Winpak Reports Second Quarter Results
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E-mailWINNIPEG, MB -- (Marketwired) -- 07/23/15 --
Winpak Ltd. (TSX: WPK) today reports consolidated results in US dollars for the second quarter of 2015, which ended on June 28, 2015.
Quarter Ended Year-To-Date Ended
--------------------- ---------------------
June 28 June 29 June 28 June 29
2015 2014 2015 2014
---------- ---------- ---------- ----------
(thousands of US dollars, except
per share amounts)
Revenue 198,257 199,426 397,697 387,503
---------- ---------- ---------- ----------
Net income 27,639 19,538 50,363 35,994
---------- ---------- ---------- ----------
Income tax expense 12,634 9,367 23,548 16,602
Net finance expense 20 107 55 44
Depreciation and amortization 7,928 7,351 15,675 14,716
---------- ---------- ---------- ----------
EBITDA (1) 48,221 36,363 89,641 67,356
---------- ---------- ---------- ----------
Net income attributable to equity
holders of the Company 26,845 19,406 49,308 35,569
Net income attributable to non-
controlling interests 794 132 1,055 425
---------- ---------- ---------- ----------
Net income 27,639 19,538 50,363 35,994
---------- ---------- ---------- ----------
Basic and diluted earnings per
share (cents) 41 30 76 55
---------- ---------- ---------- ----------
Winpak Ltd. manufactures and distributes high-quality packaging materials and related packaging machines. The Company's products are used primarily for the packaging of perishable foods, beverages and in healthcare applications.
1 EBITDA is not a recognized measure under International Financial Reporting Standards (IFRS). Management believes that in addition to net income, this measure provides useful supplemental information to investors including an indication of cash available for distribution prior to debt service, capital expenditures and income taxes. Investors should be cautioned, however, that this measure should not be construed as an alternative to net income, determined in accordance with IFRS, as an indicator of the Company's performance. The Company's method of calculating this measure may differ from other companies, and accordingly, the results may not be comparable.
(presented in US dollars)
Forward-looking statements: Certain statements made in the following report contain forward-looking statements including, but not limited to, statements concerning possible or assumed future results of operations of the Company. Forward-looking statements represent the Company's intentions, plans, expectations and beliefs, and are not guarantees of future performance. Such forward-looking statements represent Winpak's current views based on information as at the date of this report. They involve risks, uncertainties and assumptions and the Company's actual results could differ, which in some cases may be material, from those anticipated in these forward-looking statements. Unless otherwise required by applicable securities law, we disclaim any intention or obligation to publicly update or revise this information, whether as a result of new information, future events or otherwise. The Company cautions investors not to place undue reliance upon forward-looking statements.
Financial Performance
Net income attributable to equity holders of the Company for the second quarter of 2015 strengthened to $26.8 million or 41 cents in earnings per share compared to $19.4 million or 30 cents per share recorded in the comparable quarter of 2014, an increase of 38.3 percent. This represents the highest quarterly earnings performance since Winpak's inception. Improved gross profit margins added 9.0 cents to earnings per share and organic volume growth supplemented earnings per share by 0.5 cents. Favorable foreign exchange impacts and lower overall operating expenses each contributed 1.0 cent to earnings per share growth. A lower effective income tax rate added a further 0.5 cents in earnings per share while a greater proportion of earnings attributable to non-controlling interests subtracted 1.0 cent from earnings per share.
For the six months ended June 28, 2015, net income attributable to equity holders of the Company amounted to $49.3 million or 76 cents per share, eclipsing the corresponding 2014 result of $35.6 million or 55 cents per share by 38.6 percent. Expanded gross profit margins resulted in earnings per share enhancements of 18.0 cents while foreign exchange and organic volume growth added a further 2.5 cents and 2.0 cents respectively. This was partly offset by a greater proportion of earnings attributable to non-controlling interests and higher operating expenses which reduced earnings per share by 1.0 cent and 0.5 cents accordingly.
Revenue
Revenue in the second quarter of 2015 reached $198.3 million versus $199.4 million in the same quarter of 2014, a decrease of 0.6 percent. Volume expansion was muted at 1.2 percent compared to the robust second quarter of 2014, when growth of 12.7 percent was experienced. Revenue performance varied across product groups. Modified atmosphere packaging volumes continued to forge ahead in the low double-digit percentage range, building on the first quarter momentum, with new business gains at some of North America's largest meat and cheese producing customers. After experiencing a decline in shipments in the first quarter of 2015, biaxially oriented nylon volumes rebounded with growth of just over 10 percent. Rigid container volumes increased in the low single-digit percentage range. Were it not for the loss of some low-margin yogurt business, rigid container volumes would have risen in the high single-digit percentage range on the strength of sales in applesauce, condiment and specialty beverage packaging. Specialty film volumes experienced a low single-digit percentage decline while lidding shipments fell by just over 10 percent compared to the second quarter of 2014 which was particularly strong for this product group. Although some yogurt lidding business was lost, volumes in the remaining lidding markets are expected to recover in the second half of the year. Packaging machinery and part sales receded by just over 10 percent in comparison to the second quarter of 2014 due primarily to timing of shipments, as 2015 first quarter volumes were elevated, exceeding the prior year by over 40 percent. Selling price/mix changes had a net unfavorable effect on quarterly revenues of 0.5 percent while foreign exchange had a negative influence of 1.3 percent due to the significant decline in the value of the Canadian dollar in comparison to its US counterpart in the current period versus the prior year second quarter.
For the first half of 2015, revenue grew to $397.7 million from $387.5 million in the first six months of 2014, an increase of 2.6 percent. Volumes increased by 3.2 percent, with all product groups advancing except for lidding. Growth was particularly robust in modified atmosphere packaging, which advanced in the low double-digit percentage range, followed closely behind in percentage terms by packaging machinery. Significant inroads at some of the largest meat and cheese customers in North America were responsible for the favorable performance within the modified atmosphere packaging group as these companies gained exposure to Winpak's capabilities. Rigid container, biaxially oriented nylon and specialty film volumes progressed in the low single-digit percentage range while lidding volumes fell in mid single-digit percentage terms. Selling price/mix changes had a positive effect on revenue of 0.7 percent year-to-date while foreign exchange negatively impacted revenue by 1.3 percent.
Gross profit margins
Gross profit margins widened in the current quarter to 32.9 percent of revenue from the 31.6 percent of revenue recorded in the first quarter of this year and compared very favorably to the 27.8 percent attained in the second quarter of 2014. Lower raw material costs were the main contributing factor to the improved gross profit performance, as the prices for certain resins declined significantly in comparison to a year prior. Much of this decrease is passed on to customers as approximately 70 percent of the Company's revenues are indexed, whereby selling price adjustments related to raw material costs are reflected with a lag of approximately 90 days after the raw material costs change. To date, market conditions have not dictated any significant selling price adjustments for non-indexed accounts. Combined with a more favorable product mix in the quarter, the improved gross profit margins contributed 9.0 cents in earnings per share in the second quarter of 2015 versus the comparable 2014 period.
For the first six months of 2015, gross profit margins of 32.2 percent of revenue surpassed the prior year-to-date level of 27.5 percent by 4.7 percentage points. As with the results for the quarter, the enlarged spread between raw material costs and selling prices due to a decline in raw material prices was the main contributing factor to the improved gross profit margins and resulted in an addition of 18.0 cents to earnings per share in relation to the first half of 2014.
For reference, the following presents the weighted indexed purchased cost of Winpak's eight primary raw materials in the reported quarter and each of the preceding eight quarters, where base year 2001 = 100. The index was rebalanced as of December 29, 2014 to reflect the mix of the eight primary raw materials purchased in 2014.
----------------------------------------------------------------------------
Quarter and Year 2/15 1/15 4/14 3/14 2/14 1/14 4/13 3/13 2/13
----------------------------------------------------------------------------
Purchase Price Index 152.1 156.9 175.1 176.2 178.1 178.7 175.0 173.2 173.5
----------------------------------------------------------------------------
The purchase price index fell an additional 3.1 percent in the quarter in comparison to the first quarter of 2015. In the last 12 months, the index has declined by an average of 14.6 percent. The change in resin pricing has not been uniform across all materials as some specialty resins have remained stable while certain commodity resins have decreased by as much as 30 percent. Toward the latter half of the second quarter and entering into the third quarter, the prices for certain resins have reversed course and begun to escalate including polyethylene, which is the most widely used resin within the Company. However, to date, the price hikes have been moderate and the future direction appears to be fairly stable although this cannot be predicted with any degree of certainty.
Expenses and Other
Operating expenses in total decreased in the second quarter of 2015 while sales volumes increased when compared to the corresponding period of 2014, resulting in an improvement of 1.0 cent in earnings per share. During the current quarter, the Company extinguished the liability related to its prior withdrawal from a US multiemployer defined benefit pension plan at an amount which resulted in a pre-tax gain of $1.8 million. Additionally, lower freight costs as a result of reduced fuel surcharges also contributed to the decline in operating expenses. This was partially offset by a reduction in 2014 second quarter operating expenses caused by a gain on settlement of a customer product liability claim at an amount that was lower than what had been reserved. A lower effective income tax rate in the current quarter, due in part to a larger proportion of earnings being realized in lower income tax rate jurisdictions, increased earnings per share by a further 0.5 cents. The weaker Canadian dollar in the second quarter of 2015 versus 2014 was the main catalyst behind a 1.0 cent improvement in earnings per share due to foreign exchange as Canadian dollar expenses exceeded revenues in that currency. Lastly, earnings per share were negatively impacted by 1.0 cent as a greater proportion of earnings attributable to non-controlling interests was realized in the second quarter of 2015 versus the prior year period.
After adjusting for foreign exchange, operating expenses for the first six months of 2015 advanced at a slightly greater rate than the corresponding increase in sales volumes, resulting in a reduction in earnings per share of 0.5 cents in comparison to the first half of 2014. Higher general and administrative expenses were the main cause due in part to greater share-based compensation costs and increased bad debt reserves. A greater proportion of earnings attributable to non-controlling interests in the first half of the year further reduced earnings per share by 1.0 cent. More than offsetting these two reductions was the favorable impact of foreign exchange on earnings per share of 2.5 cents. In relation to the first six months of 2014, the lower average value of the Canadian dollar in 2015 versus its US counterpart resulted in a positive effect on earnings when the Company's net Canadian dollar expenses were converted into US funds.
Summary of Quarterly Results
Thousands of US dollars, except per share amounts (US cents)
----------------------------------------
Q2 Q1 Q4 Q3
2015 2015 2014 2014
----------------------------------------
Revenue 198,257 199,440 206,269 192,982
Net income attributable to equity
holders of the Company 26,845 22,463 23,343 19,448
EPS 41 35 36 30
----------------------------------------
----------------------------------------
Q2 Q1 Q4 Q3
2014 2014 2013 2013
----------------------------------------
Revenue 199,426 188,077 187,964 179,926
Net income attributable to equity
holders of the Company 19,406 16,163 20,951 17,362
EPS 30 25 32 27
----------------------------------------
Capital Resources, Cash Flow and Liquidity
The Company's cash and cash equivalents balance finished the second quarter of 2015 at $189.5 million, an increase of $27.0 million from the end of the previous quarter. Winpak continued to generate strong and consistent cash flows from operating activities before changes in working capital of $46.7 million, outperforming the second quarter of 2014 by $11.8 million. Cash was also provided by working capital reductions in the amount of $6.0 million. Cash was utilized for the extinguishment of the multiemployer defined benefit pension plan withdrawal liability in the amount of $4.5 million, plant and equipment additions of $9.5 million, income tax payments of $9.4 million, dividends to equity holders of the Company of $1.5 million, and other items totalling $0.8 million.
For the first half of 2015, the cash and cash equivalents balance climbed by $45.8 million to $189.5 million on the strong cash flow generated from operating activities before changes in working capital of $88.0 million. This represented an improvement of $22.7 million from the first six months of the prior year and was further aided by a reduction in working capital of $2.7 million year-to-date. Cash was used for plant and equipment additions of $22.3 million, income tax payments of $13.1 million, the retirement of the multiemployer defined benefit pension plan withdrawal liability of $4.5 million, dividends to equity holders of the Company of $3.2 million, employee defined benefit plan contributions of $1.2 million and other items totalling $0.6 million. The company remains debt-free and has unutilized operating lines of $38 million, with the ability to increase borrowing capacity further should the need arise.
Looking Forward
The Company remains optimistic in regard to revenue growth and earnings performance for the balance of the year. Although volume growth took a pause in the second quarter of the year in certain product groups compared to prior quarters, the second half of the year should witness further improvement provided that new revenue opportunities currently in various stages of development continue to progress as anticipated. Assuming raw material prices remain near current levels, gross profit margins should continue to be elevated in the second half of the year in relation to historical norms but will likely decline by approximately 1 to 2 percentage points from those experienced in the second quarter as indexed selling prices will see further reductions. Manufacturing performance should continue to improve in areas where new capacity was more recently added while those areas where capacity is currently constrained, particularly modified atmosphere packaging, will be challenged to fulfill demand and will likely incur extra costs in doing so until new capacity is installed. The continued weakness in the Canadian dollar versus its US counterpart, while reducing reported revenues, will increase earnings as Canadian dollar denominated costs exceed Canadian revenues. Capital spending for 2015 continues to be on pace at a $55 to $65 million level with a focus on expanding capacity in extrusion and converting. The Company will also continue to pursue acquisition opportunities, at a reasonable price, that correspond to Winpak's core competencies in sophisticated packaging for food, beverage and healthcare applications.
Winpak Ltd.
Interim Condensed Consolidated Financial Statements
Second Quarter Ended: June 28, 2015
These interim condensed consolidated financial statements have not been audited or reviewed by the Company's independent external auditor, KPMG LLP. For a complete set of notes to the condensed consolidated financial statements, refer to www.sedar.com or the Company's website, www.winpak.com.
Winpak Ltd.
Condensed Consolidated Balance Sheets
(thousands of US dollars) (unaudited)
June 28 December 28
2015 2014
----------------------------------------------------------------------------
Assets
Current assets:
Cash and cash equivalents 189,515 143,761
Trade and other receivables 106,499 112,454
Income taxes receivable 480 2,873
Inventories 99,799 100,586
Prepaid expenses 5,295 4,344
Derivative financial instruments 144 -
------------- -------------
401,732 364,018
Non-current assets:
Property, plant and equipment 354,484 348,002
Intangible assets 14,914 15,068
Employee benefit plan assets 5,264 5,249
Deferred tax assets 1,696 1,990
------------- -------------
376,358 370,309
------------- -------------
Total assets 778,090 734,327
------------- -------------
Equity and Liabilities
Current liabilities:
Trade payables and other liabilities 65,889 69,098
Provisions - 427
Income taxes payable 3,719 690
Derivative financial instruments 783 875
------------- -------------
70,391 71,090
Non-current liabilities:
Employee benefit plan liabilities 8,687 7,673
Deferred income 14,435 14,831
Provisions 760 6,571
Deferred tax liabilities 35,682 32,775
------------- -------------
59,564 61,850
------------- -------------
Total liabilities 129,955 132,940
------------- -------------
Equity:
Share capital 29,195 29,195
Reserves (479) (641)
Retained earnings 601,874 555,697
------------- -------------
Total equity attributable to equity holders of
the Company 630,590 584,251
Non-controlling interests 17,545 17,136
------------- -------------
Total equity 648,135 601,387
------------- -------------
Total equity and liabilities 778,090 734,327
------------- -------------
Winpak Ltd.
Condensed Consolidated Statements of Income
(thousands of US dollars, except per share amounts) (unaudited)
Quarter Ended Year-To-Date Ended
----------------------- -----------------------
June 28 June 29 June 28 June 29
2015 2014 2015 2014
---------------------------------------------------- -----------------------
Revenue 198,257 199,426 397,697 387,503
Cost of sales (133,042) (144,072) (269,511) (280,941)
----------- ----------- ----------- -----------
Gross profit 65,215 55,354 128,186 106,562
Sales, marketing and
distribution expenses (14,781) (15,889) (29,863) (31,155)
General and administrative
expenses (7,213) (5,875) (16,180) (13,521)
Research and technical
expenses (4,047) (4,004) (7,746) (7,356)
Pre-production expenses (88) (251) (434) (251)
Other income (expenses) 1,207 (323) 3 (1,639)
----------- ----------- ----------- -----------
Income from operations 40,293 29,012 73,966 52,640
Finance income 86 113 171 264
Finance expense (106) (220) (226) (308)
----------- ----------- ----------- -----------
Income before income taxes 40,273 28,905 73,911 52,596
Income tax expense (12,634) (9,367) (23,548) (16,602)
----------- ----------- ----------- -----------
Net income for the period 27,639 19,538 50,363 35,994
----------- ----------- ----------- -----------
Attributable to:
Equity holders of the
Company 26,845 19,406 49,308 35,569
Non-controlling interests 794 132 1,055 425
----------- ----------- ----------- -----------
27,639 19,538 50,363 35,994
----------- ----------- ----------- -----------
Basic and diluted earnings
per share - cents 41 30 76 55
----------- ----------- ----------- -----------
Condensed Consolidated Statements of Comprehensive Income
(thousands of US dollars) (unaudited)
Quarter Ended Year-To-Date Ended
----------------------- -----------------------
June 28 June 29 June 28 June 29
2015 2014 2015 2014
---------------------------------------------------- -----------------------
Net income for the period 27,639 19,538 50,363 35,994
----------- ----------- ----------- -----------
Items that will not be
reclassified to the
statements of income:
Cash flow hedge losses
recognized (43) - (43) -
Income tax effect - - - -
----------- ----------- ----------- -----------
(43) - (43) -
----------- ----------- ----------- -----------
Items that are or may be
reclassified subsequently to
the statements of income:
Cash flow hedge gains
(losses) recognized 621 709 (947) (178)
Cash flow hedge losses
transferred to the
statements of income 667 587 1,226 1,269
Income tax effect (344) (346) (74) (292)
----------- ----------- ----------- -----------
944 950 205 799
----------- ----------- ----------- -----------
Other comprehensive income
for the period - net of
income tax 901 950 162 799
----------- ----------- ----------- -----------
Comprehensive income for the
period 28,540 20,488 50,525 36,793
----------- ----------- ----------- -----------
Attributable to:
Equity holders of the
Company 27,746 20,356 49,470 36,368
Non-controlling interests 794 132 1,055 425
----------- ----------- ----------- -----------
28,540 20,488 50,525 36,793
----------- ----------- ----------- -----------
Winpak Ltd.
Condensed Consolidated Statements of Changes in Equity
(thousands of US dollars) (unaudited)
Attributable to equity holders of
the Company
-------------------------------------
Non-
Share Retained controlling Total
capital Reserves earnings Total interests equity
----------------------------------------------------------------------------
Balance at
December 30,
2013 29,195 (661) 547,891 576,425 16,188 592,613
-----------------------------------------------------------
Comprehensive
income for the
period
Cash flow
hedge
losses, net
of tax - (130) - (130) - (130)
Cash flow
hedge losses
transferred
to the
statements
of income,
net of tax - 929 - 929 - 929
-----------------------------------------------------------
Other
comprehensive
income - 799 - 799 - 799
Net income for
the period - - 35,569 35,569 425 35,994
-----------------------------------------------------------
Comprehensive
income for the
period - 799 35,569 36,368 425 36,793
-----------------------------------------------------------
Dividends - - (62,109) (62,109) (344) (62,453)
-----------------------------------------------------------
Balance at June
29, 2014 29,195 138 521,351 550,684 16,269 566,953
----------------------------------------------------------------------------
Balance at
December 29,
2014 29,195 (641) 555,697 584,251 17,136 601,387
-----------------------------------------------------------
Comprehensive
income for the
period
Cash flow
hedge
losses, net
of tax - (737) - (737) - (737)
Cash flow
hedge losses
transferred
to the
statements
of income,
net of tax - 899 - 899 - 899
-----------------------------------------------------------
Other
comprehensive
income - 162 - 162 - 162
Net income for
the period - - 49,308 49,308 1,055 50,363
-----------------------------------------------------------
Comprehensive
income for the
period - 162 49,308 49,470 1,055 50,525
-----------------------------------------------------------
Dividends - - (3,131) (3,131) (646) (3,777)
-----------------------------------------------------------
Balance at June
28, 2015 29,195 (479) 601,874 630,590 17,545 648,135
-----------------------------------------------------------
Winpak Ltd.
Condensed Consolidated Statements of Cash Flows
(thousands of US dollars) (unaudited)
Quarter Ended Year-To-Date Ended
----------------------- -----------------------
June 28 June 29 June 28 June 29
2015 2014 2015 2014
---------------------------------------------------- -----------------------
Cash provided by (used in):
Operating activities:
Net income for the period 27,639 19,538 50,363 35,994
Items not involving cash:
Depreciation 8,190 7,742 16,174 15,332
Amortization - deferred
income (406) (520) (798) (879)
Amortization - intangible
assets 144 129 299 263
Employee defined benefit
plan expenses 749 938 1,725 1,833
Multiemployer defined
benefit pension plan
withdrawal liability
settlement gain (1,815) - (1,815) -
Net finance expense 20 107 55 44
Income tax expense 12,634 9,367 23,548 16,602
Other (435) (2,411) (1,558) (3,892)
----------- ----------- ----------- -----------
Cash flow from
operating activities
before the following 46,720 34,890 87,993 65,297
Change in working capital:
Trade and other
receivables 3,701 (5,038) 5,955 (9,391)
Inventories (2,344) (7,931) 787 (7,424)
Prepaid expenses (19) (26) (951) (1,954)
Trade payables and other
liabilities 4,665 1,118 (3,117) 6,837
Provisions (4,503) (1) (4,467) (25)
Employee defined benefit
plan contributions (90) (317) (1,168) (3,141)
Income tax paid (9,370) (9,458) (13,084) (12,609)
Interest received 66 42 128 129
Interest paid (8) (135) (15) (138)
----------- ----------- ----------- -----------
Net cash from operating
activities 38,818 13,144 72,061 37,581
----------- ----------- ----------- -----------
Investing activities:
Acquisition of property,
plant and equipment -
net (9,462) (9,527) (22,266) (21,692)
Acquisition of intangible
assets (114) (175) (169) (362)
----------- ----------- ----------- -----------
(9,576) (9,702) (22,435) (22,054)
----------- ----------- ----------- -----------
Financing activities:
Dividends paid (1,548) (1,763) (3,226) (62,102)
Dividend paid to non-
controlling interests in
subsidiary (646) (344) (646) (344)
----------- ----------- ----------- -----------
(2,194) (2,107) (3,872) (62,446)
----------- ----------- ----------- -----------
Change in cash and cash
equivalents 27,048 1,335 45,754 (46,919)
Cash and cash equivalents,
beginning of period 162,467 112,836 143,761 161,090
----------- ----------- ----------- -----------
Cash and cash equivalents,
end of period 189,515 114,171 189,515 114,171
----------- ----------- ----------- -----------
For further information: K.P. KuchmaVice President and CFO(204) 831-2254B.J. BerryPresident and CEO(204) 831-2216
Source: Winpak Ltd.
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