Thank you. Good day, everybody. Thanks for joining us. I'm gonna read through the deck, the investor presentation, and as always, I'll call out the page numbers as I move through. Starting on page four, some of the highlights for the quarter. Firstly, EBITDA was up 1% to $224 million. Similarly, bottom line profit up 5%. Overall, it was a good sales quarter. I just remind you that following the production stoppages that we had in Q3, we did go into the quarter with lower inventories. 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 Rand was stronger.
I should point out to you that for the year, the impact was immaterial. It was close to zero. 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 five, 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 Somerset and Maastricht. Obviously, we acquired the Cham Paper Group during the year, a specialties business. As you know, it's one of our stated strategic drivers to grow on the packaging front, very pleased to say that our volumes were up nicely at 18%. Our dividend continues to grow, we committed to getting a 3x cover.
We've done that for these set of numbers with a dividends per share of EUR 0.17. We manage our CapEx around a leverage target, we've stated that in the past. It's 2x , that's what we've done during the course of the year. Moving to page six, you can see the specific leverage numbers are 2.1x at the end of the financial year. The EBITDA margin, a little bit down on last year, 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 seven, 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 predominantly fixed variable costs, obviously fixed costs rising as well.
What we strived to do, we did it successfully, was achieve higher sales prices to offset those impacts. On slide eight, the contribution of our product categories. Packaging and specialties continues to rise. It was 18% of our profits, that will go up further as we move into the new financial year. Dissolving pulp was a little bit less, that's obviously linked to the lower margin coming through because of the exchange rates on translation. The debt profile is reflected on page nine. We don't have anything immediate at the moment. The next thing coming up is the securitization structure, in 2020. Probably sometime during 2019, we'll look to renegotiate and extend that further. On page 10, our cash flow and on how we utilize the funds.
We generated in our operations $630 million, and you can see the split of where we're spending that. Maintenance CapEx, $ 167 million. Obviously, spending some more on the expansionary projects, which I'll talk about further just now. 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 Cham Paper Group, that's shown separately there. The other costs and the dividends showing. Nice movement upwards on the dividend over the last two years. On slide 11, the split of the CapEx and the evolution of the CapEx. The 2018 and 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. Because of that pushed from 2018 into 2019. Obviously the 2019 number being lower. What we've done there is we've just pushed out some of the smaller projects. 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, Saiccor, all behind us and production has normalized thereafter. Specifically on the specialties and packaging conversions, the product, we are 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 and those come through and we've commenced construction. On the graphics, the Lanaken project is something that we've talked about previously, that occurs during the course of the year and that will allow DMA at Lanaken to shift from mechanical grades to coated woodfree. It will have swing capabilities as well. We've got a project during the year to upgrade at PM9 on Gratkorn and that will be undertaken and will lower our costs. Moving forward to page 14 and as per previous calls, 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 in balance. As capacity comes out further going forward, whether it's by ourselves or competitors, that should keep the balance favorable over the medium term. These are short-term pressures. I've already mentioned it but pulp costs as a raw material cost were rising throughout the year. It has stabilized in recent times. Obviously it's still at a high level. We were able to put through a series of price increases to offset that. It's getting harder. I think that's the important message, particularly with the economic slowdown that is occurring in Europe. We've got good mills, we've got world-class assets we'll continue to focus on our costs and manage that business to ensure it continues to 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. Those price increases took longer to rise and are now going through renewals. That will help offset some of the cost increases that we had seen. The big opportunity obviously going forward is now that we have more capacity available, this business should go from strength to strength. On slide 16, the dissolving pulp. Throughout the year we've seen relative stability in pricing. The demand has been good. Competing fibers pricing has been good. Unfortunately, the one offsetting factor has been viscose itself.
There was a lot of new capacity that came on board and that kept viscose prices down. That helped. That offset some of the tailwinds that we had. Obviously, we're going to benefit from the debottlenecking volumes that I referred to earlier and ultimately, Saiccor's additional volumes will boost us further. Moving to the regions, page 17. Firstly, Europe. A very good year for Europe. If you look at the profitability, with the cost pressures that they were facing to be able to put through the highest selling prices, I think a very good job. Specialties and packaging, we were restricted before we did the conversion. Everything was kind of fully sold out, but we were still able to get 9% higher volumes and obviously, the successful integration of Cham during the year added to the business.
You can see the pressure that we had because variable costs were up 11%. To deliver those results on the top of that, I think as I said, a good job. On page 18, our North American business. Again, a very good quarter. We went into the quarter with lower volumes following the delays at Somerset. Obviously, that's behind us now, and it was nice to see the profits pick up in the quarter. The market conditions are still fairly tight, and we were able to achieve selling price increases of 13%, again, to offset the higher raw material costs. Our packaging business nearly doubled the sales volumes. In South Africa, on the paper side, a very strong performance. Our packaging business did very well. Unfortunately, we were up in most of the year, up against a stronger Rand. We took out hedges.
We typically take out hedges when we get orders three months in advance of the deliveries, and obviously the Rand weakened substantially during the last quarter, so we had a stronger Rand in the hedges. Dissolving pulp volumes were flat, again because of low inventory volumes. As I say, we got the environmental approval for the Saiccor expansion. On slide 20, Sappi's been going through a journey. 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 trends working in our favor with the big story being the sustainability. That's helping drive dissolving pulp, ultimately, which goes into textiles and obviously packaging as companies strive to switch from plastics to paper.
Page 21, I am not going to go through. It just shows you the contribution from the different segments. 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 trends I have referred to some of those. I am not going to talk through that slide. Move to 23. The strength of our packaging offering, you can see. This is all our mills that make either some or all of their capacity is allocated towards packaging and specialty grades. A very powerful offering, and we are well-positioned as we move forward. Slide 24. We launched a new dissolving pulp branding during the year, Verve. Sappi has a reputation for quality and consistency and reliability. We think it differentiates ourselves from the competition.
We think we have got a great product, and we thought the time was right to introduce a brand to enable us to differentiate ourselves. It has been well-received by the market. Our customers like it, and it is a very powerful offering, and we will be reinforcing this branding as we go forward. Slide 25 is the four pillars of our strategy. I have talked about them previously. I have got a slide on each. Page 26 is on costs. Further good work done during the year. Each year we commit to procurement and efficiency targets, and I am very pleased to say that we got a further $ 60 million in 2019, and obviously with the kind of cost pressures that we were up against, this certainly helped us. We strive to achieve continuous improvements across the mills.
Probably the biggest opportunity is pulp capacity in Europe, and we continue to debottleneck at our plants to try and improve the integration percentages. Project we have got during the new year, I have already mentioned we have got a EUR 30 million 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 have been continually taking capacity out of graphic paper. The one project that we have got in the new year is at Lanaken. We have talked about it. That will get us at Lanaken predominantly out of mechanical paper and into coated woodfree, which we feel longer term is a better space to be in. On 28, the balance sheet, as I said earlier, we continue to manage around our leverage targets of 2x .
On the funding side, our 2022 bonds go into a call window in April of 2019. After that date we can start to monitor the markets and see if there is any opportunities, if it makes sense to refinance those. Slide 29, the accelerating growth in higher margin business segments. That is what I have been talking about throughout. We have got great opportunities in dissolving pulp and packaging, and I have already mentioned all the projects that we are looking at in the short term. On the bioproduct side, again, further opportunities. We are looking at the xylitol, furfural sugar demo plants to be built at Ngodwana, and we are hopeful that that can be an opportunity for us moving forward. Obviously, the Saiccor expansion, which I mentioned earlier. On final slide 31, the outlook itself. Dissolving pulp sales volume will improve post the debottlenecking projects.
Prices we expect to be relatively stable at current levels. The demand for our specialties and packaging continues to grow, obviously we now have more volumes available to boost this segment. The conversions and the capacity closures that we see from our competitors will keep the graphic grades in balance. However, as I said earlier, there are some short term and seasonal challenges at the moment. The CapEx I've already mentioned. Just finally, our outlook guidance is that Q1 will be comfortably higher than last year due to the increased volumes that we have available predominantly. I suppose the Rand has weakened in recent times, so that will also help us a bit. That's me gone through the presentation. Operator, I'm going to put it back to you for questions.
Thank you very much, sir. Ladies and gentlemen, at this time, if you'd like to ask a question, you're welcome to press star then one on your touchtone phone. That will place you in the question queue. If, however, you decide to withdraw the question, you're welcome to press star then two on your touchtone phone to remove yourself from the question queue. Just a reminder, should you wish to ask a question, you're welcome to press star and then one. The first question comes from Wade Napier of Avior Capital Markets.
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 you seem to be quite confident that that's going to sort of proceed. What happens if they don't proceed with this conversion project and exit coated woodfree markets? Second question, I just want more clarity on Cham Paper's sort of integration progress. You sort of commented that the integration has been better than expected. Is that a sort of suggestion that the synergies are going to be higher than expected, or has the integration been faster than expected? I just want some clarity there, please. Further to the specialty paper and packaging, sort of industry valuations have come off quite recently across the sector.
Although you've got a sort of net debt to EBITDA of 2.1x now, do you think you still have the balance sheet to potentially pursue opportunistic acquisitions within the specialty space? Thank you.
Thanks, Wade. With Cham, we're still going through the process of achieving the synergies. 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 million. Currently, we're tracking a couple of million dollars 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 specialties, 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. It's probably unlikely in the short term. Obviously, you continue to watch the market and see if anything's out there that makes sense. Look, Cham was a great deal for us and we monitor, but there's nothing in the immediate pipeline.
On the leverage to maintain margins in Europe if our competitors don't convert. Look, obviously, we're in a strong position and we believe that those conversions will occur. However, like always, we evaluate our assets and if in a worst- case scenario, if demand was soft and our competitors didn't take capacity out, then clearly, we would need to look at our own assets. We don't feel that needs to be the case at the moment. Berry, anything you want to add to that?
Well, only Steve, that it was not in our plans that such a conversion would happen. We were surprised by the announcement. Of course, we will await confirmation of it. 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 specialties, partly away from mechanical coated into coated woodfree. We did not plan this. If it goes ahead, well, that will mean that life gets slightly easier, but it does not alter our fundamental plan. As Steve said, if we need to take our own action, we will take it.
Yeah. Just to add to and just to reinforce what Berry said, we obviously converted at Maastricht during the year, and there's going to be a ramp-up that occurs with that. That gives us some flexibility.
Thanks a lot, guys.
Thank you. The next question comes from James Twyman of Prescient 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 customers will be thinking about that? Secondly, have you got any hedges outstanding for this year? It obviously cost you quite a bit in Q4. Just wondering whether there's any follow-through into this year. Then thirdly, you've been looking at pulp mill expansions or, well, acquisition in the past. I'm just wondering whether that's still a high- level target for you or given what lending's done, whether there's less requirement for you to be spending substantial cash there.
Yeah. Just to take each question in turn, Mark, I'll let you elaborate further, but just on selling price increases in the U.S. Clearly, after putting through the series of increases that we have, it does get tougher. Mark, do you want to go into it a little bit more?
Sure, Steve. It comes down to demand and supply. We continue to monitor our costs. I think right now we're looking very strong.
Mark, we lost you there. Do you just want to repeat yourself?
Yes. We have a price increase that will come through this quarter. It was announced last quarter. It's coming through now. As always, pricing will depend very much on demand and supply, and we're constantly looking at our costs and where our order books are and how tight things are. Right now, I think we'll see the realization of what we've announced hopefully come through on the rest of this quarter. 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.
Yeah. 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 in, we fix the rates on those orders so that we lock in the margin. Obviously, during this year, we saw a period where the Rand substantially strengthened and then subsequently weakened. In Q4, it weakened. The hedges that we took out in Q3, with the subsequent weakening of the Rand, they were out of the money. What I would say is for the full year, it was close to breakeven. Your question specifically relates to Q1, and again, we've done the same thing. The currency's been relatively stable in recent times.
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 $ 1,430. We don't think the impact will be material because we're already third week in November now. It should not be a material impact. On the last question on pulp mill acquisitions, unfortunately, obviously, the market has moved significantly and pulp assets have become expensive. We monitor the situation, but we're not going to overpay for anything. At these levels, it doesn't make sense.
James, does that answer your question?
Yes. Thank you very much.
Thank you. Thank you very much, gentlemen. The next question comes from Sean Ungerer of Arqaam Capital.
Good afternoon, guys. In terms of, I guess you've obviously given quite a decent outlook for Q1 2019, but maybe if you look at the year as a whole, could you maybe just sort of sum up what 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 pulp prices and perhaps paper demand in Europe under pressure? If you could just link the two. Second question on your leverage target of 2x ? Is that fixed? Is that gonna stay for while? How are you guys thinking about that versus growth going forwards? Thanks.
Yep. On the outlook statement, obviously, in our industry, it's tough to give guidance on the whole year. If we look at the big factors at play here, firstly, we've got more capacity available, dissolving pulp. We've obviously done the conversions, and that gives us the opportunity to sell higher margin products. Those are the benefits. We've obviously got the Rand is currently weaker than it was for much of the prior year. We also had the production shuts during last year. All of those things are favorable. Working against that, obviously, pulp costs are already very high. Our expectation is that they're gonna come down. I'm talking about paper pulp now. Our expectation is that they're gonna come down, but they haven't started. They've started coming down in China, but in the U.S. and Europe, they've not come down.
They're at relatively high levels. That is a risk factor for us. The economic slowdown that we are seeing in Europe is softening demand for paper. We have to be somewhat cautious. A lot of analysts are predicting a recession in Europe, we have to be careful. That's why we confined our outlook statement to Q1 because obviously we've got a high degree of visibility. 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. To say once again that there is risk linked to the economic situation in Europe at the moment.
Thanks.
Thank you. The next question comes from-
Sorry. Just to follow up on the gearing, our target in terms of weighing that up in terms of future growth.
Sean, sorry, I should have answered that. Look, it is our target, and we use it as a guiding principle. Obviously, we've committed to CapEx. We've got it in the outlook statement of $ 590. We've got to see through 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. Yes, that will continue to be in place as we move forward. It's a ceiling. If we go below that, we go below that. We're not gonna foolishly pursue opportunities if it doesn't make economic sense.
Okay, great. Thanks, Steve.
The next question comes from Nhlakanipho Mncwabe of Bank of America Merrill Lynch.
Yeah, hi. Thank you for the call. Just two quick questions from me. Firstly, can you help us understand how the ramp-up at Saiccor will look like? That's the first question. The second question, can you maybe just help us understand how much DWP you're producing at Cloquet Mill, or how much you produced during the quarter, and will you be swinging the remainder of the capacity back to paper pulp? That's my two questions.
Sorry, I didn't catch the first one.
Ramp-up at Saiccor.
Oh. Alex, do you wanna just top that one? Yeah.
Thanks. We've announced we will commission the 110,000 tons additional capacity in June, July 2020. That should take roughly three- six months to get to full production. Since we're just adding additional digesters in the line, probably closer to the four months, three months than the six months.
Yeah. Obviously, we've just got the approvals through, and we've started construction. That will commence now and, as Alex said, finish middle of 2020.
Correct.
On your second question, on dissolving pulp at Cloquet Mill, you'll appreciate we can't get too specific because we have commercial arrangements with suppliers of paper pulp. We're predominantly in dissolving pulp. We are ramping it up a little bit further during the year. Yeah. That's all I would say at this stage.
No, that's fine. Thank you very much.
[audio distortion], 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 results.