IPL Inc.
TSX : IPI.A

IPL Inc.

August 11, 2006 07:30 ET

IPL Reports Significant Sales Growth and Improved Profitability Before Non-Recurring Items for the Third Quarter

SAINT-DAMIEN, QUEBEC--(CCNMatthews - Aug. 11, 2006) - IPL Inc. (TSX:IPI.A), one of North America's leading manufacturers of plastic products, announced its results today for the third quarter of its 2006 financial year.



- 17.6% sales growth despite a $2.8 million negative impact from
changes in the exchange rate

- Earnings before interest, taxes, depreciation and amortization
("EBITDA") before non-recurring items almost doubled, from $4.4
million to $8.0 million

- Net earnings of $1.9 million for the quarter, excluding non-
recurring items and a future income tax adjustment


(All dollar figures are in Canadian
dollars, unless otherwise indicated)
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Financial highlights Three months ended Nine months ended
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(in thousands of dollars June 29, June 30, June 29, June 30,
except per share data) 2006 2005 2006 2005
unaudited
--------------------------------------------------------------------
Sales 66,795 56,817 164,993 153,971
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Earnings before
amortization,
financial expenses
and income taxes 2,274 4,360 11,456 14,439
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Net earnings (loss) (698) (354) (2,566) 345
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Net earnings (loss)
per share, fully diluted (0.05) (0.02) (0.18) 0.02
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Sales for the three months ended June 29, 2006, rose by 17.6% to $66.8 million from $56.8 million for the same period the previous year. This increase reflects sales growth in both segments, with the industrial products division posting its strongest year-over-year growth in the last thirteen quarters. Growth in US dollar sales was strong for both divisions and would have had a greater impact on results in Canadian dollars were it not for changes in the Canadian/US dollar exchange rate, which reduced consolidated sales for the third quarter of fiscal 2006 by about CAN $2.8 million.

For the first nine months of fiscal 2006, sales amounted to $165.0 million, 7.2% higher than sales of $154.0 million for the first nine months of the previous year. Changes in the exchange rate had a CAN $5.0 million impact in the nine-month period.

EBITDA for the third quarter of 2006 was impacted by non-recurring items totalling $5.7 million. These items consisted of a $3.3 million asset write-off resulting from the repositioning of the industrial product portfolio, a $2.0 million write-down of the Windsor plant due to local real estate market conditions, and restructuring charges of $0.4 million. Without these non-recurring items, EBITDA would have been $8.0 million or 12% of sales compared to $4.4 million or 7.7% of sales for the quarter ended June 30, 2005. This increase in EBITDA reflects the productivity improvements being achieved by the Company despite considerable volatility in raw material prices, higher energy costs, the strength of the Canadian dollar against the US currency, and steadily rising transport costs.

For the first nine months of fiscal 2006, EBITDA totalled $11.5 million or 6.9% of sales ($18.6 million or 11.3% of sales before non-recurring items), compared to $14.4 million or 9.4% of sales.

In the third quarter ended June 29, 2006, the Company incurred a net loss of $0.7 million or $0.05 per share, fully diluted. In comparison, the Company reported a net loss of $0.4 million or $0.02 per share, fully diluted, for the third quarter of the previous year. Excluding the non-recurring items mentioned above and a $1.3 million third quarter 2006 adjustment to future income taxes arising from a change in the federal tax rate, net earnings would have been $1.9 million or $0.13 per share, fully diluted, for a net profit margin of 2.8% for the third quarter of this year.

For the first nine months of fiscal 2006, the net loss was $2.6 million or $0.18 per share, fully diluted (net earnings of $2.2 million or $0.15 per share before non-recurring items). This compares to net earnings of $0.3 million or $0.02 per share, fully diluted, for the first nine months of fiscal 2005.

"We are pleased with the progress made in the third quarter," said Serge Bragdon, President and Chief Executive Officer of IPL. "While both divisions were able to achieve significant sales growth, we are particularly gratified to see that the initiative to reposition ourselves in the industrial division has started to bear fruit and that we are continuing to penetrate the US market despite the persistent strength of the Canadian dollar. Our productivity improvements are also starting to be seen in our profitability measures. Excluding the impact of non-recurring items, we saw a marked improvement in our EBITDA and net earnings. We are moving in the right direction, and with the continued execution of our restructuring initiatives, we expect to achieve further growth and improvement in our results."



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 29, June 30, June 29, June 30,
2006 2005 2006 2005
--------------------------------------------------------------------
Thousands of
Canadian $ 29,220 23,699 67,362 59,542
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% of
consolidated sales 43.7 41.7 40.8 38.7
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In the third quarter of fiscal 2006, both the packaging products and industrial products divisions contributed significantly to US market sales, which climbed 35.5% to US $25.9 million from US $19.1 million in the same quarter a year earlier. After conversion into Canadian dollars, US sales amounted to $29.2 million or 43.7% of consolidated sales, up 23.3% from $23.7 million or 41.7% of consolidated sales in the third quarter of last year.

For the nine months ended June 29, 2006, sales to American customers totalled CAN $67.4 million or 40.8% of the Company's consolidated sales, compared to $59.5 million or 38.7% in the first nine months of fiscal 2005.

Segmented Results

Packaging Products

Packaging product sales to the US market grew by 29.1% in US dollars or 17.2% in Canadian dollar terms. The Company's continued success in penetrating the US market led to an increase in third quarter 2006 sales for the packaging products division of 13.9% to $32.7 million, compared to $28.7 million in the third quarter of fiscal 2005. The impact of changes in the exchange rate between the Canadian dollar and the American currency was CAN $1.7 million in the third quarter of 2006.

For the first nine months of fiscal 2006, sales for the division totalled $84.0 million, up 15.3% from $72.9 million for the same period a year earlier.

For the three-month period ended June 29, 2006, EBITDA rose by 4.9% to $3.5 million compared to $3.3 million in the third quarter of fiscal 2005. As a percentage of sales, EBITDA were 10.6% compared to 11.5% for the same period a year earlier. However, $0.5 million in non-recurring items were included in the earnings calculation for the third quarter of 2006. Excluding these items, EBITDA would have been $3.9 million or 12.0% of sales in the most recent quarter.

For the first nine months of fiscal 2006, EBITDA were down slightly to $10.3 million from $10.4 million in the first nine months of the previous financial year. As a percentage of sales, EBITDA totalled 12.3% for the first nine months of 2006 compared to 14.2% for the first nine months of fiscal 2005.

Industrial Products

Growth of $6.0 million in sales was attributable primarily to waste handling products, while growth in custom molding sales to the US market more than offset the decline in automotive sector sales. Industrial product sales totalled $34.1 million for the third quarter of fiscal 2006, up 21.3% from sales of $28.1 million for the three-month period ended June 30, 2005. The drop in automotive sector sales was mainly due to the repositioning of the product portfolio initiated last year.

For the first nine months of fiscal 2006, industrial division sales totalled $81.0 million, down 0.1% from $81.1 million for the first nine months of the previous year.

The non-recurring items mentioned earlier in this press release had a significant, direct impact on the division's profitability. For the three-month period ended June 29, 2006, EBITDA was negative $1.2 million, compared to a positive $1.1 million or 3.8% of sales in the third quarter of fiscal 2005. Non-recurring items totalling $5.3 million were included in the earnings calculation for the third quarter of 2006. Without these items, the division's EBITDA would have risen in the third quarter of 2006 to $4.1 million or 12.0% of sales, substantially higher than in the corresponding period of 2005.

For the first nine months of fiscal 2006, EBITDA amounted to $1.1 million or about 1.4% of sales, compared to $4.1 million or 5.0% of sales for the first nine months of last year.

Outlook

"We are pleased with our third quarter results and the direction in which we are moving. However, we are also aware that there is still a lot to be accomplished. Our focus continues to be on increasing the proportion of higher-margin products in the sales mix, as well as improving productivity and reducing costs. Management will pay particular attention to optimizing operating activities and business processes in order to improve the Company's competitive position. It will take a bit of time to completely implement and see the full benefits of these changes. Nonetheless, we are confident that we can maintain the momentum that is building and gradually improve on our operational and financial results over the coming quarters," concluded Mr. Bragdon.

Non-GAAP Financial Measures

In this press release, the Company's financial management uses a non-GAAP financial measure, namely earnings before interest, taxes, depreciation and amortization ("EBITDA"). However, management notes that in its results, EBITDA is associated with "Earnings before amortization, financial expenses and income taxes". A table reconciling the EBITDA used by the Company and net earnings as reported is provided in a section entitled "Non-GAAP Financial Measures" in the management discussion and analysis for the third quarter ended June 29, 2006. IPL's method of calculating EBITDA may differ from those used by other companies. While EBITDA is not a standard GAAP measure, management, analysts, investors and other interested financial parties use it to evaluate the performance and management of the Company, both financially and operationally.

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 1-866-250-4665 (Montreal, elsewhere in North America and overseas). 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 21197624# on the telephone keypad. This recording will be accessible from 1:00 p.m. on Friday, August 11, 2006 until 11:59 p.m. on Friday, August 18, 2006.

About IPL

IPL Inc. is one of the leading North American producers of moulded plastic products through injection and extrusion for different industrial manufacturing 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 materials handling. IPL also provides highly technical value-added custom moulding 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 statements of a forward-looking nature concerning the future performance of the Company. These statements are based on management's best possible evaluation of future events, and as such involve a number of risks and uncertainties. The factors apt to cause variances in the results include, among others, fluctuations in quarterly results, change in demand for the Company's products and services, the impact of competition on prices and the market in general, and any economic changes. As a result, readers are advised that actual results may differ from expected results.



CONSOLIDATED EARNINGS

(in thousands Nine months ended Three months ended
of dollars except
per share amounts)
June 29 June 30 June 29 June 30
2006 2005 2006 2005
(unaudited) (unaudited) (unaudited) (unaudited)

Sales $164,993 $153,971 $66,795 $56,817
-------------------------------------------------------------------
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Operating
expenses 148,031 139,783 59,005 51,685
Other (revenue)
expense 5,506 (251) 5,516 772
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153,537 139,532 64,521 52,457
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Earnings before
amortization,
financial
expenses and
income taxes 11,456 14,439 2,274 4,360
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Depreciation 12,291 11,498 4,329 3,963
Financial expenses 3,056 2,418 900 933
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15,347 13,916 5,229 4,896
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Earnings before
income taxes (3,891) 523 (2,955) (536)
Income taxes (1,325) 178 (2,257) (182)
--------------------------------------------------------------------
Net earnings $(2,566) $345 $(698) $(354)
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Net earnings
per share basic $(0.18) $0.02 $(0.05) $(0.02)
Net earnings
per share
fully diluted $(0.18) $0.02 $(0.05) $(0.02)

Average shares
outstanding 14,498,665 14,453,884 14,543,446 14,453,884
Average shares
fully diluted 14,552,677 14,487,033 14,601,512 14,483,456



CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
(in thousands of dollars)

Nine months ended Three months ended
June 29 June 30 June 29 June 30
2006 2005 2006 2005
(unaudited) (unaudited) (unaudited) (unaudited)

Balance at
beginning $52,797 $57,829 $50,929 $57,372

Net earnings (2,566) 345 (698) (354)
Dividends 0 (1,734) 0 (578)
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Balance at end $50,231 $56,440 $50,231 $56,440
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CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands of dollars)

Nine months ended Three months ended
June 29 June 30 June 29 June 30
2006 2005 2006 2005
(unaudited) (unaudited) (unaudited) (unaudited)

Cash flows from
(used in):
Operating activities
Net earnings $(2,566) $345 $(698) $(354)
Adjustments for:
Depreciation of
fixed assets and
amortization of
deferred charges 12,706 11,885 4,464 4,089
Amortization of
deferred grants (415) (387) (135) (126)
Future income taxes (1,053) 1,044 (1,985) 265
Loss (profit) on
disposal of fixed
assets (176) 84 (81) 78
Depreciation and
write-off of assets 5,315 0 5,315 0
Stock-based compensation 94 (952) (91) (152)
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Funds from operations 13,905 12,019 6,789 3,800

Payment for stock-
based compensation (3) (248) (2) (6)
Changes in non-cash
working capital items 527 (10,337) 6,360 (619)
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Cash flow from (used in)
operating activities 14,429 1,434 13,147 3,175
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Investing activities
Acquisition of fixed
assets and deposits
on acquisition
of fixed assets (5,854) (9,780) (1,449) (3,199)
Disposal of
fixed assets 1,076 11 85 9
Disposal of fixed
assets held for sale 0 0 0 0
Decrease (increase)
in deferred charges (1,085) (769) (335) (703)
Changes in other assets (11) (8) (22) 68
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Cash flow used in
investing activities (5,874) (10,546) (1,721) (3,825)
--------------------------------------------------------------------

Financing activities
Long-term loan 346 60,600 0 0
Repayment of
long-term debt (7,228) (48,515) (2,805) (1,386)
Repayment of capital
lease obligations (1,501) 0 (267) 0
Increase (decrease)
of short term debt (564) (1,239) (8,354) 2,614
Issuance of multiple
voting shares 392 0 0 0
Dividends paid 0 (1,734) 0 (578)
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Cash flow from
financing activities (8,555) 9,112 (11,426) 650
--------------------------------------------------------------------

Increase (decrease)
in cash and cash
equivalents 0 0 0 0

Cash and cash
equivalents at
beginning 0 0 0 0
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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 29 October 1 June 30
2006 2005 2005
ASSETS (unaudited) (audited) (unaudited)
Current assets:
Accounts receivable
- Trade $ 36,464 $ 29,938 $ 33,182
Accounts receivable
- Other 7,857 11,707 8,263
Inventories 29,272 30,621 34,257
Molds for sale 3,099 4,684 5,548
Prepaid expenses 1,515 1,334 1,276
Income taxes recoverable 2,121 3,137 2,073
Future income taxes 75 7 747
------------------------------------------------------------
80,403 81,428 85,346
------------------------------------------------------------

Deposits on acquisition
of fixed assets 472 975 1,005
------------------------------------------------------------

Fixed assets 94,299 95,907 93,137
------------------------------------------------------------

Intangible assets 3,269 3,617 3,691
------------------------------------------------------------

Fixed assets held for sale 2,399 4,479 4,483
------------------------------------------------------------

Deferred charges 1,630 2,876 3,018
------------------------------------------------------------

Goodwill 3,406 3,406 3,406
------------------------------------------------------------

Other assets 90 79 86
------------------------------------------------------------

$185,968 $192,767 $194,172
------------------------------------------------------------
------------------------------------------------------------

LIABILITIES AND
SHAREHOLDERS' EQUITY

Current liabilities:
Bank loans $11,789 $12,353 $8,542
Accounts payable
and accrued
liabilities - Trade 24,050 21,091 22,101
Accounts payable
and accrued
liabilities - Other 2,528 5,176 3,334
Stock-based
compensation obligations 62 33 254
Income taxes payable 0 597 0
Current portion of
long-term debt 8,144 8,848 8,372
Current portion of
capital lease
obligations 1,112 0 0
------------------------------------------------------------
47,685 48,098 42,603
------------------------------------------------------------

Long-term debt 47,649 53,827 55,673
------------------------------------------------------------
Capital lease obligations 2,889 0 0
------------------------------------------------------------

Stock-based
compensation obligation 62 0 60
------------------------------------------------------------

Future income taxes 13,037 14,022 15,373
------------------------------------------------------------

Shareholders' equity
Capital stock 24,415 24,023 24,023
Retained earnings 50,231 52,797 56,440
------------------------------------------------------------
74,646 76,820 80,463
------------------------------------------------------------

$185,968 $192,767 $194,172
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SEGMENT INFORMATION
(in thousands of dollars)

Nine months ended Three months ended
June 29 June 30 June 29 June 30
2006 2005 2006 2005
(unaudited) (unaudited) (unaudited) (unaudited)

Packaging products
Total sales $84,031 $72,902 $32,690 $28,692
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Earnings before
amortization,
Financial
expenses and
income taxes $10,316 $10,388 $3,456 $3,296
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Industrial
products
Material
handling/
Waste handling $38,552 $32,461 $17,304 $11,881
Automotive/Custom
molding 42,410 48,608 16,801 16,244
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Total sales $80,962 $81,069 $34,105 $28,125
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Earnings before
amortization,
Financial expenses
and income taxes $1,140 $4,051 $(1,182) $1,064
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