CCL Industries Inc Fireside Chat Hosted By Scotiabank Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Mark Neville - Scotiabank Global Banking and Markets, Research Division - Analyst : If we can just get going, I'll start with the questions. Maybe just start high level. Geoff, you guys had a record Q3, I think that surprised everyone. On the conference call, you spoke to good momentum into Q4. So maybe just give us sort of a quick update on how things have progressed thus far in the quarter.

Question: Mark Neville - Scotiabank Global Banking and Markets, Research Division - Analyst : Okay. Again, that's -- it's helpful. And again, some order of magnitude. I mean has there been any sort of -- it doesn't sound like it, but any sort of meaningful change in trends versus Q3? Is there sort of any areas of business that were strong, maybe not as strong, or business that were weaker that are sort of showing some improvements?

Question: Mark Neville - Scotiabank Global Banking and Markets, Research Division - Analyst : And that's the revenue line?

Question: Mark Neville - Scotiabank Global Banking and Markets, Research Division - Analyst : Yes. Okay. Again, so again, well, you sort of just answered the question. Rates have improved and accelerating or slowed. I guess again, the -- improved in all the other segments, slowed a bit in Secure that was, I guess, sort of the answer. But the -- I guess just on the Secure slowdown, I guess that would have been anticipated, right, just given the strong Q3?

Question: Mark Neville - Scotiabank Global Banking and Markets, Research Division - Analyst : Good. Good. We'll dig more into, I guess, the segment later. And just maybe just continue the high level discussion. We've gotten positive news sort of on a vaccine development, and we're starting to roll this out globally now. Just curious to your thoughts -- your early thoughts on 2021, just, I guess, the various puts and takes and sort of what you're thinking about for next year at the moment.

Question: Mark Neville - Scotiabank Global Banking and Markets, Research Division - Analyst : Okay. Maybe just some thoughts around, again, the balance sheet. I think it's kind of a good segue when you're talking about improved confidence in M&A. Maybe just give us sort of an update on sort of your thoughts around M&A? Again, I understand travel is restricted. But we've seen an increase in M&A across other sectors as sort of the macro look improves. And you got people sort of globally, sort of on the ground. So just sort of curious in your thoughts at the moment around M&A.

Question: Mark Neville - Scotiabank Global Banking and Markets, Research Division - Analyst : Got it. And when you talk about sort of that smaller tuck-in M&A program, $200 million to $300 million revenue, is that sort of correct?

Question: Mark Neville - Scotiabank Global Banking and Markets, Research Division - Analyst : Okay. Okay.

Question: Mark Neville - Scotiabank Global Banking and Markets, Research Division - Analyst : Okay. Also, I guess, just on the M&A again, I appreciate you might not want to do anything large at the moment. Are there larger opportunities out there? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. DECEMBER 15, 2020 / 4:00PM, BNS.TO - CCL Industries Inc Fireside Chat Hosted By Scotiabank

Question: Mark Neville - Scotiabank Global Banking and Markets, Research Division - Analyst : Right. Right.

Question: Mark Neville - Scotiabank Global Banking and Markets, Research Division - Analyst : Okay. And the areas of interest, again, you've talked about these all through the year in the past. I mean they're all sort of -- nothing's really changed there, right?

Question: Mark Neville - Scotiabank Global Banking and Markets, Research Division - Analyst : Okay. And then, I guess, on leverage, you've talked about the target, I think, 1 and sort of 3.5x range. I'm just curious, as the pandemic sort of changed your view -- and I guess I sort of see 2 different potential trains of thoughts where one is you guys performed incredibly resilient through the pandemic. So perhaps maybe you're comfortable with a bit more or the alternative is, it was a good reminder, the pandemic that sort of unforeseen things happen, so maybe a little more prudent with leverage. So just sort of curious your thoughts on that.

Question: Mark Neville - Scotiabank Global Banking and Markets, Research Division - Analyst : Okay. That's fair, that's fair. Maybe just thoughts for CapEx for 2021. I don't know if you're in a position to talk with that yet or... REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. DECEMBER 15, 2020 / 4:00PM, BNS.TO - CCL Industries Inc Fireside Chat Hosted By Scotiabank

Question: Mark Neville - Scotiabank Global Banking and Markets, Research Division - Analyst : Okay. And this year, I think it's $290 million, right?

Question: Mark Neville - Scotiabank Global Banking and Markets, Research Division - Analyst : Okay. Geoff, I'm seeing a bunch of questions coming from the line. I'm going to try to sort of mix them in as long as they...

Question: Mark Neville - Scotiabank Global Banking and Markets, Research Division - Analyst : Sure, sure. I'm just -- I'm seeing a question here just on dividend growth. Any comments on that, sort of in terms of capital allocation towards dividend?

Question: Mark Neville - Scotiabank Global Banking and Markets, Research Division - Analyst : Okay. And I guess another question just sort of goes back to the -- some of your original statements, just sort of the what factor, sort of, in particular, sort of underlying the improved confidence for 2021, I guess maybe how you performed today?

Question: Mark Neville - Scotiabank Global Banking and Markets, Research Division - Analyst : Yes. Yes. That makes sense. Again, it was pretty impressive year and strong Q3, so we're good. Again, before we get into the segments, maybe just comment or maybe a quick discussion around sustainability and ESG. And you guys, you've been making labels now and other forms of packaging for 5, 10 years sort of make recycling easier. But as these sort of trends accelerate, I guess I'm just -- I guess a few questions sort of how well equipped you are to handle it. Does it provide a competitive advantage? Sort of, I would assume some of your smaller competitors, maybe it's new to them, and they're not as well equipped. And I'm just curious if there's any sort of investment in year-end and -- or would all be capturing for regular CapEx for whatever you do?

Question: Mark Neville - Scotiabank Global Banking and Markets, Research Division - Analyst : Yes. And again, just in terms of -- at the moment, any investment you make that will be in sort of just capturing your regular Capex, correct? It would be...

Question: Mark Neville - Scotiabank Global Banking and Markets, Research Division - Analyst : Okay. Okay. Again, I got a few more questions coming in from the line, so I'll try to mix them in, sort of try to keep it on. So a question here, how do you strengthen the group's position during the disruption and uncertainty this year? Have you been able to upgrade on talent or anything else that doesn't sort of immediately show up in the numbers but strengthens the business?

Question: Mark Neville - Scotiabank Global Banking and Markets, Research Division - Analyst : Sure. I'll repeat it. I'm just curious, how have you strengthened the group's position during the disruption? And sort of, were you able to upgrade talent or anything else that doesn't immediately show up in the numbers maybe, but that will strengthen the business?

Question: Mark Neville - Scotiabank Global Banking and Markets, Research Division - Analyst : Sure, sure. Okay. And then I guess, just on the CapEx outlook for next year, the areas of focus, either segment or geography, if there's anything in particular worth calling out?

Question: Mark Neville - Scotiabank Global Banking and Markets, Research Division - Analyst : Okay. Before we maybe get into the CCL, I'm seeing a bunch of questions sort of come in about Avery and Checkpoint. So maybe start there.

Question: Mark Neville - Scotiabank Global Banking and Markets, Research Division - Analyst : Yes. Just, I guess, on the Avery, just in terms of profits, when would you expect direct-to-consumer segment to become bigger than the legacy business, the legacy business lines, binders and stuff like that?

Question: Mark Neville - Scotiabank Global Banking and Markets, Research Division - Analyst : Okay. Okay. And maybe on Innovia, maybe just talk about sort of the guardrails and building out that platform just given some of the volatility maybe in commodity prices and whether or not it's more or less attractive than CCL segment, but just the thoughts around growing that business out?

Question: Mark Neville - Scotiabank Global Banking and Markets, Research Division - Analyst : Okay. But is your thoughts around maybe scaling it up much bigger or no?

Question: Mark Neville - Scotiabank Global Banking and Markets, Research Division - Analyst : Okay. Okay. Again, lots of questions rolling in. So I'm just going to keep kind of -- I wouldn't bounce around it a bit but I'm going to keep going through. Sort of given sort of some of the closures of bricks-and-mortar retail, maybe just comment on the strength in Checkpoint in Q3? Obviously, it was good, and to maybe your exposure to e-commerce and RFID and stuff like that.

Question: Mark Neville - Scotiabank Global Banking and Markets, Research Division - Analyst : Yes. And I guess, again, like I can appreciate some of the short-term disruption but it's taking long term. Again, we're just -- there's all these sort of RFID and sort of sort of e-commerce, omnichannel. Is this all positive for Checkpoint? I mean sort of...

Question: Mark Neville - Scotiabank Global Banking and Markets, Research Division - Analyst : Yes.

Question: Mark Neville - Scotiabank Global Banking and Markets, Research Division - Analyst : Yes. But long term, this is Checkpoint still -- it is a growth business?

Question: Mark Neville - Scotiabank Global Banking and Markets, Research Division - Analyst : Okay. Did you sort of mention just a moment ago, or I thought -- it was growing double digits, did I hear that correct?

Question: Mark Neville - Scotiabank Global Banking and Markets, Research Division - Analyst : Yes. Okay. Okay. I'm going to try to get back into...

Question: Mark Neville - Scotiabank Global Banking and Markets, Research Division - Analyst : Yes, we'll go back. There's a lot of interest, Geoff, lots of questions coming in, so it's great.

Question: Mark Neville - Scotiabank Global Banking and Markets, Research Division - Analyst : On the CCL segment, you touched on sort of the business lines, sort of the strength or what was doing better, maybe what tailed off a bit. Maybe just sort of geographically, geographically, what's happening? Again, the world's -- a lot of different places out there...

Question: Mark Neville - Scotiabank Global Banking and Markets, Research Division - Analyst : Okay. And maybe just on the margin. Your Q3, year margin -- EBITDA margin, I think, was up 350 basis points year-over-year. I think this is probably where I received the most question, sort of post the quarter on the results. I know you talked about the mix helping, but is there sort of anything else worth calling out given such a big improvement?

Question: Mark Neville - Scotiabank Global Banking and Markets, Research Division - Analyst : Okay, okay, okay. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. DECEMBER 15, 2020 / 4:00PM, BNS.TO - CCL Industries Inc Fireside Chat Hosted By Scotiabank

Question: Mark Neville - Scotiabank Global Banking and Markets, Research Division - Analyst : Okay. Okay. But you did sort of -- I think you said earlier, revenue was up just under 4%, 5%, and you said profits up more. Is that -- that is what you said, right?

Question: Mark Neville - Scotiabank Global Banking and Markets, Research Division - Analyst : Okay. So maybe if we just spend a quick minute on Secure. Just again because it sort of -- was such a strong Q3. And I could appreciate some quarter-to-quarter volatility, I think you said Q4 this year may be comparable to last year. So I guess that would be my first question. And sort of second, just the longer term views on the business. Again, I still get a lot of questions from investors or get the sense from investors that maybe they think there's longer-term structural headwinds because of credit cards or digital currency and just your thoughts on that.

Question: Mark Neville - Scotiabank Global Banking and Markets, Research Division - Analyst : Okay. I mean you talked about 5%, 6% conversion, that's an industry number. But I guess you guys are the primary player, right?

Question: Mark Neville - Scotiabank Global Banking and Markets, Research Division - Analyst : Okay. Okay. And again, maybe just on the Q4. Again, I appreciate it's going to be down from Q3. But again, for year-over-year, would it be comparable or down or...

Question: Mark Neville - Scotiabank Global Banking and Markets, Research Division - Analyst : Yes, yes. Yes.

Question: Mark Neville - Scotiabank Global Banking and Markets, Research Division - Analyst : Sure. Sure. That's fair. That's fine. Maybe if we can just, again, talk about Avery. So the margin, again, you mentioned cost savings helping the margin in Q3. Was that more temporary measures or structural improvements in sort of...

Question: Mark Neville - Scotiabank Global Banking and Markets, Research Division - Analyst : Okay. Okay. Is there more you can do across that business? Or is it really that...

Question: Mark Neville - Scotiabank Global Banking and Markets, Research Division - Analyst : Yes. Yes. On the demand, again, we already talked about it. But again, I would assume, again, the same trends are sort of largely persisting, right?

Question: Mark Neville - Scotiabank Global Banking and Markets, Research Division - Analyst : Yes. Yes.

Question: Mark Neville - Scotiabank Global Banking and Markets, Research Division - Analyst : Yes. Yes. Maybe on Checkpoint. Maybe just get -- again, I think we touched on this earlier, but again, the update on the revenue trend in Q4. Q3 was a big improvement over Q2. I'm just sort of curious, has it sort of continued to get better or sort of flattened out or...

Question: Mark Neville - Scotiabank Global Banking and Markets, Research Division - Analyst : Okay. Okay. I'm going to speak up a little bit, Geoff. I'm getting some message here. It's hard to hear me. So if I'm too loud, I apologize. I can't get any closer or speak a little louder. I mean in the Checkpoint, the Q3 margin, you're up 240 basis points, 250 basis points like lower sales. Same thing -- same question sort of to the Avery earlier, just maybe some of the cost-saving initiatives, are they more temporary or permanent?

Question: Mark Neville - Scotiabank Global Banking and Markets, Research Division - Analyst : Yes. And these structural improvements, I mean, is there -- and I guess, sort of sounds like the label business is, again, it was more mix. It's still a very healthy margin. In Avery, there's some structural improvements, Checkpoint, there were some improved structural improvements. Innovia, obviously, huge improvements. But I don't know, is there -- when you think about these various business lines, is there sort of ranges of margin that you sort of think about longer term or now differently? Or -- it's tough to answer, but I'm just sort of curious. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. DECEMBER 15, 2020 / 4:00PM, BNS.TO - CCL Industries Inc Fireside Chat Hosted By Scotiabank

Question: Mark Neville - Scotiabank Global Banking and Markets, Research Division - Analyst : Yes. Okay. And I'm getting a question here from the line, just on Checkpoint again. Just sort of just how this business -- your business competes versus Avery, if you do compete directly and sort of just maybe some of the difference, the nuances if there is any?

Question: Mark Neville - Scotiabank Global Banking and Markets, Research Division - Analyst : Sure. Sure. Maybe on Innovia. Q3 volumes, they were a bit soft. I think you mentioned pantry stocking abating. Again, just maybe sort of an update on the revenue line for Q4, I don't know...

Question: Mark Neville - Scotiabank Global Banking and Markets, Research Division - Analyst : Sure. And when -- again, the EBITDA line, we spoke to this, I think it's up 40% year-over-year, year-to-date and closer to 70 or 80 in the 3Q. Again, is the -- how much of this is mix versus just getting resin priced correctly versus productivity asset utilization? So just -- again, just trying to understand the moving pieces here because it's been so strong.

Question: Mark Neville - Scotiabank Global Banking and Markets, Research Division - Analyst : Okay. And how much of your security film, would you be -- would Innovia be producing for you?

Question: Mark Neville - Scotiabank Global Banking and Markets, Research Division - Analyst : Okay, okay, okay.

Question: Mark Neville - Scotiabank Global Banking and Markets, Research Division - Analyst : Okay. Okay. I guess I was under the impression at some point, you were sort of buying a substrate and inversion.

Question: Mark Neville - Scotiabank Global Banking and Markets, Research Division - Analyst : Yes. You used to -- I guess you used to talk about this is a high-teen EBITDA margin business and you're closer to...

Question: Mark Neville - Scotiabank Global Banking and Markets, Research Division - Analyst : Okay. And I guess, a couple of years ago, there was -- again, the -- I think the issue was just pricing resin. Is that...

Question: Mark Neville - Scotiabank Global Banking and Markets, Research Division - Analyst : Okay. But in terms of your pricing mechanisms, they -- again, I think that was an issue, too, right? It was when you bought the business, it wasn't sort of...

Question: Mark Neville - Scotiabank Global Banking and Markets, Research Division - Analyst : Okay. And the ramp-up in Mexico is going well?

Question: Mark Neville - Scotiabank Global Banking and Markets, Research Division - Analyst : Okay. Good. I see another question here from the line. Do you see the apparel label as an area of growth?

Question: Mark Neville - Scotiabank Global Banking and Markets, Research Division - Analyst : Okay. We have some questions here for the CCL segment. The food and beverage business, I'm just curious if that's gotten, seen any improvement. I know there was -- depending on the -- where it was sold and...

Question: Mark Neville - Scotiabank Global Banking and Markets, Research Division - Analyst : Okay. Okay. And does that include that's the electronics or that includes the automotive?

Question: Mark Neville - Scotiabank Global Banking and Markets, Research Division - Analyst : Okay. Okay. And food and beverage you did state it is up.

Question: Mark Neville - Scotiabank Global Banking and Markets, Research Division - Analyst : Okay. And again, I think you said earlier, Home & Personal Care, health care, also up.

Question: Mark Neville - Scotiabank Global Banking and Markets, Research Division - Analyst : Okay. Okay. And the Secure down, but -- okay. Okay.

Question: Mark Neville - Scotiabank Global Banking and Markets, Research Division - Analyst : Okay. Got it. So I guess, Geoff, when you sort of just look back at the year, I'm just curious what sort of surprised you most, right? I guess obviously...

Question: Mark Neville - Scotiabank Global Banking and Markets, Research Division - Analyst : Yes. No, for sure, for sure.

Question: Mark Neville - Scotiabank Global Banking and Markets, Research Division - Analyst : We're sort of coming up on time. But we've got -- we still have some time. And I'm seeing some more questions come in, so I'm going to ask those. Within label, so this year, consumer good customers are focused on core SKUs to handle the demand surges. Any thoughts on how sort of that evolves as the world normalizes? I mean you more SKU for...

Question: Mark Neville - Scotiabank Global Banking and Markets, Research Division - Analyst : Okay. And another question on labels. So what's the main difference you see in how local competitors compete in emerging markets versus developed markets?

Question: Mark Neville - Scotiabank Global Banking and Markets, Research Division - Analyst : In emerging markets, I mean, how much is it sort of our businesses with sort of international or global companies versus maybe local? It's a tough question, but... REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. DECEMBER 15, 2020 / 4:00PM, BNS.TO - CCL Industries Inc Fireside Chat Hosted By Scotiabank

Question: Mark Neville - Scotiabank Global Banking and Markets, Research Division - Analyst : Okay. Okay. And those local brand owners, are they sort of sort of -- on the quality side, does it demand as much quality sort of as maybe some of the biggest international players?

Question: Mark Neville - Scotiabank Global Banking and Markets, Research Division - Analyst : Okay. Okay. Some more questions here from the line. Again, I don't know how much time you got left, Geoff, but we're sort of in that range...

Question: Mark Neville - Scotiabank Global Banking and Markets, Research Division - Analyst : Okay. So a question here. Global companies, they're taking advantage of this environment to consolidate the industry, relying on local business leaders for due diligence. We've seen a significant increase in large deals announced. So how do you not miss what looks like a 1 in 100-year opportunity?

Question: Mark Neville - Scotiabank Global Banking and Markets, Research Division - Analyst : Sure, sure. Sure. Sorry, Geoff. I'm just reading it as it come in. Apologize that.

Question: Mark Neville - Scotiabank Global Banking and Markets, Research Division - Analyst : Sure. Sure. So I guess, looking back on the year, looking forward, again, look at the strategy we spoke to it all. But I'm just curious, like the main takeaways this year and sort of how it shapes your sort of strategy going forward. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. DECEMBER 15, 2020 / 4:00PM, BNS.TO - CCL Industries Inc Fireside Chat Hosted By Scotiabank