CCL Industries Inc.

Good morning and welcome to CCO Industries second 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 Washtuck, Senior Vice President and Chief Financial Officer. Please go ahead, gentlemen.

Thanks, Holly. Welcome everyone to our second quarter call. I'll direct everyone to page two of this presentation and your attention regarding our disclaimer for forward-looking statements. I'll remind everyone that our business faces known and unknown risks and opportunities. For further details of these key risks, please take a look at our 2024 annual report, particularly the section risks and uncertainties. Our annual and quarterly reports can be found online at the company's website, CCLIND.com or on CDARplus.ca. Moving to the next slide, a summary of financial results. For the second quarter of 2025, sales increased 4.8% with organic growth of 2%, 1% acquisition-related growth, and 1.8% positive impact from poor currency translation. resulting in sales of $1.9 billion compared to $1.8 billion in the second quarter of 2024. Operating income was $322.1 million for the 2025 second quarter compared to $303.5 million for the second quarter of 2024, a 5% increase excluding the impact of foreign currency translation. Jeff will expand on our segmented operating results for our CCL, Avery, Checkpoint, and Inovia segments momentarily. Corporate expenses were down for the 2025 second quarter compared to the prior year second quarter. Consolidated EBITDA for the 2025 second quarter, excluding the impact of foreign currency translation, increased 6% compared to the same period in 2024. Net finance expense, was $17.3 million for the second quarter of 2025, lower than the $18.6 million for the second quarter of 2024. The decrease is due to higher finance income earned on the company's cash and cash equivalents. The overall effective tax rate for the second quarter of 2025 was 25.3%, compared to an effective tax rate of 18.8%, recorded in the second quarter of 2024. Excluding the impact of the non-cash, non-taxable $78.1 million revaluation gain that was recorded in the second quarter of 2024, the effective tax rate was 24.5%. The effective tax rate may change in future periods depending on the proportion of taxable income that's earned in different tax jurisdictions at different rates. Net earnings for the 2025 second quarter was $213.1 million compared to $279.5 million for the 2024 second quarter, although the prior year second quarter included the aforementioned $78.1 million non-cash revaluation gain. Excluding this gain, net earnings for the prior year second quarter were $201.4 million. For the six-month period, sales operating income, and net income increased 6.7%, 9.1%, and 6.9% respectively, excluding the revaluation gain compared to the six-month period in 2024. 2025 included results from two acquisitions completed since January 1, 2024, delivering acquisition-related sales growth to the period of 1.2%, organic growth of 2.9%, and foreign currency translation tailwind of 2.6% to sales. Moving to the next slide, earnings per share. Basic and adjusted basic earnings per Class B share were $1.21 and $1.22, respectively, for the second quarter of 2025, compared to $1.56 and $1.13 adjusted basic earnings per Class B share for the 2024 second quarter. Adjusted earnings per Class B share increased 8% in 2025 compared to the second quarter of 2024. This 9-cent increase in adjusted basic EPS was primarily driven by improved operating income of 9 cents, favorable currency translation adding 2 cents, and reduced net finance costs adding 1 cent. These gains were partially offset by lower joint venture earnings of 2 cents and a higher income tax rate costing one cent. Moving to the next slide, our free cash flow from operations. For the second quarter of 2025, free cash flow from operations was an inflow of $226 million, compared to an inflow of $118.8 million posted in the second quarter of 2024. The increase is principally due to improved earnings, and a reduction of net capital expenditures from the second quarter of 2025 compared to the prior year's second quarter. For the trailing 12 months, June 25, free cash flow from operations was $759.8 million compared to $567.8 million for the trailing 12 months ended June 2024. This change is primarily attributable to improved adjusted earnings and reduced net capital expenditures over the comparative 12-month periods. Next slide. A return to shareholders. For the 2025 second quarter, the company repurchased approximately 1.3 million shares for $100 million. Including the 10.3% increase in our 2025 annual dividend, now through February of 25, dividends paid year-to-date have amounted to $112.1 million. for a total of $312.1 million return to shareholders. Next slide, a cash and debt summary. Net debt as of June 30th, 2025 was $1.63 billion, an increase of 15 million compared to December 31st, 2024. This increase is principally a result of higher total debt outstanding, only partially offset with an increase in cash and cash equivalents. The company's net debt increased. The balance sheet closed the quarter in a strong position. Our balance sheet leverage ratio was approximately 1.04 times at June 30th, 2025, down from 1.08 times reported at the end of December, 2024. Liquidity was robust with $963 million of cash on hand and U.S. $0.8 billion of available undrawn credit capacity in the company's revolving bank credit facility. The company's overall average finance rate was approximately 2.7% at June 30, 2025, compared to 2.6% at December 31, 2024. The company's balance sheet continues to be well-positioned as we move through the balance of 2025. Jeff, over to you.

Thank you, Sean. Good morning, everybody. On slide 8, highlights of capital spending. We spent $211 million on a disposal, year-to-date 2025, excluding the right to ask for additions and depreciation in the comparator, and we expect to spend around $485 million for the year 2025. Slide 9, highlights of the CCL quarter. Good quarter, 4.7% organic growth, and that was on top of 9% that we had in the corresponding quarter this time last year. Low single-digit growth in North America and Europe, mid-single digits in Asia Pacific, low teams in Latin America. Probability gains are strong in the HPC business and in CCL design. with Healthcare and Specialty and CCL Secure all moderately improved and moderately down in the food and beverage space. Slide 10, numbers for our joint ventures. Just point out here that background CCL is now fully consolidated, so this is just the numbers for one of our operations. Slide 11, spend a bit more time on this one, highlights for Avery. Our U.S. business was impacted by tariffs and a slow, late start to the back-to-school season, as we expected, given all the turmoil around tariffs, paths offset by growth in direct-to-consumers in North America and Europe. And down in Latin America, we are impacted by foreign exchange, especially for imported raw materials. Slide 12, checkpoint. Our MAS business had a very strong quarter in Europe and solid elsewhere. We did have some tariff impact here on products we manufacture in China and import into the U.S., much less so than Avery, but still a factor. And in the apparel label business, we had a modest decline as retailers all reconsidered the supply chain to mitigate tariff impacts, which caused quite some considerable disruption in the supply chain. With RFID growth, Although moderated, it's still positive. Slide 13, highlights for Inovia. Sales declined on lower resin cost pass-through, but it was a modest volume gain. Excellent performance again in the Americas, and improved results in the UK on the benefits of the consolidated volume from the closed plant in Belgium. Poland continued to gain share in label films, and we did start up on a very low scale The plant in Germany will re-incur $3.8 million loss with very limited revenues. Page 14, just some comments about tariffs, which I'm sure is on everybody's mind. No change in the CCL segment of Inovia products made in Mexico. They are still UCM, USMCA compliant, and therefore currently tariff-free for the U.S. But our Avery ring binders and certain ancillary products, which we also make in Mexico, incurred tariffs due to its high China content, approximately just under $4 million impact in Q2 net of price surcharges to customers. Checkpoint MAS products, the ones I just mentioned in the US, also rely on China's supply. We had a little over a million dollars started a little higher than that in the early part of the course of The price increases pretty much have taken care of it by the time we reached June, but of course the impact was a little less than a million bucks. And a million dollars or so impact across the rest of the company, primarily in suppliers changing raw material prices to reflect tariff costs of imported raw materials. We have a lot of mitigating actions underway in our supply chain, and we're using pricing surcharges with us. deemed to be appropriate. Page 15, the outlook for the coming quarter. The CCL segment, all the backlog is pretty solid going into Q3, and all that so far has been stable. Not great, but not bad either. Avery is expected to improve sequentially, and we have now got results in for our July month, which were pretty good. So certainly it feels more late than slow in the back-to-school season, but replenishment volume, which we'll have to see how that unfolds in the month of August, remains a risk. Checkpoint ALS volume is expected to pick up to the typically busy August to November fall and winter season as customers resolve their sourcing plans to deal with the tariff regimes. Zenobia should still post gains in the next quarter. German plant costs will still continue probably for at least the balance of this year and into next. FX is a modest tailwind and may even be neutral for the quarter ahead. And with that, operator, we'd like to open the call for questions.

Certainly. At this time, we will be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for questions. Your first question for today is from Ahmed Abdullah with National Bank of Canada.

Ahmed, your line is live.

Yes, good morning. Thank you for taking my question. Can you give us a bit more color on the home and personal care in the CCL segment? What drove these noticeable gains, given that your customers kind of suggesting slattish to moderately higher volumes? Were you able to drive some pricing, or is this a function of pure operational efficiencies?

It's a function of a lot of things. So we had another good quarter in our aluminum aerosol can business. So that was a factor. We had very good results from the Pac-Man CCL business in the Middle East. And they picked up a little bit of share around the world here and there. We certainly recognized the volume environment of the CPG customers is flat to slightly down. So we certainly feel that in parts of the business that we had a lot of compensation things and took care of that and some.

Okay. And those business wins are a function of customers revisiting their supplier relationships or is it more efforts on your sales department?

I think it's just a reflection of the current state of the market. Okay.

That's fair. And then one last one for me. Your first half positions you well for another year where EBITDA looks to grow in excess of 5%. Do you see any operational efficiency opportunities or maybe top-line momentum opportunities that could drive a similar EBITDA growth profile to last year's growth?

In which period are you talking about?

In the second half of the year.

We'll have to wait and see.

Okay. That's fair. That's it for me.

Your next question is from Stephen McLeod with BMO Capital Markets.

Thank you. Good morning, guys. Hi, Jeff. Morning. Just on the CCL segment, just to follow up, you know, you've had a couple of nice quarters with margins that are in the mid to high 16% range. And I'm just curious, you know, is there anything going on there that maybe would establish that as like a new high watermark or – Or is that kind of unique to the first half of this year and I guess the first half of last year as well?

Well, we've had quite a significant change in the performance of the CCL design electronics business. So that's profit margins in that part of the company improved quite substantially. And the business has also grown significantly. And then the HPC business, we've been having a very good year in that space. So they're the two main drivers of what's going on in the CCR statement.

Okay. Okay. Thank you. And then maybe just on Inovia, with respect to the German plant startup cost, understanding that that'll continue for the back half of the year, can you just remind us when you expect to generate revenues on that plant? and what the total size of that revenue opportunity to be?

Well, the revenue numbers at the moment are really minuscule because we're just running trials and very, very, very small trial quantities for key customers. So it will take some time to ramp up because we have to go through qualifications. It's a brand-new site with a brand-new type of film. So just like with EcoFlow in Poland, it will take some time several causes for that to unfold until we get into the black. And then we'll see where we go from there. But certainly we're very encouraged by the quality of film the line's making. A lot of customer interest in the product, but qualifications will take some time.

Okay. So would it be safe to assume that we'd maybe get some revenues on that sometime in 2026?

Yeah, we'll get some small revenues in the second half of this year. Revenues of the material, I would say, would start to appear in 2026 as the business grows, if it repeats what happens with us in Poland. Okay. That's great.

Okay. Thanks, Jeff. Appreciate it. Okay.

Your next question for today is from Sean Stewart with TD Cowen.

Thank you. Good morning, everyone. Question on the checkpoint margins. Good momentum there. It sounds like MAS in Europe was strong. Can you speak to some of the other underlying factors that have driven margin gains there? And further to that, you did note deceleration and RFID growth. Can you give some context around that magnitude?

Yeah, so I'll answer your second point first. It's really about the disruption in the apparel supply chain as customers rethink where to source from in the U.S. And although a lot of our business is in Europe, the apparel supply chain is global, so manufacturers who are located in China are sending part of their production to Europe, part of their production to the U.S. But as U.S. pressure to move sources of production get moved around, it caused quite a bit of disruption to the ordering process for the fall season regardless of where the product is actually destined for. So that's really what's caused the drop in RSID because, you know, most of our RSID business is apparel driven. We do expect that to change as the situation on the supply chain normalizes across the next quarter or two. MAF had a very good quarter, as you say. It really was driven by Europe. Some quite significant business wins in Europe as the key driver.

Okay. Thanks for that. Jeff, any broad commentary on the M&A opportunity set, indications that sellers' valuation parameters are moderating? Can you speak to the deal flow you're seeing right now?

Yeah, I wouldn't say we see a lot of big change on the deal flow. We've got a list of things we're working on, and we'll see how things unfold. But we haven't seen any huge changes on valuation metrics, but time will tell.

Okay. That's all I have for now. Thanks, guys.

Okay.

Your next question is from Michael Glenn with Raymond James.

Hey, good morning. Jeff, just to start, when we think about your capital investment plans, the expansions of plants and the new facilities, are you able to give an indication about how much that we should think about that adding to your growth each year? Is it a low single digit? Is it any sort of information would be helpful?

Well, it's a portion of it that I couldn't quantify for you. It's a portion of it.

Okay. And for the coming year, do you see, I know maybe it's a bit early, but should we expect a similar level of ongoing expansion, new facility additions?

Yeah. We haven't changed our investment plans around the current environment. We had one large project in Turkey which we put on hold relative to the apparel supply chain issue, but we want to wait and see where the world settles in that regard, but we may still go ahead with that next year. how that unfolds. But aside from that, we're planning to invest in the same way we have in the past, no change.

Okay. And in the MD&A, in the outlook section, you do reference some new business wins for polymer banknote for CCL Secure. How much do you expect a big, large contribution from these volumes in the back half of this year?

It's not material to the company overall. It's very immature until they come together.

Okay. Okay. Thanks for taking the questions.

Your next question is from Amir Patel with CIBC.

Hi. Good morning. Jeff, on the RFID side, I know you indicated that it moderated, but are you able to quantify the level of growth you saw across that business in Q2 and just kind of broader for the industry, what level of growth would you expect for the coming year?

Well, we're still big believers in the technology, but you can't have the kind of disruption that we've seen caused by tariffs to the apparel supply chain. not have an effect on demand for RFID. So every player in the industry has been affected by this. Some of them are public, some of them are private, but everyone's been affected, including us. We all expect to see RFID return to growth. Once that settles down, apparel is still by far the £100 gorilla in the room in the RFID space. So when that settles down, we expect to see a return to double-digit growth. I would want to comment beyond that.

Okay, fair enough. And just turning to the healthcare side of the business, can you give us an update on how the GLP-1 related business is faring?

Yeah, it's going okay, but it's not a sub-$50 million out of the CCL segment, so it's growing very fast, but The unit volumes of those products, the dollar revenues are very high, but the unit volumes are not as big as you might think.

Thanks. That's helpful. That's all I had.

I'll turn it over.

Your next question for today is from David Midfagin with Cormark Securities.

Oh, hi, guys. Yeah, a couple of questions. So first of all, just on Avery, you know, you have a late start to back to school. Does that mean that revenues move from Q2 to Q3, or do you think you actually may have lost some revenue?

I don't think back to school will be as good this year as it was last year in total. So I think in the month of July, Avery was modestly ahead of July last year in profitability, modestly down in revenue. And it's the big back-to-school months, so we're quite pleased to see that. So the acid test is what happens in the month of August when we see the replenishment orders. The first week was encouraging that There's not many weeks left to go, so when it drops off, we don't really know. But we doubt we'll recover the drop in June completely. We might recover some of it in August, and by the end of August, we're done. So that's as we see. So if you take the three months of the season, which is June, July and August, down in June, flat to slightly up in July, August is the question mark. We think we probably will be we will regain some of what we lost in June, but probably not all of it.

Okay. That's helpful. So just on Checkpoint, you know, you talked about RFID growth moderated. In the past, you used to, you know, be experiencing growth of 20, 30, maybe sometimes 40%. So given your comments that it's still positive, I would kind of interpret that as the growth is single digit. Does that make sense?

I think I've said what I'm going to say on it.

I'm sorry. I didn't understand what you said.

Yeah, I think I'm not going to get into giving any more detail on RFID than I've already given.

Okay.

All right. It's too heavily driven by the disruption to the apparel supply chain. That's the big driver. It's nothing to do with consumption. It's to do with ordering processes in the supply chain. which at some point we expect to see normalize. With the fall season, fall and winter season coming up, you know, at some point, consumption of apparel hasn't really changed that much. So, inventory will have to be rebuilt, and then we'll see volumes return.

Okay. So, on the last call, on the Q1 call, you know, you were asked about tariffs, and you said that... you're fairly immune from tariffs just because, you know, you produce locally and people buy locally, so there wouldn't be much impact. But it seems like you're impacted just from a general cautiousness in the apparel industry. Is that correct? Is that the way you interpret it?

Yeah, it's not cautiousness. They're just rethinking about where they source from. So the power industry is one of the most mobile sourcing products industries that you have in the world. They can very quickly move production from one country to another. It's not difficult for them to do. And you can imagine when all those tariff announcements came out, there was a lot of running for the hills and thinking about how they're going to change all that, which created some disruption in the supply chain. So until that settles down, which we will have to do because consumption isn't going to change, then we would expect to see RFID return to the rates of growth that we saw before the tariff changes occurred.

Okay. And then just on, you know, stock buybacks, you know, you're active in the quarter, you're active in Q1. I mean, I guess you're probably going to be active in Q3 and Q4 as long as your leverage remains at this level. Is that a correct assumption?

That's a fairly accurate statement.

Okay. All right. Thanks, guys.

Your next question for today is from Arthur Nagourney with RBC.

Hey, good morning. I know you talked about share gains in home and personal care, but maybe looking across the broader CCL segment, is there any indication that you're gaining share over your competitors kind of across the business lines as far as you can tell?

I think where we've seen it most pronounced is in the HPC space. I wouldn't say the pharmaceutical industry is pretty conservative, so we tend not to lose or win share in that way, in that space, because it's so regulated. So you tend to grow sales by new products coming out and being a supplier for those new products. So, and the same in the CCL design space. So, most of the share gain activity I would describe to the HPT space in particular.

Okay, that's helpful. And can you give us a sense maybe of what pricing looks like in the CCL segment? Just wondering if maybe it's a bit elevated now just given the tariff backdrop.

Well, the CCL label business is not very tariff-sensitized. So we have a little bit of that indirectly. So some of our suppliers may be sourcing components that go into things we buy, which may be still domestically manufactured in the United States. But some of the components they bring in may be subject to tariffs. There's been a little bit of pricing going on there, but it's not materialized. All right.

And then on the tariff cost that you saw in Q2, would it be fair to say that this would be the high watermark assuming no further tariff developments, just giving some of the mitigating actions that are underway?

I think we've got a bit more to come in Q3, but we've also got a bit more pricing to come in Q3. So at Avery, we put through a bunch of price increases on July 1st. We change our prices at Avery once a year on July 1st. So we've got the benefit of that coming. So I wouldn't be surprised to see our tariff costs go up, but we'll also have more offsetting price activity in Q3 than we had in Q2. Right.

Okay. That's helpful. And then last one for me. Just on the base and Ovia business, just excluding the German plant, could we expect the current revenue level to be a good run rate given where present prices are currently?

Well, yeah, just as a bear in mind, the resin pass-through element. So, you know, revenue is always a function of where the resin price is. So we had low single-digit volume growth in Q2, and I would expect that to continue in the back half of the year.

Perfect. Thank you.

Your next question is from Jonathan Goldman with Scotiabank.

Hi, good morning, and thanks for taking my questions. Just a question on the outlook for the CCL segment. You know that order is stable. Is that year-on-year or sequentially? Year-on-year. Perfect. My second one about the Avery business. Jeff, do you have a sense if retailers had any excess inventory from last year heading into this back-to-school season?

No, no, no. No, it tends to happen to inventory. So most of these people also sell our products for the rest of the year for commercial purposes. So any excess inventory from back to school typically gets repurposed for that. So the inventory situation is not really a factor. So these are by and large made to order products with a 10 to 12 week selling season. We start production of them late in the year, in the first four or five months of the current year, and then should sell them all in the months of June, July, and August. That's how the business works.

Okay, that's good color. And then just lastly, on the RFID business, you mentioned it's mostly apparel. Is there any traction or progress potentially on moving into the new verticals, maybe potentially grocery in Europe or any other sort of verticals?

Yes, we have other activities. The apparel is still the hundred pound gorilla in the room for the whole industry, not just us.

Okay, perfect. Thanks for taking my questions. Okay.

Your next question is from Daryl Young with Stifel.

Hey, good morning, everyone. Just wanted to ask one around capital allocation and free cash flow specifically. You've seen a pretty meaningful step up in your free cash flow conversion rate across 2024 and thus far in 2025. So just wondering about, you know, you're thinking about your dividend, your payout ratio, and just your ability to allocate this magnitude of free cash flow that you seem to be, you know, cruising altitude now seems to be much higher than it was across 22, 23.

So it's a nice problem to have. We have a board meeting coming up where I'm sure it will be discussed, and then we'll see what happens in the second half of the year.

And is there anything specific to call out on just the significant step up in how much cash you're generating as a percent of EBITDA?

I think it's to do with that German Films plant with a lot of capital, largest single capital project in the history of the company, $90-odd million. So that obviously pretty big numbers going out in the last two years. So that's gone away. And I think there's not so much, we're not under a lot of capacity pressure in most parts of the business. So probably the one exception to that is our Lumen Can business, which we put a lot of capital into. So it's really been It's really been the pressure coming off on the capital spending that's the big driver, as well as earnings performance. So the earnings performance has been pretty good now for the last couple of years and also translates into cash flow.

That's helpful. Thanks very much.

Your next question is a follow-up question from Stephen McLeod. Your line is live.

Thank you. I just had one follow-up, Jeff, just around the CCL segment going into Q3. I was just curious if you could just give a little bit of color, if you have it, by, like, subsegment, HPC, design, healthcare, just kind of what you're seeing, or maybe it's easy enough to say it's similar to Q2. Just wanted to get

Similar to Q2, we've seen some slight improvements in the food and beverage business in the last six to eight weeks. So we had a very slow start to the summer season, so summer season obviously for the beverage business is big, and the start was pretty slow. We've seen that pick up in the last six to eight weeks or so. But the other trends may change in Q2.

Okay. That's great. Thanks, Jeff.

The other thing to think about is the comps in the second half of the year are not easy.

Okay. Okay. That's great. Thanks, Jeff. Yeah.

Once again, if you would like to ask a question, please press star 1. We have reached the end of the question and answer session, and I will now turn the call over to Jeff Martin for closing remarks.

Okay, everybody. Thank you for joining the call. Wherever you are in the world, stay out of the sun, and we'll talk to you again in November for our Q3 numbers. Thank you very much.

This concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation.