IPL Inc.
TSX : IPI.MV.A

IPL Inc.

August 11, 2005 07:30 ET

IPL Reports its Results for the Third Quarter of its 2005 Fiscal Year

SAINT-DAMIEN, QUEBEC--(CCNMatthews - Aug. 11, 2005) - IPL Inc. (TSX:IPI.MV.A), one of North America's leading manufacturers of plastic products, announced its third quarter results today for fiscal 2005.



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Key Financial Data Three months ended Nine months ended
(in thousands of
dollars except June 30, July 1, June 30, July 1,
per share data)
unaudited 2005 2004 2005 2004
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Sales 56,817 55,710 153,971 158,149
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Earnings before
amortization,
financial expenses
and income taxes 4,360 8,340 14,439 21,898
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Net earnings (loss) (354) 2,646 345 5,850
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Net earnings (loss)
per share, fully
diluted (0.02) 0.18 0.02 0.40
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Dividend per share 0.04 0.04 0.12 0.12
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The Company's sales for the quarter ended June 30, 2005, rose slightly to stand at $56.8 million, up 2.0% from $55.7 million in the third quarter of 2004. This increase is attributable to the Company's two divisions, packaging and industrial, which saw sales grow by 2.3% and 1.7% respectively. In particular, the Company's American sales grew by 18.6% between the third quarter of 2004 and the third quarter of 2005. However, as in recent quarters, the higher Canadian dollar as well as increases in the cost of certain raw materials substantially affected the Company's profit margins, with earnings before amortization, financial expenses and income taxes falling by 47.7% to $4.4 million in the third quarter compared to $8.3 million for the same period last year.

The Canadian dollar, which rose by more than 8% in the past year, was alone responsible for a $2.1 million (Canadian dollars) drop in consolidated third quarter sales. One of the primary effects of the lower US dollar is to enable American competitors to chip away at IPL's Canadian market share and cut into its profit margin. On the other hand, the high exchange rate slightly offset the harmful effects of high resin prices, which for the most part are paid for in US dollars. Despite this slight advantage, the prices of the two main resin products used by the Company, polyethylene (PEHD) and polypropylene (PP), continued their upward trend, rising 35% and 17% respectively between the third quarter of 2004 and the same quarter of 2005. In addition to the marked rise in the Canadian dollar and raw material costs, other factors such as the constant pressure exerted by customers on selling prices, particularly in the automotive sector, affected the Company's profit margins and mortgaged its results.

Despite everything, the Company continued to implement its productivity improvement measures moreover its plant automation and robotization program in the third quarter, which enabled it to curb the negative effects of the economic factors. The Company also initiated the sale of some underutilized equipment in its automotive sector. Finally, IPL signed a new four-year collective agreement with its unionized employees at its Saint-Damien and Saint-Lazare plants that should facilitate management of the operations in the coming years.

For the third quarter of 2005, the Company posted a net loss of $354,000 or $0.02 per share, fully diluted, compared to net earnings of $2.6 million or $0.18 per share, fully diluted, for the third quarter of fiscal 2004. However, were it not for pre-tax expenses of $0.9 million unrelated to this period arising from a CSST premium for prior years and an out-of-court settlement with one of its competitors, combined with a positive change of $152,000 before tax in the net value of the price of options due to the drop in share market value, the Company would have reported net earnings of $162,000 or $0.01 per share, fully diluted. The Company's funds from operations were also impacted by the lower profitability, totalling $3.8 million for the third quarter of 2005, down 44.6% from $6.9 million for the same quarter of 2004.

Sales for the nine-month period ended June 30, 2005, slipped to $154.0 million from $158.1 million for the first nine months of 2004, while earnings before amortization, financial expenses and income taxes dropped 34.1% to $14.4 million from $21.9 million. In the first three quarters of the year, net earnings declined to $345,000 or $0.02 per share, fully diluted, compared to $5.9 million or $0.40 per share, fully diluted, for the same period last year. In the first three quarters of 2005, funds from operations amounted to $12.0 million, down from $18.1 million for the same period in 2004.

"The North American plastics industry is still being buffeted by multiple factors", stated Jean-Yves Bacle, Executive Vice President and General Manager of IPL. "For one thing, the exceptional strength of the Canadian dollar over the past two years has affected the competitive position of Canadian manufacturers, while the surge in the oil price has resulted in an extraordinary hike in raw material prices, which are near an all-time high. The Company has reacted by stepping up its productivity improvement program, which has allowed it to limit the impact of an economic climate over which it has little control. In the coming months, it intends to stay the course, pursuing the robotization and automation of its plants and its cost reduction efforts, while putting an emphasis on the profitability of currently under-utilized equipment and assets."

The Company's US sales data is shown in the following table:



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US sales Three months ended Nine months ended
(unaudited) June 30, July 1, June 30, July 1,
2005 2004 2005 2004
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Thousands of Canadian
dollars 23,699 21,747 59,542 58,200
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% of consolidated sales 41.7 39.0 38.7 36.8
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For the quarter ended June 30, 2005, US sales grew by 18.6% to US $19.1 million compared to US $16.1 million in the third quarter of 2004. In Canadian dollars, this increase means that US sales now represent 41.7% of the Company's total third quarter sales, compared to 39.0% a year ago.

Dividend

The board of directors of the Company has approved a quarterly dividend of $0.04 per share, payable on September 9, 2005 to shareholders of record on August 26, 2005.

Packaging Products

In the third quarter of 2005, sales of packaging products amounted to $28.7 million, up a slight 2.3% from $28.0 million for the same period last year. However, this modest increase in sales did not have the anticipated impact on earnings before amortization, financial expenses and income taxes, which dropped 44.3% year over year from $5.9 million to $3.3 million. This decline meant that earnings before amortization, financial expenses and income taxes represented only 11.5% of packaging segment sales, compared to 21.1% in the third quarter of last year. It should be noted that a large portion of the decrease, equivalent to about 3% of sales for the segment, was attributable to US sales, which accounted for 58.1% of total packaging sector sales once converted into Canadian dollars, despite the discount that the Company receives by paying for most of its resin in US dollars. The remainder of the decline was due to the negative impact of expenses unrelated to this period, and by IPL's inability to fully transfer the resin price increase to its customers given the highly competitive climate currently prevailing in Canada, where the Company is losing market share and must adjust to falling market prices. However, US sales in American dollars climbed 15.8% in the third quarter relative to the same period in 2004.

Industrial Products

Total sales for the industrial sector increased by 1.7% in the third quarter of 2005 to stand at $28.1 million compared to $27.7 million for the same quarter last year. This result is attributable to sales for the material handling/waste management sector, which benefited from IPL's strong presence in the United States in this sector to grow 25.7% in US dollars. The increase in material handling and waste management product sales therefore more than offset the decline in automotive and custom molding sales, which are focused in the considerably less active Canadian market.

As in the packaging sector, the slight increase in sales did not carry through to earnings before amortization, financial expenses and income taxes, which fell by 56.0% to $1.1 million from $2.4 million last year. In the third quarter, earnings before amortization, financial expenses and income taxes represented only 3.8% of total sales for the sector compared to 8.7% last year.

The difficulties in the automotive and custom molding sector should nevertheless ease next year, as some of the Company's customers return to more normal production levels. Furthermore, the signature of several new contracts at better terms, combined with the completion of less favourable contracts that impacted the Company's profit margin, should be reflected in improved profitability for the segment as a whole.

Outlook

The next several months are not expected to bring any major change in the economic climate, which will still revolve around high prices for oil and its derivatives and a strong Canadian dollar. The plastics industry will therefore need to deal with a hostile climate for some time yet, characterized by strong competition from US companies in the Canadian market. For IPL, the pursuit of continuous improvement and cost reduction programs will therefore be more essential than ever. More specifically, the Company is aiming to increase the profitability of its assets, and plans to sell some of its under-utilized equipment, particularly in the automotive and custom molding sectors. Particular attention will be paid to transportation and distribution, as these costs tend to increase as the Company's customer base grows in the US, at a greater distance from its plants. However, the Company will stress its high value-added products, and seek to maximize its use of raw materials in its proprietary product lines in the packaging, material handling and waste management sectors.

Conference Call

IPL Inc. will hold a conference call to present its results today at 11:00 a.m. (Eastern Standard Time). Those interested should call (514) 940-2795 (Montreal or overseas) or 1-866-249-2157 (elsewhere in North America). The call can also be accessed via a direct broadcast site at the following addresses: www.cnw.ca and www.q1234.com.

Those unable to participate can hear a recording of the call by dialling 1-877-289-8525 and entering the code 21132845# on the telephone keypad. This recording will be accessible from 1:00 p.m. on Thursday, August 11, 2005 until 11:59 p.m. on Thursday, August 18, 2005.

Profile

IPL Inc. is one of the leading North American producers of molded plastic products through injection and extrusion for different industrial sectors. IPL employs more than 1,000 people in its four plants located in Saint-Damien, Saint-Lazare and Lawrenceville (Quebec), and Edmundston (New Brunswick). The Company manufactures and markets over 400 products for packaging and material handling. IPL also provides highly technical value-added custom molding services for the automotive and transport industries, as well as for various industrial uses. Further information about IPL is available at www.ipl-plastics.com.

Forward-looking statements

Except for historical information provided herein, this press release may contain information and statements of a forward-looking nature concerning the future performance of the Company. These statements are based on suppositions and uncertainties as well as on management's best possible evaluation of future events, and as such involve a number of risks factors. Such factors may include, without excluding other considerations, fluctuations in quarterly results, evolution in customer demand for the Company's products and services, the impact of price pressures exerted by competitors, and general market trends or economic changes. As a result, readers are advised that actual results may differ from expected results.



CONSOLIDATED EARNINGS
(in thousands of dollars except share amounts)
Nine months ended Three months ended
June 30 July 1 June 30 July 1
2005 2004 2005 2004
(unaudited) (unaudited) (unaudited) (unaudited)

Sales $153,971 $158,149 $56,817 $55,710
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Operating expenses 139,783 136,082 51,685 47,232

Other (revenue)
expense (251) 169 772 138
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139,532 136,251 52,457 47,370
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Earnings before
amortization,
financial expenses
and income taxes 14,439 21,898 4,360 8,340
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Depreciation of
fixed assets 11,498 10,654 3,963 3,533
Financial expenses 2,418 2,380 933 798
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13,916 13,034 4,896 4,331

Earnings before
income taxes 523 8,864 (536) 4,009
Income taxes 178 3,014 (182) 1,363
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Net earnings $345 $5,850 $(354) $2,646
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Net earnings per
share basic $0.02 $0.40 $(0.02) $0.18
Net earnings per
share fully diluted $0.02 $0.40 $(0.02) $0.18

Average shares
outstanding 14,453,884 14,446,106 14,453,884 14,453,884
Average shares
fully diluted 14,487,033 14,492,244 14,483,456 14,494,405



CONSOLIDATED STATEMENT OF RETAINED EARNINGS
(in thousand of dollars)
Nine months ended Three months ended
June 30 July 1 June 30 July 1
2005 2004 2005 2004
(unaudited) (unaudited) (unaudited) (unaudited)

Balance at beginning $57,829 $54,125 $57,372 $56,173

Net earnings 345 5,850 (354) 2,646
Dividends (1,734) (1,734) (578) (578)

Balance at end $56,440 $58,241 $56,440 $58,241
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CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands of dollars)
Nine months ended Three months ended
June 30 July 1 June 30 July 1
2005 2004 2005 2004
(unaudited) (unaudited) (unaudited) (unaudited)

Cash flows from:
Operating activities
Net earnings $345 $5,850 $(354) $2,646
Adjustments for:
Depreciation of
fixed assets and
amortization of
deferred charges 11,885 11,013 4,089 3,708
Amortization of
deferred grants (387) (359) (126) (175)
Future income taxes 1,044 1,009 265 374
Loss (profit) on
disposal of fixed
assets 84 138 78 (2)
Stock-based
compensation (952) 467 (152) 304
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Funds from operations 12,019 18,118 3,800 6,855

Payment for
stock-based
compensation (248) (35) (6) (27)
Changes in
non-cash working
capital items (10,377) (7,097) (619) 516
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Cash flow applied
to operating
activities 1,434 10,986 3,175 7,344
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Investing activities
Acquisition of fixed
assets and deposits
on acquisition of
fixed assets (9,780) (10,899) (3,199) (3,461)
Disposal of fixed
assets 9 43 8 1
Disposal of fixed
assets held for
sale 2 240 1 40
Business acquisition 0 (160) 0 0
Decrease (increase)
in deferred charges (769) (941) (703) (809)
Changes in other
assets (8) (79) 68 1
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Cash flow from
investing
activities (10,564) (11,796) (3,825) (4,228)
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Financing activities
Long-term loan 60,600 295 0 295
Repayment of
long-term debt (48,515) (7,616) (1,386) (1,950)
Increase (decrease)
of short term debt (1,239) 9,760 2,614 (883)
Issuance of multiple
voting shares 0 105 0 0
Dividends paid (1,734) (1,734) (578) (578)
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Cash flow applied to
financing
activities 9,122 810 650 (3,116)
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Increase (decrease)
in cash and cash
equivalents 0 0 0 0

Cash and cash
equivalents at
beginning 0 0 0 0

Cash and cash
equivalents at end $0 $0 $0 $0
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CONSOLIDATED BALANCE SHEETS
(in thousands of dollars)
As at As at As at
June 30 October 2 July 1
2005 2004 2004
(unaudited) (audited) (unaudited)

ASSETS
Current assets:
Account receivable - Trade $33,182 $29,408 $32,988
Accounts receivable - Other 8,263 7,766 5,422
Inventories 34,257 31,095 27,578
Molds for sale 5,548 5,099 7,859
Prepaid expenses 1,276 1,424 1,888
Income taxes recoverable 2,073 0 0
Grant receivable 0 0 355
Future income taxes 747 754 0
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85,346 75,546 76,070
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Deposits on acquisition of fixed
assets 1,005 297 454
Fixed assets 93,137 95,214 98,932
Intangible assets 7,097 6,067 3,406
Fixed assets held for sale 4,483 4,485 5,902
Deferred charges 3,018 3,725 2,629
Other assets 86 77 107

$194,172 $185,411 $187,500
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LIABILITIES AND SHAREHOLDERS'
EQUITY

Current liabilities:
Bank loans $8,542 $9,781 $12,371
Accounts payable and accrued
liabilities - Trade 22,101 20,539 18,860
Accounts payable and accrued
liabilities - Other 3,334 3,668 1,744
Stock-based compensation obligations 254 1,115 1,234
Income taxes payable 0 1,758 1,687
Future income taxes 0 0 302
Current portion of long-term debt 8,372 8,723 8,699
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42,603 45,584 44,897
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Long-term debt 55,673 43,239 45,432
Stock-based compensation obligation 60 400 584
Future income taxes 15,373 14,336 14,323

Shareholders' equity 24,023 24,023 24,023
Capital stock 56,440 57,829 58,241
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Retained Earnings 80,463 81,852 82,264
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$194,172 $185,411 $187,500
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SEGMENT INFORMATION
(in thousands of dollars)

Nine months ended Three months ended
June 30, July 1, June 30, July 1,
2005 2004 2005 2004
(unaudited) (unaudited) (unaudited) (unaudited)

Packaging products
Total sales $72,902 $72,626 $28,692 $28,044
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Earnings before
amortization,
financial expenses
and income taxes $10,388 $13,151 $3,296 $5,921
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Industrial products
Material handling/
Waste management $32,461 $29,184 $11,881 $9,735
Automotive/Custom
molding 48,608 56,339 16,244 17,931
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Total sales $81,069 $85,523 $28,125 $27,666
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Earnings before
amortization,
financial expenses
and income taxes $4,051 $8,747 $1,604 $2,419
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