Supremex Inc. · TSX:SXP
Supremex — Q3 2024 Earnings Presentation
59 slides from Supremex's earnings presentation, November 2024
Slide 1: Investor Presentation November 2024
SupremeX (TSX: SXP.TO) INVESTOR PRESENTATION NOVEMBER 2024 1
Slide 2: Forward Looking Information
Forward Looking Information • This presentation contains “forward-looking information” within the meaning of applicable Canadian securities laws, including (but not limited to) statements about the EBITDA, Adjusted EBITDA, Adjusted EBITDA margin, Adjusted net earnings, Adjusted net earnings per shar
Slide 3: Agenda
Agenda • INVESTMENT THESIS • SUPREMEX OVERVIEW • DETAILED SEGMENT OVERVIEW • Envelope • Packaging & Specialty Products • THE MARKET • Envelope • Packaging & Specialty Products • GROWTH STRATEGY • FINANCIAL TRACK RECORD • Q3 2024 RESULTS • APPENDIX • Q3 Supplemental Information • Reconciliation of No
Slide 4: Investment Thesis
Investment Thesis • Building packaging platform in growing market niches • Leading Canadian envelope manufacturer and 2nd largest in North America • Strong customer relationships • Solid cash flow generation • Experienced leadership team • Attractive valuation 4
Slide 5: Supremex Overview
TSX: SXP.TO SUPREMEX OVERVIEW INVESTOR PRESENTATION November 2024 5
Slide 6: SupremeX at a Glance
SupremeX at a Glance Envelope #1 in Canada Packaging #1 Independent folding carton #2 in North America(1) provider in Quebec(1) PACKAGING: LTM REVENUE September 30, 2024 ~29% ENVELOPE: $284M ~71% (1) Based on Management estimates SupremeX is a leading North American manufacturer and marketer of enve
Slide 7: A 45-year History Of Growing By Acquisitions
A 45-year History Of Growing By Acquisitions • Founded in 1977 by four envelope industry executives • Acquired by private equity in 1990; sold to Cenveo in 1995 Focused on envelope manufacturing in Canada Diversifying by geography & product 1991 1994 1996 1998 2000 2001 2006 2007 2008 2010 2011 2014
Slide 8: Vast North American Network
Vast North American Network Location Type 1 Richmond, BC Envelope Canada ● 2 Winnipeg, MB Envelope Canada ● 3 Etobicoke, ON* Envelope Canada & Packaging ● 4 Mississauga, ON Envelope Canada ● 5 Concord, ON Envelope Canada ● 6 Moncton, NB Envelope Distribution Center ● 7 LaSalle, QC* Envelope Canada &
Slide 9: Experienced Leadership Team
Experienced Leadership Team 33 years of industry experience STEWART EMERSON Started at predecessor to Supremex in 1990. Previously VP and GM Central Region and Buffalo Envelope. President & CEO Responsible for leading many successful M&A integrations. Holds a Bachelor’s Degree in Business (Director
Slide 10: Recent Financial Performance
Recent Financial Performance Revenue (M$) Adjusted EBITDA (M$)(1) Net Earnings (M$) 28 302 57 284 16 17 272 49 39 7 226 36 33 205 2020 2021 2022 2023 LTM Q3-24 2020 2021 2022 2023 LTM Q3-24 (17) 2020 2021 2022 2023 LTM Q3-24* (1) This is a non-IFRS financial measure. Non-IFRS financial measures do n
Slide 11: Historical Price Chart
Historical Price Chart (as of October 30, 2024) Shares outstanding 24.6M 2,000 Float 15.5M $8 Average daily volume 27,084 (52 weeks on TSX) 1,500 52 week (high-low) $4.55-$3.40 $6 Market capitalization $99.7M $4.06 (in ‘000s of shares) 1,000 $4 500 $2 0 $0 Oct-19 Apr-20 Oct-20 Apr-21 Oct-21 Apr-22 O
Slide 12: Detailed Segment Overview
TSX: SXP.TO DETAILED SEGMENT OVERVIEW INVESTOR PRESENTATION November 2024 12
Slide 13: The Envelope Segment - Overview
The Envelope Segment - Overview The company utilizes an industry leading equipment base and platform to manufacture a broad range of stock and custom envelopes. “Everything in the letter carrier’s bag.” Q3-24 Revenue 2020-2024 Revenue Key Points 213 • Optimal geographical network 200 201 • Leading p
Slide 14: The Envelope Segment – Broad Products Offering
The Envelope Segment – Broad Products Offering Stock Envelopes Custom Envelopes Complementary Services Product A generic product that can be used by Custom envelopes are manufactured • Graphic arts services (basic design and creative Description customers for a variety of applications. according to
Slide 15: The Envelope Segment – Strong Customer Base
The Envelope Segment – Strong Customer Base Supplier to essential businesses and services Regional Envelope Revenue Contracts Supremex Edge Distribution(1) • The industry does not typically National footprint & local distribution: 11% enter into long-term agreements. • Local market intimacy Informal
Slide 16: The Packaging Segment - Overview
The Packaging Segment - Overview The company manufactures and distributes a diverse range of packaging and specialty products including high-end folding carton packaging, e-Commerce fulfillment packaging solutions and labels. Q3-24 Revenue 2020-2024 Revenue Key Points 89 83 • #1 independent folding
Slide 17: The Packaging Segment – Diversified Offering
The Packaging Segment – Diversified Offering Folding Carton E-commerce Specialty Products Product • Made of paperboard that is • Innovative products to optimize • Pressure sensitive labels, Description printed, laminated, cut, then shipping and reduce over booklets & other inserts folded and glued p
Slide 18: The Packaging Segment– Diversified Customer Base
The Packaging Segment– Diversified Customer Base Supplier to varied consumer staples and discretionary consumer end-markets. End-market Approximate Contracts Supremex Edge Packaging Revenue Distribution(1) 8% • Agreements vary according to the Proximity to customer base: type of packaging and custom
Slide 19: The Market
TSX: SXP.TO THE MARKET INVESTOR PRESENTATION November 2024 19
Slide 20: The North American Envelope Market is in Secular Decline
The North American Envelope Market is in Secular Decline Through internal growth and acquisitions, Supremex is now the second largest manufacturer in North America Canadian Envelope Market U.S. Envelope Market Market Size –Sales $125M(1) US$2.0B(2) Competitive Landscape • Supremex is a leading playe
Slide 21: Transaction Mail Volume Trends in North America
Transaction Mail Volume Trends in North America Transaction mail volume in Canada has First-class mail volume in the U.S. also steadily declined since 2019 decreased, but at a lesser rate 5-YR CAGR: 2,826 5-YR CAGR: 54,936 (4.3%) 2,540 (5.7%) 52,628 50,664 2,478 2,313 48,960 2,196 2,166 45,979 44,64
Slide 22: Marketing Mail Volume Trends in North America
Marketing Mail Volume Trends in North America Marketing mail volume in Canada Marketing mail volume in the U.S. historically contracted sharply due to COVID, but more stable, but affected by COVID, then by has been growing since then economic uncertainty since 2023 5-YR CAGR: 4,578 (1.1%) 75,653 5-Y
Slide 23: The Packaging Market is Growing
The Packaging Market is Growing Growing e-commerce activity and sustainability trends support the expansion of paper packaging Paper Packaging Folding Carton Boxes Market Size Largest subsector with approx. 34%(1) of the global consumer packaging market. Global folding carton packaging market valued
Slide 24: Package and Parcel Volume Trends in North America
Package and Parcel Volume Trends in North America Canada Post parcel volume is below the 2020-21 Even after the 2020-21 COVID-related spike, U.S. COVID-related spike, but has remained relatively Package & Parcel volume remains higher than 5 stable since years ago 389 5-YR CAGR: 5-YR CAGR: (2.2%) 3.4
Slide 25: Growth Strategy
TSX: SXP.TO GROWTH STRATEGY INVESTOR PRESENTATION November 2024 25
Slide 26: Executing on a Three-Pronged Growth Strategy
Executing on a Three-Pronged Growth Strategy Leverage our Envelope capacity, knowhow and cash flow to fund the pivot to packaging 1 2 3 Maintaining its leading Pursuing growth opportunities Building Supremex’ packaging position in the Canadian in the U.S. envelope market capabilities organically and
Slide 27: Maintaining Market-Leading Position in Canada and Diversifying in the U.S.
Maintaining Market-Leading Position in Canada and Diversifying in the U.S. Manage the secular decline in the Envelope segment by maintaining EBITDA and strong cash flow generation 1. Maintain Leading Position in Canada 2. Diversify into the U.S. Market • Have a disciplined approach to pricing • Take
Slide 28: Acquisition of Forest Envelope Group
Acquisition of Forest Envelope Group Synergistic tuck-in acquisition in the U.S. Mid-West Quick Facts Rationale Objectives • Concluded on May 1, 2024 • Excellent fit with current Midwest • Integrate operations within existing • Leading regional envelope operations facilities in the Greater Chicago a
Slide 29: Diversifying into Paper-Based Packaging in Canada & the U.S.
Diversifying into Paper-Based Packaging in Canada & the U.S. Accelerate diversification into high-value growth markets and execute pivot to Packaging 3. Diversify into Paper-Based Packaging Focus on 3 Pillars of Growth MAKE ACQUISITIONS TO DEVELOP SCALE FOLDING CARTON • Build capacity closer to the
Slide 30: Financial Track Record
TSX: SXP.TO FINANCIAL TRACK RECORD INVESTOR PRESENTATION November 2024 30
Slide 31: Growing Revenues
Growing Revenues Successfully managing secular decline of Envelope Segment and diversification into Packaging Segment 302 284 272 CAGR: 89 205 226 72 83 9.3% 192 69 58 (in millions of $) 55 CAGR: 157 200 213 201 8.4% 137 147 2019 2020 2021 2022 2023 LTM Q3-24 Envelope Packaging Note: Totals may not
Slide 32: Adjusted EBITDA and Margin
Adjusted EBITDA and Margin Focusing on operational leverage and extracting cost efficiencies 56.8 20.9% 17.2% 49.1 15.9% 16.3% 13.2% 39.0 36.4 32.5 28.4 25.2 12.8% (in millions of $) 15.8 17.3 10.4% 7.1 7.5 7.0% 5.7% 3.7% 3.7% (16.8) (5.9%) 2019 2020 2021 2022 2023 LTM Q3-24* (1) (1) Adjusted EBITDA
Slide 33: Generating Solid Cash Flows
Generating Solid Cash Flows Tight working capital management has significantly improved cash flow 43.9 40.0 37.0 37.7 38.1 34.4 30.0 26.1 26.9 (in millions of $) 24.4 20.2 14.1 2019 2020 2021 2022 2023 LTM Q3-24 Net cash flows related to operating activities Free Cash Flow (1) (1) This is a non-IFRS
Slide 34: Optimizing Capital Allocation
Optimizing Capital Allocation Returning short term value to shareholders while investing in future growth 40.2 36.4 33.6 (in millions of $) 13.2 9.4 9.8 2019 2020 2021 2022 2023 YTD Q3-24 (2) (1) Capex Acquisitions Dividends Share repurchases Growth investments $109.9M Return to shareholders $32.6M
Slide 35: Dividend Payments
Dividend Payments Quarterly dividend reinstated in Q1-22; increased four times since then; Current payment is 5 cents per share ($0.20 annually); Increased in November 2024, annual payout represents 10.2% of trailing 12-month free cash flow; Reinstated Q1-22 Suspended the (5 payments in 2022) divide
Slide 36: Healthy Balance Sheet And Leverage Position
Healthy Balance Sheet And Leverage Position Historically, debt has been reduced through a Targeting a leverage ratio below 2.0x strong cash flow generation Total Debt Net Debt to Adj. EBITDA Ratio (1) 2.5x 56.7 54.7 56.8 53.7 56.8 2.0x 2.0x (in millions of $, except ratios) 49.6 49.1 55.4 51.2 51.2
Slide 37: Q3-2024 Results
TSX: SXP.TO Q3-2024 RESULTS INVESTOR PRESENTATION November 2024 37
Slide 38: Q3-2024 Highlights & Recent Events
Q3-2024 • Revenue of $69.4M, relatively stable compared to $69.8M last year. Highlights & • Adjusted EBITDA(1) of $7.9M (11.4% of revenue), vs. $11.7M (16.8% of revenue) last year. Recent Events • Non-cash asset impairment of $23.3 million, mainly for goodwill in Packaging & Specialty products. • Ne
Slide 39: Revenue Overview
Revenue Overview Revenue (M$) Y/Y Variance Analysis Highlights $69.8 $69.4 Envelope: (M$, except %) Envelope Packaging TOTAL (-) Lower average selling price from less 20.5 21.9 favourable product and customer mix Q3-23 49.3 20.5 $69.8 in U.S. operations Revenue Volume 6.6% - - (+)Higher volume refle
Slide 40: Adjusted EBITDA and Net Earnings
Adjusted EBITDA(1) and Net Earnings Adjusted EBITDA (M$)(1) & margin (%)(1) Net earnings (M$) & margin 12.0 $11.7 0.5 24.0% $7.9 1.7 22.0% 2.5 20.0% $5.0 18.0% 16.8% 7.2% 7.0 16.0% 14.0% 11.4% 12.0% 9.5 7.9 10.0% 2.0 8.0% (33.2%) 6.0% 4.0% ($23.0) (2.5) 2.0% Q3-23 Q3-24* Q3-23 Q3-24 -3.0 Envelope Pa
Slide 41: Net Earnings and Adjusted Net Earnings
Net Earnings and Adjusted Net Earnings(1) Net earnings (M$) & EPS Adjusted net earnings(1) (M$) & per share(1) Q3 Elements $5.0 $4.0 2024: $0.19 - Asset impairment $0.16 ($0.92) - Restructuring expenses $1.0 2023: - COVID-related ($23.0) $0.05 subsidies Q3-23 Q3-24* Q3-23 Q3-24 * Includes a $23.3 mi
Slide 42: Cash Flow from Operating Activities and Free Cash Flow
Cash Flow from Operating Activities and Free Cash Flow (1) Net Cash flow related to operating activities (M$) Free cash flow(1) (M$) Highlights $11.5 $11.6 (-) Lower profitability $7.6 $7.4 (+) Higher cash generation from working capital Q3-23 Q3-24 Q3-23 Q3-24 (1) This is a non-IFRS financial measu
Slide 43: Solid Financial Position
Solid Financial Position Total Debt (M$) Net Debt to Adj. EBITDA Ratio (1) Highlights 2.5x Forest Envelope 69.2 • Q3 debt decrease reflects (in millions of $, except ratios) 56.8 54.9 2.0x free cash flow generation 51.8 68.1 55.5 68.1 49.6 (1)49.1 1.5x 53.7 (in millions of $) 55.4 53.7 50.4 55.4 40.
Slide 44: Outlook
Outlook Positive factors • Financial position and cash flow are strong • Strong team, broad product offering, geographical diversification, solid supplier relationships Short-term concern • Pace of recovery is slower than expected in industries served Priorities • Capture all sales and cost synergie
Slide 45: Appendix
TSX: SXP.TO APPENDIX INVESTOR PRESENTATION November 2024 45
Slide 46: Q3 Supplemental Information - Summary
Q3 Supplemental Information - Summary Selected Consolidated Financial Information Three-month periods Nine-month periods (In thousands of dollars, except for margins) ended September 30 ended September 30 2024 2023 2024 2023 Revenue 69,355 69,798 211,960 229,886 Operating expenses 50,575 49,651 153,
Slide 47: Q3 Supplemental Information - Segmentation
Q3 Supplemental Information - Segmentation Selected Consolidated Financial Information Three-month periods Nine-month periods (In thousands of dollars, except for margins) ended September 30 ended September 30 2024 2023 2024 2023 Segmented Revenue Envelope 47,475 49,292 150,367 162,994 Packaging & s
Slide 48: Non-IFRS Financial Measures
Non-IFRS Financial Measures Measure Definition EBITDA represents earnings before net financing charges, income tax expense, depreciation of property, plant and equipment and right-of-use assets and amortization of intangible assets. EBITDA The Company uses EBITDA to assess its performance. Managemen
Slide 49: Reconciliation of Non-IFRS Financial Measures
Reconciliation of Non-IFRS Financial Measures Reconciliation of Net (loss) earnings to Adjusted EBITDA Three-month periods Nine-month periods (In thousands of dollars, except for margins) ended September 30 ended September 30 2024 2023 2024 2023 Net (loss) earnings (23,038) 5,001 (17,562) 16,610 Inc
Slide 50: Reconciliation of Non-IFRS Financial Measures
Reconciliation of Non-IFRS Financial Measures Reconciliation of Net (loss) earnings to Adjusted net earnings and Three-month periods Nine-month periods of Net (loss) earnings per share to Adjusted net earnings per share ended September 30 ended September 30 (In thousands of dollars, except for per s
Slide 51: Reconciliation of Non-IFRS Financial Measures
Reconciliation of Non-IFRS Financial Measures Reconciliation of Net (loss) earnings to Adjusted EBITDA LTM Q3-24 2023 2022 2021 2020 2019 (In thousands of dollars, except for margins) Revenue 284,261 302,187 272,467 226,430 204,604 191,669 Net (loss) earnings (16,838) 17,334 28,436 15,752 7,495 7,08
Slide 52: Reconciliation of Non-IFRS Financial Measures
Reconciliation of Non-IFRS Financial Measures Reconciliation of Net (loss) earnings to Adjusted net earnings and of Net (loss) earnings per share to Adjusted net earnings LTM Q3-24 2023 2022 2021 2020 2019 per share (In thousands of dollars, except for per share amounts) Net (loss) earnings (16,838)
Slide 53: Reconciliation of Non-IFRS Financial Measures
Reconciliation of Non-IFRS Financial Measures Reconciliation of Net cash flows related to operating activities to Free Cash Flow LTM Q3-24 2023 2022 2021 2020 2019 (In thousands of dollars) Net cash flows related to operating activities 37,700 43,899 26,914 29,996 37,025 20,181 Acquisitions (net of
Slide 54: Reconciliation of Non-IFRS Financial Measures
Reconciliation of Non-IFRS Financial Measures Reconciliation of Net cash flows related to operating activities Q3-24 Q2-24 Q1-24 2023 Q4-23 Q3-23 Q2-23 Q1-23 2022 Q4-22 Q3-22 Q2-22 Q1-22 to Free Cash Flow (In thousands of dollars) Net cash flows related to 7,568 10,222 5,096 43,899 14,814 11,538 10,
Slide 55: Reconciliation of Non-IFRS Financial Measures
Reconciliation of Non-IFRS Financial Measures Net Debt to Adjusted EBITDA ratio (in thousands of dollars) Q3-24 2023 2022 2021 2020 2019 Total debt 49,619 56,766 54,748 44,529 56,750 53,815 Deferred financing costs (158) (256) (334) (178) (307) (343) Cash (3,193) (1,066) (1,929) (6,365) (3,036) (2,2
Slide 56: Reconciliation of Non-IFRS Financial Measures
Reconciliation of Non-IFRS Financial Measures Net Debt to Adjusted EBITDA ratio (in thousands of dollars) Q3-2024 Q2-2024 Q1-2024 Q4-2023 Q3-2023 Total debt 49,619 51,833 54,877 56,766 69,163 Deferred financing costs (158) (186) (203) (256) (309) Cash (3,193) (1,279) (1,006) (1,066) (791) Net debt 4
Slide 57: Reconciliation of Non-IFRS Financial Measures
Reconciliation of Non-IFRS Financial Measures Reconciliation of EBITDA and Adjusted Sep.30 Jun.30 Mar.31 Dec.31 Sep.30 Jun.30 Mar.31 Dec.31 EBITDA for the past eight quarters 2024 2024 2024 2024 2023 2023 2023 2022 (In thousands of dollars, except for margins) Net (loss) earnings (23,038) 1,980 3,49
Slide 58: Acquisition Details
Acquisition Details Date Acquired Company Location Description May 1, 2024 Forest Envelope Group Bolingbrook, Illinois Specialty envelope manufacturer May 8, 2023 Graf-Pak Inc. Quebec Provider of folding carton packaging solutions January 16, 2023 Impression Paragraph Inc. Quebec Integrated provider
Slide 59: Head Office and Contact
www.supremex.com Head Office [email protected] 7213 Cordner Street Tel: (514)-731-0000 extension 229 LaSalle, Quebec H8N 2J7