CCL Industries Inc.

Good morning, and welcome to CCL Industries' fourth 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. Sean Waschuk here. Let's jump right into it. Moving to slide two, our disclaimer on forward-looking information. I'd like to draw everyone's attention to our updated disclaimer regarding the forward-looking statements. I'll remind you that our business faces known and unknown risks and opportunities. For further details of these key risks, please take a look at our 2024 and 2023 annual report, particularly the section, Risks and Uncertainties. Our annual and quarterly reports can be found online on the company's website, CCLIND.com, or on CDARplus.ca. Moving to the next slide, our financial summary for the fourth quarter in the year. For the fourth quarter of 2024, sales increased 9% with 6.8% organic growth, 1.4% acquisition-related growth, and 0.8% positive impact from foreign currency translation resulting in sales of $1.81 billion compared to $1.66 billion in the fourth quarter of 2023. Operating income was $267.9 million for the 2024 fourth quarter compared to $254.8 million for the fourth quarter of 2023. a 5% increase excluding the impact of foreign currency translation. JAP will expand on our segmented operating results of our CCL, Avery, Check Point, and Anovia segments. Corporate expenses were down for the 2024 fourth quarter due to reduced long-term variable compensation expense compared to the fourth quarter of 2023. Consolidated EBITDA for the 2024 fourth quarter excluding the impact of foreign currency translation, increased 7% compared to the same period in 2023. Net finance expense was $19.1 million for the fourth quarter of 2024, the same amount for the 2023 fourth quarter. The overall effective tax rate was 22.9% for the 2024 fourth quarter, less than the 57% effective tax rate recorded in the fourth quarter of 2023. The decrease in the effective tax rate can be attributed to a $95 million goodwill impairment loss recorded in the 2023 fourth quarter without any associated tax benefit. The effective tax rates may change in future tax periods depending on the proportion of taxable income earned in different tax jurisdictions with different rates. Net earnings for the 2024 fourth quarter were $179.8 million compared to the $38.8 million recorded in the 2023 fourth quarter. This was impacted by the aforementioned goodwill impairment charge in 2023. For the year ended December 31st, 2024, sales, operating income, and net income increased 8%, 13%, and 60% respectively compared to the year ended December 31st, 2023. 2024 included results from nine acquisitions completed since January 1st, 2023, delivering acquisition-related sales growth for the period of 2.3%, organic growth of 6.1%, foreign currency translation was a tailwind of 0.6%, all to sales. Net income included a $78.1 million non-taxable, non-cash, revaluation gain recorded in the second quarter of 2024 when we acquired the final 50% interest in our Pac-Man CCL joint venture, now fully consolidated. In the 2023 year, the company recorded the goodwill impairment charge of $95 million within the Inovia segment, all impacting the 60% increase to net income for the comparative years. Moving to the next slide, earnings per share. Basic earnings per Class B share were $1.01 for 2024 fourth quarter compared to $0.22 for the 2023 fourth quarter. Adjusting for the $0.01 of restructuring and other expenses resulted in adjusted earnings per Class B share of $1.02, an improvement of 5.2% compared to the $0.97 for the fourth quarter of 2023. The increase in adjusted basic EPS Five cents is principally attributable to an improvement in operating income accounting for six cents, a reduction of corporate expense for three cents, partly offset by the combination of a reduction in JV equity earnings, the negative impact of currency translation, and the higher adjusted effect of tax rate summing to a reduction of four cents. Moving to the next slide, our free cash flow from operations. For the fourth quarter of 2024, free cash flow from operations was an inflow of $261.7 million, slightly behind the $273.8 million posted in the 2023 fourth quarter. For the year ended December 31st, 2024, free cash flow from operations was $606.5 million compared to $559.6 million for the 2023 year. This change is primarily attributable to an increase in cash provided by operating activities, which was generated by improved adjusted earnings, partly offset by an increase in working capital compared to 2023. Moving to slide six, our returns to shareholders. For 2024 year, the company repurchased 2.6 million shares for total proceeds of $200.6 million. including the 9.4% increase in the 2024 annual dividend that was announced in February of 2024. Dividends paid year-to-date have amounted to $206.4 million, representing a solid 27% dividend payout ratio. This totaled $407 million returned to shareholders in 2024. Next slide. Our cash and debt summary. Net debt as at December 31st, 2024 was $1.62 billion, an increase of $110.7 million compared to December 31st, 2023. The increase is principally a result of funds used for capital expenditures, business acquisition, and share buyback. Although the company's net debt increased, the balance sheet closed the quarter in a strong position. Our balance sheet leverage ratio was approximately 1.08 times down from 1.13 times reported at the end of December 2023. Liquidity was robust, with $829 million of cash on hand, approximately US$1 billion of available undrawn credit capacity on the company's revolving credit facility. The company's overall average finance rate was approximately 2.6% at December 31, 2024, compared to 2.8% at December 31st, 2023. The company's balance sheet continues to be well positioned as we move into 2025. Jeff, over to you.

Thank you, Sean, and good morning, everybody. I'm on slide eight, highlights of capital spending for the year 2024, just around $457 million, and we're forecasting to spend about $485 million in 2025. Slide 9, just a picture of a plant we have just completed in Ho Chi Minh City in Vietnam. It's our new apparel label plant. Vietnam is a very important country for apparel sourcing, and that plant will start up in the first quarter of 2025. Page 10, highlights for the CCL segment, 5.4% organic growth, low single digit in North America, high single digit in Latin America. double-digit in Asia Pacific, a lot of that driven by the success of CCL design, and low single-digit decline in Europe. Profitability gains were strong in the HPC business, CCL design, and CCL secure, modestly lower in healthcare and specialty, but a lot more reduced in food and beverages, faced tough comps to a very strong fourth quarter and end of the year in 2023. Slide 11, highlights for our JVs. Just to note here, Sean's mentioned it a couple of times already, Pac-Man CCL became a fully-owned subsidiary after five months of 2024. So we've had seven months consolidated. That's the reason for the difference in the net income in the fourth quarter there. And you'll see we actually managed to, in the JV area, exceed last year's numbers. That was due to some foreign exchange issues in Egypt in the back half of 2023 that reversed in the early part of 2024. Page 12, highlights for Avery. A little soft quarter in the international business and a delayed start to the peak horticultural season in Europe, but they came back with a bang in January. Solid quarter in North America with favorable mix. Some foreign exchange benefits related to the Mexican peso and continued improvement in the U.S. horticultural business. Slide 13 highlights the checkpoint. Strong quarter in the merchandise availability business. Solid gains all round, especially in Europe on some new business wins. In the apparel label business, we continue to see strong sales growth north of 20%. aided by share gains and RFID, but profits fell on unfavorable mix, a lot of issues with foreign exchange in Turkey, and a poor quarter in Latin America. Slide 14 highlights for Renovia, strong volume growth and share gain in North America, especially in the label segment, and profitability got boosted by productivity, cost savings, and tight commercial discipline. We also saw improved results in Europe, also in Poland, where we continue to build sharing label films and the ECHO product line, most of which we sell internally to CTL. The investment is largely completed at the big new site in Germany, in Leipzig, for a new low-gauge film label plant. The pressure-sensitive label plant will start up likely sometime in Q2 of 2025. Some comments on the outlook. The label and packaging businesses have had a solid start so far. New plant losses that we've had quite a bit of, particularly in the second half of 2024, those should start to narrow. CCL design, however, lacks easy comps in electronics. So their comps are much more difficult this year than they were last year. And as you all know, we have a slowing automotive industry. CCL's secure order backlog improved significantly compared to a slow start to 2024. Avery has had a solid start, particularly around all those comments they made about horticulture. Checkpoint comps in apparel are significantly more difficult, frankly, for the whole year ahead that we face, but RFID is still growing. Inovia continues to improve, and just another reminder about that German plant starter cost that we'll have to face in Q2. And the current exchange rate, we expect foreign exchange to be a modest tailwind for the year coming. So with that, operator, we'd like to open up the call for questions, please.