Mr. B.J. Berry reports
WINPAK REPORTS FIRST QUARTER RESULTS
Winpak Ltd. has released consolidated results in U.S. dollars for the first quarter of 2014, which ended on March 30, 2014.
FIRST QUARTER RESULTS
(In thousands of U.S. dollars, except per-share amounts)
Quarter ended
March 30, March 31,
2014 2013
Revenue $188,077 $169,949
Net income 16,456 15,850
Income tax expense 7,235 6,862
Net finance (income) expense (63) 105
Depreciation and amortization 7,365 6,571
EBITDA (1) 30,993 29,388
Net income attributable to equityholders of the
company 16,163 15,989
Net income (loss) attributable to non-controlling
interests 293 (139)
Net income 16,456 15,850
Basic and diluted earnings per share (cents) 25 25
(1) EBITDA (earnings before interest, taxes, depreciation and amortization)
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.
Financial performance
Net income attributable to common shareholders for the first quarter of 2014 amounted to $16.2-million or 25 cents in earnings per share compared with $16.0-million or 25 cents per share in the corresponding quarter of 2013, an increase of 1.1 per cent. Organic revenue growth elevated earnings per share by three cents but was entirely offset by lower gross profit margins. Furthermore, savings generated by restraint in the growth rate of operating expenses, which contributed onen cent in earnings per share, were largely offset by a greater proportion of earnings attributable to non-controlling interests, leaving earnings per share unchanged from the prior-year first quarter.
Revenue
Revenue growth in the first three months of 2014 was vibrant, reaching a quarterly high of $188.1-million, an increase of $18.1-million or 10.7 per cent over the first quarter of 2013. Volumes advanced by a solid 10.9 per cent over the prior-year comparable quarter as growth was widespread across many of the company's product groups. Both rigid container and biaxially oriented nylon film volumes eclipsed the 2013 first quarter by just over 20 per cent with the former experiencing gains in yogurt, condiment and specialty beverage containers. Following closely behind was the lidding product group where momentum picked up in die-cut lids for greek yogurt, condiment, retort and specialty beverage applications. Improved growth was experienced in modified atmosphere packaging, which advanced in the upper-single-digit percentage range. Packaging machinery volumes were virtually on par with the strong performance experienced in the first quarter of 2013 while specialty film volumes fell by over 10 per cent. The latter was impacted by two plant shutdowns caused by two major winter storms, which paralyzed the Atlanta region during the quarter. Selling price/mix changes had a favourable impact of 0.9 per cent on revenues for the quarter while foreign exchange, due to a weakening in the Canadian dollar, decreased revenues in the quarter by 1.1 per cent in comparison with the first quarter of 2013.
Gross profit margins
Gross profit margins for the quarter at 27.2 per cent fell short of the 28.8 per cent of revenue recorded in the first quarter of 2013. A narrowing of the spread between raw material costs and selling prices was caused by a combination of a less favourable product mix, raw material cost increases and isolated competitive pressures on selling prices. This, along with higher manufacturing costs, resulted in a reduction in earnings per share of three cents. Fixed manufacturing costs were impacted by recently added but underutilized capacity, and heightened waste levels were experienced with new products and processes.
For reference, an attached table 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 equals 100. The index was rebalanced as of Dec. 30, 2013, to reflect the mix of the eight primary raw materials purchased in 2013.
Quarter and First Fourth Third Second First Fourth Third Second First
year 2014 2013 2013 2013 2013 2012 2012 2012 2012
Purchase
price index 178.7 175.0 173.2 173.5 176.5 170.6 167.3 174.5 174.7
The purchase price index hit its highest level in the past two years, escalating by 2.1 per cent as compared with the fourth quarter of 2013. Polypropylene, polystyrene and polyethylene resin prices advanced by more than the index in the past quarter, while other material costs were more stable.
Expenses and other
Operating expenses in total, adjusted for foreign exchange, increased by just under 6 per cent while volumes advanced by nearly 11 per cent in the quarter when compared with the same period in 2013. The net result was an improvement to earnings per share of approximately one cent. Higher freight and distribution costs in the first quarter of 2014 were more than offset by the absence of preproduction expenses, tax incentives related to the company's research and development activities, and lower selling, general and administrative costs. However, a larger proportion of earnings attributable to non-controlling interests decreased earnings per share by one cent. Income taxes and foreign exchange were both in line with the first quarter of 2013 and had no effect on earnings per share for the current three-month period compared with the equivalent time frame in the prior year. The weaker Canadian dollar had a positive impact on earnings as expenses exceed revenues in that currency, but these gains were offset entirely by losses incurred on the maturation of foreign exchange contracts that form part of the company's foreign exchange hedging policy.
Capital resources, cash flow and liquidity
The company's cash and cash equivalents balance ended the first quarter at $112.8-million, a decline of $48.3-million from the end of 2013. Winpak declared and paid a special dividend of $58.5-million ($65.0-million (Canadian)) in the quarter. In addition, cash was utilized for plant and equipment additions of $12.2-million, income tax payments of $3.2-million, employee-defined benefit plan payments of $2.8-million, a regular quarterly dividend of $1.8-million, and other items totalling $100,000. The company continued to generate strong and consistent cash flows from operating activities before changes in working capital of $30.4-million, an improvement of $1.3-million from the prior-year first quarter. Working capital in total was virtually unchanged, increasing by just $100,000.
Looking forward
Building upon the strength of first quarter volume growth exceeding 10 per cent and a solid performance in 2013, the company continues to view 2014 with optimism. New revenue generation and manufacturing performance improvement will remain the prime areas of focus for the entire organization for the balance of the year. A number of significant opportunities are in the sales pipeline; however, the timing for conversion of these into future revenues remains uncertain as customers' protocols for new supply will govern the process. In the near term, raw material costs are expected to remain fairly stable over all in terms of pricing and supply. Gross profit margins should also continue near existing levels for the immediate future, subject to the timing of new customer additions and hence the fill rate of recently added production capacity. In addition, competitive forces could impact selling prices for existing products or anticipated prices for new company product initiatives. Capital spending is still expected to be in the range of $50-million to $60-million for the year, and will be geared to expanding on existing capabilities in extrusion and converting. With the recent special dividend of nearly $60-million paid in the first quarter, the company is still left with sufficient cash to execute a significant acquisition should the right opportunity present itself. In this regard, the company will continue to pursue acquisition opportunities in Winpak's core competencies in sophisticated food and health care packaging while remaining committed to organic growth through capital investment.
Interim condensed consolidated financial statements,
first quarter ended March 30, 2014
The 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 SEDAR or the company's website.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands of U.S. dollars, except per-share amounts)
Quarter ended
March 30, March 31,
2014 2013
Revenue $188,077 $169,949
(Cost) of sales (136,869) (121,078)
Gross profit 51,208 48,871
Sales, marketing and distribution (expenses) (15,266) (14,095)
General and administrative (expenses) (7,646) (7,823)
Research and technical (expenses) (3,352) (3,384)
Preproduction (expenses) - (526)
Other (expenses) (1,316) (226)
Income from operations 23,628 22,817
Finance income 151 105
Finance (expense) (88) (210)
Income before income taxes 23,691 22,712
Income tax (expense) (7,235) (6,862)
Net income for the period 16,456 15,850
Attributable to
Equityholders of the company 16,163 15,989
Non-controlling interests 293 (139)
16,456 15,850
Basic and diluted earnings per share -- cents 25 25
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands of U.S. dollars)
Quarter ended
March 30, March 31,
2014 2013
Net income for the period $16,456 $15,850
Items that will not be reclassified to the
statements of income
Cash flow hedge (losses) recognized - (102)
Cash flow hedge (gains) transferred to property,
plant and equipment - (33)
Income tax effect - -
- (135)
Items that are or may be reclassified subsequently
to the statements of income
Cash flow hedge (losses) recognized (887) (436)
Cash flow hedge losses (gains) transferred to the
statements of income 682 (21)
Income tax effect 54 122
(151) (335)
Other comprehensive (loss) for the period -- net of
income tax (151) (470)
Comprehensive income for the period 16,305 15,380
Attributable to
Equityholders of the company 16,012 15,519
Non-controlling interests 293 (139)
16,305 15,380
We seek Safe Harbor.
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