CCL Industries Inc.

Good morning and welcome to CCL Industries' 2026 Second 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.

Thank you, Holly. Good morning, everyone. I'll draw everyone's attention to our second page of this presentation. 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 2026 second quarter report and our 2025 annual report under 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 slide three, our summary of financial results. For the second quarter of 2026, sales increased 9.1% with 5% organic growth, 1.8% acquisition-related growth and 2.3% positive impact from foreign currency translation, resulting in sales of $2.11 billion, compared to approximately $1.93 billion in the second quarter of 2025. Operating income was $350.6 million for the 2026 second quarter compared to $322.1 million for the second quarter of 2025, an improvement of approximately 7% excluding currency translation. This, however, did not include $1.7 million of non-cash acquisition accounting related adjustments to fair value in the inventory from the Sleba transaction. Excluding these non-cash adjustments, operating income excluding foreign exchange increased more than 7%. Geoff will expand on the segmented operating results of our CCL, Avery, Check Point, and Inovia segments momentarily. Corporate expenses were up for the 2026 second quarter compared to the prior year's second quarter due to higher variable compensation expenses and other general costs. Consolidated EBITDA for the 2026 second quarter, excluding the impact of foreign currency translation, increased 6% compared to the same period in 2025. Net finance expense was $18.7 million for the second quarter of 2026, higher than the $17.3 million for the second quarter of 2025. The increase is due to higher finance costs on the company's drawing debt and a reduction of finance income on the company's cash and cash equivalents. The overall effective tax rate for the second quarter of 2026 was 26%, compared to an effective tax rate of 25.3%, recorded for the second quarter of 2025. This is due to an increase in taxable income earned in higher 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 2026 second quarter was $223.8 million compared to $213.1 million for the 2025 second quarter. For the six-month period, sales, operating income, and net income increased 5%, 3%, and 1%, excluding currency translation, respectively, compared to the same six-month period in 2025. 2026 included results from four acquisitions completed since January 1st, 2025, delivering acquisition-related sales growth through the period of 1.1%, organic growth of 3.5%, and foreign currency translation was a tailwind of 1.4% to sales. Moving to our next slide, earnings per share. Basic and adjusted basic earnings per Class B share were $1.31 and $1.35, respectively, for the 2026 second quarter, compared to $1.21 and $1.23 Two basic and adjusted basic earnings per Class B share for the 2025 second quarter. Adjusted earnings for Class B share increased 10.7% compared to the second quarter of 2025. This 13 cent increase in adjusted basic earnings per share was primarily driven by improved operating income accounting for 11 cents, our share count reduction accounting for 3 cents, and another 3 cents of positive foreign currency translation. partially offset by higher income tax rate, reduced joint venture earnings, increased net finance costs, and higher corporate expenses summing to $0.04. Moving to our next slide, free cash flow from operations. For the second quarter of 2026, free cash flow from operations was an inflow of $189.2 million compared to an inflow of $226 million hosted for the second quarter of 2025. This decrease is principally due to an increase in net working capital, slightly higher net capex, partly offset by lower taxes paid for the second quarter of 2026 compared to the prior year second quarter. For the trailing 12 months, our free cash flow from operations remains near record levels. Moving to the next slide, returns to shareholders. During the first six months of 2026, the company moved from a discretionary share buyback plan to an automatic share repurchase plan that commenced on March 2nd of this year. Year to date, June 30th, 2026, the company repurchased 3.8 million shares for $331.6 million. In addition, during the blackout period, July 1st to August 12th, The company also repurchased an additional 700,000 shares for $66.3 million, including the 12.5% increase in the 2026 annual dividend announced in February of this year. Dividends paid year-to-date amounted to $123.5 million for a total of $455.1 million returned to shareholders, including the buyback. It is the company's expectation that more will be returned to our shareholders in 2026 as the automatic share repurchase plan is active in the market daily, including blackout periods when the company was not permitted to make share purchases in 2025. Our board of directors has authorized management commencing March 2nd of this year to spend up to $1.2 billion over the next 12 months on share repurchase. Next slide, our cash and debt summary. Net debt as of June 30th, 2026 was $1.74 billion, an increase of $479.6 million compared to December 31st, 2025. This increase is principally a result of higher total debt outstanding due to capital expenditures, business acquisitions, and our share buyback. Despite the increase, The company's net debt on the balance sheet closed the quarter in a strong position. Our balance sheet leverage ratio was approximately 1.0 times at June 30th, 2026, up from 0.78 times reported at December 31st, 2025. Early in July, subsequent to the quarter end, the company signed a delayed draw syndicated term loan agreement for U.S. $500 million. Therefore, the company's current liquidity position is robust, including this new term loan and the legacy syndicated revolving facility. There's approximately U.S. $1.25 billion undrawn debt capacity and cash on hand of $975.6 million. The company's overall finance rate was approximately 2.6% at June 30, 2020, 26, up from 2.5% at December 31st, 2025, reflecting an increase in the company's variably drawn debt. The company's balance sheet continues to be well positioned as we move through 2026. Geoff, over to you.

Thank you, Sean. Good morning, everybody. I'm on slide number eight, highlights of capital spending for the year. We spent $200 million in the first half So slightly behind the eight ball, still planning to spend around $470 million for the full year of 2026. Slide nine, highlights for CCL, another solid quarter of organic growth, 3.7%, up mid single digits in North America and Asia, low single digits in Europe and Latin America. Good profitability gains at HPC in food and beverage, solid results in healthcare and specialty, and CCL secure. The CCL design fell slightly, excluding foreign exchange, on slowing automotive markets and the impact of tight memory chip supply for customers, electronic device production rates, which I'm sure you've all read about in the media. Moving to slide nine, highlights for Avery. Much better quarter than this time last year. Didn't have any of the chaos relating to the back-to-school load-in, which was very good to see, and we benefited from some promotions we did for the World Cup in our FID wristband and card business. Stable quarter in the horticultural business. Checkpoint, we had a pretty difficult quarter. In the MAS business in the United States, and I'll give some more color on that in the Q&A, it was steady in the rest of the world, but it was below a very strong prior year period where we had a number of very large technology rollouts. Apparel labeling results improved as retail supply chain costs, which we've had for several quarters, now eased, and RFID growth continues with new business wins. Inovia, very strong growth, 25%, about 15% of that coming from volume, 5% to 6%, 10% coming from price. And we had very good results in Poland on EcoFloat shrink films growth, continuing robust performance in the Americas, really driven by volume and internal productivity initiatives. The downside are other plants in Europe and the one in Australia were held by very significant and at times rampant Iran effect resin and energy inflation, but aided somewhat by price increases, labor industry stock building, and reduced, much reduced losses, I should say, at the new German plant. Outlook comments on slide 13 for the coming quarter. CCL segment orders remain solid. We are watching the situation with memory chips effect on CCL design closely. We do expect Avery's direct-to-consumer growth and the stronger back-to-school season to continue to play out in this quarter. We do think Check Point will have sequentially better second half than it does in the first half. but our comps remain difficult because that technology rollout I referred to earlier continued for much of the second half of last year and will not repeat this year. Inovia could see some inflation reversal and unwinding of the recent labor industry inventory build, especially in Europe, and we expect foreign exchange to be a modest plus. So with that, operator, we'd like to open up the call for questions.