Stock Symbol: TSX - CCL.A and CCL.NV.B
TORONTO, July 28 /CNW/ -
Dear Shareholder:
Please find enclosed the Second Quarter 2005 financial results for CCL
Industries Inc. and the related public disclosures. This shareholder package
provides detailed information about your Company's latest business activities
and financial performance.
This report marks the first time that our financial results are separated
for our continuing specialty packaging operations after the sale of CCL's
first business, North American Custom Manufacturing, completed on May 17th,
2005. We anticipate further success in the new CCL with many opportunities for
organic growth and accretive acquisitions in specialty packaging on the
horizon.
The Board of Directors continues to be pleased with your Company's
financial progress through the first half of 2005 and takes comfort in the
significant amount of cash on hand and the Company's plan to reinvest it over
time to increase shareholder value. In June, with this solid financial
position in mind, CCL announced its intention to repurchase up to 2.1 million
Class B shares and 10,000 Class A shares on the open market over the next year
at its discretion.
Your Board of Directors is also pleased to approve a quarterly dividend
payable on September 30, 2005. This dividend will be payable at the same level
as the prior quarter and continues CCL's record of paying consecutive
quarterly dividends for over 20 years without a reduction. The dividend is
$0.10 per Class B non-voting share and $0.0875 per Class A voting share.
Conference calls with our stakeholders are always held following the
release of our quarterly results. These calls are made to ensure that all
stakeholders can gain further insight into our business in keeping with good
corporate governance practices. Presentation material used during the
conference calls is posted on our web site and an audio recording of the calls
is also available. Instructions for accessing these services are set out at
the end of this earnings release.
We encourage all shareholders to access our web site www.cclind.com on a
regular basis for investor and company news including scheduled dates for
future earnings releases. If you would like to have future Press Releases e-
mailed to you at the time they are issued, please complete the Information
Request Form under the Investor Relations Section on our Web Site or write to
us at CCL to the attention of Christene Duncan.
Yours truly,
Jon K. Grant
Chairman of the Board
Investor Update
---------------
1. Second Quarter 2005 Results and Dividend Release
2. Consolidated Statements of Earnings and Retained Earnings
3. Consolidated Balance Sheets
4. Consolidated Statements of Cash Flows
5. Notes to Consolidated Financial Statements
6. Second Quarter 2005 Management's Discussion and Analysis
7. Press Release re: Sale of the North American Custom Manufacturing
Division - May 17, 2005
8. Press Release re: Intention to repurchase shares under a Normal Course
Issuer Bid - June 15, 2005
News Release Stock Symbol: TSX - CCL.A and CCL.NV.B
CCL Releases Solid Second Quarter Results and Declares Dividend
<<
Results Summary
For Periods Ended June 30th
-------------------------------------------------------
Three Months Six Months
-------------------------------------------------------
(in millions of (Restated) (Restated)
Cdn dollars, ---------- ----------
except per % %
share data) 2005 2004 Change 2005 2004 Change
---- ---- ------ ---- ---- ------
Sales $ 280.1 $ 232.0 20.7 $ 545.8 $ 472.7 15.5
Unusual items -
net loss (15.5) - (15.5) -
Net earnings from
continuing
operations 5.1 9.1 (44.0) 21.2 20.6 2.9
Net earnings from
discontinued
operations,
net of tax 1.7 2.8 5.3 6.1
Gain on sale of
discontinued
operations,
net of tax 107.0 - 107.0 -
Net earnings 113.8 11.9 133.5 26.7
Per Class B shares
Continuing
operations $ 0.16 $ 0.28 (42.9) $ 0.66 $ 0.64 3.1
Discontinued
operations $ 0.06 $ 0.09 $ 0.17 $ 0.19
Gain on sale of
discontinued
operations $ 3.31 $ - $ 3.31 $ -
Class B -
Net Earnings $ 3.53 $ 0.37 $ 4.14 $ 0.83
Diluted earnings
per Class B $ 3.45 $ 0.36 $ 4.05 $ 0.81
Unusual items and
tax benefit on
previously
unrecognized tax
losses included
in continuing
operations
(net loss) $ (0.35) - $ (0.35) $ -
Number of
outstanding shares
(in 000s)
Weighted average
for the period 32,272 32,267
Actual at
period end 32,202 32,473
Toronto, July 28, 2005 - CCL Industries Inc., a world leader in
developing manufacturing, packaging and labelling solutions for the consumer
products industry, announced today its financial results for the second
quarter ended June 30, 2005 and the declaration of its quarterly dividend.
On May 17, 2005, CCL completed the sale of its North American Custom
Manufacturing Division ("Custom") to KCP Income Fund for gross proceeds of Cdn
$273 million. This Division is now recorded as a Discontinued Operation and
consequently its sales and income contribution are excluded from Continuing
Operations. Historical financial information on Continuing Operations has been
restated to reflect this change.
Sales from continuing operations for the second quarter of 2005 of
$280.1 million were 21% ahead of the $232.0 million recorded in the second
quarter of 2004 while sales for the first six months of 2005 of $545.8 million
were 16% ahead of last year's $472.7 million. Financial comparisons to the
prior year's results have continued to be negatively affected by the
appreciation of the Canadian dollar relative to the U.S. dollar and the Euro.
In addition, business acquisitions net of a disposition have impacted the
comparison to prior periods. Sales volume in all divisions exceeded prior year
levels as CCL continues to benefit from strong demand, particularly in the
personal care market by its multinational customers. The performance of new
acquisitions and CCL's expansion into new markets has also been positive.
Net earnings from continuing operations for the second quarter of 2005 of
$5.1 million were down by 44% from the $9.1 million recorded in the second
quarter of 2004. For the first half of 2005, net earnings from continuing
operations were $21.2 million, up 3% from the $20.6 million in the comparable
2004 period. Net earnings from continuing operations were negatively affected
by unusual losses of $15.5 million ($15.4 million after tax) but were
positively affected by a tax benefit from previously unrecognized tax losses
of $4.3 million in the second quarter of 2005 and year-to-date. There were no
unusual items in the first half of 2004.
Net earnings also included the gain on sale of Custom of $107.0 million
and net earnings from the discontinued Custom operations for the quarter of
$1.7 million and $5.3 million year-to-date. In 2004, Custom's net earnings
were $2.8 million and $6.1 million for the second quarter and year-to-date,
respectively.
Earnings per Class B share were $3.53 in the second quarter of 2005
compared to $0.37 earned in the same period last year. Earnings per Class B
share from continuing operations were $0.16 per share and earnings from
discontinued operations were $0.06 per share in the second quarter of 2005.
Earnings per Class B share from continuing operations were negatively affected
by unusual items and the tax benefit from previously unrecognized tax losses
of $0.35 per share. In addition, the gain on sale of Custom was $3.31 per
share. In the second quarter of 2004, earnings per Class B share from
continuing operations were $0.28, and from discontinued operations were $0.09.
Diluted earnings per Class B share were $3.45 in the second quarter of 2005
and $0.36 in last year's second quarter.
Earnings per Class B share for the first half of 2005 were $4.14 compared
to $0.83 earned in the first half of last year. Earnings per Class B share
from continuing operations were $0.66 per share and earnings from discontinued
operations were $0.17 per share. Included in earnings per share from
continuing operations for the first half of 2005 were unusual items and a tax
benefit of $0.35 per share. The gain on sale of Custom was $3.31 per share. In
the first half of 2004, earnings per Class B share from continuing operations
were $0.64 and from discontinued operations were $0.19. Diluted earnings per
Class B share were $4.05 for the first six months of 2005 and $0.81 in the
comparable 2004 period.
Donald G. Lang, Vice Chairman and Chief Executive Officer said, "We are
very pleased with the performance of our specialty packaging business across
all divisions. Our earnings per share from continuing operations in the second
quarter, before unusual items and a favourable tax benefit, were 82% higher
than last year's comparable period despite the persistent impact of
unfavourable currency movements. Our multinational customers, particularly in
the personal care markets, generally continue to experience higher sales
demand than last year and are growing in new markets and geographies with CCL
as their preferred supplier."
Mr. Lang continued, "In May, we sold the original business of the
Company, the North American Custom Manufacturing Division for $273 million and
recorded a $3.31 per share gain on its sale. This disposition completes the
transformation of CCL into an international specialty packaging business
focused on value-added products."
"The results of the Label Division continue to be very strong as our
strategy to invest in high-end equipment, new plants in high growth markets
and accretive acquisitions such as Steinbeis Packaging is paying off. The
aluminum business unit of the Container Division is experiencing very high
demand for its personal care and beverage products and is maintaining full
production to try to meet the needs of the marketers. New lines have been
installed and others are on order to satisfy this demand. The Plastic
Packaging unit of the Container Division has been running much more
effectively under new management and has returned to a good level of
profitability, but, most importantly, has seen significant new order intake
indicating that its credibility with customers has improved. Also, our
ColepCCL joint venture, which was created a year ago, continues to perform
well as the benefits of this merger are being realized."
Mr. Lang concluded, "We are feeling quite positive about our future in
the specialty packaging business. Our outlook for the balance of the year is
good although we typically have a somewhat slower third quarter due to the
seasonality of certain operations. With our strong cash position and cash
flow, your Board of Directors has declared the payment of a dividend of $0.10
on the Class B non-voting shares and $0.0875 on the Class A voting shares to
shareholders of record at the close of business on September 16, 2005. CCL
continues its record of paying quarterly dividends without reduction or
omission for nearly 25 years."
With the cash proceeds from the sale of Custom, the Company's financial
position is very solid. At the end of June 2005, cash and cash equivalents
amounted to $230 million while net debt was $203 million, which is
$157 million lower than the $360 million level from a year ago. Net debt to
total capitalization at June 2005 was 26.8%, down substantially from 44.7% a
year ago and 44.2% at the end of 2004. Book value per share is now up to
$17.31 at June 30, 2005, up 26% from $13.76 a year earlier.
CCL Industries Inc. (TSX CCL.A and CCL.NV.B) provides state-of-the-art
packaging solutions, including specialty aluminum containers, plastic tubes
and closures and innovative product labelling, to some of the world's largest
producers of consumer brands, helping them to get their products to market
quickly and cost-effectively. CCL develops and provides specialty-packaging
solutions for producers of leading consumer brands in personal care, cosmetic,
pharmaceutical, household and specialty food and beverage products. With
headquarters in Toronto, Canada, CCL directly employs 4,000 people and
directly operates 38 production facilities in North America, Europe and Asia.
"Statements contained in this Press Release, other than statements of
historical facts, are forward-looking statements subject to a number of risks
and uncertainties that could cause actual events or results to differ
materially from statements made. These risks and uncertainties are detailed
from time to time in CCL's public disclosure documents or other filings with
securities regulatory bodies. These forward-looking statements are made as of
the date hereof and CCL disclaims any intention and has no obligation or
responsibility, except as required by law, to update or revise any forward-
looking statements, whether as a result of new information, future events or
otherwise."
Note: CCL will hold a conference call at 10:00 a.m. DST on Friday,
----- July 29, 2005 to discuss these results.
To access this call, please dial Toll-Free North America -
1-800-774-7358 or Domestic and International - 416-641-6707.
Post-View service will be available from Friday, July 29, 2005 at
12:00 p.m. DST until Monday, August 29, 2005 at 11:59 p.m. DST
Dial: Toll-Free - 1-800-558-5253 - Access Code: 21251235.
For more details on CCL, visit our web site - www.cclind.com
Financial Tables follow ...
CCL INDUSTRIES INC.
2005 Second Quarter
Consolidated Statements of Earnings and Retained Earnings
Three months ended Six months ended
Unaudited June 30th June 30th
-------------------------------------------------------------------------
(in millions of
Cdn dollars,
except per % %
share data) 2005 2004 Change 2005 2004 Change
-------- ------------------ --------- -----------------
Sales $ 280.1 $ 232.0 20.7 $ 545.8 $ 472.7 15.5
-------------------------------------------------------
Income before
undernoted items 43.7 30.6 42.8 87.1 64.7 34.6
Depreciation and
amortization 16.2 13.7 31.7 27.1
Interest expense,
net 5.3 4.7 10.6 9.1
-------------------------------------------------------
22.2 12.2 82.0 44.8 28.5 57.2
Unusual items -
net loss (note 5) (15.5) - (15.5) -
-------------------------------------------------------
Earnings before
income taxes 6.7 12.2 (45.1) 29.3 28.5 2.8
Income taxes 1.6 3.1 8.1 7.9
-------------------------------------------------------
Net earnings from
continuing
operations 5.1 9.1 (44.0) 21.2 20.6 2.9
Net earnings from
discontinued
operations,
net of tax
(note 4) 1.7 2.8 5.3 6.1
Gain on sale of
discontinued
operations,
net of tax
(note 4) 107.0 - 107.0 -
-------------------------------------------------------
Net earnings 113.8 11.9 133.5 26.7
-------------------------------------------------------------------------
Retained earnings,
beginning of
period 289.2 239.0 272.7 227.1
Net earnings 113.8 11.9 133.5 26.7
Repurchase of
shares (10.7) - (10.7) -
-------------------------------------------------------
392.3 250.9 395.5 253.8
Less dividends:
Class A shares 0.2 0.2 0.4 0.4
Class B shares 3.0 3.0 6.0 5.7
-------------------------------------------------------
3.2 3.2 6.4 6.1
-------------------------------------------------------
Retained earnings,
end of period $389.1 $247.7 $389.1 $247.7
-------------------------------------------------------------------------
Earnings per share
Class B -
Continuing
operations $0.16 $0.28 (42.9) $0.66 $0.64 3.1
Discontinued
operations $0.06 $0.09 $0.17 $0.19
Gain on sale of
discontinued
operations $3.31 $ - $3.31 $ -
-------------------------------------------------------
Class B -
Net earnings $3.53 $0.37 $4.14 $0.83
Class A(x) $3.51 $0.35 $4.11 $0.80
-------------------------------------------------------------------------
Diluted earnings
per share
Class B -
Continuing
operations $0.16 $0.27 (40.7) $0.65 $0.62 4.8
Discontinued
operations $0.05 $0.09 $0.16 $0.19
Gain on sale of
discontinued
operations $3.24 $ - $3.24 $ -
-------------------------------------------------------
Class B -
Net earnings $3.45 $0.36 $4.05 $0.81
Class A(x) $3.43 $0.34 $4.02 $0.78
-------------------------------------------------------------------------
(x) Earnings per class A shares are $0.02 lower than Class B shares for
the second quarters ($0.03 year-to-date) for 2004 and 2005.
See notes to interim consolidated financial statements.
Certain 2004 and 2005 figures have been restated (note 4) for
discontinued operations.
CCL INDUSTRIES INC.
2005 Second Quarter
Consolidated Balance Sheets
December
Unaudited June 30th June 30th 31st
-------------------------------------------------------------------------
(in millions of Cdn dollars) 2005 2004 2004
----------- ----------- -----------
Assets
Current assets
Cash and cash equivalents $ 230.3 $ 79.3 $ 71.4
Accounts receivable - trade 162.6 197.2 194.3
Other receivables and prepaid
expenses 29.8 28.4 29.5
Inventories 96.0 116.6 125.3
-----------------------------------
518.7 421.5 420.5
Capital assets 479.8 468.5 471.8
Other assets 29.3 38.5 38.8
Intangible assets 27.8 18.2 27.5
Goodwill 323.4 301.2 315.5
-------------------------------------------------------------------------
Total assets $ 1,379.0 $ 1,247.9 $ 1,274.1
-------------------------------------------------------------------------
Liabilities
Current liabilities
Bank advances $ 10.2 $ 10.3 $ 39.4
Accounts payable and accrued
liabilities 230.9 254.0 271.4
Income and other taxes payable 26.9 4.2 8.1
Current portion of long-term debt 165.5 15.1 19.3
-----------------------------------
433.5 283.6 338.2
Long-term debt 258.0 414.2 367.7
Other long-term items 44.5 33.7 32.3
Future income taxes 87.3 71.3 86.9
-------------------------------------------------------------------------
Total liabilities 823.3 802.8 825.1
-------------------------------------------------------------------------
Shareholders' equity
Share capital (note 2) 190.0 189.2 189.8
Executive share purchase plan loans (1.8) (1.8) (1.8)
Contributed surplus 0.4 0.1 0.2
Retained earnings 389.1 247.7 272.7
Foreign currency translation
adjustment (22.0) 9.9 (11.9)
-------------------------------------------------------------------------
Total shareholders' equity 555.7 445.1 449.0
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Total liabilities and shareholders'
equity $ 1,379.0 $ 1,247.9 $ 1,274.1
-------------------------------------------------------------------------
-------------------------------------------------------------------------
See notes to interim consolidated financial statements.
Certain 2004 figures have been restated for comparative purposes.
CCL INDUSTRIES INC.
2005 Second Quarter
Consolidated Statements of Cash Flows
Three months ended Six months ended
Unaudited June 30th June 30th
-------------------------------------------------------------------------
(in millions of Cdn dollars) 2005 2004 2005 2004
---------- ---------- ---------- ----------
Cash provided by (used for)
Operating activities
Net earnings $ 113.8 $ 11.9 $ 133.5 $ 26.7
Earnings from discontinued
operations (1.7) (2.8) (5.3) (6.1)
Gain on sale of discontinued
operations (107.0) - (107.0) -
Items not requiring cash:
Depreciation and
amortization 16.2 13.7 31.7 27.1
Stock-based compensation - - 0.1 0.1
Future income taxes (0.6) 1.1 2.7 2.9
Unusual items (note 5) 15.4 - 15.4 -
-----------------------------------------------------------------------
36.1 23.9 71.1 50.7
Net change in non-cash
working capital (3.7) 10.2 (28.2) (14.7)
-----------------------------------------------------------------------
Cash provided by continuing
operations 32.4 34.1 42.9 36.0
Cash provided by (used for)
discontinued operations (3.3) 6.4 3.7 13.2
-----------------------------------------------------------------------
Cash provided by operating
activities 29.1 40.5 46.6 49.2
-------------------------------------------------------------------------
Financing activities
Proceeds and issuance of
long-term debt 3.2 - 35.5 -
Retirement of long-term debt (1.0) (0.4) (2.7) (1.8)
Increase (decrease)
in bank advances (60.9) 5.2 (25.8) 2.6
Issue of shares 2.3 0.5 3.6 1.2
Repurchase of shares (14.1) - (14.1) -
Dividends (3.2) (3.2) (6.4) (6.1)
-----------------------------------------------------------------------
Cash provided by (used for)
financing activities (73.7) 2.1 (9.9) (4.1)
-------------------------------------------------------------------------
Investing activities
Additions to capital assets (40.6) (25.7) (84.7) (49.0)
Proceeds on disposals 272.8 - 272.8 -
Business acquisitions (note 3) (0.3) - (64.1) -
Other (2.6) 1.7 0.3 0.4
-----------------------------------------------------------------------
Cash provided by (used for)
investing activities 229.3 (24.0) 124.3 (48.6)
-------------------------------------------------------------------------
Effect of exchange rate
changes on cash (1.6) 0.5 (2.1) 1.0
-------------------------------------------------------------------------
Increase (decrease) in cash 183.1 19.1 158.9 (2.5)
Cash and cash equivalents
at beginning of period 47.2 60.2 71.4 81.8
-------------------------------------------------------------------------
Cash and cash equivalents
at end of period $ 230.3 $ 79.3 $ 230.3 $ 79.3
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Cash and cash equivalents are defined as cash and short-term investments.
See notes to interim consolidated financial statements.
Certain 2004 and 2005 figures have been restated (note 4) for
discontinued operations.
CCL INDUSTRIES INC.
NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
PERIODS ENDED JUNE 30, 2005 AND 2004
(Tabular amounts in millions of Cdn dollars except share data)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The disclosures contained in these unaudited interim consolidated
financial statements do not include all of the requirements of
generally accepted accounting principles for annual financial
statements. The unaudited interim consolidated financial statements
should be read in conjunction with the annual consolidated financial
statements for the year ended December 31, 2004.
The unaudited interim consolidated financial statements are based
upon accounting principles consistent with those used and described
in the annual consolidated statements, except that: starting
January 1, 2005, the Company adopted the Canadian Institute of
Chartered Accountants ("CICA") amendments to Emerging Issues
Committee (EIC) - 144, "Accounting by a Customer (Including a
Reseller) for Certain Consideration Received from a Vendor" related
to recording of vendor rebates by a purchaser. The Committee reached
a consensus that the customer should measure the rebate based on the
estimated amount of the rebate that is expected to be received for
the underlying transactions that have occurred and that result in
progress by the customer toward achieving the specified requirement
to receive the rebate. This change to EIC - 144 did not have a
material impact on the Company.
Accounting Guideline - 15, "Consolidation of Variable Interest
Entities", is effective for periods beginning on or after November 1,
2004. The Guideline did not have any effect on the Company as it is
not party to any variable interest entities.
Comparative figures have been restated to reflect discontinued
operations (note 4) and reclassified where necessary to correspond
with the current period's presentation.
2. SHARE CAPITAL
Issued and outstanding
Actual number of shares:
June 30, June 30, December 31,
2005 2004 2004
---- ---- ----
Class A 2,434,951 2,442,092 2,439,187
Class B 29,766,842 30,030,751 30,021,756
Less: Executive Share
Purchase Plan shares (150,000) (150,000) (150,000)
--------------------------------------
Total 32,051,793 32,322,843 32,310,943
--------------------------------------
--------------------------------------
June 30, June 30, December 31,
2005 2004 2004
---- ---- ----
Year-to-date weighted average
number of shares 32,271,556 32,266,893 32,290,097
--------------------------------------
Year-to-date weighted average
diluted number of shares 32,984,684 32,879,693 32,848,536
--------------------------------------
--------------------------------------
On January 31, 2005, the Company purchased Steinbeis Packaging based
in Holzkirchen, Germany, for $64.1 million, net of cash acquired. The
purchase price was financed by cash on hand and bridge bank financing
denominated in Euros. In addition, the Company intends to exercise
its option to purchase the Holzkirchen building and land right for
$4.0 million Euros in January 2006. Steinbeis Packaging, through its
plants in the U.S., France, Germany and China, supplies battery
labels on a global basis and provides premium decorative label
solutions for the European consumer products market.
Details of the transaction are as follows:
3. ACQUISITIONS
On January 31, 2005, the Company purchased Steinbeis Packaging based
in Holzkirchen, Germany, for $64.1 million, net of cash acquired. The
purchase price was financed by cash on hand and bridge bank financing
denominated in Euros. In addition, the Company intends to exercise
its option to purchase the Holzkirchen building and land right for
$4.0 million Euros in January 2006. Steinbeis Packaging, through its
plants in the U.S., France, Germany and China, supplies battery
labels on a global basis and provides premium decorative label
solutions for the European consumer products market.
Details of the transaction are as follows:
Current assets $ 33.0
Current liabilities (32.0)
Non-current assets at assigned values 45.1
Long-term liabilities (9.8)
Future taxes (3.0)
Intangible assets 3.7
Goodwill 27.1
----------
Net assets purchased $ 64.1
----------
----------
Total consideration:
Cash, less cash acquired of $4.8 million $ 64.1
----------
----------
4. DISCONTINUED OPERATIONS
In May 2005, the Company sold its North American Custom Manufacturing
Division, for $272.8 million in cash, to KCP Income Fund, a Toronto
based contract manufacturer of private label household products. The
sale resulted in a gain of $129.8 million ($107.0 million after tax).
The gain on sale may be adjusted based on purchase price adjustments
and finalization of costs. The disposition is reported as
discontinued operations and the results are as follows:
Second quarters ended Six months ended
June 30th June 30th
---------------------------------------------------------------------
2005 2004 2005 2004
---- ---- ---- ----
Sales from discontinued
operations $ 83.0 $ 145.4 $ 246.8 $ 294.8
-------------------------------------------
Income before undernoted
items 4.5 8.5 14.0 17.7
Depreciation and
amortization 1.7 3.6 5.1 7.1
Interest expense, net 0.3 0.9 1.0 1.8
-------------------------------------------
Earnings before income
taxes $ 2.5 $ 4.0 $ 7.9 $ 8.8
Income taxes $ 0.8 $ 1.2 $ 2.6 $ 2.7
-------------------------------------------
Net earnings from
discontinued operations $ 1.7 $ 2.8 $ 5.3 $ 6.1
-------------------------------------------
Gain on sale of discontinued
operations, net of tax of
$22.8 million $ 107.0 $ - $ 107.0 $ -
---------------------------------------------------------------------
Interest expense is reported in discontinued operations by the
allocation of total interest expense based on the ratio of net assets
sold to total net assets. Income tax expense has been based on the
effective income tax rate in the local country.
The Company has indemnified the purchasers against defined claims
from the past conduct of the business. It is not possible to quantify
the maximum potential liability in relation to the indemnities,
however, the Company has made a provision for estimated
indemnification claims.
5. UNUSUAL ITEMS
Division
--------
Mexico Container business restructuring
and asset write-down Container $ (3.8)
Impairment of IntraPac L.P. investment Corporate (11.7)
----------
Loss $ (15.5)
----------
----------
Tax recovery on unusual items $ 0.1
----------
----------
In June 2005, the Company completed an evaluation of its plastic
packaging business within the Container Division in Mexico and
recorded a provision for impairment of related capital assets and
inventory write-downs that amounted to $3.8 million, with no tax
benefit.
In June 2005, the Company has provided for an impairment of its
equity investment in IntraPac L.P. in the amount of $11.7 million
($11.6 million after tax).
6. EMPLOYEE FUTURE BENEFITS
The expense for the defined benefit plans in the second quarter is
$0.4 million (2004 - $0.2 million) and year-to-date $0.9 million
(2004 - $0.4 million) . In addition, the gain on disposal of
discontinued operations included $1.3 million of settlement losses.
7. INCOME TAXES
As a result of the gain realized on the sale of the North American
Custom Manufacturing division, the Company reduced its valuation
allowance against tax losses carried forward by $4.3 million in the
second quarter.
8. SEGMENTED INFORMATION
Industry segments
As a result of the disposal of the North American Custom
Manufacturing division, the Custom segment consists of the European
Custom Manufacturing business now conducted through the ColepCCL
joint venture.
Three months ended June 30th Six months ended June 30th
-------------------------------------------------------------------------
Operating Operating
Sales income Sales income
---------------------------------------------------------------
2005 2004 2005 2004 2005 2004 2005 2004
------ -------- ------ -------- ------ -------- ------ --------
Restated Restated Restated Restated
Note 4 Note 4 Note 4 Note 4
ColepCCL/ -------- -------- -------- --------
Custom
Manufact-
uring
Europe $ 47.9 $ 46.9 $ 4.1 $ 2.0 $ 99.2 $100.8 $ 9.5 $ 4.8
Container 65.0 55.2 7.1 5.0 122.1 105.4 13.3 9.0
Label 167.2 129.9 19.3 12.4 324.5 266.5 38.4 28.6
---------------------------------------------------------------
Total
opera-
tions $280.1 $232.0 30.5 19.4 $545.8 $472.7 61.2 42.4
--------------- ---------------
Corporate
expense (3.0) (2.5) (5.8) (4.8)
--------------- ---------------
27.5 16.9 55.4 37.6
Interest
expense,
net 5.3 4.7 10.6 9.1
--------------- ---------------
22.2 12.2 44.8 28.5
Unusual
items -
net loss (15.5) - (15.5) -
--------------- ---------------
Earnings
before
income
taxes 6.7 12.2 29.3 28.5
Income
taxes 1.6 3.1 8.1 7.9
--------------- ---------------
Net
earnings
from
continuing
operations 5.1 9.1 21.2 20.6
Net
earnings
from
discontinued
operations,
net of tax 1.7 2.8 5.3 6.1
Gain on
sale of
discontinued
operations,
net of tax 107.0 - 107.0 -
--------------- ---------------
Net earnings $113.8 $ 11.9 $133.5 $ 26.7
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Identifiable Assets Goodwill
--------------------- ---------------------
June December June December
30th 31st 30th 31st
2005 2004 2005 2004
---------- ---------- ---------- ----------
Custom Manufacturing $ 182.6 $ 411.9 $ 43.7 $ 65.9
Container 277.4 261.7 52.3 51.5
Label 649.6 512.6 227.4 198.1
Corporate 269.4 87.9 - -
-------------------------------------------
Total $1,379.0 $1,274.1 $ 323.4 $ 315.5
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Depreciation &
Amortization Capital Expenditures
--------------------- ---------------------
Six months ended Six months ended
June 30th June 30th
2005 2004 2005 2004
---------- ---------- ---------- ----------
Continuing operations
---------------------
Custom Manufacturing $ 4.2 $ 2.7 $ 6.8 $ 7.9
Container 8.7 8.9 19.7 17.1
Label 18.5 14.9 58.0 23.8
Corporate 0.3 0.6 0.2 0.2
-------------------------------------------
Total $ 31.7 $ 27.1 $ 84.7 $ 49.0
-------------------------------------------------------------------------
-------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS
Second Quarters ended June 30, 2005 and 2004
This document has been prepared for the purpose of providing Management's
Discussion and Analysis (MD&A) of the financial condition and results of
operations for the second quarters ended June 30, 2005 and 2004 and an update
to the 2004 Annual MD&A document. The information in this interim MD&A is
current to July 28, 2005 and should be read in conjunction with the Company's
June 30, 2005 unaudited second quarter financial statements released on
July 28, 2005 and the 2004 Annual MD&A document, which forms part of the CCL
INDUSTRIES INC. 2004 Annual Report, dated February 10, 2005.
The financial statements have been prepared in accordance with Canadian
generally accepted accounting principles and in accordance with the
requirements of section 1751 of the CICA Handbook. Unless otherwise noted,
both these financial statements and this interim MD&A are expressed in
Canadian dollars as the reporting currency. The measurement currencies of
CCL's operations are primarily the Canadian dollar, the U.S. dollar, the Euro,
the Danish krone, the U.K. pound sterling, the Mexican peso, the Thailand baht
and the Chinese renminbi. CCL's Audit Committee and its Board of Directors
have reviewed this interim MD&A to ensure consistency with the approved
strategy of the Company.
Management's Discussion and Analysis contains forward-looking statements,
including statements concerning possible or assumed future results of
operations of the Company. Forward-looking statements typically are preceded
by, followed by or include the words "believes", "expects", "anticipates",
"estimates", "intends", "plans" or similar expressions. Forward-looking
statements are not guarantees of future performance. They involve risks,
uncertainties and assumptions, including, but not limited to: the impact of
competition; consumer confidence and spending preferences; general economic
conditions; currency exchange rates; and CCL's ability to attract and retain
qualified employees and, as such, the Company's results could differ
materially from those anticipated in these forward-looking statements.
Overview of Business Conditions
-------------------------------
The markets in which CCL and its customers operate have continued to be
generally buoyant through the second quarter of 2005 despite the continued
economic drag of higher energy and commodity costs. The Federal Reserve
continues to ramp up short-term interest rates in the United States in its
attempt to soften the potential impact of excessive inflation, the devaluation
of the U.S. dollar and the U.S. trade and fiscal deficits. Europe is
experiencing a weaker economy overall, whereas the Asian markets continue to
grow rapidly. Worldwide demand for commodities continues to be affected by
China's fast growing economy and has resulted in shortages and large cost
increases for raw materials in many industries. The growth in consumer
non-durable products sales in the western world reflects the continuation of
robust consumer spending even in the face of substantially higher energy and
commodity costs. At the same time, our customers are trying to satisfy the
booming demand for their products in Asia.
Many of CCL's international marketing customers in the personal care
industry have been continuing to benefit from higher sales volumes than last
year, particularly in a number of specific product categories and regions. Our
pharmaceutical customers are experiencing more modest growth. Overall,
customer demand for CCL's products appears to be strong into the last half of
2005. The third quarter tends to be CCL's weakest quarter due to summer
vacations, particularly in Europe and the low seasonal demand for agchem and
battery label products.
The current demand for new and existing products in CCL's aluminum
container business persists and is surpassing our ability to supply even after
the addition of meaningful new capacity in the last two years. Personal care
orders are very strong with a high backlog while orders for beverage
containers are mixed with one significant customer indicating reduced volumes.
The Plastic Packaging segment of the Container Division is experiencing a
steady turnaround in sales volumes with a larger order intake scheduled for
production in the last half of 2005. The Label business continues to enjoy
good volume growth as customers are expanding product lines and realizing the
benefits of our international network as they roll out products on a worldwide
basis. CCL's 40% owned joint venture, ColepCCL, which was formed in July 2004,
is sustaining volume growth with both existing and new customers as it
benefits from the combined capabilities of the merged businesses. Further
details on divisional volume trends can be found later in this report.
Sale of North American Custom Manufacturing - Discontinued Operations
---------------------------------------------------------------------
On May 17, 2005, CCL completed the sale of its North American CCL Custom
Manufacturing Division ("Custom") to KCP Income Fund for approximately
Cdn $273 million in cash, resulting in an after tax gain of $107.0 million.
This transaction completes the transformation of CCL into a focused specialty
packaging company. The proceeds of the sale are anticipated to fund the
continued expansion of CCL's higher growth Label and Container businesses
through further accretive acquisitions, organic internal growth and technology
enhancements. The Company may also repay debt and repurchase stock under its
Normal Course Issuer Bid.
CCL is recording this divestiture as a Discontinued Operation and
consequently its sales and income contribution have been excluded from the
disclosure of Continuing Operations. There is further information in this
report providing the sales and income of this business during CCL's ownership
in 2005 and the prior year periods. In addition, information on the gain on
sale of Custom is separately disclosed.
Review of Consolidated Continuing Operations
--------------------------------------------
Sales for the second quarter of 2005 of $280.1 million were 21% ahead of
the $232.0 million recorded in the second quarter of 2004 while sales for the
first six months of 2005 of $545.8 million were 16% ahead of last year's
$472.7 million. Financial comparisons to the prior year's results have
continued to be negatively affected by the appreciation of the Canadian dollar
relative to the U.S. dollar and the Euro. In addition, business acquisitions
net of dispositions have impacted the comparison to prior periods. Sales
increased for the quarter by 28% (year-to-date 22%) due to acquisitions and
growth partially offset by a decrease of 7% (year-to-date 6%) due to foreign
exchange and dispositions. On a comparative basis with last year's second
quarter, sales volumes increased in all Divisions.
The following acquisitions, divestitures and merger affected financial
comparisons in the second quarter and in the first half of 2005:
On July 12, 2004, CCL completed the merger of its European Custom
Manufacturing operations with COLEP Europe to create the largest contract
manufacturing company in Europe of personal care, cosmetic and
over-the-counter medication and household care products. COLEP contributed its
four contract manufacturing plants including its metal packaging business to
the joint venture and CCL contributed its two European plants and
Cdn $24 million to acquire a 40% investment in the joint venture named
ColepCCL. CCL is proportionately consolidating its interest in the joint
venture.
Also in July 2004, the Label Division acquired Graphiques Apex Inc.
located in Boucherville, QuDebec and divested its non-core Winnipeg label
business.
On January 31, 2005, CCL acquired Steinbeis Packaging, based in
Holzkirchen, Germany for Cdn $64 million. Steinbeis supplies battery labels on
a global basis and produces premium decorative label solutions for the
European consumer products market.
Net earnings from continuing operations for the second quarter of 2005 of
$5.1 million were down by 44% from the $9.1 million recorded in the second
quarter of 2004. Net income was negatively affected by unusual losses of
$15.5 million in the second quarter of 2005 ($15.4 million after tax). In
addition, net earnings were positively affected by a tax benefit from
previously unrecognized losses of $4.3 million. There were no unusual items in
the second quarter of 2004. Operating income improved from last year's second
quarter due to a substantially stronger performance in the Label Division and
the Container Division (in both the aluminum and plastic packaging segments),
and higher income from the new ColepCCL joint venture in 2005 than our former
European Custom Manufacturing business in 2004. These improvements in
operating income were partly offset by the negative effect of the lower value
of the U.S. dollar and the Euro relative to the Canadian dollar. Net interest
expense allocated to continuing operations was $0.6 million higher than last
year in the quarter due primarily to higher U.S. floating interest rates.
Since the sale of Custom in mid-May, all interest expense and the interest
income received on the cash from the sale of Custom are included in continuing
operations. Corporate expenses were up $0.5 million due to higher public
company costs and inflation. The tax rate for continuing operations, excluding
unusual items, was 7% for the quarter, due to the one-time benefit of
utilizing previously recognized tax losses as a result of the gain on the
disposition of Custom ($4.3 million) but would have been 27% excluding this
tax benefit.
For the first six months of 2005, net earnings from continuing operations
were $21.2 million, up 3% from the $20.6 million in the comparable 2004
period. Net earnings for the six months were affected by the unusual losses of
$15.5 million ($15.4 million after tax) in the second quarter of 2005. The
benefit from previously unrecognized tax losses of $4.3 million was included
in the six months of 2005 results. There were no unusual items in the first
half of 2004. Operating income in the first six months improved in all
divisions, compared to 2004, but was partially offset by the negative effect
of currency translation and transactions due to the weaker U.S. dollar and
Euro. Net interest expense allocated to continuing operations for the six
months was up $1.5 million compared to last year, due to higher floating
interest rates and acquisition debt. The tax rate before unusual items for the
six months was 18% but would have been 28% excluding the benefit of utilizing
previously recognized tax losses as a result of the gain on the disposition of
Custom ($4.3 million).
Earnings from continuing operations per Class B share were $0.16 in the
second quarter of 2005 compared to the $0.28 earned in the same period last
year, a decrease of 43%. Unusual items reduced earnings per share by $0.48 in
the second quarter of 2005 and the tax benefit from previously unrecognized
tax losses positively impacted earnings per share from continuing operations
by $0.13 in the second quarter of 2005. The impact of the unusual items and
the tax benefit on a per share basis is measured by dividing the after-tax
amount of the items by the average number of shares outstanding in the
relevant period. There were no unusual items in the second quarter of 2004.
For the first six months of 2005, earnings from continuing operations per
Class B share were $0.66 compared to $0.64, a 3% increase from the earlier
period. Unusual items reduced earnings per share by $0.48 for the six months
of 2005 and the tax benefit from unrecognized tax losses positively impacted
earnings per share by $0.13 for the six months of 2005. There were no items of
this nature in the first half of 2004. Management will continue to disclose
the impact of significant unusual items on its results because the timing and
extent of such items do not reflect or relate to the Company's ongoing
operating performance. Management evaluates the operating income of its
divisions before the effect of unusual items. Diluted earnings per Class B
share from continuing operations were the same as the basic earnings for the
second quarter of 2005 and $0.01 lower than basic earnings year-to-date.
There were two unusual items in the second quarter of 2005 totaling
$15.5 million ($15.4 million after tax). In the third quarter of 2003, the
Company sold four non-core business units in its Container Division to
IntraPac L.P. for $71.5 million and retained a 50% equity interest. The value
of this equity interest has been impaired and has been written-down by
$11.7 million ($11.6 million after tax) to its net expected realizable value.
Additionally, the Company restructured its Mexican Plastic Container business,
giving rise to the impairment of certain equipment and inventory write-downs
as described later in this report. This unusual expense was $3.8 million with
no tax benefit recognized. The earnings impact of these unusual items was
$0.48 per Class B share.
The following table is presented to provide context to the change in the
Company's business in 2005 after the sale of Custom. CCL's challenge is to
replace the ongoing income previously generated by Custom. The plan to replace
this income includes investing in its existing businesses by capital
expenditures and accretive acquisitions over the next two years, generating
interest income on the cash proceeds from the sale, paying down debt and
repurchasing stock at appropriate prices. The progress of the replacement of
the Custom income is of primary importance to our shareholders and the
financial community. This progress is measured based on earnings per Class B
share from the following table. The gain from the sale of the Custom business
is excluded for this purpose. If the net negative impact of unusual items and
the tax benefit from previously unrecognized tax losses is excluded from these
results, there is meaningful improvement over the prior year performance.
(in Canadian dollars)
---------------------
2nd Quarter Year-to-Date
Earnings per Class B shares ----------------------------------
--------------------------- 2005 2004 2005 2004
From Continuing Operations $0.16 $0.28 $0.66 $0.64
From Discontinued Operations $0.06 $0.09 $0.17 $0.19
Net loss from Unusual Items and Tax
Benefit Included in Continuing
Operations $0.35 - $0.35 -
---- ----
---- ----
The gain, after tax, on the sale of Custom recorded in the second quarter
of 2005 is $107.0 million or $3.31 per Class B share. Adjustments to the gain
on disposal may be required upon resolution of contingencies related to the
disposal. The reclassification to discontinued operations of the historical
earnings of Custom was prepared according to generally accepted accounting
principles. Interest expense was allocated based on the ratio of the net
assets employed in the business (not the proceeds from the sale) to the total
net assets of CCL. The income tax expense was based on Custom operating as an
independent business in Canada and the U.S.A. and incurring income tax at the
appropriate federal, provincial and state tax rates.
The following is selected financial information for the ten most recently
completed quarters:
(in millions of Canadian dollars, except per share amounts)
-----------------------------------------------------------
Qtr 1 Qtr 2 Qtr 3 Qtr 4 Total
------- ------- ------- ------- -------
Sales - Continuing
Operations
2005 $ 265.7 $ 280.1 $ 545.8
2004 240.7 232.0 220.0 221.2 913.9
2003 254.2 245.7 215.0 205.9 920.8
Net earnings - Continuing
Operations
2005 16.1 5.1 21.2
2004 11.5 9.1 13.5 9.9 44.0
2003 7.6 9.0 1.8 11.3 29.7
Net earnings
2005 19.7 113.8 133.5
2004 14.8 11.9 18.6 13.9 59.2
2003 $ 14.1 $ 14.7 $ 6.8 $ 17.4 $ 53.0
Qtr 1 Qtr 2 Qtr 3 Qtr 4 Total
------- ------- ------- ------- -------
Net earnings per Class B share
Continuing Operations
Basic
2005 $ 0.50 $ 0.16 $ 0.66
2004 0.36 0.28 0.42 0.30 1.36
2003 0.23 0.28 0.05 0.35 0.91
Diluted
2005 0.49 0.16 0.65
2004 0.35 0.27 0.42 0.30 1.34
2003 0.23 0.28 0.05 0.34 0.90
Net earnings per Class B share
Basic
2005 0.61 3.53 4.14
------
2004 0.46 0.37 0.58 0.43 1.84
2003 0.43 0.46 0.21 0.54 1.64
Diluted
2005 0.60 3.45 4.05
------
2004 0.45 0.36 0.57 0.43 1.81
2003 $ 0.42 $ 0.45 $ 0.21 $ 0.53 $ 1.61
-------------------------------------------------------------------------
Over 85% of CCL's sales from continuing operations are generated in
foreign currencies and are then translated into Canadian dollars for reporting
purposes. The United States dollar is the functional currency for over 40% of
CCL's total sales from continuing operations and it has depreciated on average
by 8% compared to the Canadian dollar in the second quarter 2005 versus last
year's second quarter. In addition, the Euro is the functional currency for
approximately 40% of CCL's sales and it has also weakened by 3% versus the
Canadian dollar. Changes in foreign exchange rates have reduced earnings per
share from continuing operations due to currency translation by $0.03 in the
second quarter compared to 2004 and $0.05 year-to-date.
Additionally, CCL has a hedging program to lock in a portion of its
expected U.S. dollar revenues earned in Canada. These hedge transactions were
at an average rate of $1.35 (US$ 2.0 million sold forward) for the second
quarter of 2004 but, due to the decline in the U.S. dollar over the last year,
the average rate on the 2005 hedges was $1.23 (US$ 5.3 million sold forward).
The change in the rates on these currency transactions reduced comparative
income for continuing operations by $0.6 million in the second quarter of 2005
($1.3 million year-to-date) and reduced comparative earnings per share by
$0.02 for the quarter ($0.04 year-to-date). In addition, during the second
quarter of 2005, the Company cancelled foreign exchange contracts for the
Custom business at a cost of $0.9 million, which was expensed against the gain
on disposition. As at June 30, 2005, the remaining outstanding foreign
exchange contracts for 2005 and 2006 had a fair value of $0.3 million.
Net interest expense for continuing operations was $5.3 million for the
second quarter of 2005, up from $4.7 million from the comparable period last
year due to the impact of higher floating interest rates. The depreciation of
the U.S. dollar has also had the effect of reducing reported interest expense
as CCL's borrowings are primarily denominated in U.S. dollars in the form of
private placements from U.S. institutional investors. Net interest expense is
net of interest earned on both short-term investments and interest rate swaps.
The Interest Rate Swap Agreements ("IRSA") have had the effect of converting
U.S. dollar fixed rate debt into U.S. dollar floating rate debt. The Company
is also amortizing a gain realized on the sale of an IRSA in 2001. In
addition, the Company entered into two Cross Currency Interest Rate Swap
Agreements ("CCIRSA") in June 2005 that have the effect of converting
$68.5 million U.S. dollar fixed rate debt into Euro floating rate debt for a
notional amount of 56.6 million Euros. These two CCIRSA's reflect the terms of
the Company's existing U.S. dollar borrowings and are a hedge against CCL's
European investments and cash flow. The CCIRSA's expire in 2010 and 2012.
The unrealized loss on all of the above agreements as at June 30, 2005
amounted to approximately $0.2 million. The effect of these four IRSAs and two
CCIRSA's has been to reduce interest expense by $0.8 million in the second
quarter of 2005 compared to a reduction of $1.9 million in the second quarter
of 2004. For the first six months, the impact was a reduction of $1.8 million
in 2005 and $3.7 million in 2004. Interest coverage (defined as operating
income before unusual items and net interest expense divided by net interest
expense calculated on a 12-month rolling basis) improved to 5.3 times in 2005
compared to 4.3 times in 2004.
The income tax rate for continuing operations, excluding unusual items,
and the tax benefit from previously unrecognized tax losses was 27% in the
second quarter of this year (year-to-date 28%), compared to 25% in last year's
second quarter (year-to-date 28%). This effective tax rate is lower than the
combined Canadian federal and provincial tax rates of 34.2% for the year 2005
due to the benefit of lower tax rates in foreign subsidiaries net of income
and expense items not subject to tax expense or tax recovery.
The Company's financial position is very solid. At the end of June 30,
2005, cash and cash equivalents amounted to $230.3 million compared to
$79.3 million as at June 30, 2004 and $71.4 million at December 31, 2004.
Capital spending was heavy in the second quarter with spending of
$40.6 million compared to $25.7 million last year. The major capital
expenditures in the second quarter were the line installations in the
Container Penetanguishene operation, printing equipment for the Plastic tube
business and many new presses for Label plus the new plant installations in
Poland and China. As is usual in CCL's business, working capital increased in
its traditional seasonal pattern in the first half of both 2005 and 2004 after
the typically lower levels at the end of each year. Net debt amounted to
$203 million at June 30, 2005, $152 million lower than the net debt of
$355 million at the end of 2004 and $157 million lower than the $360 million
on June 30, 2004. The decrease in net debt since December 31, 2004 is
primarily due to the Custom divestiture offset in part by the Steinbeis
acquisition, capital spending and the seasonal working capital increase. The
decrease in net debt from a year ago is due primarily to the Custom sale
offset in part by the Steinbeis acquisition combined with the $24 million of
cash invested in July 2004 to create the ColepCCL joint venture.
In June 2005, the Company announced its intention to acquire, via a
Normal Course Issuer Bid ("Bid"), up to 10,000 Class A voting shares and
2,100,000 of its issued and outstanding Class B non-voting shares between
June 16, 2005 and June 15, 2006. This Bid represents 0.4% of the issued and
outstanding Class A shares and 9.8% of the public float of the Class B shares.
As of today's date, no shares have been acquired under this Bid. Under its
previous Bid that expired on May 24, 2005, the Company repurchased 2,200
Class A shares and 658,500 Class B shares at an average price of $23.91 per
share in the 12-month period. During the second quarter of 2005, the Company
repurchased 560,000 Class B shares under the previous Bid at an average price
of $25.16.
During the second quarters of 2005 and 2004, the Company generated cash
from all operations of $29.1 million and $40.5 million, respectively. Working
capital consumed $3.7 million of cash in the second quarter of 2005 while
generating $10.2 million in last year's second quarter. In addition,
$40.6 million was spent on capital additions in the second quarter as CCL
continues to reinvest in its businesses to take advantage of current and
future expected organic growth. This level of capital spending was higher than
the $16.2 million of depreciation and amortization in the second quarter of
2005. Plans for capital spending in 2005 are expected to be in excess of
$120 million as the Company continues to expand its business base into new
markets and invest in assets to add capacity and improve its competitiveness.
Net debt to total capitalization defined as net debt divided by net debt
plus shareholders' equity, at June 30, 2005 was 26.8%, down from 44.2% at the
end of 2004 and 44.7% a year ago due primarily to the Custom sale. Book value
per share defined as shareholders' equity divided by total period end shares,
was $17.31 at the end of the second quarter of 2005, 26% higher than the year
ago level of $13.76 and 25% above $13.89 at year-end 2004. The increase is
primarily the result of earnings retained in the Company including the
significant gain on the sale of Custom.
Discussion of Divisional Business Segments
------------------------------------------
ColepCCL Joint Venture/Custom Manufacturing - Europe
----------------------------------------------------
The ColepCCL joint venture was created in July 2004. For the second
quarter of 2005, CCL's proportionate share of the joint ventures' sales was
$47.9 million. This sales level was 2% higher than the comparative sales last
year of CCL's two former European operations of $46.9 million. On a
year-to-date basis, CCL's share of the joint venture sales was $99.2 million;
this is 2% less than the $100.8 million of sales from our former operations in
2004. Comparative sales have been reduced by the decline in the value of the
Euro since last year. The Euro declined 4% for the quarter and 3%
year-to-date.
Operating income in the second quarter of 2005 for ColepCCL was
$4.1 million indicating an improved return on sales of 8.6%. CCL's former
operations in the second quarter of 2004 had operating income of $2.0 million
and a return on sales of 4.3%. Operating income on a year-to-date basis was
$9.5 million versus $4.8 million from our former operations in 2004.
Sales growth for the joint venture in local currency was 9% higher than
the combined former operations for the first half of 2005 versus 2004 pro
forma, with higher volumes in the Contract Manufacturing Operations due to the
synergies of this business combination. Metal Packaging sales were ahead of
last year but have been impacted by conversions from steel to aluminum
aerosols by its customers due to the high cost of tinplate. Profitability from
these operations has been strong, with Contract Operations benefiting from the
volume increase and Metal Packaging from significant price increases that have
more than offset the added tinplate costs.
In June 2005, ColepCCL completed the closure of its plant in Madrid,
Spain. Some of its production lines were moved to the U.K., Poland and
Portugal. Significant closing costs approaching $5 million were incurred and
the land and building are being sold. This plant closure is expected to
improve overall profitability in ColepCCL and certain qualifying costs
associated with its closure were accounted for as part of the formation of the
joint venture in 2004. Closing costs that were expensed in the quarter were
immaterial.
Container
---------
Sales in the second quarter were $65.0 million, up 18% from $55.2 million
last year and for the first half of 2005 were $122.1 million, up 16% from the
$105.4 million last year. Sales increased for the quarter by 25% (year-to-date
23%) due to internal growth, offset in part by a decrease of 7% (year-to-date
7%) due to foreign exchange translation.
The Container Division continues to benefit from the strong demand for
aluminum aerosol containers, the growth in usage of aluminum bottles, and
other new applications for this technology. Personal care volume in the
aerosol format continued to be very strong as our customers are ramping up
many new products. The beverage business benefited from the new aluminum beer
bottle promoted originally by Pittsburgh Brewing and now Molson for its Kick
product. Non-alcoholic beverage container sales were down from a year ago.
Mexican aerosol container sales also were strong in the second quarter but
plastic tube sales were much lower than 2004. The backlog for aluminum
container products remains very high even as new capacity has been added to
meet this demand and to improve service levels. In the meantime, certain
production requirements are being outsourced to satisfy customer requirements.
In the Plastic Packaging business in the U.S., sales were down 3% in the
second quarter compared to last year, due to unfavourable currency translation
that was partially offset by volume increases. The demand for plastic tubes
has continued to show improvement in the quarter and new orders to be
manufactured in the last half of the year appears to be strong. New
management, improved operational performance and new equipment installations
have improved credibility with the customer base. Plastic closure sales
volumes were similar to last year's performance.
Operating income for the second quarter of 2005 was $7.1 million, up 42%
from $5.0 million in the second quarter of 2004. Operating income increased by
52% (year-to-date 56%) for the quarter, offset by a decrease of 10%
(year-to-date 8%) due to foreign exchange translation. The improvement in
operating income is due to the higher aluminum container volumes and improved
operational performance in the Plastic Packaging business. Plastic Packaging
operated at profit in the second quarter of 2005 compared to a loss in the
prior year quarter, a turnaround of $1.7 million reflecting higher volume,
overhead reductions and improvements in manufacturing. For the six months to
date, operating income for the Container Division was $13.3 million versus
$9.0 million last year, up 48%.
The aluminum container plant in Penetanguishene, Ontario sells a large
part of its production to the United States market. During 2004, this
operation hedged some of its sales by selling forward the U.S. dollar into
Canadian dollars at the rate of $1.35. However, as the U.S. dollar has
weakened, the contracts for 2005 were transacted at only $1.23, which further
reduced the Division's comparable income by $0.6 million for the quarter and
$1.3 million for the first six months compared to last year.
The Mexican container operation has been the responsibility of Geoff
Martin, President and Chief Operating Officer, this year. After a review of
its profitability and its investment base, the operation was restructured to
concentrate on only profitable product lines and, consequently, certain
machinery and inventory, primarily in the plastic tube side of the business,
were written off. This unusual item was $3.8 million. The Mexican operation's
metal container business is profitable and plans for future growth are under
consideration.
The Container Division has invested $12.4 million in capital in the
second quarter of 2005 compared to $5.0 million last year, to maintain and
expand its manufacturing base and reduce its production costs. Depreciation
and amortization amounted to $4.5 million in the second quarter of 2005
compared to $4.6 million in the second quarter of 2004. The Division has
successfully installed three new aluminum container lines in the last two
years and is now installing a fourth new line which is expected to be
operational in early third quarter 2005. A fifth new line is on order for
installation during 2006 and is destined for the expanded Hermitage,
Pennsylvania plant. The sixth and seventh new lines are on order for later in
2006 although their destination has not yet been determined.
The Container Division continues to hedge some of its anticipated future
aluminum purchases through futures contracts. The value of these futures at
June 30, 2005 was $7.1 million.
Label
-----
Sales for the Label Division of $167.2 million for the second quarter
were up 29% from $129.9 million in the same quarter last year. For the six
months to date, sales were $324.5 million in the quarter, up 22% from the
$266.5 million of the comparable prior year period. Sales increased for the
quarter by 38% (year-to-date 30%) due to acquisitions and growth, partially
offset by foreign exchange and a disposition of 9% (year-to-date 8%).
Sales growth in the second quarter was predominantly due to the Steinbeis
acquisition but the business also experienced a continuation of the positive
volume trends in its other businesses seen since late last year. North
American personal care volume was well ahead of last year for the quarter,
with major improvements in Mexico. Specialty products were also much improved
over last year's second quarter in both agchem and promotional labels. The
North American healthcare business recorded sales that were ahead of last year
due primarily to the Graphiques Apex acquisition. European sales were ahead of
last year in personal care, healthcare and specialty and food and beverage,
and Thailand enjoyed dramatic growth from last year's start-up position. Sales
from Steinbeis Packaging were particularly strong for the battery business.
The business continues to benefit from its international presence dealing with
large multinational customers. There are many new opportunities for growth in
the new Asian and Polish operations and in the beverage category.
Operating income for the second quarter of 2005 was a robust
$19.3 million, up 56% from $12.4 million in the second quarter of 2004 and
return on sales at 11.5% exceeded internal targets. This improvement was
driven primarily by improvements in volumes and operating margins in most of
the Division's operations and the incremental effect of acquisitions completed
in the last three years. Year-to-date operating income was $38.4 million
versus $28.6 million last year, up 34%. Return on sales was 11.8%. Operating
income increased for the quarter by 69% (year-to-date 46%) due to acquisitions
and growth but was offset by a decrease of 13% for the quarter (year-to-date
12%) due to foreign exchange and a disposition.
CCL acquired the Steinbeis Packaging business on January 31, 2005 for
approximately $64 million in cash. The transaction was paid for with cash on
hand and a bridge bank line of credit. Steinbeis Packaging, based in Germany,
supplies battery labels on a global basis and provides premium product
decorating solutions for the European consumer products market. Steinbeis'
plants are located in Germany, France, the United States and China and
complement CCL's existing plants. In July 2004, the Division acquired
Graphiques Apex Inc. in Boucherville, QuDebec to expand its healthcare
offerings. Sales and operating income from these two acquisitions in second
quarter 2005 amounted to $33.7 million and $3.4 million, respectively. Also,
in July 2004, the non-core Winnipeg business was sold. Sales and operating
income for this disposition in the second quarter of 2004 were $2.3 million
and $0.3 million, respectively.
Sales backlogs for the label business are generally low due to short
customer lead times but indications are that customers' orders are firm for
the third quarter of 2005. However, it is important to note that there is
seasonality in the overall label business with the first and fourth quarters
being generally stronger than the second quarter and particularly the third
quarter. This seasonality slowdown is a result of summer vacations primarily
in Europe, strong agchem label production before the spring planting season,
and then increased battery label production in the late summer and fall for
the Christmas season.
The Label Division invested $24.4 million in capital in the second
quarter of 2005 compared to $17.0 million in the same period last year. The
capital was spent throughout the Division to maintain and expand its
manufacturing base by adding presses in strategic locations including the
construction of new plants in Poland and China. The Division expects to
continue to spend capital to increase its capabilities, expand geographically,
and replace or upgrade existing plants and equipment to improve efficiencies
over the next few years. Depreciation and amortization for the Label Division
were $9.5 million for the second quarter of 2005 and $7.5 million in the
comparable 2004 period.
Liquidity and Capital Structure
-------------------------------
The Company's debt structure is primarily comprised of three private debt
placements completed in 1996, 1997 and 1998 totaling US$ 304.9 million
(Cdn$ 373.6 million) at June 30, 2005, with an average interest rate of 5.6%,
factoring in the related Interest Rate Swap Agreements. A scheduled annual
repayment of US$ 9.4 million (Cdn$ 11.5 million) on one of these notes is due
in September 2005. In addition, the US$ 120 million notes issued in 1996 are
due to be repaid in March 2006. Repayment of these notes is expected to come
primarily from the recent proceeds on the sale of the Custom business as
described above. Net debt has decreased from year-end 2004 and from the year
ago period due primarily to the Custom sale offset in part by the Steinbeis
acquisition. The net debt analysis is as follows:
June 30, December 31, June 30,
$ Millions 2005 2004 2004
---------- --------- ------------- ---------
Total debt $433.7 $426.4 $439.6
Cash on hand 230.3 71.4 79.3
------ ------ ------
Net debt $203.4 $355.0 $360.3
------ ------ ------
------ ------ ------
Non-cash working capital traditionally increases during the first part of
each year to accommodate increased customer activity following the slower
year-end period, before reducing to its lowest point at the next year-end.
This increase in working capital in the first six months of $28.2 million in
2005 compared to an increase of $14.7 million in the comparable 2004 period.
Capital spending was $40.6 million in the second quarter of 2005;
$14.9 million higher than the $25.7 million spent in the same quarter last
year. Year-to-date capital spending of $84.7 million compares to $49.0 million
spent in the first half of 2004. Overall, the level of capital spending
exceeded depreciation and amortization to provide for increased capacity as
previously described, to implement cost reduction programs, and to maintain
the existing business and asset base. It is expected that capital spending
will continue at a strong pace in 2005 and is expected to be above the
$120 million mark for the year.
Dividends declared in the second quarters of 2005 and 2004, were
$6.4 million and $6.1 million, respectively. The total number of shares
outstanding at June 30, 2005 of 32.2 million is slightly lower than the
32.5 million outstanding a year ago due to the exercise of stock options more
than offset by the shares repurchased under Normal Course Issuer Bids. The
current annualized dividend rate is $0.35 per Class A share and $0.40 per
Class B share. The Company has historically paid out dividends at a rate of
20-25% of normalized earnings. Since the Company's cash flow is strong, the
Board approved a continuation of the quarterly dividend rate of $0.0875 per
Class A share and $0.10 per Class B share payable at the end of
September 2005.
Effective January 1, 2005, the Company has adopted the Canadian Institute
of Chartered Accountants ("CICA") amendments to the Emerging Issues Committee
rules with respect to the recording of vendor rebates by a purchaser. The
adoption of this change did not have a material impact on the Company. A new
CICA guideline on the consolidation of variable interest entities had no
impact on the Company since it is not a party to any variable interest
entities.
The Company has no material "off balance sheet" financing obligations
except for typical long-term operating lease agreements. The nature of these
commitments is described in note 14 of the December 31, 2004 Annual
Consolidated Financial Statements. The Company does not have any material
related party transactions. Additionally, the vast majority of the Company's
post-employment obligations are defined contribution pension plans. There are
no defined benefit plans funded with CCL stock.
Risks and Strategies
--------------------
The 2004 Management's Discussion and Analysis in the Annual Report
detailed the risks to the Company's business and the strategies that were
planned for 2005 and beyond. The disposition of the North American Custom
Manufacturing business has eliminated or reduced certain risks applicable to
that business segment. CCL will have less dependence on the international
competitiveness of North American manufacturing; less reliance on the
long-term currency effects of the U.S. dollar relative to the Canadian dollar;
less refinancing risk on the maturity of its US$ 120 million senior notes in
March 2006 and less overall dependence on a concentrated number of consumer
products companies. CCL will now be more dependent on the inherent risks
associated with running a more internationally diverse specialty packaging
business without the diversification effect of the divested business. The
Company will have more dependence on the European and Asian economies and
their currencies. These non-Canadian risks were described in the 2004
Management's Discussion and Analysis.
Outlook
-------
In 2005, the Company will be more focused on the growth prospects of its
specialty packaging business and the prudent management of the cash generated
from the disposition with a view to improving shareholder value. The Company
is investigating a number of mid-sized potential acquisition candidates that
meet its criteria of core products and customers, and the expectation of
immediate earnings accretion. The sales growth experienced in the first half
of 2005 is expected to continue through the balance of the year.
Stock Symbol: TSX - CCL.A and CCL.NV.B
CCL Completes Sale of its North American Custom Manufacturing Division
Toronto, May 17, 2005 - CCL Industries Inc., a world leader in developing
and providing specialty packaging and labelling solutions for the consumer
products industry, announced today that it has completed the sale of its North
American CCL Custom Manufacturing Division to KCP Income Fund for
approximately Cdn $273 million in cash. This transaction transforms CCL into a
pure specialty packaging company. The proceeds from the sale will fund the
continued expansion of CCL's higher growth Label and Container businesses
through further acquisitions and technology improvements. The Company may also
repay debt, and repurchase stock.
The North American Custom Manufacturing Division generated sales of
Cdn $604.6 million in 2004 and accounted for Cdn $26.6 million of CCL's
consolidated operating income. With the sale completed, CCL's annualized
revenues will still be in excess of Cdn $1.0 billion including revenues
generated by Steinbeis Packaging, the label acquisition completed in
January 2005.
Mr. Donald Lang, CEO and Vice Chairman stated, "This completes the
dramatic transformation of CCL that we started five years ago, with CCL now
emerging as a pure specialty packaging company focusing on our high growth
Label and Container businesses. We were pleased to report significant income
growth in the first quarter of 2005 compared to the first quarter of 2004 of
18% and 55% in the Label and Container divisions, respectively. This
performance coupled with the positive contributions of ColepCCL and Steinbeis,
ongoing operational improvements and the continued strength of the personal
care market, bode well for continued success in 2005. Based on these positive
factors, we anticipate earnings before unusual items for 2005 to exceed the
Company's 2004 performance."
Donald Lang added, "The sale of our North American Custom Manufacturing
business is consistent with our objective of redeploying our resources to
shareholder value-maximizing initiatives and also reduces our risk profile by
diversifying our exposure to the U.S. currency. This divestiture also
significantly improves CCL's balance sheet to support the continuation of the
Company's growth strategy."
Management believes this initiative will help position CCL to achieve
valuations for its common shares that are more comparable with its publicly
traded North American specialty-packaging peers. CCL anticipates recording an
after tax gain on this disposition of approximately Cdn $100 million or
Cdn $3.00 a share.
The Company is also pleased to confirm the appointment of Geoffrey Martin
to the position of President and Chief Operating Officer, expanding his
responsibilities to include all operations of the new CCL. Donald Lang is
appointed to the new role of Vice Chairman of the Board and retains his
responsibilities as Chief Executive Officer. Both appointments were announced
in April in conjunction with the announcement of the sale of the North
American Custom Manufacturing Division.
CCL Industries Inc. (TSX CCL.A and CCL.NV.B) provides state-of-the-art
packaging solutions, including specialty aluminum containers, plastic tubes
and closures and innovative product labelling, to some of the world's largest
producers of consumer brands, helping them to get their products to market
quickly and cost-effectively. CCL develops and provides specialty-packaging
solutions for producers of leading consumer brands in personal care, cosmetic,
pharmaceutical, household and specialty food and beverage products. With
headquarters in Toronto, Canada, CCL directly employs 4,000 people and
directly operates 38 production facilities in North America, Europe and Asia.
"Statements contained in this Press Release, other than statements of
historical facts, are forward-looking statements subject to a number of risks
and uncertainties that could cause actual events or results to differ
materially from statements made. These risks and uncertainties are detailed
from time to time in CCL's public disclosure documents or other filings with
securities regulatory bodies. These forward-looking statements are made as of
the date hereof and CCL disclaims any intention and has no obligation or
responsibility, except as required by law, to update or revise any
forward-looking statements, whether as a result of new information, future
events or otherwise."
For more information, contact:
Steve Lancaster Executive Vice President 416-756-8517
and Chief Financial Officer
For more details on CCL, visit our web site - www.cclind.com
Stock Symbol: TSX - CCL.A and CCL.NV.B
CCL Industries Inc. - Normal Course Issuer Bid
Toronto, June 15, 2005 - CCL Industries Inc., a world leader in
developing manufacturing, packaging and labelling solutions for the consumer
products industry today announced that it will make a Normal Course Issuer Bid
(the "Bid") through the facilities of The Toronto Stock Exchange. The Company
is authorized to acquire for cancellation, up to 10,000 of its issued and
outstanding Class A Voting Shares and up to 2,100,000 of its issued and
outstanding Class B Non-Voting Shares, representing approximately 0.4% of the
issued and outstanding Class A Voting Shares and 9.8% of the public float of
the Class B Non-Voting Shares. The Bid will commence on June 16, 2005 and
terminate on June 15, 2006. The shares sought under the Bid will be acquired
by way of open market purchases. During its previous Normal Course Issuer Bid
that terminated on May 24, 2005, CCL acquired 2,200 Class A Voting Shares at
an average price of $19.96 and 658,500 Class B Non-Voting Shares at an average
price of $23.91 per share.
There were 2,434,951 Class A Voting Shares and 29,665,292 Class B
Non-Voting Shares issued and outstanding as at June 9, 2005 listed on The
Toronto Stock Exchange. CCL is making the Bid at this time because it believes
that the purchase of the Company's shares is a prudent use of funds. Any
purchase will be made in accordance with the rules of The Toronto Stock
Exchange and will be made at the market price.
CCL Industries Inc. (TSX CCL.A and CCL.NV.B) provides state-of-the-art
packaging solutions, including specialty aluminum containers, plastic tubes
and closures and innovative product labelling, to some of the world's largest
producers of consumer brands, helping them to get their products to market
quickly and cost-effectively. CCL develops and provides specialty-packaging
solutions for producers of leading consumer brands in personal care, cosmetic,
pharmaceutical, household and specialty food and beverage products. With
headquarters in Toronto, Canada, CCL directly employs 4,000 people and
directly operates 38 production facilities in North America, Europe and Asia.
For further information, contact:
Steve Lancaster Executive Vice President 416-756-8517
and Chief Financial Officer
For more details on CCL, visit our web site - www.cclind.com
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