CCL Industries Inc. (CCLB) Earnings Call Transcript & Summary

Okay. Thank you. Good morning, everyone. I just want to thank you for joining us for today's call. My name is Stephen MacLeod, and I cover the Canadian Packaging Sector at BMO Capital Markets. And with me for today's virtual fireside chat is Geoff Martin, the CEO of CCL Industries. So thank you, everyone, for joining us this morning, and a special thank you to Geoff for giving us his time today to provide an update on his business. I appreciate it and look forward to our discussion. Before we get started, I just want to let everyone know who's listening via webcast that there is an option to submit questions. If there is anything that we don't cover in our Q&A., so feel free to submit anything that you'd like me to ask on your behalf. I can then relay that question anonymously.

So I'll go ahead and get started. And I'd like to begin with maybe some high-level questions for Geoff and then drill down into some segment-specific trends. So maybe just in terms of higher level strategic questions, you gave Q2 guidance when you reported Q1 results. You had expected to see sort of a slow sequential recovery from April lows and May and June, netting to Q2 being down 15% to 20% on the top line. Is that what you've seen transpire and have sales broadly bottomed or recovered as expected?

Hi, Steve. Yes, good morning, everybody, and glad to have the opportunity to do this. Yes, Steve, I think we could say April was at the lower end of our sales guidance, we came in at the low end of that range, and May towards the high end, although May was sequentially better than April. So it was just really to do with what happened in the prior year data. So we've seen a slow, steady improvement in the affected businesses as May has evolved, and that's continuing so far in early June. The pantry loading boon we had, which I think helped us in March and, to some extent, in the first part of April, has definitely receded as consumers realize that they'll be able to get what they need in terms of their supplies from supermarkets, drug stores and grocery stores. So I would say, slow but steady improvement. And we would certainly expect the quarter to come in, in between those goalposts. I think whether it's at the low or high end will largely depend on what happens with back-to-school at Avery, which is all of the timing questions at this time of year, how much will begin in June and how much will trip into July, but we'll have to wait and see how that pans out.

Okay. That's great. And then maybe longer term on the Q1 call, you did comment that you wouldn't expect a return to 2019 level of earnings until 2022. Maybe more broadly, what would you need to see to pull that recovery time line forward? Are you comfortable today that this will play out as you currently expect?

Well, I'm pretty comfortable it's going to play out as we expect because I think when the world economy drinks a bottle of vodka in one day and has a hangover the next, it goes on for a while. So I just don't see this recovery being V-shaped. I think it's going to be U-shaped. And so I think it is going to take a little while. And I'm still of the view that it will be 2022 at the earliest before we'll see us back to where we were in 2019. But we do expect things to gradually improve over the coming 6 quarters between now and then.

Okay. And then just in terms of the COVID-19 response, all your plants have remained open. So they're still open today. You run a very decentralized business. How have your plant-level managers reacted in this uncertain environment? And I guess is it safe to say that this...

Well, they've done a great job, Steve. And we've kept our supply chains open. We've had a few close calls here and there. Our large Avery plant in Mexico, in Tijuana was closed for a week by order of the government along with everybody else in Tijuana, but it's now open again and operating properly. So we've had a few close calls, but our teams around the world have done a great job looking after employees, safety protocols, making sure people are safe and sound. And yes, we're still able to operate, and we've been able to do that in pretty much every country in the world. There were some parts of the Indian subcontinent that were pretty much closed down for all of April by order of the government. But with the odd exception here and there, we've done a good job of keeping everything running and going, and I don't see anything that will impair us being able to do that for the next few quarters.

Yes. Okay. Just in terms of the competitive landscape, you guys began making adjustments to the business proactively in anticipation of economic weakness, notwithstanding COVID-19, I mean, even when we spoke back in September. How have your stronger regional competitors fared in this period of disruption?

Well, I think we've -- I think the world was due for a correction. I don't think any of us thought we would be -- have a correction of this kind of magnitude driven by these circumstances. But I think the world was due, and we felt that in the second half of 2019. And we could have done without what's actually transpired, but we deal with what we're left to deal with. And I think our industry is broadly reacting the same way we were. I mean I think there were signs of the industry slowing in the second half of last year. So I think many of our competitors have done the same thing that we've done, certainly the ones that are private and family-owned would have done so. And I think everyone has batten down the hatches and did batten down the hatches. I don't think anyone was prepared for what actually transpired. I mean that's a -- that applies to everybody, but I think the industry pretty much began the adjustment process in the second half of last year.

Okay. So I just wanted to maybe follow that up with some operational updates by segment. So just starting with the CCL segment. I just want to focus first on some areas where we saw strength in Q1. So CCL Design Electronics, CCL Secure, Health Care & Specialty. Maybe starting with the electronics business. We did see some nice gains in Q1. That's continued into April. Following the sort of work-from-home buying spree, have things kind of leveled off here on the design side, electronics?

Yes. We had a very strong Q1. We had a very strong April. And as you've probably read from many of the commentaries about the big electronics OEMs, things have calmed down a bit in the months of May and June so far. So I do think the situation will go back to level normal, but I don't think we've seen any downside or anything like that but -- like we're seeing in automotive. But I think the boon period we had from the work-at-home phenomena, well, certainly by the month of June is certainly over. We did have a very good April. So the trend we saw in March continued in April, but May was much more normal as you would expect.

And I assume you saw the supply chain very much normalized post quarter?

Yes. There was no real -- I mean the supply chain interruption in February of the year when China has closed shop, I mean that probably had as much to do with the boon we saw in March and April as the work from home because it was almost a month in China where very little got produced. So there was a bit of catch-up to -- for that in the months of March and April.

Great. Okay. And then on the secure side, you had a good Q1, but customer plant shutdowns impacted demand late in the quarter and into Q2. Have you seen this reverse? Have a lot of governments begin to open back up the plants?

Well, we know they're planning to open them back up, but they haven't as yet. So I think Q2 will be impacted by that at CCL Secure, but we know many have begun to make plans to open their plants. I mean they can only keep currency printing closed for a certain amount of time, but we do think in Q3, the situation should normalize. But I think what we've said about Q2 relative to that will, in fact, transpire.

Okay. And then maybe a higher-level question on Secure. With COVID-19, we have seen some companies, at least locally, that have said they're not accepting cash. Do you see this impacting CCL Secure over the long term?

No, I don't. I think what we will see happen over the longer term is more concerned about the -- about paper notes, which have more propensity to hold bacteria. So there's been more increased interest in polymer as an alternative to paper due to problems with bacteria. So -- and the world's currency markets revolve around all countries in the world, including the African continent, the Indian continent and many countries in Southeast Asia with huge populations where electronic payment systems don't really exist to the same extent they do in the West. So we haven't seen anything that would cause us to have any concerns about that as we stand right now.

Okay. And can you just remind us what percent of the business in secure is note issuance versus ongoing replenishments?

Well, that's a complex question. It varies, frankly, year-to-year. There's always an element of both, but I don't think it's -- what's more important when you do have a note issuance -- so when a new note is issued -- so this year, the English government issued the new GBP 20 polymer notes and withdrew all the GBP 20 paper notes. So when you do issue a new note, you have a complete change of inventory. So new notes are important, more than just replenishment volumes. But it's very hard to comment on the impact of that year-to-year because the mix varies, obviously, country-by-country and which it was -- it's a big country and there's others that are small ones, it's very hard to predict.

Okay. That's great. And then on the Healthcare & Specialty side, Q1 was strong. Are you still expecting Q2 to be even stronger? And do demand trends largely remain solid for 2020?

Yes, yes. Q1 was strong, and April and May have both been strong. I expect June will be the same. So that's a part of the business where we -- obviously, is a benefit from the crisis. I do think the over-the-counter medicine portion of that, which is subject to the same consumer propensity to stock out is probably over. And similarly, in the Lawn and Garden space, we make a lot of labels in that sector for Lawn and Garden chemicals. So we've seen quite a boon there due to people spending time at home. That will probably begin to normalize as we go into the summer, too. So I expect that business will also come back to sort of normal rate of activity in the second half of the year. But I think Q2 will be as good as we expected it to be. And the year as a whole, I think we'll definitely see progress in that part of CCL.

Okay. That's great. Just a couple of questions from the line here as we were talking about CCL Secure. One had question in, "Is there a huge push by European economies to go cashless right now for a variety of issues? Or is that something that you're not seeing?"

Not seeing, and I -- there's a lot of people in the world, in the payment systems world, who talk about this. But the data on the use of cash is pretty compelling. It goes up every single year and has done since cash was invented 150 years ago and continues to do now. So in the United States, since the launch of IPAY, notes in circulation are up 43%. So -- but I get why people ask the question. They asked the same question when credit cards came out, the same questions when checkbooks were first used. And they're now asking the same question again when electronic payment systems are in use, but use of cash, broadly in the world, continues to go up.

Okay. And it sounds like maybe some of the concerns around cash, as you were talking about, is related to maybe pushing conversion towards polymer notes.

I think, yes, for every concern there is about using a paper device to pay or a physical device to pay. The flip side of that coin is people want that physical device to be as clean as they possibly can get. And obviously, polymer's a much better solution for that than cotton paper.

Okay. So maybe moving away from some of these areas where we saw strength in Q1 towards some of the areas where we saw some weakness in Q1, so Home & Personal Care, Food & Beverage, CCL Design Autos. Starting with Home & Personal Care, could you just give a little bit of color on the breakdown of this business? I just want to -- I think it caused some confusion around Q1 with respect to labels versus aerosols and tubes and how each has trended.

Yes. Well, I would say it's a round number, it's $1 billion in revenue. About 60% of the business is labels. About 40% of the business is aerosol cans and tubes, most of that in North America. North America meaning Canada, the U.S. and Mexico. And then it's probably 75% staples driven. So products that are of use in everyday situations of the home and 25% driven by sort of cosmetic applications and where this channel of distribution is beauty care, shops, hair salons, travel, retail stores and things of that order, so that part of our business. So Bath & Body Works in the United States, The Body Shop in the U.K., Yves Rocher in France, the Aveda hair salon chain, which is part of Estée Lauder and all the cosmetic brands have all had their businesses severely curtailed by the crisis. And it's about 25% of our revenue in total and somewhat geared to the tube and can space as our label business is faring better. So most of the impact we're seeing is in our plastic tube and our aerosol can business.

Okay. And are you seeing any changes in demand with sort of some parts of the world beginning to open up?

I would say -- well, obviously, China is the most opened up country. And -- but I would say, yes, I think our business is doing okay there. I would say it's still below the levels we saw in 2019, and I think, particularly in categories of a premium nature. So I think if you were to talk to the big personal care companies, the P&Gs, L'oreals, Unilevers, these kinds of organizations, they would all have negative words to say about their high-end categories. So skin care and cosmetics, sun care creams, things of that nature, which are more discrete than everyday staples. And there's been more issues in that space, somewhat offset by increased sales of hand sanitizer and so on. But I would say the overall impact is broadly negative.

Okay. And are you sort of -- in that comment, were you talking specifically about China or more broadly?

China. Yes, so I think the market hasn't really opened up enough for us to comment really on Europe. So Europe stores are just reopening. So we would expect those categories that are impacted by travel retail and mall stores and things like that, we would expect those to show quite good gains in the second half of the year. But in the second quarter, they're still, by and large, 90% shut. So there aren't many duty-free stores open around the world where you can buy cosmetics and skin care creams, they're all closed, and that's an important channel of distribution for many of those products.

Right. Okay. That's helpful. So you are expecting a rebound in the back half of the year, okay.

Yes, back end. I think, once malls are opened, I think that will be a critical factor in the U.S. I expect we'll see better results in Germany because that -- retail there is, by and large, largely reopened that -- I think we really need to see the mall traffic and -- both a, the mall is open and the traffic improve, and I'd be surprised if that didn't happen over the course of the summer. I think the big unknown is whether -- if there is a second spike and what the impact of that would be in the fall, that we don't know about. But I'd be surprised if we didn't see a lot more stores opening during the course of the summer. But Q2, I would still say still rather impacted.

Yes. That makes sense. Maybe turning to the Food & Beverage side of things. You indicated that you expect easier Q2 comps on a year-over-year basis, but the on-premise business remains down, obviously, largely for the factors that are impacting the Home & Personal Care business, just with people not out and doing things. But could you talk a bit about like the split between on versus off-premise, if you're able to quantify that? And do you think the on-premise side has bottomed?

Yes. Well, it's a bit difficult to do that because you'd have to ask the end customers that question because sometimes the products we sell aren't differentiated by channel. So when we sell labels to say, Heineken, to put on beer, we don't know how much of that beer gets sold on-premise versus off-premise, but they use the same bottle. So -- but we do know from all the commentary from the big beer companies that beer sales overall are down very significantly, driven by the fact that people are only drinking at home and, in total, consuming less than they were due to the absence of bars where people tend to drink more. And we've seen companies like Coca-Cola and Pepsi, where we have labels or Innovia films that are used on big PET bottles that are sold in supermarkets, that part of their business is doing well. The labels that we supply for glass bottles where you would typically see served by those companies in a cafe or a bar, 0. I mean, not down, I mean, just 0. So the impact is quite significant. In wine, it's not really had too much of an impact because sales of sort of low to mid-tier price wines have really galloped ahead. So some brands were wines that would sell between $10 and $20 a bottle doing much, much better than wines that you would typically see sold in a restaurant. And a good portion of our business is geared to that mid-tier, certainly in volume terms. So wine is not too bad. Spirit is also affected by the same issues we see in beer but not as bad as beer. And so the 2 categories we see that are really hurt are beer and carbonated soft drinks.

Okay. Are you able to give us -- quantify a breakdown of the business between those end markets?

Not really. That's getting into the customer disclosure. So I couldn't really give you a view of that.

Yes. Okay. No, that's fair. And then one of the things that's benefited the Food & Beverage business over the long term has been sort of the premiumization of product by some of the brand owners. Is that something that you expect to kind of tick back up as we move out of this COVID-19 weakness?

Sure, yes. Yes, I would say, sure, I think that trend will return because it's the way that beverage companies increase their revenue line. They -- most of these companies are struggling to increase volume. So they increased their sales by segmenting the markets and then designing products for the channel. But clearly, when all restaurants, bars and cafes are closed, that's kind of difficult. So segmenting in the COVID era, while everything is shut, has sort of come to a hold. But we would expect that to continue once things reopen. And we've certainly seen some improvements in that -- the beverage space, in particular, in China, as things have normalized there. It got shut down quite significantly for the few months there. But in recent weeks, it's been pretty, pretty busy. So I think -- we do think that trend will continue.

Okay. No, that's helpful. So maybe turning to the CCL Design Autos business, we sort of saw a weaker Q1, and that had continued into April. Have you seen a pickup in activity with customers opening up plants? I know we're in early days.

Yes. It's very early days, Steve. So I think that would be my answer. I read an article yesterday in the newspaper that automotive registrations in the month of April were down 78% in Europe. I know they were down 90% in the U.K. and Spain. So those are pretty dramatic numbers. So all of the customers have come back in both continents now. So European OEMs and North American OEMs are back producing. It feels like the inventories are low in the U.S., so the drop in registrations seem to be much worse in Europe than it was in the U.S. So we may see some pickup. But I would still say right now, it's still way down on anything like normal, I mean less than half of what we would see in the normal time even in the month of May. So I think it'll take some time to pick up. And I think the real issue is not how things will be in June, July and August, but how things will be in '21. And 17 million units of cars sold in North America in 2019, what will it be in 2021 is anybody's guess. And so we think that part of our business will have a long slow recovery. And at some point, I'm sure government will step into, aid the process, but I think it'll be a slow process.

Okay. That's helpful. And then maybe on a higher level basis, given some of the changes we've seen in the end markets, are there any end markets where you have seen or would expect to see any structural changes in demand coming out of this COVID-19 pandemic? And then maybe secondly, where are the risks? And where are the opportunities for the CCL segment long term in light of any structural changes...

I think it's an interruption, Steve. I don't see huge changes coming out at the end of this in the CCL space. I think what we've been through is a one-off event. And I'm sure the pharmaceutical companies will be better prepared for pandemics in the future than they are now. So there are probably more investigations into vaccines and therapeutics for these kinds of events than there has been in the past. So we may see some things there that will be good for us. Everyone's more focused on omnichannel retailing than they were in the past, but typically for the same package, whether it's sold retail or e-commerce rather than specialty packages. So I don't really see huge changes as a result of this situation. It's just an interruption into the direction we were going. I think in the automotive space, I wouldn't be surprised to see governments start to clamor for incentives to buy new cars that are more environmentally friendly. And I do think we'll see a return to the sensitivities around climate change and sustainability when business does come back, it's been somewhat off the agenda during the COVID era because, let's face it, most of the PPE and masks that everyone's wearing is made from material that are not very environmentally sensitive. But I think when things do go back to normal, those 2 things will come back on the agenda in a big way. But we're well prepared for that with products that help our customers bring answers to consumers for it.

Okay. That's helpful. So maybe I'll just pause here for a minute just because we got a few questions coming in on the CCL side of things. One of the questions, coming back to Home & Personal Care. I know you said that 25% of the business is exposed to specialty retail, but how much of that exposure is to skin care. Is that something you're able to quantify?

Well, a lot of it. So people don't go into a specialty retail store to buy shampoo. They're typically buying things that are more cosmetic in nature, and so I think the answer is the vast majority of it. So -- and some of it is just the nature of the channel. So people do buy shampoos at premium price points in hair salons. And of course, they're all shut, so that's a factor. So it's hair care and hair salons. But in the specialty retail, I would say, a big portion of that is related to skin care products.

Okay. That's helpful. A question here on the line from the aluminum can business, the old container business. How do you view that business over the long term? I mean are you thinking about adding exposure to that side of the business? Or is it status quo for now?

Status quo for now. It's doing a lot better than it has done in the past. So in the last crisis in '08 and '09, that business has ended into a pretty significant loss, hasn't done that this time. The business still makes money. And it's still making reasonable money in the month of April and May and did in the first quarter. So we're feeling a lot better about it than we did in '08 and '09 when we last had an economic change like this one. And we're not planning anything adventurous in it, but we're open to all kinds of options. But at the moment, it's just part of the portfolio.

Okay. That's great...

I would say I would expect that business to do particularly well in the rebound as it did in the years 2010 to 2012. It will do particularly well because as these products get -- come back to use, that's the part of the company will do better than others.

Okay. And is that because of the nature of the product that they're selling? Or is...

Yes, it's just because what went down has to come up. So if you think of sunbathing this summer, I mean, there's some of it going on, but there's nowhere near the level of activity of people going off to sunbathe this summer versus the same period last year. So sales of sun care results will probably be down this year. But once the situation normalizes and people go back to doing that, we will see a very big rebound in that category when that happens.

Yes. And just maybe sticking on the container business. Sun care being a big part of business, but also the beverage side and the -- you do aluminum cans for air fresheners. How are you seeing those businesses perform?

Well, they're both small niches. So I think relative to the totality of CCL, they're pretty immaterial.

Okay. That's fair. Okay. So maybe moving to the Innovia side of things. Coming on a very strong quarter, you characterize it as one of the best you've ever had. And as of Q1, the plants were booked solidly into June. Any update now that we're sitting here in June? And what's the expectations for this business now...

Yes, yes, yes. We had a very strong April, a very strong May. I do think we'll see the pantry loading element of this fade as -- by the end of the quarter. So we expect to be up this quarter, but I think the trajectory will be -- May won't be as good as April. I think June won't be as good as May because the pantry loading impact is rapidly coming to an end. So a lot of the films we make in this space go into the consumer packaged goods space. In fact, the vast majority of the films we're making, that's where they go. And that will come to an end as the pantry loading phenomenon stops. But even aside from that, we're very pleased with the progress the business has made. We've benefited somewhat from resins, although we pass along -- on the vast majority of the benefit of that to our customers. And the resin environment has turned in the month of May. So a couple of the leading indicators for resin started to turn upward in the back half of May. C3 monomer index, which is one of the most tracked indexes for polypropylene, turned upwards last week. And you've all seen what's happened to the price of oil. So I expect that period of our history is coming to an end.

And in a more inflationary environment, would you expect that customers -- will you be able to pass through the more inflationary prices?

Yes. No, I don't think anyone is expecting an inflationary environment anytime soon. I think the degree of decline in oil was somewhat driven by COVID. So I think that, that part of it will sort of come to an end, and we'll go back to something like normal life in oil and its derivative, resin. So we're not expecting it to go back to where we were a couple of years ago with rampant inflation or anything like that. But the rapid deflation we've seen and benefited from, to some extent, in the last couple of quarters, that's definitely at an end.

Right. Okay. And maybe post pantry loading, you talked about that positively impacting Q1 and Q2. The underlying demand in the business, would it still be positive on a year-over-year basis?

We'll have to wait and see what happens in the second half, but it's gone well so far. I mean we're -- the acquisition we bought in Poland has gone well, better than we expected. We've made good operational progress, both of our large operations in the U.K. and in Mexico. The 2 small plants in Belgium and Australia have performed well. So the news in this part of the business has been good, and we don't really expect to see anything change in that regard anytime soon. But what the demand picture will look like in the second half of the year once the hangover effect of all these initiatives comes is hard to predict.

Okay. That makes sense. So maybe turning to Avery. This is one of the areas of the business where you had cited experiencing the most acute Q2 weakness. So maybe going each subsegment by subsegment. Can you just provide an update on the DTC business? We saw some weakness in the event industry and kids labels? Are you seeing any offset from WePrint? And has the demand dynamic shifted or picked up?

Sure, sure. Well, I mean, the cut sheet paper market that you use in your copiers and laser printers is down by almost half, and we were sort of down there with them and -- for the business overall. The event badge business in the direct-to-consumer space is clearly just completely down. I mean there's no rock concerts. There's no conventions. There's no sports events. There's no nothing. So -- and that's what that business is predicated on. So once those restart which, I think, unfortunately, they will restart in a very small way in the second half of the year, it will be well into '22 before we'll start to see sports events with crowds and conventions with people milling around them and conferences and things like that happening again. So that part is going to have a long slow drag back. Kids labels has gradually improved as April and May have gone through, and we'll see what happens with back-to-school, but we're expecting a relatively normal back-to-school. In Germany, where things have normalized the most, I would say, we've seen a pretty significant comeback in the kids label category. And our direct-to-consumer business is on fire. So the WePrint business is just -- it's up over double last year. But if you look at those categories individually and add them all up, in total, was still down because the badge category was the most important of the 3.

Okay. And is it right to assume that the DTC business is about 20% of the overall Avery business?

Yes. Well, I would have said a little more than that if we'd had a normal year. I mean based on where we were heading in January and February, we would have been quite a bit more than 20%, probably nearer 25%. And so we're in -- and heading towards being 30% depending on how fast things grew because these businesses were a bit -- pre-crisis were -- all had double-digit growth. So -- and 2 of them have just been stopped completely -- and well, one of them completely in its tracks because its end market just completely went away and the other one was impaired by what happened with school kids. But I think that will change. On the label side, I think we benefited from hand sanitizers. We've made so many hand sanitizer labels at WePrint, it's just incredible. I don't know how many producers of hand sanitizers there are, seems to be quite a number. And in the core business, we're seeing it gradually come back, but it's gradual. I think until we see workplaces normalize, retail stores normalize, all those government offices go back to being in use, all the things that you would expect to see in a normal economy, until that normalizes, it's hard to see Avery normalizing. But we are seeing it improve week to week fairly steadily, but -- steadily, but slowly. I mean it's -- I think it will be a long grind through the summer. And then what we're all waiting to see is, will there be a second spike or not. If there isn't one, and we get into this time next year, we would expect Avery to be close to being back to where it started with a caveat around that event badge business, which really needs to see sports events and rock concerts and everything go back to the way they were.

Right. Okay. That sounds great. And then maybe turning within Avery to the distributed products business, I think your recent comments sort of alluded to this. But organizational products still under pressure and, you mentioned on the call, highly dependent on back-to-school demand. Do you have any more clarity now that we're in June where back-to-school sits versus last year?

Yes. Well, I think the back-to-school orders we have are sort of in line with what we had last year. But I think what we need to temper that comment with is it's very different to -- they're normally overlaid on top of a normal base. So I think we may have a normal back-to-school. The quarter may still be -- may still suffer because of the base being -- the base business, which is -- excluding back to school, is running at a lower ebb because that's workplace-dependent. So we'll have to see how that combination pans out. But in discussions with mass market retailers and all the people you'd expect to be involved in back-to-school products, they're expecting a fairly typical season because, in most jurisdictions in the United States, I think the inclination is that kids should go back to school in the fall as long as there's no change in the health situation between now and then.

Okay. And then maybe just finally within Avery, the printable media business. Have you seen -- do you have any update on demand since Q1?

Well, it was not as badly as impacted as the other categories. So -- but it was down very significantly. The labels are the most important category there, but it's still workplace-dependent. So it's making a gradual comeback. It's climbing back at a faster rate than some other products are, but it's still significantly down compared to the same period in the prior year, but it is making slow steady come back. In Germany, it's not back to where it was, but it's sort of much more advanced state than it is in the United States. So they're both pretty big markets. So in Germany, we're still below where we were last year, but not by so much.

Okay. Well, it's great summary on Avery. Maybe we'll move on here to Checkpoint, and we do have a few questions coming in through the webcast on Checkpoint. So this is another area where you expected acute Q2 weakness. At Q1, you indicated the apparel industry is down about 60% to 70%. Are you continuing to see your sales sort of mimic these trends?

Yes, I certainly did in April. So we were down that sort of level in April in the apparel labeling space because the industry was sort of closed. What happened in -- the 2 most important areas for apparel manufacturing are the Indian subcontinent and China and Chinese-speaking countries in Asia. The second one of those really closed down completely in the month of February. So our plants in China went down with it. They restarted in March. So we've had steadily building demand in China since then. So March, April was better than March, May was better than April, but still far below last year. And I expect that situation to continue. We're seeing June, certainly weak so far in June, but the orders so far this week have been better than they were in any week in May. And these are now new orders, not just replenishing orders that were held up by manufacturing in the months of April and May. But the big question in apparel is what people will do for the fall/winter season. So that's now typically the time of year where retailers would plan how many garments they're going to sell in the fall/winter season. I could just imagine if you were one of those retailers, how you would be intending to plan that. So we expect this part of the business to be down for a good while. I think it will be a little bit the same story as automotive. I think it's going to take quite a while for it to come back. I do think the crisis has shown the -- has proved the theory of omnichannel retailing. So brick-and-mortar stores have the problem of fixed amounts of inventory and choice of inventory. E-commerce is great, except if it gets overloaded or you can't go in and try anything on. So it's got its downside. So this concept of omnichannel retailing, I think has been proven by the crisis, and RFID is an enabler of that concept. So I do think you'll see that acceleration of RFID adoption as a result of the crisis in the strong retailers. But I think there are also going to be some casualties. There is clearly going to be some apparel retailers that simply don't make it through this. And the strong will get stronger and adopt these new technologies and move into the new world. And some of the others may go by the way side. So we have to navigate ourselves through that system and come out the other end of it. But it is coming back, but at a slow pace.

Okay. And would you expect -- so would you expect largely that the business has bottomed or will bottom in Q2?

Oh, I think it bottomed in April. And I think it will -- I think we saw improvement in it in May. I think we'll see improvement in it again in June. But still, I think it'll -- I'll be surprised if we start to see improvements over prior year, any month this year. I'd be very surprised to see that.

Okay. Okay. That's helpful. You mentioned RFID, it was actually a question that we got on the line here. So can you just remind us how big RFID as the size of the overall Checkpoint business? And if you do expect...

Well, I don't want to get into commenting about that, but it's one of the reasons we're in -- the main reason we're in that industry is because of RFID adoption. And we have some large customers, principally in Europe, who are in the sways of moving ahead with that. And we do expect that industry to universally adopt this technology over a period of time. It requires capital. It requires infrastructure. It requires software. It requires systems. It's not a "click your fingers and do it overnight," but I think we will be a player in the game. And I think it will be a positive thing going forward.

Okay. And is it -- have you actually seen an increase in interest in the RFID solution given retailers are so focused on e-commerce and/or buy online, pickup in store?

Well, I think -- yes, it's the omnichannel concept, more than e-commerce that's really driving that. It's the ability to see it online, reserve it online, pick it up in the store or go to the store and browse and select. I mean -- and the important thing for a retailer to know, what I've got and where it is, and RFID is an enabler of that. Still got some things that work out on the reading and the software side. But the -- what's interesting about what's happened in the crisis, I think it's, if anything, accelerated the interest in the technology rather than waned, and I think that's the most important message, combined with the obvious facts that there'll be some retailers who just are not going to make it through this with or without RFID.

Right. Okay. And outside of RFID, do you still see long-term growth opportunities in Checkpoint?

Yes. One of the interesting technologies we've developed since the crisis is the -- we have readers in the store that are anti-theft devices, and we've now integrated into those readers, people counters and temperature counters. And we've secured some quite large contracts for that in Germany. They're not material to Checkpoint or the company, but they're pretty significant wins, particularly given the time scale in which it was done. So I think the interest in retailers to control people and merchandise in stores in the omnichannel world, that hasn't gone away, and we're still optimistic about this business for the future.

Okay. That's great.

I think it will take a while to recover. I mean I think retail -- if the world stays in recession, which I think there's some chance it might do well into 2021, I mean, retailing never does well in recessions. So I think this will be a segment of the company that will follow the fortunes of retail. So if retail stays subdued or down, we will be subdued and down with it, but we're working on plenty of things to be ready for the uptick when it comes.

Okay. That's great. A question on the line here, as we're talking about Checkpoint here in terms of RFID, which other verticals in addition to retail do you sell RFID into? Or are there opportunities to sell RFID into?

Yes. The main one we are active in at the moment is health care, but -- and we have interest in a number of other market verticals, they're all completely devolved by apparel. And that comment I just made applies to the entire RFID industry. So apparel is the 100-pound gorilla in the room, and everyone else is a little mouse who's trying to escape the elephant, and that's just the truth of it. And -- but we have some nice niches in automotive, in health care, and I think there will be others that will develop over time. But the foundation of being in RFID, if you're not in apparel, you're not in it, is probably a fair statement.

Okay. That's fair. So maybe turning away from the segment-specific commentary, and then I'll come back to some questions we have on the line. Moving to the acquisition environment. A lot of questions that have come in through the webcast on M&A. How do you think the M&A cycle will be impacted by COVID-19 versus '08, '09?

Well, the problem with the pipeline is all the dialogue was around financials that were pre-COVID. And there aren't many companies in the world whose financials have not been significantly impaired by the COVID crisis. So if you're having a dialogue with somebody about a $50 million EBITDA number in 2019, and the number is $25 million in 2020, acquiring a company in that environment's difficult. So not impossible, but difficult. So some of our M&A pipeline went away due to that. Just sellers just say, "Well, let's talk about this again when this is all over." And some have not. Some have said, "Let's pursue the discussions and valuations may have changed but we still want to go ahead," but they're not material, small niche deals that will be good add-ons for the company but not move-the-needle changers. But I do think valuations have come back to more sanguine levels, and the private equity world has moved its interest into other spheres, especially debt, and hybrid-type investments is doing leverage deals. And this scenario is difficult because of all the reasons I've outlined. But we're certainly still a buyer. We're still an acquirer. That's how we've grown the company. That's why we are who we are today, it's been by successful acquisitions. And we haven't changed our approach in that regard, and we're looking at all sorts of things on the horizon today.

That's great. And another question here. In which sectors or geographies would you expect to be the most active on potential M&A?

I don't think I could comment on that very usefully at the moment, Steve. It's just -- I just couldn't comment on that with any -- make -- say anything that was sensible.

Yes. Okay. That makes sense. On the Q1 call, you mentioned that you were more focused on protecting the business at that point. Are you still focused -- but -- and you sort of positioned that as a way to say, we're not looking at M&A right now because we're looking internally. Has that thought process at all changed as we've moved further into this -- the recovery, so to speak.

I think the priority has been to make sure we got through this crisis in a good way, and I think we've -- we are well on the way to achieving that. So I think that's what everyone would have expected us to do when the news of this all broke. And I do think we'll lift our heads above the parapet. I think the caveat to that is we need to be out of the woods. So what will -- how will the world evolve in the second half of 2020, I wish I had a crystal ball on that, but I don't. But we're certainly preparing ourselves and the balance sheet to act if opportunities arise, and we would definitely do that if the right kinds of transactions came along.

Okay. That's a good segue into the next question which is, you recently closed a $600 million debt deal of notes at an attractive rate, 3.05%. Would you characterize this as more defensive or offensive?

Well, we're a long-term investor, Steve. So I think debt that is associated with long-term investments should be long term. And although short-term interest rates are attractive, you don't know for how long. And so the reason for the bond offering was to make sure the debt we knew is associated with that and the things on the other side of the balance sheet, in the long term, are nicely balanced out. It also frees up our revolver, which is a pretty big number to be available to do transactions in financing markets, which might say who knows what. And so we now have a pretty nice barrel of dry powder to act as we go forward from here. And that was the twin prongs of the debt offering to make sure we've got our long-term liabilities associated with our long-term asset holdings and to have our revolver to be a complete keg of dry powder to act when we want to act, because who knows what the financing markets will be like when those things happen.

Right. So it sounds like more -- well, maybe opportunistic in the context of a longer-term view would be the way to characterize it.

Yes, I think strategic in the way that we're really trying to make sure our revolver is there for -- to act, and we don't have to take recourse of the financing markets at a time of great uncertainty. I mean financing markets are open now. But who knows what might happen in the second half of this year or during the course of next? We just don't know. So we've now set ourselves up to act regardless of what happens externally in the financing markets.

Okay. That's great. So I just want to remind everyone, if you do have any questions, feel free to submit them through the webcast. We've got about 7 minutes left here. So I'm actually just going to go to some of the questions that have been submitted that are sort of all over the place, but we'll just jump around. A couple of questions here on the dual-class share structure. Is there any thought process around -- or any plans to sort of make all share classes pari passu in the sense that maybe you collapse the dual-class share structure?

Not anytime soon. I think we've had that structure for a very long time. There are no plans I know of to change that. So I think the answer to that is no. No plans for any change.

Okay. Okay, that makes sense. A couple of questions here around efficiencies and any adjustments you've made on the cost side. And how do you see margins moving around when demand comes back? And maybe that's a question that's easier answered by looking at each segment individually.

Yes. I don't think we have time to do that individually. But I would say, we've done all the things you would expect us to do. We do have a naturally correcting system in CCL to adjust for different business volumes. So the businesses that have been materially impacted, we've done all the things you would expect us to have done. There have been furlough programs or short-term working programs, cost avoidance in the businesses wherever there's costs needed to be avoided. At the same time, we've had other businesses where they've been running ahead of where we would have expected them to be in a normal situation, and we've had to put money into -- make sure we can supply the customers on what they want, so combination of the 2. But we're doing all the things you would expect a company of our size and geographic disparity to do in a situation like we face today.

Right. Okay. Okay. Longer term, question from the line here, now that CCL is diversified more geographically and by segments versus '08, '09 is something you pointed out on the Q1 call. What type of GDP multiplier should we expect?

Well, we're a GDP business, really. So while GDP is down, we're going to be down. While GDP is up, we should be up. I don't know that we're a business where we would say we're a company that will grow at a multiple of GDP. Sometimes, I would say, in the good times, we can have GDP plus something. I'm not going to get into what the plus might be. But there are certainly businesses where we get GDP plus when we do something different, we do something unique, and we invent a new application or a customer decides to adopt that technology for a particular program or brand proposition that he wants to have. So I think when times are good, we can certainly get into years, and we certainly enjoyed those years in -- probably from 2011 through 2018, where the company was growing at 5%, 6% a year at -- when GDP -- while GDP was growing at 3.5% to 4%. So that can happen, but it can also not happen. So I wouldn't be in the land of promises around that. But when GDP turns negative, we follow the same tracks as our customers do. And if it goes down, we go down with it, but only to the same extent. So I think we gave some color on our investor call last time, what happened in '08 and '09, I think we dropped 2% or 3% in '09 when GDP went negative. And I'd expect the same to happen here, but we wouldn't be going down long -- for very long.

Yes. Yes. And you've made a commentary in the past that label converters sometimes tend to be first in, first out in periods of economic weakness. What's typically the lag you see ahead of the recovery? Like you said, a 6-month -- you see things picking up 6 months ahead of time before the economy starts picking up or is it -- how do you think about that?

Well, we -- I mean in the last crisis, we had a record year at CCL label in 2009. And so our problem at CCL label in the last crisis was in the year of 2008. So most people had difficulties also in 2009, we didn't. And then in 2010, I think we grew 9%. So where we've began to see problems at CCL label in the last crisis in the second half of '07 when a lot of the commentary was still very positive. So I'd expect our business to follow the same path here. And as things get better, we may come early out of the trough, but time will tell. We're a very different company today because we're in automotive in a big way. We're in -- we've got Checkpoint. It's retail-driven. We've got Avery. So -- and we're much bigger. We're $5 billion now as opposed to $1 billion in the business in the last crisis. So the numbers will be a bit different because of that. But I would still expect us to see to come out of this crisis quicker than some others, and we went into it earlier than some others.

Okay. Okay, just maybe a couple of final questions here from the line. What kind of returns do you target in acquisitions or CapEx?

We try to get a 15% return on capital very quick within -- inside a year or 2.

Okay. Okay. And what are your thoughts on share buyback?

Well, at the moment, we're preserving cash. So the dividend is an important thing for our shareholders. So we're more focused on making sure the dividend isn't in any way endangered, and we will continue to see things changing positively over time. So that's the number one focus. Number two focus, M&A. The M&A doesn't arrive, the crisis recedes and buybacks may come on the horizon, but not in the immediate short term. But medium long term, if the deals don't come and our balance sheet continues to delever, buybacks may come on the agenda. But let's wait and see what happens.

Yes. Okay. Well, we're -- we just turned 12:00. So I think maybe we'll stop it there. So Geoff, thank you so much for your time today. I really appreciate it. I think it was very useful. We had a lot of people dialing into the webcast. And so I think this was a very useful event, and I appreciate your time. And thank you, everyone, for logging in today and getting an update from Geoff.

Okay. Thank you, Stephen. Thank you, everybody. Have a nice weekend. Bye.

Thanks. You too. Thanks. Bye.