Intertape Polymer Group Inc., released results for the third quarter ended September 30, 2016.
Third Quarter 2016 Highlights (as compared to third quarter 2015):
Revenue increased 3.0% to $206.6 million primarily due to the non-recurrence of the South Carolina Commissioning Revenue Reduction(1) and additional revenue from the TaraTape acquisition, partially offset by a decrease in average selling price, including the impact of product mix. The Company estimates that its revenue was negatively impacted by the South Carolina Flood(2) by approximately $9.9 million, which is embedded in the changes in product mix and sales volume.Gross margin increased to 21.7% from 21.3% primarily due to the favourable impact of the Company's manufacturing cost reduction programs and an increase in the spread between selling prices and raw material costs, partially offset by the negative impact of the South Carolina Flood which the Company estimates to be approximately $7.0 million.Selling, general and administrative expenses ("SG&A") increased $9.4 million to $27.3 million primarily due to an increase in stock-based and variable compensation expense and a provision for the settlement of an outstanding litigation recorded in the third quarter of 2016.Net earnings decreased $9.4 million to $6.3 million primarily due to increases in SG&A and manufacturing facility closure charges, partially offset by a decrease in income tax expense and an increase in gross profit. The Company estimates that its net earnings for the third quarter of 2016 were negatively impacted by the South Carolina Flood by approximately $5.0 million.Adjusted net earnings* increased $7.0 million to $19.9 million primarily due to a decrease in income tax expense and an increase in gross profit, partially offset by an increase in SG&A. The Company estimates that its adjusted net earnings for the third quarter of 2016 were negatively impacted by the South Carolina Flood by approximately $4.3 million.Adjusted EBITDA* increased 1.6% to $27.2 million primarily due to an increase in gross profit, partially offset by an increase in SG&A. The Company estimates that its adjusted EBITDA for the third quarter of 2016 was negatively impacted by the South Carolina Flood by approximately $6.9 million.Cash flows from operating activities decreased by $12.1 million to $21.7 million and free cash flows* decreased by $14.0 million to $9.2 million. These decreases are primarily due to an increase in inventory mainly due to raw material purchases, and an increase in federal income taxes paid.
Other Announcements:
On September 16, 2016, the Company completed the purchase of 74% of the issued and outstanding shares in Powerband Industries Private Limited ("Powerband"), a global supplier of acrylic adhesive-based carton sealing tapes and stretch films located in Daman, India. The remaining 26% will continue to be held by the Desai family which founded the Company in 1994. The Powerband acquisition is intended to further extend the Company's product offering and presence in the global packaging market. Powerband generated approximately $32 million of revenue in its most recently completed fiscal year and it is expected that these acquired operations will be accretive to the Company's net earnings. The Company paid in cash, funded primarily from the Company's Revolving Credit Facility, a purchase price of $43.4 million, subject to a post-closing working capital adjustment.On October 19, 2016, the Company and its insurers reached a settlement for the outstanding property and business interruption insurance claims. Total proceeds, net of the applicable deductible, amount to approximately $29.5 million, of which the Company received $10.0 million to date. These proceeds cover substantially all of the claimed losses and are expected to result in a payment of $19.5 million to the Company in the fourth quarter of 2016, which will have a significant positive impact on net earnings.On November 10, 2016, the Board of Directors declared a quarterly cash dividend of $0.14 per common share payable on December 30, 2016 to shareholders of record at the close of business on December 15, 2016. These dividends will be designated by the Company as "eligible dividends" as defined in Subsection 89(1) of the Income Tax Act (Canada).
"We reported another solid quarter with an adjusted EBITDA of $27.2 million despite the ongoing negative impact of the South Carolina Flood estimated at $6.9 million for this quarter. We are very pleased with the performance of our operations as a whole," indicated Greg Yull, President and CEO.
"Duct tape production at the Blythewood facility is generating the anticipated cost savings.Masking tape production remains a challenge, but we are aggressively working to optimize the process and remain confident that results will improve incrementally over time.
However, it is uncertain if and when total project net savings estimated at approximately $13 million will be realized. Even with the ongoing challenges faced in the South Carolina Project, we strongly believe that this leap in technological capability in terms of production efficiency, capacity and environmental footprint will benefit our operations and competitive position in the long term. As such, we remain committed to the success of this project.
"Just over one year ago, the South Carolina Flood forced the closure of the Columbia facility resulting in a significant disruption to our business. As such, we have focused a lot of time and effort on servicing our customers and restoring our operations, while at the same time, expending considerable resources on the insurance claim process. This insurance claim process has now come to an end as we have reached a settlement for the outstanding property and business interruption insurance claims in October.
"We are very happy with the contribution from the Better Packages and TaraTape acquisitions completed last year. With the objective of driving incremental operational synergies, we plan to close the Fairless Hills, Pennsylvania facility of TaraTape with production being transferred to our Carbondale, Illinois and Danville, Virginia manufacturing facilities. As a result of the closure, we increased our expectation of total synergies from this transaction to be between $4 and $6 million of additional adjusted EBITDA by the end of 2017 from the previous estimate of between $2 and $4 million. During the quarter, we also completed the acquisition of 74% of Powerband in India.
This acquisition will allow us to become a greater participant in the global market as well as provide access to a low cost and high growth jurisdiction. Furthermore, we have approved a plan to invest approximately $20 million to expand capacity at the Powerband facility as well as the construction of additional capacity at a greenfield facility in India. Our aim is for the greenfield facility to be operational in 2018.