SOURCE: CCL Industries Inc.

CCL Industries Inc.

May 09, 2017 07:00 ET

CCL Industries Announces First Quarter Results

TORONTO, ON--(Marketwired - May 09, 2017) -

First Quarter Highlights

  • Adjusted basic earnings per Class B share(3) of $2.85, up 7.5%; basic earnings per Class B share of $2.50, down 2.7%; currency translation a $0.13 headwind versus a $0.13 tailwind for the prior year period
  • Sales increased 22.5%, supported by 6.8% organic sales growth at CCL (formerly CCL Label Segment)
  • Checkpoint delivers solid profitability in seasonally weakest quarter
  • Closed $1.15 billion acquisition of Innovia Group ("Innovia"), first month results in line with expectations

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

Sales for the first quarter of 2017 increased 22.5% to $1,061.5 million, compared to $866.8 million for the first quarter of 2016, with 2.1% organic growth, 4.7% negative currency translation impact and 25.1% acquisition-related growth, primarily driven by the acquisition of Checkpoint Systems, Inc. ("Checkpoint") on May 13, 2016, and Innovia on February 28, 2017.

Operating income(1) for the first quarter of 2017 was $158.9 million, an increase of 6.0% compared to $149.9 million for the comparable quarter of 2016. Included in the 2017 first quarter was an $8.8 million non-cash acquisition accounting adjustment related to the acquired finished goods inventory from the Innovia acquisition that was expensed in the Company's cost of sales for the quarter. Excluding this non-cash adjustment, operating income was $167.7 million for the first quarter of 2017. Excluding the impact of currency translation and the non-cash accounting adjustment operating income improved 17.1%.

Restructuring and other items of $7.4 million were reported for the first quarter of 2017. This consisted of severance costs of $3.6 million and $2.5 million for the Checkpoint and Innovia acquisitions, respectively, as well as other acquisition related transaction costs of $1.3 million for Innovia. There was a net expense for restructuring and other items of $3.0 million in the 2016 first quarter.

Tax expense in the first quarter of 2017 was $36.2 million compared to $39.3 million in the prior year period. The effective tax rates for these two periods were 29.3% and 30.6%, respectively. The decrease in tax expense is the result of a higher portion of pre-tax income being earned in lower tax jurisdictions in the first quarter of 2017 compared to the same quarter of 2016.

Net earnings were $87.8 million for the 2017 first quarter compared to $89.7 million for the 2016 first quarter. Basic and adjusted basic earnings per Class B share(3) were $2.50 and $2.85, respectively, compared to basic and adjusted basic earnings per Class B share(3) of $2.57 and $2.65, respectively, in the prior year first quarter.

Geoffrey T. Martin, President and Chief Executive Officer, commented, "First quarter results were highlighted by solid profitability from our newly configured CCL Segment on 6.8% organic growth over a strong prior year period, albeit aided by the timing of Easter in 2017; results especially strong at CCL Design and in Food & Beverage markets. Avery performance was below prior year in the U.S. on soft sales to the superstore and wholesaler channels, but prospects for 2017's back-to-school peak season are comparatively improved over recent years. CCL Container began the exit process from our Canadian plant on the previously announced loss of a large Homecare application; we expect this challenging transition to continue for another quarter or two, stabilizing before the end of 2017. Checkpoint's solid profit in their seasonally low quarter confirms the success of our reorganization initiative; the plan completes this summer. Focus now shifts to more qualitative, longer term, product innovation, supply chain optimization and customer service initiatives."

Mr. Martin added, "We closed the acquisition of the Innovia Group on February 28, 2017, for $1.15 billion with customers and employees pleased to see the business under long-term ownership. First results for the month of March met expectations. A modest $5.0 million restructuring plan focused on eliminating duplicate corporate functions will complete over the balance of the year. We continue to be excited by the opportunities for Innovia and our new CCL Secure business."

Mr. Martin continued, "Foreign currency translation reduced earnings $0.13 per share for the quarter, driven by the broad-based appreciation of the Canadian dollar versus most of the currencies in which we do business. In the prior year period we benefitted from a $0.13 per share tailwind. At today's Canadian dollar exchange rates, currency translation headwinds would moderate for the second quarter of 2017, if sustained."

Mr. Martin concluded, "With the $1.15 billion acquisition of Innovia complete, the Company's net leverage ratio(4), including the trailing results of the acquired business, increased to 2.4 times EBITDA(2), at the end of the first quarter. With cash-on-hand of $519 million, undrawn capacity of US$213 million on our syndicated revolving credit facility, the balance sheet and liquidity positions of the Company remain strong. Given the solid free cash flow outlook for 2017, the Board of Directors declared a dividend of $0.575 per Class B non-voting share and $0.5625 per Class A voting share dividend, payable to shareholders of record at the close of business on June 16, 2017, to be paid on June 30, 2017."

2017 First Quarter Highlights

Reporting Segment Update: Subsequent to the acquisition of Innovia on February 28, 2017, CCLInd modified its Segment reporting disclosure. The Label Segment or CCL Label was renamed the CCL Segment or CCL, and now includes the results of the former Innovia Security operations. The new Innovia Segment includes the results of the Innovia films operations as well as the legacy films business, which was previously included in the CCL Segment.

CCL (formerly CCL Label)

  • Sales increased 8.2% to $673.1 million, with 6.8% organic growth, 6.2% acquisition and 4.8% negative currency translation
  • Regional organic sales growth: double digit in Europe and Asia Pacific, mid-single digit in Latin America and low single digit in North America.
  • Strong 17% operating margin(1) excluding 60 bps for a non-cash acquisition accounting adjustment to Innovia Security (now CCL Secure) finished goods inventory
  • Label joint ventures added $0.03 earnings per Class B share

Avery

  • Sales down 10.5% to $160.8 million with a 6.2% organic sales decline and 4.3% negative currency translation
  • Office superstore closures and wholesaler channel weakness offset e-tail and direct-to-consumer growth in the United States; International up modestly
  • Operating income (1) declined 15.5% to $28.5 million excluding the impact of currency translation, 17.7% operating margin, down 200 bps

Checkpoint

  • Sales were $149.3 million for the retail low season
  • Operating income(1) of $15.3 million, much better than expected with a 10.2% operating margin
  • Additional $3.6 million of restructuring recorded for the quarter

Innovia

  • Sales of $29.8 million includes one month's results from the acquired Innovia film facilities plus a full first quarter at two smaller legacy plants transferred from the CCL Segment
  • Operating income(1) of $3.4 million, excludes a non-cash acquisition accounting adjustment to finished goods inventory of $4.7 million
  • Initial $2.5 million of restructuring recorded for the quarter

Container

  • Sales down 25.3% to $48.5 million with 19.9% organic sales decline and 5.4% negative currency translation
  • Operating income(1) of $6.1 million, 12.6% operating margin, impacted by aluminum cost increases and currency transaction losses
  • Start-up losses at the Rheinfelden Americas aluminum slug joint venture reduced earnings by $0.02 per Class B share

CCL will hold a conference call at 8:00 a.m. EDT on May 9, 2017, to discuss these results. The analyst presentation will be posted on the Company's website.

To access this call, please dial:

1-844-347-1036 - Toll Free
1-209-905-5911 - International Dial-In Number
10089411: Optional Conference Passcode

Audio replay service will be available from May 9, 2017, at 10:00 a.m. EDT until May 26, 2017, at 11:59 p.m. EDT.

To access Conference Replay, please dial:

1-855-859-2056 - Toll Free
1-404-537-3406 - International Dial-In Number
10089411: Conference Passcode

Forward-looking Statements

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

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

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

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

 
 
Financial Information
 
CCL Industries Inc.
Consolidated statements of financial position
Unaudited
In millions of Canadian dollars
   As at
March 31, 2017
 As at
December 31, 2016
Assets           
            
Current assets           
 Cash and cash equivalents  $519.0   $585.1  
 Trade and other receivables   813.5    672.2  
 Inventories   447.4    351.5  
 Prepaid expenses   33.7    25.8  
 Income taxes recoverable   23.3    26.2  
 Derivative instruments   -    0.1  
Total current assets   1,836.9    1,660.9  
Non-current assets           
 Property, plant and equipment   1,512.2    1,216.9  
 Goodwill   1,750.5    1,131.8  
 Intangible assets   889.4    549.6  
 Deferred tax assets   13.3    21.2  
 Equity accounted investments   66.6    64.1  
 Other assets   38.0    34.3  
Total non-current assets   4,270.0    3,017.9  
Total assets  $6,106.9   $4,678.8  
Liabilities           
Current liabilities           
 Trade and other payables  $890.0   $844.5  
 Current portion of long-term debt   71.1    4.2  
 Income taxes payable   62.7    58.3  
 Derivative instruments   7.4    -  
Total current liabilities   1,031.2    907.0  
Non-current liabilities           
 Long-term debt   2,683.0    1,597.1  
 Deferred tax liabilities   160.3    67.8  
 Employee benefits   333.9    279.3  
Provisions and other long-term liabilities   47.1    52.4  
Total non-current liabilities   3,224.3    1,996.6  
Total liabilities   4,255.5    2,903.6  
Equity           
 Share capital   273.2    261.4  
 Contributed surplus   70.0    64.2  
 Retained earnings   1,518.0    1,450.5  
 Accumulated other comprehensive loss   (9.8 )  (0.9 )
Total equity attributable to shareholders of the Company   1,851.4    1,775.2  
Total equity   1,851.4    1,775.2  
Total liabilities and equity  $6,106.9   $4,678.8  
            
         
CCL Industries Inc.
Consolidated income statements
Unaudited
 
   Three Months Ended March 31
    
In millions of Canadian dollars, except per share information  2017  2016
            
Sales  $1,061.5   $866.8  
            
Cost of sales   750.0    615.5  
Gross profit   311.5    251.3  
         
Selling, general and administrative expenses   166.1    112.2  
         
Restructuring and other items   7.4    3.0  
         
Earnings in equity accounted investments   (0.6 )  (0.8 )
    138.6    136.9  
Finance cost   16.6    8.8  
         
Finance income   (2.0 )  (0.9 )
            
Net finance cost   14.6    7.9  
            
Earnings before income tax   124.0    129.0  
            
Income tax expense   36.2    39.3  
            
Net earnings  $87.8   $89.7  
            
Attributable to:           
            
 Shareholders of the Company  $87.8   $89.9  
 Non-controlling interest   -    (0.2 )
            
         
Net earnings  $87.8   $89.7  
         
Earnings per share           
            
Basic earnings per Class B share  $2.50   $2.57  
         
Diluted earnings per Class B share  $2.47   $2.53  
   
            
CCL Industries Inc.
Consolidated statements of cash flows
Unaudited
   Three Months Ended March 31
In millions of Canadian dollars 2017 2016
Cash provided by (used for)        
Operating activities        
Net earnings  $87.8   $89.7  
            
Adjustments for:           
 Depreciation and amortization   57.4    46.8  
 Earnings from equity accounted investments, net of dividends received   (0.6 )  (0.8 )
 Net finance costs   14.6    7.9  
 Current income tax expense   31.1    27.2  
 Deferred taxes   5.1    12.1  
 Equity-settled share-based payment transactions   7.9    1.5  
 Gain on sale of property, plant and equipment   (2.5 )  (0.7 )
     200.8    183.7  
 Change in inventories   (12.1 )  (6.9 )
 Change in trade and other receivables   (31.5 )  (10.4 )
 Change in prepaid expenses   (7.9 )  4.0  
 Change in trade and other payables   (84.5 )  (128.1 )
 Change in income taxes receivable and payable   15.8    0.9  
 Change in employee benefits   11.6    3.0  
 Change in other assets and liabilities   6.0    (5.3 )
    98.2    40.9  
Net interest paid   (11.6 )  (12.9 )
Income taxes paid   (32.6 )  (13.1 )
Cash provided by operating activities   54.0    14.9  
     
Financing activities      
       
Proceeds on issuance of long-term debt   1,185.9    233.4  
Repayment of debt   (38.1 )  (148.3 )
Exercise of stock options   9.9    -  
Dividends paid   (20.3 )  (17.5 )
Cash provided by financing activities   1,137.4    67.6  
Investing activities           
            
Additions to property, plant and equipment   (111.8 )  (70.5 )
Proceeds on disposal of property, plant and equipment   3.1    5.6  
Business acquisitions and other long-term investments   (1,153.1 )  (86.1 )
Cash used for investing activities   (1,261.8 )  (151.0 )
            
Net decrease in cash and cash equivalents   (70.4 )  (68.5 )
Cash and cash equivalents at beginning of period   585.1    405.7  
Translation adjustments on cash and cash equivalents   4.3    (17.1 )
Cash and cash equivalents at end of the period  $519.0   $320.1  
            
         
CCL Industries Inc.
Segment Information
Unaudited
 
In millions of Canadian dollars
   Three Months Ended March 31
   Sales  Operating income (loss)
   2017  2016  2017  2016
CCL  $673.1  $622.3  $110.3   $103.9  
Avery   160.8   179.6   28.5    35.4  
Checkpoint   149.3   -   15.3    -  
Innovia   29.8   -   (1.3 )  -  
Container   48.5   64.9   6.1    10.6  
Total operations  $1,061.5  $866.8  $158.9   $149.9  
                    
Corporate expense           (13.5 )  (10.8 )
Restructuring and other items           (7.4 )  (3.0 )
Earnings in equity accounted investments           0.6    0.8  
Finance cost           (16.6 )  (8.8 )
Finance income           2.0    0.9  
Income tax expense           (36.2 )  (39.3 )
Net earnings          $87.8   $89.7  
                    
  Total assets  Total liabilities  Depreciation and amortization  Capital expenditures
            
         Three Months Ended March 31 Three Months Ended March 31
 March 31, 2017  December 31, 2016  March 31,
2017
 
 December 31,
2016
 
  2017 2016   2017  2016
                        
CCL $3,100.7  $2,451.9  $740.3  $639.5  $39.5  $38.7  $93.7  $53.9
Avery  588.9   566.6   173.0   201.3   3.9   4.0   7.2   8.0
Checkpoint  896.4   935.8   412.3   441.8   7.4   -   2.9   -
Innovia  860.5   -   156.3   -   2.7   -   0.8   -
Container  158.1   156.1   44.8   42.3   3.7   3.8   7.2   8.6
Equity accounted investments  66.6   64.1   -   -   -   -   -   -
Corporate  435.7   504.3   2,728.8   1,578.7   0.2   0.3   -   -
Total $6,106.9  $4,678.8  $4,255.5  $2,903.6  $57.4  $46.8  $111.8  $70.5
                                

Non-IFRS Measures

(1)Operating income and operating income margin are key non-IFRS financial measures used to assist in understanding the profitability of the Company's business units. Operating income is defined as earnings before corporate expenses, net finance cost, goodwill impairment loss, earnings in equity accounted investments, restructuring and other items, and taxes. Operating income margin is defined as operating income over sales.
  
(2)EBITDA is a critical non-IFRS financial measure used extensively in the packaging industry and other industries to assist in understanding and measuring operating results. EBITDA is also considered as a proxy for cash flow and a facilitator for business valuations. This non-IFRS financial measure is defined as earnings before net finance cost, taxes, depreciation and amortization, goodwill impairment loss, non-cash acquisition accounting adjustments to finished goods inventory, earnings in equity accounted investments and restructuring and other items. Calculations are provided below to reconcile operating income to EBITDA. The Company believes that this is an important measure as it allows management to assess CCLInd's ongoing business without the impact of net finance cost, depreciation and amortization and income tax expenses, as well as non-operating factors and one-time items. As a proxy for cash flow, it is intended to indicate CCLInd's ability to incur or service debt and to invest in property, plant and equipment, and it allows management to compare CCLInd's business to those of CCLInd's peers and competitors who may have different capital or organizational structures. EBITDA is tracked by financial analysts and investors to evaluate financial performance and is a key metric in business valuations. EBITDA is considered an important measure by lenders to the Company and is included in the financial covenants of CCLInd's senior notes and bank lines of credit.
  
  
Reconciliation of operating income to EBITDA
 
Unaudited
(In millions of Canadian dollars)      
   Three months ended March 31
Sales 2017  2016
         
CCL  $673.1   $622.3  
Avery   160.8    179.6  
Checkpoint   149.3    -  
Innovia   29.8       
Container   48.5    64.9  
Total sales  $1,061.5   $866.8  
         
Operating income           
            
CCL  $110.3   $103.9  
Avery   28.5    35.4  
Checkpoint   15.3    -  
Innovia   (1.3 )  -  
Container   6.1    10.6  
Total operating income   158.9    149.9  
Less: Corporate expenses   (13.5 )  (10.8 )
Add: Depreciation & amortization   57.4    46.8  
Add: Non-cash acquisition accounting adjustment to finished goods inventory   8.8    -  
            
EBITDA  $211.6   $185.9  
            
(3)Adjusted basic earnings per Class B share is an important non-IFRS measure to assist in understanding the ongoing earnings performance of the Company excluding items of a one-time or non-recurring nature. It is not considered a substitute for basic net earnings per Class B share but it does provide additional insight into the ongoing financial results of the Company. This non-IFRS financial measure is defined as basic net earnings per Class B share excluding gains on business dispositions, goodwill impairment loss, non-cash acquisition accounting adjustments to finished goods inventory, restructuring and other items, and tax adjustments.
  
  
Reconciliation of Basic Earnings per Class B Share to
Adjusted Basic Earnings per Class B Share
 
Unaudited
       
   Three months ended March 31
   2017  2016
Basic earnings per Class B Share  $2.50  $2.57
Net loss from restructuring and other items   0.17   0.08
Non-cash acquisition accounting adjustment related to finished goods inventory   0.18   -
         
Adjusted Basic Earnings per Class B Share  $2.85  $2.65
         
(4)Leverage ratio is a measure that indicates the Company's ability to service its existing debt. Leverage ratio is calculated as net debt divided by EBITDA.
  
For the years ended December 31March 31, 2017 
Unaudited
   
(In millions of Canadian dollars)     
    
Current debt  $71.1  
Long-term debt 2,683.0 
Total debt  2,754.1  
Cash and cash equivalents  (519.0 )
      
Net debt $2,235.1  
EBITDA for 12 months ending March 31, 2017 (see below)$943.4 
Leverage Ratio  2.4  
    
  
EBITDA for 12 months ended December 31, 2016 $792.7  
 less: EBITDA for three months ended     
 March 31, 2016  (185.9 )
 add: EBITDA for three months ended     
 March 31, 2017  211.6  
 add: Innovia EBITDA April 1, 2016 to February 28, 2017  125.0  
EBITDA for 12 months ended March 31, 2017 $943.4  
    
    
Supplemental Financial Information
 
Sales Change Analysis
Revenue Growth Rates (%)
          
Three Months Ended March 31, 2017
   Organic  Acquisition  FX   
   Growth  Growth  Translation  Total
             
             
CCL  6.8%  6.2%  (4.8%)  8.2%
Avery  (6.2%)  -  (4.3%)  (10.5%)
Checkpoint  -  100.0%  -  100.0%
Innovia  -  100.0%  -  100.0%
Container  (19.9%)  -  (5.4%)  (25.3%)
CCLInd  2.1%  25.1%  (4.7%)  22.5%
             
             

Business Description

CCLInd employs approximately 20,000 people operating 154 production facilities in 35 countries on 6 continents with corporate offices in Toronto, Canada, and Framingham, Massachusetts. CCL is the world's largest converter of pressure sensitive and extruded film materials for a wide range of decorative, instructional and functional applications for large global customers in the consumer packaging, healthcare and chemicals, consumer durable, electronic device and automotive markets. Extruded and laminated plastic tubes, folded instructional leaflets, precision decorated and die cut components, electronic displays and other complementary products and services are sold in parallel to specific end-use markets. Avery is the world's largest supplier of labels, specialty converted media and software solutions to enable short-run digital printing in businesses and homes alongside complementary products sold through distributors and mass market retailers. Checkpoint is a leading manufacturer of technology-driven, loss prevention, inventory management and labeling solutions, including RF and RFID-based, to the retail and apparel industry. Innovia is a leading manufacturer of specialty films sold to customers in the pressure sensitive label materials and consumer packaged goods industries globally. Container is a leading producer of impact extruded aluminum aerosol cans and bottles for consumer packaged goods customers in the United States and Mexico. CCLInd partly backward integrates into materials science with capabilities in polymer extrusion, adhesive development and coating, surface engineering and metallurgy that are deployed across all five business segments.

Contact Information

  • For more information on CCL, visit our website - www.cclind.com or contact:
    Sean Washchuk
    Senior Vice President and Chief Financial Officer
    416-756-8526