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Press release from Marketwire

Winpak Reports Second Quarter Results

Thursday, July 25, 2013

Winpak Reports Second Quarter Results

14:15 EDT Thursday, July 25, 2013

WINNIPEG, MANITOBA--(Marketwired - July 25, 2013) - Winpak Ltd. (TSX:WPK) (WPK) today reports consolidated results in US dollars for the second quarter of 2013, which ended on June 30, 2013.

Quarter Ended Year-To-Date Ended (1)
June 30 July 1 June 30 July 1
2013 2012 2013 2012
(restated (2 )) (restated (2 ))
(thousands of US dollars, except per share amounts)
Revenue 177,032 159,648 346,981 331,453
Net income 17,392 16,010 33,242 32,692
Income tax expense 8,041 5,788 14,903 13,973
Net finance expense (income) 114 (11 ) 219 258
Depreciation and amortization 6,260 6,610 12,831 13,129
EBITDA (3) 31,807 28,397 61,195 60,052
Net income attributable to equity holders of the Company 17,095 15,850 33,084 32,401
Net income attributable to non-controlling interests 297 160 158 291
Net income 17,392 16,010 33,242 32,692
Basic and diluted earnings per share (cents) 26 25 51 50

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 comprises 52 weeks and the 2012 fiscal year comprised 53 weeks. Each quarter of 2013 and 2012 comprises 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.

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 2013 rose to $17.1 million or 26 cents in earnings per share compared to $15.9 million or 25 cents per share in the corresponding quarter of 2012, an increase of 7.9 percent. Strong organic revenue growth contributed approximately 2.5 cents in earnings per share while an improvement in gross profit margins added a further 0.5 cents in earnings per share. This helped to offset the effect of higher income taxes in the second quarter of 2013 which negatively impacted earnings per share by 2.0 cents.

For the six months ended June 30, 2013, net income attributable to common shareholders was $33.1 million or 51 cents in earnings per share compared to the first-half result of $32.4 million or 50 cents in earnings per share recorded in 2012, an improvement of 2.1 percent. This occurred in spite of the fact that the 2012 fiscal year had one more week than the current year. The additional week was included in the 2012 first quarter and is estimated that this contributed approximately 2.5 percent to 2012 first half volumes and net income results. Higher sales volumes in the first six months of 2013 resulted in additional earnings per share of 3.0 cents. Lower operating expenses in relation to sales volumes contributed a further 1.5 cents to earnings per share. On the other hand, a lower gross profit margin reduced earnings per share by 1.5 cents while higher income taxes and foreign exchange negatively impacted 2013 year-to-date earnings per share by 1.0 cent each.

Revenue

Revenue for the second quarter of 2013 was $177.0 million, $17.4 million or 10.9 percent greater than the second quarter of 2012. This represented the highest quarterly revenue recorded by the Company. Volume growth was strong, exceeding the prior year quarter by 11.1 percent, in spite of the divestiture of the drink cup product line in the latter part of 2012 which favorably impacted second quarter 2012 revenues by 1.6 percent. Growth in volume was highest in rigid containers and lidding which each advanced by approximately 20 percent in the quarter. These two product groups were negatively affected in the second and third quarters of 2012 when a major customer significantly reduced purchases from the Company in an effort to reduce its inventory levels. This contraction did not occur in the current quarter. In addition, volumes in rigid container meat trays and form/fill/seal yogurt applications along with healthcare packaging in the lidding group grew significantly in the quarter. Demand in modified atmosphere packaging was modest, advancing in the mid-single digit percentage range. Meanwhile, volumes in the specialty film and biaxially oriented product groups were essentially flat with the prior year. Packaging machinery, on the other hand, performed very well, with volumes expanding by nearly 40 percent. Of significance was the fact that in comparison to past periods, a much larger proportion of machinery sales in the current quarter were part of system sales whereby customers committed to purchasing packaging materials from Winpak over a period of time in conjunction with the packaging machinery. This is an important facet of the Company's revenue growth strategy. Overall, selling price changes and foreign exchange had negligible impacts on revenues in the period, having a favorable effect of 0.1 percent and a negative influence of 0.3 percent respectively in comparison to the second quarter of 2012.

For the first half of 2013, revenue progressed by $15.5 million or 4.7 percent to $347.0 million from the $331.5 million registered in the first six months of 2012. Volumes rose by 5.5 percent versus the first half of the prior year. Normalizing for the additional week of revenues in the first half of 2012 and the divestiture of the drink cup product line in the latter half of 2012, overall volume growth for the first six months of 2013 was nearly 10 percent. Rigid container volumes led the way with normalized growth exceeding 25 percent on sizable custom container, form/fill/ seal yogurt and specialty beverage shipments. Lidding normalized volumes advanced by over 10 percent while specialty films and modified atmosphere packaging grew only marginally. Packaging machinery growth exceeded 50 percent, although this product group represents less than 3 percent of total revenue. Only biaxially oriented nylon showed a volume decline in the mid-single digit percentage range year-to-date. Selling prices declined in total by only 0.7 percent while foreign exchange negligibly impacted revenue by 0.1 percent.

Gross profit margins

Gross profit margins in the second quarter of 2013 expanded by 0.6 percentage points to 29.0 percent of revenue from the 28.4 percent of revenue recorded in the same quarter of 2012, adding 0.5 cents to earnings per share. Polypropylene resin costs escalated by nearly 30 percent in the first quarter of 2013, negatively affecting margins of that quarter. The indexing of customer selling prices to match these raw material costs occurred primarily in the second quarter and was a key element to the improved gross profit margins.

For the first six months of 2013, gross profit margins of 28.9 percent fell just short of the levels achieved in the first half of 2012 of 29.1 percent. Poorer manufacturing performance in terms of unfavorable manufacturing variances for waste and productivity at certain of the Company's facilities along with some competitive pricing pressures experienced in certain end markets has resulted in a negative effect on earnings per share of 1.5 cents.

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 2/13 1/13 4/12 3/12 2/12 1/12 4/11 3/11 2/11
Purchase Price Index 173.5 176.5 170.6 167.3 174.5 174.7 172.3 182.9 184.5

The purchase price index fell just 1.7 percent compared to the first quarter of 2013. Most raw material pricing in the quarter was relatively flat, increasing or declining by one or two percentage points. The one exception was polypropylene resin which saw a sharp decline after a steep escalation in the first quarter. In the near term, raw material input costs are expected to remain fairly stable.

Expenses and Other

Operating expenses, adjusted for foreign exchange, were essentially in line with volume growth, having a neutral effect on earnings per share for the period. Increases in pre-production costs were offset by savings in general and administrative expenses. Higher income taxes resulted in a reduction of nearly 2.0 cents in earnings per share in the second quarter of 2013 versus the corresponding period in 2012. Income being earned in higher tax rate jurisdictions was one of the main factors for the higher income tax rate in 2013. In addition, a reduction in the income tax provision for prior periods and in the deferred tax income tax rates resulted in a lower income tax rate in the second quarter of 2012. No such adjustments were recorded in the second quarter of 2013. Foreign exchange had no impact on earnings per share in the current quarter versus the corresponding period in 2012 as the exchange rates were very similar.

On a year-to-date basis, operating expenses, excluding foreign exchange, increased at a rate of 3.3 percent while sales volumes expanded by 5.5 percent. This included pre-production costs of $1.6 million in the first six months of 2013, an increase of $1.1 million over the same period in 2012. Despite the sharp increase in pre-production costs primarily related to the new machinery installed in Vaudreuil and Winnipeg, restraint in other expenses resulted in an additional 1.5 cents in earnings per share. 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 income tax rates recorded in 2012 resulted in a reduction in earnings per share of approximately 1.0 cent. Foreign exchange losses recorded in the first half of 2013 resulted in a reduction in earnings per share of 1.0 cent in comparison to the same period in 2012. This was primarily due to losses recorded on the translation of Canadian net monetary assets as the Canadian dollar weakened during the current year.

Capital Resources, Cash Flow and Liquidity

The Company's cash and cash equivalents balance ended the second quarter at $133.5 million, an increase of $4.2 million from the end of the first quarter. Winpak continued to generate solid and consistent cash flows from operating activities before changes in working capital of $32.1 million, an improvement of $3.6 million from the prior year second quarter. Working capital additions consumed $5.1 million, divided fairly evenly between trade and other receivables and inventories. Cash was also utilized for property, plant and equipment additions of $10.2 million, income tax payments of $9.6 million, dividends of $1.9 million, employee defined benefit plan payments of $0.5 million and other items of $0.6 million.

For the first half of 2013, the cash and cash equivalents balance remained fairly steady, advancing by just $0.2 million. Cash flow from operating activities before changes in working capital remained unchanged from 2012 at $61.2 million. Working capital additions consumed $11.4 million, primarily in trade and other receivables and inventories in response to the growth in revenues in this period. Cash was also utilized for property, plant and equipment additions of $25.2 million, income tax payments of $17.3 million, dividends of $3.9 million, employee defined benefit plan payments of $2.4 million and other items of $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.

Summary of Quarterly Results
Thousands of US dollars, except per share amounts (US cents)
Q2 Q1 Q4 Q3 Q2 Q1 Q4 Q3
2013 2013 2012* 2012* 2012* 2012* 2011* 2011*
Revenue 177,032 169,949 173,226 165,399 159,648 171,805 171,516 170,670
Net income attributable to equity holders
of the Company 17,095 15,989 22,071 16,783 15,850 16,551 18,319 14,212
EPS 26 25 34 26 25 25 28 22
* 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.

Looking Forward

The Company's management is optimistic heading into the second half of the year after experiencing double-digit percentage revenue growth in the most recent quarter. With the overall economy appearing to improve and new customer opportunities present in the pipeline, revenue growth should be healthy for the balance of the year. Raw material costs are expected to remain stable, barring any unforeseen circumstances. As a result, margins should continue at current levels for existing products while new product margins could be more challenged as Company personnel go through the learning curve of producing these items efficiently and added capacity is not fully utilized. However, overall margins should not deviate from historical levels by more than a few percentage points. Just over $25 million in capital spending has occurred in the first six months of the year and another $35 to $45 million is expected for the second half of the year. The major extrusion/lamination lines at the Company's Vaudreuil lidding facility and the Winnipeg modified atmosphere packaging (MAP) plant should reach the commercialization stage by the end of the third quarter of this year. The 82,000 square foot addition to the Winnipeg MAP facility is still on schedule for completion by the end of the current fiscal year. These expenditures will provide the necessary capacity to allow for planned revenue growth in future years. In addition to the internal capital investment program, the Company also continues to seek out acquisition opportunities to complement its core competencies in food, beverage, and health-care packaging.

Winpak Ltd.

Interim Condensed Consolidated Financial Statements

Second Quarter Ended: June 30, 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)
June 30 December 30
2013 2012
Assets
Current assets:
Cash and cash equivalents 133,468 133,303
Trade and other receivables 93,564 86,797
Income taxes receivable 1,789 389
Inventories 94,884 90,246
Prepaid expenses 4,908 3,864
Derivative financial instruments - 288
328,613 314,887
Non-current assets:
Property, plant and equipment 313,926 301,678
Intangible assets 14,627 14,551
Deferred tax assets 3,217 3,448
331,770 319,677
Total assets 660,383 634,564
Equity and Liabilities
Current liabilities:
Trade payables and other liabilities 60,126 59,184
Provisions 427 427
Income taxes payable 3,070 5,417
Derivative financial instruments 1,206 -
64,829 65,028
Non-current liabilities:
Employee benefit plan liabilities 14,295 14,511
Deferred income 11,290 11,475
Provisions 6,848 7,399
Deferred tax liabilities 18,916 20,063
51,349 53,448
Total liabilities 116,178 118,476
Equity:
Share capital 29,195 29,195
Reserves (884 ) 250
Retained earnings 500,236 470,925
Total equity attributable to equity holders of the Company 528,547 500,370
Non-controlling interests 15,658 15,718
Total equity 544,205 516,088
Total equity and liabilities 660,383 634,564
Winpak Ltd.
Condensed Consolidated Statements of Income
(thousands of US dollars, except per share amounts) (unaudited)
Quarter Ended Year-To-Date Ended
June 30 July 1 June 30 July 1
2013 2012 2013 2012
(restated ) (restated )
Revenue 177,032 159,648 346,981 331,453
Cost of sales (125,754 ) (114,325 ) (246,832 ) (235,093 )
Gross profit 51,278 45,323 100,149 96,360
Sales, marketing and distribution expenses (14,464 ) (13,694 ) (28,559 ) (28,343 )
General and administrative expenses (6,428 ) (6,722 ) (14,251 ) (14,671 )
Research and technical expenses (3,539 ) (3,162 ) (6,923 ) (6,866 )
Pre-production expenses (1,074 ) (472 ) (1,600 ) (507 )
Other (expenses) income (226 ) 514 (452 ) 950
Income from operations 25,547 21,787 48,364 46,923
Finance income 94 122 199 251
Finance expense (208 ) (111 ) (418 ) (509 )
Income before income taxes 25,433 21,798 48,145 46,665
Income tax expense (8,041 ) (5,788 ) (14,903 ) (13,973 )
Net income for the period 17,392 16,010 33,242 32,692
Attributable to:
Equity holders of the Company 17,095 15,850 33,084 32,401
Non-controlling interests 297 160 158 291
17,392 16,010 33,242 32,692
Basic and diluted earnings per share - cents 26 25 51 50
Condensed Consolidated Statements of Comprehensive Income
(thousands of US dollars) (unaudited)
Quarter Ended Year-To-Date Ended
June 30 July 1 June 30 July 1
2013 2012 2013 2012
(restated ) (restated )
Net income for the period 17,392 16,010 33,242 32,692
Items that will not be reclassified to the statements of income:
Cash flow hedge gains (losses) recognized 8 (480 ) (94 ) (72 )
Cash flow hedge gains transferred to property, plant and equipment (17 ) (83 ) (50 ) (58 )
Employee benefit plan remeasurements - 219 - 814
Income tax effect - (67 ) - (252 )
(9 ) (411 ) (144 ) 432
Items that are or may be reclassified subsequently to the statements of income:
Cash flow hedge (losses) gains recognized (982 ) (200 ) (1,418 ) 94
Cash flow hedge losses (gains) transferred to the statements of income 88 (131 ) 67 (8 )
Income tax effect 239 82 361 (154 )
(655 ) (249 ) (990 ) (68 )
Other comprehensive (loss) income for the period - net of income tax (664 ) (660 ) (1,134 ) 364
Comprehensive income for the period 16,728 15,350 32,108 33,056
Attributable to:
Equity holders of the Company 16,431 15,190 31,950 32,765
Non-controlling interests 297 160 158 291
16,728 15,350 32,108 33,056
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 (loss) income for the period
Cash flow hedge gains, net of tax - (128 ) - (128 ) - (128 )
Cash flow hedge gains transferred to the statements of income, net of tax - (13 ) - (13 ) - (13 )
Cash flow hedge gains transferred to property, plant and equipment - (57 ) - (57 ) - (57 )
Employee benefit plan remeasurements, net of tax (restated) - - 562 562 - 562
Other comprehensive (loss) income (restated) - (198 ) 562 364 - 364
Net income for the period (restated) - - 32,401 32,401 291 32,692
Comprehensive (loss) 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
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 - (1,133 ) - (1,133 ) - (1,133 )
Cash flow hedge losses transferred to the statements of income, net of tax - 49 - 49 - 49
Cash flow hedge gains transferred to property, plant and equipment - (50 ) - (50 ) - (50 )
Other comprehensive (loss) - (1,134 ) - (1,134 ) - (1,134 )
Net income for the period - - 33,084 33,084 158 33,242
Comprehensive (loss) income for the period - (1,134 ) 33,084 31,950 158 32,108
Dividends - - (3,773 ) (3,773 ) (218 ) (3,991 )
Balance at June 30, 2013 29,195 (884 ) 500,236 528,547 15,658 544,205
Winpak Ltd.
Condensed Consolidated Statements of Cash Flows
(thousands of US dollars) (unaudited)
Quarter Ended Year-To-Date Ended
June 30 July 1 June 30 July 1
2013 2012 2013 2012
(restated ) (restated )
Cash provided by (used in):
Operating activities:
Net income for the period 17,392 16,010 33,242 32,692
Items not involving cash:
Depreciation 6,456 6,493 13,215 12,905
Amortization - deferred income (308 ) (303 ) (602 ) (608 )
Amortization - intangible assets 112 420 218 832
Employee defined benefit plan expenses 1,066 1,003 2,103 2,142
Net finance expense (income) 114 (11 ) 219 258
Income tax expense 8,041 5,788 14,903 13,973
Other (762 ) (907 ) (2,081 ) (1,005 )
Cash flow from operating activities before the following 32,111 28,493 61,217 61,189
Change in working capital:
Trade and other receivables (2,894 ) 1,707 (6,767 ) 6,432
Inventories (2,592 ) (5,734 ) (4,638 ) (14,746 )
Prepaid expenses (306 ) (301 ) (1,044 ) (1,128 )
Trade payables and other liabilities 668 (449 ) 1,031 (2,556 )
Provisions (430 ) (892 ) (616 ) (892 )
Employee defined benefit plan payments (511 ) (520 ) (2,383 ) (2,245 )
Income tax paid (9,612 ) (9,807 ) (17,280 ) (15,288 )
Interest received 129 118 204 249
Interest paid (3 ) - (8 ) (2 )
Net cash from operating activities 16,560 12,615 29,716 31,013
Investing activities:
Acquisition of property, plant and equipment - net (10,165 ) (10,486 ) (25,161 ) (30,150 )
Acquisition of intangible assets (38 ) (257 ) (296 ) (685 )
(10,203 ) (10,743 ) (25,457 ) (30,835 )
Financing activities:
Dividends paid (1,919 ) (1,955 ) (3,876 ) (3,865 )
Change in non-controlling interests in subsidiary (218 ) (563 ) (218 ) (563 )
(2,137 ) (2,518 ) (4,094 ) (4,428 )
Change in cash and cash equivalents 4,220 (646 ) 165 (4,250 )
Cash and cash equivalents, beginning of period 129,248 123,275 133,303 126,879
Cash and cash equivalents, end of period 133,468 122,629 133,468 122,629

FOR FURTHER INFORMATION PLEASE CONTACT:

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

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