Good morning, ladies and gentlemen, and welcome to CCL Industries First Quarter Investor Update. Please note that there will be a question and answer session after the call. The moderator for today is Mr. Jeff Martin, President and Chief Executive Officer, and joining him is Mr. Sean Washchuk, Senior Vice President and Chief Financial Officer.
Please go ahead, gentlemen.
Good morning, everyone. This is Sean Washchuk. Welcome to our first quarter call. I'd like to draw everyone's attention to Page two of our slide deck, our disclaimer regarding forward looking statements. I'll remind everyone that our business faces known and unknown risks and opportunities.
For further details of these key risks, please take a look at our 2020 annual MD and A under the sections Risks and Uncertainties. Our annual and quarterly reports can be found online at the company's website, cclind.com or on sedar.com. Jeff, would you like to have some opening remarks?
You, Sean. Good morning, everybody. Welcome to our call. We've had a strong start to the year of 2021, as you've all seen now by the numbers. And in the developed world, we're seeing a market recovery based on consumer activity with the vaccines doing their jobs and making life better for many of the citizens in the developed world.
In the emerging world, with the exception of China, it's quite a different story. In Latin America, the Indian Subcontinent and parts of the ASEAN region. So it's not clear yet whether 2021 will see the end of this pandemic or not, and any time is going to come. But for sure, we're going to see a much stronger '1 than we saw in the pandemic affected first half of twenty twenty. So with that, I'm going to hand the call back to Sean, who's going to take you through the numbers.
Thank you, Jeff. If everyone could turn to Page three of our slide deck. The first quarter of twenty twenty one, sales increased, including the negative impact of currency translation by 4.1%, aided by organic sales growth of 4.2% and acquisition related sales growth of 2.5%, resulting in sales of $1,350,000,000 compared to $1,300,000,000 in the first quarter of twenty twenty. Operating income was $223,100,000 for the twenty twenty one first quarter compared to $200,300,000 for the first quarter of twenty twenty, a 14.2% increase excluding the negative impact of foreign currency translation. Jeff will expand on our segmented operating results for the CCL, Avery, Checkpoint and Innovia segments momentarily.
Included in the first quarter results was a $5,400,000 increase in corporate expenses due to an increase in short term and long term variable compensation expenses for the comparative periods. Consolidated EBITDA for the twenty twenty one first quarter, excluding the impact of foreign currency translation, increased 9.5% compared to the same period in 2020. Net finance expense was $14,700,000 for the 2021 compared to $17,100,000 for the twenty twenty first quarter. The decrease in net finance costs is attributable to a reduction in total debt for the first three months of twenty twenty one compared to the same period in 2020. The overall effective income tax rate was 24.2% for the three month period ended 03/31/2021 compared to 26.7% for the same period a year ago.
The decrease in the effective tax rate is attributable to a higher portion of taxable income earned in lower tax jurisdictions and some one off tax items. The effective tax rate will change in future periods depending on the proportion of our taxable income earned in higher tax jurisdictions. Net earnings for the twenty twenty one first quarter was $147,800,000 up 19.5% excluding foreign currency translation compared to $126,600,000 for the twenty twenty first quarter. Moving to Slide four. Basic earnings per Class B share were $0.82 for the 2021 compared to $0.71 for the first quarter of twenty twenty.
Adjusted basic earnings per Class B share were $0.82 for the twenty twenty one first quarter compared to adjusted earnings per Class B share of $0.72 for the first quarter of twenty twenty. The increase in adjusted basic earnings per share to $0.82 is primarily attributable to higher operating income contributing $0.11 to the EPS improvement with a reduction in net interest expense and tax rate adding a further $01 and $02 respectively, partially offset by a $02 increase in corporate costs and $02 from negative foreign currency translation. Moving to Slide five. In the first quarter of twenty twenty one, free cash flow from operation improved to $87,600,000 compared to an outflow of $15,000,000 in the twenty twenty first quarter. The improvement can be primarily attributable to an increase in operating income and a positive change in working capital for the company.
For the twelve months ended 03/31/2021, free cash flow from operations was $718,900,000 compared to the twelve months ended 03/31/2020, at $518,800,000 This comparative improvement is attributable to improved income for the company, the change in working capital and reduced net capital spending through the comparative years. Moving to slide six, our cash and debt summary. Net debt as at 03/31/2021 was $1,330,000,000, a decrease of $61,100,000 compared to 12/31/2020. The decrease is principally a result of debt repayments during the first quarter, partially offset by a decrease in cash on hand at 03/31/2021, compared to 12/31/2020. The company's balance sheet closed the quarter in a strong position.
Our balance sheet leverage ratio was approximately 1.16 times, declining from 1.24 times at the December. Liquidity was robust, $662,700,000 of cash on hand and US 1,200,000,000.0 of available undrawn credit capacity in our revolving credit facilities. It is all likely that any portion of our current debt will be paid from free cash flow over the course of the year. The company's overall average finance rate was largely unchanged at approximately 2.3% on 03/31/2021 compared to 12/31/2020. The company's balance sheet continues to be well positioned as we move through 2020 Juan?
Juan?
Thank you, Sean. And on Slide seven, the highlights of capital spending so far for the year. Low start to the year, which explains some of the free cash flow performance that Sean talked about, 53,000,000 of spend net of disposals, excluding the right of use asset positions and depreciation. So the CapEx will go up for the next three quarters, and we're planning to spend around CHF $330,000,000 to $340,000,000 for the year. AJ, so on the CCL segment and how it's performed, a very strong start, 5.4% organic sales increase.
Growth was strong in The Americas, up mid single digits in both Latin America and North America. Slower in Europe, up low single digits and very strong in the Asia Pacific region, up in the high teens strong results in our Healthcare and Specialty business, Food and Beverage and CTL Design, solid with CTL Secure the down in the home and personal care business as the sanofi and the cleansing boom came to an end and travel related businesses remained somewhat impaired. Page nine highlights of our two joint ventures. One in Russia and The Middle East, very strong start again for the year, somewhat impacted by the Russian currency, down 25% against the Canadian dollar quarter on quarter. Slide 10, results from Avery.
This business really had a very strong start in Q1 twenty twenty, really unimpeded completely by the pandemic in North America and only slightly in Europe. So this year, we had tough comps to compare with, especially in The U. S, we were down high teens, mainly in the badges and organization products business affected by office closures and low workplace presence. Europe and Asia Pacific, which is more labor centric, was up high single digits and much easier comps to a softer Q1 twenty twenty also driven by the pandemic. We do expect growth in sales and profitability for all the remaining quarters this year and 2021 in total for Avon.
Slide 11, results for Checkpoint. Outstanding quarter here. But of course, compared to the weak start we had last year when the apparel industry closed down in Asia, China had a pretty rough time at the beginning of the year with the pandemic enrolling there in Q1 last year. So this year, we saw very strong comparative growth in our MAF business gains in all regions, including The U. S, where we had a big rollout last year, so even had gains in The U.
S, Europe and Asia, especially strong with the easier comps. Record quarter in apparel labels compared to a weak prior year period, very strong growth in RFID, and our price labeling business in Europe recovered. In NOVIO, the organic volume was up in North America, down in Europe and Asia Pacific. Sales gains really all came from resin pricing pass through and the Polish acquisition. Profitability increased from continuing strong productivity gains, especially in the Mexican operation.
We're now preparing our Polish plant for the EcoToyd investment, which will incur over the balance of 2021. Outlook summary, as I said earlier on, Avery will post strong gains, particularly in Q2, and we should make progress in the 2021 in total. We do expect Check Point's recent progress to continue, in part fueled by RFID, and we still have easy Q2 comps. CCL Design will continue to remain a stronger design in the CCL segment with automotive recovering and demand for IT peripherals still strong. Food and beverage will improve as the on premise channels open up, but our health care and specialty business faces the pantry loading DIY boom period that we had in 2020, which won't repeat in 2021.
In the HPC business, we should see skincare and travel related demand improve as the vacation season opens up and opening mobility and travel improve. But the cleansing and sanitizing boom is largely coming to an end. QTL to kill is very solid for Q2. It has tough comps in the second half on the cash run the bank had in 2020, which won't repeat in 2021. The Navia still needs to navigate the resin volatility, which we still see and manage its way through the Echo Slate transition in Poland, and there are no more easy comps in the second half of the year.
So with that, operator, we'd like to open up the call for questions.
Your first question comes from the line of Adam Josephson with KeyBanc.
And Sean, good morning. Hope you're well.
Good morning, Adam.
Thanks, Adam.
Jeff, would you mind, in CCL, can you just talk about your expectations by region? Obviously, Asia Pac was up high teens as China shut down a year ago. I would think Americas would remain pretty strong for a while. U. S.
And Brazilian economies are going gangbusters with all the stimulus, etcetera. But how do you expect the comps? So just remind us how the comps will evolve over the course of the year such that we can have appropriate expectations by region.
Yes. I think the Q1 trend will probably continue. And think we do expect to see Q3 to be strong, just driven by the prior year situation. The business in North America is reasonably robust. And we've got some we have some waxing and waning.
You know, we've got some businesses like health care and specialty where we had the over the counter medicines boom last year, which we won't have this year. And we rather expect that the do it yourself boom that we've seen in The US while everyone's been at home would recede if travel opens up. So you've kind of got you you get it one way or the other. So I I but I would overall, I would expect The US to stay relatively strong. And the situation in Asia in Asia with IP peripherals and cell phones and all the like, that's not waning at all.
We've got a chip shortage to to deal with, so that's a bit of an unknown factor, which we don't know how much difficulty that will present to our customers. We seem to be working our way through it, it's an ever changing daily situation that has a monitor. So it's very hard to say much more than that, Adam, really.
And just on Europe specifically, Jeff?
Yeah. We'd expect Europe to still be lagging the rest of the world through the summer unless something changes. I mean, I'm in Switzerland as we speak here. So last week, I went in through down to visit our operations in Mexico and through flew through Dallas Airport, which was completely mobbed with people. And I landed in Europe yesterday morning to an empty airport.
So I think until you see those situations changing, it's hard to imagine the use of our products is going to change.
Yes. No, understood, Jeff. On resin, can you just help us with precisely how much your costs went up through 1Q and to what extent those costs have receded and what your expectations are along those lines and when you expect to have fully caught up?
Well, it's the resin spike, as you know, is pretty extreme in The US. So North America was by far worse than it was in Europe, and it happened very suddenly. So we we we did manage to get most of our price through put through, but not not fast enough to catch it all. But we also had the benefit of some inventory in the system with lower cost. And now we're gonna have the reverse situation of that in q two where resins fall, so we've got inventory and higher priced resins.
So I think we'll have to wait to see till we get through q two how successful we've been. So I think q two might be more of a struggle than q one. We thought we'd have a tougher time in Q1 than we did, as you probably might imagine. But I think Q3 might be slightly more difficult than Q1 was. So we'll have to wait and see how things unfold.
A lot of times on what happens with the pricing.
Yes. No. And yes, no, understood, Jeff. In Checkpoint, can you just quantify how big RFID is for you right now and where you're seeing that very strong growth and the extent to which you expect similar that rate of growth to persist for the next few quarters?
Well, it's all in apparel. So we're up 25%, 30% in apparel. But just for perspective, I mean, labeling is less than $200,000,000 for us, and RFID is a portion of that. I'm not going to get into how big a portion it is because it's difficult to measure, but it's a portion of it. So it's not terribly material for us as a company, but it's growing very nicely.
Most of our business is with European retailers, and they're involved in a few good sized rollouts there. But it definitely underpins the performance in the business in the current quarter. And we but you do have to remember it was against a very difficult backdrop in 2020.
Yes. No, understood, Jeff.
And last one for me on M and A. Can you just talk about what you're seeing price wise, opportunity wise? And just give us a sense of what label multiples are in the private market these days compared to where you and the others are trading?
Well, it's not really any different from the public markets, frankly. It's private equity businesses are chasing some of these things with multiples that reflect our stock price. So we're not really participating in things like that. So we're trying to find value opportunities for the bolt ons. But it's still a difficult market for larger transactions, we still have the problem of how do you do due diligence and getting around the world is so difficult.
So there hasn't really anything new comments throughout the old situation. We don't really address that more here in the last several quarters.
Your next question comes from the line of Mark Neville with Scotiabank.
Jeff, I was curious if you could maybe speak to, in general, your reopening experience. I was thinking of certain geographies that have opened in certain markets or certain businesses that were more impacted, such as food and beverage. Is there typically a lag sort of in the sales recovery? Is there a surge sort of inventory to build?
It really varies dramatically on which part of the world we're talking about. So region of the world, I would say, is still extremely tough, ASEAN countries of Asia. So countries like Malaysia, Singapore, Indonesia, it's very difficult to get in and out and move in between these countries, Vietnam. So it's very, very tough out there. India, I'm sure you've heard about it in the newspapers.
So the degree to which we've seen in open up is really in Latin America and The US. We've seen some encouraging signs. China is pretty much as normal, but domestic China. So it's kind of like a bubble around it. And Europe is still more difficult because the lockdown is not gone yet.
It's better than it was. There's there's still restrictions here to be able to see when you're sitting and living and working in North America.
Right. But I guess when they do reopen, has the experience been that there's been sort of a lag in your sales? Or is there an initial surge to It inventory to
varies by because customers are having to guess the prediction, right? So they're having to build inventory on the assumption of what might happen. I mean, everyone's assuming that in North America this year, the summer season will be strong. And therefore, people are making plans according to that and probably the reverse of that in some other parts of the world. So I don't think we really know yet.
But we've seen encouraging signs in the beverage space with a bit more normality than there was certainly this time last year. So it's too far away from the end use points really common beyond that. So we're driven by the behaviors of our customers, not by the consumers.
Right. Again, it seems like
the semi shortages, you're managing that well. You've obviously managed the resin situation pretty well. I guess I'm just curious, just, I guess, broader, you know, hear a lot about sort of supply chain issues, logistic issues from other companies. I'm just I appreciate your business is more localized, but just curious if you're sort of feeling any supply chain challenges or logistic challenges. Well,
the local local, everywhere we operate around the world, that's the big advantage we have. But I can tell you, we just to give you a frame of reference of how the world has changed, we put a new tube line into our plant in Los Angeles last year that sat on a boat and trying to get into Long Beach Port for eight weeks trying to get into the port. So those are the sort of challenges we're having. Coast And to coast freight from LA to the West Coast to the East Coast, if you needed to move something in an emergency, around $2,000 for a 45 foot shipping container, price this year is $8,000 So you've got a lot of situations like that, which we're having to pass along to customers, which we're doing, obviously. But there's definitely some sizable pockets of inflation out there that we're having to work our way through.
But so far, we've managed to keep people supplied, not let people down and done our job. It's not without a lot of around and moving around.
Sure. Got that. And I guess just on the lower CapEx spend in Q1, is it just a dawning thing or is it some of these jobs?
It's just a hangover from the CapEx we made last year.
Your
next question comes from the line of Stephen McLeod with BMO Capital Markets. Your next question is from Stephen McLaud with BMO Capital Markets.
Just wanted to follow-up on the CapEx question there. Can you talk a little bit about what's embedded in your accelerated CapEx plans for this year versus last year? It just a catch up?
It's just around the budget number we had for the year. It's just the timing of it because we when you order equipment, a lot of it's on long lead time. So with the cutbacks we made last year, we created a vacuum. And we've seen that in the fourth quarter and the first quarter this year, something of a vacuum, but it will correct itself in the next three quarters. And then we've got some businesses where we've got pretty significant capacity constraints that we need to fill.
So the areas that's going into the shrink sleeve business around the world is the area of strength, CPL design, checkpoints. I mean it's broad based across the company, really. But I think the CapEx, that vacuum is really driven by what happened in 2020.
Okay. That makes sense. And then maybe just turning to the Avery business. You reminded us that Avery had a strong start to last year before getting impacted heavily by the pandemic, and you had a positive outlook for the rest of the year given, I guess, partially driven by easy comps.
Can you talk a little
bit about like when would you see the Avery business returning to where it was before? Is that sort of the 2022 timing?
Yes. Well, April sales, I can tell you, were almost double last year, so that's one point of information I can give you. But we still see challenges in the badge business, so that's really driven by large scale events. We are beginning to see orders coming in now, but it's dropped off pretty rapidly, and I don't think we'll come back full scale until 2022. And assuming that the world becomes normal in 2022, that remains to be seen whether that happens.
So the two product lines that are really affected are organization products and badges. So the label business is in pretty good shape and those are the two things that need to return. And the drivers are return to offices and return to attended events. And until those normalize, it's difficult for us to get back to where it was in 2019. But it's been getting better and better really every month since June.
So each month, it's been getting it's been improving. And I'm pretty confident I'm very confident we'll see the next three quarters of gains and gains for the year of 2021 over 2020, for sure.
Okay. That's great. And then on Innovia, obviously, the resin pricing issues, you gave some color around Q2, which is great. Will those price increases filter into the back half of the year as well? Or is it too soon to tell?
The resin price is dropping in The U. S. Now, Steve. So resin went up to over $2,500 a ton. It's now down in the $2,100 So it's actually been dropping in The US because that was really the effect of storm phenomenon.
So we're adjusting prices down now in The U. S. To reflect what's going on in the current level of index. That's what we're worried about in Q2. So that we put prices up, that we had low priced inventory to help us compensate for that.
In Q3, we got the reverse. So we got prices dropping and high priced inventory. So that's why we're worried about the impact in Q2.
Right. Okay. And then maybe just finally, are there any areas when you're sort of in this recovery that's a bit spotty globally, but are there any areas that have recovered faster than expected or slower than expected?
Well, the one that's been very strong all the way through has been the what's going on in tech. So demand for computers, printers, servers, cell phones, headphones, you name it. I mean, just seems to be steam rolling out. And I'm sure that's not helping the chip situation for the guys in automotive. So we see any slowdown there.
I think it's more driven by the chip supply situation, and it seems to be impacted by demand. So that's the area of most notable strength we see today. So CCL Design in the first quarter was up in the mid teens. So it's pretty strong organically, pretty strong number, given they weren't that badly affected this time last year.
Your next question comes from the line of Walters Bracklin with RBC Capital Markets.
So first question is on pricing, but ex resin pricing. So obviously, a robust demand in many of your end markets. If you exclude the changes in your pricing due to resin, would you say that your kind of same store pricing is up? And if resin goes down, is there a way to kind of keep that price a little sticky and keep it higher based on higher demand in some of those higher growth segments?
This is a question about only Innovia, right?
That's right, yes.
Yes, yes. I think the it's a Redding story, Walter. I mean we've indexed our customers, so you can't have your cake and eat it. So if you put the price up based on an index, the price comes down on the other side of the curve.
Okay, fair enough. And then pricing outside of Innovia, would you say that
Fairly overall healthy limited impact from inflation in the rest of the business. In Q2, we'll see more of it. Because in Q1, we had people raising prices, but we haven't really been implemented really until Q2 unrolled. So we didn't have much inflation in the other parts of CCL outside of Innovia and outside of our aluminum can business, so we have inflation from masses going up. But in the core label business, we didn't see much inflation in Q1.
Got it. Okay. And moving to your core CCL and CCL Secure in particular. I know, Jeff, you've cautioned us about the margin impact that the cash hoarding has had on that business and that we should bring it back down. Is that still the case?
Or are you seeing higher margin ex Secure in other areas of CCL?
Well, we've seen some good new business wins in CCL Secure, but we did have those windfalls last year, which we know are not going to repeat. So it's very hard to predict how the second half We know the first half is going to be okay. Second half, there's a big mountain to climb. And till we get closer to it, I couldn't really give you any more color than that.
Got it. Got it. Last question here, again, on the CCL core division. I remember before the pandemic, you had been experiencing a little bit of weakness in that division, and it accumulated in the fourth quarter of twenty nineteen, I guess, with some weakness and some forecast pre pandemic that you had were a bit soft. Has the pandemic what investors are asking now is what is the risk we go back to a soft environment even if we go back to normal?
Or has the pandemic completely reshuffled the deck now? Anything existed before pandemic, those trends are ancient history and we're in a new dynamic here. What's the risk we go back to kind of a weaker environment in your core division as we emerge from the pandemic?
Well, we'll have to wait and see about that. I mean, going into calling out what may or may not happen.
Right.
I think the world has changed pretty dramatically, and we're going to have to wait and see how things unfold in the process. Okay.
Appreciate the time. Thank you.
No problem.
Your next question comes from the line of Michael Glen with Raymond James.
Jeff, just to start, when we look at label sales in Q1 and we look at what might be expected in Q2, is there any real reason to think that the overall level of sales in
the segment would change to lead
into Q1 versus Q1 into Q2 versus Q1?
Well, what we're is unknowns of what happens with the things that are waning. So we know some things are coming back. So skincare, high end beauty sales are improving, travel related sales have improved, sanitizers, they're dark at the moment. So all the customers have got big inventory to finish products, so the orders have slowed through a real trickle and anything to do with sanitizers and cleansers. So that's the thing we're wrestling with.
We've got so many moving parts and pieces. It's very difficult to predict how things will unfold. But in the month of April, carried on pretty much the trend we saw in Q1.
Okay. So there's typically no real seasonal in a normal year, there's really no seasonal hit between Q2.
Q1 and Q2, not a big difference. But there's a lot of things going on at the moment, so I'll just call those out. Know, we had that over the counter medicines boom last year gone, sanitizers and cleansers gone. Now we've got Beauty Care coming back. We've got, you know, on premise beverage coming back and how that will how that mix will play out, we'll just have to wait and see.
Okay. And then I know it's probably early on this,
but any thoughts on how back to school might play out this year? Any thoughts on the inventory levels with your customers?
Well, the retailers are planning to are planning assuming it's normal, but with some level of caution because they all got caught last year with inventory. They couldn't sell. Because remember we had a very good June in back to school. And then the replenishment orders, which usually come in late July and early August, didn't happen. And they had some inventory at the end of the cycle, and all the mess around school has unfolded.
So we're assuming this year that back to school will be normal, there will be some caution in view of what happened last year. So I expect the initial selling will go well like it did last year. And then what will actually happen in July and August will depend on what's going on with the pandemic and what's going on with school. We don't
Okay. Then just maybe a last one on overall,
if you can characterize the overall pipeline of customer activity in CCL Secure. How is that trending?
Pipeline is very good.
Okay. That's it for me.
Your next question comes from the line of David McFadgen with Cormark.
Thank you. A couple
of questions. Maybe just on the resin front with Innovia. It seems like the timing on your ability to pass through price increases and price decreases fairly, short. I think on the Q4 call, you had some caution with respect to that. So was wondering if you could comment on the exact timing.
And also, if you're dealing with higher priced inventory, higher priced resin inventory in Q2, could that really have an impact on the margins?
Well, that's what I was making. What we don't know yet is the impact that will have. So we've got price declines going on in The U. S. At the moment because resins have dropped.
And we've got high priced inventory that we bought in the month of March and still be made in the month of March with resins at a much higher price point and what the impact of that will be remains to be seen. You know, we had a benefit in q one. Maybe there'll be a drag in q two. So we don't know. We'll just have to wait and see because it's mixed driven.
There's lots of other factors that can sway it. So we'll have to just wait and see how it unfolds. We're just calling out the risk, really, but it's difficult to quantify.
What's your timing on your ability to pass through revenue? Seems like it's quite short. Can you comment on that?
Well, yes, remember, the spike is very big. So the resin hike in the first quarter is the highest in the quarter in history.
Okay. And then just on Badges business with Avery, is that is that really improving much? I mean, there is some return seeing
some improvement in the month of March and April. We've seen some slow signs of, you know, some events are now being planned, you know, some social events. But it's when I compare it to if if you go back in 2019 and you called out a 100, we've moved from 10 to 15. You know, we're not we're not we haven't moved from 10 or 15 to 50. So it's improved but it's And I think it's Yeah.
We've got baseball stadiums still, sports stadiums for Vegas convention back where they were. It's hard to see why event badges would be in heavy demand we had in 2019.
Yeah. Okay.
Thanks. It's little over a $100,000,000 of AV business, so it's a small not a small number.
Yeah. Okay. Thanks so much.
Your next question comes from the line of Ben Jeky with PI Financial.
Good morning. I I have a question on on Avery. Then if if the badges haven't rebounded, that's not just yet. What is what is the source of the very positive expectations for the remainder of the year in April?
Well, everything else is doing well then. So batches and binders and dividers, they're the three product lines that have difficulty during the pandemic. And we're seeing some improvements in binders and indexing. Badges are still difficult. The labels, the core label business is still doing pretty well.
And internationally, so the international business, which focuses almost exclusively on labels, we've seen that return to 2019 levels. So because they don't have anywhere near that portion of those products in their mix, They're almost entirely business driven.
Okay. Okay, great. And then my second question, just with regards to the CCL core segment, fairly strong operating margin jump. And I'm assuming part of that is CCL Secure, but you're mentioning health care specialties, food, beverage
and CCL Design. The line
jump was it was not really CCL Secure driven. It was more driven by the three businesses that really performed in health care and specialty food and beverage and CCL Design. They were the three main drivers.
And your last question comes from the line of Adam Josephson with KeyBanc.
Forgive me if I missed this. Could you quantify the EcoFloat investment? I mean, it was obviously sizable enough to have called it out in a slot, so I just figured I'd ask.
35,000,000.
And that will be over what period, Jeff?
Most of the money will be spent in the second half of this year.
Got it. Okay.
We spent some of it already, but the lion's share of it will get us to pay in the second half of the year.
And that'll flow through the segment results?
Correct. The bigger impact more than capital is just the start up cost. So when you start up a new when you extend the line, there's always some level of start up cost. So it's more about that than the capital, really.
Okay. And the start up cost will be in the range of
We don't know yet.
Can you
give us a okay.
I'll give you some more color on that when we when we see when it's going to be because you've got to build the line first. We don't know when the line is going to be finished. And so when we get near the time, it'll either be the back end of this year or early part of next year, give you some color on that.
Perfect. Okay. One more on capital allocation, Jeff. So you raised the dividend by 17% in March. Your leverage is down to almost 1.1x.
I mean, you mentioned big M and A is probably unlikely in the foreseeable future just given where prices are and the difficulties in doing due diligence, etcetera. Are you considering anything else? Or are you okay with letting leverage go sub-1x and just letting the chips fall within May?
Well, we don't like leverage below 1x for obvious reasons. And so we'll be having some debates about that with our board over the next quarter or so about what we're going to do. So we haven't I don't want to give you the impression we're throwing a towel in an acquisition because we're not. It's still the number one priority for where we want to invest that excess free cash flow. And you know we've always been a strong dividend player and buying back stock because we haven't done that for some years yet.
But as Sean mentioned earlier on in the call, we're definitely going to pay down the rest of our variable debt this year in the absence of a large scale deal. So it's something that's on the agenda as we speak.
Yes. No, understood, Jeff.
And last one on sustainability. Are you hearing anything new or different from your customers in terms of substrate preferences, recycled resin availability, pricing? Any change in tone whatsoever from your customers, just given the targets they've put out? Yeah.
The the the on the subject is probably the best way to characterize it. A lot of it not necessarily logical. So, you know, so the preference is the preference is to substrate today paper and metal, which of course are the highest carbon footprint substrates in packaging industry uses. And the lowest carbon footprint substrates in packaging industry plastics is out of the public consumer perception is the devil in carbon. So that's the world we're all existing in, our customers and the producing side.
And I think it will take a few years for the reality to unfold. And I do think plastic recycling will be one of the solutions to the problem, and we're sort of doing a lot of work in that arena. But it's sustainability, the topic du jour amongst everyone in the consumer products industry today, driven by how the public perceives what the problem is. But it's a moving target. So I think you'd ask this question second half of last year before before the Met the Netflix movie about what's happening in the oceans came out.
Said classics is the problem. Now everybody says fishing's the problem. So it's it's it's such in public review and it's so sensitive. And sometimes that sort of gets in the way of the reality of the science of the subject, and we're working our way through that along with everybody else.
And does it seem like your customers are making long term decisions based on current sentiment. And as you said, public perceptions can and do change pretty quickly. So how are they dealing with that issue?
Well, they're under pressure. Everyone in the consumer policy is under pressure. So we're trying to come up with solutions that make sense. Some of some of the solutions are well, it appears to make sense. It may actually not be, but it has the perception of being better.
That's probably a good thing right now if a CPG company. But solving the issues of the world today in the longer term, there's a lot of work still to be done. And that's the more serious subject, which we have to address, I think, in a lot more risk to be what we're doing right now. Then we're working along with all of them just doing our best to model our insurance.
No. Understood, Jack. Well, thanks so much and safe travels.
Thank you.
Presenters, we have no further questions.
Well, thank you, operator, and thank you for everybody attending the call, and we look forward to talking to you next quarter.
This concludes today's conference call. You may now disconnect.