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Ladies and gentlemen, thank you for your patience in holding. We now have our speakers in conference. [Operator Instructions] It is now my pleasure to turn this conference over to Pablo González. You may begin.
Thank you. Good morning, everyone. Thanks for participating on the call, and we wish you all a terrific 2020. Let me start by making some remarks about the quarter results. Our fourth quarter results reflect top line growth, together with continued margin improvements, both sequentially and year-on-year. Our volumes and cost savings initiatives, in addition to an improved cost environment, allowed us to continue to deliver better results. Our top line increased for the 21st consecutive quarter. It accelerated sequentially, but as expected, growth slowed versus last year given the deceleration of private consumption, the fact that we lapped our fourth quarter 2018 price increase, that together with our clients, we invested to stimulate volume growth in our categories and the very tough comparison we faced. On the cost side, raw materials, for the most part, compared favorably versus last year. And together with our cost reduction program, which continues to deliver very good results, allowed us to improve profitability. Margins expanded both sequentially as well as compared to prior year. We had a good fourth quarter, and our results for the year were strong despite a very challenging private consumption environment and pressures from competitors and retailers. Xavier will now provide additional details on the quarter.
Hello, everyone. During the quarter, our sales were MXN 10.8 billion, a 5% increase versus the fourth quarter of 2018. Volume was 5% higher, while price and mix were in line versus last year. Consumer product sales were 3% better as a result of higher volumes. Away from Home products increased 5%, and export sales were up by 8%. Cost of goods sold decreased 5%. Against last year, fluff compared negatively, while virgin pulp, imported and domestic fibers, superabsorbent materials and resins compared favorably. Energy prices were also lower. Finally, the FX was lower, averaging 2% below last year. In addition, our cost reduction program yielded approximately MXN 400 million of savings in the quarter. Gross profit increased 24%, and margin was 39.5% for the quarter, 120 basis points better sequentially. SG&A grew 5% and was 16.5% of sales. We continue to focus our investments in advertising and point-of-sales activities to strengthen our brands and support innovation. Operating profit increased by 41% and the operating margin was 23%, a sequential improvement of 230 basis points. During the quarter, we generated MXN 2.9 billion of EBITDA, a 38% increase. The EBITDA margin was 27.3%, showing a sequential improvement of 190 basis points. Cost of financing was MXN 398 million in the fourth quarter compared to MXN 359 million in the same period of last year. Interest expense was only slightly higher in spite of increased interest from the IFRS 16 liabilities partially compensated by a reduced debt position. In the quarter, we had a MXN 15 million foreign exchange loss compared to a MXN 32 million gain last year. Net income for the quarter was MXN 1.5 billion, a 43% increase. Finally, earnings per share were MXN 0.47. For the full year, our sales were MXN 43.5 billion, a 6% increase. Our EBITDA was MXN 10.9 billion, a 21% increase and 25% of sales, and our net income was MXN 5.2 billion, a 22% increase and represented 12% of sales. Let me pass it back to Pablo.
Let me first make a few additional comments about the year that just ended. We invested close to MXN 3 billion, of which approximately MXN 800 million were CapEx and through a strong innovation plan, offered consumers better products and solutions to meet their needs. Given our results, profit sharing will be over MXN 800 million for the year. Our personnel are highly skilled and committed, delivered good results and all will share in the benefits. This has always been the case at KCM, and we're very proud of it. Also, our strong results translate into an earnings per share of MXN 1.67, an increase of 22% versus last year. It is worth mentioning that we continue to deliver on our sustainability goals and have been recognized by continuing to be part of the Mexican Bolsa Sustainability Index and the FTSE4Good Index Series, and more recently, have been included in the Dow Jones Sustainability Index, which only includes 16 Mexican companies. Finally, throughout the year, we supported more than 200 institutions in Mexico. We were recognized for our participation in Jóvenes Construyendo el Futuro. We have been training 180 fellows since this program started. And our employees have been actively engaged in the communities where we operate.
In summary, KCM delivered good results on all fronts. We will continue to strive to do what's best for our consumers, employees, shareholders, communities where we operate and of course, Mexico. Now when it comes to 2020, we are more optimistic. There has been a lot of uncertainty regarding the Mexican economy in general and private consumption in particular, but we believe growth will pick up this year because OpEx spending will increase behind the government's projects, particularly its social programs. And now that it has gone through its learning curve, spending will be accelerated during the first half of the year. Formal jobs will increase. Wages will grow at a higher rate than inflation, which will remain under control. And remittances will continue to provide additional support. Given all these factors, domestic consumption should be better than in 2019. Of course, how this evolves will be a determining factor influencing our top line.
To support growth, which will be particularly challenging during the first half of the year given difficult comparisons, we will continue to bring important innovations to market and offer our consumers the best products in tier at the best value while strengthening our brands and our market execution. On the cost front, given the pullback in some raw material prices, pulp, fluff, fibers for recycling and polymers, should compare positively in the coming months. Near-term projections for these prices suggest they will remain around current levels during the first part of the year. Others, like superabsorbent materials and resins, should be stable. At current levels, the exchange rate will be slightly better than last year. Of course, operating and executing efficiently while again achieving a positive result in our cost reduction program will continue to be key. We delivered savings of MXN 1.6 billion for the year. So far, we have identified savings of close to MXN 1 billion for 2020. But for the whole year, we expect to achieve a similar amount as in 2019. As we've mentioned before, most of these savings will relate to opportunities in material savings, product specifications, productivity and distribution. Also, we will continue to work to improve our working capital. Our ongoing efforts have yielded very good results, and this will continue to be a priority. To support these efforts, our investments for the year will be around MXN 3.5 billion, of which CapEx will represent approximately MXN 2 billion mainly for capacity additions, product improvements, innovations and cost reduction projects. Given our results, the Board will be proposing to our shareholders a dividend increase in real terms. In summary, we had a strong 2019 and we are engaged in executing important actions at the product, pricing and mix, cost and expense levels to continue improving our results. With that, let me open up for questions, and thank you all again for participating on the call.
[Operator Instructions] Our first question will come from Bob Ford, Merrill Lynch.
Congratulations on the quarter. Pricing was no longer a driver of growth in the quarter. How should we think about that in the quarter and on a go-forward basis? And Pablo, you mentioned some efforts with clients to stimulate volume in the fourth quarter as well. Could you expand on that, please?
Sure. Well, thanks for being on the call. As we've mentioned, pricing, there's a couple of things happening: One, we lapped the price increase that we put in fourth quarter of 2018; two, the price increase that we put into the market in 2019 was moderate; and three, together with our clients, we are putting a little bit more promotional activity to stimulate growth given the tough comparisons that we expected for the quarter, and that will continue to be difficult in this -- at least in this first quarter of the year. That mainly has to do with the fact that in late 2018 and early 2019, some of the retailers were a little -- somewhat aggressive on pricing in some of our categories to gain volume growth. So comparisons have reached us and now we need to deal with that. So again, we worked together to try and increase volumes for the categories and that's what you saw in fourth quarter of last year.
Now going forward, for the year, I think you can expect a more balanced growth between volumes and price and mix. 2019, the first half of the year, was, for the most part, pricing driven. Our growth late in the year was volume driven. I think in 2020, for the year, you'll see a more balanced growth.
That's very helpful. And then when it comes to wealth transfers or some of the subsidies the government is planning, is there an experience that you could point to, historically, that might be indicative of how your categories might respond to have your government spending?
Well, it really all has to do with domestic consumption with -- our experience has been that when we see some of those trends are happening, when we see remittances grow, families have a little bit more room to spend. And usually, in those cases, domestic consumption strengthens somewhat. And that's why we said that we're a little bit more positive on 2020 because we see some of those factors coming in. And thus, we expect domestic consumption to be stronger than in 2019.
Good to hear. And again, congratulations.
Thank you, Bob.
Our next question will come from Benjamin Theurer, Barclays.
Congrats on the results. Just staying on the topic and the outlook for 2020 you've provided. You've said that there's obviously wage increases, and we've all seen that the minimum wage hike of approximately 20% should be somewhat helpful for people to have more money in their pocket. So I get it from that point.
But could you elaborate how much of that is a potential headwind for you from a cost perspective? So how much of your labor is actually exposed to that? And would you expect this to be difficult at the beginning to offset through some pricing strategy? That will be interesting, too, if you could elaborate on that.
Sure, Benjamin. Thank you. No. That's the short answer. Our results won't be impacted negatively by the minimum wage increase, as all of our employees earn more than the minimum wage. In any case, as you say, prior to consumption and category growth will be positively impacted by higher purchasing power from consumers, but we expect no material impact to our cost structure because of the increase in the minimum wage.
Okay. Perfect. And just as a follow-up, I mean, clearly, you've been very successful over a couple of prior quarters when it comes to cost savings. Do you still think there's potential for additional cost savings 2020 versus what was 2019? Because, I mean, clearly, the MXN 1.6 billion was already a very meaningful number. But is there any additional room where you see cost reduction to potentially drive margin expansion?
Sure. Just as you mentioned, we've been pretty successful with our cost reduction program over the years. As I've always said, this is not a new thing. It's part of our culture. We're always looking for ways to become more efficient. And for 2020, as I said in my initial remarks, we've already identified MXN 1 billion in savings, and we will continue to look for additional opportunities and we expect to be close -- or at around the number that we've delivered in 2019 for the whole year.
Okay. So just to understand that right, that would basically bring it to, call it, MXN 2.5 billion to MXN 3 billion 2020 versus 2018, correct? I think that's an additional saving, right?
The savings -- we expect savings for 2020 to be around MXN 1.6 billion.
Compared to 2019?
Compared to 2019. And it's a combination of projects that started late in 2019 that rolled into 2020 and new projects that we have identified during 2020. It's a combination of both, but they will all be savings in addition to what we put in, in 2019.
Our next question will come from Rodrigo Alcantara, UBS.
Just curious about the volume composition. When we see customer products, Away from Home products and exports, and you could please give us like the volume composition there? And the price composition? Speak about how competitors behave during quarter, do you see competitors being less aggressive in terms of prices or more aggressive in terms of market share? Do you see some stabilization? I think that you were losing a bit of market share in the last quarter. Do you see this stabilizing in the quarter? Or do you gain some market share in some categories? That would be helpful.
Thanks, Rodrigo. Let me first point out, which is a very important question you're asking, that we have seen no significant changes in pricing or promotional activity from our competitors. Having said that, our brand position remains very solid in all categories with no doubt, given the very competitive dynamics, particularly of tissue and our efforts to recover profitability over the past 2 years, have meant that our market shares in bath tissue suffered over the past 2 years. We are, however, putting plans together and on the right path for recovering our share losses over the past couple of years.
Okay. So just on the volume breakdown by consumer products, Away from Home and exports, if you could give like the -- what were the volume composition and price composition?
On consumer products, our volumes were strong across the board in the fourth quarter, and they were pretty much about 4% increase versus last year. In professional, we -- volumes were basically flat. And in export, our volumes were up since we're exporting more finished products, particularly to our strategic partner, Kimberly-Clark Corporation.
Our next question will come from Luis Willard, GBM.
Pablo, Xavier, congrats on the results. I would like to hear your thoughts about free cash flow generation for the year 2019 and especially about working capital. So then I heard it was roughly unchanged on a year-over-year basis in 2019. We find that it basically generated roughly the same amount of the free cash flow that you paid in dividends. So a little bit below MXN 5 million, if my numbers are correct. So this happens despite improvement in EBITDA and the reduction in CapEx on a year-over-year basis. So what are your thoughts on free cash flow going forward and especially working capital?
Hello, Luis. Yes, as you point out, given the efforts that we did on working capital together with a reduced investment last year, meant that we generated more cash. We increased significantly the cash position at the end of the year, in spite of having reduced our debt position. We paid a debt -- some debt that was -- that came in last year, not a very big amount, but we paid MXN 400 million of debt -- reduced the debt. And so as I said, our cash position increased and hence our leverage, our net debt-to-EBITDA number improved significantly.
[Operator Instructions] Our next question will come from David Cardona, Signum Research.
Congratulation for the good report. I have 2 questions. The first one is, could you expect to see parallel levels of margins for the next year's next -- like the one reported this last quarter? And the second one is, could you give us some more color about forward prices of the importation fiber?
David, we couldn't quite get your first question. Could you please repeat it?
Sure. Do you expect to see parallel levels of margins for the next year, like the ones reported this last quarter?
Great. Okay. Thanks for the call. Look, in the fourth quarter, we had many tailwinds in our favor and so thus, strong results. We'll see if this remain as such, as tailwinds, in spite of volatility, for example, with the exchange rate. So hard to say given the volatility, but we certainly hope that we will continue to have those tailwinds with us. And you had a second question? Sorry, can you...
Okay. Sure. Could you give us some more color about forward prices of the importation fiber?
Sure. Again, we expect pulp, fluff, and as you're asking, fibers for recycling, among other raw materials, should compare positively in the first -- at least in the first half of the year. Some analysts are expecting that maybe we'll see an uptick at some point during the second quarter or second half of the year. Having said that, we see that demand is still somewhat sluggish. And that inventories continue to be at -- if not at their peak, at elevated levels. So we are hopeful that we will not see increases again at least in the first half of the year and hopefully for even longer time frames. But certainly, starting the year, they will compare positively versus what we've seen in the past couple of years.
[Operator Instructions] Our next question will come from Nicolas Larrain, JPMorgan.
Congrats on the results. I was just wondering if this movement regarding the -- the retail channel destocking, both on the informal and formal is still going on? Was this intensity? Or has it mostly faded by now?
Nicolas, we -- I mean we do see that -- particularly given economic conditions, we see retailers both in the modern trade and traditional trade being -- trying to better manage their working capital and particularly their inventories. Having said that, it's nothing like what we saw in 2018 and early 2019, where we saw a big drop in their inventories. It's rather just a more efficient and thoughtful way of managing working capital in inventories, in particular, that continues to be present with, again, modern and -- both modern and traditional trade.
[Operator Instructions] Our next question will come from [ Roger Bognar ], [ Bognar Enterprises ].
Gentlemen, the trade agreement just completed with the 3 countries: Canada, U.S., Mexico. Does that have any impact, good or bad, on the company?
Roger, it has certainly a good impact because it provides certainty and that's always good for investment and that's always good for consumer confidence. So from that standpoint, we expect it will have a positive impact certainly for Mexico and in that sense, for the company.
Our next question will come from Rodrigo Alcantara, UBS.
Just a follow-up regarding the dividend proposition. So you mentioned something about real terms, right, growth in real terms? So could be something close to 3%, right? And just curious from a fiscal standpoint, how comfortable are you with your current levels of equity balances, especially on the CUCA and the CUFIN balances. Just curious about this. How comfortable do you feel in terms -- from a fiscal point of view?
Hello, Rodrigo. Yes. You're right that the proposition that will very likely be made by the board to the shareholders' meeting will be something pretty much in line with last year's inflation. In terms of CUCA and CUFIN, we have definitely -- CUCA and CUFIN, all of our earnings are -- let me use this word, backed up by tax earnings, what we are analyzing at this point is how much of that is still from before 2014, and what can we do with CUCA as we've done in the recent years. So we'll have a more detailed answer on that going on in the coming months.
[Operator Instructions] Speakers, at this time, we have no further questions in the queue. So I would like to hand it back over to you for any closing remarks.
Great. Again, thanks for participating in the call. And as I said, we wish you all a terrific 2020. Thank you.
Thank you very much. Ladies and gentlemen, thank you for joining us today. This now concludes our conference. You may disconnect your phone lines, and have a great weekend. Thank you.