Thank you for coming. Before we start the meeting today, I need to refer you to this rather boring document, disclaimer, which you should read in conjunction with our MD&A, which you'll find on our website, or it's also posted on SEDAR. We are here this morning to tell you about a great Canadian success story. A family company that started by an entrepreneur in 1951, initially with a domestic approach, broadened into North America, but has been globally transformed over the last 20 years to be a real international player. Just 2% of our sales are in Canada today, and 50% of our sales are outside of North America. You're going to hear about all our businesses today from all of our people. The five sectors that make up the CCL segment, also Avery, also Checkpoint, and also Innovia.
Since our founder in 1951 created the company, we've always been focused on M&A. More than 100 transactions in my time in the company, the last 23 years, and 72 transactions since 2010, including the three biggest we've ever done. As any private equity firm in the world will tell you, some deals go better than others. They usually go either better or they go worse, and we've had our fill of both. But in general, our portfolio of acquisitions has created enormous shareholder value over the long term, and we expect that to continue. You find CCL every day in all your, all of your lives. But our customers are mainly global players and who operate all around the world in concert with us, and I think that's a very important part of our business.
Most important, when we do M&A, we buy secondhand equipment and secondhand buildings, and we also find great people. That's really what binds the company together today, the group of people who are in the room today from all over the world, who run our enterprises, and you're going to hear from all of them today. We share a bond in common. We're all in love with our business. Normally, when you, when you're at a party and somebody says: "What do you do?" And you say, "You make stickers," it's a pretty quick way to end the conversation, but that's what we all do. We also have a big, a big cast of supporting professionals and regional business heads, and one person who I.
Who asked, asked me to pass along his apologies for not being here today, Günther Birkner, who's one of our most senior people. He has a pressing family problem in, in Austria and can't be here, which is... He really wanted to be with us today, but can't be. A few words on the timetable. So each of the speakers, I'm not going to do much of the talking today. Each of them will talk for about 10-12 minutes, and we've allowed 10-12 minutes for Q&A. So if you want to ask a question, if you'd raise your hand. So we are doing this online, so we want people online to be able to hear the Q&A. We'll pass the microphone over to you, and you can ask your question, and we'll address them all, as we, as we go forward.
Without any further ado, I'm going to hand you over to Ben Rubino, who is the President of CCL Industries, Home and Personal Care business. Ben?
Good morning, everyone. Ben Rubino, I've been with CCL for just over 33 years at this point. So I've seen some of the growth that Jeff was talking about firsthand, as far as going from 12 operations in the label side of the business to 27 operations alone, just from our home and personal care standpoint. Joining me today also is Eric Frantz, who's our VP of operations for our home and personal care group in North America. Also, has been intimately involved in running our container division and responsible for the operations for both the label side and our tube side of the business. As I mentioned, we've grown to 27 operations on a global basis. On the label side, there's 19 facilities across five different continents.
On the tube side, North American-based, as far as, just on U.S. operations and on the container side, again, it's North American-based, with three operations for the manufacturing and one slug operation overall that supports our vertical integration for the business. As far as the reason why we've grouped these divisions, really, it comes from a customer perspective. This is a customer-facing business in the sense that the customers that we deal with, deal with us across all three of our divisions overall. So when we have negotiations, when we have discussions about expansions, when we have discussions about what we're gonna do to grow the business together, it involves generally the three divisions overall.
On the label side of the business, with our global footprint, we've really worked closely with our customer base to make sure that we have our locations wherever they need us to be at this point. I think if there's anything that we've learned over the past five or six years, with all the supply chain issues and challenges that we faced, whether it was COVID, whether it was shortages, or whether it was just overall, shortages in personnel, our locations has allowed us to survive and actually flourish during this time period and grow our business with them and continue to support them. When you look at our label business, global platform, global business, they depend on us from a standpoint as being able to globally launch their products overall.
So when you have a company that's launching a product, whether it's gonna start in Asia or whether it's gonna start in the U.S. or in Latin America, they expect us to be able to start it, initiate it, and then be able to roll it out and package it up across all the regions across the world. We've also become their gatekeeper for some of the things that we're doing for them at this point. As they're stretched with personnel, they're utilizing us as far as making sure that the execution is gonna be flawless across the board. When you look at our tube business, from a North American standpoint, we're premium. We basically deal in the premium side of the business, in the premium tubes. It's extruded tubes. We don't play in the dental market, which some of you are familiar with.
The way you tell the difference, if you squeeze the tube and it flexes back, that's an extruded tube. If you flex it, it's generally a laminate tube, and it keeps its form. That's the business that we've stayed away from and really focused on the premiumized segments on the tube side of the business. Container side of the business has been really a dynamic business over the past couple years. It's actually grown significantly in market share, and the business has continued to grow. From a standpoint, what we're doing, whether it's deodorants, which has been a growth market for us this past year, or if it's sun care business, but we've also grown significantly in the beverage side of the business, whether it's recycled water containers that you see in some of the airports.
So it's been a fantastic market growth share for us at this standpoint. From a customer standpoint, it's a portfolio of all brands that you know. Globally positioned, high-end Fortune 100 companies. We have long-term relationships. Some of these I've been dealing with for over 25 years at this point and know them intimately. Also, some very, very strong regional players that you see up there as well, that we're participating in and continue to grow our share of the business with them. Their expectation from CCL is really, again, from an execution standpoint, to be able to provide them with the necessary components that they have to launch every day. For us, the worst thing that could happen is they arrive with their formulation, they have their bottles, and they don't have something to decorate it with.
If you can imagine shutting down an operation or a line because you don't have that, it's unbelievable. But it's oftentimes the last thing that they think about, the last component that they think about. So for us, we've been able to be near-site to them, deliver every day, and be able to have fantastic execution program overall. Sorry. Can you go back, Sean? If you look at what the basis of the success that we've enjoyed over the past 20 or so years, it really gets down to the execution side of the business. Our supply chain tools and our supply chain dynamic overall has been something that we've worked on, that we've cultivated with our customer base. If you look at previously over the past 5 years, everyone talked about just-in-time inventories and just-in-time production.
A lot of that was going towards people are looking at centers of excellence, centers of manufacturing, that they would then ship to their operations, which was all well and good. They could get economies of scale and do some of those things. CCL's philosophy and my philosophy overall for the personal care side of the market is to make sure that we were gonna be as near-site to the customer as possible, and I believe that's actually helped our success. Over the past four or five years, we've had just absolute chaos in the marketplace. We went from a just-in-time type inventory system to a just get whatever you can during COVID, and had to have the flexibility and the change to be able to adapt to what the needs were. People were buying shampoo and deodorant for years before that.
Suddenly, it became a switch to sanitizers, and we had to be able to switch production and manufacturing and be able to deliver to them in a very short period of time. COVID comes to an end, and it became a just get whatever you can because there was shortages across the market, there was supply issues across the market, and CCL was able to, again, adapt, and because we were near site, be able to deliver to our customers on a very daily basis and be able to take market share during that period of time. I think what we're starting to go back to is, you know, it was a just in case ordering over the past year or so, where people didn't know what was going to happen. We saw a spike in demand.
People were building up inventories because they didn't know what they were gonna be able to get from a supply standpoint, and it was just really building up as far as the inventories. I think what we've seen over the past year is getting back to some level of normalization. I think from a standpoint of inventories, you've seen an inventory reduction, but our flexibility, our ability to react to what the customers have needed and what we're being able to do, has been a major change for us. Again, I think we established ourselves over this period of time as the premier supplier for them. I think we were also a company that they looked at as a safe haven for them. There was very little issues from a supply standpoint from us.
There was very little issues from a capability standpoint for us. So I think we've set ourselves up for the long term to be able to do it. Three things that we always look at from an investment standpoint: One, do we have the right capability to service our customers? Two, do we have the right capacity to handle what the growth is gonna be going forward? And then finally, do we have enough flexibility to react to what the market changes are gonna be? And again, I think if this past five years has taught us anything, without those three factors working in unison, it's setting you up for failure at this point. A number of issues going forward. There's been a big focus around the sustainability side of our business and customer-driven sustainability.
There's not a day that goes by or a meeting that goes by with our customer base, that this isn't one of the overriding issues as far as what they're talking about and where they're going forward to. There's a number of commitments that have been made to the marketplace as far as what they're going to do, how they're gonna reduce some of their waste, and what we can do to help them to move forward. One of the areas that we focused on, in particular, on the tube side of the business, this has been at the forefront of what we've been doing for over 15 years. We started with post-consumer resins in our tube side of the business in 2005. Year-to-date, we produced over one billion tubes that utilize PCR resins.
Year-to-date, we've over 30% of our capacity right now utilizes sustainable tube technology for them, whether it's thin-walling technology or whether it's the resin that we're using going forward. But again, it's continued to be a focus for us. Our commitment to our customers going forward has really, we will not be a blocker for them and for them, creating a sustainable product or for them to be able to have something that can be recycled in their, in the stream, depending on what country it's going to go forward. So again, it's a huge commitment. Continue to have developments going forward as far as what we're doing, and will continue to be an investment for us going forward. Next slide, Sean.
So to kind of wrap it up as far as what we're doing from a growth standpoint and from our future plans, four things that we look at. Industry leader. I'm sorry. Continue to enhance our position with our customers from a relationship standpoint. It's conversations as far as what we're going to be doing from a capability standpoint and capacity standpoint. Number two, it'll be investments driven by our customers as far as what we're going to be doing. Every day, it's about capacity, about where we need to buy, build plants for them as far as where they're expanding next in growth. Number three, developing sustainable solutions that will not only allow them to premiumize their products but will be suitable for their growth going forward. And finally, it's really superior execution on the supply chain management side of the business.
Very simple, very straightforward. Questions? Yes.
Maybe just, how do you think about how CCL goes about winning market share in home and personal care? I think you're the,
We are the market leader at this point in the home and personal care side of the business. As far as market share is concerned, to be honest with you, I think people are always looking to have either two or three suppliers. They'll have a major player, a global player, involved in their business. I think where we've seen our market share grow has been through these years of chaos. And again, we've been really the supplier of safe haven for them. There's been a number of supply issues that a number of our competitors have faced during the past couple of years. Again, there's been times where, yes, I've paid more for my materials in order to get them to make sure that we have a long-term plan. The other side of it is, been in the business for a long time.
This is not a short-term game for us. Not looking to do something that's gonna be a short-term game and not set us up for long-term success. I think the entire team that we have involved here is really focused on the long term and making sure that these relationships with customers are gonna be sustainable over the long term. I think they very much appreciate that, as far as knowing that what we can do to grow with them going forward.
With a customer like P&G, for example, is there more opportunity for you to get more business with Procter & Gamble, or would you be completely
I think it really depends on what their launch is gonna be and where they're gonna be going. There's geographic opportunities to grow the business with large customers like that. Every so often, they're gonna be coming out with new launches as far as their product lines and how they're gonna be relaunching in different regions. I think we have our fair share of the market share with them, and it's gonna be an ebb and flow over the years going forward So.
Thanks, Matt. Just a couple questions. One is, you talked about synergies between the tube business and the label business. I'm just curious if you can expand on that. And then secondly, when you think about your business, tubes, labels, container, where do you see the most incremental growth opportunities?
On the synergies between label and tube, for the most part, there's a supply chain efficiency that we get in decorating some of our tubes overall. So we actually use labels on some of the tubes for a couple customers in general that have a very, very rapid change in their, in their program, so they need to be able to What they do is they use a common base color for their tube itself, and they use label decoration to be the point of differentiation. They're a very seasonal business. It's constantly changed. There's some patent technology around that, whether we're able to decorate over the shoulder and through the crimp on some of these things and provide a very premiumized look.
So between the two, those two divisions work very, very closely together from both the supply chain, from a decoration, from a premiumization standpoint, for them. Your second question, I'm sorry?
When you look at the business between labels, tubes, and HPC labels, tubes, and container, where do you see the biggest growth opportunities? You think about capital investment.
Yeah, I think, Listen, I think there's gonna be continued growth on all three segments of the business. I don't think there's any one. I think we've seen some phenomenal growth in the container side of the business, in the sense that the pie itself has gotten a bit bigger from us in the beverage side of the business and the refillable water side of the business, which is a little bit nontraditional for the home and personal care side. So there's been some great opportunities to grow in the segments there. You know, again, even in the container side of the business, some of the things that we've been doing, where there's been fantastic growth for some reason this past year, in deodorants.
It seems like deodorants seem to be the new fragrance for men and for women, as opposed to fragrance that you think of in colognes and whatnot. So that market has expanded in double digits for the most part this year. And that's impacted both our label side of the business, for if they're using a stick or a roll-on, and for our can side of the business overall. So it's really segment-based overall. So again, I think there's opportunities to grow, and there's opportunities as our customers are looking for new areas to go into and expand as well.
Hey, Ben, it's Walter Spracklin, RBC Capital Markets. You made reference to quite a bit of variation, fluctuation during COVID and-
Yeah.
As we exited COVID. Is that pretty much done, and is there anything that you foresee over the next little while that's gonna lead to some abnormal type of fluctuations going forward? And secondly, to your growth question, are these growth opportunities enough to get you kind of above GDP growth in your segment? Or is it something that is still kind of more aligned with GDP growth?
Yeah. First question, as far as what do I see as far as going forward and change, I think if anything has taught me over the past five years, there's nothing that's gonna be consistent going forward. I don't think anyone expected a major pandemic globally, entering in potentially two wars going on across the world at this point. Supply issues that we faced over the past couple of years, as far as strikes going on from the material side of the business. I think we went through a period of, you know, 10 or 15 years of really stable environments. I think people were used to getting price decreases year over year, over year, over year, and then suddenly, COVID happens, supply issues happen, and you're training a whole new generation of people to understand that prices actually do go up every year.
And it's really training them to go forward to accept that this is gonna be a reality going forward. I can't tell you what the next crisis is going to be. I have no idea, but I am sure there will be another crisis that comes up, and we have to make sure that we're established going forward from a operational standpoint and from a position standpoint, that we can handle and have enough flexibility to manage that going forward. Your next question, I'm sorry?
GDP, or growth relative to GDP.
Yeah, it's really gonna ebb and flow. I mean, we can't. Listen, there's nothing that I can do that's gonna sell more deodorant or more shampoo. I can't create markets with my labels and my containers, so it's really dependent upon my customer base finding new avenues for them to grow at this standpoint. So I think we're well-positioned with the major customers to service them and to handle their growth. We're well positioned geographically for them to work with them. We're extremely well positioned from a flexibility, from a supply chain standpoint. We've been able to manage our costs and be very competitive for them in being able to do this. And finally, from a capability standpoint, we're second to none as far as being able to do an execution and do whatever they need.
So we're. Listen, we've established ourselves over a number of years from an investment standpoint, that I think I've built enough of a, a lead over my competition, that for them to invest and catch up to where I am across multiple regions is quite difficult. And with interest rates the way they are, it makes it even more difficult. So I think we've done the right things to build the basic blocks to get us to where we are today. Yes.
As people are buying more shampoo and these kind of personal care goods, digitally, like on e-commerce
Mm.
How has that changed the role of the label for consumer products companies?
Yeah, I mean, you're seeing a number of, You're seeing the growth as far as the online purchase is continuing. What it's done is, some of the functional things that are needed for the products have become more important. If you think about tubes, suddenly you have to put a seal over the orifice to make sure that when it's shipped, it's not gonna leak and explode all over. So it's created some functional choices. From a decoration standpoint, I still don't think it's made any difference. I think every single one of our customers, this year in particular, is talking about making their products more premium, and they're continuing to move in that direction.
I think still people are looking at buying. They're still going to the store and looking at the entire wall to see what's gonna be differentiated, and then they may end up ordering online for the second and third time, but there's still a number of people that are going to bricks and mortar to do the ordering. And it hasn't changed one bit as far as the look of the label overall. No one's really downscaled. At the end of the day, people still want something that's sitting on their counter, whether it's in their bathroom or a shower, that looks and has a premium look and feel to it, so it hasn't changed at all.
Ahmed Abdullah, National Bank. Looking at your three segments of product offerings that you have, is there a low-hanging fruit that you can utilize some of the capabilities that you have to perhaps expand the product offering, gain more business, and drive incremental growth, that's maybe easy for you, given your established infrastructure and label, containers, and tubes?
I think where we have some synergies across the board, and particularly on the label and the tube side, overall, I think where we also have some synergies is some of the execution on the graphics side of the business across all three segments. Some of our equipment, in particular on the label and the container side, some of the manufacturers are the same, so we can drive some of the developments, what we're trying to do. As far as changes in the business, there's some synergies there. But as far as combining the three and say we're gonna get synergies and grow the business overall, it really depends. I mean, I can tell you, if one of the groups isn't executing well, it'll have an impact. So for me, I need to have all three hitting on all cylinders to make sure that it's working.
So again, if I have an issue in the U.S. or I have an issue in China, I hear about it tomorrow, and I know about it tomorrow, and I get a call from, you know, the customer saying, "Hey, you have an issue here, here and there." So it, I think it's can hurt me if we're not doing the right things, but as far as synergies with the groups, probably limited at this point.
to maybe add?
Yeah, I think what we try to do is make sure that we're taking some of the learnings that we have across the three divisions, especially some of the digitization of the technologies across the board, whether it's, you know, injection technologies that we can expand across the decoration sides across all three segments.
Hi, Kasia from TD Securities. You touched on it a moment ago, but the premiumization strategy-
Mm-hmm.
Is that being driven by your customers, or to what extent are you pushing for it because you see better returns there? And how can you distinguish between opportunities there in developing markets versus more mature markets?
It's interesting, because in the developing markets, at times, they're moving towards premiumization even faster than some of the developed markets already. What we're able to do is we have the capability. First of all, you have to have the capability in order to make sure that you can execute the premiumized looks that they're asking for. So I need to be able to stay ahead of my competition and the customer to make sure that I can execute programs seamlessly for them. It takes an investment to be able to do that. It takes understanding and having the conversations as far as directionally, where they're going to go. Can I push them and say: Okay, this is what you can do?
We're giving kind of a, kind of learning sessions to them and capability presentations to them almost on a weekly basis overall. So you're meeting with marketing, you're meeting with product managers as far as providing them with ideas, as far as what the executions can be. So yes, we can influence it at that point, but it also has to be part of their brand strategy as far as what they're doing going forward. Does that answer your question?
Yes, it does. Thanks.
Okay.
Sir, I just have a follow-up. Just on the premiumization, is there any way to just quantify, like, what the margin differential would be between a premium, premiumized product and something that's more-
Better?
commodity-based?
Better?
Yeah.
It's better.
Okay.
Can you just touch on the M&A runway within home and personal care verticals? Is there still stuff out there that you can go after and buy?
Yeah, I mean, it's, it's interesting. I get asked this question all the time. For me, it's very easy to buy companies. I think we can go around and buy whoever we want. The challenge really becomes: what, what are they gonna bring to the table? Whether it's gonna be from a capability standpoint or from a personnel standpoint. And also, it's, for me, it's very important to make sure that you get the integration right. And the acquisition is very easy, the integration is very, very hard, and we've done a very good job. I found that if there's geography that I need to go into, and there's an opportunity, there's someone who's well-established, absolutely, we'll have that conversation.
But I have to make sure that they're gonna be part of what we're trying to do and build up the culture that we already have existing within the organization. I also found that it's also good to be able to go in and set up a greenfield and do it from the ground up, the way that I want to do it, for the customer base as well. So generally, the M&A side of the business comes through a lot of conversations that I'm having with customers as far as where they'd like to see us go. And also, they've actually put us in touch with companies that they say, "This is someone you may wanna talk to that may be looking to exit," because whether it's financial constraints or they don't have family members and entrepreneurs, that they don't really have a succession plan going forward.
I really, for me, M&A is probably less on the table than it is developing greenfields for our customer base. 13 seconds, and I'm done. Any other questions? Great. Thank you very much. Appreciate your time.
Are you gonna click the slides or me? Okay. Good morning, everyone. My name is Lee Pretsell. I run the Healthcare and Specialty division globally. I've been in the label industry for 30 years now, 18 of which with CCL, previously with Avery Dennison. So, various jobs through operations and technical to running businesses, and now running the group. So I'm gonna talk to you a little bit about healthcare and specialty today, and starting off with a little video.
Who is CCL Healthcare? A division of CCL Label, the world's largest packaging label and printing packaging provider, focused on manufacturing secondary packaging in our cGMP facilities to ISO standards for the regulated markets such as pharmaceutical RX, biotechnology, contract pharmaceutical, medical device, generic pharmaceutical, clinical, animal health, pharmaceutical OTC, promotional, and other regulated markets. With over 33 cGMP facilities worldwide and growing, we pride ourselves in partnering globally and printing locally. With over 65 years of printing experience, we know that quality matters. That is why we have invested heavily in 100% electronic inspection system and deployed the most rigorous quality assurance process in the industry. Our product line includes folding cartons, printed literature, expanded content labels, inverted hanging labels, RFID labels, tamper-evident labels, multi-ply labels, pressure-sensitive labels, and smart packaging.
CCL Healthcare has a packaging solution for any type of container, no matter the shape or size. That is why we have over 60 packaging engineers globally and provide our customers with these services worldwide: brand protection, digital printing, cold chain, clinical services, innovation, supply chain, and sustainability. At CCL Healthcare, we believe that we have a social responsibility to preserve the environment. This holistic approach has led us to improve our manufacturing process, facilities, and our products to minimize our environmental impact. Working with our suppliers and customers to create the circular economy and find new ways to recycle, reuse, and eliminate waste.
So, as you can see, my business is not quite as sexy as Ben's. Sexy in a different way, I'd say. So, we're really selling the quality system, and we're selling the regulated into a regulated industry. The onerous nature of the quality system means that, you know, big, big clients around the world want to have the same quality system globally. That's what they're paying for. So the addressable market for us is secondary packaging, secondary packaging within healthcare and agrochemical. And as you can see, it's, it's around a $6.5 billion business in healthcare that grows at a rate of about 9.7%. And in secondary packaging and agrochemical, around $380 million, and our year-over-year growth rate was around 5.8%. Okay.
We're dealing with the top 200 or so healthcare providers globally. And you can see in healthcare, we have 29 facilities around the world. And the split out, you know, strong in North America, Europe, LATAM, and now starting up in Asia Pacific region. And by product, we, we're very strong. We're the, we're the global leading player in clinical, clinical trials. We're very big in label and literature, and we're just starting in the niche carton business. So where, where are we getting this growth from? You know, there's a growing incidence of chronic disease in the world, and mainly around some of the diabetes drugs. People will have seen a lot of reports about obesity, these new blockbuster weight loss drugs, but also into vaccines through the pandemic.
And obviously, more and more individualization around oncology, cancer treatment, gene therapy, et cetera. The type of products and services we provide, we're very strong in clinical trial labeling. We do a lot of patient information labels and booklets. And we're now getting into more and more into digital printing of folded cartons and RFID labeling. Okay. On the specialty side of the business, which is more agrochemical and specialty chemicals, we have eight facilities globally. We have a very strong presence in North America and Latin America. It's slightly smaller in Europe and starting again in Asia. Again, there's been big consolidation in this industry. There's probably only six to 10 global companies you're dealing with now, and they want a global service and supply. I think someone asked about margin.
In healthcare, we had a very strong tailwind during the COVID period, but we had to change some of our products, you know? OTC became very big. People were taking more medications, so we had a nice tailwind during COVID. But a lot of elective surgeries were canceled during this period, so some of the products we used to make for elective surgeries, we then concentrated on vaccines, COVID kits, et cetera. On the specialty side, we were very busy in the early part of COVID, doing hand sanitizers. Everybody in the U.S. had a very nice green grass. They were looking after their lawns, so lawn and garden products were exceptionally well sold in the early part of COVID.
And then it tailed off during the last couple of years, where we've had a lot of inventory in the system. It's coming back now, reasonably good, but we have significantly strong growth opportunities in both sectors, and we're probably just above the average profitability of the CCL group. Okay. Some of our competitive advantage, the global footprint and the capacity we can do globally. People want to have one source for certain products, one supplier, and want a global rollout, like Ben talked about. We also have the same thing in the pharmaceutical and healthcare industries. They don't give us all the business. It's generally split, but the development of these products is often done with the biggest player, which is normally us.
We have very advanced quality systems, and we're very strong in clinical trials. So, the path forward is to keep penetrating the emerging markets. More and more of the vaccines or products are being made locally and invest more and more in automation and human capital to keep growing our business. We have done some strategic M&As over the last couple of years, which have been quite fruitful. And, well, we will continue to look for quite niche players or some geographic expansion in M&A. So, I guess, questions?
Good morning, Daryl Young from TD or Stifel. Just a quick move from TD. Just heading into the pandemic, we had talked a little bit about generics being a headwind and the shift to generic. And I think during the pandemic, we saw a flight to the quality manufacturers and the big brands. Are you seeing that trend reverse and shift back towards generics? And what are the implications for profitability?
Not really. I mean, actually, our generic business has declined during this period, and I think what the supply chain crisis told people is that, you know, you need to buy the brand product, and there was often a shortage of materials in the world, and the big brands won. So during COVID, we had a bit of a switch back to big branded product. We're less and less in the generic part of the business these days, because quite often, a lot of the generic medicines are made in India or in parts of the world where maybe not necessarily strong.
Hi, Jonathan Goldman, Scotiabank. Could you discuss the market share in healthcare and specialty compared to home and personal care and food and beverage, and what the runway is there?
Yeah, I think, probably we're very much more fragmented. I think without being rude to Ben's business, he probably has 10 really good customers, and I have 2,000. So, it's a little bit more complicated. We use a lot more different materials, as you saw from our products. We make vastly different products, and every project is quite specific and specced in. In terms of market share, I'd say we have some runway to grow. You know, but it is more fragmented than the other divisions, I would say.
Then, as a follow-up, the 250 billion TAM that you referenced, the primary market, is that a possibility to move into there, or is it really just the second market?
It's more like blister packs and, you know, you're really touching the product at that stage. So that's what a lot of the CMOs are doing, and a lot of the CMOs are our customers, so we'd be sort of interrupting into their, we'd be getting into their areas. We really want to stay in the secondary packaging market. We may do some more primary lidding films, foils. We do a little bit of niche business around that, but it's very small. Where am I looking?
Oh, hi. I'm David McFadgen from Cormark. Just looking at the slide that you put up on the margin profile, for 2024, you're looking for much better margin profile there. I was just wondering, can you comment on the drivers as to why you think the margins are gonna be so much better in 2024?
I think there's two things. One is the, this movement in the blockbuster anti-obesity drugs. That's driving a huge growth for us. We're building a big plant for that, it's no secret. And the second thing is, we did a big acquisition this year in the clinical trial space, which has a much higher margin.
Okay. And then earlier, you referenced that you said there are about six to 10 global competitors. Can you name us your top two competitors that you'd be competing against?
Yeah, I mean, some of our competition are big into folded cartons, and they also do some label and some literature. We're a label company that does literature and folded cartons. So it's the likes of WestRock, the MM Group, they would be the two.
Okay, thank you.
You had that, you showed a picture of that RFID label. Is that a product that is completely? Do you manufacture every portion of that RFID label?
Great question.
And also, can you just maybe give some idea of pricing difference between that label and other labels in the segment?
Okay, so first of all, we have an end-to-end supply chain now through Checkpoint. So we develop the tags, we do end-to-end system. We did an acquisition last year that some of you guys might have seen called eAgile, where we can, we can make an end-to-end system for RFID. So development of the tag, the software, the readers, and the application and the validation at the customer's line. We're, we're vertically integrated through Checkpoint, so we don't need to use third-party suppliers anymore. And a lot of developments are going on to be able to do the tag at Checkpoint, the converting at CCL, and the full system through eAgile. So that's, that's where we're heading. And, from a margin perspective, I guess it's a factor of x times, let's just say, if you put RFID in.
I just had a question. Over here, Lee. I just had a question on you mentioned emerging markets as an area for growth.
Sure.
Would most of that come greenfield, or are there potential acquisition opportunities in those markets?
A little bit of both, depends where you are. I mean, we just set up a site in Singapore, for instance. And we did that in our HPC building, that was where they were vacating some of their assets somewhere else. We took over the building, and we set up a greenfield, specifically for a customer who's doing a very large project in Malaysia.
So Ahmed Abdullah, National Bank. You, early days on the folding carton and RFID, where do you see that driving incremental growth for this segment on a revenue basis?
I think RFID is the one that will give us the most growth. Carton is a bit complementary to what we do today. We've got lots of customers that would like to buy all three pieces from us. And to be in the niche carton game, we only want to do it for healthcare, so we're not gonna become a carton company, we're gonna become a, a healthcare carton provider that's digitalized. And that gives us kitting opportunities. So if you imagine they're buying the insert, they're buying the carton, they're buying the labels, we can kit them all together so that they have one supply chain. On the RFID side, the growth will be, you know, tremendous because hospitals are becoming equipped with RFID trolleys versus having two people dispensing drugs.
So therefore, you have to go right the way back in the supply chain and say, once the hospitals get the equipment and the capability, then all of the drug service providers and all of the providers of those drugs need to embed RFID in the drug. So every label that's going into those hospital trolleys will become RFID-enabled. So it won't be done in the, It's an industry that moves slow. So over time, it will, it's moving in that direction. There's great developments, but it takes time.
Okay. Are you seeing an elevated level of inquiries, orders that are coming in from customers that have not used RFID before?
Yeah, we have a huge pipeline, but a typical project takes two years to implement.
Yeah, there's always a lot of discussion about RFID and how big it could be, and that could be really a big growth driver for the business. Can you tell us where you are in the whole transformation to RFID in your business? Like, we're still really in the really early innings here, and maybe you could give us some metrics, like what percentage of revenue might be attached to RFID, that kind of thing.
David, David, I think if you wanted to quantify RFID across CCL, so all the divisions of CCL, it's about CAD 250 million today. So 70% in the CCL segment, in the Checkpoint apparel segment, about 20% at Avery, and about 10% at CCL Design. So, so I think, that, that's the starting point. So we have capacity next year to make 5 billion inlays. That's the inlays that go inside the labels and tags. That's about 10% of the global market and growth expected next year. Give you a frame of reference.
We good? Thank you very much.
Oh, sorry. Good morning. Good morning, dear investors, ladies and gentlemen. My name is Reinhard Streit. I'm based in Europe, and in my current role, I'm responsible for our food and beverage operations, as well as I'm taking over a sales strategic role from a global perspective within the beverage and spirits segment. Well, I started my career back in 1993, actually, with an American company. At the time, ALS, Automated Label Systems, based in Cleveland, Twinsburg, Ohio. And then got the great opportunity to build up, together with the team, a greenfield in Austria at the time, when the U.S. market exported into Europe, the first stretch and started to produce shrink sleeves as well there. Well, from that, we built up some more business units.
In 1997, the building, the factory or the business got sold to ITW at that time, and we added some more operations in Europe, in the U.K., but also in Brazil at that time. Well, 2006, which was a great year for us because we got acquired by CCL, and we found a great home, and from there, the journey really started. I have to say that, now I'm turning 30 years now in this label business, so supplying consumer goods, fast-moving consumer products, which you hold every day on your, in your hands, or there are many products people around the globe trust and value and purchase on everyday scale. Going into the next slide.
So you see, this year, we are and this is a great achievement. I'm very proud of it. We're exceeding for the first time CAD 1 billion in sales. This is divided into various different product categories. As you can see here, shrink sleeves represents about 40% of the business. Shrink sleeves are made of various different materials, so you can do full body decoration on containers, PET, HDPE, or glass containers. PSL beverage for non-alcoholics, alcoholic drinks, as well as in the spirit segment represents about 30% of the business. Special category, wines and spirits for 15%, And just recently added as a complementary product portfolio, closures, pouches, and IML, as we see a lot of synergies coming across through Capri-Sun buyout from the consumer bases.
Covering the CCL footprint. So you see that, approximately 43% of the business share is generated in the European market, where we have also our operations based, as well as 24% in the U.S., 19% in South America, 7% in Southeast Asia, and roughly 4%, in Australia and New Zealand. And last but not least, we just built up a new greenfield a couple of years ago, three years ago, exactly when COVID kicked in and started operations in South Africa, producing for the beverage and food segment down there. Well, strategic growth drivers. As Ben already mentioned, and Lee, sustainability is a key factor within our businesses, and, what we clearly see that sustainability is driving the global trends for packaging legislation.
Packaging and packaging waste regulation will have an effect globally, and that what we clearly see on all the brands we are supplying. As we also see that demand for sustainable label options that enable recycling of overall packaging all over the globe, brands will have strict recycling targets, and it is mandatory use of recycled plastics drives design for recycling in eco-design. That means CCL and our team, we have developed sustainable label solutions over the time, and thanks to that, we started already almost 10 years ago and introduced the first very sustainable label solutions to help recycling. At the end of the day, a label is, excuse me, a bit of a trivial product, but it's most important that you decorate the products.
It is so important that you ensure that there is a circularity given, and the legislations around the globe, they will pay for it. You have probably heard about the Green Deal in Europe, with very ambitious targets, net zero CO2, by 2050, as well by 2030, that every single product needs to contain a certain amount of recycled content. What I also would like to mention, because as you see, this is a very important point for me as we grow on sustainability. When we develop products, especially during the COVID period, we were somehow blocked really to go out and qualify the products. But one of or
For many of the brand owners consulted CCL as a development partner, and we are just not a label supplier anymore, we've become really a development partner throughout sustainable label solutions to help the brand owners to reach their recycling targets. This is all connected to the operational execution. Operational execution is mandatory to be efficient, what we're doing on a day-to-day scales, and it goes along with value engineering and certainly crossover divisional technology exchange and development. As we just heard about RFID technology is also something we see in our product segment kicking in for food and beverage. When it comes to spirit applications or later on also to pouches, refilling systems. So RFID laminated into material substrates will bring benefits to the consumers.
So they don't need to choose, they just go with the pack to the dispensing unit, and the unit knows exactly what needs to be dispensed. Just an example. It is not as far yet developed really in the conventional food and beverage business, but we see a lot of inquiries coming along into that segment. And last but not least, we are partnering with many initiatives. It starts from Ellen MacArthur Foundation to the EPBP, European PET Bottle Platform, also the APR, like in the US, but with many, many others. With C-Lab, with RecyClass, with Petco, just recently won a great award in South Africa, that clearly support our initiatives in terms of sustainable label developments. I'm going to show you a little video.
Sustainability is impacting every industry around the world, and innovation is key. CCL Label is committed to pioneering new sustainable solutions, which help our global customers meet their sustainability targets. Introducing Eco Float, a new sustainable sleeve material developed by CCL. Shrink sleeves are perfect for uniquely shaped bottles, providing limitless design possibilities. Until today, one challenge was not solved. During the recycling process, residue from films mixed with PET bottle fragments and settled at the bottom of water baths, rendering some materials unrecyclable. Now we have a solution. Eco Float, CCL's floatable sleeve material, is made from transparent polyolefin, which easily separates from PET bottle components and floats to the top, even with full printed designs. Eco Float also complies with industry standards for maximum PET recycling performance.
This solution empowers brand owners like you to meet your recycling targets and exceed customer demand on sustainability, while enhancing the visual impact of your products at the point of sale. With a soft surface and high shrinkage, you can maintain complete design freedom with maximum cost efficiency. Meeting environmental targets matters to you, and it matters to CCL. Together, we are developing solutions to build a more sustainable future for your business and our planet.
So you see, sustainability is a very important part in our daily business, as it belongs to all our businesses, for the various different business units. I would like to just give a bit of a brief of the real developments, because it's just not the fact that it's a label. I would like to name the Eco Float development, which has been in cooperation, developed via our division under CCL Innovia and CCL. From a technical perspective, it is a low-density material, so it floats, when it gets grinded with the PET. It can easily be separated with the PET flakes. This is a very efficient and fast methodology to separate the materials in order to bring it back to a bottle-to-bottle recycling, for example.
What is most important, you see here, quite some prominent brands, like Nestlé, the known Coca-Cola, Chobani, Pepsi, all are using them. And not only the big brands, also the regional heroes, I would say, in the various different markets and countries and continents are starting to use Eco Float as a brand. The next, wash-off label. We have developed a few more decorations, just in a nutshell. You can. The labels can detach from the glass surface when it's a returnable glass. It can detach when it's a one-way glass. It can also detach from PET bottles, and you can really clearly separate the materials from the packaging, and you can reuse it and bring it back to the cycle. Here, it's mainly used in the beverage industry.
Some prominent names here, the known Heineken, Evian, Coca-Cola again, or ABI in the U.S., are all using this one. Here is a clear trend, answering the question, where you, where you see the market going. Since the legislation's kicking in, returnable packaging are reinvented for many products, and we see a clear rise in terms of projects, pipelines increasing, and new business opportunities coming up. Pouches, relatively new to us, really responding to, brand owner needs, as you sometimes see a rigid pack next to a soft pack. Pouches have, various different advantages, is low light, is very, safe, it's convenient, it offers, a long-lasting shelf life, for example.
What we see here clearly is the trend also in sustainability, the direction of mono-material development, which is also mandatory in the future. So going away from a triplex Alu PET PE compound into a mono-material compound. Here we have the development resources available within the group, and we see growth potential into various markets, especially in Europe, U.S., and Southeast Asia. In-mold label, also recently added to our portfolio, has also advantages when it comes to recycling because in-molds, the material itself and the label is a thermoforming process or a blow molding process, so the label gets integrated at the moment the pack is being produced, and you can recycle it together. It's very efficient, and we see quite a large product spectrum and a nice playground for us in the future to grow the business from there.
Well, that's it in short. Questions?
Thank you. So clearly a focus on sustainability. So just kind of wondering, where do you stand with respect to your competitors on your sustainability solutions? And how do you protect any technology that you've developed for sustainable solutions? Like, how quickly is it, or can your competitors replicate what you've developed?
Good question. First of all, we very much value when competitors are really moving and developing into the right direction as we do, because we don't want to be in a like a single supply position. And that what we have seen is that if competition, you know, is starting to develop in the same way, then it's just confirming that we did the right thing to us. We even... You know, the material we use, for example, for polyolefin, it's been under development of the Innovia group, but it's sold to the free market.
Wouldn't, wouldn't you want to gain competitive advantage on a sustainability solution so you could gain market share? You know, you talk about how it's great that your competition's doing the same thing, but don't, don't you want to get some sort of lead on them, and then you can take market share from them because you have the solution and people want it, and they don't have it?
Yeah. Well, this is, As I said, this is one of the growth drivers anyway. I mean, we see lots of brand owners, well, we approach or they approach us, that they wanna go this way, and they have to go this way. So, I think, we definitely grow from there next to other innovations. So some brands, they have a stronger look just on the visual identity. Some other brands, they wanna go to tick all the boxes from a visual identity, to the right material, to the right product, to the right process, the entire value chain. And here we come in, as being said, we are a development partner for many of those, or wants to be the development partner.
We clearly see that this is greatly valued from the international audience, brand owners.
When you have a sustainable solution, how does that compare on price? 'Cause in the past, you know, people wanna go that way, but it's more expensive, so they don't want to. You know, there's friction to go that way, just because the price then it reduces their margin. And maybe you could talk about price and margins, for you, as you develop these sustainable solutions.
I mean, ideally, we, we increase our margins with such products, and, we claim that with our processes and with our, you know, operational execution, that we gain some advantages, there. Nevertheless, brand owners are not ready to pay, you know, a huge upcharge just because of it is more sustainable. But when it comes to, taxes, like, or let's say, like in, in regions all over Europe, when you don't use a recyclable material, so you pay taxes. So that can be a nice exchange to spend more money on the label instead of paying taxes, and even, give the message to the consumer bases that you are more green, that you are more eco-designed, or following the recycling targets from, the, the authorities.
Just one last one, and I'll pass the mic. What percentage of, what percentage of your revenue is generated from products that are sustainable?
I would say already above 30%, approximately. Growing, year-on-year growing.
Hi, just sticking with that gentleman's theme. The Eco Float, what are the top, maybe one or two things, that are preventing faster and greater adoption of that product? Is it simply a question of greater consumer awareness, education? Is there really some friction around paying more for that sustainable product? Is it you just don't have the capacity to generate it fast enough? What are the top hurdles to faster and greater adoption of that?
Well, there are two things. Brand owners started to educate their consumers, so they really, They want the green dot on their product, and this is going to be viral. We see it in social media. We see it on exhibitions, so we see it on their promo ads. Everywhere, they really promote a sustainable pack. Eco Float itself, or when we EcoStream or Eco Float, so our brand names, is, you know, the way how we developed it is comparable. It's simply to understand, if you use a, for example, PETG film on a PET bottle, it's the same material, so you can't separate it from each other.
By using an Eco Float film, it is a PO film, a polyolefin film, has a lower density, and when it comes to the grinding process, then you can separate the flakes, the virgin PET flakes, from the label itself. And this is what the industry wants. They want to collect the PET flakes in that sense, and bring it back to a bottle-to-bottle recycling stream, and save, therefore, you know, acquiring of any virgin PET fractions, for example. And yeah, that's what we see, and it can be applied on not only PET bottles, so it's, there are various container types you can use that format. I hope this answers your question.
I just had a question on. You mentioned, you highlighted pouches and IML as areas for growth. And I'm just wondering, can you just give a little bit of color as to how much of your business is currently in pouches and IML? And then secondly, in terms of growth, who are the largest competitors in those two product segments?
Well, as we just added this acquisition roughly about six months ago, it is still, it's still a founding investment as we have seen that we see a lot of potential here. It's probably roughly about 5%-6% of the overall revenue on the F&B organization currently with a lot of room to grow. And yeah, that's, And the second question you asked was?
I was just wondering, who are the biggest players in those segments?
The main competitors are, Well, it's MCC at the end, so it's one of our major partner in the label industry or competitor. So they own quite some large market share here.
Amcor.
And Amcor, sorry. Right, and Amcor. Amcor, MCC, so those are the main player. And we see a niche for us, as we are extremely well connected to our customer base across the globe, as we are supplying F&B across the globe. And there are a lot of synergies that really brand owners, you know, approaching us and, asking us if we can supply, like, pouches for form, fill, and seals, meaning all the finished pouches we thought. And this business is definitely to grow, not only in F&B, there's many other applications when it comes to dairy products, fruit puree, pet food, yeah, dry food, this is a large playground for us.
Hello. Hi. So historically, a big contributor of growth for this, the F&B segment, has been premiumization of the products. So do you still expect this to be a meaningful contributor in the future, or is the focus more on sustainability now?
No, definitely, premiumization is going along with brand development and brand marketing initiatives. We are running independent studies, not only we but also our major clients, so they clearly see that a premium brand is much more attracted to the consumer base. The decision almost is still being done to 72% on the point of sale, what kind of product I'm going to buy. It has a strong connection to bond, and means that consumers like to buy a premium brand with a high sophisticated label decoration or brand image overall. So there is still a clear shift in between discount and premium product segments. We see that in particular on the, on the...
Even though on the non-alcoholic and alcoholic business segment, like in the water segment or in the beer segment, here is a very clear separation between mainstream and premium. But if it comes to spirit applications, you see that when you run through a duty-free, you see all those fancy, nice decorated products. It really attracts. And here we are with all our technologies, with all the printing technologies and finishing, you know, possibilities we have to add a lot of embellishments to the product itself. And here, again, we develop with the brand owners and the designers attractive designs. And, yeah, that's one part, and it will definitely grow. That what we clearly see.
When we read about food and beverage business, we often read about flexible packaging, and I think some of your business lines would be defined as flexible packaging. But is that, Are there areas of the flexible packaging market that you want to get more involved in? Because it seems like it's a big market opportunity that you're not as involved in as some of your competitors.
No. We actually have no intention to move into any flexibles. This is not our core business. This is a business we don't see really suitable to us. That's why we stay on our label segment, with the various different product segments, and that's what we are going to continue and to grow.
And then, is that a function of competition and margin? What is it about that market that just you don't feel-
Flexible is pretty low, so you know, on that segment, so we, we don't wanna just run our prices or equipment to, at the end, not make any money out of it. So we wanna deliver returns. Okay, Ronald. Thank you.
Good morning. I'm Derek Cumming, responsible for CCL Design business globally, based in Scotland, in the U.K. I joined CCL when our business was acquired in 2015, so been part of the CCL family for about eight years now, but been 37 years in the industry, you know, up until now. So I'd like to tell you, you know, a bit about our, about our business. So we're just under CAD 1 billion in sales, and we focus on three main sectors: electronics, automotive, and industrial. In terms of split, it's roughly 50% electronics and 50% automotive and industrial. And we're working with the main brands in those sectors around the world and their manufacturing partners.
It's quite, quite well known in electronics that not many electronics OEMs manufacture themselves, but they work through a lot of contract manufacturers and, you know, and EMS, electronic manufacturing service partners around the world. So we work with, you know, mainly with the brands, and try and get specified in maybe a year in advance of a product coming to life. So there's a high amount of design engagement in our business. And to do that effectively, you know, we've got to, you know, have a lot of knowledge on the material science and the chemistry that's needed to develop some of the products that go on electronic devices and automotive components. But what that really means is a lot of in-house coating, you know, capability, because many,
You know, let's take a laptop computer as an example. You know, when that changes design, it quite often involves customized coatings, you know, being on, let's say, the touchpad overlay, you know, that's on the touchpad assembly. So we have to customize things, and quite often, the materials that we need, we can't get off the shelf very quickly. So we have to be able to do a lot of that ourselves. And our growth strategy is quite simple. It's really all about new products to existing customers and adjacent customers that recognize the value proposition that we have. You know, but it's a very simple, you know, strategy that's worked for us.
We've got the right type of customer base, and we have the capability to grow by doing more, you know, with those existing customers, by reaching into new applications, you know, via new products, but also investment in and capabilities, you know, when needed. We've got a world-class, you know, global footprint, and that is really aimed at covering the hot spots of both manufacturing and design for both electronics and automotive and industrial. And what that can mean is that we design, we give design support in certain parts of the world, and we have to follow the sales related to that design engagement into another part of the world.
You know, a good example of that being, you know, the importance of Silicon Valley, you know, to the electronic sector and what we have to do there to, you know, to face customer design teams, but have a very strong, you know, access between California and China, you know, for the electronics and, you know, even countries like Taiwan as well, where there's a lot of display technology, you know, developed in Taiwan, but the manufacturing's in China. So we've got seven design and technical centers aimed at engaging with customers at design level, and then a sort of best-of-breed manufacturing infrastructure, you know, around the world that's at the current count, it's 32, you know, different locations. So short video. We'll see some-
CCL Design is a global partner for the world's leading brands, from design to manufacture. We deploy world-class technology and a global infrastructure to design and build product assemblies for consumer electronic and automotive applications. Our core manufacturing competencies include printing, coating, laminating, 3D forming, injection molding, automation, and assembly, many of which are in clean room manufacturing environments. In the consumer electronics market, CCL Design is at the forefront of innovation. From mobile devices to home appliances, we help make leading brand products more functional, durable, and decorative. The automotive industry is changing with electrification, driving significant change in product design and materials. From interior decoration to product safety, we are working with automotive brands to meet the challenges of this new era. At the heart of our business is a deep expertise in chemistry and the material science needed to solve design challenges.
Driven by the need for rapid product launches, we develop and manufacture customized coated materials, ensuring timely delivery of unique components and assemblies. We are committed to helping our customers to succeed in today's rapidly changing marketplace. We design every day. We are CCL Design.
I couldn't resist another Scottish voice in the video voiceover. So, we, we're a little bit different from other CCL, you know, companies in that probably only about 30% of our portfolio is in the label space. But a lot of the technology that we've developed has originated from there, and it's taken us into other products. And the reality is, you don't find too many labels nowadays on electronic devices, and you don't find too many labels inside a car, but they are there in certain applications. But, you know, we've developed, you know, from, you know, that label industry core technology base into other coated and printed and die cut, you know, type products. But just to give you a view, you know, of what we actually make, you know.
So, you know, you'll recognize some of our products 'cause you can see them, but some of them are actually inside devices, you know, and components that you won't see. So, you know, a lot of durable labels and graphic overlays, you know, used in various devices, you know, either on the top, you know, or on the bottom, or inside battery wells. Smart and intelligent labels that could be anything from a security label with seven covert features that help a brand protect their supply chain around the world, or it could be something very complex, driven by a printed battery technology that we have that basically powers a smart label that tracks and traces the world's vaccines around the world.
That's got logic on a board, but it's, you know, very, very, very complex, and that's an interesting area for the future, we believe. What I mean by printed electronics and human machine interface, that's control panels. So that can be anything from a simple, you know, membrane switch that you might find on a device in a hospital, you know, room, you know, that controls a, you know, an orthopedic bed or, you know, the IV drips, all the way to something on a washing machine, you know, which, you know, which is, you know, part decorative, part functional. So we're involved in those type of things. Then precision die cuts, you'll never see unless you open up a device. Good example being a laptop computer.
If you were to open up a laptop or a tablet or even a smartphone, you'd probably find about 30 components inside that device that would have functional materials for flame retardance, temperature control, you know, waterproofing. You know, these might be adhesive backed, they might be printed, but they're inside devices, so you'd have to open it up to see some of those products. But, you know, that's a fairly significant product set for us. Tread plates in the automotive world, that's been a long-standing product range. That's an assembly, you know, which might have a metal, it might have a backlit logo, it might have a circuit board and lots of adhesive tapes for bonding. So we're heavily involved in, you know, in tread plates.
In-mould decorated plastic components and assemblies. So think of inside an automotive, an automobile, you know, where you've got all the, the high-gloss piano black looks that are 3D formed.... So many of those are components that make up a final assembly, and they might start life as a hard-coated film that's then screen-printed to kind of give it the graphics and the decoration. It could be foiled. It's then formed into a 3D shape, and then it's inserted into the female cavity of an injection mold tool, and you get a fully integrated, completely durable, three-dimensional decorated plastic. You know, so that's an area that we're heavily involved in as well.
An area that's becoming more and more important to us is what we call decorative products, and, you know, that's an area where I think, you know, will really, you know, drive a lot of growth for us, especially in electronics. And that's putting, you know, putting coatings onto certain materials that end up, you know, maybe as a piece of trim, you know, on a device, or it might be, you know, an LCD cover, you know, which basically protects and gives the capacitive touch function and might have anti-fingerprint coatings. You know, every LCD display that's out there has a cover, right?
So that's a big market, and we've developed some interesting coating technology that's, you know, that I believe will be very important for us in the, you know, in the future. Backlit logos and modules. You know, again, you look at a gaming laptop, you know, the likes of Lenovo and Dell, for example, have lots of gaming devices. You know, you can see a screen there with a, on the screen, a logo with a Lenovo logo. That's got 13 layers, you know, from the acrylic plastic that the shape's routed from it, and there's light guides, there's electronics, there's LEDs, and there's all sorts of diffusers. So we make the entire assembly, you know, working with the brand owner to develop the functionality from it.
So a little bit different from labels, but a lot of synergies in terms of where the kind of core competencies from a chemistry and a, you know, and a, you know, sort of core technology come from. So I've mentioned some of these already, but, you know, our, our, I'm quite often describe our core competencies based on printing, coating, laminating, and cutting, and lots of subsets thereafter, you know, you know, within all that. You know, one of the things that you'll find in most of our operations is Class 10,000 clean rooms. You know, because we're making components that end up, you know, on electronic devices and also in kind of fairly mission-critical, you know, applications and automotive components.
You know, we have to operate in very, very clean conditions. So we've got a lot of clean room, you know, clean room, you know, Class 10,000, even down to Class 1,000, you know, which is very important, you know, from a manufacturing point of view. Our world is becoming, you know, sort of very, very heavily automated and, you know, as much from a precision point of view as anything. So, you know, our factories have got lots of robots and a lot of picking and placing. And, you know, over the years in China, we've built up a very strong automation team, and they're...
Now, now that the Chinese team can travel again, you know, we're deploying some of those automation, you know, development cells elsewhere in the world to reduce costs and make our operations more precise. So that's a fairly important, you know, element of our business. It's quite an important area for us. This, this allows us material science and in-house coatings or vertical integration, you know, call it what you want. This allows us to face customer design teams very, you know, very well and professionally.
We live in a world where customers don't always know what they want till they see things, and so we're constantly trying to take new materials, new ideas, new coatings, new technology to design teams, and, you know, we do that, you know, supported by a team of scientists and engineers around the world. And it's really an important aspect for us. And again, I'll draw the parallel to the engagement in the electronics business in Silicon Valley. We're dealing with some fairly senior scientists, so we have to put the right type of people with the right type of data, you know, when it comes to a new product idea or concept in front of them.
Because what we're really asking a brand owner to do is to trust us with their design, so we need a lot of technical credibility. You know, establishing technical credibility, you know, both with customers, if we're engaging with them for the first time, or within groups, is mission-critical to us winning business. So the whole technical engagement is really important, and, you know, those are some of the kind of key elements of that. Just a few words about sustainability, you know, at CCL Design. Probably different pressures from what, you know, Reinhard, you know, spoke about and the other guys. You know, but we have started to see what used to be, like, screen protectors. You know, when you used to buy phones, you would get sophisticated, optically clear films protecting, you know, the screen.
It's now moved away to coated papers. You know, so there's a lot of, you know, just moving away from oil-based, you know, products, moving away from tapes to printable, you know, adhesives and, you know, just that, that whole move away from oil-based packaging, you know, certainly affecting us in the packaging-type business that we have. Starting to work on biopolymers that could be injection molded, so there's, there's a lot of work on coatings and materials that are, that are more sustainable. But just, just some key metrics from our point of view. You know, more than, more than 50% of our sites, you know, have zero, zero landfill-based waste, and, you know, we've had a 20% reduction overall, you know, in, in, in waste going to landfill, you know, over, over the last, you know, sort of 12 months.
We've made two major investments, you know, in Germany and China for, you know, solar panels, and that's obviously driving some of the metrics that you can see on the screen here. You know, so we'll continue to do that and, you know, in response to, you know, doing the right thing from a sustainability point of view, from a customer point of view. So it's obviously important. That's a 10-minute overview, so very happy to try and answer your questions.
Ahmed Abdullah, National Bank. You mentioned, or at least in the video, it was mentioned that, electrification as a trend in the automotive industry, how would that drive some incremental growth for you?
Yeah, good question. It's something we're right in the middle of, you know, right now. So there's some obvious opportunities, you know, with label and identification products, but that's quite small in comparison to some of the kind of safety type products and some of the designs that we're working with for what we call thermal runaway. You know, where, you know, inside the car there might be two to 300 lithium cells and within, between each cell there might be a spacer. Very complex assembly, you know, and where I mentioned using some of the Chinese automation technologies to develop some solutions for elsewhere. That's an area, you know, where we've taken some of the electronics expertise in auto assembly and applied it to those type of products.
You know, so, you know, look at some of the numbers when you do the math, they are quite frightening. And, you know, I've certainly got three or four projects in that space, which I think it's important to note to note that the whole EV battery technology is still evolving, designs are changing. I think we'll see the upside of that, you know, end of 2024 into 2025 and beyond. There's still a lot of designs moving around, a lot of materials getting specified, but, you know, working with materials that are resistant up to 1,000 degrees Celsius, for example, you know, and then putting them into an assembly, you know, that the automotive brand wants.
Then you've got things like some of the charging stations. You know, most of the charging stations have got an HMI interface, you know, just a control panel. So that plays to our capabilities. It's outdoor, so you want to protect everything from water ingress and everything, so that plays to the in-mold decoration, you know, from a plastic molding and everything below the surface of a plastic. So yes, I think that's started to become a real interesting space for us, and I think over the next five years, it'll be interesting to see the growth there.
I suspect the sales cycle and certification would be, you know, a tedious process to get to be certified to provide these. Does it require any additional investment on your part to be able to deliver these as a product?
We do that every day. Our automotive business is highly regulated, and sometimes it can take 12 months to kinda get a final approval. And there's a, you know, it's a fairly rigorous process for anything that goes inside a car, you know, so it's really more of the same, and we have a lot of that infrastructure already in place.
Ben Jekic here from PI Financial. Hi, David.
Hi, Ben.
I have a question. You mentioned decorative products in electronics. Is the opportunity there in the future, sort of, you know, I am selling two products to a customer, option A, I can sell two better, more customized products, or option B, I can sell two products, plus convince the customer to buy two more?
Probably the former. You know, I think it's definitely an interesting space where some of the coating technology we've developed allows us to disrupt commercially and technically. And so what I mean by that is, if we can use some of our own in-house coating chemistry to give a customer equal to or better than their current plan of record, i.e., what they currently use, but do it at a price that is meaningful, that might increase our margin significantly, you know, and give them a cost reduction. We've got a few projects like that, you know, and those tend to be the opportunities where there's less competition, which is, you know, where you can obviously, you know, sort of work the commercial advantage.
I see a lot of opportunity of that nature, you know, based on some of the recent technology developments that we've started to commercialize.
Thank you. Thank you.
Just, just going back to
I'm blinded by a bit of light, so sorry.
But an M&A deal you did a number of years ago, WorldMark. I'm just wondering, can you just give us some thoughts, like, since you've acquired WorldMark, how has that deal gone for you? How has that business grown, what have you done with that over the acquisition timeframe?
Well, I came with the WorldMark acquisition. I was part of the management team at WorldMark. I think really what WorldMark has given CCL, you know, and Jeff, jump in if you want here, it's given it scale and credibility in the electronic space, and it's taken, It took CCL Design into China, you know, which is obviously the biggest marketplace for, you know, for both electronics and automotive. And, you know, what I think it's really given us. And it's quite, it's obviously a business that's pretty close to my heart, having worked there for 37 years. You know, we still have some of the kind of key technical people. You know, today, WorldMark started manufacturing in China,
I think, 23 years ago, and we still have many of the key technologists and technical leaders there to this day. And I think that's given CCL Design, you know, a real platform to kinda grow from in China, and some of that transferred into Southeast Asia. I think going back to some of the kinda comments that the rest of the guys said about the pandemic, you know, the reality is, and WorldMark was an electronics-facing business, first and foremost. We've not had a normal year in electronics since 2019, for one reason or another. You know, up and then down. Starting to kinda come back, hopefully, but it's not really been the same since 2019.
But I think, really from a CCL Design point of view, in the years running up to 2019, it was the highest growth part of CCL Design, maybe even CCL. So it's kinda really generated a lot of organic growth, you know, by, And I go back to the point I made earlier, by just doing more with existing accounts, right? It's one of the easier ways to grow. It's easier to grow within an account, I think, than it is to kinda go and find a new one. So as long as, you know, we have a value proposition and capabilities that can allow us to get into different areas.
I think WorldMark certainly delivered a lot of that organic growth momentum, you know, and we’ll continue to do so, I think, 'cause it is still the kinda key footprint in electronics from CCL Design's perspective.
And are there other businesses like WorldMark that you kind of think logical add-ons?
Yeah. It's our world is very fragmented from a, you know, competition point of view. So there's lots of small players, right? One of the things that we have is probably a capability set and a footprint that no other competitor has. But we obviously have competition, but it might be, you know, people that are focused more on precision die cuts and don't have anything else, and, you know, people that make labels and don't make anything else. So yeah, there are people that we know and we talk to, you know, that could have that type of, you know, sort of big growth number that could add on CAD 200 million easily, yeah.
Those, those companies exist, as well as some small, you know, bolt-ons as well. You know, we play in... Because we're at the component level, we are supplying components. Automotive electronics, you could easily define that in the trillions of dollars, right? So there's a lot of people that make product in those sectors, you know. So it's a massive market where we've probably got a fairly small market share just because of the size, you know, when you take it to the component level.
I just had a. Oh, we're out of time?
One more.
I just had a question on. So when you think about the outlook for between automotive and electronics slash industrial, is it safe to assume that there's more growth from the evolution in the automotive industry than electronics?
I think it's both. I really do. And I think, well, I think the opportunities for us, you know, are as strong for growth in both sectors. I really do, and that's driven by expanded capabilities. As you expand your capabilities, you automatically grow your market size because you ca. Your addressable market's bigger. So I wouldn't say it's one or the other. You know, you could argue, yes, electrification, you know, is, you know, will potentially drive higher value components for us, you know. But I think there's as much growth opportunity in electronics as there is automotive based on what we do and how we do it. Okay. Thank you.
Good morning, everybody. Glad to see you're still awake. I'm the last one in this segment, so no worries. We're gonna get a break here in a little bit. I'm very happy to be here today to talk about a segment that is unique to CCL, I believe. I've been in the security print industry for 30 years. I joined Banknote Corporation of America in 1990. At the time, it was a family-owned business that my father formed. In 1995, I became president and CEO and served in that capacity until we were acquired by CCL in 2015. Since that time, I have remained with CCL and am responsible for the continuing growth of government printing contracts in the security space. So CCL has two distinct business lines.
Banknotes, polymer banknotes, which I'm sure everybody in this room is very familiar with, as Canada has all polymer banknotes. There are... CCL, this, this particular business came with the acquisition of Innovia in 2017. Right. So we're the number one leader in polymer banknotes. There's 80 billion notes in circulation today. We have 70% of the market share in 35 countries, five of them being in G20, which is Mexico, Australia, the U.K., Saudi Arabia, And did I miss one?
You can.
Okay. We have three production locations worldwide: in Mexico, the U.K., and Australia. Australia is where the first polymer banknote was developed and issued for circulation with the Reserve Bank of Australia. The other side of the business is the business that I grew up in, which is security print documents and we're located in North Carolina, in the United States, and we predominantly service the U.S. government, basically printing all the documents that they no longer print inside the government. So we're doing things like passport elements, treasury checks, Social Security cards, postage stamps. The postage stamp business is really what put us on the map. We were. All postage stamps used to be printed inside the government, and we privatized the industry.
In 2006, I think, was the last postage stamp that was produced by the U.S. government. So I have a quick video here.
Banknote Corporation of America, part of CCL Industries, is the leading security manufacturer in the United States, providing products in the government, brand protection, and identity markets. We strive for ruthless perfection. At our core, we are driven to create and design while working closely with our clients to deliver premium security features to deter any potential threats. The process of creating highly secure documents for our clients begins in collaboration with our design team. Through our advanced equipment and dedicated staff, we are able to produce over eight billion postage stamps annually. BCA's ambition to innovate is driven to action through maintaining various printing capabilities within a single secure facility. We are Banknote Corporation of America, and we remain dedicated to our promise to deliver.
So, as I said, we serve all the key government sectors in the United States: Department of the Treasury, Government Printing Office, the United States Postal Service. But since that time, since being acquired by CCL, with the worldwide audience and the abilities of CCL, we've been able to actually get international business. So we are growing in that respect. Through our relationship with the United States government as a trusted supplier, many other governments look to them for leadership in security features, et cetera, and so they will point them in our direction. Many opportunities out there for production of security documents in other governments as they see it as a benefit to have them produced in the United States. So significant growth ahead? Yes.
Since the acquisition, CCL has invested significant capital investment. We've been able to diversify in many other products. At the time of our acquisition, we were paper-based secure documents. Since that time, we have put in a clean room. We're able to do credentialing for the federal government and for ID cards, et cetera. With the identification fraud today, it's very important that we can secure these documents. So the federal government has looked to us to help them with that. They actually do credentialing inside the government as well, but mostly just for the U.S. passport. So they're looking to us to do all the credentialing for all the other units, FBI, TSA, et cetera.
We have a very unique and talented design group within BCA, and by investing in the latest and greatest security design software, you have to have certain credentials and certifications in order to have the software. We're the only one in the United States that has that. And so it enables us to do security design. We have just been awarded a contract with the U.S. government for all security documents. We are doing the design for them. So the new U.S. passport will be designed by us. Digital printing has been around for a while, but not in security print. There's now software that allows us to put features that you can only get in digital printing into security documents.
So we're now working on that, and we are the only printer in the United States that has that capability. We also have patent-pending card technologies for ID document or ID credentialing. By working with Checkpoint, we're able to develop a RFID inlay that is sourced in the U.S., which is extremely important for the supply chain. So what is the CCL Secure polymer banknote products? With electronic transactions today, everybody asks the question: Is cash here to stay? It is definitely here to stay. We've seen year-over-year growth in banknote circulation of 4%-5% per year. 29% of the people in developing countries are unbanked. In the United States, we, too, have unbanked. About 5% of the people in the United States are unbanked. It's widely used for point-of-sale transactions.
It's secure, it's recognized by everybody, and it definitely. Polymer only represents 5% of the banknotes that are out there today. So we find great growth and the opportunity to bring polymer to other countries. We're continuously innovating with new products that meet certain product sectors in the banknote industry. So you can see the polymer adoption. Since 2018, the countries in red there have adopted polymer. It's an interesting sell in the polymer market. Somebody has to be first. Nobody wants to take that risk, and so Australia came on first, and then banks such as Mexico and Canada came on. In Canada, they adopted polymer in 2011 and got all their notes transferred to polymer by 2013.
In 2015, a study came out that counterfeiting had been reduced by 75% because of the polymer note. Okay. Any questions?
The obvious question is, is there any discussion within the U.S. government to adopt a polymer banknote for the U.S.?
Yes, there has been discussion, and it is certainly being considered.
Okay.
It's a long, it's a long sales cycle, as you can imagine, when you're looking at banknote production because of the, the redesign, how you handle the cash in the cash systems, etc . But it is being looked at, as an, as an option.
So given, I think you said you were awarded a contract for all of the U.S. security documents. Is that correct? Is that what you said?
Any security document that the government doesn't print. So obviously they focus on banknotes and passports in the United States, in the government. They typically had printed visa, the travel visas and other documents, postage stamps, for example, but they soon realized that that really wasn't their core competency. And when we were at Banknote Corporation of America, when we started, that was our goal, was to privatize the stamp industry. At the time, the stamp industry was about $200 million in sales annually, and that was our goal to privatize. So in 2006, the industry totally privatized, and of course, we saw competitors come in.
So, if the U.S. government puts up an RFP to print polymer banknotes, obviously you would be a prime candidate, I would think. Who else would be in the running? It would seem like you would probably be most likely choice for them.
I can pretty much guarantee here today that the U.S. government will never give up the actual printing of the document. Now, whether they go to polymer, that's a different situation. So CCL Secure supplies the base polymer substrate with high-security features embedded in it. It is then shipped to state printers like the United States or, well, Canada, Mexico, where the actual printing of the note is then applied and finished. So we are providing the substrate, the polymer substrate with the opacification that allows for the reception of intaglio printing, and also with high-security features that you really can't get in paper notes.
Okay, and then just the last one, just the contract that you talked about or you mentioned that you were awarded, can you give us a dollar value for that contract?
No.
Okay.
Can you just give a rough size for this segment from a dollar figure, and then how it splits between your legacy business and the currency printing business?
Yes. CCL Secure is about CAD 250 million annually, and I'd say we are about a third.
A third. On polymer, the slide indicated 70% market share. Can you just talk about the competitive dynamic in polymer?
Yes. So of course, we got the hard work, right? We developed the product, we got the first bank signed on to actually issue and circulate polymer banknotes. The success of that situation in Australia triggered other banks to be looking at. There's many reasons why polymer notes are advantageous to any government. The durability, they last 4 x longer than paper notes. The security, you can embed many more security features into a polymer note than a traditional paper banknote. It's safer, it's secure, it's clean. It doesn't have a poor surface, so it doesn't You can wipe off the surface that you can't do in a banknote. Also, for recyclability and sustainability, polymer is very good.
It recycles, much different than a paper banknote, which you would think would be recyclable, but the ink actually penetrates into the fibers, and it's difficult to recycle.
From a market share perspective, like when you see, say, the UK government putting out the king on the note
Mm-hmm.
How does that process work for Innovia? And like, how does that RFP process-
We have, Yes, the RFPs are, we do supply the Bank of England. As I said, there's been some other competitors come into the space now, and many governments, just like many companies, don't always feel real comfortable with a single source solution. So by having this competition come in, sometimes those are split, but we do have contracts. You know, they're long, long-term contracts that we have with the governments for the supply.
There's been an increasing use of non-physical currency in the world for transactions. Have you done any analysis as to how much of that is, and how fast and steep is that decline in the use of physical currency? To what extent can you offset that by new wins with new central banks to foster either sustainable growth or actual growth, if you can penetrate those central banks at a faster rate than the reduction in currency?
Right. Even with all the electronic and e-commerce today, there are countries, 11% of the transactions are, even though they're e-commerce, they're delivered, and they are paid by cash. So that is happening. There's legislation around the world to ensure that cash is accessible and being accepted at point-of-sale locations, et cetera. There's actually legislation to make that happen. Even with the electronic e-commerce that we see growing today, we're still seeing a 5% increase year-over-year in the circulation of banknotes. I
Cash. In the United States, the statement is very public. The iPaper was launched in 2007, and since 2007, notes in circulation in the United States have doubled.
Yeah.
You have to remember, cash is used for a lot of things outside of retail transactions. And we are also more focused on the number of notes in circulation rather than the percentage of the GDP that might occur. So when you have inflation, that's also a driver of consumption of banknotes. It's not all about what happens at the retailer.
The outlook for growth is tremendous in polymer notes. 5% of the countries today are the, have adopted polymer. There's great opportunity.
If you exclude China and U.S, Oh, sorry. If you exclude China and U.S. from that, what percent would you say is available for polymer, polymer mega? I know it's 5% when you include U.S. and China.
The big country, you've got China, you've got Europe, you've got the United States, and you've got India. So they're the big four that everybody wants, but they're also the four most difficult. So you really have to think about those as one group, and you have to work on them very long-term. You need a very long horizon, and you have a whole bunch of countries in the middle that you can then go after so, But it's a long sales cycle, you know, very conservative customers, probably the most conservative customers of the kind we have anywhere in the company.
Things can happen very slowly, and then suddenly, bang, you get a big contract like the one Sandy got from the U.S. government in the past year, which we'd never would have predicted five years ago, but it's happened. So you have to have a long-term horizon and think about any country in the world, literally.
If you think about the pandemic, what did most governments do? They printed more banknotes, right? So those were great years during the pandemic. But now you will see that slow down, just like everybody else is seeing the effects of the pandemic today. But there's growth out there to be had, and I think it's sustainable, and I think the future is great for polymer notes, as well as security printing. You know, we're gonna be able to leverage the high security facilities, which carry a lot of overhead, to meet the strict requirements of the government, what you have to do to be able to print a secure document. But we're gonna leverage those locations and expand our footprint in security printing as well, security print documents.
just a follow-up or another way to ask that same question. So within the next two years, is there a big volume opportunity for the polymer banknote business?
There's always big volume opportunities.
But for example, like when you closed Innovia in Q1 of 2017
Yeah.
The Bank of England was already talking about the GBP 20 note
Right.
2020. Is there something out there that perhaps-
Always.
Yes.
that we haven't realized? That's
Always.
Yes.
Like what?
Always. But, Well, first of all, we can't talk about any of them because they won't let us.
Okay.
All these are pretty sensitive people about what we can say publicly about what's going on before something has been publicly announced. So we can't talk about that because that's confidential. But there's always a huge pipeline of confidential projects with customers. But whether they happen this year, next year, five years, or 10 years, that we don't know.
And maybe just-
The Bank of England, to give you an idea, took 13 years to migrate from paper to polymer. 13 years from the first moment of the first project to execution. Romania did it in six months. So you just don't know, and you can't predict, and you have to accept that's the way it is.
To be fair, the 20-pound note was, like, over six billion of, like, notes. So maybe just an accounting-related question.
Yeah, but, But the 20-pound note is not a big note in the context of the world. I'm sorry, it's just not. It's not, In the world of currency, the big demand is typically in emerging market countries. So, the developed world, the developed world notes outside of the United States and outside of the euro, there's no single denomination that's economically meaningful.
Thank you.
Just in terms of pricing of polymer versus paper, when you present the idea of switch, how much of a switching cost would that be to the central banks? Is it an issue, and how do you pitch the idea of the benefits versus the cost?
Depending on the product, the product line in there, there's a product today that we're working for the lower notes, which is a very good opportunity. We've developed a new product, and that cost to go from paper to polymer is zero. It's equal, and the durability is 4x-5x times longer.
Depends how many security features you're putting in the notes.
Yeah.
The developed countries typically pay more for their banknotes because they want more security features in, 'cause not many people wanna counterfeit the Pakistani rupee, but the $100 U.S. bill gets a lot of attention. So depending on where you are in the likely to counterfeit, you're gonna pay a lot more for the security features in your notes. Okay.
Mm-hmm.
Thank you, Sandy.
Mm-hmm.
So we're gonna take a short break now. It's just after 10:00 A.M., so we'll be back in the room at 10:25 A.M. Thank you very much. Okay, everybody, if you could take your seats, we're gonna get started again. Thank you. So I'm gonna introduce you now to Mark Cooper, who's the President of our Avery segment.
Good morning. I'm Mark Cooper. I run the Avery division, and spent most of my career working in the label and print industry. Spent a little over 20 years working for Avery Dennison, and I joined CCL in 2013, just after the Avery acquisition. Just gonna give you a short overview of Avery today, tell you about who we are and where we're heading. So today, Avery is a $1 billion segment in CCL. We're the world's number one label brand used in homes, offices, businesses, and schools. We sell our products in more than 50 different countries around the world, operating from around 22 manufacturing facilities and employing more than 2,500 people. Since the acquisition of CCL by CCL in 2013, we've acquired something like another 20 different bolt-on businesses.
And to give you a little insight into CCL. Why am I saying CCL? Well, an insight into Avery and what we do, I've got a short video for you.
three, two, one .
At Avery, the heart of what we do is customization enablement through advanced software. It's what connects a flower stake manufacturer and an event badge provider, or a label on a preschooler's water bottle, and a hotel key card made from sustainable materials. Each of those customizable products is developed by a business that shares the need to deliver custom products in any quantity their customers require, and they need to be profitable doing it. Avery's acquisition by CCL in 2013 came at a time when e-commerce growth and changes in purchasing habits allowed us to explore adjacent markets. We shifted our business focus to address the customization needs in these new markets, and Avery's web-to-print, direct-to-consumer solution was born. We acquired businesses with strong positions in their markets but lacked the resources and capabilities to grow faster.
Avery provided the software tools, development expertise, resources, and supply chain capabilities to connect custom order intake systems to their manufacturing workflows more effectively. Today, along with Avery's DIY retail and our direct-to-consumer custom printed label business, the Avery family of brands continues our expansion into new segments. We've grown to 20 acquired businesses serving customers in a variety of markets, and what binds the products together in each of these markets is customization, made possible by Avery Solutions.
Under Avery Dennison's ownership, the Avery business was 100% focused on the reseller community, selling its products to stationery wholesalers and dealers, office superstores, and to mass market retailers. That strategy really changed after the acquisition to focus on a third segment, our direct-to-consumer or direct-to-business brands, and that started with the creation of our own online WePrint business. The reseller business, though, remains hugely important to Avery. Represents about 60% of revenue, 75% of which today in North America, and with very stable, healthy margins. We have a greater than 70% market share in the label category in our core markets and growth is really fueled by four areas: the trends in personalization and customization, growth in e-commerce, and the rise in the number of small and micro businesses.
And there's also potential share gains in our commodity categories as well. And while we retain a strong position with our reseller customers, demand for traditional office supplies is threatened by ever-changing consumer behaviors, digitization, and more recently, by the reduction in in-office working. Our reseller customers are also looking for growth beyond the traditional office supplies categories to fuel their future growth. At the same time, we've seen a rise in those shopping and searching online, those who've traditionally not purchased through these reseller communities and who prefer to deal directly with the manufacturer. This was a growing market, not being served by Avery before the acquisition, so it's both a gap and an opportunity.
Our direct-to-consumer business, the strategy really since 2013 has been to reduce our dependency on this reseller channel and focus on that growth potential of those shopping online and the adjacent categories with similar consumer needs. Our WePrint business allows consumers to design custom labels and have us print them for them, and we've expanded that business now into more than 20 countries. We've acquired businesses that have the potential to be market-leading brands through their design, product innovation, and service that offer custom products in small quantities. These businesses can also leverage Avery's web capabilities and our best-in-market material pricing, R&D expertise, design and web capabilities, and also our supply chain benefits. Now, we have 8 badge businesses and 8 online label businesses. We see opportunities for further growth through collaboration, sharing ideas, geographic and product expansion, as well as more acquisitions.
What makes Avery successful, and why will we continue to win? The things really driving our success and enabling future growth are shared across a number of these direct-to-consumer businesses. That's our expertise in personalization and customization. Avery's been a pioneer in software that allows users to design and print labels, and many of our direct-to-consumer brands are focused on that same need. Avery has a history of innovation. It's not only in our DNA, it's in our name. Stan Avery invented the first pressure-sensitive label in the 1930s, and we've been innovating in that category ever since. We brought the first laser-printable labels to the market in the 1980s. And today, we continue to innovate, bringing new features and new products to the market that set us apart from the competition.
Our businesses also share a commitment to fast and reliable service. That's often critical for these last-minute but crucial consumables that we supply. We're focused on listening to what our customers tell us about our products, reading reviews, understanding website data to improve the web experience and offer new products. For example, we were puzzled why people continued to buy our 3.5-inch diskette labels when the reason for their existence has long since disappeared. But by looking at what people were using on our sites and what they were designing, we found that this was mostly product labeling, and they were purchasing because of the size of the product and not because of the application. That allowed us to change content and repurpose packaging to focus on how consumers were actually using the products today.
Short run and low minimum order quantities are a common factor. At WePrint, you can order one sticker with no-touch to web, web-to-print production software that allows us to effectively and efficiently make what the customer needs. So for example, our kids labeling business here in Canada, Mabel's Labels, parents don't need to order hundreds or thousands of labels. They can just buy the small number required to label their children's belongings. And a passion for customer intimacy. Understanding what our customer needs are, has allowed us to introduce new services, like in our ID and wristband business, we not only supply the band, the RFID band now, we can produce it, and we can fulfill it, providing a service that mails each one directly to each individual festival goer. And then there's another example.
You know, our PC Nametag business now provides preassembled name, preassembled name badge service. That takes the hassle away from event organizers. So when you arrived today, it was easy for you to find your name badge because it was already in an alphabetized section for you to find it easily and for the event organizers to not have 80 people crowded around their desk at the beginning of a conference. We'll focus on expanding and growing our direct-to-consumer businesses in new geographies with new products and continually improving the web experience for shoppers. We'll defend our Avery brand, selling more and more on e-commerce sites. An expanded range of more than 3,000 label SKUs is already available online today, made to order and shipped in any quantity within 48 hours.
This has already expanded to many of our reseller customers, too, without the need for unnecessary stock and will expand further. We'll continue to innovate and differentiate our products, and we'll manage commodity categories for cash. We'll leverage those synergies I mentioned earlier to get better click rates, access to web tools, best-in-market material and freight prices, and drive operational efficiencies in our supply chain, We'll continue to focus on consumer and customer needs for more sustainable solutions, and as well as leading the way with solutions to questions that have yet to be asked. So we'll continue our journey, transforming from a once analog reseller-focused business to an increasingly digital direct one. And we'll look for more strategic acquisitions that give us access to new markets, new products, where they can leverage the benefits of being part of the larger Avery business.
We'll continue to build on those aspects that make us unique and will help us drive long-term sustainable growth. Thank you.
Yeah, a couple of questions. So just looking at some of the segments of your business, which ones are the ones that are declining just from changes in consumer behavior? What are you doing to offset that? And just on an overall basis, how's the reseller business done over the last couple of years?
Well, let's start with the first of those. The categories that have seen the most impact from those changing consumer behaviors and the digitalization that I talked about is really in that organization and pre-presentation products category. Think about ring binders, indexes, things like that. You might have attended a conference or a meeting like this many years ago, and you'd had a binder with, you know, presentations all pre-printed, and you'd have carried that away, or you dumped it in the trash on the way out, or whatever. You would have, you would have typically had more of those physical materials, whether in offices or meetings, and that's, that's been going away. And we've noticed that trend has certainly declined markedly since the pandemic. People haven't gone back, If I think about our index business, people haven't gone back to doing the things they once did.
They just have stopped doing them altogether. So that's probably the category with the most obvious declines currently. And, you know, we're managing those categories in different ways. Of course, we're still bringing product innovation, but we're taking cost out of the products as much as we can. We're streamlining and reducing and rationalizing where possible. So we're looking at those types of products in a different way to what the way we might have done it in the past. The second part of your question, how's the reseller community doing? It's a mixed bag. There are some, the obvious ones, that are doing pretty well.
There are a good many dealers that are doing exceptionally well, if I think about dealers in the US and in the United States, but they've typically been really good at service, and they've expanded into other categories that aren't these traditional office supplies categories, the so-called JanSan categories and others. So they've done a really good job of knowing what their customers want, understanding how to sell more to those same customers, and not been as reliant on the traditional office supplies. Some of the brick-and-mortar big customers are probably still struggling, and you could see that in some of their results, and they, too, are transforming to move their business either more online or into other segments.
But if I give you a number, for example, I think the total number of office superstores that used to exist in the United States 10, 12 years ago was twofold. Yeah, it's probably about 4,000, and now there's less than 2,000 office superstores in the U.S. That. And whenever our customers take stores out and close them, then that becomes an inventory reshuffle, and you see that over that period of time when that happens.
Sorry, what? So, what's been the trend of your reseller revenue over the last couple of years? Like, your revenue to resellers.
Well, it's a mix 'cause there's been a share shift across those resellers. So, you know, some of it has been a movement from typical brick-and-mortar resellers to more online resellers. So we've seen some volume decline. If I looked back now, between now and 2019, I mean, the pandemic certainly had a significant impact in the office supplies arena, just by people not being in the office and not using supplies. Our volumes in something like the label category are down, maybe small single digit volume numbers, but bigger volume declines in something like the binder category or the index category, where the usage has just gone away.
Okay, and just one last one for me. When I was looking at your presentation on the slides, I don't know if you segment your business way, but what percentage of Avery's revenue is from labels, from all those categories?
It's probably about, just adding up in my mind, it's probably 2/3, maybe a little bit more than that. Maybe it's 2/3 to 70%. If I think about what I would call a label, within some of the direct-to-consumer businesses, it's around that.
Hi, can you
Sorry.
Touch on margins in the segment and, are there opportunities for margin expansion? How should we think about that? And, maybe if you can give some insights into the margin difference between the reseller business and your online business as well.
Okay. Well, the online businesses generally have better margins than the reseller business overall. The reseller business, as I said, they have healthy, stable margins. But let me give you an example 'cause it plays into why we are acquiring businesses and why we're gonna acquire more. If I think of a business like the PC Nametag business, I mentioned earlier, or Mabel's Labels, we acquired those businesses in 2015, 2015, 2016. With PC Nametag, they were kind of broker business. They're great customer relations, great service-focused business, but they didn't really make that much in-house. So when we look at acquisitions, we look at how can we improve margins through what we bring, whether that's our web expertise or whether it's capital investment, that owners of these businesses might not typically have done.
So if there's been significant margin improvement at a business like PC Nametag, through their ability to do more in-house production, which improves margins, but it also means they're able to provide better, faster service, which means they can go out and win new business and more customers. So that—we've seen our ability to do that with most, if not all, of these acquisition companies that we've looked at. Is—That's the first part of your question, I think, but
Yeah. And like, the current margin profile for the business now, we're looking next year or the year out, do you see the opportunity for expansion?
Sure, I do. Within the direct-to-consumer business, I think we'll continue to see, you know, expansion in our business. We'll see more growth in that business than we will in the reseller business. When I showed one of the slides earlier, I said one of the reasons we were reducing dependency on the reseller channel is we could see that the reseller channel was producing its focus on these typical office supplies categories, and they've continued to do that. To the gentleman's question earlier, you know, this is a business that we still think is really important, but it's a business that will decline over time. And so, and coupled with this change in shopping habits, people are buying our types of products from different types of arenas, and they want them served in a different way.
So that's why our online label kind of businesses are gonna be growing much faster than our traditional 100-sheet label boxes in that you buy out of Staples or wherever you might buy them. That business, whilst it still has some growth potential, has more limited growth potential than the online business. Is that okay? Sorry, I thought it was a hand, but-
I have one over here.
Sorry.
Just that, over the years, over the past couple years, you sort of acquired into somewhat adjacent industries relative to, like, the core Avery. You know, hotel key cards, the horticultural acquisitions that you've done.
Yeah.
Can you just talk about sort of the rationale on how that connects to the traditional Avery business? And then, are there other industries that you would consider entering in a similar way as you did with horticulture and hotel key cards, things like that?
Yeah. I'll deal with those one by one, 'cause they're slightly different, but I think some of the reasons are the same. So, you know, we bought a significant number of badge businesses. You know, Avery was in the badge business, and we've expanded into that segment 'cause a lot of the things are the same. It's about being able to customize, it's about small orders, fast service, and increasingly online, from the point of view of where the shoppers are going. And within those segments, as we've expanded into something like the badge business, we find ourselves dealing with lots of the same types of segments. So to give you an example there, all of our badge businesses deal in the hospitality segment. So
Our ID& C band business regularly being asked, supplying RFID wristbands to hotel resorts, "Can you also do key cards, or can you " So you would, You naturally see these adjacencies of where you can add value and service that same customer, a little like Derek said earlier. We're serving that customer, and we're just bringing more products to them. So that's one of the reasons why something like RFID band, RFID hotel, made sense to link with the ID & C band business and broadly with our badge businesses. And in terms of the horticultural business, it's a label business. And it's it,
If you looked, if you went to the Master Tag business, if you're a small nursery, you're a grower, which is a highly fragmented market here in the U.S., not at the retailer end, where it's dominated by Lowe's and Home Depot and Walmart. That's where all the reselling activity is. But the growth market, the growing market is, like, fragmented with all these hundreds of thousands of different growers. And you're providing a range of plants. You need access to, And in the case of Master Tag, it's an online ordering platform. It's software driven. You have access to 300,000 different photos of different plant types with all the relevant care instructions. The sort of thing as a small grower, you don't have the time to really deal with.
So you can go online, order your 6,500 plant tags or your 65 plant tags, exactly what you need. They arrive three days later, and you stick them in the plant pots, and the plants go straight to store. It's that same kind of service, custom products, low minimum quantities, and focused around what I would still call the label or the, the printed final product. Two examples. I hope that answers the question.
Hi.
Hi.
So, within the direct-to-consumer business, you guys already have a lot of the technology and the software. You see opportunities to organically incubate DTC brands versus, Yeah, like, how do you make that decision between buying versus building? Thank you.
Yeah. That's a good question. I mean, I think when it was I think we now have a position, for example, within our badge businesses, where we have maybe a little more scale and a little more capabilities, where we have started to get into other segments within, for example, that badge business, where we're doing it ourselves, and growing that, the new product capabilities organically because we have the customer access, Within the label business, it was easy for us to get into the WePrint business because that was our fundamental product, and we already had the software capabilities and the web presence to be able to get there. But as soon as we start looking at adjacent categories where players already exist, it gets much harder to just push your way into that market.
So sometimes you are you ask the question: how long is it gonna take me to build that organically, and how much is it gonna cost me? Because the cost is not always about building a plant, it's often the cost is about building market awareness, and that's, that's more of a marketing cost than anything else. Whereas, can I get there more quickly by getting a foothold, by buying a niche player or somebody who has those capabilities or has that market share or market presence? And so each time we look at those things, we look at the trade-off. I think as we've got scale more in these online businesses, and particularly in this badge and online labeling segment, I think we'll have the capability to do more organically in the future.
But at this point in time, if you gave me the option, I'd say we're gonna do much more in the acquisition area than the organic area today.
Okay.
Okay. Thanks very much.
Hello, my name is Ben Lilienthal. I've been working for CCL for the last 20 years. I started in the home and personal care division, and through the years, I got the responsibility to run the other divisions in Mexico: Security, Innovia, Avery, and the ones that we have in Mexico. In the last two and a half years, I had the responsibility to be in charge of Checkpoint. So let me talk about Checkpoint. In Checkpoint, we have two technologies, specifically. We have RF and RFID. For the people that don't understand what is RF, it's radio frequency. It's a label that you can see when you are leaving a store, and you don't pay, that sounds if you don't pay. So we call it those labels, dumb labels, because you have only ones and zeros.
The natural evolution of these labels took us to the RFID. In the RFID, we have the capacity to handle much more data that start opening a lot of opportunities for the group and in the different industries that we have. Checkpoint is a global company. We have a participation in 34 countries. We have 56 locations with a total employment of 4,900 people. On top of that, we have 50 people on R&D and 70 people in the software area, plus 500 people in the field service. How is divide, Checkpoint? In Checkpoint, we have three product lines. We have the hardware part, that is the antennas, the readers, the things that you see on the store. The second product line is the software.
We are creating the different softwares that we are helping the customers to manage the stores or the different environments that they are. The last segment is the label syntax. That is where we relate everything. Through these three product lines, we have different verticals. Our strongest vertical is garments, but through the evolution of RFID, we've been participating in the different segments. As you've been hearing from the other colleagues in the different divisions, we are participating in the food and beverage, pharmaceutical, logistics, do it yourself, et cetera. What is our competitive advantage in Checkpoint? I believe we have a great reputation on RF and RFID in the different retail verticals. We've been in the market for a long time, and we recognize as one of the leaders in the market. We have 500 field service technicians. This is important.
We connect every one of our hardwares to the different stores with the capacity to install around 335,000 locations in a year. We can deliver, we can deliver a full solution in a faster way. Why? Because we control all the manufacturing and all, all the products, so when the customer needs something, we can deliver really fast. Through the departments of R&D and software, we can deliver unique solutions to the customer, so we are completely integrated. We are one of the few companies in the market, completely integrated. Why we see an opportunity for Checkpoint to grow? I think the, through the years, we've been having the problem of the stocking. I believe, and we believe, that in the first quarter, the end of the stocking is going to get.
Maybe not the end, but at least we can see light at the end of the tunnel, so finding the good times can come back. Second, we are going to take advantage of all the infrastructure that we have on CCL. We have different divisions, as you've been hearing through the day, with around 240 different facilities in the world. The customers believe in CCL. We deliver day to day, the best quality, innovation, and service. So through them, we are going to expand our footprint in the market. That's what we call last mile. As I said, we have a solid reputation on the RF market and a solid reputation on RFID. To make this happen, I base all the strategy in what I call the three S's: simplification, standardization, and systematizations.
When we are talking about these three topics, we are evaluating every single process, every single activity, and every single operation in the company, to be able to really focus on the cost cutting, cost control, and efficiencies. To make this happen, you may ask how you are going to do it? You will need some extra capacity. We decide to put a new plant in Mexico for chip bonding that is going to be ready on the first quarter. With this, we are addressing a couple of topics that are important. One, we have a real contingency plan that is important in the market, and second, we are close in the supply chain, the supply chains for all the Americas. So let me show you a small video, about Mexico.
Over the years, CCL has recognized the immense potential that Mexico offers. Its strategic geographical location has allowed us to efficiently serve our customers in North America and beyond. Our investment in Mexico is a testament to our confidence in the country's business environment and its talented workforce. Welcome to the future of RFID technology. In Checkpoint, the past is essential for understanding the present and shaping the future. Checkpoint is proud to introduce its state-of-the-art manufacturing hub, spanning an impressive 107,600 sq ft. This facility is set to revolutionize the RFID industry. With a staggering five billion capacity for RFID inlays, we're raising the bar for innovation and production. But what sets us apart is our commitment to excellence. We're not just expanding, we're evolving.
Our integration with Checkpoint China RFID enables us to harness cutting-edge technologies and streamline the supply chain process, all by being closer to our customers. This synergy will enable us to provide you, our valued partners, with unmatched RFID solutions, driving innovation and efficiency. At Checkpoint, we're not just building a factory, we're building the future of RFID technology. Visit us in Mexico City and be part of the RFID revolution. Together, we'll shape the future.
So we are not, we are not new in Mexico. In Mexico is one of the few countries that we have all the divisions, so we clearly understand the dynamics and the execution of every division. In Mexico, we have, we have around 4,000 employees, so not only we are taking care on the supply chains and contingency plan, we are maximizing our position in the nearshoring. That is going to bring us a lot of benefits. Lastly, the sustainability. You've been hearing across the board about the commitment that CCL has on this topic. We are evaluating in Checkpoint from the packaging, extrusion of plastic, with reutilization of the parts and creation of the energy, even for the plants. So we are on top of that. Thank you. Questions?
Do you have a sense, can you provide the margin profile of RF and RFID versus traditional clothing labels or other sorts of labels, in Checkpoint?
It's a better margin because we are covering more performance on the label. When you are talking about the normal label, it's pure decoration. Here, you are controlling inventory and efficiency on the process, so you can charge and get a better, a better margin.
I guess you're not going to be able to quantify the multiple of how much better it is?
Better, as they describe it.
Fair enough.
You recently on the last call talked about just expansion outside of retail, and you had an interesting point in one of your slides about leveraging CCL's relationships outside of retail. And if, if I'm reading that correctly, you're suggesting that that will help you get potential RFID adoption in those industries. Can you just talk about where you see the biggest opportunities in terms of industries beyond retail?
or beyond apparel retail, I guess?
I think we have a, Our biggest market right now is garments, so I see opportunities in every one of the segments in Checkpoint. Why? When we are talking about hardware, we've been one of the leaders in RF antennas in the stores, what we call the dumb labels, no one and zeros. As the RFIDs evolving and start impacting the different industries, we believe, and we start noticing a transformation from RF antennas to RFID antennas. So we believe that we are going to have a huge impact on the hardware part. Second, we are moving, or we are extending our position from the stores to the different segments. When I'm saying that, we've never been in the warehouses, so we are moving our applications to the warehouses, because at the end, what you need in every solution is hardware, software, and labels.
So we are just moving through the technology that we have or know-how to the warehouse. At the same time, as Lee was expressing, the position on the hospitals, the new stores for us are going to be hospitals. It's the same handling on inventory, it's the same speed that they are looking and the same security that they are looking. Practically, it's the same software with some level of modifications, some levels of modification in the softwares, but the same label. So we are expanding in all these different environments on the part of hardware and software. So I believe the market's still learning. RFID is not a new technology. It came from World War II. They just start using it in a different way. So the people are. It's been really creative in the way they are using it.
How to control the agriculture part. When you are talking about food, the food industry, there are two important segments on that. The one that they are talking about, single use to multi-use, how you control the plastic parts. So it's infinite possibilities on the plastic products. And the other part on the food industry, how you control the supply chain. If you are going to get a salad, they want to know from where it come, the avocado, and where it comes, lettuce. And when you compare this to any product, it's the same need. They want to look how is the garment is produced, from where it came, the cotton, so where it was produced the jeans. So at the end, it's really hard to define where is the market of Checkpoint.
At the end, to be honest, our market is any physical product that you need to count, and you need to accelerate the know-how and the speed to the market through the supply chain. So our market is going to expand dramatically because we are moving from garments, that it was the traditional use, to every physical product. So imagine the possibilities. And through CCL, 240+ facilities, we have a good reputation, good understanding. The ones that we don't know, we are going to learn.
Can you just help understand a bit, as you ramp up this RFID tag facility, like, what kind of impact is that gonna have on revenue within the Checkpoint segment? And then, are all of the tags that this plant is manufacturing entirely for the Checkpoint segment, or are they for other parts of the label, the CCL business as well?
We are going, we are going to have some, let's call it, last mile customers, that they are all CCL customers in the different segments. So naturally, we are already in pharmaceutical, food and beverage, home care, automotive, and electronics. Maybe we are missing logistics. So, the two facilities that we are going to have right now for chip bonding, one is in China, one is going to be in Mexico. Practically, the one in Mexico, it's not so much for garments, because we don't have so much garments in America. Everything moved to Asia. Maybe in America, we have Central America for the fast response on the garments. So it's going to be more focused on the segments that we've never been, in the segments of logistics, aerospace, food and beverage, et c.
The one in China is going to be for those segments, plus the natural segments that we have on garments. It's going to impact all across the board. What is our segments? Where every day we have a new opportunity, because every day, the people want to control a different product.
What is RFID as a percentage of sales within Checkpoint right now? Is-
Right now, our total number is CAD 250 million from the 800
Checkpoint.
In Checkpoint. 70% in Checkpoint, 20% Avery, the rest is in the different divisions.
And with, with this new capacity coming on, would you expect those sales to increase, Would that
Double digit.
It would double digit? Okay.
For the next years.
For the next years. Okay.
At least double-digit.
Yeah.
Okay.
Would cost be still the biggest determinant to even faster adoption? I know it's obviously double-digit growth, very attractive, but is it the cost of implementation that's still the pushback? And will building scale bring your cost down sufficient to keep accelerating the adoption trend of RFID?
What, what?
The question is, is the cost of the tag a factor in adoption?
I think, everything is, offer and demand, no? And I think there are a lot of big projects that they are making the chips, cheaper. And you have a lot of initiatives in the States about the chips, that is the initiative called Chips. So there are many initiatives to produce the chips. So in China, you have some players, in Vietnam, you have some players. So I don't believe the chip, issue that we used to have in previous years is going to be a factor. I think the prices are going to go down as the demand grows up. And it's going, you just need couple of good players or big players in the different segments, in logistics, in retail, to force the rest of the market to incorporate these benefits. Once they incorporate, everything is going to be downhill, eh?
So it, it's going to be natural. You know, we are talking about, COVID. Many industries were affected. I think for the RFID, it really changed the game. Why? Maybe, At the end, you have couple of seconds when you are in front of the screens to make a decision, and those seconds, you need to decide in two milliseconds from what warehouse is going to come and from what store you are going to ship. So there is not another way, at least today, that you can make a fast decision to make that, that shipment. So all the e-commerce really accelerate this decision. The supply chain accelerate this decision. So the people are looking for that. When we were in the market, and we are still in the market, in the market of protecting the products, this is more about education.
You go to different countries, and maybe the level of stealing the things is less or more, more or less. When you are talking about RFID, it's about inventory, and everybody needs to control the inventory, and everything needs to move faster. Five years ago, you were happy if Amazon was delivering to you in two days. Today, if they don't deliver in the same hour, you are, you are not happy. So to make that happen, you can put an army in a big store. There is no way the data is going to be up to date. So everything is going to move in that direction. And when you are talking about that, you are talking about every physical product, so imagine the size of the market.
The biggest limitation today to broader adoption is reading. So the cost of the tag is not a prohibitive factor. The coding of the tag is not a prohibitive factor. But in the stores, you need a certain proximity to the item to be read. So if you had a retailer here, they'd say they'd like to be able to put them like the recessed lighting in this room and have it fixed, and then just press a button on their phone and then have everything automatically read. So the reading of the tags is still. And the technology around that and the software behind it, that's still a factor in the adoption.
The education of the people, no? It's right now we are in the stage to educate, so it's a new market that is appearing. So having the three fundamentals, hardware, software, and labels, I think we are one of the few or the only one that can give that solution.
Are there any M&A opportunities that would help accelerate your efforts in RFID? And then on the software side, is there room perhaps for artificial intelligence to help provide some sort of offering that would accelerate the RFID adoption as well?
I think the RFID is going to be the vehicle. The artificial intelligence is going just to be a new way to analyze the decision on the product, but you need to have the data, and what we are bringing is the data. So artificial intelligence is going to impact us also in every activity that we have, just to make it faster.
Is there something on your software offering that you're developing?
We are working on that, on the software, for sure, to make the stores and the hospitals more intelligent in their decisions. That's for sure.
On the M&A targets, are there M&A targets that would help, you know, accelerate the development of RFID at Checkpoint?
Yes.
Just want a better understanding of your sales efforts. Are you marketing directly to retailers, or are you marketing to tech vendors who are then selling into retailers?
Both.
Both. Okay. Is there, is there a mix between that or?
It's a mix.
Okay.
It's by far direct. We do some software things with third-party resellers, but it's by far direct. Okay.
Thank you.
Good morning, everyone. My name is Simon Huber. I'm responsible for the Innovia European Films business. I'm with Innovia sales since 2014. I came through the Bandfix acquisition in Switzerland at the time, but I'm in the industry since 2017 since 17 years. And alongside, we have Benny, who is managing the Innovia America business here, which will take questions if there are any questions about the North American business specifically, but I will hold the presentation. So Innovia has 90 years of experience supplying specialty films to the labeling and the packaging industry. Our expertise lies in designing products to resolve demanding customer applications. We surface engineer these products to enhance the performance at the customer on their machines or for the product itself.
This is all supported by high-class technical engineers and polymer scientists to deliver these technical products. We've a little video which will give you an impression on our extrusion side in Mexico, which I'm going to show you now. So Innovia has a global footprint. We have six production facilities, four in Europe, one in Mexico, and one in Australia. We employ around 1,400 employees, around 15 R&D, mainly scientists and technical engineers, to develop the products in two research and development centers. One is in the U.K., and the other one is in Mexico. We have around 250,000 tons of production capacity to produce polypropylene and polyolefin films.
We have around CAD 700 million in sales, and we're delivering to around 100 countries in the world from our six production sites. So we serve four major markets. We're very concentrated and focused on the labels market, where we cover the full product portfolio range, be it pressure-sensitive labels, in-mold labels, wraparound shrink sleeves, linerless and embossable film. We also have a graphic arts division, which we just launched one and a half years ago, where we're selling PVC-free films for self-adhesive, short and intermediate graphic art applications. This is mainly going for promotional window applications to the retailers or for bus advertisements.
We producing also the banknote film and supplying them to CCL Secure, and we also playing in the packaging field, market, but we only concentrate there on niches where we can make money, so we are not playing the commodity game there. So we focus on coated films in packaging or monostructure with recycled content in it, or with barrier function films, which we deliver to the packaging industry. Our sales by regions, so by far, our biggest region is the Americas region, with 54%, and around 40% we deliver to Europe and Middle East, and Africa, and around 7% to Asia Pacific. By far, the biggest market segment, as I said before, is labels, which accounts for about 48% of our sales.
We deliver 31% is packaging, tobacco is 17% and 4%. Graphics is reported into the label segment, as it's still small, but it's one of our growth initiatives, and where we see big potential for our film in the future. The strategy to grow the business for Innovia is firstly to achieve leadership in label films with all kind of label techniques, and especially in the in-mould and sleeves and pressure-sensitive sleeves market. In sleeves, Reinhard has touched on before. We producing what they promoting as EcoFloat, but, you know, we are selling as RayoFloat in the market. This is a big growth driver for us on the top and bottom line.
IML, we just entered that with our Poland acquisition in 2020, and this is where we see big potential, also through acquisition, to cross-sell that we can cross-sell there. We continue to invest in new coating lines and extrusion technology. Not sure if you have seen the announcement: we're building a greenfield plant in Germany specifically for our label, for pressure-sensitive label applications. We invest in a new coater in Mexico. It's their first coater they're getting, and to serve the North American market with top coater products out of Mexico. And we also invested in a new coater in the U.K. to expand our graphics arts business. The third pillar is finding more niches in the packaging space.
I said that there is more, it's all about recycling, and the legislations which are in place or coming up in Europe, which drives this segment for us. But it's all specialty niches. We are not serving any commodity type of film. We are not really interested in that space. There's a lot of other competitors which are better suited to play that game than we are. And lastly, we are optimizing, in 2024, our capacity and footprint, so we're reviewing our footprint and capacity the next few months, and you'll hear more on that in a later stage, I guess. Sustainability is for Innovia very important, as you heard it many times before, legislation is moving into it.
We have already in Europe taxes applied to plastic manufacturers, like in the UK, or we have it in Italy now, where you have to pay certain taxes if you have not 30% recycled content in your film. So this is very important for us, and the industry has to move there. I think we're in very good shape there and are the industry leader with putting mechanical recycled and chemical recycled content back to our process. We also have achieved since 2019 zero waste to landfill in our Innovia plants, which is a good achievement. We try to save energy wherever we can. We're part of all the associations to influence the regulations and to be on top of the game there. Yeah.
That's about Innovia, and happy to take any questions for Innovia now.
I'll kick it off. One question is, how much of your sales are in, for internal purposes, or how much of your capacity is used internally to CCL?
Well, in the revenue numbers, it's zero because it's intercompany. But it's about 10% of the tonnage involved, less than 10% of the tonnage involved is sold internally. But that will change dramatically as Eco Float comes up the pipe.
Okay, and my second question, if you want to elaborate on the... You often say that it's a pass-through business. Can you maybe granularize a little bit more? Like, is there any cost plus part of the business and the rest is sort of just cost or?
I mean, if it's cost plus, it's all cost plus business what we do. So we are the whole, the whole pricing mechanism works always on an index plus a spread. Yeah, this is how the business works, yeah? I think there's some specialties which are not working like that, especially coated films, which we can differentiate. But if you talk about uncoated film, it's always index plus a certain spread you get and you can achieve in the market. Yeah.
Okay. Thanks.
Hi. So just on the contracts again, what kind of margins do you expect going forward, and how volatile do you think those margins would be, relative to the last couple of years?
I think the margins are going to recover. Again, I think you have all seen the results during this year and that the margins have been under pressure. This had to do with a lot of overcapacity in the market and destocking, which has been ongoing for a year now. But we expect the margins are recovering, and we're seeing that already happening.
Just one question. Sean Stewart from TD. When you talk about optimizing the footprint, any updates on, I suppose you're not going to get into specific measures, but scale of what you're thinking of and timeframe to implement?
Well, the big challenge for us is going to be we've got two big new plants coming on board. So one in Germany and one in Mexico, when we put the top coating line in there. That's gonna make us think a lot about where, what we're going to produce where, and we'll get into that when we can. We can't do that today, but that's the driver for it, is we've got much lower cost factories now in the new one in Germany, the one in Mexico, and the one we already have in Poland. And that's gonna make us think about what we produce where.
Thank you.
How much scale advantages are there in this business? 'Cause I believe when you acquired Treofan, it was doing about 19% margins. I mean, I think, Geoff, you mentioned that's, you know, legacy can get there in a normalized resin world. Did that deal or just scale generally provide any margin benefits?
Well, it's a pass-through industry, so if resin goes up a lot, you get a spread. So and the spread isn't a percentage spread, it's a dollar spread. So when you have very high resin prices, then your margins tend to go down. And when you have very low resin prices, your margins tend to go up. So it's the math of being in a pass-through industry. We have the same problem in CCL Container. So when aluminum goes up, we our margins comes down, and when aluminum is low, our margins go up, 'cause it's a pass-through industry.
Is there much leverage on the overhead manufacturing?
Well, it's the that's how many hours you run it. So it's all driven by how many operating hours you run the plant by. That's really the driver, not really the margin.
Can you speak to how commoditized this product is? Are you able to keep it, are you able to innovate at all? Are you able to earn a better margin than some of your competitors? How that works in the industry?
It depends really on the product, but I would say the coated products are less commoditized than the uncoated product. But we have just recently launched a couple of new products which are entirely new to the industry, and which will replace, in fact, other substrates in the market, especially in the labels industry. We're talking about polyethylene constructs today, which are widely used in the home and personal care industry. And it's about, in Europe, an 80-micron thick film, which we have launched a product, a polypropylene film for 45-micron, which is going to replace polyethylene film, 80-micron film.
Are you able When you develop these type of products, are you able to hold on to them, or do competitors
Yeah, sure.
Just come along and copy?
Oh, we tend to hold on, and it, we also try, always try to put the patent on it, if possible.
with the new capacity coming on, I'm just wanna
Yeah.
Will there be, Should we then expect, with the new capacity coming on, there's gonna be more sales here, but we've still, we will still see the volatility in the margin with the resin price?
You're always going to see that because resin is going up and down. Yeah. I mean, we have gone through years, the last two years, resin has been in Europe at EUR 2,000, and six months later it has been EUR 1,100. And you all, you lose that on the top line, yeah? So you have And then you're working through your inventory. Yeah, keep in mind, there is the pass-through is, there's always a lag of probably two-three months, yeah, until you really see the benefit again in the result. So it all takes time to work through then the inventory, yeah?
Hi. Can you comment on the size, like the dollar amount, the margin profile, and then the internal usage of the Eco Float line?
No. I think we're not prepared
For three?
We're not, we're not prepared to give that information.
Thank you.
Sorry, just here.
Yeah.
Just to clarify, the 250,000 tons
Yeah.
Capacity, does that include the German and Mexican facilities?
So the German facility is not included in there because it's just building up, and we plan to start the production in quarter one, 2025. The coating line is not included there because that's purely the extrusion capacity on our standard lines and bubbles, yeah, where we produce the film. The top coating is then a further step in the process, which we don't add in these numbers. Yeah.
Can you help us understand, you know, maybe capacity utilization or, you know, what sort of asset turnover you might have from the capacity once it's built? Where are we today? 'Cause I know there are volume impacts
Yeah.
In the current market, but then again, there, there's capacity being built.
Yeah.
Perhaps footprint optimized. You know, where exactly could the utilization improve or is some sort of magnitude of improvement potential?
Well, I think the most important thing in this business is not asset utilization, but the business mix. So I would say the important factor for us is the more we sell films that are designated to the label industry, the better off we are. There are parts of the packaging business which are profitable. There are parts of it which are very unprofitable, but it's feeding the volume to keep the plants running. So the more we migrate to being a producer of label films, the more money we're going to make. And it's mix is much, much more a factor in this business to drive profit than volume.
Okay. All right. Thanks, Simon.
Thank you. Good morning, everybody. I'm Luis Jocionis. I'm responsible for South America operations. I joined CCL back in 2006, when CCL arrived in Brazil. By the way, I'm Brazilian, and my career started with labels many, many years ago. So I was real young man or a child, let's say, like this. And since then, I've be in the label business, so more than 40 years doing that with passion. So today I'm going to talk about South America. I have my friends talking about the business we have worldwide, so I'm not going too deep in the details. You had a lot already. So South America, we are 440 million people, basically in ten countries. We have three Guyanas, but they are very small.
Per capita GDP is $9,600. I'm going to talk about South America. There is a small video for you, for us. As shown in the video, we are eight facilities in South America so far. We reach 0.3 billion in sales. Biggest facility is in Vinhedo, where it all started back in 2006. Since then, we are managing mostly all the business you guys see in this morning, from Checkpoint to CCL, HPC or CCL Design. We do all in South America. We have been growing pretty much since 2006. I think the growth is driven by very strong execution.
I'm proud to tell you that we could manage to form and to build a very strong team with talented people. And since with this kind of people, we could make acquisitions. We did 8 acquisitions since 2006, and these acquisitions help us to grow. GDP growth was also impacted as it is in all the world, and for next year, we are forecasting 3.1% growth in the region. Brazil is the right place to be. I think it is. Brazil represents 50% of South America GDP, and it was back in 2022, the fourth position in FDI. It was ranked in the fourth position in FDI, foreign direct investments.
First, first was U.S., second China, third Netherlands, and Brazil was fourth, number four. As half of GDP is in Brazil, mostly half of population is also in Brazil. We are 260 million people there, and $2.1 billion in the GDP. So we have a lot of growth opportunities in the country. We are managing mostly all the business we have. Few ones we are very small, still very small, and few ones we are still growing, like in tapes. We are just starting tapes in the region, and it's growing, growing very, very, in a good way. And in all labels, we did not start yet, but it's a very opportunity to grow and to make our business continue in a right direction. So strong position with talent team.
Like I said, I'm very proud to say that we have a very, very good team over there. We have six plants just in Brazil. So from the eight, six are in Brazil. We have from Amazon region and tax-free zone up to the south of Brazil. So very well-positioned, very geographically strong geographically presence. Labels are still our primary business, but we have a potential and solid potential with tapes, which I believe is going to grow very rapidly. Talk about ESG. We are doing a couple of initiatives there. We have a dedicated team just to look into this. I think this is the main drive for us.
So we did in the last few years a good experience with solar panels, and we probably continue growing in these fields to capture the energy that is free for us. So we are ISO 14,000 in some of our plants, and then the other ones, we are working to get it. Zero landfill as well. We reached zero landfill in some plants right away. We are working for all the plants to be zero landfill as well. We are 100% certified renewable energy. So I don't know if you have the knowledge, but Brazil is more or less 100% of energy is hydroelectric generated. So we are very clean in this point of view.
We treat 100% of the water we use today. So, and this, we treat 100% of the water and 10% we use on the flushing in the toilets. So that's a pretty quick story about CCL. I see a great potential to grow. All the fields I look into it, I see that there is opportunities. A lot to do, still a lot to do. And we have been growing since 2006, about 606%. It's a good growth. GDP in the same period was 95%. So I think there is a space to continue. So questions?
Yeah. Just looking at your footprint there in South America, would you consider this a optimized footprint, or are you looking to expand it in certain countries versus others? And why would you select that?
Okay. Yes. Yes, we do, all the time. We have no presence in Peru or Colombia yet, but we are looking for that. For sure, like I said, Brazil is the place to go because it's the place to be because it's 50% of the GDP, but we are looking to other countries as well. And I'm sure we are going to move. We complete now 10 years in Argentina. It's not an easy place to be, believe me, but it's 10 years already, and I think we are very strong in the country and continue. It's going to continue to grow. But we are definitely looking for new positions or greenfield plants for other countries.
Okay. Good.
Okay. Thank you.
Awesome.
Hi, everyone, most of you know me. I'm Sean Washchuk. I'm the CFO for CCL Industries. I didn't grow up in the label industry. I don't have 30 years experience doing labels, but I've been an accountant for over 30 years. I've worked in all kinds of accounting offices since I was 17 years old. I've been in the recycling industry, I've been in the transportation industry, and the past 13 years here at CCL. So with that 30 years, and like everyone else today, I'm going to start with a very exciting dynamic video on debits and credits. That doesn't exist, so we'll get right to the numbers. So for the past 12 years, CCL has generated strong free cash flow. We have a 16.4% CAGR on that. Our free cash flow turnover ratio has always been in excess of one.
Now, we've managed our free cash flow in years, like the pandemic, where we culled our CapEx and our cash flow turnover ratio has gone up. These past couple of years, our capital expenditures have gone up as we've had some pent-up capital demand, and our free cash flow turnover ratios drop, but still in excess of one. Looking at our dividend track record for the past, I guess that's 15 years or 13 years, our CAGR on that is 17.5%. But I think unparalleled in the continuing manufacturing space is we've increased our dividend year over year for the past 30 years. Our dividend payout ratio is quite high, in excess of 20% the last few years. Looking at our balance sheet, we have a solid balance sheet, ample liquidity.
We have CAD 800 million of cash on hand, CAD 1.1 million of unused revolver capacity. Our leverage ratios are low. We finished 2022 at 1.37 x or sorry, we finished 2022 at 1.24 x. We're up at 1.37x here at the end of September. During the course of the first nine months, we deployed CAD 400 million in proceeds for acquisitions. Leverage ratio's gone up. We expect that leverage ratio to drop by the end of this year. We have no significant maturities in our debt till 2026, so we're well-positioned to get through the current interest rate environment. Our capital allocation philosophy, nothing you haven't heard from us before. Jeff and I have talked about it many times. We're gonna maintain a strong balance sheet. We need flexibility to act, to action our plans.
There could be big acquisitions in any one year, and we need the free cash flow. We need the cash on hand and the excess capacity in our revolver to access those large acquisitions, so we'll preserve liquidity. Our leverage goalposts are 1x-3.5x times, so we can maintain our investment grade rating. We'll invest in growth, organic growth initiatives. You heard about a lot of those things today. We're gonna be a leader in sustainability investments, so investments like Eco Float, investments like the Lisum project in Germany, and other small add-ons throughout our organization. Our CapEx is oriented towards 50% growth CapEx. You don't always hear about these things, but there's little projects going on here and there.
Could be a new coater in Mexico, it could be the greenfield site in Innovia, it could be our new plant in Indonesia, it could be the new container plant we're building in Mexico, the new RFID plant we have on the come. Lots of things going on at CCL to enhance our growth. And of course, we'll maintain tuck-in acquisitions every year. We'll return capital to our shareholders. Annual dividend increases for the last 30 years, we expect that to keep going forward. We'll repurchase shares when we feel our shares are undervalued or if our leverage ratio ticks below one. So what did that mean over the last 15 years? Well, our share price has grown at an 18% CAGR for the last 15 years. Our share price has exceeded CAD 70 at times, and we expect that to continue growing.
We're long-term investors, so we expect our share price to grow in the long term. The CCL long-term outlook. We expect through all the things that the fellows and Sandy talked about today, our organic growth rate should exceed worldwide GDP, augmented by tuck-in acquisitions. We should improve our results at Innovia, which will boost our return on capital. We expect to maintain top-quartile EBITDA, so 20% margins in the EBITDA. In so doing, we've aligned our management compensation arrangements. Our short-term management incentive plan only rewards executives at the target level if our year-over-year EPS growth exceeds 5%. On top of that, we have a long-term incentive plan that's based on three years of operating income, cumulative operating income, that's at a premium to our annual incentive plan.
To further align that plan with our shareholders, we intend to add a modifier to that that's based on return on capital or total shareholder return. I can take questions or we can jump right to Jeff. All right, Jeff.
Thank you, Sean. So the purpose of the day today was to give you a peep under the cover into what CCL is as a company, the diversity of our end markets, the variety of our technologies, and the people who operate these businesses around the world, to give you a chance to meet them and hear from them directly, and to give you just an insight into what our financial expectations are in the year, in the years ahead. So we're as excited about the business as we were 20 years ago when I joined the company. We still think there's lots of room to grow in all the segments we have.
There's businesses that need to do better, there's businesses that need to grow that are already doing well. We'd like to get the benefit of growth and their profit margins coming straight to the bottom line. So we're very optimistic about the next period ahead. We know that the economic situation out there is rocky, but you know, we're still confident. We've sailed through good times and sunnier times in our history on many occasions, and we expect to be able to do so again and continue in the future. So with that, that's the end of the formal remarks for the day.
But we're all here, so we can take any Q&A you would like, to me or to Sean or to any of the guys here, or we can just wrap up and go home, whichever, whichever you would prefer.
Sean, you went out and you flagged a bullet point there of 5% EPS growth, and that's what the incentive for the short-term incentive is. Did you put that up there to kinda indicate that that's your goal or intention, or is that just, "Hey, FYI, this is how they're incented?
Well, Walter, inherently, we're all kind of greedy, so we wanna make our bonus. So 5% is that minimum target. Achieving better than 5% growth pays out a lot more, and I think that's for all the executives at CCL, and we wanna achieve those higher targets. Can't tell you what those are, but we wanna do better than 5%.
And I'm gonna ask this question knowing that we're in person, and Geoff has the ability to throw things at me, so I'm gonna be mindful of that when I ask this question. But on the M&A side, you know, Sean, you pointed at 1x-3.5x times leverage range. Obviously, that's a very wide range, gives you lots and lots of capacity to do deals. You haven't been overly active outside of tuck-ins. Interest rates are much lower—are much higher now. That gives a lot more opportunity. Geoff, is there any indication that you're seeing out there that some of those opportunities might lead to transactions in the near term?
Well, fair to say, in the last several years, private equity valuations in our industry, partly driven by our own success, so private equity industry looked at our industry, said it's highly fragmented, made some big investments in it that have universally failed. So all, all the private equity investments in, in the label industry have been, have been failures. None, none of them would admit, admit it, but it's financially a fact. And, so that's made it difficult to do the kinds of transactions we would like to have done at scale in the last decade or so. But, things change, and interest rates have gone up, so private equity valuations now are more difficult than they were.
A couple of them have tried to sell themselves in the very recent past and failed to do so 'cause they couldn't get the valuations they wanted. And we've seen interest and we've seen valuations come down, so we keep those railway lines broad because you never know when you might need it. So, a lot of the things we buy are private companies. We have bought one or two public companies in our history, but most of our transactions are private. And one of the things you want to be when you're a buyer of these kinds of assets, you want to have dry powder cake. If you have to go out and finance things, and you don't know what the financing market's like, we don't wanna be in that situation.
We want to be a certain buyer with certain financing. That's why we need the wide railway tracks. So we'd like to do big, big acquisitions if we can buy them at the multiples that we're willing to pay. And that's not been an easy thing to do in the last several years, but we found lots of good bolt-ons at multiples that were, that were, that were good, and we'll certainly carry on doing those.
So speaking on M&A, then, is it possible to accelerate the pace of tuck-ins or bolt-ins such that in aggregate, you'll get a big deal?
Sometimes. Yeah. So you've seen you saw that chart I had earlier on. There's certain years that were fallow and years that were, that were good. So we've had years we've done CAD 350 million or CAD 400 million of transactions. When you have to do CAD 1 billion of transactions with an average size of, say, CAD 50 million, that's 20. So that might, that might not be easy to do in a, in a year, frankly speaking. I think you're more prone to make mistakes when you do that. So we've, we've never, we've never worried about letting the, the powder dry in our pocket. The, the reason we have the one-turn r- ratio line on the, on the bottom side of that financing is we like to buy back stock when we go below, below one time.
So our board gets very nervous if our leverage goes below one. It's only done a couple of times in our history. But we like to keep it up to 3.5 x, so we've got lots of room to maneuver, 'cause when these deals come along, we did 3x in a fairly short space of order, you know, 10 years ago, and that might happen again. You just never know.
Just another one then on margins. A lot of the organic growth initiatives and the, the target you outlined, Sean, seem to have an implicit component of margin expansion, and it just by virtue of the fact of a mix shift to higher margin verticals. Is it your expectation that margins could grind higher, even marginally over time?
Well, we've been in a year of inflation compression. The last two or three years, since the middle of the early part of 2021, really. That's when inflation really reared its ugly head. And when inflation comes, you chase it. So you chase it in payroll, you chase it in raw materials, and we've been chasing it for two or three years. Now, we've moved into the deflationary period. So prices of most of the things we buy are dropping. So freight is down, oil is down, power is down, paper is down, film resin prices are down. So we're getting some margin benefit currently that we haven't seen for a while. So how much of that we'll have to give back to the customers in the end remains to be seen.
We will not keep all of it. That I can guarantee you. We will not keep all of it. So the challenge is how much of it can we keep for ourselves, given all the hard work we went through, recovering it from them in the first place?
Is there a possible component of secular margin expansion with RFID or sustainability or?
Yeah, so mix is a factor. So, so we've got certain businesses of ours that have more and have got inherently better margins than others. So that's, that's, that's always a big factor for us in, in, in the mix. So Avery is a high-margin business. Parts of Checkpoint are high-margin businesses. Ben's business is a high-margin business. Lee's business is a high-margin business. So the more that they grow in, in, in the total of the pie. And regionally, I can tell you Latin America, so Luis and Benny are here today, it is by far the most profitable region we have in the world. By far.
I think that's not an unusual comment from many of our customers, too, would reflect the same thing, but we're particularly well managed south of the Rio Grande, from, you know, from Mexico all the way down through Argentina, and it's. So the more we grow in Latin America, we'll... That's a good thing for us. Europe is our lowest margin region. Asia is about the same as Europe and North America's, but not quite as good as Latin America. Any other questions? Yes, David.
So, just following on your previous comment, is Latin America the most profitable just because the cost of labor?
No, no, it's without blowing their horns too much, these two guys are incredible operators. So we run it, our plants in Latin America are the best plants we have in the world. So if you want to see our food and beverage plants, they're all good. So there's a new one we've just finished building in Austria that I was at a few weeks ago. It's world-class. But the Latin American plants, anyone from CCL who comes from outside of Latin America, visits them for the first time, just goes, "Wow!" And goes home and thinks, "How can I outdo that?" We're at our most advanced in IT down there, which is not typical of most companies, but it is true for us. And the operations down there are really spectacular.
If any of you are ever down and want to come and visit us, you'd be more than welcome.
So if I can ask a couple more questions. Just on the stock buyback, I think earlier this year, you guys bought about CAD 200 million worth of stock, right? If my memory-
Last year.
Oh, that was last year, sorry.
Last year, when the stock was in the low 50s.
Okay. Is that because the leverage dropped below 1x?
No, that was because the stock dropped to a point where we felt that was a good use of our cash.
Okay.
They're the two drivers for us. If we think we've got leverage below one, we'd certainly buy the stock back at almost any price. You know, once... If the stocks goes below a level that we feel it's worth spending our own money on it, then we'll definitely do it. So that's, the CAD 200 million was really driven by that purpose.
Okay, so if we're thinking about stock buybacks, it's gonna be driven by stock price and leverage.
Stock price, leverage, and our outlook, you know, what the outlook is.
Okay. And then just on the dividend, I mean, Sean, you mentioned that CCL's raised the dividend every year for the last 30 years. Can you paint a picture for us where you wouldn't raise the dividend?
Well, we've never reduced it. So how much we raise it by, I think, depends on the year we've just had, and we're not gonna get into commenting on that until we've seen how the year closes. So you have to wait and see what's gonna happen next year. But it's fair to say, you know, we're all shareholders, so CCL is managed by people who are all shareholders. We're an owner-occupied company. We've got a large family shareholder who's particularly interested in the dividend payment. So you've got the benefit of that on our board every year. So the dividend going up every year is an important factor for everyone in the room. Stephen.
Hi, Jeff. Just, you know, lots of color in the day today, which is great. Lots of areas of identified areas of growth. But just as you sit at the top here, looking at everything, is there any-- are there any areas that you'd call out where you're particularly excited about in terms of the opportunity?
Very excited about RFID. We're very excited about the possibilities that sustainability brings for our products. So I can tell you the two products that we talked about today. One was the plastic tubes with the PCR resin. We developed that in the late 1990s for a company called Burt's Bees, which makes cosmetics out of beeswax, and they didn't want any virgin resin in any of their products. And we tried for years to sell those tubes with post-consumer resins to other customers. Zero interest. Ten years ago, suddenly that changed, and now 30% of our plastic tube production is made from post-consumer resin. And when we make those decisions, we tend to get premium margins for those kinds of products because we've solved all the R&D stuff around it.
Another one is wash-off labels that we developed many, many years ago for Heineken, for plastic labels that come off beer bottles and juice bottles and water bottles. So if you went and asked Coca-Cola 15 years ago what did they think the future was for returnable bottles, you would get a very different answer from the answer you get from them today. So there's a lot more interest in the returnability of bottles in the beverage business. Coca-Cola would put that in their mission-critical statements for them as a company, not the packaging engineers.
The CEO of Coke would stand up and say: "One of the most important things for me to do is to retrieve one bottle for every bottle I sell." So that's so important to him, but you have to get the damn labels off. So we had all these technologies from many years ago for different reasons that now, suddenly, we're getting the benefit of. So I'd say that's another big, another big, big factor for us. So RFID, one, sustainability-driven innovation for our customers is another.
One question following up on the share buyback commentary.
Yes.
How do you assess intrinsic value back last year when you were buying back stock? What metrics are you thinking about when you're looking at attractive value?
We're looking at the multiple the stock's trading for. So, you know, when you're looking at doing M&A transactions, and you've got some dumb private equity group saying, "I'm gonna pay you 11x EBITDA," and the stock's trading at 8x. So you know, go and compete for an 11x EBITDA business at an auction, and your stock suddenly selling at 8x, and the stock price is CAD 52, and you got CAD 1 billion of cash on the balance sheet and CAD 1 billion of unused debt. You have to be a magician to work out what the right answer is. So we don't. There's not a lot of science behind it, so it's very tactical around the balance sheet and the stock price.
historically, you guys have done a lot of acquisitions?
Correct.
Would you guys, if for whatever reason you were offered a good price, would you possibly, without offending anybody in the room, would you possibly think about selling some of the divisions that you have?
No one has ever called us about ever selling any of our specific divisions. Several years ago, when we were a lot smaller market cap company than we are, we had a lot of interest from private equity people, which we entertained. So that was, But that was many years ago, and the market cap of the company probably would prevent that today, in today's world. So, you know, we're shareholders, so we're operators of the business, but we're also shareholders with the same drivers that everybody else has. So if somebody comes along and offers us CAD 100 a share tomorrow, we'd give that a serious think. Wouldn't we, guys? But we're also long-term investors. I mean, we're passionate about this industry. We've all been in it a long time, so we're passionate about the business.
We believe in it long term. We think it's a good place to be. We think we can grow. I certainly believe we can; this can be a CAD 10 billion company, for sure, in revenue, in the not-too-distant future. We certainly see enough things on our runway, organically and by M&A, that we could certainly become a CAD 10 billion revenue company in the medium term at the margins we make today. Last one, Ben.
Very big, big picture question.
Sure.
When I listen to you and all the esteemed guests, I can't sort of 100% distinguish between the idea, are you the guys innovator drivers to your customers, or are they coming to you and saying, like: "Hey, this is what you should innovate with, and come back to us?
We never do blue sky lab developments, ever. So in Mark Cooper's business, he runs consumer test panels with consumers, asking, "What are your problems, and what little things can we go away and work on?" When we developed wash-off labels for Heineken, we didn't think of that idea and go to Heineken. They came to us and said, "We'd like a label you could wash off the bottle, but we want it to be clear and made of plastic, so we can wash it off and reclaim the bottles." So we don't do any of our developments in isolation. We do it in conjunction with our customers, always.
Thank you.
No problem.
Jeff, just a, just a question from, like, a long-term view.
Yes.
How do you, how do you train folks on the bench to be, you know, potential future CEOs of, of the firm? And how do you, how do you groom that talent? And then as we-
Oh.
Take a long-term view.
Yeah.
Is it fair to think?
And so
the CEOs
I know I just talked about the people on the bench here. So Luis used to be a shareholder in his own company in Brazil. Benny's father started and his father started CCL Label in Mexico on their own. We bought Sandy's company. Where's Sandy? Sandy was the CEO of her own company. We've got people who've been acting as CEOs and entrepreneurs of their own businesses, and we've got 30 or 40 of them dotted around the company. So you know, the people who run our businesses run them as if they are their own. So it's, I'm not calling Luis every day and saying: "What the hell's going on?" He's calling me and saying: "Here's what I'm gonna do." We just let him get on with it.
But the most important factor for us is to find people who've got the experience at the coal face that these people have. So I just don't want you to underestimate how important that is. So one of the reasons for the private equity failures in our industry, they've been driven purely by financial metrics, and most of the nuances to make money in our business are non-financial. They're operational, they're something to do with the customer. They're something to do with human beings. There's some chemistry with somebody spotted somewhere that can open up a door, and you need experience and insight to be able to capture those, not crunching numbers.
Hey, Jeff,
It's one of the reasons, by the way, we, we've done 100, In my time in the company, we've done 110, I think, acquisitions. We have never used an investment banker on any of our deals. Not one investment banker has ever, ever bought us a deal worth a cent. And that's really not an exaggeration, not one. I've had. I've got books in my office, knee-deep, of, of somebody's idea about things we should buy. Fills up the garbage basket. So we get all of our deals from, from people like this, sitting to my left. That's, that's where the ideas come from, and it's where the best ideas in our business come from. Yes?
Looking ahead, you're saying you see the company reaching CAD 10 billion of revenue.
Yes.
What are some concerns that you have that you need to navigate, and in order for you to get to that ten-?
Training and finding enough good people like this. It's the only shortage we have. Capital, we have. Money, we have. Ideas, we have. Human capital's the critical thing, and we can't hire it. We have to train it. We have to develop it. And we sometimes find it from rough diamonds in the edge with some of our suppliers, but human capital is the critical missing link often to growing at a faster clip. Growing is easy. Growing profitably is not so easy.
Just very quickly on the back end of that, would you be able to get to CAD 10 billion within the existing verticals that you have, or would you need to
Yes.
Done.
Just another follow-up on that. To get to 10, if we, if we classify medium term as five years, that'd be a 12% revenue growth rate, CAGR, for five years. Is medium term five years, not
five to seven.
five to seven.
Yeah. Yeah, I think if you look at GDP growth rate, 3%-4%, could we add 3%-4% M&A to that? One big deal in that time frame.
Got it.
It's not difficult to get there.
Thank you.
Okay. Well, thank you very much for all coming out to us today. I really appreciate it. I hope we've given you some insight. Have a good holiday. Merry Christmas. Happy New Year. 2024 will be good. Thank you.