Welcome to the Q4 and Full Year twenty ten Conference Call here at Durenso. I will hand this over now for our CEO, Jogo Carvinen and our CFO, Markus Rauromer, who will begin this with the presentation. After that, there is a Q and A session. Please go ahead, Joko.
Thank you. Thank you everybody for joining us this afternoon. We'll try to be brief, so we'll leave enough space for your questions. If we can go straight from the beautiful flower cover page into the first number page. Two, which in a very short format summarizes the change or improvement in fact on the key numbers, sales up 12%, EBITDA 27%, EBIT 21% and then earnings per share obviously even a lot more net debt reduced.
I think the key message is one, yes, we understand that when the comparison points year on year or fourth quarter to fourth quarter are against 2,009 percentages may look good on the surface. But I actually think that against the already guided maintenance properties of the fourth quarter, I think the fourth quarter and the full year were a pretty solid performance. As maybe a curiosity, the EBIT excluding NRI and fair valuations was actually the best fourth quarter since I came to town, which is that was the best since 02/2006. I think the key messages on early twenty eleven now are that we are happy with the performance in 2010, but we're very conscious that we have challenges ahead. We are a bit different than some of the other players in the industry are forecasting a year on year inflation of 3%, point one.
Point two, we're saying we target to compensate that fully. Why do we say that? One, because we have done a lot already last year that's carrying fruit this year and two, very important. When I have the choice of forecasting a higher inflation and taking action now to compensate for it, I think that's a better choice than hoping that there will not be inflation. All the macroeconomic factors in Europe, plus what I see in our own business, make me believe that's the right approach.
I would like to also say that we experienced in the 2010 already a significant part of the inflation that we now on a calculation year on year basis show up primarily in the 2011. We're talking year on year not sequential inflation. On the market side, as I'll tell in a more detail in a minute, the picture is more positive than I've seen in my tenure. And with the reduced cost base and improved productivity, I think we're pretty well positioned. We can move on to Page two, no actually it's Page four I think as a number.
The graph on earnings and margin, Well, there you see that the margin curve keeps climbing up. There's really two messages. It's not a straight line totally, it's a path, but it's a path up and the more important message is as the picture shows, there's still lots of space to go further. That's exactly what we intend to continue doing. Following page, which is a little longer term rearview view from 2005 and this is continuing operations only productivity chart.
Sales per employee, I. E. Euros per employee, not tons per employee. And
if
you take the five year view, our volume productivity per employee has improved 50%, and I think that's an important message also that you have to start early and you have to do things. And if you look at the actual chart, you can also see that the fruits of the early actions 02/2007, 02/08 and 02/09 did start to carry results in 2010. Let me stop there. I'll get back to you on the market and a few other things in a minute. But if I can hand it over to Markus to talk about the financial results Q4.
Markus?
Thanks, Jocko. As Jocko said, we finished the year with a good fourth quarter. Sales were up 12%, EBITDA up 27% and EBIT up 21% in the quarter year on year. Full year EPS went up from €0.19 to €0.79 and ROCE up from €0.04 to €09 Quarterly cash flow from operations remained strong at $265,000,000 and gearing improved from EUR0.51 to EUR0.39. Turning to next page, we have reduced our net debt by EUR2 billion from 2,007 to $20.10.
Simultaneously, we have been pushing down our net debt to EBITDA coverage ratio to two times. Needless to say, the early debt reduction gave us some cushion in the worst times of 2008 and 2009 when the ratio shut up. But with this debt reduction and ratio improvement, we have created the flexibility to invest in our future. On to Page nine. We have focused continuously also on working capital.
The discipline has been good and we have got the average down for the full year from 21% in 2009 to 17% in 2010. The firm objective is to continue to push down the ratio in 2011. Moving to next page. EPS excluding non recurring items, as I said before in 2010 was €0.79 up €0.60 year on year. Cash flow has remained strong and our cash position is excellent.
And thus the Board is increasing their dividend proposal to €0.25 per share. Finally, to summarize our financial position. Our cash flow is strong. We continue to focus on working capital. Our liquidity is excellent and we intend to keep it so.
And our balance sheet is amongst the strongest in the industry. We only have EUR 2,400,000,000.0 of net debt. This all combines into the financial strength that gives us the best strategic flexibility to invest in our future. And now back to Joao.
Thank you, Markus. Let's go talk about markets. First, the index chart on five paper grades, where the underlying story is still true that all of 2010, we were clearly, I'd say, about 15% below the 2007 market levels, which hopefully proves my point about that if you take early action, you can still earn good money in a fairly reduced market situation. In the later part of 2010, we obviously start seeing that some of the paper grades have started to return to or towards the 2007 level. When I look at the picture and the outlook, I'd say, we have not faced our earnings on waiting for better times to come back and that's the way we're going to keep it.
If you go then to page following page where we look at the board demand, more flat if you look at folding boxboard right at the 2,007 level, hey, it's four years later and the Whiteline shipboard still below, but obviously a more stable market. Then first quarter twenty eleven, I think key message this year is one, this is a greener picture than what I've seen in my four years. If you look at the year on year demand development and sequential price development. Newsprint and book paper, we see some short term weakness in newsprint also driven by the significant price improvements. And we see in newspaper paper that on total European level in euros, we're returning to 2,009 level.
And politely I'd say that you may have questions about specific paper grade pricing on newsprint and YNA Magazine. I will not answer those questions today, because we are completing our customer negotiations and I don't think it's beneficial for the company to start publicly discussing those numbers. But I ask you to live with my answer, European price level in euros returning to 2,009. Magazine paper demand improving, that is the price level to a lesser level than roughly than newsprint. Fine paper, bit of a mixed story.
We saw flat on price and demand. Office paper relatively stronger than coated fine. But again, when we remember how the plant paper performance was last year, think we're in pretty good shape there. Consumer Board and Industrial Packaging all green, which is very encouraging given also the importance earnings importance of that business segment to two segments for us. And then finally, last but not least, Wood Products, yes, an improvement, but here I'd like to say from a weak level of Q1 twenty ten and clearly a pricing pressure.
Then we have, as we mentioned in our press release, actually two somewhat unique things. One is the Middle East situation in Egypt and other areas a bit as well as the national disasters in Australia. Now the way we look at it is, it's more a delay because when things calm down and hopefully they will calm down pretty quick also in Middle East, business opens again, but especially in Australia when the rebuilding starts, we think it's going to be a very good opportunity and I can assure you we'll be ready to ship and sell right there. That was kind of the operational picture. If we can move on to what we call proof points of action, the cold or many times seen Surin's strategic direction is a growth market.
So when we think what's the priority in our strategic investments, it is growth markets, it is plantation based pulp and it is fiber based packaging and then selective vapor grade. Early twenty eleven, we announced the investment of a modern lightweight grade board machine in Ossaletka, Poland. So this is Europe growth market And I think very critically because of our starting position being so short on containerboard, quite a rapid and dramatic change then in our overall containerboard position also as a raw material for our industrial packaging, because we will have a significant portion of our material then in lightweight grades. I think the total setup is quite exciting and I look forward in about a couple of years to then report that it performs at least as good as we think now. The bigger one pulp mill in Uruguay announced a few weeks ago, 1,300,000 tons, half of which is our share.
And I believe the timetable of quarter one twenty thirteen is not only relatively fast, think we're very well prepared, very strong support from the Uruguayan government and a great partner in Arauco. But we may not have been communicating very clearly is that I think the sequence of actions first starting from the joint acquisition of the Enseland by us and Arauco and then the opportunity of combining Arauco and Auolan and the Enseland actually is a bigger value than we may have communicated. I've estimated together with some of our people that we've gained about seven years in time doing this. And when we do net present value calculation, I think the invested cash versus net present value actually improved dramatically through these steps. We've also announced or last saw the Impact acquisition, a bit the same thesis, small acquisition, but again, I get it claimed that we gained about eight nine years in time in the fastest growing markets in China and India.
And then recently, the more value added multistory woodbuilding investments that we announced in Wood Products. Point of my story, we wake up every morning still like we have for at least four years saying what can we do better with the lower cost, better productivity. We take hopefully a prudent view on forecasting inflation and fighting it before it happens. And then we also now say that we believe we have earned the credibility to invest into our future. Last slide, titled Journey Continues.
This is a journey and it's a long journey. We have fought and we will fight inflation, cost inflation. I am convinced that the team is very focused continuing the development of the businesses. We've gone through quite a hardship and I think everybody's learned now that you better work that on every day and not only when it's getting to a crisis. We are very focused on new markets and new products as well.
And then I'd say in question and renew, what do we mean there? The one thing that I hope is true, let's say, almost the DNA of the company. We never say anymore that when I or somebody else ask why are we doing something in a particular way or why are we doing it at all, we won't anymore say because it's been done that way for one hundred years. We quite can challenge ourselves for a few years now and we will continue to do that. And with that, I would like to thank you for your attention and hand it over to your questions.
Thank you.
We will take our first question from Lars Kjellberg from Credit Suisse. Please go ahead.
Good afternoon, gentlemen. Just had a couple of questions on starting with costs, because clearly that's a bit of a focus in the quarter. Talked about €54,000,000 in maintenance related costs. What other cost items sort of what was the big issue? You mentioned that you had a big cost escalation towards the end of the year.
But also if I read you correctly, you want to clarify, when you're talking about the year on year average cost inflation of course of 3%, did you actually say that you've seen most of that already? And if so, but that was sort of embedded in Q4, just to clarify?
Good. This is Jalko. Hi. I'll start and then Markus can clarify me if I'm totally unclear. Number one, I think we split the cost, we said EUR 34,000,000 increase sequentially on maintenance cost and the other EUR20 million was the fact that the high margin mills that were down during those long maintenances that was the other impact, so combined EUR54 million.
The other cost factors, and this is already relating to the inflation question. I would suggest that we had clearly above 4% year on year cost inflation on variable cost in the fourth quarter, Okay. So the thesis is that a significant part of the mathematical cost inflation year on year is already coming in the 2010. And then your math is better than mine, obviously, because it came in the second half. If we for simplicity say, that's where the cost would stay now, then that mathematically would mean that the inflation percentage in the 2011 would be higher because the cost base a year ago was lower.
Sure. So essentially, when you're talking sequential cost inflation, you're not seeing an acceleration, it's actually the opposite?
I would say the opposite, but we are saying that we're pretty confident that we are right. One better take a serious action on cost inflation now because a lot of it is already has come in. And if more comes in, this is all forecasting and But we can't the point of the story is that that's the school of thought in this company that we're saying, we're not going to hope for miracles to happen like we never did. We're going to fight it now because we see that a big part of it already came in some parts like fiber cost in the fourth quarter.
And I'll continue on the cost what else then maintenance went up. So nothing unexpected and no huge increases, but bits and pieces from logistics, from a little bit from RCP, a little bit from the different assortments of wood and then other variable cost type chemicals, corrugated raw materials and so on, but really coming from small pieces. And the positive we had then was on the energy side.
Okay. You took some pretty big moves obviously shutting down two of your newsprint assets for a machine and essentially newsprint mill in the course of sort of late Q3 and Q4. When should we start to feel about feeding through in terms of the fixed cost base, etcetera, because obviously we didn't see that at all in Q4?
We took three machines out, remember? Three in water cost and one in mud stuff. And I can't give you a date, but it will start showing up 2011.
Okay. And just finally, just wanted to fully understand your the consumer packaging side. Some of your competitors have been very sort of bullish about the pricing commentary and starting to see price increases in the high single digit sort of area, I guess. And you're talking about cautious price increases. Are those comments consistent?
Is that just a different product mix and client mix by making you slightly more cautious on the consumer packaging side?
There's two factors. I'll start with the kind of the concrete one and that is that in our product mix, we have relatively long term strategic purchase agreements with our key customers. So they don't change overnight that dramatically. And I think that's the primary reason for different product mix, customer relationship, which I happen to like, to be honest, in our favor. And then the second thing is also that you can blame me, after the roller coaster few years, then I'd rather pause with the real results than forecasted price increases.
Sounds good. Final question just more of factual I guess. When you're looking at your CapEx plans for this year in 2012, what sort of CapEx levels are we looking at including what you're doing then in obviously in Uruguay and in particular Australia, what should we be factoring in?
Yes, I can take that. So what we're saying is basically that CapEx as we have defined it is about EUR550 million for the year. And then in addition to that equity injections to the Montesquieu Plaza joint venture of about EUR120 million. And but we'd like to describe it more like, like for like we are spending €450,000,000 compared to last year's €400,000,000 And then we spend around €200,000,000 or so into the announced investments into Montes del Plata, into Ostralenka, into Impact. So like for like a small increase and then really spending money on the chosen strategic path.
We continue to be selective on how we maintain the existing asset base, small change there.
Okay. Very good. Thank you. We
will take our next question from Sam Michael Jap from Chevreux. Please go ahead.
Hello, everybody. I've got two questions. Although you said that you wouldn't comment on news pricing, but can you say anything about the contract structure? Are you still going for annual contracts? Or are you trying for quarterly contracts?
That's the first question. And then the second question is regarding working capital. You currently are at very good level, 17% and say that you aim at going even lower. Could you give us some flavor and perhaps some detail on that? Thank you.
Markus was trying to suggest that I'll take the newsprint and he'll take the working capital, but I'll do both because that's more fun. Newsprint, there's been it's a mixed bag as you can imagine with many, many customers and so forth. I would suggest that there isn't a really dramatic change. I would say, still the majority will be six to twelve months. So as you can guess, there's maybe some pressure now from the customer side to shorten some of them.
But I would not call it a revolution, and we're trying to work every contract out with the customers. I think the more important thing right now is that we complete all the agreements and contracts, so we can see the full impact of the pricing improvement then soon. And then the only other comment I make is that I think if you look at all the hard work that was mentioned before with three machines down last year and whatever and the miserable nonexistent result in the fourth quarter newsprint, the justification for this is there. And I hope and believe that our customers also understand that this is a required action. But I'll stop there.
And the working capital, why I'm convinced that we've done simple part, which gave us more than $1,000,000,000 of cash out of our working capital, you can build a good part of the partner with that cash, which is good. But why we believe that we can do a lot more is actually that there and I won't give you paper grade specific numbers. We see quite a material difference in terms of the different product lines on where they are individually. And the differences are not only driven by the actual supply chain and so forth. So we have proof points inside the company where we can see that some of our fellows have proven to us that we can take more money out of the balance sheet in terms of working capital.
And we actually have ongoing programs also to reengineer a bit the demand chain So that will happen. Okay. Thank you.
We will take our next question from Myles Allsop from UBS. Please go ahead.
Yes. A few quick questions. In your introduction, you were talking about there are challenges ahead. What do you see as the biggest challenges currently?
I'll give you two answers if I may Myles. Short term, I wake up every morning saying what's the biggest short term challenge. And right now, it is what we're already taking actions on and have taken for a long time, is by our cost base. Obviously, currencies also even though we hedge is a bit of a challenge with the Swedish krona and so forth. Then if I may say, strategically, we are on a journey here.
We've done a few things hopefully, but what I envision that we need to keep doing is make our earnings less volatile. And the way I see that happening is that over the next several years, we need to get to a point where less of our earnings is dependent on external factors like inflation and a few factors that we pure wood cost or something like that. Because I think that's a metric of the real strategic success that we can make consistently money and we can create valuable cost of capital. And I hope that when I'm around still then that you could people ask a lot more questions about our doings and actions and less about the environment only. So that's still work in progress.
Okay. And in terms of consolidation on the paper side, I mean, do you think we are getting closer to seeing some more structural change? I mean, obviously, UPM Lukowski is a first step, but I think it's important I think a lot of people are looking for further sort of consolidation of WAVE coming through. Do you think we will see more consolidation in 2011 in the industry?
Very honest, I don't know whether that's going to happen in 2011. We announced the project, we obviously will talk to UPM about, not me. I can see and if you leave the year out that there is a need for defragmentation or consolidation and trying to shape that. On our side, I can only say that we do keep our ears, our eyes and even our mouth open, But we will not, so to say, stop our strategic growth investments with the idea that we would wait for something in the M and A area in that context. That's all I can say.
I know it's a boring answer because I've given it about eight times, sorry.
That's fine. And in terms of closures, do you think Stora will make any further closures on a stand alone basis from this point?
The only answer I can give you there and I'm sure you understand also from a governance point of view, we don't have any secret plans. I think everybody understands after the actions of the past four years that reduced 10,000 people beyond divestments in the scope of the business we're still in. But everybody in the company understands that a loss making unit that we do not see the turn the ways to turn around rapidly will face a significant risk of either very rapid temporary closures, if that's possible, or if the issue cannot be fixed then also permanent closure, but I would not want to speculate and I can't speculate.
Okay. Maybe one last question. Could you give us a sense as to where you're heading Obviously, investing in Ostroleka would suggest that this is obviously a core part of the group, but it's still very peripheral in a way. It's kind of very Nordic, Eastern European focused.
And would you like to get a broader platform across Europe? Or is this always going to be sort of niche more of a niche kind of emerging market position?
It's actually in the priority order in many ways to me, Eastern Europe. If you look at the segments that we call industrial packaging, it now more and more includes China and India, in fact, in that sense. We just particularly want to talk about the transportation packaging kind of things and some of the consumer packaging. The Ottoleca investment is the containerboard, the raw material. Our net position has been very short 30 plus percent 35.
And now with the investment, we do two things. We increased to 60 plus percent, But I think we also take a real leap in terms of our material vaping containerboard being to a large extent this new lightweight format and so forth. So with that and hopefully with the growth in the China, India as we get the project closed, transport packaging, but also within the Industrial segment, consumer packaging converting is nothing but a niche. It's a part of our focused fiber based packaging strategy.
So you're not looking to get a full platform across the whole of Europe for corrugated?
How do I say this? When I read various CEO's reports and whatever I see quite a few people say fiber based packaging is good. We say that too, but I think we're trying to be pretty focused and selective to select the segments, geographic segments and the application segments where we believe we can actually really compete in liquid packaging, food packaging, selective consumer packaging converting and focused on geographic growth markets, China, India, Eastern Europe. Nordic is in the growth market, but we happen to be strong here too. So it's not a pan European strategy.
It's focused.
Okay. Thank you.
We will take our next question from Johan Sverdrup from Carnegie. Please go ahead.
Yes. Thank you. Just coming back to your
outlook for Q1, you're looking for increased profitability quarter over quarter. Do you dare to say anything about 2011 versus 2010 like UPM stated?
So we're not UPM and that's not
in our plan to say anything. And we right or wrong, we've taken the principle that we give you a very short term guidance in terms of the earnings guidance and we'd kindly ask you to leave it back.
Sure. Looking at your balance sheet, it's very strong right now. I mean, you're heading into a nice earnings season also or earnings development going forward. Have you considered to and you're increasing the dividend But I mean considering the shape of the balance sheet and have you considered to start buying back shares?
We haven't said anything about that. And we have a very good investment pipeline. So as you know, we have the Uruguayan, Ostralenka investment, INPAC and so on and a good pipeline even beyond that. So we have plenty of targets to make investments with returns in line with our return targets. That's why we have the strong balance sheet and that's why we keep the high cash levels.
Okay. Looking at the underlying your order books right now for Q1, if you compare it year over year, could you say how much stronger they are in terms of magazine paper and especially in newsprint? How do you see it year over year roundabout?
Yes. I think we'd rather take it through the outlook actually on the demand and the pricing rather than the order book. And then, of course, Jokos, you gave the picture, more green than previously.
Yes. But just to jump in here, because I gave summary. What I said actually that in prices at least in Europe, partially because of the significant price increase and to be completing negotiations, there is a bit of a softness in the birth of the year. And then what we say is we still see for our total volume, we see a flat development year on year in newsprint and book, not an increase. And then the magazine paper it's an increase, but I to be frank, I don't even have the number.
Was trying to look at what I have picture that I could share with you, but I don't. So it's not a revolution, is that much I can say.
Could you just give us some flavor upon how much what percentage of the newsprint and book paper, how much
is newsprint in that? And how much is book paper? Because I
would assume that you will not see the same type of price increase for book paper that you see for newsprint or
Okay. I'll split it in two. It's actually more than two standard newsprint, improved newsprint and book and so forth. And book 10% to 15% of the total. And again, 85% to 90% standard and improved newsprint.
All right, great. Thanks a lot. Thank you.
We will take our next question from Karri Rinta from SHB. Please go ahead.
Yes, thank you. Karri Rinta, Handelsbanken. A question on the FX that you mentioned. And you have a lot of costs in Swedish currencies. So my question is that this input cost inflation of 3%, is that taking into account the currency impact, I.
E. Or do you expect further sort of pressures from a stronger Swedish currency? That would be my first question.
Thanks, Karri. So that is the underlying inflation and doesn't take into account the FX. The FX analysis we provide separately, and that's very much on the same level as previously. So we're about SEK 1,000,000,000 short and by default we hedge about 50% of the main currencies net cash flow exposures.
Sure. And then secondly, about your pulp balance for 2011. I think last year you were beginning of the year, you were saying that you would be net long of roughly 900,000 tons. Has this exposure changed now heading into 2011?
That exposure is on the same level, about 900,000 tons.
Finally Just wanted to plaster before it costs a lot more. Exactly. Then finally about the Consumer Board. I have little difficulties sort of explaining the weaker profitability than I had in my numbers because when I look at the production and deliveries, I don't see much of an impact from maintenance shutdowns there or lost production. Can you go through once more what were the factors that were impacting the profitability for Consumer Board unit?
Sure. Markus, you want to try and I'll help you or wise words.
Yes. Well, if I start then the big really big impacts are the actual maintenance costs and also the relating loss of margins. So when we had, of course, this quarter when we had Skucha, Sunilen, Skogal all down pulp and consumables, so in very profitable businesses and the impact from the maintenance stops is what it is.
Okay. So it's more on the lost pulp production than lost Consumer Board production.
And as soon as ask Kocharar in my
Yes, I summarized it. It's the maintenance cost increase, which was significant sequentially in as we try to communicate in Consumer Board and it is also that it's being Schuylkill was down with Consumer Board facility. It's without telling you the number, it's a high margin unit. And so when it's down, you lose a lot of margin. And I think the that's where I would stop.
All right. Okay. Thanks a lot.
We will take our next question from Oscar Lindstrom from Erikshaftas Bank. Please go ahead.
Yes. Good afternoon, A couple of questions, touching some of the previous topics that have been discussed. First of all, and you're talking about your own cost measures negating the forecast cost inflation. Could you provide some more detail about sort of the size of your year on year cost savings that you expect to make?
Well,
I guess you can make a total estimate based on the fact that we've said our target is to fully compensate 3% year on year cost inflation. And if you look at our revenue and cost base, then you can make that overall estimate. The the more important thing is that it is a combination of things. Some of them are results year on year of the actions we took last year and even the year before. To give you an example, the same as next step will still help us a bit, because remember the target cost savings that we actually beat slightly was $250,000,000 run rate 2010.
Mathematically, it will give us a bit of the momentum in 2011. Some of the manufacturing capacity cuts we took last year will help us this year like we talked before. And then we shall not go into further details. We have in every business area a very focused effort already to do more this year to do what we basically promised today that our target is to completely compensate 3% inflation. That's all I can say.
But you should not think that we kind of it's not that we wrote the press release and said what are we going to do now. We've been working for a few years to get some of the results out this year. Right. And what about sort of recovered paper, which we've seen the price increasing for now in this side of the New Year. What's your impression or feeling for where those prices are heading for the full year?
Are you worried about recovered paper inflation more or less than other cost inflation? No, I think RCP is a bit of an example where it's in a way a bit interesting that we talk about inflation forecast. So the inflation quote unquote already happened. The cost of RCT went up and we think it's going to more stay on the high level even though mathematically will show up as a bit of an inflation, but nothing too dramatic twenty eleven to twenty ten.
And if I may, to color the current question about Consumer Board. So you remember that we did the impairment reversals. We announced that so the increased depreciation hit heavier Consumer Boards, and that was visible already in the fourth quarter result. Okay. Yes, I understand.
Presume that means that you also believe wood prices will stay roughly at the Q4 level going forward into 2011? Not quite, but also in pricing, I think what's true is that the so called inflation forecast year on year is already based on a actual cost inflation in 2010. January, just a snapshot in, I don't know, yesterday, today, the association in Finland basically made a statement that the pricing right now is flat in Finland for virgin fiber wood. A final question if I may on your growth strategy. Is it a correct conclusion that you feel that you have sufficient sort of strategic sort of capacity driven projects, which you control yourselves that perhaps acquisition driven growth is less interesting or less necessary for you?
If I may say, I think we have one, we have a pretty exciting pipeline. We've announced a few and you may remember we got a couple of others in the works. I think it's exciting because it's very well aligned with our announced strategy. I don't see quite that the that will be an alternative to acquisitions. I would say that asset test is it aligned with our strategy is always there also when we talk about acquisitions, whether they're small like in past from a value point of view or bigger.
And the test again is growth markets and we build a competitive edge that we can maintain. And that's very important to me. So I would rather say that we have a pipeline of strategic growth investments, but that does not exclude M and A, but also the M and A has to be in line with our strategic statement. We're not going to ever buy anything, a, to make us bigger or b, we can't explain to ourselves, let alone new people, why is that going to be a sustained competitive differentiator for Suraham's.
And if I can complement that, I'll come back to what we have been saying about the balance sheet and liquidity. So we have that liquidity. We have the financial flexibility to grow, to do M and A and to do restructuring if needed. So we continue to be prepared for all of that from a resource and from a liquidity point of view.
All right. Thank you. We will
take our next question from Myles Allsop from UBS. Please go ahead.
Yes. Just a couple of follow-up questions. Could you give us an update on the Veracel project? And what's the time line should we expect for that?
You mean Veracel expansion?
Veracel number two, yes.
I cannot give you an exact date. I would say that the good news is the partnership I think is very solid and strong. And I know that pretty well now since I've been working in the board a year myself. The things to be completed are in the areas of making sure that when we start adding land base and fiber base for the expansion that happens in a good cooperation with the local communities and so forth and so on. As you know, we've had some issues in the past there And also that means then that it's going to take quite some time.
So there is how do I say, it's not a question of a problem to me, it's a question of to build the scale of second line that we think of, we will need to add plant and fiber base. And as impatient as I am, I can make that happen overnight. And I don't think we can do an answer in Brazil right there, at least not in Bahia. But can't accelerate that timing question more than anything.
Do you think that you will push out with that project before the start up of the Uruguay joint venture?
I don't know. And why I say that? Well, I'll try to be a little more clear. I would be surprised if we would restart the fiber base expansion, And then I will not comment on whether the capital decision would be before or after whatever. There's quite some time difference between the decision to restart the fiber based expansion to the point where we make capital decision.
Yes. How much more land do you need to for the new machine?
I'm trying to figure that out. I don't want to give you a number off my head because remember, first of all, there is always the two factors that have an impact on the number. I think will call you back on that number, if you don't mind. But the point I'm trying to make is, remember what we've done in Verrazza one is we bought quite the land we need for plantations because of the sustainability approach one and two, which is becoming quite interesting, but also a portion of the fiber base, I think in the future will also be based on tree farming where you actually don't buy a land, but you use the local community, create a business for them, which I think is very, very beneficial also for the overall success of the project. But if it's okay, we'll call you the number.
Yes, no, that's fine.
And so last question actually just with your guidance for Q1, you're saying higher quarter on quarter, but obviously Q4 was quite a bit weaker than the second and third quarter. Do you think Q1 will be higher than Q2 or Q3 twenty ten?
But Q1 will be sequentially higher than Q4. I cannot possibly start giving you a better time there.
Okay. Thank you.
Thank you.
That will conclude today's question and answer session. I'd now like to turn the call back to your host for any additional or closing remarks. Okay. Thank you for everybody. And Joko here wants to say the final words.
Well, thank you for spending an hour with us. I really, really hope you're going to spend at least an hour with us in about three days. If nothing else, I hope that we're a company that's interesting to follow, and I think more and more also pretty exciting to follow. So thank you for your attention.