CCL Industries Inc.

Good morning and welcome to CCL Industries First Quarter Investor Update. Please note that there will be a question and answer session after the call. The moderator for today is Mr. Jeff Martin, President and Chief Executive Officer, and joining him is Mr. Sean Waschuk, Senior Vice President and Chief Financial Officer. Please go ahead, gentlemen.

Good morning, everyone. Welcome to our first quarter call for 2024. I'll draw everyone's attention to slide number two, our disclaimer regarding forward-looking information. I'll remind everyone that our business faces known and unknown risks and opportunities. For further information on these key risks, please take a look at our 2023 annual report, particularly the section Risks and Uncertainties. Our annual and quarterly reports can be found on the company's website, ccland.com, or on cedarplus.ca. Moving to slide three, our summary of financial information. For the first quarter of 2024, sales increased 5.2%, with 2% organic growth, 3% acquisition growth, and 0.2% positive impact from currency translation, resulting in sales of $1.74 billion compared to $1.65 billion in the first quarter of 2023. Operating income. was $282 million for the 2024 first quarter, compared to $257.7 million for the first quarter of 2023, a 9.1% increase, excluding the impact of foreign currency translation. Jeff will expand on the segmented operating results of our CCL, Avery, Check Point, and Inovia segments momentarily. Corporate expenses were down slightly, $0.1 million for the quarter versus the prior year quarter. Consolidated EBITDA for the 2024 first quarter, excluding the impact of foreign currency translation, increased 9.8% compared to the same period in 2023. Net finance expense was $18 million for the first quarter of 2024 compared to $19.4 million in the 2023 first quarter, due to a decrease in total debt outstanding and increased finance income on the company's deposits. The overall effective tax rate was 24.7% for the 2024 first quarter compared to an effective tax rate of 24.9% recorded in the first quarter of 2023. The effective tax rate may change in future periods depending on the proportion of taxable income earned in different tax jurisdictions at different rates. Net earnings for the 2024 first quarter was $192.1 million, up 15.4% excluding foreign currency translation compared to the 2023 first quarter. Next slide. Basic and adjusted basic earnings per Class B share were a record $1.08 for the 2024 first quarter an improvement of 14.9% compared to $0.94 for the first quarter of 2023. The change in adjusted basic earnings of $0.14 is principally attributable to an improvement in operating income accounting for $0.09, higher contribution from the label joint ventures of $0.04, and a $0.01 reduction in net interest expense compared to the 2023 first quarter. Moving to slide five, for the first quarter of 2024, free cash flow from operations was an outflow of $7 million, an improvement compared to the $6.5 million outflow recorded in the first quarter of 2023. With the trailing 12 months ended March 31st, 2024, free cash flow from operations was $569.1 million compared to $518.8 million for the last 12 months ended March 31st, 2023. The improvement is primarily attributable to an improved adjusted earnings and working capital partially offset by cash taxes paid and an increase in net capital expenditures. Moving to our cash and debt summary slide, net debt as at March 31st, 2024 was 1.61 billion, an increase of 101 million compared to December 31st, 2023. This increase is principally a result of lower cash balance at Q1 2024 versus December 2023, an increase in debt drawn on the company's syndicated credit facility as well. The company's net debt increased, yet the balance sheet closed the quarter in a strong position. Our balance sheet leverage ratio was 1.18 times slightly higher than the 1.13 times reported at the end of December 2023. Liquidity was robust with $748 million of cash on hand and almost a billion dollars of available capacity in the company's revolving credit facility. The company's overall average finance rate was 2.8% at March 31st, 2024, unchanged from December 31st, 2023. The company's balance sheet continues to be well positioned for the balance of 2024 and beyond. Jeff, over to you.

Thank you, Sean. Good morning, everybody. I'm on slide number seven, highlights of capital spending. So far for the year, $178 million in Q1. And we're planning to spend $455 million for the year ahead. Slide eight, a few highlights about where we're putting some of that money. Well, I thought it would be interesting this quarter to highlight we're still investing in emerging markets. So in 2023, we acquired land to build a large new campus for Checkpoint and CCL Label outside of Istanbul. We'll be doing the planning for that in 2024. Most of the CapEx will occur in 2025. In Vietnam, we're completing construction of a new Checkpoint ALS plant in Vietnam, including RFID encoding and insertion. We should complete that factory this year in 2024. In Singapore, a few, maybe 18 months or so ago, we acquired a label business in Singapore, removed all the business that was being conducted at that site to our plant in Thailand. And we renovated the site as a pharmaceutical grade operation. And we now have label and insert equipment in there, making products for a couple of very important strategic global customers. and trading commenced in the first quarter of 2024. Slide nine, highlights of CCL for the quarter. Organic growth returns, continues to make progress. High single digit in Asia Pacific. A lot about that about the recovery in CCL design. Mid single digits in Latin America. Low single digit in North America and pretty much flat in Europe. We had strong results in home and personal care and food and beverages. Consumer products industry continues to make progress towards retrieving volume growth, modestly down at healthcare and specialty, and slower at CCL secure. CCL design posted strong gains in electronic markets, partly offset by a decline in automotive. Slide 10 highlights for the joint ventures. The story here is all about what happened in Egypt. So those of you who were on the Q4 call might recall we We booked some foreign exchange losses in Egypt in Q4, which we reversed in 2024. So that's the reason for the strong improvement in the joint ventures, although the underlying progress was also very good indeed. Moving to slide 11, highlights for Avery. Direct-to-consumer growth in the US and Europe offset slower performance in the distribution-based product lines. Rather hasten to add compared to a strong prior year. Latin America and Australia were both a little soft, but we had strong recovery in horticultural markets in both the United States and Europe. Slide 12, that's a checkpoint. Certainly the best performing business we had in the company in terms of sales growth. The MAS business had a solid quarter on strong results in Asia Pacific, but actually offset slower results in Europe and North America. The gains this quarter all came out of our apparel label business. It substantially improved more than 25% organic growth driven by RFID, but there were some signs of European retailers forward ordering to avoid Red Sea supply disruption with all the supply chain issues through the Suez Canal. Page 13 highlights Renovia. Those declined on the lower Belgian shipments post-closure, so we We're moving the operations for that plant to our site in the UK. And there was also some associated mixed impact, so overall volume increased only slightly. But label industry volume improved very significantly as a long period of destocking came to an end in both North America and Europe. Early benefits from the transition out of Belgium drove the increase in profitability. So outlook for the coming quarter. Consumer products industry, as I said, showing early signs of a return to volume growth. It's not stunning, but it's certainly better than it was for most of the last five or six quarters and back in 2022 and all of 2023. But healthcare is a little bit slower. Some destocking elements there. Vaccines coming to an end. GLP-1 aside, the industry is a bit slower than it was. CCL design recovery. should accelerate this quarter in electronics with automotive repeating what happened in Q1. CCL-secured comps are much easier this quarter, and the passport component business is still very strong. Avery has tough Q2 comps and the usual timing uncertainty when back to school starts, whether that's in June or July, but horticultural should be a significant offset. Checkpoint growth continues, driven by RFID. Apparel inventories remain low, but there still are some signs, as I mentioned earlier, about this forward ordering from particularly European retailers. Inovia will see the Belgian transition complete this quarter. It's gone extremely smoothly, and labor industry volume continues to strengthen, so we're continuing to expect good things at Inovia. And overall, the quarter so far closed the month of April, which is extremely strong, so we're quite optimistic about the quarter ahead. FX is still a modest tailwind at current exchange rates. So with that operated, we'd like to open up the call for questions.