Supremex Inc. · TSX:SXP
Supremex — Q4 2022 Earnings Presentation
60 slides from Supremex's earnings presentation, February 2023
Slide 1: Investor Presentation
SupremeX (TSX: SXP.TO) INVESTOR PRESENTATION FEBRUARY 2023 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 share,
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 • Q4 2022 RESULTS • APPENDIX • Q4 & 2022 Supplemental Information • Reconciliatio
Slide 4: Investment Thesis
Investment Thesis • Building packaging platform in growing market • Leading Canadian envelope manufacturer and in the top 5 in North America • Strong customer relationships • Improved financial performance in the past 3 years • Solid cash flow generation • Experienced leadership team • Attractive va
Slide 5: Supremex Overview
TSX: SXP.TO SUPREMEX OVERVIEW INVESTOR PRESENTATION Feb 2023 5
Slide 6: Supremex at a Glance
SupremeX at a Glance Envelope #1 In Canada Packaging #1 Independent folding carton Top 5 in North provider in Quebec(1) America(1) 2022 REVENUE PACKAGING: $272M ~30%(2) CURRENT RUN RATE ENVELOPE: ~$350M ~70%(2) (1) Based on Management estimates (2) Based on current run rate SupremeX is a leading Nor
Slide 7: A 45-year History Of Growing By Acquisitions
A 45-year History Of Growing By Acquisitions • Founded in 1977 by four envelope industry executives • Acquired by private equity in 1990; sold to Cenveo in 1995 Focused on envelope manufacturing in Canada Diversifying by geography & product 1991 1994 1996 1998 2000 2001 2006 2007 2008 2010 2011 2014
Slide 8: Vast North American Network
Vast North American Network Location Type 1 Richmond, BC Envelope Canada 2 Winnipeg, MB Envelope Canada Envelope Canada & 3 Etobicoke, ON* Packaging 4 Mississauga, ON Envelope Canada 5 Concord, ON Envelope Canada Envelope Distribution 6 Moncton, NB Center Envelope Canada & 7 LaSalle, QC* Packaging 8
Slide 9: Experienced Leadership Team
Experienced Leadership Team 33 years of industry experience STEWART EMERSON Started at predecessor to Supremex in 1990. Previously VP and GM Central Region and Buffalo Envelope. President & CEO Responsible for leading many successful M&A integrations. Holds a Bachelor’s Degree in Business Administra
Slide 10: Improved Financial Performance
Improved Financial Performance Revenue (M$) Adjusted EBITDA (M$)(1) Net Earnings (M$) 272 28 57 226 39 205 16 195 192 33 27 25 7 7 2018 2019 2020 2021 2022 2018 2019 2020 2021 2022 2018 2019 2020 2021 2022 (5) (1) This is a non-IFRS financial measure. Non-IFRS financial measures do not have any stan
Slide 11: Historical Price Chart
Historical Price Chart (as of Feb. 17, 2023) Shares outstanding 26.0M Float 17.2M 2,000 $8 Average daily volume 46,646 $7.39 (52 weeks on TSX) 52 week (high-low) $7.89-$3.00 1,500 $6 Market capitalization $192M (in ‘000s of shares) 1,000 $4 500 $2 0 $0 Feb/18 Aug/18 Feb/19 Aug/19 Feb/20 Aug/20 Feb/2
Slide 12: Sustainability in Action
Sustainability in Action We take a leadership role in our industry by implementing several “green initiatives”. CARBON REDUCTION “PLEASE RECYCLE” WASTE RETROFIT PROGRAM PROGRAM MANAGEMENT LIGHTING • Manufacture as close to the end • Offer our customers the option to • Aim to reduce our waste within
Slide 13: Detailed Segment Overview
TSX: SXP.TO DETAILED SEGMENT OVERVIEW INVESTOR PRESENTATION Feb 2023 13
Slide 14: 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.” 2022 Revenue 2018-2022 Revenue Key Points • Optimal geographical network 200 • Leading player in
Slide 15: 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 according • Graphic arts services (basic design and creative Description customers for a variety of applications. Sto
Slide 16: 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 17: 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. 2018-2022 Revenue 2022 Revenue Key Points 72 69 • #1 independent folding ca
Slide 18: 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, booklets Description printed, laminated, cut, then shipping and reduce over & other inserts folded and glued p
Slide 19: 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 Packaging Revenue Contracts Supremex Edge Distribution(1) • Agreements vary according to the Proximity to customer base: 12% type of packaging and custo
Slide 20: The Market
TSX: SXP.TO THE MARKET INVESTOR PRESENTATION Feb 2023 20
Slide 21: 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 in the top five manufacturers in North America Canadian Envelope Market U.S. Envelope Market Market Size –Sales $115M(1) US$2.0B(2) Competitive Landscape • Supremex is a leading player
Slide 22: 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 decreased steadily declined over the past 5 years over the past 5 years, but at a lesser rate 59,821 3,205 CAGR: 57,466 3,018 CAGR: 55,626 (4.0%) (6.2%) (in millions of piec
Slide 23: The North American Packaging Market is Growing
The North American Packaging Market is Growing Growing e-commerce activity and sustainability trends support the expansion of paper packaging Paper Packaging Folding Carton Boxes Represents the largest subsector with approximately 34%(1) of the global consumer packaging The global folding carton pac
Slide 24: Package and Parcel Volume Trends in North America
Package and Parcel Volume Trends in North America Parcel volume in Canada has mostly Package & Parcel volume in the U.S. has steadily increased over the past 5 years increased over the past 5 years CAGR: CAGR: 8.1% 10.5% 7,530 389 7,276 (in millions of pieces) 361 (in million of pieces) 320 6,100 6,
Slide 25: Growth Strategy
TSX: SXP.TO GROWTH STRATEGY INVESTOR PRESENTATION Feb 2023 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 Royal Envelope Corporation
Acquisition of Royal Envelope Corporation Geographic and addressable market expansion in the United States Quick Facts Rationale Objective • Concluded on November 1, 2022 • Expands our reach in the fragmented • Grow our presence in the U.S. • A leading envelope manufacturer U.S. envelope market with
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 by 2025 3. Diversify into Paper-Based Packaging Focus on 3 Pillars of Growth MAKE ACQUISITIONS TO DEVELOP SCALE FOLDING CARTON • Build capacity closer
Slide 30: Acquisition of Impression Paragraph Inc.
Acquisition of Impression Paragraph Inc. Enhances folding carton offering to niche markets Quick Facts Rationale Objective • Concluded on January 16, 2023 • Brings critical mass to folding carton • Leverage know-how, capabilities • Integrated provider of paper- operations in Québec and strong custom
Slide 31: Financial Track Record
TSX: SXP.TO FINANCIAL TRACK RECORD INVESTOR PRESENTATION Feb 2023 31
Slide 32: Growing Revenues
Growing Revenues Successfully managing secular decline of Envelope Segment and diversification into Packaging Segment 272 226 72 CAGR: 205 195 192 179 69 15.8% 58 35 57 55 (in millions of $) 200 CAGR: 144 138 137 147 157 6.7% 2017 2018 2019 2020 2021 2022 Envelope Packaging Note: Totals may not add
Slide 33: Improving Adjusted EBITDA And Margin
Improving Adjusted EBITDA And Margin Focusing on operational leverage and extracting cost efficiencies 56.8 20.9% 17.2% 15.9% 39.0 13.7% 13.2% 32.5 28.4 26.8 25.2 (in millions of $) (in %) 10.4% 3.7% 15.8 7.0% 7.1 7.5 -4.8 3.7% 2018 2019 2020 2021 2022 -2.5% (1) Adjusted EBITDA (1) Net Earnings Adju
Slide 34: Generating Solid Cash Flows
Generating Solid Cash Flows Tight working capital management has significantly improved cash flow 37.0 34.4 30.0 26.1 26.9 24.4 20.2 (in millions of $) 14.1 11.9 7.6 2018 2019 2020 2021 2022 Cash Flows Related to Operating Activities Free Cash Flow (1) (1) This is a non-IFRS financial measure. Non-I
Slide 35: Optimizing Capital Allocation
Optimizing Capital Allocation Returning short term value to shareholders while investing in future growth 36.9 33.6 27.7 (in millions of $) 13.6 9.5 2018 2019 2020 2021 2022 Capex Acquisitions Dividends Share repurchases Growth investments $93.4M Return to shareholders $27.9M 2018 – 2022 2018 – 2022
Slide 36: Dividend Payments
Dividend Payments The Board reinstated the quarterly dividend in Q1-22 Dividend increased by 16.7% over the previous amount paid to $0.035 per share in February 2023; a 40% increase over the amount paid a year ago. $0.30 25.0% $0.26 $0.26 $0.25 20.0% Reinstated Q1-22 $0.20 (5 payments in 2022) 15.0%
Slide 37: Healthy Balance Sheet And Leverage Position
Healthy Balance Sheet And Leverage Position Debt reduction from strong cash flow generation Targeting a leverage ratio below 2.0x Total Debt Net Debt to Adj. EBITDA Ratio (1) 56.7 54.0 53.7 54.7 53.6 2.5x 53.4 52.5 51.2 2.1x 2.0x 44.6 2.0x 1.6x (in millions of $) 38.0 1.5x 1.0x 0.9x 1.0x 6.4 0.5x 3.
Slide 38: Q4-2022 Results
TSX: SXP.TO Q4-2022 RESULTS INVESTOR PRESENTATION Feb 2023 38
Slide 39: Q4-2022 Highlights
Q4-2022 Highlights • Solid Q4 results • 19.0% revenue growth, reaching $78.8M, including a $9.7M contribution from Royal Envelope • 12th consecutive quarter of year-over-year improvement in Adjusted EBITDA (1), which amounted to $15.3M, up 25.5% from $12.2M • Net earnings increased 36.0% to $6.7M, o
Slide 40: Solid Revenue Growth
Solid Revenue Growth Revenue (M$) Variance Analysis Highlights Envelope: $78.8 (+) Contribution from Royal Envelope $66.2 19.0% 18.1 (M$, except %) Envelope Packaging TOTAL (+) Higher average selling price 19.5 (+) More favourable customer and Q4-21 46.7 19.5 $66.2 product mix in U.S. Revenue (+) Fa
Slide 41: Improved Adjusted EBITDA YOY for the 12th Consecutive Quarter
Improved Adjusted EBITDA YOY for the 12th Consecutive Quarter Adjusted EBITDA (M$)(1) & margin (%) Net earnings (M$) Highlights 25.0 26.0% (+) Higher revenue 20.0 $15.3 $6.7 24.0% (+) Higher envelope average selling price 36.0% $12.2 25.5% 3.9 $4.9 15.0 22.0% (+) More favourable customer and 8.5% pr
Slide 42: Increased Net Earnings and Adjusted Net Earnings
Increased Net Earnings and Adjusted Net Earnings (1) Net earnings (M$) & EPS Adjusted net earnings(1) (M$) & per share(1) Elements $7.9 $6.7 Q4-22 $6.4 $0.31 Restructuring expenses $4.9 $0.26 Acquisition costs $0.24 $0.18 Q4-21 Asset impairment charge Q4-21 Q4-22 Q4-21 Q4-22 (1) This is a non-IFRS f
Slide 43: Healthy Cash Flow Generation
Healthy Cash Flow Generation Cash flow related to operating activities (M$) Free cash flow(1) (M$) Highlights $13.8 $12.3 $11.7 $10.2 (-) Higher working capital requirements due to an increase in inventories (+) Higher net earnings Q4-21 Q4-22 Q4-21 Q4-22 (1) This is a non-IFRS financial measure. No
Slide 44: Financial Positions Remains Very Solid
Financial Positions Remains Very Solid Total Debt (M$) Net Debt to Adj. EBITDA Ratio (1) Highlights 60.0 54.7 • Q4 increase in debt and 50.0 1.0x 1.0x 52.5 0.9x leverage reflects the Royal 44.6 44.8 40.0 Envelope acquisition 36.7 0.7x 41.7 33.1 0.6x • Debt repayment of 30.0 38.0 34.6 32.5 approx. $1
Slide 45: Outlook
Outlook • Positive factors • Operating at a high-capacity level given labor availability • Ability to manage input cost inflation • Strong team, broad product offering, geographical diversification, solid supplier relationships • Market conditions in the supply chain have returned to more normal lev
Slide 46: Appendix
TSX: SXP.TO APPENDIX INVESTOR PRESENTATION Feb 2023 46
Slide 47: Q4 & 2022 Supplemental Information - Summary
Q4 & 2022 Supplemental Information - Summary Selected Consolidated Financial Information Three-month periods Twelve-month periods (In thousands of dollars, except for margins) ended December 31 ended December 31 2022 2021 2022 2021 Revenue 78,761 66,203 272,467 226,430 Operating Expenses 52,430 44,7
Slide 48: Q4 & 2022 Supplemental Information - Segmentation
Q4 & 2022 Supplemental Information - Segmentation Selected Consolidated Financial Information Three-month periods Twelve-month periods (In thousands of dollars, except for margins) ended December 31 ended December 31 2022 2021 2022 2021 Segmented Revenue Envelope 60,686 46,650 200,318 157,195 Packag
Slide 49: Non-IFRS Financial Measures
Non-IFRS Financial Measures Non-IFRS Measure Definition EBITDA 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. The Company uses EBITDA to assess its performance.
Slide 50: Non-IFRS Financial Measures
Non-IFRS Financial Measures Non-IFRS Measure Definition Adjusted net earnings per Adjusted net earnings per share represents Adjusted net earnings divided by the weighted average number of common shares outstanding for the relevant period. share The Company uses Adjusted net earnings per share for p
Slide 51: Reconciliation of Non-IFRS Financial Measures
Reconciliation of Non-IFRS Financial Measures Reconciliation of Net Earnings to Adjusted EBITDA Three-month periods Twelve-month periods (In thousands of dollars, except for margins) ended December 31 ended December 31 2022 2021 2022 2021 Net Earnings 6,660 4,896 28,436 15,752 Income tax expense 2,3
Slide 52: Reconciliation of Non-IFRS Financial Measures
Reconciliation of Non-IFRS Financial Measures Reconciliation of Net Earnings to Adjusted Net Earnings Three-month periods Twelve-month periods (In thousands of dollars, except for per share amounts) ended December 31 ended December 31 2022 2021 2022 2021 Net Earnings 6,660 4,896 28,436 15,752 Adjust
Slide 53: Reconciliation of Non-IFRS Financial Measures
Reconciliation of Non-IFRS Financial Measures Reconciliation of Net Earnings to Adjusted EBITDA 2022 2021 2020 2019 2018 (In thousands of dollars, except for margins) Revenue 272,467 226,430 204,604 191,669 195,087 Net Earnings 28,436 15,752 7,495 7,088 (4,793) Income tax expense 9,657 5,301 2,789 3
Slide 54: Reconciliation of Non-IFRS Financial Measures
Reconciliation of Non-IFRS Financial Measures Reconciliation of Net Earnings to Adjusted Net Earnings 2022 2021 2020 2019 2018 (In thousands of dollars, except for per share amounts) Net Earnings 28,436 15,752 7,495 7,088 (4,793) Adjustments, net of income taxes Asset impairment - 1,535 2,051 - 16,1
Slide 55: Reconciliation of Non-IFRS Financial Measures
Reconciliation of Non-IFRS Financial Measures Reconciliation of Cash flows related to operating activities to Free Cash Flow 2022 2021 2020 2019 2018 (In thousands of dollars) Net cash flows related to operating activities 26,914 29,996 37,025 20,181 11,937 Acquisition (net of disposals) of property
Slide 56: Reconciliation of Non-IFRS Financial Measures
Reconciliation of Non-IFRS Financial Measures Reconciliation of Cash flows related to operating activities to Free Cash 2022 Q4-22 Q3-22 Q2-22 Q1-22 2021 Q4-21 Q3-21 Q2-21 Q1-21 Flow (In thousands of dollars) Net cash flows related to operating 26,914 11,739 4,538 10,426 211 29,996 13,821 6,738 4,90
Slide 57: Reconciliation of Non-IFRS Financial Measures
Reconciliation of Non-IFRS Financial Measures Net Debt to Adjusted EBITDA ratio (in thousands of dollars) Q4-2022 Q3-2022 Q2-2022 Q1-2022 Q4-2021 Total debt 54,748 33,053 36,673 44,878 44,529 Deferred financing costs (334) (342) (389) (141) (178) Cash (1,929) (205) (1,727) (3,050) (6,365) Net debt 5
Slide 58: Reconciliation of Non-IFRS Financial Measures
Reconciliation of Non-IFRS Financial Measures Net Debt to Adjusted EBITDA ratio (in thousands of dollars) 2022 2021 2020 2019 2018 Total debt 54,748 44,529 56,750 53,815 54,014 Deferred financing costs (334) (178) (307) (343) (120) Cash (1,929) (6,365) (3,036) (2,223) (309) Net debt 52,485 37,986 53
Slide 59: Acquisition Details
Acquisition Details Date Acquired Company Location Description January 16, 2023 Impression Paragraph Inc. Quebec Integrated provider of paper-based packaging, print and point of sale products. November 1, 2022 Royal Envelope Corporation Chicago, Illinois Envelope manufacturer and lithography company
Slide 60: Head Office
www.supremex.com Head Office [email protected] 7213 Cordner Street Tel: (514)-731-0000 extension 229 LaSalle, Quebec H8N 2J7