CCL Industries Inc.

Donald Lang - Executive Chairman Geoff Martin - President and CEO Sean Washchuk - SVP and CFO

Adam Josephson - KeyBanc Mark Neville - Scotiabank Stephen MacLeod - BMO Capital Markets Ben Jekic - GMP Securities

Well, thank you, operator and welcome everybody to our investor update for the first quarter. Despite the tough economy out there, we have some very good news for you, and the presentation, which you have seen in the past is on our website for you to follow along, it’s url is cclind.com, tap down for Investors.

If you scroll down there, you will Investor Presentations, and then hit the quarterly results presentation. So with that I am going to turn it over to Sean Washchuk.

Thanks, Don. I will turn everyone’s attention page 2 of the presentation and remind everyone that our business faces known and unknown risks and opportunities.

For further details of these key risks, please have a look at our 2015 MD&A, particularly under the section Risks and Uncertainties. Our annual and quarterly reports can be found online at the company’s website, cclind.com or on sedar.com.

Turning the slide to page 3, our statement of earnings. The first quarter of 2016 was a strong quarter for CCL and marked our 22nd consecutive quarter of year-over-year improvement in quarterly adjusted earnings for Class B share.

Sales growth, excluding the impact of currency translation was 16% to CAD866.8 million compared to CAD705.9 million in the first quarter of 2015. The growth in sales can be attributed to organic growth of 4.5%, 6.5% positive impact from foreign currency translation and 11.8% from acquisition-related growth.

This includes 11 acquisitions since the beginning of 2015. Operating income increased 22%, excluding the impact of currency translation to CAD149.9 million for the first quarter of 2016, compared to CAD117.1 million for the first quarter of 2015.

Geoff will expand on the segmented operating results of our Label, Avery and Container segments momentarily. The first quarter of 2016 included restructuring and other expenses of CAD3 million, of which CAD1.5 million was for severance costs associated with the Worldmark acquisition and another CAD1.5 million for various acquisition-related cost incurred during the first quarter of 2016.

For the first quarter of 2015, there was CAD0.9 million of restructuring expenses, primarily related to the Bandfix acquisition. Net finance expense was CAD7.9 million for the first quarter of 2016 compared to CAD6.3 million for 2015.

The increase in net finance cost is primary related to the increase in our outstanding debt to fund the acquisitions of Worldmark from Q4 2015, plus the other four acquisitions we completed in the first quarter of 2016. This was augmented by the foreign currency translation impact on our primarily US dollar net interest expense.

The overall effective tax rate was 30.6% for the 2016 first quarter compared to 29.9% in the 2015 first quarter. This reflects a higher portion of our taxable income being earned in higher tax jurisdictions.

This tax rate may fluctuation our increase in future periods should a higher portion of our company’s taxable be earned in higher tax jurisdictions. Net earnings for the 2016 first quarter increased 32% to CAD89.7 million from CAD68.1 million for the 2015 first quarter.

Turning to slide 4, basic earnings per Class B share improved 30% to CAD2.57 for the first quarter of 2016, compared to CAD1.97 for the first quarter of 2015. Adjusted basic earnings per Class B share was a record CAD2.65 for the quarter compared to adjusted basic earnings per Class B share of CAD1.99 for the first quarter of 2015.

The CAD0.66 improvement in adjusted basic earnings per share to CAD2.65 is primarily attributable to the improvement in operating income accounting for CAD0.48, CAD0.13 impact of currency translation and CAD0.06 decrease in corporate expenses, partially offset by CAD0.01 of other items. Turning to slide 5, cash flow.

For the trailing 12 months, free cash flow was CAD279.3 million, a slight decrease of CAD3.4 million compared to CAD282.7 million for the trailing 12 months of 2015. This reflects the improved operating results offset by an increase in non-cash working capital and an increase in net capital expenditures for the first quarter of 2016 compared to the first quarter of 2015.

Turning to slide 6, our cash and debt summary. Net debt as at March 31, 2016 was CAD710.5 million, an increase of CAD110.7 million compared to December 31, 2015.

The change in net debt from December 31, 2015 reflects increase in drawdowns on the company syndicated facilities to fund the acquisitions during the quarter and the repayment of our senior note debt. However, this was partially offset by a relative strengthening of the Canadian dollar at March 31, 2016 compared to the rate that was in effect at December 31, 2015.

The company’s overall average finance rate was 2.5% on March 31, 2016 compared to 3.1% at December 31, 2015, reflecting the company’s current mix of syndicated debt and senior notes, compared to a higher portion of senior notes at a higher cost debt at December 31, 2015. Despite the recent acquisitions and associated drawdowns of debt from the company’s syndicated facilities during the first quarter, the company’s leverage ratio of net debt to EBITDA remains a strong 1.09 times.

Furthermore, on March 31, 2016, CCL has US dollar undrawn available capacity of $563 million on our revolving credit facility. Geoff?

Thank you, Sean. Good morning everybody.

I am on slide 7, capital expenditures for the year so far CAD70 million. A few large one-off projects, new line [ph] coming into our container business, so CAD70 million is about CAD12 million more than it was for the first quarter last year, but it’s really around timing we still expect capital for the year to come in around CAD195 million.

Slide 8, results for CCL Label, had a very good quarter, 7.3% organic sales growth, that’s in the high-end of the range of what we would normally expect, high-single digit growth in North America and Asia, both with easy comps compared to relatively soft periods in the prior year. The reverse in Europe, where we had low-single digit growth versus very strong period this time last year, and somewhat affected by the timing of the Easter vacations falling in March this year versus April last year, and then continuing strong double-digit growth in Latin America.

Profits were up in all the market sectors we serve, but especially in the Home & Personal Care and Food & Beverage businesses. Acquisitions diluted operating margin, but performed more or less to expectations.

Slide 9, results for CCL Label, little bit more color for you region-by-region. In North America, it was particularly strong, and very solid in healthcare, particularly good results in the Home & Personal Care business, most notably with the two product lines, strong growth in Sleeves and Wine & Spirits.

And CCL Design’s profits improved on mix on the underlying businesses and recently acquired businesses’ diluted margins. In Europe, Healthcare & Specialty was pretty steady and good operational improvement.

Ag-Chem market is still slow, it’s a little bit better in the US, but it’s still slower than it’s been for a while. Home & Personal Care was soft there on difficult end-markets.

Food & Beverage was up and against a very strong prior-year, very good results in closure labels held that. CCL Design sales were up.

Acquisitions here, again impacted margins and we also had some challenges in one of our plants with new product line for automotive customer. In emerging markets, Asia was up and strongly up, all driven by ASEAN.

We had only modest gains in China, but Southeast Asia was very strong. Very strong results in Latin America, and especially in Brazil.

And Australia and South Africa, good results in wine and beverage, not so good in healthcare. And here, the recent acquisitions in design augmented strongly, that's where most of the Worldmark subsidiaries make their money.

Slide 10, the joint ventures and other good picture here. We continue to enjoy substantial growth in Russia.

Profits there were impacted by the start of our new Sleeve plant there, very good results in the Middle East and continuing strong market share gains in Chile. We completed the capitalization of our new joint-venture in the United States to make in mode labels in Memphis, Tennessee.

We are building that plant as the year goes forward and we acquired a controlling interest in a CCL Taisei 2 plant in Bangkok, Thailand, which is now in the consolidated results for the company. Page 11, results for Avery, just want to draw your attention to this time last year, we’ve, I think, first time had it - we reported double-digit organic sales growth in this business, so we had a very tough comp, but the business did - still did very well.

We had good growth in the acquired businesses, modest organic sales decline compared to the very strong quarter last year, but our profits were up very nicely on continuing cost reduction and productivity. New products beginning to have early impacts and well executed price increases in territories where we’ve been impacted by the foreign exchange impact of imported raw materials.

Pc/nametag continues to do very well Mabel’s Labels, most of their money is made in the back-to-school third quarter, so no real impact. Page 12, CCL Container had an excellent quarter, driven by strong volume growth, 5.7% organic sales growth and the volume growth was ahead of that, as near 9% and the pass-through aluminum had some impact on our top line as aluminum has dropped pretty dramatically year-over-year, but we still reported record profits for the coal tar aided by volume in the US and good mix in Mexico.

The sequentially lower US dollar was actually a negative for the business overall. It was driven by, in the case of both our Canadian and Mexican operations, having high - relatively high sales and pretty much everything in Canada is sold in the US where he had more sales in the US dollars out of our Mexican operations.

Canadian plant was still profitable, but and it’s completely full. So the consolidation project is for sure delayed until 2017.

So, page 13, summary of all of that, just want to point out on the workdays, we’ve got one extra calendar day, because of the leap year this year, but that was more or less offset by the timing of Easter, it's negative here, but it’s probably balanced out the impacts of the one extra day globally in the work days. Outlook for the coming quarter, order levels have been quite good so far, little soft on the electronics side, you probably read about reports in the media and some of the big electronic OEMs, they’re being a bit soft, and we’re certainly feeling that.

Canadian dollar translation tailwind is also - will moderate significantly this quarter, and would potentially turn into a headwind for the second half as today’s rates continue. We will have the reserve impact of Easter this coming quarter and we’ve already seen that pretty much in April.

Raw materials cost environment is benign and the foreign exchange problems associated with the stronger dollar obviously with the fading of the US currency, that’s helped us a bit in that area. And currently, we expect the Checkpoint transaction, subject to the shareholder approval vote which is on May 11, we expect to close that in mid-May.

So, operator, we would like to turn the call over to any questions.

Thanks. Good morning, Geoff and Sean.

Hope you are well. One on the 7.3% growth, Geoff.

I know you mentioned it was somewhat above, I guess your normal range. Obviously, you had I think 8.1% Label organic growth in the fourth quarter, 7.3% this quarter.

Obviously clearly well above GDP growth rates globally. Can you just elaborate on what you think perhaps a more normal rate of growth is and why you think you continue to significantly outperform - apparently outperform just growth rates pretty much globally?

Well, we have a large mix of customers. So we definitely felt this last quarter, and probably in the fourth quarter too, I would say we felt a general hardening of demand across almost all of our businesses in the United States.

So it's pretty much every sector that we’re participating in. We felt some hardening of demand in the United States.

So I would say that’s one comment that I would have. And the second one is CCL Design business is now $600 million.

So it's quite large and the automotive industry, as you have seen from all the reports from Ford and General Motors and the Mercedes and Volkswagen, 10% growth there. It's sort of the average for the customer levels.

So that's also been a factor. And they’re probably, I would say, in the last quarter, they are the two main drivers.

Thanks, Geoff. Is there anything in the first quarter, either on the sales or margin side across your segments that you would consider atypically good?

We had a very strong quarter in the home and personal care sector in the Q1. A lot of it driven by sales of tubes.

So the tube product line was really the driver of that and there were an unusually large number of launches. And we typically see that, when you get any sort of hardening of demand or signs of hardening of demand in what's been a pretty soft sector, customer activity around launches is sometimes beyond consumption.

So attempting to grab share with an improving situation. So, if you look to the results of the large personal care and cosmetic companies, a lot of them reported pretty good results in that sector and particularly in the United States in the first quarter.

So I would say that's probably the one I would call out.

Okay. And just a couple of others.

One on the hardening of growth in the US, North America specifically. Certainly, the GDP growth doesn't seem to support that notion of firming growth in the US.

Can you just elaborate on what you are seeing and perhaps why just given that it - again, it doesn't seem to be supportive by much of the data that is out there?

You have to look at our end markets, Adam. So I think if one of your end markets is automotive, look at the numbers of Ford, look at the numbers of sales of trucks were up double digit in the first quarter.

So that's clearly, I don’t know what, that is the percentage of GDP, but if that's a big end market for you, that's one reason why you’re above GDP growth. And then this sort of phenomena in the cosmetic business when business starts to improve, there is more activity around launches.

So I would say that's another driver. If you look to that pharmaceutical and ad chem business and a lot of other things that we are in, in the United States, I would say you’d see more typical GDP aligned growth rates, and I would say in the food and beverage space, we have been gaining some share and they were typically focused on brands that are looking to premiumize and we’re not in the sort of everyday packaging business.

And that's also a bit of a phenomena. So we are doing some things that are sort of outside the normal just sort of GDP growth rate.

I think that's the reason why.

Got it. And just last one on Brazil, the likes of Unilever and others have talked about how weak conditions are there, and obviously you had a phenomenal quarter in Brazil, so can you just help us understand why - what you are experiencing there might differ so substantially from what some of the large CPGs are seeing there?

Well, I wouldn't describe things in Brazil as easy, they are definitely not. So we have been wrestling with the foreign exchange issues outside of every business, it's down there.

That’s obviously eased in the last quarter, with the strengthening of the real. But I would say in Brazil, when things sounded they are worst in the economic commentators you are probably actually over the worst.

So over the years that’s been my experience down there and we are also gaining share in some categories there. Certainly in the fleet business we’ve gained significant share.

So there is certainly an element of that in our performance down there and when times are difficult I think customers there tend to go to safe havens, so some of competitors down there may be credit challenged and things like that, so it was probably an element of that down there too.

Thanks a lot, Geoff. Appreciate it.

No, problem, Adam, thank you.

Hi, good morning, guys.

Hey, Mark.

Within label, I mean I know you don’t typically split this up, but can you give us maybe an idea of volume growth or pricing, that 7%, just trying to get a feel for what’s driving?

We don’t do that. It’s actually impossible to measure, because we made custom-made items and I don’t think there is much price in there.

The only area I would say we’ve any price in there is in Brazil. Brazil is, I don’t know, it’s 1% or 2% of our sales, so it’s not - you look at the overall picture, it’s not a big driver.

But that’s the only place where I would say there is real price in there, so if you wanted to think about it that way I would say of the 7.3 it is half a point or something like that, maybe it’s price driven and the rest of it is mix and real growth.

Got it. Just again sticking with the label, I mean you talked about home personal care being very strong in North America.

Again you used to I think talk about this as a no growth business. So I mean is there any other parts that is surprising you or maybe is there - another way to ask, is there any signs of slowdown in any of these segments that you are seeing this growth, just trying to again get a feel for -

It hasn’t got pulled out, the one we are seeing, it’s blowing us. It’s in electronics, so that’s where the mobile phone space definitely seen some slow down there.

We haven’t seen in automotive, automotive is roaring ahead, any business that’s involved in supplying parts for automotive OEMs is feeding strong growth. And I think home and personal care, I wouldn’t treat that where you tend to have in that business and things get slow, you suffer more than the slowness and things have been slow and the launch has stopped.

That tends to drag revenue down below the level of consumption and the reverse supplies when you get any kind of pickup, because confidence usually breathes more activity with new launches in startup line. So you get a better uptick when the things improve a bit and if it goes the other way you suffer more than you might think, so that’s just a thing to remember for the future.

Okay. And then with Avery, I guess just trying to get a better feel for what’s happening there, I guess, I know it’s difficult comp, but maybe a little surprise your printable media down, but at the same time you’ve get emergence of 300 basis points.

Maybe the media wasn’t really down, I think it’s really driven by the - we had this sort of really big quarter last year’s, 10% up over the prior year, lot of customer base there is highly concentrated, so their activities around the management of inventory can really influence things quarter by quarter and so we still see the same trends as we’ve seen in the last couple of years, slow improvement in printable media, very volatile in the other product lines depending on how retailer are managing their inventory.

Okay, so no major changes related to sort of how you view the business. On the margin, again 300 basis points up, it’s quite a strong quarter.

Just maybe give us again Q1 I think is seasonally the strongest, so maybe just a sense of where we think margins can maybe land this year or where they can have just something to sort of work with just to get a feel for this business?

Yeah, I would say, we’ve signaled for a long time now that we see more opportunities for margin expansion and we see opportunities for real organic growth, because this business is in here in the longer term that are in sort of the secular decline. We’ve got other things that are growing pretty rapidly.

They will have a higher margin profile. So that’s kind of the picture we see and I think this year will be a little like last year.

We will have good first half. I think Q2 will be improving much over, we got a very good Q2 last year too, so I think improving from that challenging.

Q3 we expect to be down, because of the back to school mix change. I think Q4 we think we will up and we will be up for the year, but exactly how much and where and how, given the consumer nature of it, the volatility of what sells and what doesn’t sell in back the school, little hard to give any more guidance on that.

Okay, that helps. Thanks a lot.

I will get back in queue.

All right, Mark. Thank you.

Thanks.

Thank you. Good morning.

Good morning, Steve.

Just wanted to follow up on the label business, so in terms of profit growth in food and beverage and home and personal care, I guess the HPC business was largely driven by strong demand. Can you talk about what the drivers were to food and beverage profit growth in the quarter?

Yeah, food and beverage is an international business for us. Most of the - we have a very nice and growing business in North America as we indicated, but it’s not smaller than the international side, so the North American business was largely responsible for the profit growth, so the improvements there were a big factor and also in closure labels, so we had very strong sales of closure labels.

These are closure in retail labels, so we had strong sales in the product line as well and last year we had the impact of the fire I mentioned last quarter. One of our competitors, so that actually happened in the first quarter of last year, we called it out in Q2, but that’s really fueled up the growth last year.

So it would have been much better if we hadn’t had that, because the underlying trend is even better than we see in these numbers. So we are still very optimistic about potential for growth in that space, really around that whole premiumization phenomenon and all the things that brand owners want to do with their product to drive revenue.

Okay, that’s great. And then on the label business, on a holistic basis, when you look at the margins, we had some obviously dilution from some acquisitions that were completed but when you look at it on a full year basis, do you expect to offset some of the dilution, like would you expect to see margins actually up a bit in ‘16 and then in ‘17 and ‘18 or would you sort of -

I would expect the dilution to continue. I think you will see dilution I think pretty much all year.

We bought quite a few out in the $500 million, $600 million worth of things in the label space in the last year, all the margin is below our average, so that’s quite an impact. And the slow electronic business, the slow electronics demand, so I think you will see this dilution go on for most of the year, so it won’t be significant but it will be there all year I think.

Okay. And then I mean do you sort of expect that it would take a couple of years to get those margins up to the CCL label -

Yeah, I think when we get into 2017, I don’t know when it will be, but we do expect that to continue to improve. As you saw us do it in between when we bought a bunch of businesses in 2013, Sancoa, DES, a lot of those businesses have now moved up to the average or even beyond and so it takes a year, 18 months sometimes two years, it just depends on the situation and also what’s going on in the external world.

So it’s only working very diligently at getting the lows up to where we want it to be.

Of course, great. And then when you look at the acquisition pipeline, I mean, obviously you’ve got Worldmark on across the finish line, I guess, but you talked about lots of balance sheet capacity, like what do you see out there in terms of the acquisition pipeline?

Has anything changed?

I think the only comment I would make Steve is Checkpoint, I think the one we are about to close. If you add Checkpoint, we’ve done a billion dollars of deal in the last 12 months, that’s quite a lot.

And so I think the focus of the next year, we’ll probably still do the few bolt-ons but I think the focus certainly for the second half of this year and probably the first half of next will be on integration and making sure these projects happen when it’s supposed to happen and [indiscernible] locking impacting things you do when you make you know have capability. It’s a quite a dramatic effect on the company as a whole.

So, I think for the balance of the year probably into next year that’s where the emphasis will be, it will be on integrating what we have and the bolt-on deals, so you still expect those to come but I don't see us doing another large transaction anytime in the immediate future.

Just circling into Worldmark, you guys have had that business now for six, seven months; can you just talk a bit about the integration there and how that is coming along?

Not at the four months but it’s going okay, I mean all the costs things are going along just nicely, and demand in the electronic space is slow, so if you look at the results that comes in like 3M [indiscernible] very large businesses in this space, they are all seeing quite a slowdown in the handheld electronic device arena and we are also feeling that. So I think on the internal stuff going well, on the external stuff business is slow.

And does that slowness sort of change - does that change your outlook from when you acquired the business?

It's very driven by launches and it’s also highly seasonal business, so electronic devices sales heavily geared towards the Christmas period and so lot of launches, launch activities are often planned around the Christmas selling period. So it’s very volatile and I can't really comment more than that at this stage, we have to just wait and see how the year unfolds.

And then with CCL design now at a CAD600 million type run rate, can you give a sense as to what the exposures there are between automotive, electronics and some of the other businesses?

I would say automotive is still half, electronics is a little less than half and then we’ve got some white goods companies, fridges and domestic appliances. So automotive is still the largest end market, electronics closely behind it and then those sort of [indiscernible] in the industrial aerospace and industrial goods, white goods other kinds of devices.

So if you added all that together it’s maybe 10% of the segment, so the two big end markets are really automotive and electronics.

And then just on the health care and specialty results, this is the first quarter I recall in North America that you've seen some decent volume gains there, is it fair to say that you go over say four to five quarters of easy comps now?

I think the comps are going to be relatively easy, I mean what we really saw this quarter is a bit of a recovery in ag chem. The ag chem really been weak for the last two years in the US and sort of lot of excess inventory in the system and this is the first quarter we’ve seen some recovery in that space.

So it’s been our best quarter in ag chem and lawn and garden for quite a while. So the pharmaceutical was also very solid in the quarter.

So North America looked very good, Europe was very good on the bottom line, topline was a bit week and driven by ad chem. So ad chem was very soft in Europe this quarter but pharmaceuticals like the US is sort, it’s of the volatility here is more ad chem driven than it is healthcare driven.

Just a quick question, I think you mentioned the available credit is CAD593 million, I'm assuming and just correct me if I'm wrong that is from the CAD1.2 billion revolving commitment and does that include the CAD300 million accordion feature or you have that in addition?

So it’s $563 million on that revolver is available and it does not include the extra CAD300 million available on the accordion feature.

And just forgive me, if it was already said but the - what was the Avery organic sales growth in the quarter?

Declined 4.5%.

Geoff, just two follow-ups for you, one on Checkpoint, can you give us any updated thoughts about the up to 40 million of synergies to which you guided or otherwise just now that you’ve had a three more months or so digest the deal?

Well, we’ve very mindful out and we have to do a lot of regulatory filings on this transaction, so we’ve been rather cautious about getting too involved in their internal matters. So what we've seen is very peripheral, so all that got sorted out quiet recently, so we’ve had a bit more access.

So we certainly are still comfortable with those numbers and so we see a lot of cost synergies more as similar to what we saw when we bought the OCP business from Avery. And it’s also some things to do on the balance sheet around working capital and things like that.

So I think it's going to be a tougher business to manage through that than it was at Avery because we have a quite a number of people on the CCL side have worked in those businesses before in their careers and we’ve got a couple of people who’ve worked in that sector before in their carriers in CCL who will be moving inside Checkpoint but did not work for Checkpoint itself. So we are on the outside looking in and finding out, so I think it will be slower and more difficult to come by but when you look at the absolute numbers we think there to be gone.

And just one on your end market exposures, is auto now what 7% or 8% of total sales and what does your electronics exposure as a percent of total?

Well CCL designs about CAD600 million and so I think you can say half and half, half automotive, half electronics. If you add those two together you’ve got one that's kind of on fire and one that's in the other direction, so if you add the two together, it’s kind of okay, I mean that’s what it looks like.

Thank you, operator. I want to thank everybody for their interest, the operator mentioned when we got on; we have close to 70 people on the call, so I appreciate everybody's interest.

And just to highlight again Geoff’s last comment about automotive, electronics, the diversification I think the overall strategy diversification has worked well for CCL in products and geography which we continue to motor along. So I want to thank you again, if you have any follow-up questions please give Sean Washchuk a call, otherwise we’ll look forward to chatting with you next quarter.

Thank you, operator.