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Winpak Reports 2018 First Quarter Results

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Winpak Reports 2018 First Quarter Results

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WINNIPEG, April 26, 2018 /CNW/ - Winpak Ltd. (WPK) today reports consolidated results in US dollars for the first quarter of 2018, which ended on April 1, 2018.


Quarter Ended (1)


April 1


April 2


2018


2017 *





(thousands of US dollars, except per share amounts)








Revenue

221,665


228,351

Net income

26,867


29,249





Income tax expense

9,135


13,755

Net finance expense

51


133

Depreciation and amortization

9,879


9,125

EBITDA (2)

45,932


52,262





Net income attributable to equity holders of the Company

26,361


28,552

Net income attributable to non-controlling interests

506


697

Net income

26,867


29,249





Basic and diluted earnings per share (cents)

41


44

WINPAK (CNW Group/Winpak Ltd.)

 

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 The 2018 fiscal year comprises 52 weeks and the 2017 fiscal year comprised 53 weeks.  Each quarter of 2018 and 2017 comprises 13 weeks with the exception of the first quarter of 2017, which comprised 14 weeks.


2 EBITDA is not a recognized measure under International Financial Reporting Standards (IFRS).  Management believes that in addition to net income, this measure provides useful supplemental information to investors including an indication of cash available for distribution prior to debt service, capital expenditures and income taxes.  Investors should be cautioned, however, that this measure should not be construed as an alternative to net income, determined in accordance with IFRS, as an indicator of the Company's performance.  The Company's method of calculating this measure may differ from other companies and, accordingly, the results may not be comparable.


*The Company has initially applied IFRS 15 "Revenue From Contracts With Customers" and IFRS 9 "Financial Instruments" at January 1, 2018.  Under the transition methods chosen by the Company, comparative information has not been restated.

 

(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.  Factors that could cause results to differ from those expected include, but are not limited to: the terms, availability and costs of acquiring raw materials and the ability to pass on price increases to customers; ability to negotiate contracts with new customers or renew existing customer contracts with less favorable terms; timely response to changes in customer product needs and market acceptance of our products; the potential loss of business or increased costs due to customer or vendor consolidation; competitive pressures, including new product development, industry capacity, and changes in competitors' pricing; ability to maintain or increase productivity levels, contain or reduce costs; foreign currency exchange rate fluctuations; changes in governmental regulations, including environmental, health and safety; changes in Canadian and foreign income tax rates, income tax laws and regulations.  Unless otherwise required by applicable securities law, Winpak disclaims 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 first quarter of 2018 of $26.4 million or 41 cents in earnings per share (EPS) declined by 7.7 percent from the $28.6 million or 44 cents per share recorded in the corresponding quarter of 2017.  The contraction in gross profit margins and sales volumes negatively impacted EPS by 4.5 cents and 1.5 cents respectively.  Foreign exchange lowered EPS by an additional 1.0 cent.  Conversely, following the enactment of US tax reform in December 2017, the Company's effective income tax rate decreased significantly, increasing EPS by 3.5 cents.  Furthermore, a lower proportion of net income attributable to non-controlling interests raised EPS by 0.5 cents.

The fiscal year of the Company ends on the last Sunday of the calendar year and is usually 52 weeks in duration.  However, the 2017 fiscal year consisted of 53 weeks, with the first quarter comprising 14 weeks, one more week than the current year.  The additional week included in the 2017 first quarter was essentially the last week of the 2016 calendar year which contained several statutory holidays.  Consequently, it is estimated that this additional week contributed 6.0 percent to 2017 first quarter sales volumes and net income results.

Operating Segments and Product Groups
The Company provides three distinct types of packaging technologies: a) rigid packaging and flexible lidding, b) flexible packaging and c) packaging machinery. Each of the three are deemed to be a separate operating segment.

The rigid packaging and flexible lidding segment includes the rigid containers and lidding product groups.  Rigid containers includes portion control and single-serve containers, as well as plastic sheet and custom and retort trays, which are used for applications such as food, pet food, beverage, dairy, industrial, and healthcare. Lidding products are available in die-cut, daisy chain and rollstock formats and are used for applications such as food, dairy, beverage, industrial and healthcare.

The flexible packaging segment includes the modified atmosphere packaging, specialty films and biaxially oriented nylon product groups.  Modified atmosphere packaging extends the shelf life of perishable foods, while at the same time maintains or improves the quality of the product.  The packaging is used for a wide range of markets and applications, including fresh and processed meats, poultry, cheese, medical device packaging, high performance pouch applications and high-barrier films for converting applications.  Specialty films includes a full line of barrier and non-barrier films which are ideal for converting applications such as printing, laminating, and bag making, including shrink bags.  Biaxially oriented nylon film is stretched by length and width to add stability for further conversion using printing, metalizing or laminating processes and are ideal for food packaging applications such as cheese, fluid and viscous liquids, and industrial applications such as book covers and balloons.

Packaging machinery includes a full line of horizontal fill/seal machines for preformed containers and vertical form/fill/seal pouch machines for pumpable liquid and semi-liquid products and certain dry products.

Revenue
Revenue in the first quarter of 2018 was $221.7 million, $6.7 million or 2.9 percent less than the first quarter of 2017.  After taking the additional week of revenues in the first quarter of 2017 into account, volumes were essentially flat.  In addition, on a normalized basis, the first quarter of 2017 represented the highest quarterly sales result ever recorded by the Company.  The rigid container and flexible lidding operating segment realized a minor reduction in volumes.  In the first quarter of 2017, specialty beverage container volumes were exceptionally strong and returned to more normal levels in the first quarter of 2018, heavily influencing the results of the rigid container product group.  This was compounded by lower applesauce container and sheet volumes.  Within the lidding product group, the expansion in specialty beverage lidding volumes was largely offset by lower condiment lidding volumes.  The flexible packaging operating segment also experienced a small reduction in volumes in the first quarter of 2018, influenced by the unfavorable shift in customer order patterns.  The modified atmosphere packaging product group benefitted from the inroads made with respect to healthcare packaging.  In the current quarter, the packaging machinery operating segment's volumes were exceptional, growing by more than 25 percent.  Selling price and mix changes had a favorable effect on revenues for the quarter of 0.8 percent, while foreign exchange, due to a stronger Canadian dollar, increased revenues by 0.6 percent in comparison to the first quarter of 2017.

Gross Profit Margins
Gross profit margins fell to 29.6 percent of revenue in the first quarter of 2018, down from the 32.1 percent of revenue recorded in the same quarter of 2017.  As anticipated, competitive pressures in key product markets led to lower selling prices.  This margin erosion was compounded by the significant rise in raw material costs to those incurred a year earlier.  However, this was partially mitigated by the improvements made in reducing production waste and inventory write-downs.   During the first quarter of 2018, the weighted indexed purchased cost of Winpak's eight primary raw materials was relatively stable compared to the fourth quarter of 2017.  The index has increased by over 6.0 percent over the past twelve months.

Expenses and Other
Operating expenses in the current quarter, exclusive of foreign exchange impact, receded at a similar overall rate relative to the corresponding decrease in sales volumes, thereby having a minimal impact on EPS.  Foreign exchange caused a decline in EPS of 1.0 cent, primarily as a result of converting the Company's net Canadian dollar expenses into US dollars at a higher average exchange rate.  Effective January 1, 2018, the US federal statutory income tax rate decreased from 35.0% to 21.0%, accounting for the lower overall effective income tax rate, which contributed 3.5 cents to EPS.  Additionally, there was a reduction in the proportion of earnings attributed to non-controlling interests, augmenting EPS by 0.5 cents.

Summary of Quarterly Results



Thousands of US dollars, except per share amounts (US cents)


Q1

Q4

Q3

Q2

Q1

Q4

Q3

Q2


2018

2017*

2017

2017

2017

2016

2016

2016










Revenue

221,665

222,323

218,348

217,752

228,351

215,550

204,699

204,129

Net income attributable to equity holders









of the Company

26,361

39,633

25,368

25,745

28,552

28,578

24,036

25,166

EPS

41

61

39

40

44

44

37

39

 

The Company has initially applied IFRS 15 "Revenue From Contracts With Customers" and IFRS 9 "Financial Instruments" at January 1, 2018. Under the transition methods chosen by the Company, comparative information has not been restated.

*Includes the one-time income tax recovery of 17 cents per share due to the revaluation of deferred tax asset and liability balances within the US operations as a result of US tax reform enacted in December 2017.

Capital Resources, Cash Flow and Liquidity
The Company's cash and cash equivalents balance ended the first quarter of 2018 at $303.9 million, an increase of $11.9 million from the end of the prior year.  Winpak continued to generate solid cash flow from operating activities before changes in working capital of $46.5 million.  Cash was utilized for net working capital additions of $10.5 million as trade and other receivables increased by $9.4 million, reflecting the magnitude of extended term accounts receivable that were sold without recourse to financial institutions in exchange for cash.  Other cash flows included $12.5 million in property, plant and equipment additions, income tax payments of $8.4 million, employee defined benefit plan contributions of $1.7 million, dividend payments of $1.6 million, net of other inflows totaling $0.1 million.

Looking Forward
Business Outlook
The first quarter of 2018 had mixed results with respect to sales volume growth which was tempered in certain product markets by weakened customer demand, influenced by the management of their respective inventory levels.  To achieve positive sales volume momentum, the Company will make every effort to secure incremental revenue streams with new and existing customers with enhanced and/or new product offerings.  As noted in previous quarterly reports, competitive pressures for lower selling prices on customer contract renewals and newly secured business has compressed gross profit margins in 2018.  The raw material costs for the Company's widely used resins remain elevated with costs relatively unchanged in the first quarter.  The Company is anticipating some recovery of the resin price increases incurred in the latter part of the fourth quarter of 2017 and early 2018 as approximately 70% of the Company's revenues are indexed to the price of raw materials, albeit with an approximate 90 to 120-day time lag.  Current market views are that there will probably be no relief in raw material prices until the second half of 2018 on certain resins.   Entering the second quarter, the recently announced tariffs by the US government on aluminum products being imported into the US from certain countries has resulted in companies trying to source aluminum from non-tariff countries, causing demand to outpace supply and aluminum prices to escalate.  Gross profit margins are expected to be realized at levels comparable to the first quarter of 2018.  The Canadian dollar remains at a higher level versus the US dollar from a year ago, creating some headwinds to the Company's earnings results in 2018.  The Company has been successful in lowering production costs and enhancing operational performance and will continue to be focused on achieving further efficiencies within the manufacturing processes.  Capital spending of $60 to $70 million is forecasted for 2018.  Extrusion capacity is planned to come on stream by the end of the second quarter at the modified atmosphere packaging facility in Winnipeg, Manitoba.  The Company has acquired land and building in Mexico to increase its production capacity and will be adding new printing technology and converting equipment for its flexible packaging products for the Mexican market which is expected to be fully operational in the first quarter of 2019.  Winpak remains focused on organic growth with capital investments in new technologies and capabilities to offer expanded products and in concert, the Company will continue to evaluate strategic acquisition opportunities that align with the Company's core competencies, all being focused on providing long-term shareholder value.

United States Aluminum Tariffs
In March 2018, the US government started levying a 10% tariff on aluminum products imported into the US which are sourced from specified countries.  This tariff will effectively increase the costs for Winpak's flexible foil lidding products that are exported from Canada into the US.  The Company is currently assessing the effects of this newly enacted tariff and cannot reasonably estimate the financial impact, at this time.

NAFTA
The Company's operations encompass three product groups produced in ten manufacturing facilities located in North America.  The majority of Winpak's products are sold to customers in the US followed by Canada and Mexico.  Approximately 61% of production costs occur in Canada and the export sales from these manufacturing facilities into the US represents about 40% of the Company's total revenues.  Under the current NAFTA agreement, all packaging materials move across the borders between Canada, the US and Mexico free of duties.  The effect of any border tax adjustment due to potential amendments to NAFTA for imported cost of goods sold from foreign entities could have a significant financial impact to the Company.  The magnitude of exposures to the Company regarding any amendments to NAFTA cannot be determined as insufficient information exists currently.  The possible future impact of risks relating to NAFTA are anticipated to be mitigated by increased levels of production capabilities in the US manufacturing operations, if required.

Winpak Ltd.
Interim Condensed Consolidated Financial Statements
First Quarter Ended: April 1, 2018

These interim condensed consolidated financial statements have not been audited or reviewed by the Company's independent external auditors, 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)









April 1


December 31


2018


2017*





Assets








Current assets:





Cash and cash equivalents

303,890


291,959


Trade and other receivables

126,393


116,955


Income taxes receivable

4,228


1,994


Inventories

118,059


116,720


Prepaid expenses

3,847


2,320


Derivative financial instruments                                  

63


863


556,480


530,811





Non-current assets:





Property, plant and equipment

425,452


422,989


Intangible assets

14,331


14,444


Employee benefit plan assets

7,973


6,935


Deferred tax assets

783


818


448,539


445,186

Total assets

1,005,019


975,997





Equity and Liabilities








Current liabilities:





Trade payables and other liabilities

64,171


63,670


Contract liabilities

1,315


-


Income taxes payable

3,124


1,555


Derivative financial instruments

475


98


69,085


65,323





Non-current liabilities:





Employee benefit plan liabilities

11,048


10,522


Deferred income

15,035


15,272


Provisions

760


760


Deferred tax liabilities

41,171


40,656


68,014


67,210

Total liabilities

137,099


132,533





Equity:





Share capital

29,195


29,195


Reserves

(302)


596


Retained earnings

813,484


788,636

Total equity attributable to equity holders of the Company

842,377


818,427

Non-controlling interests

25,543


25,037

Total equity  

867,920


843,464

Total equity and liabilities

1,005,019


975,997


*The Company has initially applied IFRS 15 "Revenue From Contracts With Customers" and IFRS 9 "Financial Instruments" at January 1, 2018. 

Under the transition methods chosen by the Company, comparative information has not been restated. 

 

Winpak Ltd.




Condensed Consolidated Statements of Income




(thousands of US dollars, except per share amounts) (unaudited)





Quarter Ended


April 1


April 2


2018


2017*





Revenue

221,665


228,351

Cost of sales

(156,023)


(155,073)

Gross profit

65,642


73,278





Sales, marketing and distribution expenses

(17,645)


(17,624)

General and administrative expenses

(7,973)


(9,139)

Research and technical expenses

(4,072)


(3,774)

Pre-production expenses

(115)


(125)

Other income

216


521

Income from operations

36,053


43,137

Finance income

829


316

Finance expense

(880)


(449)

Income before income taxes

36,002


43,004

Income tax expense

(9,135)


(13,755)

Net income for the period

26,867


29,249





Attributable to:





Equity holders of the Company

26,361


28,552


Non-controlling interests

506


697


26,867


29,249





Basic and diluted earnings per share - cents

41


44









Condensed Consolidated Statements of Comprehensive Income




(thousands of US dollars) (unaudited)





Quarter Ended


April 1


April 2


2018


2017*





Net income for the period

26,867


29,249





Items that will not be reclassified to the statements of income:




Cash flow hedge gains recognized

101


-

Cash flow hedge gains transferred to property, plant and equipment

(235)


-

Income tax effect

-


-


(134)


-

Items that are or may be reclassified subsequently to the statements of income:




Cash flow hedge (losses) gains recognized

(507)


438

Cash flow hedge gains transferred to the statements of income

(536)


(431)

Income tax effect

279


(2)


(764)


5

Other comprehensive (loss) income for the period  - net of income tax

(898)


5

Comprehensive income for the period

25,969


29,254





Attributable to:





Equity holders of the Company

25,463


28,557


Non-controlling interests

506


697


25,969


29,254





*The Company has initially applied IFRS 15 "Revenue From Contracts With Customers" and IFRS 9 "Financial Instruments" at January 1, 2018. 

Under the transition methods chosen by the Company, comparative information has not been restated. 

 

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



capital

Reserves

earnings

Total

interests

Total equity








Balance at December 26, 2016*

29,195

(29)

676,478

705,644

21,625

727,269









Comprehensive income for the period









Cash flow hedge gains, net of tax

-

321

-

321

-

321



Cash flow hedge gains transferred to the statements










of income, net of tax

-

(316)

-

(316)

-

(316)


Other comprehensive income

-

5

-

5

-

5


Net income for the period

-

-

28,552

28,552

697

29,249


Comprehensive income for the period

-

5

28,552

28,557

697

29,254









Dividends

-

-

(1,466)

(1,466)

-

(1,466)








Balance at April 2, 2017*

29,195

(24)

703,564

732,735

22,322

755,057






















Balance at January 1, 2018

29,195

596

788,636

818,427

25,037

843,464









Comprehensive (loss) income for the period









Cash flow hedge losses, net of tax

-

(270)

-

(270)

-

(270)



Cash flow hedge gains transferred to the statements










of income, net of tax

-

(393)

-

(393)

-

(393)



Cash flow hedge gains transferred to property, plant and










equipment

-

(235)

-

(235)

-

(235)


Other comprehensive loss

-

(898)

-

(898)

-

(898)


Net income for the period

-

-

26,361

26,361

506

26,867


Comprehensive (loss) income for the period

-

(898)

26,361

25,463

506

25,969









Dividends

-

-

(1,513)

(1,513)

-

(1,513)








Balance at April 1, 2018

29,195

(302)

813,484

842,377

25,543

867,920








*The Company has initially applied IFRS 15 "Revenue From Contracts With Customers" and IFRS 9 "Financial Instruments" at January 1, 2018. 

Under the transition methods chosen by the Company, comparative information has not been restated. 

 

Winpak Ltd.




Condensed Consolidated Statements of Cash Flows




(thousands of US dollars) (unaudited)





Quarter Ended


April 1


April 2


2018


2017*





Cash provided by (used in):








Operating activities:





Net income for the period

26,867


29,249


Items not involving cash:






Depreciation

10,123


9,383



Amortization - deferred income

(388)


(416)



Amortization - intangible assets

144


158



Employee defined benefit plan expenses

932


916



Net finance expense

51


133



Income tax expense

9,135


13,755



Other

(414)


(1,770)




Cash flow from operating activities before the following

46,450


51,408


Change in working capital:






Trade and other receivables

(9,438)


8,546



Inventories

(1,339)


(11,663)



Prepaid expenses

(1,527)


(1,977)



Trade payables and other liabilities

539


7,058



Contract liabilities

1,315


-






Employee defined benefit plan contributions

(1,709)


(1,005)


Income tax paid

(8,354)


(11,864)


Interest received

810


279


Interest paid

(775)


(377)




Net cash from operating activities

25,972


40,405





Investing activities:





Acquisition of property, plant and equipment - net

(12,460)


(18,247)


Acquisition of intangible assets

(31)


(251)


(12,491)


(18,498)





Financing activities:





Dividends paid

(1,550)


(1,441)





Change in cash and cash equivalents

11,931


20,466





Cash and cash equivalents, beginning of period

291,959


211,225





Cash and cash equivalents, end of period

303,890


231,691





*The Company has initially applied IFRS 15 "Revenue From Contracts With Customers" and IFRS 9 "Financial Instruments" at January 1, 2018. 

 

SOURCE Winpak Ltd.

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