2017 Annual Report
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2017 ANNUAL REPORT innov! ation www.cclind.com 20 000 167 39 6 Employees Production Facilities Countries Continents CCL Avery Innovia Container Checkpoint CCL is the world’s largest Avery provides world-leading Innovia is a leading With plants in Canada, Checkpoint is a leading converter of pressure software solutions that manufacturer of high United States and Mexico, manufacturer of technology- sensitive and extruded film help small businesses and performance, multi-layer, this business is a leading driven loss-prevention, materials for decorative, consumers design online surface engineered manufacturer of sustainable, inventory management instructional, security and or download templates specialty films for label, impact extruded, aluminum labelling and tagging functional applications to digitally print labels, packaging and security aerosol containers and solutions (RF and RFID for government institutions tags, dividers, badges and applications. bottles for premium brands capable) to global apparel and leading global specialty card products from in the North American brand owners and omni customers in the consumer avery.com. Products are sold Home & Personal Care and channel retailers. packaging, healthcare, through mass market retailers Food & Beverage markets. automotive and consumer and distributors alongside durable segments. complementary office supplies as well as direct to consumers via avery.com and other e-commerce brands. North America Europe Emerging Markets represents represents represent 43% 34% 23% of total sales. of total sales. of total sales. CAUTION ABOUT FORWARD-LOOKING INFORMATION This annual report contains forward-looking information and forward-looking statements, as defined under applicable securities laws, (hereinafter collectively referred to as “forward-looking statements”) that involve a number of risks and uncertainties. Forward-looking statements include all statements that are predictive in nature or depend on future events or conditions. Forward-looking statements are typically identified by, but not limited to, the words “believes,” “expects,” “anticipates,” “estimates,” “intends,” “plans” or similar expressions. Statements regarding the operations, business, financial condition, priorities, ongoing objectives, strategies and outlook of the Company, other than statements of historical fact, are forward-looking statements. Specifically, this MD&A contains forward-looking statements regarding the anticipated growth in sales, income and profitability of the Company’s segments; the Company’s improvement in market share; the Company’s capital spending levels and planned capital expenditures in 2018; the adequacy of the Company’s financial liquidity; the Company’s targeted return on equity, earnings per share, EBITDA growth rates and dividend payout; the Company’s effective tax rate; the Company’s ongoing business strategy; and the Company’s expectations regarding general business and economic conditions. Forward-looking statements are not guarantees of future performance. They involve known and unknown risks and uncertainties relating to future events and conditions including, but not limited to, the impact of competition; consumer confidence and spending preferences; general economic and geopolitical conditions; currency exchange rates; interest rates and credit availability; technological change; changes in government regulations; risks associated with operating and product hazards; and the Company’s ability to attract and retain qualified employees. Do not unduly rely on forward- looking statements as the Company’s actual results could differ materially from those anticipated in these forward-looking statements. Forward-looking statements are also based on a number of assumptions, which may prove to be incorrect, including, but not limited to, assumptions about the following: higher consumer spending; improved customer demand for the Company’s products; continued historical growth trends, market growth in specific segments and entering into new segments; the Company’s ability to provide a wide range of products to multinational customers on a global basis; the benefits of the Company’s focused strategies and operational approach; the Company’s ability to implement its acquisition strategy and successfully integrate acquired businesses; the achievement of the Company’s plans for improved efficiency and lower costs, including the ability to pass on aluminum cost increases to its customers; the availability of cash and credit; fluctuations of currency exchange rates; the Company’s continued relations with its customers; and general business and economic conditions. Should one or more risks materialize or should any assumptions prove incorrect, then actual results could vary materially from those expressed or implied in the forward-looking statements. Further details on key risks can be found throughout this report and particularly in Section 4: “Risks and Uncertainties.” Except as otherwise indicated, forward-looking statements do not take into account the effect that transactions or non-recurring or other special items announced or occurring after the statements are made may have on the business. Such statements do not, unless otherwise specified by the Company, reflect the impact of dispositions, sales of assets, monetizations, mergers, acquisitions, other business combinations or transactions, asset write-downs or other charges announced or occurring after forward-looking statements are made. The financial impact of these transactions and non- recurring and other special items can be complex and depends on the facts particular to each of them and therefore cannot be described in a meaningful way in advance of knowing specific facts. The forward-looking statements are provided as of the date of this annual report and the Company does not assume any obligation to update or revise the forward-looking statements to reflect new events or circumstances, except as required by law. Unless the context otherwise indicates, a reference to “the Company” means CCL Industries Inc., its subsidiary companies and equity accounted investments. 2017 LETTER TO SHAREHOLDERS CCL INDUSTRIES DELIVERED ANOTHER RECORD YEAR IN 2017 WITH SALES OF $4.8 BILLION AND NET EARNINGS OF $474 MILLION, AIDED BY A $40 MILLION REDUCTION IN DEFERRED LIABILITIES RESULTING FROM THE UNITED STATES TAX CUTS & JOBS ACT THAT TAKES EFFECT IN 2018. Donald G. Lang Geoffrey T. Martin Executive Chairman President and Chief Executive Officer 6.2% organic sales growth for the CCL Segment continues to exceed global GDP; Checkpoint had a successful first full year with increased profitability; Avery rebounded from a slow first half to post results in local currencies in line with 2016, while our Container business flawlessly completed the daunting consolidation of its North American operations. The Innovia acquisition, announced late 2016 and closed at the end of February 2017, had a decidedly mixed start. Innovia Security (now CCL Secure, part of the CCL Segment) performed well as expected, but Innovia Films had a challenging 2017 as polypropylene resin price increases significantly impacted profitability. Reported sales increased 19.6% and adjusted basic earnings per share* (“adjusted EPS”) improved 18% from $2.28 in 2016 to $2.69 in 2017. Foreign currency translation and transaction impacts were modestly negative due to the lower U.S. dollar, offset partly by the stronger euro. Restructuring charges and other expenses were $27 million in 2017, offset by a $16 million favourable settlement of a large legal claim, compared to $35 million in 2016. Actions were focused on improving the performance of Innovia and Checkpoint. Free cash flow from operations* was another highlight reaching $438 million, and return on equity* improved slightly to 24%. Global Economy The world remained volatile in 2017, with tensions in North Korea, terror incidents, civil wars and the rise of populism in both Europe and the United States. However, 179 of 192 economies in the International Monetary Fund’s (“IMF”) World Economic Outlook posted growth; while IMF forecasts for 2018 would have the fewest countries in recession ever reported. If the recovery in the United States lasts the decade through mid-2019, which looks a distinct possibility, it will have been the longest period of expansion since 1945. In this context, we regard the Company’s overall 2.1% organic sales growth as a solid “par” given many of our businesses exceeded this rate by a distance while some fell short. CCL Segment Sales reached $2.8 billion while operating as CCL Label for Home & Personal Care, Healthcare & Specialty and Food & Beverage consumer packaging markets; CCL Design for high performance, durable products for Automotive & Electronics OEMs; and CCL Secure for anti-counterfeit, graphic technologies for government institutions and companies interested in brand protection. CCL outperformed again in 2017 with 6.2% organic sales growth on top of 7.1% in 2016 on modest progress in North America, solid 2017 Annual Report 1 2017 LETTER TO SHAREHOLDERS in Latin America, strong in Europe and robust in Asia driven by exceptional results in China. Our joint ventures in the Middle East and Russia had record years. Healthcare & Specialty results were flat but the rest of our legacy global business lines delivered significant improvement on market share gains, while CCL Secure met expectations and augmented mix. Excluding the impact of currency translation, worldwide sales increased 14.5%, and