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Good morning, ladies and gentlemen, and welcome to CCL Industries Fourth Quarter Investor Update. [Operator Instructions] The moderator for today is Mr. Geoff Martin, President and Chief Executive Officer; and Mr. Sean Washchuk, Senior Vice President and Chief Financial Officer. Please go ahead, gentlemen.
Thank you, operator, and good morning, everybody. Welcome to our fourth quarter investor update. You will find the details of our presentation on our website, www.cclind.com on the Investor Relations page. And with that, I'm going to hand the call over to Sean and take you through the numbers.
Thanks, Geoff. Good morning, everyone. I'll draw everyone's attention to Page 2, our disclaimer regarding forward-looking statements. I'll let you know that our business faces unknown risks and opportunities. For further details of these key risks, please take a look at our 2019 annual MD&A and our 2018 annual MD&A under the section Risks and Uncertainties. Our annual and quarterly reports can be found on our company's website, cclind.com or on sedar.com.Turning to Slide 3. Hopefully, this will be the last time we talk about it. But in 2019, we adopted IFRS 16, which was essentially capitalizing leases and putting them on our balance sheet. At the end of the year, we finished with approximately $146 million of lease liabilities and $146 million of right-to-use assets. This resulted in a $45 million increase in EBITDA, an increase in our interest expense, all flowing through our income statement and balance sheet for the current year.Turning to Slide 4, our statement of earnings. For the fourth quarter of 2019, sales declined, excluding the impact of currency translation by 3.4%, partially offset by acquisition-related sales growth of 0.5%. This resulted in sales of $1.28 billion compared to $1.33 billion in the fourth quarter of 2018.Operating income was $173.9 million for the 2019 fourth quarter compared to $189.2 million for the fourth quarter of 2018. Operating income for the 2019 fourth quarter included a $9.6 million pension curtailment gain associated with company's decision to close the legacy Innovia U.K. defined benefit pension plan. Geoff will expand on the segmented operating results of our CCL, Avery, Checkpoint and Innovia segments momentarily.Included in the fourth quarter results was a $13.7 million reduction in corporate expenses due to the reduction in the long term variable compensation expense. In the fourth quarter of 2019, restructuring and other items was an expense of $19.8 million. This included a $13.3 million lawsuit settlement related to the Checkpoint business practices on a pre-acquisition basis. And the balance of the restructuring charges were all across our segments.Net finance expense was $18.9 million for the fourth quarter of 2019 compared to $19.8 million for the 2018 fourth quarter. The decrease in net finance costs is attributable to lower average interest rates in the quarter and a reduction of total debt. The overall effective tax rate was 22.8% for the 2019 fourth quarter compared to 23.9% in the 2018 fourth quarter.Net earnings in the 2019 fourth quarter was $104.4 million compared to $114.2 million for the fourth quarter of 2018. For the 2019 year, sales, operating income and net earnings improved 3%, 2% and 2%, respectively, compared to 2018. 2019 results included results from 12 acquisitions completed since January 1, 2018, delivering acquisition-related sales growth for the period of 2.7%, organic sales growth was 0.7%, with foreign currency translation having a negative impact of 0.3%.Moving to Slide 5. Basic earnings per Class B share were $0.59 for the fourth quarter of 2019 compared to $0.65 for the fourth quarter of 2018. Adjusted basic earnings per Class B share were $0.67 for the 2019 fourth quarter compared to adjusted basic earnings per Class B share of $0.68 for the fourth quarter of 2018. The slight decline in adjusted basic EPS to $0.67 is primarily attributable to a decrease in operating income, resulting in $0.07, largely offset by a decrease in corporate costs that accounted for $0.06.For the 2019 year, basic earnings per Class B share was $2.68, up 2% compared to $2.64 for 2018. The adjustment to basic earnings per Class B share was $0.11 for restructuring and other items. The 2019 year improvement in adjusted basic earnings per Class B share was due to an increase in operating income and a reduction in corporate costs, accounting for $0.08, partially offset by a $0.02 impact from reduced joint venture earnings and the negative impact from foreign currency translation. This all resulted in basic earnings per Class B share of $2.79 for 2019, compared to $2.73 for 2018.Slide 6. Free cash flow from operations. The 2019 year was another strong year for our free cash flow from operations of $443.8 million compared to $442.5 million for 2018. This reflects solid operating results, a reduction in cash taxes paid, slightly offset with an increase in net noncash working capital.Moving to Slide 7. Our cash and debt summary. Net debt as at December 31 was $1.7 billion, a decrease of approximately $200 million compared to December 31, 2018. This decrease primarily reflects the debt repayments during the year, which were largely in the fourth quarter, an increase in cash on hand as we position cash in the appropriate jurisdiction -- jurisdictions to close the 6 acquisitions we have announced subsequent to December 31, partially offset by the increase in total debt resulting from the $146 million of additional lease liabilities.The company's balance sheet closed the year in strong position. Our bank leverage ratio dropped to approximately 1.61x, reflecting a decrease in net debt and an increase in EBITDA. The company's overall finance rate was 2.3% at December 31, 2019, lower than the 3% average finance rate at December 31, 2018, due to a decrease in interest margins on the company's variably drawn debt. In absence of significant acquisitions, management expects to continue delevering the company's balance sheet through 2020.Geoff, over to you.
Thank you, Sean. Good morning, everybody. I'm on Slide 8, that's the highlights of our capital spending for the year. $345 million, against depreciation, amortization of $291 million. We're planning to spend about the same amount of money in 2020.Results on Page 9, for the CCL segment. Soft top line quarter. We had a 4% organic sales decline for the quarter and little bit of negative currency effect. All the regions of the world were down, except Latin America, which was up slightly. Most of the other regions were down, more or less in line with the average. The situation in Asia was slightly strange in that includes Australia and South Africa, Asia Pacific. So those 2 locations were down while business in the main countries of Asia was slightly up.Slide 10, just a picture by the various segments of our business, Home & Personal Care, we continue to see a soft aerosol demand in the fourth quarter of the year. That has now picked up in the first quarter after a period of inventory corrections with customers, and we continued to see slower Latin American label sales impacting our results in that space. The other regions all did quite well.Healthcare & Specialty, we saw declines in North America and Europe, only partly offset by emerging markets, which is a relatively small business. So our profits in that space were down. Food & Beverage sales declined compared to a very big Q4 '18 last year, where we grew almost 20%. So it was a very difficult comp and our profitability in that space also declined. On the good news side, at CCL Design, we had very strong organic growth in the electronics space and a small acquisition, both combined to drive significant profitability gains. Not surprisingly, automotive was soft, and we had a slight decline in profits there. With CCL Secure, we had a great year overall, but Q4 was a down quarter.Slide 11, results from our joint ventures. We had a good year in the Middle East at our joint venture there, and not so good one in Russia due to a startup of a new plant. And our aluminum slug plant in the United States started up late in the quarter, and we'll continue to make progress as 2020 unfolds. We do not expect that plant to make money until 2021.Results for Avery, on Page 12, flat quarter, but a good 2019, all really driven by the pickup in direct-to-consumer business, which continues to grow at a double-digit space, and we're quite optimistic now for the future that we've turned the corner in this business in terms of organic growth rate and expect to see modest progress in the years ahead.Checkpoint, a very good year in our EAS business, but very difficult comps since 2018 where we had 2 very large rollouts. We had some this year as well, but not as big as last year. RFID continues to grow, but we did see a slowdown early in the peak Q4 season this year, and I'm sure many of you have read about the data on apparel imports to the U.S. and Europe have slowed down quite significantly.Page 14, Innovia, slow sales in the label and packaging industry in Europe, to a greater extent than we've seen here in the United States, but slow sales generally. And Treofan, we exited some very low to no-margin commodity grades in that part of our business. So that really drove the organic growth change. The new line start-up in Mexico went well. And our legacy Treofan results actually improved on Q4 last year, and we had a good overall year in our specialty and our security films plant in Belgium and Australia.So just turn to Page 16 now on outlook for the quarter. In fact as we think about going forward, I know many of you on the call want to know what's going on with coronavirus. So just give you -- try and give you bit of color on that. So most of our plants now -- in fact, all of our plants as of today are back up and running. A number of them started the week of February 10 and a couple of the laggards started up this week. We're about -- running at about 65% of normal capacity at the moment. So there's definitely going to be some influence on how we perform in Q1 and I'll give you some more color on that in the Q&A. We expect Checkpoint's progress to continue in its MAS business, but the coronavirus will also have an impact there, particularly in our apparel space. As I said earlier, Avery, margin mix effect from direct-to-consumer should allow modest sales growth and the positive effect of mix, so we've got a couple of acquisitions to add. Resin environment is stable at Innovia. So that's a good thing. Foreign exchange has moved to a modest headwind at current exchange rates.So with that, operator, we'd like to open up the call for questions.
[Operator Instructions] And we have a question from Adam Josephson with KeyBanc Capital Markets.
In terms of the cadence of the quarter and into 1Q for that matter, can you just help us with whether your sales and volume trends changed much as the quarter progressed and into January? Did they get appreciably worse? Or was it somewhat consistent across the months?
No, no, it was bouncing along. So we had a decent October, a poor November and a decent December. So October and December were both up, November was down. So most of the problems occurred in the month of November.
And in January?
January was as planned, so as we are planning for the year ahead. But I'd just point out that's before all the noise started in China. So this year, we had the lunar holiday in the month of January. So there was an impact from that, but our operations in January were more or less on our -- to our expectations, to our internal budget plans. Every one of the...
Yes. Just broader question about label volumes and sales. I mean, for years, your CCL segment grew at 4% to 6% quite consistently. And there was a story about labels growing in excess of GDP because of premiumization in Food & Beverage and labels penetrating, electronics, automotive, et cetera, et cetera. And then there was the sharp slowdown in '19 with the macro. At this point, is it reasonable to assume that just label industry growth trends are -- basically mirror the macro? Or is there any label -- yes.
Well, I would say, you've seen the results of all our suppliers, you've also seen pretty significant slowdown in the volume intake. And I think that's going to continue in 2020. So what tends to happen in this industry when you -- when the macro goes the wrong way, you see a slowdown in volume, but also there's a slowdown in the behavior of consumer goods companies reassessing their brand positions, and how many launches they're going to have and so on. So that tends to have a compounding effect. So when you have good times, you get above GDP. When GDP heads the other way, it tends to be the reverse. So that's just what it is.
Right. And then so in '19, your CCL organic growth was about 1%. And that was obviously pre-coronavirus. Is it reasonable to assume that you're thinking about a similar, if not lower rate of growth in '20 in CCL, that...
Yes. I mean, sort of up a little, down a little, somewhere in that zone.
So flattish wouldn't be crazy to assume.
Down a little, up a little or somewhere in between. We're [ very ] driven by the behaviors of large customers, how many of them are doing launches. So we might surprise on the upside in some quarters, we might surprise on the downside in others. Typically, what happens in a down period.
Right. No, I appreciate it. And just 2 about 1Q. Thanks for the coronavirus info. Are you -- how much of an impact do you expect at this point, just on earnings, sales, whatever you can give us?
Let me give you a few facts, and thanks for the question because it's a good lead-in. So our sales in China -- domestic China, so if you take the Checkpoint, CCL Label and CCL Design, which are our 3 businesses that are really operating in China, we have 3,500 people there and about 16 or 17 operations. So our annual revenues in China last year were around $400 million of stock that gets sold in China. Some of that is for domestic consumption. So for the -- in the CCL Label space, that's largely for domestic consumption. For the electronics industry, it's for the world, including China, so electronic OEMs make all that stuff there. They sell some of it there, they export a lot of it around the world. So you've got the indirect export impact there. And then on top of that, we make about $400 million. Well, we make all of the Checkpoint product lines in China. So the apparel label business is -- a big chunk of that is based there, which I've already included in that first number. But in the EAS business and the RFID business, we make all of the products there and sell them around the world. That's about another $400 million. So our total exposure to China in terms of supply chain dynamics and domestic market in total is around CAD 800 million. So far, we haven't seen a lot of disruption to exports out of there. So -- and we have inventory in our system from our plants that we make there. But there's certainly some issues around getting parts for some of the components we make there. There's issues around freight, but it's very hard to quantify what the impact is going to be on our operations until we see the numbers for February, which we haven't seen yet.
And just 1 last one, Geoff, just along those lines. In terms of CCL, EBIT or EBITDA or total company earnings, for that matter, anything you would -- could share with us in terms of your expectation -- based on the outlook slide and all the elements of it, do you expect earnings to be up year-on-year? Do you expect CCL...
No, no, no. No, I would expect us to have a down quarter in Q1. I think it will be very difficult for most companies to avoid a down quarter in Q1, given the extent of the problem in China. And it's -- although our plants are back to operating, we've got all of our operations running. It's February 21, and we've still got the 3,500 people we have there. We've got 700, 800 of them missing. And I think most companies are in that predicament in China. So if you have that kind of supply interruption. And then I'm sure you've read -- heard about many of the stories about the consumer disruption in the country, and it's bound to have an impact.
Our next question comes from Mark Neville with Scotiabank.
Maybe, Sean, just the first question, point of clarification, the $9.6 million pension gain, is that in the $174 million of operating income?
Yes, it is.
Okay. If I can follow-up, maybe just on a couple of Adam's questions. Geoff, you said, I think, up a bit, down a bit. I just want to clarify, that was -- you're speaking to sort of organic earnings with consolidated or within the CCL segment?
Well, I was really responding to the CCL segment. So I would expect in the quarter coming up, the 2 businesses that will have challenges in the -- related to coronavirus will be Checkpoint because we have the apparel label -- apparel labeling exports out of China and the CCL segment, where we've got sizable operations there in CCL Design and CCL Label. So they are the 2 places that will have issues. And we expect both sales and profits to be impacted in the quarter relative to the prior year. But if you ask me by how much, until we see February, we can't comment.
Right, so down Q1, but for the year, what you know now, you're flat or down a bit?
Yes. But -- I think most companies are saying right now well, we'll be down Q1 and then everything will be okay for the year. That's what we all hope because you hope that you'll recover it, but you don't really know, right? So it's something -- I read a newspaper article about somebody saying, well, if you think about sales in a McDonald's restaurant, it's kind of hard for them to make that up because you don't go and eat twice as much when the virus is back to normal as you did before. So that's what -- how we quantify the impact of that going forward, very unclear at this point.
Yes, Yes. No, that's completely understood. And I guess, the business segment sort of outside of the CCL, again, sort of dependent on what happens, I guess, for Toronto, but it sounds like sort of expectations for 2020. Is that just probably some organic earnings growth within those businesses?
Within -- sorry, which businesses?
Outside of the CCL segment, so Checkpoint, Innovia, Avery.
Yes, it's a -- the question on Checkpoint is how much coronavirus impact we'll have in Q1. But certainly by the time we get through that, we would expect them to progress as we -- as they have been doing.
Okay. And again appreciate all the detail on the coronavirus and the China exposure. Just on...
Just let me try and clarify your comment about the pension curtailment, Mark. About -- most of that gain went into the Innovia segment. We did have some similar gains, not as big, but the material last -- this time last year. So the quarter-to-quarter comparisons where the absolute numbers are not really comparable for the deltas, the comparison year-over-year is not as bad as it looks.
Okay. If I back that out, I mean, it looks like, I guess, the Innovia in Q4 would have been running at an operating loss.
Yes, it would have been if we backed out the ones we had last year, it would have been also a small operating loss last year.
Okay. And I guess -- so that sounds, I mean, I don't know if 2 quarters is enough to call typical or it sort of -- again, is it typical that Q4 is going to be a loss within sort of...
Well, if we backed out the unusuals last year, we had Treofan in there with a lot of -- we only bought that business in the middle of last year. So we were still doing some accounting things to do with the acquisition. So a lot of noise around that last year. So they're very -- if you look at the underlying with all that stuff out, it's not as difficult as it looks. In [ January ], we were quite good. So that's -- just wanted to give you some color on that.
Yes. No, that helps. Again, just to wrap the corona -- the China exposure story. Again, you said $400 million, that's domestic sales, $400 million are exported and the stuff that's on the export at this point, there hasn't been a huge disruption. Is that correct?
Yes. Well, that's the stuff that we -- the Checkpoint has manufacturing supply plants in China that it exports to Checkpoint sales subsidiaries around the world, taking part. And obviously, we have inventory in all of our sales companies dotted around the world. And it's the low season for retail. So we haven't felt too much pressure on that yet, but we know the plants are running at barely half their normal operating rate because they can't get parts and the supply disruptions and so on.
And our next question comes from Walter Spracklin with RBC.
So my first question here will be on just over -- Geoff, your overall comments about the trends in the macro. And I know you noted that you had a weak environment last year and that impacted it. It sounds, talking to our economist and hearing the tone out there, the things have improved as we went into 2020 here. Is it your assessment, speaking to your customers, that there is some movement now that the economy is shifting. It's getting better and that we might see a rebound here in your core business sooner rather than later?
No.
No change there. Okay. Is there any concern, I know we're going to get this question, so I want to address it. Is that -- you're intonating that this is a cyclical downturn. There's always...
If you think of our suppliers, you make the materials that are used in the label industry. So they sell these products to 30,000, 40,000 label converters around the world who sell to every -- almost every company on the planet. So the growth in the industry went from high -- mid- to high single digits in the previous couple of years to very low single digits last year. So that certainly implies something is going on. I mean, that's just how it is. And we certainly aren't seeing signs of that improving anywhere in the first quarter. I mean, there's still some growth in the U.S. -- in North America. Europe is kind of flattish. And Asia, I think, would have been okay, were it not for the coronavirus. But that's obviously having quite an impact on and will have quite an impact on results of those companies in Q1 as they will -- it will, us.
Makes sense. And to the -- those that are analyzing kind of the overall longer term risks and suggest that perhaps there is a structural component that might be -- or secular risk to the label business. Anything that you can give in terms of comfort that, yes, this is a cyclical, not a structural reduction in demand that if we do see a little...
It was what happened since the last time we had this kind of issue. So every 10 years, when there's an event in the world like this, we tend to get these sort of -- there are not sort of a 20% drop. They -- our industry grows from -- growing at 4%, 5%, 6% a year to declining at 1%, 2% or 3%. I mean, that's the range between the good and the not so good.
That's a good point. Yes. Last question here is on acquisitions. Geoff, you'd indicated a year ago that valuations are simply not there for you to be active. However, to your point, I think, you've made 6 now in a short period of time. Has there anything changed? Or is it just some sellers came about that weren't there before. What's changed that has caused you to become more active? And is the pipe -- are we to take this trend rate as an indication that your activity level could remain on the higher end through the course of 2020?
Yes. Well, I think we indicated that there was good reasons to be hopeful with the bolt-on transactions, which are the ones we've all announced. So there's plenty of those available at the prices we want to pay, and we're very active in that part of our M&A activity. Prices for large scale deals are prohibitive. Private equity is still pretty active. Valuations are off the charts, and there's nothing going on in what I would call, large transactions that is anywhere near immediately executable. But there are quite a few things in the sort of small to medium-sized bolt-ons for all of our business segments that we're trying to execute.
And are those bolt-ons a function of your target in specific areas? Or do you kind of take it on a case-by-case basis as acquisition opportunities pop up, you'll evaluate? Or are you going after certain segments?
No, no. The ones we're very active in at the moment is Avery and CCL Design. So we did announce our first small bolt-on for Checkpoint this quarter. I mean, bought a plant at Innovia, which we'll tell you more about as we meet investors over the coming few days. But no, it's still very much targeted at Avery and CCL Design at the moment.
Our next question comes from Stephen MacLeod with BMO Capital Markets.
Geoff, just I wanted to follow along little bit on the macro trend. You mentioned -- you talked about previously just growth slowing. Was there anything in the quarter that was more or less weak than you thought it might be when you...
Well, I think that -- probably the thing to bear in mind is that comp I mentioned on the call about Food & Beverage. So Food & Beverage last year grew almost 20% in the quarter. So that was a particularly difficult comp for us to have to overcome in that space. We still grew it, Food & Beverage over that comp, but obviously, we weren't able to grow anything like just given the degree of growth we had last year. So that was one area that had an impact. CCL Secure had a down quarter, we had an up year, so we're up double digit for the year, but we were down well into double digits for the quarter. So that also had an impact. So they were the 2 big ones.
Right, okay. Okay. And then I just wanted to clarify, and I understand you have to see how Q1 sort of shapes out. But would you expect -- like, do you think CCL segment EBIT would hold in for the year in 2020?
Well, it depends how bad Q1 is, frankly. So we would -- like many companies, we all hope so. But we're dealing with an unknown here. So -- and this coronavirus thing. I mean, it may suddenly disappear like SARS did, and things may normalize, we may be halfway through March and it's all over, and we all forgotten about it, and we can all move on. But at the moment, you read the newspapers as well as we do and you've seen how many profit warnings are coming out from some not small companies who are all our customers, and that's the degree to which the world is being impacted by this. And it's very hard to -- for us to model what that really means until we see the numbers for February.
Okay, okay. That's helpful. And then Innovia, you mentioned that you exited some lower-margin businesses, which was a growth driver. Can you just talk a little bit about, like, does that -- will that eventually lead to improved EBIT margin? And I guess -- or does that weigh on the top line through...
No, no. I mean, we actually had an improved quarter. All of that was at Treofan, and we had an improved quarter. So actually, Treofan did better fourth quarter this year than it did fourth quarter last year, and exiting some of the -- that low to well, even negative margin in some cases, exiting those businesses was a pretty big impact, and actually had a positive effect on the P&L for the quarter, not a negative one.
Okay. And then would you expect that -- like how would you expect Innovia to sort of shape out through the year?
Well, it's gone -- so far, the start of the year has been quite decent, so we'll see how things move on. We're not exposed to China at Innovia. So Innovia is really a European, U.S., Australia kind of business, very limited sales in China, little bit, but not much. So the impact for that on us is going to be really quite small. They had a good start to last year. So we'll see how things go. But in January, it went okay.
Okay. And I think in the last quarter, you talked about maybe seeing some slim dollar revenue increases, but EBITDA margins in the mid- to high teens. Is that still...
We'll see.
Our next question comes from Scott Fromson with CIBC.
Most of my questions have been asked, but just wanted to get back to CCL. You mentioned some volume weakness on customers rethinking their brand positioning. Are you seeing weakness at any particular customers? And are you seeing pricing pressure above normal expectations?
No, I think these are the pricing pressure's no better or worse than it ever is in that space. But we've -- it's very concentrated space in the Home & Personal Care arena. You've got the large brand owners there and a lot of them are doing very well in that sort of high-end cosmetics, skin care categories where there's very little label use. In the areas where there is more mainstream label use the volume -- most of their revenue increase is coming from pricing rather than volumes. So volumes, pretty slim growth in terms of the growth rate. And that's kind of what we're seeing in that industry. And we'll have to wait and see what impact this all has. Because I think many of these companies were getting a lot of their growth in Q4. If you look at their numbers, a lot of it was coming out of Asia, a lot of it in that category. And a number of them were already saying, "Well, Q1 is going to be very difficult because of what happened in China."
Is there anything you can do to reposition into those higher end...
No. They're not products that lend themselves very well to mid to large scale label use.
Okay. And what about the Healthcare business. Can you comment on growth?
It's been -- the issue in the Healthcare space has really been -- well, the 2 problems in that business have been the price for in the United States among our customers in generic drugs. So that's been quite problematic. It's not really creating price pressure on us, but it's creating, well, let's downgrade to more commodity-based packaging. We still have business with a lot of those customers, but the products they're buying are much less sophisticated than the ones they used to buy. And then the merger of the big agrochemical companies Bayer and Dow, DuPont and all the -- BASF and all those companies, there's been a lot of mega mergers, which created some noise in that space. So they've been the 2 negative factors in that industry that affected us.
Are you developing a new pipeline of customers there?
Sure, sure. All the time, but if you -- those are particularly important elements. So if you have an impact there in short term, there's no amount of doing things on the other side that will make up for that short term. It will be difficult, I think, in that space through Q1. After that, the comps get a lot easier and things should calm down there, but Q1 will also be a difficult comp for them.
Our next question comes from Michael Glen with Raymond James.
Geoff, can you maybe just talk a little bit about what you're seeing in Europe and in particular, on the European food and beverage business?
Yes, it was slow in the last quarter. It was -- it wasn't down, but it was so much slower than it had been. U.S. was much better and emerging markets were also much better, but it's -- we were dealing with a near 20% comp rate from last year. So in an industry like ours, that's pretty unusual. So it was always going to be a challenge in this quarter to be above that. We actually did, but not by much.
And do you see a macro influence on that business as well?
I think the influence we might see a little bit of there is the whole sustainability question. So that's causing a lot of consumer companies in that space to pause and think more thoughtfully about packaging than they have done in the past. So it's more about that. And I think it's more about the pause at a very high level about what they're doing. So some launches delayed while they think things through, stuff like that. So that's probably had an impact. It's a seasonal business around the summer. So Q4 is low season in the Northern Hemisphere and high season in the Southern Hemisphere. So -- and most of our business is in the Northern Hemisphere, as you know. So we'll see how the year develops. But it's -- that's probably the other main impact we're seeing in that space.
Okay. And you mentioned the sustainability. So when you are hearing that from the customers you're having the dialogue with them, can you give us some thoughts surrounding your positioning with that? And how you think...
We have a lot of products that help our customers because the big issue for them is how to recycle their packages and how to make them cyclical. So we have a lot of products in the label space that allow us to do that. So we're seen as a good partner for them in that regard. It's more about them thinking about which primary package am I going to use? And how will I make it converted into the cyclical economy? So it's just causing people to pause and think through what they really want to do. And that's really, I think, why we're seeing some of the heat that was in that business be somewhat paused.
Okay. And then just on CCL Secure. There's been a few articles more recently about the GBP 20 note in U.K. Can you talk about how CCL Secure's involvement in that and how that would have flowed through the CCL Secure [ stuff ]?
Well, we don't comment at all about any of our customers in the banking world because they're pretty sensitive about it. I can tell you our CCL Secure business was up double-digit last year in volume and a lot more than that in profitability. And we sell to 35 countries around the world, one of which is the Bank of England.
Okay. And then expectation for corporate expense in 2020? Are you able to indicate what that might be?
Broadly similar to this year. It'll be -- well, I don't take fourth quarter and annualize it, but it won't be far off what it was this year.
Our next question comes from Ben Jekic with Stifel.
I have a couple of questions. First question is, and I apologize if it was already asked, so maybe I'll just ask it in a bit of a different way. So for the CCL segment, for the full year, organic growth was 1.4%. There was an organic decline of 4% plus in the fourth quarter. Is that sort of a consequence of the tough comp in Food & Beverage and a similar situation in CCL Secure? Or why such a discrepancy in the fourth quarter?
Yes. I think it's -- there are 3 things that have happened this year, Ben. So our Food & Beverage growth rate has certainly moderated on the mid- to high teens that we saw most of last year. It's moderated down significantly below that. So that's one factor. The stuff we talked about with Scott about the Healthcare business is another factor. And then the volatility of quarter-to-quarter in CCL Secure. So we've always told you that's a business you have to look on year-on-year and quarter-to-quarter will be up or will be down. So in the fourth quarter, the main -- by business line, the main issues were in the aerosol can business in HPC. And that's sort of very difficult comp we had in Food & Beverage. CCL Design was up and CCL Secure was down.
Okay. And then my second question is for Innovia. I think this is now second or third quarter in a row that we're seeing softness in Europe. Can you just elaborate a little bit on where that is coming from? And is it a question of just waiting for the demand to pick up? Or you might reposition yourself there? Or...
Well, we're repositioning ourselves to supply. The films we make in Europe are films that nobody else can make there, they've got very special features in them. So we're certainly repositioning ourselves to make some more of the mainstream films that are sold into the label industry in Europe. That's what the acquisition in Poland was all about. And -- but certainly, label industry conditions in Europe are soft, and there's no running away from that. And that's just how it is.
Okay. I do have one more question, and then I'll go -- get back in the queue. Just on acquisitions, it seems, from what you were saying that the larger deals are, under current conditions, sort of out of the question for this year. But are you thinking to have a more robust bolt-on M&A this year to sort of make up for the difference? Or what's the mindset there?
Well, the mindset is, as I've already said on the call, Ben, we're focused on bolt-ons this year. So we're using our free cash flow for that. And that's the main area of focus at the moment. Well, as we've seen, we've been very active in Q1, and we'll see where we go from there.
And our next question comes from -- is a follow-up from Stephen MacLeod with BMO Capital Markets.
I just had one follow-up question. So regarding -- just regarding the tuck-in acquisitions. Is that more of a pull or a push? Like are your operating people finding interesting tuck-ins to find or are people sort of coming to you?
Bit of both. So most of the transactions that you saw in Q1 have been in the hopper for a good while. Most of them instigated by us. Few of them in that instance were instigated by people coming to us. So most of that was outreach rather than incoming. I would say, generally, Stephen, 98% plus of the companies that approach us to say we'd like to sell, are you interested, we never transact with.
And we have another follow-up from Mark Neville with Scotiabank.
Geoff, maybe just want to -- just want to follow up here. Look, again, I -- just listening to the call, sort of reading what happened and sort of seeing what happened and all, it sort of feels pretty much like sort of like a macro cyclical issue now more than anything. Yes. I mean, I guess, it's probably the first time that we sort of see your business go through this for a number of years...
Yes, since '08, '09.
Yes. I mean, would you -- is there any real lead lag in your business. If things do get better, how long it sort of takes to recover? I'm just trying to, I guess, think about how long...
So usually, it depends on how deep it is. So I've been in this industry a long time, as you know. So typically, when things start to wobble, so if you look at the overall demand for label feedstock so in times when there's a macro issue, that always drops. And it usually drops for between 1 and 2 years. So we had a low year last year. I would predict we're going to have a low year this year. And then it wouldn't surprise me that we'll see -- and then the rebound tends to be as fast as we go in. So we tend to be first in, when there's an issue we tend to be first out. So we had, for example, in '09, we had a record year at CCL Label in the United States. But 2008 was very difficult.
Right. And, I guess, when you think about your cost base, the margins are still holding up fairly well. But is there a need or room to sort of restructure?
Yes, we'll definitely be taking some -- so the -- you always clean house when things are difficult. So you'll see us invest some money into cleaning up operations in the places we need to do that. So we're a highly decentralized company. So we have a self-correcting system, so people take actions straight away. We don't have to ask them, that's just part of the culture of the company, and I expect you'll see quite a bit of that happening as the year unfolds.
Okay. And maybe just the last one on the M&A. I think you called -- I'm not sure, I thought you mentioned some sort of which segments, sort of, were of most interest or maybe we can work our way through...
Yes. The things we've been talking about, Mark, so CCL Design and Avery. So direct-to-consumer acquisition that Avery got a number of those. We're still working on and bolt-ons at CCL Design, don't see much in the sort of classic CCL Label space. We made our first transaction in Checkpoint in the apparel label industry, we're sort of still interested in that space because of RFID; nothing at Innovia or outside of the transaction we've just done. And that's about it.
Okay. And I guess, any thoughts around sort of new business lines? Or again, it's sort of bolt-on within what you have?
No, no, bolt-ons. I think the focus this year is on the bolt-ons on what we have.
Right. And I guess, again, like, just sort of speaking to this macro weakness, again, you mentioned larger deals are still expensive. But you're still not -- has there been any sort of give-back or compression and sort of asking prices or multiples or anything of size yet?
Well, I think you've seen what's happened to the U.S. stock market haven't you. So there's no sign of multiple contractions yet for anything large. The people are still referencing deals that were done 6 months ago at 11 and 12x EBITDA. And if somebody can explain to me how I am supposed to make a 15% return on capital on that, I'd like to see the math.
And we have a question from Furaz Ahmad with Laurentian Bank.
Just have a quick question on Checkpoint. You guys mentioned that you're seeing some increased demand in RFID for 2020 and beyond. Can you just elaborate on which applications you're seeing that in? And how you see that progress?
It's all in apparel. So our business is -- we have a small -- some small businesses in the CCL Label space that RFID is an apparel-driven phenomenon. And that's where we're seeing the growth coming from in that space.
Okay. Do you expect to expand into other verticals within RFID?
Yes. I mean, I think there will be niches in other vertical markets, but it's -- they're all niches versus the 80 (sic) [ 800 ] Pound gorilla in the room in RFID is apparel.
Okay. And just on Avery, you guys have been investing a lot on the DTC side. What percentage of the business for Avery now is DTC versus the legacy business?
Well, it was well over $100 million last year, and we're hoping to get close to $200 million this year.
And we have a follow-up from Ben Jekic with Stifel.
Just 2 really quick question and it's in regards to the 2 latest acquisitions. So if Geoff, you could say a little bit about Rheinfelden and where you plan to go with that? And I know you're probably not going to throw any numbers, but at least qualitatively, is it going to be a higher growth kind of tuck-in...
The Rheinfelden is an internal supply company, it's us making our own aluminum slugs. It won't have any impact on the top line as all the sales are internal. It's backward integration into slug manufacturing, that's all it is.
Oh, I see. Okay. And then the last question is, the clinical trials label market, if -- so that's the last tuck-in. Is that a fragmented market in North America? Or how did you look...
No, clinical trials labeling is a high-margin space. It's -- drug industry has very large R&D budgets. And it's a lot of very specific requirements. So it's a niche within our Healthcare business, but a very profitable niche we want to be in. It doesn't move the needle a lot for the CCL Industries as a whole, but it's an interesting development for our Healthcare business in North America and Europe.
And I'm showing no further questions at this time. I'd like to turn the call back to management for any closing remarks.
Okay. Thank you very much for joining us, everybody, today. And we'll look forward to talking to you next quarter and in the coming days. Thank you very much. Bye-bye.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect. Everyone, have a great day.