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 consisted of 53 weeks, with the first quarter comprising 14 weeks, one more week than the current 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 2023 first quarter 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 2024 was $276.8 million, $27.7 million or 9.1 percent below the first quarter of 2023.  Volume contraction of 5.9 percent was experienced compared to the initial quarter of 2023.  After taking into account the additional week in the first quarter of 2023, volumes were essentially equal.  Consumer demand improved slightly from the final quarter of 2023, but remained subdued.  Within the flexible packaging operating segment, volume growth of 2 percent was realized.  For the modified atmosphere packaging product group, limited volume growth reflected the challenges with respect to overall demand at meat protein accounts.  Biaxially oriented nylon product group volumes advanced by more than 30 percent as the order level in the first quarter of 2023 was severely constrained while several core customers managed excessive inventory levels.  Specialty film volumes were essentially unchanged.  The rigid packaging and flexible lidding operating segment posted volume losses of 1 percent.  For the lidding product group, volumes retreated by 2 percent.  The drop in specialty beverage lidding volumes was partially offset by advances in retort pet food lidding.  Rigid container volumes also fell slightly as gains with specialty beverage containers were eclipsed by lower retort pet food and snack food container activity.  Building on the success achieved with pharmaceutical accounts in 2023, the specialized printed packaging product group's volumes surged by 16 percent.  Taking into account the higher cost of capital, several packaging machinery customers delayed order placement and volumes declined by 24 percent as a result.  Selling price and mix changes had a modest negative effect on revenue of 3.3 percent.  Foreign exchange had a minor positive influence on revenue.

Gross Profit Margins
Gross profit margins in the first quarter of 2024 climbed by 2.3 percentage points to 31.1 percent of revenue from the 28.8 percent recorded in the same quarter of 2023.  Despite the negative impact on selling prices of heightened competitive pressures and the pass-through of indexing adjustments, material costs declined to a greater extent, generating an increase in EPS of 8.5 cents.  The effect of inflation on personnel costs, combined with higher depreciation and inventory obsolescence expenses, lowered EPS by 4.5 cents.

In the first quarter of the year, the raw material purchase price index advanced by 9 percent compared to the fourth quarter of 2023.  In the past 12 months, the index declined by 4 percent.  During the first quarter, nylon resin had the most sizeable increase of 25 percent while aluminun foil experienced an increase of 11 percent.

Expenses and Other
Operating expenses in the current quarter, adjusted for foreign exchange, progressed at a rate of 5.9 percent whereas sales volumes decreased by 5.9 percent, resulting in a reduction in EPS of 5.0 cents.  The main contributing factors were personnel expenses and costs associated with implementing an upgraded enterprise resource planning system, which commenced in late 2023.  Foreign exchange subtracted 1.5 cents from EPS as significant favorable translation differences were recorded on the revaluation of monetary assets and liabilities denominated in Canadian dollars in the prior year.  Permanent differences elevated the effective income tax rate by 1.8 percentage points, lowering EPS by 1.0 cent.  A higher proportion of earnings attributable to non-controlling interests dampened EPS by 1.0 cent.  Net finance income added 3.0 cents to EPS as the magnitude of cash invested in short-term deposits and money market accounts was much higher than a year earlier.

Capital Resources, Cash Flow and Liquidity
On February 29, 2024, the Toronto Stock Exchange (the "TSX") accepted a notice filed by Winpak of its intention to make a normal course issuer bid (the "NCIB") with respect to its outstanding common shares.  The notice provides that Winpak may, during the 12-month period commencing March 4, 2024 and ending no later than March 3, 2025, purchase through the facilities of the TSX and other alternative Canadian trading systems up to a maximum of 1,950,000 common shares in total, being 3.0 percent of the issued and outstanding shares of Winpak as of February 21, 2024.  The price which Winpak will pay for any common shares will be the market price at the time of acquisition.  Daily purchases under the NCIB will be generally limited to 11,644 common shares, other than block purchases.  All shares purchased will be canceled.  In connection with the NCIB, Winpak has entered into an automatic share purchase plan ("ASPP") with CIBC World Markets Inc. to facilitate the purchase of common shares under the NCIB, including at times when Winpak would ordinarily not be permitted to purchase its common shares due to regulatory restrictions or self-imposed blackout periods.  A copy of the notice filed with the TSX may be obtained upon request from the Secretary of the Company at 100 Saulteaux Crescent, Winnipeg, Manitoba, R3J 3T3, telephone (204) 889-1015, fax (204) 888-7806, or by email [email protected].

The Company's cash and cash equivalents balance ended the first quarter of 2024 at $554.4 million, an increase of $12.5 million from the end of the prior year.  Winpak continued to generate strong cash flow from operating activities before changes in working capital of $56.2 million.  Working capital generated $17.7 million in cash.  Trade and other receivables fell by $5.4 million as the balance pertaining to extended term trade receivables that will be sold without recourse to financial institutions in exchange for cash decreased.  Stemming from the timing of equipment purchases, trade payables and other liabilities advanced by $12.2 million.  Cash was utilized for property, plant and equipment expenditures of $47.3 million, income tax payments of $10.8 million, common share repurchases of $6.3 million, dividend payments of $1.5 million and other items totaling $1.6 million.  Property, plant and equipment expenditures included the land and building acquisition made by the specialized printed packaging product group.  Net finance income provided incremental cash of $6.1 million.

Looking Forward
The first quarter provided solid earnings performance while sales volumes stabilized after declining in each of the three previous quarters.  For the full year, Winpak is poised to set a new all-time high for net income attributable to equity holders.

The improved outlook for the North American economy, paired with a modest rebound in consumer demand, should have a positive impact on sales volumes for the remainder of 2024.  Making inroads with new customers and new products is a key focus.  The outlook for these catalysts of growth is positive, especially with new production equipment being commercialized within the modified atmosphere packaging and rigid container facilities later this year.  Winpak expects sales volume growth for the remainder of 2024 to be in the range of 3 to 5 percent.

In aggregate, raw material costs rose by 7 percent over the past six months.  The pass-through of these increases to customers with formal price indexing arrangements will be implemented, on average, after a time lag of four months.  For the balance of 2024, market expectations are that overall resin prices will be relatively stable with some materials projected to increase moderately.  The current rate of inflation remains well above recent norms and key components of the Company's cost structure continue to be impacted, especially personnel expenses.  This is compounded by challenges in attracting and retaining personnel which puts further pressure on compensation levels.  Within certain product markets, customer expectations for lower selling prices has intensified.  Based on the preceding factors, gross profit margins for the rest of 2024 should be one to two percentage points lower than the level achieved in the first quarter of the year.

Capital expenditures for 2024 are forecast to be between $110 and $120 million.  The extensive expansion of the Winnipeg, Manitoba modified atmosphere packaging facility is well underway and will make up approximately half of the current year's spending.  At another manufacturing site, the Company is optimistic that by the second half of 2024 it will be in a position to undertake a sizeable building expansion and acquire additional extrusion capacity.  Concurrently, Winpak will 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.  Based on the current share price, the Company's NCIB program will be fulfilled by the end of 2024.  Winpak will continue to evaluate the mechanisms and extent to which capital can be returned to shareholders.

Winpak Ltd.
Interim Condensed Consolidated Financial Statements
First Quarter Ended: March 31, 2024

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.

 

 

 

 

SOURCE Winpak Ltd.

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