Avery Dennison Corporation (AVY) Earnings Call Transcript & Summary

So great. Hello, everybody. So for our next presentation at the BMO Growth & ESG Conference, we're really excited to have Avery Dennison. Now why are we excited? Well, Mark Wilde and I, who both cover the stock jointly at BMO, believe that the RFID platform that they have may be one of the best growth stories in the materials and industrial space. So while it isn't necessarily a massive business as a proportion of Avery's total portfolio yet, it's starting to kind of reach a tipping point for them and the industry as a whole. And we think you need to know a lot more about it, and that's why we've asked them to present today. Now to speak to us on the topic, we're very happy to have Deon Stander. Now he is the Vice President and General Manager for RBIS, which is the division that RFID is housed in at Avery Dennison. He's been in this position for the past 6 years or so and serving in that capacity for quite some time now. And then prior to that, he had been in the commercial and innovation side of this business even earlier. We also have John Eble from Investor Relations. Now we do have a deck. We probably won't be really flipping through it, but we may make some mentions of it. That is something that you can get from us. So please reach out, reach out to us after the presentation if you're interested. Also, Avery will have it on their website as well. [Operator Instructions] So look, Deon, maybe I'm not completely sure everyone on the line is fully aware of Avery Dennison's RFID platform. So maybe you can take like 5 to 10 minutes, run us through what RFID really is, where Avery kind of fits into the RFID ecosystem, maybe how the positioning for Avery has changed in this over the years. Because if I remember correctly, you were more of an inlay pretty much focused producer back 10 to 15 years ago. Now it's a much more fulsome approach, with a big product suite that includes everything, from the software and SaaS side with the Smartrac acquisition, to those original inlays. So maybe you can just give us kind of the big picture, both for RFID and how Avery Dennison fits into it for a while. And then we can dig into a little bit deeper Q&A.

No problem, John. It's great to be here with you and the audience. So I'll just spend about 10 minutes just giving an overview about our RFID business. If you think about the 4 company strategies we have, which is to drive outsized growth in high-value segments, to profitably grow in our base, to focus continually and relentlessly on productivity, and then to be efficient and effective stewards and allocators of capital, intelligent labels RFID are clearly a key priority for us both in terms of our high-value segments approach as well as a growth story. And we at Avery Dennison have a belief that every physical item in the future will have a digital identity and a digital twin in life, and additionally that there are going to be many verticals out there where if there is a requirement for provenance and understanding where things come from and how they are tracked, where there is a requirement for inventory productivity or speed and ultimately even for consumer engagement, we believe the technology has got great application and great adoption potential as well. And if you think about the industry so far overall, the market over the last 5 or 6 years has been growing at a very robust and healthy clip, averaging sort of high teens to early 20% growth the last 5 or 6 years or so. As the industry technology has been started to be adopted in particularly in apparel as the first vertical, but increasingly more recently in some other verticals as well, and I'll talk about that a bit later on. For us at the moment, this is a $500 million-plus platform, revenue platform, particularly since we bought and included Smartrac into that. And we continue to see our growth potential for this in that 15% to 20% range, basically adding about 1 point of growth to our annual company rate. For us, we continue to invest significantly in this platform. We deploy a large amount of CapEx and OpEx into it to support that organic growth rate. We bought and closed the acquisition of Smartrac in early January. I'm happy to report that integration is going extremely well. And we also made other equity investments in some of the new emerging technology that Wiliot and PragmatIC, for example, provide. For us today, apparel is still the largest part of our RFID business. It represents in the order of about 90% of our current business. And within that, the inventory productivity piece is the largest denominator for success for retailers in apparel and brands in apparel. And that continues to accelerate with the omnichannel requirements, which I'll touch on a bit later on as well. That said, we're also seeing significant really early stage promising adoption in a number of other verticals including particularly food, beauty, logistics and to some extent, aviation as well. And in those regards, we're leveraging not only the RBIS business unit, but also the broader Avery company as well to do so. And I know that this year, COVID-19 has played a role across all markets. We certainly saw some slowdown in our second quarter in our RFID growth, largely reflecting the impairment that we saw in the retail industry. But as I think we made more clear recently in our last earnings, we saw our Q3 growth rates again get up to those 20%-type growth rates, John, so good progress overall for us. If I talk maybe a little bit, a couple of minutes just on apparel overall, I think most people know the apparel inventory adoption story over there. In the sense that if you're able to have higher levels of inventory accuracy, "what I have on the floor and what I can see in my supply chain," you're typically seeing retailers driving higher returns on investments. And those even are publicly available. GS1 as an example will quote rates of increased sales growth of sort of 1% to 3% to 5% and reduction in inventories of anywhere from mid- -- sort of low single digits to early teen inventory productivity gains that retailers are seeing with the adoption of RFID. That said, as we move forward it's clear that COVID-19 has not only been an accelerant to what has been an increasingly omnichannel requirement for the apparel industry. If you think about an industry that has historically been largely supply-led becoming increasingly demand-led, in order to do that, you need higher levels of inventory accuracy. And particularly if you're going to fill that not just in your physical stores, but increasingly with your e-commerce channels. And those are expressed in either buy online and pick up in-store or ship from store or pick up on curbside. You require significantly accurate inventory to be able to fulfill that. And we're seeing that play out with a renewed focus and interest to support that. And as we look into the future, the additional cases that we see retailers and brands are asking us about and starting to explore is how do they leverage the technology for consumer engagement, for that 1:1 engagement. Not just about how to make the experience in-store for consumer more appetizing and safe, but also particularly in the focus around a contactless environment, "how do I enable swifter shopping in-store," and ultimately providing some degree of transparency to the consumer about the item they're providing. This in itself, I think, is going to resonate because many of the retailers and brands when they think about their ESG requirements, how do they provide information to their consumers about their sustainability efforts. And if you can talk about the provenance of when something was made and where it comes from, it's clear that technology will allow us also to be able to provide those services and support to our customers. So while that is the largest part of our current RFID intelligent labels platform, we're certainly seeing a lot of renewed focus or an increased focus in what I would call non-apparel growth areas, particularly food, beauty and logistics. I'll touch on all 3 quickly just to give a sense of those. Beauty has a very similar feel to apparel. Inventory accuracy is typically very poor when it comes to, for example, beauty products in retail. And there that whole lack of inventory actually drives a very poor consumer experience. And we're seeing adopters there, both at the retail level and global brands, they seek to take advantage of the technology. Food is an interesting category for us. We're seeing a lot of interest there as well, early stage. And this really breaks on to a number of different buckets, John. One being provenance, the whole transparency, food safety throughout the supply chain back to the farm and how is that going to be more enabled, and this technology naturally lends itself to that. There's a piece around inventory accuracy as well, particularly when it comes to high-value items or perishable items. And then there's 2 other areas. One is about labor efficiency, I would argue, particularly in quick service restaurants where the store staff are required to do a number of tasks, not just only serving their customers, but also receiving goods, checking goods and so forth. And so clearly enabling that provides for labor efficiency. And then there's a whole convenience store segment as well that potentially has an interest when you want to sort of quick grab and go and walk out the door. And we're seeing a lot of adoption there initially in the quick service restaurant area, but increasingly so in grocery as well. On the logistics side, while in its infancy, we have seen a number of interest areas, not least across pallet tracking, case tracking, and particularly around parcel sorting and this kind of last mile optimization when it comes to delivery. And a number of the carriers and in-house fulfillment providers themselves are looking at that. So those are 3, I think, examples of non-apparel where we just see similar adoption curves starting that we saw in apparel those years ago. And that gives us a sense of confidence about not only in the platform, but about our ability to continue to lead the market in this. And I'll touch on this as the last piece before we sort of get to questions really. Why do we think that we're well positioned? I think if you go back in the history of where we were, I would say that we are universally recognized in the industry as the go-to team for RFID adoption. And that's built on a great set of people who have deep experience and knowledge, not just in apparel but a number of the other verticals. It's one element of us being able to shape the discussion with our customers and partner and allow them as thought partners to help drive the technology adoption, the pace that suits them and to their advantage. We also, from an innovation perspective, we've clearly invested a significant amount of our OpEx in innovation as well. And we hold one of the largest portfolios of patents when it comes to this technology. But more than that, we leverage the scale of the global Avery Dennison business. If you think about our LGM, our labels and graphics materials business, this is a division that provides expertise in high-volume, large-scale manufacturing. And that is very, very useful from a process engineering perspective to us in terms of our productivity. And we're the standout player in the industry when it comes to quality. And while that may sound just as a typical add on that most people would say, if you think about it, if you have a failure rate of RFID tags in an RFID program because quality doesn't work, it can very quickly impair the whole return on investment that customers make. So the higher the quality level, the greater the return. And we're certainly playing in there. And then the final thing is I would just talk about is just the breadth of our product portfolio and the scale that we provide. Given that we are the largest inlay manufacturer in the world, that brings in itself scale benefit. But also the scale of our reach into the market, we have the broadest network of manufacturing points around the world and the broadest customer reach around the world. That global scale certainly gives us the ability to engage customers all around the world and to make sure that our manufacturing network is optimized for whatever regional and geographic requirements are needed. So I hope that helped, John. And maybe we can switch on to some of the Q&A piece, yes?

Yes. No, I think that's a huge help, Deon. So maybe we can kick into a couple of different areas. So maybe the first one would be on the Smartrac acquisition. So look, Avery had a pretty broad platform already. And yet this one looks like it's really kind of -- it's increased the breadth in terms of your portfolio of assets that you can -- or products that you can actually deliver. It also -- it appears to be helping you target some new markets. Can you speak to that and where you see the opportunities around Smartrac and if they're playing out as you would have expected? I know it's a little bit early in the process, but you've had it in your hands for a little bit of time now.

No, and I think we were very clear about the opportunity that existed between the 2 companies, the 2 largest players in the UHF RFID space at least. We've been able to sort of bring together 2 complementary strengths around innovation particularly. That's certainly given us a real advantage. I think the other piece is that we're then able to -- Avery Dennison was traditionally more focused around the apparel segment. That's where a large part of our history has been. Smartrac is much more focused on the non-apparel piece. So we're bringing together the 2 elements of that, giving us more access into the general broader market as well. And I think the final piece is just our overall ability then from a people perspective to touch across the world, leveraging our LGM business for example, for all the converters that are likely to be out there, which are also traditional customers from Smartrac. That's given us another route to market that we can explore overall.

Got it. That makes sense. So maybe we can speak to the apparel markets. It's kind of your bread and butter, where this all really kind of kicked off. I guess what percent of the market at this point will you say has been penetrated in terms of RFID? And for the -- it does start to seem a little bit like a no-brainer in terms of why companies would go down the RFID route in terms of using the tags. So for the ones that haven't, like what do you think it takes to flip the switch? And what percent of the market do you think eventually will be tagged with RFID tags?

The way that we've typically looked at the market overall particularly for apparel, John, is that the apparel market in itself is a hundred billion dollar-plus unit (sic) market overall. And we think anywhere in there, sort of 1/3 of that is currently ready for -- has the potential to adopt. And within that, we believe that about 30-or-so percent has already started adoption. That's our rough maths. Now these 2 things do change as well. Greater adoption, the improvement in the technology, the reach of the technologies will, I think, expand both the adoptable market and the adoption rate within that overall. To your second question, why is it a no-brainer? We think that there's a compelling story around the return on investment in this technology. Because it really drives not only the accuracy of the inventory that you hold, but allows you to do that omnichannel, multichannel experience, particularly as that has step changed this year with e-commerce taking up a greater and greater share of apparel retail. It's an -- we think it's an absolute requirement for them to be successful. And we're seeing the retailers that are using the technology be more successful in the market because of the technology as well, amongst a number of other factors. And so if that's the case, your question I think is fairly right. Why don't we see further adoption or adoption right now from every retailer? But I think as you know yourself, the apparel industry and retail industry has other challenges just beyond making inventory available. There are challenges to do with making sure that you have the right infrastructure of estate of stores, the right -- not least, the right garments to sell to consumers they want to buy. And each retailer has a priority list of things they need to address first. I don't doubt, and we've heard this from many of our customers, they all have it in mind. Those ones that haven't adopted, it's just a scale of prioritization, which is most important to them in their near term. They all recognize the benefit it can bring, and they all have had discussions with us to that extent as well.

Got it. And when you pitch the value proposition, I mean I guess you made it pretty clear in terms of the inventory savings and also the ability to meet the needs of the customers, which I think is huge. How does the cost of implementation on a program like this factor in? And is that a prohibitive -- or a hurdle for some of these retailers and apparel producers? Or is that really not -- is it getting to a point where it's negligible, and it really isn't as much of a part of the equation anymore?

Most of our work has always focused around the return on investment that the technology will provide. That characterizes the inventory productivity, the uplift in sales, some of those other additional benefits of not then discounting a lot for example, these all come into the equation. And typically in every discussion we have, we focus on the return on investment. And the cost discussion is not necessarily a great part of that. That has been the overwhelming sort of evidence that we've seen, John. So I wouldn't say it's not an issue, but it is not the discussion that we have with retailers and brands. It is all focused around the return on investment they're likely to make.

Got it. No, makes sense. And I guess one other question, at least on the apparel front, I think if anything when we look at what's happened this year in terms of COVID, I would say if anything, greater inventory management, greater understanding of where your assets are, where your products are in order to be able to meet the needs of customers. If anything, it's probably been heightened during this whole COVID period. Have you reached somewhat of a tipping point, if you will, for the customers or potential customers in the retail arena that hadn't necessarily moved to RFID? Are you seeing kind of again that tipping point where they're saying, "Okay, look, we have to be here"? And how should we think about that in terms of your -- what you're seeing in terms of pilot programs, new adoption and that type of thing as we kind of look to the current environment and say forward 12 months?

So we typically don't disclose at the customer level, John, I think as you know. But what I will say is that we've seen clear indication that the COVID crisis and then the requirement driven by the need to satisfy or drive that higher NPS score at a consumer level through the e-commerce multi- omnichannel link, I think, is going to -- has certainly shown and driven a lot more interest. Our pipeline is, on apparel, is up about 40% even from the start of the year. And that reflects just that continued interest in trying to address this challenge of using your physical store environment, not just to be a selling arena, but also to be a distribution arena, to be a curbside pickup arena, and also to be more compelling when consumers walk through the door. All of those things are coming to sort of manifest now in this a time where contactless, I think, is just a high priority as well.

Got it. No, it makes sense. And I guess that brings up the question on the personal care side, because that is an area that now you plan on being bigger in. I think Smartrac definitely is helping to kind of push that to some degree as well. To me, and maybe it's I'm too much of a layman in this, but it seems like anything that really worked or necessarily made sense on the apparel side, it should largely work on the personal care side. And yet that industry seems like it was a bit slower to adopt. I guess what are some of the hurdles or what are some of the things that kind of held that industry back? And again, are we reaching kind of a new period or a new adoption point, where we could see that accelerate in a meaningful way?

Well, I think the whole personal care industry is a very broad industry. So we tend to sort of look at this in slightly smaller segments. We focus very much on the beauty segment of personal care because it's the most -- it has the greatest similarities to where apparel is. I think I mentioned earlier on, the inventory accuracy in beauty is even worse than it would be in apparel. And that's for all sorts of reasons. And unlike in apparel where you do get some degree of substitute buying as well that may happen, "If I don't have my item in my particular size and color, I may choose another item in a particular size, that same size in a different color," beauty tends to be a lot more selective by individual. "If I don't have my brand that I can't find in that particular shade or whatever," then it's unlikely that they will buy in that store. And so that in itself is driving a lot of interest from our beauty customers to understand how they can address that particular channel.

Got it.

And I'd characterize it as being at its infancy still. There are pilots in the work that we're doing at the moment that are demonstrating similar results that we're seeing in apparel, in terms of the returns that either the retail or the more global brands are likely to see as well.

Got it. And it makes sense. I mean when you think about the scale of the personal care markets, I guess how should we think about that relative to the apparel side? Like is it -- admittedly, I don't know if it's 2x or half the size. Like I guess how should we think about like the opportunities in personal care and beauty, and how big that could potentially be for Avery?

For us at the moment, John, I think it's probably too early to speculate. The whole personal care market, as I think as you know, is a market of significant substance. So one could extrapolate that into a view that says if the technology resonates for all parts of personal care, then it certainly presents an upside for not only the industry, but for Avery Dennison as well.

Got it. Okay. So we got a couple of questions on -- that have been submitted in. And so I'll try to incorporate them and put them together a little bit. One was on the area of -- well actually it was I guess you could link the 2 of them -- on food and on the health care side. And it does seem like especially on the health care side, there's opportunities for really rapid growth, given the value of the products and also the importance of safety and tracking them. Can you speak to maybe why those market -- why that market hasn't necessarily really had a heavy adoption rate? And again, do you see that changing?

So we do see some start of interest from the health care part. There is a number of smaller pilots underway. Those are largely to do with -- where you have patient safety, for example, associated with asset tracking specifically. But certainly as you think about a cold chain that may be required for further medical rollout, it's clear that the ability to shine a light on the supply chain and the provenance thereof would naturally lend itself to this type of technology as well. But it's at its infancy as well, John, I would say. We're seeing some interest, and it's too early to call exactly where that will be. The size of the industry, as you know, is a multiple of the apparel industry overall. And so it could represent, I think for -- as a technology, it could be a very valid solution as we look into that industry, and we look forward to the future of it as well.

Got it. No, it makes sense. And I guess to that, again COVID seems like it's -- well look, it's top of mind for everyone on the health care side, just given the logistical challenges around the vaccine and the fact that it does need to be tracked and kept cold. Also around testing kits, which there have been issues where they maybe not necessarily -- you lose a shipment here or there and that becomes a real issue. I guess can you speak to whether or not this is kind of the proving ground that really may truly accelerate the industry toward further adoption? Or are we getting maybe too excited about something, and it's maybe too early to know?

I think it's too early to call. The pharmaceutical industry currently makes use of a lot of 2D barcode technology, which in itself has historically shown to be in other industries, a precursor to the next evolution of technology, particularly around RFID. And so I think that's probably a good point if we look across other historic industries that would suggest the technology has great resonance to come in the future, John.

Got it. And are there any specific hurdles? Because it does -- again, I hesitate to say it's a no-brainer completely. But it does seem like there would be a lot of value in the value proposition, not only around the inventory management and the cost side, but also the safety side around whether something's a vaccine or is not, is counterfeit or not, so the safety portion. It seems like the value would be really high. Are there hurdles that either the industry or the end customer has to get around? I know privacy is something if you look up RFID and health care, it immediately hops up, at least on the Internet, in terms of concerns. I guess how -- what are the hurdles? Or what prevent the industry from pushing in a direction that does seem rather obvious?

Well, I think each industry goes through its different phase of using technology to drive the industry forward. We've seen that in apparel. We're starting to see that in food. And in some ways, food actually has some resonance with health care as well, in the sense that there is an element of that that requires understanding of transparency about where something came from, where it started, and how it moved through the supply chain. The security of food, if you think about it, is a good parallel example. And clearly the food industry is starting to explore this technology as an application to that. I think within pharmaceuticals, that will equally be the case. There will always be in each segment, John, unique hurdles to do with the global composition of the industry, the various subsegment players, how those players hang together in a broader ecosystem. And they're all changed and are different by various vertical. And I think some of the challenges for adoption may relate to those. And some of them may just relates to where the industry is at its recognition of how it needs to respond to, for example, safety through its supply chain and the technology they exploit. I'll reiterate, we are seeing interest in this area, and we're seeing people exploring how it can be used.

Got it. No, it makes sense. On the food side or the food and beverage side, I guess can you speak to where there is demand right now? Is it largely coming from the retailer themselves? Or is it more a function of the actual producers of the food, where they're using it to track food safety? Obviously, when there is a food issue, whether it's a contaminant issue, it's a lot easier if they know exactly where it is. So I guess where are you seeing the most interest from -- on the demand pull side from the food part of the industry?

So a large part of our pilots and trials that are underway at the moment are situated on what we sort of call that quick service restaurant area. And that's partly because it has 2 dimensions; one of which is accuracy of inventory, which helps, and then availability of labor. If you're a quick service restaurant and you've only got a certain amount of staff, you want to make sure that those staff are highly productive and serving customers and not necessarily concerned with always bringing and checking the right inventory as it's coming in and making sure it's available for use. That said, we're also seeing a number of pilots and interest in the whole food safety from farm through. And that's largely been because if you look at the industry overall, there is significant loss of life and a revenue impact that food retailers and the whole food supply chain have seen over the last few years because of food safety challenges. This technology can clearly apply all the way from the farm all the way through to that foodservice station, whether it be a quick service restaurant or even grocery in that sense. And so we have a number of pieces underway to try and understand exactly how to leverage that, again with the complexity that each one of those supply chains has. I think the final area that there has been interest in as well is when you get into for example grocery, there's a number of high-value items that have high degrees of perishability. Think about meat as an example. And making sure that you're able to identify the right inventory and have that available from a freshness perspective is not an easy thing to resolve in a grocery retail. And so there's interest in that area as well. And so I think and the final area we're seeing some exploration is in convenience stores. How do we -- given a labor challenge again, how do you enable a contactless, easy pick up and go approach to convenience as well. And there's some work in that area as well, John.

Got it. No, that makes sense. We actually just got a question. In terms of -- on the pharmaceutical side, can you explain the difference between using barcodes and RFID technology for a customer? Does the -- is there a significant cost difference in the 2 in terms of the overall value proposition? And also from a barcode perspective, does that actually really help them to track the package or the product? Is it bigger? How does that actually -- how are the differences? And what is the value proposition difference?

So maybe the way to explain this would be just to take it at an even higher level, putting aside an industry view. Typically, most barcodes have the data referring to that broader SKU. It doesn't differentiate from an individual item there. The benefit of RFID as an example is that you can uniquely identify each individual item within a SKU range, as it were. And that brings with it the ability to say, "I'm going to make sure that," in apparel example, "that the size 6 in this blue shirt that I'm wearing is uniquely marked. So that when it gets sold in the store or through the supply chain, I can replace it with this exact size 6 blue one, rather than I'm missing a blue shirt." That will equally, I think, apply in the pharmaceutical segment as well, John. So for me, the difference between the 2 is one is that you're able to uniquely identify. The second is all barcodes require line of sight. You physically have to use a scanner to read them. Whereas the benefit of RFIDs, in some ways think about it as a radio barcode, a uniquely identified radio barcode, is you need a reader that will simply be at a distance to be able to gather all information at a significantly higher rate of data capture, than you typically see for a handheld scanner or a scanner in place. To give you an example, in an apparel setting, you're able to read let's say a department of call it formal tailoring, men's suits. You could probably do that with a handheld reader that's counting every item, it may take you 3 to 4 hours. You can do that in a fraction of the time, you could do that in 5 or 10 minutes using RFID because you're reading everything at a mass rate. And so there's that that comes into play as well as the distance as well as the detail level that you can get to.

Got it. No, that makes sense. That's helpful context. So one of the other questions we got in, you referenced that engagements are in the -- at least the apparel side, are up about 40% year-to-date. I guess a couple of questions around that. Would you characterize the customer base as a bunch of small players that are trying to catch up? Are they larger players? Is it kind of average to what you normally see? Like I guess how should we think about like the importance or overall total scale of what that 40% year-over-year increase might mean?

It cuts across the breadth of all of our customers. And as you know, as the -- within the RBIS context, we service customers of all size, retailers and brands from the very large -- largest in the market all the way through the very smallest in the market as well. And we're seeing interest across that spectrum, John. That's probably the fairest way to put it as well. I will say that while our interest in apparel continues to be that, our pipeline for non-apparel is actually up 60%. So it goes to show that the adoption interest in these other verticals is accelerating as well.

Got it. No, that makes sense. And I guess to that, we got another question. I know your outlook for the longer term is still 15% to 20% growth. And that's kind of what it's been for a while for Avery in the RFID platform. The question that came in is why won't it be greater than that over the next couple of years, given the strength of the engagements that you're seeing on the apparel side? Which arguably should be the one that's maybe starting to slow down a little bit, but it sounds like it maybe isn't; but also given the improvements or the opportunities that you're starting to see in the non-apparel segment. So I guess how would you speak to that?

Well, I would say the adoption in apparel, it continues to be strong. Not only because there are more retailers and brands adopting, but also what we see is when you have, for example, a general merchandise apparel retailer who has other categories, they start to apply the same technology to those other categories. So there's adoption in and of itself. And then there's expanded use within the retail environment, which is one of the reasons why we believe this is still a very compelling story over there. And clearly as I've indicated on the non-apparel side, there's a significant interest in pilot adoption stage as well where we're seeing, whether it's in food and logistics of beauty, a lot of interest. We have a view that for the foreseeable future, our growth rates are going to be in that 15% to 20%.

Got it. Okay. I mean candidly it does sound like it may -- the near term, it may be a little more robust than that. Maybe that's my own characterization on this, but it does -- it seems like you -- given what you're speaking to there, it may be even a little bit more robust. Is that fair?

That would be your characterization, John.

Okay, fair enough. Another question that we've gotten in was on the investment side. So you have made -- Avery over the years has really broadened its overall platform, which I commented on in the beginning. And Smartrac definitely added to that. Are you where you need to be in terms of product breadth or application breadth? Or would it make more sense to go even deeper into either the SaaS area? Or would you even consider going into the chip side at all?

We've been very clear that for us, we've been involved in really 2 areas, John, over the time. It's particularly in inlay design and manufacturing. And then also within apparel particularly, but increasingly some of the other verticals as well, is converting and managing the products at the end product tag or label. And up until now, we've considered that to be a good position for us to be in. Clearly, we continue to keep a vigilant eye on all the other adjacencies. And as and when we determine that there is value for us to do that, then we will explore those further as part of that. I will say that within our existing framework, we manage and hold a lot of data in order to be able to do this. And that in itself presents, we believe, opportunities for us in the future as well.

Got it. Okay. No, fair enough. Another question that we got also tied to -- tie to the engagement side because I think there is a little bit of a question mark on that. And maybe it comes at it from a slightly different angle. But when you think about engagement being up 40% or so, how should we think about what the dollar value of that might be? Does that also equate to 40% relative to the prior year? Or is it bigger? Is it smaller? Like is there a way to put that into context?

No. Given the discrepancy that I said between the sizes of all these customers, it doesn't relate to a dollar value. That really refers to the number of people, the number of retailers and brands engaged both on the apparel side and the other segments. So there is no indication there of a dollar associated number. Which is to some extent why over the past, you've seen a degree of lumpiness as retailers and brands come on, then there's been a significant lift or more smooth. And we anticipate that to be the case, which is why we gave the range of that 15% to 20%, John.

Got it. Fair enough. And then when you think about investment in the business, and you've been putting a lot in for sure. At the same time, the volumes are really picking up in a pretty meaningful way. Also with smartStat, -- it gives -- or Smartrac, excuse me, it gives you significantly more breadth. And so there should be some attributable operating leverage to that. I guess how should we think about the margin profile for RFID going forward? And do we -- and when we think about the incremental margins on the revenue coming in, how does that expand as we look out over, say, the next few years?

Let me address, I think, the latter part first. We've been clear that the EBITDA margins we see in this platform are larger than the average we have in the company and within RBIS specifically as a division as well. And we've been clear that up until now, we have invested significantly in both the operating side of the business as well as from a capital deployment perspective. In fact, in the last 3 years, we invested at least $30 million or so. And we're going to continue to do that as we move forward, John, because we believe not only in the technology, we believe in our competitive position in the market in this, in relation to this. And we believe that the technology has is at the start or the early parts of the adoption of many verticals. And so we will continue to deploy capital and resources as we think are necessary to sustain that.

Got it. When we think about the capital intensity of this platform and when we think about Avery Dennison in total, as an example like in the LGM business, capital intensity is relatively high. A new coder is hundreds of millions of dollars, and it's -- that almost in and of itself is a barrier to entry in some cases. I guess how do you -- how should we think about the capital intensity of RFID? And if you're going to participate in this rapid growth, 20% per year -- 15% to 20% per year, I guess how should we be thinking about the capital required to keep that up as we look out again over the next 3 to 5 years?

As I said, we are prepared to make sure that we support the growth with the investments that we need. The capital intensity is probably slightly more than you'd see on a typical RBIS basis. But overall we think that our position justifies us from a returns perspective. You know that we're an EVA-driven company. We make decisions according to that, and we deploy our capital on that basis.

Got it. Fair enough. I mean is it fair to characterize it -- like you said, it's maybe more than the capital intensity for the RBIS platform as a whole. Is it fair to assume that it is below the LGM side, and meaningfully so? Is that fair? Or how should we think about it? Split in the middle, or what have you?

We typically don't break down that kind of subsegment perspective, John. I will just reiterate again, for us it's being a critical growth platform. We will continue to lean forward in this area and make sure that it has the right capital structure, the right operating investment structure to sustain our competitive position in the market.

Got it. Fair enough. And on to that, I guess when you think about the competitive landscape, when I think about Avery Dennison, they've got -- the breadth that you offer in terms of the almost holistic solution, other than again maybe the chip side, it's pretty broad. And when we look at your peers, there's just not -- there's not a lot that have that level of integration. But I guess when you think about the competitive landscape, I guess who do you respect in the industry? Who do you think is another player that really does have -- does have a good footprint in terms of what they offer?

Well, I think I would say that we've, I think, done a good job of making sure that the integration of Smartrac and Avery Dennison together to form a stronger market leader, I think, has been good for the industry, good for customers and good for us as well. And while this whole industry is at the start of it, there are a number of players that continue to provide industry services across the various subsegments. Our focus has been really on saying how do we continue to be that market leader and ensure that we're providing the solutions and thought partnership that our customers are demanding of us. And I think when I talked about it earlier on in the areas of both quality, scale, the go-to team, I think we're continuing to make sure that we do that. And our engagement level with customers, our pilots and trials with customers, and our performance in the market I think reflects that, John.

Got it. Fair enough. At this point, I think we're done with a lot of the questions that have come in. Anything that we haven't hit on, that you think would be important to highlight to people who are either new to the story or really trying to dig into it at this point?

No. I would just say that we're -- we continue to be pleased with the progress that we're making. And we're committed to making sure that we support the investment and the growth in this platform. And we believe it has significant application across many verticals moving forward. We're really somewhat at the start of the journey of this, John. So it's a story that I think you will see over the next many years unfold well, I think.

For sure. No, well look, Deon, thank you very much for your time. Really appreciate it. It sounds as good as we thought even coming in. And it's if anything, we've learned a few things about some of the opportunities. So I really appreciate you taking the time to help us and investors really think about the growth prospects. It does sound like, again it is one of the more exciting areas in terms of growth in the materials and even broader industrials markets. So again, thanks very much for the time. Really appreciate you participating in the conference.

No problem. Thanks, John. Take care.

Take care.