Winpak Reports Second Quarter Results

WINNIPEG, MANITOBA--(Marketwired - Jul 25, 2013) - Winpak Ltd. (WPK.TO) (WPK) today reports consolidated results in US dollars for the second quarter of 2013, which ended on June 30, 2013.

	Quarter Ended			Year-To-Date Ended (1)
	June 30	July 1		June 30	July 1
	2013	2012		2013	2012
		(restated (2	))		(restated (2	))
(thousands of US dollars, except per share amounts)
Revenue	177,032	159,648		346,981	331,453
Net income	17,392	16,010		33,242	32,692
Income tax expense	8,041	5,788		14,903	13,973
Net finance expense (income)	114	(11	)	219	258
Depreciation and amortization	6,260	6,610		12,831	13,129
EBITDA (3)	31,807	28,397		61,195	60,052
Net income attributable to equity holders of the Company	17,095	15,850		33,084	32,401
Net income attributable to non-controlling interests	297	160		158	291
Net income	17,392	16,010		33,242	32,692
Basic and diluted earnings per share (cents)	26	25		51	50

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 health-care applications.

(1)	The 2013 fiscal year comprises 52 weeks and the 2012 fiscal year comprised 53 weeks. Each quarter of 2013 and 2012 comprises 13 weeks with the exception of the first quarter of 2012, which comprised 14 weeks.
(2)	Amounts have been restated to reflect the retrospective impact of amended IAS 19 "Employee Benefits", which included an increase in net finance expense due to the reduction in the expected return on defined benefit pension plan assets and an increase in general and administrative expenses following the reclassification of certain plan administration costs.
(3)	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.

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 common shareholders for the second quarter of 2013 rose to $17.1 million or 26 cents in earnings per share compared to $15.9 million or 25 cents per share in the corresponding quarter of 2012, an increase of 7.9 percent. Strong organic revenue growth contributed approximately 2.5 cents in earnings per share while an improvement in gross profit margins added a further 0.5 cents in earnings per share. This helped to offset the effect of higher income taxes in the second quarter of 2013 which negatively impacted earnings per share by 2.0 cents.

For the six months ended June 30, 2013, net income attributable to common shareholders was $33.1 million or 51 cents in earnings per share compared to the first-half result of $32.4 million or 50 cents in earnings per share recorded in 2012, an improvement of 2.1 percent. This occurred in spite of the fact that the 2012 fiscal year had one more week than the current year. The additional week was included in the 2012 first quarter and is estimated that this contributed approximately 2.5 percent to 2012 first half volumes and net income results. Higher sales volumes in the first six months of 2013 resulted in additional earnings per share of 3.0 cents. Lower operating expenses in relation to sales volumes contributed a further 1.5 cents to earnings per share. On the other hand, a lower gross profit margin reduced earnings per share by 1.5 cents while higher income taxes and foreign exchange negatively impacted 2013 year-to-date earnings per share by 1.0 cent each.

Revenue

Revenue for the second quarter of 2013 was $177.0 million, $17.4 million or 10.9 percent greater than the second quarter of 2012. This represented the highest quarterly revenue recorded by the Company. Volume growth was strong, exceeding the prior year quarter by 11.1 percent, in spite of the divestiture of the drink cup product line in the latter part of 2012 which favorably impacted second quarter 2012 revenues by 1.6 percent. Growth in volume was highest in rigid containers and lidding which each advanced by approximately 20 percent in the quarter. These two product groups were negatively affected in the second and third quarters of 2012 when a major customer significantly reduced purchases from the Company in an effort to reduce its inventory levels. This contraction did not occur in the current quarter. In addition, volumes in rigid container meat trays and form/fill/seal yogurt applications along with healthcare packaging in the lidding group grew significantly in the quarter. Demand in modified atmosphere packaging was modest, advancing in the mid-single digit percentage range. Meanwhile, volumes in the specialty film and biaxially oriented product groups were essentially flat with the prior year. Packaging machinery, on the other hand, performed very well, with volumes expanding by nearly 40 percent. Of significance was the fact that in comparison to past periods, a much larger proportion of machinery sales in the current quarter were part of system sales whereby customers committed to purchasing packaging materials from Winpak over a period of time in conjunction with the packaging machinery. This is an important facet of the Company's revenue growth strategy. Overall, selling price changes and foreign exchange had negligible impacts on revenues in the period, having a favorable effect of 0.1 percent and a negative influence of 0.3 percent respectively in comparison to the second quarter of 2012.

For the first half of 2013, revenue progressed by $15.5 million or 4.7 percent to $347.0 million from the $331.5 million registered in the first six months of 2012. Volumes rose by 5.5 percent versus the first half of the prior year. Normalizing for the additional week of revenues in the first half of 2012 and the divestiture of the drink cup product line in the latter half of 2012, overall volume growth for the first six months of 2013 was nearly 10 percent. Rigid container volumes led the way with normalized growth exceeding 25 percent on sizable custom container, form/fill/ seal yogurt and specialty beverage shipments. Lidding normalized volumes advanced by over 10 percent while specialty films and modified atmosphere packaging grew only marginally. Packaging machinery growth exceeded 50 percent, although this product group represents less than 3 percent of total revenue. Only biaxially oriented nylon showed a volume decline in the mid-single digit percentage range year-to-date. Selling prices declined in total by only 0.7 percent while foreign exchange negligibly impacted revenue by 0.1 percent.

Gross profit margins

Gross profit margins in the second quarter of 2013 expanded by 0.6 percentage points to 29.0 percent of revenue from the 28.4 percent of revenue recorded in the same quarter of 2012, adding 0.5 cents to earnings per share. Polypropylene resin costs escalated by nearly 30 percent in the first quarter of 2013, negatively affecting margins of that quarter. The indexing of customer selling prices to match these raw material costs occurred primarily in the second quarter and was a key element to the improved gross profit margins.

For the first six months of 2013, gross profit margins of 28.9 percent fell just short of the levels achieved in the first half of 2012 of 29.1 percent. Poorer manufacturing performance in terms of unfavorable manufacturing variances for waste and productivity at certain of the Company's facilities along with some competitive pricing pressures experienced in certain end markets has resulted in a negative effect on earnings per share of 1.5 cents.

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 31, 2012 to reflect the mix of the eight primary raw materials purchased in 2012.

Quarter and Year	2/13	1/13	4/12	3/12	2/12	1/12	4/11	3/11	2/11
Purchase Price Index	173.5	176.5	170.6	167.3	174.5	174.7	172.3	182.9	184.5

The purchase price index fell just 1.7 percent compared to the first quarter of 2013. Most raw material pricing in the quarter was relatively flat, increasing or declining by one or two percentage points. The one exception was polypropylene resin which saw a sharp decline after a steep escalation in the first quarter. In the near term, raw material input costs are expected to remain fairly stable.

Expenses and Other

Operating expenses, adjusted for foreign exchange, were essentially in line with volume growth, having a neutral effect on earnings per share for the period. Increases in pre-production costs were offset by savings in general and administrative expenses. Higher income taxes resulted in a reduction of nearly 2.0 cents in earnings per share in the second quarter of 2013 versus the corresponding period in 2012. Income being earned in higher tax rate jurisdictions was one of the main factors for the higher income tax rate in 2013. In addition, a reduction in the income tax provision for prior periods and in the deferred tax income tax rates resulted in a lower income tax rate in the second quarter of 2012. No such adjustments were recorded in the second quarter of 2013. Foreign exchange had no impact on earnings per share in the current quarter versus the corresponding period in 2012 as the exchange rates were very similar.

On a year-to-date basis, operating expenses, excluding foreign exchange, increased at a rate of 3.3 percent while sales volumes expanded by 5.5 percent. This included pre-production costs of $1.6 million in the first six months of 2013, an increase of $1.1 million over the same period in 2012. Despite the sharp increase in pre-production costs primarily related to the new machinery installed in Vaudreuil and Winnipeg, restraint in other expenses resulted in an additional 1.5 cents in earnings per share. A higher income tax rate due in part to income being earned in higher income tax jurisdictions in 2013 and a reduction in the deferred tax income tax rates recorded in 2012 resulted in a reduction in earnings per share of approximately 1.0 cent. Foreign exchange losses recorded in the first half of 2013 resulted in a reduction in earnings per share of 1.0 cent in comparison to the same period in 2012. This was primarily due to losses recorded on the translation of Canadian net monetary assets as the Canadian dollar weakened during the current year.

Capital Resources, Cash Flow and Liquidity

The Company's cash and cash equivalents balance ended the second quarter at $133.5 million, an increase of $4.2 million from the end of the first quarter. Winpak continued to generate solid and consistent cash flows from operating activities before changes in working capital of $32.1 million, an improvement of $3.6 million from the prior year second quarter. Working capital additions consumed $5.1 million, divided fairly evenly between trade and other receivables and inventories. Cash was also utilized for property, plant and equipment additions of $10.2 million, income tax payments of $9.6 million, dividends of $1.9 million, employee defined benefit plan payments of $0.5 million and other items of $0.6 million.

For the first half of 2013, the cash and cash equivalents balance remained fairly steady, advancing by just $0.2 million. Cash flow from operating activities before changes in working capital remained unchanged from 2012 at $61.2 million. Working capital additions consumed $11.4 million, primarily in trade and other receivables and inventories in response to the growth in revenues in this period. Cash was also utilized for property, plant and equipment additions of $25.2 million, income tax payments of $17.3 million, dividends of $3.9 million, employee defined benefit plan payments of $2.4 million and other items of $0.8 million. The Company remains debt-free and has unutilized operating lines of $38 million, with the ability to increase borrowing capacity further should the need arise.

Summary of Quarterly Results
	Thousands of US dollars, except per share amounts (US cents)
	Q2		Q1		Q4		Q3		Q2		Q1		Q4		Q3
	2013		2013		2012*		2012*		2012*		2012*		2011*		2011*
Revenue	177,032		169,949		173,226		165,399		159,648		171,805		171,516		170,670
Net income attributable to equity holders
of the Company	17,095		15,989		22,071		16,783		15,850		16,551		18,319		14,212
EPS	26		25		34		26		25		25		28		22

*

Amounts have been restated to reflect the retrospective impact of amended IAS 19 "Employee Benefits", which included an increase in net finance expense due to the reduction in the expected return on defined benefit pension plan assets and an increase in general and administrative expenses following the reclassification of certain plan administration costs.

Looking Forward

The Company's management is optimistic heading into the second half of the year after experiencing double-digit percentage revenue growth in the most recent quarter. With the overall economy appearing to improve and new customer opportunities present in the pipeline, revenue growth should be healthy for the balance of the year. Raw material costs are expected to remain stable, barring any unforeseen circumstances. As a result, margins should continue at current levels for existing products while new product margins could be more challenged as Company personnel go through the learning curve of producing these items efficiently and added capacity is not fully utilized. However, overall margins should not deviate from historical levels by more than a few percentage points. Just over $25 million in capital spending has occurred in the first six months of the year and another $35 to $45 million is expected for the second half of the year. The major extrusion/lamination lines at the Company's Vaudreuil lidding facility and the Winnipeg modified atmosphere packaging (MAP) plant should reach the commercialization stage by the end of the third quarter of this year. The 82,000 square foot addition to the Winnipeg MAP facility is still on schedule for completion by the end of the current fiscal year. These expenditures will provide the necessary capacity to allow for planned revenue growth in future years. In addition to the internal capital investment program, the Company also continues to seek out acquisition opportunities to complement its core competencies in food, beverage, and health-care packaging.

Winpak Ltd.

Interim Condensed Consolidated Financial Statements

Second Quarter Ended: June 30, 2013

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)
		June 30		December 30
		2013		2012
Assets
Current assets:
	Cash and cash equivalents	133,468		133,303
	Trade and other receivables	93,564		86,797
	Income taxes receivable	1,789		389
	Inventories	94,884		90,246
	Prepaid expenses	4,908		3,864
	Derivative financial instruments	-		288
		328,613		314,887
Non-current assets:
	Property, plant and equipment	313,926		301,678
	Intangible assets	14,627		14,551
	Deferred tax assets	3,217		3,448
		331,770		319,677
Total assets		660,383		634,564
Equity and Liabilities
Current liabilities:
	Trade payables and other liabilities	60,126		59,184
	Provisions	427		427
	Income taxes payable	3,070		5,417
	Derivative financial instruments	1,206		-
		64,829		65,028
Non-current liabilities:
	Employee benefit plan liabilities	14,295		14,511
	Deferred income	11,290		11,475
	Provisions	6,848		7,399
	Deferred tax liabilities	18,916		20,063
		51,349		53,448
Total liabilities		116,178		118,476
Equity:
	Share capital	29,195		29,195
	Reserves	(884	)	250
	Retained earnings	500,236		470,925
Total equity attributable to equity holders of the Company		528,547		500,370
Non-controlling interests		15,658		15,718
Total equity		544,205		516,088
Total equity and liabilities		660,383		634,564

Winpak Ltd.
Condensed Consolidated Statements of Income
(thousands of US dollars, except per share amounts) (unaudited)
		Quarter Ended				Year-To-Date Ended
		June 30		July 1		June 30		July 1
		2013		2012		2013		2012
				(restated	)			(restated	)
Revenue		177,032		159,648		346,981		331,453
Cost of sales		(125,754	)	(114,325	)	(246,832	)	(235,093	)
Gross profit		51,278		45,323		100,149		96,360
Sales, marketing and distribution expenses		(14,464	)	(13,694	)	(28,559	)	(28,343	)
General and administrative expenses		(6,428	)	(6,722	)	(14,251	)	(14,671	)
Research and technical expenses		(3,539	)	(3,162	)	(6,923	)	(6,866	)
Pre-production expenses		(1,074	)	(472	)	(1,600	)	(507	)
Other (expenses) income		(226	)	514		(452	)	950
Income from operations		25,547		21,787		48,364		46,923
Finance income		94		122		199		251
Finance expense		(208	)	(111	)	(418	)	(509	)
Income before income taxes		25,433		21,798		48,145		46,665
Income tax expense		(8,041	)	(5,788	)	(14,903	)	(13,973	)
Net income for the period		17,392		16,010		33,242		32,692
Attributable to:
	Equity holders of the Company	17,095		15,850		33,084		32,401
	Non-controlling interests	297		160		158		291
		17,392		16,010		33,242		32,692
Basic and diluted earnings per share - cents		26		25		51		50

Condensed Consolidated Statements of Comprehensive Income
(thousands of US dollars) (unaudited)
		Quarter Ended				Year-To-Date Ended
		June 30		July 1		June 30		July 1
		2013		2012		2013		2012
				(restated	)			(restated	)
Net income for the period		17,392		16,010		33,242		32,692
Items that will not be reclassified to the statements of income:
Cash flow hedge gains (losses) recognized		8		(480	)	(94	)	(72	)
Cash flow hedge gains transferred to property, plant and equipment		(17	)	(83	)	(50	)	(58	)
Employee benefit plan remeasurements		-		219		-		814
Income tax effect		-		(67	)	-		(252	)
		(9	)	(411	)	(144	)	432
Items that are or may be reclassified subsequently to the statements of income:
Cash flow hedge (losses) gains recognized		(982	)	(200	)	(1,418	)	94
Cash flow hedge losses (gains) transferred to the statements of income		88		(131	)	67		(8	)
Income tax effect		239		82		361		(154	)
		(655	)	(249	)	(990	)	(68	)
Other comprehensive (loss) income for the period - net of income tax		(664	)	(660	)	(1,134	)	364
Comprehensive income for the period		16,728		15,350		32,108		33,056
Attributable to:
	Equity holders of the Company	16,431		15,190		31,950		32,765
	Non-controlling interests	297		160		158		291
		16,728		15,350		32,108		33,056

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 26, 2011			29,195	(426	)	409,008		437,777		15,846			453,623
	Comprehensive (loss) income for the period
		Cash flow hedge gains, net of tax	-	(128	)	-		(128	)	-			(128	)
		Cash flow hedge gains transferred to the statements of income, net of tax	-	(13	)	-		(13	)	-			(13	)
		Cash flow hedge gains transferred to property, plant and equipment	-	(57	)	-		(57	)	-			(57	)
		Employee benefit plan remeasurements, net of tax (restated)	-	-		562		562		-			562
	Other comprehensive (loss) income (restated)		-	(198	)	562		364		-			364
	Net income for the period (restated)		-	-		32,401		32,401		291			32,692
	Comprehensive (loss) income for the period		-	(198	)	32,963		32,765		291			33,056
	Dividends		-	-		(3,870	)	(3,870	)	(563	)		(4,433	)
Balance at July 1, 2012			29,195	(624	)	438,101		466,672		15,574			482,246
Balance at December 31, 2012			29,195	250		470,925		500,370		15,718			516,088
	Comprehensive (loss) income for the period
		Cash flow hedge losses, net of tax	-	(1,133	)	-		(1,133	)	-			(1,133	)
		Cash flow hedge losses transferred to the statements of income, net of tax	-	49		-		49		-			49
		Cash flow hedge gains transferred to property, plant and equipment	-	(50	)	-		(50	)	-			(50	)
	Other comprehensive (loss)		-	(1,134	)	-		(1,134	)	-			(1,134	)
	Net income for the period		-	-		33,084		33,084		158			33,242
	Comprehensive (loss) income for the period		-	(1,134	)	33,084		31,950		158			32,108
	Dividends		-	-		(3,773	)	(3,773	)	(218	)		(3,991	)
Balance at June 30, 2013			29,195	(884	)	500,236		528,547		15,658			544,205

Winpak Ltd.
Condensed Consolidated Statements of Cash Flows
(thousands of US dollars) (unaudited)
				Quarter Ended				Year-To-Date Ended
				June 30		July 1		June 30		July 1
				2013		2012		2013		2012
						(restated	)			(restated	)
Cash provided by (used in):
Operating activities:
	Net income for the period			17,392		16,010		33,242		32,692
	Items not involving cash:
		Depreciation		6,456		6,493		13,215		12,905
		Amortization - deferred income		(308	)	(303	)	(602	)	(608	)
		Amortization - intangible assets		112		420		218		832
		Employee defined benefit plan expenses		1,066		1,003		2,103		2,142
		Net finance expense (income)		114		(11	)	219		258
		Income tax expense		8,041		5,788		14,903		13,973
		Other		(762	)	(907	)	(2,081	)	(1,005	)
			Cash flow from operating activities before the following	32,111		28,493		61,217		61,189
		Change in working capital:
			Trade and other receivables	(2,894	)	1,707		(6,767	)	6,432
			Inventories	(2,592	)	(5,734	)	(4,638	)	(14,746	)
			Prepaid expenses	(306	)	(301	)	(1,044	)	(1,128	)
			Trade payables and other liabilities	668		(449	)	1,031		(2,556	)
	Provisions			(430	)	(892	)	(616	)	(892	)
	Employee defined benefit plan payments			(511	)	(520	)	(2,383	)	(2,245	)
	Income tax paid			(9,612	)	(9,807	)	(17,280	)	(15,288	)
	Interest received			129		118		204		249
	Interest paid			(3	)	-		(8	)	(2	)
			Net cash from operating activities	16,560		12,615		29,716		31,013
Investing activities:
	Acquisition of property, plant and equipment - net			(10,165	)	(10,486	)	(25,161	)	(30,150	)
	Acquisition of intangible assets			(38	)	(257	)	(296	)	(685	)
				(10,203	)	(10,743	)	(25,457	)	(30,835	)
Financing activities:
	Dividends paid			(1,919	)	(1,955	)	(3,876	)	(3,865	)
	Change in non-controlling interests in subsidiary			(218	)	(563	)	(218	)	(563	)
				(2,137	)	(2,518	)	(4,094	)	(4,428	)
Change in cash and cash equivalents				4,220		(646	)	165		(4,250	)
Cash and cash equivalents, beginning of period				129,248		123,275		133,303		126,879
Cash and cash equivalents, end of period				133,468		122,629		133,468		122,629