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Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Good morning, ladies and gentlemen. Welcome to the CCL Industries Fourth Quarter Investor Update. [Operator Instructions] The moderator for today is Mr. Donald Lang, the Executive Chairman. And joining him are Mr. Geoff Martin; President and Chief Executive Officer; and Mr. Sean Washchuk, Senior Vice President and Chief Financial Officer. Please go ahead, gentlemen.
Well, thank you, operator. Good morning, everyone. As you know, we're reporting our fourth quarter and year-end numbers as -- which is a record. And we're really happy with the numbers. And with that I'll just turn you over to Sean Washchuk for the financials.
Thanks, Don. So I'll drive everyone's attention to page 2 of our representation and have a look at our disclaimer and 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, 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 impact 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 the 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 preacquisition 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 net finance costs is primarily related to an increase in outstanding debt to fund the Innovia acquisition and an increase in pension interest expense, 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 U.S. tax reform and 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 defer tax liabilities, $15 million primarily related to book and tax timing differences and some other discrete 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 was 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 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 pretax impact of noncash 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 reevaluation of deferred tax liabilities on indefinite life intangibles. The after-tax impact of the reversal of the checkpoint preacquisition 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 for the 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 noncash acquisition accounting adjustments to finished goods and 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, the improvement in net noncash 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 and a 2-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, the company's overall finance rate has 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 1.85x at December 31, 2017, up modestly from 1.3x at December 31, 2016. Due to the decline in the company's leverage ratio, interest rate spread on the company's bank syndicated debt will be dropping from 145 basis points to 120 basis points effective tomorrow.Geoff, over to you.
Thank you, Sean, and good morning, everybody. On Slide 7, you had a profile here of our capital spending for last year, $285 million. We sold some equipment out of our plant in Penetang, 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 has been what we've been telling you about all year. But also to comment that in the year of 2018, we'll 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 & Personal Care business.Page 9, results for CCL segments for the first -- fourth quarter, strong organic growth, 7.7%. That definitely was a surprise on the upside compared to 6.2% for 2017. We had growth in all regions of the world, low single-digit in the U.S, mid-single-digits in Latin America, high-single digits and the big, I wouldn't call it quite a surprise, but certainly exceeded expectations 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 varying degrees, sort of in the low single-digit range. But many of our customers commented on a significant recovery in their Chinese business, and for us that was also very much the case. So that really helped accelerate things along 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 & Spirits space. Our Healthcare & Specialty business was flat, our 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 a strong growth in Asia. 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 has certainly held profitability back from what it otherwise might have been. In North America, the automotive business slowed up some. Still grew a little bit, but slowed up some in a plateaued market, but strong growth continues in Germany, although it is moderating from the levels of the last 2 or 3 years or so. And CCL Secure, our currency sales rebounded as we expected, almost double Q3 levels.Page 11, these are the numbers for our joint ventures here. We had record years in the Middle East and Russia. Just a reminder that our Chile business is now reported as part of our consolidated results, that's why you see the numbers for the fourth quarter looking down. And we had some startup losses in our in-mould label venture in the United States.Page 12, our results for Avery. Soft quarter in the U.S. in the top line but mix was very positive. That means better growth or proportion of sales in the principal medium direct-to-consumer business versus the traditional organizational products categories. So that really helped the bottom line and we had a nice, very nice pickup there. Also growth in Europe in the quarter, so that helped. And the 2 small direct-to-consumer acquisitions, they both outperformed. Australia and Latin America had soft declines, somewhat.Page 13, results for Checkpoint. Very good quarter here, sales growth of 4% year-on-year, much of that driven by new chain wide hardware contracts we secured, both in Europe in the United States on top of solid base organic growth. The Apparel Labeling business that sits inside here, results there 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 7 quarters or so is coming to a close. We expect to complete it in the first half of 2018, within the $40 million we talked about when 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. We are expecting to see some easing off that now in the coming months with 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 can business, U.S. and Mexico results are solid. We now passed the anniversary of a loss of the home care contract that prompted the closure of our Canadian operation. We've pretty much wound all that up now. We've signed a contract to 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 lower U.S. dollar on our sales out of Mexico and higher aluminum cost, which continued to rise in the fourth quarter. So we've got a bit of a lag there with which we have to catch-up in the first quarter. We had a small fire at our slug plant that we're planning -- been starting up for some quarters now in the Carolinas that will probably see us postponing profitability till the year of 2019 as we speak.The results summarized for you on Page 16. So very good year, all around. And as I mentioned before, the only slight disappointment was the wrestling with the resin problem at Innovia, but all of the other businesses, performed at or above the levels that we expected.Some comments on Slide 17 about the outlook before we open it up for questions and things for you to think about as we go into the first quarter. We all know that the U.S. dollar is weaker, currently than it was this time last year, so that's the headwind. But the euro has also been on something on a pare, so you combine those 2 together, probably will end up being a modest headwind, something of the order that you saw in Q4. We've 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 a price increase for some of the key product lines in that business, effective January 1. So there may well have been some Q4 prebuys in the U.S. that may have aided Q4 a bit, and made -- maybe a bit of a lag in Q1, but we'll see how the quarter goes and we'll be reporting on that to you in a few months. Innovia challenges, as I mentioned, continue with high resin cost, but predictions for that improved in the second half. And we are raising prices where we can and where we need to get the business where it needs to be. And as I mentioned earlier, our Container Segment will now be folded into the CCL segment at the 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 in Home & Personal Care with labels and plastic tubes. And of course we'll have a lower U.S. tax rate to come in the year of 2018.So with that, operator, I would like to open it up for questions please.
[Operator Instructions] Our first question comes from Adam Josephson of KeyBanc.
Sean -- 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're thinking that the consolidated tax rate will reduce by 3% on an annualized basis. So we expected in that 26% to 27% consolidated effective tax rate for the year.
And on cash taxes?
Cash taxes, well we booked the deferred tax adjustments now, so the noncash impact has gone through. So I think your cash taxes are roughly in line with that.
Okay. Terrific. One on the CCL segment, the organic growth. End of the year, just above 6% and has been there in each of the previous 3 years. And I think you talked about a normalized growth rate being slightly south of that 6% number. I mean what do you think a normalized growth rate is in light of where it's been the last 4 years or so?
Yes, I mean we've been a bit surprised by how strong it's been, Adam, for some time now. 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. So certainly our CCL Design business has helped the growth rates. And the electronics customers have been, seeing quite a rebound in their business in the past year. So if you pull that out, it's certainly pulls it down some. So -- but we haven't had any ceding 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. But that's what I've been telling you 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 pertain to you, considering that in your core label business, you've historically haven't had much margin volatility as a result of rising or falling [indiscernible] ?
Yes. 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 that 3% price increase in January, Checkpoint the 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 1 year and has to be x plus something the next year if there has been an inflation period. So -- and in the can business, we've had a lot of discipline now where we've converted that market really into a total processing industry over the raw cost of metal. But of course, you still have the lag. Aluminum has just been going up and up every quarter now for 6 or 7 quarters. And you think you're going to catch up and then you get another increase and you're still behind the eight ball. But the disciplines we have in part through are pretty good.
Sure. 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 it would have been, call it, 60 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 of...
So for the full 12 months -- if you looked at the business for the full 12 months, $37 million.
$37 million, okay. So --
It's pretty incredible
And -- that's huge. And you're expecting polypropylene to head downward I think you said in the second half. So would you think '18 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, we'll be passing through decreases just as quickly. So we have to be slightly careful about thinking through how we will adjust this over time going forward and be a little bit careful about when we decide to make changes with a large number of customers.
Our next question comes from Mark Neville of Scotiabank.
Just on the security business, I mean I don't know if you want to get into this every quarter, but do you sort of have an outlook for Q1 or for 1st half, just for modeling purposes so we're not sort of way off-base if it goes up or down 1 quarter.
We have visibility in quarter-by-quarter, we don't have -- if you ask me what we're going to do in Q after, I don't know. But the current quarter is okay, so -- but beyond that, I wouldn't be able to tell you.
Okay. Okay. And just back to the Innovia discussion. The -- is all this business really needs is to see some stabilization in pricing? I mean is the volatility...
That cost per ton, the total resin cost per ton went up 30% in about 10 months. So -- and the price-through mechanisms they have just aren't close enough to be able to deal with that, so -- but you have to remember, Mark, there's an upslope and a downslope. Whatever you do on the upslope pertains to the downslope, too. So if we tighten the pricing mechanisms too quickly, the next time there's a curve the other way we won't pick up what we've lost. So I think it has to be thought 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 haven't had really any issues in the business at all, it's just been that, really.
If you did get some stabilization in the price, I mean would you -- spacing your pricing mechanisms, would you expect to get at least half of that $37 million back? It's hypothetical, just...
Yes, absolutely, absolutely. If it goes up another 20%, [indiscernible] 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've been in place for some time and it's very clear, what we've seen from the history of this business, they've benefited from periods of resin declines, and they tended to have suffered more in periods of resin hikes. And you have to be sure that what you want is to narrow that window. In our can business some time ago, we decided that's what we wanted. We just need to be sure that's what we want in this business, too, because it's got a different mix of customers. So we're still working on that. But certainly a period of stability would be more than welcome.
Okay, just on the Avery, the pricing increases. Is that also just in response to raw materials? Or what product category was this?
You know paper prices have risen considerably, so it's mainly around that. And but also the weaker U.S. dollar, we import some components for that business from China. So the weaker U.S. dollar is another factor.
Okay, maybe one last one, just on the CapEx. Decent bump next year, just maybe some color on where that capital is going.
We've got new plants going up around the world. So we also 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 some 4 or 5 years ago. 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 right now makes sense.
Our next question from Maggie MacDougall with Cormark.
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 noted?
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 or 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 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-base across all of your product lines?
Mainly coming out of China, Maggie. I think there are 2 drivers for that. I think most consumer goods companies in China had very good quarters in the last quarter. I mean all of our customers, anywhere between 5% and 20% growth rates were reported by a number of our customers in China. So -- and 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 2 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. So I think that was quite a big factor. And some companies there are also seeing what I call bounce back in southern parts of Europe, the Mediterranean rim countries, from the crisis of several years ago. There's some recovery back to previous levels there. So it looks good year-on-year. If you look year on 5, 6 years ago, it looks a little different to that. So there's some impact of that, too.
Our next question comes from Stephen MacLeod of BMO Capital.
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?
Yes, 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 of the year. But yes, it's been pretty much a continuation of what we saw in Q4.
Yes. 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? We shouldn't expect to see much at all of a pop-up?
Yes. It's about a $200 million business, Stephen. It doesn't move the needle that much unless you really have a big dip like we did in Q3 last year. So the quarters last year, Q1, Q2 and Q4, that's where we did sort of, I don't know, 85% of the sales and we had that big dip in Q3. So I don't know whether that will happen again this year or not. But the orders are very lumpy. If a big country comes in with an order one year and doesn't the next, obviously, it goes into your comps. But just for overall perspective, it's less than 5% of the sales of the company.
Right. I wanted just more thinking about that Q3 impact and whether we would expect that again.
So if we don't have another one of those. It was pretty unusual for that to occur in the way it did last year. But when you look at the strength of some of the other quarters, it sort of makes sense because they ended up the year where they said they were going to be in the couple of quarters, the one of which we didn't report on has been Q1, were just unusually strong. So it was -- for the year it ended up about right.
Right. Okay, that's helpful. And just on Innovia, Geoff, you mentioned -- you sort of mentioned that some stabilization in the price would be welcome or some increase in the polypropylene prices. If you don't see prices return, I mean, 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 some. So -- and we have put some price increases through. So -- and we did some of that last year, but it was no way near fast enough to deal with the rate of increase. So once we see those 2 curves closing and coming together, you'll see that on the profit line. And we'll just have to see how it goes. So I think Q1, it's because we -- if you take the month of January, we'll have bought all the resin in December; month of February was bought in January. So first 2 months of this quarter will be exactly as it was in Q4, a little bit higher volume because there's no December, but -- and some price increases. And then we'll have to see what March looks like in base if there is any tail off for the resin pricing in February. But the most important thing for us would be, it just not rising at the rate that it's been rising, so that some of the price increases can kick in and we begin to see the benefit of it.
Yes. Okay. Okay, that's very helpful. And then just on the apparel business, Checkpoint. Glad to see 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?
Our RFID business is small. The apparel labeling business in total is about $200 million.
Our next question comes from Scott Fromson of CIBC.
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 fill markets since you've closed the acquisition?
It makes -- a lot of its -- the films it makes are proprietary. 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 Films 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 the low resin price environment?
Yes. So typically the amount of pass-through just gone in when resins have declined, has been below -- it's the reverse impact of what we've seen. They typically gained in periods where resins were dropping.
But you see a material substitution in periods of high resin pricing?
No, no. We don't do that, there's almost none of that.
I mean on the customer side?
Almost none of that.
Our next question comes from Elizabeth Johnston of Laurentian Bank.
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.
Well, our Food & Beverage business in that space has been growing double digits for some time now. And that's really around the phenomenon of brands premiumizing, so they use high-end labels to make brands premiumized for channels or targeted at high income consumers, so that's been one phenomena. In the Home & Personal Care space, we've seen this big rebound in some of the emerging markets, territories and the 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've probably taken a bit of share in the U.S. market, which is a low growth market and we certainly grew above the rate of the market in both the U.S. and Europe, so probably a 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 premiumize a brand, so if they upscale it to sell it into a particular channel or bring out a version of a brand that's targeted at the 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, that -- 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.
Yes. 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 installations. So if a large retailer decides to adopt the technology, you get this onetime revenue kick of hardware and software installations 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 that's probably a reflection of the consumer economy just being a bit stronger than it had been in the prior year.
Okay. And so for 2018, I guess it sounds like it's hard to predict if you don't...
Yes, I mean I can't get into telling because it depends on how many more of these, and they're onetime events and they can be quite large. I couldn't -- I wouldn't want to change what we've said about Checkpoint. For the coming quarter, I mean, I can say we've already had a good start. And we know some of these contracts are going to roll in from the rollouts in Q1. So I wouldn't be surprised to see Q1 look quite similar to Q4. But for 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? Last big acquisition, obviously, was Innovia. So any additional color on your strategy there?
Yes. Well I think when we bought Innovia, we'd said we were going to focus on debt reduction, that we wanted to get the leverage down below 2. I think we told everybody that a year ago and we're at 1.85x, so that's a good thing. One thing I would say about Innovia, from a cash flow perspective, it's been a very good transaction. So certainly the operating results and all the little one-offs you get when you buy a company, the cash flow from both of these businesses has been very strong. So that's really helped the debt repayment. And we have a good pipeline of bolt-ons that we're looking at, and more and bigger things than bolt-ons. And beyond that I can't comment.
Our next question comes from Ben Jekic of GMP Securities.
I just 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 2x 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 that aren't on our balance sheet, that bank leverage ratio now has dipped below 2x. So the interest rate margin on the bank only facility drops by 25 basis points.
Do you have any other hurdles kind of on the downside that we should expect? Or -- like as you grow like 1.5x.
Get below -- no, the next leverage hurdle is 1.5x. And if we get below 1.5x net levered, we drop another 25 basis points.
Okay. Thank you. And Geoff, one question for you is on Healthcare & 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 what do you expect of this business in 2018, given that it's one of the stronger margin generators?
Yes, sure. Well, margin wise, it's the difference between this business and Healthcare, Home & Personal Care and Food & Beverage is pretty small these days. But I think the conditions for most of our customers in both the U.S. and Europe, I would say in the last decade is -- have significantly deteriorated. So the pressures on drug companies to lower prices, pressures on drug companies for 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 gets passed along. So cost consciousness in that industry has moved up quite a notch. And probably the sector of that where you see most competitive activity is in generic drugs, it's a pretty big business for us in the U.S., not so big in Europe. So some of our customers who are there are under pretty big pressures. They're all growing quite rapidly, but the pricing pressures they're under are 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 are shortly going to be in a world where we've got 3 or 4 customers left. And every time one big chemical company merges with another, that always creates certain pressures on the supply side. So it's probably a combination of those 2 things.
Okay. Perfect. And then my next question, as much 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.
And I think we just had to make some decisions. When you're growing at the rate we're growing and particularly in the CCL business, that's where the pressures are. The other parts of the business we're not feeling it. We've got a lot of plants operating at absolutely maxed out capacity, 1 or 2 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 becomes less about the price. So the more ability we have to 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, and 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 that's going to absorb the bulk of the CapEx increase.
For sure. If you look at the trend of 2017 and 2018, it won't look a lot different. And the main parts of the business that's being invested in is Home & Personal Care, Food & Beverage and CCL Design. They are the 3 capital absorbers. A little bit in the Container business, but it will be part of Home & Personal Care next year, but that's the places where the money is 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 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 a 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 a book, Ben. I think it just depends on the situation. So start -- some start-ups go well, some take longer. I don't think we have that formulaic answer to that. Certainly when capital gets deployed into a business that's already running, that tends to kick in profits much quicker than when you build a site in a greenfield. So we're building one next year in New Zealand for the wine industry there and that's, obviously, capital that gets spent there. It takes longer to pay back than if we say we buy another line for personal care labels in China or the United States or Germany, where you get a payback almost 6 weeks after the machines are installed. So those are the 2 dynamics to think about.
Our next question comes from Adam Josephson of KeyBanc.
Just a couple of for you. The -- you talked about the 6% growth rate in Label and it's exceeded your expectations for a while now. You've talked quite a bit about the trend toward premiumization in Food & Beverage as well as increasing penetration of labels, phones, autos and many other end markets. When do you think those trends will slow down in the foreseeable future, such that a 3% to 5% growth rate would be a more realistic expectation?
Probably at the time of the next macroeconomic change. So I think if we get through the 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's a bit of risk of there being bad macro news will -- is probably around the corner. And I think that's likely to drive the change. I don't think it will be -- it's anything to do anything other than that.
Makes total sense. A couple of other ones. How much EBITDA did Secure contribute to CCL in the quarter?
Yes, I wouldn't want to comment on that. I can tell you it's a higher -- it's about $200 million business, which we've already disclosed. And it's slight -- it has a slightly higher EBITDA margin than the average.
Okay. Perfect. 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 has there been any particular surprises other than resin?
If resin was the same price as it was a year ago, we'd all be happy campers. We'd have $37 million more EBITDA, it's as simple as that.
Otherwise, it's exactly as you expected?
Yes. Absolutely.
Our next question from Michael Glen of Macquarie.
Can you guys just -- over the past 2 quarters you've seen pretty substantial lift in the margin profile on 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 mix phenomena, Michael. So we've talked quite a bit about our ring binder business in -- that 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 a mix phenomenon. I think you -- the other thing I would say about the Avery business in that regard, there's a small number of large distributer customers, so quarter-to-quarter movements in that business don't really mean too much. You really need to look at year-on-year. And when you look at year-on-year, you get a more sanguine view of what the underlying really is. Quarter-to-quarter can be really skewed by how much inventories customers buy, of which product lines. And the comparisons quarter-to-quarter are not very meaningful. Year-on-year, I would say it's much more accurate picture. So if you look to the results over the last 4 years annually, I think that tells you much more than looking at it quarter-to-quarter.
Okay, even still though, 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? It's one of the reasons we bought Avery, we knew it had some very good underlying product lines. It's never going to be a high-growth business, but it's by far the biggest 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. So could the business -- could the margins of the business expand a 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 moves in that part of the company will be relatively small these days. But you may see a higher margin profile where you'll probably see that offset by reduction in the top line.
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 at that.
[Operator Instructions] There are no further questions. Gentlemen, please proceed with any closing remarks.
Thank you. I want to thank everybody for the questions. We had a record -- 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.
You're welcome. Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program and you may now disconnect. Everyone, have a great day.