Thank you. Good day, everybody. Thanks for joining us. I'm going to read through the deck, the investor presentation, and I'll As always, I'll call out the page numbers as I move through. Starting then on page 4, some of the highlights for the quarter.
Firstly, EBITDA was up 1% to $224,000,000, and similarly, bottom profit, bottom line profit up 5%. Overall, it was a good sales quarter, just remind you that, following the production stoppages that we had in Q3, we did go into the quarter with lower inventories. We are the sales price increases that we had achieved enabled us to offset higher cost pressures that we had seen throughout the course of the year. On dissolving pulp prices, those were impacted by hedging translation losses, hedges that we took out earlier when the when the rent was stronger. I should point out to you that for the year, there was, the impact was immaterial.
It was it was close to 0. The, during the quarter, We did see a softening of graphic paper markets, particularly in Europe as we got towards the end of the quarter. Moving to Page 5, just calling out a few highlights. Firstly, I think we did a great job during the year of achieving higher sales prices, to offset the higher raw material costs pressures that we see. A big story of 2018 was the conversions that we did at summerset and, Maastricht and obviously we acquired the Come paper group during the year, a specialities business.
As you know, it's one of our stated strategic drivers to grow on the packaging front and very pleased to say that our volumes were up nicely at 18%. Our dividend continues to grow and we committed to getting a 3 times cover And we we've we've done that for these set of numbers with a, dividends per share of USD 17. We manage our CapEx around a leverage target and we've stated that in the past. It's two times and, that's that's what we've done during the course of the year. Moving to Page 6.
You can see the specific leverage numbers 2.1 at the end of the end of the financial year. The EBITDA margin a little bit down on last year, but that was the lower profitability, coming through from the South African business. Return on capital employed a little bit lower, but still at very satisfactory levels. On Slide 7, our EBITDA bridge from last year to the current, the big story was what I've already alluded to was the cost pressures that we faced. You can see both on well, predominantly fixed variable costs, but obviously fixed costs rising as well.
And what we strive to do and we did it success was achieved higher sales prices to offset those impacts. On Slide 8, the contribution of our, our product categories, packaging and specialities continues to rise. It was 18% of our, profits, and and that will go up further as we move into the the new financial year. Dissolving pulp was was a little bit less, but that's obviously linked to the lower, the lower margin, coming through because of the exchange rates. On translation.
The debt profile is reflecting on page 9 and we don't have anything immediate at the moment. The next thing coming up is the the securitization structure in 2020 and probably sometime during 2019, we'll we'll look to renegotiate and extend that for the On page 10, our cash flow and on how we utilize the funds we we generated in our operations $630,000,000 and you can see the split of where we're spending that maintenance CapEx 167. Obviously, spending some more on the expansionary projects, which I'll talk about further just now. And In fact, at the bottom right hand corner, you can see it has been a period where we have been investing for growth. We obviously acquired the Camp paper group.
That's shown separately there. And then you know, the other costs and the dividend showing, but nice movement upwards on the dividend over the last two On Slide 11, the split of the CapEx and the evolution of the CapEx The 2018 2019 numbers that you see are a little bit lower than what we reported to you last time. We did say that our project at Somerset we were in, a dispute with our contractors related to that project. That's still underway. And because of that, that pushed into from 2018 into 2019.
And then obviously the 2019 number being lower, what we've done there is we've just pushed out some of the smaller projects. So coming in less than we had previously said. Slide 12, brief update on the projects, I think in summary, the main takeaway is that the big projects at Somerset Maastricht, the debottlenecking that we undertook at Ngodwana Cycor, all all behind us and, and, production has normalized thereafter. Specifically on the specialities and packaging conversions, the product we're very happy with the quality of the product that's coming out and that will ramp up. It's begun ramping up nicely and will continue to do so in the new financial year.
At Saiccor, we announced previously that we were looking to expand further with about $110,000. The good news is that we got our approvals. Now those come through and we've commenced construction. On the graphics, we This is the Lanaken project is something that we've talked about previously. That, that occurs during the course of the year, and that will allow DMA at Lanaken to shift from mechanical grades to coated woodfree.
And it will have swing capabilities as well. And then we've got a project during the year to upgrade at the PM9, on on Gratkorn and that will be undertaken and we'll lower our costs Moving forward to Page 14 and previous calls, we're just I'll just talk briefly about the trends in the various segments On paper printing and writing, as I said, we have seen a softening. Particularly in Europe, there's been an economic slowdown there in Europe and that has put pressure on demand. Nevertheless, the markets are relatively imbalanced and as capacity comes out further going forward, whether it's by ourselves or competitors, that should keep the the balance fairly favorable over the medium term. So these are short term pressures.
The, I've already mentioned it, but pulp costs, as a raw material costs were rising throughout the year, we it has stabilized in recent times, but obviously it's still at a high level. We were able to put through a series of price increases to offset that. And, but it's getting harder. I think that's the important message, particularly with the economic slowdown that is occurring in Europe Our focus continues to we've got good mills, we've got world class assets. We'll continue to focus on our costs, but, and manage that business to ensure it continues deliver value for us.
Moving to Slide 15, which is the packaging side of our business in almost all of our segments that we're in, we have seen growth during the year, a little bit of recent weakness also linked back to the slowdown that we're seeing in Europe, selling prices, they're a bit more sticky than graphic paper because the renewal periods are longer. So those price increases took longer to rise and are now going through renewals. So, that will help offset some of the, the cost increases that we had seen. And the big opportunity obviously going forward is now that we have more capacity available, this business should go from strength to strength. Then on Slide 16, the dissolving pulp throughout the year, we've seen relative stability in in pricing.
The demand has been good. Competing fibers, pricing has been good. Unfortunately, the one offsetting factor has been viscous itself. There was a lot of new capacity that came on board and that that kept viscose prices down. So that helped that offset some of the the tailwinds that we had.
Obviously, we're going to benefit from the debottleneck volumes that are referred to earlier, and ultimately, cycles additional volumes will boost us for that. Then moving to the regions, page 17, firstly, Europe, a very good year for Europe, if you look at the profitability, the with the cost pressures that they were facing to be able to put through the higher selling prices, I think a very good job. Specialities and packaging, we were restricted before we did the conveyance. Everything was kind of fully sold out, but We were still able to get high 9% higher volumes. And obviously the successful integration of Calm during the year added to the business.
You can see the pressure that we had because variable costs were up 11%. So to deliver those results on the top of that, I think, as I say, a good job. In Page 18, our North American business, again, a very good quarter. We went into the quarter with lower volumes. Following the, the delays at, Somerset.
So, obviously, that, that, that's behind us now. And was nice to see the profits pick up, in the quarter. The market conditions are still fairly tight, still tight. And, we were able to achieve selling price increases of 13%, again, to always offset the higher raw material costs. And our Packaging business, double nearly doubled the sales volumes In South Africa, on the paper side, a very strong performance.
Our packaging business that did very well. Unfortunately though we were up in most of the year up against stronger rent. We took out hedges. We typically take out hedges when we get orders 3 months, 3 months in advance of the deliveries and obviously the rent, we can substantially during the last quarter. So we had a stronger rent in the hedges.
Dissolving Pulp's volumes were flat, again, because of low inventory volumes. And as I say, we got the environmental approval for the cycle. Expansion. Just on Slide 20, just, Sappi's been going through a journey. We we went through the debt reduction phase and now we've moved into a growth phase.
We've talked about this and we've got considerable opportunities in the dissolving pulp and packaging space. And that's why we undertook those projects. Obviously, there's a number of macro global trains working in our favor with the big story being the sustainability. And and and that's that's helping drive dissolving pulp ultimately, which goes into textiles and obviously packaging, as as companies strive to switch from plastics to paper. Page 21, I'm not going to go through just, it just shows you the contribution from the different segments.
And probably the biggest story on that slide is the growth of a packaging for Sappi and that will go further as we move forward. Slide 22, Those are the trains I've referred to to some of those. I'm not going to talk through that slide. So move to 23 the strength of our packaging offering, you can see, and this is all our mills that make either some or all all of their capacity is allocated towards, packaging and specialty grades. So a very powerful offering and we're well positioned as we move forward.
Slide 24, we we launched a new dissolving pulp branding during the year, VERF, CEPI has a reputation for quality and consistency and reliability we think it differentiates ourselves from the competition. We think we've got a great product and we thought the time was right to introduce a brand to enable us to differentiate ourselves. It's been well received by the market. Our customers like it. And it's a very powerful offering.
And we will be reinforcing this branding as we go forward. Slide 25 is the 4 pillars of our strategy. I've talked about them previously. I've got a slide on each. Page 26 is on costs.
Other good work done in the year. Each year, we commit to, procurement and efficiency targets. And I'm very pleased to say that we got a further $60,000,000 in 20 19. And obviously, with the kind of cost pressures that we were up against, this certainly helped us. Are we strive to achieve continuous improvements across the most.
Probably the biggest opportunity is, is pulp capacity in Europe, and we continue to debottleneck at our plants to try and improve the integration percentages. Project we've got during the new year, I've already mentioned, we've got a EUR 30,000,000 upgrade at PM9, that will enable us to lower our costs and improve efficiency. Across the page on 27, the rationalizing of declining businesses, this is a progressive strategy. We've been continually taking capacity out of graphic paper. That the one project that we've got in the New Year has been is at Lanaken.
We've talked about it. That will get us at Lanaken out of, or predominantly out of mechanical paper and into coated woodfree, which is we feel longer term is a better, a better space to be in. On 28, the balance sheet as I said earlier, we continue to manage around our leverage targets of 2 times. On the funding side, we We are 2020 two bonds go into a call window in April of 2019. So after that date, we can we can start to monitor the markets and see if there's any opportunities, if it makes sense to refinance for us.
Slide 29, the accelerating growth in higher margin business segments really that's what I've been talking about throughout. We've got great opportunities in dissolving pulp and packaging and I've already mentioned all the the projects that we're looking at in the short term. On the bioproducts side, again, further opportunities. And we are looking at the xylitol phosphorylated demo plants to be built at, in Goodwana. And we're hopeful that that can be an opportunity for us moving forward.
And obviously, the Saiccor expansion, which I mentioned earlier. Then on final slide 31, the outlook itself dissolving pulp sales volume will improve both the debottlenecking projects, prices we expect to be, relatively stable at current levels. The demand for our specialities and packaging, continues to grow. And obviously, we now have more volumes available to, boost this segment. The, the conversions and the capacity closures that we see from our competitors will keep the graphic grades in balance.
However, as I said earlier, the short term, there are some short short term and seasonal challenges, at the moment. The CapEx I've already mentioned. And then just finally, the, our outlook guidance is that Q1 will be comfortably higher than last year due to the increased volumes that we have available predominantly. And I suppose, the the rand has, has weakened in, in recent times, so that will also help us a bit. So that's me going through the presentation operator.
I'm going to put it back to you for questions.
Ladies and gentlemen, at this time, you'd like to ask a question. The first question
Hi guys. Thanks for the call. I just want to get some more clarity on what levers you have to pull within the European coated paper business to maintain margins if one of your competitors does not proceed with the conversion as as you seem to be quite confident that that's going to sort of proceed. So what happens if they don't proceed with this conversion project and exit coated wood free markets? Second question, I just want more clarity on Calm Paper sort of integration progress.
You sort of commented that the the integration has been better than or has the integration been faster than expected? So I just want some clarity there, please. And then further to the specialty paper and packaging, sort of industry valuations have come off quite recently across the sector. And Given although you've got a sort of net debt to EBITDA of 2.1 times now, do you think you still have the balance sheet to potentially pursue opportunistic acquisitions within the specialty space?
Come, we're still going through the process of achieving the synergies. The the extra value that we've created above, our business case when we acquired it has come through from higher selling prices. We're running a couple of 1,000,000. Currently, we're tracking a couple of $1,000,000 or euros actually ahead of where we thought we would be at this stage. Most of those synergies will start to be realized in the new financial year.
On industry valuations, and specialities, yeah, look, we've committed to the two times and obviously, we've committed to a large project down here in South Africa related to Saiccor. So it's probably unlikely in the short term. But obviously you continue to watch the market and see if anything, anything's out there that makes sense. And but Cam was a great deal for us. And we monitor, but there's nothing in the immediate pipeline.
Leverage to maintain margins in Europe if our competitors don't convert. Look, obviously, we're in a strong position and we we believe that those conversions will occur. However, we like always, we evaluate our assets And if if in in a worst case scenario, if demand was was soft and our competitors didn't take capacity out. And clearly, we would need to look at our own assets. But we don't feel that that needs to be the case at the moment.
Barry, anything you want to add to that?
Well, only Steve, that it was not in our plans that such a conversion would happen. So we were surprised by the announced and of course, we will await confirmation of it. So in our plan, we were going to deal with a declining market ourselves. And that meant conversion, that was a lot of the capital expenditure that we were doing to convert things, parts of our assets to specialities partly away from mechanical coated into coated woodfree. So we did not plan is, if it goes ahead, well, that will mean that, life gets like easier, but it does not alter our fundamental plan.
And as Steve said, If we need to take our own action, we will take it.
Yes. And just to add to and just to reinforce what Barry said, we obviously converted at Maastricht during the year and there's going to be a ramp up that occurs with that. So that gives us some flexibility. Thanks a lot guys.
The next question comes from James Twyman of Christian Securities.
Thank you. Yes, I've got a few questions. The first one is in the U. S, you've obviously been very successful at getting price rises. Do you think there's more that can be achieved there, or do you think you've reached a limit given the high level of prices now and what the what customers will be thinking about that.
And secondly, have you got any hedges outstanding for this year? It obviously costs you quite a bit in Q4, just wondering whether there's any follow through into this year? And then thirdly, on, you've been looking at pulp mill expansions or, well, acquisitions acquisition in the past. I'm just wondering whether that's still a high level, target for you or given what lensing's done, whether that there's less requirement for you to be spending substantial cash there?
Yes. Just to take each question and turn and Mark, I'll let you elaborate further. But just on selling price increases in the U. S, Clearly, it's after putting through the series of increases that we have, it does get tougher. It does get tougher.
Mark, do you want to go into a little bit more?
Sure, Steve. It comes down to, demand and supply. And as, and then we continue to monitor our costs I think, right now, we're looking very strong.
Mark, we lost you there. Did you just want to repeat yourself?
Yes. No, it's the we have a price increase that will come through this quarter that was announced last quarter that's coming through now. But as you, as always, pricing will depend very much on demand and supply and And we, we're constantly looking at, our costs and, and where our audit books are and how tight things are. So it's, right now, I think we'll see the real realization of what we've announced hopefully come through on the rest of this quarter and then we'll take a look and see where we are and what we need to do as we move through the rest of the year.
Yes. Thanks. Thanks, Mark. On the hedges Look, just to clear it up a little bit, we don't speculate on the currency. What we do on a short term basis is as we get the orders and we fix the rates, on those orders, so that we lock in the margin.
Obviously, during this year, we saw a period where the rent substantially strengthened and then subsequently weakened. So in Q4, it weakened. We we we the hedges that we took at in in in Q3, with the subsequent weakening of the Rand they were out of the money. But what I would say is for the full year, it was it was close to breakeven. As we move your question specifically relates to, Q1, And again, we've done the same thing.
But the currency has been relatively stable in recent times. So The hedges that we've taken out for this quarter are roughly about half of our dissolving Pulp South African sales. And they've been done at approximately where the current spot levels are at roughly about 14:30. So we don't think the impact will be material because we're already 3rd week in November now. So It should not be a material impact.
On the last question, on pulpmill acquisitions, Unfortunately, obviously, the market has moved significantly and pulp assets have become expensive. So we monitored the situation, but we're not going to overpay for anything. And, at these levels, it doesn't make sense.
James, does that answer your question?
Yes, thank you very much.
Thank you very much, gentlemen. The next question comes from Sean Ancura of Buckingham Capital.
Good afternoon guys. And just in terms of, I guess, your obviously given quite a decent outlook for Q1 twenty nineteen. But maybe if you look at the year as a whole, I mean, could
you maybe just sort of sum up what do you
think is your biggest headwind that you're facing, and just sort of linking that to where we are at the moment with pretty high poll prices and perhaps paper demand in Europe under pressure. If you could just link the 2? And then just second question on your leverage target of 2 times, is that fix, is that going to stay for a while? I mean, how are you guys sort of thinking about that versus growth going forward? Thanks.
Yes. On the outlook statement, I mean, obviously, in our industry, it's tough to give guidance on the whole year. But look, if we look at the big factors at play here, mean, firstly, we've got more capacity available, dissolving pulp. We've obviously condemned the conversions and that gives us the opportunity to sell higher margin product. So those are the benefits.
We've obviously got the the the the rent is currently weaker than than it was for much of the prior year. We also had this the production shuts during the last year. So all of those things are favorable Working against that, obviously, pulp costs are already very high. You know, our expectation is that they're gonna come down. And I'm talking about paper pulp now.
Our expectation is that they're gonna come down, but that they haven't started, they've started coming down in China, but, in the US and Europe, they've not come down. So they're at relatively high levels. So that is a risk factor for us. And then the economic slowdown that we are seeing in Europe is softening demand for paper. So we have to be somewhat cautious.
A lot of analysts are predicting a recession in Europe. So we have to be careful. And that's why we we can find our outlook statement to Q1 because obviously we've got a high degree of visibility. But the year as a whole, clearly for all the reasons I outlined earlier, there are a number of significant positive aspects that will help us. But to say once again that there is risk linked to the economic situation in Europe at the moment.
The next question.
Sorry, just to follow-up on the gearing sort of our target in terms of weighing that up in terms of future growth.
Yes. Yes, Sean, sorry, I should have answered that. Yeah. Look, it is our target and we use it as a guiding, principle. Obviously, we've committed to CapEx this year of we've got it in the outlook statement of $5.90.
We've got to see through the the Saiccor expansion. For us, it's a ceiling. It's a guiding principle ceiling. I would be very hesitant longer term to go over those levels on a long term basis. So, yes, that will continue to be in place as we move forward.
But it's a ceiling. If we go below that, we go below that. We're not going to, we're not going to foolishly pursue opportunities, if it doesn't make economic sense.
Okay, great. Thanks, Steve.
The next question comes from Nippon Srivastava of Bank of America Merrill Lynch.
Yes, hi. Thank you for the call. Just two quick questions for me from me. Firstly, can you help us on stand how the ramp up at FICO will look like? That's the first question.
And then the second question, can you maybe just help us understand how much DWP you're producing at okay, or how much you produced during the quarter? And would you be seeing the remainder of the capacity back to paper pulp. That's my two questions.
Alex, do you want to just top that one? Yeah. Thanks. We've announced we will, commission the 110,000 tons additional capacity in June, July 2020. And that should take roughly 3 to 6 months to get to full production.
Since we're just adding additional digestives on the line, probably closer to the 4 months 3 months from 6 months. Yes. And obviously, we've just got the approvals through and we've started construction. So that will commence now and as Alex said, finish middle of, middle of 2020. On your second question, on dissolving propane, you'll appreciate we can't get too specific because we have commercial arrangements with suppliers, of paper pulp, but we, We're predominantly in dissolving pulp.
We are ramping it up a little bit further during the year. Yes. And that's all I would say at this stage.
That's fine. That's fine. Thank you very much.
Jasmine, that was the final question. Do you have any closing comments?
Nothing more from my side. Thank you everybody for joining us and look forward to chatting at the end of our Q1