CCL Industries Inc.

Donald Lang - Executive Chairman Sean Washchuk - SVP and CFO Geoffrey Martin - President and CEO

Adam Josephson - KeyBanc Mark Neville - Scotiabank Maggie MacDougall - Cormark Stephen MacLeod - BMO Capital Scott Fromson - CIBC Elizabeth Johnston - Laurentian Bank Ben Jekic - GMP Securities Michael Glen - Macquarie

Well. Thank you, operator.

Good morning, everyone. As you all know, we’re reporting our fourth quarter and year end numbers which is a record.

And we will talk through the numbers. And with that, I will just turn over right to Sean Washchuk for the financials.

Thanks, Don. So, I'll draw everyone's attention to Page 2 of our presentation and have a look at our disclaimer, forward-looking statements.

I'll remind everyone our business faces known and unknown risks and opportunities. For further details of these risks and uncertainties, you can look at our 2016 MD&A, our updated fourth quarter MD&A, and our 2017 MD&A which will be filed in the next couple of days under the section Risks and Uncertainties.

Our annual and quarterly reports can be found online at the company's website cclind.com or on sedar.com. Turning to Page 3, the fourth quarter of 2017 was a record fourth quarter for CCL Industries.

Sales growth excluding the impact of currency translation was 19% to $1.23 billion compared to $1.06 billion in the fourth quarter of 2016. The growth in sales can be attributed to organic growth of 3.9%, 2.2% negative impact from foreign currency translation, and 14.9% from acquisition-related growth, primarily the Innovia acquisition.

Operating income increased 30% excluding the impacts of currency translation to $205.1 million for the fourth quarter of 2017 compared to $160.6 million for the fourth quarter of 2016. Geoff will expand on the segmented operating results for CCL, Avery, Checkpoint, Innovia, and Container segments later on in the presentation.

The fourth quarter of 2017 restructuring and other items increased or became income of $4.2 million, due to the reversal of a pre-acquisition Checkpoint legal reserve for $15.6 million, partially offset by $11.4 million of restructuring expenses for the Innovia and Checkpoint acquisitions. For the 2016 fourth quarter, $6.7 million of restructuring was recorded primarily for the Checkpoint acquisition.

Net finance expense was $23.8 million for the fourth quarter of 2017 compared to $12.2 million for 2016. The increase in the net finance cost is primarily related to an increase in outstanding debt to fund the Innovia acquisition and an increase in pension interest expenses partially offset by debt repayments.

Debt repayments in 2017 have totaled almost $385 million. The overall effective tax rate was 2.8% for the 2017 fourth quarter compared to 25.7% in the 2016 fourth quarter, this reflected the impact of US tax reform in the Tax Cuts and Jobs Act in the current year quarter.

The Tax Cuts and Jobs Act legislation resulted in a 40 million decrease in tax expense for the fourth quarter of 2017 due to a reduction in deferred tax liabilities. Excluding the impact of this legislation, the effective tax rate would have been 25.9% for the 2017 fourth quarter.

Of the $40 million in legislation impact to deferred tax liabilities, $15 million primarily related to book and tax timing differences and some other discreet tax items. However, $25 million related to indefinite life intangibles, deferred tax liabilities recognized only for accounting purposes that had no corresponding tax basis and then were therefore excluded from our adjusted basic earnings per share.

Net earnings for the 2017 fourth quarter were $169.4 million compared to $98.3 million for the 2016 fourth quarter. For the year ended 2017, sales, operating income and net earnings improved 21%, 24% and 39% respectively compared to the 2016 year.

2017 included results from the 11 acquisitions completed since January 1, 2016, delivering acquisition related sales growth for the period of 19.1%, organic sales growth of 2.1%, partially offset by foreign currency translation headwinds of 1.6%. Results for the 2017 year also included the pre-tax impact of non-cash acquisition accounting adjustments to finished goods inventory of $15.2 million and restructuring and other charges of $11.3 million.

Moving to Slide 4, basic earnings per Class B share were $0.97 for the fourth quarter of 2017 compared to $0.56 for the fourth quarter of 2016. Adjusted basic earnings per Class B share were $0.83 for the 2017 fourth quarter compared to adjusted basic earnings per Class B share of $0.59 for the fourth quarter of 2016.

The adjustment to basic earnings per Class B share included a $0.14 reduction for the revaluation of deferred tax liabilities on indefinite life tangibles. The after-tax impact of the reversal of the checkpoint pre-acquisition legal accrual and the restructuring expenses recorded for the fourth quarter were included in the adjusted basic earnings per Class B share, however, the quantum was nominal for the quarter.

The improvement in adjusted basic earnings per share to $0.83 is primarily attributable to the improvement in operating income of $0.21, tax related items of $0.10, partially offset by $0.07, an increase in interest expense, corporate costs, and the negative impact of currency translation. For the 2017 year, adjusted basic earnings per Class B share was $2.69, up $0.41 or 18% compared to $2.28 a year ago.

The adjustment to basic earnings per Class B share included $0.07 for restructuring and other charges as well as $0.06 for non-cash acquisition accounting adjustments to finished goods inventory and a $0.14 reduction for the previously talked about item for deferred tax liabilities associated with indefinite life intangibles. The 2017-year improvement in adjusted basic earnings per Class share was driven principally by the increase in operating income, which accounted for $0.49, tax related items of $0.12, partially offset by an impact from an increase in interest expense, corporate costs, foreign currency translation, amounting to $0.20.

Therefore, our adjusted basic earnings per Class B share was up to $2.69 for 2017 compared to $2.28 for 2016. Turning to slide 5, for the year ended December 31, 2017, free cash flow was $438.3 million, an increase of almost $100 million compared to the year ended December 31, 2016.

This reflects the improved operating results and improvement in net non-cash working capital partially offset by increase in net capital expenditures for the comparative years. Net capital expenditures increased by $47.5 million for the comparative years.

Turning to Slide 6, net debt at December 31, 2017, was just over $1.77 billion, an increase of approximately $758 million compared to December 31, 2016. The change in net debt from December 31, 2016, reflects the increased borrowings to fund the acquisition of Innovia on February 28, 2017.

The company drew down new lines, new credit facilities of $458 million with a two-year term loan to fund that acquisition. The company's overall average finance rate was 2.9% at December, 31, 2017, compared to 3% at December 31, 2016, reflecting the company's current mix of variable rate syndicated debt compared to a higher portion of senior note, bonds, and fixed rate debt at December 31, 2016.

That being said, company’s overall finance rate had increased almost 25 basis points since September 30, 2017. Debt repayments for the 2017 year totaled almost $385 million.

The company's leverage ratio of net debt-to-EBITDA was 1.85 times at December 31, 2017, up modestly from 1.3 times at December 31, 2016. Due to the decline in the company’s leverage ratio, interest rate spread on the company’s back syndicated debt will be dropping from a 145 basis points to a 120 basis points effective tomorrow.

Geoff, over to you.

Thank you, Sean. And good morning, everybody.

On Slide 7, you have a profile here of our capital spending for last year, $285 million. We sold some equipment out of our plant in Penetan predominantly that funded about $13 million of that and our planned capital expenditures for the year of 2018 is $325 million.

A couple of comments on slide 8 about our segment reporting. This is being what we have been telling you about all year but also to comment that in the year of 2018 we will be moving the reported results of our container business inside the CCL segment as that business is now managed as part of our overall home and personal care business.

Page 9, results for CCL segment for the fourth quarter, strong organic growth 7.7% but definitely was a surprise on the upside compared to 6.2% 2017. We had growth in all regions of the world.

Low single-digit in the US, mid-single-digits in Latin America, high single-digits in the [indiscernible]. I wouldn’t call it quite a surprise but certainly exceeded expectation well over 20% growth in Asia Pacific in the fourth quarter.

And sales really drove the strong profit performance for the quarter both by geography and by business line. A bit more color on that on page 10, our businesses in the consumer space.

Home & Personal care customers all grew in the fourth quarter by bearing degrees sort of in the low single digit range, but many of our customers commented on significant recovery in the Chinese business and perhaps that was also very much the case, so that really helped accelerate things along in that part of the business this quarter. Food & Beverage has been on the same trend, it’s been on for a while, strong growth in all categories, particularly in the wine & spirit space.

Our Healthcare & Specialty business was flat, with strong European performance was offset by some lower results, particularly in the pharmaceutical business in North America. CCL Design, seasonal device launches drove the growth there and that’s another thing that underpinned the strong growth in and that’s where most of our customers manufacture.

But in that industry, we sell to everybody in the U.S. in U.S.

dollars, so the weaker U.S. dollar certainly held profitability back from what it otherwise might have been.

In North America, the automotive business slowed up some, still grow a little bit, but slowed up some in the plateaued market, but strong growth continues in Germany although it is moderating from the levels of the last two years or three years or so. And CCL Secure our currency sales rebounded as we expected, almost doubled Q3 levels.

Page 11, these are the numbers for our joint-venture, we had record years in the Middle East and Russia, and just to remind that Chile business is now reported as part of our consolidated results, that’s you see the numbers for the fourth quarter looking down and we had some start-up losses in our [indiscernible] label venture in the United States. Page 12, results for Avery.

Soft quarter in the U.S., in the top-line, the mix was very positive that means better growth or proportion of sales in the printable, media and direct consumer businesses is the traditional organizational product categories, so that really helped the bottom-line and we had a nice, very nice pickup, and also the growth in Europe in the quarter for that help and two small direct consumer acquisitions there, both outperformed Australia and Latin America, the soft decline somewhat. Page 13, results for Checkpoint, very good quarter here.

Sales growth was 4% year-on-year, much of that driven by new chain wide hardware contracts, we secured both in Europe and the United States on top of solid base organic growth. The apparel labeling business sits inside here, results are improved, aided by RFID adoption, especially for customers in Europe and the restructuring program we’ve been on with this, part of our business for the last seven quarters or so, coming to a close, we expect to complete it in the first half of 2018 within the $40 million, we talked about and we acquired the business.

Slide 14, the only disappointing results for the quarter, persistent polypropylene resin inflation continued in October, November, December and continued somewhat in January, but we are expecting to see some easing off that now in the coming months, and some changes that’s going on in the raw material environment and we also finalized the acquisition accounting equation for Innovia that resulted in some higher amortization expense in this part of the business, so breakeven results for the quarter. Our Container business, U.S.

and Mexico results were solid. We now passed the anniversary of the loss of the homecare contract that prompted the closure of our Canadian operation we’ve pretty much planned to let up now.

We’ve signed a contract for sell the building, and we should complete the exit, any aspect of that by April of this year. Results continue to be impacted by both the low US dollar on our sales out of Mexico and high aluminum cost which continue to rise in the fourth quarter.

So, we’ve got a bit of lag there with which we have to catch up in the first quarter. We had a small fire at our slug plant that we are planning to restarting up for some quarters now in the Carolinas that we’ll probably see a sustaining profitability throughout the year 2019 as we speak.

Our results summarized to you on page 16 so a very good year around and as I mentioned before the only slight disappointment was the wrestling with the resident problem other businesses support at or above the levels that we expected. So, comments on slide 17 about the outlook before we open it for questions.

Think about as we go into the first quarter. We all know that US dollar weaker currently than it was this time last year so that’s a headwind.

But the euro is also being on something is a fair, so you combine those two together, probably we’ll end up being in modest headwinds something of the order that you saw in Q4. We had very strong starts in both the CCL and Checkpoint segments continuing the kind of trend we saw in Q4.

It is the low season at Avery in Q1 and we did announce surprise increase for some of the key product lines in that business effective January 1. So, there may well have been some Q4 pre-buys in the US that may have aided Q4 a bit, maybe a bit of a lag in Q1 but we will see how the quarter goes and we will be reporting on that to you in a few months.

Innovia challenges as I mentioned continue with high resin costs with prediction for that improved in the second half and we are raising prices where we can and where we need to, to get the business where it needs to be. As I mentioned earlier our Container segment will now be folded into the CCL segment beginning of Q1.

We also expect to see the business returning to growth as we pass the anniversary of our business loss and this part of the company is now as I mentioned before managed alongside our other product lines home and personal care and label. And it also has a lower of US tax rate to come in the year 2018.

So, with that operator we would like to open it up for questions please.

Geoff, Sean, good morning. So, Geoff you just talked about the tax rate being lower in ‘18 Sean can you give us a little more details about roughly where you expect it to be?

Sure, we’ve gone back and done some analysis and we are thinking the consolidated tax rate reduced by 3% on an annualized basis so we’d expected in that 26% to 27% consolidated effective tax rate for the year.

And on cash taxes?

Cash taxes, while we booked the deferred tax adjustments now so the non-cash impact has gone through. So, I think the cash tax are roughly in line with that.

One on the CCL segment, the organic growth, end of the year, just above 6% and has been there in each of the previous three years and I think you talked about a normalized growth rate being slightly south of that 6% number? what do you think a normalized growth rate is in light of where it's been the last four years or so?

Yeah, we've been a bit surprised by how strong it’s been, Adam, for some time as you know, we've always talked about 3% to 5% in that range, although we've been consistently, I think 4 years now, we've had over 6% compound annual growth now. Certainly, our CCL Design business has helped the growth rates.

And the electronics customers are being seen quite a rebound in their business in the past year. So, if you pull that out, it's certainly pull it down some.

But we haven’t had any feeling that we should adjust what we've been saying for some time that these are probably in the long term, not sustainable at this level going forward. So that’s what I’ve been telling for some time.

Sure. Thanks, Geoff.

Just a couple of others. You mentioned in your press release about companies needing to pass their higher raw material cost in this inflationary environment, how does that specifically pertains to you, considering that in your core label business, you historically haven't had much margin volatility as a result of rising or falling loss.

Yeah. So, I think it’s more in some of our other businesses.

So, in the Label business where, because things are changing all the time, there’s plenty of opportunities to finance pricing changes through without having to do it overtly. We’ve got some parts of that business where things don’t change, whether they're labels, the same from year-to-year.

So that’s a little more difficult, but it’s a small part of the business. But in Avery, obviously, we’ve got to pass on costs of paper and card and boxes and all the rest of it to a pretty pressurized retail environment.

We announced 3% price increase in January. Checkpoint was same.

So, it’s a little bit of a mixed bag, it’s not as difficult as it is at Innovia, where we're selling a commodity and it’s priced per kilo or per ton, or per square meter and very visible and the price is X one year and has to be x plus something in the next year. That’s been an inflation period.

So -- and in the can business, we’ve had a lot of discipline now where converted that market really into a total processing industry over the raw cost of metal. But of course, you still have the lag, so, aluminum has just been going up and up every quarter now for six or seven quarters and you think you’re going to catch up and then you can get another increase and you’re still behind the eight ball.

But the disciplines we have in part through there are pretty good.

Sure, and Geoff, thank you. And just one last one on Innovia, so EBITDA for the year was $49 million, I know you only owned it for 10 months.

So, let’s say we would have been call it, $60 million had you owned it for the full year. How much of a bite did higher resin take out of that hypothetical 60, and what do you think about…

The full 12 months - if you looked at the business for the full 12 months, $37 million.

$37 million. Okay.

Yeah.

That’s huge. And you’re expecting polypropylene to head downward I think you said in the second half.

So, would you think 2018 would approximate a fairly normalized year in that business?

Well, it's all around the pricing mechanism pass-through. So, they’re not matched timing wise in the same way they are in our can business, so the delays in some cases are long.

And that’s something we’re having a look at and you have to be careful about being aligned around that because if you pass it through on a quicker basis, will be passing through decreases just as quickly. So, we have to be slightly careful about thinking through how we will adjust this overtime going forward and be a little bit careful about when we decide to make changes with a large number of customers.

[Just for security reasons], I don’t know if you really want to get into this every quarter but you still have an outlook for Q1 for first half just for modeling purposes so we are way off base if it goes up or down one quarter?

We have visibility in quarter by quarter, we don’t have exactly what we’re going to do [indiscernible] I don’t know but the current quarter okay but beyond that I wouldn’t be able to tell you.

And just back to the Innovia discussion, is all the business really need to see some stabilization in pricing?

Our cost per ton, in the total rising cost per ton went up 30% in about 10 months so the price through mechanisms they have just close enough to be able to deal with that. So, you have to remember, there’s an up slope and a down slope and whatever you do on the up slope, pertains to the down slope too.

So, if we tighten the pricing mechanisms to too quickly the next time the curve the other way we won’t pick up what we’ve lost. So, it has to be pull through quite properly.

But yes, certainly some period of stability in resins will be much appreciated. Other than that, the business has done just fine and operations are pretty good.

We have not any real issues in the business look forward, just being that real.

If you did some stabilization in the price, would you spacing your pricing mechanisms, you expect at least half of that 37 million back again?

Yes absolutely, if it goes up another 20%, that would obviously be problematic but yes, we would expect to get some of this back at some point. And I think what you have to bear in mind these relationships with these customers go back many years and they have been in place for some time.

And it’s very clear, what we’ve seen from the history of this business they have benefited from periods of resin declines, they tend to have softened more in periods of resin heights and you have to be sure what you want is to narrow that window, in our current business some time ago we decided that’s what we wanted. The thing to be sure that’s what we want in this business too because it’s got a different mix of customers.

So, we are still working on that. But certainly, a period of stability will be more than welcome.

Okay. And just on the pricing increases, is that also just in response to raw material or what product categories was that?

It’s resin considerably so it’s mainly around that and that also the weaker US dollar reinforce some components of that business in China but the weak US dollar is another factor.

Alright. May be just one last one then.

Just on the CapEx, a decent [indiscernible] next year just may be some color where the capital is going?

Yes, we’ve got a lot of new plants going up around the world, so we all decided that we would some of the nice presents from the President of the United States, we put some of that into the CapEx line, we've grown much more, much faster in some of our businesses than we thought we might have done four or five years ago, and so we've got a number of our factories are absolutely sold out and so we think adding capacity in some of those high margin businesses by now makes sense.

Sean, you mentioned at the end of your comments that you expect interest rates to go down I believe due to lower leverage. Could you just repeat the decrease amount that you had noticed?

It’s not that I expect interest rates to go down, I think we don’t control the baseline interest rate, but our interest rate margin on our syndicated debt, so our term loan and our revolving facility, the margin on that will go from 145 basis points to 120 basis points.

Okay. Thank you.

And back to your CCL segment. The Asia-Pacific growth was extremely strong.

Could you comment on whether or not, if there's a particular area of strength within that segment in Asia-Pac? Or if that is sort of a broad-based across all of your products lines?

Mainly coming out of China, Maggie. I think there are two drivers for that, but, I think most consumer goods companies in China had very good quarters in the last quarter, all of our customers anywhere between 5% and 20% growth rate, were reported by a number of our customers in China.

That was a big factor. And the other factor was in the electronic device business, most of that is made there in China today.

So, we had a very strong quarter in that part of the company too. So, two things combined are what really drove it.

Okay. And Europe was also quite strong in terms of growth.

So, is it again specific to a particular area or was that more broad-based as well?

I'd say that was pretty broad-based. And again, I think many of our consumer businesses reported better growth rates in Europe than they did in the United States that was pretty typical across the consumer space.

And so, I think that was quite a big factor. And some companies, there are also seeing what I call bounce back in southern part of Europe, the Mediterranean rim countries, from the crisis of several years ago.

So, there’s some recovery back to the previous levels there. So, it looks good year-on-year.

If you look year on 5 years and 6 years ago, it looks a little different to that. So, there's some impact of that, too.

I just wanted to circle back around on the CCL segment. You mentioned a strong start to the year so far.

Is that pretty broad-based, like is that in line with what you have seen in Q4?

Yeah. It was.

I think the only comment I would add is Chinese New Year fell in the -- it falls in February this year and January last year. So that probably perked things up a bit in the start for the year.

But, yeah, it’s been pretty much a continuation of what we saw in Q4.

Yeah. Okay.

That's great. And then in terms of the secure business for 2018, it sounds like -- I know you talked about the limited visibility into the demand patterns but you mentioned that Q1 is sort of okay so far, does that sort of imply that it’s roughly in line with where Q4 was or we shouldn’t expect to see …?

Yes, it’s about a $200 million business, so it doesn’t move the needle that much unless you really have a big deadlock, we did in Q3 last year. So, recorded last year Q1, Q2 and Q4 we did sort of 85% of the sales and get that dip in Q3.

So, I don’t know whether that will happen this year or not but it’s -- the orders are very lumpy so if a big country comes in with a [indiscernible] the next obviously it goes into your comp. But overall perspective it’s less than 5% of the sales of the company.

Yes, just wanted to -- just more thinking about the Q3 in fact perspective.

Yes, it’s pretty unusual for that to occur in a way it did last year. But when you look at the strength of some of the other quarters, it sort of makes sense to end of the year where they said they were going to be in a couple of quarters, the one in which we didn’t revolve other than in Q1 they were just unusually strong, for the year it ended up about right.

Okay, that’s helpful. And then just on Innovia Geoff I know you sort of mentioned that some stabilization in the price would be welcome, some increase in prices.

If you don’t see prices return, is there a point at which the EBIT level stabilizes and you don’t see it moving lower?

Yes, I think the rate of increase at the moment certainly tailed off. So, we have put some price increases through, so -- and we did some of that last year but nowhere near fast enough to be able to rate of increase.

So, once we see those two curves closing and coming together, you will see that on the profit line. And we will just have to see how it goes.

So, I think Q1 is say the month of January resin in December month of February was brought in January, so the first two months of this quarter will be exactly as it was in Q4, little bit higher volume because there is no December but -- and some price increases and then we will have to see what March looks like and based on that if there is any tail off in the resin pricing in February. So, but the most important thing for us would be just not rising of the rate that it’s being rising, so some of the price increases can kick in and we begin to see the benefit of it.

Yes, okay, that’s very helpful. And then just on the apparel business Checkpoint.

Obviously that the labeling results improved and RFID adoption is picking up or picked up in the quarter. Can you just remind us of the size of the RFID business within Checkpoint?

The RFID business is small, the apparel labeling business in total is about 200 million.

Good quarter. I think most of my questions have been answered.

Just going back to Innovia, so it sounds like you have a handle on the Innovia operating cost structure. But what have you learned about Innovia’s competitive positioning and its target film markets [indiscernible] close the acquisition?

It makes - a lot of its - the films it makes are proprietary. And so, they make films a lot of other people can’t make and compete with commodity films based on proprietary features.

So that's the essence of the Innovia’s film business, because nobody else in the world makes propylene film the way we make it. But what we know now historically for sure this business did very well in periods of low resins and struggled in periods of high resins.

So, the pass-through mechanisms, although they have them, are nowhere near tight enough to follow the swings and roundabouts of resin moves, and probably debatable whether that’s a good or a bad thing, depending on where the curves move.

So, you can maintain those operating margins in low resin price environments?

Yeah. So, typically, the amount of pass-through [indiscernible] resins have declined, has been below - it’s the reverse impact of what we’ve seen.

They typically gained in periods when resins were dropping.

But you see material substitution in periods of high resin pricing?

No, no. We won’t do that, there's almost none of that.

on the customer side?

Just going back to CCL label and talking about the organic growth from that segment, specifically. Can you give us any more color on what's driving that, particularly beyond your expectation of a 3% to 5%?

Is it largely coming from price increases? Are you seeing good volume from existing customers?

Any additional color would be helpful.

Our Food & Beverage business in that space has been growing double digits for some time now. So that's really around the phenomenon of brands preimmunizing, so they use high end labels to make brands, preimmunized for channels or targeted at high income consumers.

So that’s being one phenomena. In the Home & Personal Care space, we've seen this big rebound in some of the emerging markets territories and customer’s results will support that.

So, you take a company like LVMH, they're not a huge customer of ours, but they grew 13% last year on a EUR 40 billion base. So that tells you something about what’s going on in the consumer world in some of those industries and we probably taking a bit of share in the U.S.

market which is a low growth market and we certainly grew above the right of the market in both the U.S. and Europe, so probably little bit of share gain.

Okay. So, in terms of Food & Beverage, the premiumization it sounds like existing customers are simply spending more on the product with you.

Is that fair?

When they choose to preimmunize a brand, so if they upscale it to sell it into a particular channel or bring out a version of the brand that's targeted at a higher income consumer, to do that they have to spend more money on the package and that results in nicer labels at higher prices.

Okay, okay, great. And just going back to Checkpoint, the organic growth a very good number.

I think last time we talked about it in a call, your outlook for growth wasn't necessarily that strong from it, though. Can you tell me what you saw between Q3 and Q4 that really drove that number?

And what you would expect for 2018 in terms of organic growth for that segment, specifically.

Yeah. Well, I think one of the things, we've all said about Checkpoint, is that its revenue picture is driven by the hardware and software rollouts the chain wide installation.

So, it’s a large retail decides to adopt the technology. You got this one-time revenue kick at hardware and software installation that can ping up a quarter and that definitely happened in Q4.

So, we signed a couple of large contracts, one in Europe, one in the United States and that certainly lifted revenue. But we also saw in the base business which is more supplies driven just sort of a solid underlying -- not a huge growth rate but a growth rate.

And probably a reflection of consumer economy just gets stronger than it had been in the prior year.

Okay. And just for 2018 it sounds like it’s hard to predict.

I can’t get into tell you because it depends on how many more of these one-time events. They can be quite larger.

So, I wouldn’t want to change what we said about Checkpoint. For the coming quarter I can say we had a good start, so many contracts are going to roll into and rollouts in Q1.

So, I wouldn’t be surprised to see Q1 look like general [ph] to people. But the year as a whole I wouldn’t want to make any comment about that.

Okay. And just finally for me on M&A, can you give any color on the pipeline?

The last big acquisition obviously was Innovia. So, any additional color on your strategy there?

Thanks.

I think when we bought Innovia we said we were going to focus on debt reduction and we wanted to get the leverage down below 2. I think we told everybody that year ago.

We are at 1.85 times, so that’s a good thing. One think I would say about Innovia, one a cash flow basis it’s been a very good transaction.

So, the operating results, all the little one-offs you get when you buy the cash flow from both of the businesses being very strong. So that’s really helped with that repayment.

And we have a good pipeline of bolt-ons that we are looking at and bigger things in bolt-ons and now [ph] I can’t comment.

I have a couple of questions but just to get the simple one out of the way, because I had some technical difficulties, Sean just a question for you. You said so the reduction in the premium on the interest rate is going from 145 to 120 and so you already fulfilled that condition by going below 2 times EBITDA or that’s the part that I didn’t catch?

So yes, our bank leverage ratio which includes a little bit of letters of credit on our balance sheet, that bank leverage ratio now has dipped below 2. So, the interest rate margin on the bank only facilities drops by 25 basis points.

Do you have any other hurdles kind of on the downside that we should expect or like as you [indiscernible] 1.5?

No, the next leverage hurdle is 1.5 and if we get below 1.5 times net leverage we drop another 25 basis points.

Okay, thank you. And Geoff one question for you is on the healthcare and specialty, as much as you can tell.

There seems to be a big dichotomy between Europe and North America. What are some of the drivers, I guess I probably know more about North America but what are some of the drivers of the strength in Europe and where do you expect of this business in 2018, given that it's one of the stronger margin generators?

Yeah so, well, margin wise, it’s the difference between this business and Healthcare and Home & Personal Care and Food & Beverage is pretty small these days. But, I think the conditions from most of our customers in both the U.S.

and Europe, I would say in the last decade has significantly deteriorated. So, the pressures on drug companies to lower prices, pressures on drug companies access to medicines, the arrival of generic drugs in a big way, it's made the whole price environment for customers a lot more challenging, and that’s gets passed along.

So, cost consciousness in that industry has moved up quite a notch. And probably the sector of that way you see most competitive activities in generic drugs that's a pretty big business for us in the U.S.

not something in Europe. And so, some of that customers are under pretty, pretty big pressures.

They’re all growing quite rapidly, because their pricing pressures are under quite dramatic. So that's probably the thing I would say, is one aspect.

Second one is the customer consolidation in the chemical industry. So, I think we're still going to be in a world where we got three or four customers left, and every time one big chemical company merges with another, that all creates some pressures on the supply side.

So, probably a combination of those two things.

Okay, perfect. And then my next question is as much as you want to disclose.

So, I'm guessing the increased CapEx for 2018 is, at least partly courtesy due to a windfall from lower taxes?

Well, and I think we just had to make some decisions. And when you're growing at a rate, we're growing in particularly in CCL business, that’s where the pressures are.

The other parts of the business, we're not feeling it, but we've got a lot of plants operating at absolutely maxed out capacity even one or two that have got some service issues. So, when you have these windfalls, it’s a good time to open the taps a little bit and take some of that pressure off and make sure our plants have got service capacity as well as productive capacity to make sure customers are looked after.

And we’re definitely in an industry where -- when you can service customers, the argument is less about the price. So, the more ability we have service as opposed to not be able to service has a direct impact on price.

So, sometimes putting a bit of capital to play can really help ease any pressures you might be under margin wise, particularly in a time of the year when you’ve got a lot of cost inflation pressures which need to be passed on in the form of higher prices.

And is CCL -- the segment is going to absorb the bulk of the CapEx…

Yeah. As you look at the trend of 2017, and 2018, it won't look a lot different.

And the main parts of the business are being invested in Home & Personal Care, Food & Beverage and CCL Design. They’re the three capital absorbers, little bit in the Container business, but it will be part of Home & Personal Care in next year, but that’s the places where the money being spent.

And sort of as a side qualitative question related to that. When you build a new capacity, what with personnel needs, I know you have a very, very strong kind of divisional and regional managers, but in terms of filling it up with personnel and learning the operation, how long does it take for brand new facility to reach the level of performance of your premium facilities so to speak?

I wouldn’t say we have an answer to that out of the book Ben. I think it just depends on the situation.

So, some startups go well, some take longer. I don’t think we have that formulaic answer to that.

Certainly, when capital gets deployed into the business that’s already running, that tends to kick in profits much quicker than when you build a side in a greenfield. So, we are building one next year in New Zealand for the wine industry there.

That’s obviously capital that gets spent there. Takes longer to payback and if we say we buy another line for personal care labels in China or the United States or Germany, you get payback almost six weeks after the machines are installed.

So those are the two dynamics to think about.

Just a couple for you. You talked about the 6% growth rate label and it’s exceeding your expectations for a while now.

You have talked quite a bit about the trend towards premiumization in food and beverage as well as increasing penetration of labels and phones, autos and many other end markets. When you think those trends will slow down in the foreseeable future such that 3% to 5% growth rate would be a more realistic expectation?

Probably the time is an -- macroeconomic change. So, I think if we get through sort of first quarter of 2019 it will be the longest economic expansion period in global history.

So that would suggest that 90% of the good news is already in the bucket. And there is risk of being bad macro news will be probably around the corner.

And I think that’s likely to drive the change. I don’t think it will be if anything to do with anything other than that.

A couple of other ones. How much EBITDA did Secure contribute to CCL in the quarter?

I wouldn’t want to comment on that. It’s -- I can tell you it’s a high, it’s about a $200 million business, that we’ve already disclosed and has a slightly higher EBITDA margin on the average.

And then just lastly on the Innovia deal. You just mentioned it’s been a good cash flow generator.

Secure has been fine, you had the resin drag in the Innovia segment. When you put it all together, how has the deal performed compared to your expectations a year ago and have there been any particular surprises other than resin?

If resin was the same price it was a year ago, we’d all be happy campers [ph] with that $37 million more EBITDA as simple as that.

Otherwise it’s exactly as you expected.

Yes, absolutely.

Hey good morning. Can you guys just -- over the past two quarters you’ve seen pretty substantial lift in the margin profile in the Avery business.

So, is there something in particular happening there and how should we think about the margins in that business going forward?

Yes, it’s really a mixed phenomena Michael. So, we have talked quite a bit about our ring binder business, it sits inside Avery which is a low margin business and we’ve been giving up some share in certain parts of that where the price point gets too low to make it worthwhile.

And taking out the cost associated with that. So we closed a large facility in that business about a year ago.

And so it’s really mix phenomena. And I think the other thing I would say about the Avery business in that regard, there’s small number of large distributed customers, quarter-to-quarter movements in that business, don’t really mean too much, you really need to look at year-on-year, I mean when you look at year-on-year, you get a more sanguine view of about what the underlying really is.

Quarter-to-quarter can be really skewed by, how much inventories customers buy, and of which product lines and the comparisons to quarter-to-quarter are not very meaningful. Year-on-year, I would say it's a much more accurate picture.

So if you look at the results of the last four years annually, I think that tells you much more than looking at it quarter-to-quarter.

Okay, even still though, I mean, you've taken out quite a bit from that business over time. And the margins still seem to give us upside surprise from time-to-time.

So is there still more tailwind there for us to think about margin going higher?

That’s a good thing, isn’t it? So it's one of the reasons we bought Avery, we knew it had some very good underlying product lines and it's never going to be a high-growth business, but it’s by far its cash generating business in the company by far, by far the highest return on capital business in the company.

But it’s – certain parts of it are challenged by secular declines and that hasn't gone away and won't go away for a while yet. Yes, so, could the margins of the business expand little more?

I think that's a possibility. But it'll probably continue still to be challenged on the top-line.

So the EBIT or EBITDA moved in that part of the company will be relatively small these days. But you may see a higher margin profile, but you'll probably see that offset by reduction in the top-line.

And what percent of the top line would you say is products in secular decline?

The ring binder business is a little over $100 million and we make not a lot of money off that.

Thank you, and I want to thank everybody for the questions. We had a fourth quarter record year.

As Geoff mentioned, it's a strong start of the year, which supports the CapEx program that we have forecasted and also supported the dividend increase which is 13% as mentioned in the announcement. So again, thank you for your interest and we look forward to chatting with you next quarter.

Thank you, operator.