Winpak Ltd.

April 23, 2015 18:44 ET

Winpak Reports First Quarter Results

WINNIPEG, MB--(Marketwired - April 23, 2015) - Winpak Ltd. (TSX: WPK) today reports consolidated results in US dollars for the first quarter of 2015, which ended on March 29, 2015.

  Quarter Ended  
  March 29
  March 30
(thousands of US dollars, except per share amounts)    
Revenue 199,440   188,077  
Net income 22,724   16,456  
Income tax expense
Net finance expense (income) 35   (63 )
Depreciation and amortization 7,747   7,365  
EBITDA (1) 41,420   30,993  
Net income attributable to equity holders of the Company 22,463   16,163  
Net income attributable to non-controlling interests 261   293  
Net income 22,724   16,456  
Basic and diluted earnings per share (cents) 35   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 healthcare 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 equity holders of the Company for the first quarter of 2015 amounted to $22.5 million or 35 cents in earnings per share versus the $16.2 million or 25 cents per share recorded in the comparable quarter of 2014, an increase of 39.0 percent. This represents the most successful first quarter in Winpak's history. Lower raw material costs in the quarter contributed to improved gross profit margins, adding 9.0 cents to earnings per share. Organic volume growth and favorable foreign exchange further augmented earnings per share by 1.5 cents each. Greater operating expenses and a higher effective income tax rate, on the other hand, reversed some of this improvement with a reduction in earnings per share of 1.5 cents and 0.5 cents respectively.

Revenue in the first three months of 2015 rose to $199.4 million, an increase of $11.4 million or 6.0 percent over the corresponding period in
2014. Volume expansion was steady at 5.3 percent compared to the first quarter of 2014 but was varied across the product groups. Modified atmosphere packaging growth led the Company with volumes advancing in the low double-digit percentage range as a solid foothold was gained at some of North America's largest meat and cheese producing customers. Specialty film revenues also flourished as barrier film sales, including shrink bags, helped advance shipments in the high single-digit percentage range. Rigid container volumes increased in the mid single-digit percentage range as considerable growth in condiment, applesauce and specialty beverage packaging was partially offset by the loss of some low-margin yogurt business. Lidding experienced a slight decline while biaxially oriented nylon volumes fell in the high single- digit percentage range. Much of this decline appears to be timing related and improvement is expected in succeeding quarters. Packaging machinery and part sales had another strong quarter with volumes up by over 40 percent in comparison to the first three months of 2014. Selling price/mix changes had a favorable effect on quarterly revenues of 2.0 percent while foreign exchange had a negative influence of 1.3 percent due to the significant decline in the value of the Canadian dollar in comparison to its US counterpart in the current period versus the prior year first quarter.

Gross profit margins
Gross profit margins expanded in the first quarter of 2015 to 31.6 percent of revenue compared to 27.2 percent in the corresponding prior year period. Falling raw material costs were the main contributing factor to the improved gross profit performance, as prices for petroleum and natural gas, from which resins are derived, declined significantly. Much of the substantial improvement in margins will be short-lived as over 70 percent of the Company's revenues are indexed, whereby selling price adjustments related to raw material costs are reflected with a lag of approximately 90 days after the raw material costs change. In addition to the favorable impact of lower raw material costs, gross profit margins were also favorably impacted by improved product mix.

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 29, 2014 to reflect the mix of the eight primary raw materials purchased in 2014.

Quarter and Year 1/15 4/14 3/14 2/14 1/14 4/13 3/13 2/13 1/13
Purchase Price Index 156.9 175.1 176.2 178.1 178.7 175.0 173.2 173.5 176.5

The purchase price index fell significantly in the first quarter of 2015, declining by 10.4 percent from the fourth quarter of 2014. While the quarterly average prices for certain commodity-type resins fell between 10 to 20 percent, other high-performance specialty resins and materials which comprise approximately one-third of the index saw little or no change during the quarter. If raw material prices stabilize at the levels experienced at the end of the first quarter of 2015, the purchase price index will fall further in the second quarter as declines which occurred during the first quarter will be fully reflected in the index from the start of the second quarter. However, several resin suppliers have announced price increases for certain materials in the second quarter and it remains to be seen what direction future resin pricing will take.

Expenses and Other
Operating expenses in total, adjusted for foreign exchange, increased at a faster rate than sales volumes for the quarter when compared to the first three months of 2014, resulting in a reduction of 1.5 cents in earnings per share. Lower research and development tax credits in the current quarter versus a year ago, elevated share-based incentive costs as a result of the rapid rise in the Company's share price of over 25 percent in the quarter, and pre-production expenses in the first three months of 2015 inflated operating expenses. A greater effective income tax rate in the current quarter, due in part to a larger proportion of earnings being realized in higher income tax rate jurisdictions, decreased earnings per share by a further 0.5 cents. Foreign exchange had a favorable effect on earnings per share in the first quarter of approximately 1.5 cents compared to the corresponding period in 2014 due to the weaker Canadian dollar in the quarter as expenses exceeded revenues in that currency. Although foreign exchange losses were also experienced on the translation of Canadian net monetary assets as well as on the maturation of foreign exchange contracts that form part of the Company's foreign exchange hedging policy, these losses were roughly equivalent to the losses incurred on these items in the first quarter of 2014.

Summary of Quarterly Results

Thousands of US dollars, except per share amounts (US cents)

Revenue 199,440 206,269 192,982 199,426 188,077 187,964 179,926 177,032
Net income attributable to equity holders of the Company







EPS 35 36 30 30 25 32 27 26

Capital Resources, Cash Flow and Liquidity
The Company's cash and cash equivalents balance ended the first quarter of 2015 at $162.5 million, an increase of $18.7 million from the end of the previous year. Winpak continued to generate strong and consistent cash flows from operating activities before changes in working capital of $41.3 million, eclipsing the first quarter of 2014 by $10.9 million. Cash was utilized to supplement working capital for $3.3 million, plant and equipment additions of $12.8 million, income tax payments of $3.7 million, dividends to equity holders of the Company of $1.7 million, and employee defined benefit plan contributions of $1.1 million.

Looking Forward
The Company remains optimistic in regard to revenue growth and earnings performance for the balance of the year. Although volume growth was steady in the first quarter of the year, further improvement can be anticipated if opportunities currently in various stages of development materialize into new revenue as planned. Assuming raw material prices remain at current levels, gross profit margins should continue to be elevated in the second quarter as certain resin price declines in February and March were not fully reflected in first quarter cost of sales but will be realized when period-end inventories are sold in the second quarter. Selling price declines, due to indexing, will take place in the second quarter based on average first quarter material costs and will be fully reflected in the third quarter when gross profit margins are expected to retreat closer to more normal levels. However, should raw material prices change significantly from current levels, this margin pattern may not transpire. Manufacturing performance is also expected to improve in areas where new capacity was more recently added as utilization and efficiencies advance. However, this will be offset in part in certain product lines where capacity is currently constrained as added costs will be incurred to fulfill heightened demand. The continued weakness in the Canadian dollar versus its US counterpart, while reducing reported revenues, will increase earnings as Canadian dollar denominated costs exceed Canadian revenues. Capital spending for 2015 continues to be on pace at a $55 to $65 million level with a focus on expanding capacity in extrusion and converting. The Company will also continue to pursue acquisition opportunities, at a reasonable price, that correspond to Winpak's core competencies in sophisticated packaging for food, beverage and healthcare applications.

Winpak Ltd.
Interim Condensed Consolidated Financial Statements
First Quarter Ended: March 29, 2015

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 or the Company's website,

Winpak Ltd.
Condensed Consolidated Balance Sheets
(thousands of US dollars) (unaudited) 
  March 29
   December 28
Current assets:     
 Cash and cash equivalents 162,467    143,761  
 Trade and other receivables 110,200    112,454  
 Income taxes receivable 29    2,873  
 Inventories 97,455    100,586  
 Prepaid expenses 5,276    4,344  
 Derivative financial instruments 37    -  
  375,464    364,018  
Non-current assets:     
 Property, plant and equipment 352,889    348,002  
 Intangible assets 14,967    15,068  
 Employee benefit plan assets 5,455    5,249  
 Deferred tax assets 1,844    1,990  
  375,155    370,309  
Total assets750,619  734,327 
Equity and Liabilities     
Current liabilities:     
 Trade payables and other liabilities 61,187    69,098  
 Provisions 427    427  
 Income taxes payable 3,049    690  
 Derivative financial instruments 1,921    875  
   66,584    71,090  
Non-current liabilities:     
 Employee benefit plan liabilities 8,268    7,673  
 Deferred income 14,511    14,831  
 Provisions 6,640    6,571  
 Deferred tax liabilities 32,792    32,775  
   62,211    61,850  
Total liabilities128,795  132,940 
 Share capital 29,195    29,195  
 Reserves (1,380 )  (641 )
 Retained earnings 576,612    555,697  
Total equity attributable to equity holders of the Company 604,427    584,251  
Non-controlling interests 17,397    17,136  
Total equity 621,824    601,387  
Total equity and liabilities 750,619    734,327  
Winpak Ltd.     
Condensed Consolidated Statements of Income     
(thousands of US dollars, except per share amounts) (unaudited)     
 Quarter Ended 
 March 29
  March 30
Revenue199,440  188,077 
Cost of sales(136,469) (136,869)
Gross profit62,971  51,208 
Sales, marketing and distribution expenses(15,082) (15,266)
General and administrative expenses(8,967) (7,646)
Research and technical expenses(3,699) (3,352)
Pre-production expenses(346) - 
Other expenses(1,204) (1,316)
Income from operations33,673  23,628 
Finance income85  151 
Finance expense(120) (88)
Income before income taxes33,638  23,691 
Income tax expense(10,914) (7,235)
Net income for the period22,724  16,456 
Attributable to:     
 Equity holders of the Company22,463
 Non-controlling interests261
 22,724  16,456 
Basic and diluted earnings per share - cents35  25 
Condensed Consolidated Statements of Comprehensive Income 
(thousands of US dollars) (unaudited)
 Quarter Ended 
 March 29
  March 30
Net income for the period22,724  16,456 
Items that are or may be reclassified subsequently to the statements of income:     
Cash flow hedge losses recognized(1,568) (887)
Cash flow hedge losses transferred to the statements of income559  682 
Income tax effect270  54 
 (739) (151)
Other comprehensive loss for the period - net of income tax(739) (151)
Comprehensive income for the period21,985  16,305 
Attributable to:     
 Equity holders of the Company21,724  16,012
 Non-controlling interests261
Winpak Ltd. 
Condensed Consolidated Statements of Changes in Equity          
(thousands of US dollars) (unaudited)          
 Attributable to equity holders of the Company    
  Share capital Reserves  Retained earnings  Total  Non- controlling interests Total equity  
Balance at December 30, 201329,195 (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


 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  
Balance at December 29, 2014 29,195 (641 )555,697  584,251  17,136 601,387  
 Comprehensive (loss) income for the period          
  Cash flow hedge losses, net of tax - (1,149 )-  (1,149 )- (1,149 )
  Cash flow hedge losses transferred to the statements of income, net of tax - 410  -  410  - 410  
 Other comprehensive loss - (739 )-  (739 )- (739 )
 Net income for the period - -  22,463  22,463  261 22,724  
 Comprehensive (loss) income for the period - (739 )22,463  21,724  261 21,985  
 Dividends - -  (1,548 )(1,548 )- (1,548 )
Balance at March 29, 2015 29,195 (1,380 )576,612  604,427  17,397 621,824  
Winpak Ltd.
Condensed Consolidated Statements of Cash Flows 
(thousands of US dollars) (unaudited) 
 Quarter Ended 
 March 29
  March 30
Cash provided by (used in):     
Operating activities:     
 Net income for the period 22,724   16,456  
 Items not involving cash:     
  Depreciation7,984  7,590 
  Amortization - deferred income (392 )  (359 )
  Amortization - intangible assets 155    134  
  Employee defined benefit plan expenses 976    895  
  Net finance expense (income) 35    (63 )
  Income tax expense 10,914    7,235  
  Other (1,123 )  (1,481 )
   Cash flow from operating activities before the following 41,273    30,407  
 Change in working capital:      
  Trade and other receivables 2,254    (4,353 )
  Inventories 3,131    507  
  Prepaid expenses (932 )  (1,928 )
  Trade payables and other liabilities (7,782 )  5,719  
 Provisions 36    (24 )
 Employee defined benefit plan contributions (1,078 )  (2,824 )
 Income tax paid (3,714 )  (3,151 )
 Interest received 62    87  
 Interest paid (7 )  (3 )
   Net cash from operating activities 33,243    24,437  
Investing activities:     
 Acquisition of property, plant and equipment - net(12,804) (12,165)
 Acquisition of intangible assets(55) (187)
  (12,859) (12,352)
Financing activities:     
 Dividends paid(1,678) (60,339)
Change in cash and cash equivalents 18,706    (48,254 )
Cash and cash equivalents, beginning of period 143,761    161,090  
Cash and cash equivalents, end of period 162,467    112,836  

Contact Information

  • For further information:

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

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