Good day ladies and gentlemen and welcome to the ACCO Brands First-Quarter 2016 Earnings Conference Call. At this time all participants are in a listen-only mode. Later we will conduct a question and answer session and instructions will be given at that time. As a reminder this conference is being recorded. I would now like to hand the meeting over to Jennifer Rice, Vice President of Investor Relations. Please go ahead.

Good morning and welcome to our first-quarter 2016 conference call. Speaking on the call today are are Boris Elisman, President and Chief Executive Officer of ACCO Brands Corporation; and Neal Fenwick, Executive Vice President and Chief Financial Officer. Slides that accompany this call have been posted to the Investor Relations section of accobrands.com. These slides provide detailed information to supplement this call. When speaking to our quarterly results we may refer to adjusted results. Adjusted results exclude transaction costs restructuring and other one-time nonrecurring charges and apply a normalized effective tax rate of 35%. Schedules of adjusted results and other non-GAAP financial measures and a reconciliation of these measures to the most directly comparable GAAP measures are in this morning's press release. Forward-looking statements made during the call are based on certain risks and uncertainties and are actual plans actions and results could differ materially. Please refer to our press release and SEC Filings for an explanation of certain of these risk factors and assumptions. Our forward-looking statements are made as of today's date and we assume no obligation to update them going forward. Following our prepared remarks, we will hold a Q&A session. Now it is my pleasure to turn the call over to Boris Elisman.

Thank you Jennifer and good morning everyone. The year got off to a great start with our business delivering constant currency sales growth, gross margin expansion and growth in earnings per share. Overall net sales declined 4% versus the prior year, but on a constant currency basis sales actually increased 1%. Our adjusted net loss improved to $0.01 per share from $0.04 per share a year ago. The highlight of the quarter was the great performance of our North America business sales increased 1% on a constant currency basis and operating income nearly doubled. We saw sales growth in both the U.S. and Canada. Our focus on faster growing channels is paying dividends with increased sales to mass and e-tail channels more than offsetting lower sales in the consolidating office superstore channel. Our results are especially impressive considering that office superstores closed 16% of their North American retail locations over the last two years. Looking forward, we feel good about North America back to school as our customers have seen the value of our strong brands during the past couple of seasons and as a result, we anticipate broader and deeper penetration in mass retailers, continued share gains in retail, and small or presence with office superstore customers. We’re optimistic that this year’s back-to-school season would be at least comparable to if not better than our last year's performance in North America. International also posted constant currency sales growth in the quarter of 2% and operating income growth of 15%. The sales increase was primarily due to pricing to recover higher dollar denominated costs, market share gains, and stronger replenishment orders during back-to-school in Brazil. While we are pleased with Q1 results in international and encouraged by improving FX rates, the overall environment remains difficult and we won't have further…

Thank you Boris, and good morning everyone. Q1 sales decreased 4%, but on a constant currency basis increased 1%. Net income was $4.8 million or $0.04 per share and included $7.4 million tax benefit resulting from realizing a foreign exchange loss associated with repayment of long-term intercompany loan. Adjusted net loss was $900,000 or $0.01 per share loss, compared to an adjusted net loss of $4 million or $0.04 per share loss in the prior-year quarter. Foreign currency translation negatively impacted both operating income and net income by $600,000 in the quarter. Looking at the specifics gross margin improved 190 basis points in the quarter and 29.6%. The improvement in gross margin is detailed on page 5 of our slide deck and was primarily driven by cost savings and productivity initiatives. SG&A expenses were down 2% in the quarter due to foreign currency translation. As a percent of sales, SG&A increased slightly 50 basis points to 25.6%, primarily due to higher incentive compensation expense. Turning to an overview of our segments for the quarter. In North America, sales increased 1%, but on the constant currency basis grew 1%. We saw continued growth in e-tailers and mass merchants. North America adjusted operating income margin improved a strong 310 basis points to 6.2%, primarily the result of cost savings and productivity improvements. Improvement was also due to lower cost compared to the prior-year when we incurred cost as result of the West Coast port strike. In our International segment net sales decreased 10%, but increased 2% on a constant currency basis. The underlying increase was primarily due to price increases. Volumes were down primarily in Europe as far as noted. This in part was driven by the timing of the Easter holiday, which was in Q1 versus Q2 last year. Our international…

Thank you. [Operator Instructions] Our first question comes from the line of Bill Chappell from SunTrust.

Thanks good morning.

Good morning Bill

Congratulations on the nice quarter.

Thanks Bill

Boris, just a question, some of the quarter and outlook has to do with favorable pricing and just didn't know if what’s your expectation with commodities being more favorable and maybe currency is being more favorable if you are going to get pushed back or have to have kind of a mid-year adjustments that made do that or if you expect pricing to kind of hold as we move through the year.

I do expect pricing to hold right now of foreign exchange rates are getting better. If you look on average we're still, we were still down significantly versus Q1. The average exchange rates that we track were down 14% versus Q1 of 15. So, we do expect it to moderate and to be more benign, but we're not yet in a position or at least I don't expect us to be in the position where it would have to pass-through price reductions because of currencies.

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Yes, we’ve always like Australia. It's been a very successful geography for us. We were present in Australia both through ACCO Australia, our own business, as well as we had a joint venture with Pelikan Artline and we recognize net income or dividends from that joint venture through equity methods. So we really didn't [indiscernible] from the sales or gross profit associated with that business. And from a go to market perspective it wasn't the most efficient way to go to market because we were duplicating cost, but we were always interested in potential consolidation opportunities with Pelikan Artline, but have had to wait for the right time and the right price that happened in the last six months and I'm very, very pleased that we’re able to get this acquisition. As I mentioned in my prepared remarks, this does not take away from our ability or capacity to do other deals, as long as they are strategic fit and right price and good returns from our shareholders. So, we're still very interested in potential opportunities, as you mentioned in your question it does take some time to get these things going. They are serendipitous when they come, so if something interesting is available I'm sure we'll take a look at that.

Got it. And last one from me, is it still kind of an expectation that if anything comes of Staples Office Depot any real impact will be 2017?

That's right we expect that just due to the timing of this deal if it were allowed to proceed with the impact of 2016 would be minimal and than we would have to understand what the back end 2017 would be, but as we mentioned a couple of prior calls, at the high level, or at high level we expect it to be of similar revenue magnitude as Office Depot and OfficeMax merger

Great, thanks so much.

Thanks Bill.

Thank you. And our next question from the line of Brad Thomas from Keybanc

Hi good morning Boris and Neal, and let me add my congratulations here on a great quarter as well.

Thanks Brad

Wanted to follow-up on the topic of North America sales, and just hoping Boris you would give us a little bit more color around maybe how big this point the selling orders are perhaps any additional details or quantification you could give us around perhaps, how much sales could benefit as you continue to pick up share and capitalize in your momentum in that segment.

We feel very good about the initial sell in orders. This is on the back of two successful back-to-school seasons in the US. And the success that we had in prior years gave our customers ability to trust us with both more products and deeper placement in their stores. So the orders are pretty much all there. And there's not much risk in that. What we don't know is how much will be in Q2 versus Q3 because when we speak about back-to-school it’s the full back-to-school which stands both quarters for us, and then obviously we don't know how much we will actually will sell through and what replenishment will be. So we are very optimistic. We expected to be at least as good as prior year but we really have to see what happens at the end of Q2 and Q3 before we can fully count on our success.

Great, and then on the topic of revenues, you’ve quantified Pelikan as being about $100 million in annual revenues. From a seasonality standpoint, how much of that would we expect to see in 2016 to deals those close here in the next few weeks?

We expect about $75 million to $80 million to be this year. Their business is like our business and Australia is more of a Q3, Q4 business so that's why we'll see most of the revenue this year.

Great. And if I could add one more follow-up on the topic of the Staples Office Depot transaction, obviously within the U.S. there will be a lot of similarities between the Office Depot, OfficeMax deal from a few years ago, but now there is a long list of divestitures. It look like they will come up obviously selling the wholesale piece to Essendant divestitures in Europe. I mean as you all look at your relationships with some of those wholesale customers and as you look at your relationship with Office Depot Europe, any other color on how those divestitures might change things?

No, Brad. We expect those to be neutral. We have great relationships with all our major customers certainly includes Essendant and Office Depot Europe. So if those things get materialized, I'm sure it will be neutral to potentially beneficial to us. I don't expect that to be a negative. The negative would be synergies and store closures and DC closures in the U.S. but if they are selling Office Depot in Europe to somebody else, probably neutral. And the business that would go to Essendant would probably be neutral as well.

Great, that's very helpful. Thank you, Boris.

Thank you. Thanks, Brad.

Thank you. And our next question comes from the line of Kevin Steinke from Barrington Research.

Good morning, congrats on the good results.

Good morning, Kevin.

So in terms of the increase in sales guidance, you mentioned the contribution from Pelikan of 5% and then also some currency benefit. But did you bake in anything to the sales growth guidance increase just from better operational improvement in North America on the organic sales front?

Not really, no.

Okay.

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Sure, sure, makes sense. So the gross margin expansion was very good and you called out 200 basis points of cost savings contributing to that which is actually a little bit of a pickup from the pace you did last year of 150 basis points. So, could you just talk to your cost savings initiatives? Are you kind of in line with your expectations thus far in the year? You’re a little bit ahead, because I was impressed with that gross margin expansion.

Hi, Kevin. Yes, we continue to drive a very strong internal cost reduction focus. We do have a little benefit in Q1 which is we incurred some excess cost last year dealing with the West Coast port strike which didn't occur this year. So that’s why you see a little bit of a bump in Q1 in the run rate.

Okay.

As we mentioned, Kevin, we have a $30 million productivity improvement goal for this year and we are absolutely on track to deliver that. So it looks good.

Great. And could you just give a little bit more detail on the pace of synergies from Pelikan? You said you expect to realize $8 million in total but is that all in the first year after close or is that just partial on the first year and then a full year run rate comes a little later?

Yes, it's hard for us to give additional color on that right now because haven't really done specific integration plans yet since we haven't enclosed the deal. So what I would prefer to do is to give you a lot more color at the end of Q2 when we would know how much will be this year versus next year.

All right, it’s fair enough. And then lastly a little bit more of a housekeeping question in terms of the equity and earnings of joint ventures that you report on your income statement. When the Pelikan deal closes, is that line eliminate completely or just reduce by some amount?

Eliminates completely and it gets moved up into the consolidated results of the business, so it will show in all the line items rather than just the net income. Obviously we'll keep the Q1 through April period, a little bit in Q2 but after Q2 you'll see nothing there.

Okay great. That's helpful. Thanks for taking my questions.

Thanks, Kevin.

Thank you. And our next question comes from the line of William Reuter from Bank of America Merrill Lynch.

Hi, this actually Jenny Huang for Bill today. Thanks for taking my questions. So on the last call you mentioned you expected moderate gross margin expansion of around 30 basis points during the year, however obviously gross margins expanded almost 200 during the quarter. So do you anticipate higher margin expansion for the year or do you expect margins to decline in coming quarters?

We are obviously off to a good start, not ready yet to change our forecast for the year. But certainly if it continues, we should be higher but it's just too early to tell. We have yet to deliver 100% of our earnings and 80% plus of our revenue in the remainder of the year, so let's walk through it and then we can discuss at the end of each quarter. I'm not ready to change the forecast yet.

Okay great. And then you mentioned softness in Europe and the international side of the business, I was wondering if you could talk about which regions you saw particular strength at, in that business?

We did really well in Brazil and that's all us. I'm sure everybody on the phone, reads the papers knows how tough it is in Brazil. So we don't expect that this can continue but certainly we don't - we're not counting on it to continue every quarter. If it happens great, but I’m not counting on our overall performance in Q1 to continue but Q1 was fantastic in Brazil. We did really well in Asia in Q1 and especially in Japan by taking significant share and again I’m cautious and don’t anticipate that a lot of that will continue in the remainder of the year. And we grew in Mexico as well but that was probably closer to the overall market. Europe was a little weak for us, and a lot of that had to do with what is happening in the channels in Europe and consolidation that took place last year, some different channel dynamics that are driving inventory management strategies for our European partners. We had a fairly strong Q4 and Q1 was weaker as they reduced their orders in order to sell through the inventory that they were carrying into the year. And then our exports from Europe to Africa and Middle East remain very, very soft and they were down from a year ago, and that had to do with the currencies in the regions as well as the price of oil and geopolitical issues.

Great, I’ll pass it on. Thanks.

Thank you.

Thank you. And our next question comes from the line of Kevin Ziets from Citigroup.

Hi, good morning. Thanks for taking my questions. First is on the Depot Stables merger, I guess it's been such a protractive process. I'm curious if it doesn't go through or even if it does go through, has there been positioning amongst the retailers in terms of their inventory to kind of - that may make it, not his impactful as the last sort of megamerger. And then obviously if it doesn't go through, is there upside in lower inventory levels that they are carrying?

We haven't seen anything unusual from either all the customers. Office Depot is obviously still in the process of consolidating their OfficeMax merger. So they are taking - they are from the combined entities as they close DCs and consolidated DCs, and we expect that to continue, that's part of our forecast. We haven't seen anything unusual from Staples and it's kind of too early to speculate on this particular issue. Let the process take place, it will happen soon enough, we do expect a decision from the judge by May 10 and then we will know what they plan to do and then we’ll be able to react to that, so…

My second question is on the product wins I guess that you've gotten for the back-to-school season. Is there anything you can comment about mix sort of the level of price points that you are selling?

The price points but [indiscernible] doing really well at Five Star, that's where we are getting a lot of incremental placement in many of our customers and that particular brand spans our notebooks, school notebooks, as well as backpacks and portfolios. So we really are taking a significant share we believe with that particular brand.

Okay, great. And then on the computer products business, I guess in recent quarters even where sales have lagged there's been sort of a mix shift as you've moved away from some of the lower margin products. It looks like the margins were down this quarter, year-over-year if I read it right so just curious why that would be?

Margins were down a little bit. Gross margins were roughly flat, but we had some of the deleveraging associated with the drop in volume. The tablet accessories segment is becoming fairly insignificant, so I do expect that, that decrease will stabilize. As I mentioned during my prepared remarks, that total market has declined substantially over the last several quarters. So we expect it to be completely out of it last year but still have the tail hanging as the sell through has declined, and the drag obviously is hurting our sales and is hurting our margin through sales to leverage.

Okay. I guess I know there's a lot of the year to come but look forward for the full year we do expect that I guess the dynamic of margin improvement in that segment to continue as it did last year?

I would expect the dynamic of margin improvement to continue. That's correct.

Okay, great. And then lastly just on the acquisition front, I know you’ve mentioned about maybe doing some acquisitions outside of the core office space, is that still a focus? And then just in general, should we look at the multiple that was paid for this JV as sort of instructive on what you will be looking to pay for the acquisitions? And then lastly, I know you said you’re open to doing additional acquisitions but are you considering at all filing back on the share repurchases as these become greater portion of the strategy?

-: And then lastly on capital allocation, our priority remains as we discussed before to be balanced between debt reduction, share repurchases and acquisitions. We do want to drive to a lower net debt to EBITDA ratio we mentioned before between 2.0 and 2.5 so if we are greatly exceeding that certainly it will change our allocation to pay down more debt and reduce the ratio.

Okay that's helpful. Thank you guys.

Thank you.

Thank you. And our next question for today comes from the line of Carla Casella from JP Morgan.

Hi, one question. This is perhaps on the capital structure. Given your expectations for free cash flow, is your priority to invest in further M&A and building the business or will you consider looking at the bonds now those are coming callable to refinance?

Yes. Carla, I would rather not comment on that. Our priority is to be balance but be more specific rather not go into the detail.

Okay. And then the West Coast port strike can you remind us the impact that had on the first quarter of last year the magnitude of it?

We lose around $1 million of adverse cost.

Okay. And then it didn’t trail into the second quarter, did in the first?

No, it trail to get into the second quarter, we had more expense in the second quarter. We had to bring things in through alternative lanes and currently with all of our deadlines, so we had a lot of excess costs in both quarters.

Okay. Great thank you.

Thanks, Carla.

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