CCL Industries\' (CCDBF) CEO Geoff Martin on Q4 2018 Results - Earnings Call Transcript
CCL Industries, Inc. (OTC:CCDBF) In the fourth quarter of February 22, 2018 earnings conference call 20197: 30 AM ETCompany participant Donald Lang-executive chairman Sean woshchuk-senior vice president and chief financial officer Jeff Martin-President and CEO conference call participant Mark Neville Spracklin-RBC Capital MarketsAdam Joseph sun-KeyBancScott Fromson-McDougall-Cormark CIBCMaggie SecuritiesElizabeth Johnston-Bank of Longshun SecuritiesBen Jekic-JMP securitiessopergood morning, ladies and gentlemen, welcome to the fourth quarter of the CCL industry [ Operation 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. Thank you, operator Donald Lange. 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 to the details, you will find that we are firing on many aspects-many businesses have isolated areas where we are challenged, very confident businesses, this is evidenced by our dividend increase. 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. Thank you, Tang. I will turn everyone\'s attention to the second page of the speech, 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\" Turn to slide three 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 for Innovia and legacy UK operations. This fee is the result of a landmark legal judgment that balances certain historical guarantees of minimum obligations for all Britons 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%. Turn to slide four 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 for non- Fair value inventory cash acquisition accounting adjustments 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, while the net impact of the deduction of interest expenses, company costs, foreign exchange and stock returns partially offset the improvement of $0. 03, resulting in an adjusted basic earnings per share of $2. The price of 2018 is $73 and $2. 69 per share of 2017. Turn to slide five Free cash flow for the year ended December 31, 2018 was $442. 5 million, up from $438. 3 million for 2017 This reflects the improvement of operating results, net non- Despite a significant increase in net capital expenditure in comparison years, cash turnover capital. Net capital expenditure was $330. 2 million for 201. 8 billion $272. 9 million for 2017 Turn to slide six 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 fallen below twice. 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? Thank you, Jeff Martin. 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. The 2 million EBITDA you see on the 2017 slide in the fourth quarter is $40 million higher than the same period in 2016. If you go back five 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\'s growth rate is double-digit. The Asia-Pacific is flat. So this is a combination of good growth in the Asian region of the world and the decline of 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 certainly felt a slowdown in demand for electronics sales, so-we were organically flat this quarter, moderate growth in acquisitions, a slight decline in foreign exchange and 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 performance in the UK and Mexico was lower but compared to the very 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 two of our main operating businesses in the label space, and earlier this year we were still affected by the fire at our Rhine Felden at the nose slug worm plant. Page 11, results from Avery Before January 1, 2018, the US forward rewards rose by 2017, and the price increase drove our performance in the fourth quarter of last year, and we should see some progress 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. And the recurring revenue product line has achieved strong growth, and 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 raised EBITDA\'s profit in this area from around 10% to 18. 7%. 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. As a result, the price of resin in the United States has declined. 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 benefit from it. 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 compared with the same period last year, the demand of CCL Design has undoubtedly decreased some. 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 fiscal year 2019 to be better than the fiscal year 2018. As I mentioned earlier, today\'s comparison has eased a lot, as we had a very weak 2018 in the first quarter after the 2017 buy forward in the fourth quarter. 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 its resin cost/price equation. We-we did launch some price increases in the first half of the year, but we also launched new capacity drops in Mexico, which will start in the second quarter, before queuing later this year, it will definitely cost us some money. In addition, in the first quarter of 2019, 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. Question-and- Thank you. [ Operation instructions] Our first question came from Mark Neville at Scotiabank. Your line is open. Good morning, guys. If I can start with Innovia. I think we \'ve been talking about the need to adjust pricing mechanism costs over the last few quarters. But I just wanted to get an update on the kind of conversations you\'re having or you\'re having a hard time with, like what we can look for in 2019. Jeff martinwell, of course we have signed some agreements and they all joined 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. As a result, there is a lot of solid impact on the Innovia side, 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 how this is going to happen, but it\'s certainly what we expect. Mark neville and Treofan business, correct me if I am wrong, they really-there really is nothing wrong there, just about the price. What\'s more . . . . . . Jeff Martinez. Of course they-now we are inside, not outside, but inside. Of course there is still some work to be done, but I think the business portfolio will definitely improve as pricing activities go on, so of course we see some better opportunities than Innovia, but this can be done-I think it\'s far from being optimized. So there must be work to be done there, but-I think another thing on the Treofan market is-we had a huge resin peak in the summer in the US. So this really colored the fourth quarter because all the resin we bought this summer was used in the fourth quarter. Yes, Mark. I think in your message I think the price has stabilized. So it\'s not falling off. But it looks like a lot of resin has fallen off. So I\'m not sure, maybe it\'s the grade of what you bought . . . . . . The only problem with Jeff Martin resin-so if you look at the price of the BOPP Film resin, it was released in the United States. S. But-all it does is go back to the state of 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 it just soared in the summer and then fell again. In Europe, the number has fallen a little, not very large. Mark Neville But still high? Jeff Martinez I mean, it\'s a well off high point. 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 This makes sense. Then there was a price increase. Does this basically cover all of Innovia\'s content or is it a little pocket . . . . . . Jeff Martino, no, no. I think we still have-I mean, the entire front of US $50 million 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. The result will speak for yourself. Yes, Mark. I guess my question is, if I\'m not clear, will the price adjustments you make cover most of your products or all the products you sell? Yes, Jeff Martinez. I mean, of course. So the price of everything has risen more or less. Mark Neville No, I apologize. I asked the wrong question,. Maybe just in the security business, I appreciate it being messy, but could you please remind us-again, I don\'t know if you\'re well-known in 2019. But maybe the rhythm of what happened in 18 years, just to get rid of the influence of Martinez, we had a very large new currency issue in Europe in 2017, in the first quarter of 2018, we had a great year in 2017, it was a great year, it went through 2018 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 real gains. So that\'s the real driving force. It\'s really driven by a large launch. Helpful Mark Neville The next question is Michael Glenn from Macquarie. Your line is open. Good morning, Michael Glen. Jeff, could you please comment a little on your conversation about the Chinese business? Besides the label, can you say that you have a lot of Chinese business? What percentage of labels will China represent? Jeff Martin will. we had a good time. CCL label, which focuses on the domestic economy, has a scale business in China. So it\'s not our customers that we sell there, some of them are international players, but this is the focus of the country. 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. Then we have-in CCL Design, we have a large enterprise in China that focuses on the electronics sector, all for export, or a large part for export, which is the second part. The third one is that we have done a lot of inspection station products there. It doesn\'t sell much in China, but it resells it in China by exporting to checkpoints subsidiaries around the world. This is two components of our Chinese business. For the CCL brand CCL business, it sells to Chinese consumers, about $100 million. When you talk about the Asia-Pacific region holding its usual position this quarter, is this unique to China? Or geoff MartinNo, no, it\'s all from Australia. So this is a very important function of our money business. So it has nothing to do with Asia. So our business in Asia grew by 6%, 7%. Michael Glen O\'Kay Then-in terms of the labeling section, can you remind us how the flow of raw materials works in that business? Label martin in the Label field, we produce so many products. So they tend to just raise money. As a result, we have produced millions of SKUs in various shapes and sizes, and they have been changing all the time. Therefore, the flow of raw materials in the CCL business is only obtained through financing. Michael Glen O\'Kay In the tag business, we should consider what lag is from geoffrey geoff MartinNot because it\'s millions of transactions. I mean, it\'s actually millions, so it\'s just through financing. It\'s ups and downs and they don\'t really feel it. Michael Glen O\'Kay Then another one. In the M & A environment, you mentioned the increase in seller expectations in the past. Do you see any changes? Or can you provide any additional comments? Jeff martinwell, I think we \'ve seen-we \'ve seen some bigger deals, but multiple expectations for multiples are still there. We \'ve seen something that has caused the sales process to fail due to expectations, so this is probably what I\'m going to say-we \'ve noticed recently-that some sellers haven\'t reached the price they expected, so this could be an early sign that things are heading south. 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. Michael Glenn\'s done. OK, thank you for answering my question. The next question comes from Stephen MacLeod of BMO Capital Markets. Your line is open. Stephen MacLeodI just wants 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 last until 2019? Jeff Martinez I mean, we were slow when we were in CCL Design, right? So it won\'t drop or something like that. But we do not see growth, and we see that in the first half of 2017 and 2018 this is lower than we expected for the second half. As you would expect, you will see-some of our clients-that is 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. Stephen MacLeodSo thought about the expectations of the CCL division 2019. Is it fair to characterize it as a strong momentum for consumer business? You see a slowdown in CCL Design demand, but not a negative one. CCL security is a very difficult component of Q1, but you will want it in Q2, Q3Geoff MartinNo, and we expect CCL Secure to be better in 2019 than in 2018. But after Q1 it was more difficult because most of the slopes of our final quarter, the rocket launch, from 2017 to 2018, disappeared on the schedule for April. , Stephen in Mike Lai is much more WrightOkay. 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. Would you expect the kind of profit margin that you would expect outside of any unusual release or something like that? Jeff Martin it\'s very unusual for us to have 17 points. 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 did that last year-everything was lit up and we had this huge quarter in the security business, which really drove the growth of numbers. , Stephen in Mike Lai is much more WrightOkay. That’s helpful. Finally, on the checkpoint business. You quoted some numbers from RFID. Do you see further adoption of RFID or accelerated adoption of RFID? Geoff MartinYes, I would say that it is 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 in the clothing supply chain, manufacturers, brands and goods, retailers. They are all focusing on the application of RFID in this field and we expect it to continue in the next few years. , Stephen in McLay duo kai Are you still executing your own plan to roll in non-professional manufacturing? In the fourth quarter of last year, Geoff MartinWe has begun to make its own mosaic. It\'s just beginning. Therefore, this year will be the year in which our own mosaic manufacturing will have an impact. , Stephen in McLay duo kai Can you remind us of the impact we expect? Jeff Martin good Thank you very much Jeff. Jeff Martino, no problem. The next question comes from Walter Spracklin of RBC Capital Markets. Your line is open. Q - Thanks a lot to Walter SpracklinYes. Good Morning, everyone. Jeff\'s in Avery. Just to come back. I know the last time you talked about 2019, we said you were looking for a flat, top-level, flat EBITDA. So this is still expected to be 2019? Jeff Martinez Yes, absolutely. Yes, we think-I think the fourth quarter was really driven by last year\'s price rise issue and 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. Q - Walter spoolling got it. Innovia, just started with a new line. In Mexico. What do you think is the ramp cycle for the time it takes to reach a fully optimized and good state. Jeff MartinIt is still two to three quarters. That is-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 for two or three quarters. So I think we will see-this year, we will see a traditional improvement in the Innovia business. 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. Q - Walter SpracklinSo we should be at 2020 before we return . . . . . . Geoff MartinYes, so this is still-of course, 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 improved very well. Q - Walter. Last question on CCL As you mentioned, you have achieved 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? Jeff Martinez How will I quantify it so far. There is a lot of tension outside. I mean, I\'m sure you know about the consumer goods sector, there\'s a lot of tension, is there some macro impact on how these companies will perform in the coming year or so? But we haven\'t seen much so far. It\'s 2017 now, we only have 7 weeks, but it\'s still good so far. Q - The emergence of Walter SpracklinAnd in these areas of the CCL department, there is no reason to say that there will be any strong deviation from your 2019, 2018. Jeff Martin we saw two changes in this part of the company, actually driven by CCL Design and CCL Secure. They are two. 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. Q - Walter spracklinok appreciated this. Jeff Martin. No problem. The next question comes from Adam Josephine of Cairns. Your line is open. Adam Joseph Jeff, just a on-demand show if you don\'t mind, and then a couple of 1Q outlook. Just on CCL Consumer, I think you \'ve just been asked this question, but, I think, in a way, there\'s a decline in the global economy, it sounds like you still think that the sales of organic products by CCL consumers will be more flat, I mean . . . . . . Jeff martinwell, I can tell you what happened in 2009 because that was the last very bad time we had in that space. Our CCL Label business at the time is still growing-absolutely not-the pace of growth is definitely affected, so the CCL part affected by the recession will have any relationship with the durable goods industry, this will be obvious. Our aluminum can do business, but the revenue in this area is $0. 2 billion. So, if you go back to 2009, they are the parts that are affected. So there\'s a little bit of an impact on consumer staples, but it\'s not-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 free decisions that consumers can postpone. Adam. Joseph. 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? Jeff martinwell, we will look forward to the legacy of Innovia, Innovia with capital I, and once we have a few years, we will expect them to do better and hopefully a little better. We have this project in Treofan. So it\'s a bit hard to quantify. The first quarter line couldn\'t start, but we needed that capability so the factory wouldn\'t work as well as it should, because it had more business than it could 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. Can this offset considerable improvements to Innovia\'s legacy? It\'s hard to say Jeff Martin. We just don\'t know. I think we are cautious about it. So we let the team there be very careful, how to combine, what the plan is, so the marketing and sales people want to start from 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. Joseph. Clearly, consumers are still good in the CCL, but demand is slowing and design growth is slowing. Security will obviously be shut down. So do you think this clip is a complete Jeff Martinez? We expect security to drop only in q1. We do not expect a decline this year. I am very skeptical that any quarter of the next three quarters will fall. So this is only q1. Adam Joseph sorlet But what I\'m going to say is, for the 1Q outlook CCL segment, are you thinking, in 4Q, because the margin in 4Q 2017 is so high, or is it geoff MartinNo. The gap made up is far from big, so we have a 41% FX Q4 Q4 adjustment to increase operating income by more than 2017 and 2016, but this is not to say that the gap in q1 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. As our orders were large last year and sales grew by 17%, this challenge will really become a checkpoint in the first quarter. I saw Adam Joseph Sony. 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 warshchukwell, I think the impact of cash flow is the increase in operating income, and the increase in EBITDA, is slightly offset. The company\'s representative is unknown. What impact will our cash flow have in the first quarter? Adam Joseph Sony In the outlook slide, the last point is the 2019 cash flow affected by the long term Regular rewards in previous years? I\'m sorry, Adam. Yes, sure. Our three- The annual incentive plan started to be implemented, so it just paid the cash impact of the plan, so there was a three-month period of $15 million to $20 million in the first quarterAnnual reward. Thank you, Sean. The question of Sean woshchukeno The next question comes from Scott Fromson at CIBC. Your line is open. The question with Scott FromsonFirst in the core tag is, do you feel that you are taking market share, feel that you are taking market share and gaining more traction among customers who consolidate their suppliers? Marini believes that we are gaining share in both of our business areas. 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 brands and push goods to the high end where 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 they\'re two of our areas-what I think we\'re 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 for both companies. That is why we are growing, perhaps above the industry average. Does this mean that we can see an improvement in profit conditions with design and security and stability? Jeff Martini, of course I think we will see-we will stand out from these difficult games. So the operating margins we saw in the fourth quarter are very unusual. So the fourth quarter of last year was just a big peak, so-this is more driven by CCL security than by CCL Design. Scott. Just at the checkpoint, just talking about the prospects. Can you talk about the pipeline, new customers, new vertical industries, new products, etc? Business is going well at Geoff MartinWell, so we have a lot to do. Retail is looking for ways to compete with Amazon, and that\'s all it has. Full-channel retail and online as well as physical store services to consumersand-mortar stores. They need technology to help them do that. Friction-free retail has become a new hot word, and everyone wants to have such a system that allows consumers to pick things in the store and reduce the hassle at checkout, all of which require technology, so we are doing these things. We are very optimistic about the future of this industry. But when you launch a chain for the sites of the retailers we have, they are a one-time event, they don\'t repeat, they are very good when you have them, but in the fourth quarter of a year, you obviously have a hole to fill. Scott FromsonWell, there must be a lot of friction for traditional retailers and e-commerce companiescommerce. Do you think these-the increase in penetration in labeling will lead to an increase in technology promotion? Can you ask this question again? Scott FromsonI just wanted to know if the business growth of consumable MartinIt in consumer goods didn\'t work, and it worked the opposite way, no one spent money on hardware first without spending money. 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 has a greater impact on the software. There is not much software involved when it is just a pure security product. As a result, both of our major listings last year were in the securities sector. 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 Washington Only one follow upup question. Is there any change in tone or content to discuss sustainability with clients? Geoff MartinNo. Thank you very much, gentlemen. Thank you. Our next question comes from the securities of McDougall Cormark, Maggie Cheung. Your line is open. Good morning, Maggie mcdouga. Good morning, Maggie. How are you? Thanks a lot to Maggie mcdugali. Many of my questions have been answered, so I have only one question here. I just wanted to know if you . . . . . . Jeff martinis, how do you see your European business in terms of Brexit and the possibility of business or economic disruption in the region. Most of our business in the UK is what I call local business. Therefore, we mainly produce products for other manufacturers in the UK. We have several factories that are exported outside the UK. But I\'ll call you on a regular basis, so one of the addresses we ship our orders from the UK to France is a big order with three 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 UK across Europe, and we also have some contingency plans for that. 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. Okay, Maggie mcdougarokai. Thanks a lot. Thank you. The next question comes from Elizabeth Johnston of Laurenson Bank Securities. Your line is open. Good morning, Elizabeth Johnston. Keep talking about Avery here. In your slide you point out directto- 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? Jeff Martinez 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. But this is organic, and on top of 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 adhesives, and at some point we\'re going to cross the river, we will have a larger direct consumer-oriented business than these traditional product lines, which will restore growth to the entire business. This is our plan. In terms of the legacy business, Elizabeth Johnston, that is, as you said, is coming to an end, where-can you tell us about how much, I don\'t know, how many years will it take? Or, assuming what are the expectations of similar interest rate declines that we have seen over the past three years? Jeff martinwell, 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 over 10% of the business, and it\'s a little more than that when you look at it in the USS. But there are some things that mathematics is good for us. But how long it takes is hard to predict. Because there are two kinds of phenomena happening. You let retailers make their own decisions there, and then you will find that the long-term use of people who use these products is declining, and the rate at which they will continue to decline is hard to predict. See, Elizabeth. 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 . . . . . . Jeff Martin is all. We did it in the year. So yes, you still have a few quarters where you can see these-you\'ll see what\'s going on relatively. This is not a problem for us. So cutting off the tail of something with low profit is one of the things we have to do to get the profit curve right, especially in those cases where the profit curve is right, especially in those profit curves There is no point in losing. Build product lines on the assets we have. Elizabeth Johnston Is this just a question of really understanding these changes? Jeff Martinez What I want to say is that we have two more quarters to go this year. Elizabeth Johnston In terms of further rationalizing, do you have any plans for this? Or is there really only one here? Geoff MartinWell, I think we have more work to do at Treofan. But the traditional business of Innovia, especially in the operation of the UK, I think this is the largest factory and the other two Innovia factories are in good condition. So there may be more work to be done in the UK to get us where we want to go, but we have certainly made some progress. Elizabeth Johnston, are you energetic? over- Geoff MartinI believes that you have to wait and see what happens in the next few quarters before we let the numbers speak for ourselves. Elizabeth JohnstonUnderstood. Give me another one. In terms of M & A, I know you \'ve talked about your intention to focus on delivery and free cash flow this year. But in the past, when you put your leverage below twice, you have shown that you have more interest in larger transactions. In this case, since this is not the case this year, this is actually just a function with such a high valuation multiple. Jeff MartinValuation multiples are still too big for something that is a problem. I think you probably read the Wall Street Journal this morning. Buffett says he has nothing to buy. We have the same comment. It\'s hard to find something of the size that you can buy at the right valuation, which also applies to him and also to us. So we focus on improving our operations. We still have work to do in Innovia space. So we want to make sure that management\'s attention is also focused on the right subject, not on another major acquisition. The bolts we will make- As you saw last year, it may continue this year. There are many such outside. They all did a good job, so we wanted to do some more. Elizabeth Johnston So in theory, there are things that can be sold, but not multiples that you\'re willing to pay? Jeff Martinez There are a lot of things that can be sold and I\'m sure Warren Buffett will tell you the same thing, right? There is always something for sale, but the question is what is the price? This is still a problem for us now. Elizabeth Johnston Great. thank you very much. Thank you. The next question comes from Ben Jekic of JMP Securities. Sorry, your line is open-GMP Securities. Good Morning Ben JekicGood I have two questions. Someone asked a question and I think you are talking about it most of the time, but I may want to discuss it from a different perspective. The food and beverage industry has been outstanding for several years. I think it\'s been double digits. I think if I can ask you to elaborate on what happened. Is my understanding correct? So basically is the customer moving their product line to the high end? Jeff Martinez Well, I guess if you want to have a good example, it\'s going to the investor page at Budweiser InBev who disclose the brand-the beer brand that\'s growing and the beer brand that\'s not growing. It\'s clear what they\'re doing. So I think this applies throughout the state. It doesn\'t matter whether you\'re talking about beer, Coke, mineral water, juice, yogurt, spirits, brands. Companies like Diageo make more money when they can convince consumers to buy high-end products and when they convince them to buy low-end products. Therefore, the more they can upgrade a brand\'s market a little and charge a premium for it, which is how they increase their income. For them, it is difficult to do this without changing the packaging, without changing the decoration of the bottle, which is indeed a phenomenon-a potential phenomenon. Ben JekicSo, is it fair from the consistency of these results that this dynamic representation supports consistency? The sustainability of Jeff martinwell, we will have to wait and see. We haven\'t had a recession for 10 years. So most of this happened in the past year 67. Whether consumer transactions will decline during the economic downturn, we must wait and see. But we are growing very fast. So if-even if the economy is depressed, I still feel-we are still very confident that there is room for growth in this area. We have no position in the middle-to- Lower-level brands. I mean, we don\'t do anything, I call it, in the middle. to- Low levels of space and where brands are more vulnerable, growth is hard to find. So we are in a good place. We got the right product at the right time and the right place in the world and we are using it. Ben jekicit is amazing. Then my second question might be simpler, sorry if it\'s already mentioned and at the checkpoint. You gave a lot of instructions in the first quarter. I\'m not sure if I heard your expectations for the year. over-year? Jeff MartinezYear-over- We expect moderate economic growth this year. Ben JekicOkay. Income and Operating income? Jeff Martin WrightCorrect. But as soon as we go through this very difficult comparison, most and everything happens in the second, third and fourth quarters. Organic growth of 17% in the first quarter was 2018. So this is a pretty big drop. Ben jekicperect, thank you. Thanks Jeff. Thank you. The next question comes from Stephen MacLeod of BMO Capital Markets. Your line is open. Jeff in, Stephen in Mike Lodi I have only one clue. up question. I know this was asked before. But as far as Innovia is concerned, I know you are hesitant to give a target on what EBIT might look like, given the price increase. But, given the noise around Innovia\'s ground floor and the EBIT you expect to be released in quarterly or relative Treofan, can you give anything oriented? Or sorry, this year? Maybe just relative to what it might be. Geoff MartinI thinks the answer is no, we can\'t. I don\'t think we\'re there-I think you need to have the numbers unfold on your own. We have taken action and will see an improvement in the Price equation for the Innovia space. I can tell you that we will not-we have not posted a price increase and we will take back $50 million or something like that. Because this is difficult to do in a business of this size. So we need more time to do that. Some of them are about improving the mix and purely rising prices. I mean, the only reason we hesitate to give you a clearer answer is to start -- In Mexico, that number is a bit difficult to quantify. I don\'t expect any impact on Mexico in the first quarter. Therefore, the first quarter may be very similar to the second half of last year. We may be able to gain something in terms of resin as we have had a peak in the summer that really affected the fourth quarter. So we might get a little pickup there. But in reality, the first quarter will be driven by the performance of Innovia. Then we just have to wait and see. So I think-if it goes well, we will have more confidence in the balance this year. , Stephen in Mike Lai is much more Wright OK, this is very helpful. I appreciate the situation. Thanks Geoff. Thank you. The next question comes from Adam Josephine of Cairns. Your line is open. Jeff, thank you, Adam Josephine. Only two follow-up. Jeff, your comments on mergers and acquisitions and the price of some transactions have dropped, for whatever reason. Can you elaborate on why this happened? Why are some of these sellers not getting the price they are asking? I think big companies, usually public equity companies. High expectations from private equity sellers and high expectations from the public market Time high multiple So I think it is quite difficult to get a premium above that. You already have buyers who are more nervous than three years ago. So I think it\'s harder to complete the deal in multiples that some people expect, and I suspect it\'s harder than it was a year or two ago. Then let\'s see what happens. So our plan is to organize things on our side and pay off our debts a little bit, and we think that the market will be much better in the year from now. We have seen that in our space, there are a few transactions that fail because expectations are not realistic, and this is the first time we have seen this, I think this is an encouraging sign for us. Adam Joseph Sony That makes sense. In terms of sustainable development I appreciate your answer earlier. But just elaborate a little. We hear from some other packaging companies, especially suppliers of aluminum beverage cans, that sustainability is a huge opportunity for them, from plastic bottled water . . . . . . That\'s understandable, Jeff Martinez, Adam. I mean, the PET bottle is the number one public enemy in many parts of the world, and the aluminum cans are collected by those who are valued for money. So the collection of aluminum beverage cans is much better than the collection of PET bottles. Whether it\'s really more sustainable or not, I\'m-I\'m not quite sure I agree with that argument. But you can\'t deny that aluminum beverage cans are better recycled than PET bottles. Both are very recyclable. One is worth it-is considered value for money and the other is considered value for money. So we know that in the field of aluminum drinks, there is some interest in the conversion from glass to aluminum. I\'m not quite sure there are so many switches between aluminum and pets, but of course we know that there are big switches between glass bottles and aluminum beverage cans. Adam. Joseph. Yes. This has happened for many years. Do you see that in the coming years, just based on the CPGs and the government\'s growing focus on the hazards of plastics, there are other switches between substrates? Jeff Maldini believes that this must be driven by regulation. So the more government is prepared to regulate, so I\'m sure if you put a deposit on every PET bottle you sell in the US, you will suddenly see PET bottles collected, accumulated and recycled at a higher rate. So I think regulation has to be part of this process. We see some assets on the edge to improve the use of certain types of plastic than we saw 10 years ago. But I don\'t think it\'s systematic. So in our home and personal care space, high density polyethylene bottles are still used in large quantities for placing things like shampoo and conditioner creams and plastic test tubes. We see no signs of real change. So these bottles are also being recycled in large quantities today. So it may not be surprising. Is this really just to improve the recovery rate? If we can do this . . . . . . Jeff martinis, I mean, if you listen to anything-you read here, listen on the radio and on TV, listen, you didn\'t hear people complaining about shampoo bottles in the waste logistics. You hear them complain about pet water bottles, empty bottles, or things painted in color, and of course, in which part of the world you\'re talking about, things will make a big difference. So there is a big difference between Japan and India. But in terms of absolute behavior, do we see real change? We \'ve heard a lot of talk and we \'ve heard a lot of customers comment on it as much as you do, but-we \'ve seen some switches where decisions will be obvious, economy, but we don\'t think it\'s systematic. Jeff, thank you very much, Adam Joseph. Appreciated. Thank you. This concludes today\'s Q & A section. I want to transfer the phone back to Mr. Jeff Martin\'s closing remarks. Jeff martinwell, thank you all for joining this call and we look forward to talking to you guys at the end of the first quarter. Thank you very much. Thank you all for attending today\'s meeting. You can disconnect I wish you all a good day.