Winpak Ltd.
TSX : WPK

Winpak Ltd.

October 25, 2012 16:11 ET

Winpak Reports Third Quarter Results

WINNIPEG, MANITOBA--(Marketwire - Oct. 25, 2012) - Winpak Ltd. (TSX:WPK) today reports consolidated results in US dollars for the third quarter of 2012, which ended on September 30, 2012.




(thousands of US dollars, except per share amounts)
Quarter Ended Year-To-Date Ended 1
September 30 2012
September 25 2011
September 30 2012
September 25 2011
Revenue 165,399 170,670 496,852 480,547
Net income 17,319 14,635 50,573 46,228
Income tax expense 7,935 7,912 22,160 21,434
Net finance income (316 ) (100 ) (726 ) (257 )
Depreciation and amortization 6,577 6,745 19,706 20,037
EBITDA 2 31,515 29,192 91,713 87,442
Net income attributable to equity holders of the Company 17,078 14,408 50,041 45,297
Net income attributable to non-controlling interests 241 227 532 931
Net income 17,319 14,635 50,573 46,228
Basic and fully diluted earnings per share (cents) 26 22 77 70

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 third quarter of 2012 was $17.1 million or 26 cents in earnings per share compared to $14.4 million or 22 cents per share in the corresponding quarter of 2011, an increase of 18.5 percent. An improvement in gross profit margins added approximately 0.5 cents in earnings per share while a lower effective income tax rate bolstered earnings by 1.5 cents per share. A favorable foreign exchange impact contributed a further 2 cents in earnings per share in the quarter.

For the nine months ended September 30, 2012, net income attributable to common shareholders equalled $50.0 million or 77 cents in earnings per share, eclipsing the prior year three-quarter result of $45.3 million or 70 cents in earnings per share by 10.5 percent. Higher sales volumes added 3 cents to earnings per share while improved manufacturing performance raised earnings per share by an additional 1 cent. However, higher operating expenses offset some of this improvement by lowering earnings per share by 1 cent. A lower effective income tax rate and a lesser amount attributable to non-controlling interests further added to earnings per share by 1.5 cents and 0.5 cents respectively. Finally, foreign exchange favorably impacted earnings per share by 2 cents.

Revenue

Revenue for the third quarter of 2012 was $165.4 million, a decline of $5.3 million or 3.1 percent over the comparable quarter in 2011, primarily a result of lower selling prices in response to reduced raw material costs. Volumes in total were up marginally from the prior year comparable quarter, increasing by 0.3 percent. A realignment of inventory levels by a major specialty beverage customer in the first two months of the quarter resulted in shipment reductions of over 20 percent for that customer in the three-month period compared to the third quarter of 2011, and offset a general improvement in volume across many of the other product groups. Overall, demand in the third month of the quarter was particularly promising. Volumes in modified atmosphere and specialty film packaging advanced in the mid-single digit percentage range in the quarter versus the prior year corresponding period. Lidding volumes grew marginally while rigid container shipments retracted by a few percentage points. However, excluding specialty beverages, rigid container volumes rose in excess of 15 percent in the quarter due to strong performance in juice cups and custom containers. Also during the quarter, the Company concluded an agreement to divest its drink cup product line including equipment, inventory and customer lists to a Canadian competitor, representing approximately $7 million in revenue on an annualized basis. This divestiture is expected to be marginally accretive to earnings in the fourth quarter. As in the second quarter of this year, both packaging machinery and biaxially oriented nylon continued to experience weak demand, with double-digit percentage declines in revenue. Packaging machinery bookings, however, are much improved going into the final quarter of the year. The greatest impact on revenue for the period in relation to the third quarter of 2011 was an overall decline in selling prices, in response to lower raw material costs, which reduced revenue by 2.9 percent. A weaker Canadian dollar further reduced revenue by 0.5 percent in the current quarter in relation to the corresponding prior year period.

For the first nine months of 2012, revenue grew to $496.9 million, an increase of $16.3 million or 3.4 percent in relation to the comparable period in 2011. This was due entirely to increased volumes, which expanded by 3.8 percent. Demand was strongest in modified atmosphere packaging followed closely behind by lidding, specialty films and rigid containers, which all advanced in the mid-single digit percentage range. Biaxially oriented nylon and packaging machinery were most impacted by the lackluster performance of the economy, recording volume declines in percentage terms in the mid single-digit and low double-digit range respectively from the prior year. The combination of selling prices and product mix was neutral to revenues year-to-date while a weaker Canadian dollar compared to the prior year had only a minor effect on revenue, resulting in a reduction of 0.4 percent.

Gross profit margins

Gross profit margins widened to 28.8 percent of revenue in the third quarter of 2012 from the 27.6 percent of revenue recorded in the same quarter of 2011, an increase of 1.2 percentage points. An improvement in manufacturing performance as a result of greater efficiencies resulted in a contribution of 0.5 cents in earnings per share.

For the first three quarters of 2012, gross profit margins surpassed the comparable prior year period at 29.0 percent versus 28.6 percent in 2011. This added 1 cent in additional earnings per share as higher average material costs for product sold in the first nine months of 2012 were more than offset by enhanced production efficiencies and lower waste levels.

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 3/12 2/12 1/12 4/11 3/11 2/11 1/11 4/10 3/10
Purchase Price Index 167.3 174.5 174.7 172.3 182.9 184.5 168.0 154.7 150.7

The purchase price index fell by 4.1 percent in the third quarter of 2012 in relation to the second quarter. Certain raw materials experienced declines while others remained steady. Likewise, the index retreated by 8.5 percent from a year prior with several materials rising in price while others decreased. Overall, the outlook for the fourth quarter is a relatively stable raw material pricing environment.

Expenses and Other

Operating expenses were in line with the levels recorded in the third quarter of 2011 while foreign exchange had a favorable impact on earnings per share of 2 cents. The strengthening Canadian dollar in the third quarter of 2012 resulted in foreign exchange gains on the translation of Canadian net monetary assets, accounting for the majority of the favorable foreign exchange impact. A lower overall income tax rate in the third quarter of 2012, in relation to the comparable period in 2011, resulted in an additional 1.5 cents in earnings per share. A 1.5 percentage point decrease in the 2012 federal corporate income tax rate in Canada, an upward adjustment to the year-to-date income tax rate in the third quarter of 2011, and a larger proportion of net income being earned in lower tax jurisdictions in 2012 all contributed to this favorable result.

On a year-to-date basis, operating expenses progressed at a higher rate than the expansion in sales volumes over the prior year period, due to elevated freight costs, new hires in sales representation, and share-based incentive costs which rose in conjunction with the Company's stock price. This resulted in a reduction of approximately 1 cent in earnings per share. More than offsetting this decrease were the favorable foreign exchange gains, mainly on the translation of Canadian net monetary assets, which added 2 cents in earnings per share as well as a lower amount attributable to the non-controlling interests which augmented earnings per share by a further 0.5 cents. An additional 1.5 cents in earnings per share was a consequence of lower income tax rates in 2012.

Capital Resources, Cash Flow and Liquidity

The Company's cash and cash equivalents balance at the end of the third quarter of $120.3 million diminished by $2.4 million from the end of the previous quarter. Winpak continued to generate consistent cash flow from operating activities before changes in working capital amounting to $32.4 million in the three-month period, an improvement of $2.3 million from the third quarter of 2011. Cash was utilized to supplement working capital by $5.3 million, property, plant and equipment additions of $20.8 million, income tax payments of $5.3 million, dividends of $1.9 million, and other items of $1.5 million.

For the nine months ended September 30, 2012, the cash and cash equivalents balance decreased by $6.6 million. Cash flow from operating activities before changes in working capital advanced to $93.5 million, surpassing the prior year corresponding period by $4.8 million. Additions to working capital utilized $17.3 million in cash, with inventory levels rising by $9.5 million since the start of the year, but down from the $14.7 million escalation seen in the first half of 2012. Cash was also used for property, plant and equipment additions of $51.0 million, income tax payments of $20.6 million, dividends of $5.8 million, employee defined benefit plan payments of $3.6 million and other items totalling $1.8 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)
Q3 Q2 Q1 Q4 Q3 Q2 Q1 Q4
2012 2012 2012 2011 2011 2011 2011 2010
Revenue 165,399 159,648 171,805 171,516 170,670 161,340 148,537 154,930
Net income attributable to equity holders of the Company
17,078

16,002

16,961

18,486

14,408

16,195

14,694

12,794
EPS 26 25 26 28 22 25 23 20

Looking Forward

The Company is cautiously optimistic heading into the fourth quarter. Sales volumes rebounded in the last month of the third quarter and appear to be trending in the right direction. From a raw material pricing standpoint, volatility appears to be at its lowest level in quite a while with a stable outlook. The Company's capital expenditure program is forging ahead. Over $50 million has been invested year-to-date and approximately $25 to $30 million more is planned for the final quarter of the year. This significant commitment in technology will provide the foundation for continued growth and keep the Company at the forefront of innovation and new product development. Much of the capital being spent in 2012 will be commercialized in the first half of 2013 with the associated revenue to begin flowing shortly thereafter. However, one should note that as this new capacity becomes available, costs may temporarily increase as development expenses peak and new capacity is not yet fully utilized. Margins, however, are not expected to deviate from current levels by more than a few percentage points during that period. In the months ahead, the Company will also continue to seek out acquisition opportunities in its core competencies of food and health care packaging while remaining strongly committed to the capital investment plan.

Winpak Ltd.
Interim Condensed Consolidated Financial Statements
Third Quarter Ended: September 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)
September 30 2012 December 25 2011
Assets
Current assets:
Cash and cash equivalents 120,263 126,879
Trade and other receivables 87,295 83,935
Income taxes receivable 1,265 33
Inventories 87,525 78,018
Prepaid expenses 3,393 2,769
Derivative financial instruments 463 242
300,204 291,876
Non-current assets:
Property, plant and equipment 288,158 256,938
Intangible assets 14,609 15,076
Deferred tax assets 3,365 3,729
306,132 275,743
Total assets 606,336 567,619
Equity and Liabilities
Current liabilities:
Trade payables and other liabilities 55,575 59,294
Provisions 528 592
Income taxes payable 3,853 4,988
Derivative financial instruments 25 836
59,981 65,710
Non-current liabilities:
Employee benefit plan liabilities 11,291 12,504
Deferred income 9,133 10,243
Provisions 7,604 8,423
Deferred tax liabilities 19,760 17,116
47,788 48,286
Total liabilities 107,769 113,996
Equity:
Share capital 29,195 29,195
Reserves 361 (426 )
Retained earnings 453,196 409,008
Total equity attributable to equity holders of the Company 482,752 437,777
Non-controlling interests 15,815 15,846
Total equity 498,567 453,623
Total equity and liabilities 606,336 567,619
Winpak Ltd.
Condensed Consolidated Statements of Income
(thousands of US dollars, except per share amounts) (unaudited)
Quarter Ended Year-To-Date Ended
September 30 September 25 September 30 September 25
2012 2011 2012 2011
Revenue 165,399 170,670 496,852 480,547
Cost of sales (117,837 ) (123,503 ) (352,930 ) (343,016 )
Gross profit 47,562 47,167 143,922 137,531
Sales, marketing and distribution expenses (13,798 ) (13,574 ) (42,141 ) (39,731 )
General and administrative expenses (6,477 ) (6,130 ) (21,002 ) (19,631 )
Research and technical expenses (3,332 ) (3,346 ) (10,198 ) (9,600 )
Pre-production expenses (30 ) (38 ) (537 ) (240 )
Other income (expenses) 1,013 (1,632 ) 1,963 (924 )
Income from operations 24,938 22,447 72,007 67,405
Finance income 1,244 1,054 3,513 3,111
Finance expense (928 ) (954 ) (2,787 ) (2,854 )
Income before income taxes 25,254 22,547 72,733 67,662
Income tax expense (7,935 ) (7,912 ) (22,160 ) (21,434 )
Net income for the period 17,319 14,635 50,573 46,228
Attributable to:
Equity holders of the Company 17,078 14,408 50,041 45,297
Non-controlling interests 241 227 532 931
17,319 14,635 50,573 46,228
Basic and fully diluted earnings per share - cents 26 22 77 70
Condensed Consolidated Statements of Comprehensive Income
(thousands of US dollars) (unaudited)
Quarter Ended Year-To-Date Ended
September 30 2012

September 25 2011

September 30 2012

September 25 2011
Net income for the period 17,319 14,635 50,573 46,228
Cash flow hedge gains (losses) recognized 589 (424 ) 611 (42 )
Cash flow hedge gains transferred to the statement of income (138 ) (456 ) (146 ) (1,158 )
Cash flow hedge losses transferred to property, plant and equipment 625 - 567 -
Income tax relating to applicable components of other comprehensive income (91 ) 249 (245 ) 350
Other comprehensive income (loss) for the period - net of income tax 985 (631 ) 787 (850 )
Comprehensive income for the period 18,304 14,004 51,360 45,378
Attributable to:
Equity holders of the Company 18,063 13,777 50,828 44,447
Non-controlling interests 241 227 532 931
18,304 14,004 51,360 45,378
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 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 - (19 ) - (19 ) - (19 )
Cash flow hedge gains transferred to the statement of income, net of tax
-

(831
)
-

(831
)
-

(831
)
Other comprehensive loss - (850 ) - (850 ) - (850 )
Net income for the period - - 45,297 45,297 931 46,228
Comprehensive (loss) income for the period - (850 ) 45,297 44,447 931 45,378
Preferred share redemption - - - - (980 ) (980 )
Dividends - - (5,856 ) (5,856 ) (833 ) (6,689 )
Balance at September 25, 2011 29,195 (409 ) 400,569 429,355 15,651 445,006
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 - 334 - 334 - 334
Cash flow hedge gains transferred to the statement of income, net of tax - (114 ) - (114 ) - (114 )
Cash flow hedge losses transferred to property, plant and equipment - 567
-

567
- 567
Other comprehensive income - 787 - 787 - 787
Net income for the period - - 50,041 50,041 532 50,573
Comprehensive income for the period - 787 50,041 50,828 532 51,360
Dividends - - (5,853 ) (5,853 ) (563 ) (6,416 )
Balance at September 30, 2012 29,195 361 453,196 482,752 15,815 498,567
Winpak Ltd.
Condensed Consolidated Statements of Cash Flows
(thousands of US dollars) (unaudited)
Quarter Ended Year-To-Date Ended
September 30 September 25 September 30 September 25
2012 2011 2012 2011
Cash provided by (used in):
Operating activities:
Net income for the period 17,319 14,635 50,573 46,228
Items not involving cash:
Depreciation 6,559 6,543 19,464 19,422
Amortization - deferred income (303 ) (309 ) (911 ) (920 )
Amortization - intangible assets 321 511 1,153 1,535
Employee defined benefit plan expenses 800 718 2,796 2,433
Net finance income (316 ) (100 ) (726 ) (257 )
Income tax expense 7,935 7,912 22,160 21,434
Other 41 135 (964 ) (1,080 )
Cash flow from operating activities before the following 32,356 30,045 93,545 88,795
Change in working capital:
Trade and other receivables (9,792 ) (3,866 ) (3,360 ) (6,847 )
Inventories 5,239 4,185 (9,507 ) (12,002 )
Prepaid expenses 504 (160 ) (624 ) (1,524 )
Trade payables and other liabilities (1,246 ) (2,435 ) (3,802 ) 2,855
Provisions (107 ) 850 (999 ) 850
Employee defined benefit plan payments (1,388 ) (483 ) (3,633 ) (2,995 )
Income tax paid (5,292 ) (4,422 ) (20,580 ) (16,455 )
Interest received 118 86 367 205
Interest paid (28 ) (8 ) (30 ) (17 )
Net cash from operating activities 20,364 23,792 51,377 52,865
Investing activities:
Acquisition of property, plant and equipment - net (20,813 ) (11,920 ) (50,963 ) (27,817 )
Acquisition of intangible assets (2 ) (55 ) (687 ) (286 )
(20,815 ) (11,975 ) (51,650 ) (28,103 )
Financing activities:
Dividends paid (1,915 ) (1,976 ) (5,780 ) (5,895 )
Change in non-controlling interests in subsidiary - - (563 ) (1,813 )
(1,915 ) (1,976 ) (6,343 ) (7,708 )
Change in cash and cash equivalents (2,366 ) 9,841 (6,616 ) 17,054
Cash and cash equivalents, beginning of period 122,629 97,701 126,879 90,488
Cash and cash equivalents, end of period 120,263 107,542 120,263 107,542

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