CCL Industries Announces Second Quarter Results

TORONTO, ON--(Marketwired - August 08, 2017) -

Second Quarter Highlights

• Adjusted basic earnings per Class B share⁽³⁾ of $0.68, up 21.4%; basic earnings per Class B share of $0.63 up 50.0%; currency translation impact nominal
• Sales increased 30.5%, supported by 5.7% organic sales growth at CCL and strong first full quarter for CCL Secure
• Checkpoint continued to deliver solid operating results, 11.4% operating margin⁽¹⁾
• Completed five for one stock split on June 5, 2017

Six-Month Highlights

• Year-to-date adjusted basic earnings per Class B share⁽³⁾ of $1.25, up 14.7%; basic earnings per Class B share of $1.13, up 21.5%
• Sales increased 26.7% supported by 6.2% CCL organic sales growth
• Operating income⁽¹⁾ increased 18.5% driven by strong performance at the CCL Segment augmented by acquisitions

CCL Industries Inc. (TSX: CCL.A) (TSX: CCL.B) ("CCLInd" or "the Company"), a world leader in specialty label and packaging solutions for global corporations, government institutions, small businesses and consumers, today reported 2017 second quarter results.

Sales for the second quarter of 2017 increased 30.5% to $1,252.9 million, compared to $960.2 million for the second quarter of 2016, with 1.9% organic growth, 2.5% positive currency translation impact and 26.1% acquisition-related growth, primarily driven by the acquisitions of Checkpoint Systems, Inc. ("Checkpoint") on May 13, 2016, and Innovia Group of Companies ("Innovia") on February 28, 2017.

Operating income⁽¹⁾ for the second quarter of 2017 was $188.3 million, an increase of 31.6% compared to $143.1 million for the comparable quarter of 2016. Included in the 2017 second quarter was a $6.4 million non-cash acquisition accounting adjustment related to the acquired finished goods inventory from the Innovia acquisition that was expensed in the Company's cost of sales for the quarter. Excluding this non-cash adjustment, operating income was $194.7 million for the second quarter of 2017. Excluding a similar $16.6 million non-cash accounting adjustment primarily related to the acquired finished goods inventory of the Checkpoint acquisition in 2016, the 2016 operating income was $159.7 million.

Restructuring and other items of $5.2 million were reported for the second quarter of 2017. This consisted of severance costs of $2.2 million for each of the Checkpoint and Innovia acquisitions, as well as other acquisition related transaction costs of $0.8 million. There was a net expense for restructuring and other items of $18.9 million in the 2016 second quarter.

Tax expense in the second quarter of 2017 was $41.8 million compared to $31.2 million in the prior year period. The effective tax rates for these two periods were 27.7% and 30.5%, respectively. The decrease in the effective tax rate is the result of a higher portion of pre-tax income being earned in lower tax jurisdictions in the second quarter of 2017 principally driven by the Innovia and Checkpoint acquisitions compared to the same quarter of 2016. The third quarter 2017 effective tax rate should increase compared to the 2017 second quarter as the North American back-to-school sales increase for the Avery Segment.

Net earnings were $109.9 million for the 2017 second quarter compared to $72.2 million for the 2016 second quarter. Basic and adjusted basic earnings per Class B share⁽³⁾ were $0.63 and $0.68, respectively, compared to basic and adjusted basic earnings per Class B share⁽³⁾ of $0.42 and $0.56, respectively, in the prior year second quarter.

For the six-month period ended June 30, 2017, sales, operating income and net earnings improved 26.7%, 18.5% and 22.2% to $2.3 billion, $347.2 million and $197.8 million, respectively, compared to the same six-month period in 2016. Included in the 2017 six-month period was a $15.2 million non-cash acquisition accounting adjustment to the acquired finished goods inventory from the Innovia acquisition that was expensed through cost of goods sold in the period. Excluding this non-cash adjustment, operating income was $362.4 million. The 2016 six-month period included non-cash acquisition accounting adjustments to acquired finished goods inventories of $16.6 million, therefore comparative operating income was $309.6 million. The 2017 six-month period included results from eleven acquisitions completed since January 1, 2016, delivering acquisition related growth for the period of 25.6%. Organic sales growth of 2.0% provided the foundation for solid profit improvement and foreign currency translation had a negative impact of $0.01 per share. For the six-month period ended June 30, 2017, basic and adjusted basic earnings per Class B share⁽³⁾ were $1.13 and $1.25, respectively, compared to basic and adjusted basic earnings per Class B share⁽³⁾ of $0.93 and $1.09, respectively, in the prior year six-month period.

Geoffrey T. Martin, President and Chief Executive Officer, commented, "Second quarter results were underpinned by the newly configured CCL delivering healthy 5.7% organic sales growth considering the timing of Easter and a challenging double digit comparative for the prior year period. CCL Secure had an excellent first full quarter with results above expectations from the Innovia Security acquisition while CCL Design outperformed on stronger demand from Electronics customers. Consumer Packaging and Healthcare end markets also posted growth, as did CCL overall in all major geographies. Checkpoint delivered another good quarter eclipsing the partial post acquisition second quarter of 2016. Avery performance lagged 2016's second quarter on superstore closures and soft wholesaler demand in the changing U.S. distribution landscape; Canadian and international operations plus direct to consumer businesses grew low single digits with improved profitability. With considerable regret, I can confirm that in early June, after many years, CCL Container finally ceased operations in Canada. An unfortunate event driven by currency volatility and the move of customers' North American aerosol filling operations to the United States and Mexico. The transition negatively affected results for the first half but we expect Container's performance for the balance of 2017 to be in line with the prior year period. Innovia's film business profitability was significantly lower than expected due to an intra-quarter spike in polypropylene resin prices that, so far partially reversed in the third quarter."

Mr. Martin continued, "Foreign currency translation impact was nominal to earnings for both the second quarter and first half of 2017. At today's Canadian dollar exchange rates, currency translation would be a headwind, if sustained, for the third quarter of 2017."

Mr. Martin concluded, "Through the first six months of 2017, debt repayments totaled $136 million and coupled with improved profitability measures including the trailing results of the acquired business, the Company reduced its net leverage ratio⁽⁴⁾, to 2.2 times EBITDA⁽²⁾, at the end of the second quarter. With cash-on-hand of $477 million, undrawn capacity of US$257 million on our syndicated revolving credit facility, the balance sheet and liquidity positions of the Company remain strong. Given the solid free cash flow outlook for 2017, the Board of Directors declared a dividend of $0.115 per Class B non-voting share and a dividend of $0.1125 per Class A voting share, payable to shareholders of record at the close of business on September 15, 2017, to be paid on September 29, 2017."

2017 Reporting Changes

Reporting Segment Update: Subsequent to the acquisition of Innovia on February 28, 2017, CCLInd modified its Segment reporting disclosure. The Label Segment, or CCL Label, was renamed the CCL Segment or CCL, and now includes the results of the former Innovia Security operations. The new Innovia Segment includes the results of the Innovia films operations as well as the legacy films business, which was previously included in the CCL Segment. Furthermore, on June 5, 2017, the Company affected a 5:1 stock split on its Class A and Class B common shares. Unless otherwise noted, impacted amounts and share information included in this press release have been retroactively adjusted for the stock split as if such stock split occurred on the first day of the first period presented. Certain amounts in this press release may be slightly different than previously reported due to rounding of fractional shares as a result of the stock split.

2017 Second Quarter Highlights

CCL (formerly CCL Label)

• Sales increased 20.7% to $728.8 million, with 5.7% organic growth, 12.2% acquisition contribution and 2.8% positive currency translation
• Regional organic sales growth in mid-single digits for all geographies
• Strong 16.1% operating margin⁽¹⁾ excluding 50 bps for a non-cash acquisition accounting adjustment to Innovia Security (now CCL Secure) finished goods inventory
• Label joint ventures added $0.01 earnings per Class B share

Avery

• Sales up 0.8% to $209.1 million with a 3.9% organic sales decline, 2.0% acquisition contribution and 2.7% positive currency translation
• Office superstore closures and wholesale channel weakness more than offset e-tail and direct-to-consumer growth in the United States; Canada and International profitability improved
• Operating income⁽¹⁾ declined 10.3% to $45.4 million, solid 21.7% operating margin
• Badgepoint and GGW "European Kids' Labels" acquisitions met expectations

Checkpoint

• Sales were $171.0 million
• Operating income⁽¹⁾ of $19.5 million; better than expected 11.4% operating margins, compared to a partial quarter in 2016
• Additional $2.2 million of restructuring costs recorded for the quarter; total spending now $26.4 million since acquisition, expect to conclude the programme in 2017

Innovia

• Sales of $91.7 million represent the first full quarter of activity post Innovia acquisition
• Operating income⁽¹⁾ of $6.7 million, excludes a non-cash acquisition accounting adjustment to finished goods inventory of $2.3 million

• Operating margin of 7.3% negatively impacted by intra-quarter spike in resin prices
• $2.2 million restructuring recorded for the quarter, $4.7 million year to date for the Innovia acquisition

Container

• Sales down 6.9% to $52.3 million with 9.8% organic sales decline partially offset by 2.9% positive currency translation
• Operating income⁽¹⁾ of $5.6 million, 10.7% operating margin
• Rheinfelden Americas aluminum slug joint venture continues to record start-up losses

CCL will hold a conference call at 5:00 p.m. EDT on August 8, 2017, to discuss these results. The analyst presentation will be posted on the Company's website.

To access this call, please dial:
1-844-347-1036 - Toll Free
1-209-905-5911 - International Dial-In Number
51216901: Optional Conference Passcode

Audio replay service will be available from August 8, 2017, at 8:00 p.m. EDT until August 26, 2017, at 8:00 p.m. EDT.

To access Conference Replay, please dial:
1-855-859-2056 - Toll Free
1-404-537-3406 - International Dial-In Number
51216901: Conference Passcode

Forward-looking Statements

This press release contains forward-looking information and forward-looking statements (hereinafter collectively referred to as "forward-looking statements"), as defined under applicable securities laws, that involve a number of risks and uncertainties. Forward-looking statements include all statements that are predictive in nature or depend on future events or conditions. Forward-looking statements are typically identified by the words "believes," "expects," "anticipates," "estimates," "intends," "plans" or similar expressions. Statements regarding the operations, business, financial condition, priorities, ongoing objectives, strategies and outlook of the Company, other than statements of historical fact, are forward-looking statements. Specifically, this press release contains forward-looking statements regarding the anticipated growth in sales, the Avery Segment's prospects for the 2017 back-to-school season; the completion of the Container Segment's exit process from the Canadian facility; the Company's expectation of completing the Checkpoint reorganization in 2017; the Company's expectation of the completion of the Innovia restructuring initiative; income and profitability of the Company's segments; and the Company's expectations regarding general business and economic conditions.

Forward-looking statements are not guarantees of future performance. They involve known and unknown risks and uncertainties relating to future events and conditions including, but not limited to, the after-effects of the global financial crisis and its impact on the world economy and capital markets; the impact of competition; consumer confidence and spending preferences; general economic and geopolitical conditions; currency exchange rates; interest rates and credit availability; technological change; changes in government regulations; risks associated with operating and product hazards; and CCLInd's ability to attract and retain qualified employees. Do not unduly rely on forward-looking statements as the Company's actual results could differ materially from those anticipated in these forward-looking statements. Forward-looking statements are also based on a number of assumptions, which may prove to be incorrect, including, but not limited to, assumptions about the following: global economic environment and higher consumer spending; improved customer demand for the Company's products; continued historical growth trends, market growth in specific sectors and entering into new sectors; the Company's ability to provide a wide range of products to multinational customers on a global basis; the benefits of the Company's focused strategies and operational approach; the achievement of the Company's plans for improved efficiency and lower costs, including stable aluminum costs; the availability of cash and credit; fluctuations of currency exchange rates; the Company's continued relations with its customers; the Company's estimated annual cost reductions and financial impact from the restructuring of the Checkpoint Systems, Inc. acquisition; and economic conditions. Should one or more risks materialize or should any assumptions prove incorrect, then actual results could vary materially from those expressed or implied in the forward-looking statements. Further details on key risks can be found in the 2016 Annual Report, Management's Discussion and Analysis, particularly under Section 4: "Risks and Uncertainties." CCL's annual and quarterly reports can be found online at www.cclind.com and www.sedar.com or are available upon request.

Except as otherwise indicated, forward-looking statements do not take into account the effect that transactions or non-recurring or other special items announced or occurring after the statements are made may have on CCL's business. Such statements do not, unless otherwise specified by the Company, reflect the impact of dispositions, sales of assets, monetizations, mergers, acquisitions, other business combinations or transactions, asset write-downs or other charges announced or occurring after forward-looking statements are made. The financial impact of these transactions and non-recurring and other special items can be complex and depends on the facts particular to each of them and therefore cannot be described in a meaningful way in advance of knowing specific facts. The forward-looking statements are provided as of the date of this press release and the Company does not assume any obligation to update or revise the forward-looking statements to reflect new events or circumstances, except as required by law.

The financial information presented herein has been prepared on the basis of IFRS for financial statements and is expressed in Canadian dollars unless otherwise stated.

Financial Information

Non-IFRS Measures

⁽¹⁾ Operating income and operating income margin are key non-IFRS financial measures used to assist in understanding the profitability of the Company's business units. Operating income is defined as earnings before corporate expenses, net finance cost, goodwill impairment loss, earnings in equity accounted investments, restructuring and other items, and taxes. Operating income margin is defined as operating income over sales.

⁽²⁾ EBITDA is a critical non-IFRS financial measure used extensively in the packaging industry and other industries to assist in understanding and measuring operating results. EBITDA is also considered as a proxy for cash flow and a facilitator for business valuations. This non-IFRS financial measure is defined as earnings before net finance cost, taxes, depreciation and amortization, goodwill impairment loss, non-cash acquisition accounting adjustments to finished goods inventory, earnings in equity accounted investments and restructuring and other items. Calculations are provided below to reconcile operating income to EBITDA. The Company believes that this is an important measure as it allows management to assess CCLInd's ongoing business without the impact of net finance cost, depreciation and amortization and income tax expenses, as well as non-operating factors and one-time items. As a proxy for cash flow, it is intended to indicate CCLInd's ability to incur or service debt and to invest in property, plant and equipment, and it allows management to compare CCLInd's business to those of CCLInd's peers and competitors who may have different capital or organizational structures. EBITDA is tracked by financial analysts and investors to evaluate financial performance and is a key metric in business valuations. EBITDA is considered an important measure by lenders to the Company and is included in the financial covenants of CCLInd's senior notes and bank lines of credit.

⁽³⁾ Adjusted basic earnings per Class B share is an important non-IFRS measure to assist in understanding the ongoing earnings performance of the Company excluding items of a one-time or non-recurring nature. It is not considered a substitute for basic net earnings per Class B share but it does provide additional insight into the ongoing financial results of the Company. This non-IFRS financial measure is defined as basic net earnings per Class B share excluding gains on business dispositions, goodwill impairment loss, non-cash acquisition accounting adjustments to finished goods inventory, restructuring and other items, and tax adjustments.

⁽⁴⁾ Leverage ratio is a measure that indicates the Company's ability to service its existing debt. Leverage ratio is calculated as net debt divided by EBITDA.

Business Description

CCL Industries Inc. employs approximately 20,000 people operating 154 production facilities in 36 countries on 6 continents with corporate offices in Toronto, Canada, and Framingham, Massachusetts. CCL is the world's largest converter of pressure sensitive and extruded film materials for a wide range of decorative, instructional, functional and security applications for government institutions and large global customers in the consumer packaging, healthcare and chemicals, consumer electronic device and automotive markets. Extruded and laminated plastic tubes, folded instructional leaflets, precision decorated and die cut components, electronic displays, polymer bank note substrate and other complementary products and services are sold in parallel to specific end-use markets. Avery is the world's largest supplier of labels, specialty converted media and software solutions to enable short-run digital printing in businesses and homes alongside complementary products sold through distributors and mass market retailers. Checkpoint is a leading developer of RF and RFID based technology systems for loss prevention and inventory management including labeling and tagging solutions for the global retail and apparel industries. Innovia is a leading global producer of specialty, high performance, multi-layer, surface engineered films for label, packaging and security applications. Container is a leading producer of impact extruded aluminum aerosol cans and specialty bottles for consumer packaged goods and healthcare customers in the United States and Mexico. CCLInd is also backward integrated into materials science with capabilities in polymer extrusion, adhesive development, coating and lamination, surface engineering and metallurgy that are deployed across all five business segments.