RW Packaging Ltd.
TSX VENTURE : RWP

RW Packaging Ltd.

May 17, 2006 12:22 ET

RW Packaging-2006, 1st Quarter Results

WINNIPEG, MANITOBA--(CCNMatthews - May 17, 2006) - RW Packaging Ltd. (TSX VENTURE:RWP) -

(FOR THE THREE (3) MONTHS ENDED MARCH 31, 2006)

The Board of Directors announced today the Company's unaudited financial results for the three (3) months ended March 31, 2006.

OVERALL PERFORMANCE

The Company reported net earnings for the three (3) months ended March 31, 2006 of $6,641 (or 0.1 cent per share) on sales of $2,695,299 compared to net earnings of $29,067 (or 0.4 cent per share) on sales of $2,643,441 for the same period in 2005.

EBITA (Earnings before Interest, Taxes and Amortization) for the quarter was $147,421 compared to $173,443 reported in Q1 - 2005, a decrease of 15.0 per cent. The decrease in EBITA resulted from a 0.1 percentage point decline in gross profit, and increase in warehouse, selling and administration expenses. Earnings before taxes for the quarter were $10,441 compared to $42,567 the year prior.

The Company generated cash flow from operating activities for the quarter of $220,960 (2005 - $7,552). Cash flow generated from operating activities was sufficient to meet all of the Company's debt repayment obligations and investing activities, as well as, reduce bank indebtedness by $108,379 to $608,656 from $717,035 reported at the end of 2005. Since the audited 2005 year end, there has been no significant change in the overall financial condition of the Company.

The Company has negotiated new financing commitments (the "Commitments") with TD Securities and TD Commercial Banking, both divisions of the TD Bank Financial Group. The Commitments provide increased long term financing over the Company's real property and equipment, and improved terms, conditions and pricing of operating facilities. The Commitments are comprised of; two (2) new mortgages on the Company's properties in Winnipeg and St. Albert of up to $3.6 million, an increase of an existing term loan to $673,000, and a renewal of a revolving operating credit facility of $750,000. Subject to the closing conditions, the Commitments are expected to be completed on or before June 30, 2006. The proceeds of new financing Commitments will primarily be used to refinance existing term loan facilities and provide for general working capital needs, and to improve the overall liquidity and financial position of the Corporation. Management reasonably believes that the Board of Directors will authorize undertaking a strategic review of the Corporation, to determine the use of the remaining proceeds of the financing commitment. The strategic review may include; engaging external advisors to assist the Company in determining the fair market value of the Company's business, competitive position and strategic direction, and a review to determine the most appropriate capital structure, among other things. Subsequent to this strategic review, the Board will consider the findings and recommendations presented, and determine which, if any, of the options are in the best interest of the Corporation. Management would anticipate any such strategic review, if authorized by the Board, could take at least three to six months.

RESULTS OF OPERATIONS

Sales for the quarter increased 2.0 per cent, compared to the same period a year ago. Domestic sales of $2,345,458 (2005 - $2,253,306) grew 4.1 per cent, resulting from; an increase in sales of household and seasonal products, which grew 39.3 and 10.8 per cent, respectively, and a sales decrease in pharmaceutical products of 4.6 per cent. Export sales to the U.S. for the quarter, declined 10.3 per cent to $349,841 (2005 - $390,135) after conversion into Canadian dollars, the Company's reporting currency. Of the decrease in U.S. sales, $28,629 is the result of a change in currency exchange rates due to the continued strengthening of the Canadian dollar. Prior to conversion into the Company's reporting currency, sales to the U.S. declined 3.7 per cent.

In response to further raw material price increases and higher fuel surcharges, both due to higher energy costs, the Company initiated further selling price adjustments. As a result, management expects sales in 2006 to increase as these selling price adjustments take effect, in addition to anticipated organic growth. During the quarter, case production increased 9.6 per cent compared to the same period a year ago.

Gross profit for the quarter increased 1.4 per cent, to $562,932 or 20.9 per cent of sales, compared to $555,280 or 21.0 per cent of sales in 2005. The 0.1 percentage point decrease in comparative gross profit for the quarter was primarily due to the aforementioned change in product sales mix. In some cases, the profitability of specific products also declined as further raw material cost increases had been received during the period and offsetting selling price adjustments, had not yet taken effect. Similar to 2005, management anticipates percentage gross profit to steadily improve through the remainder of the year, provided input costs do not rise further and no other unforeseen events, such as the devastating hurricane damage to the U.S. gulf coast last year, occur.

Warehouse, selling and administrative expenses were $415,511 (2005 - $381,837) for the three months ended March 31, 2006, an increase of $33,674 or 8.8 per cent. Increases in utilities from higher energy costs, temporary equipment rental and sales development costs were among the primary causes for the overall increases. Warehouse, selling and administrative expenses when expressed as a percentage of sales were 15.4 per cent (2005 - 14.4 per cent) for the quarter.

Amortization expense for the quarter decreased 7.0 per cent to $66,617 (2005 - $71,608) primarily due to a reduction in amortization of deferred charges and computer equipment, which at the prior year end had been fully amortized.

Bank charges and short-term interest expense increased to $13,526 (2005 - $8,434) due to an increase in bank indebtedness and an increase in the bank's prime lending rate. Interest expense on long-term debt increased 11.8 per cent ($56,837 versus $50,834) due to an increase in the bank's prime lending rate. Management expects interest expense will decline in the second half of 2006, resulting from a reduction in interest rates under the aforementioned new financing commitments.

Income taxes that would otherwise have been payable of $3,800 (2005 - $13,500) applying the estimated tax rate for the quarter of 36.4 per cent (2005 - 31.7 per cent) were used to reduce the Company's future income tax benefit, resulting in net earnings for the quarter of $6,641 or 0.1 cent/share compared to $29,067 or 0.4 cent/share in 2005. 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.

Subsequent to the end of the quarter, the Company initiated a recall of a product. Ongoing stability testing found that the product did not meet the Company's established quality standards throughout the entire shelf life of the product. The recalled product returned from customers will be replaced with new product already in production. The Company anticipates the cost for the return and disposition of the recalled product to reduce 2006 net earnings by $12,500 to $22,500, or between 0.2 and 0.3 cent/share.



RW Packaging Ltd.
Statement of Operations and Retained Earnings

Three (3) months ended
Mar. 31, 2006 Mar. 31, 2005

Revenue $ 2,695,299 $ 2,643,441
Manufacturing & Operating Costs $ 2,547,878 $ 2,469,998
----------- -----------
EBITA $ 147,421 $ 173,443
Amortization $ 66,617 $ 71,608
----------- -----------
EBIT $ 80,804 $ 101,835
Bank Charges and Interest $ 70,363 $ 59,268
----------- -----------
Earnings Before Tax $ 10,441 $ 42,567
Future Income Tax Benefit $ 3,800 $ 13,500
----------- -----------
Net Earnings for the Period $ 6,641 $ 29,067
Retained Earnings,
Beginning of Period $ 1,963,692 $ 1,806,177
Retained Earnings,
End of Period $ 1,970,333 $ 1,835,244
Net Earnings (loss) per Share -
Basic and fully diluted
(expressed in cents per share) 0.1 cent/share 0.4 cent/share

Cash Flow from Operating Activities $ 220,960 $ 7,552

Shareholders Equity per Share
(expressed in cents per share) 47 cents/share 45.1 cents/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

2006-05-16 Close $0.26

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

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