I T ’ S O U R N AT U R E T O P R O T E C T ™
Annual
Report 2023
REPORT TO SHAREHOLDERS
Winpak aims to extend the shelf-life or sterility of the perishable goods and medical devices that our packages protect while minimizing the environmental
footprint. In 2023, Winpak invested heavily in material science and new processing technologies to provide better sustainable, affordable solutions to
our clients and to stay at the forefront of regulatory changes, while actively promoting a circular economy. The Company’s success in the marketplace in
recent years has been based on such advances and the superior performance of many of our products and services.
High inflationary pressures on food and other goods dampened consumption and consumer confidence, resulting in negative volume growth at grocery
stores. The first half of 2023 was impacted by significant destocking, as activities more or less resumed to pre-pandemic levels and as lead times for raw
materials and supplies came back to more normal levels. A portion of Winpak’s growth in 2022 related to the accumulation of inventory at a selection of
clients. Overall, and normalizing for one more week in 2023, Winpak volumes contracted by just 3.4 percent compared to the record year in 2022, which
in the context of low grocery consumption and destocking is a sign of how robustly Winpak continued to expand its position in the market compared to the
competition, despite various new product introductions being delayed into 2024.
Both the specialized printing packaging and packaging machinery businesses exhibited double-digit percentage volume growth. Winpak’s modified
atmosphere packaging (MAP) product group and the more commoditized specialty films and biaxially oriented nylon film products experienced volume
contraction. The volume growth within the rigid packaging and flexible lidding operating segment was slightly negative due to lower volumes of high-end
pet food and specialty beverages. The lidding business recovered extremely well from the prior year’s global aluminum foil shortages.
The worldwide low industrial activity resulted in a significant price reduction to raw materials for most key components of Winpak products, which is
beneficial to the Company and its indexed clients through lower prices. Overall, the gross profit margins improved by 1.2 percentage points over 2022
to reach 29.3 percent.
As part of the comprehensive Environmental, Social, and Governance (ESG) program, Winpak continues to develop and implement its Diversity, Equity,
and Inclusion (DEI) strategy across all sites. The Company is embarking on third-party verification of Scopes 1 and 2 for the Carbon Disclosure Project
(CDP) filing to complement the most recently released CDP score of A-. The Board of Directors has endorsed the Science Based Targets initiative (SBTi)
with the ultimate objective of carbon neutrality by 2050 and naturally, the Company is moving forward to achieving its 2025 recycle-ready solution goals
based upon the four Winpak pillars: Valued Partner, Extended Family, Roots, and Planet for Future Generations.
The 2023 net income attributable to equity holders of the Company reached a new record of $148.1 million, eclipsing the previous record of $128.3 million
achieved in 2022, an increase of 15.4 percent. This new record, despite the above-mentioned sluggishness in the market, is testimony to Winpak’s
resilience in maintaining volumes and reinforcing its market presence with high performance, high-barrier products, while benefiting from soft input costs,
despite indexing. After the very damaging aluminum foil crisis of 2021 and 2022, Winpak managed to regain its pre-eminent market presence in die-cut
lidding and associated container sales in the current year.
Additions of capacity and new technology initiated in 2022 progressed well through 2023, despite some delays in equipment deliveries. Additional
extrusion coating, as well as printing capacity, are being added at the MAP facility with commercialization in the first half of 2024, while 2023 saw the
commercialization of the new tandem adhesive laminator. The finishing touches were being made at Winpak’s rigid packaging site to the in-mold label
injection molding expansion, with the initial commercial ramp-up planned for early 2024, with a second launch in the latter part of the year. Additional
sheet extrusion and thermoforming capacity will be added during 2024 as well.
The MAP business at the Winnipeg, Manitoba facility which grew by double-digit percentages across North America in 2021 and 2022, nearly stayed flat
in 2023 during the destocking and reduced grocery sales, a testimony to the continued client gains as a result of the unique product performance. Once
the new capacity comes on stream in 2024, Winpak will again be able to aggressively gain market traction. The new generation ReForm high-barrier,
mono-material thermoformable structures appear to outpace expectations in terms of performance at costs comparable with existing non-recyclable,
higher carbon footprint solutions. Technological advances, new learnings, and changes in the constraints of the regular recyclability of plastic packaging
materials have motivated another re-engineering of Winpak’s dedicated ReForm cast co-extrusion line, ahead of the much larger line earmarked for the
210,000 square foot expansion taking place.
The specialty films business in Senoia, Georgia focuses on new formats for high-barrier, shrink-type packages and specialty medical-type healthcare
applications. Volumes of the more commoditized products regressed in the Georgia facility in 2023.
The facility in Querétaro, Mexico grew its volume and presence in the Mexican market significantly and profitably, consolidating Winpak’s presence in the
Mexican market with its new print technology, geared towards highly sophisticated, high resolution print designs.
American Biaxis Inc., the sole producer of biaxially oriented nylon films in North America, was a victim of destocking in the first half of the year and volumes
remained soft in the second half. A slow ramp-up of demand could be noticed at the very end of the year. New products, notably very thin gauge films as
well as new recycle-ready type versions, will help drive new volume until such a time that the market at large rebounds.
The trends for the healthcare market remain favorable. Solid volume growth was accomplished in 2023 by Winpak Control Group activities with its
outstanding service model, spurred by the vertical integration of base material manufactured by other Winpak sites.
The rigid container business, which consists of the production of plastic sheets and thermoformed barrier containers, performed well during the slowdown
experienced in 2023, with some product categories suffering from lower demand, either because of inflationary pressures or from shortages in ingredient
supplies, thus achieving flat volumes overall.
The Company’s product offering as a system of highly technical flexible lidding solutions, combined with rigid containers, whether in die-cut or roll-fed
form, foil-based or high-barrier plastics, sets Winpak apart in the industry. Winpak’s roll-fed flexible lidding and sachet products manufactured at the site
in Vaudreuil-Dorion, Quebec complemented by the Company’s large die-cut lidding presence at the Pekin, Illinois site has recovered very strongly from
the worldwide aluminum foil supply shortage of 2021 and 2022, yet was also affected by the morosity in the market.
1
REPORT TO SHAREHOLDERS
The packaging machinery business in Rialto, California finalized the development of three new machine platforms, two in sachet filling and one in cup
filling. Demand for new equipment was soft for most of the year, hence the team focused on service and parts and redesigned its manufacturing and
assembly process to shorten lead times considerably. These efforts paid off, as the team was able to turn around new orders very quickly and achieve
fantastic volume progression over the last year. The focus remains on system sales, combining the sale of packaging consumables with machinery.
Despite the overall market slowdown, we are maintaining focus on our strategic expansions in all market segments of the Company that set ourselves
up to grow volumes in new, environmentally friendly, low-carbon products that enable circularity. The Winpak roadmap for new technologies and new
products is expanding, as are investments in research and development. As the breadth of technologies is growing, venturing into new products, we want
to make sure that the focus on process excellence is not falling short. To that end, the Company is broadening its management team with a new role of
Chief of Operational Excellence to elevate Winpak’s proficiency to pre-eminence in all aspects of our industrial activities.
Winpak also continues to intensify its initiatives around DEI to make everyone, regardless of who they are or what they do for the Company, feel equally
involved and supported in all areas of the workplace and to foster and create more innovative approaches in terms of how business is conducted
throughout the organization.
O.Y. Muggli
President and Chief Executive Officer
Winnipeg, Canada
February 28, 2024
2
REVIEW
(Values expressed in US dollars)
Operating results ($ million except earnings per share)
Revenue
Income from operations
EBITDA (1)
Net income attributable to equity holders of the Company
Earnings per share (cents)
Investments and assets ($ million)
Investments in property, plant and equipment
Business acquisition
Total assets
Financial position
2023
2022
2021
2020
2019
1,141.4
1,181.1
1,002.0
180.7
228.5
148.1
228
68.7
-
172.3
220.0
128.3
197
49.1
-
142.4
187.8
103.8
160
48.3
-
852.5
146.8
191.5
106.3
164
51.3
-
873.8
155.0
198.5
114.8
177
58.1
42.7
1,571.5
1,462.5
1,321.7
1,332.6
1,212.4
Net return on opening equity attributable to equity holders of the Company
Return on opening invested capital (2)
12.3%
19.7%
11.9%
20.9%
9.2%
19.1%
10.3%
20.1%
12.5%
23.4%
Basis of Presentation
•
The Company’s fiscal year is usually 52 weeks in duration, but includes a 53rd week every five to six years. All years presented on pages 3 and 4
were 52 weeks in duration, with the exception of 2017 and 2023, which were 53 weeks in duration.
All years presented on pages 3 and 4 are in accordance with IFRS Accounting Standards (IFRS).
•
Definitions
(1) EBITDA (income before interest, tax, depreciation and amortization) is not a recognized measure under IFRS. Management believes that in addition
to net income attributable to equity holders of the Company, EBITDA is a useful supplemental measure as it provides investors with 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 EBITDA should not be construed as an alternative to net income attributable to equity holders of the Company determined in accordance with IFRS
as an indicator of the Company’s performance. The Company’s method of calculating EBITDA may differ from other companies and, accordingly, EBITDA
may not be comparable to measures used by other companies. Refer to the section entitled Selected Financial Information on page 5 of this document
for the calculation of EBITDA from 2021 to 2023.
(2) Return on opening invested capital is defined as income from operations divided by invested capital, which is defined as the sum of total debt, equity,
net deferred tax liability, and accumulated goodwill amortization.
3
REVIEW
EBITDA
EBITDA Margin
Earnings Per Share
CAPEX
% of Revenue
4
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 53rd 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
Millions of US dollars, except per share and margin amounts
Revenue
Income from operations
Net income attributable to equity holders of the Company
Gross profit margin
Earnings per share (cents)
Reconciliation of EBITDA
Net income
Income tax expense
Net finance (income) expense
Depreciation and amortization
EBITDA
2023
1,141.4
180.7
148.1
29.3%
228
147.6
52.2
(19.1)
47.8
228.5
2022
1,181.1
172.3
128.3
28.1%
197
128.2
45.9
(1.8)
47.7
220.0
2021
1,002.0
142.4
103.8
27.4%
160
106.3
35.3
0.8
45.4
187.8
5
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
MANAGEMENT’S DISCUSSION AND ANALYSIS
Results of Operations
Components of total increase (decrease) in earnings per share (EPS)
Organic growth
Gross profit margins
Operating expenses, net finance income and non-controlling interests
Income taxes
Foreign exchange
Total increase (decrease) in EPS (cents)
2023
(4.0)
10.0
15.5
1.5
8.0
31.0
2022
1.0
62.5
(19.5)
(3.5)
(3.5)
37.0
2021
15.0
(16.0)
(4.5)
3.5
(2.0)
(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 Change
Volume (decrease) increase
Price and mix (losses) gains
Foreign exchange (losses) gains
Total (decrease) increase in revenue
Millions of US dollars
2022
5.8
176.6
(3.3)
179.1
2023
(23.0)
(11.4)
(5.3)
(39.7)
2021
82.3
60.4
6.8
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
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
(Decrease) increase in index compared to prior year
2023
(13.9%)
2022
9.4%
2021
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
Year-end exchange rate of CDN dollar to US dollar
Year-end exchange rate of US dollar to CDN dollar
Appreciation (depreciation) of CDN dollar vs. US dollar year-end
exchange rate compared to the prior year
Average exchange rate of CDN dollar to US dollar
Average exchange rate of US dollar to CDN dollar
(Depreciation) appreciation of CDN dollar vs. US dollar average
exchange rate compared to the prior year
2023
0.755
1.325
2.6%
0.739
1.353
2022
0.736
1.359
(5.8%)
0.771
1.297
(4.2%)
(3.1%)
2021
0.781
1.281
0.4%
0.796
1.256
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
Revenue
Net income*
EPS
Quarter ended
Revenue
Net income*
EPS
2023
2022
April 2
July 2
October 1
December 31
304,516
287,464
273,790
275,637
1,141,407
39,287
40,006
33,991
34,846
148,130
March 27
June 26
September 25
December 25
60
62
52
54
228
275,982
310,254
302,532
292,365
1,181,133
33,870
33,671
29,567
31,235
128,343
52
52
45
48
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
MANAGEMENT’S DISCUSSION AND ANALYSIS
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
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 pre-
tax 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
Leases*
Purchase obligations
Total contractual obligations
Payment due, by period (thousands of US dollars)
Total
1 year
2 - 3 years
4 - 5 Years
After 5 years
7,796
123,083
130,879
2,046
110,083
112,129
2,864
13,000
15,864
1,855
-
1,855
1,031
-
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
MANAGEMENT’S DISCUSSION AND ANALYSIS 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
Management’s Report to the Shareholders
The accompanying consolidated financial statements, Management’s Discussion and Analysis (MD&A) and other information in the Annual Report are
the responsibility of management. The consolidated financial statements have been prepared by management and include the selection of appropriate
accounting principles, judgments and estimates necessary to prepare these statements in accordance with IFRS Accounting Standards. The MD&A and
financial information contained in this Annual Report are consistent with the consolidated financial statements.
To provide reasonable assurance that assets are safeguarded and that relevant and reliable financial information is being reported, management has
developed and maintains a system of internal controls. An integral part of the system is the requirement that employees maintain the highest standard
of ethics in their activities. Business reviews and internal audits are performed by corporate management and an internal audit team to evaluate internal
controls, systems and procedures.
The Board of Directors, acting through the Audit Committee, is responsible for determining that management fulfills its responsibilities in the preparation
of the consolidated financial statements and MD&A, and in the financial control of operations. The Board of Directors recommends the appointment of
the independent auditor to the shareholders. The Audit Committee meets regularly with financial management and the independent auditor to discuss
internal controls, auditing matters and financial reporting issues and presents its findings to the Board of Directors. The Audit Committee reviews the
consolidated financial statements, MD&A and material financial announcements with management and the external auditor prior to submission to the
Board of Directors for approval.
The consolidated financial statements have been audited on behalf of the shareholders by the independent external auditor, KPMG LLP, whose report
follows.
O.Y. Muggli
President and Chief Executive Officer
February 28, 2024
S.M. Taylor
Vice President and Chief Financial Officer
February 28, 2024
13
REPORTING Auditor’s Report to the Shareholders
Independent Auditor’s Report
To the Shareholders of Winpak Ltd.
Opinion
We have audited the consolidated financial statements of Winpak Ltd. (the Entity), which comprise the consolidated balance sheets as at December 31,
2023 and December 25, 2022, the consolidated statements of income, comprehensive income, changes in equity and cash flows for the years then ended,
and notes to the financial statements, including a summary of material accounting policy information (hereinafter referred to as the “financial statements”).
In our opinion, the accompanying financial statements present fairly, in all material respects, the consolidated financial position of the Entity as at
December 31, 2023 and December 25, 2022, and its consolidated financial performance and its consolidated cash flows for the years then ended in
accordance with IFRS Accounting Standards.
Basis for Opinion
We conducted our audit in accordance with Canadian generally accepted auditing standards. Our responsibilities under those standards are further
described in the “Auditor’s Responsibilities for the Audit of the Financial Statements” section of our auditor’s report.
We are independent of the Entity in accordance with the ethical requirements that are relevant to our audit of the financial statements in Canada and we
have fulfilled our other ethical responsibilities in accordance with these requirements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Key Audit Matters
Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial statements for the year ended
December 31, 2023. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon,
and we do not provide a separate opinion on these matters.
We have determined the matter described below to be the key audit matter to be communicated in our auditor’s report.
Evaluation of the intangible assets and goodwill impairment analysis for the specialized printed packaging cash generating unit
Description of the matter
We draw attention to Notes 3(p), 4(d) and 18 to the financial statements. The intangible assets and goodwill balance is $31,833,000, of which $18,239,000
relates to the specialized printed packaging cash generating unit (CGU). The Entity reviews the carrying amount of intangible assets at each reporting
date to determine whether there is any indication of impairment. The Entity performs goodwill impairment testing annually or at any time if an indicator of
impairment exists. In determining the recoverable amount of its CGUs, the Entity uses the value in use, which is determined using a discounted cash flow
model, or the fair value less costs to sell, if greater. The determination of each of these amounts is subject to estimation uncertainty. The Entity’s significant
assumptions include projected sales volume and gross profit, terminal growth rate, and discount rate.
Why the matter is a key audit matter
We identified the evaluation of the intangible assets and goodwill impairment analysis for the specialized printed packaging cash generating unit as a key
audit matter. This matter represented an area of significant risk of material misstatement given the magnitude of intangible assets and goodwill and the
high degree of estimation uncertainty in assessing the Entity’s significant assumptions. Significant auditor judgment and the involvement of professionals
with specialized skill and knowledge was required to evaluate the evidence supporting the Entity’s significant assumptions due to the sensitivity of the
recoverable amounts to minor changes in significant assumptions.
How the matter was addressed in the audit
The primary procedures we performed to address this key audit matter included the following:
We took into account changes, conditions and events affecting the Entity and assessed the adjustments or lack of adjustments made by the Entity at
arriving at the projected sales volume and gross profit.
We compared the Entity’s historical sales volume forecasts to actual results to assess the Entity’s ability to accurately project future sales volume.
We evaluated the terminal growth rate by comparing to overall market and industry conditions and overall macro-economic conditions.
We involved valuation professionals with specialized skills and knowledge, who assisted in evaluating the discount rate assumption used in the estimated
recoverable amount. The valuation professionals compared the discount rate against a range that was independently developed using publicly available
external data for comparable entities.
14
REPORTING Other Information
Management is responsible for the other information. Other information comprises:
••
••
the information included in Management’s Discussion and Analysis filed with the relevant Canadian Securities Commissions.
the information, other than the financial statements and the auditor’s report thereon, included in the Annual Report.
Our opinion on the financial statements does not cover the other information and we do not and will not express any form of assurance conclusion thereon.
In connection with our audit of the financial statements, our responsibility is to read the other information identified above and, in doing so, consider
whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit, or otherwise appears to be
materially misstated.
We obtained the information included in Management’s Discussion and Analysis filed with the relevant Canadian Securities Commissions, and information,
other than the financial statements and the auditor’s report thereon, included in the Annual Report as at the date of this auditor’s report. If, based on the
work we have performed on this other information, we conclude that there is a material misstatement of this other information, we are required to report
that fact in the auditor’s report.
We have nothing to report in this regard.
Responsibilities of Management and Those Charged with Governance for the Financial Statements
Management is responsible for the preparation and fair presentation of the financial statements in accordance with IFRS Accounting Standards, and for
such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement,
whether due to fraud or error.
In preparing the financial statements, management is responsible for assessing the Entity’s ability to continue as a going concern, disclosing as applicable,
matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Entity or to cease
operations, or has no realistic alternative but to do so.
Those charged with governance are responsible for overseeing the Entity’s financial reporting process.
Auditor’s Responsibilities for the Audit of the Financial Statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due
to fraud or error, and to issue an auditor’s report that includes our opinion.
Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with Canadian generally accepted
auditing standards will always detect a material misstatement when it exists.
Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence
the economic decisions of users taken on the basis of the financial statements.
As part of an audit in accordance with Canadian generally accepted auditing standards, we exercise professional judgment and maintain professional
skepticism throughout the audit.
We also:
••
••
••
••
Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform audit
procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion.
The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion,
forgery, intentional omissions, misrepresentations, or the override of internal control.
Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances,
but not for the purpose of expressing an opinion on the effectiveness of the Entity’s internal control.
Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by
management.
Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evidence obtained,
whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Entity’s ability to continue as a going
concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures
in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence
obtained up to the date of our auditor’s report. However, future events or conditions may cause the Entity to cease to continue as a going
concern.
15
REPORTING
••
••
••
••
••
Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the financial
statements represent the underlying transactions and events in a manner that achieves fair presentation.
Communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant
audit findings, including any significant deficiencies in internal control that we identify during our audit.
Provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence,
and communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where
applicable, related safeguards.
Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the group Entity to
express an opinion on the financial statements. We are responsible for the direction, supervision and performance of the group audit. We
remain solely responsible for our audit opinion.
Determine, from the matters communicated with those charged with governance, those matters that were of most significance in the audit of
the financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report unless
law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should
not be communicated in our auditor’s report because the adverse consequences of doing so would reasonably be expected to outweigh the
public interest benefits of such communication.
Chartered Professional Accountants
The engagement partner on the audit resulting in this auditor’s report is Scott Sissons.
Winnipeg, Canada
February 28, 2024
16
REPORTING Years ended December 31, 2023 and December 25, 2022
(thousands of US dollars, except per share amounts)
Revenue
Cost of sales
Gross profit
Sales, marketing and distribution expenses
General and administrative expenses
Research and technical expenses
Pre-production expenses
Other income (expenses)
Income from operations
Finance income
Finance expense
Income before income taxes
Income tax expense
Net income for the year
Attributable to:
Equity holders of the Company
Non-controlling interests
Basic and diluted earnings per share - cents
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Years ended December 31, 2023 and December 25, 2022
(thousands of US dollars)
Net income for the year
Items that will not be reclassified to the statements of income:
Cash flow hedge gains recognized
Cash flow hedge gains transferred to property, plant and equipment
Employee benefit plan remeasurements
Income tax effect
Items that are or may be reclassified subsequently to the statements of income:
Cash flow hedge gains (losses) recognized
Cash flow hedge losses transferred to the statements of income
Income tax effect
Other comprehensive income for the year - net of income tax
Comprehensive income for the year
Attributable to:
Equity holders of the Company
Non-controlling interests
See accompanying notes to consolidated financial statements.
17
Note
8
11
12
12
13
26
19
13
11
13
2023
1,141,407
(807,255)
334,152
(93,156)
(41,186)
(20,349)
-
1,238
180,699
24,418
(5,324)
199,793
(52,200)
147,593
148,130
(537)
147,593
228
2022
1,181,133
(849,369)
331,764
(95,378)
(38,783)
(18,249)
(3,401)
(3,669)
172,284
6,414
(4,612)
174,086
(45,861)
128,225
128,343
(118)
128,225
197
2023
147,593
2022
128,225
912
(49)
3,530
(898)
3,495
815
1,192
(537)
1,470
4,965
-
-
1,578
(372)
1,206
(1,703)
1,090
165
(448)
758
152,558
128,983
153,095
(537)
152,558
129,101
(118)
128,983
CONSOLIDATED STATEMENTS OF INCOME (thousands of US dollars)
Assets
Current assets:
Cash and cash equivalents
Trade and other receivables
Income taxes receivable
Inventories
Prepaid expenses
Derivative financial instruments
Non-current assets:
Property, plant and equipment
Intangible assets and goodwill
Employee benefit plan assets
Total assets
Equity and Liabilities
Current liabilities:
Trade payables and other liabilities
Contract liabilities
Income taxes payable
Derivative financial instruments
Non-current liabilities:
Employee benefit plan liabilities
Deferred income
Provisions and other long-term liabilities
Deferred tax liabilities
Total liabilities
Equity:
Share capital
Reserves
Retained earnings
Total equity attributable to equity holders of the Company
Non-controlling interests
Total equity
Total equity and liabilities
See accompanying notes to consolidated financial statements.
On behalf of the Board of Directors:
December 31
December 25
Note
2023
2022
14
15
16
17
18
19
21
8
19
22
20
25
25
541,870
207,355
4,565
219,763
8,942
1,542
984,037
543,387
31,833
12,209
587,429
1,571,466
89,359
1,478
3,109
-
93,946
6,362
18,062
12,685
56,762
93,871
187,817
29,195
1,361
1,319,491
1,350,047
33,602
1,383,649
1,571,466
398,673
204,040
3,573
288,118
5,602
-
900,006
518,590
33,110
10,783
562,483
1,462,489
102,382
2,621
18,393
1,328
124,724
8,334
17,946
12,062
60,648
98,990
223,714
29,195
(972)
1,174,551
1,202,774
36,001
1,238,775
1,462,489
Director
Director
18
CONSOLIDATED BALANCE SHEETS
(thousands of US dollars)
Note
Capital Reserves
Earnings
Total
Interests
Attributable to Equity Holders of the Company
Share
Retained
Non-
Controlling
Total
Equity
Balance at December 27, 2021
29,195
(524) 1,050,949 1,079,620
36,119 1,115,739
Comprehensive (loss) income for the year
Cash flow hedge losses, net of tax
Cash flow hedge losses transferred to the statements
of income, net of tax
Employee benefit plan remeasurements, net of tax
Other comprehensive (loss) income
Net income (loss) for the year
Comprehensive (loss) income for the year
Dividends
25
-
-
-
-
-
-
-
(1,247)
799
-
(448)
-
-
-
1,206
1,206
(1,247)
799
1,206
758
128,343
128,343
(448)
129,549
129,101
-
-
-
-
(1,247)
799
1,206
758
(118)
(118)
128,225
128,983
-
(5,947)
(5,947)
-
(5,947)
Balance at December 25, 2022
29,195
(972) 1,174,551 1,202,774
36,001 1,238,775
Balance at December 26, 2022
29,195
(972) 1,174,551 1,202,774
36,001 1,238,775
Comprehensive income (loss) for the year
Cash flow hedge gains, net of tax
Cash flow hedge losses transferred to the statements
of income, net of tax
Cash flow hedge gains transferred to property, plant and
equipment
Employee benefit plan remeasurements, net of tax
Other comprehensive income
Net income (loss) for the year
Comprehensive income (loss) for the year
Dividends
25
-
-
-
-
-
-
-
-
1,509
873
(49)
-
2,333
-
-
-
2,632
2,632
1,509
873
(49)
2,632
4,965
-
-
-
-
-
1,509
873
(49)
2,632
4,965
-
148,130
148,130
2,333
150,762
153,095
(537)
(537)
147,593
152,558
-
(5,822)
(5,822)
(1,862)
(7,684)
Balance at December 31, 2023
29,195
1,361 1,319,491 1,350,047
33,602 1,383,649
See accompanying notes to consolidated financial statements.
19
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY Years ended December 31, 2023 and December 25, 2022
(thousands of US dollars)
Cash provided by (used in):
Operating activities:
Net income for the year
Items not involving cash:
Depreciation
Amortization - deferred income
Amortization - intangible assets
Employee defined benefit plan expenses
Net finance income
Income tax expense
Other
Cash flow from operating activities before the following
Change in working capital:
Trade and other receivables
Inventories
Prepaid expenses
Trade payables and other liabilities
Contract liabilities
Employee defined benefit plan contributions
Income tax paid
Interest received
Interest paid
Net cash from operating activities
Investing activities:
Acquisition of property, plant and equipment - net
Acquisition of intangible assets
Financing activities:
Payment of lease liabilities
Dividends paid
Dividend paid to non-controlling interests in subsidiary
Change in cash and cash equivalents
Cash and cash equivalents, beginning of year
Cash and cash equivalents, end of year
See accompanying notes to consolidated financial statements.
20
Note
2023
2022
147,593
128,225
17
18
19
12
13
8
19
18
25
14
47,906
(1,708)
1,636
2,958
(19,094)
52,200
(3,537)
227,954
(3,315)
68,355
(3,340)
(13,909)
(1,143)
(2,315)
(70,476)
23,931
(4,903)
220,839
(68,670)
(360)
(69,030)
(965)
(5,785)
(1,862)
(8,612)
143,197
398,673
541,870
47,688
(1,687)
1,698
4,233
(1,802)
45,861
(3,046)
221,170
(26,180)
(101,060)
1,100
10,589
(882)
(1,912)
(26,794)
5,848
(4,310)
77,569
(49,125)
(336)
(49,461)
(862)
(6,034)
-
(6,896)
21,212
377,461
398,673
CONSOLIDATED STATEMENTS OF CASH FLOWS (thousands of US dollars, unless otherwise indicated)
1. General
Winpak Ltd. (the “Company” or “Winpak”) is incorporated under the Canada Business Corporations Act. The Company 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. The address of the Company’s registered office is 100 Saulteaux Crescent, Winnipeg, Manitoba, Canada R3J
3T3. The ultimate controlling party of Winpak Ltd. is Wihuri International Oy of Helsinki, Finland, a privately held company.
2. Basis of presentation
Statement of compliance
The Company prepares its consolidated financial statements in accordance with IFRS Accounting Standards (IFRS). 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 2023 fiscal year comprised 53 weeks and the 2022 fiscal year comprised 52 weeks.
The Company’s functional and reporting currency is the US dollar. The US dollar is the reporting currency as more than 85 percent of the Company’s
business is conducted in US dollars and therefore management believes this increases transparency by significantly reducing volatility of reported results
due to fluctuations in the rate of exchange between the Canadian and US currencies.
The consolidated financial statements have been prepared under the historical-cost convention, except that certain financial instruments, employee
benefit plans and share-based payments are stated at their fair value.
The consolidated financial statements were approved by the Board of Directors on February 28, 2024.
3. Material accounting policy information
(a) Principles of consolidation
The consolidated financial statements include the accounts of the Company, its wholly-owned subsidiaries: Winpak Portion Packaging Ltd.; Winpak
Heat Seal Packaging Inc.; Winpak Holdings Ltd.; Winpak Inc.; Winpak Films Inc.; Winpak Portion Packaging, Inc.; Winpak Lane, Inc.; Winpak Heat Seal
Corporation; Winpak Control Group Inc.; Grupo Winpak de Mexico, S.A. de C.V.; Embalajes Winpak de Mexico, S.A. de C.V.; and Administracion Winpak
de Mexico, S.A. de C.V.; and its majority-owned subsidiary American Biaxis Inc. Subsidiaries are entities controlled by the Company. The Company
controls an entity when it is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns
through its power over the entity. Subsidiaries are fully consolidated from the date on which control is obtained until the date that control ceases. The
financial statements of all subsidiaries are prepared as of the same reporting date using consistent accounting policies. All inter-company balances and
transactions, including any unrealized income arising from inter-company transactions have been eliminated.
(b) Business combinations
Business combinations are accounted for using the acquisition method of accounting. The consideration transferred for the acquisition of a subsidiary is
the fair values of the assets transferred, the liabilities assumed from the former owners of the acquiree and the equity interests issued by the Company.
The consideration transferred includes the fair value of any asset or liability resulting from a contingent consideration arrangement. Acquisition costs
incurred are expensed and included in general and administrative expenses. Any contingent consideration to be transferred by the acquirer will be
recognized at fair value at the acquisition date. Subsequent changes to the fair value of the contingent consideration which is deemed to be an asset or
liability will be recognized in accordance with IFRS 9 “Financial Instruments” in the statement of income.
Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at
the acquisition date, irrespective of the extent of any non-controlling interest. Goodwill is initially measured as the excess of the aggregate of the
consideration transferred over the net identifiable assets acquired and liabilities assumed. If this consideration is less than the fair value of the net assets
of the subsidiary acquired, the difference is recognized directly in the statement of income.
(c) Non-controlling interests
Winpak Ltd. owns 51 percent of the equity interest in American Biaxis Inc., a subsidiary located in Winnipeg, Manitoba, Canada. Non-controlling interests
represent the remaining 49 percent equity interest owned by third parties. The share of net assets attributable to non-controlling interests is presented as
a component of equity. Their share of net income and other comprehensive income is recognized directly in equity.
(d) Foreign currency translation
The financial statements for the Company and its subsidiaries are prepared using their functional currency, that being the US dollar. The functional
currency is the currency of the primary economic environment in which the Company and its subsidiaries operate. Foreign currency transactions are
translated into the functional currency using exchange rates prevailing at the dates of the transactions. Monetary assets and liabilities denominated in
foreign currencies at the reporting date are translated to the functional currency at the exchange rate at that date. Foreign currency differences arising
on translation are recognized directly to the statement of income. Non-monetary assets and liabilities arising from transactions in foreign currencies are
translated to the functional currency at the exchange rate prevailing at the date of the transaction.
21
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (e) Revenue
The Company determines revenue recognition through the following steps: a) identification of the contract with a customer, b) identification of the
performance obligations in the contract, c) determination of the transaction price, d) allocation of the transaction price to the performance obligations
in the contract and e) recognition of revenue when the Company satisfies a performance obligation. Revenue is recognized when control of a product
is transferred to a customer. Revenue is measured based on the consideration specified in the contract with a customer, net of variable consideration,
including rebates, returns and discounts. Rebates are accrued using sales data and rebate percentages specific to each customer contract. Accruals
for sales returns are calculated based on the best estimate of the amount of product that will ultimately be returned by customers, reflecting historical
experience and the magnitude of non-conforming inventory claims made by customers that have either been approved or are pending review. For
customer contracts where the Company expects to be paid within one year, the consideration is not adjusted for the effects of a financing component.
Packaging machinery contract liabilities are recorded when cash payments are received or due in advance of the Company’s performance.
(f) Research and technical expenses
Research and technical expenses are expensed in the period in which the costs are incurred.
(g) Government grants/tax credits
Grants/tax credits from government are recognized at their fair value when there is a reasonable assurance that the grant/tax credit will be received and/
or earned and any specified conditions will be met.
Grants/tax credits received in relation to the purchase and construction of plant and equipment are included in non-current liabilities as deferred income
and are credited to the statement of income on a straight-line basis over the estimated useful life of the related asset. Grants/tax credits received in
relation to research and development activities and labor subsidy programs are recorded to reduce these costs when it is determined there is reasonable
assurance the grants/tax credits will be realized.
(h) Leases
At inception of a contract, the Company assesses whether a contract is, or contains, a lease. A contract is, or contains, a lease if the contract conveys
the right to control the use of an identified asset for a period of time in exchange for consideration.
The Company recognizes a right-of-use asset and a lease liability at the lease commencement date. The right-of-use asset is initially measured at cost,
which comprises the initial amount of the lease liability adjusted for any lease payments made at or before the commencement date, plus any initial direct
costs incurred and an estimate of costs to dismantle and remove the underlying asset or to restore the underlying asset or the site on which it is located,
less any lease incentives received. The right-of-use asset is subsequently depreciated using the straight-line method from the commencement date to the
earlier of the end of the useful life of the right-of-use asset or the end of the lease term. The estimated useful lives of right-of-use assets are determined
on the same basis as those of plant and equipment. In addition, the right-of-use asset is periodically reduced by impairment losses, if any, and adjusted
for certain remeasurements of the lease liability.
The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date, discounted using the
interest rate implicit in the lease or, if that rate cannot be readily determined, the Company’s incremental borrowing rate. Generally, the Company uses
its incremental borrowing rate as the discount rate. Lease payments included in the measurement of the lease liability comprise the following: a) fixed
payments, including in-substance fixed payments, b) variable lease payments that depend on an index or a rate, initially measured using the index or rate
as at the commencement date, c) amounts expected to be payable under a residual value guarantee and d) the exercise price under a purchase option
that the Company is reasonably certain to exercise, lease payments in an optional renewal period if the Company is reasonably certain to exercise an
extension option, and penalties for early termination of a lease unless the Company is reasonably certain not to terminate early.
The lease liability is measured at amortized cost using the effective interest method. It is remeasured when there is a change in future lease payments
arising from a change in an index or rate, if there is a change in the Company’s estimate of the amount expected to be payable under a residual value
guarantee, or if the Company changes its assessment of whether it will exercise a purchase, extension or termination option. When the lease liability is
remeasured in this way, a corresponding adjustment is made to the carrying amount of the right-of-use asset, or is recorded in the statement of income
if the carrying amount of the right-of-use asset has been reduced to zero.
Rental income received from packaging machine operating leases is recognized on a straight-line basis over the term of the corresponding lease.
Inventories
(i)
Inventories are stated at the lower of cost and net realizable value. The cost of inventories is based on the first-in first-out principle and includes
expenditures incurred in acquiring the inventories and bringing them to their existing location and condition. In the case of manufactured inventories,
cost includes an appropriate share of variable and fixed overheads based on normal operating capacity. Any excess, unallocated, fixed overhead costs
are expensed as incurred. Net realizable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion
and selling expenses.
(j) Cash and cash equivalents
Cash and cash equivalents include cash on hand, cash invested in interest-bearing money market accounts and short-term deposits with maturities of
less than three months. Cash equivalents are all highly liquid investments. Bank overdrafts are shown within current liabilities. Bank overdrafts that are
repayable on demand and form an integral part of the Company’s cash management are included as a component of cash and cash equivalents for the
purpose of the statement of cash flows.
22
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (k) Trade and other receivables
The Company applies the simplified approach to providing for expected credit losses, which requires the use of the lifetime expected credit loss provision
for all trade and other receivables. Expected credit losses are measured as the difference in the present value of the contractual cash flows that are
due under the contract and the cash flows that the Company expects to receive. The expected cash flows reflect all available information, including the
Company’s historical experience, the past due status, the existence of third-party insurance and forward-looking macroeconomic factors.
The Company has ongoing agreements in place with financial institutions whereby certain extended term trade receivables are sold without recourse
in exchange for cash. When the trade receivable is sold, the Company removes them from the balance sheet, recognizes the amount received as the
consideration for the transfer and records the corresponding costs within finance expense and general and administrative expenses. The Company
assumes the risk on trade receivables not sold, and accordingly, the amounts are included within trade and other receivables.
(l) Property, plant and equipment
Property, plant and equipment are stated at cost less accumulated depreciation and accumulated impairment losses. All costs directly attributable to
bringing the asset to the location and condition necessary for it to be capable of operating in the manner intended by management are included in the
carrying value of the asset. When the Company has a legal or constructive obligation to restore a site on which an asset is located either through make-
good provisions in lease agreements or decommissioning of environmental risks, the present value of the estimated costs of dismantling and removing
the asset and restoring the site are included in the carrying value of the asset with a corresponding increase to provisions. Borrowing costs directly
attributable to the acquisition, construction or production of qualifying property, plant and equipment that takes an extended period of time to be placed
into service are added to the cost of the assets, until such time as the assets are substantially ready for their intended use. See note 3(p) on impairment.
When parts of an item of plant and equipment have different useful lives, they are accounted for as separate items (major components). The cost of
replacing a component of an item of plant and equipment is recognized in the carrying amount of the item if it is probable that the future economic benefits
of the item will occur and its cost can be measured reliably. The costs of day-to-day maintenance of plant and equipment are recognized directly in the
statement of income.
Depreciation is computed using the straight-line method over the estimated useful lives of the assets, commencing the date the assets are ready for use
as follows:
Buildings 20 - 40 years
Equipment 4 - 20 years
Packaging machines 3 - 7 years
Depreciation methods, useful lives and residual values are reassessed annually or more frequently when there is an indication that they have changed.
The gain or loss on the retirement of an item of property, plant and equipment is the difference between the net sale proceeds and the carrying amount of
the asset and is recognized in the statement of income.
(m) Pre-production expenses
Pre-production costs relating to installations of major new production equipment are expensed in the period in which incurred.
Intangible assets
(n)
Intangible assets are stated at cost less accumulated amortization and accumulated impairment losses. See note 3(p) on impairment. Computer software
that is integral to a related item of hardware is included with plant and equipment. All other computer software is treated as an intangible asset. The
cost of intangible assets acquired in an acquisition is the fair value at the acquisition date. The cost of separately acquired intangible assets, including
computer software, comprises the purchase price and any directly attributable costs of preparing the asset for use. Amortization is computed using the
straight-line method over the estimated useful lives of the assets, as follows:
Computer software 3 - 12 years
Patents 8 - 17 years
Customer-related 5 - 15 years
(o) Goodwill
Goodwill represents the excess of the consideration transferred over the Company’s interest in the fair value of the net identifiable assets, including
intangible assets, and liabilities of the acquiree at the date of acquisition. At the date of acquisition, goodwill is allocated to cash-generating units (CGUs)
for the purpose of impairment testing. A CGU is the smallest group of assets that generates cash inflows that are largely independent of the cash inflows
from other assets or groups of assets. Goodwill is tested at least annually for impairment at the CGU level and is carried at cost less accumulated
impairment losses (see note 3(p)).
Impairment
(p)
The carrying amount of the Company’s property, plant and equipment and intangible assets (other than goodwill) are reviewed at each reporting date to
determine whether there is any indication of impairment. Goodwill is tested for impairment annually or at any time if an indicator of impairment exists. If
any such indication exists, the applicable asset’s recoverable amount is estimated.
23
The recoverable amount of the Company’s assets are calculated as the value-in-use, being the present value of future cash flows, using a pre-tax discount
rate that reflects the current assessment of the time value of money, or the fair value less costs to sell, if greater. For an asset that does not generate
largely independent cash flows, the recoverable amount is determined for the CGU to which it belongs. The Company bases its impairment calculation on
detailed financial forecasts, which are prepared separately for each of the Company’s CGUs to which the individual assets are allocated. These financial
forecasts are generally covering a period of five years. For longer periods, a long-term growth rate is calculated and applied to project future cash flows
after the fifth year.
An impairment loss is recognized whenever the carrying amount of an asset or its respective CGU exceeds its recoverable amount. Impairment losses
are recognized in the statement of income. Impairment losses recognized in respect of CGUs are allocated first to reduce the carrying amount of any
goodwill allocated to the CGU and then, to reduce the carrying amount of other assets in the CGU on a pro rata basis. Impairment losses in respect of
goodwill are not reversed. In respect of property, plant and equipment and intangible assets, an impairment loss is reversed if there has been an indication
that an impairment loss recognized in prior periods may no longer exist or may have decreased. An impairment loss is reversed only to the extent that
the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortization, if no impairment
loss had been previously recognized.
Income taxes
(q)
Income tax expense comprises current and deferred tax. Income tax expense is recognized in the statement of income except to the extent that it relates
to items recorded directly to other comprehensive income or equity, in which case it is recognized directly in other comprehensive income or equity,
respectively.
Current income tax comprises the expected income tax payable or receivable on the taxable income or loss for the period, using income tax rates enacted
or substantively enacted in the jurisdictions the Company is required to pay income tax at the reporting date, and any adjustments to income taxes payable
or receivable in respect of previous periods. Current income tax is adjusted by changes in deferred tax assets and liabilities attributable to temporary
differences between the tax bases of assets and liabilities and their carrying amounts in the financial statements, and by the availability of unused income
tax losses.
Deferred tax is recognized using the balance sheet method in which temporary differences are calculated based on the carrying amounts of assets and
liabilities for financial reporting purposes and the tax bases of assets and liabilities for income taxation purposes. Deferred tax is not recognized for the
following temporary timing differences: the initial recognition for both goodwill and assets and liabilities in a transaction that is not a business combination
and that affects neither accounting nor taxable income; and differences relating to investments in subsidiaries to the extent that it is probable that they will
not reverse in the foreseeable future. Deferred tax is measured at the income tax rates that are expected to be applied when the temporary difference
reverses, that is, when the asset is realized or the liability is settled, based on the income tax laws that have been enacted or substantively enacted at
the reporting date.
Deferred tax assets are recognized only to the extent that it is probable that future taxable income will be available against which the assets can be
utilized. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related income tax
benefit will be realized.
Current tax assets and liabilities are offset when the Company and its subsidiaries have a legally enforceable right to offset the amounts and intend to
either settle on a net basis, or to realize the asset and settle the liability simultaneously. Deferred tax assets and liabilities are offset when there is a
legally enforceable right to offset current tax assets against current tax liabilities and when the deferred income tax assets and liabilities relate to income
taxes levied by the same taxation authority on either the same taxable entity or different taxable entities where there is an intention to settle the balance
on a net basis.
The Company regularly evaluates positions taken in income tax returns with respect to situations in which applicable income tax regulation is subject to
interpretation. Management establishes provisions where appropriate on the basis of amounts expected to be paid to income tax authorities, reflecting
any uncertainty over tax treatments.
24
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (r) Employee benefit plans
The Company maintains four funded non-contributory defined benefit pension plans in Canada and the US and one funded non-contributory supplementary
income postretirement plan for certain CDN-based executives. A market discount rate is used to measure the benefit obligations based on the yield of
high quality corporate bonds denominated in the same currency in which the benefits are expected to be paid and with terms to maturity that, on average,
match the terms of the benefit obligations. The cost of providing the benefits is actuarially determined using the projected unit credit method. Actuarial
valuations are conducted, at a minimum, on a triennial basis with interim valuations performed as deemed necessary. Consideration is given to any
event that could impact the benefit plan assets or obligation up to the balance sheet date where interim valuations are performed. For financial reporting
purposes, the Company measures the benefit obligations and fair value of assets for the defined benefit plans as of the year-end date. The amount
recognized in the balance sheet at each year-end reporting date represents the present value of the benefit obligation, reduced by the fair value of benefit
plan assets. Any recognized asset or surplus is limited to the present value of economic benefits available in the form of any future refunds from the plan
or reductions in future contributions. To the extent that there is uncertainty regarding entitlement to the surplus, no asset is recorded. Current service
costs are charged to the statement of income and included in the same line items as the related compensation cost. The net finance cost is computed
based on the application of the discount rate to the net defined benefit pension plan asset or liability at the start of the annual period, taking into account
any anticipated changes during the upcoming year as a result of contributions and benefit payments and also reflects the impact of any pension plan
asset ceiling adjustments. The net finance cost is shown within either finance income or finance expense within the statement of income depending on
whether the defined benefit pension plan was in an asset or liability position at the start of the year. Remeasurements, which comprise actuarial gains
and losses, the return on benefit plan assets and the effect of the pension plan asset ceiling adjustment, are recognized directly in equity within other
comprehensive income. When the benefits of a plan are changed or when a plan is curtailed, the resulting change in benefit that relates to past service
or the gain or loss on curtailment is recognized immediately in the statement of income. The Company recognizes gains and losses on the settlement of
a defined benefit plan when the settlement occurs in the statement of income. The Company’s funding policy is in compliance with statutory regulations
and amounts funded are deductible for income tax purposes.
One of the Company’s subsidiaries maintains one unfunded contributory defined benefit postretirement plan for healthcare benefits for a limited group
of US individuals. A market discount rate is used to measure the benefit obligation based on the yield of high quality corporate bonds denominated in
the same currency in which the benefits are expected to be paid and with terms to maturity that, on average, match the terms of the benefit obligation.
The cost of providing the benefits is actuarially determined using the projected unit credit method. The amount recognized in the balance sheet at each
year-end reporting date represents the present value of the benefit obligation. Current service costs are charged to the statement of income as they
accrue and are included in general and administrative expenses. Interest costs on the benefit obligation are charged to the statement of income as
finance expense. Remeasurements are recognized directly in equity within other comprehensive income. When the benefits of the plan are changed or
when the plan is curtailed, the resulting change in benefit that relates to past service or the gain or loss on curtailment is recognized immediately in the
statement of income.
The Company maintains seven defined contribution pension plans in Canada and the US. The pension expense charged to the statement of income for
these plans is the annual funding contribution by the Company.
Termination benefits are recognized as an expense in the statement of income at the earlier of when the Company can no longer withdraw the offer of
those benefits and when the Company recognizes costs for a restructuring.
Short-term benefit obligations are measured on an undiscounted basis and are expensed as the related service is provided. A liability is recognized for the
amount expected to be paid under short-term cash bonus or profit-sharing plans if the Company has a legal or constructive obligation to pay this amount
as a result of past service provided by the employee.
(s) Provisions
A provision is recognized when there is a legal or constructive obligation as a result of a past event and it is probable that a future outlay of cash will be
required to settle the obligation and the amount can be reliably estimated. Provisions are determined by discounting the expected future cash flows at a
pre-income tax rate that reflects the current market assessments of the time value of money and the risks specific to the obligation. When some or all of
the monies required to settle a provision are expected to be recovered from a third party, the recovery is recognized as an asset when it is virtually certain
that the recovery will be received.
When the Company has a legal or constructive obligation to restore a site on which an asset is located either through make-good provisions in lease
agreements or decommissioning of environmental risks, the present value of the estimated costs of dismantling and removing the asset and restoring the
site is recognized as a provision with a corresponding increase to the related item of property, plant and equipment. At each reporting date, the obligation
is remeasured in line with changes in discount rates, estimated cash flows and the timing of those cash flows. Any changes in the obligation are added
or deducted from the related asset. The change in the present value of the obligation due to the passage of time is recognized as a finance expense or
finance income in the statement of income.
At each reporting date, other provisions are remeasured in line with changes in discount rates, estimated cash flows and the timing of those cash flows.
Any changes in the provision are recognized in the statement of income. The change in the present value of the provision due to the passage of time is
recognized as a finance expense or finance income in the statement of income.
25
(t) Financial assets and liabilities
Financial assets are initially measured at fair value. On initial recognition, the Company classifies its financial assets at either amortized cost, fair value
through other comprehensive income (FVOCI) or fair value through profit or loss (FVTPL), depending on its business model for managing the financial
assets and the contractual cash flow characteristics of the financial assets. Financial assets are not reclassified subsequent to their initial recognition,
unless the Company changes its business model for managing financial assets. Financial liabilities are classified at amortized cost.
A financial asset is classified as measured at amortized cost if it meets both of the following conditions: a) the asset is held within a business model whose
objective is to hold assets to collect contractual cash flows and b) the contractual terms of the financial asset give rise on specified dates to cash flows
that are solely payments of principal and interest on the principal amount outstanding.
A financial asset is classified as measured at FVOCI if it meets both of the following conditions: a) it is held within a business model whose objective is
achieved by both collecting contractual cash flows and selling financial assets and b) its contractual terms give rise on specified dates to cash flows that
are solely payments of principal and interest on the principal amount outstanding.
All financial instruments, including derivatives, are included in the consolidated balance sheet and are measured at fair value except cash and cash
equivalents, trade and other receivables and trade payables and other liabilities, which are measured at amortized cost. All changes in fair value are
recorded to the consolidated statement of income unless cash flow hedge accounting is used, in which case changes in fair value are recorded in other
comprehensive income to the extent the derivatives are deemed to be effective hedges.
(u) Hedge accounting
The Company operates principally in Canada and the United States, which gives rise to risks that its income and cash flows may be adversely impacted
by fluctuations in foreign exchange rates. The Company enters into foreign currency forward contracts to manage foreign exchange exposures on
anticipated labor, operating costs, property, plant and equipment expenditures and dividend payments to be incurred in Canadian dollars and equipment
expenditures to be incurred in other foreign currencies. The Company has elected to designate these instruments in their entirety as hedging instruments
for hedge accounting purposes, including both the spot and forward elements of the contract in the valuation of the instrument.
With respect to hedges of foreign currency exposure, the Company determines the existence of an economic relationship between the hedging instrument
and hedged item based on the currency, amount and timing of their respective cash flows. An assessment is made whether the derivative designated in
each hedging relationship is expected to be and has been effective in offsetting changes in cash flows of the hedged item using the hypothetical derivative
method.
The fair value of each contract is included on the consolidated balance sheet within derivative financial instrument assets or liabilities, depending on
whether the fair value was in an asset or liability position. In the case of labor and operating costs, changes in the fair value of these contracts are initially
recorded in other comprehensive income and subsequently recorded in the consolidated statement of income when the hedged item affects income or
loss. In the case of property, plant and equipment expenditures, changes in the fair value of these contracts are initially recorded in other comprehensive
income and upon settlement of the contract, the gain or loss is included in the cost of the corresponding asset. For dividend payments, changes in the
fair value of these contracts are recorded directly in equity.
If the hedge no longer meets the criteria for hedge accounting or the hedging instrument is sold, expires, is terminated or is exercised, then hedge
accounting is discontinued prospectively. When hedge accounting for cash flow hedges is discontinued, the amount that has been accumulated in the
hedging reserve remains in equity until, for a hedge of a transaction resulting in recognition of a non-financial item, it is included in the non-financial item’s
cost on its initial recognition or, for other cash flow hedges, it is reclassified to the consolidated statement of income in the same period or periods as the
hedged expected future cash flows affects income or loss.
If the hedged future cash flows are no longer expected to occur, then the amounts that have been accumulated in the hedging reserve are immediately
reclassified to the consolidated statement of income.
(v) Share-based payments
The Company maintains a share-based compensation plan, which provides restricted share units under the Executive Enhanced Long-Term Deferred
Income Benefits Plan. The long-term component of the incentive entitlement for a given year is converted to units based on the current market value of
the Company’s common shares and after a period of three years, the cash value of the units is paid to the Executive based on the market value of the
Company’s common shares in effect at that point in time. Units under the plan vest immediately. The fair value of the units granted is recognized as a
personnel expense, with a corresponding increase in liabilities, over the period that the units pertain. The liability is remeasured at each reporting date.
Any changes in the fair value of the liability are recognized as a personnel expense in the statement of income.
(w) Earnings per share
Basic earnings per share are calculated by dividing the net income attributable to equity holders of the Company for the period by the weighted average
number of common shares outstanding during the period. Diluted earnings per share are calculated on the same basis as there are no potentially dilutive
common shares.
26
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 4. Use of estimates and judgments
The application of the Company’s accounting policies requires management to use estimates and judgments that can have a significant effect on the
revenues, expenses, comprehensive income, assets and liabilities recognized and disclosures made in the consolidated financial statements. Actual
results may differ from these estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to estimates are recognized
prospectively.
The following areas require management’s most significant estimates and judgments:
(a) Aggregation of operating segments
Management applies judgment 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.
(b) 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.
(c) 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
(d)
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 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 projected revenue and gross profit 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.
(e) 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.
(f) 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 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.
5. Accounting standards implemented in 2023
The following accounting standards came into effect commencing in the Company’s 2023 fiscal year:
(a) Disclosure of accounting policies
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.
(b) Deferred taxes related to assets and liabilities arising from a single transaction
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.
27
International tax reform - Pillar Two model rules
(c)
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.
6. Future accounting standards
(a) Lease liability in a sale and leaseback
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.
7. Segment reporting
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.
Due to similar economic characteristics, including long-term sales volume growth and long-term average gross profit margins, and having similar products,
production processes, types of customers and distribution methods, the flexible packaging and rigid packaging and flexible lidding operating segments
have been aggregated as one reportable segment. In addition, the packaging machinery operating segment has been aggregated with these two
segments as the segment’s revenue and assets represents less than 4 percent of total Company revenue and assets.
The Company operates principally in Canada and the United States. See note 8 for a breakdown of revenue by operating and geographic segment. The
following summary presents property, plant and equipment, intangible assets and goodwill information by geographic segment:
United States
Canada
Mexico
8. Revenue
December 31
December 25
2023
256,065
301,261
17,894
575,220
2022
249,075
284,019
18,606
551,700
Significant judgments in applying revenue accounting policy
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. During 2023, no material arrangements satisfied these criteria,
and as a result, the Company did not recognize any revenue over time. Accordingly, all revenue was recognized at a point in time giving consideration
to whether the customer has: a) assumed the risks and rewards of ownership, b) a present obligation to pay and c) obtained legal title and physical
possession. These conditions are usually fulfilled upon shipment of products.
28
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS For customer contracts that include a volume rebate program, judgment is required to estimate the eventual amount that will be paid to the customer.
Most volume rebate programs entitle a customer to an increasing rebate percentage based upon the attainment of purchase level thresholds. At each
reporting date, the Company updates its estimates regarding variable consideration.
Disaggregation of revenue
Operating segment
Flexible packaging
Rigid packaging and flexible lidding
Packaging machinery
Geographic segment
United States
Canada
Mexico and other
2023
2022
606,315
500,374
34,718
1,141,407
902,791
156,658
81,958
1,141,407
640,209
510,425
30,499
1,181,133
950,073
152,173
78,887
1,181,133
The Company’s products are primarily used for the packaging of perishable foods and beverages, which accounted for more than 90 percent of sales
during 2023 and 2022. Other markets include medical, pharmaceutical, nutraceutical, personal care, industrial and other consumer goods.
Contract balances
The following table provides information about trade receivables and contract liabilities with customers:
Trade receivables, which are included in ‘Trade and other receivables’ (note 15)
Contract liabilities
Changes in contract liabilities during the period
Opening balance, December 26, 2022
Revenue recognized during the year that was included in the opening balance
Increases due to cash received, excluding amounts recognized as revenue during the year
Closing balance, December 31, 2023
December 31
2023
December 25
2022
194,245
(1,478)
188,981
(2,621)
(2,621)
2,621
(1,478)
(1,478)
Performance obligations
Most of the Company’s contracts have a single performance obligation as the promise to transfer the individual goods. Revenue for each of the three
operating segments is recognized at a point in time when the customer obtains control of a product, which typically takes place when legal title and
physical possession of the product is transferred to the customer. These conditions are usually fulfilled upon shipment, however, in some instances, upon
delivery. Invoices are generated when control has transferred and are usually payable within 30 to 60 days.
No revenue was recognized in 2023 or 2022 relating to performance obligations that were satisfied or partially satisfied in previous years. Similarly, no
revenue will be recognized in subsequent years relating to unsatisfied performance obligations as at December 31, 2023.
9. Expenses by nature
Raw materials and consumables used
Depreciation and amortization
Personnel expenses (note 10)
Freight
Other expenses
Foreign exchange and cash flow hedge gains (losses) transferred from other comprehensive income (note 11)
2023
(570,650)
(47,834)
(239,323)
(31,130)
(73,303)
1,532
(960,708)
2022
(638,416)
(47,699)
(224,791)
(37,642)
(56,632)
(3,669)
(1,008,849)
29
10. Personnel expenses
Wages and salaries
Social security
Employee defined benefit plan expenses (note 19)
Employee defined contribution plan expenses (note 19)
Share-based payments (note 24)
11. Other income (expenses)
Foreign exchange gains (losses)
Cash flow hedge losses transferred from other comprehensive income
Employee benefit plan settlement expense (note 19)
12. Finance income and expense
Finance income on cash and cash equivalents
Net finance income on defined benefit plans (note 19)
Finance income
Finance expense on bank overdrafts
Finance expense on lease liabilities
Finance expense on sale of extended term trade receivables (note 29)
Net finance expense on defined benefit plans (note 19)
Finance expense
Net finance income
13. Income tax expense
Current tax expense
Current year
Deferred tax recovery
Origination and reversal of temporary differences
Income tax expense
Income tax (expense) recovery recognized in other comprehensive income
Cash flow hedges
Employee benefit plan remeasurements
Reconciliation of effective income tax rate
Combined Canadian federal and provincial income tax rate
United States income taxed at rates lower than Canadian tax rates
Permanent differences and other
Effective income tax rate
30
2023
(207,273)
(20,323)
(2,958)
(7,962)
(807)
2022
(195,797)
(17,289)
(4,233)
(7,326)
(146)
(239,323)
(224,791)
2023
2,724
(1,192)
1,532
(294)
1,238
2023
23,793
625
24,418
(11)
(458)
(4,440)
(415)
(5,324)
19,094
2022
(2,579)
(1,090)
(3,669)
-
(3,669)
2022
5,959
455
6,414
(21)
(467)
(3,843)
(281)
(4,612)
1,802
2023
2022
(57,521)
(53,787)
5,321
(52,200)
(537)
(898)
(1,435)
26.9%
(0.4)
(0.4)
26.1%
7,926
(45,861)
165
(372)
(207)
26.8%
(0.4)
(0.1)
26.3%
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Global minimum top-up tax
The Company does not operate in any jurisdiction which has enacted or substantively enacted the global minimum top-up tax. If legislation had been
enacted or substantively enacted, the Company does not expect that Winpak would have been subject to the top-up tax as the effective tax rate in each
jurisdiction exceeds 15 percent.
14. Cash and cash equivalents
Bank balances
Money market and short-term deposits
15. Trade and other receivables
Trade receivables
Less: Allowance for expected credit losses
Net trade receivables
Other receivables
16. Inventories
Raw materials
Work-in-process
Finished goods
Spare parts
December 31
December 25
2023
16,351
525,519
541,870
2022
35,430
363,243
398,673
December 31
December 25
2023
194,245
(2,160)
192,085
15,270
207,355
2022
188,981
(1,517)
187,464
16,576
204,040
December 31
December 25
2023
84,710
39,891
76,825
18,337
219,763
2022
128,371
46,022
97,163
16,562
288,118
During 2023, the Company recorded, within cost of sales, inventory write-downs for slow-moving and obsolete inventory of $11,465 (2022 - $11,760) and
reversals of previously written-down items of $3,939 (2022 - $2,279).
31
17. Property, plant and equipment
Land
Buildings
Equipment
Machines
In Progress
Total
Packaging
Capital
Net book value
At December 27, 2021
Cost
Accumulated depreciation
2022 Activity
Additions
Disposals
Transfers
Depreciation
At December 25, 2022
At December 25, 2022
Cost
Accumulated depreciation
Net book value
At December 26, 2022
Cost
Accumulated depreciation
2023 Activity
Additions
Disposals
Transfers
Depreciation
At December 31, 2023
At December 31, 2023
Cost
Accumulated depreciation
24,486
239,690
721,321
-
(78,947)
(434,487)
14,693
(13,712)
-
42,203
1,042,393
24,486
160,743
286,834
981
42,203
(527,146)
515,247
586
9,637
-
-
-
-
-
(8,873)
25,072
161,507
18,459
(69)
6,346
(38,650)
272,920
659
21,759
51,100
-
-
(165)
1,475
-
(6,346)
-
57,616
(69)
-
(47,688)
518,590
25,072
249,287
732,415
-
(87,780)
(459,495)
25,072
161,507
272,920
15,352
(13,877)
1,475
57,616
1,079,742
-
57,616
(561,152)
518,590
25,072
249,287
732,415
-
(87,780)
(459,495)
25,072
161,507
272,920
15,352
(13,877)
1,475
57,616
1,079,742
-
57,616
(561,152)
518,590
1,539
-
-
-
5,121
(18)
-
(8,688)
26,611
157,922
28,687
(64)
10,709
(38,920)
273,332
-
-
-
(298)
1,177
37,438
72,785
-
(10,709)
-
84,345
(82)
-
(47,906)
543,387
26,611
251,470
766,095
-
(93,548)
(492,763)
26,611
157,922
273,332
14,819
(13,642)
1,177
84,345
1,143,340
-
84,345
(599,953)
543,387
At December 31, 2023, property, plant and equipment includes right-of-use assets of $12,526 (2022 - $11,505) related to leased facilities (see note 23).
Government grants/tax credits in respect of property, plant and equipment were recognized within deferred income totaling $1,824 in 2023 (2022 - $1,948).
No impairment losses or impairment reversals were recorded during 2023 and 2022. No borrowing costs were capitalized during 2023 and 2022.
32
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 18. Intangible assets and goodwill
Goodwill
Software
Patents
Customer
Related
Total
Net book value
At December 27, 2021
Cost
Accumulated amortization
2022 Activity
Additions
Disposals
Amortization
At December 25, 2022
At December 25, 2022
Cost
Accumulated amortization
Net book value
At December 26, 2022
Cost
Accumulated amortization
2023 Activity
Additions
Disposals
Amortization
At December 31, 2023
At December 31, 2023
Cost
Accumulated amortization
18,435
-
18,435
-
-
-
18,435
18,435
-
18,435
18,435
-
18,435
-
-
-
18,435
18,435
-
18,435
9,750
(8,874)
876
288
-
(421)
743
9,767
(9,024)
743
9,767
(9,024)
743
346
(1)
(357)
731
10,109
(9,378)
731
95
(11)
84
48
-
-
132
143
(11)
132
143
(11)
132
14
-
(2)
144
157
(13)
144
18,830
(3,753)
15,077
-
-
(1,277)
13,800
18,830
(5,030)
13,800
18,830
(5,030)
13,800
-
-
(1,277)
12,523
17,949
(5,426)
12,523
47,110
(12,638)
34,472
336
-
(1,698)
33,110
47,175
(14,065)
33,110
47,175
(14,065)
33,110
360
(1)
(1,636)
31,833
46,650
(14,817)
31,833
The 2023 intangible assets and goodwill balance includes $12,689 (2022 - $12,698) related to the lidding CGU. The impairment testing for this CGU
was conducted under the value-in-use approach. The significant assumptions include discount rate, terminal growth rate, sales volume and gross profit.
Cash flows were projected based on actual operating results and the five-year business plan using a pre-tax discount rate of 12.4 percent (2022 - 13.1
percent). Cash flows after the five-year period were assumed to increase at a terminal growth rate of 1.5 percent (2022 - 1.5 percent). Average sales
volume growth projected for the next five years was 5.1 percent (2022 - 5.1 percent) and the average gross profit percentage projected over the same
time-frame was within six percentage points (2022 - within seven percentage points) of the actual gross profit percentage attained in the current year.
The 2023 intangible assets and goodwill balance includes $18,239 (2022 - $19,494) related to the specialized printed packaging CGU. The impairment
testing for this CGU was conducted under the value-in-use approach. The significant assumptions include discount rate, terminal growth rate, sales
volume and gross profit. Cash flows were projected based on actual operating results and the five-year business plan using a pre-tax discount rate of
14.4 percent (2022 - 15.0 percent). Cash flows after the five-year period were assumed to increase at a terminal growth rate of 1.5 percent (2022 - 1.5
percent). Average sales volume growth projected for the next five years was 17.3 percent (2022 - 10.2 percent) and the average gross profit percentage
projected over the same time-frame was within five percentage points (2022 - within seven percentage points) of the actual gross profit percentage
attained in the current year.
At December 31, 2023 and December 25, 2022, there were no indefinite life intangible assets other than goodwill. The amortization of software and
patents is included within general and administrative expenses and the amortization of customer-related intangibles is included within sales, marketing
and distribution expenses. At December 31, 2023 the weighted average remaining useful life of customer-related intangible assets was 10.6 years (2022
- 11.6 years).
No impairment losses or impairment reversals were recorded during 2023 and 2022.
33
19. Employee benefit plans
The Company maintains four funded non-contributory defined benefit pension plans, one funded non-contributory supplementary income postretirement
plan for certain CDN-based executives, one unfunded contributory defined benefit postretirement plan for healthcare benefits for a limited group of US
individuals and seven defined contribution pension plans. Effective January 1, 2005, all defined benefit pension plans were frozen to new entrants except
one, which was frozen effective January 1, 2009. All new CDN employees are required, and all new US employees have the option, to participate in
defined contribution plans upon satisfaction of certain eligibility requirements.
The employee benefit plans are overseen by the Company Pension Committee (CPC) which is comprised of two members from senior management and
one Board of Directors member. The CPC is responsible for determining and recommending the following items to the Company’s Board of Directors for
approval: (a) the benefit plan asset investment policies, (b) the Company’s cash funding and (c) the employee benefit entitlements within the respective
benefit plans.
Total amounts paid by the Company on account of all benefit plans, consisting of: defined benefit pension plans, supplementary income postretirement
plan, direct payments to beneficiaries for the unfunded postretirement plan and the defined contribution plans, amounted to $10,326 (2022 - $9,342).
Defined contribution pension plans
The Company maintains four defined contribution pension plans for employees in Canada and three retirement savings plans (401(k) Plans) for employees
in the United States. The Company’s total expense for these plans was $7,962 (2022 - $7,326).
Defined benefit plans
For financial reporting purposes, the Company measures the benefit obligations and fair value of the benefit plan assets as of the year-end date. The
most recent actuarial valuations for funding purposes for the funded non-contributory plans were completed as at the following dates: January 1, 2023
for two plans, December 31, 2021 for one plan and October 31, 2020 for one inactive plan. These actuarial valuations establish the minimum funding
requirements. The most recent actuarial valuations for funding purposes for the supplementary income postretirement plan and the postretirement plan
for healthcare benefits were dated December 31, 2023. The supplementary income postretirement plan has no minimum funding requirements. The next
required actuarial valuations for all of the Company’s active defined benefit plans are three years from the aforementioned dates. Based on the most
recent actuarial valuations, the Company expects to contribute $1,133 in cash to its defined benefit plans in 2024. The CPC also reviews the funding
position of each plan on an annual basis and makes recommendations to the Company’s Board of Directors regarding any additional cash funding by the
Company deemed appropriate.
On April 25, 2023, the Company entered into a contract to purchase annuities totaling $12,744 with respect to certain retired members of the US defined
benefit pension plan. The corresponding benefit obligation relating to these plan members was $12,450, resulting in a loss on settlement of $294 which
was recorded in other income (expenses).
On April 26, 2022, the Company entered into contracts to purchase annuities totaling $27,696 with respect to the retired and deferred vested members
of two Canadian defined benefit pension plans. The corresponding benefit obligation relating to these plan members was $23,120, resulting in a $4,576
actuarial loss on benefit plan assets which was recorded in other comprehensive income. The benefit obligation remains in the two Canadian defined
benefit pension plans and Winpak retains administrative responsibility to pay benefits to plan members. The fair value of benefit plan assets in respect of
the annuities is set equal to the covered obligations, eliminating any investment and mortality risk to Winpak and any net pension deficit in respect of the
benefit payments covered by the annuity contracts.
Regarding the funded non-contributory plans and the supplementary income postretirement plan, the normal retirement age is 65. The option to retire
early and receive a reduced pension begins at age 55. For most plan members, the annual pension entitlement is based on years of credited service and
the earnings attained in each of those years. However, for certain CDN-based executives, the annual pension entitlement is based on years of credited
service and the highest average annual base compensation excluding incentive payments during the highest 36 consecutive months of earnings prior to
retirement. At December 31, 2023 and December 25, 2022, the benefit obligation pertaining to these plan members represented less than 10 percent of
the Company’s total benefit obligation.
All equity and debt securities have quoted prices in active markets. The defined benefit pension plans do not invest in the shares of the Company. The
objective of the benefit plan asset allocation policy is to manage the funded status of the benefit plans at an appropriate level of risk, giving consideration
to the security of the assets and the potential volatility of market returns. The long-term rate of return is targeted to exceed the return indicated by a
benchmark portfolio by at least 1 percent annually. The CPC also pays attention to potential fluctuations in the benefit obligations. In the ideal case,
benefit plan assets and obligations move in the same direction when interest rates change, creating a natural hedge against possible underfunding of
the benefit plans.
34
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The following presents the financial position of the Company’s defined benefit pension plans and other postretirement benefits, which include the
supplementary income plan and the postretirement plan for healthcare benefits:
December 31
December 25
2023
2022
Amounts recognized in the balance sheet
Employee benefit plan assets
Employee benefit plan liabilities
Funded status
Present value of funded obligations
Fair value of benefit plan assets
Status of funded obligations
Present value of unfunded obligations
Total funded status of obligations
Benefit plan assets not recognized due to pension plan asset ceiling limit
Change in benefit obligation
Benefit obligation, beginning of year
Current service cost
Finance expense
Remeasurement losses (gains) recognized in other comprehensive income
Benefits paid
Settlement
Foreign exchange loss (gain)
Benefit obligation, end of year
Change in benefit plan assets
Fair value of benefit plan assets, beginning of year
Expected return on benefit plan assets
Remeasurement gains (losses) recognized in other comprehensive income
Employer contributions
Benefits paid
Settlement
Benefit plan administration cost paid from the plan assets recognized in income
Foreign exchange gain (loss)
Fair value of benefit plan assets, end of year
Change in benefit plan assets not recognized due to pension plan asset ceiling limit
Balance, beginning of year
Remeasurement (gains) losses recognized in other comprehensive income
Foreign exchange loss (gain)
Balance, end of year
Benefit plan obligation
The following represents the geographical breakdown of the benefit obligation:
Canada
United States
The following represents the membership status breakdown of the benefit obligation:
Active members
Retired members
Deferred vested members
Other
35
12,209
(6,362)
5,847
(75,800)
84,079
8,279
(1,110)
7,169
(1,322)
5,847
84,625
2,276
3,935
1,505
(4,244)
(12,450)
1,263
76,910
88,444
4,145
4,953
2,315
(4,244)
(12,744)
(388)
1,598
84,079
1,370
(82)
34
1,322
(53,317)
(23,593)
(76,910)
(36,076)
(36,907)
(3,415)
(512)
(76,910)
10,783
(8,334)
2,449
(83,457)
88,444
4,987
(1,168)
3,819
(1,370)
2,449
114,618
3,812
3,385
(29,565)
(4,306)
-
(3,319)
84,625
119,342
3,559
(27,574)
1,912
(4,306)
-
(421)
(4,068)
88,444
1,014
413
(57)
1,370
(48,852)
(35,773)
(84,625)
(35,510)
(45,059)
(3,652)
(404)
(84,625)
Benefit plan assets
The following represents the weighted average allocation of benefit plan assets:
Asset category
Equity securities
Debt securities
Annuities
Cash
Total
Net benefit plan expense
Current service cost
Settlement
Plan administration cost
Net finance income
Net finance expense
Actual return on benefit plan assets
Cumulative remeasurements recognized in other comprehensive income
Cumulative amount, beginning of year
Annual activity
Remeasurement of benefit obligation:
Actuarial losses arising from changes in demographic assumptions
Actuarial (losses) gains arising from changes in financial assumptions
Actuarial gains arising from experience adjustments
Remeasurement of benefit plan assets - actuarial gains (losses) arising from experience adjustments
Remeasurement of benefit plan assets not recognized due to pension plan asset ceiling limit
Cumulative amount, end of year
Significant assumptions
The following weighted averages were used to value the benefit obligation:
Discount rate
Rate of compensation increase
December 31
2023
December 25
2022
37%
33%
26%
4%
100%
(2,276)
(294)
(388)
(2,958)
625
(415)
(2,748)
9,098
38%
34%
23%
5%
100%
(3,812)
-
(421)
(4,233)
455
(281)
(4,059)
(24,015)
19,507
17,929
-
(3,073)
1,568
(1,505)
4,953
82
3,530
23,037
-
28,817
748
29,565
(27,574)
(413)
1,578
19,507
December 31
December 25
2023
2022
4.9%
3.0%
5.3%
3.6%
Assumptions regarding future mortality were based on the following mortality tables: Canada - CPM - RPP2014 private generational (2022 - CPM -
RPP2014 private generational) and United States - RP2021 (2022 - RP2021).
At December 31, 2023, the weighted average duration of the benefit obligations was 11.7 years (2022 - 12.2 years).
Sensitivity analysis
The sensitivity analysis provided in the following table is hypothetical and should be used with caution. The sensitivities of each key assumption have
been calculated independently of any changes in other key assumptions. Actual experience may result in changes in a number of key assumptions
simultaneously. Changes in one factor may result in changes in another, which could amplify or reduce the impact of such assumptions.
36
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS At December 31, 2023, the present value of the benefit obligation was $76,910. Based on changes to the definitive actuarial assumptions, the benefit
obligation would have been as follows:
Discount rate - one percentage point
Future mortality - one year
Rate of compensation increase - one percentage point
20. Deferred tax assets and liabilities
Increase
Decrease
68,686
78,752
77,290
86,880
75,019
76,578
The following are the components of the deferred tax assets and liabilities recognized by the Company:
Trade and other receivables
Inventories
Prepaid expenses
Derivative financial instruments
Property, plant and equipment
Intangible assets and goodwill
Employee benefit plans
Trade payables and other liabilities
Provisions and other long-term liabilities
Tax assets (liabilities)
Set off of tax
Net tax assets (liabilities)
Assets
Liabilities
Net
December 31
December 25
December 31
December 25
December 31
December 25
2023
657
7,122
-
-
-
3
1,553
5,645
2,980
17,960
(17,960)
-
2022
267
5,658
-
356
-
4
2,038
3,787
2,819
14,929
(14,929)
-
2023
2022
2023
2022
-
-
(146)
(181)
(68,573)
(2,514)
(3,224)
(84)
-
(74,722)
17,960
(56,762)
-
-
(194)
-
(70,098)
(2,386)
(2,831)
(68)
-
(75,577)
14,929
(60,648)
657
7,122
(146)
(181)
(68,573)
(2,511)
(1,671)
5,561
2,980
(56,762)
-
(56,762)
267
5,658
(194)
356
(70,098)
(2,382)
(793)
3,719
2,819
(60,648)
-
(60,648)
37
Movement in deferred tax assets and liabilities:
2022
Trade and other receivables
Inventories
Prepaid expenses
Derivative financial instruments
Property, plant and equipment
Intangible assets and goodwill
Employee benefit plans
Trade payables and other liabilities
Provisions and other long-term liabilities
2023
Trade and other receivables
Inventories
Prepaid expenses
Derivative financial instruments
Property, plant and equipment
Intangible assets and goodwill
Employee benefit plans
Trade payables and other liabilities
Provisions and other long-term liabilities
Opening
Balance
Recognized
In Income
Recognized
In Equity
Ending
Balance
196
4,689
(157)
191
(74,360)
(2,256)
(1,244)
1,399
3,175
(68,367)
71
969
(37)
-
4,262
(126)
823
2,320
(356)
7,926
-
-
-
165
-
-
(372)
-
-
(207)
Opening
Balance
Recognized
In Income
Recognized
In Equity
267
5,658
(194)
356
(70,098)
(2,382)
(793)
3,719
2,819
(60,648)
390
1,464
48
-
1,525
(129)
20
1,842
161
5,321
-
-
-
(537)
-
-
(898)
-
-
(1,435)
267
5,658
(194)
356
(70,098)
(2,382)
(793)
3,719
2,819
(60,648)
Ending
Balance
657
7,122
(146)
(181)
(68,573)
(2,511)
(1,671)
5,561
2,980
(56,762)
Deferred tax assets have been recognized where it is probable that they will be recovered. In recognizing deferred tax assets, the Company has
considered if it is probable that sufficient future income will be available to absorb temporary differences.
No deferred tax liability has been recognized in respect of temporary differences associated with investments in subsidiaries where the Company controls
the timing of the reversal and it is probable that such temporary differences will not reverse in the foreseeable future. The aggregate amount of temporary
differences associated with investments in domestic and foreign subsidiaries for which a deferred tax liability has not been recognized is $787,763 (2022
- $720,997). Temporary differences relating to unremitted earnings of foreign subsidiaries which would be subject to withholding and other taxes totalled
$640,512 (2022 - $576,698).
21. Trade payables and other liabilities
Trade payables
Current portion of lease liabilities (note 23)
Other current liabilities and accrued expenses
22. Provisions and other long-term liabilities
Provisions
Non-current portion of lease liabilities (note 23)
38
December 31
December 25
2023
(48,927)
(2,002)
(38,430)
(89,359)
2022
(65,285)
(1,321)
(35,776)
(102,382)
December 31
December 25
2023
(850)
(11,835)
(12,685)
2022
(850)
(11,212)
(12,062)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 23. Leases
Right-of-use assets
Opening balance, December 26, 2022
Additions
Depreciation
Closing balance, December 31, 2023
Lease liabilities
As lessee, the Company’s leases are for office, manufacturing and outside warehousing facilities.
The following tables provide information about the timing of future lease payments:
Less than one year
One to five years
More than five years
Total contractual undiscounted lease liabilities
Current
Non-current
Total discounted lease liabilities
December 31
2023
11,505
2,227
(1,206)
12,526
December 31
2023
(2,046)
(5,345)
(10,412)
(17,803)
December 31
2023
(2,002)
(11,835)
(13,837)
During 2023, total cash outflow for leases was $2,252 (2022 - $2,460), including $873 for short-term leases (2022 - $1,144). Expenses for leases of
low-dollar value items were not material.
Extension options
Some leases of office and manufacturing facilities contain extension options exercisable by the Company up to one year before the end of the non-
cancellable contract period. Where practicable, the Company seeks to include extension options in new leases to provide operational flexibility. The
extension options held are exercisable only by the Company and not by the lessors. The Company assesses at lease commencement whether it is
reasonably certain to exercise the extension options. The Company reassesses whether it is reasonably certain to exercise the options if there is a
significant event or significant change in circumstances within its control. At December 31, 2023, potential future lease payments not included in lease
liabilities totalled $4,890 on a discounted basis.
Lease income
Lease contracts in which the Company acts as a lessor are classified as operating leases because they do not transfer substantially all of the risks and
rewards incidental to ownership of the assets. Lease income from these lease contracts during 2023 totalled $236 (2022 - $552).
24. Share-based payments:
Effective January 1, 2022, the Board of Directors established the Executive Enhanced Long-Term Deferred Income Benefits Plan (the “Plan”), whereby
the Company grants to members of the Executive Committee (“EC Member”) a number of restricted share units (RSUs), based on the EC Member’s
long-term incentive entitlement. There is no cost to the EC Member for the RSUs and the RSUs vest immediately. The Company pays to the EC Member
the cash value of the RSUs based on the average closing share price over the last ten trading days preceding December 15 of the third year subsequent
to the year the RSUs were granted. In the event of the termination of the EC Member’s employment for any reason, the cash value of the RSUs shall be
paid immediately to the EC Member or their personal representative, as the case may be, based on the closing share price on the date of termination.
The cash value of a RSU is the market value of the common shares of the Company on the day prior to the date of payment. In addition, the Company
is required to pay the EC Member an amount equal to the dividends paid on the common shares of the Company with respect to each RSU if, as and
when, declared and paid.
39
Details of RSUs issued and outstanding during the current and prior year are as follows:
Outstanding, beginning of year
Settled
Granted
Outstanding, end of year
Available for settlement, end of year
2023
4,543
-
26,700
31,243
-
2022
-
-
4,543
4,543
-
The 31,243 RSUs outstanding at the end of 2023 were granted at 26,700 RSUs for service rendered in 2023 and at 4,543 RSUs for service rendered in
2022.
The fair value of the RSUs at the grant date and each subsequent reporting date is based upon the market value of the Company’s common shares.
The personnel expense recorded in the statement of income under the Plan was $807 (2022 - $146). No settlements occurred during 2023 or 2022. At
December 31, 2023, the carrying value of the liability, as well as the intrinsic value of the vested liability in respect of the Plan, was $964 (2022 - $141).
25. Share capital and reserves
Share capital
At December 31, 2023, the authorized voting common shares were unlimited (2022 - unlimited). The issued and fully paid voting common shares at
December 31, 2023 were 65,000,000 (2022 - 65,000,000). The shares have no par value. The Company has no stock option plans in place.
Reserves
Reserves comprise the effective portion of the cumulative net change in the fair value of cash flow hedging instruments related to the hedged transactions
that have not yet occurred.
Dividends
During 2023, dividends in Canadian dollars of 12 cents per common share were declared (2022 - 12 cents).
26. Earnings per share
Net income attributable to equity holders of the Company
Weighted average shares outstanding (000’s)
Basic and diluted earnings per share - cents
27. Financial instruments
The following sets out the classification and the carrying/fair value of financial instruments:
Assets (Liabilities)
Cash and cash equivalents
Trade and other receivables
Classification
Amortized cost
Amortized cost
Trade and other receivables - factoring arrangements
FVOCI
Derivative financial instrument assets
Fair value - hedging instrument
Trade payables and other liabilities
Amortized cost
Total trade and other receivables
2023
148,130
65,000
228
2022
128,343
65,000
197
Carrying /
Fair Value
541,870
173,417
33,938
207,355
1,542
(89,359)
The fair value of cash and cash equivalents, trade and other receivables, including trade and other receivables subject to factoring arrangements and
classified as measured at FVOCI, trade payables and other liabilities approximate their carrying value because of the short-term maturity of these
instruments. The fair value of foreign currency forward contracts, designated as cash flow hedges, has been determined by valuing those contracts to
market against prevailing forward foreign exchange rates as at the year-end reporting date. The inputs used for fair value measurements, including their
classification within the required three levels of the fair value hierarchy that prioritizes the inputs used for fair value measurement, are as follows:
Level 1 - unadjusted quoted prices in active markets for identical assets or liabilities;
Level 2 - inputs other than quoted prices that are observable for the asset or liability either directly or indirectly; and
Level 3 - inputs that are not based on observable market data.
40
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The following table presents the classification of financial instruments within the fair value hierarchy:
Financial Assets (Liabilities)
Level 1
Level 2
Level 3
At December 31, 2023
Foreign currency forward contracts - net
At December 25, 2022
Foreign currency forward contracts - net
-
-
1,542
(1,328)
-
-
Total
1,542
(1,328)
When the Company has a legally enforceable right to set off supplier rebates accounts receivable against supplier trade payables and intends to settle the
amount on a net basis or simultaneously, the balance is presented as an offset within ‘Trade payables and other liabilities’ on the consolidated balance
sheet. At December 31, 2023, the supplier rebate receivable balance that was offset was $8,769 (2022 - $7,002).
28. Commitments and guarantees
(a) Commitments
At December 31, 2023, the Company has commitments to purchase property, plant and equipment of $123,083 (2022 - $31,061).
(b) Guarantees
Directors and officers
The Company and its subsidiaries have entered into indemnification agreements with their respective directors and officers to indemnify them, to the
extent permitted by law, against any and all amounts paid in settlement and damages incurred by the directors and officers as a result of any lawsuit, or
any judicial, administrative or investigative proceeding involving the directors and officers. Indemnification claims will be subject to any statutory or other
legal limitation period. The Company has purchased directors’ and officers’ liability insurance to mitigate losses from any such claims.
Leased real property
The Company and its subsidiaries enter into leases in the ordinary course of business for real property. In certain instances, the Company and its
subsidiaries have indemnified the landlord from any obligations that may arise from any occurrences of personal bodily injury, loss of life and property
damages. The Company’s property and liability insurance coverage mitigates losses from any such claims.
Pension plan
The Company has indemnified the Manitoba Pension Commission from any and all claims that may be made by any beneficiary under a certain defined
benefit pension plan. The indemnity relates to the transfer of a portion of the surplus in the respective pension plan to a non-contributory supplementary
income plan.
Given the nature of the aforementioned indemnification agreements, the Company is unable to reasonably estimate its maximum potential liability under
these agreements. The Company believes the likelihood of a material payment pursuant to these indemnification agreements is remote. No amounts
have been recorded in the consolidated financial statements with respect to these indemnification agreements.
29. Financial risk management
In the normal course of business, the Company has risk exposures consisting primarily of foreign exchange risk, interest rate risk, commodity price risk,
credit risk and liquidity risk. The Company manages its risks and risk exposures through a combination of derivative financial instruments, insurance,
a system of internal and disclosure controls and sound business practices. The Company does not purchase any derivative financial instruments for
speculative purposes.
Financial risk management is primarily the responsibility of the Company’s corporate finance function. Significant risks are regularly monitored and
actions are taken, when appropriate, according to the Company’s approved policies, established for that purpose. In addition, as required, these risks are
reviewed with the Company’s Board of Directors.
Foreign exchange risk
Translation differences arise when foreign currency monetary assets and liabilities are translated at foreign exchange rates that change over time. These
foreign exchange gains and losses are recorded in other income (expenses). As a result of the Company’s CDN dollar net asset monetary position as
at December 31, 2023, a one-cent change in the year-end foreign exchange rate from 0.7546 to 0.7446 (CDN to US dollars) would have decreased net
income by $219 for 2023. Conversely, a one-cent change in the year-end foreign exchange rate from 0.7546 to 0.7646 (CDN to US dollars) would have
increased net income by $219 for 2023.
41
The Company’s foreign exchange policy requires that between 50 and 80 percent of the Company’s net requirement of CDN dollars for the ensuing 9
to 15 months will be hedged at all times with a combination of cash and cash equivalents and forward or zero-cost option foreign currency contracts.
The Company may also enter into foreign currency forward contracts when equipment purchases and special dividend payments will be settled in other
foreign currencies. Transactions are only conducted with certain approved ‘AA’ rated or higher Schedule 1 CDN financial institutions. All foreign currency
contracts are designated as cash flow hedges of the highly probable CDN dollar expenditures. These derivatives meet the hedge effectiveness criteria
as a result of the following factors:
a) An economic relationship exists between the hedged item and the hedging instrument as notional amounts match and both the hedged item and hedging
instrument fair values move in response to the same risk - foreign exchange rates. There are no significant reasons or causes for the designated hedged
item and hedging instrument to be mismatched since the hedging instrument matures during the same month as the expected hedged expenditures are
incurred. The correlation between the foreign exchange rate of the hedged item and the hedging instrument should be highly correlated and closely
aligned as the maturity and the notional amount are the same.
b) The hedge ratio is one to one for this hedging relationship as the hedged item is foreign currency risk that is hedged with a foreign currency hedging
instrument.
c) Credit risk is not material in the fair value of the hedging instrument.
The Company has identified two sources of potential ineffectiveness: a) the timing of cash flow differences between the expenditure and the related
derivative and b) the inclusion of credit risk in the fair value of the derivative not replicated in the hedged item. The Company expects the impact of these
sources of hedge ineffectiveness to be minimal. The timing of hedge settlements and incurred expenditures are closely aligned as they are expected to
occur within 30 days of each other. Credit risk is not a material component of the fair value of the Company’s hedging instruments as all counterparties
are ‘AA’ rated or higher Schedule 1 CDN financial institutions.
Certain foreign currency forward contracts matured during the year and the Company realized pre-tax foreign exchange losses of $1,143 (2022 losses
- $1,090). Of these foreign exchange differences, losses of $1,192 (2022 losses - $1,090) were recorded in other income (expenses) and gains of $49
were recorded in property, plant and equipment (2022 - $0).
As at December 31, 2023, the Company had US to CDN dollar foreign currency forward contracts outstanding with a notional amount of US $71.5 million
at an average exchange rate of 1.3487 maturing between January and December 2024. The fair value of these financial instruments was $1,542 US
and the corresponding unrealized gain has been recorded in other comprehensive income. The Company did not recognize any ineffectiveness on the
hedging instruments during 2023 or 2022.
Interest rate risk
The Company’s interest rate risk arises from interest rate fluctuations on the finance income that it earns on its cash invested in money market accounts
and short-term deposits. The Company developed and implemented an investment policy, which was approved by the Company’s Board of Directors,
with the primary objective to preserve capital, minimize risk and provide liquidity. Regarding the December 31, 2023 cash and cash equivalents balance
of $541.9 million, a 1.0 percent increase/decrease in interest rate fluctuations would increase/decrease income before income taxes by $5,419 annually.
Commodity price risk
The Company’s manufacturing costs are affected by the price of raw materials, namely petroleum-based and natural gas-based plastic resins and
aluminum. In order to manage its risk, the Company has entered into selling price-indexing programs with certain customers. Changes in raw material
prices for these customers are reflected in selling price adjustments but there is a slight time lag. For 2023, 76 percent (2022 - 74 percent) of revenue was
generated from customers with selling price-indexing programs. For all other customers, the Company’s preferred practice is to match raw material cost
changes with selling price adjustments, albeit with a slight time lag. This matching is not always possible, as customers react to selling price pressures
related to raw material cost fluctuations according to conditions pertaining to their markets.
Credit risk
The Company is exposed to credit risk from its cash and cash equivalents held with banks and financial institutions, derivative financial instruments
(foreign currency forward contracts), as well as credit exposure to customers, including outstanding trade and other receivable balances.
The following table details the maximum exposure to the Company’s counterparty credit risk which represents the carrying value of the financial asset:
Cash and cash equivalents
Trade and other receivables
Foreign currency forward contracts
42
December 31
2023
December 25
2022
541,870
207,355
1,542
750,767
398,673
204,040
-
602,713
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Credit risk on cash and cash equivalents and financial instruments arises in the event of non-performance by the counterparties when the Company is
entitled to receive payment from the counterparty who fails to perform. The Company has established an investment policy to manage its cash. The
policy requires that the Company manage its risk by investing its excess cash on hand on a short-term basis, up to a maximum of six months, with
several 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 CDN federal or provincial
government. The Company manages its counterparty risk on its financial instruments by only dealing with ‘AA’ rated or higher Schedule 1 CDN financial
institutions.
In the normal course of business, the Company is exposed to credit risk on its trade and other receivables from customers. To mitigate such risk, the
Company performs ongoing customer credit evaluations and assesses their credit quality by taking into account their financial position, past experience
and other pertinent factors. Management regularly monitors customer credit limits, performs credit reviews and, in certain cases insures trade receivable
balances against credit losses.
During 2023, the Company incurred costs on the sale of trade receivables of $4,768 (2022 - $4,274). Of these costs, $4,440 was recorded in finance
expense (2022 - $3,843) and $328 was recorded in general and administrative expenses (2022 - $431).
As at December 31, 2023, the Company believes that the credit risk for trade and other receivables is mitigated due to the following: (a) a broad
customer base which is dispersed across varying market sectors and geographic locations, (b) 97 percent (2022 - 97 percent) of the gross trade and
other receivables balance is within 30 days of the agreed upon payment terms with customers, c) the sale of certain extended term trade receivables
without recourse to a third party and (d) 30 percent (2022 - 28 percent) of the trade and other receivables balance is insured against credit losses. The
Company’s exposure to the ten largest customer balances, on aggregate, accounted for 47 percent (2022 - 39 percent) of the total trade and other
receivables balance.
The carrying amount of trade and other receivables is reduced through the use of an allowance for expected credit losses and the amount of the loss is
recognized in the statement of income within general and administrative expenses. When a receivable balance is considered uncollectible, it is written off
against the allowance for expected credit losses. Subsequent recoveries of amounts previously written off are credited against general and administrative
expenses in the statement of income. During 2023, the Company recorded impairment losses on trade and other receivables of $663 (2022 - $249
impairment losses).
The following table sets out the aging details of the Company’s trade and other receivables balances outstanding based on when the receivable was due
and payable and related allowance for expected credit losses:
Current (not past due)
1 - 30 days past due
31 - 60 days past due
More than 60 days past due
Less: Allowance for expected credit losses
Total trade and other receivables, net
December 31
December 25
2023
183,819
18,639
3,970
3,087
209,515
(2,160)
207,355
2022
176,720
22,119
3,145
3,573
205,557
(1,517)
204,040
Liquidity risk
Liquidity risk is the risk that the Company would not be able to meet its financial obligations as they come due. Management believes that the liquidity
risk is low due to the strong financial condition of the Company. This risk assessment is based on the following: (a) cash and cash equivalents amounts
of $541.9 million, (b) no outstanding bank loans, (c) unused credit facilities comprised of unsecured operating lines of $38 million, (d) the ability to obtain
term-loan financing to fund an acquisition, if needed, (e) an informal investment grade credit rating and (f) the Company’s ability to generate positive cash
flows from ongoing operations. Management believes that the Company’s cash flows are more than sufficient to cover its operating costs, working capital
requirements, capital expenditures, payment of lease liabilities and dividend payments in 2024. The Company’s trade payables and other liabilities and
derivative financial instrument liabilities are all due within twelve months.
Capital management
The Company’s objectives in managing capital are to ensure the Company will continue as a going concern and have sufficient liquidity to pursue its
strategy of organic growth combined with strategic acquisitions and to deploy capital to provide an appropriate return on investment to its shareholders.
In the management of capital, the Company includes bank overdrafts, bank loans and shareholders’ equity. The Board of Directors has established
quantitative return on capital criteria for management and year-over-year sustainable earnings growth targets. The Board of Directors also reviews, on a
regular basis, the appropriate level of capital to return to the Company’s shareholders.
43
The Company has externally imposed capital requirements as governed through its bank operating line credit facilities. The Company monitors capital
on the basis of funded debt to EBITDA (income before interest, income taxes, depreciation and amortization) and debt service coverage. Funded debt
is defined as the sum of bank loans and bank overdrafts less cash and cash equivalents. The funded debt to EBITDA is calculated as funded debt, as
at the financial reporting date, over the 12-month rolling EBITDA. This ratio is to be maintained under 3.00:1. Debt service coverage is calculated as a
12-month rolling income from operations over debt service. Debt service is calculated as the sum of one-sixth of bank loans outstanding plus annualized
finance expense and dividends. This ratio is to be maintained over 1.50:1. No debt was outstanding as of December 31, 2023.
There were no changes in the Company’s approach to capital management during 2023.
30. Contingencies
In the normal course of business activities, the Company may be subject to various legal actions. Management contests these actions and believes
resolution of the actions will not have a material adverse impact on the Company’s financial condition.
31. Related party transactions
The Company had purchases of $15,603 (2022 - $21,215) and commission income of $950 (2022 - $1,041) with its majority shareholder company. Trade
and other receivables and trade payables and other liabilities include amounts of $210 (2022 - $0) and $3,373 (2022 - $3,650) respectively with the
majority shareholder company. These transactions were completed at market values with normal payment terms.
Key management personnel are those persons having authority and responsibility for planning, directing and controlling the activities of the Company.
The Board of Directors and Executive Committee are key management personnel. The following table details the compensation earned by these key
management personnel:
Salaries, fees and short-term benefits
Post-employment benefits
Share-based payments
2023
(3,933)
(254)
(807)
(4,994)
2022
(3,740)
(348)
(146)
(4,234)
No loans were advanced to key management personnel during the year.
The aggregate remuneration earned by the Board of Directors in 2023 was $1,119 (2022 - $798). As a group, the Board of Directors hold, directly or
indirectly, 52.7 percent (2022 - 52.7 percent) of the outstanding shares of the Company. The members of the Executive Committee hold, directly or
indirectly, 0.0 percent (2022 - 0.0 percent) of the outstanding shares of the Company.
44
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Annual Meeting
The Annual Meeting of Shareholders will be held as a hybrid meeting
via audio/video webcast and in person at The Fort Garry Hotel, Winnipeg, Canada
on Tuesday, April 23, 2024 at 4:00 p.m. (CDT)
Meeting link: https://www.meetnow.global/M5MLQFT
Listing
Winpak Ltd. shares are listed WPK on the Toronto Stock Exchange
Transfer Agent
Computershare Investor Services Inc.
Annual Information Form
The most recent version of the Annual Information Form for Winpak Ltd.
is available on Winpak’s website: www.winpak.com
Board of Directors
Chairman, A.I. Aarnio-Wihuri (2), Kaarina, Finland; Chairman, Wihuri International Oy
M.H. Aarnio-Wihuri (2), Kaarina, Finland; Deputy CEO, Wihuri International Oy
R.J. Aarnio-Wihuri (2), Kaarina, Finland; Chief Development Officer, Wihuri International Oy
B.J. Berry (2), Winnipeg, Canada
K.P. Kuchma (1), Winnipeg, Canada
D. Spiring (1), Winnipeg, Canada
I.T. Suominen (1), Helsinki, Finland
(1) Member of the Audit Committee
(2) Member of the Corporate Governance, Sustainability, Compensation and Nomination Committee
Executive Committee
The Executive Committee, in consultation with the Board of Directors, establishes the objectives and the long-term direction of the Company. The
Committee meets regularly throughout the year to review progress towards achievement of the Company’s goals and to implement policies and
procedures directed at optimizing performance.
M. Bilgen, Vice President, Technology and Innovation, Winpak Ltd.
J.C. Holland, President, Winpak Division, a division of Winpak Ltd. and President, Winpak Films Inc.
O.Y. Muggli, President and Chief Executive Officer, Winpak Ltd.
R.M. Roberts, President, Winpak Portion Packaging, President, Winpak Heat Seal and President, Winpak Lane, Inc.
S.M. Taylor, Vice President and Chief Financial Officer, Winpak Ltd.
R. J. Troutman, Chief of Operational Excellence, Winpak Ltd.
R.W. Zasitko, Vice President, Supply Chain and Procurement, Winpak Ltd.
Auditor
KPMG LLP, Winnipeg, Canada
Legal Counsel
Thompson Dorfman Sweatman LLP, Winnipeg, Canada
Bond Schoeneck & King PLLC, Buffalo, U.S.A.
45
CORPORATE INFORMATION
Winpak Ltd. Corporate Office, 100 Saulteaux Crescent, Winnipeg, MB, Canada, R3J 3T3
T: (204) 889-1015 F: (204) 888-7806
www.winpak.com
Winpak Division,
A division of Winpak Ltd.
100 Saulteaux Crescent
Winnipeg, MB R3J 3T3
Canada
T: (204) 889-1015
F: (204) 832-7781
American Biaxis Inc.
100 Saulteaux Crescent
Winnipeg, MB R3J 3T3
Canada
T: (204) 837-0650
F: (204) 837-0659
Winpak Group www.winpak.com
Winpak Inc.
P.O. Box 14748
Minneapolis, MN 55414
U.S.A
T: (204) 889-1015
F: (204) 832-7781
Embalajes Winpak de México S.A. de C.V.
Avenida Jalpan de Serra #140
Ampliación Parque Industrial Querétaro
Santa Rosa Jáuregui 76220
Querétaro, Querétaro
México
T: (52) 442-256-1900
Winpak Portion Packaging Ltd.
26 Tidemore Avenue
Toronto, ON M9W 7A7
Canada
T: (416) 741-6182
F: (416) 741-2918
Winpak Portion Packaging, Inc.
3345 Butler Avenue
South Chicago Heights, IL 60411
U.S.A.
T: (708) 755-4483
F: (708) 755-7257
Winpak Portion Packaging, Inc.
1111 Winpak Way
Sauk Village, IL 60411
U.S.A.
T: (708) 753-5700
F: (708) 757-2447
Winpak Heat Seal Packaging Inc.
21919 Dumberry Road
Vaudreuil-Dorion, QC J7V 8P7
Canada
T: (450) 424-0191
Winpak Heat Seal Corporation
1821 Riverway Drive
Pekin, IL 61554
U.S.A.
T: (309) 477-6600
F: (309) 477-6699
Winpak Films Inc.
100 Wihuri Parkway
Senoia, GA 30276
U.S.A.
T: (770) 599-6656
F: (770) 599-8387
Winpak Control Group Inc.
500 Walnut Street
Norwood, NJ 07648
U.S.A.
T: (201) 784-8721
F: (201) 784-1527
Winpak Lane, Inc.
1365 North Ayala Avenue
Rialto, CA 92376
U.S.A.
T: (909) 885-0715
F: (909) 381-1934
46
Wihuri Group, Head Office, Wihurinaukio 2, FI-00570 Helsinki, Finland
T: +358 20 510 10 F: +358 20 510 2658
www.wihuri.com
Wipak Group www.wipak.com
Wipak Oy
Wipaktie 2
FI-15560 Nastola
Finland
T: +358 20 510 311
F: +358 20 510 3300
Wipak Oy
Kaivolankatu 5
FI-37630 Valkeakoski
Finland
T: +358 20 510 311
F: +358 20 510 3444
Wipak Bordi s.r.l.
Via Finlandia 4 A
IT-29012 Caorso
Italy
T: +39 523 821 382
F: +39 523 822 185
Wipak Walsrode GmbH & Co. KG
Bahnhofstrasse 13
DE-29699 Bomlitz
Germany
T: +49 5161 4880 0
F: +49 5161 4880 100
Wipak Gryspeert S.A.S.
Zone des Bois, CS 20006
59558 Bousbecque Cédex
France
T: +33 320 115 656
F: +33 320 115 670
Wipak UK Ltd.
Buttington Business Park, Unit 3
UK-Welshpool, Powys SY21 8SL
United Kingdom
T: +44 1938 555 255
F: +44 1938 555 277
Wipak Polska Sp z.o.o.
Ul. Smakow 10
PL-49-318 Skarbimierz Osiedle
Poland
T: +48 77 404 2000
F: +48 77 404 2001
Wipak B.V.
Nieuwstadterweg 17
NL-6136 KN Sittard
Netherlands
T: +31 46 420 2999
F: +31 46 458 1311
Wipak Iberica S.L.
C/Sant Celoni, n°76, P.I. Can Prat
08450 Llinars del Vallés, Barcelona
Spain
T: +34 937 812 020
F: +34 937 812 033
Wipak Packaging (Changshu) Co. Ltd. Biaxis Oy Ltd.
Teknikonkatu 2
No. 88 Fuchunjiang Road
FI-15520 Lahti
Changshu New & Hi-Tech
Finland
Industrial Development Zone
T: +358 20 510 312
CN-215533 Jiangsu, China
T: +86 512 82365958
F: +358 20 510 3500
F: +86 512 82365957
47
I T ’ S O U R N AT U R E T O P R O T E C T ™
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