TICKER SYMBOL: IFX.A
MONTREAL, Aug. 28, 2012 /CNW Telbec/ - Imaflex Inc. (the "Company") (TSXV: IFX.A) announces results for the quarter ended June 30, 2012.
(CDN $ thousands, except per share amounts)
|Q2 2012||Q2 2011||YTD 2012||YTD 2011|
|Cost of sales||10,640||9,740||21,128||22,083|
|Gross profit ($) (before amortization)||1,562||1,814||2,892||3,814|
|Gross profit (%)(before amortization)||12.8%||15.7%||12.0%||14.7%|
|Amortization of production equipment||264||239||518||485|
|Gross profit (%)||10.6%||13.6%||9.9%||12.9%|
|FX loss (gain)||(157)||79||(6)||193|
|Income (loss) before income taxes||235||225||178||520|
|Provision for income taxes||86||155||133||333|
|Net Income (loss)||149||70||45||187|
|Basic and diluted earnings (loss) per share||0.003||0.002||0.001||0.005|
The results include those of Imaflex Inc. ("Imaflex") located in Montréal (Québec), its divisions Canguard Packaging ("Canguard") and Canslit ("Canslit") located in Victoriaville (Québec), and its wholly owned subsidiary, Imaflex USA Inc. ("Imaflex USA") located in Thomasville (North Carolina).
Summary - Results of Operations
The second quarter results improved over the first quarter of 2012 and the Company returned to profitability despite difficult market conditions. Mulch film pricing was very competitive and the expectation of decreased polyethylene pricing continued to impact customer orders. Top line growth over the second quarter of 2011 did not translate to bottom line growth; however the Company expects that achievements in product and customer development should start yielding results in the third and fourth quarters.
Sales increased for the three months ended June 30, 2012 over 2011 mainly due to the acquisition completed during the first quarter contributing throughout the period. Sales from the acquired assets reached management's expectations for the first months. Other revenue streams remained relatively stable, although sales of metallized film decreased compared to 2011. The stronger US dollar had a minor impact on the increase in sales as did the average price of the film sold.
Sales for the six month period were lower than 2011 given the second quarter increase in sales was not sufficient to offset the weaker first quarter. Overall, the continued expectation of lower polyethylene prices caused our customers to avoid building up inventory in order to benefit from lower pricing in the future.
Gross profit margin
Gross profit before amortization decreased despite higher sales because part of the increase was driven by the business acquisition. These sales were less profitable than if they had come from existing business due to the additional operating costs of the new business. As the Company starts creating the expected synergies from the transaction and the expected growth in sales of the acquired assets' materializes, management expects to see higher profitability in the near future.
The lower gross profit before amortization for the six months ended June 30, 2012 is mainly explained by lower sales which, given the fixed portion of overhead expenses, lead to a lower gross profit. The higher amortization of production equipment further contributed to lowering the gross profit.
The lower income tax expense for the three months ended June 30, 2012 compared to 2011 is explained by the Company's lower taxable income for the period as well as the lower expense for deferred taxes. The tax expense as a percentage of profit before income taxes also decreased but remains higher than the Company's statutory tax rate due to losses in the Company's subsidiary located in the United States from which the Company is not benefiting.
For the six month period ended June 30, 2012, the lower income tax expense is mainly explained by the lower profit realized during the period compared to 2011.
The Company has an operating line of credit with its bankers to a maximum of $ 8,500,000 bearing interest at a rate of prime plus 2.30%. The line of credit is secured by trade receivables, inventories and property, plant and equipment. At June 30, 2012, the Company had drawn $ 6,562,183 on its line of credit ($ 5,627,248 as at December 31 2011). The Company's working capital position stayed relatively stable since December 31, 2011, going from $ 1,748,337 to $ 1,881,720. During the first quarter, it issued 1,935,485 units, each comprising of one class A share and one class A share purchase warrant entitling the holder to acquire one additional common share for $0.45, for a consideration of $735,484, of which $250,000 was received during the course of the fourth quarter of 2011. The Company also invested $ 989,500 in cash for the acquisition of operations in North Carolina during the first quarter. The Company incurred cash outflows during the quarter as it assumed several liabilities of the acquired business, although these were offset by cash inflows from the acquired customers. As the operations stabilize and profitability increases, the net cash flow is expected to increase. The Company's current capital structure should enable it to meet all of its short term obligations. Management continuously monitors its capital structure and considers the increase in indebtedness or the issuance of shares as possible options to optimize its capital structure.
Management is pleased to report that the results for the current quarter show that the longer term strategy of creating profitability is beginning to take effect. The results of the second quarter of 2012 are comparable to those of 2011 despite the increase in operating costs following the business acquisition. Management believes that the asset acquisition is contributing to the correction of the ongoing problems experienced since operations began in the US and has set the foundations on which to build a solid future. The focus for the remainder of the year remains to grow revenues in the US subsidiary to attain Imaflex USA's expected profitability.
Management feels very comfortable with the plan of action aimed at correcting the problems in its metallized film operations, which has continued to drag profits down in 2012. Management is busy creating the conditions that will recapture the revenues that were given up in order to permit a business model that will enable the Company to adapt to new market conditions and optimize the launch of new products. The team to lead this change and to launch the new products is being put in place and management is confident that once this is done, the division will quickly return to profitability.
Finally, management is also pleased to report that its preparations for the launch of its co-invented active ingredient products, for which it has filed a US patent application, is on schedule. During the second quarter, the active ingredient master batch, which when co-extruded to the surface of a film makes it capable of replacing the chemicals now used to help grow our food, was prepared for the product launch. Having produced this master batch, we are now in the position to schedule the manufacturing of the active ingredient film inventory during the third quarter. This film, which is registered under the trade mark name of Can-Shield, will be launched in the first quarter of 2013, as initially scheduled.
Safe Harbor Statement
Certain statements and information included in this release constitute "forward-looking statements". Such forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements expressed or implied in such forward-looking statements. Additional discussion of factors that could cause actual results to differ materially from management's projections, estimates and expectations is contained in the Company's other public filings. Unless otherwise required by the securities authorities, we do not undertake to update any forward-looking statements that may be made from time to time by us or on our behalf.
The Company's management uses a non-IFRS measure in this press release, namely EBITDA. Management wishes to specify that in the performance of the Company's financial results, EBITDA is shown as "Earnings before interest, taxes, non-controlling interest, depreciation and amortization". While EBITDA is not a standard IFRS measure, management, analysts, investors and others use it as an indicator of the Company's financial and operating management and performance. EBITDA should not be construed as an alternative to net income determined in accordance with IFRS as an indicator of the Company's performance. The Company's method of calculating EBITDA may be different from those used by other companies.
The TSX Venture Exchange has not reviewed and does not accept responsibility for the adequacy or accuracy of this release.
SOURCE IMAFLEX INC.