Winpak Reports Fourth Quarter Results

Winpak Ltd.

WINNIPEG, Feb. 18, 2016 /CNW/ - Winpak Ltd. (WPK) today reports consolidated results in US dollars for the fourth quarter of 2015, which ended on December 27, 2015. 

	Quarter Ended				Year Ended
	December 27		December 28		December 27		December 28
	2015		2014		2015		2014
(thousands of US dollars, except per share amounts)
Revenue	205,746		206,269		797,169		786,754
Net income	28,377		23,756		101,803		79,652
Income tax expense	11,775		9,954		45,474		35,529
Net finance expense (income)	15		(88)		50		(117)
Depreciation and amortization	8,240		7,956		31,879		30,542
EBITDA (1)	48,407		41,578		179,206		145,606
Net income attributable to equity holders of the Company	27,635		23,343		99,248		78,360
Net income attributable to non-controlling interests	742		413		2,555		1,292
Net income	28,377		23,756		101,803		79,652
Basic and diluted earnings per share (cents)	43		36		153		121

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 fourth quarter of 2015 rose to $27.6 million or 43 cents in earnings per share, the highest quarterly earnings performance in the history of the Company.  This exceeded the final quarter of 2014 by $4.3 million or 7 cents per share, an advancement of 18.4 percent.  Enhanced gross profit margins propelled earnings per share forward by 5.0 cents while organic volume growth contributed a further 1.5 cents.  Favorable foreign exchange provided an additional 2.0 cents in earnings per share and was partially offset by higher operating expenses which reduced earnings per share by 1.5 cents.  The positive impact on earnings per share of lower income taxes of 0.5 cents was negated in its entirety by a greater proportion of earnings attributable to non-controlling interests. 

For the year, net income attributable to equity holders of the Company climbed to $99.2 million or $1.53 in earnings per share, exceeding the prior year record net income of $78.4 million or $1.21 per share by 26.7 percent.  Lower raw material prices drove higher gross profit margins, resulting in an increase in earnings per share of 24.0 cents.  This was further enriched by organic volume growth, favorable foreign exchange and lower income taxes which added 5.5 cents, 6.5 cents and 0.5 cents respectively to earnings per share.  Higher operating expenses and a greater proportion of earnings attributable to non-controlling interests had the opposite effect by decreasing earnings per share by 2.5 cents and 2.0 cents accordingly. 

Revenue
Revenue in the fourth quarter of 2015 of $205.7 million essentially matched the comparable 2014 period, falling short by just 0.3 percent.  Nonetheless, this is only the second time since Winpak's inception that quarterly revenues exceeded the $200 million plateau.  Volume growth was all organic and registered a respectable increase of 4.2 percent compared to the fourth quarter of 2014.  Modified atmosphere packaging shipments were robust, exceeding the final quarter of the prior year by more than 10 percent.  Further progress at penetrating multinational food companies, along with gains at existing meat and cheese customers, drove success for this product group.  The rebound in lidding, evident in the third quarter, continued with volumes out-distancing the last three months of 2014 in the mid-single-digit percentage range.  Yogurt and retort lidding provided the main impetus.  Rigid container volumes advanced in the low single-digit percentage range, after leading the Company in growth in the prior year.  Specialty film volumes, on the other hand, were challenged in the quarter, receding in the mid-single-digit percentage range, due in part to the downstream effect of lost business by some of its customers as well as capacity-related constraints in its shrink bag operations.  Packaging machinery and part sales revenues retreated by over 20 percent from the fourth quarter of 2014 as increases of over 30 percent in parts sales were not enough to overcome reduced machinery shipments, which follow a more cyclical pattern.  Selling price/mix changes had an unfavorable effect of 2.7 percent on 2015 fourth quarter revenues and the decline in the value of the Canadian dollar in comparison to its US counterpart also had a negative impact of 1.8 percent versus the comparable prior year quarter.   

For 2015, revenue of $797.2 million surpassed the prior year amount of $786.8 million by $10.4 million or 1.3 percent, despite price-indexing and foreign exchange headwinds.  Volumes increased by 4.3 percent, with all product groups advancing.  Consistent with the fourth quarter, modified atmosphere packaging led the Company, exceeding prior year volumes by more than 10 percent due to increased sales of sophisticated packaging for processed meat and cheese applications.  Biaxially oriented nylon film, and packaging machinery and part sales volumes progressed in the mid-single-digit percentage range while rigid containers, lidding and specialty films shipments grew in low single-digit percentage terms.  In comparison to 2014, selling price/mix changes in 2015 had an unfavorable impact of 1.4 percent on revenues while foreign exchange reduced reported revenues by a further 1.6 percent.   

Gross profit margins
Gross profit margins for the fourth quarter of 2015 outpaced the comparable 2014 period by 3.7 percentage points at 33.5 percent of revenue versus 29.8 percent.  The decline in raw material costs in relation to those experienced a year earlier was the main factor contributing to the margin improvement, resulting in a boost in earnings per share of 5.0 cents.  Although approximately 70 percent of the Company's revenues are indexed, there is a lag of approximately 90 days before the effects of raw material cost changes are realized within selling prices.  With raw material costs falling, the result was a somewhat inflated margin in the quarter.  The raw material cost decreases experienced in the fourth quarter of 2015 will, on average, be translated into selling price reductions in the first quarter of 2016.  Market pricing for non-indexed accounts have remained fairly stable through the period.     

For the year, gross profit margins of 32.3 percent of revenue eclipsed the 2014 level of 28.5 percent by a sizeable 3.8 percentage points.  The result was an addition to earnings per share of 24.0 cents.  The significant decline in oil and natural gas prices in 2015 and consequently its impact on resin prices, has resulted in a widening gap between raw material costs and selling prices and was the main factor influencing the heightened 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 29, 2014 to reflect the mix of the eight primary raw materials purchased in 2014. 

Quarter and Year	4/15	3/15	2/15	1/15	4/14	3/14	2/14	1/14	4/13
Purchase Price Index	139.1	147.7	152.1	156.9	175.1	176.2	178.1	178.7	175.0

The purchase price index fell a noticeable 5.8 percent in the current quarter in relation to the third quarter of 2015.  In comparison to a year earlier, the index decline was even more pronounced at 20.6 percent.  The commodity-type resins have experienced a more significant decline than the average whereas certain specialty resins were fairly stable throughout the period.  As 2016 begins, pricing for most materials appears to be stable with the exception of polypropylene resin, where supply is tight. 

Expenses and Other
Operating expenses in the quarter, adjusted for foreign exchange, increased by 10.3 percent, exceeding the growth in sales volumes from the fourth quarter of 2014.  Higher compensation costs, including incentive expenses, and offsite storage costs were the main contributing factors responsible for the negative impact of 1.5 cents on earnings per share for the quarter.  The lower value of the Canadian dollar in the final three months of 2015 versus the comparable period in 2014 supplemented earnings per share by 2.0 cents as Canadian dollar expenses exceeded revenues denominated in that currency.  An increase in earnings attributable to non-controlling interests reduced earnings per share by 0.5 cents in the quarter versus the fourth quarter of the prior year but was equally offset by the positive impact of a lower average income tax rate in the period as a greater proportion of income was earned in Canada in the current quarter where corporate income tax rates are more favorable.

For the 2015 fiscal year, operating expenses, exclusive of foreign exchange impacts, advanced by just over 2 percentage points more than the increase in sales volumes from 2014, resulting in a reduction in earnings per share of 2.5 cents.  Higher shared-based incentive costs and reduced research and development tax credits in 2015 had the greatest impact on elevating operating expenses.  Foreign exchange had a net favorable effect of 6.5 cents on earnings per share, primarily as a result of converting the Company's net Canadian dollar expenses into US funds at a lower average exchange rate in 2015 compared to the prior year.  Earnings per share was also favorably impacted by 0.5 cents due to a larger percentage of earnings being realized in lower income tax rate jurisdictions.  On the other hand, a greater proportion of earnings attributable to non-controlling interests reduced earnings per share by 2.0 cents per share in the current year versus 2014. 

Summary of Quarterly Results

		Thousands of US dollars, except per share amounts (US cents)
		Q4	Q3	Q2	Q1	Q4	Q3	Q2	Q1
		2015	2015	2015	2015	2014	2014	2014	2014
Revenue		205,746	193,726	198,257	199,440	206,269	192,982	199,426	188,077
Net income attributable to equity holders
of the Company		27,635	22,305	26,845	22,463	23,343	19,448	19,406	16,163
EPS		43	34	41	35	36	30	30	25

Capital Resources, Cash Flow and Liquidity

The Company's cash and cash equivalents balance ended the year at $165.0 million, a decrease of $45.4 million from the end of the third quarter of 2015.  The payment of a special dividend of $73.8 million ($97.5 million Canadian) in the quarter resulted in the decrease in cash.  Winpak continued to generate strong and consistent cash flows from operating activities before changes in working capital of $49.0 million, surpassing the final quarter of 2014 by $6.6 million.  Cash was also generated from a reduction in working capital of $4.9 million.  In addition to the special dividend, cash was utilized for plant and equipment additions of $16.9 million, income tax payments of $6.7 million, regular dividends of $1.5 million and other items totaling $0.4 million.  

For the year, the cash and cash equivalents balance rose by $21.3 million, despite the payment of special and regular dividends to equity holders of the Company of $80.1 million.  Cash generated from operating activities before changes in working capital amounted to $179.0 million, a substantial appreciation of $33.6 million compared to the prior year.  Reductions in working capital, primarily trade receivables and inventories, added a further $9.4 million to the cash balance in the year.  Uses of cash included plant and equipment additions of $53.7 million which were predominantly extrusion-related, income tax payments of $26.5 million, employee defined benefit plan contributions of $1.7 million, and other items totaling $0.6 million.  In addition, in the second quarter of the year, the multiemployer pension plan withdrawal liability was extinguished for $4.5 million.  The Company remains debt-free and is confident that sufficient financial resources are in place to meet all anticipated cash requirements for the foreseeable future.   

Looking Forward
As 2016 begins, the Company is optimistic with regard to the upcoming year.  Opportunities in the sales pipeline are significant and should provide the impetus for expanding volumes in 2016 and beyond.  There are several technical complexities that need to be conquered to bring certain of these opportunities to fruition but management is confident that these challenges will be met.  Raw material pricing is expected to remain relatively stable in the near term as demand and fulfillment are in relative equilibrium, with the exception of polypropylene resin where tightness of supply is evident in the marketplace and may exert upward pressure on pricing going forward.  However, with the further decline and volatility in world oil prices as of late, it is difficult to predict what impact this may have on future raw material prices.  Gross profit margins will likely fall a couple of percentage points from elevated fourth quarter levels as the effect from recent declines in raw material costs on indexed selling prices will be realized in the early part of the upcoming year due to the lag period of approximately three months.  Manufacturing performance will continue to remain a focus for the operations group in 2016 and improvement will be essential to alleviate bottlenecks in areas where capacity is currently constrained in order to achieve the Company's volume growth objectives.  Of particular importance will be the commercialization of the massive technologically-advanced cast coextrusion line which is in the process of being installed at the Company's modified atmosphere packaging facility in Winnipeg.  The weakness in the Canadian dollar versus its US counterpart, while reducing reported revenues, will continue to be favorable to the Company's earnings, as Canadian dollar denominated costs exceed revenues in that currency.  Should the exchange rate stabilize at current levels, further positive effects will be evident in 2016 results due to the Company's foreign exchange hedging policy whereby between 50 and 80 percent of the net requirement of Canadian dollars for the ensuing 9 to 15 months are hedged at all times with forward or zero-option contracts.  To some extent, this has muted the favorable effect of the weaker Canadian dollar on 2015's net income.  Capital spending for 2016 should be somewhat higher than 2015's level of $53.7 million as the rigid container operations in Chicago are planning to add a further 350,000 square feet to its existing Sauk Village facility which was constructed in 2012 and an addition of 85,000 square feet is budgeted for the Company's shrink bag operations in Georgia.  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
Fourth Quarter Ended: December 27, 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)
					December 27		December 28
					2015		2014
Assets
Current assets:
	Cash and cash equivalents				165,027		143,761
	Trade and other receivables				107,805		112,454
	Income taxes receivable				2,050		2,873
	Inventories				96,498		100,586
	Prepaid expenses				3,411		4,344
	Derivative financial instruments				40		-
					374,831		364,018
Non-current assets:
	Property, plant and equipment				369,436		348,002
	Intangible assets				14,745		15,068
	Employee benefit plan assets				5,723		5,249
	Deferred tax assets				1,408		1,990
					391,312		370,309
Total assets					766,143		734,327
Equity and Liabilities
Current liabilities:
	Trade payables and other liabilities				68,534		69,098
	Provisions				-		427
	Income taxes payable				10,569		690
	Derivative financial instruments				1,683		875
					80,786		71,090
Non-current liabilities:
	Employee benefit plan liabilities				8,885		7,673
	Deferred income				14,071		14,831
	Provisions				760		6,571
	Deferred tax liabilities				38,250		32,775
					61,966		61,850
Total liabilities					142,752		132,940
Equity:
	Share capital				29,195		29,195
	Reserves				(1,208)		(641)
	Retained earnings				576,359		555,697
Total equity attributable to equity holders of the Company					604,346		584,251
Non-controlling interests					19,045		17,136
Total equity					623,391		601,387
Total equity and liabilities					766,143		734,327

Winpak Ltd.
Condensed Consolidated Statements of Income
(thousands of US dollars, except per share amounts) (unaudited)
			Quarter Ended				Year Ended
			December 27		December 28		December 27		December 28
			2015		2014		2015		2014
Revenue			205,746		206,269		797,169		786,754
Cost of sales			(136,803)		(144,831)		(539,347)		(562,379)
Gross profit			68,943		61,438		257,822		224,375
Sales, marketing and distribution expenses			(15,101)		(14,321)		(59,823)		(60,970)
General and administrative expenses			(8,445)		(8,125)		(32,236)		(28,945)
Research and technical expenses			(3,856)		(3,721)		(15,362)		(14,275)
Pre-production expenses			(368)		(575)		(1,158)		(1,443)
Other expenses			(1,006)		(1,074)		(1,916)		(3,678)
Income from operations			40,167		33,622		147,327		115,064
Finance income			69		159		342		586
Finance expense			(84)		(71)		(392)		(469)
Income before income taxes			40,152		33,710		147,277		115,181
Income tax expense			(11,775)		(9,954)		(45,474)		(35,529)
Net income for the period			28,377		23,756		101,803		79,652
Attributable to:
	Equity holders of the Company		27,635		23,343		99,248		78,360
	Non-controlling interests		742		413		2,555		1,292
			28,377		23,756		101,803		79,652
Basic and diluted earnings per share - cents			43		36		153		121
Condensed Consolidated Statements of Comprehensive Income
(thousands of US dollars) (unaudited)
			Quarter Ended				Year Ended
			December 27		December 28		December 27		December 28
			2015		2014		2015		2014
Net income for the period			28,377		23,756		101,803		79,652
Items that will not be reclassified to the statements of income:
Cash flow hedge losses recognized			(162)		-		(652)		-
Cash flow hedge losses transferred to property, plant and equipment			-		-		4		-
Employee benefit plan remeasurements			1,743		(7,349)		1,743		(7,349)
Income tax effect			(470)		2,330		(470)		2,330
			1,111		(5,019)		625		(5,019)
Items that are or may be reclassified subsequently to the statements of income:
Cash flow hedge losses recognized			(818)		(708)		(3,728)		(1,576)
Cash flow hedge losses transferred to the statements of income			1,109		252		2,976		1,603
Income tax effect			(78)		122		201		(7)
			213		(334)		(551)		20
Other comprehensive income (loss) for the period  - net of income tax			1,324		(5,353)		74		(4,999)
Comprehensive income for the period			29,701		18,403		101,877		74,653
Attributable to:
	Equity holders of the Company		28,959		17,990		99,322		73,361
	Non-controlling interests		742		413		2,555		1,292
			29,701		18,403		101,877		74,653

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 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		-	(1,154)	-	(1,154)	-	(1,154)
		Cash flow hedge losses transferred to the statements
		of income, net of tax		-	1,174	-	1,174	-	1,174
		Employee benefit plan remeasurements, net of tax		-	-	(5,019)	(5,019)	-	(5,019)
	Other comprehensive income (loss)			-	20	(5,019)	(4,999)	-	(4,999)
	Net income for the period			-	-	78,360	78,360	1,292	79,652
	Comprehensive income for the period			-	20	73,341	73,361	1,292	74,653
	Dividends			-	-	(65,535)	(65,535)	(344)	(65,879)
Balance at December 28, 2014				29,195	(641)	555,697	584,251	17,136	601,387
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		-	(2,752)	(632)	(3,384)	-	(3,384)
		Cash flow hedge losses transferred to the statements
		of income, net of tax		-	2,181	-	2,181	-	2,181
		Cash flow hedge losses transferred to property, plant and
		equipment		-	4	-	4	-	4
		Employee benefit plan remeasurements, net of tax		-	-	1,273	1,273	-	1,273
	Other comprehensive (loss) income			-	(567)	641	74	-	74
	Net income for the period			-	-	99,248	99,248	2,555	101,803
	Comprehensive (loss) income for the period			-	(567)	99,889	99,322	2,555	101,877
	Dividends			-	-	(79,227)	(79,227)	(646)	(79,873)
Balance at December 27, 2015				29,195	(1,208)	576,359	604,346	19,045	623,391

Winpak Ltd.
Condensed Consolidated Statements of Cash Flows
(thousands of US dollars) (unaudited)
				Quarter Ended				Year Ended
				December 27		December 28		December 27		December 28
				2015		2014		2015		2014
Cash provided by (used in):
Operating activities:
	Net income for the period			28,377		23,756		101,803		79,652
	Items not involving cash:
		Depreciation		8,452		8,211		32,836		31,657
		Amortization - deferred income		(366)		(393)		(1,559)		(1,664)
		Amortization - intangible assets		154		138		602		549
		Employee defined benefit plan expenses		696		567		3,190		3,273
		Multiemployer defined benefit pension plan withdrawal liability
			settlement gain	-		-		(1,815)		-
		Net finance expense (income)		15		(88)		50		(117)
		Income tax expense		11,775		9,954		45,474		35,529
		Other		(120)		223		(1,565)		(3,507)
			Cash flow from operating activities before the following	48,983		42,368		179,016		145,372
	Change in working capital:
		Trade and other receivables		(537)		(7,874)		4,649		(14,046)
		Inventories		1,135		6,957		4,088		(8,282)
		Prepaid expenses		1,472		382		933		(1,270)
		Trade payables and other liabilities		2,860		(2,972)		(294)		6,068
	Provisions			-		12		(4,467)		(108)
	Employee defined benefit plan contributions			(427)		(540)		(1,681)		(5,091)
	Income tax paid			(6,675)		(10,600)		(26,456)		(25,364)
	Interest received			46		90		253		314
	Interest paid			(5)		(1)		(21)		(148)
			Net cash from operating activities	46,852		27,822		156,020		97,445
Investing activities:
	Acquisition of plant and equipment - net			(16,859)		(12,464)		(53,678)		(48,052)
	Acquisition of intangible assets			(77)		(288)		(303)		(699)
				(16,936)		(12,752)		(53,981)		(48,751)
Financing activities:
	Dividends paid			(75,318)		(1,748)		(80,127)		(65,679)
	Dividend paid to non-controlling interests in subsidiary			-		-		(646)		(344)
				(75,318)		(1,748)		(80,773)		(66,023)
Change in cash and cash equivalents				(45,402)		13,322		21,266		(17,329)
Cash and cash equivalents, beginning of period				210,429		130,439		143,761		161,090
Cash and cash equivalents, end of period				165,027		143,761		165,027		143,761

SOURCE Winpak Ltd.

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