SOURCE: WINPAK LTD.

Winpak Ltd.

July 23, 2015 18:17 ET

Winpak Reports Second Quarter Results

WINNIPEG, MB--(Marketwired - July 23, 2015) - Winpak Ltd. (TSX: WPK) today reports consolidated results in US dollars for the second quarter of 2015, which ended on June 28, 2015.

    
  Quarter Ended  Year-To-Date Ended
  June 28  June 29  June 28  June 29
  2015  2014  2015  2014
(thousands of US dollars, except per share amounts)           
Revenue 198,257  199,426  397,697  387,503
Net income 27,639  19,538  50,363  35,994
 
Income tax expense 12,634  9,367  23,548  16,602
Net finance expense 20  107  55  44
Depreciation and amortization 7,928  7,351  15,675  14,716
EBITDA (1) 48,221  36,363  89,641  67,356
 
Net income attributable to equity holders of the Company 26,845  19,406  49,308  35,569
Net income attributable to non-controlling interests 794  132  1,055  425
Net income 27,639  19,538  50,363  35,994
 
Basic and diluted earnings per share (cents) 41  30  76  55
        

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.

(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 second quarter of 2015 strengthened to $26.8 million or 41 cents in earnings per share compared to $19.4 million or 30 cents per share recorded in the comparable quarter of 2014, an increase of 38.3 percent. This represents the highest quarterly earnings performance since Winpak's inception. Improved gross profit margins added 9.0 cents to earnings per share and organic volume growth supplemented earnings per share by 0.5 cents. Favorable foreign exchange impacts and lower overall operating expenses each contributed 1.0 cent to earnings per share growth. A lower effective income tax rate added a further 0.5 cents in earnings per share while a greater proportion of earnings attributable to non-controlling interests subtracted 1.0 cent from earnings per share.

For the six months ended June 28, 2015, net income attributable to equity holders of the Company amounted to $49.3 million or 76 cents per share, eclipsing the corresponding 2014 result of $35.6 million or 55 cents per share by 38.6 percent. Expanded gross profit margins resulted in earnings per share enhancements of 18.0 cents while foreign exchange and organic volume growth added a further 2.5 cents and 2.0 cents respectively. This was partly offset by a greater proportion of earnings attributable to non-controlling interests and higher operating expenses which reduced earnings per share by 1.0 cent and 0.5 cents accordingly.

Revenue
Revenue in the second quarter of 2015 reached $198.3 million versus $199.4 million in the same quarter of 2014, a decrease of 0.6 percent. Volume expansion was muted at 1.2 percent compared to the robust second quarter of 2014, when growth of 12.7 percent was experienced. Revenue performance varied across product groups. Modified atmosphere packaging volumes continued to forge ahead in the low double-digit percentage range, building on the first quarter momentum, with new business gains at some of North America's largest meat and cheese producing customers. After experiencing a decline in shipments in the first quarter of 2015, biaxially oriented nylon volumes rebounded with growth of just over 10 percent. Rigid container volumes increased in the low single-digit percentage range. Were it not for the loss of some low-margin yogurt business, rigid container volumes would have risen in the high single-digit percentage range on the strength of sales in applesauce, condiment and specialty beverage packaging. Specialty film volumes experienced a low single-digit percentage decline while lidding shipments fell by just over 10 percent compared to the second quarter of 2014 which was particularly strong for this product group. Although some yogurt lidding business was lost, volumes in the remaining lidding markets are expected to recover in the second half of the year. Packaging machinery and part sales receded by just over 10 percent in comparison to the second quarter of 2014 due primarily to timing of shipments, as 2015 first quarter volumes were elevated, exceeding the prior year by over 40 percent. Selling price/mix changes had a net unfavorable effect on quarterly revenues of 0.5 percent while foreign exchange had a negative influence of 1.3 percent due to the significant decline in the value of the Canadian dollar in comparison to its US counterpart in the current period versus the prior year second quarter.

For the first half of 2015, revenue grew to $397.7 million from $387.5 million in the first six months of 2014, an increase of 2.6 percent. Volumes increased by 3.2 percent, with all product groups advancing except for lidding. Growth was particularly robust in modified atmosphere packaging, which advanced in the low double-digit percentage range, followed closely behind in percentage terms by packaging machinery. Significant inroads at some of the largest meat and cheese customers in North America were responsible for the favorable performance within the modified atmosphere packaging group as these companies gained exposure to Winpak's capabilities. Rigid container, biaxially oriented nylon and specialty film volumes progressed in the low single-digit percentage range while lidding volumes fell in mid single-digit percentage terms. Selling price/mix changes had a positive effect on revenue of 0.7 percent year-to-date while foreign exchange negatively impacted revenue by 1.3 percent.

Gross profit margins
Gross profit margins widened in the current quarter to 32.9 percent of revenue from the 31.6 percent of revenue recorded in the first quarter of this year and compared very favorably to the 27.8 percent attained in the second quarter of 2014. Lower raw material costs were the main contributing factor to the improved gross profit performance, as the prices for certain resins declined significantly in comparison to a year prior. Much of this decrease is passed on to customers as approximately 70 percent of the Company's revenues are indexed, whereby selling price adjustments related to raw material costs are reflected with a lag of approximately 90 days after the raw material costs change. To date, market conditions have not dictated any significant selling price adjustments for non-indexed accounts. Combined with a more favorable product mix in the quarter, the improved gross profit margins contributed 9.0 cents in earnings per share in the second quarter of 2015 versus the comparable 2014 period.

For the first six months of 2015, gross profit margins of 32.2 percent of revenue surpassed the prior year-to-date level of 27.5 percent by 4.7 percentage points. As with the results for the quarter, the enlarged spread between raw material costs and selling prices due to a decline in raw material prices was the main contributing factor to the improved gross profit margins and resulted in an addition of 18.0 cents to earnings per share in relation to the first half of 2014.

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 29, 2014 to reflect the mix of the eight primary raw materials purchased in 2014.

          
Quarter and Year 2/15 1/15 4/14 3/14 2/14 1/14 4/13 3/13 2/13
Purchase Price Index 152.1 156.9 175.1 176.2 178.1 178.7 175.0 173.2 173.5
          

The purchase price index fell an additional 3.1 percent in the quarter in comparison to the first quarter of 2015. In the last 12 months, the index has declined by an average of 14.6 percent. The change in resin pricing has not been uniform across all materials as some specialty resins have remained stable while certain commodity resins have decreased by as much as 30 percent. Toward the latter half of the second quarter and entering into the third quarter, the prices for certain resins have reversed course and begun to escalate including polyethylene, which is the most widely used resin within the Company. However, to date, the price hikes have been moderate and the future direction appears to be fairly stable although this cannot be predicted with any degree of certainty.

Expenses and Other
Operating expenses in total decreased in the second quarter of 2015 while sales volumes increased when compared to the corresponding period of 2014, resulting in an improvement of 1.0 cent in earnings per share. During the current quarter, the Company extinguished the liability related to its prior withdrawal from a US multiemployer defined benefit pension plan at an amount which resulted in a pre-tax gain of $1.8 million. Additionally, lower freight costs as a result of reduced fuel surcharges also contributed to the decline in operating expenses. This was partially offset by a reduction in 2014 second quarter operating expenses caused by a gain on settlement of a customer product liability claim at an amount that was lower than what had been reserved. A lower effective income tax rate in the current quarter, due in part to a larger proportion of earnings being realized in lower income tax rate jurisdictions, increased earnings per share by a further 0.5 cents. The weaker Canadian dollar in the second quarter of 2015 versus 2014 was the main catalyst behind a 1.0 cent improvement in earnings per share due to foreign exchange as Canadian dollar expenses exceeded revenues in that currency. Lastly, earnings per share were negatively impacted by 1.0 cent as a greater proportion of earnings attributable to non-controlling interests was realized in the second quarter of 2015 versus the prior year period.

After adjusting for foreign exchange, operating expenses for the first six months of 2015 advanced at a slightly greater rate than the corresponding increase in sales volumes, resulting in a reduction in earnings per share of 0.5 cents in comparison to the first half of 2014. Higher general and administrative expenses were the main cause due in part to greater share-based compensation costs and increased bad debt reserves. A greater proportion of earnings attributable to non-controlling interests in the first half of the year further reduced earnings per share by 1.0 cent. More than offsetting these two reductions was the favorable impact of foreign exchange on earnings per share of 2.5 cents. In relation to the first six months of 2014, the lower average value of the Canadian dollar in 2015 versus its US counterpart resulted in a positive effect on earnings when the Company's net Canadian dollar expenses were converted into US funds.

Summary of Quarterly Results

Thousands of US dollars, except per share amounts (US cents)

 
  Q2 Q1 Q4 Q3 Q2 Q1 Q4 Q3
  2015 2015 2014 2014 2014 2014 2013 2013
 
Revenue 198,257 199,440 206,269 192,982 199,426 188,077 187,964 179,926
Net income attributable to equity holders of the Company 26,845 22,463 23,343 19,448 19,406 16,163 20,951 17,362
EPS 41 35 36 30 30 25 32 27
         

Capital Resources, Cash Flow and Liquidity
The Company's cash and cash equivalents balance finished the second quarter of 2015 at $189.5 million, an increase of $27.0 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 of $46.7 million, outperforming the second quarter of 2014 by $11.8 million. Cash was also provided by working capital reductions in the amount of $6.0 million. Cash was utilized for the extinguishment of the multiemployer defined benefit pension plan withdrawal liability in the amount of $4.5 million, plant and equipment additions of $9.5 million, income tax payments of $9.4 million, dividends to equity holders of the Company of $1.5 million, and other items totalling $0.8 million.

For the first half of 2015, the cash and cash equivalents balance climbed by $45.8 million to $189.5 million on the strong cash flow generated from operating activities before changes in working capital of $88.0 million. This represented an improvement of $22.7 million from the first six months of the prior year and was further aided by a reduction in working capital of $2.7 million year-to-date. Cash was used for plant and equipment additions of $22.3 million, income tax payments of $13.1 million, the retirement of the multiemployer defined benefit pension plan withdrawal liability of $4.5 million, dividends to equity holders of the Company of $3.2 million, employee defined benefit plan contributions of $1.2 million and other items totalling $0.6 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.

Looking Forward
The Company remains optimistic in regard to revenue growth and earnings performance for the balance of the year. Although volume growth took a pause in the second quarter of the year in certain product groups compared to prior quarters, the second half of the year should witness further improvement provided that new revenue opportunities currently in various stages of development continue to progress as anticipated. Assuming raw material prices remain near current levels, gross profit margins should continue to be elevated in the second half of the year in relation to historical norms but will likely decline by approximately 1 to 2 percentage points from those experienced in the second quarter as indexed selling prices will see further reductions. Manufacturing performance should continue to improve in areas where new capacity was more recently added while those areas where capacity is currently constrained, particularly modified atmosphere packaging, will be challenged to fulfill demand and will likely incur extra costs in doing so until new capacity is installed. The continued weakness in the Canadian dollar versus its US counterpart, while reducing reported revenues, will increase earnings as Canadian dollar denominated costs exceed Canadian revenues. Capital spending for 2015 continues to be on pace at a $55 to $65 million level with a focus on expanding capacity in extrusion and converting. The Company will also 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.

Winpak Ltd.
Interim Condensed Consolidated Financial Statements
Second Quarter Ended: June 28, 2015

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)  
   
  June 28   December 28  
  2015   2014  
   
Assets        
   
Current assets:        
 Cash and cash equivalents 189,515   143,761  
 Trade and other receivables 106,499   112,454  
 Income taxes receivable 480   2,873  
 Inventories 99,799   100,586  
 Prepaid expenses 5,295   4,344  
 Derivative financial instruments 144   -  
  401,732   364,018  
   
Non-current assets:        
 Property, plant and equipment 354,484   348,002  
 Intangible assets 14,914   15,068  
 Employee benefit plan assets 5,264   5,249  
 Deferred tax assets 1,696   1,990  
  376,358   370,309  
Total assets 778,090   734,327  
   
Equity and Liabilities        
   
Current liabilities:        
 Trade payables and other liabilities 65,889   69,098  
 Provisions -   427  
 Income taxes payable 3,719   690  
 Derivative financial instruments 783   875  
  70,391   71,090  
   
Non-current liabilities:        
 Employee benefit plan liabilities 8,687   7,673  
 Deferred income 14,435   14,831  
 Provisions 760   6,571  
 Deferred tax liabilities 35,682   32,775  
  59,564   61,850  
Total liabilities 129,955   132,940  
   
Equity:        
 Share capital 29,195   29,195  
 Reserves (479 ) (641 )
 Retained earnings 601,874   555,697  
Total equity attributable to equity holders of the Company 630,590   584,251  
Non-controlling interests 17,545   17,136  
Total equity 648,135   601,387  
Total equity and liabilities 778,090   734,327  
      
  
Winpak Ltd.  
Condensed Consolidated Statements of Income  
(thousands of US dollars, except per share amounts) (unaudited)  
      
  Quarter Ended   Year-To-Date Ended  
  June 28   June 29   June 28   June 29  
  2015   2014   2015   2014  
Revenue 198,257   199,426   397,697   387,503  
Cost of sales (133,042 ) (144,072 ) (269,511 ) (280,941 )
Gross profit 65,215   55,354   128,186   106,562  
            
Sales, marketing and distribution expenses (14,781 ) (15,889 ) (29,863 ) (31,155 )
General and administrative expenses (7,213 ) (5,875 ) (16,180 ) (13,521 )
Research and technical expenses (4,047 ) (4,004 ) (7,746 ) (7,356 )
Pre-production expenses (88 ) (251 ) (434 ) (251 )
Other income (expenses) 1,207   (323 ) 3   (1,639 )
Income from operations 40,293   29,012   73,966   52,640  
Finance income 86   113   171   264  
Finance expense (106 ) (220 ) (226 ) (308 )
Income before income taxes 40,273   28,905   73,911   52,596  
Income tax expense (12,634 ) (9,367 ) (23,548 ) (16,602 )
Net income for the period 27,639   19,538   50,363   35,994  
            
Attributable to:                
 Equity holders of the Company 26,845   19,406   49,308   35,569  
 Non-controlling interests 794   132   1,055   425  
  27,639   19,538   50,363   35,994  
Basic and diluted earnings per share - cents 41   30   76   55  
   
  
Condensed Consolidated Statements of Comprehensive Income  
(thousands of US dollars) (unaudited)  
      
  Quarter Ended   Year-To-Date Ended  
  June 28   June 29   June 28   June 29  
  2015   2014   2015   2014  
Net income for the period 27,639   19,538   50,363   35,994  
            
Items that will not be reclassified to the statements of income:                
Cash flow hedge losses recognized (43 ) -   (43 ) -  
Income tax effect -   -   -   -  
  (43 ) -   (43 ) -  
                 
Items that are or may be reclassified subsequently to the statements of income:                
Cash flow hedge gains (losses) recognized 621   709   (947 ) (178 )
Cash flow hedge losses transferred to the statements of income 667   587   1,226   1,269  
Income tax effect (344 ) (346 ) (74 ) (292 )
  944   950   205   799  
Other comprehensive income for the period - net of income tax 901   950   162   799  
Comprehensive income for the period 28,540   20,488   50,525   36,793  
            
Attributable to:                
 Equity holders of the Company 27,746   20,356   49,470   36,368  
 Non-controlling interests 794   132   1,055   425  
  28,540   20,488   50,525   36,793  
            
  
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 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 - (130 )-  (130 )-  (130 )
  Cash flow hedge losses transferred to the statements of income, net of tax - 929  -  929  -  929  
 Other comprehensive income - 799  -  799  -  799  
 Net income for the period - -  35,569  35,569  425  35,994  
 Comprehensive income for the period - 799  35,569  36,368  425  36,793  
    
 Dividends - -  (62,109 )(62,109 )(344 )(62,453 )
   
Balance at June 29, 2014 29,195 138  521,351  550,684  16,269  566,953  
   
   
Balance at December 29, 2014 29,195 (641 )555,697  584,251  17,136  601,387  
   
 Comprehensive income for the period                  
  Cash flow hedge losses, net of tax - (737 )-  (737 )-  (737 )
  Cash flow hedge losses transferred to the statements of income, net of tax - 899  -  899  -  899  
 Other comprehensive income - 162  -  162  -  162  
 Net income for the period - -  49,308  49,308  1,055  50,363  
 Comprehensive income for the period - 162  49,308  49,470  1,055  50,525  
    
 Dividends - -  (3,131 )(3,131 )(646 )(3,777 )
   
Balance at June 28, 2015 29,195 (479 )601,874  630,590  17,545  648,135  
            
  
Winpak Ltd.  
Condensed Consolidated Statements of Cash Flows  
(thousands of US dollars) (unaudited)  
   
  Quarter Ended   Year-To-Date Ended  
  June 28   June 29   June 28   June 29  
  2015   2014   2015   2014  
   
Cash provided by (used in):                
   
Operating activities:                
 Net income for the period 27,639   19,538   50,363   35,994  
 Items not involving cash:                
  Depreciation 8,190   7,742   16,174   15,332  
  Amortization - deferred income (406 ) (520 ) (798 ) (879 )
  Amortization - intangible assets 144   129   299   263  
  Employee defined benefit plan expenses 749   938   1,725   1,833  
  Multiemployer defined benefit pension plan withdrawal liability settlement gain (1,815 ) -   (1,815 ) -  
  Net finance expense 20   107   55   44  
  Income tax expense 12,634   9,367   23,548   16,602  
  Other (435 ) (2,411 ) (1,558 ) (3,892 )
   Cash flow from operating activities before the following 46,720   34,890   87,993   65,297  
 Change in working capital:                
  Trade and other receivables 3,701   (5,038 ) 5,955   (9,391 )
  Inventories (2,344 ) (7,931 ) 787   (7,424 )
  Prepaid expenses (19 ) (26 ) (951 ) (1,954 )
  Trade payables and other liabilities 4,665   1,118   (3,117 ) 6,837  
   
 Provisions (4,503 ) (1 ) (4,467 ) (25 )
 Employee defined benefit plan contributions (90 ) (317 ) (1,168 ) (3,141 )
 Income tax paid (9,370 ) (9,458 ) (13,084 ) (12,609 )
 Interest received 66   42   128   129  
 Interest paid (8 ) (135 ) (15 ) (138 )
   Net cash from operating activities 38,818   13,144   72,061   37,581  
   
Investing activities:                
  Acquisition of property, plant and equipment - net (9,462 ) (9,527 ) (22,266 ) (21,692 )
  Acquisition of intangible assets (114 ) (175 ) (169 ) (362 )
  (9,576 ) (9,702 ) (22,435 ) (22,054 )
   
Financing activities:                
  Dividends paid (1,548 ) (1,763 ) (3,226 ) (62,102 )
  Dividend paid to non-controlling interests in subsidiary (646 ) (344 ) (646 ) (344 )
  (2,194 ) (2,107 ) (3,872 ) (62,446 )
   
Change in cash and cash equivalents 27,048   1,335   45,754   (46,919 )
   
Cash and cash equivalents, beginning of period 162,467   112,836   143,761   161,090  
   
Cash and cash equivalents, end of period 189,515   114,171   189,515   114,171  
            

Contact Information

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

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