Winpak Ltd.

TSX : WPK


Winpak Ltd.

April 24, 2014 12:48 ET

Winpak Reports First Quarter Results

WINNIPEG, MANITOBA--(Marketwired - April 24, 2014) - Winpak Ltd. (TSX:WPK) (WPK) today reports consolidated results in US dollars for the first quarter of 2014, which ended on March 30, 2014.

Quarter Ended
March 30 March 31
2014 2013
(thousands of US dollars, except per share amounts)
Revenue 188,077 169,949
Net income 16,456 15,850
Income tax expense 7,235 6,862
Net finance (income) expense (63) 105
Depreciation and amortization 7,365 6,571
EBITDA (1) 30,993 29,388
Net income attributable to equity holders of the Company 16,163 15,989
Net income (loss) attributable to non-controlling interests 293 (139)
Net income 16,456 15,850
Basic and diluted earnings per share (cents) 25 25

Winpak Ltd. manufactures and distributes high-quality packaging materials and related packaging machines. The Company's products are used primarily for the packaging of perishable foods, beverages and in health-care applications.

1 EBITDA is not a recognized measure under International Financial Reporting Standards (IFRS). Management believes that in addition to net income, this measure provides useful supplemental information to investors including an indication of cash available for distribution prior to debt service, capital expenditures and income taxes. Investors should be cautioned, however, that this measure should not be construed as an alternative to net income, determined in accordance with IFRS, as an indicator of the Company's performance. The Company's method of calculating this measure may differ from other companies, and accordingly, the results may not be comparable.

(presented in US dollars)

Forward-looking statements: Certain statements made in the following report contain forward-looking statements including, but not limited to, statements concerning possible or assumed future results of operations of the Company. Forward-looking statements represent the Company's intentions, plans, expectations and beliefs, and are not guarantees of future performance. Such forward-looking statements represent Winpak's current views based on information as at the date of this report. They involve risks, uncertainties and assumptions and the Company's actual results could differ, which in some cases may be material, from those anticipated in these forward-looking statements. Unless otherwise required by applicable securities law, we disclaim any intention or obligation to publicly update or revise this information, whether as a result of new information, future events or otherwise. The Company cautions investors not to place undue reliance upon forward-looking statements.

Financial Performance

Net income attributable to common shareholders for the first quarter of 2014 amounted to $16.2 million or 25 cents in earnings per share compared to $16.0 million or 25 cents per share in the corresponding quarter of 2013, an increase of 1.1 percent. Organic revenue growth elevated earnings per share by 3 cents but was entirely offset by lower gross profit margins. Furthermore, savings generated by restraint in the growth rate of operating expenses, which contributed 1 cent in earnings per share, were largely offset by a greater proportion of earnings attributable to non-controlling interests, leaving earnings per share unchanged from the prior year first quarter.

Revenue

Revenue growth in the first three months of 2014 was vibrant, reaching a quarterly high of $188.1 million, an increase of $18.1 million or 10.7 percent over the first quarter of 2013. Volumes advanced by a solid 10.9 percent over the prior year comparable quarter as growth was widespread across many of the Company's product groups. Both rigid container and biaxially oriented nylon film volumes eclipsed the 2013 first quarter by just over 20 percent with the former experiencing gains in yogurt, condiment and specialty beverage containers. Following closely behind was the lidding product group where momentum picked up in die-cut lids for greek yogurt, condiment, retort and specialty beverage applications. Improved growth was experienced in modified atmosphere packaging which advanced in the upper-single digit percentage range. Packaging machinery volumes were virtually on par with the strong performance experienced in the first quarter of 2013 while specialty film volumes fell by over 10 percent. The latter was impacted by two plant shutdowns caused by two major winter storms which paralyzed the Atlanta region during the quarter. Selling price/mix changes had a favorable impact of 0.9 percent on revenues for the quarter while foreign exchange, due to a weakening in the Canadian dollar, decreased revenues in the quarter by 1.1 percent in comparison to the first quarter of 2013.

Gross profit margins

Gross profit margins for the quarter at 27.2 percent fell short of the 28.8 percent of revenue recorded in the first quarter of 2013. A narrowing of the spread between raw material costs and selling prices was caused by a combination of a less favorable product mix, raw material cost increases and isolated competitive pressures on selling prices. This, along with higher manufacturing costs, resulted in a reduction in earnings per share of 3 cents. Fixed manufacturing costs were impacted by recently added but under-utilized capacity and heightened waste levels were experienced with new products and processes.

For reference, the following presents the weighted indexed purchased cost of Winpak's eight primary raw materials in the reported quarter and each of the preceding eight quarters, where base year 2001 = 100. The index was rebalanced as of December 30, 2013 to reflect the mix of the eight primary raw materials purchased in 2013.

Quarter and Year 1/14 4/13 3/13 2/13 1/13 4/12 3/12 2/12 1/12
Purchase Price Index 178.7 175.0 173.2 173.5 176.5 170.6 167.3 174.5 174.7

The purchase price index hit its highest level in the past two years, escalating by 2.1 percent as compared to the fourth quarter of 2013. Polypropylene, polystyrene and polyethylene resin prices advanced by more than the index in the past quarter while other material costs were more stable.

Expenses and Other

Operating expenses in total, adjusted for foreign exchange, increased by just under 6 percent while volumes advanced by nearly 11 percent in the quarter when compared to the same period in 2013. The net result was an improvement to earnings per share of approximately 1 cent. Higher freight and distribution costs in the first quarter of 2014 were more than offset by the absence of pre-production expenses, tax incentives related to the Company's research and development activities, and lower selling, general and administrative costs. However, a larger proportion of earnings attributable to non-controlling interests decreased earnings per share by 1 cent. Income taxes and foreign exchange were both in line with the first quarter of 2013 and had no effect on earnings per share for the current three-month period compared to the equivalent timeframe in the prior year. The weaker Canadian dollar had a positive impact on earnings as expenses exceed revenues in that currency but these gains were offset entirely by losses incurred on the maturation of foreign exchange contracts that form part of the Company's foreign exchange hedging policy.

Summary of Quarterly Results
Thousands of US dollars, except per share amounts (US cents)
Q1 Q4 Q3 Q2 Q1 Q4 Q3 Q2
2014 2013 2013 2013 2013 2012* 2012* 2012*
Revenue 188,077 187,964 179,926 177,032 169,949 173,226 165,399 159,648
Net income attributable to equity holders of the Company 16,163 20,951 17,362 17,095 15,989 22,071 16,783 15,850
EPS 25 32 27 26 25 34 26 25

*Amounts have been restated to reflect the retrospective impact of amended IAS 19 "Employee Benefits", which included an increase in net finance expense due to the reduction in the expected return on defined benefit pension plan assets and an increase in general and administrative expenses following the reclassification of certain plan administration costs.

Capital Resources, Cash Flow and Liquidity

The Company's cash and cash equivalents balance ended the first quarter at $112.8 million, a decline of $48.3 million from the end of 2013. Winpak declared and paid a special dividend of $58.5 million ($65.0 million Canadian) in the quarter. In addition, cash was utilized for plant and equipment additions of $12.2 million, income tax payments of $3.2 million, employee defined benefit plan payments of $2.8 million, a regular quarterly dividend of $1.8 million and other items totalling $0.1 million. The Company continued to generate strong and consistent cash flows from operating activities before changes in working capital of $30.4 million, an improvement of $1.3 million from the prior year first quarter. Working capital in total was virtually unchanged, increasing by just $0.1 million.

Looking Forward

Building upon the strength of first quarter volume growth exceeding 10 percent and a solid performance in 2013, the Company continues to view 2014 with optimism. New revenue generation and manufacturing performance improvement will remain the prime areas of focus for the entire organization for the balance of the year. A number of significant opportunities are in the sales pipeline; however, the timing for conversion of these into future revenues remains uncertain as customers' protocols for new supply will govern the process. In the near term, raw material costs are expected to remain fairly stable overall in terms of pricing and supply. Gross profit margins should also continue near existing levels for the immediate future, subject to the timing of new customer additions and hence the fill rate of recently added production capacity. In addition, competitive forces could impact selling prices for existing products or anticipated prices for new Company product initiatives. Capital spending is still expected to be in the $50 to $60 million range for the year and will be geared to expanding on existing capabilities in extrusion and converting. With the recent special dividend of nearly $60 million paid in the first quarter, the Company is still left with sufficient cash to execute a significant acquisition should the right opportunity present itself. In this regard, the Company will continue to pursue acquisition opportunities in Winpak's core competencies in sophisticated food and health-care packaging while remaining committed to organic growth through capital investment.

Winpak Ltd.

Interim Condensed Consolidated Financial Statements

First Quarter Ended: March 30, 2014

These interim condensed consolidated financial statements have not been audited or reviewed by the Company's independent external auditor, KPMG LLP. For a complete set of notes to the condensed consolidated financial statements, refer to www.sedar.com or the Company's website, www.winpak.com.

Winpak Ltd.
Condensed Consolidated Balance Sheets
(thousands of US dollars) (unaudited)
March 30 December 29
2014 2013
Assets
Current assets:
Cash and cash equivalents 112,836 161,090
Trade and other receivables 102,761 98,408
Income taxes receivable 5,948 3,580
Inventories 91,797 92,304
Prepaid expenses 5,002 3,074
Derivative financial instruments 32 -
318,376 358,456
Non-current assets:
Property, plant and equipment 334,332 329,714
Intangible assets 15,018 14,960
Employee benefit plan assets 9,096 7,131
Deferred tax assets 2,735 2,943
361,181 354,748
Total assets 679,557 713,204
Equity and Liabilities
Current liabilities:
Trade payables and other liabilities 68,835 63,182
Provisions 427 427
Income taxes payable 5,367 2,048
Derivative financial instruments 1,141 903
75,770 66,560
Non-current liabilities:
Employee benefit plan liabilities 3,696 3,365
Deferred income 14,200 14,490
Provisions 6,545 6,524
Deferred tax liabilities 30,708 29,652
55,149 54,031
Total liabilities 130,919 120,591
Equity:
Share capital 29,195 29,195
Reserves (812) (661)
Retained earnings 503,774 547,891
Total equity attributable to equity holders of the Company 532,157 576,425
Non-controlling interests 16,481 16,188
Total equity 548,638 592,613
Total equity and liabilities 679,557 713,204
Winpak Ltd.
Condensed Consolidated Statements of Income
(thousands of US dollars, except per share amounts) (unaudited)
Quarter Ended
March 30 March 31
2014 2013
Revenue 188,077 169,949
Cost of sales (136,869) (121,078)
Gross profit 51,208 48,871
Sales, marketing and distribution expenses (15,266) (14,095)
General and administrative expenses (7,646) (7,823)
Research and technical expenses (3,352) (3,384)
Pre-production expenses - (526)
Other expenses (1,316) (226)
Income from operations 23,628 22,817
Finance income 151 105
Finance expense (88) (210)
Income before income taxes 23,691 22,712
Income tax expense (7,235) (6,862)
Net income for the period 16,456 15,850
Attributable to:
Equity holders of the Company 16,163 15,989
Non-controlling interests 293 (139)
16,456 15,850
Basic and diluted earnings per share - cents 25 25
Condensed Consolidated Statements of Comprehensive Income
(thousands of US dollars) (unaudited)
Quarter Ended
March 30 March 31
2014 2013
Net income for the period 16,456 15,850
Items that will not be reclassified to the statements of income:
Cash flow hedge losses recognized - (102)
Cash flow hedge gains transferred to property, plant and equipment - (33)
Income tax effect - -
- (135)
Items that are or may be reclassified subsequently to the statements of income:
Cash flow hedge losses recognized (887) (436)
Cash flow hedge losses (gains) transferred to the statements of income 682 (21)
Income tax effect 54 122
(151) (335)
Other comprehensive loss for the period - net of income tax (151) (470)
Comprehensive income for the period 16,305 15,380
Attributable to:
Equity holders of the Company 16,012 15,519
Non-controlling interests 293 (139)
16,305 15,380
Winpak Ltd.
Condensed Consolidated Statements of Changes in Equity
(thousands of US dollars) (unaudited)
Attributable to equity holders of the Company
Non-
Share Retained controlling Total
capital Reserves earnings Total interests equity
Balance at December 31, 2012 29,195 250 470,925 500,370 15,718 516,088
Comprehensive (loss) income for the period
Cash flow hedge losses, net of tax - (422) - (422) - (422)
Cash flow hedge gains transferred to the statements of income, net of tax - (15) - (15) - (15)
Cash flow hedge gains transferred to property, plant and equipment - (33) - (33) - (33)
Other comprehensive loss - (470) - (470) - (470)
Net income (loss) for the period - - 15,989 15,989 (139) 15,850
Comprehensive (loss) income for the period - (470) 15,989 15,519 (139) 15,380
Dividends - - (1,919) (1,919) - (1,919)
Balance at March 31, 2013 29,195 (220) 484,995 513,970 15,579 529,549
Balance at December 30, 2013 29,195 (661) 547,891 576,425 16,188 592,613
Comprehensive (loss) income for the period
Cash flow hedge losses, net of tax - (650) - (650) - (650)
Cash flow hedge losses transferred to the statements of income, net of tax - 499 - 499 - 499
Other comprehensive loss - (151) - (151) - (151)
Net income for the period - - 16,163 16,163 293 16,456
Comprehensive (loss) income for the period - (151) 16,163 16,012 293 16,305
Dividends - - (60,280) (60,280) - (60,280)
Balance at March 30, 2014 29,195 (812) 503,774 532,157 16,481 548,638
Winpak Ltd.
Condensed Consolidated Statements of Cash Flows
(thousands of US dollars) (unaudited)
Quarter Ended
March 30 March 31
2014 2013
Cash provided by (used in):
Operating activities:
Net income for the period 16,456 15,850
Items not involving cash:
Depreciation 7,590 6,759
Amortization - deferred income (359) (294)
Amortization - intangible assets 134 106
Employee defined benefit plan expenses 895 1,037
Net finance (income) expense (63) 105
Income tax expense 7,235 6,862
Other (1,481) (1,319)
Cash flow from operating activities before the following 30,407 29,106
Change in working capital:
Trade and other receivables (4,353) (3,873)
Inventories 507 (2,046)
Prepaid expenses (1,928) (738)
Trade payables and other liabilities 5,719 363
Provisions (24) (186)
Employee defined benefit plan payments (2,824) (1,872)
Income tax paid (3,151) (7,668)
Interest received 87 75
Interest paid (3) (5)
Net cash from operating activities 24,437 13,156
Investing activities:
Acquisition of property, plant and equipment - net (12,165) (14,996)
Acquisition of intangible assets (187) (258)
(12,352) (15,254)
Financing activities:
Dividends paid (60,339) (1,957)
Change in cash and cash equivalents (48,254) (4,055)
Cash and cash equivalents, beginning of period 161,090 133,303
Cash and cash equivalents, end of period 112,836 129,248

Contact Information

  • Winpak Ltd.
    K.P. Kuchma
    Vice President and CFO
    (204) 831-2254

    Winpak Ltd.
    B.J. Berry
    President and CEO
    (204) 831-2216