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Press release from Marketwire

Winpak Reports Third Quarter Results

Thursday, October 24, 2013

Winpak Reports Third Quarter Results

14:42 EDT Thursday, October 24, 2013

WINNIPEG, MANITOBA--(Marketwired - Oct. 24, 2013) - Winpak Ltd. (TSX:WPK) today reports consolidated results in US dollars for the third quarter of 2013, which ended on September 29, 2013.

Quarter Ended Year-To-Date Ended (1)
September 29 September 30 September 29 September 30
2013 2012 2013 2012
(restated (2)) (restated (2))
(thousands of US dollars, except per share amounts)
Revenue 179,926 165,399 526,907 496,852
Net income 17,599 17,024 50,841 49,716
Income tax expense 8,382 7,802 23,285 21,775
Net finance expense 114 18 333 276
Depreciation and amortization 6,711 6,577 19,542 19,706
EBITDA (3) 32,806 31,421 94,001 91,473
Net income attributable to equity holders of the Company 17,362 16,783 50,446 49,184
Net income attributable to non-controlling interests 237 241 395 532
Net income 17,599 17,024 50,841 49,716
Basic and fully diluted earnings per share (cents) 27 26 78 76

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.

(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 common shareholders for the third quarter of 2013 amounted to $17.4 million or 27 cents in earnings per share compared to $16.8 million or 26 cents per share in the corresponding quarter of 2012, an increase of 3.4 percent. Solid organic revenue growth contributed 2.5 cents in earnings per share. This was partially offset by the unfavorable impact of foreign exchange which negatively affected earnings per share by 1.0 cent while higher operating expenses reduced earnings per share by 0.5 cents.

For the three quarters ended September 29, 2013, net income attributable to common shareholders was $50.4 million or 78 cents in earnings per share compared to the 2012 result of $49.2 million or 76 cents in earnings per share, an improvement of 2.6 percent. Heightened sales volumes in the first nine months of 2013 contributed 5.0 cents in additional earnings per share. Lower operating expenses in relation to sales volumes added a further 1.0 cent to earnings per share. Meanwhile, a lower gross profit margin reduced earnings per share by 1.5 cents while foreign exchange and higher income taxes negatively impacted 2013 year-to-date earnings per share by 1.5 cents and 1.0 cent respectively. It should be noted that the 2012 fiscal year contained one more week than the current year and was included in the first quarter of 2012. As a result, it is estimated that this supplemented year-to-date volumes and net income by approximately 2 percent in 2012.

Revenue

Revenues in the quarter advanced by $14.5 million to $179.9 million, an increase of 8.8 percent over the third quarter of 2012. Volume growth was solid at 9.9 percent more than the prior year comparable quarter, in spite of the divestiture of the drink cup product line at the start of the fourth quarter of 2012 which added 1.5 percent to third quarter 2012 revenues. The greatest contribution to the Company's growth in volume came from rigid containers which advanced by over 20 percent in the quarter in comparison to the third quarter of 2012. A portion of this growth was due to the fact that volumes were negatively impacted in the second and third quarters of 2012 when a major customer significantly reduced purchases from the Company in an effort to reduce its own inventory levels. Rigid container volumes advanced in form/fill/seal applications and in juice and specialty beverage containers. Biaxially oriented nylon film volumes rebounded in the low double-digit range after retreating in the first half of 2013. Demand in modified atmosphere packaging and lidding grew modestly in mid-single digits while specialty film volumes overall were flat although the mix was improved. Packaging machinery continued the strength exhibited in the prior two quarters by advancing in excess of 40 percent. Overall, selling price/mix changes and foreign exchange each negatively impacted revenues in the quarter by 0.5 percent and 0.6 percent respectively in comparison to the third quarter of 2012.

For the first nine months of 2013, revenues grew to $526.9 million, an increase of $30.1 million or 6.0 percent from the corresponding period in 2012. Volumes rose by 7.0 percent. Normalizing for the additional week in the first nine months of last year and the divestiture of the drink cup product line in 2012, overall volume growth for the first nine months exceeded 10 percent. All product group volumes advanced on a normalized basis with rigid container volumes exceeding 25 percent. Lidding volumes expanded just short of 10 percent while specialty films, modified atmosphere packaging and biaxially oriented nylon all progressed in the low single-digit range. Packaging machinery, which represents less than 3 percent of total Company revenues, grew by nearly 50 percent for the first nine months compared to the comparable 2012 period. Both selling price/mix declines and foreign exchange had relatively minor negative impacts on revenue of 0.7 percent and 0.3 percent respectively.

Gross profit margins

Gross profit margins in the third quarter of 2013, as a percentage of revenue, expanded by 0.3 percentage points to 29.1 percent from 28.8 percent recorded in the same quarter of 2012. As the dollar amount of gross profit rose by a nearly identical percentage to the growth in revenue volume, the change in gross profit had no impact on earnings per share. Limited contraction in the spread between selling prices and raw material costs was offset by improved productivity, in part due to the installation of new, more efficient production equipment.

For the first nine months of 2013 and the corresponding period of 2012, gross profit margins as a percentage of revenue were virtually identical at 28.9 percent and 29.0 percent respectively. However, since sales volumes increased by 7.0 percent while gross profit expanded by only 6.0 percent, earnings per share was negatively impacted by 1.5 cents. A narrowing of the spread between raw material costs and selling prices, due in part to product mix changes and competitive pricing pressures, was the main reason for the unfavorable result.

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 3/13 2/13 1/13 4/12 3/12 2/12 1/12 4/11 3/11
Purchase Price Index 173.2 173.5 176.5 170.6 167.3 174.5 174.7 172.3 182.9

The purchase price index was virtually unchanged at 173.2 compared to the previous quarter result of 173.5. The difference is less than 0.2 percent. Raw material pricing overall in the quarter was relatively flat, although polyethylene and polypropylene pricing escalated by approximately 6 percent in the last month of the quarter. These resins represent just over one-third of the index. However, in the near term, raw material input costs are not expected to deviate much from quarter-end levels.

Expenses and Other

Operating expenses, adjusted for foreign exchange, negatively impacted earnings per share by 0.5 cents for the quarter when compared to the third quarter of 2012. Elevated pre-production costs, due to the commissioning of new manufacturing lines in the Company's Vaudreuil and Winnipeg facilities, along with increased share-based compensation as a result of improved stock performance were the main contributors to the uptick in operating expenses. Foreign exchange, on the other hand, reduced earnings per share by 1.0 cent, primarily as a result of losses recorded on the maturation of foreign currency forward contracts and on the translation of Canadian monetary items.

On a year-to-date basis, operating expenses, excluding foreign exchange, increased at a rate of 6.2 percent while sales volumes expanded by 7.0 percent. Even with pre-production costs exceeding the prior nine-month period by $1.8 million, restraint in other areas such as travel resulted in an additional 1.0 cent 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 rates recorded in 2012, resulted in a reduction in earnings per share of approximately 1.0 cent. Foreign exchange for the first nine months of 2013 negatively impacted earnings per share by 1.5 cents in comparison to the same period in 2012, primarily due to losses recorded on the translation of Canadian net monetary assets as the Canadian dollar weakened from the start of the year to the end of the third quarter.

Capital Resources, Cash Flow and Liquidity

The Company's cash and cash equivalents balance ended the third quarter at $141.8 million, an increase of $8.4 million from the end of the second quarter. Winpak continued to generate solid and consistent cash flows from operating activities before changes in working capital, equalling the $32.4 million mark reached in the third quarter of 2012. Additions to working capital used $1.7 million while cash was also utilized for property, plant and equipment additions of $11.6 million, income tax payments of $8.2 million, dividends of $1.9 million, employee defined benefit plan payments of $0.5 million and other items totalling $0.1 million.

For the first nine months of 2013, the cash and cash equivalents balance improved by $8.5 million, mainly from advancement in the third quarter. Cash flow from operating activities before changes in working capital was virtually unchanged from 2012 at $93.6 million. Working capital additions consumed $13.1 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 $36.8 million, income tax payments of $25.4 million, dividends of $5.7 million, employee defined benefit plan payments of $2.9 million and other items amounting to $1.2 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
2013 2013 2013 2012* 2012* 2012* 2012* 2011*
Revenue 179,926 177,032 169,949 173,226 165,399 159,648 171,805 171,516
Net income attributable to equity holders of the Company 17,362 17,095 15,989 22,071 16,783 15,850 16,551 18,319
EPS 27 26 25 34 26 25 25 28

*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

Heading into the final quarter of the year, the Company's management remains cautiously optimistic that revenue growth will continue at a healthy pace, although the actual growth rate from quarter to quarter could fluctuate somewhat depending on the timing of new customer opportunity additions. Although there was some upward pressure on raw material pricing for certain resins at the end of the third quarter, it is expected that in the near term, raw material costs should remain stable, barring any unforeseen circumstances. Gross profit margins going forward for existing products, as a result, should be consistent with current margin levels. The addition of new capacity, which initially will not be fully utilized, and the learning curve involved in producing new products efficiently will impact gross profit margins negatively. With the commercialization of the major extrusion/lamination line toward the end of the third quarter in the Company's Winnipeg modified atmosphere packaging plant and the pending commercialization in the fourth quarter of the extrusion/lamination line at the Vaudreuil lidding facility, depreciation will increase. However, it is anticipated that overall margins should not deviate from historical levels by more than a few percentage points. Capital spending for the first nine months has reached $37 million and expenditures for the entire year are projected to be between $60 million to $65 million. 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. The bulk of these capital expenditures is geared to provide the necessary capacity 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
Third Quarter Ended: September 29, 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)
September 29 December 30
2013 2012
Assets
Current assets:
Cash and cash equivalents 141,843 133,303
Trade and other receivables 95,876 86,797
Income taxes receivable 4,480 389
Inventories 95,829 90,246
Prepaid expenses 4,753 3,864
Derivative financial instruments 319 288
343,100 314,887
Non-current assets:
Property, plant and equipment 319,903 301,678
Intangible assets 14,656 14,551
Deferred tax assets 3,150 3,448
337,709 319,677
Total assets 680,809 634,564
Equity and Liabilities
Current liabilities:
Trade payables and other liabilities 61,519 59,184
Provisions 427 427
Income taxes payable 2,386 5,417
Derivative financial instruments 241 -
64,573 65,028
Non-current liabilities:
Employee benefit plan liabilities 15,075 14,511
Deferred income 12,162 11,475
Provisions 6,782 7,399
Deferred tax liabilities 21,365 20,063
55,384 53,448
Total liabilities 119,957 118,476
Equity:
Share capital 29,195 29,195
Reserves 57 250
Retained earnings 515,705 470,925
Total equity attributable to equity holders of the Company 544,957 500,370
Non-controlling interests 15,895 15,718
Total equity 560,852 516,088
Total equity and liabilities 680,809 634,564
Winpak Ltd.
Condensed Consolidated Statements of Income
(thousands of US dollars, except per share amounts) (unaudited)
Quarter Ended Year-To-Date Ended
September 29 September 30 September 29 September 30
2013 2012 2013 2012
(restated ) (restated )
Revenue 179,926 165,399 526,907 496,852
Cost of sales (127,566 ) (117,837 ) (374,398 ) (352,930 )
Gross profit 52,360 47,562 152,509 143,922
Sales, marketing and distribution expenses (14,379 ) (13,798 ) (42,938 ) (42,141 )
General and administrative expenses (7,656 ) (6,571 ) (21,907 ) (21,242 )
Research and technical expenses (3,498 ) (3,332 ) (10,421 ) (10,198 )
Pre-production expenses (708 ) (30 ) (2,308 ) (537 )
Other (expenses) income (24 ) 1,013 (476 ) 1,963
Income from operations 26,095 24,844 74,459 71,767
Finance income 93 124 292 375
Finance expense (207 ) (142 ) (625 ) (651 )
Income before income taxes 25,981 24,826 74,126 71,491
Income tax expense (8,382 ) (7,802 ) (23,285 ) (21,775 )
Net income for the period 17,599 17,024 50,841 49,716
Attributable to:
Equity holders of the Company 17,362 16,783 50,446 49,184
Non-controlling interests 237 241 395 532
17,599 17,024 50,841 49,716
Basic and fully diluted earnings per share - cents 27 26 78 76
Condensed Consolidated Statements of Comprehensive Income
(thousands of US dollars) (unaudited)
Quarter Ended Year-To-Date Ended
September 29 September 30 September 29 September 30
2013 2012 2013 2012
(restated ) (restated )
Net income for the period 17,599 17,024 50,841 49,716
Items that will not be reclassified to the statements of income:
Cash flow hedge gains (losses) recognized - 111 (94 ) 39
Cash flow hedge losses (gains) transferred to property, plant and equipment - 625 (50 ) 567
Employee benefit plan remeasurements - 428 - 1,242
Income tax effect - (133 ) - (385 )
- 1,031 (144 ) 1,463
Items that are or may be reclassified subsequently to the statements of income:
Cash flow hedge gains (losses) recognized 944 478 (474 ) 572
Cash flow hedge losses (gains) transferred to the statements of income 341 (138 ) 408 (146 )
Income tax effect (344 ) (91 ) 17 (245 )
941 249 (49 ) 181
Other comprehensive income (loss) for the period - net of income tax 941 1,280 (193 ) 1,644
Comprehensive income for the period 18,540 18,304 50,648 51,360
Attributable to:
Equity holders of the Company 18,303 18,063 50,253 50,828
Non-controlling interests 237 241 395 532
18,540 18,304 50,648 51,360
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 income for the period
Cash flow hedge gains, net of tax - 334 - 334 - 334
Cash flow hedge gains transferred to the statements of income, net of tax - (114 ) - (114 ) - (114 )
Cash flow hedge losses transferred to property, plant and equipment - 567 - 567 - 567
Employee benefit plan remeasurements, net of tax (restated) - - 857 857 - 857
Other comprehensive income (restated) - 787 857 1,644 - 1,644
Net income for the period (restated) - - 49,184 49,184 532 49,716
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
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
Winpak Ltd.
Condensed Consolidated Statements of Cash Flows
(thousands of US dollars) (unaudited)
Quarter Ended Year-To-Date Ended
September 29 September 30 September 29 September 30
2013 2012 2013 2012
(restated ) (restated )
Cash provided by (used in):
Operating activities:
Net income for the period 17,599 17,024 50,841 49,716
Items not involving cash:
Depreciation 6,886 6,559 20,101 19,464
Amortization - deferred income (292 ) (303 ) (894 ) (911 )
Amortization - intangible assets 117 321 335 1,153
Employee defined benefit plan expenses 1,094 894 3,197 3,036
Net finance expense 114 18 333 276
Income tax expense 8,382 7,802 23,285 21,775
Other (1,494 ) 41 (3,575 ) (964 )
Cash flow from operating activities before the following 32,406 32,356 93,623 93,545
Change in working capital:
Trade and other receivables (2,312 ) (9,792 ) (9,079 ) (3,360 )
Inventories (945 ) 5,239 (5,583 ) (9,507 )
Prepaid expenses 155 504 (889 ) (624 )
Trade payables and other liabilities 1,391 (1,246 ) 2,422 (3,802 )
Provisions (107 ) (107 ) (723 ) (999 )
Employee defined benefit plan payments (549 ) (1,388 ) (2,932 ) (3,633 )
Income tax paid (8,153 ) (5,292 ) (25,433 ) (20,580 )
Interest received 88 118 292 367
Interest paid (1 ) (28 ) (9 ) (30 )
Net cash from operating activities 21,973 20,364 51,689 51,377
Investing activities:
Acquisition of property, plant and equipment - net (11,597 ) (20,813 ) (36,758 ) (50,963 )
Acquisition of intangible assets (147 ) (2 ) (443 ) (687 )
(11,744 ) (20,815 ) (37,201 ) (51,650 )
Financing activities:
Dividends paid (1,854 ) (1,915 ) (5,730 ) (5,780 )
Change in non-controlling interests in subsidiary - - (218 ) (563 )
(1,854 ) (1,915 ) (5,948 ) (6,343 )
Change in cash and cash equivalents 8,375 (2,366 ) 8,540 (6,616 )
Cash and cash equivalents, beginning of period 133,468 122,629 133,303 126,879
Cash and cash equivalents, end of period 141,843 120,263 141,843 120,263

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
www.winpak.com

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