Q4 2021 CCL Industries Inc Earnings Call
[music].
Good morning, ladies and gentlemen, welcome to CCL industries fourth quarter Investor update.
Please note that there will be a question and answer session. After the call.
Moderator for today is Mr. Jeff Martin President and Chief Executive Officer, and joining him is Mr. Sean Walsh, Chuck Senior Vice President and Chief Financial Officer.
Please go ahead gentlemen.
Good morning, everybody. Thank you for joining our call Crazy times.
I'd like to just comment a little bit about the situation.
Folding in the Ukraine, and specifically about our company in Russia, where we have 400000 people five factories in the joint venture was $70 million in sales.
Just like to say on the call on behalf of all of those people, we know pretty well, but none of them had anything to do with the situation. That's unfolded in the Ukraine, and we have a continuing support.
With that I'd like to hand, the call over to Sean who will take you through the numbers.
Thank you, Jeff I'd like to turn everyone's attention to page two of the 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 2021 annual MD&A, which was filed last night, it's on our website or you can find it.
On SEDAR Dot com.
Moving to the next slide.
Summary of results for the fourth quarter of 2021 sales increased 10, 2%.
With organic growth of 12, 8% acquisition related growth of one 8%, partially offset by four 4% negative impact from foreign currency translation.
Resulting in sales of $1 49 billion compared to 135 billion in the fourth quarter of 2020.
Operating income was $208 $8 million for the 2021 fourth quarter compared to $213 3 million for the fourth quarter of 2020.
Two 5% increase excluding the impact of foreign currency translation.
Jeff will expand on the segmented operating results of our CCL Avery checkpoint and <unk> segments.
Corporate expenses were up in the quarter, principally due to higher expense for long term variable compensation versus the prior year quarter.
Consolidated EBITDA for the 2021 fourth quarter, excluding the impact of foreign currency translation increased 2% compared to the same period in 2020.
Net finance expense was $13 9 million for the fourth quarter of 2021 compared to $15 8 million.
For the 2024th quarter.
The decrease in net finance cost is due to a lower average debt outstanding for the comparative quarterly periods.
The overall effective tax rate was 21%. So the 2021 fourth quarter up from 19% effective tax rate recorded in the fourth quarter of 2020.
The comparative effective tax rates for the fourth quarter of 2021 and 2020.
Our lower than the annual effective.
Due to a reduction in valuation allowance based on the company's ability to utilize previously unrecognized deferred tax assets.
The effective tax rate may change in future periods, depending on the proportion of taxable income earned in different tax jurisdictions with different rates.
Net earnings for the 2021 fourth quarter was $145 1 million.
Largely in line with prior year comparative quarter.
But up four 2% excluding foreign currency translation.
For the 12 month period.
Sales increased 13, 8% operating income increased 12, 8% and net earnings increased 18, 1% all excluding foreign currency translation.
The 12 month periods.
2021 included the results from 18 acquisitions completed since January one 2020 delivering.
Delivering acquisition related sales growth for the period, a 2% organic sales growth of 11, 8%.
Foreign currency translation headwind of four 4% to sales.
Moving to the next slide.
Earnings per share base.
Basic earnings per class B share were <unk> 80.
For the fourth quarter of 2021 compared to 81 for.
For the fourth quarter of 2020.
Adjusted basic earnings per class B share were <unk> 81 for the 2021 fourth quarter compared to adjusted basic earnings per class B share of 84 for the fourth quarter of 2020.
The change in adjusted basic EPS to 81.
Primarily attributable to four negative FX impact.
Offset with an increase in operating income at <unk>.
With changes in corporate expenses taxes and interest in getting to a one cent reduction.
For the 2021 12 month period, the 29% increase in adjusted basic earnings per class B share was largely due to 44 increase in operating income.
<unk>.
<unk> increased due to taxes.
Lower interest expense of <unk> offset by 15.
Foreign currency translation, and a 7% increase in corporate expenses.
This resulted in adjusted basic earnings per share of $3 37.
For the 2021 year compared to $3.08 for the 2020 year.
Moving to the next slide.
Our free cash flow from operations.
For the fourth quarter of 2021 free cash flow from operations was $197 2 million compared to $255 $2 million for the 2024th quarter.
An increase in working capital and net capital expenditures reduced free cash flow from operations and cash provided by operating activities for the fourth quarter of 2021 compared to the fourth quarter of 2020.
For the 12 months ended December 31, 2021 free cash flow from operations decreased to $84 5 million.
Compared to the 12 months ended December 31 2020.
The comparative decline is attributable to an increase in net capital expenditures.
Expenditures and higher cash taxes paid on higher earnings.
We to the next slide.
Our cash and debt summary.
Net debt as at December 31, 2021 was $1 $25 billion, a decrease of approximately $141 7 million compared to December 31 2020.
The decrease is principally a result of debt repayments during the year, partially offset by a decrease in cash on hand at December 31, 2021 compared to December 31 2020.
The companys balance sheet closed the quarter in a strong position our balance sheet leverage ratio was approximately 1.06 times declining from one to four times at the end of December 31 2020.
Liquidity liquidity was robust with $602 $1 million of cash on hand, and almost $1 $2 billion.
Of available Undrawn credit capacity of the company's revolving credit facility.
The company.
<unk> expects to repay any portion of current debt with its free cash on hand.
The company's overall average finance rate was largely unchanged at approximately two 4% at December 31, 2021 compared to two 3% at December 31 2020.
The company the company's balance sheet continues to be well positioned to get through to 2022 year.
Jeff over to you.
Thank you Joe and good morning again, everybody.
Mid seven highlights the capital spending for the year $307 million net disposals.
Quite a bit on the last year, which we curtailed in the middle of the crisis around Covid, we're planning to spend $390 million in the year of 2022, some of that catch up for the <unk>.
Era.
Moving forward to slide eight highlights of the Ccs segment.
Organic sales growth in North America up low single digits Europe up mid single digit Latin America, and Asia Pacific up double digit so sales growth was seven 3% excluding foreign exchange, So we're pretty happy about that.
Operating income however was impacted by significant raw materials energy and freight inflation, especially in our food and beverage business exceeded the price increases that we were able to power through.
The fourth quarter.
The chip supply situation and I know, you've all read about what's impacting the automotive industry.
Yes.
Impact on CCL design, particularly in the second half of last year and the fourth quarter in particular.
Moving forward to slide nine and our joint ventures.
Very good year last year and strong results in both the middle East on Russia. So as I mentioned at the intro to the call. We do have a joint venture in Russia, south of $17 million.
Sure.
Last year amounted to about $3 million after tax.
Slide 10 highlights for Avery.
Excellent quarter strong recovery continued in all regions and all products. The one area that still lagging as our event batch business that remains below normal.
It's improved in the United States around the <unk>.
We think it's false events and entertainment.
Lagging considerably in Europe business meetings and conferences at all Thats still lagging in globally actually.
Raw materials availability inflation and elevated freight cost in particular from China for components results from there.
Held back profitability, even though it was exceptionally strong in the quarter.
Maybe go on to slide 11 checkpoint.
Strong culture.
Retail label business here I must advise availability business grew organically in all regions, but profits were impacted by normalized expenses, we'd had some benefits last year, particularly in China around social security rebates.
And in particular significant freight and components inflation from China, but we sold a lot of our.
<unk>.
Apparel labeling business had its best ever calls or under our ownership results far exceeded expectations over 30% organic growth in this part of the company driven by RFID very pleased about that on a very good start.
Unitary acquisition, which augmented our results we did benefit from some FX.
The benefits in Turkey on the decline of the Turkish lira.
We basically operate in that country in Europe .
Turning now to slide 12 highlights friend Novia, very strong sales gains, but largely resin cost pass through volume was up only modestly.
The real story of the quarter with significant energy, particularly energy and <unk>.
Great inflation in Europe , which impacted our profitability.
Lower resin prices in the U S is also part of the story.
Resin dropped in the U S. So we had higher inventory of high cost resin, which we have to eat on the policy rates. So those two things combined but the.
Energy is the big story in Europe for the quarter.
Did you see here.
How about commentary on page 13.
First half of next year will be a path through period of a number of inflation drivers and we also expect continuing supply availability issues in a number of our businesses, but we're hopeful that comps will ease as the year unfolds.
Regardless ABB should continue to improve augmented by acquisition.
Checkpoint business needs to execute price increases in the <unk> business to recover inflation, but we expect the strength we saw in the ILS business in the fourth quarter to continue.
RFID growth.
The CCL design chips shortage issues continue, especially in automotive, but acquisitions and that powder also significant offset.
Ccs segment, we expect the HBC food and beverage and health care specialty units all of that to deal with significant inflation in the first quarter and to some extent in the second quarter, while we powered through the rising cost of paper chemicals.
Films Energy insurance and just about everything we have on our P&L statement.
That demand is difficult to predict at <unk>.
Resin markets the declining in the U S Navy and.
Navigate that and energy and freight inflation, we're seeing in Europe and manage through the startup line of the <unk> investment in Poland.
So with that operator, we'd like to open up the call for questions.
Ladies and gentlemen, the floor is now open for questions. If you have any questions or comments. Please press star one on your phone at this time, we ask that while posing your question you. Please pickup your handset questioning on speaker phone to provide optimal sound quality.
Hold while we poll for questions.
Your first question is coming from Adam Josephson. Please announce your affiliation then pose your question.
Keybanc good morning, everyone, Jeff and John Hope you're well.
Hey, guys how are you.
I am well, thank you, Jeff and I hope the same growth.
Sean can you help me with FX, Jeff mentioned in the release that at current exchange rates FX translation would remain a drag.
This year can you help us order of magnitude <unk> full year anything you can share with us.
It's inherent to the drag that you had in <unk>.
Don't be as significant as the four <unk> drag.
It likely could be is half as much as the <unk> drag, but it's still going to be a headwind.
And I think they also bear in mind out of it.
Again, given the situation in Russia.
Foreign exchange markets are likely to be very volatile so it'd be ready, we really don't know.
The bottom line.
Now I understand that.
And just one on the fourth quarter, Jeff can you talk about the 6% organic growth in CCL.
How much was price versus volume and then compare that to what you've seen thus far in the first quarter any changes in demand trends, thus far across your businesses.
Well, it's very difficult to measure price impact in the label business, because we have millions of transactions of flavors, the whole shapes and sizes. So it's difficult to split price no organic growth can't really comment on that just tell you that the number.
But we know there is some pricing there because we did raise prices and in Q4, but they'll have to be raised significantly again in the coming quarter, but right now the demand patterns are reasonably strong.
How much of it is being caused by how much of it is real end user demand consumer demand how much of it is.
As people rebuilding inventory and concerned about supply chain is less clear.
But certainly our order books are reasonably full at the moment.
Perfect, Jeff and you mentioned in the release that you're experiencing supply chain disruptions and inflationary issues the likes of which you rarely seen in your history can you try to rank them in order of importance to you at the moment, including the ongoing strikes at <unk> pulp and paper Mills in Finland.
One of your suppliers are referenced on this call.
Yes.
Well, we're certainly concerned about that.
The good thing is as the strike rather than a factory burning down sorry.
Thank you begin and things have a Midland things <unk>. So.
So we assume that strike will at some point and but they are a major supplier to the pressure sensitive materials industry. So thats, a big concern to us and everybody in our industry. There's a lot of public commentary about a.
I don't know if I can really add to what is already being set.
It's a significant concern for our industry, but.
But like I say strikes have a beginning and Midland to then and.
All the indications we get as we're heading towards the end rather than the beginning and we hopefully that that'll be the case without some good news hopefully during the month of March.
But I would say.
Supply availabilities as much of a concern in our industry.
Inflation is I'd rank, the two of them pretty equally.
And it's not just it's not just release liner from UBS Mills I mean, we're just finding getting what we need on time on the days, we need it to be more challenging than any of us can ever remember.
But on top of that we're also dealing with inflation, which I think most companies in the manufacturing industry are experiencing sort of mid teens inflation and that certainly applies to us.
And all the things that we buy.
Some some significantly in excess of that some less but probably mid teens is a fair.
Comment on the on the average so it's pretty significant.
Haven't seen anything like it since the 19, 7%.
I appreciate that Jeff and just one last one for me it seems clear based on your commentary that your earnings growth will be skewed to the second half of the year can you.
Help me at all with what Youre thinking in terms of the.
Yes.
How youre thinking about earnings growth throughout the year are you expecting any in the first half are you expecting.
Any sense you don't you don't give guidance on that on our earnings Adam So I'm not going to comment on that but.
Sure.
Suddenly managing in the short term at the moment. So the short term, it's making sure we've got raw materials that we need to supply people and.
<unk> given some commentary on the on the areas that we think we might see some some growth.
That I Couldnt really couldnt really comment but.
We expect we expect the first quarter to be live like the fourth quarter I think matching last year will be will be will be challenging depending on how how the price increases Pan Allison.
And that volume pans out, but we're in a very volatile situation at the moment I couldnt really comment more than that trading. Thanks.
Thanks, so much Jeff.
No problem.
Your next question is coming from Walter Spracklen. Please announce your affiliation then pose your question, yes, RBC capital markets.
Morning, everyone.
I would like my first question to focus on the concept of.
<unk>.
Order downward ring is there any risk from your customer base and the conversations you're having whether there will be.
A movement down in terms of.
Lower margin lower margin products lower demand for premium amortization any concerns among your existing base customer base based on the company's traveling right now theyre. Good good we haven't seen any of that at all.
Fantastic.
On the geopolitical Jeff you commented $3 million in earnings in Russia is that how we should what I get inevitably get the question around that.
In terms of your production and your sales in the region is that how we should frame. The IRA. So we have a joint venture that covers the Russian territory at $70 million in sales, which we don't consolidate.
We consolidate as a share of earnings.
With over $3 million last year.
Yeah, Yeah, Yeah got it Okay, and then M&A when you look at your pipeline right now compared to say a year ago, what would you characterize it as how is it different from where it was a year ago or is pricing.
Price expectations still the same higher or lower is there more sellers.
They're now lower higher.
And just the overall landscape of what the pipeline might look like as compared to what it looked like a year ago.
I wouldn't say a lot has changed.
So we.
Still very much focused on bolt on transactions.
Were pretty active last year.
So we're concentrating also making sure those are properly integrated and run smoothly.
I wouldn't say the environment has changed much so far.
The impact of this situation in the Ukraine will have them equity markets and valuations is too early to say.
Okay.
And back on raw material supply compared to a lot of your competitors.
You've fared pretty well, even Avery, where you highlighted that it was impacted but it just means a good result would have just been even better is that just a function of where you are set up and your access into different different.
Areas for raw materials or is it prescient pre buying that you did that may be running out now and we might might need to look with a little bit more concern around the raw material supply.
<unk>.
We're in many segments of the.
Globally cultivated so with diversify I don't think Thats, the first comment I'd make.
That helps so we've got businesses that are in recovery mode from the Covid doing doing exceptionally well and we've got businesses that are.
Losing their COVID-19 tailwind and the combination of those two things so inflation and FX effects businesses that are there.
Going down after a COVID-19 tailwind mold in businesses that are recovering after the COVID-19 tailwind probably three reasons.
But we certainly are not doing a lot of pre buying so most of it is execution.
Yes.
Prices.
I think the thing that's called if it doesn't get in the back end of last year was the was the energy situation, particularly in Europe , which is which is just escalators levels I've never seen before.
So that's.
That's the thing we were most concerned about that we saw in the fourth quarter that will be addressing in Q1 with.
Energy surcharges to most of our customers.
Okay Fantastic really appreciate the time, Jeff no.
No problem.
Your next question for today is coming from Steven Please.
Please announce your affiliation then pose your question.
Thanks, Good morning, guys, a CMO apart from BMO.
Yeah.
Just a couple of questions here.
You called out RFID, which I know has been a driver.
Sales of mature checkpoint business.
Not just this quarter, but for the last several quarters.
But sales were up more than 30% I was wondering if you can give us an update on sort of the size of that business within the checkpoint segment.
The apparel label business overall is over $200 million. So I can tell you that.
A lot of the growth is coming.
Coming in that with RFID driven.
Okay great.
Thank you.
And then just for me just turning to the Ccs segment.
You highlight sort of first half leading to pass through inflation drivers.
So I guess, what would we expect to see potential margin growth in CCL pushed into Q2 potentially Q3.
Yeah, we've got some catch up to do it CCI when you've got price increases coming thick and fast.
The problem at the moment is.
You have a price increase in October of 8% and you pass through and then you've got another one coming in January of the same amount.
So that's.
Thats the kind of environment, we're wrestling with it is changing literally month by month to month.
So we've got some.
Got some catch up to do in Q1.
<unk>.
And that energy situation of de Novo, which I've talked about a couple of times just to give you a frame of reference on that in dollar terms. If we if we didn't if we didn't make any price adjustments to it.
For the cost of energy the impact would be $15 million.
That's a big number.
And thats $50 million on.
15, one five.
015 on EBIT on operating income, yes. So if we did we didn't do anything to recover recover that through surcharges, the negative impact would be $15 million Justin energy right.
I see I see okay. Okay.
Okay.
Yes, big number absolutely.
Just maybe maybe sticking on the <unk> business, you talked a lot about the <unk>.
Topline growth largely price can you can you give a breakdown as to how much was price and how much was volume.
It was largely price.
Okay.
Okay.
Okay, Great and then and then just one.
Volume tends to be growth, we grow a little bit in the U S.
The <unk> operations in Mexico.
The ones that grew.
Through last year.
Also grow in the fourth quarter, that's where the volume is coming from.
Okay.
Great. Thank you and then on the API business. The event that business is continuing to recover but still below pre pandemic levels can you just give us.
Any color on how far down you ours like how much more ground you need to make up to get back to pre COVID-19 on the badge business obviously.
About $100 million pro forma.
And it declined 70% about 70% during the Covid era, whereby it's back to about half the level. It was.
Last year, so the month to month gains are much better than that so we expect to we expect this year to be still below where we were in 2019, but.
But a lot closer than we were for 2021, when we were about 50 doses 100. So it will be I don't know what the exact number will be but maybe it will be 20 million below where we were in 2019 I think the thing that needs to change as the business Convention, So sports and entertainment is suddenly making quite a comeback in the Americas less so in Europe .
The business convention, which is another source of IV badges, they need to return to some sort of normality before we'll see that that business bounce back.
Mobile level, but it's every month, it's getting better.
Right, Okay, and it's a high margin business.
Yes.
Okay, that's great Okay, well, thanks, Jeff Thanks, John I appreciate it no problem.
Your next question for today is coming from Mark Neville. Please announce your affiliation then pose your question.
Yes.
Scotiabank.
Good morning, Jeff Good morning, Sean.
What about just the energy police youre dealing with an Adobe in Europe .
Why wouldn't that be impacting sort of the rest of your businesses and through.
<unk> the amount of energy we use in.
When you extruded film, it's an energy intensive process. So we have a we have Orion energy.
Gas turbine plant.
The operation of the Nextera energy and we buy some from the grid. So as the energy is a big factor in the extrusion.
<unk>.
So.
Much more so than it would be to running a label club or checkpoint club.
In April .
Okay that makes sense.
That makes sense got it and then <unk>.
<unk> million dollars number you quoted Jeff that was those Q4, thats because thats an annualized number annualized.
Okay.
And maybe just sorry.
The Russia, Ukraine situation.
I appreciate the numbers that helps with the facilities you have in Russia.
Well that would be a local business, but they will still be operating.
With major.
It's well known that some of the some of the major consumer packaged goods customers that significant operations in Russia, the largest consumer products company in Russia, with Pepsico, I think well over $5 billion in Russia.
So P&G L'oreal Unilever.
The HBC and food and beverage customers Carlsberg OLED huge multibillion dollar operations in Russia.
And that's in terms of our major customers.
Okay, and I guess, when you think about the broader region.
Great and the Baltics, how far West do you want to go but I mean.
Do you guys have significant exposure outside of Russia, and that sort of carnival.
Unimportant.
Okay, Okay got it.
Its operations in Poland.
Okay, Okay, and sorry on the Capex budget for the year three eight that's a bigger number than we've seen in recent years I'm. Just curious does that sort of stepping up brokers and some of the inflationary as well.
Some inflation in there so.
Capital equipment prices are kind of like the secondhand car market, it's no different.
So inflation is just everywhere so there's probably.
If we went back to 2019 prices that number probably would be $330 million 380, but its the cost of putting up a building, it's the cost of buying equipment chipboard.
You name it steel aluminum all the things that you have and by the nature of capital equivalent to inflation there is funding it.
Actually frankly higher than some other areas of the economy.
Yeah.
And I guess just broadly.
Our inflation again, obviously, you guys are managing that quite while you're raising prices but.
I mean, when you think about sort of your ability to recover and pass through.
Is there any sort of areas or parts of it or we don't think you can recover I'm just curious like how.
How big of an impact.
Would this have sort of a margin sort of things that actually sort of pop out.
But we're in the I think every company on the planet as in past three mode.
Im thinking that applies to our supply as it applies to our customers it applies to retailers.
I think every company on the planet as impulse III mode.
Exception.
Maybe just one last one if I could just curious about the buyback.
It's great to generate lots of cash.
I can't remember the last time, the stock's trading sort of in the low nines.
Curious your thoughts there.
Nothing to add other than what you've seen in the press release on the normal course issuer bid.
Alright, Thanks, a lot.
Okay no problem.
Your next question for today is coming from Michael Glen. Please announce your affiliation then pose your question.
Raymond James.
Hey, good morning, Jeff maybe just to start on checkpoint can you how do you characterize where your market share is in both deferred costs and checkpoint.
But in the MMS business, we're the global leader in RF technology.
So in the most.
Merchandise availability section I would characterize us as a global leader.
One of the two main players in the world in that business.
Global Enterprise.
And the apparel labeling business.
A copy exact number.
240 million sales last year in 2021, and the power of labeling.
And we're one of market leader there is about 1.15 billion in revenue.
Maybe a pack of four or five companies about our size chasing Watson.
In the power labeling is somewhat focused on Europe .
Okay.
And then our recent M&A transaction.
<unk> auto parts for them to call.
Can you talk about your interest in that segment in particular, what did you find attractive.
About that acquisition in particular.
Well, we've been building out Tcl design business in the automotive space for some time.
So any any technologies, which are focused on on small added value path that involved.
Film technology, or extrusion or surface decoration, or coding or technical screen printing or clean room.
<unk> room activities is of interest to us and probably.
Probably what really the big driver was it.
<unk> footprint in China, We've got a very nice large operation in China.
Business in China in automotive is before that actually the acquisition was rather slow barely $35 million.
So the footprint in China that was the principal attraction as well as the product set.
Neatly into the businesses we already.
And are there resin.
Patterns associated with that business that were already in place and it's a very tiny portion of the raw materials are a tiny portion of the component prices in both of those businesses.
Okay.
And.
Just in terms of.
Maybe for Sean Sean can you give an indication on working capital.
For the coming year.
Well, it's a bit of a challenge to predict.
It's something we work at every day, so I think <unk>.
Supply chain issues and different things like that that are going on in the current environment make it even more challenging to predict so.
We're managing for improvement, but we have to deal with the current environment.
Okay.
So please factor I think big factor you have to bear in mind that when you have a big change in inflation that impacts inventory.
Pretty pretty quickly when you have a double digit price increases so that's a big factor. So once you get past.
The anniversaries of those inflation you tend to BK comparing like for like but.
Well, we're going through the transition will be there'll be some build that for sure.
Got it and then any thoughts on the tax rate in 2020.
Joe.
No we would be expecting an annual rate around 25%.
25%, Okay. Thanks, a lot.
Okay.
Your next question is coming from Daryl Young please announce your affiliation then pose your question.
TD Securities Good morning, gentlemen.
First question is just around the consumer packaged goods companies.
This past quarter, we saw most of the growth coming out of the volume out of <unk>.
Versus volume I'm, just curious if.
You'd have any commentary about sort of volume trends there.
Looking more like 2019 period, where volumes were petering out or if it's just far too early to tell given all the disruption.
Yes, I think well we've we follow the results of our customers. The same as you do and certainly more the volume uplift.
I mean, there were some companies that did well so it wasn't it wasn't universal universally flat so depending on who your customer world you could do well or not so well but.
All of those consumer packaged goods companies are very worried about supply availability.
I'm sure, there's some precautions being taken.
Inventory of raw materials.
Normal well, they probably wouldn't be doing.
Okay.
And then just in terms of igo.
Eco float.
Is there anything specific in terms of margin concerns there.
Alongside the ramp up or specific downtime that we should be factoring in your modeling and to be aware of or just the general risks starting up a major new project.
Well, it's probably the latter of those two things.
Most of the sales will be internal to CCL.
We will be making your own film versus bolting. It on the outside so we haven't got to go out to the market to look for the volume that we're looking for it internally rather than externally certainly to begin with.
And.
And the story is more about sustainability and there's a lot of interest in the field. So we are making we're making on a piece of very old equipment in Mexico at the moment.
Called out and so the signs are quite encouraging, but when you start up and extrusion line does that thought there will be some dollar cost to do that it's all free of charge, but.
We don't expect the line to start up until sometime in the second quarter and maybe maybe towards the end of Q2.
Okay. That's great. That's all for me thanks, gentlemen.
Thank you.
Your next question for today is coming from David Saxon Please announce your affiliation and pose your question.
Cormack Securities.
Yeah, I'll just start off on that.
So you talked a little bit about the.
<unk> business has are covering.
Surprised that the level of organic growth in the quarter I was wondering if you can give a little more color on the other components like Jack consumer she protectors indexes binders just how.
All of those various segments performed in the quarter and what was driving the results.
Well it was just the.
Prior year was still somewhat COVID-19 impacted so so so I think it was really around that David more than anything else. So.
But.
It's across the board so other than that is there anything else was up in the same period last year, but.
<unk>.
You can often be impacted by people rebate chasing.
Some may have been some activity around that so people trying to build inventory to get rebate cannot hear on rebates. So there may have been a bit of that.
Generally in general terms <unk> performed pretty well all the way through 2021, and we saw that continuing in Q4.
Okay.
Okay, and then just moving on to checkpoint.
Obviously greater than 30% growth in Atlanta.
It's pretty pretty strong.
There's a lot of that just the retail reopening that's driving that or is it just gaining more and more clients because they want the RFID technology.
I think it's RFID is the driver there, but even in the base business, we're seeing quite strong growth.
How much of that is the apparel supply chain recovering in <unk> <unk>.
Stalls reopening and.
Across Europe , and the United States and the way they want in 2020, so how much of it is.
Supply chain rebuilding those as real end user demand hard to say.
Currently the market is strong and continues to be strong snowfall this year.
Okay and then.
Can you provide us any commentary on <unk>.
Congrats.
That business in checkpoint.
I think we've.
Given some commentary on that in the slides that I'm, not really willing to add to that.
I think the biggest story in MFS was impacted by inflation.
We make all of those products in China or the vast majority of them are made in China and.
And freight inflation from from there was a huge factor in the fourth quarter impacted margins.
And also component sourcing and genre itself.
The electric electronic components and chips was also a factor.
Okay.
Alright, thank you.
No problem.
Your next question for today is coming from and Jacky. Please announce your affiliation and pose your question.
<unk> financial.
Hi, Jeff Hi, Shawn.
Two quick questions just on the checkpoint it seems like this quarter.
The theme was a lot about growth and obviously the.
Contribution of the acquisition, but if I recall in the third quarter.
<unk> also about.
The need for pricing to adjust.
That's not been.
Issue checkpoint or am I mixing it up with something else.
I think you're probably referring to the comment I just made about MFS to the last caller.
So freight freight inflation from China.
Distribution hub started around the world in every country.
Most of the MS products in China, the distributed around the world the distribution centers largely in country and the freight the freight bills are really well with <unk>.
Matrix fulfill inflation.
And then some to a lesser extent a component increase.
Painting costs, particularly for gates and antenna.
Okay. Thank you and then.
I just wanted to ask is is the build out of the echo float.
Capacity in Poland is that finished now or not yet.
Not yet and is there any.
We expected the line to be ready to start production at some point in Q2, maybe towards the end of Q2, Okay. Perfect. Thank you that's it for me Okay.
You do have a follow up question coming from Adam Josephson, Adam Your line is live.
Thank you, Jeff, Jeff and John Thanks, very much Jeff just back to the supply chain discussion other than the chip shortage in the paper situation in Europe are there any.
Regional differences you've experienced in terms of supply chain issues. Some other companies have talked about the U S being a particular problem others not any regional commentary you can provide.
Well I would say.
The release lineup problem is a north America Slash Europe issue. So there is no issues in Asia numbers I've heard of emanating out of Latin America. So, it's really North America and Europe issue.
So that's what I'd say about that.
Just want to point out that Russia is the world's largest producer of aluminum as.
As well as natural gas.
So I don't know what will happen to the price of aluminum is sort of more problems.
Importing from Russia.
But.
That's one of those.
I made comments I'd make.
Perfect on resin, Jeff you have Brent crude I think is at $99 a barrel now.
I know prices has been falling in the U S. They have been more resilient in Europe . What is your outlook on resin, just considering whats happening to oil prices.
Well normally when oil goes up rising at some point reacts to it.
So.
It's hard to imagine that in the current environment is going to continue to fall might have done otherwise.
It did spike pretty pretty pretty significantly off the Texas storm in the U S. So.
So that was somewhat falsely full of interruptions to the supply demand curve.
Once things calm down in the U S. Some things went to normal you saw resin prices drop we haven't seen much of a drop anywhere in Europe little bit here and there but not much.
So we don't know any more than anybody else knows that we all knew the answer that we wouldn't be on this call we'd be rich.
You wouldn't want to be talking to west Jeff.
[laughter].
If you go back to history.
Natural gas goes up and if oil goes up rather than usually at some point following.
Sure.
Yes, so I think you're spot.
Spot on with that.
Yes.
In terms of CCL I mean, historically the growth range has been anywhere from one to six depending on the state of the economy. This year could be particularly unusual because you've rarely if ever had the inflation you're going to be dealing with so you're going to be implementing very significant price increases, which will obviously influence that.
<unk> growth number.
Could you help us think about where in that range you might expect to fall given the price increases you're implementing and any impact on volume that could come from that.
But the second part of your question is they announced the question if volume was to stay as it were.
To implement let's say global average of a 6% price increase will you have to be.
Obviously, what does that appear in our organic growth numbers, but the <unk>.
The question is is how much of the demand. We're currently seeing is real for US is people building building inventory too because of concerns about supply.
What will happen when that's over.
We just don't know the answer to that any more any more than anybody else does.
But.
History would suggest and then after a period of shocks like this the pandemic followed by this.
I'll break it more in Europe .
History would suggest at some point there'll be a correction to the current supply shock.
So.
That will happen this year or next year remains to be seen.
Are you getting any indications from your customers either way, Jeff or is it just there's just no way to know.
Not really I mean, I mean, if you look at the results of some of the home and personal care customers, which we're very close to some of those companies have done exceptionally well like l'oreal.
Others, not so well so.
Yeah.
<unk>.
It's hard to really say ready and it depends it depends also.
Which products you are making for those customers. It's not just who the customer is that what youre, making for them. So in the beer industry. Some of the big B produces commented on.
The declines in volume in Asia during the pandemic crisis, but if you make the labels for the branded goods that have premiums attached to them they've been rising.
It just depends on.
Many of the customers that way.
How you sit with that customer.
But I would I would expect it's hard to imagine that it would not be some.
Correction to the current demand curve in the consumer packaged goods business at some point once the shocks to the system.
Come back to the little it's hard to imagine.
Just one last one for me Jeff on your leverage ratio, obviously, the balance sheet remains in terrific shape what.
Just given the outbreak of war everything else that's going on or are you thinking has that changed your thinking in any way shape or form about where you want to be levered over the next year plus.
Well, we've always taken a conservative view of leverage that we never we never lowered up particularly highly railway tracks.
I've always been not to be.
Take any risk to risk our investment grade rating, so that we probably would imply a three and a half to fall at the top end, we've never we've never been up that high.
Once leverage things below one we begin to think about capital return to shareholders.
100, <unk> today, but we've also had.
Number of transactions done and maybe maybe some more to come in.
And we've got a pretty pretty volatile situation out in the world.
So we'll have to ponder that and see how things unfold in the next couple of quarters.
Yeah. Thanks, so much Jeff.
No problem.
There are no further questions in queue I would now like to turn the floor back over to the CCL management for any closing comments.
Okay, well. Thank you very much everybody for joining the call and sorry, it's been such difficult times.
So the people of the world and particularly in Europe and the like.
When we talk again.
In August and maybe things will be a lot calmer.
Also good news to report so I. Thank you for joining the call.
Okay.
Thank you ladies and gentlemen, this does conclude today's conference call. You may disconnect. Your phone lines at this time and have a wonderful day. Thank you for your participation.
Yeah.
Okay.