we didn't have the Newmelan Mill last October.

Speaker 3

And we did increase prices in Brazil in the Q1. And then prices in the Americas, the Price mix was constant. It was flat going in. Our outlook, the $720,000,000 to $770,000,000 That we revised our outlook does incorporate what we've seen already And would expect in terms of both pulp prices and paper prices across the region. And Yes, that's all I can really say about that.

Speaker 2

Yes. Just hi, George. Thanks for joining the call. What I would just add without dealing on projections is Your question was towards Americas and North America like LatAm. We have not seen any price Decrease up to now.

Speaker 2

Our prices are flat.

Speaker 4

Okay. I will turn it over and come back. Thank you.

Speaker 3

Thank you. Thank you, Joe.

Operator

And we'll go back to the line of George Staphos. Please go ahead.

Speaker 4

Hey, guys. So related to that question, Can you remind us how much of your volume is impacted By the pricing that we might see in the published indices, again, specifically within North America, And then related across the other regions if there's volume and if so roughly how much is tied to indices. The second question for this turn, you did from our vantage point a bit better than expected And overall blended realizations in Europe, yet for what it's worth, and it's our model, it's not your model, Results were a little bit off on our forecasts in Europe. So where there's some operating costs that clipped you there. And similarly, North America, You operated very well from what we can see.

Speaker 4

Any call outs there beyond what you've already shared in the waterfall?

Speaker 2

So just one thing on indexes. We have no prices linked to index. We're not like market pulp big guys. Our pulp Customers are mostly small, medium regional customers, no index and our paper price have no index Relation. So we that doesn't impact us.

Speaker 2

The second question was on European cost. I think there was Two things. One is we had some unabsorbed fixed cost because we took, as we mentioned, Some economical downtime in Europe, so that impacting our cost that was probably some of the cost About it? And John, anything else? I think that was the main reason.

Speaker 3

No. The only other thing we had is we had a couple of reliability issues at the New Moon Mill. Nothing really made you, but that did impact us.

Speaker 4

Thank you. I'll turn it over.

Operator

Your next question comes from the line of Paul Quinn from RBC Capital Markets. Please go ahead.

Speaker 5

Yes, thanks very much. Good morning, guys. Just on the 60,000 tons block order downtime, what's your level of confidence that this Destocking is going to end at the end of Q2 here and that your back half of the year should be full on.

Speaker 3

Good morning, Paul. Actually, we believe that destocking will not end in the second quarter. It will continue into the third quarter, Both in North America and in Europe, and this is what we're seeing from our customers. We're really confident that it will be Completed by the end of Q3. So we are seeing and expect the second half Our outlook is stronger than the first half because we do expect increased volumes across all our regions.

Speaker 3

1 is driven by the destocking It's going to work its way through by the Q3. In North America, we picked up additional tons from the mill that shut down in North Carolina, which is 60,000 tons. In Brazil, it's seasonally always stronger in the second half. But on top of that, this Book, the government book issue, was a significant, issue. And it's not unusual for when there's a change in government for them not to release The school book publishing contract, they were a little late on that, but that's actually we started seeing Orders in the Q2, but we'll actually see the bulk of that in the Q3, which will make our Brazilian shipments stronger, Even seasonally stronger than we've seen in the past.

Speaker 3

Okay. And then just maybe as

Speaker 5

a follow-up to that, how do you determine between destocking and sort of secular decline? And I could appreciate.

Speaker 2

Hi, Paul. Thanks for joining the call. It's always a key question. The Where I would mention it is, it's difficult to separate it. We do attribute from our Customers and what we see on the end use information that helps us.

Speaker 2

What we can say is Coming from our customers, most of them are still talking about some destocking going on, but clearly less than it was in Q1. From the end use, probably the only thing we have is the commercial printing. And commercial printing, I would say, especially also the marketing budget of big companies with the uncertainty of the economy Have a tendency to be reduced on advertising and that reduction on advertising budget is impacting direct mail. So from the end use segment, the only trend we can see is the direct mail. The rest of it, we're not seeing something Significativ, we're mostly seeing destocking.

Speaker 3

Yes. Paul, let me add to that. I think there is Because sometimes in the reported industry statistics can be confusing when you look at how significant demand that was reported in the Q4. One thing to understand like when The Pulp and Paper Products Councils, for example, the calculation of demand, it is apparent demand. And what they use to calculate that is domestic shipments minus Exports plus imports.

Speaker 3

And so in both North America and also in Europe, imports Can have a significant impact on this apparent demand. So because imports increased significantly in the 4th quarter, Demand was somewhat inflated in terms of reported numbers and because the exports receded in the first half, The demand decline numbers looked pretty severe. But if you look at the 6 months, the last 6 months, Essentially, average is to you get in North America, for example, demand was down 3% for uncoated freesheet. And that's how we're kind of looking at it. So one of it is you got to look at kind of through the noise.

Speaker 3

And we have seen, We believe some demand decline is driven from the economy, the slowing of the economy, particularly we see it And envelopes, and we've seen that in lower spending on direct mail. But for example, as I talked about cut Being resilient, if you look at the past 6 months, cut size is actually up 2%, and that's because more people are returning back to the offices. I hope that adds a little bit more color to the demand situation.

Speaker 5

Yes. No, that's It's a great point. Thanks very much, John. Maybe I'll just sneak in a bonus question here. Just the maintenance variant Really kind of sort of by surprise, sort of big Q2 and Q4 spend.

Speaker 5

Do Do you anticipate that sort of same sort of pattern in 2024 as well?

Speaker 2

So there are 2 things into that and we try To out locate when we give our numbers, but maintenance outages are due to regulatory obligations And sometimes due timing with the weather. So in some mills, you don't want to do it when you're close to Risk of American season or strong cold season when you are in Ticonderoga. So you have also Sayad, which is maybe a little bit troubling because we are not on a 12 month outage rotation at Sayad. We're on a 12 month 18 months rotation, which means you have 2 years with about $20,000,000 Keith, impact and you've got a year with 0 in maintenance. Last year, we had 0.

Speaker 2

This year, we have an annual outage, which is 20, And we do it according to regulatory, but we usually always have strong seasons, which are second And Q4, when you look at the history of our outage, as I mentioned, due to regulatory and weather.

Speaker 5

All right. Thanks very much. Best of luck.

Speaker 2

Thank you. Thank you, Paul.

Operator

Your next question comes from the line of Jonathan Luft from Eagle Capital Partners. Please go ahead.

Speaker 6

Hey, guys. Thanks for taking my question. I was hoping you could flesh out

Speaker 3

a little

Speaker 6

bit The capacity closures and what you're seeing and how you were able to Take some of that share. Was it competitively built? Was it something that the customers came to you? So that's my first question.

Speaker 3

Yes, Jonathan. Thanks for your question and thanks for joining the call. We were

Speaker 1

We

Speaker 3

are working with actually existing customers for a lot of these orders in terms of moving some of that business That they had sourced with the mill that was closing back to us. We wanted to be selective. We want to make sure that we've got Attractive business and so our sales teams targeted those particular businesses that were attractive to us.

Speaker 6

Great. And the closure in Europe that you mentioned, did that happen yet or is that to come and is there a Similar opportunity to take some volume there?

Speaker 3

The short answer is no, it has not happened yet. And They have yet to announce exactly when that would the timing of that shutdown. But we do expect that like anything that there's opportunity there to pick up business, yes, Jonathan, We target that.

Speaker 6

Thanks. And just my last question, just on the guidance. And looking at Slide 15 and talking about the second half, you talk about favorable input in transportation costs. And I was hoping you could flesh that out. Are those related to items that might have annual contracts?

Speaker 6

Is it Something that maybe will benefit you going into 2024? Or is it really spot contracts that you're seeing lower? Just what's going on there?

Speaker 3

Well, Jonathan, it's really kind of a mix. Most of it is driven by spot prices in terms of like fuel, Right, fuel surcharges for our freight. And we're seeing it also in terms of energy as You see gas coming down and so that will move maybe with somewhat of lag sometimes. In fact, what we really haven't seen yet is chemical costs going down, but we expect that in the future They go down because that also is driven by the energy markets. And so that's a little bit delayed, but we're seeing we expect to see that In the second half, and yes, all those costs for the most part will carry on into Hopefully into the next year.

Speaker 3

Now having said all that, cost is still extremely high compared to where they were a couple of years ago, But also that's supportive of pricing.

Speaker 6

Okay. Thank you very much. I'll turn it over.

Operator

Next, we'll go back to the line of George Staphos. Please go ahead.

Speaker 4

Hi, guys. A couple of questions here. First of all, having owned Pneumela for a Couple of months now. What are your learnings with it? You said you had some reliability issues.

Speaker 4

You said it wasn't significant, but What was behind that as well? So kind of what you've learned with Pneumila? What was in the reliability? Kind of what's the horizon opportunity there? That would be sort of the multipart question number 1.

Speaker 4

And then just as we think about Again, destocking consumption and the like. Are you seeing better trends or worse trends Depending on whether we're talking about retail versus commercial print versus distribution, my sense is probably your Big box retail customers are doing okay in terms of demand because you said cut size, there's not really any destocking to go through. So if you could give us some additional 1, affirm that or correct that, but 2, give us some color there. And then last, I took 3 here. The coated paper markets have been perhaps even more challenged based on the operating metrics.

Speaker 4

Are you seeing any effect? Obviously, we really wouldn't hit you that much in cut size, but are you seeing any effect of that coated paper in your commercial print Mark, it's an uncoated freesheet or is there something that you've embedded in your second half guidance for that potential risk or And if not, why not? Thank you, guys.

Speaker 3

Well, I'll take the first one and maybe Tag team, Jean Michel, I'll take the second question, maybe your third question too. But let me just say from a Newmelons perspective, we've been very pleased with the Formative that Bill, very happy with the asset, with the people that we have. So this issue that I talked about in terms of The reliability is not atypical. I mean, we have that in our other mills that will crop up over time. This just happened to be impact Energy consumption and increased our costs, but that issue was behind us.

Speaker 3

And the mill is performing very well. We said in our presentation that the pulp mill upgrades That were completed prior to the acquisition. We're seeing those benefits now that the ramp up curve is actually going better than expected. So, all in all, we're very pleased with the performance of the New Miller Mill and really believe that's just going to be a great Asset, great business for us in Europe.

Speaker 2

Yes. Concerning destocking, as you mentioned it, you're correct. We're seeing it much more in the commercial printing, which impact merchants than we're seeing it on the retail and cut size. Cut size has been more Brilliant, as John mentioned it. So we're seeing differences.

Speaker 2

And by the way, we're seeing some of our customers, which are telling us It is going much better. They've done the biggest destocking they needed to. So that's why we plan to continue to have some in Q2, Maybe less than Q1 and think by Q3, it would be gone. Effecting coated paper, it's very, very small. We sometimes see it on some of our high end products from Tycando Roga, But it is not significant to

Speaker 4

us. Thanks, Jean Michel. Thanks, Jean. Good luck in the quarter.

Speaker 2

Thank you. Thank you.

Operator

And you have a question from the line of David Steinhardt from Contreion Capital. Please go ahead.

Speaker 7

Hey, guys. Can you talk about the new additional directors that Came on through the co option agreement with Atlas, how they have impacted the Board, how they might have been helpful so far And any thoughts that you might have about the company as you approach your important 2 year anniversary?

Speaker 2

Yes. Thanks for the question and thanks for joining the call. First of all, let me tell you it's a good experience. As we expected, We have 2 experienced persons. So in our April Board meeting, we will come to 2 new directors.

Speaker 2

The timing was perfect. Since April is when we conduct our strategic reviews with the Board. All the sessions were productive. I'll bring our new director to Steve. As I mentioned, they bring unique experience and talented, and they are aligned with our Rejective of creating value for shareholders.

Speaker 2

So I would say, all in all, good experience, nothing special.

Speaker 7

Got it. And then any thoughts around that you might have about the business as you approach your 2 year anniversary?

Speaker 2

I'm not sure I understand the question. I'm sorry. If anything, I would just say Sylvain Moi is doing well. I mean, we expect again a year of $720,000,000 sorry to $770,000,000 strong free cash flow. So 2 great years.

Speaker 2

2022 was a good year and Another good year in 2023.

Speaker 3

Yes. I'll just add to that, David. I mean, we really believe that the uncoated freesheet markets that we operate in Provide attractive conditions that allow us to leverage our competitive advantages to generate high returns on invested capital And we believe we can generate 1st quartile total shareholder returns. We feel very Positive about that, even in light of maybe some challenging economic clouds that are rolling in, But we believe that we will continue to generate high returns on invested capital. We were generating over 25% returns on invested Capital today and we believe that there's more to be done and we can increase our earnings and our cash flow going forward.

Speaker 4

Thank you.

Operator

And next we'll go back to the line of George Staphos. Please go ahead.

Speaker 4

Hi, guys. I lied. One last question for you. The work capital was a touch more negative than we're looking for. One of the things that we saw was payables were down.

Speaker 4

And I'm just guessing that as you've been trying to work working capital down, you also haven't needed as much in the way of chemicals and other inputs that would go into Production, but just wanted to ascertain if that was it and if there's anything else other than obviously the destocking in that working capital line. So What was in accounts payable and working capital? And now I'll turn it over and have a good quarter. Thank you.

Speaker 3

Thank you, George, and thanks for your question. Yes, we our free cash flow in the second Q1 was as expected. The key things that were driving that, as you rightly said, is that payables were down. One of that was the incentive plans that we paid. Yes.

Speaker 3

And that was a big contributor to that. The other thing was the increase in inventories that drew our working capital. And that was in preparation getting prepared for this significant outage quarter that we had right now. So that was the key factors that drove the working capital change in the Q1.

Speaker 4

Okay. So nothing Beyond that in terms of payables, I appreciate it guys. Thank you.

Speaker 3

Thank you. Thank you for your question.

Operator

And at this time, there are no further questions. I'd now like to turn the call back to Hans Bjorkmann for any closing comments.

Speaker 1

Thanks, Greg. Before I wrap up the call, Jean Michel, any closing thoughts?

Speaker 2

Thanks, Hans. First of all, thanks everybody for joining our call. I think it's important to say this year we remain confident in our ability to generate very strong EBITDA between $720,000,000 to 770,000,000 dollars, free cash flow of $250,000,000 to $280,000,000 Just to put it in perspective, that represents an adjusted EBITDA of more than 18 And the return on invested capital above 25%. So we're expecting good numbers and that will allow us To achieve one of our main goal, which is to return more than €90,000,000 to shareholders, we do that via dividend and share repurchases in 2023, and that remains one of our priority. With that, thank you for joining the call.

Speaker 1

Thanks for joining the call. We appreciate your

Operator

Once again, we would like to thank you for participating in Silvamo's Q1 2023 earnings call. You may now

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