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Winpak Ltd.

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Winpak Reports 2019 Third Quarter Results
Winpak Reports 2019 Third Quarter Results

Canada NewsWire

WINNIPEG, Oct. 24, 2019 /CNW/ - Winpak Ltd. (WPK) today reports consolidated results in US dollars for the third quarter of 2019, which ended on September 29, 2019.

Winpak Ltd. (CNW Group/Winpak Ltd.)


Quarter Ended


Year-To-Date Ended


September 29


September 30


September 29


September 30


2019


2018 *


2019


2018 *









(thousands of US dollars, except per share amounts)
















Revenue

212,734


220,647


656,387


667,503

Net income

29,462


28,651


90,543


84,336









Income tax expense

10,099


9,967


31,881


29,893

Net finance income

(1,364)


(613)


(3,805)


(692)

Depreciation and amortization

10,567


10,099


30,930


29,874

EBITDA (1)

48,764


48,104


149,549


143,411









Net income attributable to equity holders of the Company

28,578


27,835


88,093


82,238

Net income attributable to non-controlling interests

884


816


2,450


2,098

Net income

29,462


28,651


90,543


84,336









Basic and diluted earnings per share (cents)

44


43


136


127

 

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.



*

The Company has initially applied IFRS 16 "Leases" at December 31, 2018. Under the transition method 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; ability to 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 third quarter of 2019 of $28.6 million or 44 cents in earnings per share (EPS) surpassed the comparable 2018 quarter by $0.7 million or 1 cent per share. The improvement in gross profit margins contributed 1.0 cent to EPS. Additionally, net finance income augmented EPS by 1.0 cent. Lower sales volumes and foreign exchange had the opposite effect, each decreasing EPS by 0.5 cents.

For the nine months ended September 29, 2019, net income attributable to equity holders of the Company ascended to $88.1 million or $1.36 per share, exceeding the 2018 corresponding result of $82.2 million or $1.27 per share by 7.1 percent. Higher gross profit margins in 2019 were the main factor, advancing EPS by 7.0 cents while net finance income and foreign exchange added a further 3.5 cents and 2.0 cents, respectively. Conversely, higher operating expenses lowered EPS by 2.5 cents and the contraction in sales volumes subtracted 1.0 cent from EPS. 

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 include portion control and single-serve containers, as well as plastic sheet, 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 include 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 is 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 third quarter of 2019 was $212.7 million, $7.9 million or 3.6 percent less than the third quarter of 2018.  Volumes, in total, were down marginally from the prior year comparable quarter by 1.0 percent. Volumes within the rigid containers and flexible lidding operating segment receded by 5 percent in the quarter. A significant portion of the reduction in volumes took place within the rigid containers product group due to the loss of retort tray business and lower specialty beverage shipments. Conversely, the lidding product group benefitted from gains in specialty beverage die-cut lidding. The flexible packaging operating segment experienced volume growth of 2 percent in the quarter. For the modified atmosphere packaging product group, modest volume growth reflected expansion within the Mexican market. The packaging machinery operating segment had a strong quarter, exceeding the 2018 third quarter by 20 percent. Selling price and mix changes unfavorably influenced third quarter revenue by 2.5 percent as indexed customer selling prices followed the decrease in raw material costs that has taken place in 2019. Foreign exchange had a nominal impact on revenue in relation to the corresponding prior year quarter.

For the first nine months of 2019, revenue decreased by 1.7 percent to $656.4 million from $667.5 million in the corresponding prior year period.  Volumes were virtually unchanged, declining by 0.5 percent. The rigid containers and flexible lidding operating segment realized a 6 percent contraction in volumes. The reduction in retort tray and specialty beverage container shipments led to a decline in volumes for the rigid container product group. In contrast, specialty beverage lidding was the main factor behind the positive performance for the lidding product group. The flexible packaging operating segment achieved a 4 percent advancement in volumes. Biaxially oriented nylon volumes outpaced the prior year by 14 percent due to inroads made at key accounts. Volumes within the modified atmosphere packaging product group advanced by 5 percent, reflecting gains at major North American protein and dairy producers. For the packaging machinery operating segment, growth was nearly 10 percent. Compared to 2018, selling price and mix changes had a negative effect on revenue of 0.7 percent. The slight depreciation of the Canadian dollar in comparison to its US counterpart had a minor negative impact on revenue.

Gross Profit Margins
Gross profit margins expanded in the current quarter to 31.5 percent of revenue from the 30.3 percent of revenue recorded in the third quarter of 2018. The customer selling price indexing mechanisms in place, which represent 70 percent of the Company's revenue, continued to have a favorable impact on margins as the related adjustments were eclipsed by the corresponding fall in raw material costs compared to those incurred a year earlier. In addition, the Company benefitted from continued operational improvements in reducing production waste and instituting lower cost raw material substitutions.   

For the first three quarters of 2019, gross profit margins of 31.6 percent of revenue climbed by 1.3 percentage points from the 2018 year-to-date level of 30.3 percent. This caused an increase in EPS of 7.0 cents. The significant decline in raw material costs has resulted in a widening gap between selling prices and raw material costs and was the main factor influencing the superior margins. This was complemented by the significant progress that has been made in curtailing the expenses relating to production waste and inventory obsolescence.

During the third quarter of 2019, the weighted indexed purchased cost of Winpak's eight primary raw materials experienced a slight decrease compared to the second quarter of 2019, falling by 2.5 percent. Over the past twelve months, the decrease in the index was more significant at 14.0 percent. The decline in the raw material index was mainly due to the lower costs for polyethylene and polypropylene resins.

Expenses and Other
Operating expenses, exclusive of foreign exchange, in the third quarter of 2019 decreased at a similar rate relative to the decline in sales volumes, thereby having a negligible impact on EPS. Foreign exchange lowered EPS by 0.5 cents in the quarter due to the negative translation differences on the revaluation of Canadian dollar monetary assets and liabilities. The magnitude of cash and cash equivalents increased during 2019 and as a result, net finance income supplemented EPS by 1.0 cent for the quarter.

On a year-to-date basis, operating expenses, adjusted for foreign exchange, grew at a rate of 1.9 percent in contrast to the drop in sales volumes, resulting in a decline in EPS of 2.5 cents. During the current year, additional one-time personnel costs were incurred for a group of employees due to the closure and relocation of an administration office. Conversely, foreign exchange had a favorable impact of 2.0 cents on EPS due to the benefit of converting the Company's net Canadian dollar expenses into US funds at a lower average exchange rate. Additionally, net finance income elevated EPS by 3.5 cents, stemming from higher interest rates and the heightened level of cash and cash equivalents on hand. 

Capital Resources, Cash Flow and Liquidity
The Company's cash and cash equivalents balance ended the third quarter of 2019 at $415.2 million, an increase of $19.7 million from the end of the previous quarter. Winpak continued to generate robust cash flows from operating activities before changes in working capital of $48.3 million. Working capital consumed cash of $4.7 million. Trade and other receivables grew by $5.1 million due to the timing of receipts. Cash was utilized for plant and equipment additions of $14.9 million, income tax payments of $8.6 million, dividends of $1.5 million and other items totaling $0.3 million while net finance income generated $1.4 million.

For the first nine months of 2019, the cash and cash equivalents balance rose by $70.9 million from the start of the year. Cash flows generated from operating activities before changes in working capital were exceptional at $149.7 million. The net investment in working capital increased by $2.5 million. Other uses of cash included plant and equipment additions of $43.8 million, income tax payments of $29.5 million, dividend payments of $4.4 million and other items amounting to $2.6 million. Net finance income provided cash of $4.0 million.


Summary of Quarterly Results


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











Q3

Q2

Q1

Q4

Q3

Q2

Q1

Q4


2019

2019

2019

2018

2018

2018

2018

2017*










Revenue

212,734

219,618

224,035

222,138

220,647

225,191

221,665

222,323

Net income attributable to equity holders









of the Company

28,578

31,086

28,429

26,683

27,835

28,042

26,361

39,633

EPS

44

48

44

41

43

43

41

61

 

The Company has initially applied IFRS 16 "Leases" at December 31, 2018 and 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.

Subsequent Event
Effective October 1, 2019, the Company signed a definitive agreement and closed the acquisition with respect to all the business (net assets and building) of privately owned Cheringal Associates, Inc. and Norwood Printing, Inc. collectively ("Control Group") located in Norwood, New Jersey. The purchase price of US $42.2 million was paid from cash resources on hand. Control Group is a market leader in delivering specialized printed packaging solutions to the pharmaceutical, healthcare, nutraceutical, cosmetic and personal care markets.

Looking Forward
Business Outlook
The Company is anticipating revenue and earnings results in the fourth quarter to be comparable to that of the other quarters of the year. Year-to-date, sales volumes and selling price and mix changes have been slightly negative; similar sales volume levels within the Company's operating segments are expected in the last quarter of 2019. Winpak remains in pursuit of new revenue growth opportunities and has secured new business which will provide the impetus for expanding sales volumes in the first quarter of 2020. The Company continues to realize lower operational costs from reducing production waste and implementing more economical raw material formulations, both of which will remain a key focal point. The acquisition of Control Group will provide a positive contribution to revenue and earnings in the fourth quarter and onwards. During the third quarter, the Canadian dollar strengthened in relation to the US dollar, creating some headwinds on earnings in the last quarter of the year. Raw material costs for the Company's core resins have declined in 2019 mainly due to lower polyethylene and polypropylene pricing. In the fourth quarter, gross profit margins are expected to contract marginally from lower selling prices as 70 percent of the Company's revenue is indexed to the price of raw materials albeit with a three to four-month time lag. For the final quarter of 2019, resin costs are forecasted to remain relatively stable with negligible movement on certain resins.

Capital expenditures in the range of $60 million are projected for 2019. A new extrusion line is expected to commence production in the first quarter of 2020 at the Senoia, Georgia specialty films location. In addition, capacity from a polypropylene thermoforming line is scheduled to be commercial in the second quarter of next year at the Sauk Village, Illinois rigid container facility. The building expansion and new state-of-the-art biaxially oriented polyamide (BOPA) line in Winnipeg, Manitoba continues to proceed with an expected start-up by the end of 2020. To deliver organic growth opportunities, Winpak will continue to focus on capital expenditures that augment its technical capabilities in material science developments and new production technologies and processes enabling the Company to expand its offering of recycle-ready products to customers in the North American plastic packaging market. With Winpak's strong financial position, the Company will continue to evaluate acquisition prospects that strategically fit and align with its core competencies in sophisticated packaging for food, beverage and health care applications providing long-term shareholder value.

Winpak Ltd.
Interim Condensed Consolidated Financial Statements
Third Quarter Ended: September 29, 2019

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)









September 29


December 30


2019


2018*





Assets








Current assets:




Cash and cash equivalents

415,181


344,322

Trade and other receivables

135,255


131,851

Income taxes receivable

1,143


1,294

Inventories

130,160


132,318

Prepaid expenses

3,372


2,761

Derivative financial instruments

153


-


685,264


612,546





Non-current assets:




Property, plant and equipment

470,046


453,867

Intangible assets

14,067


14,311

Employee benefit plan assets

8,492


7,507

Deferred tax assets

691


707


493,296


476,392

Total assets

1,178,560


1,088,938





Equity and Liabilities








Current liabilities:




Trade payables and other liabilities

65,031


63,687

Contract liabilities

1,528


3,031

Provisions

149


-

Income taxes payable

2,211


3,753

Derivative financial instruments

95


2,697


69,014


73,168





Non-current liabilities:




Employee benefit plan liabilities

12,337


11,108

Deferred income

14,474


14,786

Provisions and other long-term liabilities

3,179


660

Deferred tax liabilities

43,229


41,313


73,219


67,867

Total liabilities

142,233


141,035





Equity:




Share capital

29,195


29,195

Reserves

38


(2,264)

Retained earnings

976,951


893,279

Total equity attributable to equity holders of the Company

1,006,184


920,210

Non-controlling interests

30,143


27,693

Total equity

1,036,327


947,903

Total equity and liabilities

1,178,560


1,088,938


*The Company has initially applied IFRS 16 "Leases" at December 31, 2018. Under the transition method 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


Year-To-Date Ended


September 29


September 30


September 29


September 30


2019


2018*


2019


2018*









Revenue

212,734


220,647


656,387


667,503

Cost of sales

(145,619)


(153,828)


(448,883)


(465,401)

Gross profit

67,115


66,819


207,504


202,102









Sales, marketing and distribution expenses

(15,930)


(16,795)


(50,849)


(52,112)

General and administrative expenses

(8,041)


(7,793)


(24,660)


(23,468)

Research and technical expenses

(4,223)


(4,223)


(12,681)


(12,325)

Pre-production expenses

(187)


-


(347)


(115)

Other expenses

(537)


(3)


(348)


(545)

Income from operations

38,197


38,005


118,619


113,537

Finance income

2,175


1,524


6,566


3,539

Finance expense

(811)


(911)


(2,761)


(2,847)

Income before income taxes

39,561


38,618


122,424


114,229

Income tax expense

(10,099)


(9,967)


(31,881)


(29,893)

Net income for the period

29,462


28,651


90,543


84,336









Attributable to:








Equity holders of the Company

28,578


27,835


88,093


82,238

Non-controlling interests

884


816


2,450


2,098


29,462


28,651


90,543


84,336









Basic and diluted earnings per share - cents

44


43


136


127

















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


2019


2018*


2019


2018*









Net income for the period

29,462


28,651


90,543


84,336









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








Cash flow hedge (losses) gains recognized

(103)


(34)


399


67

Cash flow hedge losses (gains) transferred to property, plant and equipment

158


55


666


(180)

Income tax effect

-


-


-


-


55


21


1,065


(113)

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








Cash flow hedge (losses) gains recognized

(481)


594


795


(726)

Cash flow hedge losses transferred to the statements of income

40


299


895


62

Income tax effect

117


(239)


(453)


178


(324)


654


1,237


(486)

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

(269)


675


2,302


(599)

Comprehensive income for the period

29,193


29,326


92,845


83,737









Attributable to:








Equity holders of the Company

28,309


28,510


90,395


81,639

Non-controlling interests

884


816


2,450


2,098


29,193


29,326


92,845


83,737










*The Company has initially applied IFRS 16 "Leases" at December 31, 2018. Under the transition method 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 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

-

(464)

-

(464)

-

(464)

Cash flow hedge losses transferred to the statements







of income, net of tax

-

45

-

45

-

45

Cash flow hedge gains transferred to property, plant and







equipment

-

(180)

-

(180)

-

(180)

Other comprehensive loss

-

(599)

-

(599)

-

(599)

Net income for the period

-

-

82,238

82,238

2,098

84,336

Comprehensive (loss) income for the period

-

(599)

82,238

81,639

2,098

83,737








Dividends

-

-

(4,505)

(4,505)

-

(4,505)








Balance at September 30, 2018*

29,195

(3)

866,369

895,561

27,135

922,696






















Balance at December 31, 2018

29,195

(2,264)

893,279

920,210

27,693

947,903








Comprehensive income for the period







Cash flow hedge gains, net of tax

-

981

-

981

-

981

Cash flow hedge losses transferred to the statements







of income, net of tax

-

655

-

655

-

655

Cash flow hedge losses transferred to property, plant and







equipment

-

666

-

666

-

666

Other comprehensive income

-

2,302

-

2,302

-

2,302

Net income for the period

-

-

88,093

88,093

2,450

90,543

Comprehensive income for the period

-

2,302

88,093

90,395

2,450

92,845








Dividends

-

-

(4,421)

(4,421)

-

(4,421)








Balance at September 29, 2019

29,195

38

976,951

1,006,184

30,143

1,036,327


*The Company has initially applied IFRS 16 "Leases" at December 31, 2018. Under the transition method 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


Year-To-Date Ended


September 29


September 30


September 29


September 30


2019


2018*


2019


2018*









Cash provided by (used in):
















Operating activities:








Net income for the period

29,462


28,651


90,543


84,336

Items not involving cash:








Depreciation

10,834


10,389


31,720


30,667

Amortization - deferred income

(381)


(403)


(1,136)


(1,185)

Amortization - intangible assets

114


113


346


392

Employee defined benefit plan expenses

785


974


2,549


2,844

Net finance income

(1,364)


(613)


(3,805)


(692)

Income tax expense

10,099


9,967


31,881


29,893

Other

(1,207)


(1,549)


(2,390)


(2,336)

Cash flow from operating activities before the following

48,342


47,529


149,708


143,919

Change in working capital:








Trade and other receivables

(5,126)


(6,654)


(3,404)


(15,426)

Inventories

1,448


(4,815)


2,158


(14,100)

Prepaid expenses

772


469


(611)


(754)

Trade payables and other liabilities

(1,847)


(6,784)


824


2,344

Contract liabilities

61


1,811


(1,503)


2,902









Employee defined benefit plan contributions

(116)


(114)


(2,207)


(1,945)

Income tax paid

(8,637)


(4,673)


(29,540)


(26,307)

Interest received

2,086


1,491


6,445


3,452

Interest paid

(671)


(811)


(2,440)


(2,593)

Net cash from operating activities

36,312


27,449


119,430


91,492









Investing activities:








Acquisition of property, plant and equipment - net

(14,908)


(22,208)


(43,770)


(55,222)

Acquisition of intangible assets

(68)


(38)


(103)


(153)


(14,976)


(22,246)


(43,873)


(55,375)









Financing activities:








Payment of lease liabilities

(112)


-


(321)


-

Dividends paid

(1,488)


(1,484)


(4,377)


(4,547)


(1,600)


(1,484)


(4,698)


(4,547)









Change in cash and cash equivalents

19,736


3,719


70,859


31,570









Cash and cash equivalents, beginning of period

395,445


319,810


344,322


291,959









Cash and cash equivalents, end of period

415,181


323,529


415,181


323,529









*The Company has initially applied IFRS 16 "Leases" at December 31, 2018. Under the transition method chosen by the Company,

comparative information has not been restated.

 

SOURCE Winpak Ltd.

View original content to download multimedia: http://www.newswire.ca/en/releases/archive/October2019/24/c2123.html

L.A. Warelis, Vice President and CFO, (204) 831-2254; O.Y. Muggli, President and CEO, (204) 831-2214Copyright CNW Group 2019

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