Mr. Stewart Emerson reports

SUPREMEX ANNOUNCES STRONG Q4 AND 2018 YEAR END RESULTS AND DECLARES REGULAR QUARTERLY DIVIDEND

Supremex Inc. has released its results for the fourth quarter and year ended Dec. 31, 2018, and declared a regular quarterly dividend.

Fourth quarter financial highlights and recent events:

• Revenue in the fourth quarter of 2018 was up by 9.7 per cent year over year, to $54.2-million from $49.4-million.
• Revenue from packaging and specialty products accounted for 29.2 per cent of sales, up from 26.2 per cent in the fourth quarter of 2017.
• Adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) stood at $8.1-million, compared with $8.0-million.
• Net loss of $12.4-million (or 44 cents per share) compared with net earnings of $2.3-million (or eight cents per share) primarily as a result of a $16.1-million non-cash goodwill impairment charge related to the envelope operations.
• Adjusted net earnings increased by 7.4 per cent to $4.7-million (or 17 cents per share), compared with $4.4-million (or 16 cents per share).
• The company announced and implemented a cost reduction plan to optimize envelope operations which resulted in an expense of $1.2-million and is expected to generate cost savings of approximately $2.7-million annually.
• The company approved a quarterly dividend of 6.5 cents per share, equivalent to the same period of last year.

Fiscal year financial performance highlights:

• Revenue in 2018 was up by 8.9 per cent year over year to $195.1-million from $179.1-million.
• Adjusted EBITDA increased to $26.8-million from $26.5-million.
• Net loss of $4.8-million (or 17 cents per share) compared with net earnings of $12.4-million (or 43 cents per share) primarily as a result of a $16.1-million non-cash goodwill impairment charge related to the envelope operations.
• Adjusted net earnings decreased by 4.2 per cent, to $14.1-million (or 50 cents per share), compared with $14.7-million (or 52 cents per share).
• The company declared a total of 26 cents per share in dividends, an increase of 6.1 per cent over the prior year.
• The company purchased 125,000 common shares for cancellation under the normal course issuer bid (NCIB) program, for total consideration of $431,840.

"During the fourth quarter, revenue and adjusted operating profitability improved both year over year and sequentially, reversing the trend experienced over the last few quarters. Strong growth from our packaging and U.S. envelope platforms continued to offset the effect of the secular decline on our Canadian envelope business," said Stewart Emerson, president and chief executive officer of Supremex.

"We are entering 2019 with growing demand in our packaging businesses, increased capacity and a stronger organization capable of extracting additional value from our 2016 to 2018 packaging acquisitions. With the Durabox move now complete and the integration of our most recent acquisition advancing well, we are well positioned for continued growth.

"On the envelope side of our business, as evidenced in our fourth quarter average selling prices, we continue to progress on passing through input cost inflation. To further improve operating profitability and efficiency in 2019, we are implementing the recently announced cost-cutting measures and are continually looking for opportunities to improve capacity allocation, raise our competitiveness and profitability. Envelope remains a very profitable part of our business and we intend to protect its contribution to our bottom line.

"As always, we reiterate our commitment to value creation by way of dividends and share buybacks when appropriate, while accelerating our diversification strategy to ensure long-term sustainable growth and profitability," concluded Mr. Emerson.

Summary of three-month period ended Dec. 31, 2018

Revenue for the three-month period ended Dec. 31, 2018, increased by 9.7 per cent or $4.8-million, reaching $54.2-million compared with $49.4-million during the three-month period ended Dec. 31, 2017. Revenue growth was experienced across all offerings, primarily from packaging and specialty products, which now represent 29.2 per cent of the company's revenues in the quarter, and from U.S. envelope sales.

Revenue from the Canadian envelope market grew to $25.8-million, an increase of 1.1 per cent or $300,000 from $25.5-million recorded during the fourth quarter of 2017. Volume declined by 7.4 per cent, primarily as a result of the combined effects of industry-wide secular decline, customer and contract movement, and the impact of Canada Post labour friction and eventual strike action. Average selling prices increased by 9.2 per cent following price increases required to offset input cost inflation. For reference, Canada Post transactional mail volumes were down 4.6 per cent during its third quarter ended Sept. 29, 2018.

Revenue from the U.S. envelope market grew to $12.6-million, an increase of 15.1 per cent or $1.6-million from revenue of $11.0-million in the fourth quarter of 2017. The volume of units sold increased by 3.5 per cent despite the impact of the expiration of a strategic production alliance. Average selling prices increased by 11.2 per cent, as a result of a combination of a more favourable product mix, increased prices implemented to mitigate rising input costs and from a favourable foreign exchange translation effect from a weaker Canadian dollar. For reference, the U.S. Postal Service first class mail volumes were down 3.6 per cent during their fiscal year ended Sept. 30, 2018.

Revenue from packaging products stood at $15.8-million, an increase of 22.2 per cent or $2.9-million from $12.9-million in the equivalent quarter of the prior year, primarily from the acquisition of G2 Printing and Pharmaflex, concluded on April 30, 2018, and from organic growth in folding carton.

Adjusted EBITDA stood at $8.1-million, an increase of $200,000 or 2.3 per cent compared with the fourth quarter of 2017. Solid growth in the U.S. envelope business in the fourth quarter of 2018 and selling price increases in the Canadian envelope market mitigated some of the effects of the inflationary pressures on input costs, mainly paper and transportation. Fourth quarter 2018 adjusted EBITDA margins stood at 15.1 per cent of revenues compared with 16.1 per cent in the equivalent quarter of 2017.

Net loss of $12.4-million (or 44 cents per share) for the three-month period ended Dec. 31, 2018, compared with net earnings of $2.3-million (or eight cents per share) for the equivalent period in 2017. Adjusted net earnings increased to $4.7-million (or 17 cents per share) for the three-month period ended Dec. 31, 2018, compared with $4.4-million (or 16 cents per share) for the equivalent period in 2017.

Summary of the 12-month period ended Dec. 31, 2018

Revenue for the 12-month period ended Dec. 31, 2018, increased by 8.9 per cent or $16.0-million, reaching $195.1-million compared with $179.1-million during the 12-month period ended Dec. 31, 2017. Revenue growth comes from packaging and specialty products, and to a lesser extent, from U.S. envelope sales.

Revenue from the Canadian envelope market was $94.8-million, a decrease of 7.2 per cent or $7.3-million from $102.1-million during the 12-month period of 2017. This variance comes from a reduction of 10.9 per cent in units sold primarily from the combined effects of industry-wide secular decline, contract and customer movement and the impact of Canada Post labour friction and eventual strike action. Average selling prices increased by 4.2 per cent reflecting inflation cost pass through. For reference, Canada Post transactional mail volumes were down 4.9 per cent during the first three quarters of 2018.

Revenue from the U.S. envelope market stood at $43.4-million, an increase of 2.5 per cent or $1.0-million from revenue of $42.4-million recorded during the equivalent 12-month period of 2017. The volume of units sold decreased by 4.0 per cent, primarily from the company's strategic decision not to renew an underpriced contract earlier in 2018 and the expiration of a strategic production alliance with a long-standing commercial partner. Average selling prices increased by 6.8 per cent, reflecting input cost inflation pass through and the impact of the aforementioned expiration of the strategic production alliance.

Revenue from packaging products stood at $56.9-million, an increase of 64.4 per cent or $22.3-million compared with the prior year, primarily resulting from the acquisitions of Stuart Packaging on a full-year effect, G2 Printing and Pharmaflex during the year, and from organic growth in packaging offerings.

Adjusted EBITDA stood at $26.8-million for the 12-month period ended Dec. 31, 2018, compared with $26.5-million for the equivalent period in 2017, representing an increase of 1.1 per cent. The positive EBITDA contribution from the company's packaging operations was mitigated by the loss of envelope volume in Canada combined with inflationary pressures on input costs, mainly paper and transportation. Adjusted EBITDA margins stood at 13.8 per cent compared with 14.8 per cent in the equivalent period of last year.

Net loss of $4.8-million (or 17 cents per share) for the 12-month period ended Dec. 31, 2018, compared with net earnings of $12.4-million (or 43 cents per share) for the equivalent period in 2017. Adjusted net earnings stood at $14.1-million (or 50 cents per share) for the 12-month period ended Dec. 31, 2018, compared with $14.7-million (or 52 cents per share) for the equivalent period in 2017.

Operating activities generated cash of $11.9-million during the 12-month period ended Dec. 31, 2018, compared with $15.9-million during the equivalent period of 2017, resulting mainly from lower net earnings, from inventory buildup related to the company's decision to invest in increasing Durabox's production capacity and from the increase in input costs.

Declaration of dividend

On Feb. 20, 2019, the board of directors declared a quarterly dividend of 6.5 cents per common share, payable on April 12, 2019, to the shareholders of record at the close of business on March 29, 2019. This dividend is designated as an eligible dividend for the purpose of the Income Tax Act (Canada) and any similar provincial legislation.

                 RECONCILIATION OF NET (LOSS) EARNINGS TO ADJUSTED EBITDA  
                                   (in thousands of dollars)

                                          Three-month periods        12-month periods
                                                ended Dec. 31           ended Dec. 31
                                             2018        2017        2018        2017

Net (loss) earnings                      ($12,426)     $2,262     ($4,793)    $12,391
Income tax expense                            607       1,015       4,075       4,656
Financing charges, net                        557         399       1,841       1,078
Depreciation of property,
plant and equipment                         1,286       1,025       4,295       3,713
Amortization of intangible assets             588         497       2,088       1,682
EBITDA (loss)                              (9,388)      5,198       7,506      23,520
Goodwill impairment                        16,137           -      16,137           -
Restructuring expenses                      1,219           -       1,219           -
Expense for contingent remuneration
related to business combinations                -         577       1,623         827
New Durabox facility start-up costs           180           -         333           -
Shutdown of non-core operations of
Printer Gateway                                 -       2,192           -       2,192
Adjusted EBITDA                             8,148       7,967      26,818      26,539

Conference call

A conference call to discuss the company's results for the fourth quarter and year ended Dec. 31, 2018, will be held on Feb. 21, 2019, at 10 a.m. Eastern Time. A live broadcast of the conference call will be available on the company's website, in the investors section under webcast.

To participate (professional investment community only) or to listen to the live conference call:

Local participants (Montreal area) dial 514-807-9895, North American participants dial toll-free 1-888-231-8191. A replay of the conference call will be available on the company's website in the investors section under webcast.

About Supremex

Supremex is a leading North American manufacturer and marketer of envelopes and a growing provider of paper-based packaging solutions. Supremex operates 12 facilities across seven provinces in Canada and three facilities in the United States employing approximately 810 people. Supremex's growing footprint allows it to efficiently manufacture and distribute paper and packaging solutions designed to the specifications of major national and multinational corporations, resellers, government entities, SMEs (small- and medium-sized businesses) and solutions providers.

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