CCL Industries Inc.

Donald Lang – Executive Chairman Sean Washchuk – Senior Vice President and Chief Financial Officer Geoff Martin – President and Chief Executive Officer

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

All right, thank you, operator, and we welcome everybody on to CCL investor update for second quarter. And the operator informed us that we have a good turnout of over 48 people on the call during the busy summer, so I appreciate you joining us.

As you know, the presentation today is on our website at CCLIND.com, so hopefully follow along, we’ll identify the pages as we flip through. So with that, I'm going to turn over to Sean Washchuk for the financials.

Thanks, Don. First off, I’d like to draw everyone's attention to Page 2 of our presentation deck, our updated disclaimer regarding forward-looking statements.

I'll remind everyone that our business faces known and unknown risks and opportunities. For further details of these key risks, please take a look at our 2017 annual report and MD&A, particularly 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 to Page 3, the second quarter of 2018 was another solid quarter for CCL Industries.

Sales growth, excluding the impact of the currency translation was 2% to $1.26 billion compared to $1.25 billion in the second quarter of 2017. The growth in sales can be attributed to organic growth of 1.3%.

Acquisition related growth of 1%, partially offset by 1.4% negative impact from foreign currency translation. Operating income increased 8%, excluding the impact of currency translation to $199.6 million for the second quarter of 2018 compared to $188.3 million for the second quarter of 2017.

Geoff will expand on the segmented operating results of our CCL, Avery, Checkpoint and Innovia segments momentarily. Please note that we've changed our segmented reporting and have included the results of the container operations within the CCL segment.

In the second quarter of 2018, restructuring and other items was an expense of $3.6 million, primarily for severance cost associated with the Checkpoint Segments, restructuring plan and Treofan acquisition costs. Restructuring and other items of $5.2 million were for the second quarter of 2017 associated with the Checkpoint and Innovia restructuring initiatives.

Net finance expense was $20.8 million for the second quarter of 2017 compared to $17.9 million for the 2017 second quarter. The increase in net finance expense is primarily related to an increase in average finance rates with the comparable periods.

The overall effective tax rate was 25.5% for the 2018 second quarter compared to 27.7% in the 2017 second quarter. Reflecting the impact of the U.S.

tax reforms and jobs act, or Tax Cuts and Jobs Act in the current year. The Tax Cuts and Jobs Act legislation will result in an approximate 3% reduction in our overall annual effective tax rate.

Net earnings for the 2018 second quarter was $121.1 million compared to $109.9 million for the 2017 second quarter. For the six-month period ended June 30, 2018, sales, operating income and net earnings improved 8%, 15% and 21%, respectively, compared to the same six-month period in 2017.

2018 included the results from eight acquisitions completed since January 1, 2017, delivering acquisition related sales growth for the period of 5.7%. Organic sales growth of 2.3% and foreign currency translation was a headwind of 0.3%.

Turning to Page 4. Basic earnings per Class B share was $0.69 for the second quarter of 2018 compared to $0.63 for the second quarter of 2017.

Adjusted basic earnings per Class B share was $0.70 for the 2018 second quarter compared to adjusted basic earnings per Class B share of $0.68 for the second quarter of 2017. The adjustment to the 2018 second quarter earnings per Class B share included $0.01 increase from restructuring and other items.

The improvement in adjusted basic earnings per share to $0.70 is primarily attributable to both improvement in operating income, resulting in $0.03, tax rate reduction of $0.02, partially offset by foreign currency translation of $0.02 and all other items of $0.01. For the six-month period, basic earnings per Class B share was $1.36, up $0.23 or 20% compared to $1.13 for the same period a year ago.

Adjustment to basic earnings per Class B share included $0.03 from restructuring and other items. The 2018 six-month improvement in adjusted basic earnings per Class B share was driven principally by the increase in operating income, which accounted for $0.16.

Tax rate reductions adding $0.04, while the impact of increase interest expense, corporate costs, foreign currency translation partially offset the improvement by $0.06, resulting in adjusted basic earnings per Class B share of $1.39 from a $1.29 per share in 2017 six-month period. Turning to Slide 5.

For the last 12 months ended period June 30, 2018, free cash flow was $464.9 million, an increase of $40 million compared to the LTM June 30, 2017. This reflects the improved operating results, improved net cash working capital and the timing of capital expenditures of the comparative periods.

Note, net capital expenditures were $280 million for the current trailing 12-month period compared to $270 million for the 2017 trailing 12-month period. Turning to Slide 6.

Net debt at June 30, 2018 was $1.85 billion, an increase of $77 million compared to December 31, 2017. During the last week of June, the company borrowed the proceeds required to close the Treofan acquisition and the funds were in our bank accounts so that we're in the correct jurisdictions on July 2, 2018, a Canadian bank holiday.

Therefore, both cash and debt were above the normal levels for a short period of time. Our bank leverage ratio remained below two times.

Therefore, our bank revolving and term facilities continue to increase interest rate margins of 120 basis points. The company's overall finance rate was 2.9% at June 30, 2018, slightly higher than the average finance rate at March 31, 2018.

Finally, in April, the company closed its initial unsecured CAD300 million, 10-year maturity, 3.864% interest bond offering. These proceeds were used to reduce the Canadian dollar drawn debt in our revolving credit facilities.

Geoff?

Thank you, Sean, and good afternoon, everybody. I'm on Slide 7, highlights of capital expenditures this year.

$205 million approximately gross spending, little under $190 million net with some disposals we've had in the first half of the year. And we're planning on $325 million roughly this year, excluding the remaining expense on the Treofan new extrusion line in the plant in Mexico.

So Slide 8, highlights the CCL for the quarter. We had 3.3% organic sales growth, that was 6.6%, excluding the low quarter we told you all about, although it’s coming for the Polymer Banknote substrate business.

So our core business was up 6.6%, 3.3% net, including the Polymer Banknote business. North America was up mid-single digits, Europe was down mid-single digits, all that driven by Polymer Banknote substrate, that's where that issue occurred, excluding that Europe up low-single digits.

Latin America was up high-single digits and Asia-Pacific was up in the mid-teens. And we had very strong performances in both our Home & Personal Care and Food & Beverage business.

Few more highlights on Slide 9, Home & Personal Care had a strong quarter both sales and bottom line on across hold of products, labels, tubes and aerosols. Healthcare & Specialty business was up modestly, profitability declined slightly on mix.

Our Food & Beverage was particularly strong driven by double-digit sales increases across all product lines in that space. With CCL Design we had modest sales gain and profit improvement.

Automotive was deservedly down, driven by the plateauing market, and our growth rates for certainly plateauing in that business globally, excluding China, of course, but we have a small full base to start from there. The CCL Secure, as I explained earlier, we had exceptional Q1 demand, which we had a reduction sequentially from that.

And in Q2, we had a difficult comparative period with last year where we had won very large order for a European customer with a new launch this year, which obviously didn't repeat this year. Page 10, the highlights of our joint ventures.

We've moved two of these now into fully consolidated operations. The Chilean business was fully acquired in Q4 last year.

And in May, we completed the acquisition of the Korsini 50% interest in the IML Venture that we started some while ago in the United States. Rheinfelden and slug business will continue to be impacted by fire and didn't make any production this quarter.

Slow results in the Middle East, but offset by very solid performance in Russia. Page 11, the view about Avery, much better quarter than Q1 where we've been impacted by the demand moving into Q4 and the January 2018 price increase, especially in the label category.

Like Q1, the sales decline was all in the U.S. largely in binders and similar categories.

Printable Media business improved quite nicely, sequentially, and we had strong growth in the direct-to-consumer categories and the mix impact was positive, so that really helps our overall margins with a 23% ROS quarter overall. Modest growth in Europe and Latin America more than offset small decline in Australia.

Page 12, highlights the Checkpoint, another good quarter here, very solid. The two large chain wide technology rollouts we talked about in Q1, completed in Q2, the final tale of that.

Our Apparel Labeling business posted significantly improved profitability. And we largely wound up our restructuring program for a little under $40 million.

We may have a little tail coming in July, but it'll be pretty immaterial. So pretty much wound up on that program, and we're pleased with the results from it.

Page 13, results for Innovia. This was a disappointment in the quarter.

Resins continue to be an ongoing challenge. We also saw low flexible packaging sales in Europe.

Label industry sales, they were quite solid, but the main issue here, again, was inflation. We did have an operating problem in our plant in the UK, particularly in the month of April that we seem to largely overcome that for the major challenge here is still resin and pass through pricing arrangements.

On to Slide 14, summary of all of that. So a good solid quarter of CCL Checkpoint and disappointing Innovia, but solid overall, and you can see the number there for yourselves.

Page 15, outlook for the coming quarter. Modest FX tailwind.

So at today's exchange rate, it had been bit of headwind in Q2, but I don't think it's particularly material one way or the other. The CCL Secure comps will ease considerably in Q3.

We won't have the prior year comparison issue that we had, so we expect that to be positive. Checkpoint technology rollouts have now completed.

So we didn't have those in the same quarter last year. So we'd expect some progress there, but on a normalized level.

We do expect back to school sales to be below prior year at Avery, especially in the binder business. We may get some offset of that in the positive mix like we did in Q2, but we'll have to see how back-to-school completes in a few weeks from now.

We closed Treofan in July, very early in July. But just to remind, we'll be doing all of our acquisition accounting this coming quarter, particularly on the makeup of inventories.

And Treofan like Innovia has seen no relief on Resins. And U.S.

resin pricing rose very dramatically in the months of May and June. So they will likely have some pricing lag issues in the coming quarters.

And on top of the we’ll have a lower tax rate. That’s the end of our prepared remarks.

Operator, we would like to open up the call to questions. We would be happy to take them.

Geoff and Sean, good to talk to you.

Hi, Adam, how are you?

Good, how are you Geoff?

Fine, thank you.

Good, good. Couple on Treofan, Geoff, I assume you’re not expecting much of an EBIT or EPS contribution on the quarter, just given a closing date, the acquisition accounting, et cetera?

Correct.

And then also with the Treofan, when you announced the deal, you said it was about $40 million of EBITDA I believe in 2017, you’re targeting $55 million by 2021. Can you just help me with what the EBIT and EBITDA are now, particularly following whatever acquisition accounting adjustments there were and given the lags you’re dealing with, the resin inflation and the associated lags, just help me with the Treofan looks like right now?

Yes, sure. I would say we still got some of the resin issues that – and it come very late in the quarter.

So polypropylene and resin rose quite dramatically in the months of May and June. And they’ll be doing pass through pricing for that, but it won’t get through until way into the fourth quarter.

So that will have it’s about 15% increase in the cost of resin. So it’s a good sized impact, but we’re only a few weeks into it Adam, so I’d rather another quarter till we can give you a bit more color on how things look there.

Sure. Just one another Geoff, can you help me what the price cost drag has been year-to-date and what are you expecting for the…

Since we bought the business, it’s a running at the rate of around $35 million.

And do you expect that GAAP to close much in the second half?

I expect, it depends on what happens with resin increases. So if resin stabilizes and we do the pass through increases, than we expect to start eating back into that, certainly by the time we get into the first half of 2019.

But it really depends on what happens due to price of resins, we got hurricane season coming up. So if resin stays where they are, I would expect sometime in the fourth quarter or sometime in early Q1 we start to do some catch up, but we’ve got quite a backlog to get through.

Okay. So now if you’re not expecting to make up much of any of that 35 in the back half just based on, okay…

I would say it would be limited.

Okay. And then just one on M&A and I’ll turn it over.

What are your thoughts regarding M&A, your leverages below two obviously good thing. Obviously, you saw one of your large global packaging peers announced a very large acquisition at a very high multiple, which seems to be the cost of doing business these days.

So just and to given what you said about where you think we’re in the cycle, given how high multiples appear to be, I’d love to hear your thoughts?

Well, I think multiples are beyond high. Certainly, beyond that.

And we can’t understand quite honestly, particularly if you’re buying these things for cash, it’s obviously we use paper and might be – might have the different viewpoint on it. But if you’re borrowing money in a rising interest rate environment, buying things at 11 times,12 times and 13 times EBITDA very high for us to understand how you get a return on capital on that.

So we are very much focused on things that are in our normal valuation range. And when we bought Innovia, we announced that seven times and clearly it’s a multiple higher than that today, but if we bought it at 11 or 12, we’d be in a different ballgame than we are now.

So I think, maintaining valuation disciplines is one of the things we want to keep going. And particularly I think it was clearly at the top of the cycle.

Thanks so much, Geoff.

No problem.

Hey good afternoon, guys.

Hi, Mark.

I guess, just back on the Innovia. Without the Treofan, I’m just trying I guess understand sort of where the pricing is at versus the costs, how far you’re behind at this point?

We’re a long way behind Mark. We made very little dent in it.

It’s reason so quickly, and we haven’t the lag, the time lags and that windows that they’re allowed to raise prices in. We haven’t gone anywhere near enough to recover the cost of resin, it’s nowhere near enough.

So we’re a long way behind and lot of work to do on that. And Treofan has better arrangements in that than Innovia had, but the recent increases in the U.S.

were very high. So they’re going to have the same problem, but they haven’t – they’ve done a good job in 2017 of recovering the races in 2017, which Innovia we definitely didn’t do.

Okay. I mean, can you maybe just high level, just how those arrangements work for both of them?

Some of them have automating sort of a 90 day increases, every 90 days you’re allowed to adjust your price based on a 90 day moving. Some of them have corridor.

So you have a time constraint on a corridor. So if the resin increase, it’s beyond a certain percentage up or down.

You’re allowed to make a change after a certain period. And some of them you’re only allowed to change once a year.

Okay, that’s, I guess, you have all three of those I guess across the businesses?

Yes. We have all of those.

So I’d say Treofan has a more most of their business is sort of 90 day corridor. But they will have had the problem is, the Q2 polypropylene rise is pretty significant.

So there will be implementing price increase at around that in Q3. They’ve also had also been a problem at Innovia, they’ve a lot of non-indexed cost increases, things like titanium dioxide, which is ingredient we used to turn what clear film white gone up very significantly.

Freight and some other things, which are not in their price index have also been part of the problem. So we’re going to have to make some changes to how these mechanisms work much more holistically than we thought we’d have to do, to take into account all the raw materials and all the variable cost of the business, not just one index.

I mean, have you started happening those discussions with customers, yet?

We’re beginning to now, particularly after we saw how things unfolded in summer and we’ll be having a lot more of them in the September, October, November timeframe. And so those same customers are having same discussions with us.

So this is a phenomenal things going on right across our industry.

Okay. Maybe I’ll move on to something else.

Just on the Secure business, I was trying to make sure I’m reading it right, in easy comps in Q3, and Q4, you’re expecting a stronger quarter, is that sort of?

Yes, CCL Secure had a difficult quarter last year. It is a low season but I think we’ll do better than we did last year.

And Q4 we expect to be good whether it’s good or better than last year we’ll have to wait and see. We’ll give you some more color on that at the end of Q3.

But Q4 is usually strong, we expected to be strong this year. The big problem last year we had this note I won’t tell you, but it was one very large note that we do in a complete ramp up this time last year, and it was also very profitable.

So quite a significant impact on both with profitability of the CCL segment and the growth rate.

Okay. Maybe if I can sneak in the last one in.

I was just curious if on the Avery business, how these binders it feels like it’s been declining since you bought it, and I guess, it was. I’m just curious how much of the business is actually left?

About $100 million.

Okay. All right.

I’ll get back in queue. Thanks.

No problem.

Yes, thanks very much. Good afternoon, Geoff and Sean.

Good.

So going back to just acquisitions, I know Geoff, you mentioned it’s fairly toppy in terms of multiples. Is there any areas in which you don’t see that or is it across the board?

No. I think there is plenty of – I’m not saying those things we can’t buy prices we want to pay, because there’s a lot of things we’d like to buy, those are available at prices we don’t want to pay.

So you’ve got – we’ve got a good list of the businesses we’d like to buy, valuations that we think are reasonable, that we are working on. And it’s another list of things we would otherwise would like to been interested in, but have rejected on the basis of valuation.

I see. And is there – do you see one coming your way quicker than the other in terms of multiples coming down or more companies that started pop up in other areas?

Well, we have a healthy pipeline at the moment, particularly in the bolt-on good long list of those. And so I wouldn’t say the valuation issue has been problematic in that regard.

It just meant something that we otherwise might have been interested in we not to pass on just because of the 12 times, 13 times EBITDA and how we would make a return on capital. If anyone has any math on that, they can show me how we can, I’d love to see it.

Okay. Moving on now, in your CCL Division, I want to see if there is any inflection points of some of the trends that you’re highlighting.

You mentioned Home & Personal Care very strong. Is there anything like you’re sitting in there that would suggest that, that is not going to continue through the rest of the year and into 2019?

Yes. Well, I would say if you read through the results of that big customers in that space, and not many of them all, they’re all multinational companies.

Most of what we call Home & Personal Care is really personal care, premium personal care products. And that’s the part of that business, those customers are doing well in right now, and particularly in the emerging markets, and we’ve got a good footprint to cover that.

So I don’t see that’s likely to change anytime soon. And so we’re growing in that space we almost grew double digits in the last quarter.

So it’s really going quite well. And but that’s the reason why and we’re in that sort of premiumized personal care space where those customers are doing well.

And in the geographies where they’re doing well.

So, if you’re seeing the same kind of trends in Food & Beverage where you’re posting double-digit increases?

The increase is there actually in the mid-teens about the premiumizing phenomena. So where brands are using labels and packaging to take a product out of market into different channel or different price point, and that’s all we do.

We don’t make what I would call may be [ph] type of Food & Beverage products we’re in that sort of a premium all in those premium categories. And those are the categories where our customers are growing, and they want to do more of that anywhere they’re raising their revenue.

Okay. And then last question here, again, on the Healthcare & Specialty you indicated a mixed effect, and we know that can shift quarter-to-quarter, a year-to- year.

Will that continue to be kind of a drag on your results?

Quite likely. We’ve got some very high margin products in that space, and we also got some pretty low margin products there is a mix of the two.

And depending on what you have, can drive the profits of that one way or the other. And also in which region of the world where it’s more profitable for us in North America than it is internationally.

So it’s really driven by combination of those things. I don’t see anything on the horizon that’s likely to change that’s from being a slow growth, small improvement, small deprovement, I don’t see that changing in the near term.

Presumably when you get into 2019 that makes effect will normalize and we won’t have as much of the negative drag, is that right?

We’ll see, when we get to 2019.

Okay. Thank you very much for your time.

Thank you.

Thank you, good evening guys.

Hi, Steve, how are you?

Good thanks. Just wanted to just circle around on two larger question that we’ve already talked about little bit.

Particularly the CCL segment, so about the margin performance was actually quite strong in the quarter. And I’m just curious, was that mostly driven by the banknote’s business?

No, no, no. That was really driven by the two businesses we highlighted the strong.

So the drive there was the margins and Home & Personal Care and Food & Beverage both combine with strong sales.

Okay. Underlying, okay.

Yes. Core business really was on par in Q2, and particularly in those two segments, that’s really the driver of the performance in the CCL segment.

Okay. That’s great.

And then just looking at the Checkpoint business, we also had a very strong margin profile there. Is that something that you feel sustainable?

Well, we – I think we told everybody, where we bought Checkpoint. We didn’t see a reason why it should have a different profile to the CCL business of EBIT.

The EBITDA would be probably a little bit lower, because we don’t have as much fixed asset investment in that business. but at the EBIT level, operating income level, don’t see any reason why it should look any different from that.

And one of the ways we had to do that was to improve the profit performance the Apparel Labeling business, which had been a drag, and we certainly saw a quite significant jump there in the last quarter. And all of the cost improvement programs and things we’ve been working on since we bought Checkpoint all come nicely to fruition.

So, we are very pleased with their performance for the first half of the year.

Okay, that’s great. And then just final thing come back to Innovia, I just want to make sure I fully understand the impact there.

Could you say that the drag of $35 million, has that been the pricing drag from resin since you bought the business or through over…

Yes. I mean it’s more – if you compare, as I went back and I compare the first half of that 2016, so that two years ago for the first half of 2018, a drag is in that magnitude.

It’s pretty big. So now obviously, they’ve done some price increases, but nowhere near enough to recover that, not even close.

Yes. Okay, okay.

That’s great. I’ll get back in my queue.

Yes.

Hello.

Hi, Maggie.

Hi. So just wanted to circle back on something you said about, you’re having conversations now with your customers at Innovia around capturing some pricing increases.

Wondering how that’s going, because I know initially when you bought it and we saw the resin price hike, there is a concern about perhaps even some customers that absorbed changing resin costs in the other direction? So, have they been receptive for this conversation and understanding about recent raw material because of that’s going?

Yes. And obviously, the time since resins declined is that you need to take in everyone’s memory.

So, it’s two or three years back now. And you can see the numbers itself, so we don’t – we think that we have to do something.

It’s too far into the hole. So, we’ve only begun to start this recently.

So, conversations are being had, but it’s being had in an industry environment, where everything is going up. So pace is going up, thesis is going up, chemicals are going up, aluminum is going up.

I think there is no raw material that we touched today that isn’t heading in an upper direction. So, industry conversations are really only above that right now.

And so it’s probably as good a time as I need to be starting the discussion. I do think it’ll take a couple of quarters for us to do that thoughtfully and do all the proper analysis.

And so this is not – I don’t expect to see any impact of this 90 days from now. Our real focus is making sure we start 2019 in a lot better shape in this regard than we started 2018.

Right. And I understand that Treofan’s pricing is a bit better, but do you think there is anything to tweak there?

Well, there’s – I think the thing that they have to rethink through is the other raw materials outside of pure resin, which have all been rising and I mentioned a couple of them on the call that, titanium dioxide is an obvious one, it’s rising on that. So, these raw materials have all been rising and they’re not in the current resin index.

So, they get price increases based on that resin index and some of these other raw material has been rising significantly higher than that. So, we do have some work to do there, but it’s not as difficult as the work we have to do at Innovia.

Okay. And then excuse me, switching gears.

Within Checkpoint, the good profitability was attributed to both completion of large technology rollouts and then also from restructuring effort in the ALS division.

Yes.

I’m wondering if you are able to sort of categorize margin improvement for this segment as a whole and how much of that actually came from restructuring effort and how much for these sort of completion of large projects?

So, I would say in Q2, it’s really a combination of all of it. The profit impact on the technology rollouts is really in Q1.

There were some of that in Q2, not a significant amount. So Q2, the biggest profit driver and the improvement in Q2 was the improvement in the Apparel Labeling business, it was quite substantial.

Okay. Thanks a lot.

No problem.

Hey, good evening. Geoff, are you able to just speak to with Checkpoint, you’ve had some deployments going place with customers, like how should we think about the follow-on revenue with those customers now in the profitability of that follow-on revenue?

Yes. Well, it’s very – we have two kinds of technology rollouts we do.

One is in the electronic article surveillance business, where we’re doing security products to protect retailers, set from retailers and etailers out of that distribution warehouses. So the recovering revenue from that is I don’t know 10%, 15%, 20% in the year of the value of the hardware rollout, something like that.

When we do an RFID rollout, it’s almost the reverse. So, the consumable business there is much more important versus the cost of the technology rollout, which for us, is more software driven than hardware driven most of the time.

That’s where we have some proprietary technologies. But the label and tag business that goes with that RFID rollout is much more significant than the label and tag business that comes with the AS.

And the deployments that you would have completed in the 1Q predominantly, were those RFID or they were in the more…

AS, those deployments to be AS.

AS, okay.

Yes, yes. So, if you do a $15 million program, you’re talking about $2 million to $3 million growth of recurring revenue associated with that hardware deployment roughly.

It varies customer-by-customer, to give you a rough idea, it’s something along those lines.

Okay. And is there an idea – can we think, how do we think about the profitability, is it in line with what we see a Checkpoint or we should think about something better?

Profitability of what?

On the $2 million to $3 million recurring the…

The margins on the recurring revenue are as high as on the margin on the deployment.

Okay, okay. And then just on the RFID business at Checkpoint, I think you’ve been doing some work there.

Can you give an update as to where you stand in terms of maybe winning some of your business there?

Yes. We make – we sell roughly 1 billion units of RFID tags a year.

We don’t make most of those. The vast majority of them are made by third-party suppliers.

We are planning to make all of those ourselves going forward. So that would improve our margins in that space.

And then more importantly, this industry phenomena is growing in certain segments of the market, any segment that doesn’t have line of sight over the barcodes and RFID is now a viable technology and currently, is in the retail and the apparel space, where the vast majority of these tags go. And we’re in a good position to become a player.

We’re certainly not going to be the leader, but we’re certainly in a good position to become a player.

And would you be able to break out, say an organic growth rate for that business right now, with that Checkpoint, the RFID business? Yes.

Yes. I’m not really in a position to comment on that.

It’s not big enough to make a worthwhile comment on that. If we land something that’s material, it’s big enough; we’ll give you some disclosure on that later.

Okay. And then just one more, are you able to identify, we’re able to get some working capital savings on the checkpoint deal as well?

We were. We put some of that back in this year, because of the sales growth has been so strong.

So, we’ve had a little bit of working capital build this year. We had quite significant savings in the first year of the acquisition, and we put some of that back in and mainly in inventory to support the very strong sales growth you’ve seen.

Okay. That’s all my questions.

Thanks.

All right.

Hi, good afternoon. I have a couple of questions.

First question Geoff, on CCL Secure. I think a few quarters ago, CCL Secure had a weak quarter, but you suggested what the operating income would have been if you remove the CCL Secure for the overall CCL segment.

Given that we already know that with CCL Secure, the organic growth was 3.3, could you tell us what the operating income would have been if you remove the…

I don’t think we want to disclose about the operating income of CCL Secure is quarter-by-quarter, Ben.

Okay. Second question is you were mentioning I think in the presentation $16.6 million of asset sales.

Yes.

Can you please qualitatively mention what those involve?

Yes. There are a few buildings, we disposed off.

Obviously, we exited our Canadian plant and we’ve now sold the property that was one of the larger ones. We’ve sold a printing press out of quite a large printing press out of one of our businesses and that was another one, those are two main ones.

There are a couple of buildings filed in the first half of the year.

Okay. And then just for Sean on the tax rate.

So, in terms of modeling, what would be a proper tax rate after I would check that model, I think I have 25% or 26%?

That’s about the rate zone, Ben. It’s going to be somewhere in that range depending how things come out in the back half of the year, where the profitability is.

Where the profits are sourced…

Yes, yes.

Okay, perfect. Thank you very much.

Good afternoon, gents. Most of my questions have been answered.

Just one quickly on Checkpoint. Just wondering if you’ve seen an improvement in the growth outlook with respect to both Asia and e-commerce opportunities?

Yes. Certainly, on the e-commerce opportunities, I would say the answer to that yes, all etailers have the same issues that retailers have in the stall, the etailers have in the distribution centers.

So, we certainly see some opportunities there. We are growing in Asia, but from a low base.

So, we make a lot of products in Asia, all of our Apparel Labeling businesses invoked in Asia to vendors to ultimately come back to the U.S. or Europe.

And we are seeing good growth, but from a low base and direct to the retailers in places like China.

So, your future ability to offer RFID, your own RFID manufactured source tagging is do you see that as a big competitive advantage?

We do. Yes, I mean I think we will – by the end of next year, we will be a major player in that space.

Okay, that’s great. Thanks very much.

No problem.

Hi, good afternoon.

Hi, Elizabeth.

Just going back to the growth rate out in CCL segment, and you mentioned the adjusted so to speak rate, we will exclude Secure, I believe it was 6.6%.

Yes.

That’s really beyond the 3% to 5% range, you’ve been generally coding although you have been exceeding that range in the past as well. What are your thoughts on that kind of growth rate going forward, given that you continue to exceed that range?

Well, excluding CCL Secure, because obviously, that will either add to the growth rate or takeaway from it, had to as it did in the first call to takeaway as it did in the second. I would say it’s really a function of how well we do in our Home & Personal Care business, our Food and Beverage business, and CCL Design.

So CCL Design, because of the nature of the Electronics industry, has become very seasonal for the second half of the year. So we have to wait and see how that pans out.

But we’ve had now I’m pretty sure if you do a five-year compound annual growth rate on the CCL space, it’s up in that 5% to 6% zone in an economic environment that’s at least been positive. So, will that carry on, I mean, we hope so.

But that’s kind of how we see it today. The Healthcare and Specialty space, that’s definitely chucking a long note with a lower growth rate, 1%, 2%, 3%, something like that.

But the other two parts of the business and sometimes CCL Design in the electronic space; we have some quite interesting numbers.

Okay, great. And in – when you say interesting numbers, the strength you are seeing, is it – could you get it out of Europe or Asia or is it on…

I would say, it’s been stronger than it has been in for a while in the United States, particularly in Home & Personal Care and Food & Beverage. It's been chugging along at a steady state in Europe at a lower rate except in Food & Beverage.

Food & Beverage in Europe has been pretty strong. Asia has been particularly strong for a while now.

And Latin America has been a bit mixed. So been very good in Mexico, in the last quarter, we had the impact of the trucking strike in Brazil, many people have commented about it, it affected us a little bit, not too much, but a little bit.

Okay, great thanks. Just wanted to go a couple of other items here on Treofan I know you mentioned that earlier this year that there would be some CapEx associated with it.

Now that it's closed, can you give a sense of how much CapEx is a left, is it with respect to your estimates earlier ….

I am just looking at Sean here. I think we paid $35 million total CapEx.

Yeah we paid $35 million, so $35 million of the CapEx was complete at close. It was about another $20 million to pay.

So, $20 million for the second half. Right?

Yeah, correct.

Yeah, one more from me on CCL Secure. Since it’s – the growth rate came very meaningfully obviously, it's an important driver for that segment now.

Are you able to give a sense of right at least on a run rate basis what percent of that makes up the segment?

It is about a $200 million business.

Okay, great. Those are my questions thank you.

Thanks Geoff and Sean. Appreciate it.

Geoff back to the Innovia segment so you have the resin lags that you're dealing within both legacy Innovia and Treofan, you have the non-material inflation at Treofan that you talked about, you have acquisition accounting impact on Treofan. So when you put all that together, do you expect to be up in that Innovia segment in 3Q?

No.

You do not. Do you expect to be down?

Yes.

On the inflation beam, I know it cuts both ways, so everything has gone up now or everything is going to be down at some point soon, presumably. But are these pressures that you are dealing with causing you to think twice about buying these businesses that have this exposure to raw material fluctuations unlike your legacy label business.

No we have the same pressures in legacy label it is a little easier to pass them along because we can snatch them with the changes. But I think all of these businesses have, specialty films or for sure or it will all be cyclical.

So as our aluminum can business. So, I think we have done a lot of work on that to remove the impact arises and falls of aluminum.

So aluminum has gone from around $1,500 a ton in the United States to $2,500 a ton. During the same period, we have had all these resin increases and you haven’t heard me say one peak about what happened around aluminum because we now manage it very, very tightly.

And so I think, it is on us to do the same thing in film space. And not allow things to drift in the way they have.

Sure, and just one on polypropylene. Oil has been falling a bit of late, is that – are you thinking that polypropylene is going fall at some point soon or at any thoughts along those lines.

Well, we’d like to see a season without any hurricane, that would be a good start and so we have to get through that. And so yes, I mean, in the end this stuff does ultimately follow the price of oil.

And, it's a little bit impacted near term by supply and demand capacity in the cracking where resins are cracked. And a lot of that's in the Gulf.

So I'd be kind of surprised if there would be anything happening on the price front until we get through the hurricane risk season and see what happens at the end of that. But every prediction I've ever read about what will happen to resin, just seems to be a lot of grass, amount to a wild gas whether you are right or wrong on it.

Understood. And just one on Food & Beverage.

One of your competitors had a difficult time on Food & Beverage in the quarter, particularly in the U.S. beer market.

I know you have different exposures in your Food & Beverage business, but you said you saw I think broad based strength across all regions. Just help me understand a little bit what drove that strength perhaps compared to what your competitor was dealing with?

Well, I think our business is extremely geographically. So, we sell these products in Brazil, Mexico, United States, Germany, France, UK, Thailand, the Middle East, China.

We've got a very broad geographic exposure. We have a very broad products exposure, we sell closure labels, we sell pressures sensitive labels, we sell shrink sleeves, we sell in-mould labels.

And we focus on the brand owners that want to premiumize the space they're in. And I think some brands lend themselves to that and some brands don't, and we tend to avoid the customers we've got price driven or value driven brands that focus on the customers who want to sell for premium.

So Scotch Whiskey produces, Premium Vodka, Premium Gins, Premium Beer, so we would like to sell to Heineken's model and some other brands in the U.S. for example.

And I think that's really to drive that’s why we’ve been successful in this space.

Thanks so much, Geoff.

No problem.

Hi, thanks again. I just want to go back sort of to the Innovia.

So I apologize for that. Just on that, that $35 million that you quoted, Geoff, that's all resin?

That's all resin. So – what that number is Mark, that H1 first half 2016 pro forma against the first half 2018 pro forma, the difference is $35 million.

We did recover some of it. I'm not going to get into giving you – just to give you a flavor for how much it's – in a short space of time and what we're dealing with.

And the numbers are pretty clear as you've seen on for the quarter-to-quarter comparison. So all of that difference between this year and last year, it may be all resin.

Okay. And when I'm thinking again at some point, you’d be able to recapture some of this.

I guess, just broad service, how much would be sort of contractual or automatic whenever the window opens and how much is a commercial negotiation sort of to go fight for some of that back?

Well, I think to get us where we need to be. We definitely have to open the dialogue about the spread over the resin costs.

That's something. And other raw material costs because those other things you make film from other than resin.

So we're going to sell a lot of white film, we probably going to have to think about what we do about TIO2 down the road. So these are other things we've got to think about besides resin.

Right. But I guess again, just on that – just the resin component, I guess for – hypothetically, we just….

Well, pretty much all of it has the pass through at some point. And so that's – you still have to get it done.

And some of the products we have in that space we would say we're not happy with the spreads. So we've got to do a bit of both.

And the things to improve we’ve got to see the increase start, because otherwise you’re always behind the eight ball and time lags are too long. So this isn't something they're going to be able to fix some $535 million in three quarters or anything like that.

But just to give you an idea or the delta involved. And how much upside we now have because the numbers in the first half of the year, which I think have been pretty good overall, have this business not performing, so if we fix this, this is quite a nice upside.

I agree. That’s helpful.

Thanks a lot.

All right.

Hi, guys. Sorry to beat the dead horse here.

But just looking at the Innovia book of pass throughs, is there some risk that is polypropylene comes down towards the year-end that your annual research get done at a lower rate, and you kind of – or is it done on an average value throughout the year?

There is no rule about this so that I could comment on that – I would say it's like this because every customer situation is somewhat different. We are focused on making sure before we make any changes to the agreements we have, on the pass through, the spread starting point is in the right place.

Because if we haven't got it right, and then you make a change on that down curve, you’re going to suffer, so we are thinking about both of those things. So we are mindful of not rocking the boat, if resin look like it set a drop.

But I don't see too much on the horizon this says why that should occur or I mean, borrowing an economic slowdown.

Okay. And just one other quick question on the premium angle, what do you seeing in in-mould labels?

We are a small player in in-mould label. So it's the newest injection in-mould label decoration, it's the newest form of product decoration, and it's a good emerging market for the in the U.S.

that’s how I describe it. It's a technology that was largely developed in Europe.

It is now being deployed in the United States. We have made an investment in that, we will be a player in that as well others and but it's not move the needle kind of events for sure.

Okay. That’s correct.

Thanks very much.

All right.

I want to thank everybody for their interest in calling. If you do have any follow-up calls, please feel free to give Sean Washchuk a call.

Otherwise we'll look forward to chatting with you next quarter. Thank you very much, operator.