Winpak Ltd.
TSX : WPK

Winpak Ltd.

February 13, 2013 16:19 ET

Winpak Reports Fourth Quarter Results

WINNIPEG, MANITOBA--(Marketwire - Feb. 13, 2013) - Winpak Ltd. (TSX:WPK) today reports consolidated results in US dollars for the fourth quarter of 2012, which ended on December 30, 2012.

Quarter Ended Year Ended (1)
December 30 December 25 December 30 December 25
2012 2011 2012 2011
(thousands of US dollars, except per share amounts)
Revenue 173,226 171,516 670,078 652,063
Net income 22,238 18,681 72,811 64,909
Income tax expense 9,532 9,219 31,692 30,653
Net finance income (285 ) (295 ) (1,011 ) (552 )
Depreciation and amortization 6,491 7,578 26,197 27,615
EBITDA (2) 37,976 35,183 129,689 122,625
Net income attributable to equity holders of the Company 22,335 18,486 72,376 63,783
Net income attributable to non-controlling interests (97 ) 195 435 1,126
Net income 22,238 18,681 72,811 64,909
Basic and fully diluted earnings per share (cents) 34 28 111 98

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) The 2012 fiscal year comprised 53 weeks and the 2011 fiscal year comprised 52 weeks. Each quarter of 2012 and 2011 comprised 13 weeks with the exception of the first quarter of 2012, which comprised 14 weeks.

(2) 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.

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 fourth quarter of 2012 was $22.3 million or 34 cents in earnings per share compared to $18.5 million or 28 cents per share in the corresponding quarter of 2011, an increase of 20.8 percent. Significantly improved gross profit margins added approximately 2.5 cents in earnings per share while volume growth supplemented earnings by 1.5 cents per share. A lower effective income tax rate contributed a further 1.5 cents in earnings per share. Foreign exchange negatively impacted earnings per share in the quarter by 1.0 cent but was more than offset by a combination of operating expense leverage and less income attributable to non-controlling interests.

For the year ended December 30, 2012, net income attributable to common shareholders totalled $72.4 million or $1.11 in earnings per share, comparing favorably with the prior year result of $63.8 million or 98 cents in earnings per share, an advancement of 13.5 percent. Higher sales volumes added 4.0 cents to earnings per share while an expansion in gross profit margins raised earnings per share by an additional 4.0 cents. A lower effective income tax rate and a lesser amount attributable to non-controlling interests further added to earnings per share by 3.0 cents and 1.0 cent respectively. Finally, foreign exchange favorably impacted earnings per share by 1.0 cent.

Revenue

Revenue for the final quarter of 2012 grew to a quarterly high of $173.2 million, $1.7 million or 1.0 percent greater than the fourth quarter of 2011. Volumes exceeded the prior year comparable quarter by 4.6 percent, a notable improvement over the two most recent quarters where volumes were essentially flat. The volume improvement was actually greater when factoring out the impact of the divestiture of the Company's drink cup product line at the start of the quarter, which negatively impacted volume growth by 0.7 percentage points. Rigid container demand led the way with low double-digit volume growth with a return to more normal ordering patterns in specialty beverages along with continued strength in condiment container packaging. Volumes in lidding, specialty film and modified atmosphere packaging advanced in the low single-digit percentage range in the quarter versus the prior year corresponding period. As in the prior two quarters, both packaging machinery and biaxially oriented nylon continued to experience weak demand, with low double-digit and low single-digit percentage declines in revenue respectively. Fortunately, these latter two product lines combine to make up less than ten percent of total Company revenues. A moderate decline in raw material costs from a year earlier led to an overall decline in selling prices, which reduced revenue by 4.1 percent in comparison to the final quarter of 2011. A negligible strengthening of the Canadian dollar enhanced revenue by an additional 0.5 percent.

Revenue expanded to $670.1 million in 2012, an increase of $18.0 million or 2.8 percent from the prior year. Volumes grew by 4.0 percent in relation to 2011. The product lines of rigid containers, modified atmosphere packaging, specialty films and lidding all experienced mid-single-digit volume expansions. This was in spite of a general muted performance of the overall economy which had a greater impact on packaging machinery and biaxially oriented nylon, which experienced setbacks from the prior year. The combination of lower selling prices and product mix negatively impacted revenue by 1.0 percent while a somewhat weaker Canadian dollar had only a minor effect on revenue, resulting in a contraction of 0.2 percent compared to the prior year.

Gross profit margins

Gross profit margins swelled to 31.8 percent of revenue in the fourth quarter of 2012 from the 29.3 percent of revenue recorded in the same quarter of 2011. Solid manufacturing performance, primarily as a result of greater efficiencies, more than offset the negative impact of a compression in the gap between raw material costs and selling prices, contributing 2.5 cents in earnings per share for the quarter.

In 2012, gross profit margins of 29.7 percent of revenue surpassed the prior year result of 28.8 percent by nearly one full percentage point. This resulted in additional earnings per share of 4.0 cents as enhanced production efficiencies and lower waste levels were more than sufficient to counter some margin erosion caused by a narrowing of 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 26, 2011 to reflect the mix of the eight primary raw materials purchased in 2011.

Quarter and Year 4/12 3/12 2/12 1/12 4/11 3/11 2/11 1/11 4/10
Purchase Price Index 170.6 167.3 174.5 174.7 172.3 182.9 184.5 168.0 154.7

The purchase price index climbed 2.0 percent in the fourth quarter of 2012 in relation to the third quarter and ended the year within one percentage point of the prior year-end. Overall, the purchase price index has remained within a narrow band throughout 2012, never swaying by more than 3 percent from the mean. This has provided some level of price stability for both the Company as well as its customers.

Expenses and Other

Operating expenses, adjusted for foreign exchange, were essentially flat in comparison to the fourth quarter of 2011 while sales volumes advanced by 4.6 percent. This operating expense leverage, combined with less income attributable to non-controlling interests, provided an additional 1.5 cents in earnings per share in the quarter. A lower effective income tax rate contributed a further 1.5 cents in earnings per share due to a reduction in the 2012 Canadian federal corporate income tax rate as well as a larger proportion of net income being earned in lower tax jurisdictions. Foreign exchange negatively impacted earnings per share by 1.0 cent in the fourth quarter of 2012, in relation to the corresponding 2011 period, due primarily to foreign exchange losses on Canadian net monetary assets as the Canadian dollar weakened against its US counterpart in the current three-month period.

On an annual basis, foreign exchange had a slightly positive effect on net income, resulting in an increase in earnings per share of 1.0 cent. A combination of foreign exchange gains on the translation of net Canadian dollar expenses and foreign exchange gains on Canadian net monetary assets in 2012 was responsible for this favorable result. A reduction in net income attributed to non-controlling interests resulted in an additional 1.0 cent in earnings per share in 2012 versus 2011. Finally, a lower overall effective income tax rate in 2012, in relation to the prior year, boosted earnings per share by approximately 3.0 cents.

Capital Resources, Cash Flow and Liquidity

The Company's cash and cash equivalents balance at the end of the fourth quarter peaked at $133.3 million, up $13.0 million from the end of the previous quarter. Winpak continued to generate strong cash flow from operating activities before changes in working capital amounting to $38.0 million in the quarter, a betterment of $2.7 million from the prior year fourth quarter. Cash was utilized for property, plant and equipment additions of $17.5 million, income tax payments of $5.2 million, dividends of $2.0 million, and other items of $0.3 million.

For the year, the cash and cash equivalents balance advanced by $6.4 million, despite the highest expenditure on property, plant and equipment in the Company's history. Cash flow from operating activities before changes in working capital progressed to $131.5 million, eclipsing the prior year by $7.4 million. Investments in working capital utilized $16.3 million in cash, with inventory levels rising by $12.2 million since the start of the year. Raw material inventories accounted for 73 percent of the increase. Cash was also used to fund property, plant and equipment additions of $68.4 million including expansions of the rigid container and lidding units, income tax payments of $25.8 million, dividends of $7.8 million, employee defined benefit plan payments of $4.7 million and other items totalling $2.1 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
2012 2012 2012 2012 2011 2011 2011 2011
Revenue 173,226 165,399 159,648 171,805 171,516 170,670 161,340 148,537
Net income attributable to equity holders of the Company 22,335 17,078 16,002 16,961 18,486 14,408 16,195 14,694
EPS 34 26 25 26 28 22 25 23

Looking Forward

The Company is cautiously optimistic as it enters 2013, after a strong finish to 2012. Sales volumes improved in the fourth quarter and will remain the prime focus for the organization throughout 2013 as it strives to move ever closer to its billion dollar revenue goal. Raw material cost stability was a feature of 2012. With the initial cost trend in 2013 pointing upward, the Company will be challenged to protect the spread between selling prices and raw material costs. Fortunately, the organization's margins are partly insulated from erosion in that approximately two-thirds of the Company's revenues are subject to selling price indexing agreements whereby selling prices to customers are adjusted via formula to changes in raw material costs.

The Company remains committed to its internal capital investment program. Significant effort was devoted in 2012 to add capacity for the future and expansions initiated in 2012 are scheduled for completion in the first half of 2013, providing a foundation for growth. With nearly $70 million expended on capital projects in 2012, a similar amount is also planned for 2013. This will include the completion of the Company's expansion of the Vaudreuil lidding facility, a building expansion at the Winnipeg modified atmosphere packaging plant, as well as extrusion equipment additions at the rigid container, modified atmosphere packaging, specialty film and lidding sites. However, as this new capacity becomes available, costs may temporarily increase as product development expenses peak and capacity is under-utilized as sales are added on a gradual but steady basis. Margins, however, are not expected to deviate from historical levels by more than a few percentage points during that period. In the year ahead, the Company will also continue to seek out acquisition opportunities in its core competencies of food and health-care packaging. With Winpak's extremely solid financial footing, it has the resources necessary to complete a significant acquisition while remaining strongly committed to the organic growth capital investment plan.

Winpak Ltd.

Interim Condensed Consolidated Financial Statements

Fourth Quarter Ended: December 30, 2012

These interim condensed 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 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 30 December 25
2012 2011
Assets
Current assets:
Cash and cash equivalents 133,303 126,879
Trade and other receivables 86,797 83,935
Income taxes receivable 389 33
Inventories 90,246 78,018
Prepaid expenses 3,864 2,769
Derivative financial instruments 288 242
314,887 291,876
Non-current assets:
Property, plant and equipment 301,678 256,938
Intangible assets 14,551 15,076
Deferred tax assets 3,448 3,729
319,677 275,743
Total assets 634,564 567,619
Equity and Liabilities
Current liabilities:
Trade payables and other liabilities 59,184 59,294
Provisions 427 592
Income taxes payable 5,417 4,988
Derivative financial instruments - 836
65,028 65,710
Non-current liabilities:
Employee benefit plan liabilities 14,511 12,504
Deferred income 11,475 10,243
Provisions 7,399 8,423
Deferred tax liabilities 20,063 17,116
53,448 48,286
Total liabilities 118,476 113,996
Equity:
Share capital 29,195 29,195
Reserves 250 (426 )
Retained earnings 470,925 409,008
Total equity attributable to equity holders of the Company 500,370 437,777
Non-controlling interests 15,718 15,846
Total equity 516,088 453,623
Total equity and liabilities 634,564 567,619


Winpak Ltd.
Condensed Consolidated Statements of Income
(thousands of US dollars, except per share amounts) (unaudited)
Quarter Ended Year Ended
December 30 December 25 December 30 December 25
2012 2011 2012 2011
Revenue 173,226 171,516 670,078 652,063
Cost of sales (118,120 ) (121,283 ) (471,050 ) (464,299 )
Gross profit 55,106 50,233 199,028 187,764
Sales, marketing and distribution expenses (13,409 ) (13,312 ) (55,550 ) (53,043 )
General and administrative expenses (6,197 ) (6,714 ) (27,199 ) (26,345 )
Research and technical expenses (3,735 ) (3,006 ) (13,933 ) (12,606 )
Pre-production expenses (113 ) - (650 ) (240 )
Other income (expenses) (167 ) 404 1,796 (520 )
Income from operations 31,485 27,605 103,492 95,010
Finance income 1,202 1,306 4,715 4,417
Finance expense (917 ) (1,011 ) (3,704 ) (3,865 )
Income before income taxes 31,770 27,900 104,503 95,562
Income tax expense (9,532 ) (9,219 ) (31,692 ) (30,653 )
Net income for the period 22,238 18,681 72,811 64,909
Attributable to:
Equity holders of the Company 22,335 18,486 72,376 63,783
Non-controlling interests (97 ) 195 435 1,126
22,238 18,681 72,811 64,909
Basic and fully diluted earnings per share - cents 34 28 111 98


Condensed Consolidated Statements of Comprehensive Income
(thousands of US dollars) (unaudited)
Quarter Ended Year Ended
December 30 December 25 December 30 December 25
2012 2011 2012 2011
Net income for the period 22,238 18,681 72,811 64,909
Cash flow hedge (losses) gains recognized (113 ) (125 ) 498 (167 )
Cash flow hedge (gains) losses transferred to the statement of income (27 ) 162 (173 ) (996 )
Cash flow hedge (gains) losses transferred to property, plant and equipment (10 ) (60 ) 557 (60 )
Actuarial losses on employee benefit plans (3,944 ) (11,771 ) (3,944 ) (11,771 )
Income tax relating to applicable components of other comprehensive income 1,334 3,640 1,089 3,990
Other comprehensive loss for the period - net of income tax (2,760 ) (8,154 ) (1,973 ) (9,004 )
Comprehensive income for the period 19,478 10,527 70,838 55,905
Attributable to:
Equity holders of the Company 19,575 10,332 70,403 54,779
Non-controlling interests (97 ) 195 435 1,126
19,478 10,527 70,838 55,905


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 27, 2010 29,195 441 361,128 390,764 16,533 407,297
Comprehensive (loss) income 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 - (44 ) - (44 ) - (44 )
Actuarial losses on employee benefit plans, net of tax - - (8,137 ) (8,137 ) - (8,137 )
Other comprehensive loss - (867 ) (8,137 ) (9,004 ) - (9,004 )
Net income for the period - - 63,783 63,783 1,126 64,909
Comprehensive (loss) income 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
Balance at December 26, 2011 29,195 (426 ) 409,008 437,777 15,846 453,623
Comprehensive income for the period
Cash flow hedge gains, net of tax - 252 - 252 - 252
Cash flow hedge gains transferred to the statement of income, net of tax - (133 ) - (133 ) - (133 )
Cash flow hedge losses transferred to property, plant and equipment - 557 - 557 - 557
Actuarial losses on employee benefit plans, net of tax - - (2,649 ) (2,649 ) - (2,649 )
Other comprehensive income (loss) - 676 (2,649 ) (1,973 ) - (1,973 )
Net income for the period - - 72,376 72,376 435 72,811
Comprehensive income for the period - 676 69,727 70,403 435 70,838
Dividends - - (7,810 ) (7,810 ) (563 ) (8,373 )
Balance at December 30, 2012 29,195 250 470,925 500,370 15,718 516,088


Winpak Ltd.
Condensed Consolidated Statements of Cash Flows
(thousands of US dollars) (unaudited)
Quarter Ended Year Ended
December 30 December 25 December 30 December 25
2012 2011 2012 2011
Cash provided by (used in):
Operating activities:
Net income for the period 22,238 18,681 72,811 64,909
Items not involving cash:
Depreciation 6,687 7,372 26,151 26,789
Amortization - deferred income (304 ) (308 ) (1,215 ) (1,223 )
Amortization - intangible assets 108 514 1,261 2,049
Employee defined benefit plan expenses 535 495 3,331 2,928
Net finance income (285 ) (295 ) (1,011 ) (552 )
Income tax expense 9,532 9,219 31,692 30,653
Other (514 ) (353 ) (1,478 ) (1,433 )
Cash flow from operating activities before the following 37,997 35,325 131,542 124,120
Change in working capital:
Trade and other receivables 498 171 (2,862 ) (6,676 )
Inventories (2,721 ) 10,059 (12,228 ) (1,943 )
Prepaid expenses (471 ) 1,039 (1,095 ) (485 )
Trade payables and other liabilities 3,662 3,901 (140 ) 6,756
Provisions (327 ) (55 ) (1,326 ) 795
Employee defined benefit plan payments (1,038 ) (2,153 ) (4,671 ) (5,148 )
Income tax paid (5,176 ) (5,892 ) (25,756 ) (22,347 )
Interest received 107 104 474 309
Interest paid (1 ) (3 ) (31 ) (20 )
Net cash from operating activities 32,530 42,496 83,907 95,361
Investing activities:
Acquisition of property, plant and equipment - net (17,449 ) (21,089 ) (68,412 ) (48,906 )
Acquisition of intangible assets (58 ) (176 ) (745 ) (462 )
(17,507 ) (21,265 ) (69,157 ) (49,368 )
Financing activities:
Dividends paid (1,983 ) (1,894 ) (7,763 ) (7,789 )
Change in non-controlling interests in subsidiary - - (563 ) (1,813 )
(1,983 ) (1,894 ) (8,326 ) (9,602 )
Change in cash and cash equivalents 13,040 19,337 6,424 36,391
Cash and cash equivalents, beginning of period 120,263 107,542 126,879 90,488
Cash and cash equivalents, end of period 133,303 126,879 133,303 126,879

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