Winpak Ltd.
TSX : WPK

Winpak Ltd.

February 16, 2012 17:19 ET

Winpak Reports Fourth Quarter Results

WINNIPEG, MANITOBA--(Marketwire - Feb. 16, 2012) - Winpak Ltd. (TSX:WPK) today reports consolidated results in US dollars for the fourth quarter of 2011, which ended on December 25, 2011.

Three Months Ended Year Ended
December 25 December 26 December 25 December 26
2011 2010 2011 2010
(thousands of US dollars, except per share amounts)
Revenue 171,516 154,930 652,063 579,441
Net income 18,681 13,501 64,909 57,070
Income tax expense 9,219 3,493 30,653 22,026
Net finance income (295 ) (132 ) (552 ) (99 )
Depreciation and amortization 7,578 7,105 27,615 25,998
EBITDA (1) 35,183 23,967 122,625 104,995
Net income attributable to equity holders of the Company 18,486 12,794 63,783 55,296
Net income attributable to non-controlling interests 195 707 1,126 1,774
Net income 18,681 13,501 64,909 57,070
Basic and fully diluted earnings per share (cents) 28 20 98 85

Basis of Presentation

The 2011 amounts have been determined in accordance with International Financial Reporting Standards (IFRS) and accordingly, the comparative amounts have been restated to conform with IFRS, unless otherwise stated.

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 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.

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.

The following report and analysis for the three months and year ended December 25, 2011 reflects the Company's adoption of International Financial Reporting Standards (IFRS) as of December 27, 2010, the start of the 2011 fiscal year. Comparative periods for fiscal 2010 have been restated in accordance with IFRS, including the December 28, 2009 transition date balance sheet.

Financial Performance

Net income attributable to common shareholders for the fourth quarter of 2011 was $18.5 million or 28 cents in earnings per share compared to $12.8 million or 20 cents per share in the corresponding period of 2010, an increase of 44.5 percent. However, included in the 2010 fourth quarter result was the recognition of a withdrawal liability from the one multiemployer defined benefit pension plan in which the Company participates, which reduced net income by $4.6 million or 7 cents per share. If this one-time item were excluded, the improvement in net income attributable to common shareholders in the fourth quarter of 2011 versus the same period in 2010 would have been $1.1 million or 6.1 percent. Modest volume growth contributed 1 cent in earnings per share while expense curtailment and a lower net income attributed to non-controlling interests added 2.5 cents and 1 cent in earnings per share respectively. Partially offsetting these positive elements were the negative impact of foreign exchange and a higher effective income tax rate which decreased earnings per share by 2.5 cents and 1 cent respectively.

For the year, net income attributable to common shareholders advanced to $63.8 million or 98 cents in earnings per share, up 15.3 percent from the $55.3 million or 85 cents per share recorded in 2010. Excluding the 2010 impact of recognizing the multiemployer pension plan withdrawal liability, net income attributable to common shareholders in 2011 improved by $3.9 million or 6.4 percent. Higher sales volumes produced 5.5 cents in additional earnings per share while gross profit improvement and limited operating expense growth, in relation to volume expansion, netted a further 4 cents and 3.5 cents per share accordingly. In comparison to 2010, foreign exchange had a negative impact on earnings per share of approximately 7 cents, while an increased effective income tax rate offset a lower amount of income attributed to non-controlling interests at 1 cent per share each.

Revenue

Fourth quarter revenue of 2011 grew to $171.5 million, an increase of $16.6 million or 10.7 percent over the same quarter in 2010. Volumes outdistanced the prior year comparable quarter by 4.7 percent, with all product lines experiencing some growth with the exception of the more commodity-related offerings of biaxially oriented nylon and specialty films. Shipments were especially robust in rigid packaging, where volumes rose by over 20 percent in specialty beverage and custom containers. Volume expansion in the mid-single digit percentage range was witnessed in packaging machinery and lidding sales, while modified atmosphere packaging had only marginal growth. Both biaxially oriented nylon and specialty films experienced shipment declines in the neighborhood of 10 percent, mainly attributed to the sluggishness of the US economy as well as customers driving down inventory levels as the year-end approached. Higher overall selling prices, in response to raw material cost increases, and changes in product mix, contributed 6.0 percent to fourth quarter revenue. In comparison to the fourth quarter of 2010, foreign exchange had only a negligible effect on revenue in the current quarter.

For the entire year, revenue reached a high of $652.1 million, increasing by $72.6 million or 12.5 percent from the prior year. More than half of the revenue expansion was due to volume growth of 6.6 percent, with rigid containers leading the way at over a 20 percent ascent. Packaging machinery also had a strong year, advancing by over 15 percent. Lidding and modified atmosphere packaging sales volumes progressed in the low single-digit percentage range, while the more commodity-related biaxially oriented nylon and specialty films receded by a similar amount. Selling price increases paralleled higher raw material costs and together with sales mix changes, furthered 2011 revenue by 5.2 percent. The conversion of Canadian dollar sales into US funds at a higher average exchange rate in 2011 versus 2010 supplemented revenue by an additional 0.7 percent.

Gross profit margins

Gross profit margins declined to 29.3 percent of revenue in the fourth quarter of 2011 from the 30.8 percent of revenue registered in the same quarter of 2010. In dollar terms, however, gross profit rose by 5.3 percent to $50.2 million in the current quarter compared to the corresponding quarter in 2010, keeping up with the increase in sales volume of 4.7 percent, resulting in a slight boost to earnings. Product mix improvements offset the negative impact of raw material cost escalations on gross profit.

In 2011, gross profit margins reached a level of 28.8 percent of revenue, one full percentage point less than the result achieved in the prior year. However, the growth in strictly dollar terms of gross profit was $15.3 million or 8.9 percent, which exceeded the relative increase in volumes of 6.6 percent. The net result was an increment of 4 cents in earnings per share and was a result of product mix improvements, enhanced manufacturing performance, and a reasonable amount of success in matching raw material cost progressions with selling price increases.

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 27, 2010 to reflect the mix of the eight primary raw materials purchased in 2010.

Quarter and Year 4/09 1/10 2/10 3/10 4/10 1/11 2/11 3/11 4/11
Purchase Price Index 138.6 150.5 159.1 150.7 154.7 168.0 184.5 182.9 173.6

The purchase price index in the fourth quarter of 2011 fell by 5.1 percent from the previous three-month period, after reaching a recent peak in the second quarter of the current year. However, the index still remains 12.2 percent higher than a year earlier, 25.3 percent greater than the level of two years prior and appears to have bottomed out in the current quarter. Resin suppliers have already implemented price increases in the first quarter of 2012 for certain materials in the mid-to-upper single digit percentage range and further price increases have been announced. It has proven to be a challenge all year to prevent margin erosion in this high material cost environment and it appears this will continue to remain so going forward.

Expenses and Other

Operating expenses declined substantially in the fourth quarter of 2011 versus the corresponding period in 2010 due to a number of factors, the largest of which was a one-time charge in 2010 related to pensions. The board of independent trustees of the one multiemployer defined benefit pension plan in which the Company participates, communicated that this plan was in a critical status position from a funding perspective in 2010. During the fourth quarter of 2010, the Company determined that the only economically feasible course of action was to withdraw from the plan and as a result, a withdrawal liability was recognized under IFRS which reduced earnings per share in that quarter by 7 cents. Furthermore, although sales volumes in the fourth quarter of 2011 increased by 4.7 percent in relation to the corresponding period in 2010, operating expenses, adjusted for foreign exchange, actually declined by over $1.4 million, resulting in an addition to earnings per share of 2.5 cents. The expense reduction was due to lower compensation, bad debt and customer claim costs. This was further augmented through a lower amount of net income being attributed to non-controlling interests in the fourth quarter of 2011, contributing 1 cent in earnings per share. Offsetting these positive developments were negative foreign exchange impacts of 2.5 cents in earnings per share and a higher effective income tax rate in the current quarter versus the fourth quarter of 2010 which lowered earnings per share by 1 cent, due primarily to a larger proportion of net income being earned in higher tax jurisdictions.

On an annual basis, foreign exchange had a negative impact of 7 cents in earnings per share compared to 2010. This was due to the translation of net Canadian dollar costs into US funds at a higher exchange rate in 2011 than 2010, foreign exchange losses on Canadian net monetary assets in 2011, and foreign exchange gains recorded by the Canadian legal entities on filing their 2010 income tax returns in Canadian dollars. In 2011, the Company received approval to file its Canadian tax returns in US dollars, thereby eliminating this latter foreign exchange fluctuation in 2011 and subsequent years. The aforementioned recording of the multiemployer pension plan withdrawal liability resulted in a lowering of earnings per share by 7 cents in 2010. While sales volumes increased by 6.6 percent in 2011 over 2010, the Company was able to supplement earnings per share by 3.5 cents by limiting the escalation in operating expenses to only 3.5 percent, excluding foreign exchange impacts. The reduction in net income attributed to non-controlling interests resulted in an additional 1 cent in earnings per share compared to 2010 while a higher overall effective income tax rate in 2011 reduced earnings per share by 1 cent.

Capital Resources, Cash Flow and Liquidity

The Company's cash and cash equivalents balance ended the fourth quarter at $126.9 million, an increase of $19.3 million from the start of the three-month period. Winpak continued to generate strong cash flow from operating activities before changes in working capital of $35.3 million in the quarter, improving upon the comparable period in 2010 by $12.2 million. Cash was further augmented by reductions in working capital of $15.1 million, led by a decrease in inventory in the quarter of $10.1 million. Property, plant and equipment additions of $21.1 million, income tax payments of $5.9 million, employee benefit plan payments of $2.2 million and dividends of $1.9 million were the main uses of cash during the three-month period.

For the year, the Company added $36.4 million to its cash position. Cash flow from operating activities before changes in working capital of $124.1 million, eclipsed the prior year result by $18.9 million. The investment in working capital for the year only advanced by $1.6 million, while revenue forged ahead by $72.6 million. Cash was also used to fund property, plant and equipment additions of $48.9 million, income tax payments of $22.3 million, dividends of $7.8 million, employee benefit plan payments of $5.1 million, distributions to non-controlling interests in a subsidiary of $1.8 million and sundry items of $0.2 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.

Summary of Quarterly Results
Thousands of US dollars, except per share amounts (US cents)
Q4 Q3 Q2 Q1 Q4 Q3 Q2 Q1
2011 2011 2011 2011 2010 2010 2010 2010
Revenue 171,516 170,670 161,340 148,537 154,930 146,055 145,568 132,888
Net income attributable to equity holdersof the Company
18,486

14,408

16,195

14,694

12,794

13,132

14,130

15,240
EPS 28 22 25 23 20 20 22 23

Looking Forward

The Company is optimistic as it enters 2012, after a very satisfying end to 2011. The outlook for the US economy, where over three-quarters of the Company's business is conducted, appears to be more favorable moving forward, which should strengthen future sales volumes. Unfortunately, with enhanced economic activity usually comes increased raw material costs which will bring pressure to bear on margins. The challenge will be to match these raw material increases with selling price changes to the greatest degree possible. With over 60 percent of the organization's revenues subject to customer price-indexing agreements, whereby selling prices are adjusted as raw material costs change, albeit with a time lag, Winpak has a built-in partial hedge to raw material cost inflation. This should help to keep margins within a few percentage points of current levels for 2012.

The Company's commitment to investment in the latest technology to remain at the forefront in terms of product offerings continued in 2011 with the highest levels ever spent on property, plant and equipment in Winpak's history. Although capital investment is never without risk, the focus continues on markets within which the Company is familiar and utilizing extrusion technologies that have formed the backbone of the organization's success. This will continue in 2012 with plans to approximately double capital spending to further broaden the product range as well as add to existing capacity aimed at achieving $1 billion in revenue by the year 2015. A major expansion is planned for the Montreal facility to bolster the Company's foil technology, extrusion capacity will be expanded in the modified atmosphere packaging plant in Winnipeg, additional extrusion equipment is planned for the specialty films unit in Georgia and extrusion lines will be installed in the new Sauk Village, Illinois rigid packaging site. As capacity comes on stream and equipment is commissioned, there will be temporary margin contractions while technical challenges get resolved and sales build to the anticipated volumes. The Company also remains dedicated to evaluating external acquisition opportunities that would complement its core competencies in the areas of food and health care packaging. With Winpak's extremely solid financial position, it has the resources available to consummate an acquisition transaction while still remaining strongly committed to the organic growth capital investment plan.

Winpak Ltd.
Interim Consolidated Financial Statements
Fourth Quarter Ended: December 25, 2011

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

Winpak Ltd.
Consolidated Balance Sheets
(thousands of US dollars) (unaudited)
December 25 December 26 December 28
2011 2010 2009
Assets
Current assets:
Cash and cash equivalents 126,879 90,488 61,164
Trade and other receivables 83,935 77,118 69,172
Income taxes receivable 33 1,953 1,255
Inventories 78,018 76,075 69,812
Prepaid expenses 2,769 2,284 2,211
Derivative financial instruments 242 629 1,182
291,876 248,547 204,796
Non-current assets:
Property, plant and equipment 256,938 234,797 220,196
Intangible assets 15,076 16,666 18,505
Employee benefit plan assets - 3,330 1,110
Deferred tax assets 3,729 4,174 3,408
Other receivables - 141 799
275,743 259,108 244,018
Total assets 567,619 507,655 448,814
Equity and Liabilities
Current liabilities:
Trade payables and other liabilities 59,294 52,560 44,965
Provisions 592 368 -
Income taxes payable 4,988 1,554 5,051
Derivative financial instruments 836 - -
65,710 54,482 50,016
Non-current liabilities:
Employee benefit plan liabilities 12,504 6,719 7,181
Deferred income 10,243 11,221 11,363
Provisions 8,423 7,614 870
Deferred tax liabilities 17,116 20,322 19,622
48,286 45,876 39,036
Total liabilities 113,996 100,358 89,052
Equity:
Share capital 29,195 29,195 29,195
Reserves (426 ) 441 810
Retained earnings 409,008 361,128 313,038
Total equity attributable to equity holders of the Company 437,777 390,764 343,043
Non-controlling interests 15,846 16,533 16,719
Total equity 453,623 407,297 359,762
Total equity and liabilities 567,619 507,655 448,814
Winpak Ltd.
Consolidated Statements of Income
(thousands of US dollars, except per share amounts) (unaudited)
Three Months Ended Year Ended
December 25 December 26 December 25 December 26
2011 2010 2011 2010
Revenue 171,516 154,930 652,063 579,441
Cost of sales (121,283 ) (107,221 ) (464,299 ) (406,948 )
Gross profit 50,233 47,709 187,764 172,493
Other income (expenses) 404 (6,531 ) (520 ) (5,244 )
Sales, marketing and distribution expenses (13,312 ) (12,294 ) (53,043 ) (49,078 )
General and administrative expenses (6,714 ) (8,134 ) (26,345 ) (25,501 )
Research and technical expenses (3,006 ) (3,888 ) (12,606 ) (13,436 )
Pre-production expenses - - (240 ) (237 )
Income from operations 27,605 16,862 95,010 78,997
Finance income 1,306 976 4,417 3,656
Finance expense (1,011 ) (844 ) (3,865 ) (3,557 )
Income before income taxes 27,900 16,994 95,562 79,096
Income tax expense (9,219 ) (3,493 ) (30,653 ) (22,026 )
Net income for the period 18,681 13,501 64,909 57,070
Attributable to:
Equity holders of the Company 18,486 12,794 63,783 55,296
Non-controlling interests 195 707 1,126 1,774
18,681 13,501 64,909 57,070
Basic and fully diluted earnings per share - cents 28 20 98 85
Consolidated Statements of Comprehensive Income
(thousands of US dollars) (unaudited)
Three Months Ended Year Ended
December 25 December 26 December 25 December 26
2011 2010 2011 2010
Net income for the period 18,681 13,501 64,909 57,070
Cash flow hedge (losses) gains recognized (125 ) 386 (167 ) 1,033
Cash flow hedge losses (gains) transferred to the statement of income 162 (250 ) (996 ) (1,586 )
Cash flow hedge gains transferred to property, plant and equipment (60 ) - (60 ) -
Actuarial (losses) gains on employee benefit plans (11,771 ) 402 (11,771 ) 402
Income tax relating to applicable components of other comprehensive income 3,640 (33 ) 3,990 191
Other comprehensive income (loss) for the period - net of income tax (8,154 ) 505 (9,004 ) 40
Comprehensive income for the period 10,527 14,006 55,905 57,110
Attributable to:
Equity holders of the Company 10,332 13,299 54,779 55,336
Non-controlling interests 195 707 1,126 1,774
10,527 14,006 55,905 57,110
Winpak Ltd.
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 28, 2009 29,195 810 313,038 343,043 16,719 359,762
Comprehensive income (loss) for the period
Cash flow hedge gains, net of tax - 741 - 741 - 741
Cash flow hedge gains transferred to the statement of income, net of tax
-

(1,110
)
-

(1,110
)
-

(1,110
)
Actuarial gains on employee benefit plans, net of tax - - 409 409 - 409
Other comprehensive income (loss) - (369 ) 409 40 - 40
Net income for the period - - 55,296 55,296 1,774 57,070
Comprehensive income (loss) for the period - (369 ) 55,705 55,336 1,774 57,110
Preferred share redemption - - - - (1,960 ) (1,960 )
Dividends - - (7,615 ) (7,615 ) - (7,615 )
Balance at December 26, 2010 29,195 441 361,128 390,764 16,533 407,297
Balance at December 27, 2010 29,195 441 361,128 390,764 16,533 407,297
Comprehensive income (loss) for the period
Cash flow hedge losses, net of tax - (109 ) - (109 ) - (109 )
Cash flow hedge gains transferred to the statement of income, net of tax
-

(714
)
-

(714
)
-

(714
)
Cash flow hedge gains transferred to property, plant and equipment, net of tax
-

(44
)
-

(44
)
-

(44
)
Actuarial losses on employee benefit plans, net of tax - - (8,137 ) (8,137 ) - (8,137 )
Other comprehensive income (loss) - (867 ) (8,137 ) (9,004 ) - (9,004 )
Net income for the period - - 63,783 63,783 1,126 64,909
Comprehensive income (loss) for the period - (867 ) 55,646 54,779 1,126 55,905
Preferred share redemption - - - - (980 ) (980 )
Dividends - - (7,766 ) (7,766 ) (833 ) (8,599 )
Balance at December 25, 2011 29,195 (426 ) 409,008 437,777 15,846 453,623
Winpak Ltd.
Consolidated Statements of Cash Flows
(thousands of US dollars) (unaudited)
Three Months Ended Year Ended
December 25 December 26 December 25 December 26
2011 2010 2011 2010
Cash provided by (used in):
Operating activities:
Net income for the period 18,681 13,501 64,909 57,070
Items not involving cash:
Depreciation 7,372 6,899 26,789 25,061
Amortization - deferred income (308 ) (301 ) (1,223 ) (1,154 )
Amortization - intangible assets 514 507 2,049 2,091
Employee defined benefit plan expenses 495 494 2,928 2,537
Net finance income (295 ) (132 ) (552 ) (99 )
Income tax expense 9,219 3,493 30,653 22,026
Other (353 ) (1,357 ) (1,433 ) (2,348 )
Cash flow from operating activities before the following 35,325 23,104 124,120 105,184
Change in working capital:
Trade and other receivables 171 (3,077 ) (6,676 ) (7,946 )
Inventories 10,059 4,595 (1,943 ) (6,263 )
Prepaid expenses 1,039 699 (485 ) (73 )
Trade payables and other liabilities 3,901 1,547 6,756 8,099
Provisions (55 ) 7,112 795 7,112
Employee defined benefit plan payments (2,153 ) (1,218 ) (5,148 ) (4,750 )
Income tax paid (5,892 ) (3,826 ) (22,347 ) (23,377 )
Interest received 104 38 309 116
Interest paid (3 ) - (20 ) (10 )
Net cash from operating activities 42,496 28,974 95,361 78,092
Investing activities:
Acquisition of property, plant and equipment (net) (21,089 ) (12,023 ) (48,906 ) (39,017 )
Acquisition of intangible assets (176 ) (43 ) (462 ) (252 )
(21,265 ) (12,066 ) (49,368 ) (39,269 )
Financing activities:
Dividends paid (1,894 ) (1,901 ) (7,789 ) (7,539 )
Change in non-controlling interests in subsidiary - - (1,813 ) (1,960 )
(1,894 ) (1,901 ) (9,602 ) (9,499 )
Change in cash and cash equivalents 19,337 15,007 36,391 29,324
Cash and cash equivalents, beginning of period 107,542 75,481 90,488 61,164
Cash and cash equivalents, end of period 126,879 90,488 126,879 90,488

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
    www.winpak.com