CCL Industries Inc.

Good morning, ladies and gentlemen. Welcome to TCL Industries' third quarter investor update. Please note that there will be a question and answer session after the call. The moderator for today is Mr. Geoff Martin, President and Chief Executive Officer, and joining him is Mr. Sean Washchuk, Senior Vice President and Chief Financial Officer. Please go ahead, gentlemen.

Good morning. Thanks, Tom. Thank you everyone for joining us on our third quarter earnings release. Geoff and I are here in Brea, California, our Avery headquarters today. And we can turn everyone's attention to slide two, our disclaimer regarding forward-looking information. I'll remind everyone that our businesses face known and unknown risks and opportunities. For further details of these key risks, please take a look at our 2021 annual MD&A. Under this section, risks and uncertainties, and you can also see in an update in our third quarter report to those risks and uncertainties. Our annual and quarterly reports can be found online at the company's website, CCLIND.com, or on CDAR.com. Moving to slide three, our summary of financial results for the third quarter in nine months. For the third quarter of 2021, 22 sales increased 11.4 percent with organic growth of 8.8 percent acquisition related growth of 4.9 percent partially offset by a 2.3 percent negative impact from foreign currency translation resulting in sales of 1.66 billion dollars compared to 1.49 billion dollars in the third quarter of 2021 operating income was 246.8 million dollars for the 2022 third quarter, compared to $223.9 million for the third quarter of 2021, an 11.6% increase, excluding the impact of foreign currency translation. Geoff will expand on our segmented operating results of our CCL, Avery, Check Point, and Inovia segments momentarily. Corporate expenses were up for the quarter, principally due to a higher expense for long-term variable compensation versus the prior year quarter. Consolidated EBITDA for the 2022 third quarter, excluding the impact of foreign currency translation, increased 7.9% compared to the same period in 2021. Net finance expense was $17.1 million for the third quarter of 2022, compared to $14.2 million in the 2021 third quarter due to an increase in total debt outstanding and an increase in variable interest rates on our revolving debt. The overall effective tax rate was 22.9% for the 2022 third quarter compared to an effective tax rate of 24.1% recorded in the third quarter of 2021, primarily reflecting a higher portion of our taxable income earned in lower tax jurisdictions. The effect of tax rate may change in future periods depending on the proportion of taxable income earned in different tax jurisdictions with different rates. Net earnings for the 2022 third quarter were $163.9 million, up 8% excluding foreign currency translation compared to the 2021 third quarter. For the nine-month period, sales increased 15%. Operating income increased 7%, excluding a $3.5 million non-cash acquisition accounting adjustment to fair value the inventory from our Adelbra acquisition. And net earnings increased 7% compared to the nine-month period of 2021. 2022 included results from 12 acquisitions completed since January 1, 2021, delivering acquisition-related sales growth for the period of 4.8%, organic sales growth of 10.1%, and a foreign currency translation headwind of 1.9%. Moving to the next slide on page four. Basic earnings per Class B share were 93 cents for the third quarter of 2022 compared to 85 cents for the third quarter of 2021. Adjusted basic earnings per Class B share were 95 cents for the 2022 third quarter, a quarterly record. Thank you for joining us. from increased corporate costs. Moving to page five, free cash flow from operations. For the third quarter of 2022, free cash flow from operations was $148.7 million compared to $152.4 million in the 2021 third quarter. The slight decline in cash flow from operations of 3.7 million is attributable to an increase in capital expenditures almost entirely offset by increased proceeds on disposal and improved cash flow by operating activities. For the 12 months ended September 30, 2022, free cash flow from operations decreased approximately $91 million compared to the 12 months ended September 30, 2021. This comparative decline is primarily attributable to an increase in net capital spending. Moving to page 6. Returns to Shareholders During the first nine months of 2022, the company repurchased almost 3.4 million shares at an average price of $58.95 for total proceeds of $200 million. Including the 14.3% increase in our 2022 annual dividend announced in February of this year, dividends year-to-date have amounted to $128 million. representing a healthy 26.3% dividend payout ratio. Moving to slide seven, our cash and debt summary. Net debt as of September 30th, 2022 was $1.78 billion, an increase of $529 million compared to December 31st, 2021. This increase is principally a result of new borrowings to finance the company's acquisitions During the first nine months of this year and the repurchase of shares under our normal course issuer bid. Although the company's net debt increased, the balance sheet closed the quarter in a strong position. Our balance sheet leverage ratio was 1.46 times, increasing from 1.06 at the end of December 2021. Liquidity was robust with almost $700 million of cash on hand. 0.8 billion of available undrawn credit capacity on our revolving bank facility. The company's overall average finance rate was largely unchanged at approximately 2.67% at September 30, 2022, compared to 2.42% at December 30, 2021, reflecting an increase in variable interest rate on our outstanding borrowings under our revolving credit facility. The company's balance sheet continues to be well positioned to finish the year. Geoff, over to you.

Thank you, Sean. Good morning, everybody. I'm on slide eight, highlights of our capital spending for the year, $288 million so far net of disposals. We're forecasting to spend in the range of $380 to $390 million for the year of 2022. Turning to slide 9, highlights of the CCL segment this quarter, 13.2% organic sales growth, only partly price-led, probably the majority of that 13.2 came from price, but there was some volume increase too. North America and Asia Pacific up high single digit, Europe up double digit, and Latin America up more than 40%. We had a strong quarter in the personal care, healthcare, and food and beverage businesses. It was pretty good at CCL secure. Thank you. Slide 11, highlights for Avery. We saw some softness here that came as a little bit of a surprise, but we did worry about it going into the quarter. The back-to-school season started much earlier in Q2 this year than it's ever done, due to retailers taking caution with their inventory positions with all the supply chain disruption. But that same caution also affected us at the back end of the season when normal replenishment orders, which we typically had in and many retailers ended the season early. We also saw some destocking in some of the channels, distribution channels where we sell our high-margin printable media products. Of studying that, we had strong gains in our direct-to-consumer channels. Horticultural acquisitions were soft on slower demand, but the tapes acquisition in Brazil met our expectations. Raw materials availability, especially paper and metal rings, held the sales growth somewhat. Slide 12, checkpoint. A solid quarter here in the MAS business. We had a good period in the Americas, but that was offset by declines in Europe and Asia. Profits were down on lower volumes, unit volumes, of our MAS business in our Asian supply plants. But that was offset by good results in the apparel labeling segment again, on double-digit organic growth in RFID. and acquisitions in that space also contributed. We did have an 11.9 million gain on excess real estate in China which drove most of the profitability improvement you see on this slide. Slide 13, Inovia. The volume situation was up in America's but down in Europe and all the down in Europe was all in our plant in Poland where we moved an old film line that made packaging films and replaced it with the Echo Float line which is a strategic long-term investment. We did have some stark costs for that but by far the majority of the problem in the quarter was really the unprecedented summer energy cost spike in Europe and freight inflation. So that was really responsible for all the profit decline for the quarter in Europe. In the Americas, we were affected by the margin squeeze from higher cost inventories as resin indices declined, reducing our selling prices, the reverse effect of what we experienced in 2021. Outlook for the coming quarter, the core CCL business units, orders, pictures still remain solid. In the CCL design space, we see improving automotive output, but that's likely to be offset by slower conditions in the technology space. Comps for CCL Secure were much easier in the second half of the year than they were the second half of last year, but are harder in Q4 than they were in Q3. At Avery, direct-to-consumer strength remains stable. Augmented by recent acquisitions, but the distributed destocking in the core business remains potentially an offset, although we did see some improvement in that in the month of October. The checkpoint strong RFID growth at ALS may not be offset this quarter by apparel destocking, so we're a bit slightly worried about the apparel supply chain and softer MAS picture in broad retail. We do expect another challenging quarter in Inovia for the same reasons we've just been through. We did see some improvement again in October on the better situation with the energy markets in Europe. We have a slight modest FX headwind to contend with in the coming quarter. So with that, operator, we'd like to open up the call for questions.