艾利丹尼森 (AVY) 2016 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by.

(Operator Instructions)

Welcome to Avery Dennison's earnings conference call for the fourth quarter and full year ended December 31, 2016. This call is being recorded and will be available for replay from 10:00 Pacific Time today through midnight Pacific Time February 4. To access the replay, please dial 800-633-8284 or 402-977-9140 for international callers. The conference ID number is 21820264.

I'd now like to turn the call over to Garrett Gabel, Avery Dennison's Vice President of Finance and Investor Relations. Please go ahead, sir.

Thank you Cama. Today, we will discuss our preliminary unaudited fourth-quarter and full-year results. The non-GAAP financial measures that we use are defined, qualified and reconciled with GAAP on schedules A4 to A8 of the financial statements accompanying today's earnings release and Appendix B of our supplemental presentation materials.

We remind you that we'll make certain predictive statements that reflect our current views and estimates about our future performance and financial results. These forward-looking statements are made subject to the Safe Harbor Statement included in today's earnings release. On the call today are Mitch Butier, President and Chief Executive Officer, and Anne Bramman, Senior Vice President and Chief Financial Officer. I'll now turn the call over to Mitch.

Thanks, Garrett, and hello, everyone. I'm pleased to report another year of excellent progress towards our long-term goals. We delivered strong organic sales growth, and double-digit growth in earnings per share, with return on total capital expanding to 17%, all while increasing our pace of investment to drive future growth.

Our label and graphic materials business continues to outperform; retail branding and information solutions is now on track to achieve its long term margin goals; and the newly-created industrial and healthcare materials segment, while down in the near term, is well-positioned to create significant value. 2016 marked the fifth consecutive year of solid organic sales growth and double-digit adjusted earnings per share growth. This consistent performance speaks to the resilience of our market positions, the depth of talent in the Company, and the strategic foundations we've laid.

We continued to make great progress in accelerating growth in high value categories such as graphics, tapes and RFID, both by capturing share organically and through acquisitions. And our constant focus on driving productivity and instilling more pricing discipline have improved the organic growth rates, as well as significantly increased margins in our base businesses, such as pressure-sensitive bar code labels and department store apparel tags. These strategies have further reinforced our already strong foundation, which we are beginning to leverage through the disciplined execution of our M&A strategy.

Now let me describe how these strategic priorities are playing out within each of the segments. Label and graphic materials effectively the former pressure-sensitive materials segment, excluding performance tapes, had another outstanding year of solid organic growth and margin expansion.

Our strategy to expand our position in high-value categories is working. These categories, which include specialty labels, graphics, and reflective solutions, were up approximately 10% for the year. I'm especially pleased with our progress in graphics.

We've gained share by improving our quality and continuing to provide differentiated service, as well as by bringing innovation to the space, particularly in cast films. Now, with the addition of Mactac Europe, graphics is a roughly $500 million business for us. With this scale and the ability to leverage our operational excellence and expertise in materials science, this business is well positioned for significant value creation.

In addition to delivering above-average growth in these high-value categories, we generated solid organic growth and sizeable margin expansion in our base product lines for the second year in a row. Our focus here has been to position ourselves for sustainable, profitable growth through tailored go-to-market strategies and a constant drive for productivity. And I would be remiss if I did not also highlight the importance of emerging markets, which continue to be a significant and consistent growth driver in this segment, and we expect to continue to benefit from our broad-based exposure and leadership position in these geographies.

We have and will continue to increase the pace of investment to leverage this high-return business, as demonstrated by our acquisitions of Mactac Europe, Hanita Coatings, and Ink Mill, as well as our investment to expand our flagship plant in Luxembourg. You've heard about Mactac and Ink Mill, so I'll just comment briefly on the acquisition of Hanita Coatings we announced in December.

This is an Israeli developer and manufacturer of coated films, a great standalone business today, operating in market segments that expand our reach, and we see immediate opportunities to cross-sell their products through our global network. The Company has a culture of innovation and longstanding commitment to R&D, which are a strong fit with our own record and commitment to innovation in material science. We expect this deal to close in the first quarter.

Retail branding and information solutions delivered solid growth, driven by radio frequency identification, which grew an impressive 40% for the year. The growth was driven by both the implementation of new programs, and the acceleration of active rollouts. The case for RFID is clear, and we remain the go-to supplier in the market, so we will continue to invest in innovation and capacity in this space.

Outside of RFID, we saw volumes increase across customer categories over the last few quarters despite a difficult retail apparel market, demonstrating early success of our multi-year transformation strategy. We continued to move more and more decision-making closer to our customers, reduce complexity as well as our cost structure, and qualify lower-cost locally sourced materials to support more competitive pricing.

Our improvements in service flexibility and speed continue to resonate with our customers, and are the force behind our accelerated pace of margin expansion. To that end, I am pleased to say that we are on track to deliver on our long-term profitability and value creation objectives in this business, even should we remain in a relatively low growth environment for apparel.

Turning to industrial and healthcare materials. This newly created segment includes our performance tapes business, previously reported in pressure sensitive materials; our fasteners business, which was previously in RBIS; and Vancive Medical Technologies, which was previously a standalone segment.

We have spoken before about reestablishing the link between tapes and Vancive to better leverage our core competencies, as well as our cost structure. This new segment reflects that strategic shift, as well as the alignment of businesses that share common end markets, namely automotive, electronics, and healthcare. These are attractive high value markets for us, where we are currently underpenetrated.

The growth prospects for this business reflect broader trends such as the conversion for mechanical fasteners to tape that reduce weight, and provide other functionality such as noise and vibration dampening. We expect this business to return to a solid growth trajectory by mid 2017 in both industrial and healthcare categories. This segment has a comparable margin to label and graphics materials, and we expect to enter 2018 with a comparable growth rate, as well.

Given the growth potential and the ability to leverage our key competencies, including process technology and R&D of our two materials segments, this is an area of focus for future investment, including M&A. Speaking of which, I'm pleased with the overall progress in our M&A strategy, both in terms of the quality of the deals, and the size and quality of our pipeline. We will continue to pursue opportunities to increase our exposure to high value lines, product lines, add to our core capabilities, and provide greater scale.

All in all, 2016 was another great year, and we are looking to continue our strong performance in 2017. As always, we aim for the upper end of our guidance range, and are targeting solid revenue growth and double-digit EPS growth this year. We are confident we will continue our momentum and achieve our long-term goals by maintaining our focus on delivering exceptional value for our customers, our employees, and our shareholders, as we execute the key strategies I outlined earlier.

First and foremost, we will drive outsized growth in high value segments. We will continue to invest disproportionately here, both organically and through bolt-on acquisitions. Over time, this will improve our portfolio mix and bolster our leadership in these key segments.

Second, we are relentless in our pursuit of productivity improvement, to enhance our competitiveness across all product categories, and of course, to drive margin expansion. Third, we are maintaining our high degree of capital efficiency, while increasing investments to support profitable growth and long-term value creation.

And of course, we will continue our disciplined approach to returning cash to shareholders. Now, I'll turn the call over to Ann.

Thanks, Mitch. I'll provide additional color on the quarter and year, and then I'll walk you through our outlook for 2017.

In Q4, adjusted earnings per share increased by 17%, compared to the prior year, above our expectations, due to higher than expected organic sales growth of approximately 5%. Acquisitions lifted sales by 2.7%, while currency represented a headwind of approximately 1%. Adjusted operating margin in the fourth quarter improved 70 basis points to 9.4%, driven by the impact of higher volume and productivity initiatives.

Restructuring savings, net of transition expenses, were approximately $14 million in the quarter, and $82 million for the year, in line with our expectations. Our adjusted tax rate for the fourth quarter was 32%, and approximately 33% for the full year, in line with both our expectations and the prior year.

Free cash flow was $139 million in the quarter. For the full year, free cash flow was $387 million, driven by higher income and working capital productivity. As expected, we increase our combined spending on fixed and IT capital projects and restructuring this year, as we continue to invest for profitable growth, particularly in our high-value categories and in emerging markets.

Our balance sheet remains strong, and we have ample capacity to continue funding acquisitions, as well as returning cash to shareholders. As Mitch stated, we are committed to the disciplined return of cash to shareholders. We repurchased 3.8 million shares in 2016 at a cost net of proceeds from stock options of $191 million, and paid $143 million in dividends.

Before I provide commentary on segment performance, I want to point out that we have provided a bridge from our previous segments to the new segments for both the fourth quarter and full year in slide 7, and in appendix A in our supplemental materials. Our label and graphic materials segment is essentially what we previously refer to as PSM, less our performance tapes business, which is now included in industrial and healthcare materials. As you can see, the growth and margin profile of this segment is relatively unchanged.

We have moved our high-margin fastener solutions business from RBIS to IHM, reducing the margin baseline in RBIS by approximately 80 basis points. The adjusted operating margin improvement of 230 basis points since 2013 is unchanged for this segment.

The industrial and healthcare materials segment includes performance tapes, fastener solutions, and Vancive Medical Technologies, which was previously a standalone segment. Today, the margins in the segment are similar to LGM, and once we move past the headwinds in the first half of the year, we would expect the sales growth to be similar as well.

Now turning to segment performance for the quarter. In label and graphic materials sales, increased approximately 7% on an organic basis in part due to improved volumes in mature markets, which increased mid single-digits in the quarter. We saw continued solid demand in Western Europe, while volume in North America improved from the relatively soft conditions in Q3. We believe that we have recovered some of the market share we ceded in North America Earl your this year.

Broad-based strength in emerging markets continued, with organic sales growth of low double digits in the quarter. China grew mid single-digits, sustaining the improvement we saw in Q3, while growth in India moderated to a high single-digit growth rate, due in part to the government's demonetization campaign.

From a product line perspective, sales in label and packaging materials increased mid single digits, and the combined graphics and reflective businesses increased low double digits organically. LGM's adjusted operating margin increased by 70 basis points to 11.5%, due to the impact of higher volumes. As expected, margins were negatively impacted by nearly 50 basis points, due to the Mactac integration. We expect this acquisition to contribute approximately $0.10 to 2017 EPS, when we move past the integration phase, and margins come in line with the segment average.

Turning to retail branding and information solutions, sales grew 5% on an organic basis driven mostly by growth of RFID, which exceeded expectations, increasing 20% for the quarter. We continue to expect this business to grow at a 20%-plus rate going forward, and will continue to invest in this important growth catalyst. Despite a challenging retail apparel environment, volume growth improved in the base business, and we continue to see signs that our efforts to transform the business model are gaining traction.

From a regional perspective, we continued to see strong unit volume growth among European retailers and brand owners, partly driven by continued progress in expanding our share among fast fashion retailers. Unit volumes for core products were essentially flat in the US, consistent with what we saw last quarter, and this market remains challenged, as demonstrated by macro indicators.

Adjusted operating margin for this segment improved by 220 basis points to 10%, as the net savings from the business model transformation, and the benefit of higher volume were partly offset by higher employee-related costs. This brought the full-year margin expansion to 110 basis points, as we progressed toward achieving our 2018 profitability target. The margin improvement objectives remain the same for this business, and despite moving the high-margin fastener solutions business to IHM, we are confident in our ability to achieve a 10% operating margin in 2018.

Industrial and healthcare material sales declined by 8%, as growth in industrial materials were more than offset by the decline in the broader healthcare categories, reflecting the program loss in personal care and the decline in Vancive we have discussed previously. Industrial categories were up high single-digits on an organic basis.

Adjusted operating margin declined by 310 basis points to 9.7%, as the lower volume was only partly offset by productivity initiatives. As I have previously mentioned, we expect this business to return to growth in the second half of 2017, and have an organic growth end margin similar to LGM. We look forward to sharing more detail on our strategies and long-term goals for each of the segments during our Analyst meeting next month.

Now, turning back to the total Company, our results in 2016 represent another year of progression toward our long-term targets. We are on track to deliver on our 2018 goals, and have achieved a 17% return on total capital. Our net debt to EBITDA ratio remains below our targeted range, our balance sheet is healthy and we have ample capacity for investment.

Turning now to our outlook for 2017, we anticipate adjusted earnings per share to be in the range of $4.30 to $4.50. We have outlined some of the key contributing factors to this guidance on slide 12 of our supplemental presentation materials. We estimate between 3% and 4.5% organic sales growth, in line with the range we have experienced over the last few years.

The impacted acquisition on sales is approximately 1.5% from closed deals, and approximately 2% including the impact of the announced Hanita deal. At recent exchange rates, currency translation represents a pretax earnings impact of approximately $22 million, or roughly $0.17 per share. We estimate that incremental pretax savings from restructuring actions will contribute between $40 million and $50 million in 2017, about 40% of which represents the carryover benefit from actions taken in 2016.

At the low end of our EPS guidance range, we would expect modest improvement in consolidated margin. At the high end, we would expect approximately 50 basis points of margin expansion. We expect the tax rate in the low 30%s, due to stronger income growth in lower tax jurisdictions. We estimate average shares outstanding, assuming dilution of 88 million to 89 million shares, reflecting our continued return of cash to shareholders.

We anticipate spending approximately $215 million on fixed capital and IT projects, and approximately $22 million on cash restructuring, which combined is roughly flat to 2016, and consistent with our long-term capital allocation plan. We continue to expect free cash flow conversion of approximately 100% of net income.

So in summary, we are pleased with the strategic and financial progress we made against our 2018 goals this year. Our solid and consistent free cash flow and healthy balance sheet give us plenty of room to invest in the business and return cash to shareholders. And our profitable growth strategies, combined with a high degree of capital efficiency, reflect our commitment to delivering exceptional value over the long run. Now, we will open up the call for your questions.

(Operator Instructions)

Our first question comes from the line of Ghansham Panjabi from Robert W. Baird.

This is actually Matt Krueger sitting in for Ghansham. What were the major factors that led to your core sales growth out performance in Q4, relative to your initial expectations? And which, if any, of these factors are sustainable moving into the 2017 year?

So overall, we had a really solid quarter with 5% organic growth, which really exceeded our expectations. And we saw this both in LGM and RBIS, particularly RFID, that were strong in both divisions. So from a margins perspective, we saw this coming in slightly better due to higher volumes, and then the impact of our transformation efforts in RBIS.

As we talked about the guidance for 2017, and what we assumed was on the top line, if you look at our sales growth over the last couple of years, we've delivered anywhere from a 3% to 4.5% organic growth, and it really depends on what you see both from a retail apparel market, as well as a broader economic market. And so that's why we gave the range of the 3% to 4.5%.

As far as on the margin side, what we believe on the margin for the guidance is that we will see productivity improvement in RBIS, and it really depends on the degree, as well as volume flow through and pick up. So on the high end, we would expect to see more coming from top line growth from RBIS. Certainly on the high end of our guidance, from an LGM perspective, we would expect to see modest improvement in margins, particularly coming off a really strong 2016.

Just to build on that, Matt, looking just at Q4, high level I'd say a little bit stronger coming in from materials Europe, and I'd say the pace with which we were able reverse the trend in materials North America beat our expectations. And then China for both materials and RBIS came in a bit stronger than we expected, and we think some of that may be due to the timing of Chinese New Year being earlier in 2017 than usual.

So those are the key headlines for the beat. Overall though, it reinforces the strategies that we've been laying out, about winning in all categories and really speaks to the resilience and strength we have of our broad-based market positions in each geography.

That's really helpful. And then can you provide a break out of your expected 2017 cost savings by segment, and can you provide any specifics about the timing of these cost savings as they flow through the year?

Yes, so as we mentioned, we had some carryover savings coming into 2017 which really that needs to be more front loaded. From the additional new actions, that we're taking we really see those being more back loaded. About I would say roughly 75% of the savings will be flowing through SG&A, and the bulk of the vast majority of those are going to be related to RBIS.

Okay, that's helpful, thanks.

Up next we have a question from the line of Scott Gaffner from Barclays.

Question is more on the margin expansion. You talk about volume leverage, you also talk about growth in the higher margin businesses. Just specific to 2017, it sounded like it's more focused, let's say we get to the high end of the 50 BPs of margin improvement. Is that more focused on volume leverage, or is it more focused on actually growing in higher margin businesses?

You can tease out any single component that you want. I think what you'd see is just it's a combination of volume leverage as well as driving productivity, is what we've laid out in our guidance for 2017, Scott. If we talk about the comments over the last couple of years, we've seen improved margins from the improved mix, but the biggest driver was actually the instilling more discipline within the base business that we've been talking through, both from driving productivity, but also enabling us to drive more profitable growth and get volume leverage, even within that category as well.

So when you look at the incremental margins in RBIS, are you able to generate incremental margins at a lower sales volume figure now? And what is the typical incremental margin in that business nowadays?

So I think Q4 is really a good representation, that when you get growth in this business, it flows through. It's a very high variable margin business. As we continue to accelerate our strategy, our business transformation, we would expect to see the contribution margin continue to hold up in this business, despite a macro environment with the retail piece to it, so it's really about volume in this. When we look through this and look at our general rule of thumb, you do need a couple points to have it start flowing through, of top line growth, but in general we are positioning this business to be able to achieve the profitability goals, even in the low growth environment.

Are you generating positive economic value within the RBIS segment now, at these margin rates?

Yes, so the margin rates that we are going into for 2017 and 2018, this business will be positive EVA, yes.

All right. Thanks Mitch, thanks Anne.

Thank you. Continuing on, our next question comes from the line of Anthony Pettinari from Citigroup Global Markets.

In the past two quarters, you have cited price net of cost as negative for the PSM business. I wondered how that trended in Q4, and what raw material trends you're seeing currently, and how we should think about balancing price cost, maybe in the first half of the year?

Overall, we're seeing relatively stable environment on the raw materials, but it's different by component. We buy a lot of specialty both chemicals, as well as paper products. But within that, seeing a little bit of modest headwind in chemicals, pretty broad based across regions. And seeing specific inflation, relatively modest but still enough within China, we are looking at a price increase there. The key message here, overall relative stability, little bit of a modest headwind, but I'd say it's relatively negligible overall.

That's helpful and looking at RBIS, the apparels import data that we've seen in North America has been a little more positive in recent months. Just curious what demand you're seeing in January? And a related question, we have a new administration and there's a lot of discussion around border adjustment tax, and potential impact to apparel and retail at some of your customers. I'm just wondering if you had any broad thoughts on that as well?

Sure, so just, overall, your first question about what we're seeing within the first few weeks of shipments within RBIS, so it's tough to read. A few weeks data is never a great read for how a quarter or a year is going to play out, and it's particularly challenging here because of Chinese New Year. With the Chinese New Year moving earlier, we really need to cycle through the first two months every to get a good read on it. First couple weeks were positive, and now it's off because we're in the middle of Chinese New Year, which we haven't comped through yet.

As far as the border tax we're in close contact and working with our retailers and brands to understand how they are thinking this through. The key message here, it's just way too early to tell what the impacts of that may be, and whether it would even be implemented in its current form, or even any other form. So there's quite a few questions on it. We're close to this.

If anything related to this were implemented, I think what you'd expect is the retailers would have to get much more efficient in managing their Supply Chains, reducing inventories and so forth and that would play to our strengths as far as the capabilities that we bring both in brand management and information solutions, not just to help elevate brands, but also to help accelerate the supply chains.

Okay that's helpful. And then just maybe one last housekeeping question. In terms of the guidance for 2017, is there any pension expense or cash contributions that we should be modeling for 2017 versus last year?

Yes, thanks for the question. So on the pension expense side, we do see it going up about a $0.06 EPS impact in 2017, primarily due to foreign pension discount rates declining, which increases the pension expense. So that is a head wind for us in 2017. As far as the cash contributions, we did make the required 2017 payment, we did make that at the end of 2016. It was offset by some favorability in cash taxes, so from a free cash flow perspective, it washed out. But for 2017 we would expect to make about a $15 million normal payment that we would see for some of the foreign pensions.

Got it. I'll turn it over.

Thank you very much, sir. Our next question comes from the line of George Staphos from Bank of America Merrill Lynch.

Mitch and Anne, congratulations on the quarter and year. Certainly better than we would have expected in the quarter. One question I had, just to maybe piggyback on Anthony's question on order deductibility, would you expect supply chains to be disrupted, are your customers at all talking about maybe needing to move the needle so to speak, back towards the US? And aside from following your customers, how would you contend with that?

George, I'd say it's far too early to say what the impact would be. As I think about it, if you think of the sheer number, this is a labor intensive industry, the sheer number of people engaged in this industry globally, I'm not sure we have the labor force in the US to be able to accommodate that.

So I think that if you think about the -- and then you couple that with the fact of the lower wages outside the US, where these things are manufactured today, even a tax hit would still be relatively lower cost. The impact would be more on what it would do to end demand, is my assessment.

Again, given the implications of all these things, it's essentially a consumption tax, is what it would mean in the end. I think there's questions whether it would even be adopted anything close to its current form, but we're going to be well-positioned regardless of what the outcome is and work with our retailers and brands to customers, to make sure that they are successful, relative to whatever happens on the horizon.

Fair enough, Mitch. A related question. On RFID growth continuing at 20% can you provide a bit more color in terms of launches, new adoptions? I remember the comparison being also very, very challenging versus last year's quarter. Can you give us a bit of color on that, and what the comps are in the first half of 2017 for RFID?

Sure, so just overall looking at the pipeline, so the growth for the year and including within the quarter, you got a couple of customers that were already in active rollout, ramp ups that are rollout, and actually, moving quicker than we expected them to, and they basically were hitting their more aspirational targets for rollout. And so we knew it was within the realm of possibility for Q4 specifically, but we weren't banking on it.

We made sure that we had the right capacity to ensure we fulfill the orders should they come through, and they ended upcoming through and hitting. In addition to that, there was a couple key customers that moved out of pilot, and started it into the early adoption phase, and that is also contributing to the growth within the year. And then there's quite a few, I'm talking about major customers here, quite a few mid size and smaller retailers and brands that are also going through adoption right now. So that was what was a positive to the upside. Looking forward in 2017 and beyond, we continue to expect RFID to be a 20%-plus growth business.

Mitch, not to get too pedantic, maybe, but do you expect 20% pretty linearly over the course of 2017, and can you remind us what the some of the comparisons look like first half? I remember first quarter being a tough one for RFID.

Yes, we had a big surge in Q4 of 2015 and Q1 of 2016, and you've seen another surge within Q4. I think the message here, George, is we've talked about it being relatively choppy in the past, as far as when the exact timing of these programs will come, whether it be so many in active rollout, accelerating the next phase of the rollout.

Or just new customers suddenly, once they decide they want to move, takes a long time to make the decision, but once they decide they want to move, they want to move quickly. So expect choppiness quarter to quarter. The key thing I'd focus on is just the growth trajectory, and focus around 20% on an annual basis going forward.

Understood. My last question, and I'll turn it over. Can you give us some guidance on depreciation and amortization for this year, remembering that you have some roll off occurring in RBIS related to Paxar from years gone by, and what that adds to earnings if anything this coming year? Thank you.

So the Paxar piece to it, the amortization is roughly $8 million this year and about $7 million in 2018. So you would get over the next two years about a point of favorability in RBIS, from that amortization.

$8 million this year, $7 million in 2018; correct Anne?

Correct, yes.

Thank you very much.

And thank you, sir. Continuing on, our next question comes from the line of Jeff Zekauskas from JPMorgan.

Just one more question on border taxes. Do you import much raw materials that you turn into products, or is your import of intermediate products relatively low?

Very low, the import of our products. So, Jeff, we work with the retailers and brands principally in the mature regions of Western Europe and the US, and spec our product, and basically set pricing and so forth. And our direct sales are to the apparel manufacturers that are distributed globally around the world. So we actually don't, our sales are not in the US, even though the end markets are the US or Western Europe.

So in theory, your own tax rate from border taxes might be, and reform might be more advantaged, if this were to go through, leaving aside what happens to your demand?

Yes, given the current contract, it's not an impact to our tax rate. Overall, I think the border tax you should think of is what does it do to retailers, and how they are thinking through the supply chains. We are working with them to make sure they can go through any transition that happens. I have my own questions on whether that would, in what form. And then the broader tax adjustments that they are working through, you highlighted this in one of your reports, we would expect would be a benefit to us, in how they are talking about it from a tax rate perspective.

I also want to emphasize that as you know, this is still very early stages, with not a lot concrete. We're staying very close to this obviously, but if anything were to change or reduce our tax liability, we would change our guidance accordingly.

Nothing for this is baked into our guidance right now, given the uncertainties.

Can you talk about price mix trends in the fourth quarter for your two main segments? Were they price mix up or down or did they stay the same?

So the net impact of price and raw material cost within the material segment was relatively neutral. As I mentioned, we're starting to see a little bit of, on a sequential basis, raw material input cost trends going up. We constantly work within this level to use our material reengineering innovation capabilities, to be able to reduce the material content of our products to offset that. So net-net, between all of them, relatively neutral, between price, raw material input cost and material reengineering productivity that we have.

Within RBIS, so we've been, as we talked through, focused on maintaining our high degree of variable margins within that business, but reducing direct material costs, input costs in that business, and getting more price competitive. So we have prices down in this business, but Q4 was the quarter we had predicted, where it would cycle through, and where we would on a net basis no longer have a hit from that perspective, and that's played out and that's stabilized, and we expect it to continue to be stable going into 2017.

Do you expect core RBIS volume to grow in 2017, that is exclusive of RFID, or it's too early to tell?

We expect it to grow.

Thanks very much.

(Operator Instructions)

Our next question comes from the line of Adam Josephson from KeyBanc Capital Markets.

This is actually [Michael Blank] sitting in for Adam, thanks for taking my questions. Just a quick one for me. Can you just talk about what FX rates your guidance assumes this year?

Sure. So for the Euro, we're assuming around a $1.045 and the renminbi, which is another piece to our currency basket, is $0.1437.

Okay, that's all for me. Thanks.

Thank you. Mr. Butier, there are no further questions at this time, I'll now turn the call back to you. Please continue with your presentation or closing remarks.

Well, I thank everybody for joining the call today. Just want to highlight again, our consistent performance we've had over the last few years speaks to the resilience of our market positions, the depth of talent in the Company, and the strategic foundations we've laid. And I really want to thank our teams globally for their continued creativity and commitment in delivering phenomenal results, and just I want to highlight that we are committed to continuing to deliver exceptional value for our customers, our employees, and our shareholders. So thank you.

Thank you, sir. Ladies and gentlemen, that does conclude the conference call for today. We thank you all for your participation and ask that you please disconnect your lines. Thank you once again, have a great day.