Winpak Ltd.
TSX : WPK

Winpak Ltd.

July 26, 2012 15:35 ET

Winpak Reports Second Quarter Results

WINNIPEG, MANITOBA--(Marketwire - July 26, 2012) - Winpak Ltd. (TSX:WPK) today reports consolidated results in US dollars for the second quarter of 2012, which ended on July 1, 2012.

Quarter Ended (1) Year-To-Date Ended (1)
July 1 June 26 July 1 June 26
2012 2011 2012 2011
(thousands of US dollars, except per share amounts)
Revenue 159,648 161,340 331,453 309,877
Net income 16,162 16,539 33,254 31,593
Income tax expense 5,855 7,546 14,225 13,522
Net finance income (195) (88) (410) (157)
Depreciation and amortization 6,610 6,672 13,129 13,292
EBITDA (2) 28,432 30,669 60,198 58,250
Net income attributable to equity holders of the Company 16,002 16,195 32,963 30,889
Net income attributable to non-controlling interests 160 344 291 704
Net income 16,162 16,539 33,254 31,593
Basic and fully diluted earnings per share (cents) 25 25 51 48

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 comprises 53 weeks and the 2011 fiscal year comprised 52 weeks. Each quarter of 2012 and 2011 comprises 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 second quarter of 2012 was virtually unchanged at $16.0 million or 25 cents in earnings per share compared to $16.2 million or 25 cents per share in the corresponding quarter of 2011. Lower gross profit margins on relatively steady sales volumes reduced earnings per share by approximately 2 cents. On the other hand, a reduction in income taxes contributed 2 cents in earnings per share.

For the six months ended July 1, 2012, net income attributable to common shareholders of $33.0 million or 51 cents in earnings per share compared favorably to the prior year first-half result of $30.9 million or 48 cents per share, an improvement of 6.7 percent. Greater sales volumes added 3 cents to earnings per share while improved manufacturing performance augmented gross profit margins to expand earnings per share by a further 1 cent. However, higher operating expenses offset some of this improvement, lowering earnings per share by 1 cent.

Revenue

Revenue for the second quarter of 2012 was $159.6 million, a decrease of $1.7 million or 1.0 percent over the same period in 2011. Volumes in total were essentially flat with the prior year comparable quarter, declining by less than 0.3 percent. The continuing sluggish performance of the US economy had a dampening effect on demand. All product groups were somewhat affected, with the greatest impact evident in packaging machinery and biaxially oriented nylon, where volumes retreated in the mid-to-high single digit percentage range. Enhanced rigid container volumes in condiments and juice cups were virtually offset by reduced demand in the specialty beverage market. Likewise, higher volumes in yogurt die-cut lidding were more than offset by declines in specialty beverage lidding. Modified atmosphere and specialty film packaging experienced low-to-mid single digit percentage volume growth. Overall, selling prices and product mix had a negligible impact of a 0.1 percent decline in revenue when compared to the second quarter of 2011. A weaker Canadian dollar reduced revenue by a further 0.6 percent in the current quarter in relation to the corresponding prior year period.

For the first half of 2012, revenue rose by $21.6 million or 7.0 percent to $331.5 million from $309.9 million recorded in the first six months of 2011. Volumes grew by 5.8 percent versus the prior year period, including the additional week of sales in the first quarter of 2012. Demand was strongest in modified atmosphere packaging followed closely behind by rigid containers, lidding, and specialty films which all advanced in the mid-single digit percentage range. A relatively solid first quarter revenue performance was tempered by the results of the second quarter. Packaging machinery and biaxially oriented nylon recorded modest volume declines from the prior year. Higher selling prices, in concert with raw material cost increases and changes in product mix, added 1.6 percent to revenues. A weaker Canadian dollar in the first half of 2012 compared to the prior year corresponding period had only a minor effect on revenue, resulting in a reduction of 0.4 percent.

Gross profit margins

Gross profit margins fell to 28.4 percent of revenue in the second quarter of 2012, down from the 29.2 percent of revenue recorded in the same quarter of 2011, resulting in a reduction of 2 cents in earnings per share. A less favorable product mix, higher fixed costs associated with the addition of new production capacity, and heightened price competition in certain product markets resulted in a narrowing of profit margins. The effect would have been more pronounced had there not been improvements in manufacturing efficiencies which lessened the impact of the margin squeeze.

For the first six months of 2012, gross profit margins of 29.1 percent were approximately the same as the first half margins in 2011 of 29.2 percent. However, in dollar terms, gross profit advanced by 6.6 percent to $96.4 million from $90.4 million recorded in the first six months of 2011, exceeding the increase in volume of 5.8 percent over that same period. This was primarily the result of improved manufacturing performance through enhanced production efficiencies and supplemented earnings per share by an additional 1 cent.

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 2/12 1/12 4/11 3/11 2/11 1/11 4/10 3/10 2/10
Purchase Price Index 174.5 174.7 172.3 182.9 184.5 168.0 154.7 150.7 159.1

The purchase price index remained steady in the second quarter of 2012, decreasing marginally by 0.1 percent from the previous quarter. Several materials within the index experienced small increases while others displayed minor declines. Overall, the outlook for the third quarter is for a relatively flat to slight upward trend in raw material pricing.

Expenses and Other

Operating expenses were in line with the levels recorded in the second quarter of 2011 and the impact of foreign exchange on net income for the quarter was also negligible. A lower income tax expense in the second quarter of 2012, in relation to the comparable period in 2011, resulted in an additional 2 cents in earnings per share. This was due to a combination of a lower overall income tax rate applied to the current period's taxable income, a readjustment in the rate applied to future income tax balances, and a reduction in the income tax provision for prior periods. The lower income tax rate experienced in the second quarter of 2012 versus 2011 is due in large part to the 1.5 percentage point decrease in the federal corporate income tax rate in Canada which became effective on January 1, 2012.

On a year-to-date basis, operating expenses progressed at a higher rate than the expansion in sales volumes, resulting in a reduction of approximately 1 cent in earnings per share. Added expenses were incurred in support of the Company's $1 billion BDC (Billion Dollar Commitment) sales goal by 2015. These included bolstering the sales force with the recruitment of additional personnel and costs related to new product development including pre-production expenses at the new Sauk Village, Illinois facility.

Capital Resources, Cash Flow and Liquidity

The Company's cash and cash equivalents balance ended the second quarter at $122.6 million, down marginally by $0.6 million from the end of the first quarter. Winpak continued to generate consistent cash flow from operating activities before changes in working capital amounting to $28.5 million in the three-month period. Working capital increases consumed $4.8 million in cash, primarily in increased inventory levels. Cash was also utilized for property, plant and equipment additions of $10.5 million, income tax payments of $9.8 million, dividends of $2.0 million, and other items of $2.0 million.

For the first six months of 2012, the cash and cash equivalents balance decreased by $4.3 million. Cash flow from operating activites before changes in working capital improved by $2.4 million from the prior year corresponding period to $61.2 million. Additions to working capital utilized $12.0 million in cash, with inventory levels rising by $14.7 million due to seasonal factors and unanticipated changes in customer buying patterns. Cash was also used for property, plant and equipment additions of $30.2 million including the completion of the new 260,000 square foot rigid container facility in Illinois. Other uses of cash included income tax payments of $15.3 million, dividends of $3.9 million, employee defined benefit plan payments of $2.2 million and other items of $1.9 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.

Summary of Quarterly Results

Thousands of US dollars, except per share amounts (US cents)
Q2 Q1 Q4 Q3 Q2 Q1 Q4 Q3
2012 2012 2011 2011 2011 2011 2010 2010
Revenue 159,648 171,805 171,516 170,670 161,340 148,537 154,930 146,055
Net income attributable to equity holders of the Company
16,002


16,961


18,486


14,408


16,195


14,694


12,794


13,132
EPS 25 26 28 22 25 23 20 20

Looking Forward

The Company's management remains focused and committed to the BDC plan of achieving the $1 billion revenue target by the end of 2015. There are a number of significant new customer opportunities that are currently in development that should provide a foundation for future growth. Barring any major setbacks in the overall economy, demand is expected to improve in the second half of the year. Raw material pricing has been relatively stable for the first half of the year and is expected to remain so for the forseeable future with perhaps a bit of an upward progression. Competition within the Company's product markets remains challenging and continued investment in technology is necessary to remain competitive and attractive as a preferred supplier to our customers. Year-to-date, over $30 million has been invested in capital projects and another $50 to $60 million is planned for the second half of 2012, primarily geared to adding capacity and improving on existing production processes. During this expansion phase, costs may increase temporarily as development expenses rise and new capacity is not fully utilized. However, margins are not expected to deviate from current levels by more than a few percentage points. The Company has been actively pursuing several external acquisition opportunities over the past number of months that would complement its core competencies in the areas of food and health care packaging. However, acquisition pricing for these opportunities has proven to be at unacceptably high levels in the Company's view and as a result, a transaction has not been completed. However, in the months ahead, the Company will continue to seek out acquisition opportunities while remaining strongly committed to the capital investment plan.

Winpak Ltd.

Interim Condensed Consolidated Financial Statements

Second Quarter Ended: July 1, 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)
July 1 December 25
2012 2011
Assets
Current assets:
Cash and cash equivalents 122,629 126,879
Trade and other receivables 77,503 83,935
Income taxes receivable 1,208 33
Inventories 92,764 78,018
Prepaid expenses 3,897 2,769
Derivative financial instruments 163 242
298,164 291,876
Non-current assets:
Property, plant and equipment 273,926 256,938
Intangible assets 14,927 15,076
Deferred tax assets 3,507 3,729
292,360 275,743
Total assets 590,524 567,619
Equity and Liabilities
Current liabilities:
Trade payables and other liabilities 56,763 59,294
Provisions 528 592
Income taxes payable 3,718 4,988
Derivative financial instruments 801 836
61,810 65,710
Non-current liabilities:
Employee benefit plan liabilities 12,009 12,504
Deferred income 9,418 10,243
Provisions 7,680 8,423
Deferred tax liabilities 17,361 17,116
46,468 48,286
Total liabilities 108,278 113,996
Equity:
Share capital 29,195 29,195
Reserves (624) (426)
Retained earnings 438,101 409,008
Total equity attributable to equity holders of the Company 466,672 437,777
Non-controlling interests 15,574 15,846
Total equity 482,246 453,623
Total equity and liabilities 590,524 567,619
Winpak Ltd.
Condensed Consolidated Statements of Income
(thousands of US dollars, except per share amounts) (unaudited)
Quarter Ended Year-To-Date Ended
July 1 June 26 July 1 June 26
Note 2012 2011 2012 2011
Revenue 159,648 161,340 331,453 309,877
Cost of sales (114,325) (114,216) (235,093) (219,513)
Gross profit 45,323 47,124 96,360 90,364
Sales, marketing and distribution expenses (13,694) (13,380) (28,343) (26,157)
General and administrative expenses (6,687) (6,661) (14,525) (13,501)
Research and technical expenses (3,162) (3,033) (6,866) (6,254)
Pre-production expenses (472) (202) (507) (202)
Other income (expenses) 514 149 950 708
Income from operations 21,822 23,997 47,069 44,958
Finance income 1,131 1,042 2,269 2,057
Finance expense (936) (954) (1,859) (1,900)
Income before income taxes 22,017 24,085 47,479 45,115
Income tax expense (5,855) (7,546) (14,225) (13,522)
Net income for the period 16,162 16,539 33,254 31,593
Attributable to:
Equity holders of the Company 16,002 16,195 32,963 30,889
Non-controlling interests 160 344 291 704
16,162 16,539 33,254 31,593
Basic and fully diluted earnings per share - cents 25 25 51 48
Condensed Consolidated Statements of Comprehensive Income
(thousands of US dollars) (unaudited)
Quarter Ended Year-To-Date Ended
July 1 June 26 July 1 June 26
Note 2012 2011 2012 2011
Net income for the period 16,162 16,539 33,254 31,593
Cash flow hedge (losses) gains recognized (680) (22) 22 382
Cash flow hedge gains transferred to the statement of income (131) (477) (8) (702)
Cash flow hedge gains transferred to property, plant and equipment (83) - (58) -
Income tax relating to applicable components of other comprehensive income 82 141 (154) 101
Other comprehensive income for the period - net of income tax (812) (358) (198) (219)
Comprehensive income for the period 15,350 16,181 33,056 31,374
Attributable to:
Equity holders of the Company 15,190 15,837 32,765 30,670
Non-controlling interests 160 344 291 704
15,350 16,181 33,056 31,374
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
Note capital Reserves earnings Total interests equity
Balance at December 27, 2010 29,195 441 361,128 390,764 16,533 407,297
Comprehensive income for the period
Cash flow hedge gains, net of tax - 285 - 285 - 285
Cash flow hedge gains transferred to the statement of income, net of tax

-

(504)

-

(504)

-

(504)
Other comprehensive income - (219) - (219) - (219)
Net income for the period - - 30,889 30,889 704 31,593
Comprehensive income for the period - (219) 30,889 30,670 704 31,374
Preferred share redemption - - - - (980) (980)
Dividends - - (3,962) (3,962) (833) (4,795)
Balance at June 26, 2011 29,195 222 388,055 417,472 15,424 432,896
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 - (128) - (128) - (128)
Cash flow hedge gains transferred to the statement of income, net of tax



-




(13)




-




(13)




-




(13)
Cash flow hedge gains transferred to property, plant and equipment
-

(57)

-

(57)

-

(57)
Other comprehensive income - (198) - (198) - (198)
Net income for the period - - 32,963 32,963 291 33,254
Comprehensive income for the period - (198) 32,963 32,765 291 33,056
Dividends - - (3,870) (3,870) (563) (4,433)
Balance at July 1, 2012 29,195 (624) 438,101 466,672 15,574 482,246
Winpak Ltd.
Condensed Consolidated Statements of Cash Flows
(thousands of US dollars) (unaudited)
Quarter Ended Year-To-Date Ended
July 1 June 26 July 1 June 26
2012 2011 2012 2011
Cash provided by (used in):
Operating activities:
Net income for the period 16,162 16,539 33,254 31,593
Items not involving cash:
Depreciation 6,493 6,461 12,905 12,879
Amortization - deferred income (303) (306) (608) (611)
Amortization - intangible assets 420 517 832 1,024
Employee defined benefit plan expenses 968 858 1,996 1,715
Net finance income (195) (88) (410) (157)
Income tax expense 5,855 7,546 14,225 13,522
Other (907) (391) (1,005) (1,215)
Cash flow from operating activities before the following 28,493 31,136 61,189 58,750
Change in working capital:
Trade and other receivables 1,707 (3,514) 6,432 (2,981)
Inventories (5,734) (10,610) (14,746) (16,187)
Prepaid expenses (301) (582) (1,128) (1,364)
Trade payables and other liabilities (449) 6,413 (2,556) 5,290
Provisions (892) - (892) -
Employee defined benefit plan payments (520) (314) (2,245) (2,512)
Income tax paid (9,807) (6,459) (15,288) (12,033)
Interest received 118 69 249 119
Interest paid - (8) (2) (9)
Net cash from operating activities 12,615 16,131 31,013 29,073
Investing activities:
Acquisition of property, plant and equipment (net) (10,486) (9,451) (30,150) (15,897)
Acquisition of intangible assets (257) (58) (685) (231)
(10,743) (9,509) (30,835) (16,128)
Financing activities:
Dividends paid (1,955) (1,986) (3,865) (3,919)
Change in non-controlling interests in subsidiary (563) (1,813) (563) (1,813)
(2,518) (3,799) (4,428) (5,732)
Change in cash and cash equivalents (646) 2,823 (4,250) 7,213
Cash and cash equivalents, beginning of period 123,275 94,878 126,879 90,488
Cash and cash equivalents, end of period 122,629 97,701 122,629 97,701

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