Today, and welcome to the Stora Enso Full-Year and Q4 Results Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Ulla Paajanen, Head of Investor Relations. Please go ahead.
Thank you, Caroline. Good afternoon, everybody. I'm Ulla Paajanen-Sainio, Head of Investor Relations at Stora Enso, and welcome to our Full-Year and Fourth Quarter 2011 Result Call. With me here today, I have our CEO, Jouko Karvinen, and our CFO, Markus Rauramo. I will hand it straight over to our CEO, Jouko, to give a presentation aided by Markus, and then we will have a Q&A session. Go ahead, Jouko.
Thanks, Ulla. Thank you, everybody, for joining us today. As I always promise, we'll try to be brief and crisp, so we have plenty of time for your questions. H2, simple story. Full year, I would call a solid year improvement versus the previous year. The operational return on capital employed, 10%. Not so strong, but at least clearly above the corporate capital. Very strong cash flow, and then an increase of the dividend from $0.25 to $0.30 a share. If we go to the next page, 3, you get a little more insight. You can see, yes, year on year, there was a clear improvement in operational EBIT and the margin. When you look at the quarterly chart on the right side, notice you can see that the improvement in the fourth quarter rolling on the EBIT margin. I've started with the term of the economy and markets and so forth. I've used also with the press, with the media, the term "solid year" and "satisfactory quarter." There's a couple of things that I will talk about as reasons what limited the EBIT or operational EBIT in the fourth quarter. The underlying fact is that the significant plus year -on -year was the higher sales prices. It happened on its own, but it was achieved early in the year already. The lower volumes, which to some extent, if you take packaging especially, are still driven by customer inventory reductions. The higher cost in chemicals and energy, you can totally compensate there. H4, then, where you see the curtailment, and you see that we've taken relatively active steps to increase the curtailment. As you can see in a minute, if you haven't read it, the cash flow actually improved year on year in Q4. Why? Not only did our customers reduce inventories, but also we did move from the path of "cash is the first priority" because use. That, obviously, logically, the impact is that if customers reduce inventories, we drive reduced inventories, then the impact on production and therefore cost absorption is a little more severe. That was one factor that limited, I think, for a good reason, operational EBIT in Q4. We'll talk about it more. The equity accounting investment, the fact that in the present reporting, the Montes del Plata pulp mill, the lowest cost pulp mill in the world, is in the equity accounting investment in the new renewable materials PA, as it will be very shortly. I think it makes it a little more difficult, not necessarily for you to really see the true operating EBIT, but that obviously changed very shortly in the new segment resource. If you go to page 5, if you leave the 2009 hump there, you can see that we have continued on a year-on-year basis to improve our fixed cost-to-sales ratio. I will not show you today the quarterly chart. If you ask me, even if you don't ask me, it didn't improve fast enough in the fourth quarter, which is fine, because that only means that we got more to do and hopefully do faster now with the more simple, dedicated business area touch. Page 6, productivity. I've made very simple metrics. It did improve 2011 to 2010. If I would take impact, the reveue-wise small but very labor-intensive in our books, acquisition of China from the 2011 numbers would be slightly above 400,000. Then obviously, the curve looks better. The fact of the matter is that if I look at the European employment, for example, we were more than 800 people away in 2011 than we were the year before. Yes, we're still improving cost and productivity. As I guess the fourth quarter shows, we better not stop. We better accelerate that. If I can go to page 7, which is the segment report, not to dwell too long on it, consumer board, very much a volume drop, but quite a dramatic or significant volume drop. Majority of that, though, like I said, inventory reductions in the channel and so forth, not in my opinion, that dramatic of a true end demand reduction, which is good. Industrial packaging, I'd say more some time-limited cost implications because of finishing the impact integration and most of the projects in building things in Ostrołęka are clearly a result that we need to significantly improve. Newsprint, I think, is a pretty good result, especially compared with the previous year. Magazine paper, fine, but you saw that we're putting in place, I'll show you a slide in a minute, for the improvement program there. Fine paper, which was a year ago, had a pretty tough comparison point. Not so high now, but there is also something called a cycle. Wood products, nothing to write home about. On the other side of the coin, there's one thing missing from the column fourth quarter 2011, which I like, which is there's no minuses. I think mentally, that's actually quite an important thing. Page. Improvement of competitiveness in coffee magazine, very important for us in our books. If I may say one example of things happening, things done last year, if you take the new Molar restructuring, a BA-based fast-track improvement program, portfolio simplification like the Ultracene, solving in there. Here we talk about three-site corporate innovation with Bancabo. If you look at the numbers, we're taking a cash provision of EUR 5 million at the VIX. I should write down even if you want. When we invest EUR 18 million, then to get a EUR 48 million per annum improvement, that I think is a good investment. We need to do more and more faster and faster of these. I think it's even a better message than big corporate programs as they tend to be too slow and too late also. I saw a comment today, somebody suggesting that this is not a structural profit improvement. I respectfully disagree. This is exactly what you do when you move fast, move early. You don't only have to pay to cut, you can pay both to cut costs, but also to improve competitiveness, which is the investment part. I am using this example as a good example in our books of things to come also. See, this maintenance on page 9. The number on its own isn't that big, but I think the impact of this is very big. We're doing this in a different manner or different way than we did two years ago in Finland. I think the important thing is that we're doing it because the maintenance, yes, it's a significant cost, but there is an even bigger issue, which is the profit availability and the indirect cost of unscheduled shutdowns. Now we're doing it in a rapid way in Sweden, and obviously, that's important also for all the mills in Sweden. If you go to page 10, some of you might want to know what the indexes mean, but I won't tell the number. Basically, you see when we outsource maintenance in the Finnish mills, which in my understanding is the largest single outsourcing contract in our industry for mill maintenance, showed that the cost came down in a couple of years quite significantly. That's good. The high side, whereas the unplanned shutdowns, you could say, "Wait a minute. Why didn't it come down so fast?" That's because it took some time to turn the trend that was there before we outsourced, to be honest. Then you see that in 2011, you achieved a rather significant improvement. With that, if Markus, you could please take over from page 11.
Yeah, thanks, Jouko. Moving to page 11 with the summary financials, I think the key points that we want to convey here: strong balance sheet, good cash flow from operations, strong liquidity. We look at how the results moved year on year in the fourth quarter. Sales at the same level, pricing positive impact over EUR 60 million, but then lower delivery volumes as well as lower production to reduce inventories had a negative impact of EUR 55 million compared with the previous year. Variable cost still increasing year-on-year basis, as well as fixed cost. The equity accounted investments contributed a slight positive, but leading to almost or a little bit above EUR 30 million reduction in the fourth quarter profit. Big swing is in the profit before tax coming down from a level of EUR 364 million to EUR 110 million. The key driver for that is the big impairment reversal of over EUR 200 million that had a positive impact on our Q4 2010. Moving to the cash flow. Cash flow from operations improved to EUR 302 million, better than the year before, like Jouko said, due to also strong working capital management in the fourth quarter. Even after CapEx, the cash flow was over EUR 100 million. Liquidity continued strong at EUR 1.1 billion, slightly up from previous numbers. Gearing is on about the same level as Q3, but on a year-on-year basis, it's impacted by the new page lease guarantee provision that we took earlier. The valuation decrease of PVO shares and some FX movement in Brazilian real. The two big items are the new page lease and PVO valuation. Moving to page 12, to the dividend. Moving to our strong position, we are proposing to increase the dividend to EUR 0.30. EPS, excluding NRI, was EUR 0.63 for last year. As you know, the policy is to distribute half of the net profit over the cycle as a dividend. This is supported by both the strong result, but also the good balance sheet and good liquidity. If we look backwards, we have increased now the dividend from the levels where we took it down to EUR 0.20, up to EUR 0.25 last year, and now to EUR 0.30. I think this also reflects our confidence in our business plan to increase the dividend further from last year. Moving to page 13, you can see the cash flow generated from the operations and how we are using it. We spent last year EUR 125 million on net financial items and about EUR 130 million on paid taxes, which were somewhat higher than the accounting taxes, largely due to large payments in Sweden from also previous years. EUR 197 million was paid as a dividend. We spent a total of about EUR 540 million in CapEx and equity injections in cash. If we look at it another way, 25% of cash went to financial items and taxes, 20% to our shareholders, and 54% of the cash flow went to future investments. Out of these investments, 83%, as you can see, almost EUR 450 million, and we include equity injections into the equity accounted investments, go to high-return growth businesses. This is definitely the direction we are taking, moving the capital to the high-growth businesses, high-growth areas with differentiated products, type of Montes del Plata, Ostrołęka, Skoghall, and so on. We will continue to invest. In 2012, our CapEx and equity injections will total about EUR 720 million, as the guidance said. Mostly, the basic CapEx remains the same, but 2012 will be the highest spending year for both Montes del Plata as well as Ostrołęka. This is where the big difference between 2011 and 2012 comes from. I'll hand it back to Jouko.
Thank you, Markus. It's 14 guidance. Short and sweet. We're saying both sales and operational EBIT to be approximately in line with Q4 2011. We do say that that basically is a combination of two factors. The combined improvement sequentially of the business areas is to approximately be offset by the lower results than Q4 in the Horeda company, which are in the equity accounted investments, i.e., Tornator and Pärviki. That will obviously then, again, we'll see them in a different angle now when we get to the new sector reporting that is coming. Page 16. That's actually a welcome note to our Capital Market Day, where we will talk about something that we've decided, at least for the time being, called the renewable ecosystems. I'm sure you've talked about ecosystems in other industries, but I would really encourage you to come. We will have the renewed structure there. We will also, that same day, announce the recast numbers also so that you'll get a different angle into the finances of the company. I think you'll also get to see the best newsprint mill in the world, in the best play in the world. It's probably going to be, if there ever is a day when there's only one newsprint mill left in the world, I'll make you bet this is the one. Okay. I've stopped the marketing now. If we can go to the last page 16. Repeat, repeat, repeat. Strong operational cash flow, fully improved, increased dividend. We are proceeding with the strategic investments. Yes, Q4, clear signal, not only maybe to you, but to the management team. We better continue rethinking and improving our bit. Thank you very much. I think.
Okay. Thank you, Jouko. We will now open the Q&A session. Please, Caroline, give the instructions.
Thank you. Today's question -and -answer session will be conducted electronically. If you would like to ask a question, please press star one on your telephone keypad. You may remove yourself from the queue by pressing star two. Please ensure that the mute function on your telephone is switched off to allow your signal to reach our equipment. Again, please press star one to ask a question. I'll take our first question from Myles Allsop from UBS. Please go ahead.
Hi, there. Could you, first of all, give us a quick update on the sort of big growth projects in Uruguay and Poland? Are they still on budget to schedule? Just give us a sense as to where we are with those now.
If I start with the simple one on this one, and the Ostrołęka part, yes, it's on plan. I won't get into any further details on that. Uruguay, especially because there's been some media reports about strikes there, yeah. I'd say we're still, we meaning Stora Enso, Arauco, and Montes del Plata, we have full intention to complete it on plan, which is then the spring of 2013. Fact of the matter is that when you have, as we have today, close to 4,000 people at site, which is pretty exciting, there's always issues with this and that and so forth. I must say that I feel very good about the project in love and respect. We have very close relationships on all levels to the key suppliers and partners between the owners and also the Uruguayan government. We have an 80% support rate in the local community, which is probably better than any presidential candidate can get in any country. When there's issues with the unions, which are very strong, obviously, I think we're able to deal with them. Is it? The fact of the matter is that we're still 14 months away from the target date. I won't give you the date or at least not the hour when we're going to start, but we're still aiming at that same plan.
Isn't the CapEx going up because of the delays on the strikes and so on?
The strikes don't have an impact on the CapEx. You have to remember the famous strike that we talked about, or what was it in the media? That was a 12-day strike that's been dealt with. When we have shorter strikes, for example, in Uruguay, anywhere in any industry in Uruguay, if there's a fatal accident anywhere in the country, that's typically a half a day solidarity strike. Then we have to make it up somehow. Like I said, the best I can say, yeah, with 4,000 people at site, really fast speed, obviously, things happening right now. I think the good news is that we all, including myself, when we need to get involved to get a supplier to move faster, we'll get involved. I'm very positive about the project.
In terms of demand outlook as well on the paper side, in particular, do you, how concerned are you that we could see kind of demand weakening as the year progresses? How much visibility do you actually have talking to customers?
More visibility, I must say, or short visibility may be the more appropriate term. As you know, we don't guide beyond the first quarter. If so, I would say I don't have any special reason in paper on the short visibility to be concerned. I'm just as concerned about the European economy as you are, Miles. That's on a macro level and all these issues we've recently solved with. Nothing that's dramatic on, if I may say, on our specific European paper market.
Okay. On the consumer board side, have you seen the end of the docking yet? Are you starting to see orders pick up? Is that going to sort of firm up as a market, do you think?
I think I can say that the inventory levels, I understand, were very low towards the beginning of the year. That does show up positively, but that's where I live.
Okay. Maybe one last question. On the sort of wood cost side as well, how much relief are you seeing? Do you think the sort of Russia joining the WTO is going to have a material impact on wood costs later in the year?
Brilliant question, obviously. The first short answer is not enough because nothing is ever enough for me. You know this better than I do. Our supply chain, we're trying to get better and better on buying less than we think we need to make sure that in this part of the cycle, the cost improvement comes through fast because, obviously, if you're not careful, you kind of fly with the old high price. It's coming in a bit slowly. The WTO impact on all that, materially, it's going to be in 2013 before that has an impact. Having said that, I made a bet with my guys that we're going to be the first ones back in when we can so that we're ready to get the benefit as fast as we can. I would say the WTO impact isn't going to be that material this year. It is going to be pretty good because it obviously doesn't stop with the Russian supply. It will have an impact on the overall Russian-Finnish supply combination.
Okay. Thanks.
We'll now take our next question from Markus Hottenrott from Morgan Stanley. Please go ahead, sir.
Hi, Markus Hottenrott from Morgan Stanley. My main point is where Miles ended on the wood cost and the supply chain. What happened to your supply chain after the tariffs were started? Was it broken down? Did you have to rebuild it? In that case, how long will that take? That's the question.
It wasn't broken down. We didn't handle it. If I'm not mistaken, in 2008, we laid off 1,500 people or something. A significant amount of resources were laid off because there was no work for them.
Is it difficult to rebuild?
No, if you start early, which we have done.
Okay. Sorry.
Maybe I can just add a comment there. Of course, it's not only us. We have our own resources in the logging companies and procurement companies. It's very much also to do with the private entrepreneurs who do the harvesting, who are doing a lot of the transporting. If we get wood at competitive terms, it's also a function of having the local suppliers invest in machinery. These machines' lifetime is not very many years. They have to have the faith also that there is continuity in the policies. Of course, we're supporting that as well. Russia should be long-term in their views and approach so that the entrepreneurs inside Russia can have the trust that the system is stable. We have the preparedness, like Jouko said, we have the readiness to increase if wood is available at competitive terms.
Okay. Then continuing on demand, both on the paper side and on the board side, is it fair to say from your comments that it is a fair interpretation that demand is fairly stable going into the year from the low levels we saw at the end of the year? I appreciate you have low visibility, but at the moment, fairly stable?
Yeah. I think fairly stable is good enough and so forth. As you've seen the guidance, we're giving you by gray guidance year- on- year and sequentially and all that. I think, yeah, if I would answer using your words, fairly stable. There's no big trauma. Nothing, I would say, if you remember late 2008 when we lost in six weeks, came off the cliff and so forth. I think it's pretty stable. It is on, as you point out, it is not on a very high level. Different discussion, which we should not have today, but we'll have it hopefully if you come to Langeb rugge, is about the impact of digital transformation, mobile e-media, social media, and all that. That's talking years and years and years, but I don't think we should go there today.
Yeah. On the price negotiations, that is, I guess, not finalized yet. Have you been surprised about the resistance from customers given that the million tons has been taken out from one of your competitors in December and January? I know that going into negotiations, TradePress was talking about anticipation of prices going up, and it didn't seem that easy. Were you surprised by that, or was it according to expectations?
It's never easy. Customers are always resistant. If I may say, I wasn't surprised. I thought it was quite important that we went in with that angle to reach what I'd call, if we talk about the application rate, which we're negotiating and completing negotiations, that we reach a stable situation, which could have been a lot worse too. In that sense, my glass is half full, not half empty. Just the cost will come through also in a deflationary manner.
Okay. Finally, on inventories, you said that food inventories and consumer board inventories are at pretty low levels. I know that you're right on the paper inventories as well, are decreasing significantly. How would you characterize the levels on the magazine paper and both publication paper and fine paper?
I'm trying to understand. Is it the customer inventories or our inventories?
If you know your customer inventories, that would be the best. Otherwise, yours, I guess. What are you referring to when you write that industry inventories were significantly lower than the previous quarter? What inventories are you referring to?
Paper industry inventories. That's what we refer to with that comment. I cannot give you a qualified response on the customer inventories. This is a rate where I think I can, or I cannot do that in the first order.
Are the industry inventories on the paper side, would you say that they are low or are they average?
Markus, if I try to, and Markus here as well. If I try to answer that, my feeling is that both we as an industry, and absolutely Stora Enso at least, as well as the customers are running it very carefully. I can't see any excessive inventories really in a material way anywhere. It's on the contrary. In some grades, we have seen buying times when seasonally you wouldn't expect that to happen. I get the sense that in some places, inventories are lower than ultimately what people are comfortable with. I see this kind of cautious approach to the economy with the bad economic headlines. Everyone's playing it very carefully, and the business continues to kind of perform rather normally given what the environment looks like.
Okay, thank you very much.
Thank you.
We'll now take our next question from [Jussi Skola] from Deutsche Bank. Please go ahead.
Okay. Thank you. A few questions, if I may. The first being a bit more strategic one related to the recent SCS divestment of its packaging operations. We have been discussing about this already earlier, but I'm just wondering if there is anything from you to add about your packaging ambitions now as SCS packaging operations have been sold. I was just wondering if this would have been a perfect platform for you to build onwards. My second question is related to the guidance, kind of just follow up on Markus's talks. If we are looking at now your guidance, you're guiding for flat operating profit. What should we assume now for the underlying equity accounted investments for Q1? A few basic questions on just kind of details. Can you give us a better understanding on the cost in Q4 from this forest mill incident and how much volume did you actually lose due to that?
Good question. You sounded about, sounds like the easiest one, the first one. Markus can answer the two others. Obviously, I will not, you on that side of the phone, so to say, I'm sure you will come in and analyze the valuations and all the other things and the strategic fit and synergy with the DS mid versus combining with the FCA. Let me put it this way. I think our primary interest in growth, both organic and inorganic, in renewable packaging, as we call it, is in growth markets. That means Asia. That means Eastern Europe. That means growth segments also, like food packaging, liquid packaging. What I'm quite interested in, and maybe I go too far now, but Markus is here to stop me. I think there's a lot in consumer packaging that we can do if we, let's say, we do things like we did a small example called Impact, which is a converting operation. Why? Because then we get closer to the brand owners. That, I think, is going to be very important for us in the future. I would dare to say that our interest is less so in Western Europe transport packaging type of applications. I think we're more selective in terms of both the segments and the geographic and so forth. Yes, we do want to grow packaging. If you don't mind, I'll leave it at that because that either SCS or DS mid costs.
If I take on the, I think the remaining question was regarding the guidance on equity accounted investments. I tried to highlight that also in the release, but I think the key message is that the business segments are expected to perform better in Q1 than Q4, which is pretty natural given the seasonality. Mainly in the foreign equity accounted investments, whether we can turn out, or we had a good quarter in Q4 where the real estate parts of both operations performed very well. There is volatility in that. We sell larger land plots, particularly in Sweden, in Berwick, and then smaller holiday sites in Tornator. These were performing very well in Q4. We don't kind of bank on that for each quarter. That's the short explanation for the guidance.
Can you quantify it a bit? What kind of a decline should we assume for equity accounted investments?
We don't define it specifically, but we're not talking about huge, huge numbers.
Huge changes.
As a total, when it comes to these two categories, the business segments and the. This is now, again, and of course, we'll clarify this going forward when you see the comparatives for the segment. The biomaterials will then include the results going forward. That comes out from what used to be the associated company one.
Jouko, jumping back in, I think that you should be so happy because this life is going to get simpler for both us and you. We can bet ourselves in the pure material foreign results because we saw it was a very significant asset and a profit generator. You got the two forest EAIs left. It should be more transparent and clear to all of us then. Okay?
Okay. Thanks. How about that forest mill incident? Can you quantify that a bit?
Let me get back to that question a little bit later if that's okay. We'll dig the number out while we're talking about other things, and we'll get back to you during the call.
All right. If it's okay, let's take the next question, and then we can come back on the first question in a minute.
We'll take the next question from Ross Gilardi from Merrill Lynch. Please go ahead.
Good afternoon, gentlemen. A few questions. First, I mean, you've got $1 billion in cash sitting on your balance sheet. What are you going to do with it?
Okay. What am I doing? It is not about going to do something. What we are doing is we're building pretty significantly in Montes del Plata. We have other potential investments coming. I think the answer is we're spending the money, we're generating the money too. If you look at 2011, fairly well on a cash flow basis again, I would dare to say. The primary thing there is, I hope my English makes sense, to maintain the strategic liberty to make investment, whether organic or inorganic, if inflation comes. Whether it's then greenfield, more acquisition and growing it, or more significant acquisition. Important to add, it's always going to be within the heavy cost areas of Stora Enso, meaning better be high return and being growth markets and in all the lesser end.
Okay. I appreciate that, Jouko, but you know you're talking a lot about rethink and calling, and forgive the cynicism of my question, but about rethink and calling segments different things and so forth. Have you rethought at all about coming out with a capital structure target for the business and some new, you know, newer, it seems to be some fresher financial metrics that we can all track? Because it seems we're talking a lot about a lot of these things, and at least from our perspective in the abstract here, you've got a lot of cash in your balance sheet. You've got a lot of things you want to do. Can you give us some type of financial parameters to put this into a little bit firmer context?
Okay. I can give one angle there, Markus here. Under normal circumstances, we wouldn't have $1 billion of cash. If the financial markets were working completely normally, if you look back pre-summer of 2007, at least for us, when the subprime crisis started, we wouldn't have done this. What this gives us, actually, we're pretty happy with the situation as it is right now because the $1 billion of cash gives us flexibility that everyone in the market doesn't have. You have to work hard to get this liquidity, but we get long-term funding at an excellent rate at the moment. We just drew the EIB loan, which was done on excellent terms. We got very well-priced financing for the Montes del Plata investment. That's the angle it gives us. Of course, we discuss periodically about what the financial target should be. We give the ROCE target. We have looked at that several times, but the cost of capital remains pretty similar as it has been before. It's not very volatile. We have the 80% target for the gearing, and that seems to be quite a valid target. In reality, in the short term and the medium term, we look also very carefully at the cash leverage, cash flow leverage that we can have in order to keep the cost of capital at a reasonable level. It's a dynamic target that is moving all the time, given that the parameters that we have, they are very valid. It's not that we wouldn't be thinking about them or renewing. We'll get back to that issue in the Capital Market Day, and we can open up our thinking a bit more and have deeper discussions. I understand your point, but I hope this gives some insight into how we're thinking.
Yeah. Look, it's great having $1 billion in cash. I'm not debating that. That's terrific, and it gives you a lot of flexibility. It just sounds like there's a lot happening strategically at the company. Yet you know the financial objectives. Forgive me if I'm, and if I'm incorrect, please correct me, but you've had a lot of these financial objectives for a very, very long time. At some point, I'm just curious if there's going to be some sort of marrying of what you're saying, strategic with financial, that you can relate to us.
Fair point. I mean, it's not only that some of these targets, like growth targets, have been there for a very, very, very long time, but we've never exceeded them. I appreciate the point. If it's okay, we won't tell you everything today because we have to get you to the Capital Market Day anyway.
Great. Guys, when will you start pre-selling Uruguay and Poland? Will you be, presumably, if those projects are coming on in early 2013, I mean, are you, do you try to fill them up now, or how does that work?
I would say selling, not yet. Obviously, we, and I stay away from the, not to mix Ostrołęka with the pulp. If you think about it, we are short on short fiber, and we're long on long fiber. Obviously, one of the benefits we will have is that our existing customer base on long fiber is an interesting customer base for short fiber coming from Uruguay. I would not call it selling yet, but yes, we call it free marketing or something. We have that dialogue going on, but not booking orders for that pulp yet.
Can you give us any initial thoughts on how, I mean, at current price levels, should we be modeling earnings accretion from these projects next year, or can you give us anything on that at this point? Obviously, the prices are changing all the time, but I guess just generally, would you expect a positive earnings contribution net of all the startup costs and everything else you have to do when you bring a new facility online in 2013?
I would say on a run rate basis, in the late part of the year, yeah, but don't ask me now to do the math in our head on a quarterly basis or in a four-year basis because it's kind of in the spring of 2013 within a startup. You can't get this return within the first day.
Sure. Were you?
Yeah. If I can just add one comment, what I'd be happy about when it comes to Montes del Plata or Ostrołęka, the assumptions we use for these projects, at least for my taste, are conservative and realistic. When it comes to what grades will be producing on the startup curve and what quantity, what kind of pricing will we achieve, I'm not going to refer to today's rate, but of course, you know that we go for ultimately extremely good cash competitiveness and realistic startup curves. I'm very happy, at least, with how we have modeled and how do we expect to generate the returns.
Okay. Great. Thanks, guys.
Thank you. I could come back to the fourth question. Sorry, I just didn't get the question when you asked it, but the cost for the de-barking drum breakup was mainly relating to that we then had to buy external supplies rather than de-bark and chip the wood ourselves. We're talking about a few million in that case.
Let's take our next question from Lars Kjellberg from Credit Suisse. Please go ahead.
Hi. It's Lars Shaw with Credit Suisse. Just had one question. Markus, you've been talking quite a bit about your ability to take out costs, and you've been referencing debts and strides and getting costs out similar to your big cost restructuring programs. Can you give us any sense at all of what the cost takeout potential you have from internal measures that will impact 2012? Obviously, today you introduced a few other metrics that will mainly impact 2013. If you give any sort of sense, folks, you can do it in your shop. It's a good cost outing. I'll give a number to that.
I think that's exactly what we presented today gives you the magnitude of even through single, basically, announcements of projects. What is the level of impact we can have through those? In 2012, we will have the impact, of course, of actions that we started in 2011. I can refer again to my own organization and the different functions on the admin side. We know that there is slight potential, and big improvements can be done with known measures. It's a question of our time, let's say, the availability of time and skills to do that. The potential is large. The same, I think, goes for the working capital. Working capital, we have a lot of potential on that side as well.
I think, Markus, I want to give you a number, neither will I. Some of the, how do I say this now? We're trying to get our heads a bit out of the path from getting into the big bang popcorn refactoring ball rather than so forth. Drive the teams on the business area level, but also on the middle level, get going the minute they're ready. Use not only the examples of today's two plans. You might say they're not that big. I think if you add two up, that's already a good start for those two businesses. Last year, what did we do? We did the new model, I think, which I think was significant for fine paper. Looking at the market, we had a longer-term plan, to be honest, to reshape the sculpted fine paper portfolio of ours by prioritizing all and then pushing Ultrasend to more specialty paper. Summertime, you know, intense but friendly discussion with the BA manager led to the point where I said that's brilliant, guys. You thought you're going to do in 18 months, do it in 6. Part of that is we obviously have a budget and so forth and details, but I would, I guess I'm trying to say I'm not going to try to add all the numbers up and say that the run rate impact in 2012 at fourth quarter is this and the yearly impact is that. You should not think we're done. I hope that the multitude of examples we included today should be a proof point to you that we wake up every morning saying today's day one. We don't ever say we've done so much and there's nothing more we can do. Final comment on working capital, I'm not impressed. I think we had not an impressive year in 2011, and I made it very clear to my team that I want more cash out of my working capital to be invested in this billion, high return project. Anyway, that's where we stopped, I think, with that.
Okay. Should we do in the course of this year, think for actually impact to this, but you can actually talk about it in the bottom line? I appreciate you don't want to give any guidance or numbers if that's a bit.
Yes, we do. I would not give you a number, but think about it this way, Mark. We launched in April 2011 the fine paper program, the Mola, and so forth. We did the sculpted fine reshuffling program, I think, last summer and so forth. Now we're launching sculpted mechanical maintenance. There have been smaller programs late in the year. All that coming through in 2012, and then many of these things start coming apart. We are not today having bigger events in 2013. It is not one program where we say from October 1, we're going to have X million less cost and XY less people because it's a stream of individual programs and so forth. Repeating myself, yes, there is an official impact of last year's program and early benefits of this year's program in the bottom line in 2012. I'll give you the number.
Okay, thank you.
Thank you.
Let's take our next question from Linus Larsson from SEB in Skandinavien. Please go ahead.
Yes, thank you. Good afternoon. To follow up on the equity accounted investments in the fourth quarter, this strong $43 million, if you could please bridge that compared to the $23.6 million that you reported in the third quarter. That's my first question.
Okay. Yeah. The difference comes from Berwick and Veracel. Strong performance in both. As said, real estate sales are volatile, but part of Berwick and Tornator. Not for business, but this was a very good quarter for Berwick. Then good performance overall from Veracel in the fourth quarter compared to Q3. That's not going to, and that's not the comparison point anymore when we talk about Q1 because Veracel will be reported in the biomaterials segment. Sure. If I may just add on that, part of the improvement, and that's what I was trying to add in the beginning of Veracel, was a transfer price change, i.e., part of the increased profits Q3 to Q4 in Veracel did hit our friends at fine paper. You know Veracel is a supplier to fine paper. That is kind of a, I will not give you the number again, but that gives you the dynamic on EAI versus the BA.
That's helpful. The real estate sales, roughly how much were those in the fourth quarter?
Not material, but a significant number. That's calculated in millions anyway.
Euros, not krona.
Yes.
All right. In any case, on a comparable basis, we would be looking at something closer to what we've seen in the three previous quarters if we were to use the same accounting method going forward.
You could say that largely the business is otherwise rather stable, yes.
Okay. Also, you showed the slide with the curtailments in the past quarters. Any guidance for the first quarter? Do you expect increased production curtailments?
I'm trying to think how to ask you that because we're not giving curtailment, but I think I can tell you that if we look at the early week of 2012, the actual curtailments, we've had curtailments in some of the sawmills in Finland, Kapos and Lappeenranta and another one. We've had small curtailments also in Lievestuore and Rauhalahti paper. Nothing like the trauma of 2009, sorry, but some.
All right. It could be higher, but we're not looking at the radical change from what we saw in the fourth quarter.
No, another headache or other trauma maybe could come, but it's not this. Remember what I said in the beginning, though, that we're pretty tough on that. If the demand isn't there, we're not going to produce to inventory either.
Does this go for maintenance shutdown that you will have rather low maintenance cost in the first quarter as you compare with the fourth quarter? Is that also an important factor in your guidance for the first quarter?
I think the real guidance is that we have a relatively significant facility called Veracel that's going to go through maintenance in Q1. We got a significantly less significant contributor with the city of Ostrołęka and Safetown, but that's it.
Okay. In the reporting, in the segments, Veracel apart, will you have lower or similar or higher maintenance costs in the first quarter?
Than Q4?
Compared to Q4.
There were no maintenance costs. There was no maintenance cost in Veracel in Q4. In that context, there should be a higher maintenance cost and obviously a lot of revenue impact in Q1 than it was Q4 because it is in Q1 biomaterials.
Okay. On a group level?
Group level?
Maintenance costs will be lower in Q1 than in Q4.
Because we maintain less.
Okay. Very good. Thanks for that.
Thank you.
Let's take our next question from [Michael Jost] from [Sjöbrunn]. Please go ahead.
Yes. Hello. Good afternoon, gentlemen. I have a question related to the Swedish krona. During the latter part of last year and going into today, the krona has come to new levels that we normally do not see. I'm thinking, I know you have outlined your currency hedging there for the coming 12 months in one of your slides. Longer term, should the krona continue to appreciate, what are your options?
I think it is the same as for any of our operations. When, and I think in a bigger scale anyway, you're seeing the competitiveness of European operations when it comes to the euro/dollar rate. We continue to observe the competitiveness. It's done without the currency movement. Of course, krona strengthening doesn't make the Swedish unit situation any easier.
Let me jump in. You know, currency, because I'm an engineer, it's like weather. Anybody can forecast it, but I cannot change that. The way I'm trying to use it is it's a great opportunity because rest assured, we're using this currency pressure short term to make our good people in Sweden understand that whether it's mill maintenance or anything else, we better shape up and shape up. I actually think that cost pressure will help us to speed up, improve our operations in Sweden. Maybe when the weather changes or the krona gets weaker or maybe the euro gets stronger, we're going to reap the benefits of that pressure and action in Sweden. I don't think there's any other option in that sense. Trying to use everything as an opportunity.
Okay, thank you very much.
Thank you.
will conclude today's question -and -answer session. I would now like to turn the call back over to your host for any additional or closing remarks.
Okay. Thank you, everybody, for joining us today. We will be talking to each other next time in April after our Q1 results. Before that, I will hand this call still over to Jouko for final words.
Because the boss is always right, I want to correct all. I hope to see you all in Langerbrugge at the best newsprint mill in the world. Look forward to seeing you there. Thank you very much.
Thank you.
Thanks.
This concludes Today's Conference Call. Thank you for your participation, ladies and gentlemen. You may now disconnect. Thank you for calling.