WINNIPEG, MB, July 27, 2023 /CNW/ - Winpak Ltd. (WPK) today reports consolidated results in US dollars for the second quarter of 2023, which ended on July 2, 2023. WINPAK Logo (CNW Group/Winpak Ltd.)

Quarter Ended (1) Year-To-Date Ended (1) July 2 June 26 July 2 June 26 2023 2022 2023 2022 (thousands of US dollars, except per share amounts) Revenue 287,464 310,254 591,980 586,236 Net income 40,017 34,108 78,753 68,037 Income tax expense 13,538 12,495 26,986 24,196 Net finance (income) expense (3,884) 173 (7,518) 456 Depreciation and amortization 11,950 11,961 24,046 23,870 EBITDA (2) 61,621 58,737 122,267 116,559 Net income attributable to equity holders of the Company 40,006 33,671 79,293 67,541 Net income (loss) attributable to non-controlling interests 11 437 (540) 496 Net income 40,017 34,108 78,753 68,037 Basic and diluted earnings per share (cents) 62 52 122 104

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 second quarter of 2023 of $40.0 million or 62 cents in earnings per share (EPS) increased by 18.8 percent from the $33.7 million or 52 cents per share recorded in the corresponding quarter in 2022.  This represented the highest quarterly earnings achievement in the Company's history.  Gross profit augmented EPS by 5.5 cents.  Net finance income and foreign exchange elevated EPS by 4.5 cents and 3.5 cents, respectively.  Furthermore, the level of net income attributable to non-controlling interests and income taxes each added 1.0 cent to EPS.  Conversely, weaker sales volumes lowered EPS by 4.5 cents.  In addition, higher operating expenses led to a contraction in EPS of 1.0 cent.

For the six months ended July 2, 2023, net income attributable to equity holders of the Company amounted to $79.3 million or 122 cents per share, an increase of 17.4 percent compared to the 2022 first half result of $67.5 million or 104 cents per share.  Net finance income raised EPS by 9.0 cents.  Gross profit and foreign exchange were also influential with both items bolstering EPS by 4.5 cents.   Income taxes and the level of net income attributable to non-controlling interests each benefitted EPS by 1.5 cents.  Operating expenses had the opposite effect, dampening EPS by 3.0 cents.

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 3.0 percent to first half 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 second quarter of 2023 was $287.5 million, $22.8 million or 7.3 percent less than the second quarter of 2022.  Volumes receded by 7.8 percent when compared to the second quarter of 2022.  The negative impact of customer destocking and softer consumer demand varied amongst the Company's product groups.  The flexible packaging operating segment recorded a reduction in volumes of 10 percent.  For the modified atmosphere packaging product group, weakened order levels for protein, cheese and frozen food applications were experienced.  Specialty films volumes retreated largely because of customer loss and the targeted exit from certain low-margin business.  For the biaxially oriented nylon product group, volumes declined significantly as the activity level with customers that had accumulated above average inventory levels during the recent supply chain challenges was well below normal.  Within the rigid packaging and flexible lidding operating segment, volumes dropped by 5 percent.  The rigid container product group experienced a 7 percent decline in volumes stemming from lower specialty beverage container shipments.  For the lidding product group, capacity constraints relating to daisy chain lidding and a temporary reduction in retort pet food business caused volumes to contract by 9 percent.  As a result of the pharmaceutical accounts secured during 2022, sizeable volume growth of nearly 50 percent was generated by the specialized printed packaging product group.  Packaging machinery volumes fell short of the comparable 2022 quarter as customers scaled back on purchases due to the rising cost of capital and economic uncertainty.  Selling price and mix changes had a positive effect on revenue of $3.6 million whereas foreign exchange lowered revenue by $2.1 million.

For the first six months of 2023, revenue grew by 1.0 percent to $592.0 million from $586.2 million in the comparable prior year period.  Volumes were virtually unchanged.  After accounting for the additional week in the first quarter of 2023, volumes were 3 percent lower.  Within the flexible packaging operating segment, volume losses amounted to 5 percent.  After realizing healthy volume growth in both 2021 and 2022, modified atmosphere packaging product group volumes were relatively stable.  As a result of the tempered demand from core accounts, biaxially oriented nylon product group volumes contracted by more than 20 percent.  Specialty film volumes decreased by 17 percent on account of customer loss.  The rigid packaging and flexible lidding operating segment volumes advanced by 1 percent.  Exceptional volume growth for the specialized printed packaging product group reflected pharmaceutical business gains.  Rigid container volumes decreased by 4 percent due to a moderate drop in specialty beverage shipments.  Lidding product group volumes rebounded by 5 percent following the stabilization of the aluminum foil supply chain and improvement in productive capacity.  Packaging machinery volumes were similar to the prior year.  Selling price and mix changes had a favorable impact on revenue of 1.7 percent.  Foreign exchange had a minor negative effect on revenue.

Gross Profit Margins Gross profit margins in the current quarter of 30.2 percent of revenue ascended by 1.4 percentage points from the 2022 second quarter result of 28.8 percent of revenue.  Selling prices advanced in contrast to the modest reduction in material costs, which in the prior year included aluminum foil air freight transportation expenses.  The favorable divergence lifted EPS by 19.0 cents.  With respect to operating leverage, manufacturing costs expanded while sales volumes retreated, tempering EPS by 13.5 cents.  The Company's cost structure was adversely affected by inflationary pressures, especially personnel and consumable expenses.

For the first six months of 2023, gross profit margins were 29.5 percent of revenue, a narrow expansion of 0.4 percentage points from the 29.1 percent of revenue achieved during the 2022 year-to-date comparative period.  Accordingly, EPS climbed by 4.5 cents.  Selling price and mix increases of $10.2 million were complemented by a 4.6 percent decline in raw material costs, leading to an increase in EPS of 26.0 cents.  The Company benefitted from the 12 percent reduction in raw material costs that took place over the two preceding quarters and the contractual delay in passing these along to customers with formal price indexing arrangements.  Additionally, exceptional expenses incurred to expedite aluminum foil were embedded within the 2022 raw material costs.  The impact of inflation on manufacturing costs, most notably personnel and consumable expenses, was substantial, lowering EPS by 21.5 cents.  Higher outside warehousing costs were offset by the improvement in inventory obsolescence expenses.

The raw material purchase price index dropped by 4 percent compared to the first quarter of 2023.  In the past 12 months, the decrease in the index was 16 percent.  During the second quarter, polyethylene, polypropylene and nylon resin prices each realized declines ranging between 10 and 12 percent.

Expenses and Other Operating expenses in the second quarter of 2023, exclusive of foreign exchange, contracted at a slightly lower rate relative to the reduction in sales volumes, thereby subtracting 1.0 cent from EPS.  Inflationary forces raised employee compensation expenses.  In contrast, freight and distribution costs, which were heightened in the prior year, normalized in the current year.  Foreign exchange had a positive effect on EPS of 3.5 cents due to the favorable translation differences recorded on the revaluation of monetary assets and liabilities in comparison to the unfavorable translation differences recorded in the same quarter in 2022.  Additionally, the Company benefitted from the weakened value of the Canadian dollar that was employed to translate transactions in that currency into US dollars.  Net finance income added 4.5 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.  The effective income tax rate decreased by 1.5 percentage points in the second quarter of 2023, enhancing EPS by 1.0 cent.  A smaller proportion of earnings attributable to non-controlling interests raised EPS by 1.0 cent.

On a year-to-date basis, operating expenses, adjusted for foreign exchange, increased at a rate of 3.4 percent in relation to the virtually unchanged sales volumes, having a negative impact on EPS of 3.0 cents.  As a consequence of the inflationary environment, personnel costs advanced at a rate well above historical norms.  This was partially offset by the sizeable drop in freight and distribution costs.  Foreign exchange contributed 4.5 cents to EPS.  The 6.2 percent depreciation in the average exchange rate of the Canadian dollar in relation to the US dollar was a positive influence.  Furthermore, the favorable translation differences recorded on the revaluation of monetary assets and liabilities denominated in Canadian dollars was in contrast to the unfavorable translation differences recorded in the first six months of 2022.  Due to the substantial increase in the interest rates applied to the Company's cash and cash equivalents, net finance income boosted EPS by 9.0 cents.  The effective income tax rate was marginally lower in 2023, providing 1.5 cents to EPS.  Lastly, the level of net income attributable to non-controlling interests enhanced EPS by 1.5 cents.

Capital Resources, Cash Flow and Liquidity The Company's cash and cash equivalents balance ended the second quarter of 2023 at $454.7 million, an increase of $34.3 million from the end of the prior quarter.  Winpak generated strong cash flows from operating activities before changes in working capital of $61.8 million.  The net investment in working capital decreased by $3.7 million.  Inventory amounts fell by $13.8 million mainly as a result of unwinding finished goods inventories that had accumulated over the previous twelve months.  Largely due to the lower inventory purchases, trade payables and other liabilities declined by $10.4 million.  Cash was used for income tax payments of $20.9 million, property, plant and equipment additions of $12.1 million, dividend payments of $1.4 million and other items totaling $0.3 million.  Net finance income provided cash of $3.5 million.

For the first half of 2023, the cash and cash equivalents balance advanced by $56.1 million.  Cash flows generated from operating activities before changes in working capital were solid at $121.8 million.  Working capital consumed $0.5 million in cash.  The $20.4 million decrease in inventories reflected the physical drawdown of raw material inventories in combination with the overall drop in raw material costs since the start of the year.  Trade payables and other liabilities receded by $21.0 million on account of the diminished level of raw material purchases.  Cash outflows included: income tax payments of $46.4 million, property, plant and equipment additions of $21.6 million, dividend payments of $2.9 million and other items amounting to $1.4 million.  Net finance income produced incremental cash of $7.1 million.

Summary of Quarterly Results

Thousands of US dollars, except per share amounts (US cents) Q2 Q1 Q4 Q3 Q2 Q1 Q4 Q3 2023 2023 2022 2022 2022 2022 2021 2021 Revenue 287,464 304,516 292,365 302,532 310,254 275,982 279,053 254,166 Net income attributable to equity holders of the Company 40,006 39,287 31,235 29,567 33,671 33,870 30,031 20,762 EPS 62 60 48 45 52 52 46 32

Looking Forward Building upon the record-setting profitability performance in the first half of 2023, Winpak is optimistic about the second half of the year.  With inflation trending towards the targets set by central banks, it appears that the cycle of aggressive monetary policy is nearly complete.  Expectations regarding economic growth in North America have improved somewhat for the second half of 2023, but have been downgraded slightly for 2024.

Weakened consumer demand and customer destocking had a greater influence on second quarter sales volumes than had been forecasted.  These headwinds will continue to be influential in the upcoming quarter but should abate as the year progresses.  For the balance of 2023, the Company is optimistic that sales volumes will be favorably impacted by new product launches, new customer onboarding and the timing  of order fulfillment, especially within the rigid container product group.  Based on the challenging operating environment, Winpak has adjusted the outlook for the remainder of 2023, projecting sales volume growth in the range of 1 to 3 percent.

Thus far in 2023, raw materials costs have fallen by 7 percent.  Current market views are for additional, moderate reductions in the next six months.  The Company will benefit from this trend as the pass-through of these savings are estimated to be delayed by an average of four months.  In the product markets that the Company participates, packaging manufacturers, in aggregate, are experiencing higher than normal levels of unsold capacity.  With this intensified competitive landscape, further selling price increases are unlikely and at certain accounts, concessions may be required.  Taking the above factors into account, gross profit margins for the final two quarters of 2023 should be relatively stable.

Capital expenditures are expected to accelerate in the second half of the year and are forecast to be in the range of $80 to 90 million for 2023.  In February 2023, the Board of Directors approved a significant, multi-year expansion project at the Winnipeg, Manitoba modified atmosphere packaging facility.  The building expansion of more than 200,000 square feet should be completed in early 2025 and the new cast co-extrusion line will be available soon after, establishing the footprint for sizeable volume growth.  In the upcoming quarter, the injection molded rigid container capacity will become available, supporting the Company's more immediate growth aspirations.  In addition, a much needed cast co-extrusion line is scheduled for start-up in early 2024 at the modified atmosphere packaging facility.  Complementary acquisition candidates will be seriously considered and evaluated, especially in light of current business valuations within this elevated cost of capital environment.

Winpak Ltd. Interim Condensed Consolidated Financial Statements Second Quarter Ended: July 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) July 2 December 25 2023 2022 Assets Current assets: Cash and cash equivalents 454,746 398,673 Trade and other receivables 198,346 204,040 Income taxes receivable 4,905 3,573 Inventories 267,753 288,118 Prepaid expenses 9,345 5,602 Derivative financial instruments 1,317 - 936,412 900,006 Non-current assets: Property, plant and equipment 516,740 518,590 Intangible assets and goodwill 32,551 33,110 Employee benefit plan assets 11,287 10,783 560,578 562,483 Total assets 1,496,990 1,462,489 Equity and Liabilities Current liabilities: Trade payables and other liabilities 81,369 102,382 Contract liabilities 786 2,621 Income taxes payable 3,284 18,393 Derivative financial instruments 24 1,328 85,463 124,724 Non-current liabilities: Employee benefit plan liabilities 9,237 8,334 Deferred income 17,712 17,946 Provisions and other long-term liabilities 11,613 12,062 Deferred tax liabilities 56,232 60,648 94,794 98,990 Total liabilities 180,257 223,714 Equity: Share capital 29,195 29,195 Reserves 1,147 (972) Retained earnings 1,250,930 1,174,551 Total equity attributable to equity holders of the Company 1,281,272 1,202,774 Non-controlling interests 35,461 36,001 Total equity  1,316,733 1,238,775 Total equity and liabilities 1,496,990 1,462,489

Winpak Ltd. Condensed Consolidated Statements of Income (thousands of US dollars, except per share amounts) (unaudited) Quarter Ended Year-To-Date Ended July 2 June 26 July 2 June 26 2023 2022 2023 2022 Revenue 287,464 310,254 591,980 586,236 Cost of sales (200,563) (221,000) (417,229) (415,452) Gross profit 86,901 89,254 174,751 170,784 Sales, marketing and distribution expenses (22,559) (25,497) (47,953) (48,287) General and administrative expenses (9,595) (10,498) (20,111) (19,249) Research and technical expenses (5,480) (4,485) (9,758) (8,750) Pre-production expenses - (518) - (920) Other income (expense) 404 (1,480) 1,292 (889) Income from operations 49,671 46,776 98,221 92,689 Finance income 5,461 682 10,453 955 Finance expense (1,577) (855) (2,935) (1,411) Income before income taxes 53,555 46,603 105,739 92,233 Income tax expense (13,538) (12,495) (26,986) (24,196) Net income for the period 40,017 34,108 78,753 68,037 Attributable to: Equity holders of the Company 40,006 33,671 79,293 67,541 Non-controlling interests 11 437 (540) 496 40,017 34,108 78,753 68,037 Basic and diluted earnings per share - cents 62 52 122 104 Condensed Consolidated Statements of Comprehensive Income (thousands of US dollars) (unaudited) Quarter Ended Year-To-Date Ended July 2 June 26 July 2 June 26 2023 2022 2023 2022 Net income for the period 40,017 34,108 78,753 68,037 Items that will not be reclassified to the statements of income: Cash flow hedge gains recognized 478 - 766 - Cash flow hedge gains transferred to property, plant, and equipment (17) - (17) - 461 - 749 - Items that are or may be reclassified subsequently to the statements of income: Cash flow hedge gains (losses) recognized 544 (948) 954 (104) Cash flow hedge losses transferred to the statements of income 632 178 918 278 Income tax effect (315) 206 (502) (46) 861 (564) 1,370 128 Other comprehensive income (loss) for the period  - net of income tax 1,322 (564) 2,119 128 Comprehensive income for the period 41,339 33,544 80,872 68,165 Attributable to: Equity holders of the Company 41,328 33,107 81,412 67,669 Non-controlling interests 11 437 (540) 496 41,339 33,544 80,872 68,165

Winpak Ltd. Condensed Consolidated Statements of Changes in Equity (thousands of US dollars) (unaudited) Attributable to equity holders of the Company Share

capital Retained

earnings Non-

controlling

interests Reserves Total 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 losses, net of tax - (76) - (76) - (76) Cash flow hedge losses transferred to the statements of income, net of tax - 204 - 204 - 204 Other comprehensive income - 128 - 128 - 128 Net income for the period - - 67,541 67,541 496 68,037 Comprehensive income for the period - 128 67,541 67,669 496 68,165 Dividends - - (3,076) (3,076) - (3,076) Balance at June 26, 2022 29,195 (396) 1,115,414 1,144,213 36,615 1,180,828 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 - 1,464 - 1,464 - 1,464 Cash flow hedge losses transferred to the statements of income, net of tax - 672 - 672 - 672 Cash flow hedge gains transferred to property, plant and equipment - (17) - (17) - (17) Other comprehensive income - 2,119 - 2,119 - 2,119 Net income (loss) for the period - - 79,293 79,293 (540) 78,753 Comprehensive income (loss) for the period - 2,119 79,293 81,412 (540) 80,872 Dividends - - (2,914) (2,914) - (2,914) Balance at July 2, 2023 29,195 1,147 1,250,930 1,281,272 35,461 1,316,733

Winpak Ltd. Condensed Consolidated Statements of Cash Flows (thousands of US dollars) (unaudited) Quarter Ended Year-To-Date Ended July 2 June 26 July 2 June 26 2023 2022 2023 2022 Cash provided by (used in): Operating activities: Net income for the period 40,017 34,108 78,753 68,037 Items not involving cash: Depreciation 11,952 11,962 24,039 23,879 Amortization - deferred income (421) (428) (839) (854) Amortization - intangible assets 419 427 846 845 Employee defined benefit plan expenses 1,072 1,092 1,823 2,176 Net finance (income) expense (3,884) 173 (7,518) 456 Income tax expense 13,538 12,495 26,986 24,196 Other (854) (8) (2,254) (2,859) Cash flow from operating activities before the following 61,839 59,821 121,836 115,876 Change in working capital: Trade and other receivables 2,092 (21,217) 5,694 (34,035) Inventories 13,794 (49,242) 20,365 (73,248) Prepaid expenses (1,296) 341 (3,743) (2,717) Trade payables and other liabilities (10,423) 17,555 (21,012) 34,111 Contract liabilities (503) (816) (1,835) (1,696) Employee defined benefit plan contributions (28) (146) (785) (1,640) Income tax paid (20,856) (10,774) (46,373) (17,303) Interest received 5,141 568 10,082 735 Interest paid (1,593) (785) (2,962) (1,281) Net cash from operating activities 48,167 (4,695) 81,267 18,802 Investing activities: Acquisition of property, plant and equipment - net  (12,142) (11,555) (21,585) (23,491) Acquisition of intangible assets (79) (56) (286) (231) (12,221) (11,611) (21,871) (23,722) Financing activities: Payment of lease liabilities (227) (220) (446) (428) Dividends paid (1,443) (1,563) (2,877) (3,085) (1,670) (1,783) (3,323) (3,513) Change in cash and cash equivalents 34,276 (18,089) 56,073 (8,433) Cash and cash equivalents, beginning of period 420,470 387,117 398,673 377,461 Cash and cash equivalents, end of period 454,746 369,028 454,746 369,028

SOURCE Winpak Ltd. Cision

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