Hi, good morning, everyone. Thanks for joining us. I'm Mark Neville, a diversified industrials analyst at Scotiabank. A pleasure today to introduce from CCL Industries, President and CEO, Geoff Martin. Before we get started, it's required to read some disclosures. I'll do that. The views and opinions expressed in this presentation are not necessarily those of Scotiabank and may differ from the views and opinions of other departments or divisions of Scotiabank. The information, sorry, contained in this presentation does not constitute investment advice or an offer to buy or sell securities. Neither Scotiabank nor any of its affiliates make any representation or warranty as to the accuracy or completeness of the statements or any information referred to in this presentation.
The conflicts disclosures that Scotiabank maintains for CCL Industries are Scotia Capital (USA) Inc., or its affiliates, have managed or co-managed a public offering in the past 12 months. Scotia Capital (USA) Inc. had an investment banking service client relationship during the past 12 months. Within the last 12 months, Scotia Capital Inc., and/or its affiliates, have undertaken an underwriting liability with respect to equity or debt securities of, or have provided advice for a fee with respect to the issuer. That's. With that out of the way, again, thank you very much. Just for those on the line, on your screen below the media player, there's a field for Q&A. If you want to send some questions in there, I'll try to get to those, and hopefully I'll get to those. With that, I think we're ready to get started again. Geoff, thanks for your patience. Appreciate you.
No problem.
Thank you for being here today. It's good to see you in person. Well, virtually. If we can just get going, I'll start with the questions. Maybe just start high level. Geoff, you guys had a record Q3, I think that surprised everyone. On the conference call you spoke to good momentum into Q4. Maybe just give us sort of a quick update on how things have progressed thus far in the quarter.
Yeah. Well, things have been going much better in our business really since June. After the dark days of April and May, we've had month-on-month it's been getting progressively better as with each month as it's gone through. October and November for us is slightly odd because we've got one less work day on the calendar than we had this time last year. That's probably worth, you know, 1%-2% of sales, something like that. Despite that, our sales are up low single digits for the total company for the quarter so far and we'll make up that extra day in December, although it is a Christmas period.
As we said on the investor call at the end of Q3, we expected CCL and Innovia both to be up, especially on the profit line in the quarter, and that's proved out to be, and they're both up meaningfully so far this quarter. Checkpoint sales are still down slightly, but profits are up modestly, and Avery profits are still down.
Okay. Again, that's. It's helpful. Again, some order of magnitude. I mean, has there been any sort of, it doesn't sound like it, but any sort of meaningful change in trends versus Q3? Is there sort of any areas of business that were strong, maybe not as strong, or business that were weaker that are sort of showing some improvements?
Yeah. The CCL Secure business, which was especially strong in the Q3, you know, has softened considerably because we had a bumper Q3. That's really what drove our margins up to the extent they did in the third quarter.
Got it.
Our sort of consumer packaging businesses, our healthcare label business, food and beverage label business, and our home and personal care businesses have improved over the rates of growth they had in the third quarter. The CCL segment overall is up a tad under 4% for the quarter so far.
That's the revenue line?
That's the revenue line, yeah.
Got it.
Profit's up more than that.
Got it. Okay. Again, well, you sort of just answered the question. Growth rates have improved and accelerating or slowed, I guess. Again, they improved in all the other segments slowed a bit in Secure. That was, I guess, sort of the answer. The, I guess, just on the Secure slowdown, and I guess that would have been anticipated, right? Just given the strong Q3.
We had a bumper Q3, so it's always a part of our business is volatile quarter to quarter, and we had a really big bumper Q3, so we knew that the Q4 would be lower. I don't know whether it'll be worse than prior year or not at this stage. It depends what, you know, how many banks take shipments in December. It's hard to predict.
Got it.
The other businesses have had a good quarter, so overall we're still up.
Good. We'll dig more into, I guess, the segment later and just maybe.
Mm-hmm.
Continue the high-level discussion. You know, we've gotten positive news sort of on a vaccine development, and we're starting to roll this out globally now. I'm just curious to hear your thoughts, your early thoughts on 2021. Just, I guess, the various puts and takes and sort of what you're thinking about for next year at the moment.
Well, we thought, you know, back in April and May, when we had these calls, we were saying, well, it may take 2021 to get back to where we were in 2019. We'd be disappointed if that happened now. I think we've got a bit more optimism about next year than we had, you know, in the dark days of the spring of this year.
At this stage, we're certainly expecting to progress in 2021, but it's very uncertain still. You know, we don't really know how long these vaccines are gonna roll out. We don't really know the impact of all these changes on the economy and so on. It's all how you view them at this moment in time. We certainly wouldn't give clarity about next year in any level, but our confidence for the year is certainly a lot better than it was in March and April this year.
Yeah, maybe just some thoughts around, again, the balance sheet. I think it's kind of a good segue when you're talking about improved confidence in M&A. If you could just give us sort of an update on your thoughts around M&A? Again, I understand travel's restricted. We've seen an increase in M&A across other sectors as sort of the macro outlook improves. You got people sort of globally sort of on the ground. Just sort of curious about your thoughts at the moment around M&A.
Well, everyone else can do their own M&A the way they want to do it. We do ours the way we want to do it. At the moment, we use our boots on the ground to do the small transactions. We wouldn't entertain a large deal at the moment in the current environment. We just, you know, we'd need our senior people, our top people, including myself, to be able to get around the world if we were to do a large transaction. That's just not possible at the moment.
There's no, even if it was something we could do on a large scale, we probably would back away from it right now. Our, you know, predisposition right now is to focus on these bolt-on transactions, 'cause they're easy to do. We've got people in the countries who can do them. They're reasonably plentiful and we've done quite a few of them already this year, as you've seen.
Yeah.
I expect 2021 we'll see more of that.
Okay. When you talk about sort of that smaller tuck-in M&A program of CAD 200 million-CAD 300 million in revenues, is that sort of?
Yeah. I think this year we'll be nudging up towards CAD 200 million, so something around that.
Okay. Okay.
Yeah. It might be more, it might be less. I mean, you never know with transactions what comes and what doesn't. That's what we're focused on right now.
Okay. Also, I guess just on the M&A, again, I appreciate you might not wanna do anything large at the moment, but is there larger opportunities out there?
There are larger opportunities out there, but we have a long track record on this. We are not going to do them in this environment.
Got it. Got it.
It's just not. It doesn't follow our MO. You know, we've done large transactions in the past. Senior people have all been involved. It involved travel to all corners of the world. We just can't do that right now. If somebody came along and asked us today, we'd have to decline because it's just practically not doable.
Right.
That's our view. That's our view of it.
Yeah. The areas of interest, again, you've talked about these all through the year in the past. I mean, they're all sort of nothing's really changed there, right?
No, no. We're still buying it right across the company. This year we bought a, you know, films brand for Innovia. We've done a number of transactions in CCL Design. We bought a couple of small label businesses. We bought some direct-to-consumer things at Avery. We bought an apparel label company for Checkpoint. It'd be across the portfolio, and we're not sort of prioritizing one thing above another, but it'll be a repeat of what you've seen this year.
Okay. I guess on leverage, you've talked about the target, I think, one in sort of 3.5 x range. I'm just curious, has the pandemic sort of changed your view? I guess I sort of see two different potential trains of thoughts where one is you guys performed incredibly resilient through the pandemic, so perhaps maybe you're comfortable with a bit more. The alternative is, you know, it was a good reminder, the pandemic, that sort of unforeseen things happen, so maybe a little more prudent with leverage. Just sort of curious your thoughts on that.
Well, we don't have any thoughts beyond what we've had said in the past, you know, which we don't really have a specific target. We have rail-way lines . You know, once our leverage falls below one, we start to get anxious about heading towards being in a net cash position, and we'd have to think about what we're going to do if that ever occurred. You know, up to investment grade rating at the top end, and we're comfortable at any position in the middle. Our views on that have not been changed one way or the other by the crisis. We certainly have focused on our balance sheet more in the last six months than we would have done in a normal period of time, which I think most companies have done, and we're no exception.
Okay. You know, that's fair. Maybe just thoughts for CapEx for 2021. I don't know if you're in a position to talk about that yet or
Yeah. I'd say low CAD 300 million, maybe CAD 325 million, CAD 330 million, something like that.
Okay. This year, I think it's CAD 290.
Yeah. We'll be around CAD 290 net this year, and I think around CAD 330 million gross next year.
Okay. Geoff, I'm seeing a bunch of questions coming from the line. I'm gonna try to sort of mix them in as long as they-
Sure. Yeah, you fire away.
Sure. I'm seeing a question here just on dividend growth. Any comments on that, sort of in terms of capital allocation towards dividend?
Well, I think our shareholders annual dividend increase, it's always been healthy, and I expect it'll be healthy again this year too. We're not gonna get into telling you what it might be 'cause the board still has to approve that. You know, given the balance sheet we have, probably be a reasonable expectation for there to be a healthy increase this year.
Okay. I guess another question just sort of goes back to some of your original statements. But just sort of what factors in particular sort of underlie the improved confidence for 2021, I guess it's maybe how you perform today, but
Well, I think what we've shown this year is the company's been very resilient. We've had an event that's unheard of in the last hundred years that interrupted our business in the middle of the year, and we're pretty broad spread in the economy, and we're gonna come through it this year probably with higher earnings than we had in 2019, which I think is quite remarkable. You know, if you've been able to go through an event like that and come out unscathed, I mean, I don't think it's surprising that that gives you some level of confidence about the future.
Yeah. Yeah. That makes sense. Again, it was pretty impressive year and strong Q3, so good.
Yeah.
Again, before we get into the segments, maybe just comments or maybe a quick discussion around sustainability and ESG.
Yeah.
You guys, you've been making labels now and other forms of packaging for, you know, five, 10 years that make recycling easier. You know, these sort of trends accelerate. I guess a few questions sort of, you know, how well equipped you are to handle it. Does it provide a competitive advantage? Sort of, you know, I would assume some of your smaller competitors, maybe it's new to them, and they're not as well equipped. I'm just curious if there's any sort of investment on your end, or would all be captured in regular CapEx for whatever you need to do.
Yeah. Well, we've had sustainable product offerings in our portfolio for more like 20 years than five or 10. But with limited uptake by the consumer products companies, only not really driven by sustainability either, frankly, more driven by cost. But there's a lot more interest in them now than there ever has been in the past, and we're certainly making some scale investments, particularly in film technology, that will help us help our customers make PET bottles, in particular, more recyclable than they are today. That's our main focus today, is to help our customers recycle primary containers, and that really involves having labels that are compatible with that process. I still say we're at pretty early days in the whole sustainability revolution.
You know, there's a lot more talk than there is substance in the world out there in this regard. There'll have to be some, I think, real changes of behavior, both at the consumer level and in the objectives of the world's big CPG companies to really do something. The technologies are out there for us to react, and we're doing that in spades every day of the week for our sales teams.
Yeah. Again, just in terms of you at the moment, any investment you make that'll be in sort of just capturing your regular CapEx, correct? It wouldn't be.
Correct.
-solid .
Correct. Yeah, I don't think we need to, you know, other than in film technology, I don't think there's a lot of investments we need to make to be able to offer these products. It's more a question of the CPG companies themselves deciding that's what they want to adapt their world to. I mean, their priority at the moment has not really been that in the pandemic. It's been reacting to the circumstances of the pandemic. Sustainability, I wouldn't say it's taken a back seat, but I think, you know, availability of supply and getting what the world needs out there has been more important to them in the last two or three quarters than sustainability has been.
Yeah. Yeah. Again, I got a few more questions coming in from the line, so I'll try to mix them in, sort of try to keep it on. So, a question here. How have you strengthened the group's position during the disruption and uncertainty this year? Have you been able to upgrade any talent or anything else that doesn't sort of immediately show up in the numbers, but strengthens the business?
Mark, you broke up in that question. I couldn't hear you.
Sure. I'll repeat it. I'm just curious, you know, how have you strengthened the group's position during the disruption? Sort of, were you able to upgrade talent or anything else that doesn't immediately show up in the numbers maybe, but that will strengthen the business?
I don't know if I got a lot to say about that, really. I think we had a great team of people when we went into the pandemic. It's the great team of people that got us through it. I don't think we've done anything in the pandemic in that regard that's made us any different coming out than we were going in, other than the experience of going through it. I think the team that's come out the other end is the same group of people that went into it, now having the benefit of what it's like to go through a global pandemic.
Sure. Okay. I guess just on the CapEx outlook for next year, the areas of focus, either segment or geography, if there's anything in particular worth calling out.
Nothing worth individually calling out. The biggest investment we're making is in EcoFloat films, which is a sustainable film technology that's going into Innovia. They supply films to the CCL Label sleeve plants, that's our biggest capital investment, about CAD 35 million. Put a press release out about that, you know, a couple of months back, and that's the biggest investment we're making next year.
Yeah. Before we maybe get into the CCL segment, I'm seeing a bunch of questions sort of come in about Avery and Checkpoint, so maybe start there.
Sure.
Yeah. Just I guess on the Avery, just in terms of profits, when would you expect direct-to-consumer segment to become bigger than the legacy business lines, binders and stuff like that?
Well, I think we have to wait and see what happens to events around the world. Our badge business, which is the largest segment of our direct-to-consumer business, you know, really tanked with the attended sporting events, I mean, just disappearing completely.
Yeah.
Rock concerts, conventions, sports events. Until they're back to normal, our direct-to-consumer business won't be back to normal. The direct-to-consumer label business has grown significantly. You know, more than doubled in size during the pandemic 'cause everyone wants sanitizer labels and things like that. The core of Avery shrank in the pandemic, really due to the change in workplace habits until workplaces return to normal. I think Avery will have a tough time really through the middle of next year. We would expect things to sort of begin to return to normal there, probably with back to school in 2021, which we expect to be a lot more normal than the chaos we all went through this year.
Okay. Maybe on Innovia, maybe just talk about sort of, you know, the guardrails and building out that platform, just given some of the volatility maybe in commodity prices and whether or not it's more or less attractive than CCL segment, but just the thoughts around growing that business out.
Yeah. Well, we obviously had a very good year.
Yeah. Yeah.
That's continuing so far this quarter. It's really about improving mix and improving operations with, you know, pass-throughs of resins have happened, particularly in North America. We haven't really benefited a lot from that, particularly in Q3 and Q4. The business is a lot better managed than it was two or three years ago. Mix has improved very significantly, and those are the two main drivers for the performance of Innovia. We're feeling a lot better about the business today than we were, let's say, in 2018, for sure.
Yeah. Is there thoughts around maybe scaling it up much bigger or no?
Well, we'd like to make investments in it, so the CAD 35 million we're putting into EcoFloat is not a small amount of money. There are other acquisition opportunities out there. We're certainly looking at things to invest in in Innovia without getting away from its core. At its core, Innovia makes films that are close to the businesses we're in on the CCL side and that we use on the CCL side. We wouldn't wanna deviate too far away from that.
Okay. Again, lots of questions rolling in, so I'm just gonna keep kinda try to trigger. We're gonna bounce around a bit, but I'm gonna keep going through. Just sort of given some of the closures of brick-and-mortar retail, maybe just comment on the strength in Checkpoint in Q3 obviously was good and maybe your exposure to e-commerce and RFID and stuff like that.
Yeah. Well, Q4 Checkpoint is up a little bit in profits. What we're seeing at Checkpoint is the apparel label business is doing particularly well. That's up mid-single digits in sales this quarter, and profits are up significantly. That's driven by the recovery of apparel after the shutdown in the first five months of the year. You have to remember in the apparel industry, you know, it never really started in January and February because COVID hit China, you know, around Chinese New Year time. The Chinese apparel industry almost never got started this year and when it normally would, and it went right the way through till the end of May, and then came back with a bang in June.
We're still seeing that sort of tailwind in that part of Checkpoint's business. That's been a positive. You know, retail is a very mixed story. You know, you've got Walmart and Target, you know, knocking the ball out of the park, but then you've got retailers like Macy's and the mall chains and things like that, which are not doing as well. Our what we call our MAS business that sells articles, surveillance and inventory tracking systems, that's a mixed story. There's some customers doing well. Kind of looks like what you would expect, you know. You look at how retailers are performing, how they are doing is how we are doing with them.
The whole move to omni-channel retailing and using brick-and-mortar stores as last mile distribution centers speaks to the need for inventory tracking. In-store security is never gonna go away. We still think we're in a good place for Checkpoint, but top line will be difficult, I think, until the world gets back to normal. Bottom line, I think we've certainly turned the corner in that part of the company, and Q1 is a low seasonality period, and then it jumps up again in Q2. By Q2, certainly in Q3, we'd expect to be close to back to normal.
Yeah. I guess again, like I can appreciate some of the short-term disruption, but just thinking long term, again, with this. There's all these sort of RFID and sort of e-commerce, omni-channel. Is this all positive for Checkpoint, in sort of-
Yeah. I mean, it's the good thing about the inventory tracking is, you know, in apparel, it's difficult to do with barcodes 'cause of all the degree of complexity around sizes of garments.
Yeah.
If you want to have an omni-channel offering in the apparel industry, you've got to know exactly what you've got and where it is. RFID is an enabling technology in that space. We expect that to continue to grow double digits, and we're gonna have our fair share of it.
Okay.
We think that's a good part. In the core MAS business, you know, there's always been winners and losers in retail, and that's still the case today. You know, we're doing well at the places where you'd expect us to do well and not so well in the places where we're not doing well externally.
Yeah. Long term, this is Checkpoint. It is a growth business.
Yeah. I mean, you know, I think it'll grow to the extent of. Say, if you take all retail GDP, you know, so e-commerce and brick-and-mortar stores, we wouldn't expect to grow beyond the rate the industry grows. Certainly can we grow low single digits? I think we can.
Yeah. Did you sort of mention, sort of just a moment ago, RFID it was growing double digits? Did I hear that correct?
Correct. Correct.
Yeah. Okay, I'm gonna try to get back into some of the questions.
Feel free.
There's lots of interest, Geoff. Lots of questions coming in, so it's great.
That's okay.
On the CCL segment, you touched on sort of the business lines, sort of the strength and/or what was doing better, maybe what tailed off a bit. Maybe just sort of geographically.
Yeah.
Geographically, what's happening? Again, the world's a lot different place out there.
Geographically, we're up pretty significantly in North America. Europe's about flat. Latin America's up significantly. Asia is up mid-single digits. Australia and South Africa is down. That's really a function of the currency business, really.
Yeah.
That's what it looks like geographically. We're certainly seeing more strength in North America than we are in Europe, which probably wouldn't surprise people. Latin America, a big recovery, especially in Brazil. Asia, you know, China recovery. The ASEAN countries, you know, Thailand, Singapore, Malaysia, Indonesia, those countries is pretty mixed. Some of them have got pretty significant restrictions in them, some of them are more open. That's fairly mixed. China is doing quite well. The electronics industry is doing particularly well in China, so that's really a growth driver for us over there.
Yeah. Maybe just on the margin. In your Q3, your EBITDA margin, I think, was up 350 basis points year-over-year.
Sure.
I think this is probably where I received the most amount of questions, sort of, post the quarter on the results.
Sure.
I know you talked about the mix helping, but is there sort of anything else worth calling out? You know, such a big improvement.
No, it was really all mix. I mean, 40% of the profit increase that came in Q3 came from CCL Secure.
Okay. Okay. Yeah.
You know, if we have a blowout quarter in CCL Secure, it has quite a significant effect on the mix of margins. We'll see the reverse of that this coming quarter 'cause they definitely won't have a blowout quarter. We won't see a 350 basis point improvement this quarter for sure.
Yeah. Yeah. You did sort of I think you said earlier revenue's up just under 4% or 5%, and you said profit's up more. That's, that is what you said, right?
Well, this quarter is so far through October and November combined, we're up a tad under 4% on the revenue line. Quite a bit more than that on the profit line in the CCL segment.
Okay. Maybe if we just spend a quick minute on Secure, just again, because it sort of was such a strong Q3. I could appreciate, you know, some quarter-to-quarter volatility. I think you said Q4 this year may be comparable to last year. I guess that would be my first question. Sort of second, just the longer-term views on the business. Again, I still get a lot of questions from investors or get the sense from investors that maybe they think there's longer-term structural headwinds because of credit cards or digital currency, and just your thoughts on that.
Well, banknotes were invented 150 years ago, and they've increased every single year for 150 years. There's not many industries that do that. They increased all the way through the credit card boom. Since the launch of Apple Pay in 2007, notes in circulation in the United States were up 43%. You have to remember, banknotes deal with the small end of the retail payments technology. They're used for all kinds of transactions beyond just retail expenditures. We certainly don't believe banknotes are going away. Even in the most advanced countries in the world, in Scandinavia, banknote volume is still growing. We don't subscribe to that viewpoint.
The most important point, I think, in our business is we're converting the world from notes made out of cotton-made paper, which is the traditional way banknotes are made, to being made out of polypropylene, which is a lot more safe, a lot more secure, a lot more clean, and a lot more sustainable. We have, you know, barely 5%-6% of the world market converted. There's a big market to go out there after. We're still focused on that.
Yeah. When you talk about 5%-6% conversion, that's an industry number, but I guess you guys are the primary player, right?
Yes. If you take all banknotes in the world, you know, 94% or so are still made from paper. 6% are made from polymer.
Okay. Again, maybe just on the Q4. Again, I appreciate it's gonna be down from Q3, but again, for year-over-year, would it be comparable or down or?
Talking about CCL Secure?
Yeah.
I don't know, Mark. It's you know we just. That's the business we don't ever get into the prediction game, you know? 'Cause we just don't know. Depends what ships. When we ship, we ship big amounts. You know, we can have single shipments in a CAD 200 million business that can be as high as CAD 15 million. I'm not going to get into predicting what we're gonna do in December.
Sure. That's fair. It's fine. Maybe if we can just again talk about Avery. Just on the margin, again, you mentioned cost savings helping the margin in Q3. Was that-
Yeah.
Is it more temporary measures or structural improvements, and sort of, is there more-
No, it was structural improvements, particularly in our binder product line. The reason it had such an impact on Q3, it's when we shipped the back-to-school binders. We get most of our cost savings come in that quarter. It's particularly in the ring binder category we had some pretty significant savings that came through this year. They were more structural rather than pandemic driven.
Okay. Is there more you can do across that business or is it really that-
Yeah, we're working on it, but, you know, we're more interested in seeing demand recover than we are cost, you know, cost savings.
Yeah.
Yeah.
On the demand, again, we already talked about it, but again, I would assume the same trends are sort of largely persisting, right?
Yeah. I mean, our you know, we have a little business up in Madison, Wisconsin, that makes digitally printed badges for conventions and sports events and rock concerts. I mean, their monthly sales last year were running at CAD 4 million-CAD 5 million a month. Now they're running at not even CAD 400,000-CAD 500,000 a month. It's not hard to see why, you know. Until the world gets back to normal, I mean, pretty hard for us to expect them to do anything about that, really.
Yeah. Yeah.
Other than manage the cost side, which they've been doing.
Yeah. Maybe on Checkpoint, maybe just get in again. I think we touched on this earlier, but again, the update on the revenue trend into Q4. Q3 was a big improvement over Q2. I'm just sort of curious, you know, has it sort of continued to get better or sort of flattened out or?
Yeah, no, it's got a little bit better in Q4. I think the improvement in the apparel industry has really been a big driver for that. The big unknown for next year is in the apparel industry, how much of the summer inventory for 2020, which was seriously interfered with in terms of retail availability this summer, how much of that is lying in warehouses that'll be used this summer? What will that mean for apparel manufacturing in the year of 2021? We just don't know the answer to that.
Okay.
We'll find out as the year progresses. The improvement in the apparel manufacturing supply chain has been a big driver. The retail end markets are mixed, just driven by who's doing well and who's not.
Okay. I'm gonna speak up a little bit, Geoff. I'm getting some messages here. It's hard to hear me. If I'm too loud, I apologize. If I can't get any closer.
Okay.
Speak a little louder. Again, the Checkpoint, the Q3 margin, you're up 240-250 basis points.
Yep.
Despite the lower sales. Same thing, same question sort of to the Avery earlier, just maybe some of the cost saving initiatives, are they more temporary or permanent?
No, I think that margin increase is all operational improvement, you know, because the cost savings were eaten away by the revenue. You know, we did get some temporary cost savings, but it was really matched by the change in revenue temporarily. The margin improvement there is more structural than it is driven by, you know, the pandemic response. I expect to see a similar trend in Q4 based on how the quarter's going so far, just because nothing. If anything, things have got slightly better, particularly in the core business, in the MAS business, the labels we sell directly to retailers. That's improved a little bit because they're in their high season, and we've seen some improvements in demand. Still running below prior year, as you'd expect with so many retailers banged up. It's doing a bit better than we thought it might do.
Yeah. Again, like these structural improvements, I mean, is there again, like it sort of sounds like the label business is, it was more mixed and still very healthy margin. In Avery, there are some structural improvements. Checkpoint, there were some improved structural improvements. Innovia, obviously, huge improvements. I don't know, is there when you think about these various business lines, is there sort of ranges of margin that you sort of think about longer term or now differently or. I know it's a tough one to answer, but I'm just sort of curious.
Yeah, I haven't got an answer for that. We've got to just wait and see what happens. I mean, I think what we're all interested to see is what inflation is gonna be like in 2021. There are definite warning signs on the horizon that some raw materials could have an inflationary year next year in 2021. Metals markets have all been turning up, resin markets have been turning up. I think the things for us to be cautious about and wonder how we're going to manage is a return of raw materials inflation, particularly if demand bounces back suddenly in some parts of the market where it's been depressed for reasons of the pandemic.
Yeah. Okay. I'm getting a question here from the line just on Checkpoint again, just sort of just how this business, your business competes versus Avery, if you do compete directly and sort of just maybe some of the different, the nuances, if there is any, and-
Yeah, we only compete. We're the distant number two to Avery in the apparel labeling market. That's the business where we compete with Avery. They're not in what we call MAS, the MAS business. They don't make equipment like we do to sell direct to retailers or make security devices. Our apparel label business, which is below CAD 200 million, competes with their RBIS business, which is, I think, CAD 1.3 billion or CAD 1.4 billion or thereabout. They're the global market leader, and we're a distant second player.
Okay, maybe on Innovia, you know, Q3 volumes were a bit soft, and I think you mentioned pantry stocking abating. Again, just maybe sort of an update on some of the revenue line for Q4 at Innovia.
October and November so far have been flat. Since revenue's picked up a little bit in Europe in the Q4, probably a result of a bit more pantry loading. It's been a little better than we thought it might have been, and profitability's improved significantly, just as it had in Q3.
Okay. Again, the EBITDA line, and we spoke to this, you know, I think it's up 40% year-over-year year to date, and closer to 70% or 80% in the Q3. Again, you know, how much of this is mix versus just getting resin priced correctly versus productivity, asset utilization? We just, again, just trying to understand the moving pieces here because it's been so strong.
It's a combination of all three, but the most important element is mix. You have to bear in mind if the CCL Secure business does well and we have a lot of internal sales of film, that's the most profitable film we make.
Yeah.
If CCL Secure does well, Innovia does well. There's no revenue for that appearing in Innovia's top line, so that's why their margins sometimes go into the low 20s%. It's driven by that mixed effect of internal sales of security film. But in the rest of the portfolio, it's just, you know, margin and mix management, really, and making sure the plants are running properly. You know, having the right relationship with the suppliers on the cost side and the pass-through arrangements with the customers and doing what we need to do.
Okay. How much of your security film would Innovia be producing for you?
All of it.
Oh, okay.
We only use our own film.
Okay. All right. I guess I was under the impression at some point you were sort of buying a substrate and converting.
No, no. We have always.
Okay.
Always used Innovia's security. The banks won't allow us to do anything about that.
Right.
We use our own film for the CCL Secure side, all made by Innovia.
Okay. You used to, I guess, you know, you used to talk about this as a high-teen EBITDA margin business, and you're closer to-
Well, high-teens EBITDA margin on external sales. If you take where we are today, external sales, high-teens EBITDA margin on that, plus whatever we are able to sell to ourselves internally. That obviously, 'cause there's nothing going in the revenue line, you know, it just has an impact on the EBITDA margin line.
I guess a couple of years ago, there was, again, I think the issue was just pricing resin. Is that-
Well, resin went up. After we bought the business in 2018, the resins just catapulted up, and we didn't have really good mechanisms in place to deal with that. We're a lot better managed on that today than we were two or three years ago. You know, I mean, if it catapults up like that again, it won't be good. It never is, you know. It doesn't matter what mechanisms you have, you can never pass them along fast enough. We hope any future increases are a lot more smoother curve than the one we went through in 2018 and the earliest part of 2019.
Okay. In terms of your pricing mechanisms, are they? Again, I think that was an issue, too, right? It was when you bought the business, there wasn't certain price-
Yeah, they weren't as good as they might have been, and we've done a lot of work on that. They're a lot better than they were, but, you know, you definitely still have a lag effect. If you have continuous price increases over five or six quarters, it's a problem to deal with 'cause you never catch up.
Yeah.
You know, there's the price drops we've had really happened one time in Q2, and then things flattened out. They were pretty flat before then. Then there was a big drop in Q2, and then it flattened out again. It was a big benefit to us in Q2, but it didn't have any effect on Q3 and Q4.
Okay. The ramp up in Mexico is going well?
Ramp up in Mexico is progressing well. Mexico as an operation has improved considerably in the last 18 months, and we got more to come.
Okay, good. See another question here from the line. Do you see the apparel label as an area of growth?
Well, I think it's just like any other segment we have in our label business. If you go to the CCL side and, you know, you know, our home and personal care business, our CCL Design business, food and beverage, they all have. You know, these businesses can grow at GDP, sometimes GDP plus, and it's the same for apparel. I mean, we can't grow much more than the speed of the industry grows at, other than by taking share, which is difficult to do in that industry or acquiring companies. It's more like for us to grow in that space, now we've got it sort of fixed, we'd be more interested in buying businesses that would allow us to grow that in the same way we grew the CCL Label side.
They're very, very close parallels between apparel labels and the CCL Label side of our business. The MAS business is different 'cause we're selling equipment and software and labels that go in store and tags that go in store. It's a different kind of sell, but the apparel label business is very similar to CCL Label.
Okay. The same thing. Questions here for the CCL segment. You know, the food and beverage business. I'm just curious if that's seen any improvement. I know there was depending on where it was sold and
Yeah. It's up this quarter. It was always gonna be difficult in Q3 'cause of the tough comps, 'cause the off-premise sales were this summer, you know, for obvious reasons, cafes, bars, and restaurants all shut, or a lot of them shut. We've cycled through that period now, so we're not having that sort of summer season sell. We hope next summer will be very different to this summer in that space. The business that sort of offset it really is the growth in CCL Design. The working from home phenomena has driven a lot of demand for IT peripherals. That's sort of been compensated for by the significant growth in CCL Design, which is up well into double digits this quarter currently.
Okay. That's the electronics or that includes the automotive?
Automotive is also up, not to the same extent. Our automotive business is up low single digits this quarter. Electronics is up double digits.
Okay. Food and beverage, you did say it is up.
It is also up low single digit.
Okay. Again, I think you said earlier, home personal care, healthcare also up.
Home and personal care are up low-single-digits. Healthcare up mid- to high-single-digits%.
Okay. The Secure down, but okay.
We're down, but who knows what will happen in December. We'll have to just wait and see. I expect it to be down this quarter given how much volume we've got taken out in Q3.
Okay. Yeah. I guess, Geoff, when you sort of just look back at the year, I'm just curious, what sort of surprised you most? Right? I guess, you know, obviously-
Well, I think what surprised me most is the world cope with this event. You know, in the end, we have coped with it, you know, and you know, it's not been the greatest experience we've all enjoyed in life, but we're all still here, we're all still alive. I mean, it felt like it would be very different when we first went into it in the month of April, it felt very different. I think the reality is the world has learned to cope with it. Our business has shown itself to be very resilient.
I think it's been a good thing that we were in multiple sectors 'cause we've, you know, we had some things that went down, and we had other things that went up, and we, you know, we've got a portfolio of things that we understand that have balanced each other out and kept shareholders in good shape.
Yeah. Oh, for sure. For sure.
Kept the company in good shape, really.
Yeah. We're sort of coming up on time, but we still have some time, and I'm seeing some more questions come in, so I'm gonna ask those.
Sure.
Yeah, within label. This year, consumer goods customers have focused on core SKUs to handle the demand surges. Are there any thoughts on how that sort of evolves as the world normalizes? I mean, you more SKU proliferation.
Well, I think what's really happened is in the home and personal care business, you know, the two things that everyone wanted were disinfectants and sanitizers. Everyone and his mother has been launching additional SKUs of hand sanitizers and disinfectant products. Those sales have boomed. There are some things that have suffered. Skincare, high-end cosmetics, travel-sized aerosols, you know, things to go on vacation with, sun care creams. Sales of those products have suffered. It's kind of a mixed bag in the personal care space. Some things really booming and other things, you know, having a really tough time. On balance, I would say, you know, still, we're still seeing some growth in that industry, even during the pandemic.
Okay. Another question on labels. What's the main difference you see in how local competitors compete in emerging markets versus developed markets?
I would say in the developed markets, there's a lot more players, obviously, than there are in some of these developing regions. In the developing regions, the big international customers are much more comfortable with the big international company supplying them. They're worried about confidentiality, they're worried about making sure business is all done on a level playing field. I think in an emerging market, we you know we have an advantage in that regard. In the developed world, there's more players. There's less reason for you to be concerned about taking an alternative view.
In emerging markets, I mean, how much is it sort of your businesses with sort of international or global companies versus maybe local? It's a tough question, but.
Well, outside of China, it's Brazil. We have a few large local customers in Brazil, a few large local customers in China. The rest of the world, it's all global players. In China and Brazil, our largest customers are also international players. We also have business with local brand owners, some of whom are pretty substantial.
Okay. Those local brand owners, are they a sort of, you know, sort of on the quality side? Do they demand as much quality, sort of as maybe some of the bigger, biggest international players?
Some of them want better quality.
Okay. Some more questions here from the line. Again, I know I don't know how much time you got left, Geoff, but I think we're sort of in that range.
10 minutes, Mark. That's it.
A question here. Global companies are taking advantage of this environment to consolidate the industry, relying on local business leaders for due diligence. We've seen a significant increase in large deals and deals announced. Sorry. How do you not miss what looks like a one-in-a-hundred-year opportunity?
I'm not gonna answer that question because I don't think it's worthy of an answer.
Okay.
I've answered it 4x already. I'm not answering it again.
Sure. Sorry, Geoff, just reading as they come in. Apologize for that.
Yeah, no. I'm just giving you every answer that I'm giving to that answer.
Sure.
I don't know the answer to it.
Sure. I guess, you know, looking back on the year, looking forward, again, look at the strategy, we spoke to it all, but, I'm just curious, like the main takeaways this year and sort of how it shapes your sort of, strategy going forward.
Well, as Winston Churchill said, you know, "The definition of success is moving from one failure to the next without loss of enthusiasm." In the year of 2020, we've had a pandemic. We're about to have Brexit. We've had a change of president of the United States. I don't know what else is gonna come next year, and we'll have to cope with it. That's my answer.
Sure. Hey, good morning, everyone. Sorry. We appear to be having some technical difficulties. Sort of not able to reconnect, but I think we're up on time anyway, just about 5 to. So again, I know, Geoff, you can't hear me, but thank you very much. On behalf of Scotiabank, thank you very much for joining us. Really appreciate the opportunity to have you here. Really appreciate the opportunity to host. And again, for everyone on the line, thank you for joining and for all the questions. Appreciate that. Thanks, and take care, everyone. Thank you.