Winpak Reports 2023 First Quarter Results

WINNIPEG, MB, April 25, 2023 /CNW/ - Winpak Ltd. (WPK) today reports consolidated results in US dollars for the first quarter of 2023, which ended on April 2, 2023.

	Quarter Ended (1)
	April 2			March 27
	2023			2022
(thousands of US dollars, except per share amounts)
Revenue	304,516			275,982
Net income	38,736			33,929
Income tax expense	13,448			11,701
Net finance (income) expense	(3,634)			283
Depreciation and amortization	12,096			11,909
EBITDA (2)	60,646			57,822
Net income attributable to equity holders of the Company	39,287			33,870
Net (loss) income attributable to non-controlling interests	(551)			59
Net income	38,736			33,929
Basic and diluted earnings per share (cents)	60			52

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 The 2023 fiscal year comprises 53 weeks and the 2022 fiscal year comprised 52 weeks.  Each quarter of 2023 and 2022 comprises 13 weeks with the exception of the first quarter of 2023, which comprised 14 weeks.

² 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.  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 first quarter of 2023 of $39.3 million or 60 cents in earnings per share (EPS) exceeded the $33.9 million or 52 cents per share recorded in the corresponding quarter of 2022, an increase of 16.0 percent.  This represented the highest first quarter earnings achievement for the Company.  Organic volume growth elevated EPS by 4.5 cents.  Net finance income and foreign exchange augmented EPS by 4.0 cents and 1.5 cents, respectively.  The level of income attributable to non-controlling interests added a further 1.0 cent.  Conversely, higher operating expenses lowered EPS by 2.0 cents.  In addition, gross profit led to a contraction in EPS of 1.0 cent.

The fiscal year of the Company ends on the last Sunday of the calendar year and is usually 52 weeks in duration.  However, the 2023 fiscal year consists of 53 weeks, with the first quarter comprising 14 weeks, one more week than the prior year.  The additional week included in the 2023 first quarter was essentially the last week of the 2022 calendar year which contained several statutory holidays.  Consequently, it is estimated that this additional week contributed 6.0 percent to first quarter 2023 sales volumes and net income results.

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, pet food, 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 first quarter of 2023 was $304.5 million, $28.5 million or 10.3 percent greater than the first quarter of 2022.  Volume growth of 8.7 percent was achieved compared to the initial quarter of 2022.  After taking into account the additional week in the current quarter, volume growth was approximately 3 percent.  Within the flexible packaging operating segment, volume growth of 1 percent was realized.  For the modified atmosphere packaging group, healthy volume growth reflected enhanced demand and business gains relating primarily to protein packaging.  Biaxially oriented nylon product group volumes declined significantly as several core customers continue to unwind the excessive inventory levels that accumulated during the recent period of heightened supply chain challenges.  In addition, specialty film volumes decreased mainly on account of customer loss.  The rigid packaging and flexible lidding operating segment posted volume growth of 8 percent.  For the lidding product group, volumes rebounded by 20 percent.  In the first quarter of 2022, volumes were constrained by the inability to procure sufficient levels of aluminum foil.  Furthermore, improvements in productive capacity have been realized over the past 12 months.  Rigid container volumes fell slightly as gains in retort pet food packaging were eclipsed by lower condiment container activity.  Packaging machinery volumes advanced by 6 percent.  Selling price and mix changes had a modest positive effect on revenue of 2.4 percent.  Foreign exchange had a minor negative influence on revenue.

Gross Profit Margins
Gross profit margins narrowed to 28.8 percent of revenue in the first quarter of 2023 from the 29.5 percent recorded in the same quarter of 2022.  Consequently, EPS was adversely impacted by 1.0 cent.  The level of selling price increases moderately outpaced the corresponding rise in raw material costs, generating an increase in EPS of 6.5 cents.  The Company benefitted from the notable drop in raw material costs that took place in the fourth quarter of 2022 and the temporary delay in passing these along to customers with formal price indexing arrangements.  The impact of inflation on both consumables and personnel expenses, coupled with the incurrence of outside warehousing expenses to support the higher balance of inventories, dampened EPS by 7.5 cents.

In the first quarter of the year, the raw material purchase price index receded by 3 percent compared to the fourth quarter of 2022.  In the past 12 months, the index declined by 8 percent.  During the first quarter, nylon resin had the most sizeable decrease of 17 percent while polypropylene resin experienced an increase of 13 percent.

Expenses and Other
Operating expenses in the current quarter, adjusted for foreign exchange, progressed at a rate of 13.3 percent which exceeded the growth in sales volumes, resulting in a reduction in EPS of 2.0 cents.  Higher personnel costs were the main contributing factor.  Foreign exchange raised EPS by 1.5 cents in the quarter largely a result of the weakened value of the Canadian dollar that was in effect to translate transactions in that currency into US dollars.  Net finance income added 4.0 cents to EPS as the cash invested in short-term deposits and money market accounts was at much higher rates of interest than a year earlier.  A lower proportion of earnings attributable to non-controlling interests augmented EPS by 1.0 cent.

Capital Resources, Cash Flow and Liquidity
The Company's cash and cash equivalents balance ended the first quarter of 2023 at $420.5 million, an increase of $21.8 million from the end of the prior year.  Winpak continued to generate strong cash flow from operating activities before changes in working capital of $60.0 million.  Cash was consumed by net working capital additions of $4.2 million.  Inventories decreased by $6.6 million mainly a result of the drop in raw material costs.  Due to the timing of supplier payments, trade payables and other liabilities declined by $10.6 million.  Cash was utilized for income tax payments of $25.5 million, property, plant and equipment expenditures of $9.4 million, dividend payments of $1.4 million and other items totaling $1.3 million.  Net finance income provided incremental cash of $3.6 million.

Summary of Quarterly Results

			Thousands of US dollars, except per share amounts (US cents)
	Q1		Q4		Q3		Q2		Q1		Q4		Q3		Q2
	2023		2022		2022		2022		2022		2021		2021		2021
Revenue	304,516		292,365		302,532		310,254		275,982		279,053		254,166		243,969
Net income attributable to equity holders
of the Company	39,287		31,235		29,567		33,671		33,870		30,031		20,762		28,520
EPS	60		48		45		52		52		46		32		44

Looking Forward
The first quarter provided solid revenue and earnings performance and for the full year, Winpak is on pace to realize all-time highs for each of these financial metrics.

Monetary policies implemented in the US and Canada have been successful in lowering the rate of inflation and improving the availability of labor.  Throughout the remainder of 2023, it is projected that the trend of disinflation will continue and may eventually lead to deflation next year.  Economic growth in North America has slowed with a mild recession forecasted for the second half of 2023.  The recent stresses in the US financial system appear to have stabilized, however, further turmoil could have a material impact on both economic growth and inflation.

On a normalized basis, the year started with sales volumes advancing modestly with varying results across the Company's product groups.  The overall trend of customers lowering the abnormally high level of inventories will continue but is expected to subside by the middle of 2023.  Additionally, with production capacity coming on stream later in 2023, new business opportunities will be cultivated by the modified atmosphere packaging and rigid container product groups.  Furthermore, the timing of order fulfillment within the rigid container and lidding product groups should have a positive impact on sales volumes.  Conversely, the weakening economy may somewhat limit the Company's growth aspirations.  Winpak remains optimistic that sales volume growth for the remainder of 2023 will be in the range of 3 to 5 percent.

In aggregate, raw material costs decreased by 12 percent over the past six months.  The pass-through of these reductions to customers with formal price indexing arrangements will be implemented, on average, after a time lag of four months.  For the balance of 2023, market expectations are that overall resin prices will be relatively stable with some materials projected to increase while others may decrease.  Although the long-term outlook for inflation is positive, the current rate remains well above historical norms and key components of the Company's cost structure are directly impacted.  The challenges experienced in attracting and retaining personnel and the resulting impact on compensation are also hampering profitability.  With several competitors experiencing a much higher than normal magnitude of unsold capacity, the ability to implement selling price increases in 2023 has been extremely limited.  Based on the preceding factors, gross profit margins for the rest of 2023 should be comparable to the level achieved in the first quarter of the year. 

Capital expenditures for 2023 are forecast to be between $90 million and $100 million.  During the first quarter of 2023, the Board of Directors approved a significant expansion of the Winnipeg, Manitoba modified atmosphere packaging facility, which includes the acquisition of additional cast co-extrusion capacity and related ancillary equipment.  The building expansion of approximately 200,000 square feet should be completed towards the end of 2024 and the new extrusion line will be available in early 2025, providing the foundation for sizeable volume growth.  Longer term, the building expansion has the capability of housing two additional cast co-extrusion lines.  Contributing to the Company's more immediate growth targets, new co-extrusion modified atmosphere packaging and injection molded rigid container capacity will be commercialized in the second half of 2023.  Concurrently, acquisition candidates will be considered and evaluated when they align strategically with the Company's strengths in sophisticated packaging for food, beverage and healthcare applications and provide a satisfactory economic return for shareholders.  It is expected that the recent rise in the cost of capital will limit the number of potential bidders for acquisition opportunities that are of interest to Winpak.

Winpak Ltd.
Interim Condensed Consolidated Financial Statements
First Quarter Ended: April 2, 2023

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)
			April 2		December 25
			2023		2022
Assets
Current assets:
Cash and cash equivalents			420,470		398,673
Trade and other receivables			200,438		204,040
Income taxes receivable			3,677		3,573
Inventories			281,547		288,118
Prepaid expenses			8,049		5,602
Derivative financial instruments			396		-
			914,577		900,006
Non-current assets:
Property, plant and equipment			516,341		518,590
Intangible assets and goodwill			32,889		33,110
Employee benefit plan assets			11,322		10,783
			560,552		562,483
Total assets			1,475,129		1,462,489
Equity and Liabilities
Current liabilities:
Trade payables and other liabilities			91,955		102,382
Contract liabilities			1,289		2,621
Income taxes payable			6,602		18,393
Derivative financial instruments			740		1,328
			100,586		124,724
Non-current liabilities:
Employee benefit plan liabilities			8,624		8,334
Deferred income			17,915		17,946
Provisions and other long-term liabilities			11,839		12,062
Deferred tax liabilities			59,300		60,648
			97,678		98,990
Total liabilities			198,264		223,714
Equity:
Share capital			29,195		29,195
Reserves			(175)		(972)
Retained earnings			1,212,395		1,174,551
Total equity attributable to equity holders of the Company			1,241,415		1,202,774
Non-controlling interests			35,450		36,001
Total equity			1,276,865		1,238,775
Total equity and liabilities			1,475,129		1,462,489

Winpak Ltd.
Condensed Consolidated Statements of Income
(thousands of US dollars, except per share amounts) (unaudited)
			Quarter Ended
			April 2		March 27
			2023		2022
Revenue			304,516		275,982
Cost of sales			(216,666)		(194,452)
Gross profit			87,850		81,530
Sales, marketing and distribution expenses			(25,394)		(22,790)
General and administrative expenses			(10,516)		(8,751)
Research and technical expenses			(4,278)		(4,265)
Pre-production expenses			-		(402)
Other income			888		591
Income from operations			48,550		45,913
Finance income			4,992		273
Finance expense			(1,358)		(556)
Income before income taxes			52,184		45,630
Income tax expense			(13,448)		(11,701)
Net income for the period			38,736		33,929
Attributable to:
Equity holders of the Company			39,287		33,870
Non-controlling interests			(551)		59
			38,736		33,929
Basic and diluted earnings per share - cents			60		52
Condensed Consolidated Statements of Comprehensive Income
(thousands of US dollars) (unaudited)
			Quarter Ended
			April 2		March 27
			2023		2022
Net income for the period			38,736		33,929
Items that will not be reclassified to the statements of income:
Cash flow hedge gains recognized			288		-
			288		-
Items that are or may be reclassified subsequently to the statements of income:
Cash flow hedge gains recognized			410		844
Cash flow hedge losses transferred to the statements of income			286		100
Income tax effect			(187)		(252)
			509		692
Other comprehensive income for the period  - net of income tax			797		692
Comprehensive income for the period			39,533		34,621
Attributable to:
Equity holders of the Company			40,084		34,562
Non-controlling interests			(551)		59
			39,533		34,621

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 27, 2021		29,195	(524)	1,050,949	1,079,620	36,119	1,115,739
Comprehensive income for the period
Cash flow hedge gains, net of tax		-	619	-	619	-	619
Cash flow hedge losses transferred to the statements
of income, net of tax		-	73	-	73	-	73
Other comprehensive income		-	692	-	692	-	692
Net income for the period		-	-	33,870	33,870	59	33,929
Comprehensive income for the period		-	692	33,870	34,562	59	34,621
Dividends		-	-	(1,563)	(1,563)	-	(1,563)
Balance at March 27, 2022		29,195	168	1,083,256	1,112,619	36,178	1,148,797
Balance at December 26, 2022		29,195	(972)	1,174,551	1,202,774	36,001	1,238,775
Comprehensive income for the period
Cash flow hedge gains, net of tax		-	588	-	588	-	588
Cash flow hedge losses transferred to the statements
of income, net of tax		-	209	-	209	-	209
Other comprehensive income		-	797	-	797	-	797
Net income (loss) for the period		-	-	39,287	39,287	(551)	38,736
Comprehensive income (loss) for the period		-	797	39,287	40,084	(551)	39,533
Dividends		-	-	(1,443)	(1,443)	-	(1,443)
Balance at April 2, 2023		29,195	(175)	1,212,395	1,241,415	35,450	1,276,865

Winpak Ltd.
Condensed Consolidated Statements of Cash Flows
(thousands of US dollars) (unaudited)
	Quarter Ended
	April 2		March 27
	2023		2022
Cash provided by (used in):
Operating activities:
Net income for the period	38,736		33,929
Items not involving cash:
Depreciation	12,087		11,917
Amortization - deferred income	(418)		(426)
Amortization - intangible assets	427		418
Employee defined benefit plan expenses	751		1,084
Net finance (income) expense	(3,634)		283
Income tax expense	13,448		11,701
Other	(1,400)		(2,851)
Cash flow from operating activities before the following	59,997		56,055
Change in working capital:
Trade and other receivables	3,602		(12,818)
Inventories	6,571		(24,006)
Prepaid expenses	(2,447)		(3,058)
Trade payables and other liabilities	(10,589)		16,556
Contract liabilities	(1,332)		(880)
Employee defined benefit plan contributions	(757)		(1,494)
Income tax paid	(25,517)		(6,529)
Interest received	4,941		167
Interest paid	(1,369)		(496)
Net cash from operating activities	33,100		23,497
Investing activities:
Acquisition of property, plant and equipment - net	(9,443)		(11,936)
Acquisition of intangible assets	(207)		(175)
	(9,650)		(12,111)
Financing activities:
Payment of lease liabilities	(219)		(208)
Dividends paid	(1,434)		(1,522)
	(1,653)		(1,730)
Change in cash and cash equivalents	21,797		9,656
Cash and cash equivalents, beginning of period	398,673		377,461
Cash and cash equivalents, end of period	420,470		387,117

SOURCE Winpak Ltd.

S.M. Taylor, Vice President and CFO, [phone]; O.Y. Muggli, President and CEO, [phone]