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

All right. Good morning, everyone. Thanks for joining us. Mark Neville, diversified industrials analyst at Scotiabank. My pleasure today to introduce CCL Industries, President and CEO, Geoff Martin. Before we get started, it's required to read some disclosures, so I'll do that. So the views and opinions expressed in this presentation are not necessarily those of Scotiabank and may differ from the views and opinions of other departments or divisions of Scotiabank. The information contained in this presentation does not constitute investment advice or an offer to buy or sell securities, neither Scotiabank nor any of its affiliates to make any representation or warranty as to the accuracy or completeness of the statements or any information referred to in this presentation, and the conflicts, disclosures that Scotiabank maintains for CCL Industries or Scotia Capital (USA) Inc. or its affiliates have managed or co-managed public offering in the past 12 months, Scotia Capital (USA) Inc. had an investment banking service client relationship during the past 12 months, and within the last 12 months, Scotia Capital Inc. and/or its affiliates have undertaken an underwriting liability with respect to equity or debt securities of or have provided advice for a fee with respect to the issuer. So that's -- so with that out of the way, again, thank you very much. [Operator Instructions] So if you want to send some questions in there, I'll try to get through those. And hopefully, I'll get to those. So with that, I think we're ready to get started again. Geoff, thanks for your patience. I appreciate you being here today. It's good to see you, in person -- well, virtually.

If we can just get going, I'll start with the questions. Maybe just start high level. Geoff, you guys had a record Q3, I think that surprised everyone. On the conference call, you spoke to good momentum into Q4. So maybe just give us sort of a quick update on how things have progressed thus far in the quarter.

Yes. Well, things have been going much better in our business really since June. So after the dark days of April and May, we've had -- month on month on month, it's been getting progressively better as with each month as it's gone through. So October and November for us is slightly odd because we've got 1 less work day on the calendar than we had this time last year. So that's probably worth 1% to 2% of sales, something like that. But despite that, we're still -- sales are up low single digits for the total company for the quarter so far with -- and we'll make up that extra day in December, although it is Christmas period. And as we said on the investor call at the end of Q3, we expected CCL and Innovia both to be up, especially on the profit line in the quarter, and that's proved out to be, and they're both up meaningfully so far this quarter. Checkpoint sales are built down slightly, but profits are up modestly, and Avery profits are still down.

Okay. Again, that's -- it's helpful. And again, some order of magnitude. I mean has there been any sort of -- it doesn't sound like it, but any sort of meaningful change in trends versus Q3? Is there sort of any areas of business that were strong, maybe not as strong, or business that were weaker that are sort of showing some improvements?

Yes. The CCL Secure business, which was especially strong in the Q3 has softened considerably because we had a bump at Q3. That's really what drove our margins up to the extent they did in the third quarter. But our sort of consumer packaging businesses, health care label business, food and beverage label business and our Home & Personal Care businesses have improved over the rates of growth they had in the third quarter. So the CCL segment overall is up tad under 4% of the quarter so far.

And that's the revenue line?

That's the revenue line, yes. And profit is up more than that.

Yes. Okay. Again, so again, well, you sort of just answered the question. Rates have improved and accelerating or slowed. I guess again, the -- improved in all the other segments, slowed a bit in Secure that was, I guess, sort of the answer. But the -- I guess just on the Secure slowdown, I guess that would have been anticipated, right, just given the strong Q3?

We had a bump at Q3. So it's always a part of our business is volatile quarter-to-quarter. And we had a really big bump in Q3 so we knew that Q4 would be lower. But I don't know whether it will be worse than prior year or not at this stage. It depends what -- how many banks take their shipments in December, it's hard to predict. But the other businesses have had a good quarter. So overall, we're still up.

Good. Good. We'll dig more into, I guess, the segment later. And just maybe just continue the high level discussion. We've gotten positive news sort of on a vaccine development, and we're starting to roll this out globally now. Just curious to your thoughts -- your early thoughts on 2021, just, I guess, the various puts and takes and sort of what you're thinking about for next year at the moment.

Well, we thought back in April and May, when we had these calls, we were saying, well, it may take another -- we may take '21 to get back to where we were in 2019. We'd be disappointed if that happened now, I think we've got a bit more optimism about next year than we had the dark days of the spring of this year. So at this stage, we're certainly expecting to progress in 2021. But it's very uncertain still. We don't really know how long these vaccines are going to roll out, we don't really know the impact of all these changes on the economy and so on. So it's all how you view them at this moment in time. We certainly wouldn't give clarity about next year in any level. But our confidence for the year is certainly a lot better than it was in March and April this year.

Okay. Maybe just some thoughts around, again, the balance sheet. I think it's kind of a good segue when you're talking about improved confidence in M&A. Maybe just give us sort of an update on sort of your thoughts around M&A? Again, I understand travel is restricted. But we've seen an increase in M&A across other sectors as sort of the macro look improves. And you got people sort of globally, sort of on the ground. So just sort of curious in your thoughts at the moment around M&A.

Well, everyone else can do their own M&A the way they want to do it. We do ours the way we want to do it. And at the moment, we use our boots on the ground to do the small transactions. We wouldn't entertain a large deal at the moment in the current environment. We just -- we need our senior people, our top people, including myself, to be able to get around the world if we were to do a large transaction. That's just not possible at the moment. So there's no -- even if there was something we could do on a large scale, we probably would back away from it right now. So our pre-disposal right now is to focus on these bolt-on transactions because they're easy to do. We've got people in the countries who can do them and they're reasonably plentiful, and we've done quite a few of them already this year as you've seen. But I expect 2021, we'll see more of that.

Got it. And when you talk about sort of that smaller tuck-in M&A program, $200 million to $300 million revenue, is that sort of correct?

Right. Yes. Yes. I think this year, we'll be nudging up towards $200 million, so something around that.

Okay. Okay.

Yes, it might be more, might be less. I mean you never know with transactions what comes and what doesn't. But that's what we're focused on right now.

Okay. Also, I guess, just on the M&A again, I appreciate you might not want to do anything large at the moment. Are there larger opportunities out there?

There are larger opportunities out there, but not -- a long playing record on this, we are not going to do them in this environment. It doesn't follow our MO. We've done large transactions in the past, senior people have all been involved, involve travel to all corners of the world, and we just can't do that right now. So somebody came along and ask us today, we'd have to decline because it's just practically not doable.

Right. Right.

So that's how we viewed it.

Okay. And the areas of interest, again, you've talked about these all through the year in the past. I mean they're all sort of -- nothing's really changed there, right?

No, no. We're still buying it right across the company. So this year, we bought a films plant for Innovia. We've done a number of transactions in CCL design. We bought a couple of small label businesses. We've bought some direct-to-consumer things at Avery. We bought an apparel label company for Checkpoint. So across the portfolio, and we're not sort of prioritizing one thing above another, but it will be a repeat of what you've seen this year.

Okay. And then, I guess, on leverage, you've talked about the target, I think, 1 and sort of 3.5x range. I'm just curious, as the pandemic sort of changed your view -- and I guess I sort of see 2 different potential trains of thoughts where one is you guys performed incredibly resilient through the pandemic. So perhaps maybe you're comfortable with a bit more or the alternative is, it was a good reminder, the pandemic that sort of unforeseen things happen, so maybe a little more prudent with leverage. So just sort of curious your thoughts on that.

Well, we don't have any thoughts beyond what we've said in the past, which we don't really have a specific target. We have railway lines. So once our leverage falls below 1, we start to get anxious about heading towards being in a net cash position, and we'd have to think about what we're going to do if that ever occurred. And up to investment-grade rating at the top end and we're comfortable at any position in the middle. And our views on that have not been changed one way or the other by the crisis. And we certainly have focused on our balance sheet more in the last 6 months than we would have done in a normal period of time, which I think most companies have done, and we're no exception.

Okay. That's fair, that's fair. Maybe just thoughts for CapEx for 2021. I don't know if you're in a position to talk with that yet or...

I'd say, low $300 million, maybe $325 million, $330 million, something like that.

Okay. And this year, I think it's $290 million, right?

Yes, we'll be at around $290 million net this year and I think around $330 million growth next year.

Okay. Geoff, I'm seeing a bunch of questions coming from the line. I'm going to try to sort of mix them in as long as they...

Sure. Fire away.

Sure, sure. I'm just -- I'm seeing a question here just on dividend growth. Any comments on that, sort of in terms of capital allocation towards dividend?

Well, I think our [indiscernible] shareholders annual dividend increase. So it's always been healthy, and I expect it will be healthy again this year, too. We're not going to get into saying where you might be because the Board tell us to approve that. But given the balance sheet we have, probably be a reasonable expectation for it to be a healthy increase this year.

Okay. And I guess another question just sort of goes back to the -- some of your original statements, just sort of the what factor, sort of, in particular, sort of underlying the improved confidence for 2021, I guess maybe how you performed today?

Well, I think it's just -- I think what we've shown this year is the company has been very resilient. So we've had an event that's unheard of in the last 100 years that interrupted business in the middle of the year, and we're a pretty broad spread in the economy. And we're going to come through it this year, probably with higher earnings than we had in 2019, which I think is quite remarkable. So if you'd be able to go through an event like that and come out on unscathed, I mean, I don't think it's surprising that we gives you some level of confidence about the future.

Yes. Yes. That makes sense. Again, it was pretty impressive year and strong Q3, so we're good. Again, before we get into the segments, maybe just comment or maybe a quick discussion around sustainability and ESG. And you guys, you've been making labels now and other forms of packaging for 5, 10 years sort of make recycling easier. But as these sort of trends accelerate, I guess I'm just -- I guess a few questions sort of how well equipped you are to handle it. Does it provide a competitive advantage? Sort of, I would assume some of your smaller competitors, maybe it's new to them, and they're not as well equipped. And I'm just curious if there's any sort of investment in year-end and -- or would all be capturing for regular CapEx for whatever you do?

Yes. Well, we've had sustainable product offerings in our portfolio for more like 20 years than 5 or 10, but with limited uptake by the consumer products companies only not really driven by sustainability, either, frankly, more driven by cost. But there's a lot more interest in them now than there ever has been in the past, and we're certainly making some scale investment, particularly in film technology that will help us help our customers make PET bottles, in particular, more recyclable than they are today. And that's our main focus today is to help our customers recycle primary containers, and that really involves having labels that are compatible with that process. But I still say we're at pretty early days in the whole sustainability revolution. There's a lot more talk when there is substance in the world out there in this regard. And there'll have to be some, I think, real changes of behavior, both at the consumer level and the objectives of the big -- the world's big CPG companies to really do something. But the technologies are out there for us to react, and we're doing that in spades every day the week with our sales teams.

Yes. And again, just in terms of -- at the moment, any investment you make that will be in sort of just capturing your regular Capex, correct? It would be...

Correct. Correct. Yes. I don't think we need to -- other than in film technology, I don't think there's a lot of investments we need to make to be able to offer these products. It's more a question of the CPG companies themselves, deciding that's what they want to adapt very well to. When their priority at the moment has not really been that in the pandemic, it's been reacting to the circumstances of the pandemic. Sustainability, I wouldn't say it's taken a backseat but I think availability of supply and getting what the world needs out there has been more important to them in the last 2 or 3 quarters in sustainability has been.

Okay. Okay. Again, I got a few more questions coming in from the line, so I'll try to mix them in, sort of try to keep it on. So a question here, how do you strengthen the group's position during the disruption and uncertainty this year? Have you been able to upgrade on talent or anything else that doesn't sort of immediately show up in the numbers but strengthens the business?

Mark, you broke up in that question. I couldn't hear you.

Sure. I'll repeat it. I'm just curious, how have you strengthened the group's position during the disruption? And sort of, were you able to upgrade talent or anything else that doesn't immediately show up in the numbers maybe, but that will strengthen the business?

I don't know if I got a lot to say about that really. I think we had a great team of people. We went into the pandemic, it's the great team of people who got us through it. I don't think we've done anything in the pandemic in that regard that's made us any different coming out than we were going in other than the experience of going through it. So I think the team that's come out the other hand is the same group of people that went into it, now having the benefit of what is like to go through the global pandemic.

Sure, sure. Okay. And then I guess, just on the CapEx outlook for next year, the areas of focus, either segment or geography, if there's anything in particular worth calling out?

Nothing worth individually calling out. The biggest investment we're making is in EcoFloat films, which is a sustainable film technology that's going into Innovia that supply films to the CCL label sleeve plants, that's our biggest capital investment, about $35 million. Put a press release out about that a couple of months back, and that's the biggest investment we're making next year.

Okay. Before we maybe get into the CCL, I'm seeing a bunch of questions sort of come in about Avery and Checkpoint. So maybe start there.

Sure.

Yes. Just, I guess, on the Avery, just in terms of profits, when would you expect direct-to-consumer segment to become bigger than the legacy business, the legacy business lines, binders and stuff like that?

Well, I would -- I think we have to wait and see what happens to events around the world. So our badge business, which is the largest segment of our direct-to-consumer business, really tanked with the attendance sporting events, I mean, just disappearing completely. So rock concerts, conventions, sports events. But until they're back to normal, our direct-to-consumer business won't be back to normal. So the direct-to-consumer label business has grown significantly, has been growing almost as -- more than doubled in size during the pandemic because everyone want to sanitize the labels and things like that. But -- and then the core of Avery trunk in the pandemic, really due to the change in workplace habits, so until workplaces return to norm. So I think Avery will have a tough time really through the middle of next year. But we would expect things to sort of begin to return to normal there probably with back-to-school in 2021, which we expect to be a lot more normal than the chaos we all went through this year.

Okay. Okay. And maybe on Innovia, maybe just talk about sort of the guardrails and building out that platform just given some of the volatility maybe in commodity prices and whether or not it's more or less attractive than CCL segment, but just the thoughts around growing that business out?

Yes. Well, it's -- we obviously had a very good year and that's continuing so far this quarter. So it's really about improving mix and improving operations with -- pass-throughs of resins have happened, particularly in North America. So we haven't really benefited a lot from that, particularly in Q3 and Q4. But the business is a lot better managed than it was 2 or 3 years ago and mix has improved very significantly. And those are the 2 main drivers for the performance of Innovia. So we're feeling a lot better about the business today than we were, let's say, in 2018, for sure.

Okay. But is your thoughts around maybe scaling it up much bigger or no?

Well, we'd like to make investments in it. So with the $35 million we're putting into EcoFloat is not a small amount of money and there are other acquisition opportunities out there. So we're certainly looking at things to invest in Innovia without getting away from its core. So at its core, Innovia makes films that are close to the businesses we're in on the CCL side and that we use on the CCL side. We wouldn't want to get -- deviate too far away from there.

Okay. Okay. Again, lots of questions rolling in. So I'm just going to keep kind of -- I wouldn't bounce around it a bit but I'm going to keep going through. Sort of given sort of some of the closures of bricks-and-mortar retail, maybe just comment on the strength in Checkpoint in Q3? Obviously, it was good, and to maybe your exposure to e-commerce and RFID and stuff like that.

Yes. Well, Q4 Checkpoint is up a little bit in profits. So what we're seeing at Checkpoint is the apparel label business is doing particularly well. So that's up mid-single digits in sales this quarter, and profits are up significantly. And that's driven by the recovery of apparel after the shutdown in the first 5 months of the year. You have to remember in the apparel industry, it never really started in January and February because COVID hit China around Chinese New Year time. So the Chinese apparel industry almost never got started this year when it normally were. And it went right away through until the end of May and then came back with a bang in June. So -- and we're still seeing that sort of tailwind in that part of Checkpoint's business. So that's been a positive. Retail is a very mixed story. You've got Walmart, Target knocking the ball out of the park. But then you've got retailers like Macy's and the mall chains and things like that, which are not doing as well. So what we call our MAS business it's sales articles, it's an inventory tracker system. That's a mixed story. There's some customers doing well. Kind of looks like what you would expect. If you look at how retailers are performing, how they are doing is how well we are doing with them. But the whole move to omnichannel retailing and using brick-and-mortar stores as last-mile distribution center speaks to the need for inventory tracking and in store security. It's never going to go away. So I still think we're in a good place for Checkpoint. But top line will be difficult, I think, for -- until the world gets back to normal. But bottom line, I think we've certainly turned the corner in that part of the company and Q1 is a low seasonality period, and then it jumps up again in Q2. So by Q2, certainly in Q3, we'd expect to be close to back to normal.

Yes. And I guess, again, like I can appreciate some of the short-term disruption but it's taking long term. Again, we're just -- there's all these sort of RFID and sort of sort of e-commerce, omnichannel. Is this all positive for Checkpoint? I mean sort of...

Yes. I mean it's -- the good thing about inventory tracking is in apparel. That's difficult to do with bar codes because of all the degree of complexity around sizes of garments.

Yes.

So if you want to have an omnichannel offering in the apparel industry, you've got to know exactly what you've got and where it is. And RFID is an enabling technology in that space. So we expect that to continue to grow double digits, and we're going to have a fair share of it. So we think that's a good part. And then in the core MAS business, there's always been winners and losers in retail and that's still the case today. So we're doing well at places where you'd expect us to do well and not so well in the places that aren't doing well externally.

Yes. But long term, this is Checkpoint still -- it is a growth business?

Yes. I mean it's -- I mean I think it will grow to the extent -- if you take all retail GDP, so e-commerce and brick-and-mortar stores, we wouldn't expect to grow beyond the rate the industry grows. But certainly, can we grow low single digit? I think we can.

Okay. Did you sort of mention just a moment ago, or I thought -- it was growing double digits, did I hear that correct?

Correct. Correct.

Yes. Okay. Okay. I'm going to try to get back into...

Your questions.

Yes, we'll go back. There's a lot of interest, Geoff, lots of questions coming in, so it's great.

It's okay.

On the CCL segment, you touched on sort of the business lines, sort of the strength or what was doing better, maybe what tailed off a bit. Maybe just sort of geographically, geographically, what's happening? Again, the world's -- a lot of different places out there...

Yes, so geographically, we're up pretty significantly in North America; Europe is about flat; Latin America is up significantly; Asia is up mid-single digits; Australia and South Africa is down, that's really a function of the currency business, really. So that's what it looks like geographically. So we're certainly seeing more strength in North America than we are in Europe, which probably wouldn't surprise people. Latin America, a big recovery, especially in Brazil. Asia, China recovery, the ASEAN countries, Thailand, Singapore, Malaysia, Indonesia, those countries is pretty mixed, some of them have got pretty significant restrictions in and some of them are more open. That's fairly mixed. But China is doing quite well. And the electronics industry is doing particularly well in China. So that's really a growth driver for us over there.

Okay. And maybe just on the margin. Your Q3, year margin -- EBITDA margin, I think, was up 350 basis points year-over-year. I think this is probably where I received the most question, sort of post the quarter on the results. I know you talked about the mix helping, but is there sort of anything else worth calling out given such a big improvement?

It was really all mix. I mean 40% of the profit increase that came in Q3 came from CCL Secure.

Okay, okay, okay.

So if we have a blowout quarter in CCL Secure, it has quite a significant effect on the mix of margins. So we'll see the reverse of that this coming quarter because we definitely won't have a blowout quarter. And we won't see 350 basis point improvement this quarter, for sure.

Okay. Okay. But you did sort of -- I think you said earlier, revenue was up just under 4%, 5%, and you said profits up more. Is that -- that is what you said, right?

Yes. This quarter, it's so far to October, November combined we're up a tad under 4% on the revenue line, quite a bit more than that on the profit line -- in the CCL segment.

Okay. So maybe if we just spend a quick minute on Secure. Just again because it sort of -- was such a strong Q3. And I could appreciate some quarter-to-quarter volatility, I think you said Q4 this year may be comparable to last year. So I guess that would be my first question. And sort of second, just the longer term views on the business. Again, I still get a lot of questions from investors or get the sense from investors that maybe they think there's longer-term structural headwinds because of credit cards or digital currency and just your thoughts on that.

Well, banknotes were invented 150 years ago and have increased every single year for 150 years. There's not many industries that do that. And they increased all the way through the credit card boom. So since the launch of iPay in 2007, notes in circulation in the United States were up 43%. So you have to remember, banknotes deal with the small end of the retail payments technology, and they're used for all kinds of transactions beyond just a retail expenditures. So we certainly don't believe banknotes are going away, even in the most advanced countries in the world, in Scandinavia, banknote volume is still growing. So we don't subscribe to that viewpoint. The most important point for, I think, in our business is we're converting the world from cotton-made -- notes made out of cotton-made paper, which is the traditional way banknotes are made to being made out of polypropylene, which is a lot more safe, a lot more secure, a lot more clean and a lot more sustainable. And we have barely 5%, 6% of the world market converted. So there's a big, big market to go out there after. So -- but we're still focused on that.

Okay. I mean you talked about 5%, 6% conversion, that's an industry number. But I guess you guys are the primary player, right?

Yes. So if you take all banknotes in the world, 94% or so are still made from paper, 6% are made from polymer.

Okay. Okay. And again, maybe just on the Q4. Again, I appreciate it's going to be down from Q3. But again, for year-over-year, would it be comparable or down or...

Talking about CCL Secure?

Yes, yes. Yes.

I don't know, Mark. It's -- that's the business we don't ever get into, the prediction game, because we just don't know. Depends what sort of -- when we ship, we ship in big amounts. So we can have single shipments in the $200 million business, it can be as high as $15 million. But I'm not going to get into predicting what we're going to do in December.

Sure. Sure. That's fair. That's fine. Maybe if we can just, again, talk about Avery. So the margin, again, you mentioned cost savings helping the margin in Q3. Was that more temporary measures or structural improvements in sort of...

That was structural improvements, particularly in our binder product line, which -- and the reason they had such an impact on Q3, it's when we ship the back-to-school binders. So we get most of our cost savings come in that quarter and it's big particularly in the ring binding category. We had some pretty significant savings that came through this year. So they were more structural rather than pandemic-driven.

Okay. Okay. Is there more you can do across that business? Or is it really that...

Yes, we're working on it, but we're more interested in seeing demand recover than we are cost savings.

Yes. Yes. On the demand, again, we already talked about it. But again, I would assume, again, the same trends are sort of largely persisting, right?

Yes. I mean our -- we have a little business up in Madison, Wisconsin that makes digitally printed badges for conventions and sport events and rock concerts. So I mean their monthly sales last year are running at $4 million to $5 million a month. Now they're running at not even $400,000 to $500,000 a month. So it's not hard to see why. So until the world gets back to normal, I mean, it's pretty hard for us to expect them to do anything about that really.

Yes. Yes.

Other than manage the cost side, which they've been doing.

Yes. Yes. Maybe on Checkpoint. Maybe just get -- again, I think we touched on this earlier, but again, the update on the revenue trend in Q4. Q3 was a big improvement over Q2. I'm just sort of curious, has it sort of continued to get better or sort of flattened out or...

Yes. No, it's gone a little bit better in Q4. I think the improvement in the apparel industry has really been a big driver for that. So the big unknown for next year is in the apparel industry, how much of the summer inventory for 2020, which was seriously interfered with in terms of retail availability. This summer, how much of those lying in warehouses that will be used this summer and what will that mean for apparel manufacturing in the year of 2021? And we just don't know the answer to that. We'll find out as the year progresses. But the improvement in the apparel manufacturing supply chain has been a big driver and then the retail end markets and mix just driven by who's doing well and who is not.

Okay. Okay. I'm going to speak up a little bit, Geoff. I'm getting some message here. It's hard to hear me. So if I'm too loud, I apologize. I can't get any closer or speak a little louder. I mean in the Checkpoint, the Q3 margin, you're up 240 basis points, 250 basis points like lower sales. Same thing -- same question sort of to the Avery earlier, just maybe some of the cost-saving initiatives, are they more temporary or permanent?

So I think that margin increase is all operational improvement because the cost savings were eaten away by the revenue. We did get some temporary cost savings, but it was really matched by the change in revenue, temporary. So the margin improvement there is more structural than it is, driven by the response to the pandemic. And I expect to see a similar trend in Q4 based on how the cause is going so far. Just because, if anything, things have got slightly better, particularly in the core business, in the MAS business, the labels we sell directly to retailers. That's improved a little bit because they don't have a high season, and we've seen some improvements in demand still running below prior year. As you'd expect, so many retailers banged up, but it's doing a bit better than we thought it might do.

Yes. And these structural improvements, I mean, is there -- and I guess, sort of sounds like the label business is, again, it was more mix. It's still a very healthy margin. In Avery, there's some structural improvements, Checkpoint, there were some improved structural improvements. Innovia, obviously, huge improvements. But I don't know, is there -- when you think about these various business lines, is there sort of ranges of margin that you sort of think about longer term or now differently? Or -- it's tough to answer, but I'm just sort of curious.

Yes. I haven't got an answer to that. We'll just wait and see what happens. I mean I think what we're all interested to see is what inflation is going to be like in 2021. There are definite warning signs on the horizon that some raw materials could have an inflationary year next year in 2021. Metals markets have all been turning up. Resin markets have been turning up. So I think the thing for us to be cautious about and wonder how we're going to manage is a return of raw materials inflation, particularly if demand bounces back suddenly in some parts of the market where it's been depressed for the reasons of the pandemic.

Yes. Okay. And I'm getting a question here from the line, just on Checkpoint again. Just sort of just how this business -- your business competes versus Avery, if you do compete directly and sort of just maybe some of the difference, the nuances if there is any?

Yes. Yes, we barely compete, we're a small -- we're the distant #2 to Avery in the apparel labeling market. That's the business where we compete with Avery. They're not in what we call the MAS business, they don't make equipment like we do to sell direct to retailers or make security devices. So our apparel label business, which is below $200 million competes with their RBIS business, which is I think it's $1.3 billion or $1.4 billion or thereabouts. So they're the global market leader and we're a distant second player.

Sure. Sure. Maybe on Innovia. Q3 volumes, they were a bit soft. I think you mentioned pantry stocking abating. Again, just maybe sort of an update on the revenue line for Q4, I don't know...

Q -- October, November so far have been flat, but revenues picked up a little bit in Europe in Q4, probably a result of a bit more pantry loading. And so it's been a little better than we thought it might have been and profitability has improved significantly just as it had in Q3.

Sure. And when -- again, the EBITDA line, we spoke to this, I think it's up 40% year-over-year, year-to-date and closer to 70 or 80 in the 3Q. Again, is the -- how much of this is mix versus just getting resin priced correctly versus productivity asset utilization? So just -- again, just trying to understand the moving pieces here because it's been so strong.

It's a combination of all 3, but the most important element is mix. And you have to bear in mind, if the CCL Secure business does well and we have a lot of internal sales of film, that's the most profitable film we make. So CCL Secure does well, Innovia does well. And there's no revenue for that appearing in Innovia's top line. So that's why their margins sometimes go into the low 20s. It's really driven by that mix effect of internal sales and security film. But in the rest of the portfolio, it's just margin and mix management really and making sure the plants are running properly, having the right relationship with the suppliers on the cost side and the pass-through rates with the customers and doing what we need to do.

Okay. And how much of your security film, would you be -- would Innovia be producing for you?

All of it.

Okay, okay, okay.

We only use our own film.

Okay. Okay. I guess I was under the impression at some point, you were sort of buying a substrate and inversion.

No, no, no. We have always used Innovia Security. The banks won't allow us to do anything above that. So we use our right film for the CCL Secure side, all made by Innovia.

Yes. You used to -- I guess you used to talk about this is a high-teen EBITDA margin business and you're closer to...

By high-teen EBITDA margin on external sales, so if you take where we are today, external sales, high-teens EBITDA margin on that, plus whatever we are able to sell to ourselves internally. And that obviously, because there's nothing going in the revenue line. It just has an impact on the EBITDA margin line.

Okay. And I guess, a couple of years ago, there was -- again, the -- I think the issue was just pricing resin. Is that...

Or resin went up. So after we bought the business in 2018, the resins just catapulted up and we didn't have really good mechanisms in place to deal with that. And we're a lot better managed on that today than we were 2 or 3 years ago. I mean I think it catapults out like that again, it won't be good, it never is. It doesn't matter what mechanisms you have, you can never pass them along fast enough. So we hope any future increases are a lot more -- smoothed the curve than the one we went through in 2018 and the earlier part of 2019.

Okay. But in terms of your pricing mechanisms, they -- again, I think that was an issue, too, right? It was when you bought the business, it wasn't sort of...

They weren't as good as they might have been, and we've done a lot of work on that. They're a lot better than they were, but you definitely still have a lag effect. So if you have continuous price increases over 5 or 6 quarters, it's a problem to deal with because you never catch up. And the price drops were having really onetime in Q2 and then things flattened out, they were pretty flat before then and a big drop in Q2, and then it flattened out again. So it was a big benefit to us in Q2, but it didn't have any effect on Q3 and Q4.

Okay. And the ramp-up in Mexico is going well?

Ramp-up in Mexico is progressing well. So Mexico as an operation has improved considerably in the last 18 months, and we've got more to come.

Okay. Good. I see another question here from the line. Do you see the apparel label as an area of growth?

Well, I think it's just like any other segment we have in our label business. If you go to the CCL side and our Home & Personal Care business, CCL Design business, so Food & Beverage, they all have -- these businesses can grow GDP, sometimes GDP plus, and it's the same for apparel. I mean we can't grow much more than the speed of the industry grows at other than by taking share, which is difficult to do in that industry, or acquiring companies, but it's more like -- for us to grow in that space. Now we've got it sort of fixed. We'd be more interested in buying businesses that would allow us to grow that the same way we grew in the CCL Label side. So they're very close parallels between apparel labels and the CCL Label side of our business. The MAS business is different because we're selling equipment. Software and labels that go in-store and tags that go in-store to different kind of sell. But the Apparel Label business is very similar to the CCL Label.

Okay. We have some questions here for the CCL segment. The food and beverage business, I'm just curious if that's gotten, seen any improvement. I know there was -- depending on the -- where it was sold and...

And yes, it's up this quarter. We've moved out of our -- it's always going to be difficult in Q3 because of the tough comps because the off-prem sales witnessed this summer for obvious reasons, cafes, bars and restaurants all shut. Or a lot of them shut. And we've cycled through that period now. So we're not having that sort of summer season sell. So we hope next summer will be very different to this summer in that space. The business has sort of offset it really, is the growth in CCL Design. So the working from the home phenomenon has driven a lot of demand for IT peripherals. So that's sort of been compensated for by the significant growth in CCL Design, which is up well into double digits this quarter currently.

Okay. Okay. And does that include that's the electronics or that includes the automotive?

Automotive is also up, not to the same extent. So our automotive business is up low single digits this quarter, electronics is up double digits.

Okay. Okay. And food and beverage you did state it is up.

It's also up. Also up low single digits.

Okay. And again, I think you said earlier, Home & Personal Care, health care, also up.

Home & Personal Care, up low single digits. Health care up mid- to high single digits.

Okay. Okay. And the Secure down, but -- okay. Okay.

Down, but who knows what will happen in December. We have to just wait and see. I'd be expecting it to be down this quarter, given how much volume we've got taken out in Q3.

Okay. Got it. So I guess, Geoff, when you sort of just look back at the year, I'm just curious what sort of surprised you most, right? I guess obviously...

I think what surprised me most is the world -- COVID, this event. In the end, we have COVID. And it's not been the greatest experience. We've all been enjoying life, but we're all still here. We're all still alive. I mean it felt like it would be very different when we first went into it. In the month of April, it felt very different. And I think the reality is the world has learned to cope with it, and our business has shown itself to be very resilient. And I think we've -- it's been a good thing that we were in multiple sectors because we had some things that went down and we had other things that went up, and we've got a portfolio of things that we understand that have balanced each other out and get shareholders in good shape.

Yes. No, for sure, for sure.

Gotten in good shape.

We're sort of coming up on time. But we've got -- we still have some time. And I'm seeing some more questions come in, so I'm going to ask those. Within label, so this year, consumer good customers are focused on core SKUs to handle the demand surges. Any thoughts on how sort of that evolves as the world normalizes? I mean you more SKU for...

Well, I think what's really happened is in the Home & Personal Care business, the two things that everyone wanted were disinfectants and sanitizers. And everyone and his mother has been launching additional SKUs of hand sanitizers and disinfectant products. So those sales have boomed. But there are some things that have suffered. So skin care, high-end cosmetics, travel-sized aerosols, things to go on vacation with sun care creams, sales of those products have suffered. But it's kind of a mixed bag in the personal care space. Some things really booming, and other things, having a really tough time. But on balance, I would say, we're still seeing some growth in that industry even during the pandemic.

Okay. And another question on labels. So what's the main difference you see in how local competitors compete in emerging markets versus developed markets?

I would say in the developed markets, the [ ensemble ] players, obviously, and there are in some of these developing regions. So in the developing regions, the big international customers are much more comfortable with a big international company supplying them. So they're worried about confidentiality, they're worried about making sure business was all done on a level playing field. So I think in an emerging market, we have an advantage in that regard. In the developed world, there's more players, there's more -- there's less reason for you to be concerned about taking on alternative view.

In emerging markets, I mean, how much is it sort of our businesses with sort of international or global companies versus maybe local? It's a tough question, but...

Well, outside of China, it's Brazil. There's a few -- we have a few large local customers in Brazil. A few large local customers in China. But the rest of the world, it's all global players. And in China and Brazil, our largest customers are also international players, but we also have business with local brand owners, some of whom are pretty substantial.

Okay. Okay. And those local brand owners, are they sort of sort of -- on the quality side, does it demand as much quality sort of as maybe some of the biggest international players?

Other than one, better quality.

Okay. Okay. Some more questions here from the line. Again, I don't know how much time you got left, Geoff, but we're sort of in that range...

Less 10 minutes on my [ compute ].

Okay. So a question here. Global companies, they're taking advantage of this environment to consolidate the industry, relying on local business leaders for due diligence. We've seen a significant increase in large deals announced. So how do you not miss what looks like a 1 in 100-year opportunity?

I'm not going to answer that question because I don't think it's worthy of an answer. I've answered it four times already, I'm not answering it again.

Sure, sure. Sure. Sorry, Geoff. I'm just reading it as it come in. Apologize that.

Yes. No, but I've just given you that answer, now I'm giving that answer.

Sure. Sure. So I guess, looking back on the year, looking forward, again, look at the strategy we spoke to it all. But I'm just curious, like the main takeaways this year and sort of how it shapes your sort of strategy going forward.

Well, as Winston Churchill said, the definition of success is moving from one failure to the next without loss of enthusiasm. And in the year of 2020, we've had a pandemic. We're about our Brexit. We've had a change of President of the United States. And I don't know what else is going to come next year, and we'll have to cope with it. So that's my answer.

Sure, sure. Hey, good morning, everyone. Sorry, we appear to be having some technical difficulties, sort of not able to reconnect. But we're -- I think we're up on time anyway, just about 5:02. So again, I know, Geoff, you can't hear me, but thank you very much on behalf of Scotiabank. Thank you very much for joining us. Really appreciate the opportunity. I really appreciate the opportunity to host. And again, for everyone on the line, thank you for joining and for all the questions. I appreciate that. Thanks, and take care, everyone. Thank you.