Winpak Ltd.

TSX : WPK


Winpak Ltd.

February 19, 2014 15:50 ET

Winpak Reports Fourth Quarter Results

WINNIPEG, MANITOBA--(Marketwired - Feb. 19, 2014) - Winpak Ltd. (TSX:WPK) today reports consolidated results in US dollars for the fourth quarter of 2013, which ended on December 29, 2013.

Quarter Ended Year Ended (1)
December 29 December 30 December 29 December 30
2013 2012 2013 2012
(restated (2)) (restated (2))
(thousands of US dollars, except per share amounts)
Revenue 187,964 173,226 714,871 670,078
Net income 21,244 21,974 72,085 71,690
Income tax expense 9,023 9,407 32,308 31,182
Net finance expense 97 49 430 325
Depreciation and amortization 7,126 6,491 26,668 26,197
EBITDA (3) 37,490 37,921 131,491 129,394
Net income attributable to equity holders of the Company 20,951 22,071 71,397 71,255
Net income attributable to non-controlling interests 293 (97 ) 688 435
Net income 21,244 21,974 72,085 71,690
Basic and fully diluted earnings per share (cents) 32 34 110 110

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 health-care applications.

(1) The 2013 fiscal year comprised 52 weeks and the 2012 fiscal year comprised 53 weeks. Each quarter of 2013 and 2012 comprised 13 weeks with the exception of the first quarter of 2012, which comprised 14 weeks.
(2) 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.
(3) 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 fourth quarter of 2013 amounted to $21.0 million or 32 cents in earnings per share compared to $22.1 million or 34 cents per share in the corresponding quarter of 2012, a decrease of 5.1 percent. While the Company is disappointed that the earnings per share did not exceed that of the prior year quarter, nonetheless, the result still represents the second best quarter recorded by the organization. Continued organic revenue growth contributed 2.5 cents in earnings per share. This, however, was more than offset by a reduction in gross profit margins, negatively impacting earnings per share by 4.0 cents and a greater proportion of earnings allocated to non-controlling interests representing a decrease of 0.5 cents per share.

For the year ended December 29, 2013, net income attributable to common shareholders surpassed the prior year result by $0.1 million or 0.2 percent at $71.4 million or $1.10 in earnings per share. The previously reported 2012 result of $1.11 per share was restated to $1.10 as a result of the required retrospective application of International Accounting Standard (IAS) 19 "Employee Benefits" in 2013. Organic growth in sales volumes boosted earnings per share by 8.0 cents. Lower operating expenses in relation to sales volumes added a further 0.5 cents to earnings per share. Conversely, a lower gross profit margin reduced earnings per share by 5.5 cents while foreign exchange, higher income taxes, and a greater allocation of earnings to non-controlling interests negatively impacted 2013 earnings per share by 1.5 cents, 1.0 cent, and 0.5 cents respectively. It should be noted that the 2012 fiscal year contained one more week than the current year and as a result, it is estimated that this supplemented both 2012 annual volumes and net income by between 1.0 and 1.5 percent.

Revenue

Revenues in the final three months of 2013 rose to a quarterly high of $188.0 million, an increase of $14.7 million or 8.5 percent over the fourth quarter of 2012. Volumes continued to exhibit solid growth as all product groups advanced, rising by 7.7 percent over the prior year comparable quarter. Volume growth was highest in rigid containers and specialty films as both experienced low double-digit percentage increases. Rigid container volumes moved forward in form/fill/seal applications and in yogurt, condiment and specialty beverage containers. Barrier shrink bags contributed to the growth in specialty films. Packaging machinery continued to progress at a healthy pace, eclipsing the prior year quarter by nearly 10 percent. Meanwhile, demand in modified atmosphere packaging, biaxially oriented nylon film and lidding each grew modestly in the mid-single digit range. Selling price/mix changes had a favorable impact of 1.5 percent on revenues for the quarter while foreign exchange, due to a weakening in the Canadian dollar, decreased revenues in the quarter by 0.7 percent in comparison to the fourth quarter of 2012.

Revenues in 2013 expanded to $714.9 million, an increase of $44.8 million or 6.7 percent compared to 2012 revenues of $670.1 million. Volumes strengthened by 7.2 percent in relation to 2012. Normalizing for the additional week in the prior year and the divestiture of the drink cup product line in 2012, overall volume growth for the year approached 10 percent. All product group volumes advanced on a normalized basis with rigid container volumes exceeding 20 percent. Lidding volumes exceeded the prior year by just under 9 percent while specialty films, modified atmosphere packaging and biaxially oriented nylon all progressed in the low single-digit percentage range. Packaging machinery, which represents less than 3 percent of total Company revenues, had a strong year, growing by over 35 percent in comparison to 2012. Both foreign exchange and selling price/mix declines had negligible negative impacts on revenue of 0.4 percent and 0.1 percent respectively.

Gross profit margins

Gross profit margins in the fourth quarter of 2013 at 29.6 percent of revenue, were more than 2 percentage points lower than the abnormally high 31.8 percent recorded in the same quarter of 2012. This resulted in a contraction in earnings per share of 4.0 cents. A favorable product mix along with exceptional manufacturing performance and near optimal capacity utilization led to the very favorable result in the fourth quarter of 2012. In the final three months of 2013, manufacturing was challenged as new capacity was commercialized and certain resources were stretched thin. Fixed costs rose as new capacity became available but was not fully utilized. Furthermore, in isolated instances, competitive forces led to some pressure on the spread between raw material costs and selling prices.

For 2013, gross profit margins declined by 0.6 percentage points from 29.7 percent of revenue recorded in 2012 to 29.1 percent. The fixed costs related to the under-utilization of new capacity and elevated manufacturing variances due to the learning assoc iated with the production of new products and new machinery operation were the main reasons for the contraction of gross profit margins. In addition, there was some narrowing of the spread between raw material costs and selling prices due to competitive pricing pressures. These factors combined to reduce earnings per share by 5.5 cents in 2013 compared to the prior year.

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 31, 2012 to reflect the mix of the eight primary raw materials purchased in 2012.

Quarter and Year 4/13 3/13 2/13 1/13 4/12 3/12 2/12 1/12 4/11
Purchase Price Index 175.0 173.2 173.5 176.5 170.6 167.3 174.5 174.7 172.3

The purchase price index climbed by just over 1 percent from the third quarter of 2013. Polyethylene resin had the biggest impact, rising by approximately 5 percent in the past three months, while other materials had increases or decreases that were more muted on average. For all of 2013, the purchase price index has been relatively stable, fluctuating on average by less than 2 percent throughout the year. However, certain materials within the index have fluctuated outside of that range in 2013.

Expenses and Other

Operating expenses in total, adjusted for foreign exchange, moved in concert with revenues for the quarter when compared to the fourth quarter of 2012, having no effect on earnings per share. Elevated pre-production costs, due to the commissioning of new manufacturing lines, along with higher general and administration costs were offset by a reduction in research and technical expenses due to the recording of tax incentives related to the Company's research and development activities. A larger proportion of earnings attributable to non-controlling interests decreased earnings per share by 0.5 cents. Foreign exchange and income taxes were both in line with the fourth quarter of 2012 and were neutral to earnings per share for the current three-month period.

For all of 2013, lower operating expenses in relation to sales volumes added 0.5 cents to earnings per share but were offset by a greater allocation of earnings to non-controlling interests than the prior year, which reduced earnings per share by the same amount. Foreign exchange had a negative impact to earnings per share for 2013 of 1.5 cents primarily as a result of losses recorded on the maturation of foreign currency forward contracts and on the translation of Canadian monetary items. This was only partially offset by foreign exchange gains on net Canadian dollar expense transactions as the Canadian dollar was weaker in 2013 relative to 2012. A higher income tax rate, due in part to income being earned in higher income tax jurisdictions in 2013 and a reduction in the deferred tax rates recorded in 2012, resulted in a reduction in earnings per share of approximately 1.0 cent.

Summary of Quarterly Results

Thousands of US dollars, except per share amounts (US cents)
Q4 Q3 Q2 Q1 Q4 Q3 Q2 Q1
2013 2013 2013 2013 2012* 2012* 2012* 2012*
Revenue 187,964 179,926 177,032 169,949 173,226 165,399 159,648 171,805
Net income attributable to equity holders of the Company 20,951 17,362 17,095 15,989 22,071 16,783 15,850 16,551
EPS 32 27 26 25 34 26 25 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 fourth quarter at $161.1 million, an increase of $19.3 million from the end of the previous quarter. Winpak continued to generate strong and consistent cash flows from operating activities before changes in working capital, amounting to $36.0 million. Working capital generated an additional $4.4 million in cash as inventory levels declined by over $3.5 million in the quarter. Cash was utilized for plant and equipment additions of $14.5 million, income tax payments of $3.2 million, dividends of $1.9 million, employee defined benefit plan payments of $0.9 million and other items totalling $0.6 million.

In 2013, the cash and cash equivalents balance expanded by $27.8 million from $133.3 million at the end of last year. Cash flow from operating activities before changes in working capital finished the year at $129.6 million, a 1.5 percent decline from 2012. Additions to working capital consumed $8.8 million, primarily in trade and other receivables which increased by $11.6 million in response to higher revenue generation as well as extended payment terms for certain customers. Cash was also used to fund plant and equipment additions of $51.2 million including building expansions at Vaudreuil and Winnipeg and extrusion capacity across the Company, income tax payments of $28.6 million, dividends of $7.6 million, employee defined benefit plan payments of $3.9 million and other items totalling $1.7 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

The Company remains cautiously optimistic as it begins 2014. With sales volumes improving by nearly 10 percent on a normalized basis in 2013, the sales force is committed to building on this momentum for 2014 and beyond. New revenue generation will remain the prime focus in 2014 to fill the new capacity that has been added in recent months. Operations improvement will also be a focal point for the upcoming year as increased familiarity with new products and processes should result in an improvement in manufacturing variances compared to 2013. Most raw material costs heading into 2014 are fairly stable with the exception of polystyrene and nylon resins, where upward pricing pressure is being felt due to a worldwide shortage of a key ingredient, benzene. Gross profit margins may continue to fluctuate by a few percentage points from existing levels, depending on the timing of new customer opportunity additions and hence the impact of fixed costs associated with excess capacity. In addition, competitive pressures could impact selling prices for existing products or anticipated prices for new Company product initiatives. Should the current weakness in the Canadian dollar persist, the effect will be to reduce revenues but increase net income, as Canadian dollar denominated costs exceed revenues in that currency. However, for 2014, the positive effect on net income would be minimal due to hedges currently in place. In the longer term, a weaker Canadian dollar would be favorable for the Company. Capital spending for 2014 is expected to be in the $50 to $60 million range and will be geared to expanding on existing capabilities in extrusion and converting and should therefore be less disruptive to operations. In the year ahead, the Company will continue to seek out acquisition opportunities that will fit well within Winpak's core competencies in sophisticated food and health-care packaging at a reasonable price. With the strong balance sheet of the Company, the resources necessary to complete a significant acquisition are available while not detracting from the commitment to organic growth through capital investment.

Winpak Ltd.

Interim Condensed Consolidated Financial Statements

Fourth Quarter Ended: December 29, 2013

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 29 December 30
2013 2012
Assets
Current assets:
Cash and cash equivalents 161,090 133,303
Trade and other receivables 98,408 86,797
Income taxes receivable 3,580 389
Inventories 92,304 90,246
Prepaid expenses 3,074 3,864
Derivative financial instruments - 288
358,456 314,887
Non-current assets:
Property, plant and equipment 329,714 301,678
Intangible assets 14,960 14,551
Employee benefit plan assets 7,131 -
Deferred tax assets 2,943 3,448
354,748 319,677
Total assets 713,204 634,564
Equity and Liabilities
Current liabilities:
Trade payables and other liabilities 63,182 59,184
Provisions 427 427
Income taxes payable 2,048 5,417
Derivative financial instruments 903 -
66,560 65,028
Non-current liabilities:
Employee benefit plan liabilities 3,365 14,511
Deferred income 14,490 11,475
Provisions 6,524 7,399
Deferred tax liabilities 29,652 20,063
54,031 53,448
Total liabilities 120,591 118,476
Equity:
Share capital 29,195 29,195
Reserves (661 ) 250
Retained earnings 547,891 470,925
Total equity attributable to equity holders of the Company 576,425 500,370
Non-controlling interests 16,188 15,718
Total equity 592,613 516,088
Total equity and liabilities 713,204 634,564
Winpak Ltd.
Condensed Consolidated Statements of Income
(thousands of US dollars, except per share amounts) (unaudited)
Quarter Ended Year Ended
December 29 December 30 December 29 December 30
2013 2012 2013 2012
(restated) (restated)
Revenue 187,964 173,226 714,871 670,078
Cost of sales (132,390 ) (118,120 ) (506,788 ) (471,050 )
Gross profit 55,574 55,106 208,083 199,028
Sales, marketing and distribution expenses (14,522 ) (13,409 ) (57,460 ) (55,550 )
General and administrative expenses (7,183 ) (6,252 ) (29,090 ) (27,494 )
Research and technical expenses (2,674 ) (3,735 ) (13,095 ) (13,933 )
Pre-production expenses (648 ) (113 ) (2,956 ) (650 )
Other (expenses) income (183 ) (167 ) (659 ) 1,796
Income from operations 30,364 31,430 104,823 103,197
Finance income 92 131 384 506
Finance expense (189 ) (180 ) (814 ) (831 )
Income before income taxes 30,267 31,381 104,393 102,872
Income tax expense (9,023 ) (9,407 ) (32,308 ) (31,182 )
Net income for the period 21,244 21,974 72,085 71,690
Attributable to:
Equity holders of the Company 20,951 22,071 71,397 71,255
Non-controlling interests 293 (97 ) 688 435
21,244 21,974 72,085 71,690
Basic and fully diluted earnings per share - cents 32 34 110 110
Condensed Consolidated Statements of Comprehensive Income
(thousands of US dollars) (unaudited)
Quarter Ended Year Ended
December 29 December 30 December 29 December 30
2013 2012 2013 2012
(restated) (restated)
Net income for the period 21,244 21,974 72,085 71,690
Items that will not be reclassified to the statements of income:
Cash flow hedge gains (losses) recognized - 4 (94 ) 43
Cash flow hedge (gains) losses transferred to property, plant and equipment - (10 ) (50 ) 557
Employee benefit plan remeasurements 18,747 (3,555 ) 18,747 (2,313 )
Income tax effect (5,690 ) 1,170 (5,690 ) 785
13,057 (2,391 ) 12,913 (928 )
Items that are or may be reclassified subsequently to the statements of income:
Cash flow hedge (losses) gains recognized (1,255 ) (117 ) (1,729 ) 455
Cash flow hedge losses (gains) transferred to the statements of income 274 (27 ) 682 (173 )
Income tax effect 263 39 280 (206 )
(718 ) (105 ) (767 ) 76
Other comprehensive income (loss) for the period - net of income tax 12,339 (2,496 ) 12,146 (852 )
Comprehensive income for the period 33,583 19,478 84,231 70,838
Attributable to:
Equity holders of the Company 33,290 19,575 83,543 70,403
Non-controlling interests 293 (97 ) 688 435
33,583 19,478 84,231 70,838
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 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 statements of income, net of tax - (133 ) - (133 ) - (133 )
Cash flow hedge losses transferred to property, plant and equipment - 557 - 557 - 557
Employee benefit plan remeasurements, net of tax (restated) - - (1,528 ) (1,528 ) - (1,528 )
Other comprehensive income (loss) (restated) - 676 (1,528 ) (852 ) - (852 )
Net income for the period (restated) - - 71,255 71,255 435 71,690
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
Balance at December 31, 2012 29,195 250 470,925 500,370 15,718 516,088
Comprehensive 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
Winpak Ltd.
Condensed Consolidated Statements of Cash Flows
(thousands of US dollars) (unaudited)
Quarter Ended Year Ended
December 29 December 30 December 29 December 30
2013 2012 2013 2012
(restated) (restated)
Cash provided by (used in):
Operating activities:
Net income for the period 21,244 21,974 72,085 71,690
Items not involving cash:
Depreciation 7,380 6,687 27,481 26,151
Amortization - deferred income (369 ) (304 ) (1,263 ) (1,215 )
Amortization - intangible assets 115 108 450 1,261
Employee defined benefit plan expenses 941 590 4,138 3,626
Net finance expense 97 49 430 325
Income tax expense 9,023 9,407 32,308 31,182
Other (2,463 ) (514 ) (6,038 ) (1,478 )
Cash flow from operating activities before the following 35,968 37,997 129,591 131,542
Change in working capital:
Trade and other receivables (2,532 ) 498 (11,611 ) (2,862 )
Inventories 3,525 (2,721 ) (2,058 ) (12,228 )
Prepaid expenses 1,679 (471 ) 790 (1,095 )
Trade payables and other liabilities 1,706 3,662 4,128 (140 )
Provisions (290 ) (327 ) (1,013 ) (1,326 )
Employee defined benefit plan payments (933 ) (1,038 ) (3,865 ) (4,671 )
Income tax paid (3,182 ) (5,176 ) (28,615 ) (25,756 )
Interest received 87 107 379 474
Interest paid (5 ) (1 ) (14 ) (31 )
Net cash from operating activities 36,023 32,530 87,712 83,907
Investing activities:
Acquisition of property, plant and equipment - net (14,466 ) (17,449 ) (51,224 ) (68,412 )
Acquisition of intangible assets (418 ) (58 ) (861 ) (745 )
(14,884 ) (17,507 ) (52,085 ) (69,157 )
Financing activities:
Dividends paid (1,892 ) (1,983 ) (7,622 ) (7,763 )
Dividend paid to non-controlling interests in subsidiary - - (218 ) (563 )
(1,892 ) (1,983 ) (7,840 ) (8,326 )
Change in cash and cash equivalents 19,247 13,040 27,787 6,424
Cash and cash equivalents, beginning of period 141,843 120,263 133,303 126,879
Cash and cash equivalents, end of period 161,090 133,303 161,090 133,303

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