AVY
#Morning, <UNK>.
Sure.
I think typically the way we've characterized our CapEx is, 1/3 growth, 1/3 productivity, 1/3 IT/maintenance capital.
It's actually is going to move to about 50% of growth in capital spending.
We started a number of projects later in the year.
We need some new graphics capacity in the US, so we are going be investing in some new capability there.
We're also going to get a productivity benefit from that investment.
It's going to take us a while to plan out.
It's a fairly decent-sized investment.
We need new coating capacity in Asia, and so we are going to be in the process of building a new water-based coating line there.
And then we've got some IT projects in North America.
We've got a fairly old system in the US that we are going to upgrade and replace.
Those are some of the key investments in pressure-sensitive materials.
In RBIS, clearly RFID with its rapid growth, we're continuing to invest there as well as some of the heat transfer technology.
We are also are spending capital on automation in that business to continue to drive better labor productivity.
It's a more labor-intense business than material, as well as to help us facilitate a more efficient footprint.
Well above our hurdle rate.
Or greater.
I think, as you might guess, most operating plans for businesses always look for improvement every single year.
We are not really different than anybody else.
We're not going to get specific guidance for operating margins by segment.
I think the team has done a good job driving mix, growing faster in high-value segments, and at the same time getting more competitive in some of the more competitive segments, frankly, and driving improvement there.
For us, pressure-sensitive materials is a high-return business.
It is at a multiple of our cost to capital, and driving growth.
Top-line growth is also an important goal for us, so I feel good about the position of the business.
Again it's ---+ right now, with oil prices low, I know a lot of people are saying, that should really help you.
To be honest, we haven't seen that much change in the commodities we buy over the last 90 to 120 days.
A lot of the things we buy are several steps down from crude oil.
And then there is still some economies where we are seeing inflation.
I think the team has done a good job.
We are continuing to pursue our strategy of driving productivity, driving top-line growth and mix, and we have the expectation to continue to drive for more improvement.
Those targets that we had set for 2018 are not a cap.
They are simply a long-term guidance range.
But we feel confident today that we can operate at 11% or over.
Thank you.
<UNK>, I will answer the last part of your question first.
There is no knock-on effects or implications to the rest of the business in PSM.
This is specifically within the performance tapes business, which is an application business.
And one application ---+ it's not losing share, if you will, to another competitor.
There's a technology change, as <UNK> said.
Our focus, when we've talked about investing in this business, it's really been focused on the industrial tape side, where we did continue to see growth in Q4.
And it is going to be a key focus for us going forward.
We look at this as an application we got a few years ago.
The team did a great job in driving value and achieving our objectives on this application, and we knew eventually we would have a sunset and it's coming in 2016.
When we look at PSM for 2015, by and large by a multiple of two and three times, the benefit in margin came from net productivity in restructuring.
So that really was driving the margin improvement that we saw for the year.
Your question, going into 2016 ---+ when we laid out this business, if you look at 2012 when we laid out long-term targets, we said 9% to 10% operating margin target.
We've passed and exceeded that.
We've now said 10% to 11% as the operating margin for this business.
And it's really, what we said is, those are proxies for what would make a high return on capital business here.
That is our focus and we have been testing and getting, achieving new heights.
We don't, as <UNK> said earlier, see this as a cap in any way.
We all have operating plans to look to see how can we test even further new heights.
But the reason that we are saying we're confident we can hold 11% or more in this business is, one, we feel that it's a very high return business and we've got to focus on growing it, then, as we've done a great job over the last few years.
Two, is just macro uncertainty as far as what's out there within the economy and all the headlines that everybody's reading.
No, there really wasn't.
That was a component when we looked at the total guidance.
Right now, we've got the euro pegged slightly under $1.09.
Good.
About $150 million in 2015.
The charge is primarily in the SG&A line.
There is a portion that goes through the gross profit line, but I would say it's probably an 80%/20%, 75% to 80% going through SG&A.
There's a number of initiatives going on.
First we're looking at footprint consolidation to get efficiency in the business.
And then secondly we also, as we talked about in the prior quarter, looking at driving more efficiency in the regional basis, getting out some of the layers of management in the business; and so that's a big component of the SG&A line as well.
Just to add onto that, <UNK> ---+ the footprint consolidation, as <UNK> talked about, we've announced in eastern US as well as western Europe; and then one of the overall objectives here is to lower costs so we can be more competitive in all segments.
We're cutting SG&A across the board, if you will, on a number of areas.
It's not just about lowering costs.
It's actually about streamlining the management structure to move decision points closer to the customer and close to the market so we can be faster and more nimble in the market.
That's what we are doing.
The SG&A is broad based, but it's again not just on cost reduction ---+ it's also around getting quicker in the marketplace.
We talked about this generally in a net basis.
When you look at the net impact of pricing and deflation, as we commented, we saw modest benefit in Q4 again as we've seen the previous couple quarters.
If you look at where we fit now flowing into 2016, it's essentially neutral ---+ the net impact between pricing and raw materials.
It's hard to give a very broad comment on those trends globally, because it depends region by region.
In some regions we're raising prices quite dramatically, double digits to offset inflation.
Other regions, clearly in some regions we have some deflation and it's a competitive environment, and we're working through that.
One thing I do want to say is, we talked last year about a couple course corrections we were making and one of them was rebalancing the dynamics between price volume and mix within PSM.
I think largely what you are seeing is, we've done a good job in doing that, of rebalancing those dynamics.
And we talked about getting more disciplined in the less-differentiated segments within PSM, and we have done that as well.
And the focus is, how do we continue to drive growth profitably across all the segments.
We don't provide commentary on that.
We didn't make any contributions to the plan.
We are seeing some pressure in Europe because ---+ generally because of the currency shifts that you are seeing there, but that's the only place we're really seeing pressure.
When you look at our long-term goals, we really have set the target around $175 million to $200 million a year for CapEx spending on average.
Yes, so there were several questions in there.
Let me try to take a couple of them.
One is, if you look at our margins ---+ you asked about the 53rd week impact and what's the variable flow through from volumes.
We did see what you would typically expect from a volume flow through from the growth, but if you think about the lack of the extra week that we had, that was pure variable flow through last year, and we commented about it the benefit that it gave us to 2014's earnings.
And we expect that to come back down more than $0.10 in Q4.
You've got your fixed cost structure which stays solid for the quarter, and you've got an extra shipping week.
That was what that item was about.
But no shift on the volume variable flow through.
As far as the mix ---+ typically Q4, the mix is lower if you're looking sequentially versus Q2, Q3, because we have more graphic sales, for example, in Q2 and Q3 than we had in Q4; so that you would typically seek Q4 be somewhat lower than if you're looking on a sequential basis.
As far as the ---+ go ahead.
No, because those are very different markets.
Graphics are more for the durables market.
They're long-lived labels, if you will, so they're not ---+ nothing to do with the e-commerce trend.
The e-commerce we talked about was a key point of growth, particularly in Asia; and that is, while it's not just classic variable information labels, like <UNK> said earlier, and actually within China, with this growth that we've achieved, we've actually gotten margins back to where they were before the slips we saw them in 2014.
I would say, yes, we have an active pipeline going for M&A.
We talked about it.
I would say it definitely includes the materials businesses ---+ all the material businesses.
Vancive is also is an area that we are looking in.
RFID is an interesting question.
I would say the answer is yes, but I would say there's not just a lot out there.
We are one of the biggest entities out there for RFID and really our focus there, other than driving the great growth that we had, is looking for applications outside of the core apparel business because we have a really unique capability in the marketplace.
And I think, in the long run, that will bode well.
<UNK>, from a capital point of view, it's basically in the equipment to make, not what I would characterize as integrated inlays.
One of the advantages that we have is being able to offer the retailer form factors that are very similar to what they use today and then make the incremental costs of adopting RFID even lower than it was before.
I think the team has been very innovative and creative, driving both lower costs for inlay production, but also at the same time giving the retailer almost a seamless and lower-cost transition.
We're really changing the game there.
We have invested a little more in the front end, but that's actually been in place for quite a while.
We have a really experienced team that understands ---+ I would say we don't have so much a turnkey approach.
I think we have probably the most knowledge in the business on how to effectively execute a program and we can help guide retailers in a number of areas as they roll out their programs.
I would characterize it this way: the folks that have invested in RFID are accelerating what they're doing.
We had a couple of large customers ask us, can we go even faster.
I think the team did a great job of accommodating that pretty seamlessly.
Our growth in the quarter was almost 90%.
That's a lot for any operation's supply chain team to execute.
As retailers continue to understand the need for really accurate inventories to play in the omni-channel world, I think it is becoming ---+ I won't say a no-brainer ---+ but it's becoming an essential part of being competitive.
And that's the discussion that's going on.
Retailers are talking mainly about how, and not if.
I think this will be a great growth platform for us for the next few years.
It comes from a combination ---+ so it's sort of at all ---+ what I would characterize as all levels, right.
We have scale in purchasing chips.
We have an ability to integrate the manufacturing of the antenna, the making of the inlay and integrating that into the final tag in a seamless process, which reduces materials and reduces process steps.
I was literally just in Asia a couple of weeks ago looking at our operations and talking to the team, and they have already figured out a way to double the productivity that we're getting on our newly installed equipment.
I get pretty excited about that.
So far, I don't see a limit to what we are doing.
We also have some longer-term programs ---+ and I mean the next two to four years ---+ where I do think there is an ability to take another step change in the cost reduction of an inlay.
I can't, due to confidentiality, get into the details.
But we are all in on this business and I feel really good about both our short-term and our long-term prospects.
Thanks, France.
Our focus in 2016 will be the same as it's been for the last four years: to deliver exceptional value for customers, our employees, and our shareholders.
We're going to continue to pursue the broad strategic priorities that we communicated, fine-tuning where appropriate.
And we look forward to seeing that strategy and execution translate into superior total shareholder return over the long term.
Thanks for joining us and we will talk to you at the end of the next quarter.
