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 Washchuk, Senior Vice President and Chief Financial Officer. Please go ahead, gentlemen.

Thanks, everyone. Sean here. welcome to our first quarter investor update and we'll jump right in turn everyone's attention to slide number two our disclaimer regarding forward information I'll remind you that our business faces known and unknown risks and opportunities for further details of these risks please take a look at our 2024 annual report particularly under the section risks and opportunities Our annual and quarterly reports can be found online on the company's website, CCLIND.com, or on CDARplus.ca. The next slide, our summary income statement. For the first quarter of 2025, sales increased 8.6%, with 3.8% organic growth, 1.4% acquisition-related growth, and 3.4% positive impact from foreign currency translation resulting in sales of $1.89 billion compared to $1.74 billion in the first quarter of 2024. Operating income was $316.9 million for the 2025 first quarter compared to $282 million for the first quarter of 2024. a 9% 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 up for the 2025 first quarter due to slightly higher variable compensation expense than other general items compared to the prior year first quarter. Consolidated EBITDA for the 2025 first quarter excluding the impact of foreign currency translation, increased 8% compared to the same period in 2024. Net finance expense was $18.5 million for the first quarter of 2025, slightly higher than the $18 million for the first quarter of 2024. The increase is due to a reduction in finance income earned on the company's cash and cash equivalents. The overall effective tax rates for Q3 was 24.7% unchanged from the prior year first quarter. The effective 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 2025 first quarter were $207.4 million compared to $192.1 million for the 2024 first quarter. an increase of 6% excluding foreign currency translation. The next slide, earnings per share. Basic and adjusted basic earnings per Class B share were $1.18 for the 2025 first quarter compared to $1.08 for the 2024 first quarter. This is record quarterly adjusted earnings for CCL of $1.18. The 10 cent increase in adjusted basic EPS was primarily driven by improved operating income of 13 cents, favorable currency translation of 2 cents. These gains were partially offset by lower joint venture earnings of 4 cents and higher corporate expenses of 1 cent. Moving to the next slide are free cash flow from operations. For the first quarter of 2025, free cash flow from operations was an inflow of $39.1 million compared to an outflow of $7 million posted in the first quarter of 2024. This was largely due to a reduction of net capital expenditures in the first quarter of 2025, compared to the prior year first quarter. For the trailing 12 months, March 31, 2025, free cash flow from operations was $652.6 million, compared to $569.1 for the 2024 trailing 12-month period. This change is primarily attributable to an increase in cash provided by operating activities, which was generated by improved adjusted earnings and reduced net capital expenditures over the comparative periods. Next slide returns to shareholders. For the 2025 first quarter, the company repurchased 1.4 million shares for $100 million. including the 10.3% increase in our 2025 annual dividend announced in February of 2025. Dividends paid year-to-date have amounted to $56.3 million for a total of $156.3 million returned to shareholders. Next slide, our cash and debt summary. Net debt, as at March 31st, 2025, was $1.75 billion. an increase of almost $134 million compared to the December 31, 2024. This increase is principally a result of funds used for capital expenditures 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 1.14 times at March 31, 2025, up from 1.08 times reported at the end of December 31, 2024. Liquidity was robust, with $821 million of cash on hand and U.S. $1.9 billion of available undrawn credit capacity on the company's revolving bank credit facility. The company's overall finance rate was 2.5% on March 31, 2025, compared to 2.6% at December 31, 2024. The company's balance sheet continues to to be well-positioned as we move through 2025. Jeff, over to you.

Thank you, Sean. Good morning, everybody. I'm on slide eight, highlights of our capital spending, fairly low quarter, a little under $114 million for the Q1, much bigger number last year when we were building the plant for Inovia in Germany. And we are still anticipating spending about $485 million for the year of 2025. Slide 9, highlights for the CCL segment, 4.5% Q1 organic growth, low single digits in North America, Europe, and Asia, double digits in Latin America. Very strong profitability gains at home and personal care and CCL design, with health care and specialty modestly up, but down a little in food and beverage, and we face tough costs of CCL secure gym by timing of banknote substrate shipments. Slide 10, highlights of the joint venture, just pointing out here that we no longer include the Pac-Man CCL numbers, which are now fully consolidated this quarter versus being in the JV line this time last year. Slide 11, highlights for Avery, solid quarter in North America, a little bit aided by foreign exchange, offset by slower international markets, horticulture slightly up in Europe and the reverse in the U.S., but overall a solid quarter. Slide 12 highlights a checkpoint. Strong quarter at the MAS business in Europe, but that was more than offset by declines in other regions, especially in the Americas. The payroll label delivered very good organic sales growth, aided by RFID, with much stronger profitability gains. Slide 13, good news at Inovia, very good quarter. strong volume growth and share gain, especially in North America, where we had outside profitability improvements. Results were also up in Europe on the benefits of the Belgian closure, volume in the UK, and also Poland building share in label films. One of the best quarters we've had in some time in this business. We do plan to start up our new plant in Leipzig in Germany for low gauge label films in the current quarter. and there'll be some startup costs going on there for a few more quarters to come. Slide 14, I know this is on many of your questions for later on, but I thought I'd deal with it up front, the impact of tariffs on the company. The vast majority of the company's business globally is based on in-country demand from locally produced supply. We do have some CCL and Inovio products made in Mexico. but they are all USMCA compliant and they're currently tariff-free for the US. The exception from Mexico is our ring binder products for Avery that could be subject to higher tariffs due to Chinese content and the impact of back-to-school coming up later in this quarter. Checkpoint MAS products, which represent about 30%, in the U.S. relies significantly on a China supply chain currently. We had planned even before all the tariff noise to change that for part of the business, but we're obviously accelerating that in view of the current situation. The company's global footprint remains a competitive advantage to help customers reconsidering their global supply chains. Slide 15, a few comments on the outlook. So just so you all know, we have a Easter vacation has straddled the two quarters, so part in March last year, part in April last year, all in April this year. So that will have some impact. CCL segment backlog was very solid going into Q2, and all April orders were stable. We had a very good month of April, just as a by the way. Avery outlook is, however, marked by uncertainty for the US back to school season. I'll address that in the Q&A later on. Checkpoint growth continues to be expected in RFID, and our apparel labeling business has very limited exposure to U.S. apparel sourcing, particularly from China. Inovio should continue to improve, but we do have the German plant's father cost to take into consideration, and we expect FX to continue to be a modest tailwind. So with that, operator, we'd like to open up the call for some questions.