SOURCE: WINPAK LTD.

Winpak Ltd.

October 27, 2014 18:59 ET

Winpak Reports Third Quarter Results

WINNIPEG, MB--(Marketwired - October 27, 2014) - Winpak Ltd. (WPK) today reports consolidated results in US dollars for the third quarter of 2014, which ended on September 28, 2014.

 
 
 
 
Quarter Ended Year-To-Date Ended
September 28
2014
 September 29
2013
September 28
2014
 September 29
2013
(thousands of US dollars, except per share amounts)          
Revenue 192,982  179,926 580,485  526,907
Net income 19,902  17,599 55,896  50,841
 
Income tax expense 8,973  8,382 25,575  23,285
Net finance (income) expense (73 )114 (29 )333
Depreciation and amortization 7,870  6,711 22,586  19,542
EBITDA (1) 36,672  32,806 104,028  94,001
 
Net income attributable to equity holders of the Company 19,448  17,362 55,017  50,446
Net income attributable to non-controlling interests 454  237 879  395
Net income 19,902  17,599 55,896  50,841
 
Basic and diluted earnings per share (cents) 30  27 85  78
 

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 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 third quarter of 2014 reached $19.4 million or 30 cents in earnings per share compared to $17.4 million or 27 cents per share in the corresponding quarter of 2013, an increase of 12.0 percent. Earnings per share was favorably impacted in the quarter by organic revenue growth, improved gross profit margins, lower operating expense inflation, and reduced income taxes which contributed 1.5 cents, 1.0 cent, 0.5 cents and 0.5 cents respectively. Only foreign exchange negatively impacted earnings per share in the third quarter by 0.5 cents.

For the nine months ended September 28, 2014, net income attributable to equity holders of the Company climbed to $55.0 million or 85 cents per share, surpassing the 2013 comparable period result of $50.4 million or 78 cents per share by 9.1 percent. Substantial volume growth in 2014 advanced earnings per share by 8.0 cents and was complemented by curtailed growth in operating expenses which added a further 3.5 cents to earnings per share. Foreign exchange also had a negligible positive effect on 2014 year-to-date earnings of 0.5 cents per share in comparison to the first nine months of the prior year. On the other hand, a lower gross profit margin in the first three quarters of 2014 versus the prior year corresponding period decreased earnings per share by 4.5 cents while a greater proportion of earnings attributable to non-controlling interests negatively impacted earnings per share by 0.5 cents.

Revenue

Revenue in the third quarter of 2014 grew to $193.0 million, an expansion of $13.1 million or 7.3 percent over the same period in 2013. Volume growth overall was solid at 5.8 percent but was inconsistent amongst the Company's product groups. The modified atmosphere packaging product group recorded the strongest volume increase in the quarter at slightly over 10 percent as sales in the core markets of processed meat and cheese led the way. Following closely behind was lidding where growth was experienced in yogurt, pharmaceutical and specialty beverage products. Rigid containers exhibited solid mid-single digit volume growth as condiment and applesauce revenues strengthened. Biaxially oriented nylon and specialty film volumes declined in the mid-to-high single digit percentage range. Although shrink bag and barrier film revenues continued to move forward, decreases were noted in less sophisticated commodity-type films. Packaging machinery also recorded a high-single digit percentage volume decline in comparison to the third quarter of 2013, although the order backlog is substantial heading into the fourth quarter. Selling price/mix changes had a favorable effect on third quarter revenues of 1.9 percent while foreign exchange had a negative influence of 0.4 percent due to the decline in the value of the Canadian dollar in comparison to its US counterpart in the current period versus the prior year third quarter.

For the first nine months of 2014, revenue of $580.5 million advanced by $53.6 million or 10.2 percent in relation to the corresponding prior year period. Volumes rose 9.8 percent in comparison to the first three quarters of 2013. Growth was robust in rigid containers, lidding and modified atmosphere packaging, with each advancing between 10 and 15 percent. Biaxially oriented nylon film and packaging machinery had volume growth in the mid-single digit percentage range while specialty film shipments fell in the high-single digit percentage range, although product mix was improved. Selling price/mix changes supplemented revenues by 1.2 percent while foreign exchange subtracted 0.8 percent from revenues in relation to the first nine months of last year.

Gross profit margins

Gross profit margins for the third quarter of 2014, at 29.2 percent, were in line with the prior year quarter of 29.1 percent of revenue. Although sales volumes grew by 5.8 percent in the quarter, gross profit expanded by 7.7 percent, resulting in additional earnings per share of 1.0 cent. The spread between raw material costs and selling prices widened as product mix improved in a few areas and purchase volume rebates for certain raw materials helped lower manufacturing costs. Manufacturing variances continued to be a drag on margins in the quarter but further improvement is expected in the upcoming months as capacity utilization rates increase and more experience is gained with new products and processes.

For the first three quarters of 2014, gross profit margins of 28.1 percent of revenue fell short of 2013 year-to-date levels of 28.9 percent by 0.8 percentage points. This culminated in a decrease in earnings per share of 4.5 cents. Under-utilized capacity of recent capital expenditures and elevated waste levels due to development and refinement of complex new products and processes are the main factors behind the decline in gross profit margins over the prior year. In addition, competitive conditions at a few select customers compressed 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 30, 2013 to reflect the mix of the eight primary raw materials purchased in 2013.

                   
Quarter and Year 3/14 2/14 1/14 4/13 3/13 2/13 1/13 4/12 3/12
Purchase Price Index 176.2 178.1 178.7 175.0 173.2 173.5 176.5 170.6 167.3
          

The purchase price index in the third quarter of 2014 declined slightly from the previous quarter by 1.1 percent. Cost stability has been present in aggregate for the Company's mix of raw material purchases for much of the past two years as the index has only fluctuated by 4 percent or less around the mean during this time period. However, certain individual materials within the index have been more volatile.

Expenses and Other

While volumes in the third quarter of 2014 increased by 5.8 percent over the prior year quarter, operating expenses, adjusted for foreign exchange, increased by less than 3 percent. This operating leverage added 0.5 cents to earnings per share and arose due to lower share- based incentive costs and reduced spending on research and development trials. A lower effective income tax rate in the current quarter due to a greater proportion of earnings being realized in lower income tax rate jurisdictions also contributed 0.5 cents to earnings per share. Foreign exchange had a net unfavorable impact on earnings per share of approximately 0.5 cents in the third quarter compared to the corresponding period in 2013. The weaker Canadian dollar in the quarter versus the comparative period in 2013 had a positive impact on earnings as expenses exceeded revenues in that currency. However, this was more than offset by foreign exchange losses on the translation of Canadian net monetary assets, as the Canadian dollar depreciated from the start to the end of the quarter versus its US counterpart; the opposite was true in the third quarter of 2013.

On a year-to-date basis, operating expenses, excluding foreign exchange, increased at a much lower pace than the growth in sales volumes, resulting in an addition to earnings per share of 3.5 cents. Freight and distribution costs, which are variable in nature, accounted for the entire rise in operating expenses; all other expenses in aggregate actually declined slightly. Costs related to additional head count to support revenue growth were offset by a reduction in pre-production expenses in 2014. A greater proportion of year-to-date earnings attributable to non-controlling interests in 2014 resulted in a decrease in earnings per share of approximately 0.5 cents. In comparison to the first three quarters of 2013, foreign exchange had a net positive effect on earnings per share of 0.5 cents. The lower average value of the Canadian dollar in 2014 in relation to the US currency and the resulting impact from converting the Company's net Canadian dollar expenses into US funds accounted for approximately 2.0 cents in additional earnings per share. However, this was partially offset by a combination of foreign exchange losses on the translation of Canadian net monetary assets and the maturation of foreign exchange contracts that form part of the Company's foreign exchange hedging policy.

 
Summary of Quarterly Results
Thousands of US dollars, except per share amounts (US cents)
 
 
  Q3
2014
Q2
2014
Q1
2014
Q4
2013
Q3
2013
Q2
2013
Q1
2013
Q4
2012*
 
 
Revenue 192,982 199,426 188,077 187,964 179,926 177,032 169,949 173,226
Net income attributable to equity holders of the Company 19,448 19,406 16,163 20,951 17,362 17,095 15,989 22,071
EPS 30 30 25 32 27 26 25 34
 

*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 third quarter of 2014 at $130.4 million, $16.3 million greater than the end of the second quarter. Cash flow from operating activities before changes in working capital amounted to $37.7 million, outdistancing the prior year comparable quarter by a healthy $5.3 million due to higher net income and non-cash depreciation. Additions to working capital consumed $2.1 million, while cash was also utilized for plant and equipment additions of $13.9 million, income tax payments of $2.2 million, dividends to common shareholders of $1.8 million, and employee defined benefit plan payments of $1.4 million.

For the first nine months of 2014, the cash and cash equivalents balance receded by $30.7 million, primarily due to the payment of a special dividend of $58.5 million ($65.0 million Canadian) in the first quarter of the year. Winpak continued to generate strong cash flows from operating activities before changes in working capital of $103.0 million, an improvement of $9.4 million from the first three quarters of 2013. Cash was employed for working capital additions of $14.0 million, mainly to service larger sales volumes with higher inventory and accounts receivable levels. Furthermore, cash was used for plant and equipment expenditures of $35.6 million, income tax payments of $14.8 million, regular quarterly dividends of $5.4 million, employee defined benefit plan payments of $4.6 million and other items totaling $0.8 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.

Looking Forward

Heading into the final quarter of the year, the Company remains optimistic that significant new revenue generation will continue for the remainder of 2014 and into 2015. The sales pipeline contains a number of opportunities at various stages of conversion into future revenue including projects with existing customers as well as new prospects. In the near term, raw material costs are expected to remain fairly stable, with the exception of polypropylene resin, where supply is currently very tight due to unplanned outages at various producers. Improved manufacturing performance will remain a prime focus for the organization, particularly in those areas where new capacity has been added. Progress is expected as capacity utilization increases and knowledge and skill levels in the production of new product offerings escalates. Capital spending is expected to finish the year between $50 to $55 million with a focus on areas where demand fulfillment is becoming increasingly challenging. The Company remains committed to organic growth through capital investment and will continue to pursue acquisition opportunities in Winpak's core competencies in sophisticated food and health-care packaging but will remain patient in executing a transaction only when the proper fit and price are present to add long-term value to the Company's shareholders.

Winpak Ltd.
Interim Condensed Consolidated Financial Statements
Third Quarter Ended: September 28, 2014

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)
   
  September 28
2014
 December 29
2013
 
     
   
Assets       
   
Current assets:       
 Cash and cash equivalents 130,439  161,090  
 Trade and other receivables 104,580  98,408  
 Income taxes receivable 2,447  3,580  
 Inventories 107,543  92,304  
 Prepaid expenses 4,726  3,074  
 Derivative financial instruments 13  -  
  349,748  358,456  
   
Non-current assets:       
 Property, plant and equipment 343,698  329,714  
 Intangible assets 14,970  14,960  
 Employee benefit plan assets 9,297  7,131  
 Deferred tax assets 2,322  2,943  
  370,287  354,748  
Total assets 720,035  713,204  
   
Equity and Liabilities       
   
Current liabilities:       
 Trade payables and other liabilities 72,123  63,182  
 Provisions 427  427  
 Income taxes payable 4,459  2,048  
 Derivative financial instruments 433  903  
  77,442  66,560  
   
Non-current liabilities:       
 Employee benefit plan liabilities 4,035  3,365  
 Deferred income 15,116  14,490  
 Provisions 6,527  6,524  
 Deferred tax liabilities 32,253  29,652  
  57,931  54,031  
Total liabilities 135,373  120,591  
   
Equity:       
 Share capital 29,195  29,195  
 Reserves (307 )(661 )
 Retained earnings 539,051  547,891  
Total equity attributable to equity holders of the Company 567,939  576,425  
Non-controlling interests 16,723  16,188  
Total equity 584,662  592,613  
Total equity and liabilities 720,035  713,204  
     
   
Winpak Ltd.
Condensed Consolidated Statements of Income
(thousands of US dollars, except per share amounts) (unaudited) 
 
  Quarter Ended  Year-To-Date Ended  
   
   
September 28
2014
 
 
September 29
2013
 
 
September 28
2014
 
 
September 29
2013
 
 
Revenue 192,982  179,926  580,485  526,907  
Cost of sales (136,607 )(127,566 )(417,548 )(374,398 )
Gross profit 56,375  52,360  162,937  152,509  
Sales, marketing and distribution expenses (15,494 )(14,379 )(46,649 )(42,938 )
General and administrative expenses (7,299 )(7,656 )(20,820 )(21,907 )
Research and technical expenses (3,198 )(3,498 )(10,554 )(10,421 )
Pre-production expenses (617 )(708 )(868 )(2,308 )
Other expenses (965 )(24 )(2,604 )(476 )
Income from operations 28,802  26,095  81,442  74,459  
Finance income 163  93  427  292  
Finance expense (90 )(207 )(398 )(625 )
Income before income taxes 28,875  25,981  81,471  74,126  
Income tax expense (8,973 )(8,382 )(25,575 )(23,285 )
Net income for the period 19,902  17,599  55,896  50,841  
Attributable to:             
 Equity holders of the Company 19,448  17,362  55,017  50,446  
 Non-controlling interests 454  237  879  395  
  19,902  17,599  55,896  50,841  
Basic and diluted earnings per share - cents 30  27  85  78  
   
  
Condensed Consolidated Statements of Comprehensive Income
(thousands of US dollars) (unaudited)       
 
  
  Quarter Ended  Year-To-Date Ended  
   
   
September 28
2014
 
 
September 29
2013
 
 
September 28
2014
 
 
September 29
2013
 
 
Net income for the period 19,902  17,599  55,896  50,841  
Items that will not be reclassified to the statements of income:             
Cash flow hedge losses recognized -  -  -  (94 )
Cash flow hedge gains transferred to property, plant and equipment -  -  -  (50 )
Income tax effect -  -  -  -  
  -  -  -  (144 )
Items that are or may be reclassified subsequently to the statements of income:             
Cash flow hedge (losses) gains recognized (690 )944  (868 )(474 )
Cash flow hedge losses transferred to the statements of income 82  341  1,351  408  
Income tax effect 163  (344 )(129 )17  
  (445 )941  354  (49 )
Other comprehensive (loss) income for the period - net of income tax (445 )941  354  (193 )
Comprehensive income for the period 19,457  18,540  56,250  50,648  
Attributable to:             
 Equity holders of the Company 19,003  18,303  55,371  50,253  
 Non-controlling interests 454  237  879  395  
  19,457  18,540  56,250  50,648  
   
   
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 31, 2012 29,195 250  470,925  500,370  15,718  516,088  
   
Comprehensive (loss) income for the period                  
Cash flow hedge losses, net of tax - (442 )-  (442 )-  (442 )
Cash flow hedge losses transferred to the statements                  
of income, net of tax - 299  -  299  -  299  
Cash flow hedge gains transferred to property, plant and                  
equipment - (50 )-  (50 )-  (50 )
Other comprehensive loss - (193 )-  (193 )-  (193 )
Net income for the period - -  50,446  50,446  395  50,841  
Comprehensive (loss) income for the period - (193 )50,446  50,253  395  50,648  
   
Dividends - -  (5,666 )(5,666 )(218 )(5,884 )
   
Balance at September 29, 2013 29,195 57  515,705  544,957  15,895  560,852  
   
   
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 - (636 )-  (636 )-  (636 )
Cash flow hedge losses transferred to the statements                  
of income, net of tax - 990  -  990  -  990  
Other comprehensive income - 354  -  354  -  354  
Net income for the period - -  55,017  55,017  879  55,896  
Comprehensive income for the period - 354  55,017  55,371  879  56,250  
   
Dividends - -  (63,857 )(63,857 )(344 )(64,201 )
   
Balance at September 28, 2014 29,195 (307 )539,051  567,939  16,723  584,662  
            
            
   
   
Winpak Ltd.
Condensed Consolidated Statements of Cash Flows
(thousands of US dollars) (unaudited) 
 
   
  Quarter Ended  Year-To-Date Ended  
September 28
2014
 September 29
2013
 September 28
2014
 September 29
2013
 
   
Cash provided by (used in):             
   
Operating activities:             
   
 Net income for the period 19,902  17,599  55,896  50,841  
 Items not involving cash:             
  Depreciation 8,114  6,886  23,446  20,101  
  Amortization - deferred income (392 )(292 )(1,271 )(894 )
  Amortization - intangible assets 148  117  411  335  
  Employee defined benefit plan expenses 873  1,094  2,706  3,197  
  Net finance (income) expense (73 )114  (29 )333  
  Income tax expense 8,973  8,382  25,575  23,285  
  Other 162  (1,494 )(3,730 )(3,575 )
   Cash flow from operating activities before the following 37,707  32,406  103,004  93,623  
 Change in working capital:             
  Trade and other receivables 3,219  (2,312 )(6,172 )(9,079 )
  Inventories (7,815 )(945 )(15,239 )(5,583 )
  Prepaid expenses 302  155  (1,652 )(889 )
  Trade payables and other liabilities 2,203  1,391  9,040  2,422  
   
 Provisions (95 )(107 )(120 )(723 )
 Employee defined benefit plan payments (1,410 )(549 )(4,551 )(2,932 )
 Income tax paid (2,155 )(8,153 )(14,764 )(25,433 )
 Interest received 95  88  224  292  
 Interest paid (9 )(1 )(147 )(9 )
   Net cash from operating activities 32,042  21,973  69,623  51,689  
   
Investing activities:             
   
 Acquisition of property, plant and equipment - net (13,896 )(11,597 )(35,588 )(36,758 )
 Acquisition of intangible assets (49 )(147 )(411 )(443 )
  (13,945 )(11,744 )(35,999 )(37,201 )
   
Financing activities:             
   
 Dividends paid (1,829 )(1,854 )(63,931 )(5,730 )
 Dividend paid to non-controlling interests in subsidiary -  -  (344 )(218 )
  (1,829 )(1,854 )(64,275 )(5,948 )
   
Change in cash and cash equivalents 16,268  8,375  (30,651 )8,540  
   
Cash and cash equivalents, beginning of period 114,171  133,468  161,090  133,303  
   
Cash and cash equivalents, end of period 130,439  141,843  130,439  141,843  
  
  

Contact Information

  • For further information:

    K.P. Kuchma
    Vice President and CFO
    (204) 831-2254

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