RW Packaging Ltd.
TSX VENTURE : RWP

RW Packaging Ltd.

March 22, 2006 16:30 ET

RW Packaging-2005 Year-End Results

WINNIPEG, MANITOBA--(CCNMatthews - March 22, 2006) - RW Packaging Inc. (TSX VENTURE:RWP) -

(FOR THE THREE (3) MONTHS AND YEAR ENDED DECEMBER 31, 2005)

The Board of Directors announced today the Company's unaudited financial results for the three (3) months ended December 31, 2005, and audited annual financial results for the year ended December 31, 2005.

FOURTH QUARTER

The Company reported net earnings for the three (3) months ended December 31, 2005 of $48,550 (or 0.7 cents per share) on sales of $2,642,359 compared to a net loss of $12,211 (or 0.2 cents per share) on sales of $2,423,636 for the same period in 2004. Sales for the quarter were 9.0 per cent higher than the same period a year ago, attributable to; organic growth, as well as, selling price increases. Domestic sales grew 9.4 per cent resulting from; an increase in pharmaceutical and household products, and reduced by a decline in seasonal products, which were affected by mild winter temperatures and lack of snow across much of Alberta, a key market of the Company for these products. Export sales to the U.S. for the fourth quarter increased 0.7 per cent. The sales growth, shift in product mix and selling price increases resulted in a 48.1 per cent increase in gross profit during the quarter. Gross profit, expressed as a percentage of sales was 25.15 per cent compared to 18.51 per cent last year, an improvement of 6.64 percentage points. Among the primary factors for the comparative increase in warehouse, selling and administration expenses during the quarter were; an increase in utilities, insurance, wages and label artwork costs. EBITA (Earnings before Interest, Taxes and Amortization) for the comparative fourth quarter more than doubled to $223,237 from $107,955 the year prior, an increase of 106.8 per cent. Interest expense increased due to; an increase in bank indebtedness used to fund working capital requirements during the period, and in general due to an increase in the bank's prime lending rate. An expense of $36,000 to the Company's future income tax benefit, for income taxes which would otherwise have been payable, was recorded during the fourth quarter, compared to a gain of $37,000 in 2004. The gain reported last year resulted from a change in estimate of the expected tax rate and balances carried forward.

OVERALL PERFORMANCE & RESULTS OF OPERATIONS

The measurable improvement in fourth quarter results contributed to an overall improvement in financial condition, results of operations and cash flows for the full year and a third consecutive quarter of year-over-year growth in both sales, and earnings before tax. Earnings before tax for the year increased 85.0 per cent to $254,815 from $137,730 in the prior year. Net earnings for the year ended December 31, 2005 were $157,515 (or 2.3 cents per share) on sales of $10,958,827 compared to net earnings of $158,330 (or 2.3 cents per share) on sales of $9,598,584 in 2004. The difference in net earnings of $815 or 0.5 per cent was attributable to; the increase in earnings before tax and a change in rate, which resulted in an expense of $97,300 (2004 - $50,100) to the Company's future income tax benefit, and a gain reported in 2004 of $70,700 (2005 - NIL) due to a change in estimate of the expected tax rate and balances carried forward.

Sales for the year increased $1,360,243 or 14.2 per cent compared to 2004, in line with expectations from management's previous MD&A. Domestic and U.S. sales for the year grew 14.0 and 15.2 per cent, respectively. The growth in sales for the year is attributable to; organic growth domestically in the Company's pharmaceutical and household categories, and higher selling prices in general compared to the previous year. Sales growth in both of the aforementioned categories and export sales to the U.S surpassed management's budgeted expectations. However, the Company's seasonal products experienced a year-over-year decline attributable to weather, which reduced customer's demand for these products in the first and fourth quarters and represent 80 to 85 per cent of this category's annual sales. While organic growth from existing non-seasonal products continues to be a key element in management's long-term strategy, going forward the Company's sales growth will also be dependent on; its investment of resources to develop new products, as well as, the Company's ability to expand into markets outside of North America.

Gross profit for the year increased $246,410 or 11.6 per cent, to $2,375,641 or 21.7 per cent of sales, compared to $2,129,231 or 22.2 per cent of sales in 2004. The one-half percentage point decrease in comparative gross profit for the year was primarily due to; the timing of when raw material increases were received from suppliers and the effective date of compensating selling price increases to customers earlier in the year, an increase in customer rebates, and in some cases, selling price increases which were insufficient to recover the increase in material costs. Gross profit improved steadily in 2005. Fourth quarter gross profit of 25.15 per cent compared to the preceding quarters (Q3 - 22.07%, Q2 - 19.43%, Q1 - 20.47%), improved 3.08, 5.72 and 4.68 percentage points, respectively. Although percentage gross profit has risen measurably over the preceding quarters, management does not expect this will continue beyond the current period due to; further price increases announced from suppliers, normal shifts in sales mix between quarters, and fourth quarter percentage gross profit is close to historical highs for the Company.

Warehouse, selling and administrative expenses were $1,579,748 compared to $1,425,898 in 2004, an increase of 10.8 per cent. An increase in utilities, artwork costs, general insurance expense, wages, and public company expense were among the primary causes for the increase in warehouse, selling and administrative expenses overall. The comparative increase in label artwork costs was due to, deferred charges from prior years, which were expensed in warehouse, selling and administration during the current year. Warehouse, selling and administrative expenses when expressed as a percentage of sales were 14.4 per cent (2004 - 14.9 per cent) for the year, a comparative decrease of one-half percentage point.

EBITA (Earnings before Interest, Taxes and Amortization) for the year was $795,893 compared to $703,333 in 2004, an increase of 13.2 per cent. While management strives to grow EBITA at a rate greater than its sales, EBITA growth was 1.0 percentage point less than sales due to; the one-half percentage point decrease in comparative gross profit, and increase in warehouse, selling and administration expenses.

Amortization expense increased to provide for amortization of the Company's new facility in St. Albert, Alberta.

Bank charges & short-term interest expense increased to $44,588 (2004 - $22,073) due to an increase in bank indebtedness used to fund the Company's working capital requirements and an increase in the bank's prime lending rate. Interest expense on long-term debt increased 15.2 per cent ($220,563 versus $191,382) due to an increase in the bank's prime lending rate, despite a $411,217 or 12.2 per cent reduction in long-term bank debt compared to the previous year.

In 2004, the Company incurred an expense of $110,680 (2005 - NIL) related to the closure and relocation of its Alberta operation to a new facility located in St. Albert, Alberta, as well as, other disposition costs.

The Company's preferential manufacturing & processing statutory tax rate for 2005 was 35.6 per cent (2004 - 36.4%) however, the effective rate in 2005 was 38.2 per cent, due to the affect of items that are not deductible for tax purposes. Income taxes that would otherwise have been payable of $97,300 (2004 - $50,100) were used to reduce the Company's future income tax benefit. In 2004, a gain of $70,700 in the expected future income tax benefit was recognized (2005 - NIL) due to a change in balances carried forward and a change in the expected tax rate. As with all estimates, it is possible that changes in future conditions could require further changes in the recognized amounts for income taxes. Should a change be required it would be accounted for in the period in which those amounts became known. The Company follows the liability method of accounting for income taxes, and has a future income tax benefit arising from undepreciated capital cost (UCC) in excess of net book value (NBV) and losses available to be carried forward to the extent they are likely to be realized that reduce any taxes, which would otherwise be payable. Accordingly, management believes that EBITA, earnings before tax, and cash flow from operations are more useful measures of the Company's financial performance, however investors should be cautioned that these measures should not be construed as an alternative to net income determined in accordance with cGAAP.



RW Packaging Ltd.
Statement of Operations and Retained Earnings
---------------------------------------------

Three (3) Twelve (12)
months ended months ended
Dec. 31, Dec. 31, Dec. 31, Dec. 31,
2005 2004 2005 2004

Revenue $ 2,642,359 $ 2,423,636 $10,958,827 $ 9,598,584
Manufacturing &
Operating Costs $ 2,419,122 $ 2,315,681 $10,162,934 $ 8,895,251
------------------------------------------------
EBITA $ 223,237 $ 107,955 $ 795,893 $ 703,333
Amortization $ 68,982 $ 69,256 $ 275,927 $ 241,468
------------------------------------------------
EBIT $ 154,255 $ 38,699 $ 519,966 $ 461,865
Bank Charges and
Interest $ 69,705 $ 50,579 $ 265,151 $ 213,455
------------------------------------------------
Earnings Before
Other Items $ 84,550 ($ 11,880) $ 254,815 $ 248,410
Relocation &
Disposition Costs $ 0 $ 37,331 $ 0 $ 110,680
------------------------------------------------
Earnings Before Tax $ 84,550 ($ 49,211) $ 254,815 $ 137,730
Future Income Tax
Benefit $ 36,000 ($ 20,100) $ 97,300 $ 50,100
Change in Estimate
of FIT $ 0 ($ 16,900) $ 0 ($ 70,700)
------------------------------------------------
Net Earnings for
the Period $ 48,550 ($ 12,211) $ 157,515 $ 158,330
Retained Earnings,
Beginning of Period $ 1,915,142 $ 1,818,388 $ 1,806,177 $ 1,647,847
Retained Earnings,
End of Period $ 1,963,692 $ 1,806,177 $ 1,963,692 $ 1,806,177

Net Earnings (loss)
per Share -
Basic and fully
diluted (expressed
in cents per share) 0.7 cents/ (0.2 cents/ 2.3 cents/ 2.3 cents/
share share) share share

Cash Flow from
Operations (before
change in working
capital) $ 162,293 ($ 7,350) $ 539,503 $ 351,803

Shareholders Equity
per Share
(expressed in
cents per share) 47 cents/ 44.7 cents/
share share

Issued and
Outstanding
Common Shares 6,934,398 6,934,398


RW is GMP and ISO 9001 & 9002 registered. The Company blends and packages liquid and powder private brand consumer products for major retailers and national brand marketers across North America.

Additional information relating to the Company is available online at www.sedar.com or the Company's website at www.rwpackaging.com

Shares Issued 6,934,398

2006-03-21 Close $0.21

The TSX Venture Exchange (TSX Venture) has not reviewed, and does not accept responsibility for, the adequacy or accuracy of this release.

Contact Information

  • RW Packaging Ltd.
    Mr. Henry De Ruiter
    President and CEO
    Toll Free: 1 (800) 284-6338
    rwp@rwpackaging.com