Good morning, ladies and gentlemen. Welcome to CCL Industries Fourth 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 Waschuk, Senior Vice President and Chief Financial Officer. Please go ahead, gentlemen.
Good morning, everyone. It's John Wastrich here. I'll draw your attention to page two, our disclaimer regarding forward looking information. 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 2019 and now 2020 annual MD and A under the section risks and uncertainties.
Our annual and quarterly reports can be found online at the company's website, cclind.com or on sedar.com. Jeff?
Thank you, Sean, and good morning, everybody. So we're announcing our 2020 results today. Two months this year given COVID, and I thought you might like a few facts about what happened to our employees during the course of the year. So we've taken a lot of time and effort and energy to keep safe all the way through the pandemic. We So have a little over 22,000 employees in a 191 locations in 42 countries.
During the course of the pandemic, just less than 2,000 or about ten percent of those have been working from home. The rest have been work every day as in as a at our factories as an essential business. So we've had about six hundred and fifty positive cases during the pandemic. Currently, there's about seventy two of those still positive, and fifty two currently their home's in quarantine. We have had two fatalities.
Neither of them caused by presence at work, both infected with the with their homes, one in The United States and one in Mexico. And then, of course, very sad about that, but very grateful for all the herculean efforts by our employees around the world. And I'd like to take this opportunity to thank them. Now I'm gonna hand you back to Sean, who will take you through the numbers.
Thanks, Jeff. Turning to Slide three. For the fourth quarter of twenty twenty, sales increased 5.7%, including the almost 05% of positive impact from currency translation, 2.8% acquisition related sales growth and a consolidated organic growth rate of 2.5%, resulting in sales of $1,350,000,000 compared to $1,280,000,000 in the fourth quarter of twenty nineteen. Operating income increased 22.3%, excluding currency translation, to $213,300,000 for the 2020 compared to $173,900,000 for the fourth quarter of twenty nineteen. Jeff will expand on the segmented results of our CCL, Avery, Checkpoint and Renovia segments momentarily.
Corporate expenses for the twenty twenty fourth quarter were $16,400,000 compared to $2,600,000 for the twenty nineteen fourth quarter. The increase in the corporate expenses is primarily attributable to a clawback of variable compensation accruals in the twenty nineteen fourth quarter that reduced corporate costs. Consolidated EBITDA for the twenty twenty fourth quarter, excluding the impact of foreign currency translation, increased 11.2% compared to the same period in 2019. Net finance expense was $15,800,000 for the 2020 compared to $18,900,000 for the twenty nineteen fourth quarter. The decrease in net finance costs is primarily attributable to lower average debt outstanding for the comparative quarters.
The overall effective tax rate was 19% for the twenty twenty fourth quarter, less than the 22.8% effective tax rate recorded for the fourth quarter of twenty nineteen. The decline in comparative fourth quarter effective tax rates can be attributed to the utilization of a previously unrecognized deferred tax asset subsequent to some tax restructuring we did in our German subsidiaries. Net earnings for the twenty twenty fourth quarter was $145,900,000 up excluding the impact of foreign currency translation from $104,400,000 from the twenty nineteen fourth quarter. For the year ended 12/31/2020, sales declined 1.8%, operating income improved 4.3% and net earnings increased 10.7% compared to 2019. 2020 included the results from 15 acquisitions completed since 01/01/2019, delivering acquisition related sales growth of 2.1% on organic sales decline of 3.9% and a foreign currency translation tailwind of 0.3% on sales.
Moving to Slide four. Basic earnings per Class B share increased 37.3% to zero eight one dollars for the 2020 compared to $0.59 for the fourth quarter of twenty nineteen. Net loss from restructuring and other items amounted to $03 for the twenty twenty fourth quarter compared to $08 for the twenty nineteen fourth quarter. Restructuring and other costs in the twenty twenty fourth quarter were primarily for reorganization and severance costs associated with our Check Point segment. Adjusted basic earnings per Class B share were $0.84 up 25.4% compared to adjusted basic earnings per Class B share of $0.67 for the fourth quarter of twenty nineteen.
The increase in adjusted basic EPS to $0.84 is primarily attributable to an increase in operating income resulting in $0.17 per share, the decline in quarterly effective tax rate adding zero four dollars and a reduction in net interest expense and an increase in joint venture income, accounting for $01 partially offset by an increase in corporate costs reducing EPS by $06 For the year ended 12/31/2020, the $0.29 improvement in adjusted basic earnings per Class B share was principally attributable to increased operating income, adding $0.13 reduced net interest expense adding $07 and a decline in effective tax rate adding $05 This resulted in record annual adjusted basic earnings per Class B share of $3.08 for the 2020 year compared to $2.79 for the 2019 year. Moving to Slide five. For the fourth quarter of twenty twenty, free cash flow from operations improved to $255,000,000 compared to $242,000,000 in the twenty nineteen fourth quarter. The improvement can be attributed primarily to increased operating income for the company. For the year ended 12/31/2020, free cash flow from operations was a record $616,000,000 compared to the prior year of $444,000,000 The comparative improvement is attributable to improved income for the company, a change in working capital and reduced capital expenditures for the comparative years.
Moving to Slide six. Net debt as at 12/31/2020, was $1,390,000,000 a decrease of approximately $225,300,000 compared to December 3139. This decrease is primarily a result of the record free cash flow for the twenty twenty year. The company's balance sheet closed the quarter in a strong position. Our balance sheet leverage ratio was 1.24x, declining from 1.61x at the December.
Liquidity was robust with almost $7.00 $4,000,000 of cash on hand and $1,200,000,000 of available undrawn credit capacity in the company's revolving bank credit facility. Furthermore, the company does not have any significant debt maturities until 2022. The company's overall finance rate was 2.29% at 12/31/2020, lower than the approximate 2.35% average finance rate at 12/31/2019. This was a result of a decrease in rates on our variable drawn debt. The company's balance sheet is well positioned to start the 2021 year.
Geoff?
Thank you, Sean, and good morning again, everybody. I'm on Slide seven, highlights of capital spending for the year. We curtailed our project plans for the year somewhat. We'd originally budgeted GBP $350,000,000 or thereabouts, and we came in at GBP $266,000,000 net of some disposals. Excludes right of use assets and depreciation thereof for the IFRS 16 lease treatment.
We have GBP $330,000,000 planned for 2021. I would say it will be at least GBP $330,000,000, maybe up a little higher than that depending on how the year unfolds and how much capacity we need to keep up with demand in the recovering economy. Page eight highlights for CCL. It was a very good quarter, 7.4% organic sales growth. So it's up double digit in The Americas.
That's low double digits in North America and up over 20% in Latin America and up low single digits in Asia, very mixed there. So Europe is up slightly. Real Asia for China and the ASEAN countries up in mid single digits and Australia and South Africa down low double digits. All sectors post increased sales and we had excellent profitability changes in CCL Design, Food and Beverage, Healthcare and Specialty and CCL Secure. Our Home and Personal Care profits were down slightly on capacity building costs for aluminum and slugs for our container business, and we had lower results in Asia.
Profitability for 2020 improved in all sectors except food and beverage, but it was only a slight lag there in that particular part of the company and really all caused by the impact of on premise and travel related channels for key customers in that space. So moving to Slide nine, it's a highlight for our joint ventures here. The only consolidated net income line. So we have two labeled joint ventures in here, one in Russia and one in The Middle East. The one in Russia has had to deal with the decline of the value of the ruble, which has moved from 45 to 60 in the year of 2020.
So that's impacted the sales line because we saw very strong organic growth in Russia, twenty four percent in Q4 and 12% for the year in 2020. As you can see on the earnings line, we've had a very good period of time here. We're very pleased with the results in these two businesses. Moving on to Avery, another good improved quarter. So if you look at the quarterly progress during the course of the year, we started 2020 in the first quarter, up 1% in revenue.
Q2, we dropped 30% as the pandemic hit. Q3, we were down 16%, and in the fourth quarter, we were down 11.8. So we are seeing a slow, gradual recovery in this space as it will begin to return to normal. Direct to consumer strength in labels more than offset steep declines in badges. So the declines in the badge business is still a significant headwind for us and probably will continue to be so for the first half.
Organization products, that's two most important, the binders and indexes are still down on workplace closures. But the Principal Media business, mainly labels for imprinting, has been improving, especially in The U. S. But also internationally. So we are seeing gradual improvement in Avery, which we're pleased to see.
Slide 11, Checkpoint. So Checkpoint's year was started off in Q1 this year, down 10% as the apparel industry really began its pandemic affected period in January of last year, sorry, in 2020. We were down 33 in Q2, down 8% in Q3 and down just less than 3% or around 3.1% in Q4. But in the second half of the year, our profits moved above the prior year period. So we're seeing a good recovery there, particularly with our sales to retail in the essential category versus in the discretionary category.
We had record results in our power label business boosted by robust RFID performance. Our MAS sales were down in hardware but held up nicely at labels and tags, which aided our mix and cost savings initiatives that Sean talked about earlier, augmented results. Moving on to Innovia. Another strong quarter here. The navy has really had a banner year quarter by quarter and we've had a slow period in the summer months, but we've had very strong Q2 and a very strong Q4.
And profits have really followed that, really driven by improved mix, cost savings and much better asset utilization. Resins have been increasing dramatically. They've actually doubled in North America and have been really quite seriously impacted by the storms you've all been reading about in the newspapers. I'll give you some more commentary about that in the outlook section. So Page 13, a few comments on the first quarter and how things look.
So the start of the year has been good so far despite lockdowns in many countries. As I indicated, Avery remains below prior year, but the gap I think will continue to close in Q1. Checkpoint is now moving ahead of prior year levels, bearing in mind we were down 10% in the corresponding quarter last year. We expect the CCL segment to progress in the first half. So the first half last year of CCL, we were flat in Q1, down 6% in Q2 and our profits were pretty much flat in the first half.
So we'd expect to do better than that this year. The second half of the year, we were up 26% in profits. So that will take some a bit of hurdle to overcome in the second half of the year. We are seeing commodities beginning to rise, as I mentioned, in some cases rapidly. We do have some supply shortages in certain areas, chips which we've been reading about for RFID in the newspapers.
So we're slightly concerned about that. But the impact of the storms in Texas on a couple of our operations that need LPG gas supply from the the energy production sources down there and the fact that 75% of the resin making capacity in North America has really been closed down for ten or fifteen days. So that's causing us some short term problems and will likely affect Innovia in particularly in the first quarter of the year. We expect FX to be nominal or moving towards a slight headwind depending on what happens with the U. S.
Dollar, Canadian dollar rate. So U. S. Dollar is a drag, but other foreign currencies are a win. So we'll see how that pans out.
So with that, operator, we'd like to open the call for questions.
Your first question comes from the line of Martin McGill with Scotiabank. Line is open.
Hey, Jeff, Sean. Good morning, guys.
Good morning, Mark.
Maybe just to follow-up the conversation on some of the commodities. When I think about your business, again, I think it's obvious the exposure of Innovia. But I guess I'm thinking about the sales segment and some of the other business. And just maybe talk about the commodity exposure. Think historically, you've done a great job of sort of managing some volatility, maybe just trying to get a sense for how material the impact you think could be.
Yes. Thanks.
Yes. I think you've called it out right, Mark. I think the one to be concerned about is Innovia. It's all happened in North America, so the impact will be more there than it will be in Europe and Asia because that's why we've seen the spike in inflation. The rest of it is really about LPG supply down into Mexico.
It also impacts Innovium, has impacted our can business in terms of its ability to produce. So they're the two impacts we're seeing. I don't see much commodity risk in the other parts of the company that couldn't easily be managed.
Sure.
Okay. The comments you made about CapEx that were interesting. I'm just curious, have two, I guess, parts of the question. First, if there's any parts of the business now where you're capacity constrained? And I guess second part, when you think about a reopening, is there sort of any parts of your business you think that are sort of obvious that maybe facing headwinds?
I think about hand sanitizer, but I don't think that actually goes away. So I'm just I'm just curious if you think there's anything that parts of business that face obvious challenges as per your view. Yeah.
Well, I think the parts that have done well will probably recede, and the parts that have been badly affected will come back. So so I think it's a scale, really. And so we'd expect Avery and Checkpoint, which is the two businesses that have been most affected by the pandemic, have recovered quite significantly and quite quickly in the year ahead and businesses that have been on a tear because of the restrictions. We've had a very good year with sanitizers, and I think some of that won't go away. I think you're right about that.
But probably the levels of demand will probably recede. And some some of our businesses are focused on products for home improvement, whether that will recede or not later in the year as travel opens up and people spend less money at home and more money on more discretionary things, any time will tell. But I think the things that are coming back will outweigh the things that are likely to receive, in my opinion.
Okay. Thanks. I'll pass the line. Have a good quarter and good job to you.
Thank you.
Next question comes from the line of Stephen MacLeod with BMO Capital Markets. Your line is open.
Thank you. Good morning, guys.
Hey, Steve.
I just wanted to turn quickly to the CCR segment. You gave some comments for the first quarter expected to progress. Can you give a little bit of color around maybe some segment specific performance and how that has been different or varied based on lockdowns around the world?
I don't think it's been a lot different to how it was in the second half of the year so far in the quarter. So things that were doing well in the second half of the year are still doing well. So that's kind of what we see. We haven't seen any change in trend since the second half of last year. So Q3 and Q4 were both good in the CCL segment space, And those trends have continued so far in Q1.
Okay. Okay. That's great. And then just turning back to resins. The Innovia business, you did a lot of work sort of changing the contract structures to pass through resin inflation.
Can you talk a bit about sort of what you see in terms of that business' ability to manage this current period of resin inflation and what that might do to margins?
Well, they have pass through mechanisms. But if you get 100% inflation in the space of three months, it's pretty difficult. So we'll pass it's really about timing, Steve. So some of our contracts have monthly pass through. Some of them are quarterly.
So the ones that are quarterly pass throughs will be problematic. The ones that are monthly, we'll only have a thirty day lag, but we got some of them with ninety day lags. And the inflation is pretty dramatic. So, you know, I think we'll just have to work our way through it. I think once the resin crack cracking capacity comes back online, I think we'll see this quickly adjust.
I mean, public property is at all time highs. It's never been higher in its history. So a combination of tight capacity and then the storm has just been made life very difficult. So but but I think we've done a good job of organizing the pass throughs, but like I said, there's always a lag between getting the prices put through and moving on from there. So I think there will be an impact in Q1 on top of the fact that we haven't been able to run the plant properly because of the availability of LPG from Texas.
Okay. Okay. That's helpful. And then maybe just turning to the Avery business. You talked about recoveries through the year, which has been impressive as things have rebounded.
Would you expect maybe the full year to be up year over year in Avery?
Yes.
Yes.
Okay. I think what we're seeing now, Stephen, I mean, Australia is one country where we can see an impact. In Australia, life is relatively normal down there compared to many other parts of the world. And it's a domestic business, and we're dependent on travel there. And we've seen a very, very strong start to the year down there.
It's like, you know, currently more or less operating normally. And and, obviously, in the first half of the year, the comps are very easy. And and if we have a good back to school, we didn't have a good back to school this year, it's not difficult to see how Avery could bounce back pretty quickly as the economy opens up.
Okay. That's great. Thanks, Jack. Thanks, Sean.
Thanks.
Next question comes from Walter Spracklin of RBC Capital Markets.
Thanks very much, operator. Good morning, Jeff. Good morning, Sean. So Jeff, you pointed to a fairly big variance in your organic sales growth by region in the CCL division. You speak a little bit to why the big variance?
And also comment on CCL Secure, would you say these are still cash forwarding going on? Or is that more normalized now here in the fourth quarter?
Well, I would say the regional call out is pretty much what you'd hear from our customers, too. So if you talk to the consumer products industry, they've all seen very strong numbers in The U. S, lots of strong numbers in Europe, strong numbers in Latin America and sort of in between in Asia. And Asia is really a mix between what's going on in China and what's going on in the ASEAN countries where the lockdowns are pretty extreme. So I think the results we see there pretty much follow the same trends you see from the big consumer products groups.
CCL Secure had another strong quarter in Q4. We see no end in sight to growth of cash continuing. We'll have some tough comps in the second half of next year, but the first half of the year, I think we'll be in good shape. And so we're still pleased to see how things are going there.
Okay. And CCL was up mid single digit in the second half, as you mentioned, and you said that's going to continue here in the first half. Comps are fairly obviously, meaningfully easier in the first half. Mid single digit is higher than mid single digit, you said?
Could be. I mean, we're not going say. It could be.
Next question comes from Adam Josephson of KeyBanc.
Jeff and Sean, good morning.
Good morning, Adam.
Good to talk to you both. Couple questions just about the comps as you see them for this year. So last year was quite an odd year, obviously, in many ways, but your organic sales were down 4%, but your earnings growth was the best it's been in three years. Your margins were near record. So you actually had really quite a good earnings year despite sales being down four So how difficult or easy do you think the earnings comp is in 'twenty one?
Well, I think you have to bear in mind, Adam, the Checkpoint and Avery are two of our more profitable businesses, and we expect both of those to come back quite strongly this year. So I don't think the earnings comp is difficult, really. It's more difficult in the CCL segment in the second half because we had twenty five twenty six percent increases in both Q3 and Q4. But in Q4 last year, in 2019, it was a soft quarter. So if you look at it, you know, over a longer period of time, it's really not that that difficult.
And we do expect food and beverage business, which has been difficult all the way through the pandemic because of that the impact of that on premise trade restriction. You know, once bars and restaurants open up again, you know, we expect that business to recover quite quite quickly. And and so that's another another one that could bounce back. So so, yeah, I don't feel we've got difficult earnings comparisons.
Got it. For that, Jeff. One on CCL organic growth outlook. So somewhat remarkably, it was up as much last year as it was the year before. I know '19 was a global slowdown, but, you know, one would think that '20 would have been worse than '19 in terms of CCL organic growth, but it wasn't.
It was identical. So in light of that, how are you thinking about '21 organic growth in CCL? Do you think the last two years were quite depressed and and therefore '21 should be much better than the past years? Or how are you thinking about that
this year? I think we had 1.1% organic growth in both of those years. And I think we have to remember about the pandemic year. We have had the the health the health care boom, you know, so hand sanitizers and and excess sales of over the counter medicines. So and and then the CCL design, the IT peripheral phenomena, you know, was was another another very good tailwind.
So so, you know, I think that offset the things that were down, you know, food and beverage, parts of the home and personal care business, high end cosmetics and things like that. But we had sort of balance in the portfolio. But I if you look at what happened in the last two years' slowdowns, same thing happened. We've slowed right down to flat to up a little or even down a little. And I expect our organic growth rate, if the economy recovers, to get back to its normal previous run rate, 3% to 5%, something like that.
Right, right. Got it, Jeff. And just two more. One on the Innovia margin. So they were the highest they've been.
Obviously, you had a tremendous year there, 20.5% EBITDA margins. I'm trying to remember what the margins were when you announced the deal. How do you think about those the margins you were in last year, just in the context of what you think normalized margins should be for that business as you see it now?
Well, I think the industry had a record year. So the supply was tight in some parts of the world and we were fortunate to be in places where we could supply from. We didn't have any plant closures. And we did a lot of operational work. So I think a lot of the a lot of the improvements in in the results of that business came from from a lot of operational turnaround type activity and then pruning the mix.
We had some particularly the former Treofan businesses, we had some bad mix to prune out. So that also helped because we got replaced by things that are more fundamentally more profitable. So it's hard to say. In the first quarter, I think we're going have to deal with this situation in North America with this sort of incredible rise in resin. It's the fastest it's ever happened in history, the highest level it's ever been in history.
But I think it's likely to recede as quickly as it started. So, you know, revenue hit $1.20 maybe $1.20 cents per pound in the in the month of January, and I think it'll probably end up closer to $1.30 by the time February's out. But I wouldn't be surprised to see it drop 50 or 60¢ by the time the summer the summer arrives. So so it's a it's a short term peak, really, and I don't expect to see it stay at these elevated levels for very long, and just have to work our way through it.
Right. One last one, Jeff, M and A. You had a comment in your release about being well placed to fund your global ambitions. Obviously, your balance sheet is in terrific shape. Asset prices globally are very high.
So with all that in mind, how are you thinking about sizable M and A in the next year or so?
No change. It's difficult right now to you know, we still travel is still a real problem for us. I mean, we we were able to get about a little bit now, but it's still pretty restricted. So I think taking on anything in the near term is not likely, but valuations are still up there. We haven't found things that we'd like the prices of any any anytime soon.
Good level of activity in the bolt ons, but large scale MMA, you know, nothing immediately on the horizon. But I think that that that may change as the year progresses, and we're able to be a bit more a bit more aggressive about going and looking at things that we've been restricted from doing so in in the pandemic.
Thanks so much, Jeff.
No problem.
Next question comes from the line of Michael Glen of Raymond James.
Hey, good morning. Just on Checkpoint, as we think about the merchandise availability solutions and security tax business ramping, is there incremental cost that comes back into Checkpoint for that business and that will keep the margin, say, stable at these levels? Or should we think about the margin there potentially moving even higher?
Well, the MAS hardware business the MAS hardware has a lower operating margin than the supply side. So if we get more hardware orders, hurts the mix. But I think generally, it improves the overall result because we've got people involved in that to fix costs. If we get some sales in that area comes back, which I expect is we're already starting to see it happen, it'll be an overall benefit. We did benefit certainly in the second half, Michael, from the mix, so being more supply based and being quite strong in what we would call essential retail, the Walmart and Target, supermarket chains, places like that versus some more discretionary type retailers.
Okay. And just on Innovia, do you how do we think about the opportunity for M and A growth in that segment in particular? Are there do you see a wider M and A opportunity in Innovia versus some of the other businesses?
Well, we've made one acquisition last year. There's others in the pipeline. Whether any of them happen or not, time will tell.
Okay. And resin inflation, does that impact the CCL Secure margins?
No.
And tax rate for next year?
Sure.
Slightly less than 25%, maybe 24.5 ish.
Your next question comes from the line of Daryl Young of TD Securities.
Morning, guys.
Morning, Daryl. One quick one
for me on Chuck. I think with respect to RFID and apparel labeling last quarter, you mentioned the majority of the growth was just from the recovery and pent up demand. Would you say that's still the same this quarter now that you've got record results again? Or would there be an element of shift towards more RFID during the pandemic? No.
Certainly in Q4. Q4 was we continue to see the shift of our apparel label business grew about 7% in Q4. So I think some of that is the rebound of the supply side of the retail and apparel supply chain and some of it's RFID, the combination of the two.
And then on labels, we've heard some of the consumer package companies talk about taking share from the generics during the pandemic. Is that something you're seeing? And is that a trend that you think will continue as consumers look towards the safety of a premium brand just given pandemic concerns?
Yes, I think that's certainly true. I do think people have been loyal to the brands they know during the pandemic and haven't been price shopping. So if you look at the results of P and G, they're probably the archetypal company in regards to your comment there. That's been a benefit to us. But I think for us, we see that space is still mixed because of the impact of travel retail related products.
So sun care cream, sun care aerosols, travel size aerosols, things that are sold in specialty retail stores, but still somewhat down. So it's still a mixed story in personal care between between brands that are doing well and and, you know, on a shelf of the see the market and ones that are more associated with with different types of activity from being in lockdown.
Perfect. Alright. Thanks very much, guys. That's that's it for me.
Next question comes from Scott Fromson of CIBC.
Thanks and good morning, gentlemen. You've covered most of the operating and market growth issues, but I'm wondering if you can comment on planned initiatives in sustainability and other ESG issues.
Not a lot to say. I haven't said in the past about that, Scott. We're very much tied to the behavior of our CPG customers in that regard. So we've got a whole suite of products that are what I would call sustainability drivers. Whether they get adopted or not is in their hands, both of them is in ours.
But it's a topic du jour of the moment for sure, and I think we'll continue to be so for some time.
Thanks. I think that covers it off. I'll turn it over. Thanks. Thank
you.
Next question comes from Benjie Keefe of PI Financial.
Good morning. Great quarter.
I have three very quick questions. Jeff, on the Avery side and the badges and events business, can you put that into context, you know, revenue, like so that that's within DTC. How much of how much of that is part of the overall Avery? And there's also another part of DTC, if I'm not mistaken, Just to kind of give a
The part of Avery is about $100,000,000 and it's down 65%, 70%.
Okay. And the rest is growing well?
The to the other part of direct to consumer is all labels, and that's growing well.
Okay. And
then the second question is M and A, assuming it's done and when it's done, but you're not targeting any specific segments? Like, it will be opportunistic wherever you're
supposed any more than I have done on m and a, Ben. I think we've set we have more view about what our position on m and a is.
Got it. And then the third the third one, just probably probably the same same answer, but just in Innovia, the the way I understand it is you are Innovia is better prepared this time than in 02/2018, but the increase in resin now is more sort of volatile or more higher than in 02/2018. Is that about if I compare Innovia now in two years ago and and resin prices now in two years ago, is that about the ratio?
Yeah.
Okay. Okay. That that's it.
That's that's that's good well, good way to put it, Dan. You know? I think what you have to bear in mind is how extreme the price rises have been. I'm just looking them up here for you. So if you take the resin in the month of September was trading at 61¢ a pound in The US, and it's trading at close to $1.30 today.
Oh, that's good. So it's
it's
really risen. So it's somewhat compounded by the storm in Texas because 75 percent of the industry got shut down when the storm came. So I expect this will gradually alleviate itself as March unfolds. But right now, it's a pressure cooker.
Next
question comes from David McFadgen of Cormark Securities.
Oh, yes. Thank you. Two questions. First of all, just on Avery. I was wondering if you could maybe provide some color on where you think the business will will perform.
I would imagine that this is still gonna be pretty challenged in 2021, but maybe it'll come back in the latter half as it is normalized. And then, you know, there's still a lot of workplace closures, so organizational products probably be down. So I was just wondering if the direct consumer gonna to carry the data? I was wondering if you could provide some color on that. And then just on free cash flow, obviously, very strong free cash flow in 2020.
Do you actually think you could grow your free cash flow in 2021 versus 2020?
Well, we're not going to comment. We don't give guidance on free cash flow for the year ahead. So the numbers will be what they'll be. We'll see how the year unfolds. As for your questions on Avery, I think you have to bear in mind there was a lot of significant drops in their performance last year.
So down 30% in Q2, down 16% in Q3, down 11% in Q4. So the comps, we get through q one, are pretty easy for the rest of the year. So I think it'll be difficult to to do better than prior year in q one just because they weren't really impacted by the pandemic in 2020 until Q2 arrived. And we actually had a pretty strong start to the year of 2020 until the pandemic hit. But obviously, once we get through that, the next three quarters, the comps are going to be particularly easy.
And I don't expect to see any of our product lines showing drops, and I think we'll all be showing increases of one sort or another once we get into the second, third and fourth quarters of the year.
Okay. Great. Thank you.
Okay.
We have a follow-up question from Adam Josephson of KeyBanc.
Thanks, Jeff and Sean. Just, Jeff, one question on your your comment on resin that you think prices could rather quickly come back down heading into the summer. The reason I ask is, obviously, resin prices were up dramatically even before the winter storm a couple weeks ago just as many other global commodity prices have had actually surged since last summer, whether, you know, steel, copper, iron ore Yeah. Lumber, you name it. Oil's been surging.
So I guess what what gives you confidence in that forecast, if you will, that resin prices could quickly come back down? Do you think the supply
issue It's really the situation in North America, Adam, because resins have not gone up to the same extent in other parts of the world as it has in North America. So it's really a regional call in development situation in The US. And, capacity was tight. Pricing was tight before the storm. The storm exacerbated it, but not a new capacity.
It's coming on stream in the second half, and the storm will recover. And the the the rate of red the rate of premium we have above supply of resin in The US is not sustainable. So you'll see if you get if you get one region of the world has a has a price premium of 50%, but another region of the world that doesn't that's not that doesn't sustain itself over time. So it's really it's really the premium nature of the of the price change in in North America versus other parts of the world that gives us confidence to say that.
Yes. Just one other question, Jeff, in terms of your visibility. I mean, obviously, when the pandemic started, you and everyone else had none. And the year unfolded much better than I think you might have feared come in March, April, thereabouts. So what are you thinking these days in terms of the economic outlook and how it pertains to what do you think how would you characterize your visibility?
And how much better is it now than it was three, six, nine months ago?
Well, I mean, I think in the days of March and April last year, it's difficult to feel confident. So we feel dramatically better this year than we did this time last year. So and I I I do think that I do think the stimulus that's happening all around the world from government is going to have a big impact. And I think people's behaviors to go back to normal is also going to have a big impact. So there'll be some some of our businesses will receive benefited COVID, the COVID era and the lockdown era, but others were significantly hurt.
And so I think we'll just see that sort of two edges of the scale. The ones that businesses that have done well in the pandemic will probably recede to normal. But the ones that are already in the toilet, they're going to come bouncing back. I think the balance of that is probably a good thing for us overall.
Yep. And are you at all concerned about what happens after the government stops sending out checks, or is that just
kind Yeah. Beyond your purview of We have the same concerns as everybody else has about debt levels and what that means. But for the near term, I think for the year ahead, I wouldn't be surprised to see U. S. GDP grow 5%, 6% this year.
We tend to follow that. If see these rises from the previous lows, you know, that's you know, we can't help but follow it. So so we feel quite confident about the year ahead. Thanks. Sorry.
Missed your term short short term problem with taxes, but for that aside, We I feel quite confident about the year
have a follow-up question from Stephen MacLeod of BMO Capital Markets.
Thank you. I just wanted to follow-up on Innovia, and I don't want to be that hoarser given the resin price inflation. But I just wanted to is it reasonable to expect that in Q1, you could be in a situation where EBIT gets sort of totally wiped out by the resin price inflation given how dramatic it was? Or is that too extreme of the situation?
I think that might be the case in The U. S. It might be the case in The U. S, Steven. So so in The US because it's so dramatic, and then we've had we've had our plant, you know, not able to operate at normal capacity because we can't get LPG.
So I think in The US, we may have that problem. I I don't think we'll have that problem in the in the rest of Innovia. So it's a sort of a I think we can disclose on the on the chart there the exposure we have to The US versus versus other parts of the world. Yes. So that's that's the part that I think will be particularly impacted.
But in January, we we had a very good January. So I can tell you we didn't see it in January. So January numbers were good. We expect February to be difficult partly driven by the situation in Texas.
Yes. Would you expect that are you still seeing strong demand on the Innovia side? This is more a cost issue than a demand issue.
It's more driven by the inflation and our ability to operate the plant because of energy supply. Those are the two components. It's not demand driven.
Right. So the demand is still robust as it was. Yeah.
Yeah. Yeah.
Yeah. Right. Okay. Thank you so much, John.
No problem. There are no further questions at this time. Presenters, you may continue.
Well, thank you very much, everybody, for joining the call today. Thank you for your attention, and we look forward to talking to you again in May. Goodbye, everyone.
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