Winpak Ltd — Management Reports 2024

Feb 28, 2024

MANAGEMENT’S DISCUSSION AND ANALYSIS

Forward-looking statements: Certain statements made in the following Management’s Discussion and Analysis 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.

General Information

The following discussion and analysis dated February 28, 2024 was prepared by management and should be read in conjunction with the consolidated financial statements prepared in accordance with IFRS Accounting Standards (IFRS). The following discussion and analysis is presented in US dollars except where otherwise noted. The consolidated financial statements include the accounts of all subsidiaries. The Company’s functional and reporting currency is the US dollar. The Company has filed a separate Management’s Discussion and Analysis for its fourth quarter of 2023, which is available on the Company’s website at www.winpak.com or on SEDAR at www.sedar.com.

The fiscal year of the Company ends on the last Sunday of the calendar year. As a result, the Company’s fiscal year is usually 52 weeks in duration, but includes a 53[rd] week every five to six years. The 2023 fiscal year comprised 53 weeks and the 2022 fiscal year comprised 52 weeks.

Company Overview

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.

Selected Financial Information

Selected Financial Information	Selected Financial Information
Millions of US dollars, except per share and margin amounts		2023	2022	2021
	Revenue Income from operations Net income attributable to equity holders of the Company Gross proft margin Earnings per share(cents) Reconciliation of EBITDA Net income Income tax expense Net fnance (income) expense Depreciation and amortization EBITDA	1,141.4 180.7 148.1 29.3% 228 147.6 52.2 (19.1) 47.8 228.5	1,181.1 172.3 128.3 28.1% 197 128.2 45.9 (1.8) 47.7 220.0	1,002.0 142.4 103.8 27.4% 160 106.3 35.3 0.8 45.4
				187.8

5

MANAGEMENT’S DISCUSSION AND ANALYSIS

Highlights

• ∆ For the second year in a row, the level of net income attributable to equity holders of the Company represented the highest in the Company’s history. It reached $148.1 million, exceeding the 2022 result by 15.4 percent. The positive outcome was fuelled by improvements in gross profit margin, higher net finance income and foreign exchange.

• ∆ Revenue in 2023 was $1,141.4 million, a contraction of $39.7 million or 3.4 percent from the prior year. Volumes receded by $23.0 million, accounting for more than half of the decrease. Selling price and mix changes further reduced revenue by $11.4 million.

• ∆ In 2023, an expansion in gross profit margins was achieved as raw material costs declined to a much greater extent in comparison to the corresponding reduction in selling prices. The majority of this benefit was nullified by the margin contraction attributable to the elevated manufacturing costs in relation to the drop in sales volumes, which negatively impacted operating leverage. After vaulting by 43.8 percent in 2021, the annual average cost of raw materials purchased by the Company advanced by a further 9.4 percent in 2022. This trend reversed in 2023 as additional producer supply became available, which coincided with the curtailment in global demand for the Company’s key resins.

• ∆ Net finance income advanced by $17.3 million as the cash invested in short-term deposits and money market accounts was at a much higher level and earned markedly higher rates of interest than a year earlier.

• ∆ In 2023, capital expenditures were $68.7 million, highlighted by the commencement of the modified atmosphere packaging facility expansion project, which includes a building expansion of approximately 210,000 square feet, additional cast co-extrusion capacity and related ancillary equipment. Spending relating to the injection molded container endeavor and new extrusion capacity was also undertaken.

• ∆ During 2023, Winpak generated $220.8 million from operating activities, which included the improvement in working capital of $46.6 million. This significantly outpaced the combined outflows for investing and financing activities of $77.6 million, resulting in a year-end cash position of $541.9 million. Focusing on shareholder value, the Company will continue to implement the long-term strategic capital investment program. The investments will be funded by existing cash resources on hand in tandem with operational cash flows. Simultaneously, Winpak will periodically evaluate the degree to which capital can be returned to shareholders.

6

Results of Operations

Components of total increase (decrease) in earnings per share (EPS)

	2023	2022	2021
Organic growth	(4.0)	1.0	15.0
Gross proft margins	10.0	62.5	(16.0)
Operating expenses, net fnance income and non-controlling interests	15.5	(19.5)	(4.5)
Income taxes	1.5	(3.5)	3.5
Foreign exchange	8.0	(3.5)	(2.0)
Total increase(decrease)in EPS(cents)	31.0	37.0	(4.0)

Ongoing operations

Organic growth is the impact on net income due entirely to increased sales volumes and excludes the influence of acquisitions, divestitures and foreign exchange. The drop in sales volumes lowered EPS by 4.0 cents.

Gross profit margins expanded in 2023 as the heightened spread between selling prices and raw material costs was only partially offset by the contraction caused by the rise in manufacturing costs in relation to weaker sales volumes.

Operating expenses grew modestly in 2023 whereas sales volumes fell slightly, reducing EPS by 4.5 cents. Due to the substantial increase in the Company’s cash and cash equivalents throughout 2023 and the interest rates applied thereon, net finance income boosted EPS by 19.5 cents. The level of net income attributable to non-controlling interests enhanced EPS by 0.5 cents.

The effective income tax rate was marginally lower in 2023, providing 1.5 cents to EPS.

Foreign exchange contributed 8.0 cents to EPS. 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 2022. Furthermore, the depreciation in the average exchange rate of the Canadian dollar in relation to the US dollar was a positive influence.

Revenue

Revenue
Revenue Change				Millions of US dollars
		2023				2022			2021
Volume (decrease) increase		(23.0)				5.8			82.3
Price and mix (losses) gains		(11.4)				176.6			60.4
Foreign exchange(losses) gains		(5.3)				(3.3)			6.8
Total(decrease)increase in revenue		(39.7)				179.1			149.5

For 2023, revenue of $1,141.4 million decreased by 3.4 percent from the 2022 level of $1,181.1 million. Volumes contracted by 1.9 percent. After accounting for the additional week in the first quarter of 2023, volumes were 3.4 percent lower. For most of 2023, inflation had a large impact on consumer demand, stifling the Company’s growth aspirations, the extent of which varied amongst the Company’s product groups. Customer destocking also played a key role, especially during the first half of the year. Within the flexible packaging operating segment, volumes declined at the rate of 4 percent. For the modified atmosphere packaging product group, the muted consumer demand was especially influential. Much lower order levels for meat protein applications were only partially offset by the inroads made at cheese accounts. As a result, volumes fell by 1 percent. Specialty film volumes decreased by 17 percent due to the targeted exit from low-margin business as well as customer loss. As a result of tempered demand from core accounts, in addition to customers securing secondary sources of supply, biaxially oriented nylon product group volumes contracted by 13 percent. Volumes for the rigid packaging and flexible lidding operating segment were 2 percent lower. Lidding product group volumes decreased by 5 percent due to the drop in specialty beverage, retort pet food and rollstock order activity. Rigid container volumes were virtually unchanged as the drop in condiment and creamer container shipments was offset by enhanced retort pet food container activity. Healthy volume growth of 15 percent for the specialized printed packaging product group was fuelled by pharmaceutical business gains. Due to much higher replacement part sales, the packaging machinery operating segment’s volumes strengthened by 11 percent. Selling price and mix changes had an unfavorable impact on revenue of 1.0 percent. Foreign exchange had a minor negative effect on revenue.

Gross profit margins

For the current year, gross profit margins of 29.3 percent of revenue exceeded the 2022 level of 28.1 percent. Accordingly, EPS climbed by 10.0 cents. Raw material costs decreased by 9.6 percent while selling prices only declined by 1.0 percent, leading to an advancement in EPS of 47.0 cents. A portion of these savings are automatically passed along to customers covered by formal price indexing arrangements. However, this follows a contractual delay, generating a temporary uplift in gross profit margins. 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 sizeable. Concurrently, diminished output levels raised the effective cost of production, and in total, these variables lowered EPS by 37.0 cents.

7

MANAGEMENT’S DISCUSSION AND ANALYSIS

Winpak’s average raw material index, which represents the weighted cost of the Company’s eight primary raw materials, decreased by 13.9 percent from the 2022 average. The change in raw material pricing varied amongst the different raw materials. Polypropylene and nylon resins realized declines of 32 percent and 31 percent, respectively. At 18 percent, the drop in polyethylene resin was less pronounced.

Raw Material Index

Raw Material Index
		2023				2022				2021
(Decrease)increase in index compared toprioryear		(13.9%)				9.4%				43.8%

Expenses

For the 2023 fiscal year, operating expenses, adjusted for foreign exchange, increased at a rate of 0.9 percent compared to the contraction in sales volumes of 1.9 percent, having a negative impact on EPS of 4.5 cents. As a consequence of the inflationary environment, personnel costs advanced to an extent well above historical norms. This was partially offset by the notable drop in freight and distribution costs. In addition, significant pre-production costs were incurred during 2022 to commercialize the new biaxially oriented polyamide (BOPA) line.

Foreign Exchange

		2023				2022				2021
Year-end exchange rate of CDN dollar to US dollar		0.755				0.736				0.781
Year-end exchange rate of US dollar to CDN dollar		1.325				1.359				1.281
Appreciation (depreciation) of CDN dollar vs. US dollar year-end
exchange rate compared to theprioryear		2.6%				(5.8%)				0.4%
Average exchange rate of CDN dollar to US dollar		0.739				0.771				0.796
Average exchange rate of US dollar to CDN dollar		1.353				1.297				1.256
(Depreciation) appreciation of CDN dollar vs. US dollar average
exchange rate compared to theprioryear		(4.2%)				(3.1%)				7.1%

Winpak utilizes the US currency as both its reporting and functional currency. However, with approximately 65 percent of its production capacity located in Canada, it is exposed to foreign exchange risks and records foreign currency differences on transactions and translations denominated in Canadian dollars as well as other foreign currencies. With a production facility located in Mexico, the Company is also exposed to foreign exchange risks on costs denominated in Mexican pesos but these are less significant.

On a net basis, foreign exchange augmented EPS by 8.0 cents in the current year compared to 2022. Approximately 11 percent of revenues and 18 percent of costs in the current year were denominated in Canadian dollars. The net outflow of Canadian dollars exposes Winpak to transaction differences arising from exchange rate fluctuations. The depreciation in the average exchange rate of the Canadian dollar in relation to the US dollar in 2023 of 4.2 percent raised EPS by 2.5 cents relative to 2022. Additionally, translation differences, which arise when Canadian dollar monetary assets and liabilities are translated at exchange rates that change over time, added 5.5 cents to EPS in the current year in comparison to 2022.

Summary of quarterly results

Thousands of US dollars, except earnings per share (EPS) amounts (cents)

Quarter ended April 2 July 2 October 1 December 31		2023	EPS 60 62 52 54 228	Quarter ended March 27 June 26 September 25 December 25		2022
	Revenue 304,516 287,464 273,790 275,637 1,141,407	Net income 39,287 40,006 33,991 34,846 148,130*			Revenue 275,982 310,254 302,532 292,365	Net income* 33,870 33,671 29,567 31,235	EPS
							52 52 45 48
					1,181,133	128,343	197

*attributable to equity holders of the Company

Various factors affect timing of the Company’s earnings during the course of a year. Typically, seasonal factors contribute to stronger revenue and net income in the second and fourth quarters compared to the first and third quarters. Factors influencing seasonal trends are the higher demand for certain food products in advance of the summer season and the greater number of holidays in the fourth quarter. During the third quarter, revenue and net income are typically lower due to reduced order levels and plant maintenance shutdowns scheduled to coincide with the summer. Sudden and substantial changes in the rate of exchange between the Canadian and US dollars from one quarter to another may cause revenue and net income to vary from the historic trend. Similarly, sudden and significant changes in the cost of raw materials consumed from one quarter to another can be expected to increase or decrease net income in a manner that does not conform to the normal pattern. Furthermore, unexpected adverse weather conditions could influence the supply and price of raw materials or customer order levels, and the timing of commercializing new manufacturing equipment can cause revenue and net income to depart from established trends.

8

The following items influenced the timing of the Company’s reported results beyond historic trends. The additional week included in the 2023 first quarter positively impacted both revenue and net income. Throughout 2022 and during the first quarter of 2023, selling prices increased significantly as a result of the pass-through of higher raw materials to customers on formal contractual price indexing arrangements. This trend began to reverse in the second quarter of 2023 and additional decreases were implemented in the final two quarters of 2023. During 2022, a sequence of non-contractual, inflationary selling price adjustments were also implemented. Limited inflationary selling price adjustments were put into effect in 2023. Softer consumer demand was prevalent throughout 2023 and was particularly acute during the second and third quarters. Sales volumes in the first quarter of 2022 were tempered as the surge in COVID-19 infections limited the availability of labor, which lowered the Company’s productive capacity. Additionally, supply chain disruptions were experienced in the first quarter of 2022, most notably for aluminum foil, dampening sales volumes. During the third and fourth quarters of 2022, sales volumes were negatively impacted by the loss of business as well as customers unwinding the exceptional inventory levels that were established over the preceding 18 months to address the unstable supply chain environment. Net finance income accelerated throughout 2023 on account of the substantial increase in cash and cash equivalents as well as the advancement in interest rates that were applied to those balances.

Cash Flow, Liquidity and Capital Resources

At December 31, 2023, Winpak’s cash and cash equivalents totalled $541.9 million, an advancement of $143.2 million from the prior year-end. This increase resulted from cash provided by operating activities of $220.8 million less disbursements for investing activities of $69.0 million and financing activities of $8.6 million.

Operating activities

Cash from operating activities amounted to $220.8 million. Cash generated from operating activities before changes in working capital was $228.0 million, a modest increase of $6.8 million from the previous year. The net investment in working capital decreased by $46.6 million. Inventory balances fell by $68.4 million mainly as a result of the substantial decrease in aluminum foil inventories and to a lesser extent, a partial reversal of the finished goods inventories that had accumulated during 2022. Largely due to diminished inventory balances, trade payables and other liabilities receded by $13.9 million. Income tax payments were $70.5 million, up $43.7 million from 2022 as the higher taxable income raised the prescribed income tax installments. Moreover, in 2023, a large balance was paid on behalf of the previous taxation year.

Investing activities

Investing activities in 2023 reached $69.0 million, including property, plant and equipment additions of $68.7 million. Initial spending on the multi-year expansion project at the Winnipeg, Manitoba modified atmosphere packaging facility took place. Furthermore, significant progress with the injection molded container initiative at the Sauk Village, Illinois rigid container site was made. By the end of 2023, certain components of the new cast co-extrusion line at the modified atmosphere packaging plant had been delivered. Over the long term, Winpak’s expenditures for maintaining the existing equipment’s capabilities have averaged approximately 2 percent of revenue.

Financing activities

Financing activities in 2023 included dividends to common shareholders of $5.8 million, a dividend to non-controlling interests in a subsidiary of $1.9 million and payments related to lease liabilities of $0.9 million. A regular quarterly dividend of $0.03 Canadian per share was paid. The Company’s objectives in managing capital are to have sufficient liquidity to pursue organic growth along with strategic acquisitions so that an appropriate return on investment is provided to shareholders.

Resources

Investments to drive organic and acquisitive growth can be significant, requiring substantial financial resources. A range of funding alternatives is available including cash and cash equivalents, cash flow provided by operations, additional debt facilities, issuance of equity or a combination thereof. An informal investment grade credit rating allows the Company access to relatively low interest rates on debt. The Company currently has unused operating lines of $38 million, which are believed adequate for liquidity purposes. Based on discussions with various financial institutions, Winpak believes that additional credit can be arranged from banks and other major lenders as required. The Company is confident that all 2024 requirements for capital expenditures, payment of lease liabilities, working capital and dividend payments can be financed from cash resources, cash provided by operating activities and unused credit facilities.

Risks and Financial Instruments

The Company recognizes that net income is exposed to changes in market interest rates, foreign exchange rates, prices of raw materials and risks regarding the financial condition of customers and financial counterparties. These market conditions are regularly monitored and actions are taken, when appropriate, according to Winpak’s policies established for the purpose. Despite the methods employed to manage these risks, future fluctuations in interest rates, foreign exchange rates, raw material costs and counterparty financial condition can be expected to impact net income.

With respect to foreign exchange risk, Winpak employs hedging programs to minimize risks associated with changes in the value of the Canadian dollar relative to the US dollar. To the extent possible, the Company maximizes natural currency hedging by matching inflows from revenue in a currency with outflows of costs and expenses denominated in the same currency. For the remaining exposure, the Company’s foreign exchange policy requires that between 50 and 80 percent of the Company’s net requirement of Canadian dollars for the ensuing 9 to 15 months will be hedged at all times with forward or zero-cost option contracts. The Company may also enter into foreign currency forward contracts when equipment purchases will be settled in other foreign currencies. Purchases of foreign exchange products for the purpose of speculation are not permitted. Transactions are only conducted with certain approved Schedule 1 Canadian financial institutions.

9

MANAGEMENT’S DISCUSSION AND ANALYSIS

Significant fluctuations in foreign exchange rates represent a material exposure for the Company’s financial results. Hedging programs employed may mitigate a portion of exposures to short-term fluctuations in foreign currency exchange rates. However, the Company’s financial results over the long term will inevitably be affected by sizeable changes in the value of the Canadian dollar relative to the US dollar. Winpak estimates that each time the exchange rate strengthens or weakens by one Canadian cent against the US dollar, net income with respect to transaction differences will decrease or increase by approximately 0.8 of a US cent per share, respectively.

During 2023, certain foreign currency forward contracts matured and the Company realized pre-tax foreign exchange losses of $1.1 million. As at December 31, 2023, the Company had US to CDN dollar foreign currency forward contracts outstanding with notional amounts of $71.5 million. The pretax unrealized foreign exchange gain on these contracts of $1.5 million was recorded in other comprehensive income.

Winpak has not participated in any derivatives market for raw materials. Winpak is not aware of any instrument that fully mitigates fluctuations in raw material costs over the long term. To manage this risk, Winpak has entered into formal selling price-indexing agreements with certain customers whereby changes in raw material prices are reflected in selling price adjustments, albeit with a one to six-month time lag. For 2023, 76 percent of Winpak’s revenue was governed by selling price-indexing agreements. For all other customers, the Company responds to changes in raw material costs by adjusting selling prices on a customer-by-customer basis. However, market conditions can have an impact on these price adjustments such that the combined impact of selling price adjustments and changes in raw material costs can be significant to Winpak’s net income.

Credit risk arises from cash and cash equivalents held with banks, derivative financial instruments (foreign currency forward and option contracts), as well as credit exposure to customers, including outstanding accounts receivable. The Company assesses the credit quality of counterparties, taking into account their financial position, past experience and other factors. Management regularly monitors customer credit limits, performs credit reviews and, in certain cases, insures accounts receivable balances against credit losses. The Company also sells certain extended term trade receivables without recourse to financial institutions in exchange for cash. The Company invests its excess cash on a short-term basis, to a maximum of six months, with financial institutions and/or governmental bodies that must be rated ‘AA’ or higher for CDN financial institutions and ‘A-1’ or higher for US financial institutions by recognized international credit rating agencies or insured 100 percent by the US government or a ‘AAA’ rated Canadian federal or provincial government. Nonetheless, unexpected deterioration in the financial condition of a counterparty can have a negative impact on the Company’s net income in the case of default.

The Company enters into contractual obligations in the normal course of business operations. These obligations, as at December 31, 2023, are summarized below.

Contractual Obligations			Payment due, by	Payment due, by	period(thousands of US dollars)	period(thousands of US dollars)	period(thousands of US dollars)
		Total	1year		2 - 3years		4 - 5 Years		After 5years
Leases*		7,796	2,046		2,864		1,855		1,031
Purchase obligations		123,083	110,083		13,000		-		-
Total contractual obligations		130,879	112,129		15,864		1,855		1,031

*leases reflect non-cancellable contract periods and do not include amounts relating to extension options that are exercisable by the Company

Accounting Policy Changes

The following accounting amendments came into effect commencing in the Company’s 2023 fiscal year:

In February 2021, the IASB issued “Disclosure of Accounting Policies (Amendments to IAS 1 and IFRS Practice Statement 2 Making Materiality Judgements)”, which requires companies to disclose their material accounting policies rather than their significant accounting policies. The amendments were implemented, effective December 26, 2022. The amendments had no impact on the Company’s disclosed accounting policy information.

In May 2021, the IASB issued “Deferred Taxes Related to Assets and Liabilities Arising from a Single Transaction (Amendments to IAS 12)”, which introduces an exception to the initial recognition exemption for deferred tax on transactions such as leases and decommissioning obligations. Applying this exception, a company does not apply the initial recognition exemption for transactions that give rise to equal taxable and deductible temporary differences. The amendments were implemented with retrospective application, effective December 26, 2022. The amendments had no impact on the Company’s consolidated financial statements.

In May 2023, the IASB issued “International Tax Reform - Pillar Two Model Rules (Amendments to IAS 12)”. The amendments provide a temporary mandatory exception from deferred tax accounting for the top-up tax, which is effective immediately, and require new disclosures about the Pillar Two exposure. The amendments were implemented with retrospective application, effective May 23, 2023. The amendments had no impact on the Company’s consolidated financial statements as no new legislation to implement the top-up tax was enacted or substantively enacted as at December 25, 2022 in any jurisdiction in which the Company operates and no related deferred tax was recognized at that date.

10

Future Accounting Changes

The IASB issued the following amended standard that has not been applied in preparing the consolidated financial statements and notes thereto, for the year ended December 31, 2023 as its effective date falls within an annual period beginning subsequent to the current reporting period: “Lease Liability in a Sale and Leaseback (Amendments to IFRS 16)”.

In September 2022, the IASB issued “Lease Liability in a Sale and Leaseback (Amendments to IFRS 16)”, that requires a seller-lessee to subsequently measure lease liabilities arising from a leaseback in a way that it does not recognize any amount of the gain or loss that relates to the right of use it retains. The amendments are effective for annual reporting periods beginning on or after January 1, 2024 and are to be applied retrospectively. The Company does not expect the amendments to have a significant impact on the consolidated financial statements when they are adopted in 2024.

Looking Forward

Entering 2024, the Company anticipates a positive shift to sales volume growth in contrast to the temporary downturn experienced in 2023. Enhanced sales volumes would, in turn, improve profitability.

Now that inflation is approaching targets established by central banks, it is forecast they will transition to a monetary easing phase in 2024. The magnitude and pace of interest rate adjustments is unclear at the present time. Accordingly, the impact on economic growth is also uncertain. Changes to interest rates will directly influence the scale of net finance income earned by the Company.

To achieve volume growth in the upcoming year, Winpak is focused on successfully launching new products and onboarding new customers. Equally important is negotiating contract renewals on favorable terms with existing accounts. These growth plans will be facilitated, in part, by the new productive capacity coming on stream within the modified atmosphere packaging and rigid container facilities. For at least the first half of 2024, it is projected that consumer demand will limit the Company’s overall growth aspirations. Based on the preceding factors, the Company is projecting sales volume growth in the range of 2 to 4 percent for 2024.

From a raw material perspective, after realizing sizeable cost reductions in 2023, current market expectations are for raw material costs to escalate moderately throughout 2024. Competitive pressures for lower selling prices in the Company’s product markets are expected to persist in 2024 and apply additional pressure on gross profit margins. Consistent with 2023, with the limited availability of labor resources, employee compensation rates will be adjusted tactically in order to recruit and retain employees, further compressing gross profit margins. Overall, gross profit margins in 2024 should be slightly lower than the level recorded in 2023.

Capital expenditures of approximately $110 to $120 million are forecast for 2024, the majority of which relates to the extensive expansion of the Winnipeg, Manitoba modified atmosphere packaging facility. The Company has entered into an agreement to acquire land and building within close proximity to the existing specialized printed packaging operation to accommodate future expansion capabilities. The acquisition is anticipated to close in the first quarter of 2024. Winpak is also poised to undertake a sizeable building expansion and acquire additional extrusion capacity at one of its main manufacturing sites.

Use of Estimates and Judgments

The Company believes the following accounting estimates and judgments are significant to determining and understanding the operating results and the financial position of the Company.

Aggregation of operating segments – Judgment is applied in aggregating operating segments into a reportable segment. Aggregation occurs when the operating segments have similar economic characteristics and have similar products, production processes, types of customers and distribution methods.

Business combinations – The determination of fair value associated with identifiable property, plant and equipment and intangible assets following a business combination requires management to make assumptions. More specifically, this is the case when the Company calculates fair values using appropriate valuation techniques, which are generally based on a forecast of expected future cash flows for intangible assets, and on a replacement cost approach, an income-based approach and/or a market-based approach for property, plant and equipment. These valuations are closely related to the assumptions made by management about the future return on the related assets and the discount rate applied. Significant changes to these assumptions could significantly change the fair values associated with intangible assets following a business combination, which would impact the amortization expense.

Employee benefit plans – Accounting for employee benefit plans requires the use of actuarial assumptions. The assumptions include the discount rate, rate of compensation increase, mortality rate and healthcare costs. These assumptions depend on underlying factors such as economic conditions, government regulations and employee demographics. These assumptions could change in the future and may result in material adjustments to employee benefit plan assets or liabilities.

11

MANAGEMENT’S DISCUSSION AND ANALYSIS

Impairment of property, plant and equipment, intangible assets and goodwill – An integral component of impairment testing is determining the asset’s recoverable amount. The determination of the recoverable amount involves significant management judgment, including projections of future cash flows and the appropriate discount rate. The cash flows are derived from the financial forecast for the next five years and do not include restructuring activities that the Company is not yet committed to or significant future investments that will enhance the asset’s performance of the cash-generating unit (CGU) being tested. Qualitative factors, including market presence and trends, strength of customer relationships, strength of local management, strength of debt and capital markets, and degree of variability in cash flows, as well as other factors, are considered when making assumptions with regard to future cash flows and the appropriate discount rate. The recoverable amount is most sensitive to the discount rate used for the discounted cash flow model as well as the average projected sales volume growth, the average projected gross profit percentage and the terminal growth rate used for extrapolation purposes. A change in any of the significant assumptions or estimates could result in a material change in the recoverable amount. The company has nine CGUs, of which the carrying values for three include goodwill and must be tested for impairment annually.

Timing of revenue recognition – Significant judgment is required to determine whether revenue should be recognized over time or at a point in time. To assess whether any revenue should be recognized over time, the Company analyzes customer-specific products without alternative use to determine whether a legally enforceable right to payment exists as performance is completed, including a reasonable return.

Leases – Management assesses at lease commencement date whether it is reasonably certain to exercise lease extension options. In addition, assumptions are made as to the discount rate applied to the lease liability. If there is a significant event or significant change in circumstances within the Company’s control, these judgments and assumptions could change and may result in material adjustments to right-of-use assets and lease liabilities.

Disclosure Controls and Internal Controls

Disclosure controls

Management is responsible for establishing and maintaining disclosure controls and procedures in order to provide reasonable assurance that material information relating to the Company is made known to them in a timely manner and that information required to be disclosed is reported within time periods prescribed by applicable securities legislation. There are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of the controls and procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives. Based on management’s evaluation of the design and effectiveness of the Company’s disclosure controls and procedures, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that these controls and procedures are designed and operating effectively as of December 31, 2023 to provide reasonable assurance that the information being disclosed is recorded, summarized and reported as required.

Internal controls over financial reporting

Management is responsible for establishing and maintaining adequate internal controls over financial reporting to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with IFRS. Internal control systems, no matter how well designed, have inherent limitations and therefore can only provide reasonable assurance as to the effectiveness of internal controls over financial reporting, including the possibility of human error and the circumvention or overriding of the controls and procedures. Management used the Internal Control – Integrated Framework published by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) as the control framework in designing its internal controls over financial reporting. Based on management’s design and testing of the effectiveness of the Company’s internal controls over financial reporting, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that these controls and procedures are designed and operating effectively as of December 31, 2023 to provide reasonable assurance that the financial information being reported is materially accurate. During the year ended December 31, 2023, there have been no changes in the design of the Company’s internal controls over financial reporting that have materially affected, or are reasonably likely to materially affect, its internal controls over financial reporting.

Other

Additional information relating to the Company is available on the Company’s website at www.winpak.com or SEDAR at www.sedar.com, including the Annual Information Form dated February 28, 2024.

12