RW Packaging Ltd.
TSX VENTURE : RWP

RW Packaging Ltd.

November 08, 2006 17:39 ET

RW Packaging-2006, 3RD Quarter Results

WINNIPEG, MANITOBA--(CCNMatthews - Nov. 8, 2006) - RW Packaging Ltd. (TSX VENTURE:RWP) -

(FOR THE THREE (3) AND NINE (9) MONTHS ENDED SEPTEMBER 30, 2006

The Board of Directors announced today the Company's unaudited financial results for the three (3) and nine (9) months ended September 30, 2006.

OVERALL PERFORMANCE

The Company reported a 19.8 per cent improvement in comparative net earnings for the third quarter ended September 30, 2006. Net earnings for the quarter were $46,724 (or 0.7 cent per share) on sales of $2,226,997 compared to net earnings of $39,005 (or 0.6 cent per share) on sales of $2,467,564 for the third quarter in 2005. The improvement in net earnings for the quarter was attributable to; higher gross profit margins, in addition to, reductions in both amortization and interest expense, which offset the impact of; a decline in sales, changes in currency exchange rates, product recall claims, and higher warehouse, selling and administrative expense.

Year-to-date results for the nine months completed are net earnings of $21,828 (or 0.3 cent per share) on sales of $7,832,619 compared to net earnings of $108,965 (or 1.6 cent per share) on sales of $8,101,160 in 2005. The decrease in comparative net earnings for the year-to-date is primarily the result of; a $59,795 expense related to a product recall earlier in the year, additional interest and deferred charge expenses totaling $49,432 due to the early repayment of long-term debt on June 30, 2006, and higher operating costs in general that to date have not been fully recovered through selling price adjustments.

The Company announced October 13, 2006, its intention, subject to receipt of all required regulatory approvals including approval by the TSX Venture Exchange (the "Exchange") and compliance with applicable securities laws, rules and regulations, to make a normal course issuer bid for up to 346,718 of its common shares for cancellation, being just less than 5% of the 6,934,398 common shares currently issued and outstanding, commencing November 1, 2006 and ending no later than October 31, 2007. The Company was notified through a bulletin issued by the TSX Venture Exchange on October 26, 2006 that it had accepted the Company's application to proceed with its normal course issuer bid. Purchases pursuant to the bid will be made by Canaccord Capital Corporation on behalf of the Company through facilities of the TSX Venture Exchange. The purchase and payment for the securities will be made in accordance with Exchange requirements at the market price of the common shares at the time of the acquisition.

RESULTS OF OPERATIONS

Sales for the third quarter ended September 30, 2006 decreased $240,567 or 9.7 per cent compared to the third quarter in 2005, and for the nine months year-to-date have decreased $268,541 or 3.3 per cent compared to the year prior. Domestic sales for the quarter of $2,146,918 (2005 - $2,304,309) declined 6.8 per cent, and for the year-to-date were $6,567,368 (2005 - $6,789,009), a decline of 3.3 per cent. U.S. sales for the quarter were $80,079 (2005 - $163,255), and for the nine months ended September 30, 2006 were $1,265,251 (2005 - $1,312,151). The Company's Over-the-Counter (OTC) pharmaceutical division continued to generate growth in the quarter and year-to-date, partially offsetting declines in the Company's other product divisions. The primary factors for the decline in sales for the quarter and year-to-date are:

- Domestic sales - a promotional campaign ran in June and July, 2005 by a customer launching a new private label household product supplied by the Company was not repeated this year, reducing sales for the quarter by $219,600 and for the year-to-date by $378,158.

- U.S. sales - a change in currency exchange rates resulting from the stronger Canadian dollar, the Company's reporting currency, which reduced U.S dollar denominated sales for the quarter by $26,254 and for the year-to-date by $111,586.

Excluding these factors, sales for the quarter would have been level with the comparative quarter last year, and for the year-to-date would have increased approximately 2.7 per cent. Management's present outlook for the remainder of the year is for sales to be similar to the prior year due to; the impact of currency exchange, offsetting organic growth and gains made from selling price adjustments.

Gross profit for the third quarter of $574,555 (2005 - $560,817) improved 3.1 percentage points, to 25.8 per cent of sales, compared to 22.7 per cent of sales in 2005, despite an expense for product recall claims, which reduced gross profit by $22,186 or 1.0 percentage point in the period. Excluding the impact of the product recall, comparative percentage gross profit would have been 26.8 per cent, or 4.1 percentage points higher than the prior year. The significant improvement in gross profit is attributable to; the year-over-year increase in sales of pharmaceutical's and selling price adjustments passed on to customers, which more than offset the impact of; a decrease in sales from less profitable product lines and change in currency exchange rates. Gross profit for the nine months year-to-date of $1,701,694 (2005 - $1,711,194) improved 0.6 percentage points, to 21.7 per cent of sales, compared to 21.1 per cent of sales in 2005. Year-to-date, the impact from the product recall has been a reduction in gross profit of $59,795, or 0.7 percentage points. Excluding this one-time item, gross margin dollars would have increased year-over-year by $50,295, or 2.9 per cent, more than offsetting the impact from; the decrease in sales and change in currency exchange rates.

Warehouse, selling and administrative expenses were $388,482 (2005 - $362,511) for the three months ended September 30, 2006, an increase of 7.2 per cent. For the year-to-date, warehouse, selling and administrative expenses were $1,206,348 (2005 - $1,138,538), an increase of $67,810 or 6.0 per cent, of which; $60,839 was an increase in warehouse expense and $6,971, an increase in selling and administrative expense. Increases in utilities, repairs, maintenance, rental equipment, product tests and public administration costs were among the primary causes for the overall increase. Warehouse, selling and administrative expenses when expressed as a percentage of sales were 17.4 per cent (2005 - 14.7 per cent) for the quarter, and 15.4 per cent (2005 - 14.1 per cent) for the year-to-date.

Amortization expense was $65,368 (2005 - $68,982) and $217,171 (2005 - $206,945) for the three and nine months ended September 30, 2006, respectively. The increase in amortization expense for the year-to-date is due to additional deferred charges of $18,569 in the second quarter, due to the early repayment of long-term debt on June 30, 2006.

Bank charges and interest expense for the quarter decreased 19.2 per cent to $55,181 (2005 - $68,319) due to the lower borrowing costs under the new mortgage(s) completed June 30, 2006. Bank charges and interest expense for the year-to-date have increased 17.7 per cent, to $230,047 (2005 - $195,446) due to $30,863 of additional interest expense in the second quarter for the early repayment of long-term debt. Management expects bank charges and interest expense in the final quarter to decline by similar amounts reported in this period, reducing the year-over-year increase to approximately 7.5 per cent at year-end.

A non-cash expense to the Company's future income tax benefit of $18,800 (2005 - $22,000) for the quarter, and $26,300 (2005 - $61,300) for the year-to-date resulted from; a change in expected tax rates and the amount of taxable income reported during the quarter and year-to-date, which would otherwise have been payable. 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.



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

Three (3) months ended Nine (9) months ended
Sept. 30, Sept. 30, Sept. 30, Sept. 30,
2006 2005 2006 2005

Revenue $ 2,226,997 $ 2,467,564 $ 7,832,619 $ 8,101,160
Manufacturing &
Operating Costs $ 2,040,924 $ 2,269,258 $ 7,337,273 $ 7,528,504
----------- ------------ ----------- ------------
EBITA $ 186,073 $ 198,306 $ 495,346 $ 572,656
Amortization $ 65,368 $ 68,982 $ 217,171 $ 206,945
----------- ------------ ----------- ------------
EBIT $ 120,705 $ 129,324 $ 278,175 $ 365,711
Bank Charges and
Interest $ 55,181 $ 68,319 $ 230,047 $ 195,446
----------- ------------ ----------- ------------
Earnings Before Tax $ 65,524 $ 61,005 $ 48,128 $ 170,265
Future Income Tax
Benefit $ 18,800 $ 22,000 $ 26,300 $ 61,300
----------- ------------ ----------- ------------
Net Earnings for the
Period $ 46,724 $ 39,005 $ 21,828 $ 108,965
Retained Earnings,
Beginning of Period $ 1,938,796 $ 1,876,137 $ 1,963,692 $ 1,806,177
Retained Earnings,
End of Period $ 1,985,520 $ 1,915,142 $ 1,985,520 $ 1,915,142
Net Earnings per Share -
Basic and fully diluted 0.7 cent/ 0.6 cent/ 0.3 cent/ 1.6 cent/
(expressed in cents per share share share share
share)

Cash Flow from Operating
Activities ($ 80,540) ($ 19,477) $ 183,693 $ 138,913

Shareholders Equity per
Share 47.3 cents/ 46.2 cents/
(expressed in cents per share share
share)


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


RW is GMP licensed and ISO 9001 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

2006-11-07 Close $0.325


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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