Packaging

Intertape Polymer Group Reports Strong Second Quarter Results

Friday 15. August 2008 - - Net earnings reach $0.08 per share - Sales increase 5.6% to $197.5 million - Higher selling prices implemented for majority of Intertape's products

Intertape Polymer Group Inc. (TSX:ITP)(NYSE:ITP) (“Intertape” or the “Company”) today released results for the second quarter and six months ended June 30, 2008. All dollar amounts are US denominated unless otherwise indicated.

Intertape Executive Director, Melbourne F. Yull stated: “Intertape has posted strong second quarter results, despite the current difficult North American economic environment and unprecedented increases in commodity prices. Since the beginning of the year, resin-based raw material prices alone have increased the Company’s cost of goods sold by approximately $6.2 million. Higher prices for oil and natural gas have resulted in increased energy and transportation expenditures and cost the Company an additional $2.8 million during the first six months. The Company has been successful in recovering much of these increases through a disciplined approach to instituting higher selling prices for its tape and engineered coated products, which comprise the majority of our revenues. Market conditions have limited our ability to recover cost increases for film products. In addition, a reduction in finished goods inventories resulted in significantly higher than the norm unabsorbed manufacturing costs being expensed during the quarter.”

Earnings

Net earnings for the second quarter of 2008 were $4.6 million or $0.08 per share. This compares with a net loss of $8.1 million or $0.20 per share, and on an adjusted basis, a net loss of $4.3 million, or $0.10 per share for the second quarter of 2007.

Net earnings for the six months of 2008 totaled $2.8 million or $0.05 per share compared to a net loss of $8.6 million or $0.21 per share for the corresponding period in 2007.

Sales

Second quarter sales increased 5.6% to $197.5 million from $187.1 million for the same quarter last year, and improved 7.1% over first quarter 2008 sales of $184.5 million. Year-over-year sales volume (units) was down 2.5% due to a decline in commercial activity within key markets of the Company’s Engineered Coated Products (ECP) Division, but were up 6.8% over the first quarter this year.

Six month sales totaled $382.0 million compared to $373.9 million for the same period in 2007, an increase of 2.2%. First half sales volume (units) decreased 4.6%. The year-over-year revenue increase for the first six months is due to increased selling prices in response to rising resin-based raw material costs, offset in part by declines in demand within key markets of the Company’s ECP Division and overall slower economic growth in the first half of 2008.

Gross profit and gross margin

Gross profit for the second quarter was $26.4 million at a gross margin of 13.3%, compared to gross profit of $28.8 million for the second quarter of 2007 at a gross margin of 15.4%. Gross profit for the first quarter this year was $28.2 million at a gross margin of 15.3%. Margins declined in the second quarter due to rising resin-based raw material costs and competitive pressures in key markets for the Company’s film products which limited its ability to recover the cost increases through higher selling prices. Second quarter gross margins were also impacted by a reduction in finished goods inventories, resulting in higher unabsorbed manufacturing costs being expensed. Competitive pressures on pricing for film products were less restrictive in the first quarter than they were in the second quarter. Additionally, the Company’s unabsorbed manufacturing expenses were lower in the first quarter as the Company increased finished goods inventories during the period.

The gross profit and gross margin for the first six months of 2008 were $54.5 million and 14.3% respectively, compared to $56.7 million and 15.2% for the first six months of 2007.

SG&A expenses

Second quarter selling, general and administrative expenses (SG&A) were $17.2 million (8.7% of sales), compared to $16.7 million for the second quarter of 2007 (8.9% of sales). For the six month period, SG&A expenses were $34.8 million (9.1% of sales), unchanged despite slightly higher sales, compared to $35.0 million (9.4% of sales) for the same period in 2007.

Total interest expense for the second quarter was $4.3 million compared to $6.1 million for the second quarter last year.

EBITDA

The Company’s EBITDA in the second quarter 2008 totaled $16.0 million compared to $14.4 million in the second quarter last year and for the first six months $33.5 million and $28.9 million respectively.

Segmented Information

Tapes & Films Division

Sales for the Tapes and Films (T&F) Division for the second quarter totalled $159.5 million, an 8.5% increase compared to $147.0 million for the second quarter of 2007 and were up 7.3% over the first quarter this year. Second quarter sales volumes (units) increased 0.9% compared to the second quarter of 2007 and 7.4% compared to the first quarter of 2008. The second quarter results are attributable to stronger sales demand compared to the first quarter. The T&F Division was successful in implementing selling price increases for tape products but competitive pressures limited its ability to increase selling prices for film products.

Six month sales were $308.2 million compared to $298.1 million for the first six months of 2007, an increase of 3.4%. Sales volumes for the first six months declined 3.2% compared to the first six months of 2007.

Gross profits for the second quarter totalled $22.8 million at a gross margin of 14.3% compared to $25.0 million at a gross margin of 17.0% for the second quarter of 2007 and $23.8 million at a gross margin of 16.0% for the first quarter of 2008. Second quarter gross profit and gross margin declines were due in part to rising resin-based raw material costs as well as higher transportation and energy costs. Finished goods inventory reductions during the second quarter resulted in higher unabsorbed manufacturing costs being expensed during the quarter.

Gross profits and gross margins for the six months compared to the six months a year ago were $46.6 million (15.1%) and $49.6 million (16.6%), respectively. The decrease in gross profits and gross margins for the first six months were primarily due to the decline in sales volume and the resulting decrease in production levels that resulted in increased unabsorbed manufacturing costs. Contributing to the decrease in gross profits and gross margin was the inability to raise selling prices, principally for film products, to a level that would recover the cost increases described above.

The T&F Division’s EBITDA for the second quarter was $15.2 million compared to $17.7 million for the second quarter of 2007 and $16.1 million for the first quarter of 2008. EBITDA for the six months of 2008 and 2007 was $31.3 million and $34.5 million, respectively. The declines in reported EBITDA for the second quarter of 2008 and the six months ended June 30, 2008 are attributable to the decreases in gross profits.



Tapes and Films Division EBITDA Reconciliation to Net Earnings
(in millions of US dollars)


Three months Six months
For the periods ended June 30, 2008 2007 2008 2007
————————————————————————–
$ $ $ $


Divisional earnings before
income taxes 8.0 10.6 16.7 19.9
Depreciation and amortization 7.2 7.1 14.6 14.6
————————————————————————–
EBITDA 15.2 17.7 31.3 34.5
————————————————————————–
————————————————————————–
EBITDA margin 9.5% 12.1% 10.1% 11.6%
————————————————————————–
————————————————————————–





Engineered Coated Products Division

Sales for the Engineered Coated Products (ECP) Division for the second quarter were $38.0 million compared to $40.1 million for the second quarter of 2007 and increased 6.1% compared to the first quarter this year. Sales volumes decreased 15.1% for the second quarter compared to the second quarter a year ago and were up 4.0% over the first quarter. The year-over-year unit decline was mitigated by selling price increases and product mix changes. The quarter-over-quarter sales volume increase was primarily due to seasonal improvement in the sale of products to the residential construction and agriculture markets.

Sales for the first six months totalled $73.8 million compared to $75.8 million for the first six months of 2007, a 2.6% decrease. Sales volumes for the first six months declined 10.1% compared to the first six months of 2007. The decline in sales volumes is due to the decline in sales of products to the residential construction market.

ECP Division gross profits for the second quarter totalled $3.5 million at a gross margin of 9.2% compared to $3.9 million at a gross margin of 9.6% for the second quarter of 2007 and $4.4 million at a gross margin of 12.3% for the first quarter of 2008. The second quarter gross profit and gross margin decrease resulted from an increase in unabsorbed manufacturing costs and the cost of relocating the production of some products between manufacturing facilities to improve manufacturing efficiencies.

Gross profits and gross margins for the six months of 2008 and 2007 were $7.9 million (10.7%) and $7.2 million (9.4%) respectively. The gross profit and gross margin improvement for 2008 resulted from increased selling prices and improved product mix. Results for all periods reported reflect the continued softness in the residential construction market.

EBITDA for the second quarter was $1.5 million compared to $2.1 million for the second quarter of 2007 and $2.2 million for the first quarter of 2008. The EBITDA decline in the second quarter is due to the lower gross profits discussed above.

EBITDA for the six months of 2008 and 2007 were $3.7 million and $3.3 million, respectively. The improvement in EBITDA for 2008 is due to increased selling prices and improved product mix.



ECP Division EBITDA Reconciliation to Net Earnings
(in millions of US dollars)


Three months Six months
For the periods ended June 30, 2008 2007 2008 2007
————————————————————————–
$ $ $ $


Divisional earnings before
income taxes 0.1 0.7 0.8 0.7
Depreciation and amortization 1.4 1.4 2.9 2.6
————————————————————————–
EBITDA 1.5 2.1 3.7 3.3
————————————————————————–
————————————————————————–
EBITDA margin 3.9% 5.2% 5.1% 4.3%
————————————————————————–
————————————————————————–





Cash flow from operations

Cash from operations before changes in non-cash working capital items was $12.2 million for the second quarter of 2008, compared to $6.0 million for the second quarter of 2007, the result of improved profitability. Included in the second quarter of 2007 is approximately $4.4 million related to the strategic alternatives process and other charges. Changes in non-cash working capital items used $9.9 million in cash flows for the three months ended June 30, 2008 compared to using $0.1 million during the same period in 2007. This quarter’s greater use of cash flows stems from increased trade receivables and inventories slightly mitigated by increased accounts payable and accrued liabilities. As a result, operating activities in the second quarter of 2008 provided cash of $2.3 million compared to $5.9 million a year earlier.

For the first six months of 2008, cash from operations before changes in non-cash working capital items was $21.7 million compared to $13.8 million a year prior. Changes in non-cash working capital items used $22.3 million in cash flows compared to using $1.6 million in cash in 2007. As a result, operating activities in the first half of 2008 used cash of $0.6 million compared to providing $12.2 million in 2007.

Income taxes

In the second quarter of 2007, the Company recorded a $6.3 million increase to its income tax asset valuation allowance reflecting the expectation that certain Canadian net operating losses expiring in 2008 would not be realized. Due to improvement in the financial performance of the Company’s ECP business based in Truro, Nova Scotia, the Company expects to be able to take advantage of certain income tax planning strategies. This will allow Intertape to retain a portion of the value of the expiring losses. Accordingly, an initial $2.0 million reduction in the Company’s income tax asset valuation allowance is included in earnings for the second quarter of 2008.

Outlook

“Cost reduction programs such as direct shipments to customers and improvements in product conversion costs have mitigated the adverse impact of unrecovered raw material price increases and higher energy and transportation costs on the Company’s gross profits during the first half. We will continue to be vigilant in these areas as further increases are likely. Intertape will also continue its disciplined approach to selling price increases. Further, the Company is implementing certain initiatives which should benefit our profitability going forward,” stated Mr. Yull.