Winpak Reports Third Quarter Results

WINNIPEG, MANITOBA--(Marketwired - Oct. 24, 2013) - Winpak Ltd. (TSX:WPK) today reports consolidated results in US dollars for the third quarter of 2013, which ended on September 29, 2013.

	Quarter Ended				Year-To-Date Ended (1)
	September 29		September 30		September 29		September 30
	2013		2012		2013		2012
			(restated (2))				(restated (2))
(thousands of US dollars, except per share amounts)
Revenue	179,926		165,399		526,907		496,852
Net income	17,599		17,024		50,841		49,716
Income tax expense	8,382	7,802			23,285	21,775
Net finance expense	114	18			333	276
Depreciation and amortization	6,711		6,577		19,542		19,706
EBITDA (3)	32,806		31,421		94,001		91,473
Net income attributable to equity holders of the Company	17,362	16,783			50,446	49,184
Net income attributable to non-controlling interests	237		241		395		532
Net income	17,599		17,024		50,841		49,716
Basic and fully diluted earnings per share (cents)	27		26		78		76

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.

(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 common shareholders for the third quarter of 2013 amounted to $17.4 million or 27 cents in earnings per share compared to $16.8 million or 26 cents per share in the corresponding quarter of 2012, an increase of 3.4 percent. Solid organic revenue growth contributed 2.5 cents in earnings per share. This was partially offset by the unfavorable impact of foreign exchange which negatively affected earnings per share by 1.0 cent while higher operating expenses reduced earnings per share by 0.5 cents.

For the three quarters ended September 29, 2013, net income attributable to common shareholders was $50.4 million or 78 cents in earnings per share compared to the 2012 result of $49.2 million or 76 cents in earnings per share, an improvement of 2.6 percent. Heightened sales volumes in the first nine months of 2013 contributed 5.0 cents in additional earnings per share. Lower operating expenses in relation to sales volumes added a further 1.0 cent to earnings per share. Meanwhile, a lower gross profit margin reduced earnings per share by 1.5 cents while foreign exchange and higher income taxes negatively impacted 2013 year-to-date earnings per share by 1.5 cents and 1.0 cent respectively. It should be noted that the 2012 fiscal year contained one more week than the current year and was included in the first quarter of 2012. As a result, it is estimated that this supplemented year-to-date volumes and net income by approximately 2 percent in 2012.

Revenue

Revenues in the quarter advanced by $14.5 million to $179.9 million, an increase of 8.8 percent over the third quarter of 2012. Volume growth was solid at 9.9 percent more than the prior year comparable quarter, in spite of the divestiture of the drink cup product line at the start of the fourth quarter of 2012 which added 1.5 percent to third quarter 2012 revenues. The greatest contribution to the Company's growth in volume came from rigid containers which advanced by over 20 percent in the quarter in comparison to the third quarter of 2012. A portion of this growth was due to the fact that volumes were negatively impacted in the second and third quarters of 2012 when a major customer significantly reduced purchases from the Company in an effort to reduce its own inventory levels. Rigid container volumes advanced in form/fill/seal applications and in juice and specialty beverage containers. Biaxially oriented nylon film volumes rebounded in the low double-digit range after retreating in the first half of 2013. Demand in modified atmosphere packaging and lidding grew modestly in mid-single digits while specialty film volumes overall were flat although the mix was improved. Packaging machinery continued the strength exhibited in the prior two quarters by advancing in excess of 40 percent. Overall, selling price/mix changes and foreign exchange each negatively impacted revenues in the quarter by 0.5 percent and 0.6 percent respectively in comparison to the third quarter of 2012.

For the first nine months of 2013, revenues grew to $526.9 million, an increase of $30.1 million or 6.0 percent from the corresponding period in 2012. Volumes rose by 7.0 percent. Normalizing for the additional week in the first nine months of last year and the divestiture of the drink cup product line in 2012, overall volume growth for the first nine months exceeded 10 percent. All product group volumes advanced on a normalized basis with rigid container volumes exceeding 25 percent. Lidding volumes expanded just short of 10 percent while specialty films, modified atmosphere packaging and biaxially oriented nylon all progressed in the low single-digit range. Packaging machinery, which represents less than 3 percent of total Company revenues, grew by nearly 50 percent for the first nine months compared to the comparable 2012 period. Both selling price/mix declines and foreign exchange had relatively minor negative impacts on revenue of 0.7 percent and 0.3 percent respectively.

Gross profit margins

Gross profit margins in the third quarter of 2013, as a percentage of revenue, expanded by 0.3 percentage points to 29.1 percent from 28.8 percent recorded in the same quarter of 2012. As the dollar amount of gross profit rose by a nearly identical percentage to the growth in revenue volume, the change in gross profit had no impact on earnings per share. Limited contraction in the spread between selling prices and raw material costs was offset by improved productivity, in part due to the installation of new, more efficient production equipment.

For the first nine months of 2013 and the corresponding period of 2012, gross profit margins as a percentage of revenue were virtually identical at 28.9 percent and 29.0 percent respectively. However, since sales volumes increased by 7.0 percent while gross profit expanded by only 6.0 percent, earnings per share was negatively impacted by 1.5 cents. A narrowing of the spread between raw material costs and selling prices, due in part to product mix changes and competitive pricing pressures, was the main reason for the unfavorable result.

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	3/13	2/13	1/13	4/12	3/12	2/12	1/12	4/11	3/11
Purchase Price Index	173.2	173.5	176.5	170.6	167.3	174.5	174.7	172.3	182.9

The purchase price index was virtually unchanged at 173.2 compared to the previous quarter result of 173.5. The difference is less than 0.2 percent. Raw material pricing overall in the quarter was relatively flat, although polyethylene and polypropylene pricing escalated by approximately 6 percent in the last month of the quarter. These resins represent just over one-third of the index. However, in the near term, raw material input costs are not expected to deviate much from quarter-end levels.

Expenses and Other

Operating expenses, adjusted for foreign exchange, negatively impacted earnings per share by 0.5 cents for the quarter when compared to the third quarter of 2012. Elevated pre-production costs, due to the commissioning of new manufacturing lines in the Company's Vaudreuil and Winnipeg facilities, along with increased share-based compensation as a result of improved stock performance were the main contributors to the uptick in operating expenses. Foreign exchange, on the other hand, reduced earnings per share by 1.0 cent, primarily as a result of losses recorded on the maturation of foreign currency forward contracts and on the translation of Canadian monetary items.

On a year-to-date basis, operating expenses, excluding foreign exchange, increased at a rate of 6.2 percent while sales volumes expanded by 7.0 percent. Even with pre-production costs exceeding the prior nine-month period by $1.8 million, restraint in other areas such as travel resulted in an additional 1.0 cent 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 rates recorded in 2012, resulted in a reduction in earnings per share of approximately 1.0 cent. Foreign exchange for the first nine months of 2013 negatively impacted earnings per share by 1.5 cents in comparison to the same period in 2012, primarily due to losses recorded on the translation of Canadian net monetary assets as the Canadian dollar weakened from the start of the year to the end of the third quarter.

Capital Resources, Cash Flow and Liquidity

The Company's cash and cash equivalents balance ended the third quarter at $141.8 million, an increase of $8.4 million from the end of the second quarter. Winpak continued to generate solid and consistent cash flows from operating activities before changes in working capital, equalling the $32.4 million mark reached in the third quarter of 2012. Additions to working capital used $1.7 million while cash was also utilized for property, plant and equipment additions of $11.6 million, income tax payments of $8.2 million, dividends of $1.9 million, employee defined benefit plan payments of $0.5 million and other items totalling $0.1 million.

For the first nine months of 2013, the cash and cash equivalents balance improved by $8.5 million, mainly from advancement in the third quarter. Cash flow from operating activities before changes in working capital was virtually unchanged from 2012 at $93.6 million. Working capital additions consumed $13.1 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 $36.8 million, income tax payments of $25.4 million, dividends of $5.7 million, employee defined benefit plan payments of $2.9 million and other items amounting to $1.2 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)

	Q3	Q2	Q1	Q4	Q3	Q2	Q1	Q4
	2013	2013	2013	2012*	2012*	2012*	2012*	2011*
Revenue	179,926	177,032	169,949	173,226	165,399	159,648	171,805	171,516
Net income attributable to equity holders of the Company	17,362	17,095	15,989	22,071	16,783	15,850	16,551	18,319
EPS	27	26	25	34	26	25	25	28

*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

Heading into the final quarter of the year, the Company's management remains cautiously optimistic that revenue growth will continue at a healthy pace, although the actual growth rate from quarter to quarter could fluctuate somewhat depending on the timing of new customer opportunity additions. Although there was some upward pressure on raw material pricing for certain resins at the end of the third quarter, it is expected that in the near term, raw material costs should remain stable, barring any unforeseen circumstances. Gross profit margins going forward for existing products, as a result, should be consistent with current margin levels. The addition of new capacity, which initially will not be fully utilized, and the learning curve involved in producing new products efficiently will impact gross profit margins negatively. With the commercialization of the major extrusion/lamination line toward the end of the third quarter in the Company's Winnipeg modified atmosphere packaging plant and the pending commercialization in the fourth quarter of the extrusion/lamination line at the Vaudreuil lidding facility, depreciation will increase. However, it is anticipated that overall margins should not deviate from historical levels by more than a few percentage points. Capital spending for the first nine months has reached $37 million and expenditures for the entire year are projected to be between $60 million to $65 million. 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. The bulk of these capital expenditures is geared to provide the necessary capacity 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

Third Quarter Ended: September 29, 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)
		September 29		December 30
		2013		2012
Assets
Current assets:
	Cash and cash equivalents	141,843		133,303
	Trade and other receivables	95,876		86,797
	Income taxes receivable	4,480		389
	Inventories	95,829		90,246
	Prepaid expenses	4,753		3,864
	Derivative financial instruments	319		288
		343,100		314,887
Non-current assets:
	Property, plant and equipment	319,903		301,678
	Intangible assets	14,656		14,551
	Deferred tax assets	3,150		3,448
		337,709		319,677
Total assets		680,809		634,564
Equity and Liabilities
Current liabilities:
	Trade payables and other liabilities	61,519		59,184
	Provisions	427		427
	Income taxes payable	2,386		5,417
	Derivative financial instruments	241		-
		64,573		65,028
Non-current liabilities:
	Employee benefit plan liabilities	15,075		14,511
	Deferred income	12,162		11,475
	Provisions	6,782		7,399
	Deferred tax liabilities	21,365		20,063
		55,384		53,448
Total liabilities		119,957		118,476
Equity:
	Share capital	29,195		29,195
	Reserves	57		250
	Retained earnings	515,705		470,925
Total equity attributable to equity holders of the Company		544,957		500,370
Non-controlling interests		15,895		15,718
Total equity		560,852		516,088
Total equity and liabilities		680,809		634,564

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
		2013			2012			2013			2012
					(restated	)					(restated	)
Revenue		179,926			165,399			526,907			496,852
Cost of sales		(127,566	)		(117,837	)		(374,398	)		(352,930	)
Gross profit		52,360			47,562			152,509			143,922
Sales, marketing and distribution expenses		(14,379	)		(13,798	)		(42,938	)		(42,141	)
General and administrative expenses		(7,656	)		(6,571	)		(21,907	)		(21,242	)
Research and technical expenses		(3,498	)		(3,332	)		(10,421	)		(10,198	)
Pre-production expenses		(708	)		(30	)		(2,308	)		(537	)
Other (expenses) income		(24	)		1,013			(476	)		1,963
Income from operations		26,095			24,844			74,459			71,767
Finance income		93			124			292			375
Finance expense		(207	)		(142	)		(625	)		(651	)
Income before income taxes		25,981			24,826			74,126			71,491
Income tax expense		(8,382	)		(7,802	)		(23,285	)		(21,775	)
Net income for the period		17,599			17,024			50,841			49,716
Attributable to:
	Equity holders of the Company	17,362			16,783			50,446			49,184
	Non-controlling interests	237			241			395			532
		17,599			17,024			50,841			49,716
Basic and fully diluted earnings per share - cents		27			26			78			76
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
		2013			2012			2013			2012
					(restated	)					(restated	)
Net income for the period		17,599			17,024			50,841			49,716
Items that will not be reclassified to the statements of income:
Cash flow hedge gains (losses) recognized		-			111			(94	)		39
Cash flow hedge losses (gains) transferred to property, plant and equipment		-			625			(50	)		567
Employee benefit plan remeasurements		-			428			-			1,242
Income tax effect		-			(133	)		-			(385	)
		-			1,031			(144	)		1,463
Items that are or may be reclassified subsequently to the statements of income:
Cash flow hedge gains (losses) recognized		944			478			(474	)		572
Cash flow hedge losses (gains) transferred to the statements of income		341			(138	)		408			(146	)
Income tax effect		(344	)		(91	)		17			(245	)
		941			249			(49	)		181
Other comprehensive income (loss) for the period - net of income tax		941			1,280			(193	)		1,644
Comprehensive income for the period		18,540			18,304			50,648			51,360
Attributable to:
	Equity holders of the Company	18,303			18,063			50,253			50,828
	Non-controlling interests	237			241			395			532
		18,540			18,304			50,648			51,360

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 income for the period
		Cash flow hedge gains, net of tax	-	334		-		334		-		334
		Cash flow hedge gains transferred to the statements of income, net of tax	-	(114	)	-		(114	)	-		(114	)
		Cash flow hedge losses transferred to property, plant and equipment	-	567		-		567		-		567
		Employee benefit plan remeasurements, net of tax (restated)	-	-		857		857		-		857
	Other comprehensive income (restated)		-	787		857		1,644		-		1,644
	Net income for the period (restated)		-	-		49,184		49,184		532		49,716
	Comprehensive income for the period		-	787		50,041		50,828		532		51,360
	Dividends		-	-		(5,853	)	(5,853	)	(563	)	(6,416	)
Balance at September 30, 2012			29,195	361		453,196		482,752		15,815		498,567
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	-	(442	)	-		(442	)	-		(442	)
		Cash flow hedge losses transferred to the statements of income, net of tax	-	299		-		299		-		299
		Cash flow hedge gains transferred to property, plant and equipment	-	(50	)	-		(50	)	-		(50	)
	Other comprehensive (loss)		-	(193	)	-		(193	)	-		(193	)
	Net income for the period		-	-		50,446		50,446		395		50,841
	Comprehensive (loss) income for the period		-	(193	)	50,446		50,253		395		50,648
	Dividends		-	-		(5,666	)	(5,666	)	(218	)	(5,884	)
Balance at September 29, 2013			29,195	57		515,705		544,957		15,895		560,852

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
				2013		2012				2013		2012
							(restated	)					(restated	)
Cash provided by (used in):
Operating activities:
	Net income for the period			17,599		17,024			50,841			49,716
	Items not involving cash:
		Depreciation		6,886		6,559			20,101			19,464
		Amortization - deferred income		(292	)	(303		)	(894		)	(911		)
		Amortization - intangible assets		117		321			335			1,153
		Employee defined benefit plan expenses		1,094		894			3,197			3,036
		Net finance expense		114		18			333			276
		Income tax expense		8,382		7,802			23,285			21,775
		Other		(1,494	)		41			(3,575	)		(964	)
			Cash flow from operating activities before the following	32,406		32,356			93,623			93,545
	Change in working capital:
		Trade and other receivables		(2,312	)	(9,792		)	(9,079		)	(3,360		)
		Inventories		(945	)	5,239			(5,583		)	(9,507		)
		Prepaid expenses		155		504			(889		)	(624		)
		Trade payables and other liabilities		1,391		(1,246		)	2,422			(3,802		)
	Provisions			(107	)	(107		)	(723		)	(999		)
	Employee defined benefit plan payments			(549	)	(1,388		)	(2,932		)	(3,633		)
	Income tax paid			(8,153	)	(5,292		)	(25,433		)	(20,580		)
	Interest received			88		118			292			367
	Interest paid			(1	)		(28	)		(9	)		(30	)
			Net cash from operating activities	21,973			20,364			51,689			51,377
Investing activities:
	Acquisition of property, plant and equipment - net			(11,597	)	(20,813		)	(36,758		)	(50,963		)
	Acquisition of intangible assets			(147	)		(2	)		(443	)		(687	)
				(11,744	)		(20,815	)		(37,201	)		(51,650	)
Financing activities:
	Dividends paid			(1,854	)	(1,915		)	(5,730		)	(5,780		)
	Change in non-controlling interests in subsidiary			-			-			(218	)		(563	)
				(1,854	)		(1,915	)		(5,948	)		(6,343	)
Change in cash and cash equivalents				8,375		(2,366		)	8,540			(6,616		)
Cash and cash equivalents, beginning of period				133,468			122,629			133,303			126,879
Cash and cash equivalents, end of period				141,843			120,263			141,843			120,263