Winpak Reports First Quarter Results

Winpak Ltd.

WINNIPEG, April 20, 2016 /CNW/ - Winpak Ltd. (WPK) today reports consolidated results in US dollars for the first quarter of 2016, which ended on March 27, 2016. 

	Quarter Ended
	March 27		March 29
	2016		2015
(thousands of US dollars, except per share amounts)
Revenue	198,154		199,440
Net income	27,300		22,724
Income tax expense	12,310		10,914
Net finance (income) expense	(19)		35
Depreciation and amortization	8,331		7,747
EBITDA (1)	47,922		41,420
Net income attributable to equity holders of the Company	26,564		22,463
Net income attributable to non-controlling interests	736		261
Net income	27,300		22,724
Basic and diluted earnings per share (cents)	41		35

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 first quarter of 2016 of $26.6 million or 41 cents in earnings per share exceeded the $22.5 million or 35 cents per share recorded in the corresponding quarter of 2015, an increase of 18.3 percent.  This represented the highest first quarter earnings performance since the inception of Winpak.  Organic volume growth contributed 2 cents in earnings per share and was supplemented by gross profit margin improvement and favorable foreign exchange impacts of 1.5 cents per share each.  Lower operating expenses and a lower effective income tax rate each added 1 cent to earnings per share while a greater proportion of earnings attributable to non-controlling interests subtracted 1 cent from earnings per share.

Revenue
Revenue in the first quarter of 2016 amounted to $198.2 million, falling just 0.6 percent short of the prior year-to-date level of $199.4 million.  Nonetheless, volume growth was solid at 4.7 percent in comparison to the first quarter of 2015 and was all organic.  All product groups advanced with the exception of packaging machinery and parts sales, which registered a particularly strong first quarter in 2015.  Biaxially oriented nylon volumes were robust, rising by low double-digit percentages in comparison to the first three months of 2015.  The remaining product groups of specialty films, modified atmosphere packaging, rigid packaging and lidding all progressed in the mid single-digit percentage range in volume growth.  Continued progress at business development in the core markets of meat and cheese drove success for both the specialty films and modified atmosphere packaging product groups.  Multi-pak yogurt and retort packaging propelled volumes in both the rigid container and lidding groups which more than offset weakness experienced in the specialty beverage market.  Selling price/mix changes had an unfavorable effect of 3.9 percent on 2016 first quarter revenues as indexed selling prices followed the decrease in raw material costs which occurred through most of 2015.  The decline in the value of the Canadian dollar in comparison to its US counterpart had a further 1.4 percent negative effect on revenue versus the comparable prior year quarter.

Gross profit margins
Gross profit margins in the first quarter of 2016 rose to 34.2 percent of revenue versus 31.6 percent of revenue in the comparable 2015 quarter, an improvement of 2.6 percentage points.  The fall in raw material costs in relation to those incurred a year prior was the main factor contributing to the margin improvement, resulting in an expansion in earnings per share of 1.5 cents.  While just over 70 percent of the Company's revenues are indexed whereby the selling prices move in concert with raw material cost changes, albeit with a time lag, market pricing for non-indexed accounts has remained fairly steady over the past year.  In addition, there was also some improvement in manufacturing performance, in terms of material waste and efficiency, at certain of the Company's operations which supplemented gross profit margins.

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 28, 2015 to reflect the mix of the eight primary raw materials purchased in 2015. 

Quarter and Year	1/16	4/15	3/15	2/15	1/15	4/14	3/14	2/14	1/14
Purchase Price Index	136.4	139.1	147.7	152.1	156.9	175.1	176.2	178.1	178.7

The purchase price index declined slightly by 1.9 percent in the current quarter compared to the final quarter of 2015.  Moderate declines in the price of many of the Company's raw materials in the quarter were offset in large degree by a significant escalation in polypropylene resin pricing.  In relation to a year ago, the purchase price index has fallen more noticeably by over 13 percent and was directly related to the decrease in the price of oil and natural gas, from which resins used by the Company are derived.

Expenses and Other
Operating expenses in the quarter, after eliminating the impact of foreign exchange, increased by less than 1 percent, well below the growth in sales volumes of 4.7 percent in relation to the first quarter of 2015.  This contributed 1 cent in earnings per share and was mainly due to lower share-based compensation costs versus the prior year period. The lower value of the Canadian dollar in the first three months of the current year versus the comparable 2015 period supplemented earnings per share by 1.5 cents as Canadian dollar expenses exceed Canadian dollar revenues.  A lower effective income tax rate in the 2016 first quarter added a further 1 cent to earnings per share as a greater proportion of income was earned in Canada where corporate income tax rates are more favorable.  On the other hand, an increase in net income attributable to non-controlling interests reduced earnings per share by 1 cent in the first three months of 2016 versus the comparable 2015 quarter.

Summary of Quarterly Results
		Thousands of US dollars, except per share amounts (US cents)
	Q1 2016	Q4 2015	Q3 2015	Q2 2015	Q1 2015	Q4 2014	Q3 2014	Q2 2014
Revenue	198,154	205,746	193,726	198,257	199,440	206,269	192,982	199,426
Net income attributable to equity holders
of the Company	26,564	27,635	22,305	26,845	22,463	23,343	19,448	19,406
EPS	41	43	34	41	35	36	30	30

Capital Resources, Cash Flow and Liquidity
The Company's cash and cash equivalents balance ended the first quarter of 2016 at $169.5 million, an increase of $4.5 million from the end of the prior year.  Winpak continued to generate strong and consistent cash flows from operating activities before changes in working capital of $47.4 million, surpassing the first quarter of 2015 by $6.2 million.  Cash was utilized to supplement working capital of $10.4 million, income tax payments of $15.2 million, plant and equipment additions of $15.1 million, dividends of $1.4 million and other items totaling $0.8 million.  

Looking Forward
After a strong start to the year, the Company remains optimistic with regard to volume growth and earnings performance for the rest of 2016.  Opportunities in the sales pipeline continue to progress along the path to becoming new sources of revenue.  World oil prices have risen in the last couple of months and this has put upward pressure on resin pricing as the second quarter begins, with price hikes announced for several of the Company's main raw materials.  However, it is difficult to predict whether this will be a longer term trend or just a short-term impact on raw material costs.  Gross profit margins will likely fall a couple of percentage points from the heightened levels experienced in the first quarter as higher resin costs make their way into cost of goods sold and eventually into higher indexed selling prices.  Manufacturing performance should continue to improve in areas where capacity constraints have caused operational difficulties.  Of particular importance will be the commercialization of the massive technologically-advanced cast coextrusion line, which is in the early stages of being commissioned at the Company's modified atmosphere packaging plant in Winnipeg.  Although there has been some strength in the Canadian dollar versus its US counterpart as of late, it still remains at a lower level than a year prior and will continue to be favorable to the Company's earnings, as Canadian dollar denominated costs exceed revenues in that currency.  In addition, further positive effects on earnings will be evident in 2016 as foreign currency forward contracts that are part of the Company's foreign exchange hedging policy mature at more favorable rates than those that came due in 2015.  Capital spending for 2016 will be higher than in the past several years at a level estimated to be between $75 million and $85 million as both the rigid container operations in Chicago and the shrink bag production unit in Georgia are embarking on facility expansions of 350,000 and 85,000 square feet respectively.  The Company will continue to pursue acquisition opportunities in Winpak's core competencies of sophisticated packaging for food, beverage and healthcare applications while it remains committed to substantial organic growth through capital investment.  With Winpak's solid financial position, it has the resources necessary to complete an acquisition when the proper fit and price are present to provide long-term shareholder value.

Winpak Ltd.
Interim Condensed Consolidated Financial Statements
First Quarter Ended: March 27, 2016

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)
				March 27		December 27
				2016		2015
Assets
Current assets:
	Cash and cash equivalents			169,500		165,027
	Trade and other receivables			109,160		107,805
	Income taxes receivable			103		2,050
	Inventories			97,542		96,498
	Prepaid expenses			4,717		3,411
	Derivative financial instruments			964		40
				381,986		374,831
Non-current assets:
	Property, plant and equipment			375,868		369,436
	Intangible assets			14,574		14,745
	Employee benefit plan assets			6,526		5,723
	Deferred tax assets			1,320		1,408
				398,288		391,312
Total assets				780,274		766,143
Equity and Liabilities
Current liabilities:
	Trade payables and other liabilities			61,878		68,534
	Income taxes payable			4,924		10,569
	Derivative financial instruments			387		1,683
				67,189		80,786
Non-current liabilities:
	Employee benefit plan liabilities			9,432		8,885
	Deferred income			13,691		14,071
	Provisions			760		760
	Deferred tax liabilities			38,335		38,250
				62,218		61,966
Total liabilities				129,407		142,752
Equity:
	Share capital			29,195		29,195
	Reserves			441		(1,208)
	Retained earnings			601,450		576,359
Total equity attributable to equity holders of the Company				631,086		604,346
Non-controlling interests				19,781		19,045
Total equity				650,867		623,391
Total equity and liabilities				780,274		766,143

Winpak Ltd.
Condensed Consolidated Statements of Income
(thousands of US dollars, except per share amounts) (unaudited)
			Quarter Ended
			March 27		March 29
			2016		2015
Revenue			198,154		199,440
Cost of sales			(130,387)		(136,469)
Gross profit			67,767		62,971
Sales, marketing and distribution expenses			(15,232)		(15,082)
General and administrative expenses			(7,946)		(8,967)
Research and technical expenses			(3,745)		(3,699)
Pre-production expenses			(169)		(346)
Other expenses			(1,084)		(1,204)
Income from operations			39,591		33,673
Finance income			133		85
Finance expense			(114)		(120)
Income before income taxes			39,610		33,638
Income tax expense			(12,310)		(10,914)
Net income for the period			27,300		22,724
Attributable to:
	Equity holders of the Company		26,564		22,463
	Non-controlling interests		736		261
			27,300		22,724
Basic and diluted earnings per share - cents			41		35
Condensed Consolidated Statements of Comprehensive Income
(thousands of US dollars) (unaudited)
			Quarter Ended
			March 27		March 29
			2016		2015
Net income for the period			27,300		22,724
Items that will not be reclassified to the statements of income:
Cash flow hedge gains recognized			32		-
Cash flow hedge losses transferred to property, plant and equipment			52		-
Income tax effect			-		-
			84		-
Items that are or may be reclassified subsequently to the statements of income:
Cash flow hedge gains (losses) recognized			1,412		(1,568)
Cash flow hedge losses transferred to the statements of income			724		559
Income tax effect			(571)		270
			1,565		(739)
Other comprehensive income (loss) for the period  - net of income tax			1,649		(739)
Comprehensive income for the period			28,949		21,985
Attributable to:
	Equity holders of the Company		28,213		21,724
	Non-controlling interests		736		261
			28,949		21,985

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 29, 2014				29,195	(641)	555,697	584,251	17,136	601,387
	Comprehensive (loss) income for the period
		Cash flow hedge losses, net of tax		-	(1,149)	-	(1,149)	-	(1,149)
		Cash flow hedge losses transferred to the statements of income, net of tax		-	410	-	410	-	410
	Other comprehensive loss			-	(739)	-	(739)	-	(739)
	Net income for the period			-	-	22,463	22,463	261	22,724
	Comprehensive (loss) income for the period			-	(739)	22,463	21,724	261	21,985
	Dividends			-	-	(1,548)	(1,548)	-	(1,548)
Balance at March 29, 2015				29,195	(1,380)	576,612	604,427	17,397	621,824
Balance at December 28, 2015				29,195	(1,208)	576,359	604,346	19,045	623,391
	Comprehensive income for the period
		Cash flow hedge gains, net of tax		-	1,067	-	1,067	-	1,067
		Cash flow hedge losses transferred to the statements of income, net of tax		-	530	-	530	-	530
		Cash flow hedge losses transferred to property, plant and equipment		-	52	-	52	-	52
	Other comprehensive income			-	1,649	-	1,649	-	1,649
	Net income for the period			-	-	26,564	26,564	736	27,300
	Comprehensive income for the period			-	1,649	26,564	28,213	736	28,949
	Dividends			-	-	(1,473)	(1,473)	-	(1,473)
Balance at March 27, 2016				29,195	441	601,450	631,086	19,781	650,867

Winpak Ltd.
Condensed Consolidated Statements of Cash Flows
(thousands of US dollars) (unaudited)
				Quarter Ended
				March 27		March 29
				2016		2015
Cash provided by (used in):
Operating activities:
	Net income for the period			27,300		22,724
	Items not involving cash:
		Depreciation		8,555		7,984
		Amortization - deferred income		(394)		(392)
		Amortization - intangible assets		170		155
		Employee defined benefit plan expenses		878		976
		Net finance (income) expense		(19)		35
		Income tax expense		12,310		10,914
		Other		(1,377)		(1,123)
			Cash flow from operating activities before the following	47,423		41,273
	Change in working capital:
		Trade and other receivables		(1,355)		2,254
		Inventories		(1,044)		3,131
		Prepaid expenses		(1,306)		(932)
		Trade payables and other liabilities		(6,681)		(7,782)
	Provisions			-		36
	Employee defined benefit plan contributions			(947)		(1,078)
	Income tax paid			(15,185)		(3,714)
	Interest received			51		62
	Interest paid			(4)		(7)
			Net cash from operating activities	20,952		33,243
Investing activities:
	Acquisition of plant and equipment - net			(15,061)		(12,804)
	Acquisition of intangible assets			(10)		(55)
				(15,071)		(12,859)
Financing activities:
	Dividends paid			(1,408)		(1,678)
Change in cash and cash equivalents				4,473		18,706
Cash and cash equivalents, beginning of period				165,027		143,761
Cash and cash equivalents, end of period				169,500		162,467

SOURCE Winpak Ltd.

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K.P. Kuchma, Vice President and CFO, [phone]; B.J. Berry, President and CEO, [phone]