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Winpak Ltd — Management Reports 2025
Feb 27, 2025
42846_rns_2025-02-27_60b23fe9-d7c4-406d-b78a-f5730e613a52.pdf
Management Reports
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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 tariff rates; 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 27, 2025 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 2024, 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 53rd week every five to six years. The 2024 fiscal year comprised 52 weeks and the 2023 fiscal year comprised 53 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.
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Results of Operations
Components of total increase in Earnings
Millions of US dollars
| 2024 | 2023 | 2022 | |
|---|---|---|---|
| Organic growth | (0.2) | (2.6) | 0.6 |
| Gross profit margins | 20.7 | 6.5 | 40.8 |
| Operating expenses | (10.8) | (3.2) | (17.1) |
| Foreign exchange | (4.3) | 5.5 | (2.4) |
| Income taxes | (3.4) | 0.9 | (2.1) |
| Other | (0.7) | 12.7 | 4.7 |
| Total increase in Earnings | 1.3 | 19.8 | 24.5 |
Ongoing operations
Organic growth is the impact on Earnings due entirely to the change in sales volumes and excludes the influence of acquisitions, divestitures and foreign exchange. The slight drop in sales volumes in 2024 lowered Earnings by $0.2 million.
Gross profit margins expanded in 2024 as the improved spread between selling prices and raw material costs was only partially offset by the contraction caused by the advancement in the cost of production.
In 2024, operating expenses, adjusted for foreign exchange, advanced at a rate of 9.3 percent in comparison to the 0.2 percent reduction in sales volumes, thereby having an unfavorable impact on Earnings of $10.8 million. Expenses pertaining to the enterprise resource planning (ERP) project were the main driver. Furthermore, as a consequence of the inflationary environment, personnel and freight costs expanded.
Foreign exchange dampened Earnings by $4.3 million. The negative translation differences recorded on the revaluation of monetary assets and liabilities denominated in Canadian dollars was in contrast to the positive translation differences recorded in 2023.
The effective income tax rate was pushed higher in 2024 stemming from permanent differences associated with foreign exchange and the higher tax rate applied to income earned within the United States, reducing Earnings by $3.4 million.
Revenue
Revenue Change
Millions of US dollars
| 2024 | 2023 | 2022 | |
|---|---|---|---|
| Volume (decrease) increase | (1.9) | (23.0) | 5.8 |
| Price and mix (losses) gains | (7.8) | (11.4) | 176.6 |
| Foreign exchange losses | (0.8) | (5.3) | (3.3) |
| Total (decrease) increase in revenue | (10.5) | (39.7) | 179.1 |
For 2024, revenue of $1,130.9 million decreased by 0.9 percent from the 2023 level of $1,141.4 million. Volumes contracted by 0.2 percent. After accounting for the additional week in the first quarter of 2023, volumes were 1.3 percent higher. The subsequent comments on operating segment and product group volumes are presented on an adjusted basis. Within the flexible packaging operating segment, volume gains amounted to 4 percent. For the modified atmosphere packaging product group, modest volume growth of 4 percent reflected business gains pertaining to meat and cheese packaging, which was partially mitigated by the curtailment in demand for frozen food packaging. Biaxially oriented nylon product group volumes advanced by 19 percent, a reflection of the recovery from the sharp downturn in demand during the first three quarters of 2023. Specialty film volumes were virtually unchanged. The rigid packaging and flexible lidding operating segment volumes narrowed by 1 percent. Rigid container volumes decreased by 6 percent due to a significant drop in specialty beverage and applesauce container shipments. For the lidding product group, volumes grew by 2 percent with advances recorded for retort pet food, condiment and cultured dairy lidding. Solid volume growth of 7 percent for the specialized printed packaging product group was fueled by nutraceutical business gains. Packaging machinery volumes declined by 2 percent. Due to the higher cost of capital, several packaging machinery customers delayed order placement. This was nearly offset by a surge in replacement part sales. Selling price and mix changes had an unfavorable impact on revenue of 0.7 percent. Foreign exchange had a minor negative effect on revenue.
Gross profit margins
For the current year, gross profit margins of 32.0 percent of revenue exceeded the 2023 level of 29.3 percent. Raw material cost reductions significantly outpaced the corresponding selling price decreases, which included the pass-through of indexing adjustments. This differential raised Earnings by $27.1 million. In total, all remaining items lowered Earnings by $6.4 million. The Company's cost structure was affected by higher personnel and depreciation expenses. Due to inflationary pressures, wages increased at a rate well above the historical norm. Conversely, heightened output levels improved the overall cost of production.
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 4.3 percent from the 2023 average. The change in raw material pricing varied amongst the different raw materials. Aluminum foil and nylon resin realized declines of 12 percent and 9 percent, respectively. Polypropylene resin recorded an increase of 15 percent.
Raw Material Index
| 2024 | 2023 | 2022 | |
|---|---|---|---|
| (Decrease) increase in index compared to prior year | (4.3%) | (13.9%) | 9.4% |
Foreign Exchange
| 2024 | 2023 | 2022 | |
|---|---|---|---|
| Year-end exchange rate of CDN dollar to US dollar | 0.694 | 0.755 | 0.736 |
| Year-end exchange rate of US dollar to CDN dollar | 1.442 | 1.325 | 1.359 |
| (Depreciation) appreciation of CDN dollar vs. US dollar year-end exchange rate compared to the prior year | (8.1%) | 2.6% | (5.8%) |
| Average exchange rate of CDN dollar to US dollar | 0.734 | 0.739 | 0.771 |
| Average exchange rate of US dollar to CDN dollar | 1.362 | 1.353 | 1.297 |
| Depreciation of CDN dollar vs. US dollar average exchange rate compared to the prior year | (0.7%) | (4.2%) | (3.1%) |
Winpak utilizes the US currency as both its reporting and functional currency. However, with approximately 66 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.
Foreign exchange reduced Earnings by $4.3 million in the current year compared to 2023. Approximately 11 percent of revenues and 19 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 2024 of 0.7 percent had a small positive impact on Earnings. Translation differences, which arise when Canadian dollar monetary assets and liabilities are translated at exchange rates that change over time, subtracted $4.8 million from Earnings in the current year in comparison to 2023.
Summary of quarterly results
| Quarter ended | 2024 | Quarter ended | 2023 | ||||
|---|---|---|---|---|---|---|---|
| Revenue | Earnings | EPS | Revenue | Earnings | EPS | ||
| March 31 | 276,783 | 35,522 | 55 | April 2 | 304,516 | 39,287 | 60 |
| June 30 | 283,496 | 38,825 | 61 | July 2 | 287,464 | 40,006 | 62 |
| September 29 | 285,473 | 38,486 | 61 | October 1 | 273,790 | 33,991 | 52 |
| December 29 | 285,143 | 36,622 | 58 | December 31 | 275,637 | 34,846 | 54 |
| 1,130,895 | 149,455 | 235 | 1,141,407 | 148,130 | 228 |
Thousands of US dollars, except earnings per share (EPS) amounts (cents)
Various factors affect timing of the Company's Earnings during the course of a year. Typically, seasonal factors contribute to stronger revenue and Earnings 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 Earnings 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 Earnings 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 Earnings 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 Earnings to depart from established trends.
The following items influenced the timing of the Company's reported results beyond historic trends. During the fourth quarter of 2024, the estimated rate of income tax in the United States was adjusted upwards, lowering Earnings. Softer consumer demand was prevalent throughout 2024 and 2023 but was particularly acute during the second and third quarters of 2023. The additional week included in the 2023 first quarter positively impacted both revenue and Earnings. The lidding product group experienced a significant drop in sales volumes in the second half of 2023 following extended unplanned downtime on a major piece of equipment. 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.
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Cash Flow, Liquidity and Capital Resources
At December 29, 2024, Winpak's cash and cash equivalents amounted to $497.3 million, a reduction of $44.6 million from a year earlier. This decrease resulted from cash provided by operating activities of $181.9 million less disbursements for investing activities of $123.8 million and financing activities of $102.7 million.
Operating activities
Cash from operating activities reached $181.9 million. Cash generated from operating activities before changes in working capital was $236.8 million, a modest increase of $8.9 million from the previous year. Working capital consumed $23.1 million in cash. The $30.6 million increase in inventories was caused by the accumulation of manufactured inventories to satisfy the projected growth in customer demand and to partially mitigate the impact of tariffs that could be implemented by the United States in early 2025 on goods shipped from the Company's Canadian facilities. Additionally, trade and other receivables escalated by $10.9 million, coinciding with the rise in revenue from the fourth quarter of 2023 to the fourth quarter of 2024. Stemming from the timing of raw material inventory purchases, trade payables and other liabilities expanded by $15.9 million. Income tax payments were $53.0 million, down $17.5 million from 2023 as a large balance was paid on behalf of the 2022 taxation year during 2023.
Investing activities
Investing activities in the current year totaled $123.8 million, of which property, plant and equipment additions represented $123.3 million. Expenditures relating to the multi-year expansion project at the Winnipeg, Manitoba modified atmosphere packaging facility influenced the higher than normal capital expenditure outlays. Furthermore, the Company acquired land and building in close proximity to the existing specialized printed packaging operation to accommodate future expansion plans. Over the long term, Winpak's expenditures for equipment enhancements in maintaining existing capacity have averaged approximately 2 percent of revenue.
Financing activities
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 provided 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, which was fulfilled on May 13, 2024. On October 17, 2024, the TSX accepted a notice filed by Winpak to amend the NCIB to a maximum of 3,250,000 common shares. 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. By the end of 2024, 2,854,126 common shares had been repurchased at a weighted average price of CDN $45.55 for aggregate consideration of CDN $129,992 (US $94,512). Subsequent to the year ended December 29, 2024, the Company completed the NCIB program, repurchasing 395,874 common shares at a weighted average price of CDN $45.93 for aggregate consideration of CDN $18,182 (US $12,609).
Financing activities in 2024 included common share repurchases of $94.5 million, regular dividends to common shareholders of $6.6 million and payments related to lease liabilities of $1.6 million. During the third quarter of 2024, the quarterly dividend was raised to 5 cents (Canadian dollars) per common share, a significant increase from the 3 cents (Canadian dollars) per common share that had been paid on a quarterly basis since 2007. The Board of Directors is committed to sustainable growth in the quarterly dividend, targeting the achievement of a payout ratio of approximately 10 percent of Earnings of the Company within the next five years. In addition, the Company paid a special dividend of $3.00 (Canadian dollars) per common share on January 10, 2025. Sufficient cash resources are available to fund both capital expenditures for organic growth and potential acquisition opportunities.
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 2025 requirements for capital expenditures, payment of lease liabilities, working capital, share repurchases 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 Earnings 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 Earnings.
MANAGEMENT'S DISCUSSION AND ANALYSIS
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, share repurchases and special dividend payments 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.
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, Earnings with respect to transaction differences will decrease or increase by approximately 0.9 of a US cent per share, respectively.
During 2024, certain foreign currency forward contracts matured and the Company realized pre-tax foreign exchange losses of $1.3 million. As at December 29, 2024, the Company had US to CDN dollar foreign currency forward contracts outstanding with notional amounts of $79.7 million. The pre-tax unrealized foreign exchange loss on these contracts of $4.2 million was recorded in other comprehensive income. In addition, as at December 29, 2024, the Company had a US to CDN dollar foreign currency forward contract outstanding with a notional amount of US $102.4 million at an exchange rate of 1.4160 maturing in January 2025 to partially fund the special dividend declared on December 12, 2024 and paid on January 10, 2025.
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 2024, 75 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 Earnings.
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 Earnings in the case of default.
The Company enters into contractual obligations in the normal course of business operations. These obligations, as at December 29, 2024, are summarized below.
Contractual Obligations
Payment due, by period (thousands of US dollars)
| Total | 1 year | 2 - 3 years | 4 - 5 Years | After 5 years | |
|---|---|---|---|---|---|
| Leases* | 11,837 | 1,956 | 4,978 | 3,995 | 908 |
| Purchase obligations | 41,777 | 41,777 | - | - | - |
| Total contractual obligations | 53,614 | 43,733 | 4,978 | 3,995 | 908 |
*leases reflect non-cancelable contract periods and do not include amounts relating to extension options that are exercisable by the Company
Accounting Policy Changes
The following accounting standards came into effect commencing in the Company's 2024 fiscal year:
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 were implemented with retrospective application, effective January 1, 2024. The amendments had no impact on the Company's consolidated financial statements.
Future Accounting Changes
The IASB issued the following standard and amended standard that have not been applied in preparing the consolidated financial statements and notes thereto, for the year ended December 29 2024 as the effective dates fall within an annual period beginning subsequent to the current reporting period: IFRS 18 "Presentation and Disclosure in Financial Statements" and "Amendments to the Classification and Measurement of Financial Instruments (Amendments to IFRS 9 and IFRS 7)".
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In April 2024, the IASB issued IFRS 18 “Presentation and Disclosure in Financial Statements” to improve reporting of financial performance. IFRS 18 replaces IAS 1 “Presentation of Financial Statements”. It carries forward many requirements from IAS 1 unchanged. IFRS 18 applies for annual reporting periods beginning on or after January 1, 2027 with early adoption permitted. The Company is currently assessing the impact of this new standard and does not intend to early adopt IFRS 18 in its consolidated financial statements.
In May 2024, the IASB issued “Amendments to the Classification and Measurement of Financial Instruments (Amendments to IFRS 9 and IFRS 7)”, that clarify the recognition date and derecognition date of certain financial assets and liabilities, clarify and add guidance to assess whether a financial asset meets the solely payments of principal and interest criteria. The amendments include additional disclosure requirements for certain instruments with contractual terms that could change cash flows and updates the disclosure requirements relating to equity instruments at fair value through other comprehensive income. The amendments are effective for annual reporting periods beginning on or after January 1, 2027 with early adoption permitted. The Company does not expect the amendments to have a significant impact on the consolidated financial statements when they are adopted in 2027.
Looking Forward
Building upon the solid volume growth achieved by core product groups in the second half of 2024, as well as commercializing opportunities within the current business pipeline, Winpak is optimistic about the 2025 fiscal year. However, there is significant uncertainty regarding the nature, extent and duration of various protectionist trade measures that have been and may be enacted within North America and the consequential impact on economic growth, inflation, foreign exchange and interest rates in addition to the immediate impact on the Company's cost structure. The Company has assessed and will continue to assess both the short-term and long-term countermeasures that can be undertaken to mitigate the potential negative impacts.
Winpak is acutely focused on successfully onboarding opportunities with new customers in addition to new opportunities with existing customers. Pet food, in-mold-label, dairy and healthcare markets are the primary targets. The Company is projecting sales volume growth in the range of 5 to 7 percent for 2025.
For 2025, market expectations are for overall resin prices to be relatively stable. The collective bargaining agreement covering the largest employee base will expire in mid-2025, adding a level of uncertainty to the Company's future cost structure. Conversely the anticipated sales volume growth will favorably influence equipment utilization rates, lowering the overall cost of production on a per unit basis. In addition, challenging capacity constraints that persisted for most of 2024 will significantly abate in 2025. Manufacturing efficiencies will improve as a result. Furthermore, the additional costs incurred relating to the outsourcing of converting operations will significantly decrease. Overall, gross profit margins should be within the range of 31 to 32 percent.
Capital expenditures of approximately $110 to $130 million are forecast for 2025, the majority of which relates to the completion of the significant expansion of the Winnipeg, Manitoba modified atmosphere packaging facility. Winpak is also evaluating prospective acquisition opportunities that align strategically with the Company's core strengths. After successfully fulfilling the initial share buyback program, the Company is assessing its renewal in March 2025.
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.
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.
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MANAGEMENT'S DISCUSSION AND ANALYSIS
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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 least commencement date whether it is reasonably certain to exercise least extension options. In addition, assumptions are made as to the discount rate applied to the least 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 29, 2024 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 29, 2024 to provide reasonable assurance that the financial information being reported is materially accurate. During the year ended December 29, 2024, 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 27, 2025.