SOURCE: WINPAK LTD.

Winpak Ltd.

February 25, 2015 17:49 ET

Winpak Reports Fourth Quarter Results

WINNIPEG, MB--(Marketwired - February 25, 2015) - Winpak Ltd. (WPK) (TSX: WPK) today reports consolidated results in US dollars for the fourth quarter of 2014, which ended on December 28, 2014.

       
   Quarter Ended  Year Ended
   December 28   December 29  December 28   December 29
   2014   2013  2014   2013
(thousands of US dollars, except per share amounts)              
Revenue  206,269   187,964  786,754   714,871
Net income  23,756   21,244  79,652   72,085
           
Income tax expense  9,954   9,023  35,529   32,308
Net finance (income) expense  (88 ) 97  (117 ) 430
Depreciation and amortization  7,956   7,126  30,542   26,668
EBITDA (1)  41,578   37,490  145,606   131,491
           
Net income attributable to equity holders of the Company  23,343   20,951  78,360   71,397
Net income attributable to non-controlling interests  413   293  1,292   688
Net income  23,756   21,244  79,652   72,085
           
Basic and diluted earnings per share (cents)  36   32  121   110
           

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.

Management's Discussion and Analysis (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 fourth quarter of 2014 ascended to $23.3 million or 36 cents in earnings per share compared to $21.0 million or 32 cents per share in the corresponding quarter of 2013, an increase of 11.4 percent and represented the strongest quarterly earnings performance in Winpak's history. Appreciable organic volume growth drove earnings per share upward by 3.5 cents while a lower effective income tax rate provided an additional 0.5 cents in earnings per share.

For the year, net income attributable to equity holders of the Company ended 2014 at $78.4 million or $1.21 per share, surpassing the prior year result of $71.4 million or $1.10 per share by 9.8 percent. Volume growth in 2014 led the way, boosting earnings per share by 11.5 cents, and was further supplemented by curtailed growth in operating expenses which added a further 3.5 cents to earnings per share. Foreign exchange also had a negligible positive effect on 2014 annual earnings of 0.5 cents per share in comparison to the prior year. Offsetting these positive factors, to a limited extent, was a lower gross profit margin in 2014 versus the previous year which decreased earnings per share by 4.5 cents. The positive impact of a slightly lower income tax rate was essentially offset by a greater proportion of earnings allocated to non- controlling interests of approximately 0.5 cents in earnings per share each.

Revenue

Revenue in the final quarter of 2014 rose to $206.3 million, an increase of $18.3 million or 9.7 percent over the same period in 2013 and was the first time that quarterly revenues exceeded the $200 million plateau. Volume growth, for the Company as a whole, averaged 10.3 percent in the quarter compared to a year ago but was varied across the product groups. Rigid containers and corresponding lidding exhibited substantial growth, advancing just over 15 percent on a combined basis as condiment and specialty beverage packaging sales flourished. The modified atmosphere packaging product group also enjoyed solid volume expansion in the high single-digit percentage range with the addition of new customers as well as growth at existing customers in the core markets of processed meat and cheese. Biaxially oriented nylon volumes declined slightly in the low single-digit percentage range. Specialty film shipments retreated in the high single-digit percentage range where shrink bag revenues continued to move forward while business in the less sophisticated commodity-type films was more challenged. Packaging machinery and part sales ended the year strongly with volumes up by over 35 percent in comparison to the fourth quarter of 2013. Selling price/mix changes had a minor favorable effect on fourth quarter revenues of 0.3 percent while foreign exchange had a negative influence of 0.9 percent due to the fairly significant decline in the value of the Canadian dollar in comparison to its US counterpart in the current period versus the prior year fourth quarter.

Revenue ended the year at $786.8 million, improving upon 2013 by $71.9 million or a healthy 10.1 percent. Volume growth over the prior year was sizeable at 9.9 percent. With the exception of specialty films, all product group volumes advanced. Rigid container and lidding shipments led the way, expanding by 15 percent with strength exhibited in condiment, yogurt, specialty beverage and retort packaging. High single-digit percentage growth was evident in modified atmosphere packaging which was aided by an improved US economy and new customer additions. Packaging machinery followed up a strong 2013 with further gains in 2014 as volumes grew by more than 10 percent. Biaxially oriented nylon volumes advanced in the low single-digit percentage range while specialty film volumes were challenged and mirrored the fourth quarter results. Selling price/mix changes had a positive impact on revenue of 1.0 percent while foreign exchange had the opposite effect, reducing revenue by 0.8 percent.

Gross profit margins

Gross profit margins in the fourth quarter of 2014, at 29.8 percent of revenue, were comparable to the corresponding prior year quarter of 29.6 percent. Manufacturing performance began to show improvement in the quarter as capacity utilization increased and experience with new products and processes continued to build from previous quarters.

For the year, gross profit margins of 28.5 percent of revenue fell short of 2013 levels of 29.1 percent by 0.6 percentage points. This resulted in a decrease in earnings per share of 4.5 cents. Under-utilized capacity of major capital expenditures which came on stream toward the end of 2013 and elevated waste levels were the main factors causing a reduction in gross profit margins, particularly in the earlier part of the year. In addition, competitive conditions at certain customers compressed the spread between selling prices and raw material costs.

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  4/14  3/14  2/14  1/14  4/13  3/13  2/13  1/13  4/12
Purchase Price Index  175.1  176.2  178.1  178.7  175.0  173.2  173.5  176.5  170.6
                   

The purchase price index fell slightly by 0.6 percent in the fourth quarter of 2014 versus the previous quarter and was virtually identical to the index from a year prior. In aggregate, cost stability has been the norm for the Company's mix of raw material purchases for the past two years as the index has only fluctuated by less than 3 percent around the mean during this time period. However, as the fourth quarter ended, with the collapse in oil prices, certain resins were experiencing marked declines in price.

Expenses and Other

Operating expenses in total, adjusted for foreign exchange, moved in concert with sales volumes for the quarter when compared to the fourth quarter of 2013, having no effect on earnings per share. Lower research and development tax credits in the current quarter versus a year ago and elevated share-based incentive costs as a result of the rapid rise in the Company's share price of nearly 20 percent in the quarter inflated operating expenses but were offset by lower selling expenses in the quarter, as a result of reduced freight and distribution costs. A lower effective income tax rate in the current quarter, due to a greater proportion of earnings being realized in lower income tax rate jurisdictions, contributed 0.5 cents to earnings per share. Foreign exchange had a net neutral effect on earnings per share for the fourth quarter compared to the corresponding period in 2013. The weaker Canadian dollar in the quarter versus the comparative period in 2013 had a positive impact on earnings of nearly 1.0 cent per share as expenses exceeded revenues in that currency. However, this was offset by foreign exchange losses on the translation of Canadian net monetary assets, as the Canadian dollar depreciated from the start to the end of the quarter versus its US counterpart.

For all of 2014, operating expenses, excluding foreign exchange, increased at a lower rate than the growth in sales volumes, resulting in an addition to earnings per share of 3.5 cents. Decreased pre-production expenses in 2014 and lower selling expenses as a percentage of revenue were the main contributors to the increase in earnings. In addition, in 2014, a lower effective income tax rate and foreign exchange each had a net positive impact on earnings per share of 0.5 cents when compared to the previous year. The lower average value of the Canadian dollar in 2014 in relation to the US currency and the resulting impact from converting the Company's net Canadian dollar expenses into US funds accounted for approximately 3.0 cents in additional earnings per share. However, this was mainly offset by a combination of foreign exchange losses on the translation of Canadian net monetary assets and the maturation of foreign exchange contracts that form part of the Company's foreign exchange hedging policy totalling 2.5 cents in earnings per share. A greater proportion of year-to-date earnings attributable to non-controlling interests in 2014 resulted in a decrease in earnings per share of approximately 0.5 cents.

Summary of Quarterly Results

 
   Thousands of US dollars, except per share amounts (US cents)  
  Q4  Q3  Q2  Q1  Q4  Q3  Q2  Q1
  2014  2014  2014  2014  2013  2013  2013  2013
                
Revenue 206,269  192,982  199,426  188,077  187,964  179,926  177,032  169,949
Net income attributable to equity holders of the Company 23,343  19,448  19,406  16,163  20,951  17,362  17,095  15,989
EPS 36  30  30  25  32  27  26  25
                

Capital Resources, Cash Flow and Liquidity

The Company's cash and cash equivalents balance ended 2014 at $143.8 million, a build of $13.3 million in the fourth quarter. Winpak continued to generate strong and consistent cash flows from operating activities before changes in working capital of $42.4 million, surpassing the final quarter of 2013 by a substantial $6.4 million due in large part to higher net income and non-cash depreciation. Cash was utilized to supplement working capital for $3.5 million, plant and equipment additions of $12.5 million, income tax payments of $10.6 million, dividends to equity holders of the Company of $1.7 million, employee defined benefit plan contributions of $0.5 million, and other items totalling $0.3 million.

For all of 2014, the cash and cash equivalents balance declined by $17.3 million, primarily due to the payment of a special dividend of $58.5 million ($65.0 million Canadian) in the first quarter of the year. Operating activities before changes in working capital generated cash flows of $145.4 million, an appreciation of $15.8 million or 12.2 percent from 2013. Working capital additions consumed $17.5 million, mainly to service larger sales volumes with higher accounts receivable and inventory levels. In addition, payment terms were extended for certain customers as part of contract renewal negotiations which further bolstered trade receivable levels. Cash was also used for plant and equipment expenditures of $48.1 million which were predominantly extrusion-related, income tax payments of $25.4 million, regular quarterly dividends of $7.2 million, employee defined benefit plan contributions of $5.1 million and other items totalling $0.9 million. The Company remains debt-free and has unutilized operating lines of $38 million, with the ability to increase borrowing capacity further should the need arise. As a result, Winpak is confident that sufficient financial resources are in place to meet all anticipated cash requirements in the foreseeable future.

Looking Forward

Following a strong finish to 2014, the Company is decidedly optimistic as it enters 2015. The momentum from the near double-digit volume growth experienced in 2014 should carry through to 2015 as opportunities in the sales pipeline come to fruition. New revenue generation will continue to be a main focus for the organization in the upcoming year as the Company pursues its billion dollar sales goal for 2016. At the close of 2014, oil prices were experiencing a sharp decline worldwide. This should translate into lower raw material prices for select resins, the effect of which should be felt beginning in the first quarter of 2015. With over two-thirds of the Company's revenues subject to price indexing whereby changes in raw material costs are reflected in subsequent selling prices with an approximate three-month lag, revenues will be negatively affected due to this particular factor. However, gross profit margins in percentage terms will increase as a result, and some expansion of gross profit dollars is also expected. If resin costs remain depressed for an extended period of time, it will further enhance the attractiveness of plastic packaging over other formats such as glass containers, paper packaging and metal cans and the result will be an increase in longer term demand for the type of packaging produced by the Company. Improved manufacturing performance will remain a focus for 2015 as revenue growth will increase capacity utilization for the new machinery more recently added and efficiencies should also rise. However, weighing on margins will be the challenges faced by certain areas of the business in 2015 where demand fulfillment may prove difficult until new planned capacity becomes available. The fall in the Canadian dollar versus its US equivalent, while reducing reported revenues, will increase bottom-line performance as Canadian dollar denominated costs exceed revenues in that currency. The effect on net income will be spread over time as foreign exchange hedges currently in place mature. Capital spending for 2015 is expected to be somewhat higher than 2014 in the $55 to $65 million range and will be focused on expansion of existing capabilities in extrusion and converting. The Company will actively 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. With the Company's solid financial footing, it has the resources necessary to complete a significant acquisition and still remain committed to substantial organic growth through capital investment.

Winpak Ltd.
Interim Condensed Consolidated Financial Statements
Fourth Quarter Ended: December 28, 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)  
        
   December 28   December 29  
   2014   2013  
        
Assets         
        
Current assets:         
 Cash and cash equivalents  143,761   161,090  
 Trade and other receivables  112,454   98,408  
 Income taxes receivable  2,873   3,580  
 Inventories  100,586   92,304  
 Prepaid expenses  4,344   3,074  
   364,018   358,456  
        
Non-current assets:         
 Property, plant and equipment  348,002   329,714  
 Intangible assets  15,068   14,960  
 Employee benefit plan assets  5,249   7,131  
 Deferred tax assets  1,990   2,943  
   370,309   354,748  
Total assets  734,327   713,204  
        
Equity and Liabilities         
        
Current liabilities:         
 Trade payables and other liabilities  69,098   63,182  
 Provisions  427   427  
 Income taxes payable  690   2,048  
 Derivative financial instruments  875   903  
   71,090   66,560  
        
Non-current liabilities:         
 Employee benefit plan liabilities  7,673   3,365  
 Deferred income  14,831   14,490  
 Provisions  6,571   6,524  
 Deferred tax liabilities  32,775   29,652  
   61,850   54,031  
Total liabilities  132,940   120,591  
        
Equity:         
 Share capital  29,195   29,195  
 Reserves  (641 ) (661 )
 Retained earnings  555,697   547,891  
Total equity attributable to equity holders of the Company  584,251   576,425  
Non-controlling interests  17,136   16,188  
Total equity  601,387   592,613  
Total equity and liabilities  734,327   713,204  
       
   
Winpak Ltd.  
Condensed Consolidated Statements of Income  
(thousands of US dollars, except per share amounts) (unaudited)  
  
   Quarter Ended   Year Ended  
   December 28   December 29   December 28   December 29  
   2014   2013   2014   2013  
Revenue  206,269   187,964   786,754   714,871  
Cost of sales  (144,831 ) (132,390 ) (562,379 ) (506,788 )
Gross profit  61,438   55,574   224,375   208,083  
Sales, marketing and distribution expenses  (14,321  (14,522 ) (60,970 ) (57,460 )
General and administrative expenses  (8,125  (7,183 ) (28,945 ) (29,090 )
Research and technical expenses  (3,721  (2,674 ) (14,275 ) (13,095 )
Pre-production expenses  (575  (648 ) (1,443 ) (2,956 )
Other expenses  (1,074  (183 ) (3,678 ) (659 )
Income from operations  33,622   30,364   115,064   104,823  
Finance income  159   92   586   384  
Finance expense  (71  (189 ) (469 ) (814 )
Income before income taxes  33,710   30,267   115,181   104,393  
Income tax expense  (9,954  (9,023 ) (35,529 ) (32,308 )
Net income for the period  23,756   21,244   79,652   72,085  
Attributable to:                 
 Equity holders of the Company  23,343   20,951   78,360   71,397  
 Non-controlling interests  413   293   1,292   688  
   23,756   21,244   79,652   72,085  
Basic and diluted earnings per share - cents  36   32   121   110  
             
   
Condensed Consolidated Statements of Comprehensive Income  
(thousands of US dollars) (unaudited)  
  
   Quarter Ended   Year Ended  
   December 28   December 29   December 28   December 29  
   2014   2013   2014   2013  
Net income for the period  23,756   21,244   79,652   72,085  
Items that will not be reclassified to the statements of income:                 
Cash flow hedge losses recognized  -   -   -   (94 )
Cash flow hedge gains transferred to property, plant and equipment  -   -   -   (50 )
Employee benefit plan remeasurements  (7,349 ) 18,747   (7,349 ) 18,747  
Income tax effect  2,330   (5,690 ) 2,330   (5,690 )
   (5,019 ) 13,057   (5,019 ) 12,913  
              
Items that are or may be reclassified subsequently to the statements of income:                 
Cash flow hedge losses recognized  (708 ) (1,255 ) (1,576 ) (1,729 )
Cash flow hedge losses transferred to the statements of income  252   274   1,603   682  
Income tax effect  122   263   (7 ) 280  
   (334 ) (718 ) 20   (767 )
Other comprehensive (loss) income for the period - net of income tax  (5,353 ) 12,339   (4,999 ) 12,146  
Comprehensive income for the period  18,403   33,583   74,653   84,231  
Attributable to:                 
 Equity holders of the Company  17,990   33,290   73,361   83,543  
 Non-controlling interests  413   293   1,292   688  
   18,403   33,583   74,653   84,231  
             

   
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 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 -  (1,360 )-   (1,360 )-   (1,360 )
  Cash flow hedge losses transferred to the statements of income, net of tax -  499  -   499  -   499  
  Cash flow hedge gains transferred to property, plant and equipment -  (50 )-   (50 )-   (50 )
  Employee benefit plan remeasurements, net of tax -  -  13,057   13,057  -   13,057  
 Other comprehensive (loss) income -  (911 )13,057   12,146  -   12,146  
 Net income for the period -  -  71,397   71,397  688   72,085  
 Comprehensive (loss) income for the period -  (911 )84,454   83,543  688   84,231  
                
 Dividends -  -  (7,488 ) (7,488 )(218 ) (7,706 )
                
Balance at December 29, 2013 29,195  (661 )547,891   576,425  16,188   592,613  
                
                
Balance at December 30, 2013 29,195  (661 )547,891   576,425  16,188   592,613  
                
 Comprehensive income for the period                     
  Cash flow hedge losses, net of tax -  (1,154 )-   (1,154 )-   (1,154 )
  Cash flow hedge losses transferred to the statements of income, net of tax -  1,174  -   1,174  -   1,174  
 Employee benefit plan remeasurements, net of tax -  -  (5,019 ) (5,019 )-   (5,019 )
 Other comprehensive income (loss) -  20  (5,019 ) (4,999 )-   (4,999 )
 Net income for the period -  -  78,360   78,360  1,292   79,652  
 Comprehensive income for the period -  20  73,341   73,361  1,292   74,653  
                
 Dividends -  -  (65,535 ) (65,535 )(344 ) (65,879 )
                
Balance at December 28, 2014 29,195  (641 )555,697   584,251  17,136   601,387  
               

   
Winpak Ltd.  
Condensed Consolidated Statements of Cash Flows  
(thousands of US dollars) (unaudited)  
              
   Quarter Ended   Year Ended  
   December 28   December 29   December 28   December 29  
   2014   2013   2014   2013  
              
Cash provided by (used in):                 
              
Operating activities:                 
              
 Net income for the period  23,756   21,244   79,652   72,085  
 Items not involving cash:                 
  Depreciation  8,211   7,380   31,657   27,481  
  Amortization - deferred income  (393 ) (369 ) (1,664 ) (1,263 )
  Amortization - intangible assets  138   115   549   450  
  Employee defined benefit plan expenses  567   941   3,273   4,138  
  Net finance (income) expense  (88 ) 97   (117 ) 430  
  Income tax expense  9,954   9,023   35,529   32,308  
  Other  223   (2,463 ) (3,507 ) (6,038 )
   Cash flow from operating activities before the following  42,368   35,968   145,372   129,591  
 Change in working capital:                 
  Trade and other receivables  (7,874 ) (2,532 ) (14,046 ) (11,611 )
  Inventories  6,957   3,525   (8,282 ) (2,058 )
  Prepaid expenses  382   1,679   (1,270 ) 790  
  Trade payables and other liabilities  (2,972 ) 1,706   6,068   4,128  
              
 Provisions  12   (290 ) (108 ) (1,013 )
 Employee defined benefit plan contributions  (540 ) (933 ) (5,091 ) (3,865 )
 Income tax paid  (10,600 ) (3,182 ) (25,364 ) (28,615 )
 Interest received  90   87   314   379  
 Interest paid  (1 ) (5 ) (148 ) (14 )
   Net cash from operating activities  27,822   36,023   97,445   87,712  
              
Investing activities:                 
              
 Acquisition of property, plant and equipment - net  (12,464 ) (14,466 ) (48,052 ) (51,224 )
 Acquisition of intangible assets  (288 ) (418 ) (699 ) (861 )
   (12,752 ) (14,884 ) (48,751 ) (52,085 )
              
Financing activities:                 
              
 Dividends paid  (1,748 ) (1,892 ) (65,679 ) (7,622 )
 Dividend paid to non-controlling interests in subsidiary  -   -   (344 ) (218 )
   (1,748 ) (1,892 ) (66,023 ) (7,840 )
              
Change in cash and cash equivalents  13,322   19,247   (17,329 ) 27,787  
              
Cash and cash equivalents, beginning of period  130,439   141,843   161,090   133,303  
              
Cash and cash equivalents, end of period  143,761   161,090   143,761   161,090  
             

Contact Information

  • For further information:
    K.P. Kuchma
    Vice President and CFO
    (204) 831-2254 

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