WINNIPEG, MB, Oct. 20, 2022 /CNW/ - Winpak Ltd. (WPK) today reports consolidated results in US dollars for the third quarter of 2022, which ended on September 25, 2022.
Quarter Ended
Year-To-Date Ended
September 25
September 26
September 25
September 26
2022
2021
2022
2021
(thousands of US dollars, except per share amounts)
Revenue
302,532
254,166
888,768
722,941
Net income
29,350
21,350
97,387
76,031
Income tax expense
10,425
6,768
34,621
24,419
Net finance (income) expense
(468)
197
(12)
615
Depreciation and amortization
11,911
11,084
35,781
33,743
EBITDA (1)
51,218
39,399
167,777
134,808
Net income attributable to equity holders of the Company
29,567
20,762
97,108
73,777
Net (loss) income attributable to non-controlling interests
(217)
588
279
2,254
Net income
29,350
21,350
97,387
76,031
Basic and diluted earnings per share (cents)
45
32
149
114
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, payment of lease liabilities 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. 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. In addition, factors arising as a result of the Coronavirus (COVID-19) global pandemic that could cause results to differ from those expected include, but are not limited to: potential government actions, changes in consumer behaviors and demand, changes in customer requirements, disruptions of the Company's suppliers and supply chain, availability of personnel and uncertainty about the extent and duration of the pandemic. 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 2022 of $29.6 million or 45 cents in earnings per share (EPS) increased by $8.8 million or 13 cents per share from the comparable 2021 quarter. The favorable result was heavily influenced by the sizeable expansion in gross profit which generated an advancement in EPS of 20.5 cents. The level of net income attributable to non-controlling interests resulted in an additional 1.0 cent added to EPS while sales volumes and net finance income each raised EPS by 0.5 cents. Operating expenses had the opposite effect, lowering EPS by 7.0 cents. Foreign exchange reduced EPS by a further 2.0 cents and higher income taxes subtracted 0.5 cents from EPS.
For the nine months ended September 25, 2022, net income attributable to equity holders of the Company advanced by 31.6 percent to $97.1 million or $1.49 per share from the corresponding 2021 result of $73.8 million or $1.14 per share. The improvement in gross profit was the dominant factor, augmenting EPS by a remarkable 56.5 cents. The level of net income attributable to non-controlling interests added 3.0 cents to EPS. The additional sales volumes benefitted EPS by 2.5 cents and net finance income provided another 0.5 cents. Conversely, higher operating expenses, foreign exchange and income taxes narrowed EPS by 19.5 cents, 5.0 cents and 3.0 cents, respectively.
Operating Segments and Product Groups The Company provides three distinct types of packaging technologies: a) flexible packaging, b) rigid packaging and flexible lidding and c) packaging machinery. Each is deemed to be a separate operating segment.
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.
The rigid packaging and flexible lidding segment includes the rigid containers, lidding and specialized printed packaging 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. Specialized printed packaging provides packaging solutions to the pharmaceutical, healthcare, nutraceutical, cosmetic and personal care markets.
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 2022 was $302.5 million, exceeding the prior year comparable level of $254.2 million by 19.0 percent. Volume growth was modest at 2.0 percent when compared to the third quarter of 2021. Within the flexible packaging operating segment, volume gains amounted to 5 percent. The modified atmosphere packaging product group's volumes expanded significantly. Strong demand for retail meat and cheese products and the performance of the frozen food product launch that took place in the third quarter of 2021 were the catalysts. Conversely, biaxially oriented nylon volumes retreated as several core customers modified their order patterns in response to excess inventory levels they had accumulated during the recent period of severe supply chain challenges. In addition, specialty films volumes declined mainly on account of customer loss. The rigid packaging and flexible lidding operating segment's volumes were virtually unchanged. Rigid container volumes increased slightly as the rebound in specialty beverage shipments was largely offset by lower condiment container activity. Lidding product group volumes fell by 3 percent as the availability of production labor hampered manufacturing output. Packaging machinery volumes dropped in the quarter as a higher than typical number of machines were shipped in the third quarter of 2021. Selling price and mix changes had a large favorable impact on revenue of 17.4 percent, which was mainly due to the scale of raw material pass-through adjustments to customer selling prices. Foreign exchange had a minor negative influence on revenue.
For the first nine months of 2022, revenue grew by $165.8 million or 22.9 percent from the $722.9 million recorded in the corresponding prior year period. Volumes increased by 2.5 percent. The flexible packaging operating segment achieved volume growth of 6 percent. Exceptional volume growth for the modified atmosphere packaging product group reflected business gains and enhanced demand for protein and cheese packaging, especially for customers that supply retail food industries. The frozen food packaging business was a critical component of the growth as well. Within the rigid packaging and flexible lidding operating segment, volumes narrowed by 2 percent. Rigid container volumes retreated by 3 percent as gains in retort pet food and creamer container shipments were eclipsed by lower condiment container activity. For the lidding product group, volumes were restrained due to the shortage of manufacturing labor and the aluminum foil procurement challenges experienced in the first quarter of 2022. Packaging machinery volumes improved by 10 percent. Selling price and mix changes had a substantial positive effect on revenue of $149.3 million as the considerable rise in raw material and other costs since mid-2021 resulted in much higher selling prices to customers. The impact of foreign exchange on revenue was negligible.
Gross Profit Margins Gross profit margins in the current quarter of 26.9 percent of revenue ascended by 2.5 percentage points from the 2021 third quarter result of 24.4 percent of revenue. A sizeable increase in EPS of 20.5 cents took place as a result. Selling prices advanced to a much larger extent than raw material costs, which included the remaining aluminum foil air freight transportation expenses to the lidding plant in Montreal, raising EPS by 30.0 cents. During the third quarter of 2021, the unfavorable divergence between the rise in raw material costs and the related selling price adjustments was enormous. Furthermore, in the past 12 months, a sequence of inflationary selling price adjustments have been implemented. Compared to the third quarter of 2021, the rate of growth of fixed manufacturing overheads outpaced the level of sales volume growth. This mismatch, along with expenses pertaining to inventory obsolescence, lowered EPS by 9.5 cents.
For the first nine months of 2022, gross profit margins were 28.4 percent of revenue, expanding by 1.1 percentage points from the 27.3 percent of revenue achieved during the 2021 year-to-date comparative period. In dollar terms, gross profit climbed by an incredible 27.7 percent over the same period. Accordingly, EPS vaulted by 56.5 cents. The magnitude of selling price increases significantly surpassed the corresponding rise in raw material costs, including the non-recurring expenses incurred to expedite aluminum foil. This discrepancy elevated EPS by 75.0 cents. During 2021, raw material costs increased considerably while selling price increases were limited. In addition, non-contractual, inflationary selling price increases have been implemented since the fourth quarter of 2021 to partially recover advances in key cost categories such as consumables, freight and distribution and energy. With respect to operating leverage, manufacturing costs increased to a greater extent than the gain in sales volumes, tempering EPS by 18.5 cents.
The raw material purchase price index increased by less than 1 percent compared to the second quarter of 2022. In relation to a year earlier, the index has risen by 4 percent. During the third quarter, nylon resin and aluminum foil each realized increases ranging between 5 and 8 percent. In contrast, polypropylene and polyethylene resin prices declined by 20 percent and 5 percent, respectively.
Expenses and Other Operating expenses in the third quarter of 2022, adjusted for foreign exchange, progressed at a larger rate relative to the expansion in sales volumes and as such, lowered EPS by 7.0 cents. Heightened freight and distribution costs were the main contributing factor, accounting for approximately half of the EPS contraction. Pre-production costs of $2.0 million were also significant. Foreign exchange subtracted 2.0 cents from EPS due to the unfavorable translation differences recorded on the revaluation of monetary assets and liabilities denominated in Canadian dollars. The effective income tax rate was almost two percentage points higher in the third quarter of 2022, deducting 0.5 cents from EPS. Lastly, a lesser proportion of net income attributable to non-controlling interests and net finance income enhanced EPS by 1.0 cent and 0.5 cents, respectively.
On a year-to-date basis, operating expenses, exclusive of foreign exchange, advanced at a rate of 19.7 percent in relation to the 2.5 percent acceleration in sales volumes, thereby having a major negative impact on EPS of 19.5 cents. Significantly higher freight and distribution costs, greater employee compensation expenses, along with pre-production costs incurred to commercialize the new biaxially oriented polyamide (BOPA) line, drove the elevated operating expenses. Foreign exchange had a negative effect on EPS of 5.0 cents due to the unfavorable translation differences recorded on the revaluation of monetary assets and liabilities in comparison to the favorable translation differences recorded in the same period in 2021. Furthermore, the foreign exchange contracts that matured in the 2021 year-to-date period were at a more beneficial average exchange rate. The effective income tax rate reduced EPS by 3.0 cents, however, this was offset by a smaller proportion of earnings attributable to non-controlling interests. Net finance income added 0.5 cents to EPS.
Capital Resources, Cash Flow and Liquidity The Company's cash and cash equivalents balance ended the third quarter of 2022 at $377.2 million, an increase of $8.2 million from the end of the second quarter. Winpak continued to generate strong cash flows from operating activities before changes in working capital of $52.9 million. Working capital consumed $30.6 million in cash. The $20.5 million increase in inventories was impacted by aluminum foil purchase commitments that were entered into during the significant supply chain challenges experienced in the early stages of 2022. Also relevant was the targeted accumulation of raw material resin inventories in advance of hurricane season. Due to the timing of supplier payments, trade payables and other liabilities dropped by $15.7 million. Trade and other receivables declined by $5.2 million, reflecting the lower revenue level relative to the preceding quarter. Cash outflows included: $11.8 million in plant and equipment additions, dividend payments of $1.5 million and other items amounting to $0.8 million.
For the first nine months of 2022, the cash and cash equivalents balance decreased by $0.2 million. Cash flows generated from operating activities before changes in working capital were solid at $168.8 million. The net investment in working capital increased by $108.2 million. The extraordinary $93.7 million growth in inventories arose due to the deliberate accumulation of raw materials in order to manage the uncertainty caused by supply chain challenges, especially with aluminum foil. Finished goods inventories grew since the start of the year, reflecting an increase in the number of customer inventory management programs and also to support the higher sales volumes. In addition, trade and other receivables grew by $28.9 million due to the timing of customer payments and the higher level of revenue in the current quarter compared to the final quarter of 2021. Stemming from the magnitude of raw material purchases, trade payables and other liabilities advanced by $18.4 million. Cash was utilized for property, plant and equipment additions of $35.3 million, income tax payments of $18.2 million, dividend payments of $4.6 million, employee defined benefit plan contributions of $1.7 million and other items totaling $1.0 million.
Summary of Quarterly Results
Thousands of US dollars, except per share amounts (US cents)
Q3
Q2
Q1
Q4
Q3
Q2
Q1
Q4
2022
2022
2022
2021
2021
2021
2021
2020
Revenue
302,532
310,254
275,982
279,053
254,166
243,969
224,806
212,091
Net income attributable to equity holders
of the Company
29,567
33,671
33,870
30,031
20,762
28,520
24,495
27,256
EPS
45
52
52
46
32
44
38
42
Looking Forward As expected, central banks raised interest rates significantly during the third quarter of 2022. With further increases projected over the next 12 months, paired with the continued conflict in Ukraine, the risk of a North American recession has increased. However, this aggressive monetary policy, along with recovering supply chains, are likely to have a moderating impact on inflation and upgrade the availability of labor.
Although customer order patterns and limited loss of business muted the magnitude of volume expansion in the third quarter of 2022, the Company projects a slightly higher rate of growth for the fourth quarter of 2022. As a result of operational improvements and modest gains in labor availability, the elevated productive capacity of the lidding product group will support enhanced sales volumes. In addition, the new cast co-extrusion line commercialized at the modified atmosphere packaging plant in late 2021 has facilitated the acquisition of sizeable new protein and cheese business. Based on customer order activity, specialty beverage container volumes will be disproportionately weighted towards the fourth quarter of 2022 whereas the opposite occurrence took place in the prior year.
Current market expectations are for raw material costs to decline moderately in the fourth quarter of 2022 and then again throughout 2023. In accordance with customer agreements, these lower costs would lead to a contraction in selling prices, although with an estimated average delay of four months. The Company's cost structure continues to be impacted by inflationary pressures. After implementing several non-contractual price increases over the past 12 months, it has become increasingly difficult to pass along further increases to customers. On balance, the net impact of these counteracting factors should be relatively neutral in the final quarter of 2022, thereby having minimal effect on gross profit margins.
Capital expenditures for 2022 are forecast to be in the range of $50 to $55 million. During the third quarter, the Company continued to dedicate significant resources to the installation of the new BOPA line in Winnipeg, Manitoba. It is estimated that the line will be fully commercialized in the first half of 2023. The expansionary projects relating to new co-extrusion capacity at the modified atmosphere packaging plant and the next phase of the injection molded container endeavor are proceeding as scheduled and will be completed in the second half of 2023. Furthermore, the Company is currently evaluating potential building expansions at two of its key manufacturing sites. Simultaneously, Winpak will continue to assess prospective acquisition opportunities that align strategically with the Company's core strengths in sophisticated high-barrier packaging for food, medical and pharmaceutical applications that provide long-term shareholder value.
Winpak Ltd. Interim Condensed Consolidated Financial Statements Third Quarter Ended: September 25, 2022
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 25
December 26
2022
2021
Assets
Current assets:
Cash and cash equivalents
377,215
377,461
Trade and other receivables
206,236
177,382
Income taxes receivable
6,101
9,825
Inventories
280,757
187,058
Prepaid expenses
7,432
6,702
877,741
758,428
Non-current assets:
Property, plant and equipment
516,062
515,247
Intangible assets and goodwill
33,454
34,472
Employee benefit plan assets
12,515
13,547
562,031
563,266
Total assets
1,439,772
1,321,694
Equity and Liabilities
Current liabilities:
Trade payables and other liabilities
110,201
91,717
Contract liabilities
160
3,503
Income taxes payable
13,381
1,102
Derivative financial instruments
1,852
715
125,594
97,037
Non-current liabilities:
Employee benefit plan liabilities
11,032
9,837
Deferred income
17,730
17,685
Provisions and other long-term liabilities
12,345
13,029
Deferred tax liabilities
65,290
68,367
106,397
108,918
Total liabilities
231,991
205,955
Equity:
Share capital
29,195
29,195
Reserves
(1,357)
(524)
Retained earnings
1,143,545
1,050,949
Total equity attributable to equity holders of the Company
1,171,383
1,079,620
Non-controlling interests
36,398
36,119
Total equity
1,207,781
1,115,739
Total equity and liabilities
1,439,772
1,321,694
Winpak Ltd.
Condensed Consolidated Statements of Income
(thousands of US dollars, except per share amounts) (unaudited)
Quarter Ended
Year-To-Date Ended
September 25
September 26
September 25
September 26
2022
2021
2022
2021
Revenue
302,532
254,166
888,768
722,941
Cost of sales
(221,051)
(192,138)
(636,503)
(525,388)
Gross profit
81,481
62,028
252,265
197,553
Sales, marketing and distribution expenses
(23,881)
(21,187)
(72,168)
(61,144)
General and administrative expenses
(9,524)
(7,863)
(28,773)
(24,018)
Research and technical expenses
(4,380)
(4,519)
(13,130)
(13,130)
Pre-production expenses
(1,995)
-
(2,915)
-
Other (expenses) income
(2,394)
(144)
(3,283)
1,804
Income from operations
39,307
28,315
131,996
101,065
Finance income
1,847
237
2,802
726
Finance expense
(1,379)
(434)
(2,790)
(1,341)
Income before income taxes
39,775
28,118
132,008
100,450
Income tax expense
(10,425)
(6,768)
(34,621)
(24,419)
Net income for the period
29,350
21,350
97,387
76,031
Attributable to:
Equity holders of the Company
29,567
20,762
97,108
73,777
Non-controlling interests
(217)
588
279
2,254
29,350
21,350
97,387
76,031
Basic and diluted earnings per share - cents
45
32
149
114
Condensed Consolidated Statements of Comprehensive Income
(thousands of US dollars) (unaudited)
Quarter Ended
Year-To-Date Ended
September 25
September 26
September 25
September 26
2022
2021
2022
2021
Net income for the period
29,350
21,350
97,387
76,031
Items that will not be reclassified to the statements of income:
Cash flow hedge losses recognized
-
(867)
-
(867)
-
(867)
-
(867)
Items that are or may be reclassified subsequently to the statements of income:
Cash flow hedge (losses) gains recognized
(1,575)
(933)
(1,679)
282
Cash flow hedge losses (gains) transferred to the statements of income
263
(540)
541
(1,615)
Income tax effect
351
394
305
356
(961)
(1,079)
(833)
(977)
Other comprehensive loss for the period - net of income tax
(961)
(1,946)
(833)
(1,844)
Comprehensive income for the period
28,389
19,404
96,554
74,187
Attributable to:
Equity holders of the Company
28,606
18,816
96,275
71,933
Non-controlling interests
(217)
588
279
2,254
28,389
19,404
96,554
74,187
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 28, 2020
29,195
834
1,103,435
1,133,464
33,579
1,167,043
Comprehensive (loss) income for the period
Cash flow hedge gains (losses), net of tax
-
206
(867)
(661)
-
(661)
Cash flow hedge gains transferred to the statements
of income, net of tax
-
(1,183)
-
(1,183)
-
(1,183)
Other comprehensive loss
-
(977)
(867)
(1,844)
-
(1,844)
Net income for the period
-
-
73,777
73,777
2,254
76,031
Comprehensive (loss) income for the period
-
(977)
72,910
71,933
2,254
74,187
Dividends
-
-
(163,213)
(163,213)
-
(163,213)
Balance at September 26, 2021
29,195
(143)
1,013,132
1,042,184
35,833
1,078,017
Balance at December 27, 2021
29,195
(524)
1,050,949
1,079,620
36,119
1,115,739
Comprehensive (loss) income for the period
Cash flow hedge losses, net of tax
-
(1,230)
-
(1,230)
-
(1,230)
Cash flow hedge losses transferred to the statements
of income, net of tax
-
397
-
397
-
397
Other comprehensive loss
-
(833)
-
(833)
-
(833)
Net income for the period
-
-
97,108
97,108
279
97,387
Comprehensive (loss) income for the period
-
(833)
97,108
96,275
279
96,554
Dividends
-
-
(4,512)
(4,512)
-
(4,512)
Balance at September 25, 2022
29,195
(1,357)
1,143,545
1,171,383
36,398
1,207,781
Winpak Ltd.
Condensed Consolidated Statements of Cash Flows
(thousands of US dollars) (unaudited)
Quarter Ended
Year-To-Date Ended
September 25
September 26
September 25
September 26
2022
2021
2022
2021
Cash provided by (used in):
Operating activities:
Net income for the period
29,350
21,350
97,387
76,031
Items not involving cash:
Depreciation
11,912
11,390
35,791
34,006
Amortization - deferred income
(429)
(718)
(1,283)
(1,509)
Amortization - intangible assets
428
412
1,273
1,246
Employee defined benefit plan expenses
1,149
1,135
3,325
3,492
Net finance (income) expense
(468)
197
(12)
615
Income tax expense
10,425
6,768
34,621
24,419
Other
523
(370)
(2,336)
(3,194)
Cash flow from operating activities before the following
52,890
40,164
168,766
135,106
Change in working capital:
Trade and other receivables
5,181
(7,362)
(28,854)
(26,967)
Inventories
(20,451)
(12,662)
(93,699)
(37,705)
Prepaid expenses
1,987
(995)
(730)
(3,911)
Trade payables and other liabilities
(15,692)
(879)
18,419
11,571
Contract liabilities
(1,647)
(1,405)
(3,343)
704
Employee defined benefit plan contributions
(35)
(31)
(1,675)
(1,045)
Income tax paid
(902)
(5,174)
(18,205)
(16,713)
Interest received
1,703
204
2,438
640
Interest paid
(1,293)
(331)
(2,574)
(1,050)
Net cash from operating activities
21,741
11,529
40,543
60,630
Investing activities:
Acquisition of property, plant and equipment - net
Winpak Ltd. is a Canada-based company, which manufactures and distributes packaging materials and related packaging machines. The Companyâs products are used primarily for the packaging of perishable foods, beverages and in healthcare applications. The Company operates through three segments: Flexible Packaging, Rigid Packaging and Flexible Lidding and Packaging Machinery. The Flexible Packaging segment includes the modified atmosphere packaging, specialty films and biaxially oriented nylon product groups. The Rigid Packaging and Flexible Lidding segment include the rigid containers, lidding and specialized printed packaging product groups. Rigid containers include portion control and single-serve containers, as well as plastic sheet, custom and retort trays. Packaging Machinery segment 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.