CCL Industries Inc.

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

Adam Josephson - KeyBanc Capital Markets Mark Neville - Scotiabank Stephen MacLeod - BMO Capital Markets Elizabeth Johnston - Laurentian Bank Securities Michael Glen - Macquarie Maggie MacDougall - Cormark Securities Ben Jekic - GMP Securities Scott Fromson - CIBC

Great. Thank you, operator, and welcome everybody to the call.

I know it's busy time during the summer and appreciate all the interested parties on this call. We released our results for the second quarter, a record quarter.

Presentation which we always refer is on our website. So hopefully it's become quite compact at ccl.ind.com under investor presentations for the first quarter and we'll run through the details.

And with that, I will turn it over to Sean.

Thank you, Don. If everyone could turn to Slide 2 of our investor deck, our disclaimer to draw everyone attention here and remind everyone that our business faces known and unknown risks and opportunities.

For further details of these key risks, please look at our 2016 Management Discussion & Analysis, and our updated second quarter MD&A under the section Risks and Uncertainties. Our annual and quarterly reports can be found on the company's website or at sedar.com.

Turning to Slide 3, the second quarter of 2017 was another strong quarter for CCL and marked another consecutive quarter of year-over-year improvement in quarterly adjusted earnings per Class B share. Sales growth, excluding the impact of currency translation was 28% to almost $1.3 billion compared to $960.2 million in the second quarter of 2016.

The growth in sales can be attributed to organic growth of 1.9%, 2.5% positive impact from currency translation and 26.1% from acquisition-related growth, which includes six acquisitions since March 31, 2016. Operating income increased 29%, excluding the impact of currency translation to $188.3 million for the second quarter of 2017, compared to $143.1 million for the second quarter of 2016.

Operating income for the second quarter of 2017 included a $6.4 million non-cash expense for write up of Innovia opening inventories expensed through the cost of goods sold. It's not for this expense, operating income would've been $194.7 million.

The 2016 second quarter also included a write-up of finished goods inventory expense through cost of sales, primarily related to the Checkpoint acquisition of $16.6 million. Geoff will expand on the segmented operating results of CCL, Avery, Checkpoint, Innovia and the container segments momentarily.

The second quarter of 2017 included restructuring and other expenses of $5.2 million for the Innovia and Checkpoint restructuring programs. Predominantly, severance and other transaction-related costs.

The 2016 second quarter have restructuring of $18.9 million, primarily related to the Checkpoint acquisition. Net finance expense was $17.9 million for the second quarter of 2017 compared to $7.8 million for 2016.

The increase in net finance costs is primarily related to the increase in outstanding debt to fund the acquisitions of Checkpoint in May of 2016 and Innovia in February of 2017, offset by a reduction in our average finance rate and some debt repayments. Debt repayments so far in 2017 totaled $136 million.

The overall effective tax rate was 27.7% for the 2017 second quarter, compared to 30.5% in the 2016 second quarter, reflecting a higher portion of tax point being earned in lower tax jurisdictions. This reduction in the rate was driven principally by the acquisitions of Innovia and Checkpoint which have an operating footprint and lower tax regimes.

However, this tax rate may increase in future periods, should the higher portions of the company's taxable income be earned in high tax restrictions. Net earnings for 2017 second quarter was $109.9 million compared to $72.2 million for the 2016 second quarter.

For the six-month period ended June 30, 2017, sales, operating income and net earnings improved 27%, 18% and 22% respectively, compared to the same six-month period in 2016. 2017 included results from 11 acquisitions completed since January 1, 2016, delivering acquisition-related sales growth for the period of 25.6%, organic sales growth of 2% and foreign currency translation added a 0.9% headwind to sales.

Results for the six-month period of 2017 also included the aforementioned pretax impact of the non-cash acquisition accounting adjustments to finished goods inventory of $15.2 million, restructuring and other charges of $12.6 million. Turning to Slide four, earnings per Class B share were $0.63 for the second quarter of 2017 compared to $0.42 for the second quarter of 2016.

Adjusted basic earnings per Class B share were $0.68 for the 2017 second quarter, compared to adjusted basic earnings per Class B share of $0.56 for the second quarter of 2016. The adjustment to basic earnings per Class B share included $0.02 for restructuring and other charges as well as $0.03 in non-cash acquisition and accounting adjustments to finished goods inventory expense to cost of sales.

The $0.12 improvement in adjusted basic earnings per share to $0.68 is primarily attributable to the improvement in operating income, reflecting $0.12, $0.02 impact from each of currency translation and lower effective tax rate, offset by $0.04 increase in interest expense. For the six-month period, basic earnings per Class B share were $1.13 up $0.20 or 22% compared to $0.93 for the same period a year ago.

The adjustment to basic earnings per Class B share, included $0.06 per restructuring and other charges as well as $0.06 for the non-cash acquisition accounting adjustments to finished goods inventory expense through cost of sales. The 2017 six-month improvement in adjusted basic earnings per Class B share was driven principally by the increase in operating income, which accounted for $0.23 or the impact of increased interest expense, corporate costs, FX, partially offset by the lower effective tax rate resulted in a $0.16 in improvement overall to adjusted basic earnings per Class B share up to $1.25 from $1.09 in the 2016's six-month period.

Turning to Page 5, so the trailing 12 months June 2017 free cash flow was $424.8 million, an increase of $209 million compared to $215.8 million for the trailing 12 months of 2016. This reflects the improved operating results and improvement in net non-cash working capital, partially offset by an increase in net capital expenditures in the first six months of 2017 compared to the same period of 2016.

Trailing 12-month capital expenditures increased by nearly $45 million for the comparative periods. Turning to Slide 6, our cash and debt summary; net debt as of June 30, 2017 was $2.1 billion, an increase of $1.1 billion compared to December 31, 2016.

This change in net debt from December 31, 2016 reflects the increased borrowings to fund the acquisition of Innovia on February 28, 2017. In so doing, the company drew down on its revolving credit facilities and a new U.S.

$450 million two-year term loan. Both of these facilities incur interest at the applicable base rate, plus a short-term, plus a margin of 145 basis points.

The company's overall finance rate was 2.7% at June 30, 2017 compared to 3% at December 31, 2016, reflecting the company's current mix of variable-rate, syndicated debt compared to a higher portion of senior notes and bonds at fixed rates, higher cost debt at December 31, 2016. As I mentioned debt repayments, totaled $136 million for the first six months of 2017, coupled with the all debt financed acquisition of Innovia for $1.15 billion.

On February 28, 2017, the company's leverage ratio of net debt to EBITDA was only 2.2 times at June 30, 2017 up modestly from 1.3 times at December 31, 2016. Geoff, over to you.

Thank you, Sean and good afternoon, everyone and I am on Slide 7, capital spending highlights for the year, very much frontloaded this year into the first half, expanding in the second half to be significantly less, coming at around $270 million for the year including any spending on Innovia. Net of capital asset sales will probably be in the mid-250s, so depreciation and amortization for the year.

So, page 8, just a reminder on the new segment reporting that we have here. No change at Avery, Checkpoint or Container.

We have the new Innovia segment, which films portion of Innovia only and the new CCL segment, which includes our traditional CCL Label businesses, CCL Design and CCL Secure, which is the former Innovia security operations in the 2015 acquisition of Banknote Corp of America put together. So, Page 9, a few comments on CCL, very pleased this past quarter with the organic growth rate, 5.7% was certainly higher than we expected, mid-single digit in all regions and on top of very difficult comps last year, which were in the double digits influenced by the timing of this year versus last year.

Profits were up in all market sectors, so all segments of the label business and in all geographies, the CCL Design was the strongest of all the businesses that we've owned for some time. Some had an excellent first full quarter at CCL Secure.

Page 10, a few more comments on that. I can see in our Healthcare businesses we had pretty solid growth in the Home and Personal Care sector, only down spot was Brazil, which was slower and also many of our customers.

Two, growth was in line with our own customers. Most of the growth in healthcare and specialty was acquisition led.

Results are a bit patchy here and there. North American healthcare was strong.

Ag Chem pretty patchy around the world and international geographies were rather mixed. Food and beverage however was up on robust wine and spirit gains and very good results in Sleeves and Beverage labels, so also in closures.

CCL Design was the best performing sector of the quarter, robust in the electronic space and signs of improved market demand, pretty much across the Board and automotive was solid. Germany still going strong, but we did see signs of lower 2017 second half demand coming in North America.

CCL Secure as I said earlier, excellent first full quarter and we also saw very good organic growth in the core business we're be there in for some time. Page 11, results of our joint ventures, continue to have good news to report here.

Record profit results in Russia, some of that to be with the stronger Rubal and but it was mainly about a new Sleeve plant in Moscow and moving into solid profitability. Very good results in the Middle East continue and we continue to grow nicely in Chili and in mould label venture in CCL-Korsini and Memphis, Tennessee began to stock up in the quarter.

Page 12, results from Avery, bit of a mix story here. I am sure many of you read about the challenges in the distribution space in this industry in the United States and the certainly solar affecting demand and the Printable Media, which is our high margin business.

All of that was somewhat offset by reasonable results in the mass market channel with some of the core products, the mix effect of those two were somewhat negative and affected our profitability. The Canadian international and our direct consumer businesses combined were all up positing modest gains in revenues and solid gains in profits.

We've had a good start to the U.S. back-to-school season.

Page 13, Checkpoint, another good quarter here. The strong results continue.

We've now spent $26.4 million of our restructuring, which we announced when we bought the business over a year ago. We do now expect these restructuring actions to conclude this year and the remaining issue that need attending to largely in Europe where we've got long lead time items to get through at Councils and things to make sure we plot eyes in cross Ts and not before acting.

Future progress in the space is going to rely on qualitative initiatives such as restructuring. We'll talk more about that as time goes by with all of you.

Page 14, results for Innovia, little disappointing in its first full quarter. Most of that is around the spike in resin prices.

Polypropylene resin jumped significantly in the months March through June. Did start to come off in late in June and has continued in July.

So, expect that to fade as an issue as second half of 2017 progresses, label industry volume in the space was pretty solid. Now on Slide 15 results of CCL container.

Plant in Canada seized operations on June 8 and so we're very sad about that event. Like to thank everybody again on the phone who is listening in for their support and helping us get through this, but this issue is now behind us.

Our operations in Canada were still active in April, May and we did have some impact from the sequentially weaker U.S. dollars which negatively impacts results and similarly in Mexico where we posted gains in volume of revenue, the weaker U.S.

dollar affected foreign exchange issues on our exports and the United States. Site plan continues to progress but is still losing money and still some modern start-up phase.

Slide 16, summary of all of that, are reclassified as solid operating performance but just to draw your attention to that free cash flow slide, we're very pleased with the strong free cash flow performance in the first half of the year and we expect more of that to come in the second half. Some comments about the outlook, most of you know the U.S.

dollars has weakened against a number of currency but including the Canadian dollar. So, we had a translation headwind in today's rate and the coming quarter.

CCL Secure volume, we expect also to be low for Q3. This is a business that's very volatile, but it really outperformed in the first half with a number of new issues but Q3 is looking very light and then we expect quite a recovery in Q4.

Rest of the segment looks in reasonable shape. We're expecting a stable back-to-school season at Avery.

Checkpoint had a couple of one-offs that we're going to have to deal with in the third quarter. Last year we had a big software billing that has all being accrued prior to the spine of the company that generated a lot of profit but the state transaction which we'll be reversing in the coming quarters.

So those two things combined, we've got a $4 million headwind going into Q3. So, we're unlikely to exceed the very strong quarter we had in the third quarter of last year this quarter.

Different story at CCL Container, however second half we should recover now with the environment prior year with the tank closure behind us. So that's good news and we also expect the resin price cost management issue at Innovia to favor the second half of the year progressive.

So that's our opening remarks. Operator, if you would like to open up the call to questions, we'll take from interested parties.

Thanks. Good afternoon, Geoff and John.

Hi Adam.

Geoffrey, on the organic growth in CCL it was better than even we were expecting particularly given how difficult the comp was given the timing of Easter. To what extent did it surprise you and how sustainable do you consider this growth?

Well it was pretty much across the Board. So, all regions of the world, although there was not a lot of difference in the -- we said mid-single digits, so there wasn’t a lot of difference in the various regions of the world and other than healthcare and specialty, where it was lower than that, the other operating segment were all up pretty nicely.

The thing that surprised us was the recovery in the electronics segment with CCL Detail that was very robust. So well into double-digits.

So that's certainly up what we would otherwise been expecting for the quarter.

And just in terms of the profitability of that business, I think EBITDA was up $34 million year-on-year compared to up $11 million in the first quarter. Can you just help me understand why your profit grew so much more year-on-year in 2Q versus 1Q?

Well, you've got CCL Secure in there. So, you got the acquisition impact of Innovia Secure.

So that's a big factor in there. So, I think if the EBITDA growth and the sales growth of not far, they're all in the same range.

So, the big jump this quarter is a lot of us driven by Innovia security.

Okay. How much organic growth EBITDA or EBIT growth was in there Geoff this quarter?

Let me remind you of sales, so if you look at the acquisition growth and EBITDA sales growth and EBITDA growth, both in low single digits and double-digits in acquisitions because Innovia is big company and they've good numbers in there.

Sure. No, thanks for clarifying that.

Just couple on Innovia Geoff, I'm sorry, the Innovia business, compared to the $14 million of EBITDA that you generated, what were you expecting just again given that we don't really have anything to go by?

No, I would say it's came in $6 million to $7 million below what we were, if we hadn’t had the spike in resin, it would have been double off in there.

And with respect to recovering that price cost drag, should we expect a comparable benefit in future quarters or how should we think about to what extent you would recover what you lost in the second quarter and when?

We've got about half the business has automatic mechanisms in. Unfortunately, by the time end of June arrive, which is when these mechanisms come in, resin had come down quite a bit.

So, it's going to be pretty difficult to recover all in terms of really recovering it. But I would expect to see a gradual.

So, we saw some of it come back in July. We'll see more in August and if resin keeps heading in the direction it's in, we should be back to normal by September, but it would probably be the fourth quarter before we see a clean quarter of resin.

Thanks. And just one on Secure.

In terms of the order of pipeline there, you talked about 2Q being strong, 3Q being light, 4Q being strong, can you just help us understand exactly what's going on there and just how lumpy this business typically is?

Yeah. Well, it's driven by the new issues of note.

So were up in Canada here today. So, in the Canadian economy, there is about bank notes floating around the economy at any one time and if somebody decides to train as well as overnight with new designs, we issued CAD2 billion more new ones.

If you just replace them, it's more like CAD200 million. So, if you had a lot of new issues and in the first half of the year, we had two big ones in particular and then you go dry and it's obviously not a business where you have a lot of customers.

So, if the customers go dry and you just have to bat in the hatches down and wait till the next over has come and if it's light, it's light, and if it's heavy, it's heavy and you have to manage it. So, I'd say, so what you can expect in Q3 is it will be very live and we're expecting it to be strong again like it was in the first half in Q4.

Thanks a lot Geoff.

Hi. Good afternoon, guys.

Hi Mark.

I just want to follow-up on Innovia, just as you say the impact for polypropylene was $6 million to $7 million in the quarter.

Correct.

Just roughly speaking how large is the commodity exposure within that business? We're just under the impression, it wasn't that significant because such a big impact in the quarter…

Resin is about 40% of the selling price. So, do the math.

So, if you get a 20% spike in the price of polypropylene, resin is about where it was. It's a pretty big number.

Okay. And so, you said about half of the business has pass through our automatic adjustment…

Correct.

Yeah. That's right.

Okay. I guess even with that, since you borrowed for the first four quarters, it looks like mid teen EBIT margin if we adjust for that.

Is that roughly where the business should track or…

Yeah, the EBITDA we announced when we brought business with $150 million and it was running, in the first six months of the year, we got four months where we reported it and two months where we didn't know that it's slightly under levered but not that much.

Okay. And just on Avery, again just help me understand the mix, margins were down 270 Bps year-over-year, you mentioned the media board exactly where was exactly was the weakness or was it wasn’t.

It's really, you've probably read about Staples and Office Depot, so they're two big superstore groups of chained ownership and they’ve been setting stores in center particularly in the United States and in some cases closing distribution centers and the whole inventory of Printable Media in those stores to a much greater dollar value and they do commodity products like ring binders. So, any consolidation of inventory tends to jam up with sales pipeline pretty quickly and whereas the flipside was our ring binger business which goes after the mass market channels was reasonably healthy.

So, the products we made the most money on dried up and the products we made the least money on didn't. And so, it's a mix impact of the two isn’t very good.

So, we expect that to normalized in the second half of the year. So, these things typically go on for a quarter or two and they happen and when you get back to normal, we've already seen some of that happening in July and I expect we'll see that in the second half of the year.

Okay. No that helps.

Within the CCL business and the 5.7% growth, does that include the organic contribution from Secure or is there a way to…

It includes the organic contribution, which is in the prior number. The organic from bank corporations in America, which we've owned since 2015, they had a very good quarter.

They were also up double-digits and then CCL Secure did much -- it's a flip side of what have been filmed. The former Innovia Security outperformed in the film side, underperformed and you have to agree together that it was about what we expected.

Okay. But there wasn't I guess if we exclude the acquired Secure business, that's on the organic growth number, right?

The acquired ones not in the businesses we've owned. So, we had a real 5.7% organic growth rate, but it's no funny business.

It's a real number.

Yeah. Okay.

And then sorry, just one last one, in container a checkpoint, I think you mentioned two headwinds into Q3 about $4 million, why you think it will be roughly flat year-over-year, is this -- I didn't quite catch those.

We had a big software billing in the third quarter of last year. The software plan that had been rolled out actually before we bought the company.

So, it's a catch-up billing at 100% profit and then then we have a building in China which we sold, received the cash for and we're going to reverse the transaction and because the Government of China has decided to appropriate all the real estate in that area. So, the good news is we'll actually probably get more money for the property now then we would have done, but we've already booked the transaction.

So, we've got to reverse it in the coming quarter and then we'll book it again when it happens probably first quarter next year.

Okay. All right.

Thanks a lot.

No problem.

Thank you. Good evening.

Hi Steve.

Just wanted to circle back around on the Innovia business, and you talked about the resin impact and the expectation going forward. Can you just talk a little bit about the demand side like if you just looked at what the demand for the product is excluding resins?

Yeah so, by far their biggest business in the space is label industry volume and that was pretty solid as the security volume looks pretty good in the first half of the quarter and so it began to dry up in the second part, but it's small. It's barely 5%, 6%, 7% of their volume.

So, it doesn’t really move the needle very much. Packaging, products and applications for packaging were a little soft but, the label industry volume is solid.

So, it was really an issue driven purely by resin cost.

Okay. And then can you just talk a little bit about on the CCL side, what was the Easter impact in the quarter.

You previously mentioned about the 200 basis points, was that kind of…

Yeah. I think that's about right.

So, I think if we had to strip or normalize for Easter last year, the growth would have been 7% or 8% and this year it would have bene 7% or 8% again rather than the 10% and the 5%. So, take last year's 10 point whatever it was, this year's 5.7 divide by 2 and then I think you got a reasonable number.

Okay. And then as you exit the quarter, have you still seen pretty strong growth in all segments?

Yeah. I would say, the only thing I would add to, we work on a Calendar July.

So, we don't do a four, four, five, calendar or anything like that. So, it's a calendar month and the related work days, this year July was pretty light on work days because the way the July 4 holiday fell in the U.S.

and so we'll have to just wait and see, but so far, it's been okay.

Okay. And then just turning to container, you mentioned a relatively positive outlook for the second half, would you expect that full-year EBIT would be comparable to what you achieved in 2016?

I think it will be light of that, but I will say, it'll certainly be in second half EBIT we did last year and we're surprised why we didn't do that. We may have some one-time events in the second half of the year, which may boost that, too little bit closer.

So, we'll have to wait and see how that will all pans out, but certainly the disruption impact of the plant closure I would say has gone.

Okay.

You will start to see the benefit now of not having it even though sales will be a bit low. I think it is coming quarter over last year I think profits will be in line or maybe even up with it.

Okay. Okay.

That's great. And then one for Sean, you benefitted from a bit of a lower tax rate on a year-over-year basis and in understanding that it can very quarter-to-quarter.

What would you expect for the full year and a good number to use going forward?

I think we could be in that 28% to 29% range for the full year. We're going to pick up a little more business here in some high tax jurisdictions with back-to-school.

So that's should push up the rate for the third quarter and then we'll have to see the way we think the fourth quarter will play out, but I think we'll finish shy of 30% for the year.

Okay. That's great.

Okay. Thank you very much.

Hi. Good afternoon.

Hi Elizabeth. Could you just talk about Sleeves for a moment, you mentioned in your prepared remarks Sleeves and strong growth, but in the MD&A you also highlighted Sleeve weakness in North America maybe you could just talk a little about the different sources of growth in sleeves in different geographies?

Yeah so, our sleeves business is not very big in the U.S. it’s very big in Europe we’re in the number player in Europe and the European growth was well into double-digits.

And the U.S. and some of the other international locations were flatter down a little bit but globally so the way we look at it was the growth was still pretty solid but it was very strong in Europe.

But I think that in the last several quarters, several years even the sleeve has been an important driver of revenue would agree?

But it’s 6% or 7% of the company so they didn’t need a lot much.

Okay and just if you could go back to CCL segment so CCL label segments in terms of organic growth we have already talked about this – how things shook out with Easter and I think a very strong number and you’ve talked a lot about how we should expect I guess that made single-digit if not a little bit last going forward. Would you say that your outlook is still the same that we should expect some lower organic growth in the second half of the year versus the first half?

Yeah Q3 last year the kind of growth rate was 4 and I think we’re going into the sort of 7 range in the fourth quarter of last year. So, I think in this coming quarter I wouldn’t be surprised to see it lower than it was this past quarter and so fourth quarter is a bit far away in that kind of business today but we know a short lead time business Elizabeth.

So, our order backlog typically a month or less out so very difficult to predict. And I think also the electronics industry – that was a big factor this past quarter and so if you get one business it’s growing in the mid-teens or something like that it can have quite an impact from the halls.

So those were the things that add to the equation.

And would that have also impacted your margin or just a really a topline factor the electronics?

It’s a really topline factor it’s – actually a lower margin business in the average so its slightly diluted on the mix impact when it grows strongly and again it’s not so big. Its CCL design is about $600 million in revenue and electronics is about half of that.

So, when you look at the whole company it doesn’t move the needle that much.

Okay. And then if we could just turn to Avery going forward and back-to-school started well I think you indicated going through the rest year on a full-year basis even for Avery.

Where should we think about organic growth has something…?

While I think its business that whole industry is a business that not got much going on for it in terms of the external third-party growth. So, we’ve got some parts of the business that are growing very nicely in the mid-single-digits and other parts where we’re going to still got some systemic declines.

And you got a lot of things going on in the distribution channel. So, you can probably imagine what it looks like by customer when we say the top four customers are stable as Office Depot, Walmart, and Amazon you can probably imagine for yourself it’s doing well and it’s not doing so well.

So, we’ve got some things going on there to. So, at the moment it's really about improving the quality of the earnings in that business.

And I think expecting more than flat up a little bit and down a little bit for the near term that what’s on agenda and we’re more focused on improving the quality of earnings we have here and gradually reducing our dependence on some of these commodity product lines and moving up expertise in other parts of the business sort of got some more inherent growth in them.

And so, given the changing mix should we still expect modest margin improvement on a full year basis then within that segment?

My doubt in this year, again where we are.

Okay that’s all my question thank you.

Yeah, no problem.

Good evening.

Hi Michael.

Just circling in on the currency business there has been some news around upcoming launch of the 10-ton mill in the U.K. So how would that sort of work with Innovia as you prepare for that launch?

Yeah as for the three group we had a supply with 10-ton mill so I’ll confirm that for you and we started making those over year ago.

Okay so it does start that long ago then?

Yeah so but it was definitely a factor in the performance in the first-half of the year and we did a number of other launches of equal importance and a couple of other countries in the first half all which are now over. So, look the well is pretty dry for the coming quarter and so this is a high margin business with some fair amount of fixed costs attached to it.

So, we’re not expecting great contributions from them in the coming quarter but then some other things start again in fourth quarter and then kind of get back to where we were in the first half.

Okay on the food beverage segment of CCL label in older investor presentations you used to highlight the ongoing transition to pressure sensitive in the beer label market with one of those areas there is a lot of volume low penetration. Have you seen any increase in the shift of beer label to pressure sensitive?

Sure, yeah, I think – in liquids and glasses how we classified it so we don’t care whether it’s beer, orange juice or water and that transition continues to take place and we’ve continued to do well. But when you think about all of CCL its low single digits percent in terms for company size so even if we do an extraordinarily well or extraordinarily poorly it doesn’t move the needle very much.

Okay and then I mean this may be a bit of a higher level question how do you think about sort of the ongoing shift towards the retail environment towards e-commerce how does something like that impact CCL label over the long-term?

Not very much I don’t think it’s a – I mean first of all there is a lot of resale of that they are still doing very well and the amount of, commerce that still being done through e-commerce is still very small amount relative to further retail. So clearly one phenomenon is growing a lot faster than the other everyone in the world knows that but we don’t think it’s having any impact at all on us CCL label side.

We’ve got some early request from customers and things like two business fold better quality of feeding of cubes so the skin care brands are selling their products now over the internet. I don’t think a lot people are buying shampoo over the internet but there are certain high-end things claims to being brought through e-commerce channels and at some commentary customers about that I wouldn't say it’s terribly material.

Okay and would you guys happen to have – you highlighted the Canadian dollar dynamic would you have a sensitivity to your earnings on moves in the Canadian dollar versus your basket of currencies or the U.S. dollar?

Well it’s pretty hard to predict that I think the way you have to think of it is probably just shy of 50% of our revenue is U.S. based and that's flows to earnings, and then it’s a mixed bag from there with the next biggest chunk being euro and you’ve got Latin American currencies and some of the Asian currencies.

We can get back to you with the sensitive on the U.S. dollar I thing that probably the one thing we could get this on – give you a call about that Michael offline.

Okay thanks for taking the question.

Yeah, no problem.

Hi thank you just I wanted to circle back on the resin pricing mechanism that you discussed in terms of how it works is there any significant lag between the mechanism being triggered and price increases actually being passed through?

Yes, it’s 90 days – there will be 90 days and it’s very mechanical so it’s a calculation there is no discussion it’s a pure mechanical calculation for about half the volume in the business. And then the other half is out there trading at whatever price somebody decide to trade in that.

So that basically how to work so that what we inherited whether it will still that way is another question but it has been.

Thanks okay and so…

The real thing point out is this is a business that’s historically gained on resin falls and paid on the resins rises.

Right okay and just one other thing on that I am wondering if you have outside of pricing issue or mechanism any – hangover in terms of raw material inventory that we need to focus through the…?

It’s about one month’s inventory so resin is about $40 million a quarter or where about.

Okay.

So, you can stick that number away it’s about roughly what we spend at today prices per quarter and you got a fall on that of 10% well it’s pretty obvious what the number is and the same other way around. And then you have effect of prices that happens for the end of that period.

The real problem with this resin it’s really spiked in the second quarter and then rather unfortunately weighing rather quickly. So sometimes you need it’s actually better if the prices stay up.

Right.

And it’s going to come down nonmechanical passes where you don’t need the price increase then why should I pay it so somewhat problematic when it spikes and falls so quickly that’s difficult to deal with.

Definitely and just one other question on that business and I suppose it also applies Innovia Security business that you acquired I am wondering now that you had it for several months and if there's any other observations that may have surprised you or are interesting that you could share that may impact how managed that business on a go forward basis?

Well when you’re in the security business made more money than the film’s business so we’re confirmed that we knew the security business would be volatile, with booms and buffs quarter-to-quarter depending on which governments are ordering which currencies when and how. So, I wouldn’t say we have had anything that's terribly surprising it’s fair to say none of us expected resin to go up 20% in three months but we’re not the only company that have been found of that in the last three months.

So that doesn't happen very often if you look at the history of resin moves and frankly we have -- if you look at the history of it there have times when they benefited to that too. So, it’s a little hard to go complain for the customers if you benefited from the same phenomenon three years ago.

So, you got to sort of keep that in mind when you have the swings and roundabouts of triumphs and disasters.

Yeah and then just one final question on the CCL secure business it’s obviously bigger now that you’ve added Innovia to it but I’m wondering if you can give us a bit of in term of magnitude the contribution of that to the CCL segments perhaps on annualized basis?

Yeah, it’s over $200 million in revenue and that’s about all we’ll say.

Okay thanks very much gentlemen

No problem.

Good afternoon.

Hi Ben.

I have a couple of questions. Hi, just on the CCL Secure if I guess you’re comfortable to say $200 million is it fair to assume that the margin is higher from the kind of pre-CCL Secure addition to the CCL segment?

Yes correct.

Okay so under normal circumstances are actually heightened production that…?

Ben, I think you have to be careful about the spend is that quarter-to-quarter volatility much higher than just about any other business we have so this is business in certain quarters I could see not making any money at all because if the well runs dry it run dry and in other quarter it can significantly outperform. And as we certainly saw that in the first full quarter we had with them but for every one of those they may well be the reverse of that.

So, quarter-to-quarter it’s a difficult business to model and year-to-year its lot easier but quarter-to-quarter it’s very difficult.

Okay and just one question out of left field I mean this CLL Secure business is very clearly devoted to kind of the whole belief that polymer even though being very small part now that it's over time going to grow. Would you ever consider gaining some exposure to the paper world thinking it might kind of stabilize some of these fluctuations?

We may the same problem by the way.

Okay, okay my second question is on the home and personal care I think this is not the business that after a few quarters has shown some growth has that just kind of a haphazard spike or is there something going on there that's encouraging?

Yeah, we gain share.

Okay.

And [indiscernible] a bit fast then our customer has and every time we do that we know nine times out of 10 we gained a bit share so I would say first-half of the year we gained a bit of share in home and personal care.

Okay and then my last question would be on Avery I think earlier this year you were quite I think optimistic that the back-to-school period is going to be strong. Now some of these kind of one-time items and kind of events surrounding Avery are you thinking that it's going to be softer than last year…?

No, no we expect in the coming quarter to be as a good as last year maybe even a little better what we don’t know about is how long this affect of the Staples, Depot and challenges will continue so and so the month of July we said we sold out improved the best in the superstore channel didn't approve much in the wholesaler channel but improve in the superstore channel. So, we’ll have to wait and see how it goes but so July was okay.

And we’re reasonably optimistic about the back-to-school period but it's in that ring binder product line the sizable. And where we make our money is those printable media products which is sort of in more every day our items.

So, if that mix impact goes well on us again like it did in 2Q then you get some margin compression. So, we’ll have to wait and see how the quarter pans out but certainly on the back-to-school side which has been declining for the last couple of years.

We expect that not to decline this year for sure.

Okay I’ll go back in the queue thanks.

No problem.

Good afternoon just wondering if I will ask a question on the M&A environments are you surprised by some of the multiples that we’ve seen and are you seeing or do you expect any impact on the competitive outlook?

I will be surprised no a lot of people there with too much money and there is nothing on our list of M&A prospects that really being affected by what’s going with other people.

Okay good and just wondering if you can give a little bit more color on Checkpoint sales strategy are you trying to tradeoff growth versus margin?

No, we’re just managing the business so but as the business still have a lot of problems when we brought it has less problems than it has when a year ago but we’re still very much in the process of getting it straight and then we’ll move on as I said in the future into things that are more qualitative then that product innovation and more outward looking things in the last year which has been very inward looking.

Great thank you very much.

No problem.

Thanks Geoff just couple follow-ups on the electronics market can you just elaborate on why it was so strong in your view?

I think it was strong first really a year ago it had some issues so if you look at the few public companies down there that have got large presence in this space and 3M is a large business in the electronic materials, the pace of which those subsidiaries of buyers do offer a large business semi electronic materials. So, if you look at their results first-half of last year they all complained about demand with electronics customers and this year it’s all rebounded.

And I think we’re very much in the same boat – I’d say this return to growth has been much around IT, peripherals, service declines in laptop computers starting to fade. So, it’s an industry it still been declining but some of the customers in there have to started to grow again most probably Hewlett-Packard.

So, there is some large players in that market has begun to recall quite different number in the last two quarters than they had the same quarters this time last year. So that's a bit of a bounce back from a low point a year ago is probably the best way to describe it.

And then you’ve got the ongoing moves from phones and mobile devices and the things that are pushing the boat out in the longer run.

Right and thank you for that Geoff on the CLL Secure back to that for one second the number of new currency launches that you saw in the first half how unusual was that I know how lumpy the business is anyway, but was anything particularly unusual about the number of new launches in the first half?

It’s not the number that matter it just whenever you pull an existing note out of circulation and you place the entire note population that always bring big lumps and that’s what the business needs we may every time we have new notes issues for any government anywhere in the world it always brings seven to eight, nine times the normal order volume as they normal order. So, the business really likes those and we had two countries in particular that were very active in that in the first half of the year is now finished and they have got now coming up in the summer months for some reason that seems to be the historic norm.

And then we go back to being very busy in the last part of the year. So, I think it’s the nature of the businesses when you have a new note you have ordering volume that is much multiple times the normal number the notes that people order just to do [Indiscernible].

Sure, thank you and Geoff just one last one on the polypropylene so it spiked for March to June and then you said you seen partially offsetting decline since then do you have any I know this almost impossible to opine on but I am going to ask you anyway a longer-term view of polypropylene and the extent of volatility that you're expecting compared to what you've experienced since owning this Innovia business?

Well it’s been in a fairly long downward track for quite a few years so it has a long-term trend I think in most things with the resin based as the money is still down but you’ve got outages so the supply side of this industry every time there is an outage they beep in the price increases regardless of what’s happened to their own raw material. So, it’s a pure probably supply demand commodity and pricing reacts accordingly and but I think for every disappointment will be a nice surprise probably the best way to put it.

So, for every quarter we have like one this we’ll porb have another one we will have a nice surprise and hopefully we’ll have one those sometime soon.

And thank you Geoff.

Okay no problem.

Thank you I just had a quick follow-up question on the Avery business I know Geoff I know you provided a little bit of color on the topline and the margin profile for 2017 but I am just curious when you look at longer term you still see the ability to move Avery margins higher?

Well I think we may have slightly margins this year then we had last year by the time the year is ended I do expect second-half to be better than the first-half so with revenue down if we would made same even if we had made last year we’d obviously have a slightly higher margin. And that’s definitely the way things are going to look outward here but this is a business of has some volatility around what happens in the distribution channels.

So, we don't worry too much about swings whether they’re good or bad quarter-to-quarter because the number of customer here are relatively small and they influence how much we sell in the quarter and how they plan their inventory. We’ll just have to wait and see how that goes but it certainly low growth topline business but we’re still focused on adding to the bottom line by putting the right kind of business in there that will improve the next.

Okay.

In other words, less commodities and more specialties and I think we said on many occasions as we can keep selling $1 million of label we make we’ll make as much money as a result $10 million worth buying I am really not exaggerating when I say that.

Okay that’s right thank you.

No problem.

Yeah thanks I just want to follow-up on Innovia just is there any difference in the type of customers or the price indexes or mechanisms are in place versus those that aren't?

Yeah so, we can see the packaging customers tend to have longer terms contracts than the label industry volume which is very mechanistic in the way it operates so the label industry volume I’ll prescribed is mechanistic and consumer packaging companies also buy film from us that's got more of the exposure to pluses and minuses on volumes.

Okay I mean theoretically overtime could that 50% go significant hardest as certain take away their risk?

We’d rather have this business Steve more like our can business where we can smooth out with swings and roundabouts of aluminum we have managed to do that in can so probably have to do the same job here with resins.

Okay and may be just [indiscernible] about a year now over year now sort of any long-term targets on what you think margin can look like in that business maybe longer terms sort of organic sales growth any sort of long-term numbers you can may be share with us?

No.

All right thanks lots guys.

Hi okay I have just two questions one is really, really big picture and the second one is more a financial so I guess the simpler one – Sean I missed I think earlier on you were saying that what the operating profit was and what it would've been I don’t know if it was EBITDA or EBIT what would have been if you added back to the one-time items?

Sure, the one-time items there is $6.4 million non-cash expense for the write-up of the opening inventories of Innovia so if you add 6.4 million back it would've been $194.7 million of operating income.

And then for EBITDA you I guess it would…?

It’s not include.

Yeah Ben it’s not included EBITDA.

And I guess really big picture Geoff my impression is that the Innovia films business there is quite a bit of interaction with that with the CCL like there's some supplying of stuff but they also bill's supply some of your label stuck suppliers. And I'm not sure I fully understand how that works is there would you able to shed some detail on that?

I think we’ll take that offline Ben.

Okay thanks.

Okay. Operator I think we’re about ready to wind things are there any more calls maybe.

So, I just finish off thank you for the call for your interest and we had a very good turnout excellent questions and as we mentioned record quarter strong cash flow we’re really excited about the future and I think once again walking through the business you can how diversification of sectors and geographic have to bode well for CLL industries. So, thank you again and enjoy rest of your summer and we’ll talk to you next quarter.

If you have any questions, please call. any follow-up calls please ask [Indiscernible].

Thank you, operator?