Q3 2023 CCL Industries Inc Earnings Call

Speaker 1: quarter investor update. Please note that there will be a question and answer session after the call. The moderator for today is Mr. Jeff Martin, President and Chief Executive Officer, and joining him is Mr. Sean Washchuck, Senior Vice President and Chief Financial Officer. Please go ahead gentlemen.

Please note that there will be a question and answer session. After the call.

The moderator for todays Mr. Jeff Martin President and Chief Executive Officer, and joining him is Mr. Sean What Chuck Senior Vice President and Chief Financial Officer. Please go ahead gentlemen.

Good morning, everybody and welcome to our call.

Speaker 2: morning everybody and welcome to our call. We're dialing in to you today from operations in Germany in Stuttgart. I'm going to hand you over right away to Mr. Sean Moschuck who's going to take you through the numbers.

Yeah.

Got it into today films operations in Germany, and stood up you're going to hand, you over why do you wait surface to show most Chuck who's going to take you through the numbers.

Speaker 3: Thank you, Jeff. Everyone could turn to slide two. I'll draw your attention to a disclaimer regarding forward looking statements. I'll remind everyone that our business faces known and unknown risks and opportunities. For further details on these key risks, please take a look at our 2022 annual report under the section Risks and Uncertainty.

Thank you Jeff.

Hello, everyone to turn to slide two I'll draw your attention to our disclaimer regarding forward looking statements I'll remind everyone that our business faces known and unknown risks and opportunities for further details on these key risks. Please take a look at our 2022 annual report.

Under the section risks and uncertainties.

Speaker 3: Our annual and quarterly reports can be found online at the company's website or at cedar.com.

Our annual and quarterly reports can be found online at the company's website or seed.

SEDAR Dot com.

So we'll move forward to slide number three.

Speaker 3: So we'll move forward to slide number three.

Speaker 3: summary of operations for the quarter and year to date.

A summary of operations for the quarter and year to date.

Speaker 3: For the third quarter, our 2023 sales increased 2%.

For the third quarter or.

2023 sales increased 2%.

It's two 6% acquisition related growth five 4% positive impact from foreign currency translation, partially offset by 6% organic decline.

Speaker 3: 2.6% acquisition related growth, 5.4% positive impact from foreign currency translation, partially offset by 6% organic decline, resulting in sales of $1.69 billion compared to $1.66 billion in the third quarter of 2000.

And sales of $1 69 billion.

Compared to $166 billion in the third quarter of 2022.

Speaker 3: Operating income was $256.1 million for the 2023 third quarter, compared to $246.8 million for the third quarter of 2000.

Operating income was $256 $1 million for the 2023 third quarter compared to $246 8 million for the third quarter of 2022.

Speaker 3: an increase, a 2% decrease, excluding the impact of foreign currency translation.

An increase of 2% decrease excluding the impact of foreign currency translation.

Speaker 3: Jeff will expand on our segmented operating results for the CCL, Avery checkpoint and an OBS segments moment out.

Jeff will expand on our segmented operating results for the CCL Avery checkpoint I mean, nobody is segments momentarily.

Corporate expenses were down for the quarter due to lower discretionary expenses and short term variable compensation expense versus the prior year quarter.

Speaker 3: Corporate expenses were down through the quarter due to lower discretionary expenses and short-term variable compensation expense versus the prior year quarter.

Consolidated EBITDA for the 2023 third quarter.

Speaker 3: The consolidated EBITDA for the 2023 third quarter, excluding the impact of foreign currency translation, increased 2% compared to the same period in 2022.

The impact of foreign currency translation increased 2% compared to the same period in 2022.

Net finance expense was $23 million for the third quarter of 2023 compared to $17 1 million in the 2022 third quarter due to an increase in interest rates on variable rate debt.

Speaker 3: $20.3 million for the third quarter of 2023 compared to $17.1 million in the 2022 third quarter due to an increase in interest rates on variable rates.

Speaker 3: The overall effect of tax rate was 24.5% for the 2023 third quarter compared to an effective tax rate of 22.9% recorded for the third quarter of 2022 due to higher withholding taxes on foreign didnas.

The overall effective tax rate was 24, 5% for the 2023 third quarter compared to an effective tax rate of 22, 9% recorded for the third quarter of 2022 due to higher withholding taxes on foreign dividends.

Speaker 3: effective tax rate may change in future periods depending on the proportion of taxable income earned in different tax jurisdictions.

The effective tax rate may change in future periods, depending on the proportion of taxable income.

And in different tax jurisdictions with different rates.

Net earnings for the 2023 third quarter over $169 $1 million.

Speaker 3: Net earnings for the 2023 third quarter were $169.1 million compared to $163.9 million for the 2022 third quarter.

Paired to $163 9 million for the 2022 third quarter.

Speaker 3: In a nine month period, sales and operating income decreased one percent.

The nine months period sales and operating income decreased 1%.

Speaker 3: net earnings decreased 3% compared to the nine month period in 2000.

Net earnings decreased 3% compared to the nine months period in 2022.

Speaker 3: 2023 included the results from 11 acquisitions completed since January 1st 2022, delivering acquisition related sales growth for the period of 2.2%.

2023 included the results from the 11 acquisitions completed since January one two.

2022, delivering acquisition related sales growth for the period at two 2%.

Speaker 3: For on-currency translation, tailwind added 5% to sales, partially offset by 3.2% organic sales decline.

Foreign currency translation tailwind added 5% to sales.

Partially offset by a three 2% organic sales decline.

Moving to the next slide.

Our earnings per share.

Basic earnings per class B share, where 95 for the third quarter of 2023 compared to <unk> 93.

Speaker 3: Pace the earnings per class B share for 95 cents to the third quarter of 2000.

Speaker 3: compared to 93 cents for the third quarter of 2000.

For the third quarter of 2022.

Adjusting adjusted basic earnings per class B share with 95 for 2023 and 2022 third quarters.

Speaker 3: Adjusted basic earnings per class B show with 95.

Speaker 3: 2023 and 2022 third quarters.

Speaker 3: We delivered this 95 cents principally attributable to a decrease in operating income of three cents, increase

We delivered this 95, principally attributable to a decrease in operating income of <unk>.

Increase in taxes of <unk>.

Speaker 3: increased finance costs of one cent, offset by five cents, positive foreign currency translation, and one cent improvement in our joint venture equity pickup. Moving to our next slide. Read.

Increased finance costs of one offs.

Offset by <unk> positive foreign currency translation, and <unk> improvements and our joint venture equity pick up.

Moving to our next slide free.

Free cash flow from operations.

For the third quarter of 2023.

Speaker 3: free cash flow from operations was an inflow of $182.2 million compared to an inflow of $148.7 million in the 2022 third quarter.

Free cash flow from operations was an inflow of $182 2 million.

Compared to a net inflow.

Of $148 7 million in the 2022 third quarter.

Speaker 3: The increase in free cash flow from operations of $33.5 million is primarily due to improved...

The increase in free cash flow from operations of $33 $5 million is primarily due to improved working capital.

Speaker 3: Higher cash earnings slightly offset with higher net capex in the third quarter this year compared to 2022.

Higher cash earnings slightly offset with higher net capex in the third quarter of this year compared to 2022 third quarter.

Speaker 3: The 12 months ended September 30, 2023. Precash flow from operations increased $58.3 million compared to 12 months ended December 30, 2000.

For the 12 months ended September 32023 free cash flow from operations increased $58 3 million compared to 12 months ended December 32022.

This comparative improvement was primarily attributable to an increased earnings.

Speaker 3: The comparative improvement is primarily attributable to increased earnings.

Speaker 3: Better comparative work and capital management, offsetting an increase in net capital expenditures and higher taxes paid.

Better comparative working capital management offsetting an increase in net capital expenditures and higher taxes paid.

Moving to our next slide our cash and debt summary.

Speaker 3: Net Debt as at September 30th, 2023 was $1.76 billion, an increase of $237.7 million compared to December 31st, 2000.

Net debt.

At September 32023 was $1 76 billion, an increase of $237 $7 million.

Compared to December 31, 2022.

Speaker 3: This increase is principally a result of increased borrowings and a lower cash balance at Q3 2023 versus December 2022 to fund the eight acquisitions completed this year. Although the company's net debt

This increase is principally a result of increased borrowings and a lower cash balance at Q3 2023 versus December two 2022 to fund the eight acquisitions completed this year.

Although the company's net debt increased the balance sheet closed the quarter in a strong position.

Speaker 3: balance sheet level of duration is only 1.37 times up slightly from 1.24 at December 31st,

Our sheet level of duration was only 137 times up slightly from one to four at December 31 2022.

Speaker 3: liquidity was robust with $773 million of cash on hand and $0.8 billion US of available undrawn credit capacity and the company.

Liquidity was robust with $773 million of cash on hand, and zero point $8 billion U S of available Undrawn credit capacity on the company's revolving bank credit facility.

The Companys overall average finance rate was approximately 3% at September 32023, compared to two 9% at December 31 2022.

Speaker 3: companies overall average finance rate with approximately 3% at September 30, 2023, compared to 2.9% at this end.

Speaker 3: This reflects an increase in variable interest rates on the company's outstanding borrowings under its revolving credit facility.

This reflects an increase in variable interest rates on the Companys outstanding borrowings under its revolving credit facility.

The company's balance sheet continues to be well positioned to move through at the end of fiscal 2023 and beyond.

Speaker 3: continues to be well positioned to move through the end of fiscal 2023 and beyond.

Jeff over to you.

Speaker 2: Thank you, Sean, and hello again, everybody. Among slides, seven highlights of our capital spending, 365 million net year-to-date 2023, and we anticipate that number rising to the 440-450 million range for the year of the whole.

Sure and Hello, again, everybody I'm on slide seven highlights of our capital spending.

<unk> hundred 62 million next year to date 2023, and we anticipate that number rising to the 440 to 450 million range for the year.

As a whole.

Speaker 2: highlights on slide eight of things we're putting our money into. We're building a big new CCL label healthcare plant in North Carolina, which is due to come on stream in mid-2024.

Highlights on slide I used those things, we're putting our money into.

The Big News CCL label Health care plant in North Carolina, which is due to come on stream in mid 2020 for.

Speaker 2: focus of that plan to label the midship products for the GOP1.

Key focus of our plant labels and mix of products of the GOP one.

Speaker 2: blockbuster drugs that are coming onto the market, which you've all seen the adverts on TV for.

Blockbuster drugs that are coming onto the market.

You've seen the adverts on television.

Second Big investment, we're making is in our second RFID inlays plants in Mexico City, which will be built alongside it.

Speaker 2: Second big investment we're making is in a second RFID inlay plans in Mexico City, which will be built alongside a CCO legal plan.

CCL Lego plant.

Speaker 2: in the same location, but in a different building. And the main focus of this capacity will be on applications outside of a power off in logistics pharmaceuticals, general merchandise and food.

In the same location to be a different building.

The main focus of this capacity will be on applications outside of apparel and logistics pharmaceuticals general merchandise and food.

Speaker 2: Operation is expected to come on stream in mid 2024. The alongside investments already in place in China should increase our capacity to make RFA RFA the in-lays at three times over our current 2023 forecast.

The operation is expected to come on stream in mid 2024.

Alongside investments already in place in China should increase our capacity to make RFID RFID inlays at three times over our current 2023 forecast sales.

Speaker 2: Moving on to slide nine, highlights of the CCL segment quarter.

Moving onto slide nine highlights the CCL segment quarter.

Speaker 2: We had a big organic growth here last year, 13.2% in this QQ3 2020-22, so it was all the high bar to reach.

We had a big organic growth you had last year at 13, 2% in this Q3 of 'twenty to 'twenty to 'twenty. Two so it was always a high bar to reach.

Speaker 2: So 3.6.7, organic sales decline were not entirely surprised by that. Almost flat in the Americas, mid-swingers declined in Europe , double-digit decline in Asia Pacific.

So the $3 $6 seven organic sales decline, we're not entirely surprised by that.

Was flat in the Americas mid single digit decline in Europe double digit decline in Asia Pacific.

Speaker 2: Profic games in all sectors of the CCL segment, the Xteps CCL design, where games in all the mode have continued to be more than off-sfed by some weakness still in electronics markets although we're cycling through the change in that regard and becoming core.

Perfect games in all sectors of the CCL segments, except CCL design, great games, and automotive continues to be more offset more than offset by some weakness is still in electronics markets. Although it will cycle through the change in that regard in the coming quarter.

Speaker 2: The results were augmented by FX-Tow-Winds and solid contributions from new actors.

Results were augmented by FX tow wins and solid contributions from new acquisitions.

Speaker 2: My 10 results from the joint ventures and storms that we got to pick up there in earnings which is good.

Slide 10 results from the joint ventures, as Sean said, we got to pick up which is good.

Speaker 2: Flight 11 results from Avery, very solid back to school season in North America, drove the performance here on top of the solid result, the results internationally. I hope the cultural business loses money in this quarter, but it was flat to prior year. And we started getting into the money-making period in the latter part of the fourth quarter that's coming soon.

Slide 11 results from a very very solid back to school season in North America drove the performance in on top of a solid results hopeful sentiment results internationally I hold the cultural business loses money in this call, but it was flat to prior year and we started to get into the moneymaking period.

The latter part of the full cohort that's coming soon.

Speaker 2: Page 12 highlights for checkpoint. I'll draw your attention to the second bullet point last year and the third quarter we had in 11.9 million gain on real estate disposal, which we highlighted to you last year.

Page 12 highlights the checkpoint I'll draw your attention to the second bullet point last year in the third quarter. We had an 11 9 million gain on real estate disposal, which we highlighted to you last year.

Speaker 2: including that Q3 operating profit was up 24%. And we had strong sales progress in all regions in the MES business and also very good growth, organic growth, driven by RFID in the power of labor.

<unk> that Q3 operating profit was up 24%.

<unk> sales progress in all regions in the SaaS business and also very good growth organic growth driven by RFID in the apparel labeling space.

Slide 13 results for <unk>.

Speaker 2: Live 13 results for Enovia. Double-digit demand drops in the pressure-sensitive label material industry continues to be the challenge here, especially in Europe but also in North America. Lower resin pass through with a significant factor also in the top line, sales decline, but probability improved, modestly, on easing inflation, very good cost controls in a difficult volume margin.

Double digit demand drops in the pressure sensitive label materials industry continues to be the challenge here, especially in Europe, but also in North America.

The resin pass through was of significant flexible so in the top line sales decline.

Visibility improved modestly on easing inflation very good cost controls.

Volume market.

Slide 14, our outlooks for the coming cold So cold Tcl business units, we expect to be more or less a repeat of what we went through in Q3 do you expect CCL designs do better comparatively as we lap the change in the demand picture in the electronics industry.

Speaker 2: Slide 14, now, outlook for the coming quarter. Call CCL business units, we expect to be more or less a repeat of what we went through in Q3. We do expect CCL designs to do better comparatively as we lap the change in demand, picture in the electronics industry. If you feel secure, should also post modest progress.

Secure should also post modest progress.

Speaker 2: Avery results are expected to be stable, horsey culture will move into its profitable period. Checkpoint faces plus cons, compared to a strong end of 2022 and RS, I think it's used to grow. We had a pretty solid October little bad when we expected so maybe that coming will be quite as fast as we initially first thought.

<unk> results are expected to be stable or culture will move into its profitable period checkpoint faces tough comps compared to a strong end of 2022 and RFID continues to grow and we had a pretty solid October little better than we expected. So maybe the comment might be caught us sources. We since we initially first of all.

Yeah.

Speaker 2: You know, we expect to outform, but against the week, Q422, perhaps significantly as a labor materials industry volume recovery gains traction. We saw a little sign of that in October in order, intake, not so much in revenue valve. FX tailwind continues to continue at the current exchange rate.

To outperform but against the weak Q4 'twenty to 'twenty two.

Significantly as the labor materials industry volume recovery gains traction we saw a little sign of that in October in order intake not some option.

And revenues out FX tailwind continues should continue at the current exchange rates.

Speaker 2: And with that, operator be light to open up the core for your question.

And with that operator, we'd like to open up the call for your questions.

Speaker 1: Certainly at this time we will be conducting a question and answers

Certainly at this time, we will be conducting a question and answer session. If you would like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue.

Speaker 1: If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to...

You May press Star two if you would like to remove your question from the queue.

Speaker 1: participant using speaker equipment, it may be necessary to pick up your handset before pressing the start keys. One moment please...

For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys, one moment, please while we poll for questions.

Speaker 4: The first question for today is coming from Stephen McLeod with BMO Capital Markets. Thank you, good morning guys.

Your first question for today is coming from Stephen Macleod with BMO capital markets.

Thank you good morning, guys.

Hi, Stephen how are you.

Alright, good thanks, how are you.

Speaker 5: Good. Good. Great. Well, I just had a couple questions I wanted to follow up on. Just in terms of your, you highlighted sort of two interesting cat-backs investments on the GLP for healthcare and then also on RFID. And I was just wondering if, maybe too soon, but if you were able to give a little bit of color around sort of what kind of capacity and dollars those investments could produce in terms of sales.

Good good.

Good.

Great well I just thought I just had a couple of questions I wanted to follow up on just in terms of.

You highlighted sort of two interesting capex investments on the G. L. P for health care and then also on RFID and I was just wondering if that might be too soon but if you were able to give a little bit of color around sort of what what kind of capacity in dollars. Those those investments could could produce in terms of sales.

Speaker 2: Yeah, I don't want to get into that. I think we've given you some color on the indication about the RFID capacity. We're traveling in.

Yeah, I don't want to get into that I think we've given you.

Any color on the indication about the RFID capacity, but we're trebling it so.

Speaker 2: We're not by any means the market, the UNRS ID, so we're certainly a top five or six player, but we're planning to come up with a chosen poll a lot faster and a lot quicker in the next year or two. So that's what that...

And whatnot, but not by any means the market leader in RFID, So where we're at but certainly a top five or six player but.

We're planning to come up with players in Poland alone falls through a lot quicker in the next year or two so about slope that one's about.

Speaker 2: The GLP investment is very customer-specific. I can't go into that for that, and it details for that reason, but it's obviously an exciting product area for a healthcare business to be involved.

The G L P investments very customer specific and I'm getting to about sort of the details for that and for that reason, but.

It's obviously, an exciting product area for our healthcare business will be involved in.

Yep, Okay. That's that's great and then just just on the RFID are you are you able to start talking about an increase in capacity three times over 2023 sales can you just give a even if you have a run rate of where that business stands right now.

Speaker 5: Yep, okay, that's great. And then just on the RFID, are you able to talk about an increasing capacity three times over 2023 sales? Can you just give a, I think I have a run rate of where that business stands right now?

Not right now.

Speaker 5: Okay, okay, thank you. And then just on the CCL business, in terms of the outlook heading into Q4, obviously I had a tough comp in Q3, but the compies is a little bit in Q4. Would you expect based on what you know today and based on the outlook for organic sales to be up, you're over here in Q4.

Okay. Okay. Thank you and then and then just on the on the CCL business.

You know in terms of the outlook heading into Q4.

Do you have a tough comp in Q3, but the comp eases a little bit in Q4.

Would you expect based on what you know today and based on the outlook for organic sales to be up year over year in Q4.

Sure.

Well, if they weren't up it wouldnt be bought it by very much.

Speaker 2: Well, if they were up, it wouldn't be by very much.

Speaker 2: and they could also be down a little bit. So it's a very difficult cause. It's a forecast state because you've got Thanksgiving in the US in November and the Christmas season in December .

And they could also came down a little bit.

It's it's very difficult cordless phone call, Steve because you've got Thanksgiving in the U S. In November and the Christmas season in December it's always it's always a somewhat volatile coal to so we might be.

Speaker 2: It's always a somewhat volatile quarter. So we might post organic growth in Q4, we might post a small organic decline.

We might post organic growth in Q4, we posted a small decline. So we'll just have to wait and see how things unfold I think okay. The big change is really going to be the the impacts of the CCL design.

Speaker 2: But we just have to wait and see how things unfold. I think the big change is really going to be the impact of the CCL design business, which has been declining in kind of a high single digit rate for most of the year. That should stop in Q4 because we lack the change in electronics. That's probably the most impactful change in the coming course.

Business, which has been declining.

You know it's kind.

Kind of a high single digit rates in most of the year, but it should stop in Q4, because we thought we lap the.

The change in electronics, so that's probably what will be the most impactful change in the coming quarters.

Speaker 5: Okay, okay, that's great. Thanks, Chef. I'll pass it back to the line and get them get in line. Thank you.

Okay.

Okay. That's great. Thanks, Jeff I'll pass it back to the line and get them getting in line. Thank you.

Yes.

Speaker 1: Your next question is coming from Ahmed Abdullah with National Bank of Canada.

Your next question is coming from Amit <unk> with National Bank of Canada.

Hey, good morning, guys.

Okay.

So on the core Ccs segment outlook commentary can you give us some more color on which geographies or customer segments. Do you think are likely to underperform or outperformed.

Speaker 6: So on the course, you see how a segment outlook commentary. Can you give us a more color on which geographies are customer segments you think are likely to underperform or outperform? And do you think mix plays a part here to help margins in the coming quarter?

And do you think mix plays a part here to help margins.

In the coming quarter.

Speaker 2: Well, I think the most important comment I've just made about CCL design. So that's a business that's been declining as I've said, high single digits for the last few quarters. That should stop in Q4. The Latin America region in total is the one that's been out performing other regions in total in the CCL segment space.

Well I think our I think the most important comment I've just made about CCL design. So so that's a business that's been declining as I've said high single digits. So the last few quarters that that should stop in in Q4.

The Latin America region in total is the one that's been outperforming other regions in closed loop in the seat sale segment space.

Speaker 2: So I don't see any reason why that should continue to change.

So I don't see any reason why that should continue to continue to change.

Speaker 2: We'll just have to wait and see how the quarter brings. And regionally Asia will do a lot better because CCL design will be better. So that's really one of the same thing.

And we'll just have to wait and see how a multiple what we call to brings.

And.

<unk> Asia will do a lot better because CCL design will do bathrooms. So that's that's really one of them. The same one of them the same thing.

Speaker 2: So we expect the flat to slide the earth or flat to slide the down, out coming cue for.

We expect a flat to slightly up or flat to slightly down outcome in Q4.

Driven by those dynamics.

Okay. Thanks for the color and the expectation for Nokia to outperform Q4 last year is that on top line and adjusted EBITDA.

Speaker 6: And the expectation for an obvious outperform Q4 last year is that on top line, an adjuster EBITDA?

It's on it's on the bottom line. So suddenly you wind outperformed the salt long because we've got much lower resin costs. This year than we had last year. So top line will still be down.

Speaker 2: It's on the bottom line, so we certainly won't outperform the top line because we've got the much lower resin cost in the shidding we had last year, the top line will still be down.

Speaker 2: We do expect to make more money this quarter than we made in the fourth quarter last year.

We did we do expect to make more money this quarter than we made in the fourth quarters last year.

Speaker 2: really jump in inflationary factors that were still present last year being largely absent now in that business. Although residents have ticked off a little bit in the last month.

Shouldn't, but really driven by inflationary factors. It was still present last year being largely absent that business well.

Although resins have ticked up a little bit in the last in the last month or so.

Okay. Thanks for the color and just last one for me.

Speaker 2: And just last one for me, where do volume and this segment hand versus historical levels? Are we close to a more normalized point in this quarter? No, I know. It's good. We still see dramatic drop in the...

Where do volumes in this segment and versus historical levels like are we close to a more normalized points in this quarter no no no. It would still we still see.

Dramatic drop in the.

Speaker 2: A big change in this business has really been in the pressure sensitive label and the period of industry. So the public come and is in that phase of both reported in the 2020.

The big change in this business has really been in the pressure sensitive label materials industry.

Public companies in our space and advisors reported.

2020 and 25%.

Speaker 2: volume drops in their businesses in North America and Europe and that's where I really was seeing that's what really needs to recover before we'll see

The volume drops in the in their businesses in North America, and Europe, and that's where it really been seeing that's what really needs to recover before we will see.

Speaker 2: volume gain. We did see some improvement in all the rent taking October but not for much in shipment out. So we sort of slight pick up but it's not yet running at any pace of getting as terribly excited but it has slightly ticked up.

Volume game, we did see some improvement in order intake in October, but not so much in shipments out.

So we saw a slight tick up but it's not yet running at any pace, that's getting us terribly excited but it does slightly ticked up.

Okay. Thanks for the color I'll pass the line.

Okay.

Your next question for today is coming from Walter Spracklen with RBC capital markets.

Speaker 1: Your next question for today is coming from Walter Sprakland with RBC Capital Markets.

Yeah, Thanks, very much good morning, everyone.

Speaker 7: So perhaps we'll start with just with margins.

So, perhaps we'll start with Theyre just with margins.

Speaker 7: I know there'd been some fairly extraordinary moves in margins during the pandemic that led to certain areas of your business, Jeff, getting some strength that that perhaps wouldn't be normal and speaking to CCL secure and currency hoarding.

I know there'd been some fairly extraordinary moves emergence during the pandemic that led to certain areas of your business, Jeff getting getting some strength that perhaps wouldn't be normal in speaking to see feel secure in and.

And currency and so on but it seems that with this year now margins have normalized somewhat so I just wanted to make it make sure that there isn't anything left that you would you know you're prudently called it out for US last time just to make sure that we we didn't go too far in any one direction, but it seems seashells back to 22% range.

Speaker 7: But it seems that with this year now, margins have normalized somewhat. So I just wanted to make sure that there isn't anything left that you would, you know, you're, you're, you've put it out for us last time just to make sure that we, we didn't go too far in any one direction, but it seems CCL is back to 22% range. Maybe a snake below a, raise it 23%, checkpoint at 20%. I'm gonna get to an OV in a second, but within those three divisions, is there anything in that mix that?

Maybe to stick below theories at 23% checkpoint at 20%.

Get to know have you in a second but within those three divisions is there anything in that mix that you think is still still going to iron itself out and therefore.

Speaker 2: You think is still going to iron itself out and therefore have an impact on the longer term kind of normal margins you would expect in those businesses. I think you've called it right, Walter. We're through most of it. And what's left to go through, I think, both move the needle enough.

<unk> have an impact on the longer term kind of normal margins you would expect in those businesses.

I think you've told it right Walter.

Well, it's really most of it and then what's left to go through I think won't move the needle enough on the CCL segment. There's nothing there's nothing that anyone business, we'll do that will move the needle very much.

Speaker 2: on the CCL segment, there's nothing that anyone business will do that will move and need all very much.

Speaker 2: That way. So Q4 is all the lower quarter for us though. So sequentially we'll see some change, but...

That way so Keith Q4 is always a low quarter for us. So so sequentially you will see some change but.

Speaker 2: But in terms of where we've cycled through the pandemic year or that those sort of last three years we've had...

But in terms of in terms of where we cycled through the pandemic here that there's sort of the last three years we've had.

Speaker 2: I certainly feel when we get into 2024, we'll be kind of back to normal. And the law of theft.

Certainly field when we get into 'twenty 'twenty, four will be kind of back to normal.

So that's on us.

Speaker 7: And you touched on another part of my question. When you see...

Fantastic.

You touched on another part of my question. When you say business conditions are stable do you mean.

Speaker 7: business conditions are stable. Do you mean because seasonally you do have weakness? Do you expect that seasonal weakness to come down or do you mean stable in a dollar value that the seasonal typical seasonal fourth quarter doesn't come down and that it's stable relative to the third in a dollar perspective? I think you meant in percentage terms that the seasonality will still continue, but similar stable growth or business activity levels that you would expect, is that right?

Seasonally you do have weakness do you expect that seasonal weakness to come down or do you just mean stable on a dollar value that the seasonal typical seasonal fourth quarter doesn't come down and that it's stable relative to the third in a dollar perspective I think thank you Ben in percentage terms that the seasonality will still continue but similar stable growth Oh.

Or or business activity levels that you would expect is that right. Yeah, I think remains stable actually relative to the comparative quarter in the prior.

Speaker 2: Yeah, I think we meant stable relative to the comparative quarter in the prior year.

Speaker 2: Perfect. Good question. So we still expect the normal seasonal pattern, but we're not expected to see.

Good question, So we should expect the normal seasonal pattern, but.

We're not expecting to see any more kings.

Speaker 7: Okay, and last question here on Anovia, that one is swung around quite a bit. I know back before you'd done the realignment in Mexico, you were kind of guiding towards 15% even to the margin and then did very well, went up into the high teens and then it even touched into above 20 and has now since come down, is there...

Okay and last question here on Adobe I don't want it swung around quite a bit I know.

Back before you have done the realignment in Mexico, you were kind of guiding towards 15% EBITDA margin and then did very well went up into the high teens and then it even touched into above 20 and is now since come down is there is.

Speaker 7: Is there, I know, Reson Price has a lot to do with that, but is there any margin target that you have, or it looks like 15% is where we're flattening out here now, is that a fair number, or is that is there another way we should be looking at margins within the Novi division?

Is there and I know resin prices, there's a lot of a lot to do with that but is there any merging.

Target that you had it looks like 15% is is when where we were were flattening out here now is that a fair number or is that is there. Another way we should be looking at emergence within they nobody they fished out.

Speaker 2: It's a pass through industry, Walter. So margins move up and down relative to what's happening to resin. Yeah. So, you know, the look, there's always a factor involved in that. But in terms of the overall performance of the novia, we really need to see volume come back before we get the step change. We need to see.

Well, it's a pulse your industry would cause the margins move up and down relative to what's happening to resin yeah. So.

There's always a factor involved in that but but.

In terms of the overall performance of the nerve is we really need to see volume come back before we'll get the step change we need to we need to see.

Speaker 2: And that's kind of all our eyes are focused on, particularly in Europe . That's flowing the Americas, but particularly in Europe we need to see.

And that's kind of all of our eyes.

Focus on particularly in Europe.

That's sort of in the Americas, but particularly in Europe, we need to see.

Speaker 2: The label materials industry come back to it than more typical regular ordering patterns.

They like the label materials industry.

But then more and more of a typical regular ordering patterns and.

Speaker 2: So they're all saying that's going to change and improve in the fourth course if we did see a little bit of uptick in October and order intake, not so much in terms of all the shipments, but hopefully their aspirations will prove to be correct and as you go to Q4 and certainly into next year we'll see.

So they're they're all saying that's going to change and improve in the fourth coals that we did say a little bit of uptick in October in order intake and also launch in terms of all the shipments but.

Hopefully that their aspirations will prove to be correct.

As we go through Q4, and certainly into next year, but let's see.

Speaker 7: top line in that business improve on the volume basis and that's what we're most anxious to see. Okay, that's a great color. I really appreciate it Jeff. Thank you.

Salt life in that business improve on a volume basis and that's what we're most most anxious to suit product. Okay. That's great color really appreciate it. Thank you.

Bob.

Your next question is coming from Michael Glen with Raymond James.

Hey, good morning.

Speaker 8: Hey, good morning. Jeff, just to start one of your suppliers.

Jeff just to start what's your suppliers.

Speaker 8: speaking about a stationary environment for label materials. I'm just wondering if you could give us a sense as to how you handle that sort of situation with your customer base.

Speaking, though.

Place scenario environment for labor materials, and I'm, just wondering if you could.

Give us a sense as to how you handle.

Handle that sort of situation with your customer base.

Speaker 2: Yeah, so the legal material space was very inflationary in the years of 21 and 22.

Yeah. So we did.

The label material space was very inflationary in.

In the years 'twenty, one 'twenty two in particular.

Speaker 2: And that's sort of began to suddenly been reversing. We're not back to where we were.

And that's sort of began to suddenly being reverse thing, but not back to where we were.

Speaker 2: but raw material costs have been coming down. And as those raw material costs come down, they get built into the price calculations we make for the products we make here. And that...

But the raw material costs have been coming down and as those raw material costs come down they get built into the price calculations, we made to the products, we make and that's hundreds.

Speaker 2: hundreds of thousands of transactions, so we don't know where we are in that, but that's how our business works.

Thousands of transactions. So that we don't know where we are in that but that's how the business works.

Speaker 2: flecks. These were all mature with input cards, there were most recent primes and makes

As raw material input costs at the most recent price makes its calculation and hey, Presto you have new pricing in the.

Speaker 2: calculation and hey, press that you have new pricing and that's basically what happens. We don't do price through in the path through in the label industry because the labels change all the time anyways, so we just wait for the next change and then the path through happens when the next change occurs.

And that's basically what happened we don't do price through in the posture in the label industry because the label change all the time anyway. So.

We just wait till the next change and then the pass through happens when the next change because.

Speaker 8: Okay, but that sort of integrated into the pricing mechanism in some form. Right. Right. And.

Okay, but that that integrated into the pricing mechanism and some four correct.

Correct.

And.

Speaker 8: The RFID, can you just describe just a little, give a little more detail on the application set that you're discussing here, you're talking pharma and food.

The RFID can you just describe just a little give a little more detail on the application set that you're discussing here are you talking pharma and food.

Speaker 2: Like what's sort of the end market here and just trying to understand how that I understand You're selling it to a parallel right now, but what's sort of the what are you targeting here with this new Plank Some of the big retailers in the US have started to mandate some of their vendors to put RSI in liaison to their products

Like what what's what's sort of the end market here and just trying to understand how that I understand what you're selling into apparel right now, but what's sort of the what.

What are you targeting here with some new clients.

Some of the big retailers in the U S. Starting to mandate some of their vendors to put RFID inlays onto that products.

Speaker 2: So we've actually been mandate to do that at Avery by some of our retail customers. We want RFID's label products inserted on boxes of labels and binders and indexes we sell in the trade channels in the US. But it's across a range of what these retailes are called general merchant diets. So it's not grocery type products, it's general merchant diets type products.

So we've actually been mandated to do that at Avery Bye bye.

Our retail customers.

He won't want RFID label products inserted on boxes labels and binders and indexes, we sell in the trade channels in the U S.

But it's across a range of what these retailers are called general merchandise. So it's not it's not grocery type products. It's general merchandise type products. So we've been doing it on on things like that electronic toothbrushes shavers.

Speaker 2: We've been doing it on things like that, electronic toothbrushes, shavers.

Speaker 2: things of that ilk in the drug industry. It's a lot of it to do with hospital supplies, so hospitals to get into use. RF ideas, a track and trace system in wards. So drug manufacturers who supply, drugs into the hospital, they begin to use RF ID products automotive part.

Things of that ilk, and the drug industry. There's a lot of it has to do with hospital supplies to hospitals beginning to use <unk>.

S idea as a track and trace system and walls. So so drug manufacturers. These supply drugs into the hospital channel beginning to use RFID products automotive parts.

Speaker 2: In the food business, it's more, the kind of food that's used at retail. So cold cabinets and retail stores that have,

And in the food business, it's more.

On the food, it's used at Brito say cold cabinets in retail stores hubs.

Individual prize.

Speaker 2: portions of meats and things like that in cold cabinets and have to worry about when that expiry date has been reached and how they can scan those.

Portions of meats, and things like that and KOL cabinets and have to worry about when that's expiring date has been reached and now they can scan loads.

Speaker 2: scan those products inside the grocery stores and get an automatic read on what's expired and what's not. And those are pretty significant waste benefits and productivity benefits for retailers. So those are the applications we're seeing in food.

Scan those products and in inside the grocery stores and getting old mountain read on Baltic spot amongst north and there was a pretty significant.

Place benefits productivity benefits retailers. So there's there's the applications have seen food.

So since you bought them checkpoint how much has it.

Speaker 9: So since you've bought checkpoint, how much has a tag, but what's happened with pricing on an individual tag over that time frame, say over the last five to six years, it must be down. There's nothing to say. But it's not changed all that much to be honest with you.

Okay.

But what's happened with pricing on an individual CAG over that timeframe say over the last five or six years I. It must be down something is changing but it's not changed a lot now it's to be honest with you.

Yeah.

Speaker 2: Yeah, because what's happening now is we're all realising is these tags are custom made for each application. So the antenna design is different, so some tags are low cost, some tags are not.

What's happening now is we're all realizing is these tanks are custom made for each application. So the antenna design is different but sometimes a low call sometimes enough.

Speaker 2: And so there's not a generic price point for this stuff. And we weren't making RFID labels at all when we bought checkpoint. They weren't making these products as all we invested, but given the capability to do it, we initially...

And so theres not a not a generic price points of this stuff and we we will making RFID labels the toll movie bolt checkpoint.

These products as all we invested to give them the capability to do it.

Initially.

Speaker 2: in the core business they have, which is a power on, moved into retail now into the...

They've done it in the in the coal business, they have which is apparel moved into retail now into the into.

Speaker 2: to the CCL segments where we're also active with the technology and

Into the CCL segments, we were also active with the technology in.

Speaker 2: and we expect to see it grow as the industry does in general, quite significantly over the next period of time.

And we expect to see it grows as the industry does in general quite significantly over the next period in time.

Speaker 8: Okay, and just one more. So your cat-ex guide for the year would seem to indicate a step down in Q4. Just want to know if that's accurate and then any early read on. Okay. And then early read on cat-ex for 24.

Okay, and just one more so your Capex guide for the year it would seem to indicate.

I stepped down in Q4, I just want to know if that's accurate and then early read on Okay. And then early read on Capex for a 24.

And it did in the same range 450 million ish, but we'll confirm that number in Q1, but it would be in the same range.

Speaker 2: The same range, 450 million ish, but we'll confirm that number in key one, but the ability in the same range.

Okay. Thank you.

No problem.

Your next question for today is coming from Ben Yeah.

Speaker 1: Your next question for today is coming from Ben Yekic with PI Finance.

With Pi financial.

Hi, Good morning, most of my questions have been asked but I do have one just to make sure Jeff when you said for the fourth quarter.

Speaker 10: Hi, good morning. Most of my questions have been asked, but I do have one just to make sure. Jeff, when you said for the fourth quarter, somebody asked, and you mentioned flat to slightly upper flat to slightly down, I'm assuming that it meant quarter to quarter.

Somebody asked and you mentioned flat to slightly up for flat to slightly down.

I'm, assuming that has meant a quarter to quarter.

Oh, that's comparatively to the prior year.

But to the prior year okay.

Speaker 9: to the prior. Okay. That's it from the comments for the CCL second. Okay.

That's it for me.

Call me much sort of Ccs segment.

Okay.

Response to the question about the CCM. Thank you.

Speaker 1: Your next question is a follow up question coming from Stephen McLeod with BMO Kepp.

Your next question is a follow up question coming from Stephen Macleod with BMO capital markets.

Speaker 5: Thank you. I just had to follow question. The first is I just wanted to clarify for a novia um Did you say that sales would be In terms of your outlook your your your your your expect profits to be up at sales to be down I just wanted to confirm that I heard that right because last year it looked like These two sales were down 11 percent

Thank you I just had two follow up question was the first is I just wanted to clarify for Nokia.

Did you say that sales would be.

Those are your outlook. Your your your <expletive> I expect profits to be up in sales to be down I. Just wanted to confirm I heard that right because last year. It looks like sales were down 11%.

Speaker 9: Correct. Yeah, because we've got we've got resin pass through pretty significant resin pass through. So unless volume returns like in a in a in a massive wave, all of a sudden

That's correct yeah cause it is we've got we've got resin pass through pretty significant resin pass through.

And that's borne in rich like in a in a in a in a massive wave all of a sudden.

Speaker 5: The Pogs Imagine S Fails With The Alpen Key Focus is a pass through pricing on resin. Yeah, okay, okay, that's great. And then just on Avery, I know you addressed this, the margin question earlier, but I just wanted to confirm, it sort of looked like Avery's kind of running at like a 19% EBIT margin on a year to date basis. Is that something to expect going forward? Is that because of the Horticultural business, kind of taking that margin down a little bit?

It's hard to imagine that sales would be up in Q4 because of the pull through pricing erosion.

Yeah, Okay. Okay. That's great and then and then just on just on Avery I know you addressed this a the margin question earlier, but I just wanted to confirm it sort of looked like.

It's kind of running at like a 19% EBIT margin on a year to date basis.

Is that something to expect going forward is that because of the horticultural business kind of taking that margin down a little bit.

Speaker 2: Yeah, it takes it down in this course, in this course, because horticulture is in its lost making, its lost making seasons.

Yeah. It takes it down in this call and this call cause holds the cultures and its lossmaking lossmaking seasons.

Speaker 9: So, you know, when we get into Q1, you'll see that change differently. But it moves it about a little bit, but there was no operating profit in the third quarter. It was a drag. If you excluded autocultured margin, would definitely be more than 20 for sure. Wow.

So how do you.

But when we get into Q1, you'll see that change.

Differently.

And it moves it moves it a bounce a little bit but there was no.

Operating profit in the <unk> in the third quarter.

It was a drag if you if you excluded the older Kelsen Austin would definitely be north of 20 for show.

Oh, okay.

Okay. That's great. Thanks, Jack Thanks, John I appreciate it.

Sure.

Speaker 1: Once again, if there are any questions, please press star 1.

Once again, if there are any questions. Please press star one.

Speaker 1: We have reached the end of the question and answer session and now will now turn a call over to Jeff for closing remarks.

We have reached the end of our question and answer session and I will now turn the call over to Jeff for closing remarks.

Speaker 2: Okay operator thank you very much everybody for joining the call with us for the talk into you. We'll now be sometime next year. Thank you very much for joining.

Okay. All right. Thank you very much everybody for joining the call and we look forward to talking to you Oh will now be sometime next year. Thank you very much for joining.

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

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