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<< ------------------------------------------------------------------------- Second Quarter Year to Date (in thousands of dollars 3 months ended 6 months ended except per share amounts) June 30 June 30 (unaudited) (unaudited) 2008 2007 2008 2007 ------------------------------------------------------------------------- Net Sales 25,346 31,546 50,587 62,268 ------------------------------------------------------------------------- Operating Margin 622 2,204 1,392 4,396 ------------------------------------------------------------------------- Net loss (2,371) (962) (4,759) (1,495) ------------------------------------------------------------------------- Loss per share: Basic (0.18) (0.07) (0.36) (0.11) Diluted (0.18) (0.07) (0.36) (0.11) ------------------------------------------------------------------------- ------------------------------------------------------------------------- >>
Consolidated net sales for the quarter ended June 30, 2008 were $25,346,000 as compared to $31,546,000 in the second quarter of 2007, representing a decrease of $6,200,000 or 20% over the same period in 2007. Consolidated net sales for the six months ended June 30, 2008 were $50,587,000 which was down $11,681,000 or 19% from the first six months of 2007. The ongoing general slow down in the U.S. economy led by the slump in the U.S. housing market and weak consumer spending all contributed to lower sales volumes across all sectors. In addition, the strength of the Canadian dollar relative to the U.S. dollar continued to negatively impact the Company's sales. Management estimates that after the mitigating effect of the Company's foreign currency hedging strategy, as outlined below, the year over year increase in the value of the Canadian dollar relative to the U.S. dollar resulted in a decline in sales of approximately $1.5 million in the second quarter and $4.2 million for the first six months of the year as illustrated below under Foreign Currency Hedging. Excluding the impact of exchange rate changes, sales would have decreased by approximately $4.7 million or 15% during the second quarter and $7.5 million or 12% as compared to the same periods in 2007.
Sales for each business segment for the second quarter and first six months of 2007 were as follows:
<< Three months ended Six Months ended ------------------------------------------------------------------------- (in thousands of June 30, June 30, % June 30, June 30, dollars) 2008 2007 Change 2008 2007 Change ------------------------------------------------------------------------- Outdoor Living Products 11,895 14,435 (18%) 23,472 26,301 (11%) Film Products 6,354 7,485 (15%) 12,848 15,768 (19%) Custom Products 7,097 9,626 (26%) 14,267 20,199 (29%) ------------------------------------------------------ Total 25,346 31,546 (20%) 50,587 62,268 (19%) ------------------------------------------------------------------------- >>
Sales in the Outdoor Living Products segment were $11,895,000 in the second quarter, which was down $2,540,000 or 18% from $14,435,000 in the second quarter of 2007. For the six months ended June 30, 2008, sales in the Outdoor Living Products segment were $23,472,000 which was down $2,829,000 or 11% from $26,301,000 in the first six months of 2007. The ongoing weakness in the U.S. economy, recession in housing markets and soft consumer spending, continued to adversely affect the entire building products sector and home improvement segment in particular. This negatively impacted sales of the Company's decking, fencing and hot tub products in 2008.
Sales of Film Products were $6,354,000 in the second quarter which was down 15% from $7,485,000 in the second quarter of 2007. For the six months ended June 30, 2008 sales of Film Products were $12,848,000 compared to $15,768,000 in the first half of 2007. The majority of the decline was in industrial film products due primarily to the rationalization of certain low margin business and customers. Sales of retail film products were $4,896,000 and $9,716,000 in the second quarter and first six months of 2008, which was down from $4,983,000 and $10,131,000 in the comparable periods a year ago.
Custom Products segment sales in the quarter were $7,097,000, which were down $2,529,000 or 26% from $9,626,000 in second quarter of 2007. Year to date sales of Custom products were $14,267,000 which were down 29% from $20,199,000 in the first six months of 2007. Sales of window fashion products in the second quarter of 2008 were $3,589,000, down $2,078,000, or 37%, from the second quarter of 2007 due to a rationalization of inventory at the key customer for these products in response to the general economic slowdown and weakness in new housing markets in the U.S. Sales of other custom products in the quarter were $3,508,000, down $451,000 or 11% from the second quarter of 2007. Sales declines in other custom products were primarily the result of certain customer programs ceasing production in 2007, as well as lower volumes on ongoing programs due to the general economic slowdown in the U.S. This decline was partially offset by incremental sales from new customers and programs.
Operating margins in the second quarter were $622,000, or 2.5% of sales which was down from $2,204,000 or 7.0% of sales in the second quarter of 2007. For the six months ended June 30, 2008, operating margins were $1,392,000, or 2.8% of sales compared to $4,396,000 or 7.1% of sales in the first half of 2007. The majority of the decline in operating margin was as a direct result of the lower sales volumes in the second quarter and first six months of 2008 compared to the same periods of 2007. In addition, as the majority of products manufactured in the Company's Canadian plants are sold into the U.S. markets, the strength of the Canadian dollar relative to the U.S. dollar in 2008 compared to 2007 resulted in lower reported operating margins and operating margin percentage in 2008. Higher costs for polystyrene and polyethylene resins, the main raw material inputs in the Company's products, in 2008 compared to 2007 also contributed to lower operating margins in 2008. Selling price increases were implemented across all segments in 2008 but these were not sufficient to offset the year over year increase in resin costs. Operating efficiencies improved year over year resulting in lower plant overheads and labour costs in the second quarter and first six months of 2008.
The net loss for the quarter was $2,371,000 as compared to a net loss of $962,000 in the second quarter of 2007. The net loss for the six months ended June 30, 2008 was $4,759,000 compared to a net loss of $1,495,000 in the first half of 2007.
The basic and diluted loss per share was $0.18 for the quarter and $0.36 for the six months ended June 30, 2008 which compared to a basic and diluted loss per share of $0.07 and $0.11 in the second quarter and first six months of 2007.
Under its lending agreements, the Company is required to maintain certain restrictive financial covenants relating to debt to earnings leverage, debt service coverage and working capital ratio which are typical of such lending agreements. As a result of the lower than anticipated sales and net loss incurred in the second quarter, the Company was not in compliance with the financial covenants as at June 30, 2008. The Company's lenders have provided a waiver of these financial covenants at June 30, 2008 and further amended the covenants for the period from July 1, 2008 to June 30, 2009. In addition, the Company's lenders have amended the credit agreement to provide additional short-term borrowing capacity under the Company's revolving credit facility. All other terms and conditions under the lending agreements remained substantially unchanged.
CPI Plastics Group Ltd. is a Canadian-based plastics processor and a recognized international leader in thermoplastics profile design, engineering, processing and value added manufacturing. CPI is comprised of three key divisions. CPI's Outdoor Living Products Group manufactures and markets Eon(R) Decking and Fencing Systems, as well as high value-added cladding and accessory components to the outdoor hot tub industry. CPI's Film Products Group manufactures and markets the Rack Sack(R) household refuse management system and a wide range of branded and private label household and industrial refuse bags. CPI's Custom Products Group supplies leading OEM manufacturers with custom profile solutions to enhance quality, cost effectiveness and process ability. Based in Mississauga, Ontario and Pleasant Prairie, Wisconsin, CPI's dedicated team of over 600 employees currently manufactures out of six plants occupying 530,000 square feet of manufacturing space and housing over 135 extruders. To learn more about CPI, visit our website at www.cpiplastics.com.
<< CPI Plastics Group Limited Consolidated Balance Sheets (in thousands of dollars, unaudited) June 30, December 31, June 30, For the period ended 2008 2007 2007 ------------------------------------------------------------------------- Assets Current assets Accounts receivable $18,391 $15,804 $20,515 Inventories 12,539 13,394 14,709 Prepaid expenses, deposits and sundry receivables 802 1,584 1,642 Income taxes recoverable 2,024 1,890 - Future income tax asset 77 - - Derivative financial instruments - 1,033 1,523 ------------------------------------------------------------------------- 33,833 33,705 38,389 ------------------------------------------------------------------------- Property, plant and equipment 47,820 50,340 52,677 Goodwill 3,314 3,314 3,314 Intangible assets 15,105 15,717 16,329 Other assets 218 469 605 Future income tax asset - - 2,975 ------------------------------------------------------------------------- $100,290 $103,545 $114,289 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Liabilities and Shareholders' equity Current Liabilities Accounts payable and accrued liabilities 16,457 17,967 18,641 Income tax payable - - 1,035 Future income tax liability - 475 433 Derivative financial instruments 138 - - Term debt due within one year 11,874 1,753 3,590 ------------------------------------------------------------------------- 28,469 20,195 23,699 ------------------------------------------------------------------------- Long term debt 27,023 32,797 34,544 Future income tax liabilities 7,451 8,032 9,077 Other liabilities 2,400 2,292 2,309 Subordinated shareholder loan 3,273 3,114 - Shareholders' equity Capital stock 21,132 21,132 21,132 Contributed surplus 6,241 6,227 6,213 Retained earnings 6,233 10,992 18,277 Accumulated other comprehensive income (1,932) (1,236) (962) ------------------------------------------------------------------------- 4,301 9,756 17,315 ------------------------------------------------------------------------- 31,674 37,115 44,660 ------------------------------------------------------------------------- ------------------------------------------------------------------------- $100,290 $103,545 $114,289 ------------------------------------------------------------------------- ------------------------------------------------------------------------- CPI Plastics Group Limited Consolidated Statements of Earnings (in thousands of dollars, except per share amounts, unaudited) 3 months ended 6 months ended June 30, June 30, June 30, June 30, 2008 2007 2008 2007 ------------------------------------------------------------------------- Net Sales $25,346 $31,546 $50,587 $62,268 Cost of sales and operating expenses 24,724 29,342 49,195 57,872 ------------------------------------------------------------------------- Operating margin 622 2,204 1,392 4,396 Expenses: Amortization 2,379 2,538 4,746 4,805 Interest 1,102 880 2,272 1,698 ------------------------------------------------------------------------- Loss before income taxes (2,859) (1,214) (5,626) (2,107) Income taxes (488) (252) (867) (612) ------------------------------------------------------------------------- Net loss $(2,371) (962) $(4,759) (1,495) ------------------------------------------------------------------------- Loss per share Basic $(0.18) $(0.07) $(0.36) $(0.11) Diluted $(0.18) $(0.07) $(0.36) $(0.11) ------------------------------------------------------------------------- ------------------------------------------------------------------------- CPI Plastics Group Limited Consolidated Statement of Cash Flows (in thousands of dollars, unuadited) 3 months ended 6 months ended June 30, June 30, June 30, June 30, 2008 2007 2008 2007 ------------------------------------------------------------------------- Cash provided by (used in) Operating activities Net loss $(2,371) $(962) $(4,759) $(1,495) Items not affecting cash Amortization 2,379 2,538 4,746 4,805 Amortization of deferred gain on sale (14) (14) (28) (28) Future income taxes (16) (2,077) (786) (1,918) Stock based compensation 7 (193) 14 (168) Unrealized foreign exchange gain 5 (710) 128 (727) Utilization of trade credits 47 48 115 105 Write-down of unused trade credits 453 - 453 - Amortization of financing costs 60 - 90 - Interest expense added to principal of debt 331 148 595 148 Other liabilities 27 2 136 28 ------------------------------------------------------------------------- 908 (1,220) 704 750 Change in non-cash operating working capital (366) 886 (3,276) 3,905 ------------------------------------------------------------------------- 542 (334) (2,572) 4,655 ------------------------------------------------------------------------- Financing activities Repayment of bank indebtedness - (12,709) - (14,359) Advances on revolving credit facilities, net 628 13,702 4,865 13,702 Proceeds from term debt - 20,000 - 20,000 Proceeds from subordinated debt - 5,000 - 5,000 Repayment of term debt (447) (24,475) (743) (26,808) Financing costs (256) (527) (301) (627) Redemption of deferred share units - - - (53) ------------------------------------------------------------------------- ------------------------------------------------------------------------- (75) 991 3,821 (3,145) ------------------------------------------------------------------------- Investing activities Acquisition of property plant and equipment (840) (657) (1,610) (1,509) Repayment of mortgage receivable 373 - 373 - Increase in other assets - - (12) (1) ------------------------------------------------------------------------- (467) (657) (1,249) (1,510) ------------------------------------------------------------------------- Cash beginning of period - - - - ------------------------------------------------------------------------- Cash end of period - - - - ------------------------------------------------------------------------- ------------------------------------------------------------------------- Supplemental cash flow information: Income taxes paid 10 166 (114) 251 Interest paid 691 727 1,507 1,549 ------------------------------------------------------------------------- ------------------------------------------------------------------------- >>
%SEDAR: 00011090E
SOURCE: CPI Plastics Group Limited
Mr. J. David Wood, Executive Vice President, and Chief Financial Officer, (905) 795-5505
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