Q4 2019 Earnings Call

Good morning, ladies and gentlemen, and welcome to C.C.L. industries fourth quarter Investor update. Please note that they'll be a question and answer session. After the call. The moderator for today as Mr., Jeff Martin President and Chief Executive Officer, and Mr., Sean Wash truck Senior Vice President and Chief Financial Officer. Please.

Go ahead gentlemen.

Thank you operator, and good morning, everybody welcome.

That's cool it does to update you find the details.

You should know website www dot com on the Investor Relations page.

I'm going to end the call it with the shoulder ticket shouldn't numbers. Thanks, Jeff Good morning, everyone.

I'll draw everyone's attention to page two or disclaimer regarding forward looking.

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Well, let you know therapists, our business faced unknown risks and opportunities for further details of these key risk. Please take a look at our 2019 annual Mdna enter 2018 annual in DNA under the section risks and uncertainties.

Annual and quarterly reports can be found on our company's website, C.C.L.I.M.D. dot com or on SEDAR doctoral.

Turning to slide three.

Hopefully to see the last time, we talk about it but in 2019, we adopted I have for S 16.

Which was essentially a capitalizing leases and putting them on our balance sheet at the end of the year. We finished with approximately 146 million of lease liabilities and 146 million of right to use assets. This resulted in a $45 million increased EBITDA.

An increase in our interest expense all flowing through our income statement and balance sheet for the current year.

Turning to slide for our statement of earnings.

For the fourth quarter of 2019.

Sales decline, excluding the impact of currency translation by 3.4%.

Partially offset by acquisition related sales growth of 4%.

This resulted in sales of 1.28 billion compared to 1.33 billion in the fourth quarter of 28 team.

Operating income was 173.9 million because its 2019 fourth quarter compared to 189.2 million for the fourth quarter of 2018.

Operating income for the 2019 fourth quarter included $9.6 million pension curtailment gain.

Associated with companies decision to close the legacy Novia UK defined benefit pension plan.

Jeff will expand on the segmented operating results of our CCL Avery checkpoint I didn't know via segments momentarily.

Included in the fourth quarter results was a 13.7 million dollar reduction in corporate expenses.

Due to the reduction in the long term variable compensation expense.

In the fourth quarter of 2019 restructuring and other items was an expense of $19.8 million.

This included.

13.3 million dollar lawsuit settlement related to the checkpoint business practices on a pre acquisition basis.

And the balance of the restructuring charges were all across our segments.

Net finance expense was $18.9 billion for the fourth quarter of 2019 compared to 19.8 million.

For the 2018 fourth quarter.

The decrease in net finance costs is attributable to lower average interest rates in the quarter and a reduction of total debt.

The overall effective tax rate was 22.8% for the 2019 fourth quarter compared to 23.9% in.

In the 2018 fourth quarter.

Net earnings in the 2019 fourth quarter was 104.4 million compared to 114.2 million for the fourth quarter of 2018.

For the 2018 year sales operating income and net earnings improved, 3%, 2% and 2% respectively compared to 2018.

2019 results included results from 12 acquisitions completed since January 1st 2018.

Delivering acquisition related sales growth for the period of 2.7% organic sales growth for 0.7% with foreign currency translation had a negative impact 0.3%.

Moving to slide five.

Basic earnings per class B share.

59 cents for the fourth quarter of 2019 compared to 65 cents for the fourth quarter of 2018.

Adjusted basic earnings per class B share were 67 cents for the 2019 fourth quarter compared to adjusted basic earnings per class B share of 68 cents for the fourth quarter of 2018.

The slight decline in adjusted basic EPS to 67 says is primarily attributable to a decrease in operating income.

Resulting a seven cents largely offset by a decrease in corporate cost they accounted for six cents.

For the 2019 year basic earnings per class B share was $2.68.

Up 2% compared to $2 at 64 cents for 2018.

The adjustment to basic earnings per class B share was 11 cents per restructuring and other items.

The 2019 your.

Improvement in adjusted basic earnings per class B share was due to an increase in operating income and a reduction in corporate costs accounted for eight cents, partially offset by a two cents impact from reduced joint venture earnings and the negative impact from foreign currency translation.

All resulted in basic earnings per class B share of $2, a 79 cents for 2019 compared to $2 a 73 cents for 2018.

Slide six.

Free cash flow from operations.

2019 year was another strong year for our free cash flow from operations of $443.8 million compared to $442.5 million for 2018.

This reflects solid operating results a reduction cash taxes paid slightly offset with an increase in net noncash working capital.

Moving to slide seven.

Cash and that summary.

Net debt as at December 31st was 1.7 billion.

A decrease of approximately 200 million compared to December 31st 2080.

This decrease primarily reflects the debt repayments during the year, which were largely in the fourth quarter.

An increase in cash on hand, as we position cash in the appropriate jurisdiction.

Jurisdictions to close the sickest six acquisitions, we have announced subsequent to December 31st.

Partially offset by the increase in total debt, resulting from the 146 million of additional lease liabilities.

The company's balance sheet closing and strong position or bank leverage ratio dropped to approximately 1.61 times, reflecting a decrease in net debt and an increase in EBITDA.

The company's overall finance rate was 2.3% at December 31st 29 to lower than the 3% average finance rate at December 31st 2018.

Due to a decrease in interest margins on the company's very really drawn debt.

In absence of significant acquisitions management expects to continue delivering the company's balance sheet through 2020.

Jeff over to you.

Thank you showed good morning, everybody I'm on slide eight once the highlights that I capital spending for the year.

And $45 million.

Against depreciation and amortization of 291 million.

I need to spend about the same amount of money and twentytwenty.

Results on page nine for the CCL segment.

Soft talked long pool can we had a 4% organic sales decline for the call talk a little bit of negative currency effect.

All the regions of the world with down except Latin America, which was up slightly.

Most of the other regions with them all that's in line with the average.

The situation in Asia was slightly slightly strange and that I.

That includes Australia, and South Africa Asia Pacific So that those two locations without a business in the the main touches of Asia was slightly up.

Slide 10, just a big should by by the various segments of our business, having personal care, we continue to see softer aerosol demand in the fourth quarter of the year has no picked up in the photos called the ultra period of the inventory.

Corrections that customers and we continue to see slow Latin American labeled sales impacting our results in that space. The other regions all did quite well.

Healthcare in specialty we sold declines in North America on Europe, only partly offset by emerging markets, which is relatively small business profits in that space with them.

[noise] food and beverage sales declined compared to a very big Q4, 18 last year. When we grew almost 20%. So it was a very difficult comp on a profitability in that space also declined.

On the good news size its CCL design, we had very strong organic growth and the other electronics space and a small acquisition both combined to drive significant profitability gains both surprisingly automotive was solved and we had a slight decline in profits than when CCL secure we had a great year neighbor all that.

Q4 was a down quarter.

Slide 11 results from our joint ventures. So we had a good year in the middle East today joint venture that looks so good one in Russia due to a startup of the new plant.

And I wrote aluminum slug cloud in the United States, that's followed it up.

Late in the call trend will continue to make progress is twentytwenty unfolds, we do not expect about club to make money until twentytwenty well.

[noise] results for Avery on page 12.

Flat cold.

But the good but 2019 old really driven by the pickup in the direct to consumer business week, which continues to grow at a double digit space and we're quite optimistic now for the future that weve turned the corner in this business in terms of all good organic growth rate and expect to see modest progress in the years ahead.

Checkpoints, a very good urinary es business, but very difficult comparison for 28 team, where we had two very large rollouts. We had some this year as well, but not as big as last year RF I'd continues to grow but we did see it slowed down.

In the PQ full season, this year and I'm sure. Many of you have read about the day Trialed power.

Hi Page 14, you know via a slower sales into label and packaging industry in Europe.

Great to extend that we've seen here in the United States, but slow sales generally and trying to find we exited some very low low to no margin commodity grades.

Part of that business, so that really drove the you've got a good organic growth change the new line start up in Mexico went well and our legacy tree event chip on results actually improved on Q4 last year and we had a good overall, yet and specialty security films, Bob in Belgium straight it.

So just a page 16 that outlook for the for the quarter.

Thanks for you to think about going forward.

Many of you on the call once a day, what's going on with the Corona virus.

I'll just give you try and give you a bit of color on that so most about plans now oh, well if I told about plough. It does look today it back up and running.

The number of them started the week of February the 10 that a couple that I got started up.

This week, where about running at about 65% global capacity at the moment. So there's definitely going to be some influence on how we performed in Q1 and I'll give you some more color will not in the queue at night.

We expect checkpoints progressed to continue and its and I asked business, but the current environments will also have an impact, particularly in our apparel space.

I said earlier I agree margin mix effects from direct to consumer should should allow modest sales growth from the positive effect, but mix and we've got a couple of acquisitions to add.

Resin environments is stable and ideas. So that's a good thing foreign exchange has moved to a modest headwind at current exchange rates.

So with that operator, we'd like to open up the cold the questions.

Thank you if you would like to ask a question press star one on your telephone to withdraw your question press the pound key.

Again to ask a question press star one.

And we have a question from Adam Josephson way of Keybanc capital markets. Your line is open.

Jeff and Sean Good morning, watering out of warranty Jeff.

In terms of the cadence of the corner and into one Q for that matter can you just help us with <unk>, whether your sales and volume trends change much as the quarter progressed and into January did they get appreciably worse or was it just somewhat consistent across a number on that.

It was a bouncing along with it. So we had we had a decent october pull into that but at a decent December foods vote.

Over in December were both up that and that was down but mostly in probably the code in the most funded on them and in January.

January was a as planned so as we're planning for the year ahead, but I'd just point out that's before all the noise started in China. So in this year, we had the lunar holiday in the month.

In the month of January site. So are you know that has an impact from a lot but in our operations to January recall that so.

Well that.

To our expectations in total budget plans.

Thank you would've been <unk> Yep Yep, just from broader question about label volumes and sales made for years. Your CCL segment grew at.

4% to 6%.

Gently and there was a story about labels growing at an excess of GDP because of Premiumization and food and beverage and labels penetrating electronics automotive et cetera, et cetera, and then there was the sharp slowdown in 19, what the macro it at this point is it reasonable to assume that just label industry.

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Growth trends are basically mirror.

The macro or is there any well well I would say you have seen the results of all of our supplies. The you've also seen pretty significant slows down in the volume insight you can I think thats going to continue in 20 Twentytwenty.

So what tends to happen in a in this industry when you wind up when the macro goes the wrong way you see a slowdown in volume, but those photos the slow down in in the behavior consumer goods companies.

You know the reassessing their brand positions, how many launches are going to have themselves. So that tends to have a compounding effect. So when you have good times, you get above GDP to win with GDP and at the other way.

He tends to be the river. So that's just the rise.

And then so your 19 years CCL organic growth was about 1% and now it's obviously pre corona virus.

Is it reasonable to assume that you're thinking about a similar if not lower rate of growth and 29.

Oh, the up a little down a little to summarize somewhere in that side.

Flattish flattish wouldn't be crazy to sound that down a little up a little tableau somewhere in between.

Were very driven by the behaviors the large customers how many of them are doing launches. So you might we might surprise on the outside some calls as we might surprise on the downside and others typically what happens in a down period right now I appreciate it and just to about one Q and thanks for the Corona virus and filed the are you how much of an impact do you expect.

This point just on earnings sales whatever you can give us let me give you a few facts on thanks for the question because it's a good lead it so sales in China domestic China. So if you take the checkpoint CCL label in CCL design, which are all three businesses that are already operating in China, We had 3500.

People that and about a 16 and 17 the operations.

Annual revenues in China last year were around $400 million.

Stuff that gets sold in China.

Some of that is for domestic consumption, so to the and the CCL label space, that's largely for domestic consumption.

So the electronics industry, it's for the world, including China, So electronic Oems.

Make all that stuff there they sell some of it that they export a lot of it around the world. So you've got the indirect export impact than that on top of that we make about 400 million well, we make all of the checkpoint product lines in China, So the apparel label businesses.

Big chunk of that is based that which already included in that first number but in the in the Eas business and the RF I'd business, we make all of the products bad and sell them around the world. That's about another 400 admitted.

So a total exposure to charter in terms of.

So supply chain dynamics, and a domestic market. It totals around 800 million 800 million Canadian so far we haven't seen a lot of disruption to exports out of that so we have inventory in a system from a clients that we make that but there's certainly some issues.

Around getting pops with some of the components, we make that those issues around freight boots, but the it's very hard to quantify what the impact is going to be or that operations until we see the numbers for February which we haven't seen yet.

Thanks semi and just one last one Jeff just along those lines if in terms of CCL EBIT or EBITDA, our or total company earnings for that matter or anything you would could share with us in terms of your expectation based on the outlook slide all the elements of it do you expect to earnings to be up year on year do you.

No I would expect I would expect as to how the down call during Q1.

I think it'll be very difficult, but most come that is to avoid.

Downhole during Q and given the extend to the problem in China.

It's a a plan so back to operating with a goal of our operations running its February the twentyfold its than we've still got the 3500 people. We have that we've got seven eight under the Mets thing and I think most companies are in not predictable.

Hi, there. So if you have that kind of supply interruption and then I'm sure you've read heard about many of the stories about the can seem a disruption in the country assets funded to have an impact.

Thanks, so much chef, though the problem.

Thank you. Our next question comes from Mark level with Scotiabank. Your line is open.

Hi, guys Hey, good morning, maybe Sean just first question point of clarification, then I'd point Sixmillion.

Pension gain.

Is that in the 174 million of operating income.

Yes. It is okay. If I can follow up maybe just a couple of Adams questions.

So if you set as I think all public debt down a bit.

I just want to clarify that was you're you're speaking to.

Sort of organic earnings with console dinner with within the CCL segments.

Well I was really responding to see sales segment, so I would expect the.

Nicole the coming out the two businesses it will have challenges in the right as it relates to Colorado, Nevada to be checkpoint, because the I'd be happy apparel label.

Labeling exports out of China, <unk>, and and Ccs and see sales segment, where we got sizable operations there in CCL design and CCL label. So that the two places it will have a well have issues and we expect both sales and profits to be impacted in the quarter relative to the prior year.

But if you all can be by how much until we see fabry, we can't comment.

That's down Q1, but for the year, what you're not now you're Florida yeah.

I think most companies are saying right now what we'll do down Q audible everything would be okay. So yeah. That's what we all hope because you hope that you recover it but you don't really know right. So right. So it's something I read a newspaper article about somebody say will if you. If you. If you think about sales in the Mcdonald's restaurants kind of hard for them to make that.

Oh, you know.

Because he doesn't go any twice as much when when the bars is back to normal as you did before.

So that's what the what how we quantified the impact to that going forward, but very unclear at this point.

Yeah, no because that's completely understood.

I guess the business segments sort of outside of the CCL again sort of dependent on what happens I guess trona, but it sounds like sort of expectations for 2020 is that there's probably some organic earnings growth within those businesses.

Within sorry, which benefited from outside of the sea shells second so checkpoint Inovio every AD is a good. Good question no checkpoint is how much it right Nevada's impact will have in Q1, but we.

We get through that we would expect them to progress as we as they have been doing.

Okay and again, thanks I appreciate all the detail on the the current of ours and they're trying to exposure to so let me just clarify your comments about the pension curtailment or talk about yeah. Just about most of the gain went into the Innovia segment. We did have some signal a gain.

No that's baked but the material loss. This time last years for the quarter to quarter comparisons that.

The absolute numbers are not ready comparable for the deltas the comparison year over year over year is not as bad as it looks.

Okay, if I, if I back that out I mean, it looks like I guess you know what are your Q4 would have been running at an operating loss.

I would have been if we backed out the ones. We had last year would have been old so small operating loss last year.

Okay, and I guess, so that sounds I mean, I'd love to court two quarters enough to call typical mode sort of again as it typically Q4 is going to be lost within.

Well, if if we if we if we if we backed out the unusuals miles here. We are trying to find it adds a lot of you know we enable that business and.

The.

Middle of last year's site. So we are still doing it some accounting things to do the acquisition. So a lot of noise around that last year. So that if you look at the underlying but all that stuff out it's not it's difficult to that love.

Okay, I'm going to manage it was quite good. So so that's just wanted to give you some color on that.

That helps.

Got it just took to throw up the cronto.

The the trying to exposure sorry.

Again, you said 400 million that's domestic sales 400 million are exported.

And the stuff that's on the export at this point to hasn't been a huge disruption is that correct. Yeah, well that's the stuff that we that checkpoint has manufacturing supply plants in China that it exports to check point sales subsidiaries around the world second part and obviously, we have inventory at all about sales companies thought it around the world and it's the low season.

Retail so.

So we haven't felt too much pressure on that yet, but we know the plants are running at.

Daddy Hofh and normal operating rates, because they can get pops in the supply disruption so.

Okay.

Okay, all alternative over unless welfares questions. Thanks, guys.

Thank you and our next question comes from Walter Spracklin with RBC. Your line is open thanks very much good morning.

<unk>.

So my first question here will be on or just over a year, Jeff. Your overall comments about the a the trends in the macro and I know you noted that you had a weak environment last year and not impacted it.

It sounds you know talking to our economists in hearing the tone out there that things have improved as we went into 2020 here is it your assessment speaking to your customers that there is some movement now that the economy is shifting it's getting better and that we might see a a rebound here in your core business sooner rather than later.

Huh.

No change there okay.

Is there any concern I know, we're going to get this question. So I want to I want to address it is that.

You know you're you're intimating that this is a cyclical downturn theres always usually if you think of the supply it seemed like materials that are used in the label industry. So the you know they they sell these products too.

30, 40000 label can though there's around the world himself.

Every almost every company on the planet.

So the growth in the industry went from high mid to high single digits and in the in the previous couple of years, two very low single digits last year. So.

So that you know that certainly implies something is going on I mean, that's just the just how it is and we thought the old seeing signs about improving.

Anywhere in the first quarter I mean, there's still some growth in the in the U.S. in North America Europe is it's kind of flattish.

At Asia, I think would have been okay were it not for the growth of our but that's obviously having quite impactful.

We'll have caught it impact on result for those companies in the in Q1 as it will there will have.

Makes sense and into the those that are analyzing kind of the overall longer term risks and suggests that perhaps or is a structural component that might be.

Or secular risk to to the label business any anything that you can give in terms of comfort that yes. This is a cyclical not a structural.

Reduction in demand that you know if you will happen. The last time, we had this kind of issues. So every 10 years when there's an event in the world like this we tend to get we tend to get these sort of down there that they then don't sort of a 20% dropped a you know the our industry grows from growing a full five six but then the it's a declining.

Well until three I mean is that's the range between the good in the not so good that's a good point yep.

Last question here is on acquisitions, you know, Jeff you you'd indicated a year ago that that valuations are simply not not not there for you to be active however to your point you know.

You've made six now a very in a short period of time has or anything changed or is it just a you know some sellers came about that that weren't there before what what's changed that has caused you to become more active and and he is the pipe <unk> are we to take this trend rate is indication that you work your activity level could remain.

The higher end through the course of 2020.

Well I think we indicated the there was a.

Good reasons to be hopeful with the bolt on transactions, which are the ones. We have all announced so there's plenty of those available at the prices, we want to pay and we're very active in that part of the but that part of a M&A activity.

The price is full loves scale deals of prohibitive private equity still pretty active valuations are off the charts and there's nothing going on in what I would call large transactions, but is it anywhere near immediately executable, but there are quite a few things in the sort of medium speed.

Small to medium size bold homes for all about all about business segments that were trying to execute.

And our those bolt ons a function of your target in specific areas or do you kind of take it on a on a case by case basis as acquisition opportunities pop up you'll evaluate or are you going after a certain segments.

The ones were very active at the moment, the savory and CCL design. So we did announce that both small both them for checkpoint to this cold or.

Both the.

A plant in the Neviah, which will tell you more about as we meet investors over the coming few days, but.

But no it's still very much a targeted at Avery and CCL design, but the moment. Okay. That's all my question. Thank you very much a problem.

Thank you. Our next question comes from Stephen Macleod with BMO capital markets. Your line is open.

Thank you good morning, guys nice Dave.

Jeff just I wanted to follow along a little bit on the macro trend. You mentioned you talked about previously just growth slowing was there anything in the quarter that was you know more more or less weaker than you thought it might be when you sell I think probably the thing so bear in mind is that [noise].

<unk> comp I mentioned on the call about food and beverage.

Food and beverage lost share grew almost 20% in the colder.

So that that was that was particularly difficult the cold for us not to either come in that space, we still growing food and beverage over that cold but.

But obviously, we weren't able to grow or anything like just given the given the over the the degree of growth. We had last year. So that was that was in one area that had an impact CCL to kill had a down quarter that up yes. If you were up double digit for the to the for the year, but we were down well into double digits for the causes a lot.

Also had an impact.

So they were the two big ones.

Right. Okay. Okay, and then I just wanted to clarify and I understand I'm wondering if you have to see how Q1 sort of shapes out but would you expect like do you think.

Tcl segment EBIT would hold him for the year 2020.

Well it depends how bad Q1 is frankly, so we would we would like many companies the wheel hubs. So that we were dealing with another nine had so.

And this growing to virus thing I mean, it may suddenly disappear like SaaS did you know things might normalize maybe halfway through much of its all over build forgot about it wouldn't be can only though.

At the moment you read the newspapers as well as we do and you've seen them any profit will in the coming out from some not small companies who are like helps them of and that's it that's the degree to which the wells being impacted by then but it's very hard to for us to model will be a without really means until we see the nobilis in February.

Okay. Okay. That's helpful. And then Inovio you mentioned that you exited some lower margin businesses, which was a joke driver can you just talk a bit about like <unk> does that well that eventually lead to improved EBIT margin and I guess or does that way on the topline through.

Yeah, we actually had an improved.

Coal to all of that was the trans fat and we had an improved calls and so actually a trick or treat offended Betsy.

Fourth quarter of issue than it did pull colder last year and exiting some of the.

Loads that well even negative margin in some cases.

Exiting those businesses with the was a pretty big impact and actually.

Positive effect on the piano for the cold another negative.

Okay, and then would you expect that like how would you expect inovio sort of shape out through the year.

Well, it's gone so far this thought to there's been quite quite decent so we'll see how things move on Wendell exposed to China did ideas. So.

So so denied it is really a European U.S.

Australia.

Got it kind of business very limited sales in China, digital but not much.

So the impact for the elements going to be ready quite small so.

They had a good start to last years. So we'll see how things go but that's the in January went okay.

Okay, and I think of the last quarter, you talked about a you know that maybe seeing some slim dollar revenue increases, but EBITDA margins in the mid to high teens that is that still.

Well, let's say.

Okay.

Okay. That's a that's helpful alternative I can follow up thanks, guys. Thanks, David.

Thank you. Our next question comes from Scott from Sun was the RBC. Your line is open.

Thanks, Good morning.

Most of my questions have been asked but just wanted to I get back to C.C.L. you mentioned, some volume weakness on customers rethinking their brand positioning are you seeing weakness that any particular customers and they are you seeing pricing pressure above normal a expectations.

Thank you so the pricing pressures that they know better or worse than it ever is in that space, but.

No, it's very concentrated a space in the in the home and personal care Arena.

The large brand owners that and a they love them are doing very well in that sort of high end cosmetics skin care categories, but it's very to the label use.

In the areas, where there is more mainstream label use the volume most of their revenue increases coming from pricing rather than volumes, but volumes pretty pretty slim growth in terms of growth right and that's kind of what we're seeing and not industry and.

And we'll have to wait and see what what impact. This allows because I think many of these companies were getting a lot as a growth in the in Q4. If you look at that their numbers do lot of it was coming out of Asia lot of into that category and a number of them already saying well Q1's going to evaluate very difficult because of what's happened in China.

Is there anything you can do in every position into those are higher and they then don't products that lend themselves very well to so it may two large scale label you.

Okay, and what about a the health care business can you comment on gross.

It's been issue in the healthcare space has really been well two problems in that business have been the price for in the United States among the among our customers in generic drugs. So that's that's been quite problematic, it's about ready, creating a price pressure on us, but it's creating well that's downgrade.

The two more commodity based packaging, yeah, we still have business with a lot of those customers, but the products that buying and much less sophisticated than the ones. They used to buy and then the a the merger of the big Agrochemical companies. So you buy a run down due both to the B assets and all those companies there's been a lot of Megan.

Surges, which created some noise in that space, so they've been the too.

Negative factors in that industry that so that's affected us.

Are you developing a new pipeline of customers there.

So Joe.

If you they those are particularly important element. So if the if you have a an impact that shows the there's no amounts of.

The doing things on the on the other side that will make up for that show up to.

It would be difficult I think in that space Threeq, you wind up to that of the comps get lot easier and things should come down there, but Q auto so it'd be difficult come for them.

Great. Thanks, very much no problem.

Thank you. Our next question comes from Michael Glenn with Raymond James Your line is open.

Hey, good morning.

Jeff can you, maybe just talk a little bit about what you're seeing in Europe and in particular on the European food and beverage business.

Yeah. It was a it was.

Slow in the in the in the last quarter. It was it was wasn't down but it was slot much slower than it had been a U.S. was was much better.

In emerging markets role, so much better, but it's a we were dealing with a near 20% called right from a from last year that signed an industry like out that's pretty unusual. So it was always going to be a challenge in this call to two to leave above that we actually did but not by much.

And do you see a macro influence on that business as well.

I think the inflows we might see a little bit of there is the is the whole sustainability question. So that's causing a lot of consumer companies in that space to Poles and think more full fully about packaging then they have done in the past. So it's more about that so I think it's more about the.

Holds the other very high level about while they're doing so.

Launches delayed while they think things through stuff like that so that's probably how to.

And in fact, it's a it's a seasonal business around the around the summer. So so Q4 is low season into those Nols and that is fair on high season in the southern hemisphere.

So when most of our businesses in the northern Hemisphere as you know.

So well, we'll see how oh, the it develops but.

That's probably the other main impact was saying in that space.

Okay, and you mentioned the sustainability. So when you are hearing that from the customers you're having the dialogue with some can you give us some thoughts surrounding your positioning with that and how you are we have another product could help customers.

Because the big issue for that is how to recycle that packages and how to make them cyclical. So we have a lot of products in the label space that allow us to do that so wed seen as a good positive for them in that regard. It's more it's more about thinking about which prime repackage am I going to use and how will I make it make it.

But it into the cyclical we cultivate sites, that's causing people to pull and thing three will be ready well to do and that's ready I think what would things from some of the heat that was in the business.

Be somewhat poles.

Okay, and then just on the US do you feel secure there's there's been a few articles more recently about the 20 pound no you take any can you talk about how tcl secures involvement in that and how that would have flowed through the well. We don't hold me this whole about any of that customers in the banking well because they are pretty sensitive about it I can tell you.

I can tell you a seed sales to kill a business was up double digit last year in volume and a lot more than that in profitability.

And we fell to 35 countries around the world one of which is the banqueting.

Okay, and then expectation for corporate expense and 2020 are you able to indicate what that might be.

Broadly broadly similar to this year.

Yes.

Like I take full colder and annualize it but well be far off Woody wells this year.

Okay.

Okay. That's it for me thanks, Okay.

Thank you. Our next question comes from Ben Jackie can with Stifel. Your line is open.

Hi, Good morning, I have couple of questions first question is.

And and I apologize if it was already asked so maybe I'll just ask it in a bit of a different way so for the CCL segment.

For the full year organic growth was 1.4, there was an organic decline of 4% plus in the fourth quarter.

Yes.

Is that.

Sort of a consequence of the of the tough comp in food and beverage and a a pool or similar situations you feel secure or.

Why such a discrepancy in the fourth quarter.

Yeah, I think it's a it's a.

The three things have happened this year ER beds food and beverage growth rate is certainly moderated in the.

Mid to high teens do we sold most of last year's multi mode write it down significantly below that so that's one factor.

The stuff, we talked about with scald about so the health care business is another factor.

And ER and a and then the volatility you called it the cold currencies Hiltzik killed. So we've always soulja. That's a business you have to look on year on year and causes a cold movie outdoor who will be down so in the fourth quarter. The main by business line the main issues, where in the where in the NFL can business.

HPC.

And and that sort of this is very difficult called we had in food and beverage CCL design was up.

The CCL to kill it was down.

Okay. Thank you.

And then my second question is a four and nobody I think this is now second or third quarter in a road that a we're seeing a softness in Europe.

Can you just elaborate a little bit on you know where that's coming from in is is it a question of just waiting for the demand to pick up where you might to reposition yourself there.

Well weve repositioning ourselves to supply.

You know the fills me make in Europe or films that nobody else can make that you've got very special features in them and so beside the repositioning ourselves to make southern more of the main stream films that are sold into the label industry in Europe, that's what the acquisition in Poland was all about.

And but that's certainly the label industry conditions in Europe, outsourced and others my running away from that and.

Let's just how it is.

Okay I do have a one one more question and then I'll go get back into queue.

Just on acquisitions it it seems from what you are saying that.

The larger deals there are under certain under current conditions sort of out of the question for this year, but you know are you thinking to have a more robust bolt on M&A this year to sort of make up for the difference or.

What's what's the mindset there well the mindset is as I already said on the coal a bad or you know my focus on both films. This year. So we're using a free cash flow for that and that's the that's the main area of focus at the moment.

Okay. Okay. Thank you I'll get back it doesn't seem to be very active in Q1, we'll see where we go from that.

Okay. Thank you.

Thank you and our next question comes from a follow up from Stephen Macleod, That's BMO capital markets. Your line is open.

Thank you I just had a one follow up question. So regarding just regarding the tuck in acquisitions.

Is that more of a polar or a push like or your operating people finding interesting tuck ins to find or people sort of coming to you.

The both.

Most most of the transactions that you saw in Q on the being in the whole put for a good a good while most of them instigated by off.

Very few of them in that instance were instigated by people coming to us. So most of that was outreach frozen and incoming.

I would say generally Steven.

19, 98% lots of the company's approach us, let's say, we'd like to so are you interested we never we never.

Never transact with.

Right.

Okay. That's that's great. Thank you yeah.

Thank you we have another follow up from Mark level Scotiabank. Your line is open.

Yes, maybe just wanted to just just want to follow up here.

Again, I just listened to the call sort of reading what happened is obviously you have it all at sort of feels pretty much like sort of like a macro cyclical issue now more than anything yeah. I mean, I guess, it's it's probably the first time, we sort of see your business go through this for a number of years [laughter].

Yeah, I mean would you is there any real lead lag in your business. If you don't things do we get better how long it sort of takes Rick I'm, just trying to I guess think about it.

Hey, do they a it depends how deep it is size. So I've been in this industry along Tom as you know so typically when things start to wobble. So if you look at if you look at the the overall demand for label feedstock.

So in times, when there's a macro issue that the that always drops and it usually drops fall between one and two years. So we had a low year last year.

I I would predict we're gonna have a low year. This year and then it wouldn't surprise me, but we'll see the and then the rebound tends to be fall off as fast as we go in.

So you know we tend to be photos feynman, there's an issue we tend to be FFO style. So we had we had it for example in Oh no. We out if we had a record year. It so CCOH label in the United States, but the 2008 was very difficult.

Right.

And I guess when you think about your cost base. The margins are still holding up fairly well, but is there a need or room to sort of restructure you know yeah, we'll definitely be taking some ah so the bid.

Well, it's clean house when things are difficult, so you'll see us invest the money into a cleaning up operations and the places we need to do that.

<unk> highly decentralized companies. So we have a self correcting systems for people take actions straight away. We don't have to awesome. That's just part of a culture of the company and I expect you'll see quite a bit of that happening as the a the year unfolds.

Okay, and maybe just a loss on the M&A I think you called a I'm not sure I thought you mentioned, some sort of which segments sort of were most interests or maybe yeah.

The things they've been talking about a so see sales inside a Dave right. So direct to consumer acquisitions that I agree with your go to number of those with so working old.

And and and build homes that CCL design, then see much in the in the sort of classic CCL labeled space. We made up first transaction in checkpoint in the apparel label industry.

So there's still interested in that space because of our if I'd.

Or nothing it did I hear outside of the transaction we've just.

And the and that's that's about it.

Okay, and I guess.

Any thoughts around sort of new business lines are again, it's sort of bolt on with and what you have no doubt both dogs I think the focus this year is on.

Both of them what we have.

And I guess.

Yeah, I, just sort of speaking to this macro weakness you get you match in larger deals are still expensive.

Or you're still lots is there hasn't been any sort of give back or compression in sort of asking prices are multiples or anything of size yes.

Well I think you've seen what something to the U.S. stock market revenues. So ER. So there's no thought at multiple 'cause multiple contractions yet for anything large kinda people are still referencing deals that were down six months ago, 11, and 12 times EBITDA or and if somebody can explain to me habit supposed to make up 15% return on capital well not I'd like to see the Matt.

Got it alright. Thanks, just appreciate it that's no problem.

Thank you and we have a question from for US Ahmad with Laurentian Bank. Your line is open.

Hey, good morning, promoting just a quick question on checkpoint you guys mentioned that you're seeing some increased demand in fighting for 2020 and beyond that so elaborate on you know we complications you're seeing that in and how you see that progress that's all in apparel, so businesses, where we have a small some small bit.

This isn't it the CCL labeled space that RF ideas in apparel peril, driven phenomena, and that's where it would seem the growth coming from a in the in that space.

Okay do you expect to expand into other verticals within our yeah. I mean, I think there that will be niches in the other vertical markets, but it's a their old niches versus the <unk>. The the 80000, rather in the run in RF ideas apparel.

Okay.

And just on Avery.

You know did you guys are investing a lot on the DTC side, what what percentage of the business for every now and is DTC versus the legacy business well it was well over 100 million last year.

Moving to get close to 200 this year.

Okay, that's very helpful thinking no problem.

Thank you and we have a follow up from Ben It checking with Stifel. Your line is open.

Hi, just a to really quick question and it it's in regards to a the to latest acquisitions.

So if it's Jeff you could say a a little bit about Ryan Seldon, then and where you where you plan to go with that and I know, you're probably not going to throw any numbers, but at least qualitatively is gonna be.

You know a higher gross I'm kind of getting it right right right delved into than internal supply company itself, making around aluminum slug. That's.

Going to have any impact on the top line and all the sales or internal it's backward integration into slug manufacturing up over the Oh.

Oh I see okay. Thank you and then to the the last question is.

The clinical trials label market. It is so that's the last tuck in is is that a fragmented market in North America or how how how.

<unk> clinical trials labeling is a is a high margin space. It's a drug industry has very large R&D budgets and.

And it's a lot of very specific requirements. So it's a niche within a health care business, but a very profitable niche we wont to be it.

Doesn't move the needle <unk> CCR industries as a whole, but it's a interesting development for our health care business in the in <unk> in North America in Europe.

Okay perfect. Thank you.

Thank you and I'm showing no further questions at this time I'd like to turn the call back to management for any closing remarks.

Okay. Thank you very much for joining us everybody today, and we'll look forward to talking you next quarter and in the coming dice. Thank you very much bye bye.

Ladies and gentlemen. This concludes today's conference calls. Thank you for participating you may now disconnect everyone have a great day.

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