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edited transcript of ccl.b.to earnings conference call or presentation 22-feb-19 12:30pm gmt - bopp film manufacturers

by:Cailong     2019-07-01
edited transcript of ccl.b.to earnings conference call or presentation 22-feb-19 12:30pm gmt  -  bopp film manufacturers
Q4 2018 profit CallWILLOWDALE, CCL Industry Company, February 26, 2019 (
Thomson StreetEvents)--
Friday, February 22, 2019, at 12:30:00, edit record of CCL Industries Inc. Earnings Call or presentation
LangCCL industry. -
Chargé D'Angelo * Jeffrey T.
Martin industries-
President, CEO and director
Washington Industrial Corporation-
Adam Jesse Joseph sokbank capital markets, senior vice president and chief financial officer attending the conference call
Research Department-
* Director and senior stock research analyst, Ben JekicGMP Securities LP.
Research Department-
Elizabeth Johnston, director of stock research and special circumstances analyst at Laurenson Bank Securities Co. , Ltd.
Research Department-
Securities analyst Zhang Manyu Anne macadamallcormark.
Research Department-
Director of Institutional Equity Research * Mark NevilleScotiabank global banking and market research-
Analyst Michael W.
Granmacquarie research
Scott Douglas, analyst at soncibc capital market research
Institutional stock research and research analyst * Stephen MacLeodBMO director of equity research in Capital Markets-
Analyst * Walter sprspracklinrbc research division Capital Markets LLC-
Analyst introduction--------------------------------------------------------------------------------Operator [1]--------------------------------------------------------------------------------
Good morning, ladies and gentlemen. welcome to CCL industri's fourth quarter investor dynamics. (
Operator instructions)
Today's host is Mr.
Donald Lang, executive chairman;
With him is Mr.
Jeff Martin, president and chief executive; and Mr.
Sean woshchuk, senior vice president and chief financial officer.
Gentlemen, please continue. --------------------------------------------------------------------------------Donald G.
Lang, CCL industry-
[Executive Chairman2]--------------------------------------------------------------------------------
Thank you, operator. good morning, everyone.
We know we have more than 60 people on the phone.
So thanks for the early morning start of the fourth quarter update.
As you may know, the demo we mentioned is on our website.
So I hope you can keep up.
When we go through the page, we recognize the page.
As you can see in the announcement this morning, last year was a tough year.
But when we get into the details, you will find that we are firing a lot of cylinders. -
Many businesses, just a few isolated areas, we have some challenges and are very confident in the business, which is reflected in the increase in our dividend.
So we are still very excited about the industry, we will soon be exposed to a lot of opportunities.
With this I will hand it over to Sean woshchuk. --------------------------------------------------------------------------------Sean P.
Chuk, CCL Industries Inc. -
Senior Vice President and Chief Financial Officer3]--------------------------------------------------------------------------------Thanks, Don.
I will turn everyone's attention to the second page of the presentation, our forwarding-
Declaration and disclaimer.
I would like to remind you that our business is faced with known and unknown risks and opportunities.
For more details on these key risks, please check out our 2018 Annual Report and MD & a, which is now available on our website or on SEDAR based on "risks and uncertainties"
Steering slide 3.
The fourth quarter of 2018 was another solid quarter in the CCL industry.
Excluding the impact of currency translation, sales rose 7% to $1.
Compared to $1, 33 billion.
The fourth quarter of 2017 was 23 billion.
The growth in sales can be attributed to the Consolidated organic growth of 1. 5% and 5. 1% acquisition-related growth.
Operating income was $189.
The fourth quarter of 2018 was $2 million, compared to $205.
1 million in the fourth quarter of 2017.
Jeff will temporarily expand the results of segmentation operations for our CCL Avery, checkpoint, and Innovia segments.
Please note that we have changed the segmentation report and include the results of the previous container segment in the CCL segment.
In the fourth quarter of 2018, the cost of restructuring and other projects was $6.
6 million, mainly for the transaction cost and severance pay of Treofan acquisition-
Related expenses and $3.
3 million related to actuarial pension obligations of Innovia and legacy UK. operations.
This fee is the result of a landmark legal judgment that balances certain historical guarantees of minimum obligations in all states of the United StatesK. -
A clear pension plan.
Revenue from restructuring and other projects increased by $4.
2 million in the 2017 quarter due to the reversal before
An acquisition lawsuit was filed at the checkpoint.
Net financial costs are $19.
Compared with $23, it was 8 million per cent in 2018.
8 million in the fourth quarter of 2017.
The decrease in net financial expenses is mainly related to the decrease in interest costs on pension debt.
The overall effective tax rate is 23.
9% compared to 2018 in the fourth quarter.
8% in the fourth quarter of 2017.
The fourth quarter of 2017 was affected by the U. S. economy. S.
Tax cuts and tax reforms in the JOBS Act have affected $40 million in tax spending.
Net profit of 2018 in the fourth quarter was $114.
$2 million, compared to $169.
4 million in the fourth quarter of 2017.
During the year ended December 31, 2018, sales and operating income increased by 8% and 5% respectively, and net profit decreased by 2% from 2017.
2018 includes the results of nine acquisitions completed since January 1, 2017
Related sales growth in Phase 5.
7%, organic sales growth of 2.
1%, the foreign currency is converted to 0 winds. 7%.
Steering slide 4.
The basic earnings per share of Class B shares are $0.
The fourth quarter of 2018 was $65, compared to $0.
The fourth quarter of 2017 was 97.
Keep in mind that the tax cut and employment bill is $0.
23 impact on 2017.
Adjusted Class B base earnings per share are $0.
Compared with the adjusted Class B Basic earnings per share of $0, the fourth quarter was 2018.
The fourth quarter of 2017 was 83.
In the fourth quarter, the adjustment of basic income of Class B shares of $2018 included $0.
03 Restructuring and other matters increased.
Adjusted basic earnings per share fell to $0.
68 is mainly due to a decrease of $0 in operating income. 10 and an $0.
The reduction in tax rate changes in the effective quarter was offset by $0.
03 all other items, including interest, foreign exchange, company expenses and equity income, are positive.
In 2018, the basic earnings per share of Class B shares were $2.
64 compared to $2. 70 for 2017.
The adjustment to the basic income of Class B shares included $0.
07 for restructuring and other expenses, $0.
02 non-cash acquisition accounting adjustment for fair value inventory related to Treofan acquisition.
2018 the improvement of the adjusted Class B Basic income per share is mainly driven by the increase in operating income, with operating income accounting for $0.
07, and the net impact--
Interest expenses, company costs, foreign exchange and stock gains partially offset the improvement of $0.
03, adjusted basic earnings per share of $2.
The price of 2018 is $73 and $2.
69 per share of 2017.
Steering slide 5.
Free cash flow for the year ended December 31, 2018 was $442.
5 million, up from $438.
3 million for 2017
This reflects an improvement in operating results, the impact of net non-cash working capital, although net capital expenditure increased significantly during the same period.
Net capital expenditure was $330.
2 million for 201. 8 billion $272.
9 million for 2017
Steering slide 6.
Net debt was $1 as at December 31, 2018.
9 billion, an increase of $0. 129 billion over December 31, 2017.
Increase main reflect debt total of increase Main from 0. 308 billion beauty yuan acquisition treofan and foreign exchange translation the WE of foreign-
Denominated bonds, offset debt repayment in the second half of 2018.
Our bank leverage has dropped below 2 times.
Therefore, the syndicated spread and interest margin of our circular and regular financing will be 120 basis points in the future.
As of December 31, 2018, the company's overall average financial rate was 3%, slightly higher than the average rate in December 31, 2017, as the cost of interest on our variable rating debt increased.
Management expects to continue to reduce our balance sheet by £ 2019. Thanks. Geoff? --------------------------------------------------------------------------------Geoffrey T.
Martin, CCL Industries Inc. -
President, CEO and director4]--------------------------------------------------------------------------------Thank you.
Good Morning, everyone.
In Slide 7, Sean has detailed the highlights of capital expenditure for you this year.
We spent $0. 352 billion last year, a large part of which was on the new line in Treofan, Mexico, which does not include $23 million in revenue from capital assets held last year.
We plan to invest about $0. 35 billion in 2019.
Slide 8 highlights the CCL section.
As we expected, it was a challenging quarter given our outstanding performance of 2017 in the fourth quarter. So the $179.
2 million of the EBITDA you saw on the slide in the fourth quarter was $40 million higher than the same period in 2016.
If you return to 5 years ago, the typical operating profit margin we reported during this period is 13. 4% in 2014, 14. 8% in 2015, 14. 4% in 2016, 17. 1% last year.
Jumped a big jump and then returned to a more normal state. 5% this year.
So many of the problems we face this quarter are actually driven by our special quarter in the fourth quarter of last year.
We did score four points.
Organic sales increased by 6%, excluding the results of CCL Secure, by 7%.
We will give you more highlights soon.
Both North America and Europe are in the middle of risingsingle digit.
Latin America is low-digit--double digit.
The Asia-Pacific region is flat.
So this is a combination of good growth in the world's Asia region and a decline in Australia.
The slowdown in sales of CCL Design and CCL Secure offset the strong performance of our consumer business.
As a result, the consumer and healthcare sectors of our company have done very well this quarter.
Sales of home and personal care products grew strongly.
Solid results have been achieved in the areas of health care and expertise.
Under the Double drive, we have achieved very good results in the catering field.
Sales are growing rapidly across all product lines and geographic regions.
As a result, the company was doing very well in the fourth quarter.
At CCL Design, we definitely feel a slowdown in demand for electronics sales, so--
Organic flat in the first quarter, slight increase in acquisitions, a slight increase in foreign exchange, a slight decline in profitability.
Car performance in our Mexican factory start-ups and some slower end markets has declined.
The battery label also dropped.
At CCL Secure, we did well in Australia, but the revenue was much lower than last year.
Our results in the United States are also relatively low. K.
Mexico, but in contrast to the strong quarter of the previous year.
We have slow America. S. stamp sales.
A joint venture to page 10.
I will not spend too much time on this.
After a record year in Russia, it has achieved very good results in the Middle East.
They are really our two main operating businesses in label space, and our Rhine den plant was still shut down by fire earlier this year.
Page 11, results from Avery
Buy 2017 rose due to buying
By January 1, 2018, price increases have driven our performance in the fourth quarter of last year, and we should see some pick-up in 2019.
More is the schedule.
In direct-to-
The consumer product line continues.
Our growth in Europe was modest, but the slight decline in Australia and Latin America offset the impact.
Checkpoint on page 12.
Fourth quarter 2017 includes the last two technology promotions we talked about at the end of last year, and in fact, we will have the same experience in the first quarter.
In the fourth quarter of last year, this figure accounted for about $10 million of top line, and an incremental operating profit margin of $5 million to $6 million.
So this will be a difficult comparison this year.
With strong growth in the recurring revenue product line, the profitability of clothing labels has increased significantly.
Thanks in part to RFID, sales have grown digitally.
So I point out here that the 2018 EBITDA margin is now up 800 basis points compared to the time before we get the checkpoint, so, we have increased EBITDA's profit margin in this area from around 10% to 18. 1%.
Page 13, results of Innovia.
Certainly better than the very bad quarter we had last year.
Some of the accounting adjustments here are related to the acquisition of the previous year.
So the improvement is not as good as it seems.
But mix was better this quarter than the same period last year.
Especially during weeks of surgery, productivity helped us with our results.
The cost of resin has been stable.
From the point of view of downward movement, we don't see much.
But the situation in Europe stabilized in the fourth quarter.
The summer peaks we see in AmericaS.
It's our fourth quarter data.
So the resin we got in the summer was basically used in the fourth quarter. So it was --
Low resin prices in the United States have fallen. S.
Back to what they looked like in the first half of this year.
It is not until the first part of 2019 that we will feel the benefits of this.
So that's why we have a small loss in Treofan and we plan to start a new line there in 2019.
So, a 14-page summary of each business.
As I said, relatively typical quarters, because we achieved extraordinary results in the fourth quarter of last year, and overall, it was a very solid year.
So 15 pages, looking forward to the next few years, what you want to consider for the next quarter.
So at today's exchange rate, we will have a moderate foreign exchange downwind, which may be very similar to the results in the fourth quarter.
So far, we still see fairly stable order demand in the consumer market in 2019, but the demand for CCL Design has undoubtedly reduced some--
Compared with the same period last year.
In the first quarter of last year, CCL Secure ushered in another special quarter.
This will not be repeated again, but the outlook for this year has improved significantly over the remaining three quarters.
Overall, we expect the 19 fiscal year to be better than the 18 fiscal year.
As I mentioned earlier, Avery's comparison dropped significantly as we were very weak in the first quarter 18 after buying 2017 in the fourth quarterforwards.
At the checkpoint in the first quarter of last year, we reported a 17% increase in foreign exchange adjusted sales for both technology promotions and will not repeat in the next quarter.
Innovia continues to manage the resin cost/price equation. We are --
We did launch some price increases in the first half of the year, but we also launched a new production capacity decline in Mexico that started in the second quarter, before queuing later this year, it will definitely cost us some money.
Also in q1'19, our cash flow will be subject to 2015-2018 long-
The term incentive plan is quickly cut this year, and spending in the first quarter will be a negative cash flow project.
So we want to ask questions, operator.
Questions and Answers--------------------------------------------------------------------------------Operator [1]--------------------------------------------------------------------------------(
Operator instructions)
Our first question came from Mark Neville at Scotiabank. --------------------------------------------------------------------------------
Mark Neville, global banking and market research department, Bank of ScotlandAnalyst [2]--------------------------------------------------------------------------------
If I can start with Innovia.
I think we 've been talking about the need to adjust pricing mechanisms or costs over the last few quarters.
But I just wanted to get an update on things like the conversation you're having or you already have something we can look for in 2019. --------------------------------------------------------------------------------Geoffrey T.
Martin, CCL Industries Inc. -
President, CEO and director3]--------------------------------------------------------------------------------Yes.
Well, of course we have signed some agreements that all come into effect in January or in January.
So we hope to gain something from it.
What we don't know is how it will affect our volume.
But so far this year, everything is fine. So a lot of [solid]
But the traditional Treofan business is still in progress.
But in Innovia's traditional product line, we will definitely start raising prices in the first quarter.
So we have to wait and see--
But this is certainly our expectation. --------------------------------------------------------------------------------
Mark Neville, global banking and market research department, Bank of ScotlandAnalyst [4]--------------------------------------------------------------------------------
Treofan business, please correct me if I am wrong, there is really no problem there, just the price problem. It was more. . . --------------------------------------------------------------------------------Geoffrey T.
Martin, CCL Industries Inc. -
President, CEO and director5]--------------------------------------------------------------------------------Yes.
They must. -
Now we are looking inside, not outside, but inside.
Of course, there is still some work to be done there, but I think the business portfolio will definitely improve as pricing activities go on, so we will definitely see some comparison--
It does better than Innovia, but it does ---
I think this is far from being optimized.
So there must be work to be done there,--
I think the other thing on the Treofan market is-
In the summer of the United States, we have a big peak of resin.
So this really colored the fourth quarter because all the resin we bought this summer was used in the fourth quarter. --------------------------------------------------------------------------------
Mark Neville, global banking and market research department, Bank of ScotlandAnalyst [6]--------------------------------------------------------------------------------Yes.
I think in your message I think the price is stable or not down but it looks like a lot of resin has gone down.
So I'm just not sure, maybe the grade or what you bought. . . --------------------------------------------------------------------------------Geoffrey T.
Martin, CCL Industries Inc. -
President, CEO and director7]--------------------------------------------------------------------------------[The only]
Problems with resin-
So, if you look at the price of the BOPP Film resin, it will be available in the US. S. but it's --
All it did was return to its position in the first half of last year.
It soared in the summer and then decreased, but it only returned to where it was, like a parade.
So in the summer it came up with a peak and then again.
In Europe, the number has fallen a little, not very large. --------------------------------------------------------------------------------
Mark Neville, global banking and market research department, Bank of ScotlandAnalyst [8]--------------------------------------------------------------------------------Okay.
But still high? --------------------------------------------------------------------------------Geoffrey T.
Martin, CCL Industries Inc. -
President, CEO and director9]--------------------------------------------------------------------------------Yes.
I mean, it's a well off high point. It's --
Well, it's not in Europe, it's not high in Europe.
It just dropped a little.
But the fact that it stops rising is undoubtedly a relief.
So this is definitely good for us when these prices go up because we don't have to pay with higher resin. --------------------------------------------------------------------------------
Mark Neville, global banking and market research department, Bank of ScotlandAnalyst [10]--------------------------------------------------------------------------------
Okay, that makes sense.
Then, in the case of these price increases, does this basically cover all of Innovia's content?
Still a little pocket feeling. . --------------------------------------------------------------------------------Geoffrey T.
Martin, CCL Industries Inc. -
President, CEO and director11]--------------------------------------------------------------------------------No, no, no.
I think we have--
I mean, before we $50 million holes
This did not recover $50 million during the acquisition, but rather recovered part of it.
We have to wait and look at the impact on the volume, so I'm not going to predict how much impact it will have. We'll just --
The result will speak for yourself. --------------------------------------------------------------------------------
Mark Neville, global banking and market research department, Bank of ScotlandAnalyst [12]--------------------------------------------------------------------------------Yes.
If I am not clear, I guess my problem is that the price adjustments you have made will cover most of your products or all the products you are selling. --------------------------------------------------------------------------------Geoffrey T.
Martin, CCL Industries Inc. -
President, CEO and director13]--------------------------------------------------------------------------------Yes, yes.
I mean, of course.
So the price of everything has risen more or less. --------------------------------------------------------------------------------
Mark Neville, global banking and market research department, Bank of ScotlandAnalyst [14]--------------------------------------------------------------------------------Okay. Yes.
No, I apologize.
I asked the wrong question,--okay.
Maybe just in terms of security.
I appreciate it being messy, but it's just--
Can you remind us? -
Again, I don't know if you have visibility in 19 years, but it could be the rhythm of what happened in 18 years.
I just want to take an. . . --------------------------------------------------------------------------------Geoffrey T.
Martin, CCL Industries Inc. -
President, CEO and director15]--------------------------------------------------------------------------------
We have a very big launch--
In 2017, Europe launched a new large currency. -
The first quarter of 2018.
So really-
We had a year of renewal in 2017, it was a very good year, it went through 2018 in the first quarter, it was a very special year.
Then the launch ended when we entered the second quarter, so we will have more difficulties comparing the quarter.
For the next three quarters, we will see revenue.
So that's the real driving force.
It's really driven by a large launch. --------------------------------------------------------------------------------Operator [16]--------------------------------------------------------------------------------
The next question is Michael Glenn from Macquarie. --------------------------------------------------------------------------------Michael W.
Macquarie Research firm GlennAnalyst [17]--------------------------------------------------------------------------------
Jeff, can you comment on your--
Talk about your business in China?
Can you talk? -
Do you have a lot of Chinese business besides labels?
What percentage of labels will China represent? --------------------------------------------------------------------------------Geoffrey T.
Martin, CCL Industries Inc. -
President, CEO and director18]--------------------------------------------------------------------------------
We had a good time.
CCL Label, which focuses on the domestic economy, has a scale business in China.
So this is not--
Some of the customers we sell there are international customers, but they are domestic customers.
So they are producing products for Chinese consumers, which is good, even if I know there are some concerns that this may or may not happen.
And then we have--
At CCL Design, we have a large enterprise in China, focusing on the field of electronic products, all for export, or most for export, which is the second part.
The third one is that we have done a lot of inspection station products there.
Not much to sell in China, to sell--
Made in China and exported to inspection stations around the world for resale.
So these are the three components--
Our business in China
For the CCL brand CCL business, it sells to Chinese consumers, about $100 million. --------------------------------------------------------------------------------Michael W.
Macquarie Research firm GlennAnalyst [19]--------------------------------------------------------------------------------Okay.
When you talk about the Asia-Pacific region holding this quarter, China-specific? Or is i. . . --------------------------------------------------------------------------------Geoffrey T.
Martin, CCL Industries Inc. -
President, CEO and director20]--------------------------------------------------------------------------------
No, no, it's all Australia.
So this is very--
A function of our money business.
So it has nothing to do with Asia.
So our business in Asia grew by 6%, 7%. --------------------------------------------------------------------------------Michael W.
Macquarie Research firm GlennAnalyst [21]--------------------------------------------------------------------------------Okay. And then --
As far as the labeling section is concerned, can you remind us how the flow of raw materials works in that business? --------------------------------------------------------------------------------Geoffrey T.
Martin, CCL Industries Inc. -
President, CEO and director22]--------------------------------------------------------------------------------
In the tag section, it's--
Well, really--
We made a lot of products.
So they tend to just raise money.
So we produce millions of SKUs of different shapes and sizes that have been changing all the time.
Therefore, the flow of raw materials in the CCL business is only obtained through financing. --------------------------------------------------------------------------------Michael W.
Macquarie Research firm GlennAnalyst [23]--------------------------------------------------------------------------------Okay.
Is there any lag we should consider? . . --------------------------------------------------------------------------------Geoffrey T.
Martin, CCL Industries Inc. -
President, CEO and director24]--------------------------------------------------------------------------------
Because it's millions of transactions, it's not in the tag business.
I mean millions of dollars, so it's just through financing.
The ups and downs there don't really feel one way or the other. --------------------------------------------------------------------------------Michael W.
Macquarie Research firm GlennAnalyst [25]--------------------------------------------------------------------------------Okay.
Then another one.
In the M & A environment, you talk about the increase in seller expectations in the past.
Do you see any changes?
Or can you provide any additional comments? --------------------------------------------------------------------------------Geoffrey T.
Martin, CCL Industries Inc. -
President, CEO and director26]--------------------------------------------------------------------------------
I think we have seen it. -
We 've looked at some of the bigger deals, but certainly more. -
Expectations for multiples still exist.
We 've seen something that has caused the sales process to fail due to expectations, so I might say ---
We recently noticed that some sellers did not meet the price they expected, so it could be an early sign that things are moving in a southerly direction.
If the economy is a bit of a recession in the next year or two, then the multiples of what we might want to buy may fall, not rise.
But this year we're focusing more on bolts-
In the transaction, repay the debt and accumulate dry powder. --------------------------------------------------------------------------------Operator [27]--------------------------------------------------------------------------------
The next question comes from Stephen MacLeod of BMO Capital Markets. --------------------------------------------------------------------------------
BMO Capital Market stock researchAnalyst [28]--------------------------------------------------------------------------------
I just want to go around the CCL business.
I mean, it's clear that at the beginning of the year, safe companies are harder.
It sounds like you also have some CCL Design impact this quarter.
Can you talk? -
Do you hope this will continue? -through 2019? --------------------------------------------------------------------------------Geoffrey T.
Martin, CCL Industries Inc. -
President, CEO and director29]--------------------------------------------------------------------------------Yes. I mean, we --
In the CCL Design, the speed is slow, right?
So it won't drop or something like that.
But we did not see the growth we saw in the first half of 2017 and 18, which is lower than we expected in the second half.
As you expect, you see--
Some of our customers-
It's not surprising.
The running results are affected by the start-up
We have such a big factory in Mexico.
It is more focused on cars and electronics and takes a long time to qualify for the plant.
So this is a brand new country, longer than we expected, but we expect to make a lot of progress in this area in 2019 and hope to make a profit by 2020. --------------------------------------------------------------------------------
BMO Capital Market stock researchAnalyst [30]--------------------------------------------------------------------------------Okay.
Therefore, considering the expectations of the CCL segment for 2019, it is characterized--
The development momentum of consumer business is strong.
You see a slowdown in CCL Design demand, but not a negative one.
CCL ensures your performance in the first quarter, but you will want it to rise in the second, third and fourth quarters. --------------------------------------------------------------------------------Geoffrey T.
Martin, CCL Industries Inc. -
President, CEO and director31]--------------------------------------------------------------------------------
No, we expect CCL Secure to be better in 2019 than in 2018.
But after Q1 it was more difficult because we had most of the 2017 to 2018 slopes of the rocket launch in the last quarter, compared to disappearing on the schedule for April. --------------------------------------------------------------------------------
BMO Capital Market stock researchAnalyst [32]--------------------------------------------------------------------------------Right. Okay.
Then you talked a little bit about the margin.
You 've just highlighted the type of historical Q4s, going back to the normalization of that number.
Is this what you expect? -
For example, would you expect this profit margin outside of any unusual release or something like that? --------------------------------------------------------------------------------Geoffrey T.
Martin, CCL Industries Inc. -
President, CEO and director33]--------------------------------------------------------------------------------
It is very unusual for us to be 17 years old.
Q4 operating profit margin 1%
I mean, it's 230 basis points higher than the next highest quarter we 've ever had in one quarter.
So the typical operating profit margin in the fourth quarter is 13% to 14%. So --
By December, the fourth quarter was always affected by Christmas.
So you have a strong October, a strong November, and then December is like half a month.
We just ate this last year. -
Everything fired on all the gas cylinders and we had this huge quarter in the security business, which really drove the growth of numbers. --------------------------------------------------------------------------------
BMO Capital Market stock researchAnalyst [34]--------------------------------------------------------------------------------Right.
OK, this is very helpful.
The last is about the checkpoint business.
You quoted some numbers from RFID.
Do you see further adoption of RFID or accelerated adoption of RFID or. . . --------------------------------------------------------------------------------Geoffrey T.
Martin, CCL Industries Inc. -
President, CEO and director35]--------------------------------------------------------------------------------
Yes, I would say that it's still early in the launch of RFID.
But if you think about it in the longer term, I'm talking about more than a few decades, but if you look at it from the next 10, 15 years, I think it will most likely be widely adopted in the clothing supply chain.
So everyone is a member of the clothing supply chain, manufacturers, brands and shippers, retailers.
They are all focusing on the application of RFID in this field and we expect it to continue in the next few years. --------------------------------------------------------------------------------
BMO Capital Market stock researchAnalyst [36]--------------------------------------------------------------------------------Okay.
Are you still executing the plan to roll in your own mosaic manufacturing? --------------------------------------------------------------------------------Geoffrey T.
Martin, CCL Industries Inc. -
President, CEO and director37]--------------------------------------------------------------------------------
In the fourth quarter of last year, we have started to make our own mosaic.
It's just beginning.
Therefore, this year will be the year in which our own mosaic manufacturing will have an impact. --------------------------------------------------------------------------------
BMO Capital Market stock researchAnalyst [38]--------------------------------------------------------------------------------Okay.
Can you remind us of the impact we expect? --------------------------------------------------------------------------------Geoffrey T.
Martin, CCL Industries Inc. -
President, CEO and director39]--------------------------------------------------------------------------------Good. --------------------------------------------------------------------------------Operator [40]--------------------------------------------------------------------------------
The next question comes from Walter Spracklin of RBC Capital Markets. --------------------------------------------------------------------------------
Walter Noel Spracklin, RBC Capital Market Research division Co. , Ltd-Analyst [41]--------------------------------------------------------------------------------
Jeff's in Avery.
Just to come back.
I know that the last time you said that you went to 2019, we said that you are looking for the flat, the top line is flat, the flat EBITDA.
So this is still expected to be 2019? --------------------------------------------------------------------------------Geoffrey T.
Martin, CCL Industries Inc. -
President, CEO and director42]--------------------------------------------------------------------------------Yes.
Yes, absolutely. Yes, we think --
I think the fourth quarter of last year was really driven by this price increase. we have a certain high.
We make margin products.
But last year, some of our dealer customers bought forward products ahead of 6% of last year's price increase.
Our prices have also risen this year, but most of our dealer partners have been involved in M & A deals, or a large number of dealers have been involved in M & A deals.
So it's a bit off the radar screen this year, so this hasn't happened this year.
So we will have a very simple first quarter pay compared to the difficult fourth quarter pay.
But yes, overall, we expect this year to be flat. --------------------------------------------------------------------------------
Walter Noel Spracklin, RBC Capital Market Research division Co. , Ltd-Analyst [43]--------------------------------------------------------------------------------Got it.
Innovia, just touched the new line that started in Mexico. year.
What do you think is the ramp cycle before you reach the time required for full optimization and good condition. . . --------------------------------------------------------------------------------Geoffrey T.
Martin, CCL Industries Inc. -
President, CEO and director44]--------------------------------------------------------------------------------
There are now two to three quarters. That's --
To a large extent, this is the largest industrial equipment of our company.
It takes time to push it up.
So I expect this to last 2 to 3 quarters.
So I think we will see-
We will see improvements to the Innovia business this year.
But we have ramps.
In Mexico, the number of Z5 is the largest, and it is difficult to quantify what impact this will have.
We need to see how it looks.
So it didn't start until the second quarter.
So the key quarters will be the second and third quarters as they will be the first two quarters we are trying to start and run the full volume. --------------------------------------------------------------------------------
Walter Noel Spracklin, RBC Capital Market Research division Co. , Ltd-Analyst [45]--------------------------------------------------------------------------------
So we should get into 2020 before we reach some kind of normalization. . . --------------------------------------------------------------------------------Geoffrey T.
Martin, CCL Industries Inc. -
President, CEO and director46]--------------------------------------------------------------------------------
Yes, so--
Of course, the treofan 2019 will be a short year as we are launching this range of businesses and we hope that the results of the operation of the Innovia business will be well improved. --------------------------------------------------------------------------------
Walter Noel Spracklin, RBC Capital Market Research division Co. , Ltd-Analyst [47]--------------------------------------------------------------------------------Okay.
Last question on CCL
As you mentioned, there is one-
You have made some good growth in consumer and healthcare.
Just wondering if this will be put on hold at any time.
Or do you still see the ability to maintain that growth rate?
I mean, on an organic basis, enter 2019 here? --------------------------------------------------------------------------------Geoffrey T.
Martin, CCL Industries Inc. -
President, CEO and director48]--------------------------------------------------------------------------------Yes.
How will I quantify it so far.
There is a lot of tension outside.
I mean, you know for sure, there is a lot of tension in the consumer goods sector, will there be some macro impact on the performance of these companies in the coming year or so?
But we haven't seen much so far.
It's 2019 now, we only have 7 weeks, but it's still good so far. --------------------------------------------------------------------------------
Walter Noel Spracklin, RBC Capital Market Research division Co. , Ltd-Analyst [49]--------------------------------------------------------------------------------
CCL sector profits in these areas, there is no reason to have any strong rise or decline than your 2019 or 2018? --------------------------------------------------------------------------------Geoffrey T.
Martin, CCL Industries Inc. -
President, CEO and director50]--------------------------------------------------------------------------------No.
The two changes we see in this part of the company are actually driven by the CCL Design and the CCL Secure. They're the 2.
If they do well, things will develop.
If they have a jitter, it will push it down, just like the difference you see in the fourth quarter.
Although I have to say that the situation in the fourth quarter of last year is very special, so we don't usually see a change in this magnitude. --------------------------------------------------------------------------------Operator [51]--------------------------------------------------------------------------------
Our next question is from Adam Josephson of KeyBanc. --------------------------------------------------------------------------------
Adam Jesse Joseph of capanke capital markets
Research Department-
Director and Senior stock research analyst [52]--------------------------------------------------------------------------------
Jeff, just one on demand if you don't mind, and then a couple on 1Q outlook.
As far as the CCL consumer is concerned, I think you 've just been asked this question, but I think, in a way, the global economy has fallen, I mean, it sounds like you still think the worst case of organic sales for CCL consumers is flat. . . --------------------------------------------------------------------------------Geoffrey T.
Martin, CCL Industries Inc. -
President, CEO and director53]--------------------------------------------------------------------------------
Well, I can tell you what happened in 2009 because that was the last time we had a really bad time in that area.
Our CCL Label business was growing at the time. -not in the --definitely --
The growth rate will definitely be affected, so the CCL portion affected by the recession will have any relationship with the durable goods industry, which will be obvious.
Our aluminum can do business, but the revenue in this area is $0. 2 billion. So that --
They are the affected part if you return to 2009.
Therefore, the consumption of staple foods will be affected a little, but will not be affected. -
I mean, people still wash their heads and clean their teeth during the recession.
Shall I buy a new flat-screen TV?
Do I want to buy a new car?
These are all [free]
Consumers can postpone the decision. --------------------------------------------------------------------------------
Adam Jesse Joseph of capanke capital markets
Research Department-
Director and Senior stock research analyst [54]--------------------------------------------------------------------------------Sure.
And a couple on outlook, 1Q outlook.
So Innovia, you talked about managing the cost of resin prices and New Mexico capacity.
Are you suggesting whether the profits in the market segment are rising or falling or flat?
Can you give me some? -------------------------------------------------------------------------------Geoffrey T.
Martin, CCL Industries Inc. -
President, CEO and director55]--------------------------------------------------------------------------------
Well, we want the legacy of Innovia, Innovia with capital I, we have a legacy for a few years, and we want them to do better and hope to be a little bit better.
We have this project in Treofan.
So it's a bit hard to quantify.
The first quarter line could not be started, but we need this capability, so the operation of the factory is not as good as it should be, because it has more business than it can handle at the moment, assets are needed to start.
When an asset is launched, there is some one-time cost related that is a bit difficult to quantify. --------------------------------------------------------------------------------
Adam Jesse Joseph of capanke capital markets
Research Department-
Director and Senior stock research analyst [56]--------------------------------------------------------------------------------
Can this offset considerable improvements to the Innovia heritage? --------------------------------------------------------------------------------Geoffrey T.
Martin, CCL Industries Inc. -
President, CEO and director57]--------------------------------------------------------------------------------
It's hard to say.
We just don't know.
I think we are cautious about it.
So we made the team there very concerned about how it was combined and what the plan was, so the marketing and sales staff wanted to start yesterday.
So this is a very big device.
When it starts, we want to make sure it goes smoothly and we don't have any operational challenges in the process.
So we are a little cautious about it, but we have to wait and see how it is. --------------------------------------------------------------------------------
Adam Jesse Joseph of capanke capital markets
Research Department-
Director and Senior stock research analyst [58]--------------------------------------------------------------------------------Sure.
Clearly, consumers are still good in the CCL, but demand is slowing and design growth is slowing.
Security will obviously be shut down.
So you think this part is a whole. . . --------------------------------------------------------------------------------Geoffrey T.
Martin, CCL Industries Inc. -
President, CEO and director59]--------------------------------------------------------------------------------
We expect security to drop only in q1.
We do not expect a decline this year.
I am very skeptical that any of the next three quarters will fall.
So this is only q1. --------------------------------------------------------------------------------
Adam Jesse Joseph of capanke capital markets
Research Department-
Director and Senior stock research analyst [60]--------------------------------------------------------------------------------Right.
But what I'm going to say is that for 1Q outlook, CCL segment, as a whole, you think the op in 4Q is just abnormal because the profit margin in 4q'17 is so high, or. . --------------------------------------------------------------------------------Geoffrey T.
Martin, CCL Industries Inc. -
President, CEO and director61]--------------------------------------------------------------------------------No.
The gap--
The gap is far from that big, so our operating income in the fourth quarter of 17 years increased by 41% over the fourth quarter, but not--
In q1, the gap is far from that big.
However, 2018 in the first quarter increased by 20% from 2017 in the first quarter.
So it's easier to compare.
So we would be a little disappointed if we couldn't surpass it in CCL space.
Due to our big orders last year and sales growth of 17%, the first-quarter challenge will really appear at the checkpoint, which will not be repeated. --------------------------------------------------------------------------------
Adam Jesse Joseph of capanke capital markets
Research Department-
Director and Senior stock research analyst [62]--------------------------------------------------------------------------------I see.
Then there is the cash flow impact you mentioned on the slide.
Sean, can you help me understand this and the size of it? --------------------------------------------------------------------------------Sean P.
Chuk, CCL Industries Inc. -
Senior Vice President and Chief Financial Officer63]--------------------------------------------------------------------------------
Well, I think the impact of cash flow is the increase in operating income, and the increase in EBITDA is slightly offset. --------------------------------------------------------------------------------
Representative of the company64]--------------------------------------------------------------------------------In Q1. --------------------------------------------------------------------------------Sean P.
Chuk, CCL Industries Inc. -
Senior Vice President and Chief Financial Officer65]--------------------------------------------------------------------------------
Oh, what impact will our cash flow have in the first quarter? --------------------------------------------------------------------------------
Adam Jesse Joseph of capanke capital markets
Research Department-
Director and Senior stock research analyst [66]--------------------------------------------------------------------------------Yes.
In the outlook slide, the last bullet is about 1q'19 cash flow affected by the long term
Regular rewards in previous years? --------------------------------------------------------------------------------Sean P.
Chuk, CCL Industries Inc. -
Senior Vice President and Chief Financial Officer67]--------------------------------------------------------------------------------Sorry, Adam. Yes, so our 3-
The annual stimulus plan is starting to work, so it's just the effect of paying cash, $15 million, $20 million, standing in Q1's month-Annual reward. --------------------------------------------------------------------------------Operator [68]--------------------------------------------------------------------------------
The next question comes from Scott Fromson at CIBC. --------------------------------------------------------------------------------
Scott Douglas fromsson, CIBC capital market research department-
Director of Institutional Equity Research and Research analyst [69]--------------------------------------------------------------------------------
The first question, in the core tag, do you feel that you are taking market share and getting more traction with customers who integrate suppliers? --------------------------------------------------------------------------------Geoffrey T.
Martin, CCL Industries Inc. -
President, CEO and director70]--------------------------------------------------------------------------------
I think we are getting a share in two areas of our business.
So I would say that our share is growing in terms of food and drinks.
But it was more influenced by the premiere.
As a result, brand merchandise owners use more marketing dollar supplies to subdivide their brands and push goods to the high end when consumers have money.
So, this is more to do with their behavior than we share from others.
I think this is a purely shared benefit in the field of home and personal care.
So we have two areas--
I think what we are doing.
I think there is some evidence that the label market in the fourth quarter is generally fairly stable and that the first quarter may be fairly stable.
I'm talking about this in a very comprehensive way, but we 've been getting shares in both businesses.
That is why we are growing, perhaps above the industry average. --------------------------------------------------------------------------------
Scott Douglas fromsson, CIBC capital market research department-
Director of Institutional Equity Research and Research analyst [71]--------------------------------------------------------------------------------
So, does that mean that we can see an improvement in profit conditions as design and security stabilize? --------------------------------------------------------------------------------Geoffrey T.
Martin, CCL Industries Inc. -
President, CEO and director72]--------------------------------------------------------------------------------
Yes, I think we will. -
We will be free from these difficult competitions.
So the operating margins we saw in the fourth quarter are very unusual.
So the fourth quarter of last year was just a big rise, so--
This is more driven by CCL security than the CCL Design. --------------------------------------------------------------------------------
Scott Douglas fromsson, CIBC capital market research department-
Director of Institutional Equity Research and Research analyst [73]--------------------------------------------------------------------------------Okay.
Just at the checkpoint, just talking about the prospects.
Can you talk about the pipeline, new customers, new vertical industries, new products, etc? --------------------------------------------------------------------------------Geoffrey T.
Martin, CCL Industries Inc. -
President, CEO and director74]--------------------------------------------------------------------------------
Well, the business is going well, so we have a lot to do.
Retail is looking for ways to compete with Amazon, and that's all it has.
Omni-channel retail and online services consumers and physical storesand-mortar stores.
They need technology to help them do that.
Friction-free retail has become a new hot word, and everyone wants the system to allow consumers to pick things at checkout and reduce trouble, all of which require technology, so we're doing these things.
We are very optimistic about the future of this industry.
But when you have a chain
For the retailers we have, they are one-off events, they don't repeat, they will be very good when you have them, but in the fourth quarter of a year, obviously, you have a hole to fill. --------------------------------------------------------------------------------
Scott Douglas fromsson, CIBC capital market research department-
Director of Institutional Equity Research and Research analyst [75]--------------------------------------------------------------------------------
Well, there must be a lot of friction for traditional retailers and e-commerce. commerce.
You think that--
Increased penetration in labeling will lead to an increase in technology promotion? --------------------------------------------------------------------------------Geoffrey T.
Martin, CCL Industries Inc. -
President, CEO and director76]--------------------------------------------------------------------------------
Can you ask that question again? --------------------------------------------------------------------------------
Scott Douglas fromsson, CIBC capital market research department-
Director of Institutional Equity Research and Research analyst [77]--------------------------------------------------------------------------------
I just wanted to know if there was an increase in business in consumer goods. . . --------------------------------------------------------------------------------Geoffrey T.
Martin, CCL Industries Inc. -
President, CEO and director78]--------------------------------------------------------------------------------
It doesn't work in this way, it works in another way, and no one spends money on consumables without spending money on hardware.
Hardware, software, and consumables follow.
So when the retailer wants to decide to adopt the technology, there is a hardware investment, there is a software investment, there is usually a pilot, and then you will promote it in full.
This is a way of working. So --
In RFID, it is more complicated because it is software and has a greater impact.
There is not much software involved when it is just a pure security product.
As a result, both of our major events last year were in the area of security.
It's simpler and easier to do, and that's why you see a huge increase in revenue for one quarter than for another. --------------------------------------------------------------------------------Sean P.
Chuk, CCL Industries Inc. -
Senior Vice President and Chief Financial Officer79]--------------------------------------------------------------------------------Okay.
Only one follow upup question.
Is there any change in tone or content to discuss sustainability with clients? --------------------------------------------------------------------------------Geoffrey T.
Martin, CCL Industries Inc. -
President, CEO and director80]--------------------------------------------------------------------------------No. --------------------------------------------------------------------------------Operator [81]--------------------------------------------------------------------------------
Our next question comes from the securities of McDougall Cormark, Maggie Cheung. --------------------------------------------------------------------------------
Cormark Securities Inc. Maggie Anne McDougall
Research Department-
Director of Institutional fair Research [82]--------------------------------------------------------------------------------
Many of my questions have been answered, so I have only one question here.
I'm just wondering, if you wish, how do you see your European business in terms of Brexit and the possibility of business or economic disruption in the region. . . --------------------------------------------------------------------------------Geoffrey T.
Martin, CCL Industries Inc. -
President, CEO and director83]--------------------------------------------------------------------------------Yes.
Most of our business in the United StatesK.
That's what I call local.
Therefore, we mainly produce products for other manufacturers in the United StatesK.
We have several factories that are exported outside the United States. K.
But in a cyclical way as I said, so we might get a big order to ship from the label in the USK.
An address in France, 3-
In the early part of the week, it was a big truck that crossed the border.
So there may be some confusion about this, but I think it's manageable.
So one area we 've been thinking about is actually around our Avery business.
We do distribute some products directly from the United States across Europe.
We have made some contingency plans.
But overall, this is only a small part of the business.
So we are not particularly worried about the chaos of Brexit.
We are concerned about the impact on some of our customers, but our ability to serve them, we are not very concerned about this. --------------------------------------------------------------------------------Operator [84]--------------------------------------------------------------------------------
The next question comes from Elizabeth Johnston of Laurenson Bank Securities. --------------------------------------------------------------------------------
Elizabeth Johnston, Laurenson Bank Securities Co. , Ltd.
Research Department-Analyst [85]--------------------------------------------------------------------------------
Keep talking to Avery right here.
On the slide, you indicate direct-to-
Consumer business continues to improve.
Wondering if you can comment on some of the industry's drivers.
What really drives the results, especially directly at customs-to-
Consumer goods? --------------------------------------------------------------------------------Geoffrey T.
Martin, CCL Industries Inc. -
President, CEO and director86]--------------------------------------------------------------------------------Yes.
This is a phenomenon on the Internet. So direct-to-
I can tell you that the consumer business is now over $100 million.
It grows double-digit every quarter. on-quarter, year-over-year.
We will continue to make acquisitions in this area.
In addition, this is organic, and in addition to that, it is growing at this rate.
It's really what we're doing to offset some of the issues, as well as some legacy product lines like ring adhesive, where at some point people will cross the river and we'll have a bigger business in direct Campto-
Consumers have more than we have on these legacy lines, and then that should restore growth to the business as a whole.
This is our plan. --------------------------------------------------------------------------------
Elizabeth Johnston, Laurenson Bank Securities Co. , Ltd.
Research Department-Analyst [87]--------------------------------------------------------------------------------
As far as the traditional business is concerned, that is to say, as you said, step down and whether there is--
Could you please tell us about the update prospects for how many years it will take? I don't know.
Or what is--
For example, do you expect it to drop at a similar rate we 've seen in the last 3 years? --------------------------------------------------------------------------------Geoffrey T.
Martin, CCL Industries Inc. -
President, CEO and director88]--------------------------------------------------------------------------------
Well, it dropped a lot.
As a result, our current binder business is down by about $80 million.
So I don't know how much is left, but now there's something ---
It's still more than 10% of the business, and when you look at it in the US, it's more than that. S.
But there are some things that mathematics is good for us.
But how long it takes is hard to predict.
Because there are two phenomena happening.
You let the retailers make their own decisions, and then you will find that the long-term use of the people who use these products has declined, and the rate at which they will continue to decline is hard to predict. --------------------------------------------------------------------------------
Elizabeth Johnston, Laurenson Bank Securities Co. , Ltd.
Research Department-Analyst [89]--------------------------------------------------------------------------------
Understand.
Simply return to Innovia.
I just wanted to clarify here.
I look at the organic growth profile.
I think last quarter, you discussed some of the issues of rationalizing the product line.
If you can give us some color about what happened. . . --------------------------------------------------------------------------------Geoffrey T.
Martin, CCL Industries Inc. -
President, CEO and director90]--------------------------------------------------------------------------------
Everything is there.
We did it in the year.
So yeah, there's a couple more places you can see that--
You will see this happening relatively.
This is not a problem for us.
So cutting off the tail of something with low margins is one of the things we have to do to get the profit right, especially when our line is completely full.
There is no point in losing.
Build product lines on the assets we have. --------------------------------------------------------------------------------
Elizabeth Johnston, Laurenson Bank Securities Co. , Ltd.
Research Department-Analyst [91]--------------------------------------------------------------------------------Okay.
So this is really a question of change? --------------------------------------------------------------------------------Geoffrey T.
Martin, CCL Industries In
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